I love the Business Travel Coalition. I really do. I see a press release from this organization in my inbox, and I start to smile. It’s like reading Business Insider headlines without stopping to think that they may be click-bait (not that I’m ever guilty of that, of course …). Well, the latest is downright hilarious. If you hate Delta, you’ll love the Business Travel Coalition.
In its latest statement, the BTC draws attention to a “predatory” move by Delta. In response to Frontier Airlines’ decision to open a route from Minneapolis to Kansas City, it says, the largest airline in the United States has pulled the trigger on routes from Kansas City to Boston, Columbus and New Orleans. According to the BTC, that’s some heavy-duty payback, intended to help Delta “maintain its monopoly position at Minneapolis St. Paul International Airport.”
Ummmmm, really? It’s a pretty costly “retaliation” play.
Of course, Delta couldn’t have come up with this idea on its own. The BTC explains:
This is a page from Northwest Airlines’ playbook reminiscent of its 1993 response to entry by tiny Reno Air when Northwest announced it would overlay the carrier’s routes from Reno to MSP, Seattle, Los Angeles and San Diego.
Yeah, of course it is. The people with aluminum foil on their heads and hanging from their ceilings are doubtless nodding in violent agreement right now. Fortunately, it gets better when you hear what BTC chairman Kevin Mitchell has to say about all this:
“As we saw in the U.S. during the 1990s, strategies of predation seek to drive low-cost competitors out of markets and create barriers – literal barriers of fear – for potential new entrants. Consumers may benefit from below-cost pricing in the short term, but once a new entrant is driven from a market, the incumbent airline can raise prices above competitive levels and recoup the “investment” in its strategy of predation.”
As the ol’ infomercial folks say, “But wait! There’s more!”
“Just as importantly, the anticompetitive behavior sends an unmistakable message to other competitors to not trespass on the incumbent’s markets anywhere in its network, negatively impacting consumers even more broadly. Make no mistake, Delta’s heavy-handed, punitive attack on this low-cost carrier is meant to chill all other low-cost airlines that might otherwise try to mount competition at one of the most concentrated hub airports in the U.S.,” added Mitchell.
Look, the BTC may have a point in all this. It won’t be communicated effectively, though, if they take this approach. In case you need a chuckle, here’s the full statement. First, though, you need a break, largely because these people are so bat-shit crazy. So, to break this up, I offer you some singing skeletons from Canada.l
Okay, now here’s the statement:
It’s deja vu all over again as Delta Air Lines seeks to maintain its monopoly position at Minneapolis St. Paul International Airport (MSP) by retaliating against Frontier Airlines for deciding to initiate scheduled service from Kansas City to MSP on June 6, 2011. In a response that can only be considered retaliatory and anticompetitive, Delta beginning on June 6 will start flights from Kansas City to Boston, Columbus and New Orleans, and from Omaha to Ronald Reagan Washington National Airport – all overlaying Frontier’s schedules. This is a page from Northwest Airlines’ playbook reminiscent of its 1993 response to entry by tiny Reno Air when Northwest announced it would overlay the carrier’s routes from Reno to MSP, Seattle, Los Angeles and San Diego.
“As we saw in the U.S. during the 1990s, strategies of predation seek to drive low-cost competitors out of markets and create barriers – literal barriers of fear – for potential new entrants. Consumers may benefit from below-cost pricing in the short term, but once a new entrant is driven from a market, the incumbent airline can raise prices above competitive levels and recoup the “investment” in its strategy of predation,” said Business Travel Coalition chairman Kevin Mitchell.
“Just as importantly, the anticompetitive behavior sends an unmistakable message to other competitors to not trespass on the incumbent’s markets anywhere in its network, negatively impacting consumers even more broadly. Make no mistake, Delta’s heavy-handed, punitive attack on this low-cost carrier is meant to chill all other low-cost airlines that might otherwise try to mount competition at one of the most concentrated hub airports in the U.S.,” added Mitchell.
In 2008 testimony before the U.S. Senate and House, in opposition to the proposed Northwest – Delta merger, BTC forewarned about the consequences of creating mega carriers and driving radical consolidation of the U.S. marketplace for commercial aviation services:
Strategies of Predation. “The resulting mega carriers would fortify their hubs with near-exclusive contracts with corporations and travel management companies, and other well-tested practices such as gate hoarding, schedule bracketing, triple frequent flyer points and travel agency override programs, making the barriers-to-entry for low-cost carriers of the 1990s seem low. Congress should be concerned with the market power of super-mega airlines and their incentive and means to frustrate new airline entry at hub airports.”
Indeed, the Delta-Northwest merger created the largest airline in the world; one that possesses the market dominance necessary to frustrate new entry at its hub airports, and one that can project its considerable power into adjacent markets, as also noted in BTC’s 2008 testimony:
Adjacent Market Power. “Congress should be concerned with these mega carriers’ ability to drive supplier prices to below competitive rates for travel agencies, travel management companies, airports, global distribution systems, parts suppliers, caterers and all manner of supply chain participants. Likewise, these carriers would have the power to accelerate the transfer of costs onto the backs of consumers.”
Delta’s move against Frontier adds further evidence and warning that the U.S. commercial aviation market is failing. Indeed, some two and one half years into the widespread implementation of programs that unbundle airline services from the base ticket, market forces are inadequate to drive airlines to make fee information available to the travel agency sales channel. As a consequence, not only were many consumers surprised at the airport by some $9.2 billion in airline fees in 2010, but because those fees are withheld from travel agencies and cloaked from the pricing discipline of a comparative shopping process, they are artificially high. This resulting economic inefficiency is a strong indication of market failure and cause for concern.
The U.S. Department of Justice and State Attorneys General should be on high alert to the return of strategies of predation and other anti-competitive practices in the airline industry. As serious as predation was in the 1990s as a threat to consumers and the competitive structure of the airline industry, today consolidation has made potential consequences worse by orders of magnitude. The U.S. DOJ and State AGs should send an equally unmistakable message back to Delta that it is being watched and that abusive, anticompetitive behavior in the airline industry will not be tolerated. Business travelers and consumers have been pummeled by a series of airfare increases, many of them hidden, over the last few years. They need — and deserve — more airline competition and not the return of old tricks of the past that are designed to kill it.
[photo by Rainer Ebert via Flickr]