Editorials

July 7, 2015

DOJ’s “Collusion”: You Scratch My Airplane’s Back, I’ll Scratch Yours

I pronounce it “capitalism”, but the Department of Justice (DOJ) pronounces it “collusion.” Either way, they appear to be aghast at the obvious. Just the mere mention of the investigation caused airline stocks to tank last week, which begs for the world to acknowledge the irony of the accusation.

On July 1, 2015, the DOJ began formal investigations into several major airlines for antitrust violations. For using a bunch of big words, the allegation is quite simple. The DOJ believes there is a secret (or illegal) cooperation to limit open competition. There is no secret about it. Of course the airlines are fixing fares and controlling the market. It’s called capitalism, and that’s how it works, just like the government wanted it to work.

When the Justice Department didn’t challenge three airline mergers in 2008-11, they knew the result would be that four major airlines would control 80% of the market, so what did they think would happen? When nine airlines are merged into four majors, the outcome is inevitable. The pendulum of the aviation economy has been swinging since deregulation began and as with all aviation events, there is always an overreaction. As the swinging pendulum tries to find the center of balance, it over and undershoots the middle. The trick is to catch it in the middle.

When the government was removed from the business of regulating the skies in 1978, airline passengers were suddenly exposed to pure aviation market forces (fluctuating prices of fuel, aircraft, economy, employee costs, route demands, consumer requests, etc.). Since the airlines were no longer subsidized, they were set adrift in a sky guided solely by capitalism. You, the consumer, guides capitalism. It is an action and reaction sequence involving both the consumer and the market. Deregulation worked for the consumer, but was initially bad for the airlines. It took the industry years to gain their momentum, but they got good at capitalism, and now the moment they turn a profit, we shake our fists at them for doing it.

The media has done a poor job of putting ticket prices in perspective. The reality that a passenger can step onboard a new $189 million airplane, operated in a highly complex air traffic system with hundreds of employees required for just one flight, and only pay just a few hundred dollars to cross the country and arrive there safely. It’s beyond incredible. It’s awe inspiring, yet completely taken for granted. In 1974, it cost $1442 to go between New York City and Los Angeles. I found a ticket this morning for $205, nonstop (okay, yes, plus taxes). Yes, there are higher priced tickets on the same flight. If you want more leg room or better service, you pay for it. Otherwise, you don’t. So don’t complain. Be in awe and enjoy your cheap ticket. It would cost more and take days to drive there.

There is no secret to pricing in the airline industry. They won’t find any formal communication/evidence because the airlines don’t have to collude. One charges for bags and eventually, they all do. One airline changes, adds, or drops a route and the others scavenge what they can. They follow the market and what passengers are willing to pay. It’s all there. Self- ticketing has made airline ticketing transparent. I know what United is going to charge now and six months from now, as well as everyone else. I also know which routes they have and when a new one is going to open. There is no secret there. Prices are transparent and so has been the race to the bottom. We got what we asked for. Less expensive airfare, but fees for everything. A new illusion in return for strained service, cramped seats, overbooked seats, and a burdened system, but that’s how capitalism works. The windfall is temporary while the airlines enjoy a reduction in fuel costs and the efforts of 500,000 hardworking U.S. aviation employees.

But, don’t worry. Something in the market will happen and the airlines will start losing money again soon enough. It’s what the market decides, so be careful what you ask for.

6da3cb6ef991f02bccfbabc85ab3e3e8Erika Armstrong has been in and around aviation for twenty-five years. From front desk of an FBO to the captain’s seat of a Boeing 727-200, she has “become” a pilot. Her manuscript A Chick In The Cockpit was bought by a publisher and will be available nationwide September 2015.



About the Author

Erika Armstrong





 
 

 

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