US airline collusion charges could save Open Skies

Subject

Outlook for US investigations into airlines collusion.

Significance

Three carriers, United, American Airlines and Delta, account for 80% of US domestic air travel; Southwest, the leading low cost carrier (LCC) takes much of the remainder. The Department of Justice (DoJ) and the Department of Transportation (DoT) have both launched major investigations into the pricing practices of the airlines. Both regulatory moves imply that the rationalisation of the US airline industry has left passengers vulnerable to predatory behaviour, which would worsen if the US market were further closed to foreign competition.

Impacts

• Low oil prices may provide a long-term boost to profits if airlines move to lock in new hedges.
• However, manufacturers will be hit hard by an economic slowdown in China, home of two of the largest airlines by fleet size.
• Increasing wages elsewhere in the US economy will add further pressure to airline labour costs.