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Airlines hit by new taxes
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August 5, 1997: 5:51 p.m. ET
Levy quadrupled on international fares; short, cheap flights also hit
From Correspondent Carmine Gallo
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NEW YORK (CNNfn) - From the White House to Capitol Hill, lawmakers have been trumpeting the tax cuts in the new budget. But the government also is raising taxes for some constituencies, such as airlines.
It's far from clear at this point, but if you travel abroad, fly frequently or use bargain airlines, you may end up paying more as a result of new tax laws.
Most analysts agree the new taxes will result in higher fares.
"At the end of the day the airlines' cost structure will be higher as a result of this tax, and usually higher cost structures get indirectly or directly passed on to the consumer," said Glenn Engel, an airline analyst for Goldman, Sachs & Co.
The new law includes three major changes. It hikes the roundtrip international tax from $6 to $24. It adds a tax on frequent flyer miles obtained through second parties, such as credit cards or hotels. And the most controversial part is the new law gradually lowers the existing 10 percent airline tax, while adding a flat per-passenger tax for each leg of a domestic flight -- $1 after October first, $3 in five years.
Some say this last provision especially hits airlines specializing in short, cheap flights.
"As the tax progresses, the smaller airlines may be hurt by it, they may have to pass it on to the consumers which, of course, will raise fairs, and they'll lose their competitive advantage. And in the end run, the consumer loses out," said Robert Kulat, a Kiwi Airlines spokesman.
Southwest's average one-way fare costs $70, under the current system, the tax is $7, this would jump to $8.25 in five years.
In contrast, a $1000 ticket on a major airline is now taxed $100, but that will fall to $78 in five years.
No one knows for sure if and when any airlines will pass on their new tax burden to consumers. The new tax laws are expected to cost airlines an additional $3 billion over the next five years. 
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