U.S. Justice Department Launches Airline Antitrust Probe

airlineThe U.S. Department of Justice is investigating whether or not U.S. airlines are coordinating the supply of seats in order to influence airfares, Bloomberg is reporting. 

Southwest Airlines and American Airlines have both received requests from the Justice Department for details on discussions on industry capacity, Bloomberg said. Capacity can have a big impact on airfares because, by keeping the number of seats tied closely to travel demand, airlines can exercise more power over prices. 

As word of the investigation broke Wednesday, airline stocks began to take a hit. Shares of United Continental Holdings Inc. were down 2.5 percent, and shares of American Airlines fell 2.8 percent, the LA Times reports. 

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Industry Responds

The Business Travel Coalition (BTC) has released a statement applauding the investigation, warning that reduced competition among airlines following a series of mergers has increased air travel prices. 

“The number one concern that antitrust experts have - with no close second - as with regard to radical consolidation of any industry, is the risk of tacit competitor coordination on policies, practices and prices among a reduced number of industry participants,” said BTC Chairman Kevin Mitchell. “Since recent U.S. airline mega-mergers, we have witnessed near constant airline CEO calls for 'capacity discipline' during industry gatherings and analyst earnings calls only to be echoed by analysts in follow-on earning calls with other airlines. This represents perhaps the darkest hours of airline coordination as well as a too-cozy harmonization between airlines and Wall Street.”

The most recent big airline merger, between American Airlines and US Airways, faced an antitrust lawsuit by the Department of Justice alleging that the merger would substantially lessen competition for commercial air travel in local markets throughout the U.S. That merger was settled in a deal that traded approval for an agreement to divest slots and gates at certain key airports. 

Airline trade group Airlines for America has responded that the growth of low-cost airlines and competition are benefiting travelers. 

“It is customers who decide pricing, voting every day with their wallets on what they value and are willing to pay for,” the group said in a statement to the LA Times. 

What do you and your clients think of the investigation? Let us know on our Facebook page or in the comments below. 

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