Stiff competition in the airline industry creates lower fares and more direct routes for travelers. But with major carriers now dominating the market, air service in various cities has become very limited and sometimes costly. With fewer airlines entering the business and more upstarts going bust, the situation could worsen for consumers. Fortunately, the justice department began last year to investigate the nation’s major airlines — United, American, Delta Air and Northwest Airlines — for predatory business practices. Twin Cities-based Northwest is under the toughest scrutiny. Last month, it received a subpoena from the justice department to surrender pricing and profit information to antitrust officials. It also has a lawsuit — filed by Reno Air — pending in a Nevada federal court.
The ongoing attack on big airlines can certainly be justified. Ed Faberman, executive director of the Air Carrier Association, which represents small airlines, argues that predatory practices have increased dramatically in recent years. In some cases, major airlines will introduce a service on a certain route only if a small carrier is trying to tap into that market. They will match or undercut prices, flood the route with extra seats, as well as overlap a low-fare carrier’s departure times. Then, after the small carrier is knocked off, the major airlines will increase fares to the original or even higher level. Northwest for one had zero nonstop flights to Reno when fledging Reno Air introduced nonstop service to the Twin Cities in 1993. In response, Northwest launched direct Twin Cities-to-Reno routes at a lower price. After Northwest drove Reno Air out, it increased the price of a one-way trip between Reno and the Twin Cities from $200 to $400.
By 1995, upstart Frontier Airlines underwent a similar experience. That year, it introduced a new service between Denver and Las Vegas, with one-way tickets as low as $59. United Airlines followed suit by duplicating the service, adding thousands of new seats and slashing prices. Two years later, after Frontier had fled from the market, United raised their fares. Of course, as big airlines insist, discount carriers sometimes go out of business because of mismanagement, lack of funding and poor customer service. And some of the upstarts do have tarnished on-time departure and safety records. But the evidence also suggests that discount carriers could be in a better position to compete if big airlines weren’t allowed to monopolize markets.
Two decades ago, the airline industry was deregulated to bolster competition. This was expected to benefit customers through lower fares and increased service. Instead, major airlines have allied with each other, keeping most new airlines from fully taking off. Thankfully, the Department of Transportation plans this month to introduce new guidelines that would limit larger carriers’ power over small airlines. Most likely, established carriers will be restricted in the number of new flights they can launch. In addition, Congress is considering five different bills to deter anti-competitive behavior. But the justice department should continue with its investigations. Where warranted, anti-trust prosecution can significantly aid consumers.