Published on : Friday, April 8, 2016
American Airlines, Delta Air Lines and United Airlines (the “Big Three”) may have recently coordinated on a complicated and comprehensive scheme to change airfare rules that have the effect of driving up the price of an airline ticket on unsuspecting consumers by as much as a factor of seven.
How The Policy Change Works
The policy change bars customary multi-city ticketing using the lowest available fare on each segment. Instead, the new policy combines the highest refundable fares available on each segment and returns a round-trip single price that is substantially higher than if a consumer purchased separate one-way fares.
Why This Policy Is Outrageous
Since the Big Three secured grants of antitrust immunity for their global alliances, and consolidated the domestic industry, they have worked hammer and tongs to reduce price transparency, undermine their regulator and block foreign carrier new entry.
This fare-rule change appears worse than tacit coordination as there was no public announcement and airlines don’t usually spend their time watching the Airline Tariff Publishing Company (ATPCO) feeds for such very infrequent changes. In the off chance two of the three airlines were monitoring ATPCO and spotted the change, which is complex and far-reaching, they would have likely needed considerable time to analyze the competitive move and decide whether to match.
Normally, with a policy change of this magnitude, airlines would watch how the market responds before taking a risk. Moreover, because it was implemented secretly, there was no immediate threat of revenue loss, and thus no need to rush to match. Taken together, this is why Business Travel Coalition asked the U.S. Department of Justice to add this industry development to its ongoing investigation into collusive airline agreements.
Who This Policy Affects And To What Degree
Because of this rule change business travelers who work for major corporations, with well-developed travel management programs, will be forced to purchase a series of one-way tickets as a workaround to substantially higher multi-city itineraries issued as a single round-trip ticket. Industry estimates suggest this change will affect between 20 and 25 percent of business travel trips – these are either open jaw or multi-city journeys. Those travelers, and the organizations that actually pay for the travel, will face travel agency service fees on each segment, and to add insult to injury, when travel plans are modified, they will face change and cancellation fees of up to $200 per segment.
However, the most pernicious impact will be on the majority of business travelers who work for themselves or smaller organizations that do not have managed travel programs and ready access to expert travel agents. They will simply get blindsided because they will be unaware of the fare-rule change and the workaround.
Leisure travelers, who have been “trained” to always buy the more affordably priced round-trip ticket, will be caught unprepared. As an example, a two-city domestic U.S. trip researched returned a coach fare of $1,200 for travel from Jacksonville to Los Angeles (rental car to San Francisco), returning from San Francisco to Jacksonville – a popular route for vacation travelers. If priced as two one-way tickets the fare is $400. While a travel agent will be cognizant of the policy change, the threshold problem is that most consumers, especially the majority who are infrequent travelers, will not be aware and will pay dearly when booking online at an airline website.
The Airline Motivation
The Big Three will likely say they are responding to some consumer “demand” or another and also that they had to do this to remain competitive with one another as well as with ultra low cost carriers. This industry development is the clearest sign yet that the U.S. marketplace for commercial airline services is failing. What’s more, any further domestic U.S. industry consolidation needs to be contingent upon a package of reforms designed to provide consumer protections found in all other industries and encourage higher levels of foreign carrier service to and within the United States under U.S. Open Skies agreements.
Europe Is Next…
If the Big Three prevail with this fare-rule change, their airline alliance partners will no doubt see this as a weapon against the ubiquitous low-cost carriers in Europe. The major U.S. and European airlines are coordinating closely on blocking Norwegian Air International’s application to serve the U.S., the scorched-earth campaign against the Gulf carriers and the Lufthansa Group’s 16 euro anticonsumer and discriminatory surcharge for bookings outside of its websites, call centers and airport ticket counters. This would be one more shared “best practice” among the antitrust immunized alliances.