January 17 - Southwest’s Class Action Settlement Provides Visibility To Broader Conspiracy 


INDUSTRY ANALYSIS

  

Southwest Airlines’ Class Action Settlement Provides Visibility To Broader 

Conspiracy Against Consumer Interests

 

By Kevin Mitchell

The class action lawsuit against Delta Air Lines, American Airlines and United Airlines (Big Three) with plaintiffs alleging illegal collusion to restrict capacity for the express purpose of fleecing consumers and boosting record-setting profits took an important turn during the first week of January. A US federal judge granted preliminary approval of Southwest Airlines’ settlement with plaintiffs in return for paying $15 million and pledging to cooperate against the Big Three.

This so-called “Icebreaker” settlement is reason for consumers to cheer. It could well pave the way for the class action plaintiffs to prove that the Big Three “colluded to limit capacity on their respective airlines in a conspiracy to fix, raise, maintain, and/or stabilize prices for air passenger transportation services in the United States” in violation of the Sherman Antitrust Act. The settlement could also provide unintended visibility to global coordination among airlines to conspire against the interests of consumers.

The scope of Southwest’s promised cooperation is broad, and therefore, likely to be extremely worrisome to the Big Three. According to published reports, the settlement requires Southwest to:

“(i) provide, through counsel, a full account of facts then known to Southwest regarding the plaintiffs’ claims, including details about communications, pricing and profitability in the industry, and the identity of individuals with knowledge about the alleged conduct;

(ii) facilitate and pay for informational meetings with an industry expert;

(iii) make seven Southwest employees at the vice president level or lower available for interviews;

(iv) make three Southwest employees at the vice president level or lower available for depositions;

(v) make two Southwest employees at the vice president level or lower available for affidavit/declaration testimony;

(vi) provide, through counsel, information gathered from senior executives; and

(vii) make one Southwest employee at the vice president level or lower available for trial testimony.”

PEERING BEYOND DOMESTIC US PRICING COORDINATION

Is it far-fetched that this class action lawsuit might prove to be just the tip of the iceberg of the Big Three colluding to increase record-setting profits by jointly working in coordination to stifle competition? Not at all! In fact, January marks the three-year anniversary of the Big Three’s political campaign against Open Skies and the important consumer-friendly choice provided by Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers). 

Even though it is blatantly obvious that this political campaign against Open Skies is nothing more than a coordinated, joint anti-competitive initiative masquerading under the guise of a policy debate, the Big Three claim that they are not motivated by enhancing their already historic profits. Rather, they portray themselves as champions of American workers motivated solely by an altruistic sense of national and moral responsibility to protect US jobs.

A FAÇADE OF CONCERN

The Big Three know well that an Achilles’ heel of their fictitious “we are the champion of US jobs” narrative is the stubborn and indisputable fact that Gulf Carriers, not the Big Three, are loyal customers of US built wide-body aircraft and their orders are a vital engine for creating and supporting hundreds of thousands of US aerospace manufacturing jobs. So, feeling vulnerable that their jobs-concern façade is cracking, the Big Three turned once again to their expert advisor Rob Britton to develop the most compelling rebuttal possible.

The result is hardly persuasive, but it is enlightening. The gist of Mr. Britton’s recent Big Three op-ed in the Huffington Post was that US aerospace manufacturing jobs simply don’t matter. In other words, increasing Big Three profits by breaching Open Skies agreements is more important than growing the US workforce at Boeing and strengthening the substantial and growing number of US small and mid-size enterprises that comprise its supply chain.

DEALT AN IMPOSSIBLE HAND

In fairness to Mr. Britton, the Big Three dealt him a lousy hand of facts. What was he supposed to argue? That the Big Three are just as important as the Gulf Carriers are to the launch of Boeing’s 777X program and the hundreds of thousands of US well-paying aerospace manufacturing jobs that it will create and sustain? The Gulf Carriers have purchased 235 of the 306 777Xs sold to date while the Big Three have purchased none. A tough argument for Mr. Britton to make!

