Rule Targets Airlines’ Unfair Tactics

Major U.S. airlines could be fined as much as $1,100 a day per violation for adding seat capacity and lowering fares with the intention of driving smaller carriers out of markets where they compete under new guidelines proposed Monday by the Transportation Department.

Several airlines, including UAL Corp.’s United Airlines and Northwest Airlines Corp., have been accused of hardball competitive tactics to drive new entrants such as Frontier Airlines out of some markets. The major carriers respond that matching discount-carrier fares is a legitimate business strategy.

“Consumers deserve a pro-competitive standard that helps ensure affordable air fares and accessible service,” Transportation Secretary Rodney Slater said as he announced new guidelines for airline competition. “We must preserve vigorous competition and prohibit unfair exclusionary practices meant solely to eliminate that competition.”

Large airlines had warned the department against moving ahead with the competition policy, arguing that it threatens to undo the 1978 airline deregulation act. “This will have a chilling effect on how we compete,” said Chris Chiames, a spokesman for AMR Corp.’s American Airlines.

Under federal statute, the Transportation Department may penalize carriers $1,100 a day per violation, said Nancy McFadden, general counsel for the department. Slater said the size of the fines ultimately “will depend on the severity of the actions.”

Under the guidelines, a major carrier could be penalized for unfair practices if it slashes fares or adds new capacity that causes it to lose more revenue than the new carrier could have siphoned off.

The long-awaited government policy is open for 60 days of public comment. Slater said he expects the rules to become final by August.