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  • Fare Hike Follies: Media Cannot Get The Facts Straight
    Posted by Andrew Compart 7:50 PM on Aug 05, 2011

    The congressional deadlock over extending the FAA's authorization is over, for now, and the airline ticket taxes that were suspended after the authorization expired will return Aug. 8. And yet I still opened the Washington Post this morning to find yet another article mischaracterizing the fare hikes that most U.S. airlines implemented in the absence of the taxes.

    To be clear, what happened is this. The lapse in authorization for the FAA, as of midnight on July 22, meant the government no longer had the authority to levy certain taxes on airline tickets, such as a 7.5% federal excise tax and  $3.70 tax per domestic flight segment. When those taxes are levied, passengers pay them to the airlines as part of the total cost of the ticket, and then the airlnes turn the tax money over to the government.

    In the absence of the taxes, most U.S. airlines raised their fares by a concurrent amount. That meant the total price of the tickets stayed the same, but the revenue the airlines received on each ticket increased. What the airlines did NOT do is continue collecting the taxes and keep the tax collections for themselves. That is because no tax existed. The choices for airlines were to give customers a break by keeping fares the same, which would make the total ticket price lower, or raising fare.

    Yet most of the media (not all) suggested or just flatly said that airlines were pocketing the tax, which the mistake the Washington Post repeated today, with The Fed Page "In The Loop" columnist Al Kamen declaring that the airlines "continued to collect the tax money from travelers during the funding fight." This mischaracterization crossed ideological lines. On Fox News, Neil Cavuto asked Rep. Eric Cantor, "Is it legal for airlines to still be collecting these fees, taxes, whatever we call them?" Democratic Congressman Leonard Boswell urged major airlines to "stop charging customers for aviation taxes." At a White House press briefing, a reporter asked Transportation Secretary Ray LaHood this: "It’s not their money. I mean, it’s theft, isn’t it? If they’re taking money that’s due the federal government and putting in their pocket?" In the reporters meager defense, LaHood contributed to this understanding, by inaccurately declaring right before the question that "the airlines should not be collecting this amount of money under the umbrella that it's a tax."

    Argh! There was no tax, and the airlines did not say there was. They just raised their fares.

    Let me be clear, though: Although airlines had every right to raise their fares to the price the market would bear--in fact, for airlines struggling to make a profit this could make  perfect business sense--they are kidding themselves if they truly believe this does not hurt their anti-tax argument on Capitol Hill. Part of their argument has been that all of the taxes on air travel—and there are a lot—reduce demand for tickets and make consumers pay more than they should. It is difficult to keep arguing that if, in the absence of those taxes, you keep the total price of the tickets the same.

    You also could argue that the carriers should have let passengers reap the windfall of the "tax holiday" instead of the airlines. Or, as CheapFares CEO Rick Searney does here, suggest that airlines would have been better served by increasing their fares by half the amount so that both they and their customers could share in the temporary bounty. But at least stick to the facts.

    Tags: tw99, fares, taxes, FAA

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