U.S. airlines face an antitrust investigation by the Justice Department into whether they are discussing how to control the supply of seats, a crucial factor in determining fares.
American Airlines Group Inc. and Southwest Airlines Co. confirmed receiving Justice Department requests for details of conversations, meetings and conferences where industry capacity was discussed. The department said an inquiry was under way into possible coordination among carriers but wouldn’t give details.
Airfare decisions normally are among the most closely guarded secrets at airlines before they’re announced, and upon announcement they trigger intense scrutiny by competitors and bargain-hunting travelers. The Bloomberg U.S. Airlines Index tumbled immediately after the probe was disclosed, then pared its decline to 2 percent.
“I certainly haven’t seen any outward signs of collusion,” said Joe Denardi, an analyst with Stifel Financial Corp. in Baltimore. He questioned the Justice Department’s timing in bringing an inquiry when in fact airlines have been adding more capacity than many investors would like to see.
Seating and fares are closely intertwined, because companies lose pricing power when the industry’s capacity outstrips travel demand. Airline stocks have been under pressure this year on concern that their seat growth is expanding faster than the U.S. economy. The index is down 19 percent in 2015.
As part of the Justice Department’s request for documents, airlines were asked for materials involving the “need for, or the desirability of, capacity reductions or growth limitations by the company or any other airline,” according to a letter sent to carriers requesting the information.
The agency’s letter also sought details on each airline’s capacity for every month -- a figure each carrier reports routinely -- since January 2010.
Concern that airlines may have been coordinating on fares led the U.S. to sue to block the American-US Airways merger in 2013. Before that case was settled, the Justice Department’s antitrust division said the biggest airlines “increasingly prefer tacit coordination over full-throated competition.”
That tie-up capped a wave of consolidation that swept up five of the 10 biggest U.S. airlines since 2005. The squeeze left American, Delta Air Lines Inc. and United Continental Holdings Inc. as lone providers of full-service cabins and international networks. Southwest is the dominant discounter.
All four major airlines promised their cooperation with the antitrust inquiry.
“Our members compete vigorously every day,” said Airlines for America, which represents major U.S. carriers. “It is customers who decide pricing, voting every day with their wallets on what they value and are willing to pay for.”
Domestic fares are down this year, the group said, citing the U.S. Transportation Department, and capacity is at a post-recession high.
Seating capacity was widely discussed during the International Air Transport Association’s annual meeting in Miami last month and has been a primary topic during recent airline conference calls and presentations.
After a 2 percent increase in airlines’ available domestic seating in 2014, carriers are piling on seats at a 5 percent clip, Stifel’s Denardi said in an interview. Competition also has increased in many key U.S. markets, he said.
American Chief Executive Officer Doug Parker said in a Bloomberg interview on May 20 that the world’s largest carrier wouldn’t lose customers to capacity additions by low-cost rivals.
“To the extent capacity comes in and results in lower prices, we’ll match those prices because we have to,” he said. “All we can do is run our own airline and compete against those that chose to grow and we will compete aggressively.”
U.S. Senator Richard Blumenthal, a Connecticut Democrat, urged the Justice Department last month to investigate what he called “anticompetitive, anti-consumer conduct and misuse of market power in the airline industry.”
The Associated Press reported on the investigation earlier Wednesday.