“Airlines Under Justice Dept. Investigation Over Possible Collusion” is a New York Times article about the airline industry that the antitrust watchdogs in D.C. allowed to form:
roughly 80 percent of the nation’s air traffic is concentrated among four airlines — American, United Airlines, Delta Air Lines and Southwest Airlines.
Now it seems that the same government that allowed this kind of concentration is investigating the oligopoly for obstructing competition… What did they actually expect to happen?
Related:
“allowed this kind of concentration”
To a considerable extent, “artificially protects this concentration,” most clearly and dramatically by cabotage regulations.
“The tariff is the mother of trusts”…
Collusion and the number of players in an industry are two different things. You could have 20 players and they could still all collude. Even when there were more carriers, for any given city there were usually only a few, especially after the airlines switched to the hub and spoke system.
Admittedly, it’s easier to run an illegal conspiracy with fewer people in it (Franklin said that two may keep a secret if one of them be dead) , but the government didn’t approve the mergers on the premise that the airlines would then engage in illegality.
According to (Senator?) Blumenthal, who apparently requested the inquiry, the allegation is that the legacy carriers signaled each other in public speeches at an industry conference. This is truly despicable and calls for the end of all industry conferences, which would probably increase productivity in all sectors. Bonus result: it would punish airlines who profit from conference travel. If the behavior persists, the next step is obvious. Ban public speeches so that all communication is through means accessible to law enforcement.
Adam Smith: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
According to the article, it was not so much at industry conferences but that all (four) of the airlines were bragging to Wall St. analysts that they were maintaining “seat discipline” as Wall St. had been begging them (virtually ordering them) to do. So it sound like Goldmach Sachs, etc. is at the head of the conspiracy, just as Apple was at the head of the book pricing conspiracy.
The EPA, on the other hand, should come out on the industry’s side. Seat discipline means not putting up too many seats for sale. For the airlines, this is a win-win because not only are ticket prices higher that way, but each empty seat represents a total loss. In the past, when there was more “undisciplined” competition, there were lots of empty seats flying and raising the amount of energy consumed per seat.
Sen Blumenthal’s letter: note second to last paragraph about remarks at IATA conference.
http://www.blumenthal.senate.gov/imo/media/doc/20150617%20Blumenthal%20to%20DOJ%20Airline%20Coordition.pdf
disclosure: I am retired from Delta, but have no connection there for many years. FWIW, my guidance from the top and from legal counsel was “The law is like a barbed wire fence, and ethics is what keeps you from getting tangled in it.”
Legalities aside, deploying resources in a large airline is staggeringly complex. Southwest got into a nasty decline in on-time performance recently by over-aggressive scheduling (publishing a schedule that could not be flown in real world operating conditions). This could only be corrected by relaxing schedules to recognize inevitable delays. A short leg I fly often as a passenger has 40 minutes of flying in 68 minutes of schedule, reflecting 20+ minutes of ground delays, and the schedule is met perhaps 80 percent of the flights.
The various resources (flight crews, cabin crews, airplanes, fuel, IT systems, gates, airports, financing, regulatory entitlements, and on and on) are all on unrelated schedules and costs whose interaction cannot be reliably simulated. Changes are introduced or confronted incrementally if possible, but too often an “experiment” like a major weather event or sudden fuel price spike just has to be muddled through.
Read some of philg’s posts on government aviation costs, charter costs, hardware original and modification costs, etc. The airlines could be a lot worse, and no doubt a lot better, but it is hard to accept that an explicit price conspiracy drives them.
Apologies for hijacking the post.