Originally created 03/01/97

Airline ticket taxes: Fares probably going higher

WASHINGTON - Air travelers, beware. Some fares probably will be rising after a 10 percent ticket tax is revived in the next week or so - even though base ticket prices reflect the tax already.

"It would be surprising if they did not pass it along," said Chris Privett, spokesman for the American Society of Travel Agents.

Others said at least some fares are likely to rise, though one airline industry executive suggested competition among airlines would hold down any increases.

President Clinton is expected to sign legislation quickly, perhaps as early as this weekend, to reinstate a package of aviation taxes that are used to pump $2.7 billion into airport safety projects. The taxes take effect seven days after the president's signature.

These aren't new taxes, technically. Congress has allowed them to expire twice since January 1996 because of the budget battle with the White House. But lawmakers approved a bill this week to reinstate them through Sept. 30 in order to avert funding problems for improvements at 850 airports nationwide.

The bill includes a 10 percent tax on domestic commercial airline tickets, a $6-per-ticket tax on international departures, a 6.25 percent tax on domestic air cargo and excise charges on noncommercial aviation fuel.

"Because of antitrust issues, we're not allowed to comment on fares," said David A. Fuscus, spokesman for the Air Transport Association, which represents major airlines.

Industry analysts do expect fare increases, although they disagree on how much and who will bear the brunt.

One airline industry executive, speaking on condition he wouldn't be identified further, didn't rule out the possibility of fare hikes but said they would be moderated. "The competition is so intense," the executive said.

These airline taxes never really went away, as far as travelers are concerned. The taxes expired Dec. 31, but instead of passing along the savings, airlines increased their base fares by 10 percent and kept the increase.

"This year, they made it a permanent fare hike," said Tom Parsons, editor ofBest Fares magazine in Arlington, Texas.

That's in contrast with a year earlier, when the taxes expired on Jan. 1, 1996. The airlines passed the savings on to consumers for several months, then slowly raised fares.

"The airlines aren't going to roll those fares back," said Parsons. "They're going to take the 10 percent and blame it on the government."

But Glenn Engel, airline analyst at Goldman Sachs in New York, said it's not that simple. Airlines have used the savings from the expired taxes to subsidize leisure travelers through some fairly dramatic fare sales at the expense of business travelers, Engel said.

"Most of the excise tax savings have been passed on to the consumers," Engel said. "I think the businessman is not likely to see the fares rise. The consumer is more likely to see the fares go up."

And even that may be subtle. For example, instead of setting aside 15 percent of a plane's seats for the deeply discounted fares, airlines might make only 10 percent of the seats available, Engel said.

"This is all coming at a good time for the airlines to increase because it can be masked by the sales" expiration, said Terry Trippler, editor of Airfare Report in Minneapolis.


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