The Transportation Department is proposing its first set of guidelines on what constitutes unfair competition in the airline industry, hoping to pinpoint cases in which large carriers drive out smaller ones by lowering prices.
The policy, announced Monday by Transportation Secretary Rodney Slater, sets out markers to signal to the government whether an airline is unfairly trying to eliminate competition and whether enforcement action is needed."This policy is not intended to ensure the success of any start-up carrier but rather to ensure a level playing field," Slater said Monday. "Consumers deserve a pro-competitive standard that helps to ensure affordable air fares and accessible service."
Major carriers, in responding to new airlines in their hub cities, "appear to be straying beyond the confines of legitimate competition into the region of unfair competition, behavior which . . . we have not only a mandate but an obligation to prohibit," said a department policy statement.
The guidelines focus on large airlines that cut prices and increase seating capacity, even if at huge expense, to push smaller, newer carriers out of business. Although ticket prices might drop in the short run, such practices ultimately hurt the consumer when there are only a few carriers left controlling air service, according to the statement.
"Once a new entrant has ceased its service, the major carrier will typically retrench its capacity in the market or raise its fares to at least their pre-entry levels, or both," the Transportation Department said.
Moves by major airlines to reduce ticket costs in order to force out competition and maintain control at their hub airports could trigger a government crackdown, possibly including hearings before administrative law judges.
The new guidelines come 20 years after the deregulation of the domestic airline industry, allowing carriers to determine their own routes and prices. Under deregulation, the Transportation Department maintained the right to stop unfair competition, but it has never taken official action against a carrier.
According to the policy statement, these new guidelines do not signal a shift toward reregulating the industry. Slater, on previous occasions, has said that part of making deregulation a success is ensuring that all airlines can compete.
"Our responsibility at the Department of Transportation is to ensure that every airline - large or small, new or established - has the opportunity to compete freely," Slater said at an American Bar Association meeting in January. "That is what deregulation is supposed to be all about - a fair chance to compete."
But the policy, which is now subject to a 60-day comment period before it can take effect, is bound to meet with resistance from some major carriers who do not want the government intervening in the marketplace.
Robert L. Crandall, American Airlines chairman and chief executive officer, has spoken out against government involvement, saying large airlines should not be punished for smart business practices.
"Those who complain fail to recognize that an established airline which rises to the challenge of a new entrant is going only what any business in a free market must do - seeking to increase the attractiveness of its product," Crandall told the National Press Club.
"The idea that the government should respond to these market phenomena by tilting the playing field in favor of new-entrant carriers strikes me as entirely inconsistent with the intent and spirit of deregulation."