- The Washington Times - Tuesday, September 30, 2003

Airline fares are going up as a government holiday on a security tax ends today and major oil-producing countries reduce production levels.

The Bush administration granted a four-month break from the $2.50-per-leg tax on airline flights intended to help pay the nation’s aviation security bill.

The tax holiday that began June 1 was supposed to prop up industry during an economic slump that gained momentum from war with Iraq.

Delta Air Lines customers will notice the higher fees as soon as today.



“Customers purchasing tickets on or after October 1, 2003, will see an additional fee of $2.50 per segment,” said Anthony Black, Delta spokesman. The fees range up to a $5 maximum on one-way tickets and $10 on round-trip fares.

Mr. Black says passengers should blame the federal government, not the airlines.

“The September 11th security fee is not part of Delta’s base fares,” he said. “The September 11th fee is part of the additional taxes added to the price of the ticket.”

Other airlines also are raising fares because of the reinstated tax.

“All airlines will be adding that fee,” said Stacey Spencer Paradis, spokeswoman for Orbitz, the Internet-based travel agency.

She conducted a search of Orbitz’s reservation system and found the security fee “baked in to the fare that is shown in the initial search results” for all airlines.

In addition, last week the 11-member Organization of the Petroleum Exporting Countries announced it would cut oil production by 900,000 barrels per day to 24.5 million starting Nov. 1, which means fuel prices are likely to increase in oil-importing countries.

Although airlines purchase fuel in long-term, fixed-rate contracts, higher prices are expected to hit average airline ticket prices if the contracts are renewed at higher rates.

“The U.S. imports about 60 percent of the oil it uses, so developments in world oil markets can have a direct effect on us in this country,” said Ron Planting, an economist for the American Petroleum Institute, a trade group for the oil industry. “The cost of crude oil is one of the important costs of producing most petroleum products, and fluctuating crude oil prices can translate into fluctuating prices for gasoline, jet fuel and other products.”

Until now, jet fuel prices have been dropping.

In the last six weeks, the fuel fell in price by 8 cents per gallon as crude oil prices dropped from about $31.50 per gallon to about $28 per gallon.

OPEC cut production to drive up demand for a diminished supply.

Industry analysts said airlines have little choice on whether to raise fares, primarily because of the security tax.

“It would be wrong to impart any benefit to the airlines associated with the fee coming back,” said Sam Buttrick, an airline industry analyst for the Wall Street investment firm UBS Warburg.

David Swierenga, a Vienna, Va.-based airline industry consultant, said, “If they can’t raise their prices because people aren’t willing to pay higher prices, it means there’s going to be a big reduction in airline profitability.”

He estimated the renewed security tax would increase airline ticket fares an average of about 2 percent.

Any increases caused by oil prices are too speculative so soon after OPEC’s announcement last week. However, even a small increase in fares creates a negative backlash for airlines, he said.

“In almost all cases, it results in reductions of passenger demand,” Mr. Swierenga said.

Airlines are likely to reduce their fares only if the backlash from consumers is severe, said David Stempler, president of the Air Travelers Association, an advocacy group for airline customers.

“If there is any opposition to the new fares with the add-on security charges, then it will be rolled back and the airlines will absorb the security charges,” Mr. Stempler said. “But we have no indication of that as of yet.”

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