bobcat
Posts: 1141
Joined: Thu Jun 28, 2007 2:28 pm

Why Aren't U.S. Airlines Not Treated As Cartels?

Fri Sep 13, 2002 9:29 pm

Why aren't U.S. airlines not treated as cartels?  Smile
 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Fri Sep 13, 2002 11:02 pm

They are not cartels in the true sense of the word. They are prohibited from entering into the requisite agreements that form the basis of a cartel. For instance, OPEC ministers sit around the table and fix output. That is a cartel agreement. The Sherman Act prohibits such conduct in the US. Airlines are more of a collusive oligopoly and have some cartel-like features. Fare actions, rule changes, and so on are, as you know, initiated by one carrier and the rest follow in unison on many occasions. Although there is no actual agreement, they behave as if there actually were an agreement.

Of there is limited antitrust immunity for international alliances but that is the exception and not the rule.
 
DCA-ROCguy
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RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Fri Sep 13, 2002 11:43 pm

The six network carriers in the US (AA/ UA/ DL/ NW/ CO/ US) function as a cartel, but aren't one on paper (except at Orbitz). They adopted the cartel economic strategy around 1992. Their terrible Gulf War-era financial losses convinced them that it wasn't worth going after each others' market share with low fares. All that did was hurt everyone's yields. People Express was gone, the merger mania of the late '80s had settled out to six major carriers, and all six had high fixed costs.

So it made more sense to limit capacity, hike fares, and compete *only* for the high-fare business travelers with bigger and better clubs, and FF perks. Leisure folks were screwed, except in the fortunate cities that had Southwest. That's a cartel strategy, even if there was no on-paper collusion. There didn't need to be any. Common economic interest--unions and management/ shareholders had the same interest--dictated the "let's all agree to leave each other alone except on high-fare buisness pax" strategy. Which was *not* the interest of paying passengers.

The Department of Justice has alternately treated the Six Families as individual businesses, and as a cartel. DOJ rejected UA-US last year at least partially because it would have certainly led to industry consolidation.

Orbitz is most definitely a cartel creature--five of the Six families get together to distribute their lowest seat-dumping leisure fares at one site. Why DOJ hasn't shut down that anticompetitive beast, I don't know. It's *entirely*--read *entirely*--intended to destroy low-fare competition. What could better fit the dictionary definition of collusion, I don't know. The entire idea is to market the Cartel as a big source of low fares. Yeah, right. If Southwest weren't around we'd all pay through the nose, and Orbitz would mysteriously evaporate.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
padcrasher
Posts: 1815
Joined: Tue Aug 10, 2004 6:17 am

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 12:15 am

Because there is no cartel in the airline industry.

Price competition is there. High cost carriers suffer. Low cost carriers make money. Consumers in 95% of the markets have multiple carriers to choose from. Cartels defy market forces. This is definitely not the case in the airline industry. The market is able to punish and reward. New entrants are coming in, old airlines are going out.

Sorry Jim but the DOJ and Supreme Court disagree with you. No Orbitz case, no driving little guys from the market, no price collusion. Just business and business is tough.
 
N79969
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Joined: Tue Jan 29, 2002 1:43 am

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 12:26 am

Jim actually makes a good point about Orbitz. The Supreme Court has not looked at Orbitz so we don't know what they think about Orbitz.

Orbitz has some features that are troubling. Member airlines are required to post their lowest fares on Orbitz. In other words, they absolutely cannot put up a cheaper fare anywhere else including their own websites. This eliminates a type of price competiton between them.
 
Pilot1113
Posts: 2276
Joined: Thu Aug 05, 1999 1:42 pm

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 1:01 am

>>Orbitz has some features that are troubling. Member airlines are required to post their lowest fares on Orbitz. In other words, they absolutely cannot put up a cheaper fare anywhere else including their own websites. This eliminates a type of price competiton between them.

Which is why I refuse to use Orbitz. I am boycotting them in favor of Expedia and other travel sites.

Yes, the major airlines are a cartel... athough to blatently act like one would be grossly illegal. When one carrier announces that they're going to hike a fare, they'll usually do it on a weekend and wait to see what the other carriers do. If the others don't go along, then this carrier will lower their fares back down come Monday. This, in my opinion, is just barely crossing the line into anti-trust.

- Neil Harrison
 
padcrasher
Posts: 1815
Joined: Tue Aug 10, 2004 6:17 am

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 1:29 am

The DOJ looked into Orbitz and so no evidence of wrong doing..maybe they're in on the Cartel's little scheme as well?
 
LMP737
Posts: 4808
Joined: Wed May 08, 2002 4:06 pm

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 1:34 am

Pilot1113:

That's funny, I refuse to use Expedia. I was hit with a $25 charge when I cancelled hotel reservations two weeks ahead of time. Several months ago I did the same on Orbitz and I did not get charged.

P.S. Looking at your profile I suspect that you wouldn't mind working for one of those "cartels". Am I wrong?
Never take financial advice from co-workers.
 
N79969
Posts: 6605
Joined: Tue Jan 29, 2002 1:43 am

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 2:28 am

There is a huge difference between actually having a cartel agreement and simply behaving as if you had one (like the airlines do). Making an agreement will cost you triple damages and quite possibly jail time. In contrast, simultaneous fare and rule actions without an agreement is legal.
 
Maniac
Posts: 109
Joined: Mon Apr 30, 2001 8:36 am

RE: Why Aren't U.S. Airlines Not Treated As Cartels?

Sat Sep 14, 2002 2:54 am

The US majors are not a cartel. You are confusing a cartel with an oligopoly.