Structural Reforms Are Necessary To Address Unfair And Deceptive Practices Exacerbated By Radical Industry Consolidation
The Business Travel Coalition (BTC) today applauded Senator Ed Markey’s (D-MA) intervention to stop U.S. airlines from gouging consumers with fees that are grossly disproportionate to the value of the service received and result in a windfall for airlines. “Exhibit A” is when an airline charges $200 - 6 to 7 times the cost of handling a ticket change - when the cost for customer contact with a call center to change a reservation ranges from $25 to $35 dollars. This kind of unconscionable consumer price gouging is a textbook example of unfair methods of competition that underpin competition laws.
“In a perfectly competitive market, an airline industry consumer would be able to exercise his right to walk away from the $200 change fee and instead deal with other airlines eager to gain market share. However, now that the U.S. marketplace has gone from 11 airlines controlling some 80 percent of seat capacity to 4 airlines, the opportunities to vote with one’s wallet have been considerably reduced,” stated BTC founder Kevin Mitchell. “What’s more, such radical consolidation has led to excessive market power and tacit coordination among some airlines that slam consumers into a corner where they find unequal bargaining power in-the-extreme,” added Mitchell.
In its complaint of August 2013, with respect to the proposed American Airlines-US Airways merger, the U.S. Department of Justice (DOJ) raised this coordination concern in the following 3 findings:
…Since 1978, the nation has relied on competition among airlines to promote affordability, innovation, and service and quality improvements. In recent years, however, the major airlines have, in tandem, raised fares, imposed new and higher fees, and reduced service. Competition has diminished and consumers have paid a heavy price.
3. This merger will leave three very similar legacy airlines—Delta, United, and the new American—that past experience shows increasingly prefer tacit coordination over full-throated competition. By further reducing the number of legacy airlines and aligning the economic incentives of those that remain, the merger of US Airways and American would make it easier for the remaining airlines to cooperate, rather than compete, on price and service.
35. Increasing consolidation among large airlines has hurt passengers. The major airlines have copied each other in raising fares, imposing new fees on travelers, reducing or eliminating service on a number of city pairs, and downgrading amenities.
 All references to page numbers are to the numbered page of the complaint. The numbers in front of each passage quoted are the numbered paragraphs of the complaint.
The DOJ complaint provides irrefutable rationale for why the U.S. Congress is now the only place consumers can turn to in a failed market for protection from unfair or deceptive acts or practices or unfair methods of competition. State attorneys general are perfectly positioned to prosecute cases of price gouging with their responsibility for antitrust laws and their long and successful experiences in complicated cases. The only problem is that, like consumers, state attorneys general are foreclosed on the right to sue airlines due to federal courts incorrectly interpreting the intent of Congress when it enacted the Airline Deregulation Act of 1978.
After canvassing the lengthy Congressional record regarding deregulation, 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.
“As such, and until a private right of action is restored for consumers and state attorneys general, the traveling public will remain in consumer protection “no man’s land” with airlines only receiving a financial “slap on the wrist” when found in violation of inadequate consumer protection rules promulgated by the U.S. Department of Transportation (DOT) - rules that the airlines are currently endeavoring to undermine through the Federal Aviation Administration (FAA) reauthorization bill,” said Mitchell. “Indeed, in 2014 DOT levied $2.7 million in civil penalties against airline revenues of $169 billion. For now, Senator Markey’s and other Senators’ leadership is the only hope that consumers have that airline special interests will not trump theirs,” concluded the BTC founder.
Now that the major U.S. network airlines have secured their antitrust immunized global alliances and joint ventures, and consolidated the domestic industry, they seek to (1) block badly needed foreign carrier new entry, (2) undermine their regulator’s consumer-protection authority and (3) reduce price transparency. Against these anti-competitive and anti-consumer practices, in addition to addressing price gouging and restoring a private right of action, Senators should also consider other consumer-centric reforms to be included in the FAA bill to include:
- calling on DOT to issue a final rule that requires airlines to provide ancillary services and fee information to travel agencies;
- urging DOJ to investigate airlines that are withholding airfare and schedule information from online travel agencies and travel metasearch sites;
- developing a policy that proactively supports domestic and foreign carrier new entry;
- formulating a policy that permits foreign carriers to transport passengers between cities in the U.S. on a reciprocal basis (8th freedom);
- reviewing antitrust immunity on a regular basis; and
- establishing a new national commission to examine the competitive landscape within the U.S. domestic and international air travel markets.