Mary Schlangenstein, David McLaughlin and Michael Sasso Washington and Atlanta
US airlines face an antitrust investigation by the Justice Department into whether they are discussing how to control the supply of seats, a crucial factor in determining fares.
American Airlines and Southwest Airlines confirmed receiving Justice Department requests for details of conversations, meetings and conferences where industry capacity was discussed.
The department said an inquiry was under way into possible co-ordination among carriers but would not give details.
Airfare decisions normally are among the most closely guarded secrets at airlines before they are announced, and upon announcement they trigger intense scrutiny by competitors and bargain-hunting travellers. The Bloomberg US airlines index tumbled immediately after the probe was disclosed, then pared its decline to 2 percent.
Timing questioned
“I certainly haven’t seen any outward signs of collusion,” Joe Denardi, an analyst with Stifel Financial Corporation in Baltimore, said.
He questioned the Justice Department’s timing in bringing an inquiry when in fact airlines had been adding more capacity than many investors would like to see.
Seating and fares are closely intertwined, because companies lose pricing power when the industry’s capacity outstrips travel demand. Airline stocks have been under pressure this year on concern that their seat growth is expanding faster than the US economy. The index is down 19 percent so far this year.
As part of the Justice Department’s request for documents, airlines were asked for materials involving the “need for, or the desirability of, capacity reductions or growth limitations by the company or any other airline”, according to a letter sent to carriers requesting the information.
The agency’s letter also sought details on each airline’s capacity for every month – a figure each carrier reports routinely – since January 2010.
Concern that airlines may have been co-ordinating on fares led the US to sue to block the American-US Airways merger in 2013.
Before that case was settled, the Justice Department’s antitrust division said the biggest airlines “increasingly prefer tacit co-ordination over full-throated competition”.
That tie-up capped a wave of consolidation that swept up five of the 10 biggest US airlines since 2005.
The squeeze left American, Delta Air Lines and United Continental as lone providers of full-service cabins and international networks. Southwest is the dominant discounter. All four major airlines promised their co-operation with the antitrust inquiry. – Bloomberg