Buyers Want More From DOT

<B> Buyers Want More From DOT</B>

By Jay Campbell

The corporate travel community last month welcomed the Department of Transportation's proposed guidelines on anticompetitive airline practices as a beginning toward a more equitable airline industry.

The Association of Corporate Travel Executives criticized the guidelines for not going far enough. The National Business Travel Association called it a first step and sought clarification, and the Business Travel Coalition hailed it as the first of a number of DOT initiatives.

The guidelines, which are open for comment until June, seek to curb anticompetitive practices that DOT said major airlines use to eliminate new entrant competition (<I>BTN</I>, Apr. 13). Key to the guidelines is prohibiting major airlines from using an unwise set of pricing decisions--putting short-term profits at risk--with the goal of permanently driving out competitors.

ACTE on Thursday called the new guidelines "conceptually noble but lacking in realism." ACTE president Earl Foster said the industry is not likely to feel the impact of the proposed rules for a long time, if at all.

"The primary targets of the DOT's guidelines are predatory pricing and capacity dumping," said Foster. "Yet these are but two elements in the complex equation that determines the competitive strategies of the nation's carriers. Gate availability coupled with a restricted number of take-off and landing slots are two other issues that can choke competition."

Foster predicted that the final version of the guidelines will be watered down due to the resistance of the majors. "Like Prohibition, fair-play legislation has a poor record of success," he said.

ACTE further was confounded by the concept that one carrier would be allowed to offer seats between certain city pairs at one price, while an established carrier would be restricted in competing on the same level.

"The DOT will first have to determine the fair market value of a ticket between city pairs before being able to judge if a carrier is dumping seats or indulging in predatory pricing," said Foster. "And that's a statistic I doubt will ever see the light of day. It would open the real issue of predatory pricing, as viewed by the majority of business travelers--the vast disparity in the cost of business and leisure travel."

The NBTA board, meanwhile, on Apr. 24 voiced tempered support for the guidelines, saying it officially will ask DOT to "sharpen the enforcement standards."

"The DOT's action in issuing proposed guidelines can be viewed as a step forward," said NBTA president Mark Johnson. "Nonetheless, the proposal needs to be clarified, particularly the standards for enforcement and the degree of competition that will be promoted in the major hubs. We believe that clear standards need to be applied so everyone understands the rules of enforcement; otherwise, everyone will be at a disadvantage, and we could be looking at a legal quagmire."

NBTA issued its statement following a board meeting in which it interviewed participants on both sides of the debate, including an airline representative and Business Travel Coalition president Kevin Mitchell. The BTC had lauded DOT's policies hours after they were released, saying they "provide hope for consumers, businesses and communities."

Meanwhile, airline industry executives are bashing the DOT, asking why their industry, with its 5 percent profit margins even in a good year, is being singled out by the Clinton Administration when there is no action (at least yet) by the U.S. Department of Justice. Airlines also pointed out that DOT's proposed guidelines may have unintended and unforeseen consequences.

Northwest Airlines, for example, argued that since the major carriers' use of low-fare tickets and seats "would be arbitrarily restricted, they would be forced to pick and choose between various classes of consumers who could be offered low-priced fares."

Part of DOT's evaluation of anticompetitive practices is an accounting of the number and level of fares offered in a given market. If those counts outweigh certain measures of capacity and competition in the market, DOT would take action.

Northwest told Congress that senior citizen discounts, Internet specials, bereavement fares, supermarket discount coupons and infant discounts all would be at risk under the new guidelines. On paper, these special fares could be seen as efforts to undercut or match new entrant carriers.