No more airline competition

Look how airline stocks have risen in price in the last year.
Carl from Chicago writes at Chicago Boyz,

If you’ve flown much in the last few years, you’ve probably seen what I’ve experienced, as well – completely full planes, high prices, and aggravating extra charges for baggage, wi-fi, etc… This is really a symptom of what has actually occurred, which is that airlines have finally moved past an era of competition into an era of oligopoly.

The real indication of their new status isn’t the high prices and full planes – it is in the stock price.

...Each of the major airlines has predominantly broken their strong unions and taken medicine from bankruptcy to mergers in order to restore their finances. Instead of a focus on expansion, they are operationally focused in terms of filling every seat on every plane at the highest price possible, in terms of ticket costs and extra fees.

...The airlines received a huge windfall with declining fuel prices. If the industry was in a mode of high competition, you’d expect customer prices to fall as the airlines would be forced to pass on some of these benefits to the consumer since the costs would move closer to their marginal price. However, there has been no sign of price reductions – the airlines aren’t competing with each other (substantially) on price and each of them are going to use this windfall to buy back stock and pay higher dividends.

...Whatever thoughts you may have about the US airline industry, think again. Instead of being a competitive market ruled by expansionist companies, you have a cozy market with little competition where windfalls like low fuel prices and low interest rates (which help a capital intensive industry) will remain with the companies, not be passed on to consumers. And their long term threats aren’t US competitors, but foreign competition similar to those that ultimately upended US industries from autos to clothing to toys.

Read more here.