In Fine Print, Airlines Make It Harder to Fight for Passenger Rights

From today’s New York Times:

As air travel reopens and flight bookings begin to creep up, AvGeeks — aviation geeks — and others may notice some new legalese in the fine print when they buy plane tickets. More and more carriers are adding clauses that require passengers to settle disputes with the airline in private arbitration, rather than in court, and bar passengers from starting or joining class-action lawsuits.

In early April, American Airlines updated its contract of carriage, a standard industry document that outlines the legal responsibilities of a ticket holder and an airline, with a class-action waiver. British Airways followed in late May, adding a class-action waiver and binding arbitration agreement in the terms and conditions of Executive Club, its loyalty program, for residents of the United States and Canada. British Airways notified members by email.

“What the airline is saying is: If you ever have a dispute with us, the only way you can pursue this is in private,” said Deborah Hensler, Ph.D., a professor of law at Stanford Law School. “These types of agreements are usually an effort to prevent people from having an effective way of challenging a company on what might arguably be a legal violation.”

The timing hardly seems coincidental. Airlines of all sizes are being sued for withholding billions of dollars from passengers whose flights were canceled because of Covid-19. American Airlines was named in a class-action lawsuit in April; a similar one was filed against British Airways in early May. Also in April, separate but similar class actions were filed against the low-cost carriers Frontier Airlines and Spirit Airlines, both of which had “No Class Action” clauses in their contracts of carriage before the coronavirus was declared a pandemic.

These lawsuits have more than 100 class members and seek more than $5 million in combined claims. All claim that the airlines are either breaching their own contracts of carriage — which usually codifies a passenger’s right to a cash refund when a flight is canceled — or sidestepping a Department of Transportation policy that requires airlines to give refunds when flights to, from or within the United States are canceled. Or both.

In a statement, a spokesman for American Airlines said the new class-action waiver is meant to “ensure that customers have an avenue to pursue and resolve disputes with us, including by filing an individual lawsuit. We remain committed to resolving issues customer-by-customer when they arise.”

Read the complete article here.

DOJ stands up to corporate greed

In back to back announcements the Department of Justice signaled it was standing up to unrestricted corporate business practices on Wall Street.

Yesterday, the DOJ said it would bring criminal charges against two former JPMorgan Chase employees who are said to be responsible for a $6 billion trading loss last year that they tried to cover up. Javier Martin-Artajo and Julien Grout are charged with wire fraud, falsifying bank records, and contributing to false regulatory records. Federal authorities are also charging them with conspiracy to commit those crimes after an investigation concluded that the traders “artificially increased” the value of their bets “in order to hide the true extent of hundreds of millions of dollars of losses.” The Securities and Exchange Commission is also planning to take action against JPMorgan for allowing the misconduct. It filed civil charges on Wednesday against the two traders.

In a separate announcement the DOJ also said it would file an injunction seeking to block the merger of American Airlines and U.S. Airways. The merger, which was announced last year, would create nation’s largest air carrier, but federal officials claimed in court papers that the merger would have monopolistic results leading to less choices for consumers and higher ticket prices. Both airlines contend the deal would lead to lower prices and better choices for consumers, and they vowed to fight the Justice Department’s claims in court.

Mergers return but is it real growth?

Despite weak economic growth and dim forecasts for more robust growth in the future, large corporations are taking advantage of weak sales and declining profits to make big on mergers and acquisitions. This week the boards of both American Airlines and U.S. Airways approved an $11 billion merger that has been in the works for almost two years while American has sought bankruptcy protection after losing over $12 billion over the last decade.

Analysts say mega-mergers like the one by the two airlines are back in vogue for some very specific reasons. First, the climate of fiscal austerity after the financial collapse led to firms downsizing and laying off thousands of workers. As a result Fortune 500 companies are now sitting on $1 trillion in cash reserves that are being used to make big plans for a period of future growth.

In addition, credit and finance appears to be on healthier footing than the last few years as banks and lending institutions begin to lend again. Also, private equity firms are once again bargain shopping after  consolidating their credit lines and divesting themselves of toxic holdings.

Finally, financial analysts and investors are cautiously looking to the future in which a period of growth will mean expansion and larger shares of profit. The 500 stock index of the S&P reached its highest levels since 2007 signaling to investors that the time for growth is coming and encouraging companies to go bargain shopping for other firms.

When combined together these different factors are behind the mega-mergers. For example, Dell Computers announced last week as well that it was planning a $24 billion buyout by owner Michael Dell in order to take the company private again. Also, Virgin Media announced a $16 billion acquisition deal by media mogul John Malone for Liberty Global.

The new wave of mega-mergers brings with it mixed results, however. Mergers and acquisitions always lead to downsizing and layoffs, which cripples effective demand further during recessions. Moreover, the promise of improved products and better deals for consumers almost never turn out to be accurate. Profits are the primary concern of such large commercial transactions, and as its been the case historically with other large airline mergers, lower airfares will not be forthcoming.