DOJ Investigations Into the Airline Ticket Business Could Reduce Consumer Costs

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Includes: AAL, DAL, OWW
by: Zvi Bar

The DOJ’s antitrust division initiated a probe of airline fare distributors. Gina Talamona, a DOJ spokesperson, said the agency is investigating possible anticompetitive practices in the global-distribution system (GDS) industry.

This comes on the back of US Airways (LCC) filing a claim against Sabre alleging anticompetitive and anticonsumer practices. Sabre, owner of Travelocity, and Travelport, owner of Orbitz Worldwide Inc. (NYSE:OWW), are the two largest U.S. GDS operators.

US Airways claimed that Sabre's distribution of airline fares and content to travel agents shows a pattern of exclusionary conduct that prevents others from competing with what they allege is monopoly pricing power and a technologically-obsolete business model. Sabre responded to the complaint by stating that the claims are baseless.

The DOJ also sent AMR Corp. (NASDAQ:AMR)’s American Airlines, Delta Air Lines Inc. (NYSE:DAL) and US Airways Group Inc. Civil Investigative Demands in relation to the GDS investigation. The DOJ is looking for evidence of anticompetitive and/or anticonsumer action, including monopoly pricing power. The DOJ will likely demand more records from other parties.

This investigation will add some legal costs that will be passed on to the consumer, but any resulting changes to the current GDS business model should lower prices to consumers and/or or streamline the industry. They could also create new regulations to this already heavily regulated industry. The long term result should likely be a net positive for consumers. Of course, overall airline costs will continue to be more heavily affected by fuel costs.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.