graphic
News > Economy
DOT sets new airline rules
April 6, 1998: 11:44 a.m. ET

Aviation officials will bust big carriers for 'unfair exclusionary practices'
graphic
graphic graphic
graphic
NEW YORK (CNNfn) - U.S. aviation officials unveiled new rules Monday that will make it illegal for a big airlines to try to unfairly squeeze start-up carriers out of key markets.
     "Consumers deserve a pro-competitive standard that helps ensure affordable airfares and accessible service," said Transportation Secretary Rodney Slater in announcing the changes.
     Under the new rules, a major airline will be charged with "unfair exclusionary practices" if it incurs a short-term loss when it lowers fares to hub markets.
     And major airlines such as Delta, United, American and USAir cannot seek to earn less than "reasonable" revenue when they lower fares to catch up with low-fare entrants.
     "The major carriers view competition by new entrants as a threat to their ability to maximize revenues through price-discrimination," the Transportation Department said. "We hereby put all air carriers on notice."
     The ruling, up for a 60-day period for public comment, comes at a time when no-frills carriers have dramatically lowered the cost bar and cut into the market share of major carriers.
     The Department of Transportation cited an in-house study that showed low-fare competition saved over 100 million travelers an estimated $6.3 billion in the year ended Sept. 30, 1995.
     To stave off competition from the no-frills carriers, the department said, a major airline in some cases will drive the new entrant from the market by adopting a strategy involving drastic price cuts and flooding the market with new low-fare capacity.
     Once a low-cost carrier is driven out, the bigger airline then will jack up prices again.
     Alleging its investigations have turned up such tactics, the department said the ruling will affect only future violations, which it will examine on a case-by-case basis.
     The department said it will take enforcement action against a big carrier if it floods a market with capacity and sells such a large number of seats that it results in lower local revenue than would a "reasonable alternative response."
     Stephen Lewins, a Gruntal analyst, said the rules will simply speed up a recent change in the industry: leisure travelers will fly the low-cost carriers while business fliers -- the bread-and-butter of airlines -- fly with the majors.Back to top

  RELATED STORIES

Airlines' tactics won't fly - March 13, 1998

Airlines riding high - Feb. 12, 1998

  RELATED SITES

U.S. Department of Transportation


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney




graphic