[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



       THE AIRLINE MERGERS AND THEIR EFFECT ON AMERICAN CONSUMERS

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 21, 2001

                               __________

                            Serial No. 107-3

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                   U.S. GOVERNMENT PRINTING OFFICE
71-498                     WASHINGTON : 2001

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                               __________

                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

NATHAN DEAL, Georgia                 EDOLPHUS TOWNS, New York
  Vice Chairman                      DIANA DeGETTE, Colorado
ED WHITFIELD, Kentucky               LOIS CAPPS, California
BARBARA CUBIN, Wyoming               MICHAEL F. DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois               CHRISTOPHER JOHN, Louisiana
JOHN B. SHADEGG, Arizona             JANE HARMAN, California
ED BRYANT, Tennessee                 HENRY A. WAXMAN, California
STEVE BUYER, Indiana                 EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California        BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire       PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana       (Ex Officio)
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Clyburn, Hon. James E., a Representative in Congress from the 
      State of South Carolina, on behalf of Congressional Black 
      Caucus.....................................................     7
    Cooper, Mark N., Director of Research, Consumer Federation of 
      America....................................................    61
    DeFazio, Hon. Peter A., a Representative in Congress from the 
      State of Oregon............................................    14
    Leonard, Joseph, Chairman and Chief Executive Officer, 
      AirTran Airways, Inc.......................................    44
    Longmuir, Shelley A., Senior Vice President, International 
      Regulatory and Government Affairs, United Airlines.........    58
    Myrick, Hon. Sue Wilkins, a Representative in Congress from 
      the State of North Carolina................................    17
    Ris, Will, Senior Vice President, Government Affairs, 
      American Airlines..........................................    49
    Ruden, Paul M., Senior Vice President Legal & Industry 
      Affairs, American Society of Travel Agents, Inc............    73
    Slaughter, Hon. Louise McIntosh, a Representative in Congress 
      from the State of New York.................................    10
    Swelbar, William, Fellow, Economic Strategy Institute........    69
    Wolf, Stephen M., Chairman, US Airways Group, Inc............    40
Material submitted for the record by:
    McInnis, Hon. Scott, a Representative in Congress from the 
      State of Colorado, letter dated March 20, 2001, enclosing 
      material for the record....................................   110
    Meeks, Hon. Gregory W., a Representative in Congress from the 
      State of New York, prepared statement of...................   107

                                 (iii)

  

