aside 4 AIRLINES ARE BEING CHALLENGED FOR COLLUSIVE PRICING BY DOJ AND CONSUMERS

U.S Senator Richard Blumenthal (D-Con.) called for DOJ oversight
U.S Senator Richard Blumenthal (D-Conn.) called for DOJ oversight over airlines

After reading my most recent blogs, you may be wondering what is being done to reign in the four major airlines from allegedly taking unfair advantage of  consumers even more, now that there is much less market competition due to all the mega mergers in the past few years.

The answer to this is that their are three entities taking action to address this issue which includes the Department of Justice (DOJ); the U.S. lawmakers and the consumer, some of whom are suing the airlines.

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THE DOJ investigation into possible collusive pricing by the airlines due to limited competition; and the U.S. congressional lawmakers’ input were covered  in a 7/1/15 The Hill article by Keith Laing and here are some excerpts:

DOJ The Department of Justice

“The Obama administration is investigating whether airlines are colluding to keep airfares high, The Associated Press reports.”

“The Department of Justice is launching an investigation of potential antitrust law violations by airlines, after a string of high-profile mergers reduced the number of major U.S. carriers to about four, according to the report.”

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“A spokeswoman for the Justice Department told the AP that officials are looking for signs of “unlawful coordination” on flight prices by airlines.”

“Consumer groups have complained about the string of mergers that began around 2008, arguing that the consolidation of the airline industry has reduced the amount of competition for passengers that had been credited in past years for lower airfares.”

“The Justice Department sought for about a year in 2013 to block the most recent major airline merger, between U.S. Airways and American Airlines. But the DOJ ultimately relented after the companies agreed to give up the right to flights at airports in Washington, D.C., and New York City, which were historically difficult for low-cost airlines to gain access.”

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The US Air-American combination was preceded by mergers between Delta and Northwest, United and Continental, and Southwest and AirTran airlines. The mergers have cut in half the number of major airlines that carry passengers in the United States.

“If not for the radical consolidation we have seen in the airline industry in the last few years, we probably would not even be having this conversation,” U.S. Travel Association President Roger Dow said. “Now that four carriers control 85 percent of domestic routes, ‘collusion’ is a thought that’s constantly going to be in the back of the minds of federal regulators.”

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Lawmakers’ oversight
“Some lawmakers have also called for a federal investigation into alleged anti-competitive behavior among airlines.”

“Sen. Richard Blumenthal (D-Conn.) said in a letter to the Justice Department last month (June 2015) that airlines are using the phrase “capacity discipline” as code for reducing the amount of available seats on flights to jack up demand — and prices. ”

“At best, these remarks reflect participants in an overly consolidated market aligning supracompetitive fares,” he wrote. “At worst, they may be a strategic attempt to coordinate behavior — specifically designed to encourage Wall Street to punish smaller rival airlines that have announced plans to expand capacity and cut prices.”

“Airlines have argued that the mergers were necessary to better compete with international competitors that are usually state-owned.”

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In a 7/9/15 Smarter Travel blog, “Flyers sue the big four airlines for collusive pricing,” the author Tim Winship provides more information about those suing the airlines and the DOJ investigation as per the following commentary:

“Last week, the DOJ issued formal requests to four airlines—American, Delta, Southwest, United—for copies of all correspondence regarding their past and future plans to limit the number of seats available for sale. The request was in response to suspicions that the four carriers, which together control 80 percent of domestic air travel, were colluding to keep airfares high by keeping capacity growth in check.”

Reagan airport Terminal
Reagan airport Terminal

“American’s typified the responses of the carriers under scrutiny. The airline pledged to “cooperate fully with the investigation. We welcome the review as the data shows that the industry remains highly competitive with more people flying than ever before. Demand has been enabled by a robust and competitive marketplace in which capacity has been added and average fares have decreased.”

