Feds launch inquiry of possible airline collusion

Two years after approving the latest in a wave of airline mergers that left the nation with four major carriers, the Justice Department said Wednesday that it had begun an inquiry into possible collusion among the airlines.

The civil antitrust investigation 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, or “the undesirability of your company or any other airline increasing capacity.”

The Justice Department asked each airline for its passenger-carrying capacity both by region, and overall, since January 2010.

“We are investigating potential unlawful coordination among some airlines,” said Emily Pierce, a Justice Department spokeswoman.

The inquiry is a marked shift for a Justice Department that in 2013 cleared the way for a merger of American Airlines and US Airways after initially filing suit to oppose it. With that merger, roughly 80 percent of the nation’s air traffic became concentrated among four major airlines: American, United Airlines, Delta Air Lines and Southwest Airlines.

At the time, Justice Department officials accepted the broad thrust of the airlines’ argument that the merger would create more options for customers than either airline could offer on its own. But recently, airline executives have begun speaking more openly at industry conferences and with Wall Street analysts about so-called capacity discipline — industry jargon for limiting flights.

American Airlines said it would cooperate with the investigation but disputed any notion that the mergers had restrained competition.

“We welcome the review as the data shows that the industry remains highly competitive with more people flying than ever before,” the airline said in a statement. “Demand has been enabled by a robust and competitive marketplace in which capacity has been added and average fares have decreased.”

Luke Punzenberger, a United Airlines spokesman, said United was complying with the request for documents.

Last month, Sen. Richard Blumenthal, a Connecticut Democrat, called on the Justice Department to take more aggressive action against airlines, which have had surging profits as the industry has consolidated.

“Consumers are paying sky-high fares and are trapped inside an uncompetitive market with a history of collusive behavior,” the senator said in a letter to the department.

It’s “economics 101. Reducing supply with rising demand means increased prices,” Blumenthal said in an interview. “Consumers are suffering (from) rising fares and other added charges that seem to be the result of excessive market power concentrated in too few hands and potential misuse of that power.”

Diana Moss, president of the American Antitrust Institute, said: “This is a long time coming.”

Moss said that in meetings of top industry executives, including at last month’s International Air Transport Association conference, airlines have continuously signaled “to each other that it was in their joint interest to keep capacity tight and to keep prices high.”

But Jean Medina, speaking for industry group Airlines for America, swatted back claims of collusion. “It is customers who decide pricing, voting every day with their wallets on what they value and are willing to pay for,” Medina said.

Some Wall Street analysts argue that to remain financially strong, airlines should not expand capacity faster than the U.S. economy. And from January 2010 to January 2014, they didn’t.

In that four-year period, capacity on domestic flights was virtually flat while the U.S. economy grew about 2.2 percent per year. From January 2014 to January 2015, however, the airlines expanded by 5.5 percent, topping the economy’s 2.4 percent growth for 2014.

Now that American, Delta, Southwest and United control more than 80 percent of the seats in the domestic travel market, they’ve eliminated unprofitable flights, filled more seats on planes and made a very public effort to slow growth to command higher airfares.

It worked. The average domestic airfare rose an inflation-adjusted 13 percent from 2009 to 2014, according to the Bureau of Transportation Statistics. And that doesn’t include the billions of dollars airlines collect from new fees.

That has led to record profits. In the past two years, U.S. airlines earned a combined $19.7 billion.

Airfare decisions normally are among the most closely guarded secrets at airlines before they’re announced, and upon announcement they trigger intense scrutiny by competitors and bargain-hunting travelers.

“I certainly haven’t seen any outward signs of collusion,” said Joe Denardi, an analyst with Stifel Financial Corp. in Baltimore. He questioned the Justice Department’s timing in bringing an inquiry when in fact airlines have been adding more capacity than many investors would like to see.

Seating and fares are closely intertwined, because companies lose pricing power when the industry’s capacity outstrips travel demand.

This story was originally published July 1, 2015 at 9:05 PM with the headline "Feds launch inquiry of possible airline collusion."