Kempner’s Unofficial Business
I’ve been a reporter or editor since gas was about a dollar a gallon and “Hands Across America” was a thing. I’ve spent lots of time covering government, the environment and, for most of my career, business. But I don’t daydream about fiscal policy and corporate earnings. What I love about business is the strategy and the people and the journeys that those people take. I like irony and surprise and nuance. I’ve interviewed soldiers, oystermen, football stars, chicken plant workers, Fortune 500 CEOs, suburban activists and entrepreneurs dreaming big dreams. How cool is that? I’ve teared up in interviews, laughed inappropriately, been yelled at and snookered. I do like an adventure. Let’s see where this one goes.
Now you have another reason to guard your wallet when you travel.
The Justice Department is investigating whether major U.S. carriers violated antitrust law, possibly by illegally signaling expansion plans to each other in ways just a bit more sophisticated than winks and hand gestures. Collusion is a vaguely icky sounding word.
Why would a competitor want to signal such info, which in this case apparently involved keeping growth modest? Because that’s how you avoid price wars. Holding down the number of seats flying around keeps fares higher for everyone. The other possibility might be that airline executives were just openly answering questions about their plans from analysts or other industry-watchers.
This isn’t a completely new concern. It seems like one airline antitrust hunt can’t get finished before the next one starts.
Consider that Delta and AirTran (now absorbed by Southwest) are still wrapped up in a civil suit brought six years ago over accusations that they colluded to almost simultaneously impose baggage fees — yeah, those beauties.
An airline can make more money when it adds fees, but it risks losing customers to rivals. Carriers might avoid such ugliness if they impose new fees at about the same time. Everybody is happy. Well, everybody with a jumbo jet. Passengers are peeved.
In one example from the baggage case, attorneys pointed to comments AirTran’s then-chief executive, Robert Fornaro, made during a recorded and publicly available conference call with analysts in 2008.
Asked about imposing baggage fees, Fornaro is quoted in the case as saying “we have elected not to do it, primarily because our largest competitor in Atlanta [i .e ., Delta], where we have 60 percent of our flights, hasn’t done it.” He went on to say, “So I’m not saying we won’t do it. But at this point, I think we prefer to be a follower in a situation rather than a leader right now.”
Nine days later, Delta announced plans to charge passengers $15 for their first checked bags. The following day, AirTran announced it would do the same. Same price, same day it went into effect.
Coincidence? Wise business move? Or one in a series of carefully choreographed communications that amount to collusion? You can probably guess where the plaintiffs and defendants fall on that.
‘Fully cooperating’
Delta, our hometown airline, isn’t willing to yap much on this subject. I called a spokesman for the company who emailed me back that the airline is “fully cooperating” with the Department of Justice — which, for the record, green-lighted a series of mergers that led to the current industry lineup of four Goliaths and a few small fry.
An attorney representing Delta in the earlier baggage case emailed that he wasn’t in a position to comment on ongoing litigation.
Attorneys who are doing the suing in the baggage case in federal district court in Atlanta have taken note of the latest federal investigation.
“We think this is part of the same pattern of conduct,” Daniel Low, a D.C. attorney on the case, told me.
It’s outrageous, Low said, that airlines such as Delta might be making the same kind of public comments that were complained about in the earlier lawsuit.
PR-wise for Delta, it’s not a home run to have your airline under investigation by the feds when you haven’t extricated yourself from the last antitrust allegations.
What makes it more messy is that in the earlier case, Delta has been ordered by the courts to pay hefty fees because it didn’t turn over a bunch of electronic emails as required. Now a federal judge is weighing whether to slap the airlines for sanctions over the evidentiary issues.
There has been other antitrust pain in the past for Delta.
It paid $38 million in criminal fines in 2010 to settle charges that its Northwest Airlines cargo operations participated in a conspiracy to fix prices for international shipments between the U.S. and Japan.
And in the early 1990s Delta and other major airlines settled a suit alleging they engaged in price fixing by communicating through coded information in a computerized system. Millions of passengers were given a chance to get 10-percent off coupons for future flights.
My personal favorite of airline antitrust shenanigans involves a 1982 phone call between the president of American Airlines and the president of pesky Braniff Airways (what a name from the past).
‘Raise your bleeping fares’
“I have a suggestion for you,” the American executive said. ”Raise your (bleeping) fares 20 percent. I’ll raise mine the next morning.”
The American executive managed to avoid getting completely flattened by the feds because the Braniff guy didn’t raise his ticket prices. He did, however, record the phone call.
But these days airlines don’t really have to take such primitive steps as those suggested by American.
The consolidation of much of the U.S. airline industry into a few major players has turned former flying bankruptcy factories into profit machines.
It’s also made it easier for them to move in sync without ever calling up a rival. They can just carefully watch what the other guys are saying and doing, then follow the cues.
Now, a debate in legal circles is over when public disclosures of plans might be construed to be illegal collusion as opposed to reasonable sharing of information with analysts and customers.
“There is a thin line,” Cornell University law professor George Hay told me. “You can get the same result from behavior that is perfectly legal and behavior that is illegal.”
Airline executives “are sophisticated and smart,” he said. “They have a pretty good idea of what they can get away with and what they can’t.”
The downside? We’ll be the ones who end up paying.
About the Author
