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Many airlines raise fares during lapse in ticket taxes

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U.S. airline ticket tax collection lapsed after Congress failed last week to fully fund the Federal Aviation Administration budget.

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ATLANTA -- Many U.S. airlines raised fares in recent days to take advantage of a lapse in U.S. ticket tax collection after Congress failed last week to fully fund the Federal Aviation Administration budget, but passengers will likely not notice any price difference.

The expiration of the FAA reauthorization means some aviation taxes are no longer being collected. These include a 7.5 percent sales tax on U.S. air transportation and a 7.5 percent sales tax on the purchase of air miles, said fare watcher FareCompare.com. Additionally, taxes on jet fuel are also reduced.

"Friday evening we adjusted prices so the bottom line price of a ticket remains the same as it was … prior to the expiration of federal excise taxes, etc.," said American Airlines spokesman Tim Smith for AMR Corp.'s American Airlines.

JetBlue Airways Corp. and Southwest Airlines Co. began raising ticket prices by at least 7.5 percent on Friday, according to FareCompare.com. Other airlines, such as Delta Air Lines Inc. and United Continental Holdings Inc., boosted prices on Saturday.

The changes could save consumers 10 percent to 15 percent of the cost of a ticket, should the FAA-related tax relief be passed along, said Rick Seaney, CEO of FareCompare.com.

U.S. airlines have long complained about taxes and security fees, which they say they cannot always pass along to customers. The Air Transport Association, the top airline lobbying group, said that on a $300 ticket, about $61 goes to taxes and fees.

ATA declined to comment on specific airline pricing strategies, but spokesman Jean Medina said consumers are not impacted by the latest round of fare hikes because they will pay the same amount for tickets as they did last week.

"This short-term additional revenue for airlines, which does not mean a fare increase for consumers, benefits all stakeholders -- customers, employees, and investors -- by temporarily improving tiny industry margins to better cover costs, and enable airlines to invest in their product and service," Ms. Medina said.

Ray Neidl, senior aerospace specialist at Maxim Group, said passengers will not notice the latest fare increases because the price they pay for tickets will not change. "Basically (airlines) are just charging what they think the consumer will pay to fill the seats," he said.

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