In re Delta/Airtran Baggage Fee Antitrust Litig.

• Decision Date: 28 March 2017
• Docket Number: CIVIL ACTION FILE No. 1:09–md–2089–TCB
• Citation: 245 F.Supp.3d 1343
• Parties: IN RE DELTA/AIRTRAN BAGGAGE FEE ANTITRUST LITIGATION
• Court: U.S. District Court — Northern District of Georgia

245 F.Supp.3d 1343

IN RE DELTA/AIRTRAN BAGGAGE FEE ANTITRUST LITIGATION

CIVIL ACTION FILE No. 1:09–md–2089–TCB

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

Signed March 28, 2017

ORDER

Timothy C. Batten, Sr., United States District Judge

This consolidated antitrust class action comes before the Court on Defendants' motions for summary judgment [350, 353] and three related motions to exclude expert testimony [625, 631, 632].¹

I. Factual Background²

A. Delta and AirTran

Defendant Delta Air Lines, Inc., one of the world's largest airlines, is headquartered in Atlanta and has its largest hub at Atlanta's Hartsfield–Jackson International Airport. Defendant AirTran Airways, Inc.—a subsidiary of Defendant AirTran Holdings, Inc. (collectively with AirTran Airways, "AirTran")—was an airline that also maintained a hub in Atlanta for many years until 2014, when it ceased operations after having been acquired by Southwest Airlines approximately three years earlier, in 2011.

Although the parties dispute the extent to which each airline was concerned about the other's activities, there is no dispute that Delta and AirTran were competitors for market share, particularly at their mutual hub in Atlanta. See, e.g. , [569] at 68 (Delta's CEO testifying that AirTran was "part of the [competition] equation" but not conceding that AirTran was Delta's largest competitor out of Atlanta); [580] at 13 (AirTran's CEO testifying that Delta was AirTran's number one competitor in Atlanta).

Delta is known as a "legacy carrier" because it had interstate routes in place at the time of airline deregulation in 1978. In and prior to early 2008, the legacy carriers in the United States included Delta, Continental Airlines, Northwest Airlines, American Airlines, US Airways, and United Airlines.³

AirTran, by contrast, was what is known as a "low-cost carrier" ("LCC"). In its most literal sense, the LCC designation is indicative of airlines with business models that minimize costs and allow airlines to charge lower fares, but it is also used more generally as a "catchall name for post-deregulation new entry and, in fact, disguises diverse airlines and heterogeneous strategies." Eldad Ben–Yosef, The Evolution of the Airline Industry: Technology, Entry, and Market Structure—Three Revolutions , 72 J. AIR L. & COM. 305, 317 (2007) ; see also Erica Wessling, Note, Spirit Airlines, Inc. v. Northwest Airlines, Inc. : A Case for Increased Regulation of the Airline Industry , 6 WM. & MARY BUS. L. REV. 711, 724 (2015). Prominent LCCs during the time period in question included Southwest, JetBlue Airways, Allegiant Air, Frontier Airlines, and Spirit Airlines.

B. The Trend Toward Unbundling⁴ and the Introduction of Bag Fees

For many years, the purchase of an airline ticket generally encompassed all or most of the services associated with air travel. In the early-to-mid–2000s, however, some airlines began to charge separate fees for services and products ancillary to the purchase of a seat, such as meals and snacks, premium beverages, call-center booking, airport ticketing, and curbside check-in.

In 2006 and 2007, low-cost carriers led the way in introducing fees for passengers' checked luggage: Allegiant introduced a $2–per-bag fee in November 2006; Spirit began charging for two or more checked bags in February 2007 and then for a first checked bag in June of that year; Skybus Airlines implemented fees for first, second, and third checked bags in May 2007; and Virgin America began charging for second checked bags in August 2007. In January 2008, even Southwest, which markets itself as the "bags fly free" airline, introduced a fee for a third-checked bag.

Before long, legacy airlines began to follow suit. In February and March 2008, every legacy carrier except Alaska announced the introduction of fees for second-checked bags beginning in May. Delta was the third legacy carrier to do so, announcing on March 18 that it would implement a $25 second-bag fee beginning on May 1.⁵ AirTran—which had previously refrained from charging baggage fees—announced on April 11 that it would implement a second-bag fee of $10 (if paid online) or $20 (if paid at the airport) beginning on May 15.⁶

American Airlines then became the first legacy carrier to introduce a first-bag fee, announcing on May 21, 2008 that it would implement a $15 first-bag fee effective June 15. On June 12, US Airways and United both announced that they would impose $15 first-bag fees effective July 9 and August 18, respectively. On July 9, Northwest announced that it would begin charging a $15 first-bag fee on August 28,⁷ and on September 5, Continental announced that it would introduce a $15 first-bag fee on October 7. By October 8, therefore, Delta and Alaska were the only legacy carriers that had not implemented a $15 first-bag fee, and AirTran was among the minority of LCCs that had not implemented a first-bag fee. See generally [353–29] at 34–36.

