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Invitation to Collude: Price-Fixing Charges Against Airlines Survive Motion to Dismiss

- April 2011

In 2009 Delta Airlines and AirTran were sued in multiple class action suits alleging that the two airlines conspired to fix baggage fees in violation of federal antitrust laws. Atlanta is the principal hub for both companies. Combined, the companies account for more than 90% of the air traffic at Hartsfield-Jackson Airport. (In Re Delta/AirTran Baggage Fee Antitrust Litigation).

The complaint alleges that AirTran invited Delta to collude (through a series of “earnings calls” with financial analysts and presentations at industry conferences) by inviting Delta to impose a first-bag fee on checked articles. The complaint further alleges that two weeks following AirTran’s invitation, Delta accepted—and imposed a $15 first- bag fee. A week later AirTran announced that it would impose the same fee with the same effective date. The airlines conceded that each closely monitor their competitor’s earnings calls. The complaint also alleges a conspiracy to reduce capacity—an illegal form of price fixing. Some of the comments cited in the complaint:

4/23/08 Delta earnings call—“I think Delta can’t do it [price tickets to be profitable] alone. We have to do it in conjunction with other carriers…if the industry could achieve a 10% reduction in capacity…we’d be in pretty good shape given today’s fuel environment.” Delta believed “the industry has got to maintain discipline with respect to capacity.”

10/23/08 AirTran earnings call—“We [AirTran] have the programming in place to initiate a first-bag fee. And at this point, we have elected not to do it, primarily because our largest competitor in Atlanta [Delta]…hasn’t done it…I’m not saying we won’t do it. But at this point, I think we prefer to be a follower in a situation rather than a leader right now.” (Emphasis added).

11/5/08—Delta announces that it will begin charging passengers a $15 first-bag fee effective December 5, 2008.

11/12/08—AirTran announces it will impose a $15 first-bag fee effective December 5, 2008.

The complaint alleges that the airlines acted in concert to fix prices (via a first-bag fee), alleging that the defendants: (1) engaged in collusive communications through earnings calls and industry conferences; (2) aligned their business practices following the collusive communications; (3) implemented business practices contrary to their self-interest following the communications; (4) offered a pretextual explanation for the implementation of the first-bag fee; and (5) undertook this concerted action to raise prices and achieve higher revenues.

The federal district court in Atlanta denied the defendants’ motion to dismiss the complaint, finding that plaintiffs had alleged sufficient factual specificity to establish an unlawful price-fixing conspiracy, but observing that “the complaint has its weaknesses.”

The case now proceeds to discovery and trial.

The legal dangers of extending an invitation to collude to competitors highlighted in this case are also discussed in an earlier NAW advisory, “FTC Settles Invitation to Collude Charges Against Truck Rental Company.”