Tags: Airlines | Fare | Boost | taxes

Airlines Seen Rolling Back Fare Boost as U.S. Taxes Return

Friday, 05 Aug 2011 04:05 PM

Southwest Airlines Co. may lead U.S. carriers in rolling back a fare increase now that the Federal Aviation Administration can resume collecting ticket taxes and fees, ending a two-week industry windfall.

Once the taxes return, airlines probably will wait a day to drop prices to avoid giving up extra money as rivals keep collecting it, said Rick Seaney, chief executive officer of Dallas-based travel website FareCompare.com. He said Southwest, the biggest discount carrier, probably will act first.

“I wouldn’t be shopping for tickets this weekend,” Seaney said today in an interview. “There’s no incentive to do something right now until someone dips their toe in first. But it’s coming.”

Airlines boosted fares after the FAA’s revenue-raising authority lapsed July 22, halting collection of a 7.5 percent sales tax on domestic tickets and a fee of $3.70 a flight segment. Raising base fares by the same amount produced more revenue for airlines without consumers seeing a difference.

The higher prices should start vanishing within 48 hours, said Jamie Baker, a JPMorgan Chase & Co. analyst in New York.

“Leaving fares unchanged would translate into a healthy 10 percent fare increase, but rarely has the industry raised fares by this magnitude in a single effort,” Baker said in a report today as the U.S. Senate approved legislation extending the FAA’s funding authority through mid-September.

Funding Standoff

The industry collected about $28 million a day from the increase, or about $400 million total during the standoff in Congress over funding the FAA, Baker estimated. The agency has been operating on a series of short-term extensions since its last multiyear authorization expired in September 2007.

A lag time between when the taxes return and when airlines rescind the equivalent fare increase could result in unwary consumers paying both, said FareCompare.com’s Seaney.

Demand for travel doesn’t appear to be strong enough to support what would amount to a $40 or $50 price increase for domestic tickets if airlines attempt to keep their higher prices in place once the taxes resume, Seaney said. The first airline to roll back the fare increase probably will force all the others to do the same, he said.

“We’re getting toward the end of summer when things slow down anyway,” Seaney said. “The airlines are probing two things: the appetite of the consumer and the appetite of the competition.”

A telephone message left for comment with Southwest’s communications office about the fare increase wasn’t immediately returned.

Southwest said yesterday that it’s slowing planned capacity growth through 2012 to reduce operating costs after a series of price increases appeared to discourage travel.

“We think we pushed fares about as much as we should right now to be productive,” CEO Gary Kelly said on a conference call. The Dallas-based airline boosted prices at least seven times in the first quarter, an unprecedented number, he said.

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Southwest Airlines Co. may lead U.S. carriers in rolling back a fare increase now that the Federal Aviation Administration can resume collecting ticket taxes and fees, ending a two-week industry windfall. Once the taxes return, airlines probably will wait a day to drop...
Airlines,Fare,Boost,taxes
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2011-05-05
Friday, 05 Aug 2011 04:05 PM
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