Predatory Pricing In The Skies

These days, changing planes at busy airports is like battling rush hour in Los Angeles. CBS News Correspondent Bob Orr reports for Eye on America.

"It's a cattle call when you go to an airport now," says one traveler.

The price you pay for an airline ticket is a moving and sometimes very expensive target.

"I have a personal game where I ask everyone sitting around what they paid for the same seat. Often if you ask six people, you get six different prices," another traveler jokes.

And, as for dining in the skies, well...

"Sometimes they have a little deli sandwich that's freezing cold and the turkey's kind of frozen to the bread, which is soggy from being in the freezer," one passenger complains.

Welcome to flying in 1998: a less than glamorous adventure.

But, 20 years after the government first allowed airlines to set their own schedules, routes, and prices, more Americans are flying now than ever. And after years of losses, big airlines are now celebrating big profits. With deregulation, ticket prices, on average, have been cut by a third, while the number of flights has doubled.

"Deregulation has really brought democracy to the skies with lower prices for all of our passengers," says Carol Hallett, President of the Air Transport Association.

Well, not for all. Take Decatur, Illinois. Like dozens of other small cities, Decatur lost out when airlines reassigned their jets to more profitable markets, leaving behind small planes and spotty service.

"We have not seen fares go down," says Julie Moore of the Decatur Chamber of Commerce."We have not seen service increase and that's what deregulation was supposed to do. It didn't happen here.

What has happened, critics say, is that a cartel has evolved.

America's six largest airlines, United, Delta, American, Continental, Northwest, and US Airways, control 74 percent of all routes and have a hammerlock on so-called hub airports (Atlanta, Minneapolis, Detroit, Dallas, Cincinnati, Charlotte, Pittsburgh, Denver, Houston, Chicago, Salt Lake City, Memphis, Cleveland, Newark). New, oftentimes low-cost, competitors are routinely pushed out.

"All we're asking for is fair competition," says Jerry Murphy, President of Kiwi Airlines.

Murphy got a lessen in economic hardball this summer when his airline tried to crack the Minneapolis market offering seats to Newark, New Jersey for $87 with a three-day advance purchase. Northwest Airlines, which operates three-quarters of all flights in Minneapolis, quickly countered with a $67 fare. Kiwi soon pulled out and Northwest canceled its cheap fare. It now charges $583 for the same ticket.

"Competition is one thing," Murphy continues "Coming in and attempting to force a carrier out is something totally different."

Northwest argues it was just competing in a free market. But Kiwi plans to file a complaint with U.S. Secretary of Transportation Rodney Slater, who is proposing a crackdown on what's called predatory pricing.

"What we're trying to do is insure that there is competition across the board for everyone, and that that competition is played out on an equal footing, a level playing field," claims Slater.

Major airlines are fighting Slater's proposed policy change.

"We're saying this is the free market, and that is why we should not be re-regulated and told how much we can or can't charge," argues Hallett.

It's a battle the industry is not likely to lose. Twenty-years into deregulation, a select few big airlines, enriched and empowered by a free market, have all the clout. Any calls for change will only be embraced when there's money to be made.
  • CBSNews.com staff CBSNews.com staff

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