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 The Brancatelli File

joe SLACK-JAWED REGULATORS
AND PURSE-SNATCHING AIRLINES


BY JOE BRANCATELLI

April 10, 1998 -- Even if you never believe another word I write--and I hope to be scattering electrons here for a while--I beg you to believe this:

The only people on the planet dumber than the slack-jawed yokels at the Department of Transportation who regulate the nation's major airlines are the purse-snatching pea brains who run the major carriers.

I refer, of course, to Monday's Dumb and Dumber routine between the mega-airlines and the DOT concerning the bare-knuckles tactics that the majors are using to pound the financial daylights out of the small carriers. Both sides came out looking pompous and officious and business travelers were left with no hope that anything will be done to alleviate their unfair fare burden.

In case you've been numbed into unconsciousness lately by the outrageous fares you pay, here's a one-minute recap of recent events. Small carriers claim that large airlines are using tactics outlawed since the days of Teddy Roosevelt and the Trustbusters to drive them out of the skies. The DOT, which never reviewed an anticompetitive merger or monopolistic code-share it didn't sanction, has begun to sniff around the edges of the trench warfare. The majors, most of whom opposed deregulation when it was passed 20 years ago, loudly accuse DOT officials of being closet re-regulators.

On Monday, Transportation Secretary Rodney Slater finally spoke publicly, issuing what he called a "policy to guide enforcement actions against ... unfair exclusionary practices designed to eliminate competition in commercial aviation." Stripped of its incomprehensible Washington gobbledygook, what Slater said was that he would punish a major airline if he determined it had harassed a smaller carrier.

Unfortunately, Slater's standards for predatory behavior are not only buried beneath the rubble of the DOT's bureaucratic language, they are impossible to prove. Worse, his staff leaked the sanction to be levied against a misbehaving major carrier: a daily fine of $1,100. Slater seems to believe the mere threat of a fine will embarrass mega-carriers into playing fair.

Dumb as this all sounds, the major carriers were dumber. Instead of mumbling words of support for the DOT's toothless policy and then dipping into petty cash to pay for the right to clobber the little guys, the majors went ballistic.

They howled about re-regulation. They railed against the concept that they might be required to bring their conduct in line with generally accepted business norms. And one airline shyster even suggested that abiding by the DOT proposals would force the majors to violate the Sherman Anti-Trust Act!

So to the yokels at the Department of Transportation I say this: Sit down and shut up. Do any of you realize you approved an "airline competition policy statement" that might require a major carrier to raise fares in the name of lower prices? Which one of you will stand up and tell the nation that you're ordering an airline to increase prices for the competitive health of our airline system?

And to the purse snatchers at the major airlines I say this: Sit down and shut up. In case you hadn't noticed, American taxpayers own the airspace, fund the air-traffic control system and pay for the airports. We've got every right to regulate you.

Having thus dispatched Dumb and Dumber, is there anything we can do to level the playing field so that small airlines and start-ups have a fair chance to compete?

I just happen to have three suggestions right here:

NEW-ROUTE PROTECTION
Any airline that launches nonstop jet flights between two cities where there is currently no such service should be given two years of protection from competition. Who will launch nonstop jet flights between Boston and Des Moines, Seattle and Omaha, Albany and Milwaukee, and thousands of other unserved city-pairs? If you have the guts, you deserve two years of grace to build the market. Want an added benefit of encouraging airlines to fly new, nonstop routes? Lower fares at the major carriers' fortress hubs. To combat the convenience offered by the protected carriers' new nonstops, the major airlines would lower the prices of their competing connecting flights.

NO CAPACITY DUMPING
Any airline that launches a nonstop jet route where there is currently only one or two existing carriers should be given a two-year shield from "capacity dumping." Often, new carriers are run off a monopoly or duopoly route because the existing airlines flood the market with new flights and cheap seats. If an existing carrier wanted to match--or even undercut--the fares offered by a new airline, I say "Viva Price Wars!" But existing carriers should not be allowed to add new flights for two years after the entry of a new competitor. After all, if an existing carrier thought there was a market for additional service, why didn't it launch the flights before the new airline arrived? Three carriers per market should ensure ample service and fair fares in most markets.

TARGETED TAX BREAKS
To enhance the ability of carriers to compete on new routes, I suggest targeted tax breaks. Any carrier that launches nonstop jet service on an unserved route or in monopoly or duopoly market should be exempted from local airport passenger facility charges and all aviation-related taxes. We give tax breaks to businesses all the time. Why not to airlines when they pioneer new flights?

What are the benefits of my proposals? For one thing, they are not limited just to start-up or small airlines. Any carrier willing to launch new service under the terms outlined above may do so. For another thing, my plan lets all airlines set fares without government intervention--or the spectacle of a regulator forcing an airline to raise fares in the name of competition. Another benefit: These suggestions encourage airlines to launch service on new or under-served routes, not encourage them to compete in markets already well served by existing carriers.

Not bad, eh? More competition without messy government price regulation, no unfair coddling of entrepreneurs at the expense of existing businesses and no major carriers using their market dominance to pulverize newcomers.

See how much work we can get done when Dumb and Dumber sit down, shut up and let business travelers have the floor?

This column originally appeared at biztravel.com.

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.