A recent court decision on alleged "signaling" of competitive plans between airlines highlights the antitrust risks of making detailed public statements about future business plans. On August 2, 2010, a federal district court in Atlanta refused to dismiss an airline passenger class action alleging that AirTran and Delta agreed—through statements made in analyst calls, speeches, and airline industry conferences—to coordinate capacity, fares, and fees.
AirTran and Delta are each other's primary competitor on routes to and from Atlanta. According to the plaintiffs' complaint, in 2008 AirTran initiated a six-month dialogue with Delta on competitive plans, not through direct communication, but through carefully-timed public statements. The complaint details a series of statements made by each airline to investors and analysts in earnings calls and in speeches and breakout groups at industry conferences. As characterized by the plaintiffs, the airlines used these public statements to communicate to each other their competitive plans and gauge the other's likely response before implementing them. The plaintiffs claim that the airlines thereby formed an "agreement" to coordinate their competition, in violation of Sherman Act § 1, which prohibits agreements that restrain trade.
For example, according to the complaint, in an earnings call AirTran announced its belief that the industry should cut capacity in response to high fuel prices. That was followed by similar statements by both airlines, each saying capacity should be cut and that it was watching to see whether other airlines would withdraw capacity from the market. "Delta can't do it alone. We have to do it in conjunction with other carriers," said Delta. Both airlines thereafter cut capacity on routes on which they compete, the plaintiffs allege, as a result of their "agreement" to do so. Similarly, AirTran announced it wanted to implement a first-bag fee, but preferred to follow Delta. After Delta imposed its own first-bag fee, AirTran followed. The plaintiffs characterized these public statements as "invitations to collude" followed by acceptances.
Rejecting the airlines' motion to dismiss the complaint, the district court highlighted the low threshold a plaintiff must meet at the motion to dismiss stage: "a plaintiff is only required to allege enough facts to raise a reasonable expectation that discovery will reveal evidence of an illegal agreement," said the court, citing the Supreme Court's 2007 Twombly case. The court also noted that the familiar "conscious parallelism" rule—that a plaintiff with evidence of parallel, possibly-coordinated conduct by competitors must also show "plus factors" or evidence that excludes the possibility the competitors acted independently—applies at the summary judgment stage, not on a motion to dismiss.
The court emphasized that agreements to coordinate need not be explicit and therefore may be inferred by the jury from even indirect communications between competitors followed by a change in their business practices. Given this standard, the court ruled that the plaintiffs had alleged facts that made their claim of an unlawful agreement plausible.
The court recognized that the defendants might be able to show they had independent reasons to take the actions they did. But these could not be evaluated at the motion to dismiss stage:
Can Defendants' conduct be characterized as merely conscious parallelism that is inevitable in an oligopolistic market?...It would be improper and imprudent to dismiss a case of this magnitude, where the interests of consumers are at stake, on the mere hunch that Defendants' conscious parallelism defense (and their other defenses for that matter) may prove valid.
Addressing the airlines' formal defenses, the court held that the antitrust action was not precluded by the securities laws merely because the statements were made in the context of advising investors and analysts. The plaintiffs had alleged the statements went well beyond the disclosures required by securities regulations, and the defendants had not cited any particular securities regulation that covered these disclosures.
While allowing the Sherman Act § 1 claim, the court dismissed the claims under § 2, which prohibits monopolization. The court found it implausible that the alleged output and pricing agreements would give either airline a "monopoly" and rejected any "joint monopolization" theory. The Sherman Act § 1 claim against AirTran and Delta will go forward, exposing the airlines to the costs of litigation and continued risk of antitrust liability.
The Delta/AirTran case follows close attention in the 1990s by the Department of Justice to alleged fare signaling by airlines through "footnote" information exchanged in the electronic fare distribution system. More recently, the Federal Trade Commission has challenged alleged invitations to collude extended to competitors through public statements. The Delta/AirTran court cited the FTC's 2006 action against Valassis Communications, in which a newspaper advertising publisher announced in an analyst call that it planned to increase prices, but stated it would keep its current pricing if its competitor did not follow the price increase.
This decision highlights the caution with which companies in any industry should make public disclosures, especially where describing future business plans that may be contingent on the reaction of competitors. This decision also indicates that at least some disclosures may be challenged under the antitrust laws even if made in statements to investors not mandated by the securities laws.