In re Delta/AirTran Baggage Fee Antitrust Litig.

• Citation: 733 F.Supp.2d 1348
• Decision Date: 02 August 2010
• Docket Number: Civil Action No. 1:09-md-2089 TCB
• Parties: In re DELTA/AIRTRAN BAGGAGE FEE ANTITRUST LITIGATION.
• Court: U.S. District Court — Northern District of Georgia

733 F.Supp.2d 1348

In re DELTA/AIRTRAN BAGGAGE FEE ANTITRUST LITIGATION.

Civil Action No. 1:09-md-2089 TCB.

United States District Court,
N.D. Georgia,
Atlanta Division.

Aug. 2, 2010.

733 F.Supp.2d 1350

Andrew Hoyt Rowell, III, James L. Ward, Jr., Robert S. Wood, Richardson, Patrick, Westbrook & Brickman, LLC, Mt. Pleasant, SC, Cale Howard Conley, Richard A. Griggs, Conley Griggs LLP, David H. Flint, Elizabeth Louise Fite, Schreeder Wheeler & Flint, LLP, Corey Daniel Holzer, Marshall P. Dees, Michael Ira Fistel, Jr., Holzer, Holzer & Fistel, LLC, Craig Gordon Harley, Martin D. Chitwood, Robert Ware Killorin, Ze'Eva Kushner Banks, Chitwood Harley Harnes, David Andrew Bain, Law Office of David A. Bain, LLC, Atlanta, GA, Daniel Low, Daniel Kotchen, Kotchen & Low LLP, Washington, DC, R. Bryant McCulley, McCulley McCluer PLLC, Jacksonville, FL, Stuart H. McCluer, McCulley McCluer PLLC, Oxford, MS, Kendall S. Zylstra, Stephen E. Connolly, Faruqi & Faruqi, LLP, Huntingdon Valley, PA, Nadeem Faruqi, Faruqi & Faruqi, Gregory K. Arenson, Robert N. Kaplan, Kaplan Fox & Kilsheimer, LLP, Jeffrey S. Abraham, Abraham, Fruchter & Twersky, LLP, Linda P. Nussbaum, Nussbaum, LLP, New York, NY, Jesse A. Davis, III, Davis & Adams, LLC, Decatur, GA, Mark S. Goldman, Goldman Scarlato & Karon PC, Conshohocken, PA, Daniel E. Gustafson, Daniel C. Hedlund, Gustafson Gluek PLLC, Minneapolis, MN, Garrett D. Blanchfield, Jr., Reinhardt Wendorf & Blanchfield, St. Paul, MN, Donald Chidi Amamgbo, Amamgbo & Associates, Reginald Von Terrell, The Terrell Law Group, Oakland, CA, for Plaintiffs.

Gregory B. Mauldin, Nowell D. Berreth, Randall Lee Allen, Alston & Bird, LLP, Thomas Willard Rhodes, William Parker Sanders, Smith Gambrell & Russell, Atlanta, GA, James P. Denvir, Michael S. Mitchell, Scott E. Gant, Boies Schiller & Flexner, Bert W. Rein, Wiley Rein LLP, Joshua A, Hartman, Michael V. Sachdev, Roger W. Fones, Morrison & Foerster, LLP, Washington, DC, for Defendants.

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ORDER

TIMOTHY C. BATTEN, SR., District Judge.

This matter is before the Court on Defendant AirTran Airways, Inc.'s motion to dismiss [72] and Defendant Delta Air Lines, Inc.'s motion to dismiss [73].¹

I. Background ²

A. Facts

Delta and AirTran are competitors in the market for airline service. They compete heavily on routes to and from Atlanta because Hartsfield-Jackson Atlanta International Airport ("Hartsfield-Jackson") serves as the principal hub for both airlines. Indeed, together Delta and AirTran account for approximately ninety-two percent of all of the airline traffic at Hartsfield-Jackson. AirTran describes Atlanta as the "core of [its] business." Delta describes Atlanta as its "core strength market."

AirTran positions itself as a discount airline that provides low fares compared to its competitors. Its main rival is Delta, which competes with AirTran on approximately ninety percent of all of the routes served by AirTran and on one hundred percent of all of the routes served by AirTran to and from Hartsfield-Jackson.

Delta has consistently matched AirTran's low prices, including on routes to and from Hartsfield-Jackson. Historically, the two airlines have competed for market share in what has been described by observers as "one of the fiercest rivalries in the U.S. airline industry." According to Plaintiffs,³ prior to the unlawful collusion alleged in this action, consumers have benefited from this competition in the form of additional capacity on routes, lower prices, and fewer ancillary fees such as fees for checked bags. Plaintiffs aver that the longstanding intense competition between Delta and AirTran prevented either airline from charging a first-bag fee ⁴ unilaterally.

