Major US airlines probed for price-fixing
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Major US airlines probed for price-fixing
Deutsche Welle: Major US airlines probed for price-fixing
The United States Justice Department has confirmed that it is investigating US airlines over allegations they kept ticket prices artificially high. But critics say the department contributed to the problem itself. "We are investigating possible unlawful coordination by some airlines," a Justice Department spokesperson said on Wednesday, in response to a report from news agency AP saying it had obtained a document from the department.
There was no mention of which airlines were covered in the probe, but AP reported several carriers had received a letter from the government asking for copies of all communications the airlines either had with each other, Wall Street analysts or major shareholders about their plans for passenger-carrying capacity, or "the undesirability of your company or any other airline increasing capacity." Four major carriers - American Airlines, Delta Air Lines, Southwest Airlines and United Airlines - confirmed they had received the letter.
The Justice Department also asked each airline for its passenger-carrying capacity both by region, and overall, since January 2010. The letter suggests that the antitrust investigation is focusing on whether airlines were artificially keeping capacity down by signaling to each other how quickly they would add new routes and extra seats.
Reports of the probe sent the shares of major US carriers tumbling on Wall Street by between 1 and 3 percent on a day the overall stock market was up.
'Paying sky-high fares'
The news comes after senior airline executives publicly discussed capacity last month at the International Air Transport Association's annual meeting in Miami. After hearing about that meeting, US Senator Richard Blumenthal requested a Justice Department investigation. In his letter calling for the probe, Blumenthal also accused the DoJ of helping to create the conditions for the alleged price-fixing. "DoJ itself played a part in this consolidation by approving several mergers and now consumers are paying sky-high fares as airlines engage in market conduct designed to keep capacity artificially low," Blumenthal wrote. "I urge you to use all the tools at your disposal to punish this anti-competitive and anti-consumer behavior."
The Justice Department, which investigates mergers to assess whether they violate antitrust law, has recently approved a string of airline mergers. US Airways merged with American Airlines in 2013, United bought Continental in 2012, Southwest bought Airtran in 2011 and Delta purchased Northwest in 2008. The mergers mean that those four airlines now control over 80 percent of the passenger market inside the US.
According to Department of Transportation statistics, domestic flight ticket prices in the US have steadily risen despite a worldwide plunge in fuel prices, a major cost to airlines. Prices were up two percent last year despite crude oil prices falling by half. According to the department's data, available seat miles on US carriers remain significantly below the peak in late 2007, before the economic crisis.
The United States Justice Department has confirmed that it is investigating US airlines over allegations they kept ticket prices artificially high. But critics say the department contributed to the problem itself. "We are investigating possible unlawful coordination by some airlines," a Justice Department spokesperson said on Wednesday, in response to a report from news agency AP saying it had obtained a document from the department.
There was no mention of which airlines were covered in the probe, but AP reported several carriers had received a letter from the government asking for copies of all communications the airlines either had with each other, Wall Street analysts or major shareholders about their plans for passenger-carrying capacity, or "the undesirability of your company or any other airline increasing capacity." Four major carriers - American Airlines, Delta Air Lines, Southwest Airlines and United Airlines - confirmed they had received the letter.
The Justice Department also asked each airline for its passenger-carrying capacity both by region, and overall, since January 2010. The letter suggests that the antitrust investigation is focusing on whether airlines were artificially keeping capacity down by signaling to each other how quickly they would add new routes and extra seats.
Reports of the probe sent the shares of major US carriers tumbling on Wall Street by between 1 and 3 percent on a day the overall stock market was up.
'Paying sky-high fares'
The news comes after senior airline executives publicly discussed capacity last month at the International Air Transport Association's annual meeting in Miami. After hearing about that meeting, US Senator Richard Blumenthal requested a Justice Department investigation. In his letter calling for the probe, Blumenthal also accused the DoJ of helping to create the conditions for the alleged price-fixing. "DoJ itself played a part in this consolidation by approving several mergers and now consumers are paying sky-high fares as airlines engage in market conduct designed to keep capacity artificially low," Blumenthal wrote. "I urge you to use all the tools at your disposal to punish this anti-competitive and anti-consumer behavior."
The Justice Department, which investigates mergers to assess whether they violate antitrust law, has recently approved a string of airline mergers. US Airways merged with American Airlines in 2013, United bought Continental in 2012, Southwest bought Airtran in 2011 and Delta purchased Northwest in 2008. The mergers mean that those four airlines now control over 80 percent of the passenger market inside the US.
According to Department of Transportation statistics, domestic flight ticket prices in the US have steadily risen despite a worldwide plunge in fuel prices, a major cost to airlines. Prices were up two percent last year despite crude oil prices falling by half. According to the department's data, available seat miles on US carriers remain significantly below the peak in late 2007, before the economic crisis.
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And I thought, in the US, one was innocent until proven guilty.
It is one thing to bemoan one of the cyclic challenges the aviation industry experiences, even in a public forum. It is no secret that this industry repeatedly shoots itself in the foot by failing to match capacity to demand. But it is another thing to discuss and agree to do something about it.
There is evidence of the former, there may be evidence of the latter. We shall see.
In a deregulated environment prices are driven by market forces, there is no economic sense to cut prices when your costs go down. The perfect price is what the punters are prepared to pay.
Oh, and sky-high prices? The average profit per passenger last year was $8.
It is one thing to bemoan one of the cyclic challenges the aviation industry experiences, even in a public forum. It is no secret that this industry repeatedly shoots itself in the foot by failing to match capacity to demand. But it is another thing to discuss and agree to do something about it.
There is evidence of the former, there may be evidence of the latter. We shall see.
In a deregulated environment prices are driven by market forces, there is no economic sense to cut prices when your costs go down. The perfect price is what the punters are prepared to pay.
Oh, and sky-high prices? The average profit per passenger last year was $8.
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Airline value vs political perception
1966 First Class tickets were less than $0.10 per mile. Toledo - SFO Coach $258.00. With the inflation rate reducing the dollars value that ticket should now be $1900.00+. If the price matches then there has been no change in cost vs. value. I find tickets well under that cost for SDF SFO these days. Much posturing for upcoming elections.... me thinks.
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The current market system in the US is based on very sophisticated res / sales systems that change ticket prices in micro-seconds. A lot of it is automated. It tells the airline what city pair at what price.
The result of fare wars are well documented. It is a blood letting contest where each side sees how long the other will stay in the market before someone blinks. Southwest the historic low cost producer now has a much more recognizable marketing plan that takes into account the fact that their costs are closer to that of their rivals. This all points to a mature market.
There are still ultra-low cost carriers, like Allegiant and Spirit to keep the majors in line.
AAL (American Airlines) is currently trading at a pe of 5. The market doesn't see the Airlines as money making machines. It is still a cyclical industry and with the market pe at around 20, AAL is selling a huge discount. This is not the pricing model of a oligopoly or monopoly type company. The market doesn't see it that way.
The result of fare wars are well documented. It is a blood letting contest where each side sees how long the other will stay in the market before someone blinks. Southwest the historic low cost producer now has a much more recognizable marketing plan that takes into account the fact that their costs are closer to that of their rivals. This all points to a mature market.
There are still ultra-low cost carriers, like Allegiant and Spirit to keep the majors in line.
AAL (American Airlines) is currently trading at a pe of 5. The market doesn't see the Airlines as money making machines. It is still a cyclical industry and with the market pe at around 20, AAL is selling a huge discount. This is not the pricing model of a oligopoly or monopoly type company. The market doesn't see it that way.
