Are U.S. airlines plotting against their customers?

The DOJ investigation should also examine frequent flyer awards

Published: July 02, 2015 04:30 PM

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Today, the four largest U.S. airlines—American, Delta, United and Southwest—all confirmed that the Department of Justice is examining whether they colluded to limit seats available in order to keep prices high and planes full.

The investigation comes as U.S. airlines have been merging with each other and cutting back on the number of available seats even though demand for flights has been rising. The consolidation has reduced the number of big U.S. airlines by half. At the same time, consumers have been hit with higher airfares, extra fees (such as for checking luggage and changing flights) and often, less legroom.

All this has paid off for the airlines. According to the Bureau of Transportation Statistics, domestic airfares rose an average of 2.5 percent last year even though fuel costs dropped nearly 32 percent in the past 12 months. At the same time, the percentage of seats filled on domestic flights rose to a record 84.5 percent last year.

“It’s hard to call a market where just four companies control more than 80 percent of business competitive, but that’s where the continued consolidation in the airline industry has left travelers," says William J. McGee, airline and travel consultant to Consumers Union, the policy and advocacy arm of Consumer Reports. “Airline collusion to keep already high prices artificially inflated would be an even more egregious offense and we’re glad the Department of Justice is taking a hard look with this investigation.”

Read "Tips from a master frequent flyer" and check out our report on the best and worst airlines

On top of the high cost of travel, it's worth noting that passengers have increasing difficulty cashing in their frequent flyer awards. While it’s not clear if the use the Department of Justice will look into the use of frequent flyer awards, one way to reduce capacity is by making it harder for customers to cash in their awards. "When flights are fuller and fares are higher the opportunity costs of a free seat are greater," says Seth Kaplan, the managing partner for the trade publication Airline Weekly.

Airlines, though, have to walk a fine line when it comes to making good on their frequent flyer awards, explains Kaplan. He says the programs are important to the airlines not only because they drive loyalty, but because they also result in consumers applying for co-branded credit cards—a business Kaplan says is worth billions of dollars to the airlines.

—Nikhil Hutheesing (@Nikhil212 on Twitter)

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