Airlines Under Scrutiny
 

News story today about possible collusion between the four biggest airlines to keep prices high by limiting flights and seats available. Of course, it has to be proved, which may be diffiucult. U.S. Senate (I think) looking into it.

Not the Senate, the Department of Justice has issued the subpoenas.

Wonder if it will come to anything.

Hoping it will come to something!

A silly investigation IMO. Hopefully it ends quickly.

travel - Why silly?

<i>travel - Why silly?</i>

For starters, I don't actually think the airlines are making outsized profits. If they are gouging, why did Delta only have a 1.6% net margin last year? Compare that to someone like GE, which had a 10.3% net margin. Companies should be allowed to make money, or else we wouldn't have any companies.

The primary allegation - that they coordinated to control capacity doesn't actually require coordination. All that is required is investors demanding that the airlines not squander money. If it is raining outside and many people are using umbrellas, does it mean they all agreed they would use umbrellas? Of course not, it just means they don't want to get wet.

We have 30+ years of evidence that chasing market share is a money-losing proposition for the airlines. Frankly, if the airlines were not limiting their own capacity growth, then I'd think the government would have a case... for grand larceny. No rational investor would ever approve significant capacity growth for the large airlines because it is a guaranteed money loser. That every airline needs to please largely rational investors is not coordination. And that most CEOs are rational and don't want to anger their bosses (the investors) also does not require coordination.

I simply do not understand why people think investors should subsidize air travel. It isn't that profitable today. And increasing capacity would wipe out what they do make. If the government isn't happy with that, then they should subsidize the airlines.