Transportation secretary urges closer look at airline competition

NEW YORK (CNN) -- Transportation Secretary Rodney Slater, with only days left in office, Tuesday called for closer scrutiny of competition among major airlines.

In a speech before the Wings Club, Slater said the department would release three studies showing that "airlines may be using a wide variety of tactics to suppress competition," a practice the secretary denounced.

"This administration believes that the department may and should take action against unfair competition," he said.

Contrary to an earlier proposal, Slater said the department would not publish guidelines on the issue, saying a "one size fits all" approach wouldn't work.

"We have concluded that any determination that an airline has engaged in unfair competitive practices requires an examination of the specific facts of that case," said Slater said, who also recommended that the Transportation Department "should continue to work closely with the Justice Department" to prevent anti-competitive practices.

Slater's speech came as the proposed mergers of American Airlines with TWA and United with US Airways move toward finalization. The mergers would give the two carriers control of roughly half of the airline market.

In his speech, Slater said competition at various airports has both increased traffic and cut fares. For example, he said that one year after Southwest began serving Providence, Rhode Island, fares fell by almost 50 percent and traffic more than tripled.

A source who has been briefed on the studies said one of them compared fares at major hub airports with competition against major hub airports with little or no competition. The result? Fares at hubs without competition tended to be as much as 40 percent higher than at airports hubs with competition.

The source also said predatory pricing was found to be a problem -- especially where an airline would dump seat capacity on a market at cut rates to drive a startup competitor out of business or keep it out of the market. The study found that market forces tend to work with startup airlines only if the larger airlines don't drive them away with predatory pricing.

The study also found that doubling and tripling of frequent flier mile awards, travel agency discounts and exclusive corporate discounts constitute unfair practices.

The Air Transport Association, which represents most major U.S. airlines, reacted to the DOT studies in advance of their public release:

"It is unfortunate that over three years of examining and reviewing the issues, the Department of Transportation remains uncertain and unfocused as to the proper course of action. As our industry has repeatedly said, the anti-trust laws of the U.S. already apply to all industries and companies, including airlines. Our airlines, as well as consumers, the traveling public and -- in a larger sense -- all American consumers expect and demand these laws be rigorously enforced. We are confident we have complied and will continue to comply with the law. "

The ATA noted that the number of airlines had grown from 43 in 1978 to 94 by 1999 with deregulation.

One industry expert noted that any action by Slater might be changed or negated within weeks of the new administration taking office January 20. Democrat Norman Mineta, President Clinton's commerce secretary, is President-elect George W. Bush's pick to head the Department of Transportation.

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U.S. Department of Transportation
Air Transport Association

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