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Consumer News Release

For immediate release -- Wednesday, February 3, 1999.
Contact Tam Ormiston, 515-281-6364, or Eric Tabor, 515-281-5191

Miller Hails Decision in Northwest Airlines Case

Appeals Court reinstates antitrust case alleging that Northwest's merger with Republic Airlines led to an illegal concentration of airline services.

Des Moines--Attorney General Tom Miller hailed an Appeal Court decision issued Tuesday reversing a lower court's dismissal of a case alleging that Northwest Airlines' merger with Republic Airlines violated the Clayton Act. The Clayton Act prohibits acquisitions that substantially lessen competition. Plaintiffs in the case alleged that Northwest's disproportionate increases in air fares, its market dominance at Minneapolis and other locations, and its use of entry barriers for new competitors illustrate the substantial lessening of competition following the merger.

Miller led a group of eleven states filing a "friend-of-the-court" brief last April in support of the plaintiffs in the case who were appealing the district court dismissal.

"This is great news for air travelers," Miller said of the Appeals Court order today reversing the dismissal. "It's good for competition. It could be a way to secure competitive prices, or damages for non-competitive prices."

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 1986 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 1998 by a district court judge in Minnesota, but the matter was appealed to the 8th Circuit Court of Appeals based in St. Louis. A three-judge panel issued Tuesday's decision.

"We argued that the case should go forward," said Miller, whose office led the way last spring 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, which led to artificially high ticket prices for consumers," he said.

"This matter should be allowed to go to trial," Miller said. "The legal and economic issues it raises could have an impact in Iowa and many other airline markets around the nation."

The plaintiffs alleged that Northwest has used its dominant market share to stifle competitors' attempts to compete in the market. They noted 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: "Our concern is that Northwest and other airlines that enjoy similar dominance in a market have inhibited 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."

"Too many communities are facing monopolies or virtual monopolies when they try to get competitive prices on tickets," Miller said. "We had strongly argued that this case should go forward. The district court judge's ruling left 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 filing the amicus brief last year: Delaware, Hawaii, Michigan, New York, North Dakota, Ohio, South Dakota, Utah, West Virginia, and Wisconsin.

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