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Antitrust probe of airlines needs strong evidence, expert says

Associated Press

WASHINGTON – As the Justice Department launches an investigation into possible collusion in the airline industry, experts say the government faces the burden of proving that carriers were deliberately signaling business decisions to each other.

Airlines routinely increase flights based on demand. A particularly cold winter in the Northeast, for instance, might merit more flights to the Caribbean. Nothing is illegal about that.

Any company can limit the supply of its own products, whether airline tickets, sneakers or smartphones. But it would be illegal for airlines to work together to limit flights in order to drive up fares.

The government’s investigation is just in its initial phases. Letters went out this week to American Airlines, Delta Air Lines, Southwest Airlines and United Airlines. Together, those four carriers control more than 80 percent of the domestic seats on planes.

Airlines are quick to say they can’t talk about pricing decisions. But in recent years, airline executives and Wall Street analysts have been much more open in discussing how the airlines have kept their passenger capacity – the number of seats they put into given markets – in check. With that capacity kept from growing too fast, airplanes have been fuller and carriers have been able to command higher ticket prices. That’s led to record profits.

But were airlines simply responding to Wall Street’s questions about capacity, or were they illegally agreeing not to compete too hard as part of an effort to make more money?

“Matching supply to demand is not a novel idea and running a company for profit is not a crime,” Raymond James analyst Savanthi Syth told investors in a note Thursday.

Antitrust law draws a line between the entirely lawful practice of companies following each other’s behavior and companies illegally conspiring. The Justice Department appears to be hunting for communications and other signals that cross that boundary, said Andrew Gavil, who teaches antitrust law at Howard University.

“The distinction involves whether or not there was really express or intentional coordination by two firms,” he said.

If the government does find evidence of improper collusion, it could attempt to negotiate a consent decree with the airlines to stop them from certain behavior, such as issuing public statements about their intentions about capacity.

Jonathan Baker, an antitrust law professor at American University, said investigations like this one generally need more than just circumstantial evidence. A case with explicit discussion between executives would be easy to prove. The harder challenge is one where collusion would need to be inferred from statements by executives to analysts, and other signaling.

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