Passengers sue airlines over allegations of price collusion

Passengers sue airlines over allegations of price collusion
© Wikimedia Commons

A group of passengers is suing U.S. airlines over allegations they have colluded to keep airfares high since a string of mergers consolidated the industry. 

The lawsuits, filed in New York and Illinois, accuse Delta, American, United and Southwest airlines of engaging in a "conspiracy to fix, raise, maintain, or stabilize prices of airline tickets through a number of mechanisms." 

The lawsuit was filed days after the Department of Justice announced its own investigation into whether airlines are colluding to keep airfares high in violation of federal antitrust laws.  

ADVERTISEMENT

The plaintiffs argued in their lawsuit that it should be an open and shut case whether airlines have worked together to keep airfares artificially high since the trend of mergers in the industry first began.  

"This action challenges a collusion among major airlines to limit routes, information and available seats to keep airfares artificially high," the lawsuit said. "Plaintiffs allege that defendants illegally signaled to each other how quickly they would add new flights, routes, and extra seats. To keep prices high on fares, it was undesirable for the defendants to increase capacity." 

Consumer groups have complained about the string of mergers that began around 2008, arguing that the consolidation of the airline industry has reduced the amount of competition for passengers that had been credited in past years for lower airfares. 

Some lawmakers have also called for the federal government to investigate alleged anti-competitive behavior among airlines.

Sen. Richard Blumenthal (D-Conn.) said in a letter to the Justice Department last month that airlines are using the phrase "capacity discipline" as code 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."

Airlines have denied the collusion allegations and argued in the past that the mergers were necessary to better compete with international competitors that are usually state-owned. 

"We are 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," the Washington, D.C.-based Airlines for America (A4A) group said in a statement after the DOJ investigation was announced. 

"It is customers who decide pricing, voting every day with their wallets on what they value and are willing to pay for," A4A continued.

The plaintiffs in the lawsuits that were filed painted a much different picture of the consolidated U.S. airline industry. 

"As a result of a series of mergers starting in 2008, defendants now control more than 80 percent of the seats in the domestic travel market," the lawsuit said. "During that period, they have eliminated unprofitable flights, filled a higher percentage of seats on planes and made a very public effort to slow growth in order to command higher airfares.

"With suppression of routes, seats, and information, defendants can make even higher profits, because at the same time there has been a massive drop in the price airlines pay for jet fuel, their single highest expense," the lawsuit continued. 

The Justice Department sought for about a year in 2013 to block the most recent major airline merger, between U.S. Airways and American Airlines. But the DOJ ultimately relented after the companies agreed to give up the right to flights at airports in Washington, D.C., and New York City, which are historically difficult for low-cost airlines to gain access to.

The U.S. Airways-American combination was preceded by three mergers between Delta and Northwest, United and Continental and Southwest and AirTran airlines. The mergers have cut in half the number of major airlines that carry passengers in the United States.