The Anti-Trust Case That Wasn't, and Why You Should Worry

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American Airlines: Finding the skies to be a little more friendly


That sound you hear is the wind being knocked out of virtually every small or start-up airline in the U.S. Last week a federal judge stopped the long-awaited Department of Justice anti-trust case against American Airlines — which accused the airline of setting below-cost prices to drive out three small, regional low-cost carriers (Vanguard, Western Pacific, and SunJet) out of American-dominated markets, and then raising fares again when the coast was clear — before it even got off the ground.

The court threw out Justice's unprecedented lawsuit because it didn't buy the government's case. But in the process, it has declared open season on any small airline that dares to compete with the megacarriers.

Experts believe Attorney General John Ashcroft will not appeal the decision. "The worst case?" grumbled one disgusted former Clinton Administration attorney who dealt with these issues for years. "We might not see another new airline for a very, very long time."

Some history: For most of the 1990s, complaints against the big airlines (American, Continental, Delta, Northwest, United and US Airways) for unfair business dealings had flowed at a steady rate into regulators' offices. Smaller, weaker rivals accused the big boys of everything from strong-arming airport managers to keep prime gate positions available, to selling seats at below cost just to maintain their dominance at certain airports. The little guys couldn't get enough traction to keep their low-fare flights going in the face of such aggression. The airlines, the feds thought, were acting like predators.

So the overseers threatened them with chains. And it worked — once the Justice Department announced its suit in May 1999 accusing American of "predatory pricing," the Big Six all retracted their claws.

The mere threat of one of their own losing this lawsuit made the major carriers — who carry about two thirds of all U.S. passengers — play nice. (Up to a point: American boldly went after Dallas-based start-up Legend Airlines, tying up the new carrier in court for months and then matching its first-class service. Legend went bankrupt earlier this year.)

So now that the American case looks like its flight has been cancelled, it's back to the "good" old days. In cities where large carriers have tolerated brash upstarts, look for some ugly wrangling. In Denver, where United faces Frontier, or in Atlanta, where Delta is pestered by profitable AirTran, fares might be in for a rollercoaster ride. First, passengers will probably be treated to a lively price war when the dominant airline dives down to compete with the rival — heck, they might even add a few more flights as a sweetener. If, as expected, the smaller carrier gives up, the big guy then calls it a day and bumps prices back up — and tacks some more on for its pain and suffering.

The most obvious ricochet from the American case being thrown out, however, might be on the proposed merger between United and US Airways, which up until now has been considered dead in the water. While it is true that aspects of the proposed marriage are still likely to trouble regulators — for instance, why DC Air chief Robert Johnson should be handed valuable airline assets along with priceless (and government-controlled) real estate at Washington's National Airport — United, with the propect of an unfettered regulatory climate ahead of it, should be more motivated than ever to make the anti-trust folks happy and close the deal. Because in this not-so-brave airline world, bigger will definitely be better.

For now, that might mean agreeing to pull out of markets where the combined airlines are overpowering, like Pittsburgh or even Washington-Dulles. But last week's ruling could mean concessions like that would be temporary — making United like a crouching tiger, waiting in the tall grasses for the next good time to pounce.

The prey? The wallets of the flying public.