OP ED: Airlines Are Pocketing Lapsed Ticket Tax Proceeds

Recent airline pricing maneuvers have misled customers into believing savings from the lapsed 10 percent federal excise tax are being passed back to them. Instead, as a result of unwarranted price increases, travelers are continuing to pay the equivalent of the excise tax-but to the airlines, not the federal government.

Knowing the tax was to lapse Dec. 31, many airlines quietly and temporarily raised fares 10 percent during the slow booking period of the December holidays. With the expiration of the tax on Jan. 1, these airlines lowered fares to suggest tax savings were passed along to corporations. For example, a $725 business fare on Dec. 15 became $798 by Dec. 28, and was returned to $725 on Jan. 1. Rather than experiencing any savings, corporations and leisure travelers simply ended up paying the equivalent of the excise tax to the airlines.

According to Lehman Brothers, if the tax remains lapsed through June 1997, and fares remain at current levels, airlines will receive an additional $782 million of travelers' money. Indeed, some industry observers do not project tax reinstatement until late 1997. Current airline handling of the tax mirrors actions taken during the tax's lapse in 1996, but could have greater consequences for corporations this time.

American Express projects airfares will increase 8 to 9 percent in 1997 on top of a 9 percent increase in 1996. If the tax is reinstated, many airlines might attempt to pass the tax along to corporations, thus making their current 10 percent windfall permanent. As a result, a December 1996 business airfare of $725 would become $869 by December 1997, a 20 percent increase in one year. Adding to 1996's increases, airfares would have increased 31 percent over a two-year period (see chart). At five to six times the annual inflation rate, this price escalation is completely unsupported.

A pattern seems to be emerging. Consider the 1992 value pricing debacle, when airlines abruptly canceled their corporate contracts. The 1995 commission cap transferred airlines' costs to corporations. Now, in 1997, airlines are in effect pocketing an additional 10 percent of corporations' air travel budgets. The result makes a mockery of business processes such as budgeting, negotiating and capital investment planning. It is appalling that travel managers can spend months haggling over 1 percent in a net fare proposal while airlines arbitrarily overcharge without notice or justification.

Similarly, travel managers commit substantial resources to building a case for automated booking technology through cost-benefit analyses, only to realize the 10 percent recently lost to airlines would pay for that investment many times over.

What can be done to strengthen corporations' marketplace rights and to prevent this diversion of customers' funds from becoming permanent? BTCC has responded by forging an alliance of 30 associations representing some 170,000 corporations that annually purchase billions of dollars in air transportation services. As a first step, the alliance recently communicated to airline CEOs that unjustified price increases will no longer be accepted. To build awareness, BTCC has distributed information to 1,800 business journalists and briefed key congressional committee members as well as the Department of Transportation, Department of Justice, Federal Trade Commission and 50 state attorneys general.

In addition, individual BTCC participants are taking action to heighten awareness on this issue. CEOs are writing to airline CEOs and government officials. Travel managers are requesting the allegiance of their travel agency partners on this issue and asking for support from their local and national business travel associations.

These actions are not aimed at creating an adversarial attitude toward the airlines. Rather, customers are asserting their marketplace rights by disputing a pricing action that they believe is simply wrong. That 30 disparate organizations would cooperate to voice their concerns on this issue reveals strong views about the business travel purchasing process and a resolve to address a buyer-seller situation that is out of control.

What can you as an individual travel manager do to secure true influence over your corporation's third-largest controllable expense and to shape your company's travel management destiny? Join this unprecedented alliance of 170,000 corporations and advocate a rollback of unjustified price increases and a renewed focus on the corporation as a valued customer.

<I>Kevin Mitchell is president of the Business Travel Contractors Corp., a strategic buying and advocacy group representing 45 major corporations who annually purchase $1.5 billion in business travel.