	Background

PFCs are federally authorized fees which were established in 1990 to  help pay for capital development at commercial service airports. About $2.8 billion in PFCs was collected by airlines  on behalf of airports in 2013. 1). Most airports that are eligible to collect PFCs do so at the maximum rate  $4.50 per flight segment. Increasing the Cap on PFCs Would Significantly Increase Airport Funding but Could Also Have Other Effects

		Increasing the PFC Cap Would Significantly Increase Airport PFC Collections, but Key Assumptions Influence These Estimates

To estimate the potential amount of funding available to airports, as well  as associated effects on passenger demand and ticket tax revenues from  increasing the PFC cap, we developed an economic demand model. PFC pass-through. Increasing the PFC Cap Could Marginally Slow Growth in Revenues to the Airport and Airway Trust Fund

Increasing the PFC cap under the three different scenarios that we  modeled could marginally slow the growth of AATF revenues compared  to what it could have been without the PFC increase. Under all our cap scenarios, AATF revenues from  passengers would likely continue to grow overall based on current  projections of passenger growth; however, passenger growth could be  slower with a PFC cap increase if it results in a higher total cost of air  travel and thus reduces passenger demand. (See table 3.) Stakeholders Reported That the Current PFC Collection Method Works Well but Lacks Some Transparency for Airports

		Stakeholders Said That the Current PFC Collection Method Works Well

In order to evaluate the current PFC collection method, we used the  following factors that we identified as key considerations for evaluating  passenger fee collection methods in our February 2013 report: passenger  experience, costs to administer, legal issues, customer transparency, and  technology readiness. Moreover, although airports have the right to review  audits, our interviews with a limited number of airport officials raise  questions about the extent to which airports are aware of their rights to  review the audits. Given that FAA  relies on airports to alert it to potential inaccuracies in PFC collections  and those airports have difficulty determining the accuracy of PFC  collections for the reasons discussed earlier in this report, it is important  that airports are aware of their right to request copies of airline PFC audit  reports and to ask for additional follow-up by FAA, such as an audit by the  Department of Transportation’s Office of Inspector General if the audits or  other information indicate discrepancies. This  process suggests that, without adequate assurance that airlines are  following FAA’s audit guidance, some PFCs may not be collected or, if  collected, not accurately remitted to airports. Alternative Methods of PFC Collection Are Feasible but Would Impose Additional Steps and Costs

		Stakeholders Identified Three Alternatives to the Current Ticket-Based PFC Collection but Said They Could Diminish Passenger Experience

Stakeholders we interviewed identified three general alternatives to the  current method of PFC collection, alternatives that could be used in  combination or independently. Stakeholders  including airports and airlines and their respective domestic and  international associations, and industry experts that we interviewed said  that the current collection method is better than the identified alternatives. Online payments introduce an additional step to online ticket purchases  and potentially additional costs. In this way, customers may not  know the full cost of travel at the time of ticket purchase, which raises  questions about transparency. Rulemaking that proposes to require airlines and ticket agents to disclose  optional fees at the time of purchase. Thus, FAA is not well positioned to provide reasonable  assurance to Congress, airports, or passengers who pay PFCs on the  reliability of those audits and the PFCs collected. Recommendations for Executive Action

To ensure the accuracy of Passenger Facility Charge collections and  remittances to airports, we recommend that the Secretary of  Transportation should require the FAA to take the following two actions:
Review the extent to which airlines’ auditors use FAA’s audit guidance  and, if found to be minimal, evaluate whether airlines’ auditors should  be required to use the FAA’s audit guidance by considering the  soundness of existing airline audits and the associated costs of  airlines’ having to follow the guidance. DOT also provided technical  comments that we incorporated as appropriate. (2) how well does the current PFC collection process work? Appendix II: Economic Demand Model

The model described in this appendix is designed to estimate the  potential impact of increases in the PFC cap on funds available for airport  investment and federal aviation revenues between 2016 and 2024.
Why GAO Did This Study

About $2.8 billion in Passenger Facility Charges (PFCs) were collected in 2013. PFCs are federally authorized fees paid by passengers at the time of ticket purchase to help pay for capital development at commercial service airports and have been capped at $4.50 per flight segment since 2000. Airports are seeking an increase in the PFC cap to $8.50. Airlines, which collect PFCs at the time of purchase and remit the fees to airports, oppose an increase because it could potentially reduce passenger demand. Some airports have suggested that alternative PFC collection methods could allow the PFC cap to be raised without adversely impacting demand.
GAO was asked to examine these issues. This report discusses (1) the potential effects of PFC cap increases, (2) how well the current PFC collection process works, and (3) alternative PFC collection methods. GAO developed a model to assess the potential effects of PFC cap increases on funds for airport investment and the aviation system. GAO interviewed 26 stakeholders, including airports and airlines representing a range of sizes, as well as consumer groups, to discuss PFC collection methods.

What GAO Found

Increasing the Passenger Facility Charges (PFC) cap would significantly increase PFC collections available to airports under the three scenarios GAO modeled but could also marginally slow passenger growth and therefore the growth in revenues to the Airport and Airway Trust Fund (AATF). GAO modeled the potential economic effects of increased PFC caps for fiscal years 2016 through 2024 as shown in the table below. Under all three scenarios, AATF revenues, which totaled $12.9 billion in 2013 and fund Federal Aviation Administration (FAA) activities, would likely continue to grow overall based on current projections of passenger growth; however, the modeled cap increases could reduce total AATF revenues by roughly 1 percent because of reduced passenger demand. These projected effects depend on key assumptions regarding consumers' sensitivity to a PFC cap increase, whether airlines would pass on the full increase to consumers, and the rate at which airports would adopt the increased PFC cap.
Stakeholders said that the current PFC collection method generally works well, but airport officials said that transparency over PFC collections could be enhanced. Stakeholders universally said that the current method is preferred because the PFC is paid at the time of purchase. Airlines are required to have audits of their PFC collections and FAA provides audit guidance to help provide assurance that collections are accurate. However, the guidance is voluntary and FAA does not know if airlines' auditors use it. FAA relies on airports to alert them of discrepancies but some airports may not be aware they can review audits. FAA could take additional steps beyond what is stated in the guidance to inform airports about their rights, and thus provide reasonable assurance to Congress, airports, and airline passengers about the reliability of those audits and PFCs remitted to airports.
Stakeholders GAO interviewed generally said that alternative methods to collect PFCs, such as airport kiosks or online or mobile payments, are technologically feasible but they would impose additional steps for passengers, costs for airports, and changes in business processes. Therefore, stakeholders said that that the current collection method is better than the identified alternatives.

What GAO Recommends

GAO recommends that FAA review the extent to which airline independent audits of PFC collections follow FAA guidance and take additional steps to educate airports about their right to review these audits. The Department of Transportation (DOT) agreed to review the extent to which airline audits use FAA guidance, but noted they may not be able to require airlines to respond; and agreed to take additional steps to educate airports about their rights. DOT also provided technical comments which GAO incorporated as appropriate.