How Airlines Collude To Raise Prices, Right In Front Of Regulators

The Department of Justice successfully sued in District Court to block American Airlines and JetBlue from continuing to cooperate in their ‘Northeast Alliance’ where they divvied up which carrier flew to which city, and shared revenue.

The judge’s decision cites some pretty interesting coordination over pricing that happens in the airline industry prior to and outside of this alliance. Competitors talking about pricing, and in particular how to raise prices, is forbidden, and yet they seem to do it in plain sight without actually saying “let’s do the crime” so that they can get away with it.

Airlines talk about ‘capacity discipline’ in earnings calls to signal to each other a willingness to reduce capacity. You pull down capacity, we will too. And that’s a form of collusion out in the open.

Airlines also communicate through fare basis codes. I always liked these letter and number codes, such as “OVALZNN3,” when they might include “FU” for a sale fare running out of a competitor’s hub.

And little is more famous than then-American Airlines Chairman Bob Crandall and Braniff’s Howard Putman discussing raising prices over the phone 40 years ago.

Mr. Crandall: I think it’s dumb as hell for Christ’s sake, all right, to sit here and pound the (expletive) out of each other and neither one of us making a (expletive) dime. I mean, you know, goddamn, what the (expletive) is the point of it?

Mr. Putnam: Nobody asked American to serve Harlingen, nobody asked American to serve Kansas City, and there were low fares in there, you know, before. So. …But if you’re going to overlay every route of American’s on top of, over, on top of every route that Braniff has – I can’t just sit here and allow you to bury us without giving our best effort.

Mr. Crandall: Oh sure, but Eastern and Delta do the same thing in Atlanta and have for years.

Mr. Putnam: Do you have a suggestion for me?

Mr. Crandall: Yes, I have a suggestion for you. Raise your goddamn fares 20 percent. I’ll raise mine the next morning. You’ll make more money and I will, too.

Mr. Putnam: We can’t talk about pricing.

Mr. Crandall: Oh [expletive], Howard. We can talk about any goddamn thing we want to talk about.

Putman was taping the call and turned it over to the Department of Justice. And though Crandall consented to some restrictions after the investigation that ensued, there really wasn’t much to it because they never actually agreed to raise prices.

In 2010 then-US Airways CEO Doug Parker emailed Delta CEO Richard Anderson in an effort to get him to raise fares. Anderson turned the email over to his general counsel.

In 2010, when Delta rolled out a new discount promotion, Parker complained in an e-mail chain with his executives that the move was “hurting [Delta’s] profitability – and unfortunately everyone else’s” and also urged them to bad-mouth Delta to Wall Street. Parker forwarded the whole e-mail chain to Delta CEO Richard Anderson in an effort to get him to re-consider the discounts. Anderson said that was inappropriate and sent the conversation on to his lawyer.

So none of this should be surprising, but here’s how American and JetBlue communicated over fares before there was even any discussion of an alliance:

A JetBlue pricing summary reported that for the week ending February 22, 2019, walk-up fares in BOSLAX “remained low at $139” because American had maintained a low price rather than follow its rivals’ fare increases. JetBlue responded to this low $139 fare from American, which targeted JetBlue’s focus city of Boston, by filing a $139 tactical fare in five routes to and from American’s hubs. JetBlue intentionally chose a fare of $139 for BOS-DCA, BOS-DFW, FLL-PHL, JAX-DCA, and ORD-FLL, identical to American’s fare for BOS-LAX.

Airlines also “flash” each other in an effort to highlight fare changes to other airlines in ATPCO. For example, on February 10, 2020, Jeremy Blechman, an inventory manager at JetBlue, reported that American was selling a $44 fare between Boston and Philadelphia outside of JetBlue’s timeband, meaning at times of the day when JetBlue wasn’t selling the $44 fare.

