Tuesday, May 13, 2003

Antitrust news: American Airlines

Everyone knows airlines need more revenue to stay afloat right now. Everyone, that is, except the Department of Justice:

The Justice Department is scrutinizing the $10-per-round-trip fare increases made by the nation's largest airlines to determine whether carriers violated an antitrust ruling enacted nearly a decade ago.

At issue is the way in which airlines make fare changes that do not go into effect immediately, raising the possibility that they could signal future pricing plans to competitors.

"We are looking into it," Gina Talamona, a spokeswoman at the department's antitrust division, said Monday.

On Thursday, American Airlines raised non-sale fares on its North American routes by $10 per round trip starting June 1. United, dominant carrier at Denver International Airport, matched the increase the next day, and eight other carriers had fallen in line by late Monday.

The industry raised fares in anticipation of the government's upcoming four-month suspension of security fees, which amount to $2.50 per flight segment, maxing out at $10 per round trip.

"Airlines were faced with two choices: give consumers up to a $10 round-trip break, or raise fares," said Jamie Baker, J.P. Morgan's airline analyst. "Not surprisingly, the industry chose the latter."

Analysts and executives have said for months that the industry, which lost $3.5 billion in the first quarter, needs to find ways to boost revenue even as it struggles to cut costs. Fares have been kept extremely low to lure anxious and penny-pinching travelers back to the skies.

Under a 1993 Justice Department mandate, airlines cannot announce planned fare hikes. This amounts to price-fixing under antitrust doctrine, the same way doctors can never, never, never discuss prices among themselves without runnning afoul of FTC or DOJ regulators. In the current situation, American claims they've already implemented their fare hikes through computer reservation systems, thus rendering their behavior acceptable under the 1993 rules. Of course, that doesn't mean a damn thing. When antitrust regulators don't like a business practice, they simply change their rules after the fact. It may not be constitutional, but most folks look the other way because it, cough, "benefits consumers." As if air travelers enjoy a constitutional right to be spared a $10 fare hike on round trips from New York to Chicago.

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