Justice Department Investigates Possible Collusion In U.S. Airline Industry
ROBERT SIEGEL, HOST:
We've learned today that the Justice Department is investigating several major airlines for antitrust violations. Those include American Airlines and United. This was first reported this afternoon by the Associated Press. The investigation centers on whether airline executives used speeches at a recent industry conference to illegally give signals to each other. The comments were about capacity, or the number of flights the airlines offer. A capacity has a big effect on fares, hence the allegations of collusion. Sen. Richard Blumenthal, a Democrat from Connecticut, asked the Justice Department to look into all of this, and he joins us now. And Senator, what was it that the airline CEOs said that you thought crossed the line?
RICHARD BLUMENTHAL: They talked about discipline, which is kind of a fancy word for constraining the number of flights and what's known as capacity in the industry. It's kind of economics 101 - supply and demand. If you reduce the supply, you can charge more because the demand is seeking a smaller number of flights. And they also indirectly talked about disciplining or punishing Southwest Airlines, which had the nerve to talk about increasing the number of flights, thereby going against the industry rule.
SIEGEL: This was hardly, though, a backroom deal. These were speeches at an industry conference. Reporters were present. One could say the CEOs were all in the same economy, the same business. Is that collusion, or is that stating the obvious?
BLUMENTHAL: They're in an industry that is very severely constrained by consolidation. After all, four airlines control 80 percent of the market, so this kind of indirect communication may indicate other communication that may be more direct. But also, misuse of market power in a situation of monopolistic concentration - four airlines, 80 percent of the market - I think it well merits this kind of inquiry. And I'm very glad that the Department of Justice has heeded my call.
SIEGEL: The industry group Airlines for America issued a statement in response saying that the U.S. Department of Transportation's own data share that domestic fares are actually down in 2015. How do you respond to that?
BLUMENTHAL: The pricing patterns in this industry are evidence, but the patterns have to be seen over a longer term than just a few months. And I'm very fearful there'll be an onslaught of increased prices and other charges this summer as a result of this indirect kind of signaling back and forth. But longer-term, very profoundly importantly, the Department of Justice has a responsibility here because it has approved these mergers that caused the consolidation in the industry. So I am very hopeful that the investigation itself will send a signal and a message.
SIEGEL: Are you saying break up American Airlines, break up the big merged airlines?
BLUMENTHAL: I'm not calling for undoing or unraveling or unwinding these mergers but merely that any kind of collusion or signaling back and forth that limits the numbers of flights and thereby raises prices for consumers merits this scrutiny.
SIEGEL: You mentioned Southwest Airlines earlier, which did step back from a plan to boost capacity, you say, in response to what the other airlines told it to do. Southwest has a reputation for tweaking the so-called legacy carriers. Is it equally likely that what they were hearing from was not the other airlines but Wall Street saying you expand capacity, take advantage too much of low oil prices and your stock goes right down?
BLUMENTHAL: We can speculate on what's likely, but what's needed is an investigation. And speculation is no substitute for facts. As a former prosecutor - I was the U.S. attorney in Connecticut, the chief federal prosecutor - and as attorney general of our state for 20 years, I prosecuted antitrust cases civilly. And I can say that antitrust investigations merit searching, penetrating scrutiny and investigation. That's what we need here.
SIEGEL: Sen. Richard Blumenthal, Democrat of Connecticut, thanks for talking with us today.
BLUMENTHAL: Thank you.
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