I’ve got nothing against companies running their operations in a manner which generates profits. That’s generally the smart way to operate. But as a consumer there are – theoretically, at least – some protections which the government is supposed to exercise over those behaviors to make sure that companies actually compete with each other. And so, despite the DoJ allowing four major airline mergers in the past decade with minimal objections or barriers, all of a sudden it seems that political pressure has forced the Department’s hand. It is now investigating United Airlines, American Airlines, Delta Air Lines and Southwest Airlines for possible collusion in limiting growth and keeping fares higher.
So, are the airlines really conspiring? My guess is no, but that doesn’t make it any less expensive to buy plane tickets this summer.
Read More: US probing possible airline collusion that kept fares high
Read More: Report: DOJ investigating airlines for alleged price collusion
Some of the complaints from Congress-Critters have come out based on recent industry events, including the IATA Annual General Meeting and an investor conference where the airlines all spoke in public and on the record about their intentions. Actually, they didn’t really speak about that at all at the IATA meeting unless there was a secret session held somewhere one of the days, but the closest that meeting got to being exciting or interesting was when Akbar Al Baker called out the US3 for their Open Skies/Subsidy claims being a threat to global aviation or, perhaps, when IATA tried to introduce new carry-on baggage sizes. There was no discussion of capacity growth other than the typical IATA report of a graphic and charts on the screen and in the press releases.
I’m on around 15:20 in this Huffington Post Live segment
As for the investor conferences, well, those happen all the time. And airlines are expected to report on at least a quarterly basis their expected capacity changes for the coming quarter and year as well as their prior quarter actual change. Wall street demands this of them and some of it is in the monthly performance reports. When some airlines stopped providing certain details (e.g. PRASM) on a monthly basis the Investment Banks were rather unhappy. But the discussions are open and public, not private, back-room deals.
Read More: In which Emirates takes the US3 to task over subsidy claims
And, interestingly enough, it seems that allegiance to the banks is what is driving more of the decisions from the US carriers these days, anyways. Making profits? That’s great, but you should be making more, even if customers like you less for it. That appears to be the message the banks are sending to the airlines and, because executives are compensated based on stock performance, the companies are listening.
I’m also not entirely sure we can continue to use “but it is cheaper than it was in the 70s” as a justification. It might be true, but the progress of technology and the change in the costs of delivering the services suggest that it should be cheaper to fly now than 40 years ago.
Read More: IATA: Protectionism and Subsidy Claims Flare Up Again
None of it appears illegal to my horribly untrained and unqualified eye, but that doesn’t mean we have to be happy about it. And that’s what really sucks.
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my take on the situation, why would they need to ?
with so little competition, they can price fix without talking to each other. One airline raises prices for a route, the others all follow suit straight away. It’s an unspoken agreement.
And then they occasionally pretend to have a half-hearted “fare war” when one airline runs a sale and the others follow. But those are the exceptions! And they usually don’t cost the airlines much since they always happen for routes and times of the year where they have trouble filling the flights.
Price fixing laws are kind of an outdated tool for this sort of thing. Price controls are probably needed (just caps, on how much tickets and change fees etc can cost)
The question this all brings to mind though is, what is DoJ looking for? I’m probably stretching it way to far, to make the connection between this inquiry with stated comments from Virgin America and Frontier’s CEO’s, both stating, their biggest challenge with expansion is gates and slots…
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