Domestic US airline price fixing litigation

In this week’s article we examine the complaint in the antitrust class action case of Blumenthal v. American Airlines, Inc., Case No. 1:15-cv-01056 (D.C.D.C. July 6, 2015), one of more than “100 class actions…which were consolidated into an MDL (multi-district litigation) on October 13 (2015)(before U.S. District Judge Colleen Kollar-Kotelly)…alleg(ing) that United Airlines Inc., Delta Air Lines Inc., American Airlines Inc. and Southwest Airlines Co. fixed prices for domestic airline tickets by limiting seating capacity on flights. The cases allege antitrust violations under the federal Sherman Act” [Bronstead, Lead Counsel Picked in Airline Price-Fixing Litigation. nationallawjournal.com (2/4/2016)].

Travel Law Update

Terror Targets Update

Radical Islamist Terror

In IPT: Radical Islamist terror accelerates rapidly in lethality and geography, www.eturbonews.com (3/24/2016) it was noted that “A new analysis by the investigative Project on Terrorism (IPT) reveals that deaths attributed to radical Islamist terror increased by more than 700 percent since 2011, making a rapid acceleration in lethality and geography. ‘Westerners sense that Islamist terror is on the rise as they follow the daily news., especially with the devastating attacks in Brussel and Paris’ said Pete Hoekstra…’They might be shocked, however, at how significantly it has spiraled in deadliness and focus in such a very short amount of time’…Deaths from jihadist assaults rose from an annual average of roughly 2,500 innocents per year from 2001 to 2006, to an average of 3,300 per year in 2007-2011, to 9,000 per year in 2012-2013 and more than tripled to an average of more than 28,000 in 2014-2015″.

Brussels, Belgium

In Breeden & Blaise, Frenchmen Plotting ‘Imminent’ Attack Is Charged With Terrorism, nytimes.com (3/30/2016) it was noted that “A suspected Islamic State operative was arrested last week had amassed a trove of guns and bomb-making equipment, including the type of explosive used in terrorist attacks in Paris and Brussels, the French authorities announced…reinforcing fears that militants are planning additional assaults in Europe”.

See also: Steinmetz, Brussels Attacks: Flight Bookings Plummet, www.eturbonews.com (4/1/2016) it was noted that “In the days following the attacks on 22 March, net bookings-new bookings minus cancellations-fell 136% when compared with last year…’The immediate effect of the Brussels bombings has been greater than the aftermath of the attacks on Paris in November last year when net bookings fell by 101%”.

See also: Callimachi, How ISIS Built the Machinery of Terror Under Europe’s Gaza, nytimes.com (3/29/2016) it was noted that “One of the first clues that the Islamic State was getting into the business of international terrorism came at 12:10 p.m. on January 3, 2014, when the Greek police pulled over a taxi in the town of Orestiada, less than four miles from the Turkish border. Inside was a 23-year old French citizen named Ibrahim Boudina who was returning from Syria. In his luggage, the officers found 1,500 euros…and a French document titled ‘How to Make Azrtisanal Bombs in the Name of Allah”.

Ankara & Istanbul, Turkey

In Steinmetz, Australian government issues second highest warnings for Ankara and Istanbul, www.eturbonews.com (3/31/2016) it was noted that “Australia warns Terrorist groups continue to threaten further attacks, including targeting tourists and westerners”.

Lahore, Pakistan

In Hassan, Inayat & Masood, Keen Pain in Pakistan Over Lives ‘Shattered Into Pieces’, nytimes.com (3/28/2016) it was noted that “Extremist groups have long made a campaign of attacking religious or ethnic minorities in Punjab. The attack on Sunday was claimed by Jamaat-e-Ahrar, a splinter group of the Pakistan Taliban, which said it was targeting Christians who had gathered in the park for Easter…Most of the victims were working-class or poorer. The attack came just days after the National Assembly adopted a resolution to recognize Easter and the Hindu festivals of Holi and Diwali, as public holidays, in what some here saw as a vital call for tolerance and others saw as offensive in a state officially built on Islam. That gesture, too, was marred by the bomber’s strike”.

Egypt & Cyprus

In Walsh & Youssef, No One Hurt as EgyptAir Flight Is Forced to Cyprus in a Hijacking From the Heart, nytimes.com (3/29. 2016) it was noted that “Claiming to be wearing an explosive vest, Mr. Mustafa, 59, commandeered an EgyptAir passenger airliner en route to Cairo from Alexandria, forced it to divert to Cyprus and set in motion a tense standoff lasting hours. He issued an incoherent set of demands that left officials alarmed, puzzled and touched before he gave himself up without hurting anyone”.

