I feel bad for all of you who live in Minneapolis, Detroit, or Memphis. Northwest, the king of retaliation, has successfully fought off competition so well in those cities that your options are pretty limited. (Frontier may still be fighting it out in Memphis, but I’m ready to take bets on when that experiment ends.) So it was no surprise to see them at it again today.
Flash back to May 29. American announced they’d be adding three daily flights between New York/LaGuardia and Minneapolis starting September 5. Since LaGuardia is a large station for the airline, it’s not completely out of the realm of reality. But any time you go up against Northwest, you know it’s not going to be pretty.
Right now, Northwest owns the route with 7 daily flights. Nobody else even tries it. So when American came in, you knew it was time to sit back, relax, and wait for the fight to break out.
It finally broke out this morning when Northwest announced that it would be flying three times a day on the completely absurd Dallas/Ft Worth – New York/LaGuardia route. Oh, and in case you hadn’t figured it out, service starts September 5. Now, Northwest has absolutely no chance in hell of making this route work. They don’t have a frequent flier base on either end. This is there solely to push American to pull out of “their” market.
The fun part about this is that American is no slouch in the retaliatory wars either. In fact, they’re one of the few to actually have gone to court over it. (Read here for more info on that fun-filled case.) So this could be a test of wills . . . a battle of egos . . . a fight for ridiculousness. I can’t wait to see who blinks first. For now, enjoy the competition if you live in those cities. It won’t last long.
Interesting. It seems that AA won that lawsuit. See link above or google “AMERICAN AIRLINES antitrust”
Yes, but just having the lawsuit brought against them by the government is quite telling. See, in any industry where the variable costs are low and the fixed costs are high, it’s very hard to prove predatory pricing, so it’s rarely challenged.
Think about it this way. When a plane flies, the cost of adding one more passenger (variable cost) is really low – maybe the extra fuel for that 150 pounds and a soda. The traditional definition of predatory pricing is that the pricing has to be above the variable costs. So no matter how low you go, it would be hard to get below your variable costs in this industry.
Here’s a good article from Business Week about the case.
In the end, it’s fairly clear that the airline was aggressively trying to drive their smaller competitors out of business by pricing below a cost that would be sustainable in the long term (when you need to consider fixed costs). Both American and Northwest are notorious for this.