“We must act now to stop overhead baggage fees before they become commonplace”

It was just a matter of time before the government got involved in the carry-on fee fight. You’ll recall that last week, Spirit Airlines announced it would begin charging for carry-ons this summer. Transportation Secretary Ray LaHood panned the idea, while Spirit’s president, Ben Baldanza, defended it as being customer-friendly.

Yesterday, five U.S. Senators weighed in by introducing the Block Airlines’ Gratuitous Fees (BAG Fees) Act of 2010. Cute, huh?

Here’s an excerpt from a letter sent to its colleagues, asking for their support:

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Last week, an airline announced that they will soon charge passengers up to $45 for stowing carry-on luggage in an airplane’s overhead compartment. This is the latest in a series of fees air travelers have been forced to absorb in recent years — fees that mask the true cost of flying.

History suggests that when one airline starts charging for a service that was previously free, other carriers soon follow suit. That is why we must act now to stop overhead baggage fees before they become commonplace.

The main reason why airlines nickel and dime passengers with fees is that the tax code encourages them to do so. When an airline increases the cost of a ticket by a dollar, they must send 7.5 cents to the federal government. The 7.5% Air Transportation Excise Tax funds air traffic control and other vital aviation expenses. But Treasury Department guidance stipulates that when airlines impose fees on services that are not “reasonably necessary” for air travel, they do not have to pay the excise tax — the airlines can keep the entirety of the fee to pad their bottom line.

A January 2010 I.R.S. revenue ruling, requested by an unnamed major carrier, interpreted this guidance to cover overhead baggage fees.

Charging passengers for pillows and peanuts is one thing, but charging for overhead luggage is a slap in the face to travelers. That is why we have authored legislation to eliminate the preferential tax treatment granted by Treasury to overhead baggage fees. Our bill would render such fees economically unattractive to airlines and greatly decrease the likelihood that other airlines will adopt them.

My colleague Charlie Leocha has a different take on the tax implications.

What do you think? Should government be involved in how airlines price their tickets? Or is this a legitimate move to help continue funding important aviation expenses through taxes?

(Photo: Cityairline/Flickr Creative Commons)