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Airlines Raise Fares to Profit from FAA Tax Holiday

Monday, July 25, 2011 - 07:04 PM

So much for the silver lining to the FAA partial shutdown. When the agency's authority expired at midnight on Saturday airlines were no longer required to collect federal taxes, creating a tax holiday for fliers. But then the airlines moved in.

Nearly all the major carriers have raised fares to capture what could have been a price break for consumers. According to other airlines, US Airways and American Airlines each raised fares on Friday even before FAA authority expired.

"American adjusted its prices so the bottom line price of a ticket remains the same as it was before -- prior to the expiration of federal excise taxes, etc.," Ed Martelle of American Airlines said in an emailed statement to Transportation Nation.  He added, "I am told by our pricing department that all major airlines ... have done the same thing, with the exception of Alaska Airlines (current as of Monday morning)."

Airlines do not discuss pricing decisions typically. When asked for an explanation, Martelle wrote, "American cannot discuss the “why” of this situation, nor discuss any future pricing actions that may, or may not, happen.  The Department of Justice considers that possible price signaling to competitors."

SouthWest told Transportation Nation,"We did implement a system wide fare increase of $4 each-way and we will keep the 7.5% excise tax as part of the ticket price — our Customers will not see an increase or decrease in fares. These decisions were made in light of the recent industry change in aviation tax collections and will help offset industry cost pressures — such as the rising expense of fuel."

Delta said simply, "we are competitive with other airlines on fares following the FAA expiration."

United, now merged with Continental, made the move out as an industry standard, "United Airlines and Continental Airlines matched fare changes initiated by other carriers  over the weekend."

Not all airlines followed suit though. Spirit Airlines issued this press release (which actually does a solid job explaining FAA tax structure) chiding competitors for their lack of generosity:

Since the partial shutdown began, "effective immediately, Spirit is passing along all of these tax rollback savings to its customers. Some carriers have not been so generous and have pocketed the difference in taxes in the form of higher fares."

Hawaiian, Alaska, Frontier had also not raised fares as of Monday, while Virgin America was taking the occasion to post on Facebook about lower fares.

The taxes in question are a 7.5 percent ticket tax, a separate excise tax of $3.70 per domestic takeoff and landing, and a $16.70 international . Those add up to about $32 on a round-trip itinerary with base fare of $240 and one stop in each direction according to the AP. The FAA will lose approximately $200 million a week in taxes that would have gone into an air travel trust fund, according to figures from FAA administrator Randy Babbitt.


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