 
       THE AIRLINE MERGERS AND THEIR EFFECT ON AMERICAN CONSUMERS

                              ----------                              


                       WEDNESDAY, MARCH 21, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Upton, Deal, 
Whitfield, Cubin, Shimkus, Shadegg, Bryant, Buyer, Pitts, Bono, 
Walden, Terry, Bass, Tauzin (ex officio), Towns, DeGette, 
Capps, Doyle, John, Harman, Rush, and Dingell (ex officio).
    Also present: Representatives Burr, Davis, and Luther.
    Staff present: Kelly Zerzan, majority counsel; Yong Choe, 
legislative clerk; and Bruce M. Gwinn, minority counsel.
    Mr. Stearns. Good morning, everybody. The Subcommittee on 
Commerce, Trade, and Consumer Protection will convene. I will 
give my opening statement. The ranking member will. We will go 
to the congressional witnesses. And then we will come back 
before we start the second panel for the rest of the opening 
statements if you folks wouldn't mind.
    So this is really our first hearing on this subcommittee 
that has focused on our consumer protection jurisdictions. 
While the term ``consumer protection'' can be construed quite 
broadly, the consumer interest in the airline industry is at an 
all-time high. Today we will be hearing and learning about the 
consolidation currently occurring in the airline industry as 
well as the impacts, good and bad, on the consumer.
    Needless to say, about 100 years ago on the sandy dunes in 
Kitty Hawk, North Carolina, two bicycle makers made a long-held 
dream of flight come true. The American ingenuity that made the 
Wright Brothers believe they could build and fly planes 
manifests itself today in an American airline industry that 
daily flies millions of people millions of miles around the 
globe.
    While the airlines provide an invaluable service to 
consumers, it also has been the target for a number of customer 
concerns. Television shows and newspaper articles have 
recounted some miserable stories relating to air service.
    The Department of Transportation recently reported that in 
the year 2000 over one in 4 flights were delayed, canceled, or 
diverted, affecting 163 million passengers. Flight delays have 
increased 33 percent between 1995 and the year 2000. Those 
delays are continually getting longer. In 2000, the average 
delay is about 52 minutes. As a result, last year consumer 
complaints rose 14 percent.
    Today, as we hold this hearing, there are a number of major 
U.S. carriers that perform the bulk of passenger air service in 
this country. Although there have been numerous hearings in 
both the House and the Senate on the mergers in the airline 
industry, this subcommittee has a unique perspective. We will 
not be examining the antitrust implications of the mergers or 
exploring the broader transportation issues these mergers 
raise. Rather, our Committee is focused on the effect these 
mergers will have on the American consumer.
    It is our duty to conduct an inquiry into whether U.S. air 
passengers will be best served by consolidation in the airline 
industry and to reveal these facts to the American consumer. 
Our jurisdiction over consumer protection and tourism will be 
exercised in this subcommittee.
    There is no question that U.S. air carriers are the envy of 
the world. Never before in human history has an individual been 
able to move such great distances at such little cost so 
quickly. Nevertheless, we are all familiar with the horror 
stories of delay, canceled flights, lost luggage, and planes 
helplessly stuck on tarmacs for hours at a time.
    Whether American air carriers will continue to be the envy 
of the world or whether U.S. passengers will continue to have 
the greatest choice in light of the mergers between United 
Airlines and US Airways and American and Trans World Airlines 
is an issue properly before us for consideration.
    These are larger mergers. Some of the largest this industry 
has ever seen, these are. There is no question that these 
transactions will have an effect on air travel, whether 
positive or negative. I know these mergers have stood much 
debate.
    The rhetoric has heightened. But I plan for this 
subcommittee to cut through the headlines and get to the heart 
of the issue, namely: Will these mergers harm U.S. consumers? 
We are here to ask some tough questions, but, my colleagues, we 
are here also to learn.
    Today we have two panels with some distinguished guests to 
educate us. Our first panel includes three Democrats and one 
Republican, proving that mergers can be bipartisan. I welcome 
my friend Congresswoman Sue Myrick, James Clyburn, Louise 
Slaughter, and Peter DeFazio to the Commerce Committee.
    I always believe that the best way to learn is to assemble 
a panel representing a broad array of views on a subject. And 
our second panel does just that. We have with us some of the 
merging parties: US Airways, United, and American; some of the 
affected industry participants: AirTran Airlines and the 
American Association of Travel Agents; economists who examined 
the United-US Airways merger from the Economic Strategy 
Institute; and, finally, the Consumer Federation of America. I 
have no doubt this panel will allow us to fully and fairly air 
the issues at work in these mergers.
    Although the Department of Justice is responsible for 
reviewing these mergers, the FTC under the jurisdiction of the 
Commerce Committee, the Committee on Commerce, clearly has a 
role in watching the growth and development of the airline 
industry into the future.
    I thank our witnesses who are here today and look forward 
to hearing their testimony. And, with that, the ranking member, 
Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. I want to 
thank you again for holding this hearing and also to thank my 
colleagues for being the first panel, Congressman Clyburn and 
Slaughter and DeFazio and Congresswoman Myrick.
    This is an important hearing, Mr. Chairman. The past few 
years we have heard a great deal about both potential and 
actual merger activity in the airline industry.
    While at the same time delays and canceled flights have 
increased, luggage is lost more frequently, and customer 
complaints have increased, under these circumstances, I cannot 
help but wonder how the proposed airline mergers will impact 
the flying public.
    In particular, I am concerned that the Northeast, where I 
am from, will suffer from a decrease in competition because two 
airlines will control over 60 percent of the airline routes. 
What will the impact be on shuttle service along the Northeast 
corridor between New York; Boston; and Washington, DC as part 
of this multilayered merger arrangement?
    United Airlines will create a joint venture with American 
Airlines for the next 20 years while at the same time working 
with DC Air on their operation. Would this kind of cooperation 
between would-be competitors promote competition that will 
benefit consumers? What will the impact of these mergers be on 
upstate New York, where a lack of competition has historically 
resulted in high prices and low utilization?
    Without a concerted effort from my colleague and good 
friend from upstate New York, hard worker in this Congress, 
Louise Slaughter, among others, to break down the barriers to 
competition, upstate New York will be without reasonably priced 
air service.
    Again, I look forward to hearing from today's witnesses on 
the benefits the consumer will receive from these proposed 
mergers. Will there be opportunities for new low-fare carriers 
or will the two major airlines close the doors forever to low 
fares? Is there a need for congressional intervention to 
prevent a closed anti-consumer market? Will the presence of two 
substantially larger airlines result in increased costs and 
decreased service?
    I am hopeful our witnesses will provide us with answers to 
these important questions. And I move forward, Mr. Chairman, 
with an open mind, but, remember, I am concerned about the 
consumers. I yield back.
    Mr. Stearns. I thank my colleague. As I mentioned earlier, 
we are going to let the members give their opening statements, 
and then we are going to move to the opening statements for the 
rest of the members of the panel.
    Mr. Burr. Mr. Chairman?
    Mr. Stearns. Yes?
    Mr. Burr. Mr. Chairman? Could I ask a unanimous request, 
please?
    Mr. Stearns. Yes, go ahead.
    Mr. Burr. Mr. Chairman, I would ask unanimous consent as a 
member of the full committee but not of the subcommittee to be 
permitted by the subcommittee to participate.
    Mr. Stearns. Unanimous consent so granted, yes. So we will 
hear now. I think we will just start from left to right. We 
will probably remind you because the timer that is in front of 
you is not working at the moment. We are trying to check the 
electrical circuit.
    Mr. Burr. That is good.
    [Additional statements submitted for the record follow:]

Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman, for holding this timely hearing on the 
issue of Airline consolidation, and specifically, the tentative mergers 
between United and U.S. Airways, and American and Trans World Airlines. 
While this issue is relevant to the consumer protection of all American 
air travelers, I believe it is of specific concern to the quality of 
air service in rural states such as Wyoming.
    When the airline industry was deregulated over 20 years ago, a 
commitment was made to provide and protect adequate air service for all 
Americans. --And I think most would have to agree that the majority of 
our nation's consumers probably benefitted from deregulation. Market 
realities have increased the number of flights and provided for 
competitive ticket pricing in our nations cities and urban communities.
    Unfortunately, however, those same market realities have, over the 
past two decades, lured air service providers away from our nation's 
smaller and rural communities, leaving entire States, such as Wyoming, 
struggling to provide adequate air service to its citizens.
    Frankly, even the air service we have in Wyoming too often falls 
far short of acceptable. My duties obviously require me to fly in and 
out of the state more often than most Wyomingites, and I have 
consistently had to deal with poor service, delayed or canceled 
flights, and high ticket prices from United Express.
    In addition, the Natrona County International Airport located in my 
hometown of Casper, Wyoming, was informed this past fall that United 
Express was discontinuing several morning flights from Casper to our 
regional hub of Denver, Colorado. Keeping in mind that United 
represents one of two airlines flying in and out of Casper, these 
cancellations posed a serious threat to the livelihood of many small 
businesses in Casper and surrounding areas dependent on morning flights 
to Denver.
    After several weeks of negotiations, including repeated 
communication from myself and our Senators, United eventually did agree 
to reinstate the discontinued flights, at least for now.
    I brought up this closely avoided crisis for Wyoming air travelers 
only to show how the lack of competition in this industry has left our 
rural communities with few, if any, options. When a community has but 
one or two choices of air providers, and a flight is canceled, it often 
means an extra afternoon or even day of travel. I can't imagine how 
further consolidation of the airline industry will benefit my 
constituents.
    I have not yet made a final decision to oppose the United-U.S. 
Airways and American-TWA mergers. However, I will say to proponents of 
these mergers testifying here today that the burden of proof lies with 
you. In order for me to support what I can currently only perceive as 
the first major step toward the massive consolidation of America's 
airline industry, you will have to prove to me, beyond a shadow of a 
doubt, that adequate measures are being taken to protect, and frankly, 
improve, air service in Wyoming and the rest of rural America.
    Again, Mr. Chairman, thank you for holding this important hearing. 
I look forward to hearing what insight into this issue the witnesses 
have to offer, and I yield back the balance of my time.
                                 ______
                                 
