Predatory Pricing Case Against American Airlines Tossed Out

A federal judge threw out the government’s predatory pricing suit against AMR Corp.’s American Airlines on Friday, saying the airline had simply engaged in traditional competition.

“It did not price its fares below cost; it did not undercut the other carriers’ fares,” Judge J. Thomas Marten said in an order issued from Wichita, Kan.

The government had charged American with illegally driving out smaller airlines from its Dallas hub by saturating routes with additional flights and low fares, only to reduce service and reimpose high fares once the smaller competition was gone.

A trial had been due to begin next month. The case filed in 1999 against American was a key test of work done by the Justice Department and the Transportation Department to identify suspected unfair competition by major carriers against smaller low-fare rivals. American said it was “extremely pleased” with the ruling. The Justice Department expressed disappointment.

American had sought dismissal of the case on grounds that it was only trying to compete aggressively with its upstart rivals. Even though it cut fares and added flights out of Dallas, the airline argued, the company never sold its tickets below cost, something courts have held is a key indicator of predatory pricing.

The Justice Department had tried to argue that there was no business rationale for the aggressive tactics, such as “flooding” some of its routes, unless it was to drive competitors out of business.

Separately, American Airlines reached a settlement with its pilots union to resolve the $45.5-million penalty levied against the union after a sickout. As part of the settlement, the Allied Pilots Assn. has transferred $20 million of the payment deposited into escrow, plus interest, to the airline. It will pay the rest, with interest, over 15 years.