Airlines Take Savings from Expired Taxes, but Raise Fares

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Airlines are tossing consumers aside and grabbing the benefit of lower federal taxes on travel tickets. By Saturday night, nearly all the major U.S. airlines had raised fares to offset taxes that expired the night before.

That means instead of passing along the savings, the airlines are pocketing the money while customers pay the same amount as before.

American, United, Continental, Delta, US Airways, Southwest, AirTran and JetBlue all raised fares, although details sometimes differed. Most of the increases were around 7.5 percent.

For consumers who wanted to shop around, only a few airlines were still passing the tax break on to passengers Saturday night, including Virgin America, Frontier Airlines and Alaska Airlines.

The expiring taxes can total $25 or more on a typical $300 round-trip ticket. They died after midnight Friday night when Congress failed to pass legislation to keep the Federal Aviation Administration running.

That gave airlines a choice: They could do nothing - and pass the savings to customers - or grab some of the money themselves.

"We adjusted prices so the bottom-line price of a ticket remains the same as it was before ... expiration of federal excise taxes," said American spokesman Tim Smith. US Airways spokesman John McDonald said much the same thing - passengers will pay the same amount for a ticket as they did before the taxes expired.

They declined to say whether the increases would be rescinded if Congress revives the travel taxes.

Tom Parsons, who runs the Bestfares.com travel website, said consumers should get the tax break.

"Why would the airlines deserve it?" he said. "They already hit us with enough fees. Now they're keeping the government fees too."

The Transportation Department says it will lose $200 million a week until Congress restores the taxes. J.P. Morgan analyst Jamie Baker said airlines could take in an extra $25 million a day by raising fares during the tax holiday. That's a tempting sum for airlines that have struggled against high jet fuel costs for most of the last three years.

Some airlines that didn't raise fares sought to turn the controversy to their advantage. Spirit Airlines said it would pass tax savings on to consumers while rivals "have not been so generous." It warned travelers that Congress could end the tax holiday at any time, so book a flight quickly.

Virgin America hawked tickets with the slogan, "Evade taxes. Take flight." For a September trip between Dallas and San Francisco, Virgin America was $7 to $24 cheaper than United, Continental and American.

Southwest Airlines and its AirTran subsidiary raised prices by $8 per round trip, said spokeswoman Marilee McInnis.

Southwest's price hike gave valuable cover to other airlines. Southwest carries more U.S. passengers than anyone, and it effectively sets rates on many routes. Southwest torpedoed attempts by other airlines to raise prices in the last two weeks.

Earlier this year, Southwest went along as airlines raised ticket prices a half-dozen times. That, along with money from fees on checked bags and other items, helped boost United Continental Holdings Inc., the world's largest airline company, to a $538 million second-quarter profit.

Several federal airline-ticket taxes expired when Congress adjourned for the weekend without passing FAA legislation. Lawmakers couldn't break a stalemate over a Republican proposal to make it harder for airline and railroad workers to unionize.

Air traffic controllers stayed on the job, but thousands of other FAA employees were likely to be furloughed.

Airlines stopped collecting a 7.5 percent ticket tax, a separate excise tax of $3.70 per takeoff and landing, and other taxes. Those add up to about $32 on a round-trip itinerary with base fare of $240 and one stop in each direction.

Other government fees for security and local airport projects are still being collected. They boost the final cost of that $240 base-fare ticket to $300.

Passengers who bought tickets before this weekend but travel during the FAA shutdown could be entitled to a refund of the taxes that they paid, said Treasury Department spokeswoman Sandra Salstrom. She said it's unclear whether the government can keep taxes for travel at a time when it doesn't have authority to collect the money.

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muckrakerrex

Greed! Here's an industry that needs more regulation. Charging ridiculous rates for baggage, carry-ons, overweight bags, ticketing fees, meals, drinks, pillows, airport fees, and any other fee they can stick the public with. Congress where's the oversight and I don't mean just a hearing but stopping the pillaging and taxpayers monies to these giant airlines, they hurt travel, family get together, destroy holiday events, motivated by greed. They'll let you sit on a runway for an hour after boarding.

