Money Matters, Simplified.
As FAA taxes return, airlines roll back fare-hike
by Anter Prakash Singh - August 9, 2011 - comments
Most of the major airlines hiked the price of tickets but there were few like the Spirit, Hawaiian and the Alaska Air that passed the benefit of tax suspension to the passengers.
Many U.S. airlines have cut the recent hike in fares after the Federal Aviation Administration (FAA) taxes were reintroduced on Monday.
The airlines had hiked the fares to pocket the benefit that arose after some taxes were removed from the tickets due to the shutdown of the FAA.
Instead of passing the benefit of tax cut to the passengers, some airlines had hiked base fares, and as a result the air fares remained the same, even after a cut in taxes.
FAA regains authority, airlines cut fares
Now as the FAA is again empowered to collect these taxes, the airlines have rolled back the recent hike.
Despite the airlines cutting fares, the total cost to passengers will remain the same, as FAA has regained authority to tax tickets.
Most of the major airlines hiked the price of tickets but there were few like the Spirit, Hawaiian and the Alaska Air that passed the benefit of tax suspension to the passengers.
Jamie Baker, an analyst with JPMorgan Chase said the airlines that hiked the fares may have collected $400 million jointly after the FAA’s lost authority to collect taxes since July 22.
Like all the other airlines, Southwest announced that it is going to roll back the hike of around 7.5 percent to keep the prices same after the reintroduction of taxes. “Customers will not see a difference in fare,” said the airlines.
American Airlines also said that it has, “reduced some fares in certain markets based on competitive action by other airlines. As always we cannot discuss any further action that may or may not occur.”
Rick Seany, CEO of FareCompare, a travel website said other airlines including the US Airways, JetBlue Airways, Frontier Airlines and Virgin America have also rolled back their fares.
Airlines pocketed around $400mn
Jamie Baker, an analyst with JPMorgan Chase said the airlines that hiked the fares may have collected $400 million jointly after the FAA’s lost authority to collect taxes since July 22.
But Tom Parsons, CEO of BestFares.com, expects the fares to come down more amid the unstable markets and the weak economy.
“U.S. Airlines have to be concerned over (travel demand in) the fall. They may still have to bring fares down further,” he said.
Meanwhile the IRS has said that the passengers who have paid taxes on tickets for traveling during the shutdown are not eligible for a refund. However, the taxes that have not been paid during the FAA shutdown will not be collected.