Feds eye recent airline ticket price increases

Brad Foss

Tuesday, May 13, 2003 | 9:48 a.m.

NEW YORK -- The Justice Department is scrutinizing the $10-per-roundtrip fare increases made by the nation's largest airlines to determine whether carriers violated an antitrust ruling enacted nearly a decade ago.

At issue is the way in which airlines make fare changes that do not go into effect immediately, raising the possibility that they could signal future pricing plans to competitors.

"We are looking into it," Gina Talamona, a spokeswoman at the department's antitrust division said Monday.

On Thursday, American Airlines raised non-sale fares on its North American routes by $10 per round trip starting June 1. United matched the increase the next day, and eight other carriers had fallen in line by late Monday.

The industry raised fares in anticipation of the government's upcoming four-month suspension of security fees, which amount to $2.50 per flight segment, maxing out at $10 per round trip.

"Airlines were faced with two choices: give consumers up to a $10 round-trip break, or raise fares," said Jamie Baker, J.P. Morgan's airline analyst. "Not surprisingly, the industry chose the latter."

Analysts and executives have said for months that the industry, which lost $3.5 billion in the first quarter, needs to find ways to boost revenue even as it struggles to cut costs. Fares have been kept extremely low to lure anxious and penny-pinching travelers back to the skies.

The fare increase American launched on Thursday -- the day its new chief executive said higher ticket prices were key to any recovery -- is the first to succeed in 2003.

Some industry observers said they were surprised by the manner in which fares were increased, suggesting that it may have violated the spirit, if not the letter, of the law. A 1993 Justice Department ruling says, in part, that carriers are prohibited from disseminating information about "planned or contemplated fares or changes to fares."

"They seem to have found a loophole," said Terry Trippler, a travel consultant who closely follows airfares.

But Tim Wagner, an American spokesman, said "our legal department has assured us that we are well within our rights" under the so-called consent decree reached between the carriers and the Justice Department.

Wagner said the critical issue is that the American made the new fares available through the computerized reservation systems Thursday, rather than just announcing its intentions to raise fares at a later date.

"There's not a competitive advantage there ... we were higher than everybody else," until the other carriers decided to match the fare increase, Wagner said.

Talamona, the Justice Department spokeswoman, would not provide details about the agency's examination of the fare increases, other than to say: "We'll look into this matter as we would any potential violation of the consent decree."

Clinton V. Oster, a professor at Indiana University who specializes in airline economics and competition policy, downplayed the hubbub.

"The notion of the consent decree is to stop signaling -- which is, of course, silly," Oster said, "because there are still lots of subtle and not-so-subtle ways to signal through the computerized reservation systems."

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