ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, December 31, 1996 TAG: 9612310134
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
AIRLINES PLAN TO KEEP prices the same, pocketing the money that once went to taxes.
For a second consecutive New Year's Day, the 10 percent federal tax on commercial airline tickets is lapsing. Unlike last year, travelers won't benefit.
The carriers, led by Continental Airlines, already have announced fare increases equal to the anticipated tax cut on 14-day and 21-day advance-purchase tickets.
``It's pretty clear they're going to keep the selling price the same and pocket what used to be the tax,'' said Ed Perkins, editor of the San Francisco-based Consumer Reports Travel Letter.
``The airlines are pretty well convinced that business is strong and they figure, `If we can't raise fares in this climate, we'll never be able to raise fares,''' he said.
Analysts expect the industry to post a record $4billion profit in 1996. Continental spokesman David Messing rejected the notion that airlines should automatically pass on the savings from the tax lapsing.
``Fares are ultimately set by the marketplace, based on supply and demand for seats. They aren't based on adding up all the cost components,'' he said. ``So a fare that's $179 on Dec. 31 and $179 on Jan. 1 makes sense from an economic perspective.''
The ticket tax and other aviation levies first lapsed at the start of 1996, the victim of the protracted budget battle in 1995 between President Clinton and the Republican majority in Congress.
Also expiring were a $6 per ticket levy on international departures, a 6.25 percent tax on domestic air cargo and excise charges on noncommercial aviation fuel.
They weren't reinstated until August. The delay cost the government roughly $500 million a month.
When the taxes died the first time, airlines initially passed the savings to customers; but within three to four months, most had raised fares to match.
This time they didn't hesitate to increase fares. And since airlines advertise their prices with the ticket tax included, travelers probably won't notice a thing.
Passengers won't realize fares have been raised, Perkins predicted, until Congress gets around to reinstating the tax. The airlines will be loathe to give up the revenue and will tack it onto their previously raised prices, he said.
That probably won't be for some months, even though Senate Majority Leader Trent Lott, R-Miss., and Minority Leader Tom Daschle, D-S.D., have endorsed quick reinstatement.
Rep. Bill Archer, R-Texas, chairman of the House Ways and Means Committee, appointed an eight-member bipartisan task force to examine federal taxes on all forms of transportation. A separate 21-member commission is studying how best to finance the Federal Aviation Administration.
Archer's move was motivated in part by a dispute among a group of seven large airlines and small and discount carriers. The large airlines advocated a fee system based on the number of passengers, seats per aircraft and passenger-miles flown. The other carriers say that would unfairly shift costs to them.
The ticket tax probably won't be reinstated before fall, when Congress completes work on the 1998 budget.
And under Congress' arcane tax laws, the stop and go pattern means lawmakers can use the revenue to offset tax cuts in other areas. On the down side, it means lean times for the Airport and Airway Trust Fund, which finances airport modernization.
The General Accounting Office projects the trust fund balance will hit zero in July if aviation taxes aren't reinstated before them.
``That fund will suffer severely,'' said Geoff Collins of the Dallas-based International Airline Passengers Association. ``They shouldn't let it go. Ultimately, it will affect consumers.''
As it did in the last budget, Congress could compensate for the shortfall by earmarking additional general tax revenue for transportation spending.
LENGTH: Medium: 79 linesby CNB