As Aviation Taxes Lapse, Airlines Hike Fares



Many U.S. airlines raised fares in recent days to take advantage of a drop-off in U.S. ticket tax collection after Congress failed last week to fully fund the Federal Aviation Administration budget, but passengers will likely not notice any price difference.

The expiration of the FAA re-authorization on Friday means some aviation taxes are no longer being collected. These include a 7.5 percent sales tax on U.S. air transportation and a 7.5 percent sales tax on the purchase of air miles, said fare watcher Additionally, taxes on jet fuel are also reduced.

``Friday evening we adjusted 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.,'' American Airlines spokesman Tim Smith for AMR Corp's American Airlines said by email.

JetBlue Airways Corp and Southwest Airlines Co began raising ticket prices by at least 7.5 percent on Friday, according to Other airlines, such as Delta Air Lines Inc and United Continental Holdings Inc , boosted prices on Saturday.

Rick Seaney, CEO of, said Monday the charges could amount to a savings for consumers of 10 percent to 15 percent of the cost of a ticket, should the FAA-related tax relief be passed along.

U.S. airlines have long complained about taxes and security fees, which they say they cannot always pass along to customers.

Ray Neidl, senior aerospace specialist at Maxim Group, said passengers will not notice the latest fare increases because the price they pay for tickets will not change.

``Basically (airlines) are just charging what they think the consumer will pay to fill the seats,'' Neidl said.

Neidl also said the benefit to airlines would be minimized if Congress reached a deal soon to resolve the partial FAA shutdown.

``It looks to me like it's going to be very temporary,'' Neidl said. ``So whatever effect it has, it's going to be very minor.''

Attempts failed on Friday to resolve the dispute over the FAA's funding, due to fighting between the political parties. Members of Congress hope to take up the issue on their return Monday.

Shares of U.S. airlines were down Monday amid a growing perception in the market that recent signs of renewed pricing power will fade after the peak summer travel season.

The Arca airline index was down 2.4 percent. United Continental was down 5.0 percent at $18.95 on the New York Stock Exchange and US Airways Group Inc was off 5.1 percent at $6.45. Both carriers reached new year lows. (Additional reporting by Kyle Peterson and Lisa Lambert)