 Prepared Statement of Hon. Steve Buyer, a Representative in Congress 
                       from the State of Indiana

    Mr. Chairman, I would like to thank you for holding this hearing.
    While the ramifications for these mergers will clearly have a big 
effect on the airline industry as a whole, I am truly interested in 
this issue because of the possible effects it will have on my 
constituents in the 5th District of Indiana, and the State of Indiana 
as a whole.
    Specifically, I want to learn more about how these mergers could 
effect the density of air traffic at the Indianapolis Airport, and 
other Indiana regional airports like Lafayette and Fort Wayne, as well 
as the effect this could have on future employment.
    Currently, Chicago serves as one of the major hubs for United.
    Would this diminish the air traffic density at Indianapolis and 
limit air transportation choices for Hoosier consumers?
    Will Indianapolis become a ``feeder terminal'' for Chicago?
    Will the current services provided by US Air, to include direct 
flight service from Reagan National and Dulles, be replaced with 
proposed service by DC Air in smaller and less sophisticated aircraft?
    In addition, air service from Lafayette to Chicago will cease to 
exists after April 1st.
    In the past, this service was supplemented with funds from the 
Department of Transportation's Essential Air Service program.
    While this program falls under the jurisdiction of the 
Transportation Committee, any impact the mergers have on this program 
will clearly have an effect on consumer choice.
    Lastly, I also have concerns with regard to how employees will 
fare.
    This is especially true since United contracted with the State of 
Indiana in 1990, to build a large maintenance hub at Indianapolis.
    Both United and US Air have placed a moratorium on lay-offs for 
two-year period.
    But under what conditions?
    For example, if employees are asked to relocate, and refuse to do 
so, are these grounds for dismissal?
    Again Mr. Chairman, thank you for holding this hearing.
    Since Indianapolis serves as kind of a gateway to the agricultural 
heartland, and air transportation to Indiana is already limited, I am 
keenly interested in this issue.
                                 ______
                                 
