DOT moves to eliminate anti-competitive airline practices
By Staff -- Purchasing, 5/7/1998
The U.S. government is moving in two areas that could offer some future relief from high business air fares. The Department of Transportation weighed in last month with a proposed policy on competition, following earlier news that the Justice Department is investigating possible antitrust violations by major carriers at their hub cities.DOT's proposed policy on airline competition doesn't satisfy the head of the National Business Travel Association (nbta), however. "The policy statement confuses me as much as it comforts," says Executive Director Norman Sherlock of nbta, which represents corporate travel managers. "Until DOT clarifies it," Sherlock says, "no one is in position to make any decision as to how far DOT will go (to protect competition)."
DOT says its policy, now undergoing a two-month comment period, is aimed at some major carriers' anti-competitive practices. One example: Cutting fares and increasing seats to drive new low-cost carriers out of markets, then raising fares and cutting back on service. "The department proposes to consider such a practice, with its single goal of eliminating competition, as unfair and exclusionary, and subject to enforcement action," says DOT Secretary Rodney E. Slater.
DOT says growth of new low-fare carriers has slowed in the past two years. It apparently feels that much of the slowing is the result of actions taken by a number of the established major carriers in relation to service by small, new-entrant airlines in cities served by the majors. DOT suggests some of their actions have "inhibited competition, resulting in higher prices for many passengers."
DOT's policy statement focuses on "unfair exclusionary practices." These include adding capacity and lowering fares to the point that the major carrier offers more seats than the low-cost carrier's capacity or carries more passengers than the new competitor. In each case, however, DOT says that such practices must result in lower revenue to the major carrier at the point of competition than it would receive from "a reasonable alternative response."
"What is a reasonable alternative response?" asks Sherlock. "We want to have a clear definition of what is predatory pricing and what is unfair behavior. This particular policy leaves it murky."
DOT says it will make enforcement decisions on a case-by-case basis. Although airline deregulation in 1978 left the government without power to set fares and allocate routes, DOT says it has authority to prohibit conduct that does not amount to a violation of antitrust laws but could be considered anticompetitive.
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