Similarly, Mr. Britton could hardly draw attention to Delta’s insatiable appetite to purchase non-US manufactured aircraft, including its recently anointed “flagship” Airbus A350. When your client constantly turns its back on Boeing and its US workers, as Mr. Britton’s understandably feeble effort showed, it is impossible to rebut the loyalty and importance of Gulf Carriers to US aerospace manufacturing workers. The Big Three did not give him much to work with! 

BAD MOTIVES AND FACTS BEGET BAD OUTCOMES

Mr. Britton has been involved in the Open Skies debate for many years, and on both sides of it. In 2013, as a consultant for the US-UAE Business Council, Mr. Britton prepared a persuasive and well-documented report touting the US-UAE Open Skies agreement and the importance of it to US aerospace manufacturing jobs. (The report can be accessed at http://btcnews.co/2yKXKnu.) However, now that Mr. Britton supports the Big Three’s lobbying arm, the Partnership for Open and Fair Skies, he came to the diametrically opposite and intellectually inconsistent conclusion that UAE-supported US aerospace manufacturing jobs don’t matter.

The Britton op-ed provides yet another moment of clarity and visibility to this three-year campaign and the Big Three’s voluminous cloud of deception. The Big Three are not an altruistic proxy for US workers, but rather, they do not care a whit about them. Their sole concern and mission is to eliminate Gulf Carrier competition to protect what they arrogantly broadcast to be “their” markets and “their” customers.

Let’s hope that Southwest’s Icebreaker settlement and pledge of cooperation is as illuminating and helpful to the plaintiffs as its appropriately broad scope suggests. With the Big Three and Southwest controlling some 80 percent of the US domestic market, consumers are counting on it. Importantly, the unintended outcomes for the Big Three flowing from this settlement could include more clear visibility to consumer-harmful coordination among them and their partners in the US-Europe market.

THE PLOT THICKENS

Along with their European antitrust immunized alliance and joint venture partners, the Big Three control over 80 percent of the seats in the US-Europe market. Immunization allows those market participants to engage in commercial activities that would otherwise be illegal. The Big Three and their European airline partners, along with their labor groups, have run a coordinated, scorched-earth campaign against the Gulf Carriers and Norwegian Air International in Washington and Brussels. 

This historically unprecedented dominance in the domestic US and transatlantic markets makes tacit and explicit coordination among market participants a super grave risk for consumers. To be fair, when granting antitrust immunity to these airline partners, regulators could not have possibly anticipated how a downstream force-multiplier effect from US airline industry consolidation could produce such massive airline economic, political and market power to be used to frustrate new airline entry and harm consumers. 

WHAT TO DO?

As evidenced by initiating a fourth year of the political campaign against Gulf Carrier new entry, the Big Three will not likely stop aggregating and coordinating their economic and political power in an effort to eliminate competition, maintain monopoly market positions and benefit from supra premium prices in thousands of US city-pair markets. As such, the Trump Administration needs to forcefully reject the embarrassing, un-American and thinly veiled neo-mercantilism embodied within the Big Three’s political campaign.

Finally, regulators and legislators on both sides of the Atlantic need to revisit the assumed public-interest efficacy of airline antitrust immunity. Brussels, in particular, needs to take heed of the many damaging consumer impacts of recent massive US airline industry consolidation before that preverbal egg is forever scrambled in Europe.  

For more BTC analysis on the Open Skies issue please see:

• Jan.11 Big Three Hide Behind Noerr-Pennington at http://btcnews.co/2FqDryv.

• Jan. 8 The Great Un-American Commercial Harm Hoax at http://btcnews.co/2CJ5XJX.

• Jan. 4 The Great Open Skies Scam at http://btcnews.co/2CJ5XJX.

• BTC Press Room at http://btcnews.co/2C3i2d7.

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