Dear State Attorneys General,
The Business Travel Coalition (BTC) applauds the separate decisions of the U.S. Department of Justice (DOJ) and Connecticut Attorney General George Jepsen to investigate recent public communications by major U.S. airlines. Those communications could 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. (See BTC July 1 statement at http://btcnews.co/1Kv3eVs.)
However, this concern over tacit coordination of seat capacity represents just the tip of the iceberg and is an effect of radically reduced competition. In the past few years as the U.S. Big Three airlines – Delta Air Lines, United Airlines, American Airlines – have consolidated their market power, they have also surged in their political power. The Big Three would appear to have been in virtual lockstep in multiple strategies to reduce price transparency, undermine consumer protections and diminish competition that harms your states’ citizens, blunts economic development and forecloses on the creation of travel and tourism jobs.
In addition to capacity discipline, the Big Three’s anti-competitive and anti-consumer initiatives that comprise their patterned-strategy include but are not limited to:
- pulling airfare information from comparison-shopping websites;
- withholding ancillary fee comparison-shopping data from travel agencies;
- fighting passenger facility fees to frustrate airports’ ability to attract new competitors;
- killing the Export Import bank to keep new long-haul and wide-body aircraft out of the hands of foreign competitors;
- undermining U.S. Department of Transportation (DOT) consumer protection authority by suing their regulator in federal court and writing and securing U.S. House of Representatives approval of The Transparent Airfares Act of 2014 designed to obscure pricing;
- blocking Norwegian Air International’s application to compete for customers in U.S. markets;
- seeking government protection from Gulf carrier competition; and
- endorsing publicly Lufthansa’s announcement of a commercial decision to discriminate against and harm the global distribution system-enabled travel agency channel and their customers.
While the DOJ and Connecticut investigations are welcomed and timely, the worry over coordination on seat capacity is merely one of numerous examples of patterned behavior. The reality is that it is exceeding unlikely that the radical consolidation of the domestic U.S. commercial aviation marketplace can be undone. As such, State Attorneys General should consider, as they did in the late 1990s, reengaging, at the national level, the problem of insufficient airline competition with the goal of evaluating structural and other reforms that would return robust competition to the marketplace.
Three highly impactful reforms are:
REVIEW ANTITRUST IMMUNITY
Antitrust immunized global alliances and metal-neutral joint ventures have bestowed enormous benefits on the Big Three. As linked to Open Skies agreements, the underlying premise in granting this immunity is that there must be the opportunity for robust domestic and international airline new entry. Now that the Big Three have their consolidation and antitrust immunities, they want to pull up the “Drawbridge” and lock down “Fortress America” first by politically blocking Norwegian Air International’s application to serve the U.S. under our Open Skies agreement with the EU and then by seeking to freeze the Gulf carriers’ expansion into the U.S. Consequently, more and more industry participants are calling for review of these grants of immunity at regular intervals with a DOT docket for public comment.
Cabotage, of course, is a right, under an air services agreement between two countries, or with legal entities like the European Union, for a foreign airline to transport paying passengers between two points in another country. Virtually all the concerns raised over the years about cabotage could be adequately addressed except for the obvious objection of the Big Three that they would face additional competition. However, due to Big Three-engineered domestic U.S. consolidation many thousands of routes are now monopolized and many mid-size communities’ airports have been abandoned by the Big Three impairing economic development and job creation. The Big Three’s efforts to block new international and domestic competition only make this option a more attractive one. Among those that are raising the cabotage issue are independent commercial airlines, all-cargo airlines, consumer groups and bipartisan think tanks (see http://btcnews.co/1G1GzbA).
RESTORE THE PRIVATE RIGHT OF ACTION
U.S. consumers and their State Attorneys General representatives are unable to sue the airlines for unfair and deceptive practices, which has the effect of enabling the Big Three to run roughshod over consumer interests and to stonewall DOT consumer protection initiatives with impunity. Virtually all other industries are disciplined in their practices toward their customers by the threat of individual and class action lawsuits. It would only require very simple legislation to enable the restoration of the private right of action for consumers in commercial aviation.
BTC research, appended to this letter, on the legislative history of federal preemption convincingly demonstrates that the U.S. Congress never intended for consumers or States to be stripped of all rights to sue airlines for unfair or deceptive practices. We have developed simple legislative language that would restore those rights without changing in any way whatsoever the legislative intent behind federal preemption of state re-regulation of the airline industry.
The approach is to create a federal private right of action for conduct that violates 49 USC Section 41712. Aggrieved consumers would have the right to bring suit in State or Federal court but with claims filed in State court being non-removable so long as the dollar amount of the claim was under $25,000. Of course, States would be able to maintain such actions on behalf of their respective citizens.
