Justice Dept. Reviews Claims of Airlines’ Price Squeeze

From Bloomberg News

The Justice Department is looking into whether the nation’s biggest airlines are engaging in “predatory pricing” to put the squeeze on competition from start-up carriers.

Federal antitrust authorities on Tuesday confirmed their review after Frontier Airlines Inc. filed a 30-page complaint with the agency, accusing UAL Corp.'s United Airlines of intentionally undercutting already-low prices and then jacking them back up as soon as the newcomer leaves the market.

“We have received some complaints about responses of larger carriers to competition from smaller airlines, and we are looking into them,” said Gina Talamona, a spokeswoman for the Justice Department’s antitrust division.

The Justice Department’s review places it in the middle of an escalating battle between major airlines and the low-cost entrants trying to compete against them. The low-cost carriers chip away at the market share of their bigger rivals by offering low-fare, no-frills service. But the bigger carriers are fighting back, dropping fares on routes where they go head-to-head with the upstarts.


The upstarts, however, say the big guys aren’t fighting fair. Executives at Frontier, Reno Air Inc. and other smaller carriers such as ValuJet Inc. are pushing federal officials to look into the situation.

“All the new-entry carriers agree that the major airlines have a right to compete,” said Bob Rowen, Reno Air’s general counsel. “What we object to is the major carriers coming and intentionally destroying a market because they know the short-term losses will be recovered in the long-term profit when they regain a monopoly position.”

So-called predatory pricing implies that major carriers are slashing prices to unprofitable levels to undercut competitors.

Reno Air hasn’t filed a complaint with the Justice Department, although it is talking with officials at the Transportation Department. A spokesman at that agency confirmed that it is examining Frontier’s complaint against United.


“Though many of these practices might not create antitrust concerns if not used by a monopolist, United and its United Express commuter affiliates have close to an 80% market share at Denver International Airport and 100% on more than 70 nonstop routes from Denver International,” said Paul Dempsey, Frontier’s vice chairman and a law professor at University of Denver.

In its complaint Tuesday, Frontier made eight antitrust allegations against United, including that its bigger rival would add extra flights to diminish demand and push down prices on certain routes, entered exclusionary arrangements with corporate travel companies and commuter carriers and imposed higher fees for rivals wanting to use its Apollo computer-reservation service.

To support its allegations, Frontier said United increased its average fares by more than 60% on flights between Denver and Tucson and 82% on flights between Denver and Billings, Mont., after Frontier pulled out of those markets.

Frontier, which operates mainly in the West from its Denver hub, competes with United on all but two of its routes.

A spokesman for United called the charges “utterly groundless.”

“United Airlines prices its tickets in Denver and throughout its system based upon its business needs, evaluating its costs, competitive factors and in strict accordance with legal requirements,” said Richard Martin, a company spokesman.

This isn’t the first time the Justice Department has looked into such complaints.

It investigated predatory-pricing charges by ValuJet Inc. against USAir Group Inc. several years ago, not long after the low-cost start-up began weakening USAir’s stronghold in the Southeast United States. But more than a year later, federal antitrust authorities closed that investigation, without filing charges against USAir.


ALTERNATIVE PLANS: Fearing a strike, passengers are steering clear of American Airlines. A1