For the last several years, new entrants and smaller carriers in the US have complained about what they have perceived as the unfair competitive practices of the major airlines at their dominant hubs.
Ranging from predatory pricing to capacity dumping to disproportionate frequent flyer benefits - those leading the charge have been as vocal as they have been determined to create what they feel is a more level playing field in the US aviation market.
Last week, this group scored its first major victory as the US Department of Justice filed an antitrust suit against American Airlines claiming the nation's second largest carrier drove out its low-fare competitors in order to monopolize routes out of the DFW Airport.
The DOJ charged that American added flights and slashed airfares in order to protect marketshare at its DFW hub. Joel Klein, head of the antitrust division, says American went so far as to purposely lose money in order to run these low-fare start-ups out of the market and to gain a monopoly on traffic flying in and out of the airport. Right now 77% of the traffic at DFW flies on American, he said.
One of the discount carriers claiming to be unfairly targeted by American is Kansas City-based Vanguard Airlines.
"Vanguard's position, which it has held for three years, has been vindicated," says CEO and president Robert "Rocky" Spane, who calls American's steps to eliminate their presence at DFW unlawful.
"We are delighted that the Justice Department has agreed," says Spane. "This is a move that will help preserve open competition throughout the industry and help consumers and new entrant airlines alike."
But the argument that actions like those taken by the DOJ are helpful to consumers is very much under fire. American believes the allegations of predatory practices are not only unwarranted, but go against the very essence of free market competition. American makes no apology for being an aggressive - but fair - competitor because fierce competition has delivered more innovation, greater efficiency, expanded service and lower airfares to the US aviation industry.
"Matching rivals' fares is the simplest competitive response - and one consistently validated by the courts," said American. "Failing to match fares in the airline industry is a quick ticket to financial ruin for any company since price is of overriding importance for consumers."
American says there is a double standard being applied: "When a low-fare carrier enters a route, government officials, the press and public applaud them for providing healthy competition. When the established carrier competes on that route by matching those fares or offering more flights, it is denounced as predatory."
American notes that it was forced to close its hubs in Nashville, Raleigh-Durham and San Jose because of low-fare competition and lack of business. Nevertheless, American did not blame its competitors or seek government action against them. Nor did the government see the need to investigate why competitors were able to drive American out of the market: "American took its lumps and put its assets to use in other markets."
American is not alone in its defense. Many industry observers believe new entrants fail because of inherent flaws in their business plans, not because of predatory pricing.
"Almost every upstart airline underestimates costs while miscalculating its break-even load factors, consumer demand, and the competitive response," said Darryl Jenkins, Director, The Aviation Institute at The George Washington University.
"Congress and the usual-suspects crowd of veneer aviation analysts have cabbaged on to the silly belief that these are a genre of companies that have been unfairly treated by that Evil Empire called 'Big Airlines,'" said industry analyst Mike Boyd of ASRC. "The vast majority of these have failed for reasons other than "predatory competition" from the Evil Empire. There are very few industries that can eat money faster with lower potential returns than the airline business."
The DOJ says it is looking into similar predatory pricing situations at other hubs dominated by other major airlines. But for now, the suit appears to be limited to pricing and capacity actions on certain routes and not a broad attack on the overall issue of hub dominance, say analysts.
American says it will mount an aggressive defense and is confident that its actions at DFW will prove to be nothing more than those of any tough competitor in a highly competitive industry.
