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Airline, airport officials defend proposed American Airlines fuel tax break

An American Eagle jet taxis to the terminal at Charlotte Douglas International Airport. Officials in Charlotte on Friday defended a state bill that would extend a tax break for American Airlines, arguing that Charlotte needs to remain cost competitive to maintain its status as an American Airlines hub.
An American Eagle jet taxis to the terminal at Charlotte Douglas International Airport. Officials in Charlotte on Friday defended a state bill that would extend a tax break for American Airlines, arguing that Charlotte needs to remain cost competitive to maintain its status as an American Airlines hub. tsumlin@charlotteobserver.com

Officials in Charlotte on Friday defended a state bill that would extend a tax break for American Airlines, arguing that Charlotte needs to remain cost competitive to maintain its status as an American Airlines hub.

The airline’s use of Charlotte as its second-largest hub is based largely on its relatively low operating cost, which makes it cheap for American to fly from the city. Business and city leaders have pointed to Charlotte Douglas International Airport as a major economic driver.

At a summit about transportation infrastructure Friday in Ballantyne, Mike Minerva, American Airlines’ vice president of airport affairs, said American is “committed to Charlotte.” But he said the airline, like any other, is sensitive to price changes.

“There are some flights that are very profitable, some flights are barely profitable and some flights that we operate that are unprofitable. Every time you move that line, more flights slide down to the barely and from the barely into the unprofitable,” Minerva said.

The bill, passed by the N.C. House, would extend the state’s cap on sales tax for jet fuel, which is an airline’s biggest expense. The $2.5 million cap expires in January. The state Senate proposed a competing bill last month that doesn’t include the tax break.

The push for a new tax exemption comes as fuel costs have plummeted and airline profits soar to hit record highs. In January, American Airlines reported a $597 million profit for its fourth quarter.

Critics of the measure say it is unfair to taxpayers. Analysts say extending the break would cost the state $12 million.

US Airways merged with American Airlines in 2013. American attained its single operating certificate from U.S. regulators last week, one more step on the road to full integration. Charlotte Douglas is American’s second-busiest hub, after Dallas/Fort Worth. The airline operates more than 90 percent of Charlotte’s 700 daily flights.

Charlotte is mainly a connecting city for domestic passengers, with 80 percent of passengers switching planes, rather than starting or stopping their trip in Charlotte.

Brent Cagle, the interim aviation director at Charlotte Douglas, said the fuel tax cap is a statewide issue, given the size and reach of Charlotte’s airport. North Carolina, Cagle said, has about a dozen commercial airports, many of which are much smaller than Charlotte but that provide multiple flights a day to Charlotte, where passengers connect to other flights.

“Remember that American is bringing a majority of those passengers on smaller, less efficient aircraft over to Charlotte. If the taxes on fuel go up, I’m not saying that they won’t serve those markets, but certainly they might decide to serve those markets less. And that’s bad for the customer,” Cagle said.

When an airline has a hubbing network like American Airlines, Cagle said, everything becomes interrelated.

Johnny Harris, president and CEO of Lincoln Harris, said the tax cap would help keep North Carolina competitive with South Carolina at a time when South Carolina’s tax incentives have lured some businesses out of Charlotte or North Carolina.

“I think that’s what we need to concentrate on – the tax abatement for American Airlines,” Harris said. “It’s very important, and we need to protect our airport. From that basis, we may be able to overcome some of the lack of incentives we have in North Carolina so we can compete more aggressively with (S.C. Gov.) Nikki Haley and South Carolina.”

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Twitter: @katieperalta

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