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce

    Congress has been vigilant in recent years to deregulate many 
sectors of our economy that have previously been the subject of heavy 
government regulation. In fact, we no longer need to ask the question: 
``why deregulate?'' The benefits of deregulation are crystal clear: 
remove barriers to competition, and industry will provide consumers 
with more choices and lower costs.
    We have many examples where, when done properly, deregulation has 
proved this theory correct, and there is no better example than the 
airline industry. Once a regulated industry with government-mandated 
routes and a regulatory fixed rate of return, the move to open markets 
in 1978 has changed the industry. Airlines responded to the changes by 
reconfiguring their operations to the ``hub-and-spoke'' system, 
allowing airlines to serve far more consumers in a more cost efficient 
manner. Competition became intense as airlines began to compete on 
price, destination, and frequency of service.
    Make no mistake about it: we have a better system now than we ever 
had under a government-dictated system. The U.S. air industry is pretty 
effective given its enormous size. In fact, the U.S. airline industry 
currently moves about 1.7 million passengers per day. As many of you 
probably know, as part of the Civil Reserve Air Fleet program, U.S. 
commercial carriers are subject to a military call up in times of 
emergency. During the Gulf War, over 70% of the troops and 20% of the 
materials were shipped on commercial aircraft as part of the Civil 
Reserve Air Fleet program. Later, when that program was reviewed, it 
was noted that the only endeavor more complex than the military at time 
of war is the daily schedule of the U.S. airline industry. The U.S. 
airline industry moves the equivalent of 100 military divisions 1,000 
miles per day. That just goes to show you, the efficiencies produced by 
competition cannot be denied.
    Which brings us to today's topic--how will mergers and further 
consolidation in the airline industry affect U.S. consumers? This is a 
good question given the recent state of affairs. American Airlines' 
proposed purchase of a bankrupt TWA has been approved. And the proposed 
United acquisition of US Airways is currently under review by the 
Department of Justice. Many experts believe these combinations will 
result in further consolidation. While the proposed combinations appear 
to save two troubled airlines, it is our job to determine if the 
welfare of the American consumer is synonymous with the welfare of the 
industry. In an industry where the economics dictate a ``bigger is 
better'' strategy for success, the acquisitions make perfect business 
sense. But our concern on this Committee is a narrow but important one: 
how will these mergers affect the consumer? Will the consumer continue 
to have competitive options? Will the consumer continue to have 
competitive pricing? Are consumers better off with the status quo, with 
a handful of regional airlines that are in their respective markets? 
Or, are consumers better served by a handful of national carriers that 
compete across the country? These are all questions we need to fully 
examine.
    In answering these questions, we cannot ignore concerns over 
customer service. Our system seems to be on the brink of a breakdown. 
It clearly needs fixing. For example, between 1999 and 2000, the 10 
major air carriers reported an increase of nearly 19% in departure and 
arrival delays and over 21% in cancellations. And unfortunately for 
some of the witnesses here today, you are sitting before some of the 
most frequent fliers in the country.
    However, it is my sense that the problems the airlines are 
experiencing may be more a symptom of larger problems facing the 
industry, distinct from the issues raised by the mergers. The airlines 
cannot change the weather or clear the runways for additional takeoffs. 
The fact is that in the last decade, air travel has turned into a mass 
transit system. Demand exceeds capacity. The airlines are trying to 
meet consumer demand, but the country's infrastructure is woefully 
inadequate to accommodate all of the scheduled flights. Our airport 
facilities were simply not built for the industry we have today.
    Congress clearly needs to start tackling these difficult issues, 
but it should not do so as an excuse to re-regulate the airline 
industry. Regulation didn't work then, and it won't work now. Strong, 
vibrant competition should be the answer to these problems.
    The value of efficient transportation cannot be underestimated. It 
is important to U.S. businesses seeking to attract foreign business. It 
is also important to our travel and tourism industry that competes with 
other countries for global vacationers. As long as our air travel 
industry is an asset, we can expect to remain a leader in the world 
economy. This is an aspect that seems to be overlooked when these 
mergers are discussed, but one I believe is vitally important.
    I commend Chairman Stearns for holding this hearing and fully 
exercising this Committees' consumer protection and tourism 
jurisdiction. Airline consolidation is an important subject--one 
consumers really care about. This Committee must be satisfied that 
these airline mergers do not make the situation worse. Competition 
works, and we must make sure it is allowed to work for the American 
consumer.
    Thank you, Chairman Stearns, and I look forward to learning more 
about these mergers.
                                 ______
                                 
  Prepared Statement of Hon. Chris John, a Representative in Congress 
                      from the State of Louisiana

