US probing possible airline collusion that kept fares high

http://apnews.myway.com/article/20150702/us--airlines-federal_investigation-417cdc81ff.html

Jul 1, 8:50 PM (ET)
By DAVID KOENIG, SCOTT MAYEROWITZ and ERIC TUCKER

The U.S. government is investigating possible collusion among major airlines to limit available seats, which keeps airfares high, according to a document obtained by The Associated Press.

The civil antitrust investigation by the Justice Department appears to focus on whether airlines illegally signaled to each other how quickly they would add new flights, routes and extra seats.

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American Airlines, Delta Air Lines, Southwest Airlines and United Airlines all said they received a letter and are complying. Several smaller carriers, including JetBlue Airways and Frontier Airlines, said they had not been contacted by the government.

The airlines publicly discussed capacity early last month in Miami at the International Air Transport Association's annual meeting. After hearing about that meeting, U.S. Sen. Richard Blumenthal, D-Conn., requested a Justice Department investigation.

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Thanks to a series of mergers starting in 2008, America, Delta, Southwest and United now control more than 80 percent of the seats in the domestic travel market. They've eliminated unprofitable flights, filled more seats on planes and made a very public effort to slow growth to command higher airfares.

It worked. The average domestic airfare rose an inflation-adjusted 13 percent from 2009 to 2014, according to the Bureau of Transportation Statistics. And that doesn't include the billions of dollars airlines collect from new fees. During the past 12 months, the airlines took in $3.6 billion in bag fees and $3 billion in reservation-change fees.

That has led to record profits. In the past two years, U.S. airlines earned a combined $19.7 billion.

This year could bring even higher profits thanks to a massive drop in the price of jet fuel, airlines' single highest expense. In April, U.S. airlines paid $1.94 a gallon, down 34 percent from the year before.

That worries Wall Street analysts and investors. Cheap fuel has led airlines to make money-losing decisions in the past, rapidly expanding, launching new routes and setting unrealistically low fares to lure passengers. Airlines already flying those routes would match the fare, and all carriers would lose money.

Such price wars are long gone, but today's low fuel costs along with recent comments from airline executives have given the market jitters.

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On June 1, Southwest CEO Gary Kelly said his airline would cap its 2015 growth at 7 percent. That sparked a rally in airline stocks, as investors were more assured that capacity growth would be limited.

Keay said Wednesday that he had not been contacted by the government and doesn't think the airlines have been acting inappropriately.

"The analyst community is bringing up the subject. You certainly can't fault an airline executive for responding to the question," Keay said. "The capacity continues to grow at the airports people want to fly to and air travel remains a particular good value for the consumer, especially for the utility that it provides."