A Class Action Accuses Airlines of Fraud on Tickets

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Ever throw away a nonrefundable airline ticket you weren’t able to use, grumbling, “There ought to be a law?” Well, now you’ve got a lawyer.


Most of that money is probably lost forever, but a Massachusetts attorney filed a class-action lawsuit last month to recover some of it. The little-noticed case accuses major airlines of ripping off passengers by illegally pocketing millions of dollars in taxes and fees on tickets that were never redeemed.


“The public’s being taken advantage of,” said the lawyer, Evans Carter. “There’s just no basis for keeping money like this.”


Mr. Carter’s suit names 14 travelers but seeks damages on behalf of people across the country who purchased nonrefundable airline tickets but, for what ever reason, never flew. He said the sums at stake in the case are far from trivial.


“Our estimate was approximately $50 million a year, but we’re told that’s pretty low,” Mr. Carter said in an interview yesterday.


A spokesman for a trade group representing the industry said the airlines intend to fight the lawsuit. “We don’t believe it has any merit,” Douglas Wills of the Air Transport Association said.


Mr. Wills also offered a piece of information that will come as a surprise to most frequent travelers: Some airlines will return the taxes and fees on unused nonrefundable tickets.


“There is no federal law or regulation that requires a carrier to automatically refund taxes when a ticket goes unused,” the spokesman said. Still, “many will refund,” he added.


Mr. Wills denied that airlines are using the monies at issue in the lawsuit as a slush fund to support their operations. “Airline taxes and fees are immediately turned over to the federal government and, in some cases, the appropriate airport authorities,” he said.


Airline tickets are subject to a dizzying array of fees and taxes. There is a 7.5% federal excise tax on domestic tickets, as well as a tax of $3.10 for each flight segment. The federal government also collects a “September 11 security fee” of $2.50 a person for each flight. In addition, individual airports are allowed to assess a fee of up to $4.50 for each departing passenger.


These taxes and fees will total $15 billion next year, according to a recent airline-funded study. Another analysis, conducted by the Massachusetts Institute of Technology, found that the average ticket includes fees and taxes of about 15%. However, the airlines point out that on a $200 fare, the add-ons often amount to 26% of the total.


On an international ticket, the surcharges and fees can be even higher. “You’re talking big, big superbucks when you go over to Europe,” said Thomas Parsons, who runs a discount travel Web site, Bestfares.com.


Mr. Parsons said his staff recently priced a ticket on Air France from New York to London via Paris. The unusually cheap fare was $170, but fees and taxes amounted to a staggering $218 a passenger.


Mr. Parsons said he’d never considered that the airlines might be holding on to the taxes and surcharges on unused tickets. “You shouldn’t be paying taxes on something that was never used,” he said. “This becomes almost like skyway robbery. You’re talking billions of dollars, I would have to think, that John Q. Public is being ripped off for.”


Other industry observers questioned the value of the lawsuit. A professor of economic development at the University of Southern Mississippi, David Butler, said whatever extra money the airlines receive from the alleged practice is already reflected in their prices. “Really, the cost of that or the revenue derived is spread over every ticket,” he said. “I don’t see a windfall for the airlines.”


If airlines are fleecing customers, they’re not doing a particularly good job of it. Most big American air carriers have hemorrhaged cash in recent years. Since 2001, airlines based in America have lost more than $23 billion.


Mr. Carter argues that those losses don’t give the airlines the right to hang onto money that isn’t theirs. “There’s a lot of things wrong with the airline industry,” he said. “You shouldn’t keep money you’re not entitled to.”


For tactical reasons, Mr. Carter has dropped his case against five of the 16 airlines named in the original lawsuit. Those carriers are bankrupt. Last week, one of the foreign airlines named in the case, Alitalia, transferred the suit from a state court to the federal court.


The Framingham, Mass.-based lawyer also said the lawsuit has triggered angry correspondence from airline workers. “I’ve already gotten four, five, or six letters from airline employees suggesting it’s a frivolous suit and they’re going to lose their job because of me,” Mr. Carter said. He said he went to the airline industry group a year ago and asked it to set an industry-wide policy against retaining the taxes and fees. The response was noncommittal, Mr. Carter said. “It’s kind of unusual to give them a notice of a year of filing suit if it’s frivolous,” he said.


The class-action suit covers only some of the extra fees on tickets. Mr. Carter said he believes that the airlines do remit the 7.5% tax and the security fee to the government right away. However, he said he believes that most of the airlines hang onto the tax for each segment, the airport taxes, and fees meant to be paid to foreign governments until a passenger actually flies.


The individual airlines offered varied responses when asked by The New York Sun about their policies on refunding fees and taxes.


Southwest said it would refund the security fees and airport charges upon request. United said it would refund “certain fees” but not the taxes. American issued a statement saying it “acted appropriately” on refunds, but declined to describe its policy in detail. Northwest said it offers refunds on fees only when required by law. Continental said it considers unused nonrefundable tickets “forfeited” in their entirety. US Airways did not return a call seeking comment.


Mr. Carter described the claim that refunds are sometimes available as “Monday morning quarterbacking.” He noted that the policy is not mentioned on airline Web sites.


The industry spokesman, Mr. Wills, said passengers have another option when it comes to recovering the federal tax paid for flights never flown. “They can request a refund at the end of the year from the IRS when they do their taxes,” he said.


Indeed, IRS form 8849 can be used to claim a refund of airline excise taxes. The refund is so obscure, an IRS spokesman said, that there are probably no statistics on how often it is sought.


The New York Sun

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