Justice Department Says It's Looking Into Possible Airline Price Fixing
NEW YORK (CBSNewYork/AP) - The Obama administration is looking into possible coordination among airlines to artificially keep airfares high.
"We are investigating possible unlawful coordination by some airlines," Justice Department spokeswoman Emily Pierce said.
The civil antitrust investigation by the Justice Department appears to focus on whether airlines illegally signaled to each other how quickly they would add new flights, routes and extra seats, The Associated Press reported. Officials allege that the airlines, by working together, could keep supply tight, meaning airfare prices could rise.
A letter received Tuesday by major U.S. carriers demands copies of all communications the airlines had with each other, Wall Street analysts and major shareholders about their plans for passenger-carrying capacity.
Pierce declined to comment further, including about which airlines are being investigated.
But United Airlines, American Airlines, Southwest Airlines and Delta Air Lines have confirmed they have received subpoenas.
Thanks to a series of mergers starting in 2008, those four airlines now control more than 80 percent of the seats in the domestic travel market. During that period, they have eliminated unprofitable flights, filled a higher percentage of seats on planes and made a very public effort to slow growth in order to command higher airfares.
It worked. The average domestic airfare rose 13 percent from 2009 to 2014, when adjusted for inflation, according to the Bureau of Transportation Statistics. And that doesn't include the billions of dollars airlines collect from new fees: $25 each way to check a bag and $200 to change a domestic reservation. During the past 12 months, the airlines took in $3.6 billion in bag fees and another $3 billion in reservation change fees.
All of that has led to record profits for the industry. In the past two years, U.S. airlines earned a combined $19.7 billion.
This year could lead to even higher profits thanks to a massive drop in the price airlines pay for jet fuel, their single highest expense. In April, U.S. airlines paid $1.94 a gallon, down 34 percent from the year before.
Airline passengers were reacting to news of the investigation with disgust Wednesday.
"Doesn't surprise me. Not one bit," Robin Reed of Arkansas told CBS2's Jessica Schneider. "Because they've been making a lot of money -- that's been coming out -- and it's harder and harder to get seats. So it doesn't surprise me that they're being investigated for that."
"I fly a lot, and I would say they've gone up at least 10 to 20 percent over the last four months," said Susan Roy, of Carmel.
People flying say if the collective effort to charge higher prices is true, it will be just one more black mark for the airline industry.
"We're at the mercy. We're held hostage if you need to travel," Roy said. "I'm not sure that there's much that you can do."
U.S. Sen. Charles Schumer (D-N.Y.) said he raised questions to the Justice Department about airline pricing back in December.
With several major airline mergers since 2008, and just four airlines American, Delta, Southwest, and United, controlling 80 percent of the domestic travel seats, Schumer wants a top to bottom review of the system.
"I want them to look at the whole nine yards. They should certainly look if they're limiting capacity. But they should also look at price competition. Why aren't they competing in price?" Schumer said.
Some industry experts said there are other ways for airlines to keep prices high.
"Technology today is so pervasive that airlines can watch what their competitors are doing in real time and make decisions almost instantly that change their level of capacity based on what someone else is doing," industry expert Josh Marx said.
The government will continue its investigation amid the backdrop that in the past two years, U.S. carriers have reported combined profits of $19.7 billion.
Several airlines said they were cooperating with the investigation. They said that more people are flying than ever before, and average fares have actually gone down.
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