Airlines raising fares by up to $10

Delta, Southwest declare fees as tax break expires

October 01, 2003|By BLOOMBERG NEWS

U.S. carriers including Delta Air Lines and Southwest Airlines plan to increase fares as much as $10 after a four-month U.S. tax break that helped carriers cut losses from the Iraq war expired yesterday.

"They're saying, `We're going to up the fare 10 bucks,'" said Tom Parsons, chief executive of Bestfares.com, a Web site that tracks ticket costs. "This is an automatic."

Delta, the third-biggest U.S. carrier, and Southwest, the largest low-fare airline, will add the fee on top of base fares, company representatives said. American Airlines, United Airlines, Northwest Airlines, US Airways and Continental Airlines declined to comment.

An April law temporarily canceled the fee of $2.50 per flight segment, or as much as $10 for a round trip, that was added after the 2001 terrorist attacks to help cover security costs. The Air Transport Association, the Washington trade group for large U.S. carriers, had sought a waiver in March, saying airlines that had lost more than $21 billion since the attacks might lose $4 billion because the war reduced travel.

Carriers want to test passengers' willingness to pay the higher ticket costs with the tax included, said Jamie Baker, an analyst at J.P. Morgan Chase & Co. While the fee was suspended, the airlines kept their fares the same and gained $350 million in revenue, or about 2 percent of their four- month total, he said.

If one or more carriers decide not to add the fee on top of current fares, the effort to raise ticket costs might fail, Baker said. "It only takes a single airline to decide for the industry if paid fares should remain unchanged," he said.

Congress and President Bush included the break from the $2.50-per-flight-segment fee, along with a second, smaller tax holiday, in a $79 billion law to pay war costs.

Congress is counting on the two fees to cover more than half the $3.7 billion the government plans to spend on airline security in the fiscal year that begins today. If fee collections fall short, general tax revenue will make up the difference.

Carriers are lobbying for permanent repeal of the security fees. Those and other federal airline fees make up 31 percent of an average round-trip fare of $172, said leaders of Southwest, JetBlue Airways Corp. and seven small carriers in a letter to House and Senate leaders last month.

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