Consumers are suing

“That argument (by Ameican Airlines) had better be a persuasive one, because the Big Four will have to make it not only to the DOJ, but in federal courts as well, to defend themselves against at least two related lawsuits filed so far this month (July 2015).”

“In Bidgoli v. American Airlines Group Inc., 15-cv-5903, U.S. District Court, Northern District of Illinois, the complaint reads as follows:”

“This antitrust class action arises out of a conspiracy among the largest airlines in the United States, who collectively account for over 80% of all domestic travel, to unlawfully fix, raise, maintain, and/or stabilize the price of domestic airfare in the United States. Plaintiffs bring this action on behalf of themselves and all persons and entities who directly purchased domestic air travel in the United States from the named defendants, any subsidiaries or affiliates thereof, or any of their co-conspirators, between October 1, 2012 and the present (the “Class Period”).”

Denver Airport
Denver

“The complaint cites the DOJ investigation, accuses the defendants of entering “into an illegal agreement, combination, or conspiracy to raise and maintain the price of domestic airfare in the United States,” and requests “injunctive relief and treble damages, as well as reasonable attorneys’ fees and costs, arising from Defendants’ violations of Section 1 of the Sherman Act (15 U.S.C. * 1).”

“The second case (Devivo v. Delta Airlines Inc., 15-cv-5162, U.S. District Court, Southern District of New York) takes much the same tack, alleging as follows:”

“This action arises from Defendants’ conspiracy to fix, raise, maintain, or stabilize prices of airline tickets through a number of mechanisms, including, inter alia, signaling one another how quickly they would add new flights, routes, and extra seats in order to limit the capacity, and limiting access to competitive fare information to keep the price of airfares artificially high (The airline terminology for this is “capacity discipline.“)

Alaska Airlines Boeing 737-900 Spirit

“Both lawsuits point to numerous specific instances where the four airlines’ CEOs publicly alluded to their own plans to limit capacity, charging that such references to “capacity discipline” were thinly veiled signals to competitors to follow suit.”(This is mainly referring to a July 2015 IATA meeting, in which many of the top airline executives were in attendance, and where the words “capacity discipline” were frequently mentioned .)

Since July 2015, with the announcement of the DOJ investigation into airline “capacity discipline” practices and the start of antitrust lawsuits alleging collusive pricing against American, Delta, Southwest and United Airlines, the number of antitrust lawsuits filed against the four airlines has skyrocketed.  On 9/1/15, and according to ABC News, Channel 5 in Minnesota, there have been 13 such lawsuits filed in Minnesota, more than 130 nationwide.”

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“All of the lawsuits claim the airlines have conspired to limit the number of available flights and seats to keep prices higher (“capacity discipline”). They also allege that the four airlines coordinated their efforts via public signaling of future capacity restrictions, urging each other to keep that capacity tight, and secretly communicating with one another via trade associations.”

The airlines executives argue that inventory control (maintaining just enough seats to meet demand) or “capacity discipline” is just sound management. After 2008, when oil prices soared during a major U.S. recession, they have struggled to remain viable as an industry. The strategy of “capacity discipline,” adding and increasing ancillary consumer fees, and then the mergers has allowed the industry to survive and to finally be a sustaining, profitable business.

My point of contention is covered in a 11/10/15 SKIFT article by Marisa Garcia, “Airline Fee Revenue Expected to Reach Nearly $60 Billion in 2015,” this revenue is expected to reach $59.2 billion in 2015, as per IdeaWorks and CarTrawler’s  latest reports. She adds, “This figure represents an increase in ancillary revenue gains of 18.8% from 2014 and 163% from 2010.”

UPDATE on 2/3/16: To keep up with the status of the class action law suits against the 4 airlines, follow this blog:

Airline Ticket Lawsuit | Price Fixing | ClassAction.org  http://www.classaction.org/airline-ticket-lawsuit Delta, United, Southwest and American Airlines sued over pricefixing scheme