Are Airlines Colluding to Keep Prices High?

The Department of Justice is investigating.

The Department of Justice is investigating whether the big airlines are colluding to keep capacity down and thereby to keep fares high. So says a document obtained by the Associated Press and later confirmed by a DoJ spokesperson.

Certainly the current airline marketplace is ripe for collusion. More than 80 percent of the market is controlled by just four airlines—American, Delta, Southwest, and United—probably the highest degree of concentration since deregulation. Moreover, most have been bragging to Wall Street analysts about how “capacity discipline” has helped them accrue record profits.

It’s highly unlikely that the DoJ will find anything remotely as incriminating as the infamous Bob Crandall to Harding Lawrence phone call, with its explicit message, “If you raise fares today, I’ll match you tomorrow.” Instead, it will probably look at the various “signaling” methods competitors in a monopoly market can use to make their intentions clear without openly exchanging messages. Among the most promising: the presentations airline financial types make to those Wall Street analysts. Wall Street may actually be the driving force here: pressuring the airlines to act in the same way.

The facts remain that the industry is now down to four big competitors, and that three of them essentially play an ongoing game of “me, too.” They can de facto collude on restraining capacity growth and hiking fares without actually overtly colluding.

Related: I Was Wrongly Kicked Off a Plane … Now What?

From a consumer perspective, it’s probably already too late to save the situation: Once the government allowed the Delta-Northwest, United-Continental, and American-US Airways mergers, plus the immunized alliance agreements with overseas airlines, real competition has suffered a near-death blow. Now that those mergers and alliances are fait accompli, we’re seeing the anticompetitive results.

Is anyone surprised?

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By Ed Perkins

A nationally recognized reporter, writer, and consumer advocate, Ed Perkins focuses on how travelers can find the best deals and avoid scams.

He is the author of "Online Travel" (2000) and "Business Travel: When It's Your Money" (2004), the first step-by-step guide specifically written for small business and self-employed professional travelers. He was also the co-author of the annual "Best Travel Deals" series from Consumers Union.

Perkins' advice for business travelers is featured on MyBusinessTravel.com, a website devoted to helping small business and self-employed professional travelers find the best value for their travel dollars.

Perkins was founding editor of Consumer Reports Travel Letter, one of the country's most influential travel publications, from which he retired in 1998. He has also written for Business Traveller magazine (London).

Perkins' travel expertise has led to frequent television appearances, including ABC's "Good Morning America" and "This Week with David Brinkley," "The CBS Evening News with Dan Rather," CNN, and numerous local TV and radio stations.

Before editing Consumer Reports Travel Letter, Perkins spent 25 years in travel research and consulting with assignments ranging from national tourism development strategies to the design of computer-based tourism models.

Born in Evanston, Illinois, Perkins lives in Ashland, Oregon with his wife.

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