Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Major airlines charged with fixing prices of airline tickets, (Jul 7, 2015)

By Linda O’Brien, J.D., LL.M.

American, Delta, Southwest, and United Airlines—the four largest airlines in the United States—engaged in a conspiracy to fix the prices of domestic airline tickets by limiting (1) the seating capacity on flights, (2) the number of flights offered, and (3) the transparency of pricing information available to consumers, according to a complaint filed by a consumer in the federal district court in Washington, D.C. (Blumenthal v. American Airlines, Inc., July 6, 2015).

American Airlines, Delta Airlines, Southwest Airlines, and United Airlines are the four major airlines in the United States. Elliot Blumenthal has purchased a ticket for a round trip flight from the one of the major airlines.

In 1978, Congress passed the Airline Deregulation Act, which removed government control over fares, routes, and market entry of new airlines. Since 1978, the airline passenger industry has become highly concentrated and seen significant express coordination. As a result of a series of mergers beginning in 2008, American, Delta, Southwest, and United airlines control approximately 80 percent of the domestic airline market. In the past two years, U.S. airlines have earned a combined $19.7 billion, according to the complaint.

The complaint states that, in early July, the U.S. Department of Justice (DOJ) announced that it was investigating the airline industry for potential unlawful coordination. The DOJ had expressed concern that consolidation within the industry would lead to increased coordination among the remaining airline carriers. As part of its investigation, the DOJ sent civil investigative demands (CIDs) to each airline, regarding communications about their plans for passenger-carrying capacity.

The airlines’ primary mechanism for collusively raising prices for airline consumers is to enforce “capacity discipline,” the plaintiff charged. The term is a euphemism for limiting the number of flights and seats available to consumers. Capacity reductions have not resulted only from the cancellation of empty planes or empty seats; rather, the airlines allegedly have cut capacity after a merger as well as the number of passengers they carry on the affected routes.

The complaint also alleges that, from 2009 to 2014, the average domestic airfare rose 13 percent. Much of the price increase is a direct result of the airlines’ mutual commitment to keep airline capacity artificially low, the complaint claimed. The defendant airlines have also engaged in a concerted campaign to reduce consumers’ ability to compare air fares by limiting access to fare data by online airline agencies (OTAs) and by forcing consumers to use the airline websites rather than other retail channels for domestic airline tickets. The purpose of those efforts was to eliminate comparison shopping and increase prices by driving online traffic to the airlines’ own websites, according to the complaint. Furthermore, there has been no price movement in response to significant decreases in the cost of jet fuel. Airfares have continued to rise regardless of the decrease in airline operating costs.

As a result of the conspiracy, the defendant airlines have restrained competition in the market for domestic airline tickets, requiring consumers to pay higher prices for domestic airline tickets than they would have absent the concerted unlawful activity, the plaintiff alleged.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act and Section 4 of the Clayton Act. The action seeks declaratory and injunctive relief, damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

In a related action, a consumer filed suit in the federal district court in San Francisco, alleging that the four major commercial airlines engaged in a conspiracy to fix prices for air passenger transportation services within the United States by colluding to limit seat capacity (Andrade v. American Airlines, Inc., July 6, 2015).

The cases are Nos. 1:15-cv-01056 and 3:15-cv-03111.

Attorneys: Jon Corey, Stephen R. Neuwirth, and Adam B. Wolfson (Quinn Emanuel Urquhart & Sullivan, LLP) for Elliot J. Blumenthal. Allan Steyer, D. Scott Macrae, and Jill M. Manning (Steyer Lowenthal Boodrookas Alvarez & Smith LLP) for Michele Andrade.

Companies: Delta Airlines, Inc.; American Airlines, Inc.; Southwest Airlines, Co.; United Airlines, Inc.

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