Airlines are taking savings from expired taxes

July 23, 2011 - 8:13 PM
US Air Travel Taxes

FILE - In this Nov. 26, 2008 file photo, passengers arrive for flights out of Cleveland Hopkins Airport in Cleveland. Some airline customers won't see savings this weekend even though several federal taxes on tickets have expired. The taxes expired after midnight Friday, July 22, 2011, when Congress failed to pass legislation to keep the Federal Aviation Administration running. A number of airlines say they've raised fares to offset any tax savings. (AP Photo/Amy Sancetta, File)

DALLAS (AP) — 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They declined to say whether the increases would be rescinded if Congress revives the travel taxes.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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AP Airlines Writer Joshua Freed in Minneapolis contributed to this report.

Follow David Koenig at http://www.twitter.com/airlinewriter