    Mr. Chairman, thank you for assembling today's panel regarding 
airline mergers. I think it is important for us to consider how these 
matters affect the American consumer.
    First, let me stress that I do not believe our purpose here today 
is to publicly berate the U.S. airline industry. It should be noted 
that our airline industry is the safest in the world, and we should all 
be very proud of that. However, I do believe that we can capitalize on 
this forum today to reflect on the status of the industry and how it 
impacts--both positively and negatively--American consumers. To that 
end, I bring a unique perspective to this hearing today, because 
neither of the major cities in my district would serve as the poster 
child for airline deregulation and competitive markets.
    According to the latest Census data, the City of Lake Charles, 
Louisiana, has a population of approximately 72,000. It is the Parish 
seat of Calcasieu Parish, which has a total population of approximately 
181,000. The City of Lafayette has a population of 110,000. It is the 
Parish seat of Lafayette Parish and has a population of approximately 
188,000. Both of these cities have regional airports which draw 
consumers from outside their Parish, neither are considered rural, but 
both are underserved and lack a competitive market.
    As an example, just this week I met with port officials from the 
Port of Lake Charles. They flew up to Washington to attend their annual 
conference. Because only one carrier (Continental) serves the Lake 
Charles Regional Airport, prices for business fare tickets were 
approximately $1100 round-trip from Lake Charles to Washington. Since 
Lake Charles is only a 2 & + hour drive to Houston, they looked into a 
round-trip between Houston and Washington--the result, $1800 round-
trip. They then looked east to Lafayette where, despite the fact that 
they were scheduled for the exact flight between Houston and 
Washington, their fare was $1000 less. As a result, they left Lake 
Charles at 4:30 a.m. to catch the 6:00 am flight out of Lafayette to 
Houston. This is just a recent example of what my constituents in the 
Lake Charles area regularly face as they attempt to schedule business 
travel.
    In Lafayette, the situation is similar for the short leg between 
Lafayette and Houston. This route is often taken by people who work in 
the oil and gas industries. Due to the extraordinary costs of flying 
this route, many companies who left Lafayette to locate in Houston 
cited high fares between Lafayette and Houston as a primary factor in 
their decision to leave. This fact was recently brought to light by the 
business retention task force of the Lafayette Chamber of Commerce. Mr. 
Chairman, I would like to submit a copy of a local newspaper article 
and the minutes from that meeting which further describes the impact of 
high airfare on medium sized markets like Lafayette.
    I cite these example not to suggest that the 1978 Act that 
deregulated the industry failed. Indeed, we have seen access to lower 
fares and information increase. However, I do cite them as 
representative of the concerns that I have heard from my constituents 
regarding further industry consolidation.
    How will markets like Lake Charles and Lafayette be impacted by 
further consolidation in the airline industry? In particular, what will 
happen to the prices in these markets--especially the shorter routes to 
Houston, Dallas or Memphis? These are open ended questions and concerns 
that I express today in hopes that the panel here today can address.
    Thank you, again, Mr. Chairman for holding this hearing. I look 
forward to the panels' testimony.

    Mr. Stearns. Okay. The gentleman from South Carolina, Mr. 
Clyburn.

