Airlines Roll Back Fares as U.S. Ticket Taxes Are Reinstated

United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL) joined Southwest Airlines Co. (LUV) in rolling back fare increases of more than 7.5 percent for most tickets after federal taxes and fees were restored over the weekend.

Carriers including AMR Corp. (AMR)’s American Airlines, JetBlue Airways Corp. (JBLU), 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 in lost taxes a 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 in an e-mail. “A large majority of our customers will not see an increase in relation to the tax reinstatement.”

American, JetBlue

Mike Trevino, a spokesman for Chicago-based United; Tim Smith, a spokesman for American; and JetBlue’s Alison Croyle all said fares were lowered to reflect the reinstated taxes.

US Airways Group Inc. (LCC) has rolled back the fare increase, Michelle Mohr, a spokeswoman, said in an e-mail.

The Bloomberg U.S. Airlines Index fell 4.3 percent at 4:05 p.m. New York time, joining the rout in U.S. stocks. Tempe, Arizona-based US Airways tumbled 10 percent for the worst decline.

The expiration of the FAA’s revenue-raising authority last month halted collection of a 7.5 percent 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 percent in the past two weeks, or $400 million since the standoff over the FAA bill began, estimated Jamie Baker, a JPMorgan Chase & Co. (JPM) 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.

Travel Demand

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, from which jet fuel is derived, 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. Oil fell 13 percent in the two weeks ended Aug. 5, and extended that drop today.

“I don’t think they needed to keep these fares in place,” she said. “They really were not in place long enough to make a difference one way or the next.”

To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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