“Fiscal Cliff” Spending Cuts Could Lead to 10% Reduction in Airline Flights, More Delays

Going over the so-called “fiscal cliff”—a combination of federal tax increases and budget cuts scheduled to take effect around the beginning of the year unless Congress acts—could have big consequences for the airline industry and travelers, according to a new report commissioned by industry groups. While the tax increases could theoretically affect consumers’ ability to spend money on airline tickets, the industry’s more immediate concern is an impending $1 billion reduction to the Federal Aviation Administration’s current $15.9 billion annual budget. It’s just part of the first round of automatic, across-the-board cuts that will eliminate $1.2 trillion in federal spending over the next decade as a result of lawmakers’ failure to come up with a deficit-reduction plan last year.

The report by Econsult Corp. of Philadelphia, released today at an event organized by the Aerospace Industries Association, considers two possible paths the FAA could take: The agency can spread the cuts out among all its operations or it can focus on trimming spending on research, equipment and upkeep. The first scenario would cause the agency to lay off air traffic controllers, requiring a reduction in the number of flights. The report predicts airline traffic would shrink by 5–10%, with the number of passengers dropping from almost 110 million to 73 million. With a similar reduction in cargo freight, federal and state governments would lose as much as $1 billion annually in tax revenue.

The second scenario would delay planned upgrades to the nation’s air-transport system, resulting in more flight delays as outdated systems are unable to keep up with increasing demand. The study predicts this will lead to economic losses of $40 billion and 700,000 jobs in the next eight years.businessweek.com