   STATEMENTS OF HON. JAMES E. CLYBURN, A REPRESENTATIVE IN 
    CONGRESS FROM THE STATE OF SOUTH CAROLINA, ON BEHALF OF 
 CONGRESSIONAL BLACK CAUCUS; HON. LOUISE MCINTOSH SLAUGHTER, A 
  REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK; HON. 
 PETER A. DEFAZIO, A REPRESENTATIVE IN CONGRESS FROM THE STATE 
  OF OREGON; AND HON. SUE WILKINS MYRICK, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. Clyburn. Thank you very much, Mr. Chairman. Thank you 
and the members of the subcommittee for allowing me to testify 
here today.
    Mr. Chairman, in addition to my representation of the South 
Carolina Cities of Columbia, Charleston, and Florence, I appear 
today on behalf of the Congressional Black Caucus, where I am 
the immediate past Chair and am currently the Chair of the 
Caucus' Policy and Leadership Institute. I will cover just a 
few points, such as customer service and competition, and 
hopefully leave some time for questions if there be any.
    Mr. Chairman, today's airline industry is dramatically 
different than it was just a few years ago. For example, since 
1978, the number of people flying has more than doubled from 
275 million to 635 million. Aviation is no longer a luxury. It 
is a necessity leading some to claim that air travel is now 
mass transit in the sky.
    Recently United Airlines and US Airways announced that 
would combine fleets and routes, resulting in the world's 
largest airline. In January, American Airlines announced that 
they would acquire TWA. And this past Friday, the Justice 
Department declined to challenge that acquisition. These two 
ventures are serving to remind us that bigger is not always 
better. And, of course, all of us agree to that.
    In the case of United Airlines and US Airways, several 
important benefits accrue to the Nation. First, in an effort to 
resolve antitrust concerns in Washington, DC, the only market 
where there is overlap between the two airlines, a new airline, 
DC Air, will be created. Not only will DC Air will be a new 
entrant providing new competition to and from Reagan National 
Airport, it will be an important affirmative step toward 
minority ownership participation in the airline industry.
    I understand that questions have been raised about the 
viability of DC Air. Mr. Chairman, I know Bob Johnson, and he 
is not in this business to fail. Although he has negotiated to 
sell 49 percent of DC Air to American Airlines, he will retain 
51 percent ownership and will conduct himself as all majority 
partners do. American Airlines' participation in this venture 
will undergird Bob Johnson's business acumen and enviable 
record spawning new and related industries and creating 
meaningful jobs and opportunities for those who have 
traditionally been left outside of the business world's 
mainstream. Bob Johnson's record in these areas is clear and 
convincing.
    Second, the merger gives those who fly United Airlines and 
US Airways access to additional markets in the United States 
and throughout the world. By combining networks, US Airways 
passengers will gain same-carrier service to 117 U.S. cities 
and 28 foreign destinations. Similarly, United passengers will 
gain same-carrier service to 80 United States cities and 13 
international destinations.
    A recent University of Illinois study noted that the merger 
would provide single-carrier service for 162 domestic city 
pairs in which one-carrier service is currently not available. 
At the same time, the carriers have committed to continue 
serving all markets they serve today. The ability to travel on 
one airline from start to finish, which will be available to 
this merger in 162 new cities, not only increases convenience 
but also decreases costs. The University of Illinois study also 
noted that consumers would save money because it costs less to 
complete a trip using a single airline than it does using 
multiple carriers.
    Third, this agreement also promotes competition, In South 
Carolina, if a businessman or woman needed to go West, their 
options are really pretty limited. However, if US Airways is 
combined with the United Airlines network, South Carolinians 
will have a significant number of other options. The same goes 
for international destinations as well.
    In Florida, the situation is very similar. New daily 
nonstop service will be added from West Palm Beach to Denver, a 
United hub, providing access to hundreds of destinations in the 
West and mountain regions. In addition, Tampa to Los Angeles 
and Tampa to San Francisco service will be initiated. Los 
Angeles and San Francisco give travelers on these routes access 
to Asia and the rest of the world, access that is limited for 
Floridians today. Approval of this venture would mean that 
travelers from Miami, Tampa, Orlando, and Jacksonville will be 
able to travel more easily to more U.S. and international 
destinations than ever before.
    Today business is global, and it is the engine that brings 
prosperity to many local communities. In my home State of South 
Carolina, the York County Economic Development Board recently 
passed a resolution supporting this merger.
    Finally, the American Airlines acquisition of TWA makes 
good sense. Given the unfortunate position TWA is in, I see 
this opportunity as preservation, rather than consolidation. I 
would much rather see America grow its network than see TWA and 
its routes disappear. I think the Justice Department agreed. 
And I believe all of us can see a similar fate for US Airways 
should this venture fail to secure approval. This merger is 
unprecedented in the guarantee it provides the 45,000 employees 
of US Airways. United has committed to provide jobs to all US 
Airways employees, thus avoiding painful layoffs, downsizing, 
and financial hardship, which employees of airlines that have 
experienced bankruptcy have endured.
    Mr. Chairman, we can no longer limit our horizons. And I 
would be pleased to answer any questions should there be any.
    [The prepared statement of Hon. James E. Clyburn follows:]

   Prepared Statement of Hon. James E. Clyburn, a Representative in 
               Congress from the State of South Carolina