July 25 2011 at 1:42 PM Report abuse rate up rate down Reply
1 reply to muckrakerrex's comment
Frank

Don't forget the extra fee for "premium" economy seats which are closer to the front of the plane. Also bulkhead seats....whoops I mean extra legroom seats.

July 25 2011 at 2:52 PM Report abuse rate up rate down Reply
pfjw

The *real* story here is that Congress failed to pass legislation to keep the FAA running - No FAA = no Air Traffic Control. No Air Traffic Control = no commercial flights. The debt ceiling limit is very real and the consequences signficiant - but the complete cessation of commercial air flights is something else entirely.

What a bunch of dysfunctional, posturing blowhards - all stripes of both parties.

July 25 2011 at 1:40 PM Report abuse rate up rate down Reply
dpeters120

Because they are a bunch of greedy Corporate America thieves. Every time they get into trouble financialy who bales them out the people they love to stick it to the most. TAX PAYERS Cause Corporate America pays no taxes.

July 25 2011 at 12:59 PM Report abuse rate up rate down Reply
equusmaximus

Could the airlines find any more ways to STICK IT to the flying public? This wasn't your money to begin with, it went to the government for more taxes. You could have filled more seats and had the same revenue you had before, by people taking advantage of not paying the taxes, but since you stole the savings away from customers I didn't buy a ticket as planned, so you get nothing- instead of a paid seat. And then they wonder why there is air-rage. I had a $280 ticket to Orlando for a meeting, had to take 5 checked bags. Bag fees were $350 on a $280 ticket.. I shipped them Fedex back home for a lot less. I'll drive next time. At least Virgin did the right thing. If you haven't flown Virgin, they are a BREATH OF FRESH air. The plane interiors have soothing lighting, leather seats throughout, entertainment centers, you can eat when you want, a REALLY enjoyable experience. If you haven't tried them, consider it. Much nicer and more relaxing than the cattle car and dingy planes American and Southwest offer. Oh yeah, they also act like they value the customer and want you to be there. What a concept...

July 25 2011 at 11:38 AM Report abuse rate up rate down Reply
billatlan

I'd just as soon see the airlines get the money, rather than this wasteful government (which can't even sustain a revenue stream it already had). And yes, I bought a ticket Saturday...

July 25 2011 at 10:51 AM Report abuse +1 rate up rate down Reply
dc walker

Southwest has a sale if purchased by Aug 1. $59.00 one way

July 25 2011 at 10:32 AM Report abuse +1 rate up rate down Reply
chasmy57

corruption greed will doom this country

July 25 2011 at 10:15 AM Report abuse rate up rate down Reply
1 reply to chasmy57's comment
wch2011

This country was founded on what you call greed. It was a place were people didn't have to give the government half of everything they EARNED. I don't agree with what the airlines are doing but there is a certain group of people that blame everyting on greed. What do you call those on welfare? See how they cry when they don't get their check. They are the mose greedy. They do nothing, have no desire to do anything. Just take. I suspect you may just be one of those!

July 25 2011 at 10:51 AM Report abuse +1 rate up rate down Reply
3 replies to wch2011's comment
thescot

Airlines are always right there to screw the consumers aren't they. Of course when the tax goes back on they will reduce the price right, that is really funny.

July 25 2011 at 9:43 AM Report abuse +2 rate up rate down Reply
mily469

airlines problems for decades has been poor management from the top down. actually the truth is that is the problem of most corporations too. you have been sold a line of bs about corporations all your life.

July 25 2011 at 9:43 AM Report abuse +1 rate up rate down Reply
majorthomecho

And how is this a fare increase? The bottom line is the amount you pay for a ticket is the same. It is just that some of the money stays with the airlines and doesn't go to the government.

July 25 2011 at 9:38 AM Report abuse -3 rate up rate down Reply