AIRLINES : Suit Accuses American of Illegal Pricing

The airline fare wars moved to federal court Tuesday as Continental Airlines filed a lawsuit charging American Airlines with engaging in predatory pricing to drive its weaker rivals out of business.

American denied the charge, saying it has only been seeking a pricing system that will allow it to turn a profit.

Continental in U.S. District Court in Galveston, Tex., accused American of “predatory acts with the direct intention of eliminating competition from the air transportation industry.” American’s recent fare moves will not enable it to turn a profit unless one or more rivals are grounded, Continental claimed.

Continental, which filed suit late Monday, said it is seeking triple damages permitted by federal antitrust law and asking for a court order to stop American from engaging in unfair pricing.

Meanwhile, American, in a separate filing in federal court in Chicago, asked a judge to declare its pricing practices legal and proper.

“We have spent the past several weeks listening to people falsely attributing all sorts of sinister motives to our pricing decisions,” said Anne H. McNamara, American’s senior vice president for administration and general counsel.

Feuding between the airlines intensified April 9 when American announced it will use a radically different pricing structure that cut the price of first-class and full-coach tickets while limiting the number of discount tickets available.

American said it was simplifying the complex ticketing structure because of thousands of complaints from customers. American is the nation’s largest airline and considered the industry’s pricing leader. Rivals matched the carrier’s new fare structure.

American acknowledged that the new fare plan will cost the industry tens of millions of dollars in the short run as airlines were forced to refund tickets sold at higher prices and new tickets were sold at lower prices.

Carriers operating in bankruptcy, including Continental and Trans World Airlines, began accusing American of trying to run them out of business, a charge consistently denied by American. Analysts agreed that the financially reeling carriers could less afford the losses than the bigger, healthier airlines.

Continental, in a statement announcing its lawsuit, said, “The predatory nature of American’s conduct is revealed by its public statements over the last year.”

American Chairman Robert L. Crandall repeatedly complained that fares were too low, which he blamed on pricing actions by carriers in Chapter 11. Crandall called on the U.S. Department of Transportation to remove their operating licenses.

When the government refused, Continental contended, “American took matters into its own hands by adopting a fare structure designed to put its competitors out of business.”

American’s lawyer responded, “Any claims of predatory pricing are actually a smoke screen for their objection to price competition.”

American said it asked for a court finding that its pricing was legal “in order to run our business without such distractions, to serve our customers as they clearly want to be served and to avoid the need to debate the issue in more than one forum.”