National carriers balk at proposed increase in Alaska jet fuel tax

After cruising for decades on high oil prices, the state of Alaska is scrambling to make up budget shortfalls by introducing a bill that would triple the state tax on jet fuel, sparking predictable dismay from several U.S.-based carriers that use Anchorage as a major trans-shipment hub on long-haul routes.

Alaska Airlines, Delta Airlines and UPS have all publicly come out in opposition of the bill, pointing to their extant landing fees, and arguing that the additional revenue would go to airports that don’t even charge landing fees.

UPS_Boeing_747_landing_in_Anchorage,_Alaska

A UPS 747 landing in Anchorage, Alaska

According to adn.com, expected tax revenue in Alaska only covers about 25 percent of the existing state budget, which is contributing to a deficit estimated to exceed US$4 billion this year. Because state residents are unaccustomed to paying state taxes and have grown accustomed to hefty subsidies, Alaska Governor Bill Walker is responding with a slew of proposals, including raising the state’s jet fuel tax from 3.2 cents to 10 centers per gallon by 2018.

Anchorage, which used to be considered little more than a refueling stopover airport, has recently emerged as a major trans-shipment location for carriers such as UPS, FedEx and others. These carriers can reach the Alaskan airport with smaller aircraft, offload cargo, and then redirect it to Asian markets on long-haul jets, such as 747-400s and MD-11s. Most larger carriers, however, can now bypass Alaska, thanks to the increasing distance capabilities of modern extended-range aircraft, such as the A330 and the 777-200.

Nick D’Andrea, director of UPS Airlines Public Affairs, explained in a letter addressed to Alaska House Transportation Committee Members that UPS had, “invested in Alaska, making Anchorage a major training hub for our pilots.” He added that his employer had “invested millions [of dollars] to build a flight training center where our pilots are trained on the Boeing 747 and MD-11 fleets.” UPS operates up to 18 daily flights through Anchorage. Anchorage’s Ted Stevens International Airport is the second-busiest cargo airport in North America, and one of the busiest in the world.

A 2007 study by the Institute for Social and Economic Research at the University of Alaska Anchorage found that nearly 13 percent of Anchorage’s jobs depended on the city’s airport.

The proposed House Bill 60 and Senate Bill 25 will raise approximately $80 million per year. That’s a small percentage of the state deficit, but it fits into a larger tax increase on all motor fuels — gasoline and marine diesel as well as aviation fuel.

While some national carriers are protesting the increased costs, local actors are supportive. Leaders of the Alaska Airmen Association, Alaska Trucking Association, Associated General Contractors of Alaska and the Alaska Region of the Aircraft Owners and Pilots Association all support the tax hike. That said, the aforementioned organizations all stand to gain more from continued state spending. For local aviation, the revenues extracted from national carriers will be funneled to the state’s 242 airports, most of which don’t charge landing fees of their own and depend on state assistance.

According to UPS estimates, UPS already pays approximately $7.2 million in landing fees annually. The carrier also pays taxes on aviation fuel purchases of $130 million. “Tripling the aviation fuel tax to $0.10 would move Alaska from number 35 to number 19 on the list of most burdensome aviation-related tax states,” UPS warned. But with the state billions into the red, D’Andrea and his compatriots might be forced to swallow some of the costs.

Those interested in learning more about air freight in 2017, should join us at Cargo Facts Asia in Shanghai, 25 – 26 April.  To register, or for more information, go to CargoFactsAsia.com

Leave a Reply