WASHINGTON -- Reacting to opposition from major airlines, the
Transportation Department came out swinging in a concerted effort
to explain why its proposed competition policy is needed to prevent
the majors from taking "extreme measures" to eliminate low-fare
competition.
The DOT released a report showing fares have risen in
short-distance markets without low-fare competition, and it hired a
public relations counselor to work on promoting its competition
proposal. A senior DOT official was scheduled to address the
National Business Travel Association conference in Orlando, Fla.,
this week to defend the plan.
The new report compiles data and arguments the DOT has presented
in bits and pieces before and includes new information, most
notably on what has happened to prices in markets shorter than 750
miles. In such markets with low-fare carrier competition, ticket
prices dropped 41% in the 20 years since deregulation began, the
DOT said. But in short-distance markets without low-fare
competition, inflation-adjusted average fares rose 23% in the past
20 years, it said.
Furthermore, 60 million new passengers are flying every year in
409 markets with new low-fare service, which demonstrates the
potential boon to consumers if such service can be offered
elsewhere, the DOT said.
The report, on the Web at dms.dot.gov/ost/aviation, was an
attempt to rebut Air Transport Association arguments that fares
have fallen more than a third under deregulation. The ATA, a DOT
official complained, is sidestepping the issue by using overall
fares and ignoring problems in short-distance markets.
The report also offered a succinct statement of what the DOT
would consider punishable conduct by a major airline. The DOT would
act, it said, "if the major airline adds seat capacity on a route
and floods the market with low fares to such an extent that its own
revenues actually decline -- a business strategy that makes sense
only if it results in the elimination of the new competitor so that
fares at or above pre-competition levels can be reinstated."
The report cited four examples of past conduct that the DOT said
went too far. In one example, the incumbent carrier at a dominated
hub responded to new low-fare competition in a 394-mile city-pair
market by selling more than 46,000 seats for less than $75, more
than six times the total seats sold by the low-fare competitor. As
a result, the incumbent carrier's revenues fell 50%, the DOT
said.