DOJ Investigating Alleged Airline Collusion

Jul 2, 2015

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Anyone who’s tried to book a domestic ticket within the United States in the last few years knows that there are only a few major airlines that command the majority of domestic routes. According to the Washington Post, the four major US carriers — American, Delta, Southwest and United — control 80 percent of seat capacity within the United States.

Yesterday, the Associated Press reported the United States Department of Justice is currently investigating the four major US airlines for collusion to keep seat capacity artificially low, and fares high. The DOJ is focusing on whether or not airlines alerted each other on their future plans to add new routes, flights and seats.

The American - US Airways merger is only the latest in a string of high-profile airline industry consolidations.
The American – US Airways merger is only the latest in a string of high-profile airline industry consolidations.

Recently, the US airline industry has seen a series of mergers and consolidation — Delta and Northwest, United and Continental, Southwest and AirTran and American and US Airways. With a record few number of airlines making record high profits, the Department of Justice antitrust division is sure to be keeping close tabs on the industry for years to come.

The Washington Post reports that the average domestic fare last year was $391, a 12-year high after adjusting for inflation, even as jet-fuel prices have plummeted in recent years.

According to the Associated Press, American, Delta, Southwest and United all said they received letters from the DOJ on Tuesday, asking for passenger-carrying capacity records by region and overall since 2010. Reportedly, the DOJ also asked for records of all communications the airlines had with each other, analysts and shareholders about their plans for seat capacity and “the undesirability of your company or any other airline increasing capacity.”

For investors, a rapid increase in seat capacity represents a significant risk to an airline’s bottom line — the Associated Press reported that airline stocks dipped after Southwest announced that it would be increasing capacity by seven or eight percent.

The investigation started after US Senator Richard Blumenthal from Connecticut heard that the airlines discussed their capacity plans at the International Air Transport Association (IATA)’s annual meeting last month in Miami.

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