Are Airlines Conspiring to Keep Prices High?
ATTORNEY: JAYNE A. GOLDSTEIN
POMERANTZ MONITOR JULY/AUGUST 2015
Since 1978, when Congress enacted the Airline Deregulation Act (“ADA”), the domestic airline industry has been deregulated. The Act did away with govern-mental control over fares, routes and market entry of new airlines, leaving market forces to dictate these aspects of the industry, and causing the airlines to compete over fares, routes and seats.
Times have changed. Since 2005, with the merger of US Airways and America West, the airline industry has been significantly consolidated. The Delta and Northwest merger followed in 2008, the United and Continental merger in 2010, and the Southwest and AirTran merger in 2011. Most recently, American and US Airways merged in 2013, creating the biggest airline in the world. Today, American, United, Southwest and Delta account for over 80% of the domestic airline market. So much concentration of market power makes it easier for the few remaining behemoth competitors to rig the market.
On June 11, 2015, the New York Times published the article, “‘Discipline’ for Airlines, Pain for Fliers,” in which it revealed that airlines had discussed maintaining “discipline” at a recent industry conference at the International Air Transport Association (“IATA”) held in Miami earlier that month. “Discipline” in this context is a euphemism for limiting flights and seats, raising prices and increasing profit margins. At the meeting, Delta Airline’s president, Ed Bastian, stated that Delta was “continuing with the discipline that the market place is expecting.” Also at this meeting, American Airlines’ chief, Dough Parker, stated that the airlines had learned their lessons from past price wars: “I think everybody in the industry understands that,” he told Reuters. In May 2015, Defendant Southwest’s chief executive, Gary C. Kelly, had considered breaking ranks and announced that Southwest would expand capacity in 2015-2016 by as much as 8 percent. However, after coming under fire at the IATA conference in June 2015, Mr. Kelly changed his position, stating, “We have taken steps this week to begin pulling down our second half 2015 to manage our 2015 capacity growth, year-over- year, to approximately 7 percent.”
The “discipline” is paying off; it is projected that airline industry profits will more than double in 2015, to a record nearly $30 billion. When airlines (or other companies) collude to restrict capacity in their routes and seats, they are subject to violating the antitrust laws. When companies are not competing in the marketplace, consumers foot the bill with high prices.
Several senators called for a federal investigation of U.S. airline prices, which have not come down, despite the fact that the price of jet fuel has fallen dramatically. In mid-June, Senator Richard Blumenthal (D-Conn.) asked the Department of Justice to investigate possible collusion and anti-competitive behavior by U.S. airline companies following the meeting of top executives at the IATA annual conference. It appears that the Department of Justice heard the senators’ requests, and is now investigating whether American, United, Southwest and Delta colluded to restrain capacity and drive up fares, an antitrust violation. On July 1, 2015, the airlines confirmed that the DOJ had requested information from them about capacity and other matters.
In the wake of alleged collusion among the airlines, numerous lawsuits have been filed. On July 10, 2015, Pomerantz instituted an antitrust class action on behalf of direct purchasers of airline tickets against American, United, Southwest and Delta. The case is pending in the Northern District of Illinois.