Major airlines, in conjunction with each other, are limiting seat availability to keep prices high; a phenomenon being examined by the U.S. government. Whether airlines secretly signaled each other about their pace of adding new flights, routes, and extra seats; is being thoroughly explored by the Justice Department as the civil antitrust investigation.
Copies of all communications among the airlines are required to be submitted for this investigation. Wall Street analysts and major shareholders are also required to give copies of their plans for passenger-carrying capacity, or “the undesirability of your company or any other airline increasing capacity.” Passenger-carrying capacity by region and overall since January 2010 has to be reported back to the Justice Department.
Potential “unlawful coordination” among some airlines is being probed according to Justice Department spokeswoman Emily Pierce who disagreed to say anymore than this. Stocks of the major U.S. airlines fell 3 to 5 percent within minutes of the news of this investigation, whereas the rest of the stock market was still up.
Major domestic airlines had no immediate comment except for United, whose spokesperson Luke Punzenberger confirms they will cooperate with the investigation.
Wall Street analysts on the other hand argued that the way to hold financial strength, airlines should not exceed capacity faster than its economy in the U.S. and from January 2010 to January 2014 it remained that way. During this time capacity on domestic flights was practically flat, and the economy was about 2.2% per year. But, airlines expanded by 5.5%, and the economy at 2.4% growth for 2014.
Elimination of unprofitable flights, filling a higher percentage of seats on planes and public efforts to slow growth in order to command higher airfares was a result of the merger in 2008 among American Airlines, Delta Air Lines, Southwest Airlines and United, who controlled more than 8o% of the domestic market seats. Thus, average domestic fares rose 13%, after inflation, and during the past 12 months, the airlines took in $3.6 billion in bag fees and another $3 billion in reservation change fees. This was a record profit for the industry where the U.S. airlines had reached a $19.7 billion together.
Wall Street analysts are worried that low fuel prices lead to airlines making poor business decisions. Some of these decisions would have been rapid expansion, launching new routes and setting unrealistically low airfares to lure passengers. And, airlines who already flew those routes attempted to match the fare, ultimately every player losing money.
Wolfe Research analyst Hunter Keay believes that there is nothing inappropriate in the way airlines have been acting, and confirms he has not been contacted by the government.
