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Collusion and price fixing

Earlier this month, The Wall Street Journal published an article titled “Flying to More Than One City Just Got More Expensive”  which stated: “American, Delta and United have new pricing rules that could easily raise the cost of many trips. Think of it as making a six-pack of soda twice as expensive as buying six cans individually.  The three biggest airlines in the U.S. decided in March to block their cheapest prices on flights from being used on many connecting and multicity trips. Previously, reservation computers would find the lowest price for each flight in an itinerary and add them up to one price for the trip. But now the cheapest prices can’t be combined. To get the absolute lowest prices on a trip with multiple stops, you have to buy each flight separately.”

The commentary further stated: “Since reservation systems look for low prices to cobble together the least expensive tickets, the cheap fares used on connecting flights and multicity trips lowered ticket prices on routes airlines never intended to discount.  American, Delta and United decided their own low prices had gone too far and they imposed new rules on tickets.”

Apparently within 24 hours of Delta initiating the change, American Airlines and United matched the move and “The Business Travel Coalition, a group of corporate travel managers, has complained that American, Delta and United all made the rule change quickly one after the other, driving up prices.”

U.S. antitrust laws encompass a compendium of federal and state laws that regulate The organization and conduct of businesses with intent to promote fair competition: the ultimate goal is to protect consumers. The Sherman Act 1890, the Clayton Act 1914 and the Federal Trade Commission Act 1914 restrict the formation of cartels and prohibit other collusive practices regarded as being in restraint of trade. The Acts also serve to restrict the mergers and acquisitions of organizations that could create monopolistic platforms that substantially lessen competition.

It is no secret that America’s big three airline carriers move in tandem with raising fares, imposing new and/or higher fees, and reducing capacity when the need to tweak supply and demand arises. Suspicions of collusion and coordination on pricing amongst the airlines have been investigated by the U.S. Justice Department for several years, however many believe the government’s case against the industry will be near-impossible to prove. The airlines argue that they do not conspire and that technology has provided everyone with perfect real time knowledge to react when competitors alter pricing.

While I am by no means suggesting collusion, conspiracy and/or price fixing, America’s big five hotel brand families, namely Marriott/Starwood, Hilton, InterContinental, Wyndham and Choice have a lot to learn from the airlines. Airline seats, like hotel room nights are perishable commodities that if not sold are forever lost. I find it intriguing that unlike their airline brethren, lodging brand families do not match prices and/or implement self-serving policies and procedures. Airlines routinely and simultaneously spike pricing for last minute purchasers. Comparatively, the hotel industry tends to auction off its last remaining rooms and exacerbates this phenomenon by allowing the OTAs to continue to unfavorably penetrate the sector.

As I have previously stated in my March 21 blog: “What’s good for the goose is good for the gander.”

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