Competition in Airline Markets: Lessons from North America
London, England
17 September 2003
Hosted By: NERA Economic Consulting
On 3 July 2003, the US Court of Appeals for the Tenth Circuit upheld the summary judgment previously granted to American Airlines by the US District Court in US v. AMR Corp. The courts found that American Airlines' capacity and pricing responses to new entrants on four routes out of its Dallas/Fort Worth hub were not predatory. The Court of Appeals concluded that the government (the US Department of Justice) had not succeeded in establishing the first element of Brooke Group, pricing below an appropriate measure of cost, and that the government's four proposed price/cost tests for predation were "fatally flawed in their application, and fundamentally unreliable."
On 22 July 2003, the Canadian Competition Tribunal, in Phase I of Commissioner of Competition v. Air Canada, found that Air Canada had operated or increased capacity at fares that did not cover the avoidable costs of providing the service. In response to the four specific questions posed to the Tribunal, it found that:
- the unit of capacity for purposes of the avoidable cost test is a one-way flight segment;
- nearly all costs except system overhead are to be considered avoidable;
- one month is an appropriate period of time to examine; and
- no recognition should be given to "beyond contribution," even for a network carrier.
NERA hosted a seminar on these developments in London on 17 September 2003. Senior Vice President Dr. Gary Dorman, who advised American Airlines in US v. AMR Corp. and Air Canada in Commissioner of Competition v. Air Canada, discussed these cases and their implications for permissible airline competition. Associate Director David Matthew replied. Director Dr. Mark Williams opened discussion on the floor.
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