The first half of 2008 proved to be difficult for the airline industry because the price of oil temporarily spiked to high levels. In 2008, a barrel of oil cost $90.82 in January, peaked at $132.55 in July, and ended at $41.53 in December. The temporary increase in oil prices impacted airline profits, including AirTran's and Delta's.

Plaintiffs allege that AirTran could earn a profit without fare increases to consumers if the price of oil did not exceed around $100 per barrel. However, oil prices exceeded $100 per barrel for six months in 2008. Thus, AirTran-like other airlines-faced a dilemma: it could either increase prices to consumers and risk losing

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market share, or sustain losses and wait for the price of oil to abate.

Plaintiffs allege that instead of resolving this dilemma in a lawful and competitive manner, AirTran and Delta colluded, ultimately causing consumers to suffer harm in the form of higher prices. Specifically, Plaintiffs allege that AirTran invited Delta to collude (through a series of earnings calls with industry analysts and speeches/break-out sessions at industry conferences) so that both airlines could increase prices to consumers without losing any market share. Plaintiffs allege that Delta accepted this invitation and that the two airlines engaged in anticompetitive conduct by increasing prices through capacity reductions and imposing a first-bag fee.

Plaintiffs allege that AirTran first invited Delta to collude in its April 22, 2008 first quarter earnings call, which Delta monitored.⁵ During that call, AirTran announced that it was "resetting its priorities to be highly profitable" and that it "strongly believe[d]" that AirTran and its competitors in the industry needed to reduce capacity:

Adapting to high energy prices is a challenge faced by all airlines. It will also create opportunities for those who successfully adapt.
There are two solutions for [the] industry to today's high energy prices: either the prices our customers pay will increase to accurately reflect the cost of energy, or the price of oil will abate. We have been working for the past several months in identifying how AirTran should adapt to these challenging times....

While several airlines have announced modest adjustments to their capacity, we strongly believe that more industry capacity needs to be removed.

Compl. ¶ 33. AirTran then stated that rather than grow its capacity by ten percent in the fourth quarter of 2008, its capacity would remain flat and would continue to remain flat through 2009. According to AirTran, capacity adjustments needed

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to be made in order to "get average prices up."

AirTran also indicated during the call that Delta's elimination of capacity was "long overdue":

Legacy consolidation has also recently begun with the announced plans to merge two of our largest competitors in Delta and Northwest Airlines. Legacy consolidation and the corresponding elimination of inefficient and redundant domestic capacity is long overdue.

Compl. ¶ 35. AirTran emphasized that the price of oil was "creating a situation where all carriers are going to react" and that the carriers would "change the revenue environment" by "push[ing] up average fares" as redundant capacity is cut.

The following day, April 23, 2008, Delta held its first quarter earnings call. During the call, Delta recognized that fuel prices were "placing a lot of pressure on the business and the industry as a whole," and it emphasized that it would "continue to be aggressive about pulling capacity in response to fuel prices." Delta also emphasized that it planned to "push[ ] fare increases and fee increases"; it would continue to monitor "the changing competitive landscape in order to determine whether additional capacity reductions are warranted"; and it believed "the industry has got to maintain discipline with respect to capacity."

Delta responded as follows to an analyst's question regarding capacity:

[Q:] If you priced the product such that you could be profitable, how much capacity would you actually need to take out?

[A:] Certainly, Bill. I think Delta can't do it alone. We have to do it in conjunction with the other carriers because certainly the capacity cuts that we can do on our own, while they will help us, will not remedy the industry's woes. So, as we look forward, we're hopeful that the other carriers act responsibly and look at the demand profiles as we move into the fall. And I would say if the industry could achieve a 10% reduction in capacity year-over-year by the fall that we'd be in pretty good shape given today's fuel environment.

Compl. ¶ 38.

A couple months later, on June 18, 2008, AirTran and Delta participated in a Merrill Lynch Transportation Conference. Speeches were given at the conference, and Defendants' executives participated in "break-out" groups in which they discussed, among other things, future revenues.

Delta's chief financial officer, Ed Bastian, spoke at the conference. During his speech, he focused on Delta's capacity cuts and on the need for the industry to cut more capacity. Bastian said that he did not believe that the industry had cut enough capacity, and he said that Delta was going to take "a pause" in its plans to cut capacity and would "watch" the industry to determine if further capacity cuts were warranted:

I said no in terms of has enough capacity been cut, I think the question is with the amount of capacity that's been cut, we have to take a little bit of a pause and see where it's coming out and I think you also have to be careful that you don't cut too deeply on the front-end and lose market share opportunities that will hurt your franchise over time. So I think everyone while they've made some fairly significant announcements, everybody is watching each other in terms of how the capacity coming over, and exactly what's coming out....

Compl. ¶ 41.

About a month after the conference, on July 16, 2008, Delta held its second quarter earnings call. During the call, Delta explained that it had taken "swift action to

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significantly reduce domestic capacity and their related costs." However, Delta explained that "more industry capacity has to come out." Until that happened, Delta planned to maintain an increased level of...