August 8, 2011 / 6:53 PM / 7 years ago

U.S. airlines trim fares after FAA shutdown

CHICAGO (Reuters) - U.S. airlines have begun rolling back fare increases initiated last month when a partial shutdown of the Federal Aviation Administration halted the collection of certain ticket taxes and allowed carriers to raise base fares without increasing prices paid for tickets.

A Southwest Airlines 737-700 taxis at Bob Hope Airport in Burbank, California April 4, 2011. REUTERS/Mario Anzuoni

The so-called ‘tax holiday’ expired after U.S. congressional leaders struck a deal last week to resolve a partisan dispute and end a partial shutdown of the FAA.

Low-cost carrier Southwest Airlines (LUV.N) was the first major airline to pull its fare hikes on Sunday, and rivals, like Delta Air Lines (DAL.N) and AMR Corp’s AMR.N American Airlines followed on Monday morning, said Rick Seaney, chief executive of Farecompare.com, which tracks air fares.

“Right now it looks like an avalanche of craziness,” Seaney said, referring to the race to by airlines to keep their ticket prices competitive.

He said he expected more rollbacks of fare hikes over the next 24 hours.

Analysts and carriers have said the industry justifiably capitalized on quick profits when, because of congressional inaction on temporary aviation funding legislation last month, they stopped collecting certain ticket taxes and raised fares by a like amount.

“During this 16-day tax holiday, domestic airlines frantically raised base airfare prices to capture the portion of uncollected taxes, some $20 to $30 million a day, which would otherwise have gone to consumers,” Seaney said in a research note.

Major airlines lost an estimated $440 million for the first six months of 2011, industry figures show. Higher fuel costs are largely to blame for industry woes.

The FAA shutdown, which began on July 22, centered on partisan differences over full funding of the agency through the middle of next month.

The Arca airline index .XAL was down 6.6 percent on Monday afternoon.

Reporting by Kyle Peterson, editing by Bernard Orr

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