FAA Reauthorization Failure A Windfall For Airlines - Business Travel News

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FAA Reauthorization Failure A Windfall For Airlines

July 25, 2011 - 11:00 AM ET

By Jay Boehmer

It's peak vacation season, and many U.S. airlines are taking a tax holiday, as Congress' failure on Friday to pass a Federal Aviation Administration reauthorization bill has nullified the government's authority to collect some airfare taxes. Most carriers during the weekend raised base fares, but passengers may not even notice as increases largely mirror the dollar sum otherwise collected by the government. Meanwhile, the shutdown has halted airport projects, prompted furloughs and prohibited the collection of millions in revenue.

Farecompare.com CEO Rick Seaney in a research note claimed the "expiration of the FAA reauthorization Friday night at midnight was poised to give consumers up to a 15 percent break on airline ticket prices." Instead, airlines took the break.

American, Delta, JetBlue, Southwest, United Continental and US Airways, among others, have raised ticket prices by "at least 7.5 percent" to "capture the tax windfall," according to Seaney. Alaska Airlines and Virgin America have yet to file fare increases. "We are also seeing activity for those that fly internationally to recoup the up to $50 per roundtrip ticket sales tax holiday," according to Seaney.

Until a resolution is reached, the government will be unable to collect the 7.5 percent excise tax on domestic air transportation, the $16.30 per-way international departure or arrival tax and others. However, the September 11 Security Fee and airport passenger facility charges continue to be levied.  

It is unclear how quickly Congress could resolve the shortfall, though Seaney suggested the possibility of "several weeks, as the debt ceiling issue takes up all the oxygen in D.C."

The Department of Transportation urged quick action, as it already has furloughed 4,000 FAA employees across 35 states and issued "dozens" of work stoppage orders "for major projects designed to build and modernize control towers and other aviation infrastructure from coast to coast."

DOT, however, asserted that "the safety of the flying public will not be compromised" during the FAA shutdown.

JP Morgan aviation analyst Jamie Baker in a research note last week suggested the industry's revenue windfall and benefits could approach $25 million a day "for the duration of the shutdown." If the delay lasted a month, it could boost the industry's unit revenue by around 9 percent, Baker noted. 

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