ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, August 18, 1996 TAG: 9608160034
SECTION: BUSINESS PAGE: 4 EDITION: METRO
SOURCE: TOM BELDEN KNIGHT-RIDDER NEWSPAPERS
In a blitz of advertising this week, airlines are touting supposedly low fares available for travel this fall and winter. Many of the ads include a grim warning:
``Buy now,'' an ad for Midway Airlines in The Philadelphia Inquirer Tuesday said. ``Save an extra 10 percent before the 10 percent Federal Excise Tax is reimposed.''
Northwest Airlines went further in an ad in a Minneapolis newspaper, featuring a drawing of a federal-style building. The ad declared in inch-high letters: ``Congress just raised your taxes,'' and in smaller type, ``Beat the tax increase, see our special offer in this section.''
The increase referred to is the coming re-imposition of the 10 percent excise tax on plane tickets that Congress allowed to expire Jan. 1.
But if there ever was a time for buyers to beware, this is it, airline industry observers warn.
Many fares to both U.S. and international destinations will, indeed, go up in another week when the current round of discounting ends. Many fares to Europe, in particular, are lower now than they've been all year. The looming end of the sale, plus the reinstatement of the ticket tax, is expected to prompt a flurry of ticket buying, airline officials said.
But competitive pressure is likely to keep airlines from raising all of their fares a full 10 percent when the excise tax is reimposed later this month or in early September, some analysts say.
``I can't remember any time in my 25 years of doing this,'' said analyst John V. Pincavage of Dillon Read in New York, ``that the airlines jacked up fares 10 percent and got away with it.''
There are other reasons to be skeptical of airline ads. Many of the prices being advertised this week as ``50 percent off'' regular fares actually represent a much smaller discount from prices that were available earlier this summer. And even lower fares could be available again any time, given the airlines' penchant for changing their prices daily, observers said.
The 10 percent excise tax was included in the price of an airline ticket from the 1970s until Congress let it drop Jan. 1. Some consumers received a windfall early in the year when some fares were cut 10 percent as a result. Since then, most airlines have let fares creep up an average of 7 percent over a year ago.
Congress last week agreed to re-impose the tax, which is used to pay about two-thirds of the Federal Aviation Administration's costs. The tax is included in legislation raising the minimum wage, and would take effect seven days after the bill is signed by President Clinton. As of Tuesday, it wasn't certain when Clinton would act.
Under the legislation, the tax would be reinstated only through the end of 1996, while Congress studies whether to continue it.
The airlines' ability to raise fares this year without customers feeling the pinch has helped keep business strong for the industry.
Analyst Brian Harris of Lehman Brothers in New York told investors in May: ``1996 could represent peak earnings for the industry due to the turbo-boost being supplied by the temporary expiration of the ... excise tax.'' Last week, Harris estimated about 23 percent of the pretax profit reported by the eight largest airlines in the first half of the year is the result of charging higher fares.
While some analysts don't expect fares to suddenly leap 10 percent when the current round of discounting ends, others say that they expect airlines to use reinstatement of the ticket tax as an opportunity to raise prices as much as they can on all the routes they can.
LENGTH: Medium: 68 linesby CNB