21 airlines fined for fixing passenger, cargo fees

[spinbaby]

Source: AP

WASHINGTON (AP) -- When the airline industry took a nose dive a decade ago, executives at global carriers scrambled to find a quick fix to avoid financial ruin.

What they came up with, according to federal prosecutors, was a massive price-fixing scheme among airlines that artificially inflated passenger and cargo fuel surcharges between 2000 and 2006 to make up for lost profits.

The airlines' crimes cost U.S. consumers and businesses -- mostly international passengers and cargo shippers -- hundreds of millions of dollars, prosecutors say.

(Snip)

In late 2005, officials with German-based Lufthansa notified the Justice Department that the airline had been conspiring to set cargo surcharges. By Valentine's Day 2006, FBI agents and their counterparts in Europe made the investigation public by raiding airline offices. After those raids, British-based Virgin Atlantic came forward about its role in a similar scheme to set fuel surcharges for passengers.

Read more: http://finance.yahoo.com/news/21-airlines-fined-for-fixing-apf-1667311114.html?x=0&sec=topStories&pos=main&asset=&ccode=

[dixiegrrrrl]

1. "No major U.S. carriers have been charged."

"The probe expanded to airlines doing business between the U.S. and Europe, Asia, South America, and Australia."

Interesting.

[HopeHoops]

2. They were doing it earlier than that. I traveled a lot in the late 90's.

It was a joke in our department - every fucking airline had a fare that was within $5 of the others, even if it was $100 more or less than it had been the previous week. It was obvious that they were fixing the prices.

[mgc1961]

4. Airlines are often thwarted from raising fares when their competitor(s) refuse to match an increase.

Does that constitute price fixing too?

[plumbob]

6. Yes. Airlines are an oligopoly, which means a business dominated by

a relative few large players.

The price mechanism for oligopoly is price taking-price making. I use gasoline as an example for my students, like this:

Exxon station decides to raise gas a nickel this morning, and it goes on the sign.
Across the street, Shell has two choices: match or stay where they are. If they match, both stations will get their regular customers; those customers will just be paying more for what they buy. In this case, Exxon was the price maker, Shell the taker.

Or Shell could do nothing. In this case, with a nickel difference, they will get virtually all the business, and Exxon will be lonesome. In the end, Exxon will return to earlier pricing. In this case, Exxon attempted price making, but failed. Shell became the maker, Exxon the taker.

No matter the choice, more money is going to be made by someone with these prices that are a reaction to the price of another: ie, fixed.

[mgc1961]

7. I get a chuckle from the Southwest bags-fly-free television ads.

Although it's true they don't charge for bags they may (and do) charge more for their fare than the combined cost of fare plus bags at their competitor. (Depending upon on the market, of course.)

[JDPriestly]

9. mgc1961, I do not find your comment about Southwest fares to be true.

Not on the routes that I have flown. I do not fly very often, but when I do, I try to fly Southwest because in part of the fares. I do not like having to pay a charge for luggage.

[shanti]

10. yes

Southwest is less expensive than any other carrier, from my experience. i'm happy with them, it's my go-to airline.

[No Elephants]

13. Not enough info in your example.

Market conditions "fix" prices, but that isn't price fixing. http://en.wikipedia.org/wiki/Price_fixing

Having to keep your own price down because free market condition allow your competitors to keep their price is low is free market competition. It works for the benefit of the consumer--until a competitor is able to drive others out of business, ala Walmart or Home Depot even if it requires taking a loss for a while.

One problem is, we've all but stopped worrying about breaking up monopolies, or about preventing them from forming. And, by "monopolies" I mean very rich companies, even if diversified, not only companies that dominate one are, as Home Depot and Lowe's do with the hardware/building supply business.

[No Elephants]

14. It depends.

http://en.wikipedia.org/wiki/Price_fixing

[KG]

3. remind me again how the 'invisible hand' will keep businesses from doing illegal shit?

[SnowCritter]

11. Adam Smith said a lot of things -

more than a few that the adherents of "laissez-faire" economics don't like. For example, consider the following:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public."

[Marthe48]

5. oh so they find a scheme with the airlines

but don't notice what the frigging gas stations do????

[Lasher]

8. In order for price fixing to be illegal, there must be conspiracy.

In cases like the gas stations discussed upthread, there is one price leader and one or more followers. The price is fixed in this manner but it is not illegal unless people actually conspire to raise their prices. Looking at someone else's sign across the road does not constitute conspiracy under the law.

[border_town]

12. Fares will start to go up

even in America because of this.

[No Elephants]

16. That was already announced several days ago

[No Elephants]

15. "No major U.S. carriers have been charged." All innocent, no doubt.