Attention All Passengers by William J. McGee Page A

nothing.”
    Predatory Behavior = Higher Fares
    An industry executive once put it best: “The hub airlines are like badgers in their lairs. They won’t come out looking for you, but you’re in trouble if you go in and screw with them.” Many low-fare airlines have found this out—in some cases, too late. When a smaller airline starts flying on a major’s bread-and-butter route, the result can be all-out war—and passengers are the casualties, with less service and higher fares in the end. The weapons of choice can include predatory pricing—temporarily offering rock-bottom fares to drive out low-cost competitors—or the majors can even engage in dirty tricks, such as poaching passengers.
    For those who thought the legacy airlines had moved beyond such behavior, in March 2011 the Business Travel Coalition pointed out it was déjà vu all over again, this time with Delta’s retaliation against low-cost Frontier Airlines for starting scheduled flights out of Delta’s hub at Minneapolis–St. Paul International Airport. 2 Bob Harrell notes about predatory pricing: “You can smell a rat, but it’s hard to prove.”
    Both the departments of Transportation and Justice have attempted to do just that. For context, it helps to review what the airlines are capable of, by illustrating how they have behaved until now. What’s more, the myriad ways in which major airlines have attempted—both legally and illegally—to bankrupt low-fare airlines further hurt consumers by dampening enthusiasm within the financial community to support start-up carriers.
    In 1993 an influx of predatory pricing charges were leveled by new-entrant airlines against hub-and-spoke majors. That July, Houston-based UltrAir shut down, claiming “illegal, anti-competitive, monopolistic, and predatory behavior” by the other hometown carrier, Continental; similar charges were leveled against Continental at Newark, New Jersey, by KIWI. Soon after, the Justice Department investigated claims that Salt Lake City–based Morris Air was being penalized by Delta’s override policies, which rewarded travel agents for steering customers away from Morris. And the transportation secretary personally intervened when Reno Air cried foul against Northwest. The obvious irony is that all four of those start-ups soon went through mergers or bankruptcies (then again, so did Continental and Northwest).
    An industry white paper by Clinton V. Oster Jr. and John S. Strong, “Predatory Practices in the Airline Industry,” illuminates the Reno Air–Northwest brawl. The new guys began service between Reno and Minneapolis–St. Paul in 1992. Northwest had abandoned the same route one year earlier, but after Reno Air met with success Northwest announced new service. Pulling out all stops, Northwest also said it would match the low-cost carrier’s fares; it offered bonus frequent flyer mileage, and those overrides for bookings out of Reno. Then Northwest lowered its nonstop fares between Minneapolis and the West Coast, an obvious effort to attract Minnesota-to-California-bound customers flying Reno Air’s connecting service through Reno.
    So far it seemed like good old-fashioned bare-knuckle capitalism. To the surprise of no one, the big guy won, and Reno Air discontinued its flights in June 1993 (by 1998, it was acquired by American). But that’s where “free marketism” crosses over into “illegalism.” Once Reno Air pulled up stakes, Northwest’s fares on those routes began climbing. And climbing. In fact, they not only returned to pre–Reno Air levels but surpassed them. According to Oster and Strong, Northwest’s average fare between Minneapolis and Reno in April 1993 was under $100; within six years the ticket prices ranged from $345 to $1,476.
    Overall, the DOT received thirty-two complaints of unfair competitive conduct from new-entrant airlines