Last week American Airlines took two extraordinary actions that confirm that the airline industry has become an entrenched oligopoly. First, American Airlines began a bizarre new advertising campaign. Its message: be a good flyer by showing consideration to your seatmates and maintain equanimity in the air. This advertisement makes little sense in a competitive industry. It does not tout low prices or any distinctive amenities of American that might help it gain market share. An industry that implicitly coordinates on price and amenities, however, might benefit from the such an advertisement, if it got more people to fly generally.
Second, American Airlines gave a $13 million severance payment to its President even though he was joining a rival, United Airlines. And the severance was not a matter of legal obligation but at its discretion. It is wholly against usual business practices to give gifts to a high level executive who goes to work for a rival. The more frequent reaction is to sue the official for endangering trade secrets. But again this course of action makes sense if American, United and other airlines are engaging in the implicit coordination made possible by oligopoly. The President of American would then still working for a common cause. Why not maintain goodwill in those circumstances?