Feds Suspect (Gasp!) Collusion Among Airlines
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This article originally appeared on FrequentFlier.com.
Colluding to keep prices high? The U.S. airlines? Shocking!
Well, maybe not so shocking to the millions of travelers who find themselves paying more and getting less. But apparently it's news to the DOJ, which this week issued formal requests to four airlines—American, Delta, Southwest, United—for copies of correspondence regarding their past and future plans to increase the number of seats available for sale.
Restraining capacity growth is an easy way to keep prices high, by tipping the supply-demand equation in favor of the supplier. Airlines are free to unilaterally manage their flights and seats however they choose. But when they do it in concert with other companies, it's anti-competitive. It's collusion.
Collusion, of course, is far easier when there are fewer competitors to coordinate and keep in line. And today, thanks in large part to the DOJ, 80 percent of U.S. commercial air transportation is controlled by just four airlines. So while collusion may well be a problem, the larger problem is consolidation. If the DOJ really wanted to encourage price competition among the airlines, a good start would have been to disapprove the most recent merger between major carriers, American and US Airways.
It's too late to de-consolidate the industry. And today, with so few competitors, collusion is almost inevitable. All it takes is one CEO extolling his own airline's commitment to "capacity discipline" in a speech or a news release. It's a signal to other carriers that he is prepared to keep capacity growth under control, and thereby maintain the industry's power to keep airfares high, if other airlines will do the same.
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That certainly amounts to collusion in any common-sense understanding of the concept. Whether it's deemed collusion under the DOJ's interpretation of the law remains to be seen.
It's refreshing to see the DOJ taking seriously the possibility of anti-competitive activity on the part of the airlines. But at this late date, the DOJ is likely fighting a battle in a war it's already lost.
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