US Probing “Co-ordination” Among Airlines: Allegations Of Inflated Air Fares Trigger Probe

Irked by the spurting air fares despite the depressed oil prices, the U.S. Justice Department has launched an investigation into the allegation that a few airline companies are into "possible unlawful coordination." Such collusions are known in industry circles as cartelisation.

The Justice department is yet to reveal the names of the airline companies under probe, but the news has tumbled the shares of many U.S. carriers on Wall Street, by more than two percent. A Justice Department spokesperson has confirmed that “we are investigating possible unlawful coordination by some airlines." The probe was triggered by a Democratic senator Richard Blumenthal's letter to the Justice authorities, urging to investigate the industry for unhealthy collusion and anti-competitive behavior. Among the major airlines, whose share prices dipped after the news of investigation came out, include Delta Air Lines, American Airlines, United Continental, JetBlue and Southwest.

Industry Consolidation

The Senator recalled in his letter, "The DoJ itself played a part in the aviation industry’s consolidation by approving several mergers and now consumers are paying sky-high fares as airlines are engaging in market conduct to keep capacity artificially low.” The investigation comes on the back of an industry consolidation, which saw many airlines merging and cutting back the number of available seats despite high demand for flights. The consolidation has led to reduction in the number of big players by half and consumers being hit by rising airfares and all kinds of extra fees.

The paradox was certainly not lost, as domestic flight ticket prices were seen soaring even as the fuel prices are falling. Ticket prices were high by two percent even in 2014 despite the crude prices had fallen by half, as seen from the stats of the Department of Transportation. The data suggests that available seat miles on U.S. carriers are significantly lower than the peak in late 2007, before the economic crisis erupted.

In his letter, Blumenthal also quoted media reports that airline competitors have joined hands and are discussing strategies and making mutual adjustments to keep ‘discipline’ in the matter of managing capacity. Citing comments on ‘discipline’ by top executives at the June meeting of the International Air Transport Association in Miami, the Senator noted that the Justice Department itself is aware of airlines resorting to tactics for coordinating capacity and pricing.

Punish the Guilty

Calling for a probe to trace the guilty, the Senator wrote, "Consumers are paying sky-high fares and are trapped in an uncompetitive market with a history of collusive behavior.” He also urged the Justice department to dig up more evidence and use all the tools at "your disposal to punish this anti-competitive and anti-consumer behavior."

Echoing the Senator's demand, an industry expert said, “It’s hard to call a market where just four companies control more than 80 percent of business competitive, but that’s where the continued consolidation in the airline industry has left travelers," noted William J. McGee, airline and travel consultant to Consumers Union. He said airline collusion to keep already high prices artificially inflated would be an egregious offense and consumers are glad that the Department of Justice has taken a call and investigating.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)