During this same time frame, Delta's legacy competitors made public statements indicating that they expected ancillary fees—including but not limited to first-bag fees—to prove profitable. On July 9, 2008, Northwest announced that it expected its fee structure, including its newly announced first-bag fee, to generate between $250 and $300 million in revenue annually. [350–63] at 4; see also [350–64] at 6 (reiterating during a July 23 earnings call that Northwest expected increased baggage, service, and ticket-change fees to "drive between 250 and 300 million in annual revenue improvement"). American stated during its July 16 earnings call that it expected all of its fee increases (including its first-bag fee) "to drive several hundreds of millions of dollars of new revenue" and that its first-bag fee had resulted in no negative operational effects. [350–60] at 7, 19.

On July 22, 2008, both United and US Airways held earnings calls in which they too praised bag fees. [350–61] at 9, 11 (United stating that unbundling had "creat[ed] significant incremental revenue" and "estimat[ing] that the potential revenue from the new baggage service handling fees will be about $275 million annually in 2009"); [350–62] at 8, 17 (US Airways reporting that implementation of the bag fee had gone smoothly, that it was not seeing "any difference in market share or bookings between carriers that [had first-bag fees] and carriers that [didn't]," and that it estimated that shifting to "a la carte" pricing would yield between $400 and $500 million in revenue annually).

On September 5, 2008, when Continental announced its decision to charge for first-checked bags, it stated that it had not seen any gain in market share by holding out. [350–73] at 2. On September 16, the Wall Street Journal reported that "airline fees are here to stay," explaining that "baggage fees and other charges [were] significantly improving the usually dismal finances of the industry" because passengers were "paying them, if begrudgingly, and [weren't] shifting in large numbers to the few airlines that don't charge fees ...." [350–89] at 2.

C. Delta's Bag–Fee Discussions During the Summer of 2008

American's May 21, 2008 first-bag-fee announcement prompted internal discussions about whether Delta should introduce a similar fee. In the days following American's announcement, Delta's CEO Richard Anderson and executive vice president ("EVP") of operations Steve Gorman were in agreement that the airline should not introduce a first-bag fee at that time due to concerns relating to customer dissatisfaction, operational impacts during the busy summer travel season, and Anderson's belief that "part of the basic bargain" when purchasing an airplane ticket included one checked bag. [350–49]. EVP of network planning and revenue management Glen Hauenstein concurred, recommending that if the industry was moving toward charging a first-bag fee, Delta should "be the last in." [556] at 372. On May 28, Anderson closed the debate, at least for the time being, by sending Gorman an e-mail that read: "No $15.00 fee. Issue closed. Sit tight with no announcement." Id. President Ed Bastian testified in his deposition that he was in agreement with that decision. [350–22] at 114.

Following the June 12, 2008 first-bag-fee announcements by US Airways and United, Delta's internal bag-fee discussions intensified, although Anderson and Gorman remained opposed to the idea. [556] at 379. On June 16, Delta's Airport Customer Service ("ACS") group, which was headed by senior vice president ("SVP") Gil West, presented a written analysis of the first-bag fee to the Corporate Leadership Team ("CLT"). See [350–54]; [366] at 29.⁸ The ACS presentation explained that a $15 first-bag fee could potentially yield $220 million annually in additional revenue even if forty percent of Delta's bag-checking passengers stopped checking a bag after the fee was introduced. [350–54] at 6. The presentation also recognized potential risks of introducing a first-bag fee, including negative operational results, the need for additional gate and ramp staff to collect fees and baggage, and concerns about the perception that the introduction of the fee might create. Id. Ultimately, ACS recommended that Delta not impose a first-bag fee "at this time" but that it "continue to monitor [other airlines] through the end of the summer and re-evaluate." Id.

Delta's leadership was receptive to ACS's recommendation, as Anderson and Bastian continued to believe that Delta should not charge a first-bag fee. See [350–58] at 2; [350–59] at 2; [556] at 491; [557] at 308. During a Delta earnings call on July 16, 2008, Kevin Crissey—an airline-industry analyst employed by UBS—asked about Northwest's recently announced first-bag fee. Bastian responded that Delta had "no plans to implement it at this point" but would "continue to study" the question. [350–67] at 18. On August 1, Anderson delivered a weekly recorded message to employees in which he explained that Delta would increase its...