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Thu, May 22, 2003

Air Fares Down, Taxes Remain

As fuel prices go up and down, so, also, do air fares. Fuel, of course, is one of the top two components of airlines' costs. Although fuel costs did drive up ticket prices in February and March, we paid less in April, as the war's effects diminished.

Changes in labor costs don't often cause ticket prices to change much -- airlines tend to smooth out those cost changes, as they have to compete with one another.

Taxes, a huge part of an airline ticket's cost, are just... there. When ticket prices go down, taxes, relatively speaking, go up. When times are good, the government sees an opportunity to raise taxes, and so taxes go up. When times are bad, the government needs the money (who doesn't?), so taxes... go up.

Even as airlines -- which do all the work, take all the risk, and collect all the money -- cut ticket prices, the government's take remains relatively constant. That effect is more-apparent in a just-released survey of air fares, compiled by the Air Transport Association.

As single-flight prices rise, taxes become less of a percentage of the total; that's called "regressive taxation." Since, though, 1000-mile fares averaged about $120 for the first part of this year, it's worth considering how much tax you'd pay.

A total price of $100 (a worst-case scenario, excerpted in the table) would split money about 50-50 with the airline (which does nearly 100% of the work); a total ticket cost of $200 would put $143 in the airline's pocket; the rest would go to taxes.

Consider this: if an airline with a $200 ticket suddenly became twice as efficient, and had fuel costs drop by half; and if that airline passed all the savings on to you, your discount would be only about 35% -- the government would sop up the rest. It's just something to think about.

FMI: www.airlines.org

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