US probing possible airline collusion that kept fares high

[webfact]

US probing possible airline collusion that kept fares high
By DAVID KOENIG, SCOTT MAYEROWITZ and ERIC TUCKER

WASHINGTON (AP) — 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, 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.

Justice Department spokeswoman Emily Pierce confirmed that the department is looking into potential "unlawful coordination" among some airlines. She declined to comment further or say which airlines are being investigated.

On a day when the overall stock market was up, stocks of the major U.S. airlines ended the day down 1 to 3 percent on news of the investigation.

American Airlines, Delta Air Lines, Southwest Airlines and United Airlines all said they received a letter and are complying. Several smaller carriers, including JetBlue Airways and Frontier Airlines, said they had not been contacted by the government.

The airlines publicly discussed capacity early last month in Miami at the International Air Transport Association's annual meeting. After hearing about that meeting, U.S. Sen. Richard Blumenthal, D-Conn., requested a Justice Department investigation.

The department had tried to block the most recent merger, the 2013 joining of American Airlines and US Airways, but ultimately agreed to let it proceed after the airlines made minor concessions.

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 4-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.

Thanks to a series of mergers starting in 2008, America, Delta, Southwest and United now 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. During the past 12 months, the airlines took in $3.6 billion in bag fees and $3 billion in reservation-change fees.

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

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

That worries Wall Street analysts and investors. Cheap fuel has led airlines to make money-losing decisions in the past, rapidly expanding, launching new routes and setting unrealistically low fares to lure passengers. Airlines already flying 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 7 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 much faster. He urged the major airlines to "step up" and cut routes for the good of the industry.

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 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.


-- (c) Associated Press 2015-07-02

[spidermike007]

This is not just a problem in the US. It appears that about 4-5 years ago, all of the worlds airlines colluded to raise prices. All of a sudden, while gas prices were going up, and they had the golden opportunity to raise prices in a massive manner, they started reducing the number of flights simultaneously, thereby reducing the number of available seats, and the prices started going up. This cannot be a coincidence. There used to be a lot of empty seats on most flights I took. All of a sudden those seats disappeared. There is a massive price collusion case to be investigated here, and all the worlds airlines are in on it. That much is obvious. Also, they should be investigating the fuel surcharge. Now that oil is back down in the $60 range, airlines have no business charging this. EVA AIR for one, charges a $400 plus fuel surcharge from Asia to the US. Incredible. How do they get away with this practice, without being investigated by any government?

[Berkshire]

I'm glad the US gov is looking into this. I don't have scientific evidence, but anecdotally, airfares to the US have gone up substantially in the past year, even though oil prices (and jet fuel) have gone down. Airlines complain when jet fuel cost is high and say they have to pass that on to consumers. But when the opposite happens, they still keep prices high and just roll in the profits. It's not a free market when airlines are colluding to keep airfares sky high.

[Ulic]

I am sure the Canadian airlines are complicit. As oil prices have halved fuel surcharges have not

dropped, baggage fees have been implemented, flights are full, profits are at record levels. No

competition or collusion, one or the other.

[RaoulDuke]

Hardly surprising as they have long turned a blind eye to anti-trust laws and allowed all of the regulations that were set up to prevent monopolies to be gutted by the lobbyists for big business. But this is no surprise, as we have been down this road before. Of course, we never learn from our mistakes because ignorance is bliss. No one in America remembers what it was like to actually live through a real depression, so we are dead-set on recreating all of the conditions that existed 150 years ago, when unregulated capitalism created a severe depression every 20 years, like clockwork. And just like last time, it will probably take another 75-100 years of suffering to legally undo all of the damage that has been caused by dismantling the New Deal that managed to put an end to this cycle.

The madness involving mergers and acquisitions has reached a fever pitch on a global level, and with the impending nightmare of the TPP, there is no sign of a slowdown. A handful of multinational corporations will soon wield more power and control more money than almost any nation could dream of. The consumers will suffer, wages will continue to plunge as the the 'wealthy' nations will have to compete with the impoverished nations on a race to the bottom, and the governments will be powerless. God bless money!

[suzythaivisa]

charge IATA with racketeering. then disband it.

[alfalfa19]

Last year, I traveled out of my state, California, to montana and nebraska several times for my job. My employer paid for the flights. The seven trips averaged about 1000 dollars each for round trip airfare. Each flight involved 2 hops from san diego to denver, then to billings or omaha. Average time in-air for the four hops, round trip was just over 5 hours. No food, no refreshments, and frequent delays or even cancellations for no reason. These flights were all on united airlines or delta.

In comparison, a roundtrip flight to Thailand costs about the same, (actually much lower now, I am eyeing flights now for 600 to 700 dollars to BKK). These flights involve about 41 hours flight time for 4 hops, reliable service, 6 decent meals, good flight attendants, a large selection of inflight entertainment, etc. These flights were on Eva, Cathay, JAL. So, the domestic carrier flights in the US cost about 8 times as much per in air flight hours, with no meals, no inflight movies, etc.

[Cats4ever]

Free enterprise beats socialism every (almost) time. But, you have to keep an eye its practitioners.

Edited July 3, 2015 by Cats4ever