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FAA deal may end airline windfall

U.S. air carriers, such as Southwest Airlines, raised base fares in July when the Federal Aviation Authority lost its ability to raise revenue.

Associated Press (2008)

U.S. air carriers, such as Southwest Airlines, raised base fares in July when the Federal Aviation Authority lost its ability to raise revenue.

DALLAS — Southwest Airlines may lead U.S. carriers in rolling back a fare increase now that the Federal Aviation Administration can resume collecting ticket taxes and fees, ending a two-week industry windfall.

Once the taxes return, airlines probably will wait a day to drop prices to avoid giving up extra money as rivals keep collecting it, said Rick Seaney, chief executive of Dallas-based travel website FareCompare.com. He said Southwest, the biggest discount carrier and the dominant airline at Tampa International Airport, probably will act first.

"I wouldn't be shopping for tickets this weekend," Seaney said Friday. "There's no incentive to do something right now until someone dips their toe in first. But it's coming."

Airlines boosted fares after the FAA's revenue-raising authority lapsed July 22, halting collection of a 7.5 percent sales tax on domestic tickets and a fee of $3.70 a flight segment. Raising base fares by the same amount produced more revenue for airlines without consumers seeing a difference.

The higher prices — about a $40 or $50 increase for domestic tickets — should start vanishing within 48 hours, said Jamie Baker, a JPMorgan Chase analyst in New York.

"Leaving fares unchanged would translate into a healthy 10 percent fare increase, but rarely has the industry raised fares by this magnitude in a single effort," Baker said in a report Friday as the Senate approved legislation extending the FAA's funding authority through mid September.

The industry collected about $28 million a day from the increase, or about $400 million total during the standoff in Congress over funding the FAA, Baker estimated. The agency has been operating on a series of short-term extensions since its last multiyear authorization expired in September 2007.

The partial shutdown of the FAA had left hundreds of airport construction projects in limbo and idled tens of thousands of construction industry workers as well as nearly 4,000 FAA employees.

Information from the Associated Press was used in this report.

FAA deal may end airline windfall 08/05/11 [Last modified: Friday, August 5, 2011 11:56pm]

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