Kevin O'Toole/LONDON
US low cost airlines have won their battle for rules on predatory practices by the major network carriers, with the issue of new competition guidelines from the US Department of Transportation (DoT).
The new policy, unveiled for comment last week by Transportation Secretary Rodney Slater, effectively proposes to put limits on how far the major carriers can go in protecting their hubs against new low fare entrants.
Major carriers will be judged to be engaging in "unfair exclusionary practices" if they swamp local markets with more low fare seats than are offered by a low cost start-up competitor. Abasic test is whether the major carrier offers unrestricted low fares to such an extent that it sheds more revenues than it would have lost through more restrained competition.
The DoT will also consider other indications of unfair competition such as hoarding of airport gates or over-aggressive use of commissions or bonus schemes that "-appear to target new entrants unfairly".
Slater stresses that the aim is to prevent major carriers from actions designed "not to maximise their own profits but rather to deprive the new entrants of vital traffic and revenues". The DoT has gathered evidence that once a major carrier has killed a new entrant through an aggressive short term fares war, capacity quickly falls and seat prices rise to their previous level or above.
Slater stresses, however, that this is not an attempt to "re-regulate" the US airline industry and that it will not be used to "guarantee new entrants success or even survival".
The DoT proposals come in the face of competition complaints from low fare airlines and mounting Congressional pressure to stem the wave of low cost airline bankruptcies, including the failure of Air South, WestPac and Pan Am, and the threat that others could follow.
Towards the end of last year the DoT took steps to open access to slot constrained hubs by granting exemptions to new entrants at New York LaGuardia and Chicago O'Hare. It has also issued rules to address competition concerns over the use of computer reservation systems and is planning a re-examination of the area.
The latest policy statement has been greeted as a major victory by low fare airlines. The Air Carrier Association of America, which has been set up to lobby on their behalf, welcomed the move, but says that it is essential that the DoT now responds quickly to complaints already lodged by low cost airlines.
Senator John McCain, who has fought for the new guidelines within the Senate transport committee, says that the new proposals should help to "foster and encourage" competition.
"I also hope that they will encourage the capital markets to finance start-up carriers," the senator adds.
The proposals, however, have met with a torrent of complaints from the major airlines, claiming that they amount to re-regulation. "The guidelines are based on an extremely simplistic analysis of what is by any measure a complicated issue," says United Airlines chairman Gerald Greenwald.
Carol Hallet at the Air Transport Association says: "No matter how they cut it, this policy puts government bureaucrats in the business of setting fares and determining the level of service in the market."
She adds that the DoT policy statement is "-replete with imprecise and vague terms and mischaracterises the views of the major carriers".
Source: Flight International
