[My apologies for an earlier post on this subject where I hit “Publish” by accident. Hopefully, readers could tell the difference between that post and my usual offerings. Below is the revised final version.].
The four largest U.S. airlines were sued in class action civil litigation in 2015 for price fixing after several airline executives made public comments about the need for “capacity restraint” and “discipline”in the industry. After making these comments at a trade association event and other forums, over 100 different price fixing suits were filed. They were consolidated before US District Court Judge Colleen Kollar-Kotelly for the District of Columbia. In the consolidated suits, plaintiffs allege that the airlines colluded to limit capacity on their respective airlines in a conspiracy to fix, raise, maintain, and/or stabilize prices for air passenger transportation services within the United States. The crux of plaintiffs’ claim is that in 2009, after the economy improved and jet fuel prices declined, defendants made a conscious, joint decision not to return to the previous industry practice of adding airline capacity and decreasing fares. Judge Kollar-Kotelly denied the defendants’ motion to dismiss the complaint for failure to sufficiently allege evidence of an agreement. The full opinion can be found here. The Judge noted, among other things, that:
[T]hese statements upon which Plaintiffs rely demonstrate two points that support the plausibility of their claim and, more specifically, the inference that Defendants’ conduct was the result of an agreement. First, Defendants made public statements about their own commitment to capacity discipline as well as the importance of maintaining the capacity discipline within the industry. Defendants’ discussion of the need for capacity discipline within the industry as a whole is notable because it involves more than a mere announcement of Defendant’s own planned course of conduct. (citation omitted). Second, Defendants’ statements concerning the focus on exercising capacity discipline commenced in 2009 and were a deviation from past business practices.
I first wrote about the airline cases in “They Said What? Some Compliance Thoughts on the Airline Collusion Investigation, Cartel Capers, July 13, 2015. The post noted that this case would mark an expensive “teachable moment” for the airline industry and a competition compliance talking point for the rest of the world. Standing alone the public comments were ill-advised, but here the airline industry already had several factors making it conducive to possible collusion (and the subject of a price fixing class action): there had been a great deal of industry consolidation resulting in an oligopoly, the airlines had a prior history of increasing capacity when the economy rebounded but did not do so here, and prices were increasing at a time when it was widely known fuel prices were declining. In any environment “discipline” and “restraint” are antitrust buzzwords that can connote possible collusion. While a company may announce its unilateral intention to exercise discipline or capacity restraint, voicing the need for industry wide discipline or capacity restraint could be seen as an invitation to other airlines; an invitation that plaintiffs allege was accepted. (And it should be noted that in some cases, even inviting other industry participants to take joint pricing action could be an “invitation to collude.” See Cartel Capers, Invitations to Collude Invite Big Trouble, March 3, 2015.
American Airlines spokesman Matt Miller called the plaintiff’s claims “plainly deficient” and said the carrier is confident they will be found meritless. That may be so, or it may not. But, the litigation has already proved very expensive for the airlines. And, after surviving a Motion to Dismiss, the case will now head into discovery. In discovery, the plaintiffs may uncover direct evidence of a conspiracy, or further circumstantial evidence. Or the evidence already in hand may cause some or all defendants to settle to avoid the cost of further litigation or the possibility of treble damages in the case were to go to trial. Or, the plaintiffs’ case may be tossed at the summary judgment stage or rejected by a jury. But, one thing is for certain, the best type of restraint or discipline is often of one’s tongue (or text/email/etc.).
Thanks for reading.
PS. The Antitrust Division has also opened a civil investigation but there has been no public developments in that investigation.