Advertisement

Midair Collusion: Feds Probe Possible Conspiracy In U.S. Airline Industry

CREDIT: AP
CREDIT: AP

The Department of Justice (DOJ) is investigating major American air carriers over fears that Delta, American, United, and Southwest are conspiring together to restrict competition at travelers’ expense.

Antitrust investigators have asked the four airlines to turn over all communications relating to passenger capacity on their planes over the past five years, including internal discussions, anything they’ve sent to or received from their competitors, and everything they’ve told Wall Street analysts. The investigation was prompted by a request from Sen. Richard Blumenthal (D-CT) in June, according to the Associated Press, which first reported the DOJ’s request for records.

The investigation centers on capacity because the physical layout of passenger planes is one of the most direct links to competitive profit-seeking behavior. The most straightforward way an air carrier can try to out-compete its rivals for your money is to lower its prices. To keep those prices from chipping away at profits, a hard-charging competitor has to make up the difference by maximizing the number of people paying to sit on any given plane, or through other means like bag fees or charging people for priority seat selection. If companies are all doing roughly the same things with the physical capacity of their flights instead of pursuing competing strategies on passenger capacity, it stands to reason that they may be colluding with one another to keep prices high.

Or maybe they’re all just getting the exact same advice. The DOJ’s targeting of communications with Wall Street underscores how the industry’s actions are motivated more by shareholder concerns than customer preferences. Financial analysts tell airlines not to expand their passenger capacity at a faster rate than the overall growth of the economy, the AP notes, and the industry appears to have listened.

Advertisement

It won’t be easy for investigators to tease “illegal conspiracy to cheat consumers by doing the same thing at the same time” apart from “everyone innocently listening to the same advice at the same time.” But it’s even harder for customers to vote with their feet if they’re unhappy with ticket prices, legroom, fees, or anything else about their air travel.

If you fly within the U.S., it’s all but impossible to avoid doing business with one of the four companies being probed here. Years of mergers have gradually consolidated the marketplace for air travel within the United States. Delta swallowed Northwest in 2008. United acquired Continental in 2010. Southwest bought AirTran in 2011. And earlier this year, American Airlines absorbed U.S. Airways.

In each case, years passed between the on-paper deal to merge companies and the practical disappearance of the absorbed brand from the marketplace where people buy tickets. Mostly that’s just how complicated business deals work then they involve fleets of giant planes and herds of humans who work on them.

But in American’s case, the delay was also legal. The DOJ’s antitrust division kicked up a fuss at the time, initially blocking the merger because it would have meant consumers paid more to get worse service. After U.S. Airways and American agreed to give up some of their routes between domestic airports, increasing the market share controlled by Southwest in particular, the DOJ dropped its competitive concerns and allowed the merger.

The tweaks help Southwest, Delta, and United stay abreast of their newly-merged rival. But they still leave 80 percent of all domestic air travel in the hands of just four companies.

Advertisement

If this extreme market concentration is new, though, airlines cheating consumers instead of competing with one another is not. Another way to measure the decline of competition in the skies is to compare circumstances today with the state of the industry the last time a similar case was brought against American companies. When the DOJ brought an antitrust case against domestic carriers in 1992, there were twice as many major carriers to sue as there would be in 2015. And while the suit appears to have increased market competition significantly in the years that followed, those gains for travelers were short-lived.