Antitrust Law Daily Delta and Airtran did not illegally conspire to impose first-bag fee on passengers
Thursday, March 30, 2017

Delta and Airtran did not illegally conspire to impose first-bag fee on passengers

By Robert B. Barnett Jr., J.D.

Delta Air Lines and AirTran Airways, two competitors at the Atlanta airport, were entitled to summary judgment in an antitrust class action against them alleging that they colluded to impose s $15 first-bag fee, in violation of Section 1 of the Sherman Act, a Georgia federal district court has ruled. The court determined that the evidence could not lead a jury to conclude that the two airlines engaged in a conspiracy to fix prices. Rather, the court said, the evidence demonstrated that the two airlines were involved in what is known as "conscious parallelism," a perfectly legal practice common in highly competitive markets dominated by a small number of sellers (In re Delta/Airtran Baggage Fee Antitrust Litigation, March 28, 2017, Batten, T.).

Background. In 2006, airlines began charging passengers for checked luggage, first with second-bag fees and later with first-bag fees. Delta was one of the last airlines to hold off on introducing first-bag fees. Airtran, a low-cost carrier, which, like Delta, had its hub at the Atlanta airport, also held off from charging the fees out of concern that it would lose market share if it went to a first-bag fee ahead of Delta (Airtran was purchased in 2011 by Southwest Airlines and went out of business in 2014.) Without a doubt, both airlines were closely monitoring, via press releases and other public statements, what the other would do about the first-bag fees. At an earnings call for investors on October 23, 2008, an AirTran executive stated that it was monitoring Delta, its largest competitor, and that it would not impose the first-bag fee unless Delta did first. On November 5, 2008, Delta announced in a press release that it would begin imposing a $15 first-bag fee on December 5. Airtran, desperate for revenue, followed with a November 12 press release stating that it would begin imposing a $15 first-bag fee on December 5.

Lawsuits were filed in Atlanta federal court against Delta and Airtran, alleging that they unlawfully colluded to impose the first-bag fee simultaneously, in violation of Section 1 of the Sherman Act. The allegations were based not only on the statements made in the investors’ call but also on some behind-the-scenes efforts to share information and find out what the other airline intended to do. Delta and Airtran filed motions for summary judgment.

Collusion. In an antitrust suit involving an oligopolistic industry (one in which the market is dominated by a small number of sellers), a distinction is drawn between collusive price fixing, which is illegal, and conscious parallelism, which is not. Conscious parallelism occurs in a highly competitive market as competitors seek to match pricing and other behaviors to stay competitive. Shared economic interests and interdependence are common traits in an oligopolistic industry, such as the airline industry. Determining when conscious parallelism crosses the line and becomes collusive price fixing can be difficult to determine.

To establish collusion under these circumstances, and to survive a motion for summary judgment, a plaintiff must show more than a pattern of parallel behavior. The plaintiff must also establish something called "plus factors," which are considerations that exclude the possibility that the defendants were doing more than lawful conscious parallelism. In this case, the plaintiffs alleged six "plus factors": (1) an invitation to collude, (2) collusive communications followed closely by a parallel price increase, (3) evidence that collusive communications affected Delta’s decision, (4) actions against unilateral economic self-interest, (5) pre-textual explanations for changed business practices, and (6) motive and intent to conspire.

The court rejected all six plus factors. The invitation to collude, for example, was based on the statements made in the October 23 investor call. The court, however, noted that such invitations are almost always private rather than public. A public statement could be an invitation, but in this case the statements were part of a normal business call, and the statements were made in response to a question from an industry analyst. Similarly, the behind-the-scenes efforts to exchange information did not constitute plus factors. Emails by one Airtran employee to two people at Delta, who he knew when he worked at Delta, were never received because they no longer worked at Delta. No other behind-the-scenes evidence of anything approaching a conspiracy could be produced.

Furthermore, obtaining possible pricing information, as Delta did when Airtran made the statements at the investor call was nothing more than intense monitoring of a competitor’s activities, as is typical in this industry; it was not evidence of collusion. Also, Delta’s decision to impose a first-bag fee was not, as the plaintiffs argued, an abrupt change in policy but rather the culmination of a long series of discussions on whether Delta should impose the fee. The decision was not against its unilateral self-interest; in fact, Delta executives felt that the decision not to impose the fee while virtually everyone else in the industry was imposing it was causing Delta to lose revenue.

Given the absence of any plus factors, a reasonable jury, the court said, could never conclude that Delta and Airtran conspired to impose the fee simultaneously. Their activities merely constituted conscious parallelism. As a result, the court granted their motion for summary judgment.

The case is No. 1:09-md-2089-TCB.

Attorneys: Cale Howard Conley (Conley Griggs Partin, LLP) for Martin Siegel. James P. Denvir (Boies, Schiller & Flexner, LLP) and Nowell D. Berreth (Alston & Bird LLP) for Delta Air Lines, Inc. Alden L. Atkins (Vinson & Elkins, LLP) and Bert W. Rein (Wiley Rein LLP) for AirTran Holdings, Inc. and AirTran Airways, Inc.

Companies: Delta Air Lines, Inc.; AirTran Holdings, Inc.; AirTran Airways, Inc.

MainStory: TopStory Antitrust GeorgiaNews

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