Asks If Seat Capacity Has Been Kept Artificially Low To Bolster Ticket Prices

The U.S. Department of Justice has opened an investigation into whether domestic airlines have worked together to limit seat inventory in an effort to keep prices high.

The DoJ wants to know whether the airlines illegally communicated with one another to signal when they might add routes, more seats, or additional flights.

The Associated Press reports that the major U.S. airlines all received letters from the Justice Department demanding that they provide copies of all communications between the airlines, Wall Street analysts, and other major stakeholders about seat capacities, or "the undesirability of your company or any other airline increasing capacity." The carriers have been asked for information dating back to 2010.

Emily Pierce, a spokeswoman for the DoJ, would only confirm that the department was investigating whether "unlawful coordination" took place between the airlines and other stakeholders, but would not elaborate on the probe.

The investigation was requested by U.S. Senator Richard Blumenthal (D-CT) after seat capacity was discussed openly at the IATA meeting in Miami last month. In a news release, Blumenthal said that according to a report from The New York Times, the airline executives announced parallel strategies to maintain “discipline” regarding airline capacity across flight routes - a strategy identified as a highly valuable way for airlines to artificially raise fares and boost profit margins during the DOJ’s 2013 investigation into the US Airways/American Airlines merger.

In his letter to Assistant Attorney General William Baer, Blumenthal cited the DOJ’s investigation into the merger and the Department’s initial complaint, which said, “The structure of the airline industry is already conducive to coordinated behavior … the legacy airlines closely watch the pricing moves of their competitors. When one airline ‘leads’ a price increase, other airlines frequently respond by following with price increases of their own.”

"As noted in the Times report, efforts of large airlines to discourage and even punish competitors for reducing fares was evident at the IATA conference, specifically relating to Southwest Airlines.

“Last month, the CEO of Southwest Airlines declared plans to expand capacity by as much as eight percent, which many in the industry viewed as a preface to cutting fares. However, as reported in the Times, 'after coming under fire at this week’s conference, Southwest quickly moved to reassure investors it isn’t going rogue. ‘We have taken steps this week to begin pulling down our second half 2015 to manage our 2015 capacity growth…,’ [Southwest’s CEO] said.’”

"Southwest’s comments followed remarks from executives from Delta, Air Canada and American Airlines that reiterated their companies’ commitment to maintaining “discipline” for market capacity. Blumenthal wrote, “At best, these remarks reflect participants in an overly consolidated market aligning supracompetitive fares. At worst, they may be 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.”

“The conclusion seems inescapable that the remarks made at the IATA conference were targeted at Southwest, and that its capitulation was the result of the “fire” aimed at the company.”

Given the DOJ’s previous investigation and identification of collusive and anti-competitive behavior within the industry, Blumenthal urged “the Antitrust Division to conduct a full and thorough investigation of anticompetitive, anti-consumer conduct and misuse of market power in the airline industry, evidenced by recent pricing patterns as well as remarks made at the IATA conference.

“Consumers are paying sky-high fares and are trapped in an uncompetitive market with a history of collusive behavior. If you find that these comments were coordinated to punish Southwest Airlines’ announcement of capacity increases, I urge you to use all the tools at your disposal to punish this anti-competitive and anti-consumer behavior.”

FMI: www.justice.gov, www.blumenthal.senate.gov