Prying Open The Open Skies

Reformers aim at the big airlines' hold on airports and fares

It's shaping up to be quite a 20th birthday party for airline deregulation. Two decades after Congress voted to open the skies to greater competition, the government is planning a commemoration--new rules to crack down on what it sees as anticompetitive behavior by the major carriers, and perhaps even passing new laws to protect startup airlines.

The goals of the reform efforts are ambitious: Break the stronghold that major airlines have on the nation's busiest airports, bring more service to smaller cities, and attack allegedly predatory behavior--such as when an established carrier slashes fares and adds flights on a route to keep new airlines from making inroads. The Transportation Dept. plans to release a definition of predatory behavior in February, which could lead to stiffer enforcement. In Congress, at least five separate airline bills are expected this term.

"SCARE TACTIC." Mostly, deregulation has worked: Since 1978, fares have dropped sharply. But lately, the majors have used a strong economy and worries about safety after the 1996 ValuJet crash to battle startups more fiercely. The big airlines have stopped competing with each other on some business routes and locked up a larger share of airport resources. At O'Hare Airport, American and United Airlines now fly about 87% of flights, up from 66% in 1986. Business fares are up 38% since February, 1996, according to American Express Travel Related Services. "The practices have created a less and less competitive environment," says Craig E. Belmondo, president of Pro Air, a Detroit startup.

The solution? "We need to see expanded competition by allowing the smaller airlines to participate more freely in the market," says Senator Bill Frist (R-Tenn.), sponsor of one bill to provide low-rate loans to carriers that would fly to cities with limited service.

Most of the other bills attack the big airlines more directly. Among the proposals are two bills, by Representative Charles E. Schumer (D-N.Y.) and Senator John McCain (R-Ariz.), that call for some takeoff and landing slots at four of the nation's busiest airports--in Chicago, Washington, and New York--to be taken from the majors and auctioned off to low-fare rivals, sources say.

The industry clearly takes the new legislative and regulatory efforts seriously. In mid-January, United brought 30 congressional staffers to its Illinois headquarters to lobby them on the issues. Robert L. Crandall, chief executive of American Airlines Inc., warns that the proposals, "if adopted, will amount to a fairly substantive reregulation of the domestic industry." Counters Patrick V. Murphy, a Transportation Dept. official who oversees aviation policy: "That, of course, is a scare tactic."

The next move on airline competition will be the DOT's release of its definition of predatory behavior. The DOT will try to be more precise about when airlines break rules by driving rivals out of markets with fare cuts, intimidation, discounts for travel agents, or new flights. The key test: Is a larger airline deliberately sustaining losses to hurt a rival?

The DOT now has no such definition and has instead tried to persuade airlines to stop behavior it has viewed as anticompetitive. "In the past, we've relied on jawboning," Murphy says. In 1993, for example, Northwest Airlines pulled back from attacking Reno Air after Transportation Secretary Federico Pena stepped in. But the government hopes a formal policy will help them pursue other cases, including an ongoing investigation of United's behavior at its Denver hub. Three bills in Congress aim to make sure the DOT decides the cases within six months.

The airlines say predatory practices are not feasible in such a competitive sector. As for the proposed bills, they say reclaiming airport slots would force them to abandon their least profitable routes--often to the same cities the lawmakers aim to help.

But the government is unlikely to back off. Business is screaming about rising fares, and the data show that when a low-fare carrier enters a busy market, rates are often halved and flight frequencies can triple. That's something to celebrate.

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