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Airlines pocket difference on tax-free ticket sales, Senators call foul

Consumer Reports News: July 27, 2011 03:23 PM

The government's ability to collect taxes from passengers on airfares expired amid the budgetary impasse last Friday. Instead of reducing fares to reflect that change, many airlines kept prices at levels they would have been at if taxes were still included in the cost of a ticket. Airlines then pocketed the difference. The Federal Aviation Administration can't collect these taxes until its budget is reinstated.

In a letter sent to the airlines on Tuesday, Senators Jay Rockefeller and Maria Cantwell said that airlines' actions to take advantage of the tax holiday could have "long-term negative repercussions for the industry."

Rockefeller and Cantwell are chairs of the committee that has oversight over the FAA budget, and the aviation subcommittee, respectively. The letter asked the airlines to either put the tax-holiday profits into an escrow account to support government aviation programs, or undo the fare hikes.

The FAA is losing approximately $30 million a day in taxes due to the expiration of its revenue-raising authority by Congress, according to Bloomberg News.

This latest move by many airlines to take advantage of a temporary tax break may come as no surprise to many consumers. Additional fees topped the complains of many survey responders in our latest Ratings of U.S. airlines. We also detailed how airlines continue to squeeze customers with additional fees.

Senators Blast Airlines For Profiteering During Tax Holiday [AP via Consumerist]
FAA Loses $30 Million a Day as Tax-Collecting Powers Lapse [Bloomberg]

Maggie Shader

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