Airfares took a roller-coaster ride this spring following the industry's attempt to pass on the reinstated ten percent ticket tax to consumers earlier this year. When the ride ended, the major carriers had settled on a four percent hike in fares.
This latest airfare drama was triggered by a Congressional vote in March to reinstate a package of ticket taxes that expired December 31. The tax package, used to fund airport safety projects, includes a $6 per ticket tariff on international departures and a 6.25 percent tax on domestic air cargo. When Congress allowed the ticket tax to lapse at the end of 1996, the airlines got a windfall by maintaining fares, most of which they had raised by ten to 20 percent in late December in anticipation of the expiration of the tax.
Following reinstatement of the ticket tax, American Airlines and Delta Air Lines raised fares on most routes by another ten percent. Both carriers backed off when Northwest Airlines refused to match the increase and instead boosted its fares by four percent. United Airlines and Continental Airlines also retreated from their ten percent increase and instituted a four percent hike.
Airfares had been continuing a year-long rise before this latest increase. Among the reasons: strong demand, limited capacity increases, and less competition from low-fare carriers. The higher fares, coupled with heavy traffic, has led to record airline profits. But fuel costs have also risen and many airlines--particularly American with its ongoing dispute with its pilots--are contending with rising labor costs as well.