<B> DOT Defends Discount Rules</B>
By Barbara Cook
<I>Washington</I> - Airline claims that the Transportation Department's proposed airline competition guidelines are an attempt to reregulate the industry are a "strawman" argument, Patrick Murphy, the department's assistant secretary for aviation and international affairs, stated.
Speaking to an aviation audience here recently, Murphy stated, "We are about eliminating unfair practices. We are protecting deregulation and competition."
While many of the arguments made by airlines to protest the guidelines are "laughable," there are some that concern him, Murphy acknowledged. In addition to the reregulation argument, some airlines charge that DOT has no authority to issue the guidelines at all. "But Congress has eliminated that, with three separate debates over the years," Murphy said.
Another troublesome argument being made by the airlines, he said, calls for competition issues to fall solely under the jurisdiction of the Justice Department. "I can see why airlines would want DOJ to handle this. Under antitrust law, it is very difficult to prove that a violation has occurred," he said.
As proposed by DOT, the rules aim to prevent major carriers from reducing fares below cost and selling large numbers of discount seats to drive smaller carriers out of a particular market.
Comments on the guidelines, proposed in April, are piling up in DOT's docket room, which has logged more than 700 filings so far. A final round of reply comments is due by Sept. 8. DOT officials have not set a deadline for issuing the guidelines in final form, according to a spokesperson, and are, in fact, "watching to see what Congress will do."
The House Transportation and Infrastructure Committee in June added language to H.R.2748, the Airline Service Improvement Act, that orders studies of airline competition and prohibits DOT from issuing final guidelines until these studies are completed. Final action on that legislation has stalled, and it is this uncertainty that is hobbling DOT's plans to issue the guidelines.
The following are highlights of filings that were made by the July 24 comment deadline on the proposed guidelines:
<ul><li>The Air Transport Association (ATA) continued its broadside attack against the proposals, denouncing them as "bad economics, bad law and bad policy." The airlines claimed that a major carrier could unknowingly violate the new rules merely by matching the fares and seat capacity of a new entrant. As part of its filing, the ATA released a report by economists Janusz Ordover of New York University and Robert Willig of Princeton University that described the planned regulations as a "genuinely dangerous" step toward reregulation.
<li>Northwest Airlines produced a study by Laura D'Andrea Tyson, former chair of the administration's Council of Economic Advisers. Tyson concluded that DOT's proposed policy is "neither warranted nor necessary. Moreover, it could produce unintended effects that blunt otherwise healthy competition."
<li>The Washington, D.C.-based Economic Strategy Institute stated that if DOT "truly believes that predatory behavior is occurring, it should commence an enforcement action using existing antitrust law." If these laws aren't strong enough, DOT should propose legislative changes, not policy guidelines.
<li>American Airlines contributed a statement from William Baumol, professor of economics and director of the C.V. Starr Center for Applied Economics at New York University. Baumol concluded that the proposed rules would pose an impediment to effective competition, would condemn conduct that economic analysis shows not to be predatory, and would threaten to restrict the decision-making of major carriers and to damage consumers by discouraging price reductions.
<li>Frontier Airlines echoed the sentiments of several small carriers by saluting DOT for bucking what it called "one of the slickest PR and lobbying campaigns seen in years to deny (airline service) benefits to the traveling public." Pointing to the ATA's high-profile campaign against the policy guidelines, Frontier urged DOT to "stand fast" to its proposals, adding, "The so-called 'fight reregulation' campaign, of course, is just plain bunk."
<li>Delta claimed the policy would hurt small and mid-sized air markets. "If the major carrier cannot respond effectively to low fares, it could lose enough traffic and revenue to make continued service to the city uneconomical," the carrier stated.
<li>The National Business Travel Association argued that the Justice Department has the power and responsibility to enforce antitrust law while DOT is empowered to prohibit unfair methods of competition. While it is laudable that DOT appears to be willing to act on predatory pricing and anticompetitive practices, it would be better to develop guidelines through specific enforcement cases, NBTA said.
<li>The American Society of Travel Agents added that, "Since DOT clearly believes it has the authority to adopt the policy as proposed, ASTA feels they should simply bring an enforcement case against an airline it believes has violated the proposed policy.