Airlines sneakily raise fares during tax hike; Senators furious

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29 Responses to “Airlines sneakily raise fares during tax hike; Senators furious”

  1. Alex Rosen says:

    Remind me again how this is “dirty”? Either the airlines are allowed to set their own prices, or they aren’t. If I was willing to pay $200 a ticket before, including taxes, I’ll be willing to pay $200 now too. Unless another airline (like Alaska Airlines) comes along and offers it for $180 because they don’t have to play taxes anymore – then I’ll switch. That’s how competition works.

    Maybe Alaska is being smarter, and might get more customers because of this. But nobody’s being dirty. (Unless someone is alleging that the airlines are being misleading – like charging some sort of fee that looks like it’s a tax but isn’t really.)

    • Cory Doctorow says:

      It’s dirty because the airlines got a tax holiday from the government, and used price-hikes to make up the difference, while hiding the fact that their margins had just improved substantially. Publicizing the fact that the airlines’ cost basis has changed (as I’ve done here) decreases their capacity to get away with this.

      • Alex Rosen says:

        Publicizing it is great – letting people know that certain airlines are now cheaper than others. But I would characterize it as “cheaper vs. more expensive” rather than “dirty vs. good”. If I’m flying a route that Alaska and another airline flies, now I’m more likely to fly Alaska because they’ve lowered their prices. 

        If the price of oil drops, is an airline “dirty” if they don’t immediately drop their fares? I think it’s up to each airline to decide how to set their prices – and an airline that chooses to cut their fares will get more passengers as a reward.

      • scolbath says:

        The airlines did not get a “tax holiday”.  Passengers did.  The airlines are simply the deputized tax collectors of the government here.

        The USG has been unable to pass a bill to reliably fund the FAA since something like 2002.  Do not blame the airlines here;  you can price-shop as always. 

    • According to some sources, the taxes are still showing up on tickets and the taxes are still being collected by the airlines, but the airlines are keeping the “taxes.”

      http://philadelphia.cbslocal.com/2011/07/27/taxes-on-plane-tickets-expire-airlines-pocketing-the-fees/

  2. Guest says:

    The airlines too have received a bailout in the past; they’re too big to fail.  Fat chance of getting the windfall back.  This is just so much posturing.

  3. Brian Decker says:

    So typical.  All we hear are screams to “privatize everything” and to let the “market sort everything out” – then when the market does EXACTLY what they are supposed to do (and it actually rises to the attention of the average rube) those same people freak out.  We as a people chose long ago to pursue a fairly pure form of capitalism as our economic system.  This is exactly the kind of thing that a capatalistic company is supposed to do – maximize profits for its owner and/or investors.  As Baudrilliard clearly pointed out “There is not, nor has there even been, any real or implicit altruistic contract between a corporation and the society in which it resides.” To expect any other action from any business in the US is deluded.  In fact, were a business to act otherwise it would be an indication of mismanagement OR that management has concluded the potential net gain from not doing so (in PR or increased sales) would be greater.

    • Guest says:

      ‘We as a people chose long ago to pursue a fairly pure form of capitalism as our economic system.’

      Indeed?  The American people are in collusion with the robber barons; so we have no business complaining?  We made this bed; we should lie in it and shut up?  

      I’m pretty sure ‘the people’ of this country at no time queued up to vote that our government practice a pure form of capitalism (whatever that is) or any other form, but most especially not the cronyism and corporatism that is our economic system today.  When I pointed out that the airlines received a bailout, like the banks, it was as a reminder of the relationship between our so-called representatives in Washington and their corporate masters.  The senators can ‘tut-tut’ and wag their fingers disapprovingly all they like.  It plays well in front of their constituents, but everyone in the room knows who really holds the reins of power, so the senators are just posturing for the press back home.  Assuming even for a moment that the airlines could be embarrassed or shamed over this break from taxes (unlikely), they still won’t be cutting a check in contrition.  But bravo to Cory for the ‘gotcha’.

    • Navin_Johnson says:

      Let’s divert the massive subsidies that the “capitalist” air industry gets and see how they do. Rail could certainly use it.

  4. Blackbird says:

    It’s an easy bait and switch.  Most customers will not know that there is no tax on it.  They won’t even look.  Therefore, its reasonable that this is ‘dirty’ trick is simply a cash grab for the airlines themselves .  The other question, and possibly a bigger one, is, even though they cannot COLLECT the tax right now, does it mean that it ‘doesn’t exist’, or that it just cannot be collected.  IE, once things get sorted out, will the FAA come after the airlines for ‘back taxes’. 

  5. What’s surprising? Prices are determined by willingness to trade of suppliers and demanders. Economic analysis clearly explains that prices are not determined by costs, so this should be no surprise.
    With taxes, the quantity of goods sold is sub-optimal (meaning lost opportunities for mutually beneficial exchanges). With the taxes removed, this will tend to improve. The additional profit invites expanding the service and increased competition, both resulting in more consumers being able to fly.

    Btw, wasn’t there a recent Boing Boing article pointing out how difficult it is for airlinerrs to make a profit?

  6. Zachary Sarver says:

    Capitalism at work!

  7. I’ll be surprised if no airlines advertise “$25 dollars off all tickets!” while it lasts. Just like some airlines are taking advantage of it one way, some ought to take advantage of it the other way.

  8. Why can’t the FAA collect taxes as usual?

    • scolbath says:

      The relevant law that authorizes their operating budget has expired, and with it the taxes.  Note that this just covers administrative operation and things like construction;  ATC controllers are funded differently, and therefore still showing up to work. 

