American May Face Antitrust Suit
American Airlines, which may soon face a federal antitrust suit, said Tuesday there is nothing sinister about its pricing practices.
The Justice Department suit, if filed, would allege that the carrier tried to illegally drive a small competitor out of American's primary hub in Dallas, The Wall Street Journal reported Tuesday.
In a statement released Tuesday, American Airlines said its pricing and service actions are in line with those of other consumer-oriented businesses.
"Department stores, supermarkets, gas stations, and even the corner dry cleaner all compete on the notion that they will not be undersold, and this basic tenet of free market competition has been consistently affirmed by the Supreme Court," the statement said.
American noted that it has been cooperating with a Justice Department probe into airline pricing practices for almost two years. The airline has provided documents and held "constructive conversations to demonstrate that our competitive behavior has been perfectly legal," the statement said.
The airline said it would not discuss the details of its conversations with the Justice Department, as both American and the government want the discussions to remain confidential.
A Justice Department spokeswoman refused to comment on the report.
A possible antitrust suit against American Airlines isn't the biggest object on the market's radar screen, but it still served to undercut shares of American's parent, AMR Corp., on Tuesday, according to one industry analyst.
Brian Harris, an airline analyst with Salomon Smith Barney, said the possibility of a suit served to weigh on AMR shares, but will likely remain more of a "back burner" issue for the market over the long term.
"The main concern to airlines is the mix of traffic, which deteriorated in the fourth quarter, then capacity, then (rising) fuel (costs). This is probably fourth" in terms of priority, Harris said.
The Justice Department investigation reportedly centers on allegations by Vanguard Airlines, a small Kansas City, Mo.-based carrier. The airline, which attempted to serve routes from Dallas in 1996, said American tried to force it out of service between Dallas and Kansas City, Wichita, Kan., and Cincinnati by adding flights and dropping fares, the report said. Vanguard trades over-the-counter under the symbol "VNGD."
If a suit is filed, it would mark the first enforcement action to come out of a two-year investigation of the power major airlines hold over their hub airports. The broad investigation has examined alleged monopoly tactics on air routes from Chicago, Dallas, Denver, Detroit, Minneapolis, Atlanta and New York, the newspaper said.
The report said other carriers operating on those routes, including Northwest Airlines, remain under federal scrutiny. The Justice Department's antitrust chief, Joel Klein, has yet to proceed with a case against any airline, which may indicate carriers ae in settlement discussions with government lawyers.
Written By William L. Watts, CBS MarketWatch