By CP Staff
By Olivia LaVecchia
By Chris Parker
By Jesse Marx
By John Baichtal
By Olivia LaVecchia
By Jesse Marx
By Olivia LaVecchia
Most often, low-fare carriers have been doomed simply by their competitors' ability to undersell them. For example, in 1993 tiny Reno Air began offering bargain fares from the Twin Cities to Nevada. Northwest quickly added flights to Reno and slashed its prices to match the rival. Three months after it started flying here, Reno threw in the towel.
In 1997 Reno sued Northwest, claiming the bigger company had engaged in "predatory pricing," the antitrust violation that occurs when an airline sells tickets at a loss in order to drive a competitor out of business. The suit was dropped in March, after Reno was purchased by American Airlines--which, as it happens, is itself the target of an antitrust suit filed by the Justice Department.
Experts say the problem with predatory-pricing suits is that they are extremely difficult to win. "It's mostly a question of proof," says Dan Kleinberger, a professor of business law at William Mitchell College of Law. "The major carriers all have extremely well-trained antitrust lawyers. The executives have all been taught what not to do."
For instance, in 1982 the Justice Department filed a separate antitrust suit against American CEO Robert Crandall, charging that he had conspired with the chairman of American's then-rival, Braniff, to fix prices. Tape recordings of a conversation between the two made their way into the court file: "I think it's dumb as hell, for Christ's sake, all right, to sit here and pound the [expletive] out of each other and neither one of us making a [expletive] dime," Crandall told his Braniff counterpart, according to the New York Times Magazine. "Raise your fare 20 percent. I'll raise mine the next morning....You'll make more money and I will, too." These days airlines often raise and lower their fares in unison, but they don't discuss their plans with the competition.
Earlier this year, the U.S. Department of Transportation drafted new guidelines designed to get around the need for a smoking gun: Under the new rules, a major airline would automatically trigger a federal investigation when it adds seats and slashes prices on routes being served by a newcomer.
La Macchia recently testified before a U.S. House of Representatives subcommittee debating the proposed rules. Northwest's response to Sun Country's arrival in the market "fits every one of the proposed DoT guidelines that would prompt an investigation," he told the lawmakers.
"This fight, and the proposed DoT regulations, is not about taking away the rights of the dominant airlines," he went on. "In fact, the best way to preserve the benefits of airline deregulation is to create an environment that provides all air carriers with a fair chance to compete and prosper." The DoT has announced no time line for deciding whether the guidelines will be enacted.
Northwest chose not to participate in the hearings because preparations were too time-consuming, because a representative of a major airline association did testify, and because "this was a set of hearings where there wasn't really a role for large airlines," according to Jon Austin. Besides, he adds, Northwest has "been up on the Hill this year five or six times."
Sun Country's Lee says committee staffers have told her Northwest held private meetings with some of the representatives before the hearings. Austin says he doesn't know whether that's true and wouldn't see anything wrong if it were. Northwest has a full-time governmental affairs staff, he notes: "I'm sure we meet with [members of Congress] all the time."
According to federal campaign finance records, in the last election cycle the airline's political action committee donated $1,500 to Tennessee Republican representative John Duncan, the head of the subcommittee that hosted last month's hearings. All totaled, employees of the airline and its political action committee gave $67,500 to members of the committee and its Senate counterpart.
During the same election cycle, the PAC, individual Northwest employees, and the airline itself gave almost $900,000 in federal campaign contributions and spent more than $5 million on lobbying in Washington. Neither Sun Country nor Mark Travel made any donations, though Bill La Macchia Jr. did give $250 to Minnesota representative James Oberstar, a longtime Democratic member of the committee.
Whether La Macchia's message fell on receptive ears in Washington is anyone's guess. But he has found an advocate in the Minnesota Attorney General's Office. A former state commerce commissioner and gubernatorial candidate, Mike Hatch picked fights with entrenched institutions--insurance companies, health-maintenance organizations, the state DFL Party--long before he was elected attorney general last year. After taking the oath of office, he wasted little time in announcing that he thought lower airfares were overdue in Minnesota.
The public has an interest in how Northwest deals with competition, Hatch argues, because the airline's success has been contingent on its domination of the Twin Cities airport. That airport is owned by taxpayers, he notes--taxpayers who, thanks to the near monopoly, now pay a premium to fly out of their own facilities. "We have turned over market control to one company," Hatch declares. "We've essentially turned over a public asset to a private company, and that's bad."
Since taking office, Hatch has researched several ways in which the state could get involved in the fight between Northwest and Sun Country. First, he suggests, his office could participate in an antitrust lawsuit filed by the Justice Department over Northwest's alliance with Continental Airlines. Alternatively, the state could file its own suit against Northwest over predatory pricing (a case, Hatch concedes, that would be difficult to prove under current law).