In response, Catterina Yanez, a JetBlue pricing analyst wrote that for the 4 p.m. ATPCO submission she was planning to “try to flash American, and if it doesn’t work, then we’ll discuss further actions.” One reason JetBlue would “flash” American could be to try to encourage American to change its fare. This “flashing” action was something Ms. Yanez said she would do after having discussed it with JetBlue’s pricing manager Evan Jarashow.

Despite all of this, of course, the long-run trend is for lower real prices. So airlines must not actually do a very good job of colluding.

The interesting thing about the Northeast Alliance is that it contained procedures to prevent JetBlue and American from coordinating over prices that aren’t in place between other airlines, in the hopes of satisfying regulators. So the alliance probably did a better job at preventing collusion than the absence of the alliance. Go figure.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. The only thing that will fix this is real competition. Open the domestic market to overseas airlines.
    That would help both pricing and quality of service.

  2. Standby for Tim Dumb in 3-2-1, u can just hear his little fingers tapping away!

  3. Deregulation was one of the dumbest exercises in legislative history to date. Airlines just thumb their collective noses at Congress. And they get away with it because of the lobbyists and “campaign contributions (wink,wink)!!

  4. It’s not only the US airlines that collude to provide crap service. Compare the US hotels with overseas equivalents. Or US telcos, cable, insurance, utilities, whoever keeps you on hold for hours then connects you to a foreign agent who knows nothing. It’s cheaper for them to bribe US politicians than provide any service.

    Here beginneth the banana republic

  5. I wish viva aerobus was able to really aggressively compete in this country. Long flights connecting deep into Mexico. That’s competition for you.

  6. Let’s have more airlines and more competition. Make it easier to start airlines and let them innovate.

  7. I hope the ruling doesn’t hurt JetBlue too much. I very much like their lowest price tickets for non-stop service.

  8. gaypilot,
    I am just here to say how much fun it is to live rent free in your head.

  9. Congrats Gary, you made it three full paragraphs before a sentence that didn’t make sense this time!

  10. Airline Tariff Publishing (ATPCO) Company was, indirectly, a creation of the airline industry via a now defunct industry trade organization. The original purpose was as clearinghouse and archive for all manner of published airfares. Most readers are likely familiar with the old, printed versions of the Official Airline Guide of flight schedules. ATPCO also printed a similar sized tome’ that contained published airfares & tariff rules involving fare construction and legal routing.

    The real sea change came in the late 90s/early 00s when ATPCO digitized the platform, including an ability to publish & push near up-to-the minute airfare updates when released by air carriers.

    Prior to this time, the standard practice was for a carrier to upload a new fare schema into the proprietary CRS’ (computer res systems, i.e. SABRE, APOLLO), then inform ATPCO of the changes. ATPCO would then act to notify tariff departments at the competing carriers. The process was laborious enough such that a carrier implementing a fare action would, at minimum, have a few hours advantage before competing carriers could choose to respond.

    The tactics available to subvert lags in competitive response ranged from having sales staff monitor local newspapers for airfare promotions, to carriers employing the use of competing airline CRS’ for monitoring purposes.

  11. @Tim Dumb

    Naw I’m just glad I was successful in making you think twice about posting a long winded manifesto no one cares to hear! Must’ve been painful for someone who likes to hear himself talk so much!

  12. I had no desire to jump into a discussion about pricing.
    I do absolutely love point out how much you and others love to bang the keyboard telling about how much you hate reading what I write but then REPEATEDLY post that you can’t wait to hear from me in articles before I have even participated.

    I live rent free in your head because you are just one of several people that are obsessed with me.

  13. TD,

    Why do you keep responding to him unless he’s the one living rent free in your head? Especially since as you say you have no desire to jump into a discussion on pricing….. why are you even on this comment thread to begin with then? Looks like he’s got u all wound up! Ignore him and he’ll go away!

  14. I respond to people that address me or use my name. It is pretty simple

    there are plenty of comments including on this thread that have nothing to do with pricing….

  15. You are just feeding a troll and you seem to know that, therefore I don’t know who is more mentally impaired you or Gaypilot…. Best of luck in your fight with him!

Comments are closed.