A class action lawsuit has been launched against the four major U.S. airlines, riding the wings of a federal investigation into whether the airlines colluded to keep domestic air fares high, even as their costs have fallen.
Three people were named as plaintiffs in the action filed July 2 in federal court in Chicago. Anooshirvan Bidgoli, Barbara Hunter and Annie Migdal on behalf of every passenger who bought a U.S. airline ticket from Delta, Southwest, United or American airlines between Oct. 1, 2012, and the present.
According to the suit, Hunter is a frequent flier, having purchased a number of tickets during that time period to fly between multiple U.S. cities. Bidgoli bought one ticket during that period, between Los Angeles and New York. Migdal also bought one ticket, from Fort Lauderdale to Chicago.
On July 1, the four airlines acknowledged receiving a civil investigative demand from the U.S. Department of Justice investigating their pricing practices. Historically, the complaint states, airfares were determined by the price of jet fuel, considered the most expensive part of running an airline. But over the last four years, the cost of fuel has dropped significantly, while airfares have remained relatively stable.
According to the lawsuit, “the domestic airline industry is marked by some of the hallmark characteristics of antitrust conspiracies, including (a) a heavily concentrated market dominated by a few firms; (b) significant barriers to entry; (c) membership in trade associations that allow the defendants to exchange competitive information; and (e) pricing behavior that is inconsistent with a competitive market.”
Court documents note, since 2005, a series of consolidations and mergers has reduced the number of major domestic airlines from nine to four. Those four – Delta, Southwest, American and United – now control more than 80 percent of domestic air travel.
At the heart of the collusion claim is what is referred to in the lawsuit and the industry as “capacity discipline,” airlines’ efforts to reduce the number of seats and flights available, allegedly leading to higher fares, less service and bigger profit margins.
According to the lawsuit, in a competitive market, airlines would increase capacity or discount their own fares on select routes in order to compete with one another. But, the suit says, the four defendants conspired together to keep capacity low, avoid price wars and keep high prices stable.
The Associated Press reported the DOJ investigation includes requests for the airlines to turn over information on the time and place of any meeting, including phone calls and conferences, with any industry analysts, any investor who holds 2 percent or more of the company and with any competitors, in which capacity discipline was discussed. The DOJ is collecting officials’ day planners, calendars and appointment books.
The investigation also seeks any documentation about capacity discipline, how capacity affects fares, revenues and profits, total capacity flown each month since January 2010, and any information on the companies’ growth plans or capacity policies, the Associated Press reports.
The lawsuit seeks compensation for damages sustained to every member of the class through higher fares and fees, an enjoinder to prevent the companies from continued collusion, pre-judgment and post-judgment interest, and court costs. The plaintiffs have asked for a jury trial.
The suit was filed by Steven A. Hart of Segal McCambridge Singer & Mahoney, Ltd. of Chicago. Other attorneys of record are Robert J. McLaughlin and Brian H. Eldridge of the same firm; W. Joseph Bruckner and Heidi M. Silton of Lockridge Grindal Nauen P.L.L.P. of Minneapolis; Kevin Bruce Love of Criden & Love, P.A. of South Miami; Bruce L. Simon, Aaron M. Sheanin and Benjamin E. Shiftan of Pearson, Simon & Warshaw, LLP of San Francisco; and Clifford H. Pearson, Daniel L. Warshaw, Bobby Pouya and Alexander R. Safyan of Pearson, Simon & Warshaw LLP of Sherman Oaks, California.