Justice Department Investigates Airlines For Possible Price Collusion
LINDA WERTHEIMER, HOST:
If you've tried to book flights lately and found prices too high and choices to few, you might be on to something. Federal authorities are investigating whether the major airlines are colluding to limit the number of available flights and seats to keep ticket prices high. NPR's David Schaper reports.
DAVID SCHAPER, BYLINE: Remember when airlines would have fare wars? One airline would advertise super-low fares in hopes of filling empty seats. And within minutes, all the others would match the price cuts so they wouldn't lose market share. Well, that doesn't seem to happen very often anymore. Why? It appears to come down to one word that many industry observers hear airline executives talk about a lot these days. In fact, at a major airline industry conference in Miami last month, they mentioned this particular word quite a bit.
RICHARD BLUMENTHAL: They talked about discipline.
SCHAPER: Senator Richard Blumenthal, a Democrat from Connecticut, says to airlines, discipline is...
BLUMENTHAL: Kind of a fancy word for constraining the number of flights and what's known as capacity in the industry.
SCHAPER: It's basic supply and demand economics, says Blumenthal. By limiting seat supply at a time of increasing demand, airlines can charge higher prices. Blumenthal and others suspect that by mentioning seat capacity discipline, airline executives are signaling one another - in effect, colluding - to keep fares and profits up. That would be illegal, and the Justice Department confirms it is investigating possible coordination by some airlines. The four largest, American, United, Delta and Southwest, all confirm that they've been contacted by investigators and say they are complying with requests for information. Jean Medina is a spokeswoman for the industry group Airlines for America.
JEAN MEDINA: We're confident that the Justice Department will find what we know to be true. Our members compete vigorously every day. And the traveling public has been the beneficiary, as domestic fares are actually down thus far in 2015.
SCHAPER: Air fares did drop a little this year, according to federal government fare tracking data, but only after rising 13 percent over the past five years when adjusted for inflation. And Medina says airlines are increasing the number of available seats this year. Meanwhile, airline profits are skyrocketing because of low fuel prices. And the data suggests the airlines are not passing those savings on to customers. The reason is because they don't really have to.
SETH BLOOM: Right. Well, I think it's because of a lack of competition.
SCHAPER: Seth Bloom is a Washington, D.C.-based antitrust lawyer. And he was general council of the U.S. Senate antitrust subcommittee overseeing the reviews of the United-Continental, Delta-Northwest and other big airline mergers.
BLOOM: We have, you know, four airlines with 80 percent of the market. And it's sort of carving out the country into different sort of regions. The national economic consequence of that is that, you know, there's not a lot of competitive pressure to lower prices.
SCHAPER: Bloom says less vigorous competition, higher fares and other evidence might be indications of airline collusion. But he says proving it will be difficult.
BLOOM: They're going to have to find proof of an agreement. It's - you know, people meeting in a room or exchanging emails or actually agreeing to limit capacity.
SCHAPER: Douglas Kidd, executive director of the National Association of Airline Passengers, suspects something else is going on.
DOUGLAS KIDD: I think that the airlines recently are marching to the beat of a different drummer. And that drummer is Wall Street.
SCHAPER: Kidd says airline executives are under great pressure from investors to produce higher profits. Keeping capacity down and fares up is one of the ways they're doing it, he says, while consumers pay the price. David Schaper, NPR News, Chicago. Transcript provided by NPR, Copyright NPR.