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 The Brancatelli File

joe LANDING BETWEEN
A ROCK AND A HARD PLACE


BY JOE BRANCATELLI

May 20, 1999 -- In the perfect world, where our government has a sense of humor and our airlines have a sense of irony, the news that the Justice Department filed antitrust charges last week against American Airlines would have been delivered with the following announcement:

Attention, frequent flyers! Please fasten your seat belts and bring your seats to the full, upright position. We're about to begin our final descent for a landing between a rock and a hard place.

Unfortunately, we live in the real world. A world where a bureaucratic and ineffective government thinks it can sue airlines into playing fair. A world where our robber-baron airlines think they can get away with swaddling their abhorrent business practices in the blanket of free enterprise.

A world where, unfortunately, things will get much worse for frequent flyers before they get better. We're stuck between the proverbial rock of inefficient government regulation and the hard place created by oblivious airlines. It's going to be a bumpy and expensive ride as we careen between these two awful forces in search of a better commercial air-traffic system.

To be perfectly honest, it's a waste of space to discuss the Justice Department case against American. Everyone on the planet knows that American used its gargantuan size and an array of anti-competitive practices to drive smaller carriers such as Vanguard off routes into and out of American's hub at Dallas/Fort Worth. And virtually everyone on the planet knows that the Justice Department won't be able to prove it, because making an antitrust case is almost always impossible.

But since the lawsuit puts us between rock-headed government regulators and hard-assed airline executives, let's talk solutions. And solutions that cover all airlines, not just one carrier apparently suggested at random by the Justice Department.

And, please, no whining about how it is "wrong" to regulate the practices of the privately owned airlines. As a nation, we have the inalienable right. We, the people, own the airspace in which the airlines fly. And we, the taxpayers, built all the airports.

So here are three suggested fixes, all aimed at increasing competition in the skies. I'd be honored to entertain your ideas and mention the best of them in an upcoming column.

FIX NO. 1: 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 Omaha; Albany and Milwaukee; Birmingham and San Diego; 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? More competition 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. They would also offer cheap or free upgrades if you connect and offer frequent-flyer bonuses for flying over their hubs. You'd then have a choice: convenient, new nonstops or cheaper, perk-laden connecting flights.

FIX NO. 2: 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 incumbent airlines flood the market with new flights, more seats and cheap fares. In fact, American is charged with just such an offense in last week's Justice Department suit. I say no airline should be allowed to use its monopoly position to drive out a new competitor.

If an existing carrier wanted to match--or even undercut--the fares offered by a new competitor, I say "Viva Price Wars!" But existing carriers should not be allowed to add additional capacity for two years after the entry of a new competitor. After all, if the incumbent carrier thought there was a market for more service, why didn't it launch the additional capacity before the new airline arrived?

FIX NO. 3: TARGETED TAX BREAKS
To enhance the ability of carriers to compete on new routes, I suggest targeted tax breaks. Any airline that launches nonstop jet service on an unserved route or in a 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 three 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. Another benefit: These suggestions encourage airlines to launch service on new or underserved routes, not incentivize them to compete in markets already well-served by existing carriers.

This column originally appeared at biztravel.com.

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