Budget Impasse Produces Bonanza For Air Travelers Most Airlines Pass On Tax Savings To Passengers

Flying in the United States just got 10 percent cheaper because major airlines stopped collecting a federal passenger tax that expired Monday.

Delta Air Lines Inc., Continental Airlines Holding Inc., USAir Group Inc., Northwest Airlines Inc., UAL Corp.’s United Airlines, and AMR Corp.’s American Airlines Inc. passed the savings on to customers. The tax expired because its renewal is part of the stalled budget talks in Washington. The tax on domestic air travel generates about $4.6 billion annually in revenue for the federal government.

“It’s going to stimulate air travel,” said analyst Julius Maldutis of Salomon Brothers. “Air travel has been stagnant.”

Last week, Delta sparked a fare war by cutting ticket prices by as much as 50 percent for winter travel between Tuesday and Feb. 29. That means some ticket prices fell 60 percent in less than a week.

Airline shares rose in late trading, with the Standard & Poor’s index of airline stocks increasing 4.71 points to 287.29. UAL shares rose $3.37-1/2 to $181.87-1/2, AMR shares rose 87-1/2 cents to $75.12-1/2, Delta rose $2.25 to $75.87-1/5, Northwest rose $1.25 to $52.25 and USAir rose 12-1/2 cents to $13.12-1/2. Continental’s Class A shares fell 37-1/2 cents to $42.12-1/2.

Analyst Maldutis said that while the elimination of the excise tax will lead to a spurt in ticket purchases, revenue won’t be affected because airline revenues are reported after taxes.

Congress first imposed the 10 percent tax in 1970 to pay for airport improvements and upkeep. Other taxes that expired Monday include a $6 international departure tax and a 6.25 percent air cargo tax, according to Arlington, Va.-based USAir.

The excise tax won’t be collected until the budget battle is resolved. If Congress makes the tax retroactive, airlines said the federal government is responsible for collecting the tax directly from travelers.

“If Congress reinstates the tax, Delta will have no obligation to collect the tax,” said Jackie Pate, spokeswoman for Delta.

Several airlines, including United Airlines, first raised fares to counter the tax, then rescinded the fare increase.

“We had found ourselves in a situation where we were not fully competitive so we are making some adjustments,” said Joe Hopkins of UAL Corp., parent of United Airlines.

Hopkins said United would match the ticket cut for flights that are competitive with airlines like American. He said the airline won’t cut prices on the West Coast where it competes with the discount airline Southwest Airlines.

A Southwest spokesman said the 10 percent tax was still in place but that a fare committee was evaluating the charge Tuesday afternoon.

For travelers who bought tickets Monday and paid the 10 percent tax, American, Delta and United said they will reimburse ticket purchasers.

Trans World Airlines also said it won’t charge the 10 percent tax. It’s fares won’t be affected because it raised them by 10 percent last week.