Jet fuel prices dropped by 40 percent since last year, but ticket prices have remained high. If you’re wondering why ticket prices haven’t followed the subsequent drop, you’re not alone. Multiple senators have called for an investigation, and the Department of Justice is in the process of uncovering the truth.
The Basics: Consolidation Yields Cooperation
The DOJ is conducting a new investigation to find out if airlines are conspiring to limit seat availability in order to keep airfares high. This coordination would be considered unlawful by the DOJ.
A number of airline mergers took place in March of 2014, and it seems an oligopoly is now in place. American, Delta, United and Southwest are now the major players, operating 80 percent of air traffic.
The consolidation has limited price competition. The mergers gave the airline conglomerates the ability to match supply with demand in a way that keeps occupancy low and prices high. Despite the increasing demand for flights, no one has authorized cutting prices to fill seats.
The Proof: Capacity High, Prices High
In March, the Department of Transportation’s Bureau of Transportation Statistics showed the amount of passengers boarding was at a monthly high for the season, numbering at 65 million travelers, or 83.5% full.
Airline capacity can be measured by available seat miles. The transportation department data shows that capacity has grown from 1.3 billion in 2010 to 1.4 billion in 2014. However, fares have risen 17% since 2010, despite the fact that capacity is at an all-time high.
Filing Charges: Is There Enough Evidence?
The DOJ had refused the merger a few years back, claiming that it posed a risk to consumers. Airlines argued that the consolidation would foster cooperation and lessen competition, and the DOJ agreed that it help to arrange fares, fees and “service reductions.”
Many are arguing that the government willingly approved these mergers, which led to the widespread consolidation and price-gouging. The controlling airlines can claim they are merely acting in a disciplined way to make a profit, and the DOJ is going to need to find stark evidence to make a case.
Airlines for America argues a considerable amount of competition exists, which benefits consumers. Southwest Airlines and Delta Air Lines have confirmed their cooperation, according to USA Today.
But because the number of big U.S. flight operators has been cut in half, the future of the DOJ case and the high fares remain at the mercy of the men in charge.