More airlines raise fares to grab tax savings

July 25, 2011 - 3:44 PM

DALLAS (AP) — The great tax holiday of 2011 for air travelers is just about over.

By Monday, most U.S. airlines had raised fares to reap the benefit of lower federal taxes on airline tickets. A few airlines that were passing the savings on to consumers changed their minds.

Several federal taxes on airline tickets expired over the weekend after Congress failed to pass legislation to keep the Federal Aviation Administration running at full speed.

Raising the fares allows the airlines to charge the consumer the same amount as before, while pocketing money previously collected for the government.

It could turn into a windfall for airlines if the stalemate in Congress drags on. The government estimates that the expiring taxes total $200 million a week. And with fuel prices much higher than last year, airlines can use the cash.

But some travel experts called the fare increases a public-relations mistake.

"One of the major airlines could have said, 'Hey, at least for a week we're going to give this money back to the consumers,'" said Rick Seaney, who tracks prices as CEO of FareCompare.com. "I'm surprised no one made promotional hay over this."

Airlines collect various federal fees, including a 7.5 percent tax on all tickets that expired at midnight Friday night. Once the taxes expired, airlines began raising fares by an equal amount. On some tickets, the expired taxes can top 10 percent of the price.

A spokeswoman for the Air Transport Association, a trade group for major U.S. airlines, said consumers will benefit if the tax savings increase airline profits.

"This short-term additional revenue for airlines, which does not mean a fare increase for consumers, benefits all stakeholders — customers, employees and investors — by temporarily improving tiny industry margins to better cover costs and enable airlines to invest in their product and service," the spokeswoman, Jean Medina, said in an email.

US Airways and American Airlines were the first to raise fares. They were joined quickly by United, Continental, Delta, Southwest, AirTran and JetBlue.

Virgin America, which at first bragged about passing the savings on to consumers, changed its mind by Monday. So did Frontier Airlines. Alaska Airlines, Spirit Airlines and Hawaiian Airlines said Monday they had not raised fares.

George Hobica, founder of travel website airfarewatchdog.com, said stores don't raise prices during tax holidays, and neither should airlines.

"It seems predatory," he said. "I realize the airlines have to make money, but this is kind of a cheap shot. It's tone-deaf."