DOJ airline probe: A paper tiger?

The mainstream media on Wednesday were jumping all over a story that the Justice Department has launched an investigation into the airline industry for possible collusion in violation of antitrust laws, and major airline stocks fell as a result.

But don’t expect to see airline executives doing perp walks on TV any time soon. For one thing, all DOJ has done so far is send letters to the major airlines requesting copies of any communications they or their executives have had with each other, and with Wall Street analysts, about their intentions regarding controlling their capacity. This kind of DOJ information request happens a lot, in many industries, as nothing more than a kind of fishing expedition to see if there might be anything there.

As we noted a few weeks ago, the idea has been floating around in the media that airline executives who constantly harp on “capacity discipline” at industry conferences — i.e. how their company is resisting the urge to add more flights and/or seats — could be signaling each other to adopt this as an industry-wide standard, thereby keeping fares high during a time of healthy passenger demand.

But there’s a huge gap between public comments at airline industry conferences and solid proof of an illicit conspiracy to violate the antitrust laws.

You also have to consider the political nature of the Justice Department — i.e., it is an institution that responds to pressure. Besides the media muttering about industry “discipline,” Senator Richard Blumenthal (D.-Conn.) just two weeks ago issued a public demand that DOJ look into possible airline collusion in view of what he called “skyrocketing fares” that may have resulted from industry consolidation.

Airlines for America (A4A), the airline trade organization, was openly skeptical about the DOJ probe, claiming its members are competing as much as ever. As for Blumenthal’s complaints about pricing, A4A said the Transportation Department’s own data shows that fares are down this year.

(A4A probably has a good point about base fares, although it ignores the fact that travelers are paying a lot more overall for their trips in the form of add-on fees, which are reaching new records almost every quarter.)

Related: Discipline- a secret airline code word? 

Anyway, although the Justice Department makes a lot of noise about the airlines, it doesn’t have a great track record for acting against them. In 2013, DOJ filed suit against the US Airways-American merger, apparently determined to block it at all costs on antitrust grounds because of the damage it would do to competition. (This after it had given the green light to Northwest-Delta, Continental-United and Southwest-AirTran.) But in the end, after the lawyers for both sides got done talking, the airlines agreed to give up some slots and gates at a few airports and the merger went ahead.

Classic deregulation economic theory suggests that when the major competitors in a market are under-serving demand — whether in cahoots or not — new competitors will see an opening and move in to exploit it, bringing the market back into balance. And that’s exactly what we’re seeing these days from ultra-low-cost airlines like Spirit and Frontier, which are expanding all over the place — often in markets served by the legacy carriers. (See our post about what they’ve done in Atlanta.)

The DOJ’s latest action might just be a way of saying to the airlines’ critics in Congress and the media, “Hey, don’t worry, we got this;” and to the airlines themselves, “We’re watching you, so be careful.”

What do YOU think? Are the airlines in cahoots? Please leave your comments below. 

–Jim Glab

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