The U.S. Department of Justice (DOJ) has confirmed that it sent a letter to several major U.S. carriers recently as it now investigates whether some of the country’s major airlines have been working together to keep prices high, Reuters reports. They are also being asked to give a detailed picture involving their decisions to limit the seats they offer on their flights.
According to ct post, this comes after Senator Richard Blumenthal, D-Conn. sent a DOJ official a letter, asking the department to “investigate this apparent anti-competitive conduct potentially reflecting a misuse of market power, and excessive consolidation in the airline industry.’’
Meanwhile, it is possible that this allegation had started as a result of a meeting among several top airline executives during the International Air Transport Association held last month in Miami. According to New York Times, several of these executives had kept mentioning the word “discipline” throughout the inter-company exchange.
Delta Airlines President Ed Bastian reportedly said that Delta Airlines is “continuing with the discipline that the marketplace is expecting.” Meanwhile, Air Canada’s CEO Calin Rovinescu has reportedly stated, “People were undisciplined in the past, but they will be more disciplined this time.” New York Times suggest that all this talk of discipline has several implications for passengers including “limiting flights and seats, higher prices and fatter profit margins.”
When airlines come together, it is possible for them exert influence (or as some may call it, discipline) on certain factors including price. After all, the U.S. airline industry is (or was) considered an oligopoly. As The Travel Insider has said, “Basically, any time four (or sometimes more; and of course, definitely if fewer) companies have 50% or more of a market, this is probably an oligopoly, and if these four (or fewer) companies control more than 80% of the market, it is most likely a monopoly (even though more than one company is present).” Back in 2009, the four largest carriers (Delta, American, United and Continental) accounted for 60.1%. Today, the US Travel Association believes that the recent top four carriers already exert control over 85% of the domestic routes.
Moreover, the US Travel Association explains, “If not for the radical consolidation we have seen in the airline industry in the last few years, we probably would not even be having this conversation. Now that four carriers control 85 percent of domestic routes, ‘collusion’ is a thought that’s constantly going to be in the back of the minds of federal regulators. Congress has a remedy at its fingertips: make adjustments to airport financing so that individual airports can raise funds to expand terminal space and allow new carriers into their markets. More competitors significantly lessens the possibility that collusion can occur, and the pressures upon prices and service would be tremendously favorable to travelers, and therefore the broader economy.”
Reuters reports that four carriers – American Airlines Group Inc., Delta Air Lines Inc, United Continental Holdings Inc and Southwest Airlines Co – have confirmed receipt of the letter. They have also said that they are full cooperating with the investigation.
Meanwhile, the U.S. Travel Association has said they are “alarmed” by the recent events. They said, “We fervently hope that the U.S. airlines targeted by the Justice Department’s inquiry are cleared of these allegations. American consumers are already jaded enough about flying that we’ve been wondering for awhile how many more gut-punches they could absorb before we see a dip in air travel demand—and therefore a dip in the related econometrics for cities and businesses across the country.”