Two multi-million dollar settlements paid by American Airlines and Southwest Airlines in an air fare collusion lawsuit leave some questioning what it means for the remaining defendants: United Airlines and Atlanta-based Delta Air Lines.
The proposed class-action antitrust lawsuit filed by airline consumers alleges the airlines colluded to limit airline flying in a conspiracy to fix domestic fares, and that airline consumers paid artificially inflated ticket prices as a result.
This month, Fort Worth-based American Airlines agreed to pay $45 million to settle, while denying wrongdoing. American also agreed to work with the plaintiffs pursuing the case against Delta and United, including producing records and making American employees or former employees available for deposition.
American said on its settlement deal: “Despite our firm conviction in the appropriateness of our actions, costs to defend against antitrust litigation often run into the tens of millions of dollars,” American spokesman Matt Miller said in a written statement. “So while it is difficult to agree to a settlement when we believe we’re right on the law and the facts, settling this case is a prudent decision for American.”
It follows a $15 million settlement Southwest Airlines agreed to pay late last year while also denying wrongdoing.
A document filed with the U.S. District Court in Washington, D.C. plainly outlines the pressure aimed at Delta and United, saying American’s settlement could “‘bring other defendants to the point of serious negotiations.’…. The fact that two Defendants have not settled exerts significant pressure on the Non-Settling Defendants.”
The plaintiffs allege that the airlines colluded on what the industry calls “capacity discipline,” the practice of avoiding growth in flights to keep fares up. They cite comments made on investor conference calls and at industry conferences, in which executives including Delta’s Ed Bastian and Southwest CEO Gary Kelly talked about their commitment to capacity discipline.
They also point to airline mergers that have resulted in four airlines controlling about 80 percent of domestic flying.
Bastian said airline consolidation would allow “us to manage the overall capacity levels in a better way.” Among the comments by airline executives at a 2015 International Air Transport Association meeting in Miami, which led the Department of Justice to look into the issue and prompted lawsuits filed by consumers, Bastian indicated Delta is “continuing with the discipline that the marketplace is expecting,” according to legal filings in the case.
When outliers like Southwest said they planned to increase flying, which could have driven fares down, a United executive emphasized its capacity discipline and said: “The whole industry needs to have that level of discipline.” Southwest subsequently pulled back on its growth plans.
But Miller at American said his airline has in fact added domestic flight capacity and that “fares have fallen to near all-time lows.”
“The airline industry overall has been, and remains, intensely competitive, with a variety of business models and individual airlines making very different decisions concerning when and where to add new routes or flights,” Miller said in his written statement.
Delta, which has not settled, said it “has not engaged in any illegal behavior and the assertion that our success is due to anything but the hard work of our people is offensive.”
“We will continue to provide investors the types of information about the business that provide insight on how we make decisions over the long-term, just as we have been doing all along,” Delta said.
United said in a statement: “We will continue to defend ourselves against these claims which we have always maintained are without merit.”
It can be tricky to prove collusion.
“Everyone knows that this is what’s going on, and they are holding down capacity in order to keep consumer prices up. But whether or not they can prove collusion, I’m not sure,” said Charlie Leocha, founder of traveler advocacy group called Travelers United. He said it’s “probably highly unlikely” that airline CEOs sat together and colluded.
For one, airlines can get real time intelligence on air fare changes of competitors and easily match fares based on public information. Airlines regularly hike fares, wait to see if competitors match them, then pull back on the price increases if they’re not matched. That eliminates the need to meet in a smoke-filled room to collude on prices: Airlines can easily align fares with competitors out in the open.
A separate lawsuit filed against Delta and former AirTran Airways on collusion to charge baggage fees that also drew from comments made during quarterly earnings conference calls was dismissed after a federal judge determined that “the evidence in this case simply does not permit a reasonable factfinder to infer the existence of a conspiracy.” The decision was affirmed by the U.S. Court of Appeals earlier this year.
Leocha said when airlines increased change fees at around the same time, “I said, ‘What the heck? We as consumers don’t even have a chance to vote with our wallets.’”
“They move in lockstep and so they have found a way to get around the letter of the law,” Leocha said. “It’s all done via sort of the ghost in the machine.”