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Are Airlines Colluding to Keep Prices High?

SmarterTravel

The Department of Justice is investigating whether the big airlines are colluding to keep capacity down and thereby to keep fares high. So says a document obtained by the Associated Press and later confirmed by a DoJ spokesperson.

Certainly the current airline marketplace is ripe for collusion. More than 80 percent of the market is controlled by just four airlines—American, Delta, Southwest, and United—probably the highest degree of concentration since deregulation. Moreover, most have been bragging to Wall Street analysts about how “capacity discipline” has helped them accrue record profits.

It’s highly unlikely that the DoJ will find anything remotely as incriminating as the infamous Bob Crandall to Harding Lawrence phone call, with its explicit message, “If you raise fares today, I’ll match you tomorrow.” Instead, it will probably look at the various “signaling” methods competitors in a monopoly market can use to make their intentions clear without openly exchanging messages. Among the most promising: the presentations airline financial types make to those Wall Street analysts. Wall Street may actually be the driving force here: pressuring the airlines to act in the same way.

The facts remain that the industry is now down to four big competitors, and that three of them essentially play an ongoing game of “me, too.” They can de facto collude on restraining capacity growth and hiking fares without actually overtly colluding.

Related: I Was Wrongly Kicked Off a Plane … Now What?

From a consumer perspective, it’s probably already too late to save the situation: Once the government allowed the Delta-Northwest, United-Continental, and American-US Airways mergers, plus the immunized alliance agreements with overseas airlines, real competition has suffered a near-death blow. Now that those mergers and alliances are fait accompli, we’re seeing the anticompetitive results.

Is anyone surprised?

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