Airlines Benefiting from Ticket Tax 'Holiday,' Not Passengers

Airlines raise prices with federal tax break in mind.

ByABC News
July 25, 2011, 1:54 PM

July 25, 2011— -- It could have been a windfall for passengers, but no. Instead, the airlines, most of them anyway, are reaping the benefits of the congressional gridlock-induced airline ticket tax holiday.

The taxes could have meant as much as a 15-percent break on airfare for passengers, after the midnight Friday deadline for the FAA re-authorization passed. Instead, most airlines raised prices just enough to recoup this "lost" tax money.

Of course, it was never the airlines' money in the first place. They simply collected the aviation-related revenue and passed it along. Now they pass it right into their own pockets.

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These are the taxes I'm talking about:

• 7.5 percent sales tax on domestic air transportation;

• 7.5 percent sales tax on purchase of air miles;

• $3.70 per takeoff segment tax ($14.80 on a round-trip 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 4.3 cents per gallon.

Some airlines actually began raising prices before the deadline, in anticipation of the tax holiday. The group includes American, JetBlue, Southwest/AirTran and US Airways. They were followed by Delta and United/Continental Saturday, Frontier Sunday, and Virgin America this morning, making it a bonafide tax hike, the 15th such attempted domestic airfare hike of the year. As of this writing, Alaska Airlines stands alone among major U.S. carriers as declining to join the club, but I note its website is now referring to this as "temporary" tax relief.

I'm going to be a bit of a contrarian here and note that while greed may well be part of this, in this case, you might say, greed really is good. The airlines need the extra revenue for simple survival, and they will grab it where they can. Earlier this month, two broad-based airfare hikes were launched, but fell apart because of fragile demand. Had it been up to me, however, I would have split the difference: let the airlines take half, let passengers take half, a win-win for everybody.

Meanwhile, if the issue of FAA re-authorization goes unresolved for several weeks while the debt-ceiling drama takes up all the oxygen in D.C., the added ticket revenue and the reduction in sales tax on jet fuel could be a major boon for airlines' bottom lines. And that's a good thing because the more airlines that survive, the more competition for our business, which ultimately translates into lower ticket prices or, at least, not sky-high airfares.

Now what about refunds. What if you bought your ticket before this congressional gridlock got underway, for travel now, when taxes are not supposed to be applied but you've already paid them?

There appears to be precious little information out there, beyond an interview with a Treasury Department representative, who said it's unclear whether the government can keep the already-paid taxes, but that the IRS will "probably" issue guidance on the matter at some point in the future. Clear as mud, huh?

At least JetBlue is being somewhat pro-active. On the airline's website, passengers seeking tax refunds are told to email the carrier and JetBlue will "process your request" based on guidance from the federal government. Such guidance seems in remarkably short supply at the moment.

A final note: Most of the airlines missed a big opportunity. They could have gotten a lot of PR mileage out of declining to participate in the tax grab. Southwest, for example, could have doubled-down by proclaiming "No Bag Fees and No Taxes" but it didn't. Virgin America tried. Its website cheerily touted a "tax holiday" this weekend, but it ultimately succumbed.

This work is the opinion of the columnist and does not reflect the opinion of ABC News.

Rick Seaney is one of the country's leading experts on airfare, giving interviews and analysis to news organizations that include ABC News, the New York Times, the Wall Street Journal, Reuters, the Associated Press and Bloomberg. His website,, offers consumers free, new-generation software, combined with expert insider tips to find the best airline ticket deals.