DOJ Investigates Airline Collusion
 

US probing possible airline collusion to keep fares high

By David Koenig, Scott Mayerowitz and Eric Tucker | AP July 1 at 2:51 PM

WASHINGTON — The U.S. government is investigating possible collusion among major airlines to limit available seats, which keeps airfares high, according to a document obtained by The Associated Press.

The civil antitrust investigation by the Justice Department appears to focus on whether airlines illegally signaled to each other how quickly they would add new flights, routes and extra seats.

A letter received Tuesday by major U.S. carriers demands copies of all communications the airlines had with each other, Wall Street analysts and major shareholders about their plans for passenger-carrying capacity.

Justice Department spokeswoman Emily Pierce confirmed Wednesday that the department was investigating potential “unlawful coordination” among some airlines. She declined to comment further, including about which airlines are being investigated.

Thanks to a series of mergers starting in 2008, American Airlines, Delta Air Lines, Southwest Airlines and United now control more than 80 percent of the seats in the domestic travel market. During that period, they have eliminated unprofitable flights, filled a higher percentage of seats on planes and made a very public effort to slow growth in order to command higher airfares.

It worked. The average domestic airfare rose 13 percent from 2009 to 2014, when adjusted for inflation, according to the Bureau of Transportation Statistics. And that doesn’t include the billions of dollars airlines collect from new fees: $25 each way to check a bag and $200 to change a domestic reservation. During the past 12 months, the airlines took in $3.6 billion in bag fees and another $3 billion in reservation change fees.

All of that has led to record profits for the industry. In the past two years, U.S. airlines earned a combined $19.7 billion.

This year could lead to even higher profits thanks to a massive drop in the price airlines pay for jet fuel, their single highest expense. In April, U.S. airlines paid $1.94 a gallon, down 34 percent from the year before.


And that’s what worries Wall Street analysts and investors.

Historically, cheap fuel has led airlines to make money-losing decisions. They would rapidly expand, launching new routes and setting unrealistically low airfares to lure passengers. Airlines that already flew those routes would match the fare, and all carriers would lose money.

Such price wars are long gone, but today’s low fuel costs along with recent comments from airline executives have given the market jitters.

Airline stocks plunged in May after the chief financial officer of Southwest said at an industry event that the carrier would increase passenger-carrying capacity by 7percent to 8 percent, an increase over an earlier target.

Wolfe Research analyst Hunter Keay, who hosted that May 19 conference, told investors in a note afterward that the big airlines are unhappy to be restraining growth while low-cost airlines like Spirit grow at a much faster pace. He urged the major airlines in a note to investors to “step up” and cut routes for the good of the industry.

“This is a Mexican Standoff. Four airlines with guns pointed at each other. Each is afraid to cut suddenly profitable routes because they fear another will backfill that route,” he wrote. “Airlines keep those routes under the rationale that it’s good for the long term. This is literally the exact opposite of capacity discipline.”

On June 1, Southwest CEO Gary Kelly said his airline would cap its 2015 growth at 7 percent. That sparked a rally in airline stocks, as investors were more assured that capacity growth would be limited.

Keay said on Wednesday that he had not been contacted by the government and doesn’t think the airlines have been acting inappropriately.

“The analyst community is bringing up the subject. You certainly can’t fault an airline executive for responding to the question,” Keay said. “The capacity continues to grow at the airports people want to fly to and air travel remains a particular good value for the consumer, especially for the utility that it provides.”


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Koenig reported from Dallas, Mayerowitz from New York.

An interesting development in the midst of the fight with the ME 3.

LOL this is hillarious.

So big daddy government is going to force airlines to barf capacity where its not needed just to destroy their own margins and yields? Right. Absolutely brilliant.

In a way though I kind of hope the almighty central planer new world social justice warriors are successful. At least it would require the legacies to preemptively fight back against the cockeyed endless growth mode airlines.

So yay big government, I hope they are successful in this.The battle is coming regardless. Might as well fight them now because every day we wait it gets more expensive to wage the inevitable.

As I have been reading it, the national debt has been frozen for over 5 weeks. So it might not be more expensive!!! /SARC

Welcome to the most regulated deregulated industry around!

Either re-regulate airlines, and treat them like utilities or get them out from under the RLA and actually let them operate as the free market dictates!

The competitive landscape and future earnings potential would look a whole lot different to all of us if either of those things happened.

Should have left the industry regulated in '78 IMHO.

this is just pandering .. the aircraft are already utilized near max capacity , factories are backordered several years out and pilot training pipelines are all full... buy this dip and thank me later!

I don't think that is what this is about. This is about whether the Sherman Act was violated. Companies are not allowed to get together and do things for the purpose of price fixing.

Soooo add capacity and get hammered by Wall St. and the business community. Remain disciplined, don't add capacity, turn a profit and get investigated by the government. Hmmmm

The "sherman act" can't force airlines to barf growth capacity into markets for the purpose of destroying their own yields for the transient benefit of populist lower fares.

I suppose that if, and its a big if, they can somehow prove that they were acting in an illegal manner (actual collusion) then maybe they can have a case, but that's going to be very hard to prove. The airlines have been extremely up front and honest about their capacity dicipline for over half a decade. This is just populist grandstanding idiocy. And a huge LOL for all the pilots longing for the days of subsidized 3 pilot empty 727 service to tiny communities. That ain't coming back. Ever.

Maybe when they discussed sick leave abuse, they discussed other things:rolleyes:

Airlines have engaged in self-destructive price wars and overcapacity for so long that this buffoonery is now regarded as normal behavior. Consequently, any sudden outbreak of rational business practices raise suspicions of conspiracy. :rolleyes: