Airlines Benefit From Airline Ticket Tax Holiday, Not Passengers

Congress Says FAA Deal Reached

UPDATE (8-4-11): What’s being called by some a “patchwork” agreement to fund the FAA has been reached and a vote is expected Friday.

This means FAA employees who were temporarily furloughed could go back to work soon and it could also mean an end to the so-called “airline ticket tax holiday” at least through mid-September. Many airlines raised prices during this “holiday” period (Alaska and Spirit were notable exceptions) and the question now is will prices drop? They will if people stop buying tickets. Meanwhile, check out How to Get a Tax Refund on Your Airline Ticket to find out if you’re owed money and how to get it.

UPDATE(7-26-11): A short-term funding extension of the FAA has been introduced but not yet voted on.

“The “Aviation Jobs and Safety Act of 2011″ introduced today by Costello, Rahall, every Democrat on the Transportation and Infrastructure Committee, and the Democratic leaders on the Ways and Means Committee is a clean FAA extension bill that would authorize the aviation programs through the end of Fiscal Year 2011 (September 30, 2011).”

Also, Alaska Airlines remains a hold-out, continuing to pass on tax savings to its customers.

EARLIER: It could have been a windfall for passengers, but no (more about this in the Good Morning America story, below).

The expiration of the FAA re-authorization Friday night at midnight was poised to give consumers up to a 15% break on airline ticket prices. Instead, the airlines are keeping this tax revenue via well-time airfare hikes.

As I reported earlier, as of midnight July 23, the following taxes related to U.S. aviation are no longer being collected until reauthorization is resolved:

  • 7.5% sales tax on domestic air transportation
  • 7.5% sales tax on purchase of air miles
  • $3.70 per takeoff segment tax ($14.80 on a roundtrip connecting flight)
  • $16.30 international departure/arrival tax (each-way)
  • $8.20 sales tax for flights between Alaska and Hawaii
  • 19.3 cent tax on aviation gasoline reduced to 4.3 cents per gallon
  • 21.8 cent tax on non-commercial jet fuel reduced to 4.per gallon3 cents per gallon

Before the midnight expiration, American, JetBlue, Southwest/AirTran began to raise airline ticket prices by at least 7.5% (from $16 to $60 roundtrip, with US Airways at just $8) making this the 15th attempted domestic airfare hike of 2011.

Saturday evening US Airways (up from original $8), Delta and United/Continental also raised prices (as did Frontier on Sunday) to capture the tax windfall of approximately of about $25million a day. Virgin America held out until this morning (7-25-11), and as of this writing, Alaska Airlines has yet to join the club.

I talk to passengers about the tax mess in this GMA report:

We are also seeing activity for those that fly internationally to recoup the up to $50 per roundtrip ticket sales tax holiday.

With the added ticket revenue and the reduction in sales tax on jet fuel this could be a major boon for airline bottom lines if the issue goes unresolved for several weeks as the debt ceiling issue takes up all the oxygen in D.C.

How Consumers May Benefit

The airlines need money to survive; otherwise they’d reap the PR benefits of this “tax holiday” by giving the money to its consumers. More airline survival means more competition which ultimately means better airfare pricing for passengers.

Another benefit is what the airlines will buy with this money and there are signs that some of it will go toward new planes. Many U.S. airline fleets are aging but the good news is, some carriers like American have gone on an aircraft spending spree to correct that.

Could You be Due a Refund?

Passengers who purchased tickets before the gridlock for flights during the tax holiday period may be due a refund, but at the moment there is little guidance on the topic except from JetBlue which urges its passengers to email them with their flight information. No doubt further guidance will be available soon.

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Published: July 25, 2011