States argue that Northwest uses dominant market share to stifle competitors' attempts to compete in its markets, leading to high-cost airline tickets.
Attorney General Tom Miller led a group of eleven states in filing a "friend-of-the-court" brief arguing that Northwest Airlines has used its market dominance to overcharge passengers who travel to or through Northwest's hub at Minneapolis-St. Paul.
The Attorneys General joined the case of Midwest Machinery Co., Inc., et al v. Northwest Airlines, Inc., in which business and individual consumers alleged that the 1987 merger of Republic Airlines and Northwest Airlines led to an illegal concentration of airline services in the Northwest markets. The potential class-action case was dismissed in January by a district court judge in Minnesota, but the matter is on appeal to the 8th Circuit Court of Appeals based in St. Louis.
"We believe this case should go forward," said Miller, whose office led the way in drafting the amicus brief and enlisting other states to sign on. "The consumer plaintiffs in this case argue that the merger of the two airlines illegally created less competition, and that has led to artificially high ticket prices for consumers," he said.
"We are backing the plaintiffs in the case because their issues have merit and this matter should be allowed to go to trial," Miller said. "The issues raised in the case could have a big impact in Iowa and many airline markets throughout the nation."
The states argue that Northwest has used its dominant market share to stifle competitors' attempts to compete in the market -- noting that Northwest controls more than 80 percent of the airplane seats at Minneapolis-St. Paul International Airport, and almost that high a percentage in many other Northwest markets.
Major airlines have evolved a system of hubs since deregulation of the industry, building their routes and often eliminating competitors at their hubs. Initially it was believed that smaller carriers could start up and provide competition for the major airlines by specializing in particular routes and keeping costs low. Such competition has worked in some places but has failed in many others. New start-up airlines have dried up almost completely in the last five years.
Miller said: "We argue that Northwest and other airlines that enjoy similar dominance in a market have used numerous tactics to inhibit new competition, including attacking start-up airlines with large fare reductions, using their huge resource base of aircraft, routes, and airport access to schedule many more conveniently-timed flights, and offering special promotions to keep customers until the new airline succumbs. When the start-ups fail, the dominant airlines then cut back resources and flights and raise prices on routes the start-up airlines relinquish."
The Attorneys General noted that the plaintiffs' lawsuit alleges that Northwest charges consumers about $400 million more per year than consumers are charged at a comparable hub that has substantial competition, a 41 per cent difference.
"Too many communities are facing monopolies or virtual monopolies when they try to get competitive prices on tickets," Miller said. "We believe this case should go forward. The district court judge's ruling leaves a big gap in enforcing the Clayton Antitrust Act, which we argue is one of the most important means citizens and governments have for policing competition in the airline industry."
State Attorneys General from the following states joined Miller and Iowa in the amicus brief: Delaware, Hawaii, Michigan, New York, North Dakota, Ohio, South Dakota, Utah, West Virginia, and Wisconsin. The amicus brief was to be filed today in St. Louis with the 8th U.S. Circuit Court of Appeals.