Airline Price-Fixing

Only a few days after the bankers pulled the plug on Laker Airways, Freddie Laker, in his irrepressible manner, was talking about starting a new, low-priced airline. “We want to fly as many planes as possible, employ as many staff as possible, and give passengers a jolly good deal,” he declared.

Time will tell whether Sir Freddie will rise, phoenix-like, from the ashes and start transporting passengers across the Atlantic again with his cheap, no-frills service. But the collapse of Laker Airways also may portend the collapse of international airline competition for the airline passenger’s money.

The more established airlines, such as TWA, Pan Am, British Airways, Air France, KLM and many others, have been meeting for weeks to find a way to resurrect the old airline cartel under the umbrella of the International Air Transport Association (IATA). Member companies want to raise passenger fares and restrict routes, so they are colluding, with their respective governments’ approval, to begin limiting competition.

Sir Freddie for many years tried to challenge the “IATA club,” as he called it. Finally, in 1977, the capitalist was allowed to take on the collusionists. Thirty-one years of international airline price fixing promptly ended. Millions of people flew to the United States and to Europe on Laker Airways’ Skytrain service and on other airlines that had to sharply reduce their fares to counter Sir Freddie’s moves.

While the Laker revolution was bringing down the IATA price-fixers across the North Atlantic routes like a house of cards, President Carter’s deregulators at the Civil Aeronautics Board were hastening to abolish the antitrust immunity which had allowed U.S. airlines to fix prices with the IATA member airlines. Without such immunity, such price fixing would be illegal under U.S. antitrust laws.

Foreign governments strongly protested the CAB’s proposal. This led to the board’s issuing last year a limited order lifting antitrust immunity only for U.S. airlines flying across the North Atlantic. Still the European governments were not satisfied. They demanded that the Reagan administration approve the ultimate private regulation–the re-establishment of the IATA cartel.

The Reaganites found themselves in a delicate position. Here they were, on the record in favor of open competition, and they were being asked to make a deal to permit IATA price-fixing decrees to apply to U.S. airlines with only a small permitted “zone of pricing flexibility.” And once IATA’s economic and political power was reasserted, even that zone could disappear, along with future upstarts like Laker Airways.

Within the administration, the collusionists began to prevail. The CAB got the signal and extended the effective date for ending the grant of antitrust immunity pending the outcome of diplomatic negotiations. So far, agreement has been reached about the “zone of pricing freedom” but not how large the zone can be.

The airlines then convened the first North Atlantic traffic conference in four years–just like the old days–to limit competition. They agreed to raise fares generally by 7 percent. However, the airline collusionists left their meeting wondering how the fare increase could stick if outsider Laker Airways declined to go along. Soon thereafter, Laker Airways lost the support of its bankers for more credit to finance its expanding fleet and collapsed before the answer could come back.

Airline executives are denying that they are huddling with one another to fix prices as members of IATA. Neil M. Effman, vice president of TWA, put together these euphemistic words: “We can bring a larger intelligence to the problem. You can tell them: ‘If you do that, I’ve got to do this.’ And then what follows? That’s when the collusion comes in, or shall it be called, more politely, ‘conscious parallelism? “

There are some Reaganites who are conspicuous by their unaccustomed silence on the rebirth of international airline cartelism. The Justice Department’s antitrust chief, William Baxter, when asked about IATA’s re-entry, simply said: “It doesn’t seem like a terrific idea.” Such understatement from an outspoken free-market advocate is puzzling.

Then there is James Miller, chairman of the Federal Trade Commission and an eager airline deregulator. So far, mum is the word. And Murray Weidenbaum, chairman of the Council of Economic Advisers for President Reagan, finds it difficult to stand tall on his beliefs and go after the IATA fans in the Reagan government.

It is beginning to look very much like the Washington fix is in for the international airline price-fixers. Future travelers to Europe will soon find out–unless, that is, Freddie Laker returns.