Airlines have complained for years that taxes added to ticket prices drive up the cost of travel. But when those tax collections stopped last weekend and airlines had a rare chance to give fliers a break, most opted to keep prices the same and pocket the difference.
For Atlanta-based Delta Air Lines, that amounts to $4 million to $5 million a day in extra revenue, the company said Wednesday.
A Congressional stalemate led to a partial shutdown of the Federal Aviation Administration Saturday, preventing the agency from collecting about $200 million a week in ticket taxes.
Delta and other major carriers then increased base fares to cover the lapsed taxes, saying they need the extra money to cover high fuel costs. The result is that travelers are paying roughly the same total price as before, instead of getting a discount from the unplanned tax holiday.
“It just seems like it was the perfect chance for the airlines to throw a bone in consumer satisfaction,” said FareCompare.com CEO Rick Seaney.
“Consumers feel like they’ve been nickel-and-dimed in the past, (and) this is a windfall that wasn’t expected . . . “Why wouldn’t [airlines] give consumers at least half the benefit?” Seaney said.
The suspended taxes include a 7.5 percent excise tax, a $3.70 tax per flight segment and other taxes for international flights.
As the partial shutdown continued this week, some public officials have criticized the airlines’ decision, and two U.S. senators wrote a letter of complaint to Delta’s chief executive, who also is chairman of a major airline lobbying group.
On Wednesday, Delta general counsel Ben Hirst said Delta does not plan to change its stance. “What the industry has done is simply to maintain prices at market-clearing levels,” Hirst said during an analyst and media conference call to discuss Delta’s quarterly profit report.
Delta’s official statement on the matter: “Given the high cost of jet fuel, Delta has been competitive with other airlines that increased their base fares following the expiration of funding for the Federal Aviation Administration to adjust for the taxes no longer being collected.”
AirTran Airways, Atlanta’s second-biggest carrier, also raised base fares, as did Southwest Airlines, which acquired AirTran earlier this year.
“Obviously we’re in a very difficult fuel environment with fuel prices being the big wild card,” Southwest spokesman Chris Mainz said.
Seaney noted that airlines typically match each others’ pricing -- up or down. So once one or two big airlines offset the lapsed taxes with fare hikes, others followed.
“Airlines are like lemmings. They follow each other off the cliff,” Seaney said.
The industry total amounts to nearly $29 million per day, and Delta generates about one-fifth of all U.S. airline passenger revenue. Delta president Ed Bastian told reporters in response to a question that ticket taxes amount to about $4 million to $5 million per day for the airline.
On Tuesday, U.S. Sens. Jay Rockefeller and Maria Cantwell, both Democrats, wrote to Delta CEO Richard Anderson, saying: “As we have heard from airlines for many years, these fees, all of which are passed onto the consumer, depress the demand for air travel . . . We are left to conclude that your previous assertions were incorrect about the impact of taxes and fees on the industry.”
The memo also said the senators fear that though the fare increase may boost carriers’ bottom lines in the short term, they will have “long-term negative repercussions for the industry.”
It continued: “We urge the nation’s airlines to put all of the profits that they are making from the lapse of the aviation taxes into an escrow account” so they can be transferred back into the government’s Airport and Airway Trust Fund when Congress reinstates the taxes, adding that “our nation’s aviation system cannot afford to have this tax revenue siphoned off by the industry.”
Otherwise, airlines “should pass the savings onto consumers who have been burdened with as much as $8 billion in airline-imposed fees over the past year,” the memo said.
Nicholas Calio, president of the industry’s primary lobbying group, the Air Transport Association, responded by telling the senators that the airline industry, which has ridden a financial roller coaster in recent years, is “at an inflection point.”
“Airlines cannot continue to fly customers for less than their costs,” Calio wrote. “Airfares have not kept pace with inflation.”
Airlines have, however, raised fares several times in the past year to combat fuel costs. Delta on Wednesday reported a $198 million profit for the second quarter, though that was down 58 percent from the previous year and followed a $318 million loss in the first quarter.
If the partial FAA shutdown continues, consumers could still get a break if one or two of the big airlines decided to drop base fares back to the original levels. Others would likely follow to avoid being undercut.
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