Delta Air Lines Inc. and AMR Corp.'s American Airlines joined Southwest Airlines Co. in rolling back fare increases of more than 7.5 per cent for most tickets after federal taxes and fees were restored over the weekend.
Carriers including US Airways Group Inc., JetBlue Airways Corp., Frontier Airlines and Virgin America Inc. also started returning fares to levels in place before July 22, when the taxes lapsed, said Rick Seaney, chief executive officer of Dallas-based travel website FareCompare.com.
"There is going to be an avalanche today," Seaney said. Southwest, the biggest discount carrier and the largest U.S. airline by domestic passengers, led the way in retrenching on fares starting last night.
Federal taxes were suspended at midnight on July 22 amid a stalemate in Congress over funding for the Federal Aviation Administration, costing the government $28.6 million U.S. in lost taxes per day, and carriers raised fares by an identical amount and pocketed the difference. Congress reached a compromise last week to restore the funding and the FAA's taxing authority.
"We did adjust our fares to account for the taxes being reinstated," Brandy King, a spokeswoman for Dallas-based Southwest, said today in an email. "A large majority of our customers will not see an increase in relation to the tax reinstatement."
King said she couldn't specify a "blanket percentage" for the change. Tim Smith, a spokesman for American, said the carrier cut fares in certain markets to match competitors, while JetBlue's Alison Croyle said the New York-based airline's fares were lowered to reflect the reinstated taxes.
The expiration of the FAA's revenue-raising authority last month halted collection of a 7.5 per cent sales tax on domestic tickets and a fee of $3.70 per flight segment. Increasing base fares by the same amount produced more revenue for airlines without consumers seeing a difference in the total ticket price. That translated into a fare increase of about 10 per cent in the past two weeks, or $400 million since the standoff over the FAA bill began, estimated Jamie Baker, a JPMorgan Chase & Co. analyst in New York. Like Seaney, he predicted last week that Southwest would lead airlines in repealing the fare increase once the taxes were reinstated.
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 attempted to keep their higher prices in place once the taxes resume, Seaney said last week.
A decline in the price of crude oil is helping airlines cover expenses even if the recent fare increase was only temporary, said Helane Becker, a Dahlman Rose & Co. analyst in New York.
Bloomberg News
