Frontier Decries UAL Tactics

<I>Washington, D.C.</I> - In a complaint filed this month with the U.S. Department of Justice charging "predatory, anticompetitive and monopolistic practices" on the part of United Airlines, Denver-based Frontier Airlines included "exclusive dealings with corporate customers" as one of eight tactics United allegedly uses to squash competition.

In addition, the DOJ and the Department of Transportation are considering claims made by several other low-cost airlines about unfair business practices by major airlines and have met with representatives from Frontier, Reno Air and ValuJet.

Exclusive agreements-in which a corporation is contractually bound to dealing with that airline only-are not a new phenomenon. But according to University of Denver law professor Paul Dempsey, who prepared the 30-page complaint, exclusive deals "are acceptable theoretically, but are unlawful when practiced by a monopolist."

Dempsey, who sits on Frontier's board of directors, said the airline has discovered "a couple of corporate purchasers" in Colorado who have contracts with United that do not allow the companies to accept discount offers with other carriers. Dempsey said exclusive dealings with travel agencies also are mentioned in the complaint.

Frontier, which last fall initiated an effort to sign corporate deals (BTN, Oct. 7, 1996), also alleged in the complaint that United practiced capacity dumping, pricing abuses and exclusive dealings with commuter airline partners. As an example of capacity dumping, Frontier noted that United added an average of 8,600 seats in the Denver-Los Angeles market over the summer after Frontier entered that market. To illustrate pricing discrimination, Frontier said after it pulled out of the Denver-Tucson and Denver-Billings markets, United increased its average fares by more than 60 percent and 82 percent, respectively.

United called the filing "baseless" and showed no signs of backing down when it introduced shuttle service between Denver and Las Vegas (12 daily flights) and Denver and Phoenix (13 a day). Frontier has three flights a day on both routes.

While there is no indication yet on whether the DOJ and DOT will do anything about Frontier's and the other low-fare carriers' complaints, the fact that they're even considering them is significant, following a year in which low-cost carriers seemed to lose what had been increasing support from the government-partly due to the ValuJet accident and questions surrounding it. "In 1996, the big four airlines concluded that enough was enough-the low-cost carriers have to go," Dempsey said. "We'll be delighted if the DOT or DOJ respond to any of our complaints."

"The government is beginning to recognize that unlike in other businesses, the barriers to entry in the airline industry are significant," said Ed Faberman, an attorney representing a new association of low-cost carriers that reportedly includes Eastwind Airlines, Frontier, Reno, Spirit Airlines and Western Pacific. "This industry is deregulated only on paper, and the government is realizing it has to look at total behavior."

The DOT acknowledged that the issue of unfair competition is getting more attention now than it did last year, but was unclear about what actions it might take. One option could be a new policy defining what practices the government considers to be unfair, although some sources said such a policy would be too complex to state clearly.

Faberman and others suggested that a limit on how quickly a larger competitor can match a low fare could help new airlines get a foot in the door and would incentivize carriers to lower fares, but clearly the government would be extremely cautious in considering such an approach.