Did Airlines Collude to Keep Air Fares High?
For months now, oil and gas prices have been dropping—and that includes jet fuel. So why haven’t airline ticket prices dropped as well? That’s one of the questions the Justice Department wants answered as it investigates the possibility of collusion among carriers to keep airfares high.
The DOJ also wants to know if companies conspired to limit the number of available seats in order to drive prices up. Yesterday, the Associated Press broke the news that major U.S. carriers had received a letter demanding copies of all communications the airlines had with each other, Wall Street analysts, and major shareholders about their plans for passenger-carrying capacity, going back to January 2010. The civil antitrust investigation is focusing on whether airlines illegally indicated to each other how quickly they would add new flights, routes, and extra seats in an effort to prop up ticket prices.
Related: 6 Sneaky Fees That Are Making Airlines a Bundle
Just minutes after the news broke, stocks of the major U.S. airlines fell four to five percent, with the S&P 500 airlines index off more than four percent. Until now, the U.S. airline industry had been enjoying record profits, due to increasing numbers of Americans flying and a huge drop in the price of jet fuel. In April, the price of jet fuel was $1.94 per gallon, a decrease of 34 percent from the previous year.
The investigation marks a notable shift for the Justice Department, which approved the merger of American Airlines and US Airways back in November 2013, despite previously blocking it over concerns that the airlines would collude on fares. The probe could signal a more aggressive approach on antitrust enforcement, under the strong leadership of Loretta Lynch, who was confirmed in April.
Justice Department spokesperson Emily Pierce confirmed that the department was investigating potential “unlawful coordination” among some airlines.
Just two weeks ago, U.S. Senator Richard Blumenthal (D-CT) urged the Justice Department to investigate what he called “anti-competitive, anti-consumer conduct and misuse of market power in the airline industry.”
Related: United Airlines Bullish on First Quarter from Lower Fuel Costs
Since 2008, various mergers have resulted in four major airlines (down from nine)—American, Delta, Southwest, and United—controlling about 80 percent of all domestic air travel. All four airlines have confirmed that they received the letter and that they were cooperating with the investigation.
According to Bureau of Transportation Statistics, the average domestic airfare rose 13 percent from 2009 to 2014 (adjusted for inflation). The average domestic flight last year cost $391. In the past year alone, airlines received an additional $3.6 billion from bag fees and another $3 billion from reservation-change fees. All of the major airlines—American Airlines, United Continental Holdings, Delta Air Lines, Southwest Airlines, JetBlue Airways, and Alaska Air Group—posted record profits with a consolidated net income of over $3 billion during the first quarter of 2015.
Map of the Day: Navigating the IRS
The Taxpayer Advocate Service – an independent organization within the IRS whose roughly 1,800 employees both assist taxpayers in resolving problems with the tax collection agency and recommend changes aimed at improving the system – released a “subway map” that shows the “the stages of a taxpayer’s journey.” The colorful diagram includes the steps a typical taxpayer takes to prepare and file their tax forms, as well as the many “stations” a tax return can pass through, including processing, audits, appeals and litigation. Not surprisingly, the map is quite complicated. Click here to review a larger version on the taxpayer advocate’s site.
A Surprise Government Spending Slowdown
Economists expected federal spending to boost growth in 2019, but some of the fiscal stimulus provided by the 2018 budget deal has failed to show up this year, according to Kate Davidson of The Wall Street Journal.
Defense spending has come in as expected, but nondefense spending has lagged, and it’s unlikely to catch up to projections even if it accelerates in the coming months. Lower spending on disaster relief, the government shutdown earlier this year, and federal agencies spending less than they have been given by Congress all appear to be playing a role in the spending slowdown, Davidson said.
Number of the Day: $203,500
The Wall Street Journal’s Catherine Lucey reports that acting White House Chief of Staff Mick Mulvaney is making a bit more than his predecessors: “The latest annual report to Congress on White House personnel shows that President Trump’s third chief of staff is getting an annual salary of $203,500, compared with Reince Priebus and John Kelly, each of whom earned $179,700.” The difference is the result of Mulvaney still technically occupying the role of director of the White House Office of Management and Budget, where his salary level is set by law.
The White House told the Journal that if Mulvaney is made permanent chief of staff his salary would be adjusted to the current salary for an assistant to the president, $183,000.
The Census Affects Nearly $1 Trillion in Spending
The 2020 census faces possible delay as the Supreme Court sorts out the legality of a controversial citizenship question added by the Trump administration. Tracy Gordon of the Tax Policy Center notes that in addition to the basic issue of political representation, the decennial population count affects roughly $900 billion in federal spending, ranging from Medicaid assistance funds to Section 8 housing vouchers. Here’s a look at the top 10 programs affected by the census:
Chart of the Day: Offshore Profits Continue to Rise
Brad Setser, a former U.S. Treasury economist now with the Council on Foreign Relations, added another detail to his assessment of the foreign provisions of the Tax Cuts and Jobs Act: “A bit more evidence that Trump's tax reform didn't change incentives to offshore profits: the enormous profits that U.S. firms report in low tax jurisdictions continues to rise,” Setser wrote. “In fact, there was a bit of a jump up over the course of 2018.”
