We didn't think it particularly appropriate for Continental to be telling us that we shouldn't be offering reduced fares to people in Minneapolis and the Upper Midwest, and so we essentially tried to tell them to knock it off and leave us alone." To do that, he said Northwest then sent its own message. It filed into the Airline Tariff Publishing network new cheap fares from Houston to the West Coast, again with short expiration dates. Houston is a critical base for Continental, a unit of Continental Airlines Holdings Inc.
Mr. Elkins denied that Northwest was trying to deter competition. He said Northwest lowered the Houston fares "so that {Continental} would stop trying to undermine our attempt to compete by offering lower fares on specific flights."
He said the short lifespan of Continental's fares "told us that they weren't serious about wanting to sell those fares. . . . We told them that we didn't think that their signal was appropriate."
Such back-and-forth exchanges by airlines are viewed as normal competitive activity by some economists and antitrust attorneys. And consumers often temporarily benefit from the lower fares that result. Still, the issue is controversial.
Critics of the practice believe that, eventually, consumers pay higher prices because airlines end up using such tactics to negotiate air fares and stifle competition. They charge that the only difference between this and traditional anti-competitive behavior is that the negotiating no longer takes place in smoke-filled rooms.
The most controversial aspect of this is when carriers slash fares to "discipline" each other -- and particularly when large carriers do it in an effort to stop smaller carriers from offering discounts.
Mr. Elkins's testimony, which was interrupted and scheduled to continue Nov. 13, is likely to add fuel to the debate because he is considered one of the leading experts in airline yield management, the business of pricing tickets to get as much revenue as possible. His 14-year career has included stints in the pricing departments of Trans World Airlines, Continental, Western Airlines and Republic Airlines.
Mr. Elkins testified that Northwest preferred not to lower fares in the Chicago market, dominated by UAL Corp.'s United and AMR Corp.'s American, because those rivals were sure to retaliate with cheap prices in Minneapolis, with "devastating" consequences.
He said this is essentially why Northwest lived by the golden rule. The phrase appeared in an internal pricing memo he wrote in 1986 that surfaced during the trial. The memo and a 1988 deposition were submitted as evidence but neither is yet public, a court official said.