Big three US airlines subject to antitrust investigation

The big three US airlines waging a fierce campaign against their Gulf rivals over “unfair competition” are now themselves the focus of an antitrust investigation by their own government.

American, Delta, and United are being investigated by the justice department for signs of unlawful collusion to control seat supply to the market in an effort to inflate air fares.

Since January, the same US carriers have loudly voiced allegations that Emirates, Etihad Airways and Qatar Airways have received billions of dollars in illegal government subsidies that have helped them to unfairly compete, putting them in breach of open skies agreements. They have called on the president Barack Obama’s administration to review these deals and block their rivals from receiving any additional capacity.

The Gulf airlines refute the allegations and claim that the US airlines are acting to protect their own market share.

The justice department is investigating if the carriers have agreed among themselves on how quickly they would add new routes, flights and seats – in an effort to slow growth, limit seat supply, and demand higher fares. It has demanded documents related to expansion and meetings with analysts and officials at other carriers.

American Airlines confirmed to The National that it had received a Civil Investigative Demand (CID) from the department of justice’s antitrust division.

“The CID seeks documents and information from the last two years that are related to statements and decisions about airline capacity,” the airline said in an emailed statement. Delta Air Lines, United Continental Holdings and Southwest Airlines are also under investigation.

Analysts said that curbing competition lies at the heart of both the alleged capacity control and the campaign to revise the open skies agreement with the UAE and Qatar.

“There could be an argument that the anti-Gulf campaign and collusion, if found, originate from the same greedy mindset,” said Will Horton, a senior analyst at the Centre of Aviation (Capa). “Emirates this week pushed how strongly US airlines are doing financially but not serving US customers.”

The Bloomberg US airlines index fell more than 2 per cent at the open after dropping on Wednesday on the news of the investigation.

Four airlines – including Southwest – now control about 80 per cent of US domestic flights, and combined profits for the sector have soared over the past two years to about $19.7 billion.

However, American Airlines welcomed the investigation, because competition in the market has been steady and strong.

“We welcome the review as the data shows that the industry remains highly competitive with more people flying than ever before,” the airline said. “Demand has been enabled by a robust and competitive marketplace in which capacity has been added and average fares have decreased.”

Emirates and Etihad declined to comment. Qatar Airways, Delta, and United could not be reached.

Mr Horton said that even without collusion the US domestic market is still protected between government-approved consolidation and restrictions on ownership. He gave an example of Virgin America and how long it took the low-cost airline to launch amid delays caused by opposition from unions and rival airlines.

“Collusion has not been proven, but justice sees market conditions warrant an investigation. That adds weight to views the US market is not as competitive as it could be. The effort to curtail Gulf carriers would reduce competition,” said Mr Horton.

The International Air Travel Association (Iata) said traffic for North American airlines grew by 2 per cent year-on-year in May on the back of a better economic performance in the second quarter. But the airline association warned that a stronger US dollar will put pressure on the number of international visitors coming to the US.

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