The federal government is now investigating airlines for price gouging after an Amtrak train derailed outside of Philadelphia in May killing 8 people and injuring 200.
The investigation focuses on United, American, Southwest, JetBlue and Delta.
“The idea that any business would seek to take advantage of stranded rail passengers in the wake of such a tragic event is unacceptable,” Transportation Secretary Anthony Foxx said in a statement accompanying the letter. “This department takes all allegations of airline price-gouging seriously and we will pursue a thorough investigation of these consumer complaints.”
This stuff is pretty basic economics 101. When there’s a reduction in quantity supplied — or a shift up and to the left in the supply curve — you’re going to get an increase in price.
- When Amtrak stops running trains, there’s less supply of transportation in the Northeast corridor. The natural response is for prices to go up, certainly the lowest fares are gobbled up.
- If prices don’t go up, you have shortages. There’s not enough seats to go around. There has to be some way to ration seats. It can be done politically (“important people with connections” get the seats). It can be first come, first serve (you ration by queueing). Or it can be done based on willingness to pay (importance based on revealed preference).
It’s ironic that the federal government is investigating major US airlines for keeping prices too high, and for colluding to restrict capacity to keep prices too high — price gouging — at a time when the US airlines complaining to the government that Middle Eastern airlines are keeping prices too low and asking for rules against fare cuts.
Delta came out hard against the allegations.
“Following the May 12 Amtrak crash in Philadelphia, Delta Air Lines took steps to ensure affected travelers could affordably and conveniently reach their destinations. Delta did not increase air fares following the crash – to the contrary, Delta lowered its highest Shuttle prices by nearly 50 percent, to about $300 each way, for travel between New York, Boston and Washington, D.C.,” Delta spokesman Trebor Banstetter said.
“In addition, Delta honored existing Amtrak tickets for travel between Washington, D.C., Boston and New York; waived change fees for travel on Delta Shuttle flights between those markets; and increased seat capacity in the region by adding flights and operating larger aircraft,” he said.
Their position is that they took steps to balance the drop in Amtrak’s capacity with increases in their own. Ignore the stuff about dropping full fare pricing.
American said “We added capacity and our fare structure remained the same” so they too claim to have offset some of Amtrak’s reduction in capacity and didn’t raise prices (though naturally when there are more people buying tickets on a given flight, the price for remaining seats it only at higher fares even if the fares themselves pre-existed the crisis).