Since 1978, when Michael Kahn of the Civil Aeronautics Board engineered the deregulation of the U.S. airline industry, passengers have been basking in fare decreases of up to 40 percent, while airlines have increased their ridership by up to 50 percent.

Is the party coming to an end? Since United Airlines announced plans to acquire US Airways for $11.3. billion last year, many analysts have said the industry may be returning to an era of fewer airlines and higher ticket prices. The smaller airlines are being routed toward the smaller airports, while the big carriers - United, Northwest, Delta, and others - have gravitated to the "hubs" of Denver, Detroit, Atlanta and other major terminals, where large carriers maintain control of up to 80 percent of the flights. Some antitrust regulators consider this a sign of monopolistic activity. Once these airlines have established their bases, as they already have in many of the major airports, smaller airlines won't be able to compete. If even one more major airline follows the example of US Airways, the number of major airlines could shrink to three. Then, with even less competition, airline prices could shoot up.

So the Justice Department has responded to this threat by opening an antitrust investigation of possible "predatory pricing" by airlines. In May 1999, the government filed an antitrust suit against American Airlines, for saturating routes and cutting fares to drive out smaller competitors in the hub of Dallas/Fort Worth.

Of course many consumers insist that there's nothing wrong with rock-bottom prices that they're enjoying now. Can the antitrust regulations on the books can be enforced without necessarily discouraging lower fares? Is there a way to distinguish "homicidal behavior" on the part of larger airlines (for instance, dropping prices thirty percent to drop the anvil on a smaller carrier) or genuine, healthy competition? And should the government interfere?

On One Hand...

Major airlines must not be allowed to use the profits of deregulation to prevent smaller airlines from entering the market. There are clear examples of predatory pricing and other tactics being used to monopolize the industry. The architect of deregulation himself, Micheal Kahn, has admitted that tactics amounting to "no trespassing" signs have been used by existing airlines to scare off potential competition. As a result, the number of new carriers has dropped sharply since 1985. This form of predation works against customers in several ways: by centering airtraffic around the larger airports, such as O'Hare or Dallas, the larger airlines make air travel difficult and sometimes extremely expensive for domestic customers on the less popular routes. The "hub and spoke" system has resulted in single-carrier dominance at certain airports - like USAirways in Charlotte and TWA at St. Louis - and it has reduced the number of major airlines dramatically. Eventually, it will result in more expensive flights. The government should step in whenever competition is threatened, and that is the case here.

On the Other Hand...

The Sherman Antitrust Act prevents large companies from pricing goods "below the average variable cost" to strangle competition. But that's not what's happening in the airline industry today. Simply because a carrier is charging fares below cost on a route, it doesn't mean that they are employing "predatory pricing". And when two airlines, such as United and US Airways, pool their resources, it doesn't mean that they're trying to monopolize the industry. The use of "hubs" has been successful as a way of providing passengers lower prices and more flights. American Airlines, for instance controls 67 percent of the traffic through Dallas/Fort Worth, and that's precisely why the prices are so low.

• American Airlines has made an offer of $500 million to assume control of nearly all of TWA's assets as that carrier faces filing Chapter 11.

• With the acquistion of US Airways this week, United will become the largest US airline by far. Last year, the two companies combined flew 167.1 billion passenger miles. The other four largest companies included American, with 112.1 billion, Delta, with 104.1 billion, Northwest with 74.2 billion, and Continental, with 60 billion. (Company reports, from Washington Post.)

• The hub-and-spoke system used by major airline networks means that each airline sends most of its connections through a city where its operations base of maintenance and administration are connected. This arrangement allows one airline to dominate its "hub". At Denver International Airport, for instance, United controls 74 percent of the flight traffic, and 44 of the 91 gates. Regional airline Frontier, with four gates, is the second largest airline at Denver. (Policy.com)

• Senator John McCain (R_AZ) has introduced a bill to auction off landing slots at four airports where the government limits use. This would permit smaller carriers to use restricted airports to fly to the "less popular" sites - such as Arizona. (San Fransisco Chronicle)

• In 1999, travellers looking to book a last-minute flight from San Francisco to Denver would pay $682 on United Airlines, and only $164 on Frontier, a small carrier. (San Francisco Examiner)

• In 1999, the government sued American Airlines, accusing them of lowering its fares from Dallas/Fort Worth to under 30 percent cost to undercut its rivals. The Justice Department claimed that "on each route, American's revenues on one or more of its added flights were below that flight's variable costs." (American Enterprise Institute)

• The acquisition of US Airways by United will be reviewed by the Justice Department's antitrust division. The sale of most of the routes at Reagan National to Robert Johnson of BET is said to be an attempt to allay concern about the dominance that this new United will hold in the Eastern U.S.(Washington Post)

• The rising popularity of air travel has had several disadvantages: crowded airplanes, passenger complaints, frequent cancellations, security risks, and deteriorating airport infrastructure.