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Hey Los Angeles: Customers Pay for Airports Improvements Regardless of How They're Structured

By Brett Snyder

Updated on: November 25, 2009 / 10:04 AM EST / MoneyWatch

I noticed recently that the Los Angeles City Council voted to support increasing the maximum allowable passenger facility charge (PFC) from $4.50 to $7.50. Now, Councilmembers, I don't expect you to be experts in the world of airports, so let me give you an opinion that differs from what your airport folks are telling you. This isn't going to do much good.

I suppose the first reason this won't do any good is that the Council has absolutely no say in this matter at all. They just want to show their support because they think it's a way to pay off the facility. That it is, but that doesn't mean it's like getting free money.

Here's how these things work. When an airport like LAX builds a new terminal (or completely redoes an old one as they're doing with the Bradley Terminal), that costs a fair amount of money. The airport has to recoup that money and there are a couple ways to do it.

Increase fees for airlines - The easiest way to pay off an improvement is to simply raise the rates charged to airlines. This can't be done until the new facility opens, but once that happens, rates can go up. Of course, when rates go up to airlines, the airlines either have to pass that along to the customer or start pruning flights that were previously barely above breakeven. With the new costs, they won't be worth running
Charge a PFC - Nearly 20 years ago, the government started letting airports charge money directly to passengers to help pay for infrastructure improvements. Originally the cap was $3, then it went to $4.50, and now some airports, and apparently the LA City Council, want to see the cap go to $7.50. So the passenger has to pay for that.

As you can see, in the end the passenger is the one who pays for it. The former is a lot less popular because the airlines can fight back and raise hell to avoid having to pay more. The latter is easier because customers don't band together to fight it. But they end up paying for it.

The biggest problem with the PFC increase is that it can be taken advantage of. Maybe an airport like LAX has a good reason for it, but others might find questionable ways to use this stuff. It's incredibly rare to see the government deny the right to charge a PFC, so airports jump at the chance.

See, airports often look at this as "free money." Michael Molina, LAX's senior director of external affairs was quoted as saying:

Hiking the passenger facility charge could generate an additional $60 million alone for LAX and help defray some of the costs for a massive overhaul at the world's sixth-busiest airport.

Yeah, sure it does. Then the airports can feel good that they haven't had to raise costs to the airlines as much. But guess what, when those PFCs go up, so does the fare paid by the customer. And when that happens, demand goes down. So no matter how airports handle this, the threat is there that they will lose service.

The best way to solve this problem? Build things as efficiently and inexpensively as possible without sacrificing quality. Yes, charges will go up, but if they're reasonable, there will be far less complaining. Nobody argues that the Bradley Terminal needs to be basically rebuilt, but there are a lot of ways to do that.