Higher Air Fares Loom With Ticket Tax Revival

U.S. airline passengers could start paying more for plane tickets within two weeks, after President Clinton signs legislation that includes a renewal of a 10% airline ticket tax.

The impact “will be fairly immediate,” said Jeffrey Long, an analyst for J.P. Morgan Securities.

Analysts speculated that recent air fare sales have been part of an effort by the airlines to sell as many tickets as possible before the tax is renewed. Tickets bought before the law becomes effective will not include the tax, according to the airlines.

The federal excise tax lapsed without renewal in January and has provided a temporary windfall for the airlines and the flying public.

Many carriers passed on some or all of the savings to the public in the form of cheaper fares, which helped attract more passengers and boost sales.

The tax savings that were not shared with passengers helped increase the airlines’ profits. So when the tax returns, it could shave earnings, analysts have said.

Most airlines lowered ticket prices for economy-class travelers when the tax lapsed, though business fares experienced little change, Long said.

Now the process will probably be reversed. With the tax renewal, most airlines will raise fares for economy-class travelers--who mostly fly for leisure--but may adjust business fares to keep them stable, Long said.

Lawmakers agreed on the ticket tax and included it in the minimum-wage increase that passed Congress last week. The tax will go into effect seven days after Clinton signs the bill, which could be as soon as this weekend.

Southwest and American airlines said passengers holding tickets bought before the tax is reimposed--but who have not yet traveled--will not have to pay an additional charge.

“But one second after it’s reinstated, a [newly purchased] ticket will be subject to a 10% tax,” Southwest spokeswoman Linda Rutherford said.

U.S. travelers paid the 10% tax for years until it lapsed Dec. 31, almost inadvertently, during the budget battle between the Republican-controlled Congress and the White House.

Revenue from the tax helps pay for operations of the Federal Aviation Administration, which oversees airline safety. Since the tax lapsed, the FAA has been drawing about $15 million to $18 million a day from the Aviation Trust Fund to pay for its operations. At that rate, the fund would have run out of money by the end of the year.

Given the imminent return of the tax, airlines that slashed prices this week were probably trying to sell as many tickets as possible before fares increased, some observers said.

UAL Corp.’s United Airlines, AMR Corp.’s American Airlines, Delta Air Lines Inc., Trans World Airlines Inc. and America West Airlines Inc. earlier this week cut fares to as low as $50 one way in some markets. The discounted fares, requiring at least a three-day advance purchase, are available until today for travel through Dec. 15.

USAir, United, American and others launched yet another sale Friday, this one for tickets bought until Aug. 19 and for travel between Sept. 4 and Dec. 15. Those seats require at least a 14-day advance purchase.

By renewing the ticket tax, Congress rejected an initial push by the nation’s largest airlines to replace the tax with a user fee.

However, the issue is far from over because the ticket tax expires Dec. 31. Some see the tax as only a short-term solution.

“I think eventually we’ll have a user-fee system,” Long said. “It makes sense . . . [but] the form will be a hotly debated topic.”

Long predicted Congress will settle on a user-fee system that is “much more revenue-neutral” for the airline industry.

Executives of the nation’s seven largest airlines sought a user fee of $2 per airplane seat, $1 per commuter plane seat, plus $4.50 per passenger and half a cent per passenger, per mile, not counting connecting flights.

“The large carriers feel they’re subsidizing the small carriers, but politically the user fee would be more complicated,” said Julius Maldutis, an analyst for Salomon Bros.

With their cut-rate fares, airlines such as Southwest add less to their prices than do the bigger airlines under the 10% tax. The user fee proposed by the big carriers would add less to their ticket prices and shift more of the burden to discount carriers.