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U.S. eyes possible airline collusion to keep fares high

American Airlines and US Airways completed their merger in late 2013.
American Airlines and US Airways completed their merger in late 2013. AP

American Airlines and Southwest Airlines are under investigation by the Justice Department as the government looks into whether the nation’s major airlines colluded to keep airfares from falling.

The Justice Department sent “civil investigation demand” letters to several U.S. carriers this week, asking them to provide documents related to how they determine the number of available seats and flights and whether they are talking to one another about capacity.

The letter asked the airlines to “submit all documents relating to any actual or contemplated changes in the capacity of your company or any other airline, including all documents relating to your company’s monitoring of the actions or public statements of other airlines regarding actual or contemplated changes in capacity.”

The government also wants to know when airline executives attended conferences with Wall Street analysts and how many available seats airlines have had in their networks since January 2010.

Justice Department spokeswoman Emily Pierce confirmed Wednesday that the department is investigating potential “unlawful coordination” among airlines. She declined to give further details, including which airlines are being investigated.

The industry has faced pressure recently from Wall Street analysts about adding capacity too quickly over the next two years as airlines get new, larger aircraft and continue to add routes. Shares of airline stocks have declined in the past two months, leading several airlines to announce that they are trimming future capacity plans.

Both American and Southwest said they will cooperate with the government on its questions.

“We’ll cooperate fully in answering any questions the DOJ has of us,” Southwest spokesman Brad Hawkins said in an email.

American spokesman Josh Freed said the demand asks for documents and information from the last two years about capacity.

“We welcome the review as the data shows that the industry remains highly competitive with more people flying than ever before,” Freed said. “Demand has been enabled by a robust and competitive marketplace in which capacity has been added and average fares have decreased.”

American was the focus of a previous Justice Department investigation after it announced its merger with US Airways.

In 2013, the department filed a lawsuit to stop the merger, saying it would harm consumers and raise fares. The suit was eventually settled after American and US Airways agreed to give up takeoff and landing slots and gate leases at several airports, including Dallas Love Field.

United Airlines and Delta Air Lines also confirmed that they received letters from the Justice Department and will cooperate with the investigation.

Wolfe Research analyst Hunter Keay, who hosted a May investor conference where airline executives discussed their capacity plans for this year, said Wednesday that he has not been contacted by the government and doesn’t think the airlines have acted 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.”

The airline industry group A4A said customers are determining the pricing by choosing which fares to buy.

“We are confident that the Justice Department will find what we know to be true: our members compete vigorously every day, and the traveling public has been the beneficiary, as the DOT’s own data shows that domestic fares are down in 2015,” A4A said in a statement.

The group added that capacity is at a post-recession high as airlines increase the number of available seats by 4.6 percent this summer to accommodate higher demand.

The American-US Airways combination in 2013 was the last of several high-profile mergers. Delta Air Lines and Northwest Airlines combined, as did United Airlines and Continental Airlines. Southwest Airlines grew into the largest domestic carrier in the U.S. when it bought AirTran Airways.

With each merger, airlines have cut unprofitable flights out of their networks. And with jet fuel prices hovering over $3 a gallon, airlines made a concerted effort to keep capacity low and fill a higher percentage of seats.

From January 2010 to January 2014, capacity on domestic flights was virtually flat while the U.S. economy grew about 2.2 percent per year. From January 2014 to January 2015, however, the airlines expanded by 5.5 percent as fuel prices dropped to lows below $2 a gallon.

As a result, fares have risen 13 percent in the past five years, according to the Bureau of Transportation Statistics.

This report includes material from The Associated Press.

Andrea Ahles, 817-390-7631

Twitter: @Sky_Talk

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