IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) vs. ) No. 99-1180-JTM ) AMR CORPORATION, ) AMERICAN AIRLINES, INC., and ) AMR EAGLE HOLDING CORPORATION, ) ) Defendants. ) __________________________________________) MEMORANDUM AND ORDER TABLE OF CONTENTS A. INTRODUCTION ........................................................1 B. FINDINGS OF FACT .....................................................2 1. SUMMARY JUDGMENT STANDARD .................................2 2. THE PLAINTIFF'S ALLEGATIONS ....................................3 3. COMPETITION IN THE DALLAS - FORT WORTH AREA .................5 4. LCC COSTS ......................................................14 5. NEW ENTRANT AIRLINE COMPETITION ............................15 6. AMERICAN'S COMPETITIVE EXPERIENCE WITH LCCs ................15 7. HOW AMERICAN COMPETED ON THE ROUTES AT ISSUE .............21 a. DFW-MCI ..................................................21 b. DFW-ICT (Wichita) ..........................................24 c. DFW-COS .................................................32 d. DFW-LGB (Long Beach) ......................................38 e. DFW-EWR (Newark) .........................................42 f. DFW-TPA (Tampa) ...........................................43 g. DFW-OAK (Oakland) .........................................44 h. DFW-PHX (Phoenix) .........................................45 i. OTHER ALLEGED MARKETS .................................46 8. LCCs AND PRICE COMPETITION ...................................46 i 9. ALLEGED PREDATORY PRICING ...................................55 10. COMPETITIVE PRACTICES .......................................68 11. REPUTATION ISSUES ............................................71 12. SPECIFIC CARRIERS .............................................73 a. Air Tran Airlines .............................................73 b. American Trans Air ...........................................73 c. Big Sky Airlines ..............................................73 d. Braniff Airlines ..............................................74 e. Frontier (DFW-DEN) .........................................74 f. Great Plains (DFW-ICT) .......................................75 g. JetBlue (DFW-JFK) ...........................................76 h. Legend Airlines ..............................................77 i. National Airlines (DFW-LAS) ...................................78 j. Ryan International Air (DFW-ICT) ................................79 k. Ozark Airlines ...............................................80 l. Sun Country Airlines ..........................................81 m. Vanguard (DFW-CVG) .......................................81 13. NEW ENTRY AT DFW ............................................81 14. FACTS RELEVANT TO MEETING COMPETITION ....................82 15. IN-MARKET RECOUPMENT .......................................82 C. CONCLUSIONS OF LAW ................................................89 1. THE GOVERNMENT'S ALLEGATIONS ...............................89 ii 2. ELEMENTS OF LIABILITY .........................................89 3. AMERICAN'S COSTS ..............................................95 4. MEETING COMPETITION .........................................109 5. RECOUPMENT ..................................................116 6. MONOPOLIZATION BY REPUTATION ..............................127 7. ADDITIONAL ROUTES ...........................................131 8. CONCLUSION ..................................................132 APPENDIX ..............................................................134 iii A. INTRODUCTION The present action arises from competition between American Airlines and several smaller low cost carriers on various airline routes centered on Dallas - Fort Worth Airport (DFW) from 1995 to 1997. During this period, these low cost carriers created a new market dynamic, charging markedly lower fares on certain routes. For a certain period (of differing length in each market) consumers of air travel on these routes enjoyed lower prices. The number of passengers also substantially increased. American responded to the low cost carriers by reducing some of its own fares, and increasing the number of flights serving the routes. In each instance, the low fare carrier failed to establish itself as a durable market presence, and eventually moved its operations, or ceased its separate existence entirely. After the low fare carrier ceased operations, American generally resumed its prior marketing strategy, and in certain markets reduced the number of flights and raised its prices, roughly to levels comparable to those prior to the period of low fare competition. In the present action the plaintiff United States alleges that the defendants AMR Corporation, American Airlines, Inc., and AMR Eagle Holding Company, (all hereafter "American"), participated in a scheme of predatory pricing against the low cost carriers in violation of Section 2 of the Sherman Act. The government alleges that American's pricing and capacity decisions on the routes in question resulted in pricing its product below cost, and that it intended to subsequently recoup these costs by supra-competitive pricing by monopolizing or attempting to monopolize these routes. It further alleges that, in addition to these routes, American has violated Section 2 in a large number of additional airline routes, contending that American has monopolized or attempted to monopolize by means of the "reputation for predation" it allegedly gained in its successful competition against low fare carriers in the core markets. 1 American has moved for summary judgment on the outstanding claims, arguing that its competition against the low cost carriers was competition on the merits, and not conduct unlawful within the terms of the Sherman Act. Having reviewed the arguments of the parties and the evidence submitted in connection with the motion for summary judgment, the court finds that summary judgment is appropriate.1 B. FINDINGS OF FACT 1. SUMMARY JUDGMENT STANDARD Summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, the court must examine all evidence in a light most favorable to the opposing party. McKenzie v. Mercy Hospital, 854 F.2d 365, 367 (10th Cir. 1988). The party moving for summary judgment must demonstrate its entitlement to summary judgment beyond a reasonable doubt. Ellis v. El Paso Natural Gas Co., 754 F.2d 884, 885 (10th Cir. 1985). The moving party need not disprove plaintiff's claim; it need only establish that the factual allegations have no legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812 F.2d 1319, 1323 (10th Cir. 1987). 1In light of the extensive argument and documentary exhibits surrounding the present motion, a motion for reconsideration is discouraged. If such a motion is filed, the motion shall not repeat any argument previously made to the court, and cite only evidence newly acquired but which was not previously discoverable through due diligence. Such motion and accompanying memoranda may not exceed ten double-spaced pages in length, including supporting arguments and authorities, regardless of the number of points raised. A response shall also be limited to ten pages. No replies may be filed. 2 In resisting a motion for summary judgment, the opposing party may not rely upon mere allegations or denials contained in its pleadings or briefs. Rather, the nonmoving party must come forward with specific facts showing the presence of a genuine issue of material fact for trial and significant probative evidence supporting the allegation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Once the moving party has carried its burden under Rule 56(c), the party opposing summary judgment must do more than simply show there is some metaphysical doubt as to the material facts. "In the language of the Rule, the nonmoving party must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)) (emphasis in Matsushita). One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and the rule should be interpreted in a way that allows it to accomplish this purpose. Celotex Corp. v. Catrett, 477 U.S. 317 (1986).2 2. THE PLAINTIFF'S ALLEGATIONS The plaintiff alleges that American monopolized or attempted to monopolize through predatory pricing and by the resulting reputation for predatory pricing in the following seven markets: DFW-MCI (Kansas City), DFW-ICT (Wichita), DFW-COS (Colorado Springs), DFW-LGB (Long Beach), DFW-PHX (Phoenix), DFW-TPA (Tampa), and DFW-OAK (Oakland). 2In the following sections, the court makes findings of uncontroverted fact, based upon the pleadings submitted by the parties, and the accompanying exhibits. Where requested fact findings are excluded, it is because the court finds that the contentions are irrelevant, unsupported consistent with the requirements of D.Kan. Rule 56.1, or corroborated only by inadmissible evidence. 3 In addition, the plaintiff alleges that American monopolized or attempted to monopolize the following markets through the reputation