The Justice Department yesterday charged that American Airlines and its president, Robert L. Crandall, tried to get Braniff International Airlines to join American in monopolizing service out of Dallas last year by fixing ticket prices.
The department filed a civil lawsuit against American and Crandall asking that Crandall be suspended from his job for two years and that American be barred from discussing ticket-pricing with competitors for 10 years.
The Justice Department's complaint contained a transcript of a telephone conversation between Crandall and Braniff President Howard Putnam on Feb. 1, 1982, in which Crandall is quoted as proposing that Braniff raise its fares 20 percent. Crandall told Putnam that American would then match the increase "the next morning," according to the department's account.
Putnam refused, saying, "We can't talk about pricing," the transcript says.
Braniff filed for bankruptcy protection three months later, and accused American of waging a campaign of "dirty tricks" to force Braniff out of business. Yesterday, the Justice Department confirmed that a Dallas grand jury investigation of Braniff's charges had been terminated with no criminal charges filed.
Neither Putnam nor Braniff is implicated in the Justice Department lawsuit. Putnam could not be reached for comment yesterday, and Braniff said it would not comment on the suit, which was filed in U.S. District Court in Dallas. Both airlines are based in the Dallas area.
American, in a statement yesterday, did not deny that the Crandall-Putnam conversation--which it charged was taped secretly by Putnam--took place.
But American said it and Crandall would fight the charges, which the airline said were unjustified and based "on one offhand remark."
The airline further said that "absolutely no anticompetitive action was taken by either American or Braniff as a result of the comment. Indeed, nothing at all occurred . . . . There was no harm to the public, to any competitor, or to competition in general."
American also said the government had based its case on "a novel and unsound theory of law--unprecedented in the history of antitrust laws."
The Justice Department suit does not accuse American and Crandall of price-fixing under Section 1 of the Sherman Antitrust Act, which prohibits agreements between competitors to restrain trade. "Without any agreement, you don't have a violation under Section 1," said a Justice Department spokesman.
Instead, the government brought suit under Section 2 of the act, which prohibits attempts at "monopolization" through means that include price-setting. Crandall's alleged suggestion was such an attempt, according to the suit.
Criminal charges are rarely brought in Section 2 cases, the Justice Department spokesman said. This is particularly true when the alleged price-setting attempt is unilateral and not accepted by the other party and when the prospects of the attempt succeeding are uncertain, according to antitrust experts.
The centerpiece of the Justice Department's suit is a purported transcript of the salty telephone conversation between Crandall and Putnam.
American, in its statement, says Crandall originally called Putnam to complain that a Braniff advertisement was misleading. According to American, Putnam returned the call after making arrangements to secretly tape the conversation.
The transcript of the conversation contained in the lawsuit begins with Crandall and Putnam allegedly complaining about competition between the two airlines in unprofitable markets: "Neither of us is making a f------ dime," says Crandall. Putnam complains that American jumped into several markets to compete with Braniff, but Crandall is quoted saying, "We can both live here and there ain't no room for Delta."
Putnam continues to complain about American's actions in matching Braniff route-for-route, and says, "I can't just sit here and allow you to bury us without giving our best effort"--an apparent response to Crandall's complaints about Braniff's low fares, according to the transcript.
The following conversation then allegedly ensued:
Putnam: "Do you have a suggestion for me?"
Crandall: "Yes. I have a suggestion for you. Raise your goddamn fares 20 percent. I'll raise mine the next morning."
Putnam: "Robert, we--"
Crandall: "You'll make more money and I will too."
Putnam: "We can't talk about pricing."
Crandall: "Oh bull----, Howard. We can talk about any goddamn thing we want to talk about."
American, in its statement, said Crandall was saying that "Braniff's low-cost fares were the problem that was causing the two airlines to lose money on the routes , and that Braniff should raise its prices--an observation made publicly by many leaders and analysts in the industry." The statement said there was no further discussion of pricing in the conversation.
American contends that "The essence of monopoly power is the ability to raise prices above competitive levels." Because of competition throughout their systems, American said, the two airlines could not have raised fares above competitive levels.
The Justice Department suit is the latest in a series of skirmishes involving former arch-competitors Braniff and American.
Charges that American was somehow sabotaging Braniff operations surfaced last spring, and after Braniff filed its bankruptcy petition in May, several Braniff executives made the charges publicly, contending that "dirty tricks" were being directed out of Crandall's office. Crandall called the charges "absolute lies" and "fabrications."
A grand jury convened in Dallas to investigate charges that American had duplicated many Braniff routes in an effort to give Braniff competition it could not handle; that American had given Braniff flights low priority on its computerized reservations system--one of two used industry-wide; that American had spread word among travel agents that Braniff was financially doomed; that American had urged Braniff's lenders to tighten the financial demands on the troubled airline; and that American had delayed the payment to Braniff of millions of dollars worth of ticket revenues.
The grand jury adjourned without bringing charges. The Civil Aeronautics Board and the Justice Department are conducting investigations into allegations that both the American reservations system and another, run by United Airlines, discriminate against some airlines.