Drunken Pilot

In Steinmetz, Sorry our pilot is wasted: Drunk American Airlines co-pilot thrown off the plane in handcuffs, www.eturbonews.com (3/27/2016) it was noted that “American Airlines flight 736 from Detroit to Philadelphia was cancelled on Saturday morning after the co-pilot was taken into custody when he allegedly failed a Breathalyzer test administered by airport police, CNN reports, citing airport spokesperson Michael Conway. Passengers preparing to take-off described ‘chaotic’ scenes after the flight’s co-pilot was detained on suspicion of being drunk”.

New York City Very Popular

In McGeehan, Record Number of Tourists Visited New York City in 2015, and More Are Expected This Year, nytimes.com (3/8/2016) it was noted that “Fred Dixon, chief executive of New York’s tourism-marketing agency, NYC & Company, plans to announce a forecast of 59.7 million visitors this year. That would exceed last year’s record of 58.3 million visitors by 2.4 percent and keep the city on pace for a goal of drawing 67 million annual visitors by 2021, Mr. Dixon said in an interview”.

Uber Doesn’t Translate

In Manjoo, The Uber Model, It Turns Out, Doesn’t Translate, nytimes.com (3/23/2016) it was noted that “Uber’s success was in many ways unique. For one thing, it was attacking a vulnerable market. In many cities, the taxi business was a customer-unfriendly protectionist racket that artificially inflated prices and cared little about customer service. The opportunity for Uber to become a regular part of people’s lives was huge. Many people take cars every day, so hook them once and you have repeat customers. Finally, cars are the second-most-expensive things people buy, and the most frequent thing we do with them is park. That monumental inefficiency left Uber ample room to extract a profit even after undercutting what we now pay for cars”.

Uber & Car-Pooling

In Manjoo, Car-Pooling Helps Uber Go the Extra Mile, nytimes.com (3/30/2016) it was noted that “Unlike a standard Uber ride, in which a single rider starts a one-time trip, UberPool works like a party line for cars. Travis Kalanick… describes it as the future of his company-and thus the future of transportation in America. Call up the app, specify your destination and in exchange for a significant discount, UberPool matches you with other riders going the same way. The service might create a ride just for you, but just as often, it puts you in a ride what began long ago-one that has spanned several drop-offs and pickups, a kind of instant bus line created from collective urban demand”.

Uber & Hilton Partnership

In Hilton and Uber expand partnership, www.eturbonews.com (3/30/2016) it was noted that “Travel logistics just got a whole lot better, thanks to an expanded partnership between Hilton Worldwide and Uber to further being together their respective mobile apps. In a first for the hospitality industry, Hilton HHonors members can now order an Uber straight from the HHonors app, and Uber riders can now view their hotel stay information and check-in, all accessed via the Uber app en route to their hotel”.

Uber In Ottawa, Canada

In Steinmetz, Uber to launch campaign in Ottawa: Share stories, www.eturbonews.com (3/30/2016) it was noted that “Uber Canada is announcing today that they will be launching a campaign to encourage Ottawans to share what ridesharing means to them with their city councilors. This campaign comes as Ottawa City Council prepares to vote to regulate ridesharing in Mid-April”.

Travel Law Article: The Blumenthal Complaint

The following allegations appear in the Blumenthal complaint.

“Introduction

1. This is an antitrust class action arising from a conspiracy by Defendants (American, Delta, Southwest and United) to fix, raise, maintain or stabilize the price of domestic airline tickets in violation of Section 1 of the Sherman Act. Defendants effectuated this conspiracy through a number of mechanisms, including by constraining the seating capacity on flights within the United States; limiting the number of flights offered within the United States; and limiting the transparency of pricing information available to domestic airline ticket consumers regarding flights within the United States. Plaintiff… Blumenthal brings this action on behalf…of a proposed class of direct purchasers of domestic airline tickets from one or more of the named Defendants…between July 2011 and the present (the “Class Period”)”.

“2. Before a recent round of mergers among the major U.S. airlines within the past ten years, the airline industry was already highly concentrated. Since that time, it has become even more concentrated, with the four Defendants now controlling over 80% of flights within, to, or from the United States. During one of the most recent mergers (between American and US Airways) the United States Department of Justice (DOJ) expressed concern that consolidation within the industry would lead to increased coordination among the remaining airline carriers. Although the DOJ reluctantly approved the America-IS Airways merger, its concerns proved to be correct”.

“3. Under the guise of the industry buzzword ‘capacity discipline’, Defendants have collusively caused domestic airline ticket prices to rise an d/or remain at supracompetitive levels. This collusion was facilitated by Defendants’ collective dominance in the domestic airline industry and their agreement to refrain from acts that hearken back to the industry’s competitive past. The Defendants have stated publicly that they viewed that competitive past as benefitting consumers at the airlines’ expense”.

