July 1 - BTC Applauds U.S. DOJ Investigation of Airline Coordination On “Capacity Discipline"

Urges Joint US / EU Inquiry

“Exhibit A” - Lufthansa’s just-announced 16 Euro travel agency surcharge

Business Travel Coalition (BTC) today applauded the decision of the U.S. Department of Justice (DOJ) to investigate recent public communications by major U.S. network airlines that could prove to represent illegal coordination among industry competitors to restrict capacity in domestic U.S., transatlantic and other international markets for the purpose of maintaining and/or increasing upward pressure on ticket pricing.

DOJ is no doubt observing the reduction in competition and the concomitant increase in total air travel prices and decrease in product innovation and customer service satisfaction levels. The DOJ investigation is coming at a critical time for consumers. U.S. Senator Richard Blumenthal's (D-CT) recent leadership on this problem is welcomed, and the European Commission should join in on this investigation. There is precedent for this investigation per previous U.S. Federal Trade Commission investigations and rulings with respect to tacit competitor coordination – especially on analyst calls.

“The number one concern that antitrust experts have - with no close second - with regard to radical consolidation of any industry, is the risk of tacit competitor coordination on policies, practices and prices among a reduced number of industry participants,” stated BTC chairman Kevin Mitchell. “Since recent U.S. airline mega-mergers, we have witnessed near constant airline CEO calls for 'capacity discipline' during industry gatherings and analyst earnings calls only to be echoed by analysts in follow-on earning calls with other airlines. This represents perhaps the darkest hours of airline coordination as well as a too-cozy harmonization between airlines and Wall Street,” added Mitchell.

Sadly, according to BTC, this apparent tacit coordination on capacity is accompanied by an even more aggressive and widely coordinated attack on price transparency, consumer protections and competition, which is visible in other areas including but not limited to:


Since 2008, the Big Three U.S. airlines (Delta Air Lines, American Airlines, United Airlines) have rejected their most valued corporate customers’ demands for ancillary fee data that would enable their business travelers to efficiently see, compare and buy ancillary services (e.g., checked bags, preferred seats) in the same transaction as the base airfare. Leisure travelers must navigate airline websites in search of best airfare and ancillary fee combinations often paying higher prices than necessary. In total, this opacity results in these ancillary fees not being disciplined by market forces. Likewise, there is great profit in consumer confusion.


Airports use PFCs to add gates and other facilities to attract additional airlines to compete for local travelers’ business expanding consumer choice and disciplining incumbent airlines’ prices. The Big Three seem to not want new competition. (See USAToday report at  http://btcnews.co/1dz0hEG.


Keep those shinny news Boeing aircraft out of the hands of foreign competitors. (See 7-1-15 CAPA report at http://btcnews.co/1C00cp1.)


Under the EU-US Open Skies agreement, NAI’s application to serve the U.S. should have been a 5-week pro forma review and approval. Instead, airlines’ political pressure has held up approval for 15 months. This is as embarrassing to the United States as it is outrageous in its harm to U.S. consumers. Airlines fear that if NAI’s low-fare business model were to be embraced by U.S. consumers, other carriers like Ryanair and JetBlue would seek to emulate NAI’s success.


The Big Three fought the Full Fare Advertising Rule promulgated in 2011 by DOT. When DOT implemented the rule to safeguard consumers’ interests, the airlines sued DOT in federal district court and lost. They then went to the Supreme Court, which rejected their pleas. Airlines finally turned to the U.S. House of Representatives to pass the Orwellian named Transparent Airfares Act of 2014. The bill, luckily rejected by the Senate, would have increased airlines’ revenues and profits by obscuring the true price of air travel options.


The Big Three claim that the Gulf airlines -- Emirates, Qatar and Etihad -- receive government support that is harming the U.S. carriers. The Big Three co opted Congress again with a Congressional letter that supports the Big Three’s call for a freeze in new air services by the Gulf airlines -- all without having allowed those carriers an opportunity to respond to the allegations, not to mention the glaring hypocrisy that the U.S. airline industry, by the Big Three’s very own math, has been the most heavily taxpayer subsidized and structurally advantaged in the history of commercial aviation. Brazenly, the airlines recently warned the Obama Administration that if they don’t play ball, the Big Three will again seek Congressional legislative support.


Lufthansa Group's (LHG) recently announced proposal (June 2015) that it would surcharge customers 16 Euros if they purchase a ticket anywhere other than its websites, service centers and airport ticket counters beginning on 1 September 2015 represents a possible abuse of its dominant market position and should be investigated by Germany’s competition authority, the Bundeskartellamt, the EC’s DG COMP and the U.S. DOJ.


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