    • Nylund says:

      Congress has to pass a bill granting Operational Authority to the FAA for them to do a lot of things.  Stupidly, such grants are very short…just a few months, so congress must do this quite frequently.  This time, there were riders to the bill that caused a partisan showdown.  To sum them up briefly:

      1.  Back when the airline industry was deregulated, some rural airports really struggled, so the gov’t gave them a subsidy.  It was argued that many such “rural” airlines are no longer very rural and there was a fight over whether or not they still needed to be subsidized.

      2.  There was a fight over how votes are counted when railroad and airline workers vote on unionization.  The GOP wants “not present” votes to count as No votes, while Democrats think they should be “not present” and thus not count towards the Yes v. No vote totals (ie, they’re fighting over how easy/hard it should be to unionize workers.)

      Congress couldn’t settle the fight, so the FAA lost its authority.  This means they don’t have the authority to tax tickets. This comes to $30 million a day in lose revenue.  It also means they have to put a halt on a number of airport projects (fixing up runways, replacing control towers, etc.) that were meant to ease the problems of congestion and delays in US airports.  And finally,  it means that thousands of workers, both public and private, lost the jobs (at least until this is sorted out) associated with all those projects that were in progress.

      I believe, if it is not sorted out shortly, the FAA will start running into more severe problems that will have a more direct effect on airline travelers.

  9. pianom4n says:

    http://gregmankiw.blogspot.com/2011/07/question-about-tax-incidence.html

    A temporary tax-break won’t cause an increase in supply (nobody is scheduling more flights tomorrow because of this), an when supply is inelastic (http://www.econ.rochester.edu/eco108/ch5/510.gif), price is only determined by demand.

    Do you complain when sales tax goes down and everybody doesn’t lower prices? I also assume when your income tax rate went down you went to your employer and demanded a paycut.

  10. Nylund says:

    The market had determined what the optimal total price (ticket price + taxes) was.  There is no reason to expect that total number to change.  The optimal total price is still the same number it was before. The removal of the tax just switches the allocation of the money from the gov’t to the airlines.  Whichever you prefer is a matter of personal taste.  Do you want the struggling airlines to do better?  Maybe they’ll be able to put in more TV’s or add more wireless  Or would you rather it go to the FAA who were (prior to this) undergoing a lot of projects to fix up runways, control towers, etc. in an attempt to ease congestion and lessen flight delays?

    And I think this is representative of the larger debate on taxes (those both for and against).  I doubt they rarely translate into a significant change, positive or negative, for consumers, but rather how the money consumers pay is distributed.  Although, as a cynic, I imagine that if taxes had INCREASED, the airlines would have increased ticket prices as to keep their “cut” the same leading to a total higher cost for consumers.  So, in that cynical sense, no matter what you do, I doubt you’ll ever see much benefit for the consumer.

  11. calickizzle says:

    Alas

  12. calickizzle says:

    Alaska Airlines, the same airline that holds the state of Alaska hostage and charges as much for a two-hour flight from Juneau to Seattle as a cross-country flight from Seattle to New York?

    Yeah, this totally not-dirty airline can afford to not increase fares, thanks to being subsidized by the pocketbooks of Alaskan residents.

    • Antinous / Moderator says:

      Alaska is a welfare state that’s subsidized by the pocketbooks of residents of the other 49 states.

  13. bklynchris says:

    just curious.  For all of you who see no problem with this as it is merely one capitalism’s inherent entitled machinations, how do you feel about Wall Street bonuses?  When a loved collected this at the end of the fiscal year, I felt no one had a right to begrudge them this as they worked for it and their most successful Wall Street bank had redistributed year end profits as the reward for their employees hard work.  

    So what say you?  Do you also begrudge people their “discretionary compensation”?

    • Navin_Johnson says:

      Not when they have been saved by government largess and probably should be facing fraud charges.  No.

  14. Deidzoeb says:

    Senate says, “No fair fleecing our suckers! Only we can do that!” Like the kid who says, “Nobody beats up my little brother! … except me!”

  15. Paul Lockett says:

    Prices are set by supply and demand, not the break-even point, so the idea that the airlines are being sneaky is probably unfair; they’re just continuing to price rationally.

  16. swankgd says:

    Sorry Corry, gotta disagree with you  here.  This is how taxes are supposed to work.  It’s one of the reasons they are a good way for a government to raise money.

    When a tax is applied, you’ll see that prices drop to compensate.  Depending on the elasticity of the goods involved, the supplier absorbs some of the tax hit, otherwise the increased cost would drive demand too low.

    Therefore, the mirror image is true.  If a tax is lifted, prices rise to take advantage.  It’s as basic a principle of supply and demand as there is, it’s what makes taxation work without crippling the economy.

    • It one thing if the tax columns were removed and the base price increase. It’s another to keep the tax columns intact, and pocket that money. That is nothing but fraud.

  17. swankgd says:

    That is indeed another story, but was not indicated in any of the information originally posted.  I honestly haven’t seen anything that says they are still saying it’s a tax.  The only thing I’ve seen is that they are including the amount in their fees.  Fees are not taxes.  Never have been.  They can partially include taxes, but even when the taxes were being collected, if you looked at the details of the “fees” (always available) they included taxes and OTHER fees.

    It’s no more dirty and sneaky than  Ron Popeil charging $15 for “shipping & handling” for something that costs $1.50 to ship.  Until I see evidence that they were still saying that they were collecting TAX as opposed to fees, it’s nothing more or less sneaky and underhanded than they or any other for profit business has been doing for decades.

  18. Marc Mielke says:

    I’m shocked that someone actually figured this out. The processes that go into airline pricing are so bizarre and arcane that few people actually know how it works. I’ve refunded a ticket, then re-priced the exact same item–same flight, same seat– and gotten a completely different price out. 

    Whoever has access to the pricing algorithms can hide all sorts of shit in there. 

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