Senator urges probe of 'anti-competitive' behavior by airlines

Senator urges probe of 'anti-competitive' behavior by airlines
© Anne Wernikoff

A Democratic senator is calling for a federal investigation into alleged "anti-competitive" behavior among airlines, after a string of recent mergers has led to widespread consolidation in the industry. 

Sen. Richard Blumenthal (D-Conn.) said this week that the Department of Justice should step in to investigate potential anti-trust violations among airlines since the number of major U.S. airlines was reduced to just four carriers in recent years. He cited a New York Times report saying airlines revealed plans at a recent industry summit to cut back on the number of seats they offer on many routes to boost profits. 

"The New York Times reported that at this meeting [of International Air Transport Association], many of these competitors publicly discussed their strategies to remain 'disciplined' in their decisions to manage capacity across their flight routes," he wrote in a letter to Assistant Attorney General Williams Baer. 

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"In light of the recent unprecedented level of consolidation in the airline industry, this public display of strategic coordination is highly troubling," Blumenthal continued. "Therefore, I urge the Justice Department to investigate this apparent anti-competitive conduct potentially reflecting a misuse of market power, and excessive consolidation in the airline industry. DOJ itself played a part in this consolidation by approving several mergers and now consumers are paying sky-high fares as airlines engage in market conduct designed to keep capacity artificially low." 

Airlines have touted "capacity discipline" as key to their future financial stability, arguing that their pre-merger predecessors often offered more flights — on bigger airplanes — than passenger demand warranted on many of their routes. 

Consumer groups have complained the capacity reduction coupled with a less competition have resulted in higher fares for passengers. 

Blumenthal said in his letter to the Justice Department that the phrase "capacity discipline" is often used a substitute for reducing the amount of available seats on flights to jack up demand — and prices. 

"At best, these remarks reflect participants in an overly consolidated market aligning supracompetitive fares," he wrote. "At worst, they may be a strategic attempt to coordinate behavior — specifically designed to encourage Wall Street to punish smaller rival airlines that have announced plans to expand capacity and cut prices.

Blumenthal said the capacity discipline remarks are likely particularly targeted at low-cost carrier Southwest Airlines, which has recently announced plans to expand on several of its routes. 

"Consumers are paying sky-high fares and are trapped in an uncompetitive market with a history of collusive behavior," he wrote. "If you find that these comments were coordinated to punish Southwest Airlines’ announcement of capacity increases, I urge you to use all the tools at your disposal to punish this anti-competitive and anti-consumer behavior."

Passenger advocacy groups praised Blumenthal for calling for the investigation, saying a look into the heavy airline consolidation in recent years is long overdue.  

“Travelers' Voice stands with lawmakers who are putting the consumer first, and are heartened that some in Washington are beginning to listen as many of us feel the airlines ceased to long ago," Travelers’ Voice Executive Director Trey Boh said in a statement provided to The Hill. 

"If it takes inquiries, such as Senator Blumenthal's, to relieve the pain and stress Americans feel when flying today, we will remain supportive," Boh continued. 

"We are optimistic that the airlines might take action on their own to improve their business culture to attract and retain customers' loyalty, without meddling from Washington. However, if history is any guide, we would be wise not to hold our breath waiting for relief while watching their long march toward an oligopoly."  

The group that lobbies for airlines in Washington, Airlines For America, said Blumenthal's concerns about potential collusion among airlines are unfounded. 

"Competition is alive and well in the airline industry," A4A spokesman Vaughn Jennings said in an email to The Hill.

"Consumers, who have access to fare information from multiple sources and outlets, are benefiting every day from the intense competition in our industry," he continued. "This is manifested in strong networks, a growing ultra-low cost carrier segment, improved efficiencies and new and increased service.

Jennings added that "to suggest that matching supply with demand , like every other industry does, is an abuse of market power ignores the fundamental dynamics of a healthy marketplace.

"Customers ultimately determine pricing by voting with their wallets every day on what they value and are willing to pay for - and what they are not," he said. "Because of these countless consumer options, airfare remains one of the best bargains out there for consumers. In fact, DOT’s own data shows that domestic fares are down in 2015." 

- This article was last updated with new information at 9:25 p.m.