Monday, August 27, 2018
Antitrust Action Against Airlines Over Pricing Must Fall
Panel Says Parallel Actions Won’t Create Liability Without ‘Plus Factors’
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals has affirmed the dismissal of an antitrust suit against United Airlines. Inc.. American Airlines. Inc. and Delta Air Lines based on their contemporaneous decisions to withdraw opportunities for a traveler to reduce costs by taking a series of short non-stop flights rather than taking a single flight to their destinations.
The plaintiffs contended that the airlines “agreed to increase the fares for domestic multi-city flights and no longer permit non-refundable fares for each leg of such flights to be combined to arrive at the price for the multi-city itineraries, thereby causing consumers to pay hundreds and even thousands of dollars more for exactly the same flights.”
An example of “combinability” of fares, given by the District Court Judge Maxine M. Chesney of the Northern District of California in her order of dismissal, was:
“[P]rior to the rule changes, although United’s fare for a flight from Los Angeles to New Orleans was $363, a passenger could obtain a ticket for a flight between those two cities at the lower cost of $189, by combining on one ticket the price for a one-way ticket from Los Angeles to Houston ($102) and the price for a one-way ticket from Houston to New Orleans ($87).”
Named as a defendant, in addition to the airlines, was the Airline Tariff Publishing Company (“ATPCO”) which, according to the complaint, “aided and abetted” the airlines in their conspiracy.
“Airline Defendants have engaged in conscious parallelism. The allegations essentially establish that the Airline Defendants use information obtained through ATPCO to match or otherwise quickly react to a competitor that has made a fare or rule change.”
She declared that “[r]eacting to a competitor’s change by choosing to adopt the same or substantially similar change” does not constitute a violation of §1 the Sherman Act, barring agreements “in restraint of trade or commerce.”
A three-judge panel on Thursday said in a memorandum opinion that the fact of the three airlines each ending opportunities for a traveler to save money through what it termed “sum of sector” pricing was not actionable absent “plus factors.”
Such factors are needed, the jurists noted, to meet the U.S. Supreme Court’s requirement, set forth in the 2007 case of Bell Atlantic Corp. v. Twombly, of elements that will “nudge” an antitrust claim based on parallel conduct “across the line from conceivable” concerted action “to plausible.”
Dismissal was required, the judges said, “[b]ecause Plaintiffs here failed to offer sufficient ‘plus factors’ suggesting more than conscious parallelism.”
Gas Station Analogy
The panel—comprised of Ninth Circuit Judges Mary M. Schroeder and John B. Owens, joined by Tenth Circuit Court of Appeals Judge David M. Ebel, sitting by designation—explained:
“Every commuter knows the gas station effect. The prices on two gas stations on opposing comers of a busy intersection often move in near unison.
“This phenomenon also occurs in the airline industry. With a market comprised of a few dominant players and publicly available pricing information, it is no surprise that consumer fares remain relatively uniform across the industry. That is not to say that unlawful agreements among air carriers never occur, nor that all claims based on Section 1 of the Sherman Act must fail. But in an interdependent oligopoly such as the U.S. airline industry, a plaintiff whose claim lies under Section 1 of the Sherman Act must plead more than conscious parallelism to survive a motion to dismiss.”
The opinion says that “simultaneity” of actions by competitors can simply reflect mutual reactions to prevailing circumstances.
“The airlines’ decisions to eliminate sum-of-sector pricing are not so complex as to suggest an agreement,” it declares.
After Chesney dismissed the action—brought by 41 persons who are “air travel passengers and travel agents”—the plaintiffs sought relief from the judgment of dismissal based on newly discovered evidence in the form of an online meeting of the competitors. The motion was denied.
The memorandum opinion affirms the denial, noting that there was no showing that the evidence could not have been discovered earlier and says that, in any event, information as to the discussions among competitors at a “working group meeting” does not support an antitrust theory.
It notes that an agenda item called for discussion of revising “ATPCO’s User Interface...to make it easier for airlines to quickly and accurately specify and maintain Combination restrictions for their carrier fares.”
The opinion observes:
“In this light the online meeting does nothing to make a conspiracy more plausible. Instead, it suggests that the airlines independently decided to disallow sum-of-sector pricing—which was clearly an issue in the industry as early as 2015—and thereafter worked with ATPCO to apply and implement the airlines’ decisions while still leaving discretion to the individual airlines to develop or revise their rules for sum-of-sector pricing.”
The case is Prosterman v. American Airlines, Inc., No. 17-15468.
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