Fair Play: Are You Injured by Checked Bag Fees? Or Just Insulted?


Antitrust deciphered.


Billions of dollars in damages could hinge on the question of whether airline passengers were injured by a potentially anticompetitive $15 checked bag fee in 2008.

Delta Air Lines Inc. and AirTran Airways Inc. (now owned by Southwest Airlines Co.) are arguing to a federal appeals court that passengers who paid to check their bags suffered no tangible injury.

Yes, both Delta and AirTran implemented a first checked bag fee in 2008, which plaintiffs say is illegal collusion. The airlines say they acted separately, although the timing raises questions. AirTran instituted its first checked bag fee one day after Delta did. An attorney for the plaintiffs said at oral argument last week that AirTran executives told investors they wouldn’t act independently on such matters.

The airlines told the court that not all of the 28 million passengers who paid to check a first bag over the subsequent five years suffered harm. They bought tickets at different times with different price points, and some of them might have even saved some money. What’s an extra $15 when your ticket to South Palm Beach to visit Mom saved you $100 because you flew on a Monday and bought it six months ahead?

American Express Inc. makes a similar argument in a case pending before the U.S. Supreme Court about its rules barring merchants from asking customers to use cheaper credit cards. Sure, the merchants might pay higher swipe fees, AmEx says, but that injury is more than compensated by the benefits cardholders get from points and miles. The justices will rule on that case this year.

The district judge in the checked bag case wasn’t convinced that consumer benefits made the violation go away. Citing a slew of established case law, he said an antitrust injury occurs the moment a purchaser incurs an overcharge. Never mind if some other price was discounted later for an unrelated reason.

Economists for the airlines had argued, among other things, that the checked bag fee depressed airline ticket demand and thus lowered prices.

But as a matter of logic, it makes sense that a per se antitrust violation – e.g., illegally colluding on price – can’t be wished away even if there are economic benefits.

There are other unanswered questions in the case, such as whether the companies actually colluded or just happened to institute the same bag fee one day apart. If plaintiffs clear that hurdle, they then have to prove damages for a purported class of 28 million people, a separate and daunting problem.

Under antitrust laws, those damages are tripled if proven. That’s a lot of money for the air carriers to shell out.

Southwest may be headed into settlement talks, if its recent behavior in such litigation is any indication. In January, a separate federal judge preliminarily approved Southwest’s $15 million settlement with a class of consumers who argued that the four major airlines conspired over five years to limit capacity and inflate fares for domestic flights. The other carriers are still in the suit, and Southwest has agreed to help the plaintiffs in that case.

Southwest saved itself potentially hundreds of millions in potential damages by entering that settlement, Bloomberg analysts said. Delta might want to think about its options in the checked bag case.

What’s Happening

On Monday, jury trial is slated to begin in the generic drugs case In re Solodyn before the U.S. District Court for the Western District of Massachusetts. The trial will be only the second since the Supreme Court ruled in 2013 that pharma companies could be sued if they pay generic drugmakers to delay generic competition to blockbuster brand-name drugs.

On Wednesday, the Justice Department is holding the first of three antitrust roundtables. This one is on exemptions and immunities. Antitrust chief Makan Delrahim will give opening remarks.

On Thursday, the House Financial Services Committee will hold a hearing on the White House’s perspectives on the Committee on Foreign Investment in the U.S. (CFIUS).

Quote of the Week

“This case is being pursued under a cloud, with a perception — at least by some — that DOJ brought this case at the behest of President Trump in order to punish CNN for what he viewed as unfavorable coverage of his administration. As we will explain, there is a reasonable basis for that perception. If it is accurate, it would result in significant constitutional harms that are in need of a remedy.”

--Amicus brief filed by 11 former Justice Department lawyers to the judge overseeing the DOJ’s suit to block AT&T Inc. from buying Time Warner Inc.

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