The U.S. Government Accountability Office (GAO) last month issued a report that examined the effect that rising fuel prices have had on civil aviation in the U.S. The government’s interest lies in the excise taxes imposed on the sale of aviation fuel and their contribution to the Airport and Airway Trust Fund, which was created in 1970 as a dedicated source of funding for the nation’s aviation system including the FAA’s capital improvement programs and a sizable portion of the agency’s operating budget. The GAO analysis attempted to assess the effect that future price increases would have on the fund over the next decade.
According to the report, between 2002 and 2013, the price of jet-A more than quadrupled from $0.72 a gallon to $3.10 a gallon, while avgas prices rose from $1.29 a gallon to $3.93 a gallon during the same period. While the majority of the report focused on the much greater impact on the commercial aviation industry (which supplies approximately 90 percent of the trust fund revenues), the watchdog agency’s report queried aviation associations such NBAA, the Aircraft Owners and Pilots Association (AOPA), the General Aviation Manufacturers Association (GAMA) and the National Air Transport Association (NATA) as well as government officials for their assessment of the price increase’s effect on the general aviation industry.
They view the price increases as major contributing factor in the decline in GA flight activity, which has had a knock-on effect for GA airports and associated industries such as aircraft fueling and flight training. NATA reported that the number of FBOs fell from 3,400 nationwide in 2007 to less than 2,900 in 2012, a period that also coincided with the worldwide economic slump.
The rising fuel prices were also credited with the increase in the number of FBO networks as operators sought to pool resources to increase purchasing and negotiating power with fuel suppliers. NATA also believes that the fuel price increase, in concert with the weak economy, has caused more owners to keep their old aircraft longer, resulting in increased opportunities for maintenance providers.
GAMA explained that fuel prices are the second most important factor in the level of aircraft sales, trailing only the health of the economy.
The report stated that while the airlines have attempted to counter the fuel price hikes with strategies such as retiring older, less fuel-efficient aircraft and increasing ticket prices, many are now charging separate ancillary fees for services formally supplied free of charge, such as checked baggage, food and extra legroom. The study found that in 2002 such fees equaled one percent of airline revenues; that number grew to 4 percent by 2013. Airlines are also using fuel hedging, involving different contract structures designed to provide more certainty over the future costs of fuel.
Based on its analysis with input from the FAA, the GAO predicted that the trust-fund revenues would likely continue to grow through 2024, even if in the worst-case hypothetical scenario, fuel prices increased by 200 percent over their 2010 levels.
