Although legal experts believe the charges against American will be difficult to prove, the lawsuit is nevertheless a high profile action that the Cilnton Administration in general and Attorney General Janet Reno in particular will be loathe to lose.
The DoJ filed its complaint on 13 May, focusing its attention on American's home hub at Dallas-Fort Worth International Airport, where it lists a series of instances in which the carrier cut fares and added capacity in markets where startups launched low-cost competition.
The DoJ contends that American used predatory tactics against Vanguard Airlines, Sunjet International and Western Pacific in 1995 and 1996. The Department points out that once the startup was driven out of the Dallas market, American either raised fares or reduced service. Western Pacific has since gone out of business, while Sunjet and Vanguard both pulled out of the DFW market. Vanguard has recently returned to Dallas, however.
The announcement immediately caused shares of AMR, American's parent, to tumble, while Vanguard's rose. Longer term effects of the action, however, are of greater concern and are being hotly debated in Washington DC and in the boardrooms of all the US majors.
American's overwhelming dominance at its hub is typical among most of the US majors in the hub-and-spoke system that has developed since deregulation. While the DoJ insists it is not out to kill hub-and-spoke, it will be difficult to separate this system - which the majors argue provides the most efficient way to lowering costs and fares overall - from the competition issues that are at the root of the lawsuit.
Where will the line be drawn between fierce competition and monopolisation? The DoJ argues that American overstepped this line; American responds that the government "cannot ask us not to compete".
The Air Transport Association, which represents US major carrier interests in Washington DC, is keeping its distance from the lawsuit action, saying it is a matter between American and the DoJ on which it has no comment. However, other major carriers, including Delta Air Lines and Northwest Airlines, are believed to have been scrutinised by the DoJ and the outcome of this action has implications across the industry if the DoJ is successful.
Source: Airline Business
