WashingtonWire - 2000-05-15

<B>WashingtonWire</B>

By Barbara Cook

<B>Predatory Pricing</B>
Senators Herb Kohl (D-Wis.) and Patrick Leahy (D-Vt.) petitioned the <B>U.S. Department of Transportation</B> to investigate "unfairness" in airline ticket pricing, saying, "enforcement actions under the <B>Department Of Justice</B>'s statutory authority are likely to be far quicker than the often protracted, lengthy and complex antitrust enforcement litigation." Noting that DOJ last year brought an antitrust case against <B>American Airlines</B> for allegedly using its pricing power against <B>Vanguard Airlines</B>, the two lawmakers, in a letter to DOT that was released recently at an airline competition hearing, said using DOT's authority to resolve the case would be faster because DOT wouldn't have to meet the technical requirements of antitrust law.

AA chairman and CEO Don Carty testified that airline hub and spoke systems "afford tremendous efficiency. For all the talk about the alleged evils of hubs, nearly every city in America would love to be one." Pressure to keep ticket prices low, he said, comes from direct competition from another major airline, from well-established low-fare carriers, such as Southwest, and new entrants. "These sources of competition combine to challenge AAs' every move and this intense competitive pressure has had the desired effect." Regarding airfares, Carty stated, "The reason fares are often the same is that passengers shop for air transportation based on price. That fact, coupled with computer systems that allow the world to see every available fare, means we can and must match most fares to ensure we do not lose passengers."

<B>Northeastern University</B> economics professor Steven Morrison said hub dominance continues to pose problems, but most travelers have benefited from deregulation, and competition in the airline industry is healthy. "Fares have fluctuated, but followed a declining path since 1971," Morrison said. "Compared with 1976, before the regulatory reform that preceded deregulation in 1978, fares have fallen 40 percent." He added that inadequate access to gates is the greatest impediment to competition.