To conclude, the Big Three have been waging a war on price transparency, consumer protections and new entrant competition under the mistaken belief that now that they control the market, and have acquired greater political power, that has somehow immunized them from public scrutiny and accountability. Your citizens and communities are being harmed each and every day – and regrettably you are legally unable to intervene. However, you would find very willing partners to wage a campaign for reforms. Consumer groups, airports, travel agencies, corporate travel managers, industry associations and many more interested parties would step up and join such a campaign.
Business Travel Coalition
Overview of Legislative History of the Airline Deregulation Act With Respect to the Issue of Consumers Having No Private Right of Action for Unfair/Deceptive Acts or Practices
The full legislative history of the Airline Deregulation Act of 1978 (ADA), including Senate, House, and Conference Reports and transcripts of floor discussions can be found at btcnews.co/1yA0kFa. (For ease of reference, I cite below two particular pages of this comprehensive collection by citing their pagination in this “Legislative History” as well as to the corresponding pages of the Senate and House Reports.)
After canvassing the lengthy Congressional record, it can be said with complete confidence that there was no discussion – none – of Congress intending or even recognizing that consumers might have no right to sue airlines for damages for unfair or deceptive practices as a result of adoption of the then-new statutory provision preempting State law. That provision is now codified at 49 USC Section 41712. The Congressional objective in passing the preemption provision was instead to prevent duplicative regulation of certain intrastate air services of interstate airlines by State authorities.
In the section-by-section analysis of the proposed ADA, the purpose underlying the preemption section was explained on the Senate floor as having “one system of regulation for interstate air transportation.” Legislative History at 467, Remarks of Senator Heinz. That step was needed because, “The dual system of regulation has created an impossible jumble of conflicts between federal and State agencies.” Id.
The problems that had arisen because of this dual system of federal and State regulation of intrastate aviation were detailed at H.R. Rep. No. 95 – 1211 (1978):
Existing law contains no specific provision on the jurisdiction of the States and the Federal Government over airlines that provide both interstate and intrastate service. The lack of specific provisions has created uncertainties and conflicts, including situations in which carriers have been required to charge different fares for passengers traveling between two cities, depending upon whether these passengers were interstate passengers whose fares were regulated by the CAB, or intrastate passengers, whose fare is regulated by a State.
Id., at 15-16. (Found at 523-524 of the Legislative History.)
S. Report No. 95-631 (1978) further amplified on the problem to be solved by the preemption provision:
Section 423 [the Senate version of the preemption language] is a new section to the Federal Aviation Act which the committee has adopted to rationalize a confusing system of dual regulation of federally certificated air carriers that has evolved in some States.
However, recently several States have involved themselves in regulating the services of interstate airlines between points within their State. For example, the State of Pennsylvania has, in recent years, disallowed fare increases between Pittsburgh and Philadelphia, which were authorized by the Civil Aeronautics Board.
At page 16, H.R. Rep. No. 95-1211 (Legislative History at 524) further explained how the preemption provision would solve this problem:
“HR 12611 [the version of the preemption language adopted in conference] will prevent conflicts and inconsistent regulations by providing that when a carrier operates under authority granted pursuant to title IV of the Federal Aviation Act, no State may regulate that carrier’s routes, rates or services.”
Importantly, present 49 U.S.C. Section 41712, then Section 411 of the Federal Aviation Act, which provides DOT administrative powers to police unfair and deceptive acts or practices by airlines, was carried forward from the pre-existing Federal Aviation Act of 1958 without modification. E.g., S. Rep. No. 95-631 at 152-153. (Legislative History at 318-319.)
In sum, there is nothing in the legislative history of the ADA that states or even suggests that in passing the preemption provisions of that Act Congress intended to relegate consumers aggrieved by unfair or deceptive practices of airlines to only an administrative cease-and-desist remedy -- and thus deny them the right to recover pecuniary damages that consumers possess vis-à-vis other industries. Rather, the present net result of airlines being shielded from all claims for damages for such practices to a degree that affords them a privileged position appears to be an unintended consequence as courts worked out the scope of ADA preemption of State law.
To afford consumers the protections they deserve and to treat the airlines like other industries, while avoiding the potential pitfalls of varying State substantive law claims for damages, Congress should amend 49 USC Section 41712 to create a federal private cause of action for consumers aggrieved by acts that violate that Section. In addition, to make that remedy one meaningfully available to consumers with modest claims, civil suits brought under an amended 49 USC Section 41712 in State court should be made non-removable to federal court unless the amount in controversy exceeds some minimum jurisdictional amount, such as $25,000.
In conclusion, it is ironic that the authors of airline deregulation felt compelled to act legislatively because the longstanding regulatory approach by CAB of coddling airlines had produced anticompetitive results, observing that, “… five carriers presently control 70% of today’s market. The committee feels this concentration and dominance is not in the best interest of the industry or the public.” We say ironic because just over 45 years after the passage of the ADA, the American public confronts an even more concentrated airline industry with just four airlines controlling over 80% of the market.