“4. On information and belief, Defendants have coordinated their efforts regarding ‘capacity discipline’ through behind-the-scenes coordination and policing. The few instances of public recrimination against each other demonstrates that there are open lines of communication between airline executives and that they have no qualms about forcing each other to stay in line and continue to exercise the discipline of an illegal cartel.”

“5. Since the last wave of consolidation within the industry, domestic airline ticket prices have outpaced both inflation and competitive rates. As a direct and [proximate result of the conspiracy alleged herein, Defendants have therefore restrained competition in the market for domestic airline tickets and injured Plaintiff and the proposed Class”.

“6. In early July 2015, it was widely reported that the United States Department of Justice had sent investigative demands (CIDs) to each of the Defendants. A spokesperson for the DOJ, Emily Pierce, confirmed this report, stating that the DOJ is investigating ‘possible unlawful coordination’ among the airlines”.

“7. Plaintiff and members of the Class have each paid a higher [rice for domestic airline tickets than they would have paid absent the concerted unlawful activity alleged herein. Plaintiff therefore seeks damages as behalf of himself and the Class for the inflated domestic airline ticket prices Defendants’ illegal conduct caused”.

Jurisdiction And Venue

“14. This complaint is filed under Sections 4 and 16 of the Clayton Act, 15 U.S.C. 15 and 26, to recover treble damages, equitable relief, costs of suit and reasonable attorneys’ fees for violations of Section 1 of the Sherman Act 15 U.S.C. 1. The Court has original federal question jurisdiction over the Sherman Act claim asserted in this complaint pursuant to 28 U.S.C. 1331 and 1337 and Sections 4 and 16 of the Clayton Act 15 U.S.C. 15 and 26″.

Factual Allegations

A. Background on the Airline Industry

“25. In 1978, Congress passed the Airline Deregulation Act (ADA) which deregulated the domestic airline industry. The ADA removed government control over fares, routes and market entry of new airlines, allowing market forces to dictate these and other facets of the industry.”.

“26. Since 1978, Defendants have competed over fares, routes and seats. In recent years, however, the airline industry has seen significant express coordination, which has led to higher fares, new and increased fees, and less options for American consumers”.

“27. Today, the domestic airline passenger industry is highly concentrated. As a result of a series of mergers, including in particular since 2008, Defendants American, Delta, United and Southwest, the four largest airlines in the United States, now control approximately 80% of the domestic airline market. News sources report that the airline also collected $3.6 billion in bag fees and $3 billion in reservation-change fees in the past two years”.

“29. According to data from the federal Department of Transportation’s Bureau of Transportation Statistics, the average domestic airfare rose at an inflation-adjusted 13 percent from 2009 to 2014. As discussed further below, much of this rise in prices results directly from Defendants’ mutual commitment to keep airline capacity artificially low. Defendants also engaged in a concerted campaign to reduce consumers’ ability to compare air fares by limiting online travel agencies (OTAs) access to fare data and by forcing consumers to use Defendants’ websites rather than other retail channels for domestic airline tickets”.

“30. Emblematic of Defendants’ conspiracy is the lack of price movement in response to recent, significant decreases in the cost of jet fuel. One estimate found for April 2015, United States airlines paid $1.94 per gallon for jet fuel, a decrease of 34% from the previous year. Nevertheless, airfares have continued to rise, regardless of the decrease in airline operating costs.

B. Capacity Discipline And Policing

“40. Defendants’ primary mechanism in their efforts to collusively raise prices for airline consumers is their shared commitment to enforcing ‘capacity discipline’. As used by Defendants, ‘capacity discipline’ is a euphemism for limiting the number of flights and seats available to consumers. Defendants’ coordination on offering only ever-higher fares for the artificially limited number of flights enabled Defendants to raise prices for domestic airline tickets to supracompetitive levels”.

“41. Defendants’ recently-discovered ‘capacity discipline’ can be traced back to the industry’s most recent wave of consolidation. As the DOJ noted in its August 2013 complaint against the American-US Airways merger, each significant legacy airline merger in recent years (the ‘legacy’ airlines are American, Delta and United) has been followed by substantial reductions in capacity. According to the DOJ, ‘[t]hese capacity reductions have not consisted simply of cancellation of empty planes or empty seats; rather, when airlines have cut capacity after a merger, the number of passengers they carry on the affected routes has also decreased’”.

“42. The key to ‘capacity discipline’ however, is that it will not be able to create outsized profits for an airline if that airline is the only competitor exercising such ‘discipline’. Put differently, if a single airline reduces capacity on its flights ad raises prices as a result, then travelers will turn to other airlines with more capacity and, thus. Lower prices. But if other airlines act similarly-meaning travelers are faced with reduced capacity and higher prices at all turns-then travelers have no choice but to pay higher prices The alternative is to not fly at all, which is an unacceptable option for many of Defendants’ customers”.

