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Legally-sanctioned price collusion


June 23, 2015

FlyersRights often receives letters criticizing us for our ”Naderite” newsletters on the airline industry.

A 2007 photo of the sticker Kate Hanni wore at the  “Strand In” on the National Mall.

They don’t believe that market manipulation by airline companies is an important issue, and say it sounds too much like what one hears from leftists, who blame greedy capitalists for every problem. 

And that we passenger-rights advocates have cried ”Wolf” so many times, that people have learned to discount such claims.

But now a bona fide wolf has arrived, whose predatory behavior has even alarmed even a do-nothing Congress.

Senator Richard Blumenthal asked the Justice Department last Wednesday to investigate airlines engaging in anticompetitive and colluding behavior to limit capacity and drive up fares. 

We completely agree. This is effectively price-fixing and collusion through restriction of supply. You can even call it a cartel, not unlike OPEC, and enforced by Wall Street. 

“Consumers are paying sky-high fares and are trapped inside an uncompetitive market with a history of collusive behavior,” the senator said in his letter.

In a letter to William J. Baer, the head of the department’s antitrust division, the senator highlighted several comments that airline chief executives made at a recent industry gathering that confirmed that carriers are pursuing anticompetitive practices.

In his letter, Mr. Blumenthal quoted the presidents of Delta, Air Canada and American Airlines, who all spoke of capacity “discipline.” He also noted that the airlines had become more concentrated after several mergers in recent years that were all inexplicably approved by the Justice Department.

FlyersRights often goes out on a limb, at least by journalistic standards, saying that the airlines manipulate the market via capacity “discipline”. We have now been vindicated: arguments that people called leftist nonsense years ago are now conventional wisdom.

Where Are We Going?

 
Our deregulated airline industry, in which airfares and fees can be sold for whatever the traffic will bear, was suppose to deliver cheaper, better flying.

Instead – have you wondered why your airline ticket prices have remained so high even though the cost of jet fuel has plummeted 40 percent?
Because U.S. airlines have consolidated into a handful of giant carriers, they can divide up routes and collude on fares. In 2005 the U.S. had nine major airlines. Now we have just four. And all are politically well-connected

The situation raises doubts about deregulation. And more broadly, it’s a warning about the dangers of placing blind faith in markets.

Expect Fewer Seats, Even for Overseas Flights

The question today is, now that the summer travel season is in full swing, what kind of an air-travel future are we looking at?

Short term, things are looking worse for passengers; with rising fares, more fees, airlines cutting domestic capacity, reducing service in many midsize and smaller markets and stuffing more people than ever into airplanes.

What is necsessary: First, as others have commented, re-regulation is needed, pronto. Letting the inmates run the asylum never made much sense, and it makes even less sense now.

Second, re. wages and benefits, why is it that the pay rates and work rules for labor are “completely unsustainable,” but that obscene executive, board, and management wages and benefits never are?

Third, re. train networks, both long-distance and shorter distances, the U.S. could have extensive networks in place now if there had been less lobbying efforts in the past to stop them, lobbying efforts that involved major U.S. airlines.

Yes, U.S. flying is a uniquely horrific experience. But, also, U.S. airlines are in an unstable equilibrium, and thus a ‘race to the bottom’ in terms of service.
 Finally, the Fear-and-Loathing that one suffers when one travels by air is pretty much limited to the U.S. and Africa. Yes, Heathrow is a mess; neither Europe or Asia are perfect. Traveling by air in the U.S. however, is a universally miserable experience.

It is worth noting that the EU now has what they call a “Passenger Bill of Rights” – exactly what we’re pushing for here.

We hope the DOJ actually does something. They can start by allowing the three major airlines in the Middle East – Emirates, Qatar Airways and Etihad to continue to expand in the USA.

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Comments? Complaints? Send to the newsletter editor: 
Kendall Creighton: kendallc@FlyersRights.org
Twitter: @KendallFlyers


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