Did airlines coordinate to limit capacity and keep fares up?

The Justice Department has begun to investigate several major airlines for possible collusion over keeping fares high. For insight, Hari Sreenivasan turns to Sen. Richard Blumenthal, D-Conn., who asked the DOJ to investigate airlines last month.

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    The federal government is investigating whether the major airlines have colluded to keep airfares high. The Associated Press first reported it yesterday.

    The industry is denying the claims, but, yesterday, American, United, Delta and Southwest all confirmed that they were cooperating with the Justice Department probe.

    Hari Sreenivasan now talks with a lawmaker who's been pushing for the investigation.


    Last month, Senator Richard Blumenthal called on the Justice Department to look into these issues.

    And he joins me now from Hartford.

    So, Senator, what made you want to ask the DOJ to investigate?

    SEN. RICHARD BLUMENTHAL (D), Connecticut: What made me ask for this investigation is the evidence. And it's the same evidence that caused the Department of Justice to make the decision to investigate.

    By the way, the Department of Justice doesn't decide on antitrust investigations out of curiosity or whim. There has to be some factual indication. And, here, it was, pricing patterns, warnings to potential competitors like Southwest Airlines that it had to continue keeping capacity or numbers of flights down, and the fact that there have been increasing prices for consumers, as well as reduced numbers of seats on certain routes.


    So, you're not trying to specifically constrain what a company should profit from or what would the percentage at the end of the year should be.

    You're saying your target is specifically communication between executives, right?


    The nature of an antitrust violation when collusion is alleged, and that's the subject here, is coordination, cooperation that is illegal because it tends to stifle competition.

    And the reason competition is good for consumers is, it tends to lower prices and provide more choices. So, absolutely right, the target here is not the industry's profits, which are at an all-time high, not necessarily even prices, which should be reduced, but the collusion that may result in those increased prices.


    So one of the concerns is about constraining capacity, the number of seats, the number of flights that are actually available to consumers. You decrease that supply, the demand stays the same, the price goes up, right?

    But the industry comes back and says capacity is actually at a post-recession high, that we have more seats up in the air and available to people now and that prices are coming down in 2015.


    The fact of the matter is that airfares are at an all-time high.

    If you look at the pattern over the last 20 years, which is the time that they have been measuring them, the flight last year, average price, $391, is higher than at any time over those 20 years. If you look at just fares, they're at a 12-year high.

    And then add the additional charges for baggage and reservations and access to Internet sites, and, in fact, the total costs rise even higher. So, consumers are suffering from higher fare prices, higher costs, and the numbers of seats available to them have been constrained, possibly, allegedly, by this communication, coordination among the airlines.

    How do they communicate? Well, one example, at a recent conference, all of the industry executives were talking about capacity discipline. If discipline is a codeword or jargon for what the objective is and if they are punishing the airlines like Southwest that have the nerve to violate that regimen, then there is potentially a violation of antitrust laws.

    And the remedies here don't involve breaking up airlines. They involve possibly money back to consumers, penalties for those companies, and also court orders that prevent this kind of misconduct in the future.


    So, an airline is going to come back and say, listen, we decided to take some airplanes out of the sky when there were fewer and fewer people flying during the recession. Now that it's over, we're starting to add seats again.


    And there's nothing wrong with those business decisions, as long as they are made independently and competitively.

    When those decisions result from coordinated conduct that, in effect, violates the principle of the markets that there ought to be free and open competition and the principles of law, antitrust statutes, that there should be no collusion, then there is a violation of law.

    And violations of law have yet to be proven. All of these arguments made by the airlines are entitled to be made to the Department of Justice.


    All right.

    Senator Richard Blumenthal, thanks so much for your time.


    Thank you.

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