“43. For this reason, capacity discipline will only benefit an airline if it has reasonable assurance that it is either the exclusive (or near exclusive) carrier for a particularly city-pair route, or, for city-pair routes with multiple carrier options, that its competitors will engage in the same ‘discipline’. It should be against an airline’s independent self-interest for it to exercise ‘capacity discipline’ unless its competitors also do so. In Defendants’ case, their shared commitment to capacity discipline was made feasible and rational by their knowledge that each had agreed to engage in the same capacity limitations”.

C. Reducing Airfare Price Transparency

“55. Defendants have also reduced price transparency with the industry by targeting OTAs and metasearch websites [fn2 Kayak, TripAdvisor, Google Flights, Hipmunk, Skyscanner and Fly.com]. The purpose of these efforts is both to eliminate comparison shopping (and the competition it brings) and increase prices by driving online ticketing traffic to Defendants’ own websites or reducing the benefits of using OTAs and metasearch sites.

“56. On May 19, 2015, the Travel Technology Association issued a report prepared by Charles River Associates and authored by Dr. Fiona Scott Morton entitled ‘Benefits of Preserving Consumers’ Ability to Compare Airline Fares’ (the TTA Report). The TTA Report noted that competition within the U.S. airline industry had suffered because of domestic passenger airline mergers and the major airlines’ collective efforts to lead travelers away from OTAs”.

“57. By providing comparisons among different airlines’ [prices for the same routes, OTAs facilitate price transparency. Om information and belief, each of the Defendants have demanded that OTAs, both large and small. Agree to onerous terms that would prevent the OTAs from providing accurate [price comparisons for consumers, force the OTS to refrain from offering any further price comparisons at all, or add on fees to consumers by using OTS services that would erase any benefit to having the price transparency that OTAs provide. The airlines’ coordinated efforts to restrict OTAs’ ability to provide such comparisons and price reductions was and remains a blatant attempt to drive up prices”.

“58. Along these lines, the TTA Report found, among other things, that:

[A] Restrictions by airlines of broad access to airline information-i.e., prices and schedules-substantially reduces consumer welfare. The TTA Report estimates the potential reduction in net consumer welfare of limiting airline price and schedul3e information to only airline websites could exceed $6 billion per year. In addition, such restrictions may result in up to 41 million passengers annually choosing not to fly.

[B] Beyond independent price comparisons, OTAs’ and metasearch travel sites provide consumers with other travel information, such as suggestions for places to go and things to do. Supplementing airline schedule information with complementary information and products expands the market for air travel, further increasing consumer welfare. Restricting airline schedule information has the opposite effect.

[C] Airline markets are highly concentrate, with significant barriers to entry. The recent merger of American Airlines and US Airways, for example, had led to fare increases in affected city-pair markets that are about 4 percent higher than in non-affected markets. In certain city-pair markets in which American-US Airways merger reduced the number of significant competitors from 3 to 2, or from 2 to 1, fare increases have been 7 to 17 percent. The welfare-enhancing impacts of broad access to airline fare and schedule information may be even larger in duopoly or monopoly city-pairs.

[D] Airline profits globally are at an all-time high, expected to reach $25 billion for 2015. While airline fuel prices declined nearly 25 percent last year, average domestic airfares have remained flat while ancillary revenue of the major U.S. airlines grew to over $15 billion in 2014″.

“59. The TTA Report also noted that Defendants have engaged in coordinated efforts to stifle online metasearch airfare websites. These efforts include: prohibiting metasearch sites from referring consumers to an OTA for booking a flight; prohibiting OTAs from providing airline information to metasearch sites; prohibiting global distribution systems (GDSs) from providing airline price and schedule information to ‘unauthorized’ metasearch sites; prohibiting onward-distributing flight schedule information to metasearch sites by services such as Innovata’ refusing to pay metasearch sites for direct referrals to the airline’s own booking website; and prohibiting metasearch sites from displaying price information of the airline”.

Conclusion

These are some of the allegations that may be addressed in MDL airline price-fixing litigation. Stay tuned.

Justice Dickerson been writing about Travel Law for 39 years including his annually updated law books, Travel Law, Law Journal Press (2016) and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2016), and over 400 legal articles many of which are available at nycourts.gov/courts/9jd/taxcertatd.shtml. Justice Dickerson is also author of Class Actions: The Law of 50 States, Law Journal Press (2016). For additional travel law news and developments, especially, in the member states of the EU see IFTTA.org