A $KY-HIGH PROBE
Feds eye airline fix
Millions of travelers may be paying too much for their airline tickets.
The Justice Department is probing major US carriers to see if they colluded on their expansion plans — a move that would have kept the number of available seats fraudulently low and prices high.
News of the probe, first reported by the Associated Press, sent airline stock tumbling.
Shares of most of the major US carriers were off around 5 percent in midafternoon trading on Wednesday before recovering later in the session.
Justice is looking into “possible unlawful coordination” of expansion plans among the carriers, a spokeswoman for the department said.
She refused to name which airlines were the focus of the probe, which has been going on for two months, according to reports.
A separate investigation is being undertaken by the Connecticut attorney general.
United Continental, American and Southwest each confirmed getting a letter from Justice and are cooperating with the probe.
The letter seek documents going back two years related to decisions about limiting capacity on routes.
Some thought the timing of the probe odd.
“It would have made more sense last year, when the domestic supply of seats was up just 1.5 percent,” said Joe DeNardi, an airline analyst at Stifel Nicolaus. “This year, it’s up close to 5 percent — well ahead of GDP growth.”
The timing of the probe appears less responsive to market conditions than to a June 17 letter received from Sen. Richard Blumenthal (DConn.) urging an examination of what he called “anticompetitive, anticonsumer conduct and misuse of market power in the airline industry,” DeNardi said.
The Justice probe comes as airlines in the past couple of years are seeing fatter bottom lines.
Ironically, as seat capacity has increased this year, the Bloomberg US Airline Index has fallen 19 percent, as investors fear the carriers are losing pricing power.
Four mergers since 2008 have taken out four major rivals and left the US industry’s remaining Top 4 with more than 80 percent of domestic seats.
Stock prices for the four largest US carriers remain 20 percent to 30 percent below their 52week highs — in part due to fears of the boomtobust mentality so often demonstrated by the industry between economic expansions and contractions.
“Demand has been enabled by a robust and competitive marketplace in which capacity has been added and average fares have decreased,” a spokesman for American said.
Shares of the major carriers closed Wednesday down 1 percent to 3 percent.