Airlines are under investigation for possible price collusion

The Justice Department should dig deep into how industry consolidation hurts consumers

airplaneThe airline industry has posted record profits this year, while facing mounting complaints about crowded cabins, high prices and added fees. Some are questioning whether the airlines have conspired to keep prices high by limiting capacity—that is, limiting the number of available seats for passengers. Simply put: price collusion. Such tactics might explain why you experienced “fare shock” when you searched for tickets.

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The U.S. Department of Justice recently confirmed news reports that it is looking into “possible unlawful coordination by some airlines.” The Associated Press said the investigation “appears to focus on whether airlines illegally signaled to each other how quickly they would add new flights, routes and extra seats.” Several major carriers have told reporters they have been contacted by the Justice Department about price collusion and are cooperating with the investigation.

These reports of possible price collusion are troubling but not surprising. The airline industry has shrunk from nine major domestic carriers in 2001 to only four today: American (which merged with US Airways in 2013), Delta, Southwest, and United. This massive consolidation has fundamentally altered the business incentives for airlines, creating just the kind of “reduced competition” environment that leads to restricted capacity, inflated prices, and poorer service.

Consumers Union, the policy and advocacy arm of Consumer Reports, recently sent a letter to the Justice Department about its investigation, noting the following:

“It makes good business sense for two competing airlines to each have its own flights on the same routes, and to compete with each other to bring passengers to its own flights. What some might view as ‘overcapacity’ is actually a healthy byproduct of competition. Each of the airlines competes to fill more of its own seats; it is an indication that the airline is competing successfully that its competitor’s seats are not being filled. But after the two competing airlines merge, what once made sense for competition now looks like redundancy. It is now more ‘efficient’ for the merged airline to eliminate flights and move the passengers onto fewer planes.”

You can read our full letter to the Justice Department here.

The lack of meaningful competition is also reflected in the long list of extra charges for luggage, reservation changes, and other fees, not to mention the reductions in service quality, such as the ever-shrinking space for your seat. A recent Senate committee report criticized the airline industry for its failure to disclose extra fees and add-on costs. The report recommends a series of reforms to require greater transparency from the airline industry, such as better and earlier disclosure of ancillary fees to help consumers compare costs among airlines, as well as requirements for checked bags and carry-on baggage fees to have a clear connection between the costs incurred by the airline and the baggage fees charged.

We’re pleased the Justice Department is digging into potential anticompetitive coordination among the airlines. The government needs to keep a close watch over this highly concentrated industry, and we believe regulators should oppose any further consolidation among major airlines, in order to promote a healthy, broad-based competitive airline structure that prevents price collusion and provides meaningful choice for consumers.