Senator Calls For Investigation Into Alleged Anti-Competitive Airline Behavior

American Airlines and US Airways, Southwest Airlines and AirTran, Continental and United. These are just a few of the major mergers to hit the airline industry in the last several decades. While airlines contend that such combinations have created more streamlined processes for customers, some legislators are concerned that a shrinking airline industry has perpetrated potential anti-competitive behavior, leading to a request for a federal investigation.  

In a letter [PDF] sent Wednesday to Assistant U.S. Attorney General William Baer, Sen. Richard Blumenthal urges the Justice Department to investigate possible collusion and anti-competitive actions in the airline industry that could result in higher airfares for consumers.

The senator from Connecticut cites a recent NY Times report which found that some  airlines plan to cut back on the number of seats offered on certain routes in an attempt to boost profits.

The Times report was, in part, based on airline executives remarks at an industry conference regarding strategies to remain “disciplined” in their decisions to manage capacity across their flight routes.

“In light of the recent unprecedented level of consolidation in the airline industry, this public display of strategic coordination is highly troubling,” Blumenthal stated in his letter.

Two weeks ago, we told you that Delta Air Lines and United Airlines were considering cutting back on passenger capacity in the fall.

Blumenthal called the “capacity discipline” approach 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.”

“Consumers are paying sky-high fares and are trapped in an uncompetitive market with a history of collusive behavior,” he states.

In addition to referencing alleged collusion in his letter, Blumenthal pointed to the DOJ’s own investigation into and eventual anti-trust lawsuit [PDF] against the merger of American and US Airways as evidence of the dangers of a consolidated market.

While the merger between the two companies eventually went through, Blumenthal says the issues found beforehand are still an issue.

“DOJ’s original complaint painted a stark picture of an extremely consolidated market, in which a few firms wield enormous market power to the detriment of consumers and competition – and in which high-level executives believe there is an unmistakable link between fluctuations in capacity and fares hikes,” he states. “The Justice Department also correctly predicted that this kind of behavior would continue should the merger be allowed to proceed – as it ultimately was.”

According to Blumenthal the coordination has become easier as the number of major airlines dwindled and their business models converged.

Citing Unprecedented Consolidation within Airline Industry, Blumenthal Urges DOJ to Investigate Potential Anti-Competitive, Anti-Consumer Behavior and Misuse of Market Power [Sen. Richard Blumenthal]

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