    Chairman Stearns, members of the Subcommittee: Thank you for 
allowing me the opportunity to share my thoughts on the important 
issues facing today's airline industry. I appear today as the immediate 
past Chair of the Congressional Black Caucus, and the current Chair of 
the Caucus' Policy & Leadership Institute. I will cover a few points, 
such as customer service and competition, and hopefully leave some time 
for questions from the subcommittee should there by any.
    Mr. Chairman, today's airline industry is dramatically different 
than it was just a few years ago. For example, since 1978, the number 
of people flying has more than doubled from 275 million to 635 million. 
Aviation is no longer a luxury, it is a necessity leading some to claim 
that air travel today is really ``mass transit in the sky.''
    Recently, United Airlines and US Airways announced they would 
combine fleets and routes resulting in the world's largest airline. In 
January, American Airlines announced they would acquire TWA, one of, if 
not the most recognizable acronym in the industry. And this past 
Friday, the Justice Department declined to challenge that acquisition. 
These two deals have led some to remind us that bigger is not 
necessarily better. And of course all of us agree with that. But in the 
case of the United Airlines/US Airways venture, several important 
benefits accrue to the nation.
    First, in an effort to resolve antitrust concerns in Washington, 
DC, the only market where there is overlap between the two airlines--a 
new airline, DC Air--will be created. Not only will DC Air be a new 
entrant providing new competition to and from Reagan National Airport, 
it would be an important affirmative step toward minority ownership 
participation in the airline industry. I understand that questions have 
been raised about the viability of DC Air. Mr. Chairman, I know Bob 
Johnson, and he is not in this business to fail. Although he has 
negotiated to sell 49% of DC Air to American Airlines, he will retain 
51% ownership and will conduct himself as all majority partners do. 
American Airlines' participation in this venture will undergird Bob 
Johnson's business acumen and enviable record of spawning new and 
related industries, and creating meaningful jobs and opportunities for 
those who have traditionally been left outside of the business world's 
mainstream. Bob Johnson's record in these areas is clear and 
convincing.
    Second, the merger gives those who fly United Airlines or US 
Airways access to additional markets in the United States and 
throughout the world. By combining networks, US Airways passengers will 
gain same-carrier service to 117 US cities and 28 foreign destinations 
that currently require a change of carriers to reach. Similarly, United 
passengers will gain same-carrier service to 80 US cities and 13 
international destinations. A recent University of Illinois study noted 
that the merger would provide single-carrier service for 162 domestic 
city pairs in which one-carrier service is currently not available. At 
the same time, the carriers have committed to continue serving all 
markets they serve today. The ability to travel on one airline, from 
start to finish, which will be available with this merger to 162 new 
city pairs, not only increases convenience, but also decreases costs. 
The University of Illinois study also noted that consumers would save 
money because it costs less to complete a trip using a single airline 
than it does using multiple carriers.
    Third, this agreement also promotes competition. In South Carolina, 
if a businessman or woman needed to go West, their options are really 
pretty limited. However, if US Airways is combined with the United 
Airlines network, South Carolinians would have a significant number of 
other options. The same goes for international destinations as well.
    In Florida, the situation is very similar. New daily non-stop 
service will be added from West Palm Beach to Denver, a United hub, 
providing access to hundreds of destinations in the west and mountain 
regions. In addition, Tampa to Los Angeles and Tampa to San Francisco 
service will be initiated. Los Angeles and San Francisco give travelers 
on these routes access to Asia and the rest of the world, access that 
is limited for Floridians today. Approval of this venture would mean 
that travelers from Miami, Tampa, Orlando, and Jacksonville will be 
able to travel more easily to more US and international destinations 
than ever before.
    Today, business is global and it is the engine that brings 
prosperity to local communities. In my home state of South Carolina, 
the York County Economic Development Board recently passed a resolution 
supporting the merger noting, ``. . . the proposed United Airlines-US 
Airways merger should improve access to global markets through 
additional direct international flights and provide not only greater 
potential for foreign investment but also tourism and convention 
related business.'' In 1988, the Atlanta Chamber of Commerce found that 
the availability of international service was the third most important 
factor in the location of new economy firms. This is exactly the reason 
the deal is good for South Carolina and my constituents.
    Finally, the American Airlines acquisition of TWA makes good sense. 
Given the unfortunate position TWA is in, I see this opportunity as 
preservation rather than consolidation. I would much rather see 
American grow its network rather than see TWA, and its routes, 
disappear. I think the Justice Department agreed. And I believe all of 
us can see a similar fate for US Airways should this venture fail to 
secure approval. This merger is unprecedented in the guarantee it 
provides the 45,000 employees of US Airways. United has committed to 
provide jobs to all US Airways employees, thus avoiding painful 
layoffs, downsizing and financial hardship which employees of airlines 
that have experienced bankruptcy have endured.
    Mr. Chairman, we can no longer afford to limit our horizons. The 
United Airlines /US Airways and the American/TWA ventures will move our 
aviation industry towards more successfully competing in the global 
market. Approval of this venture would be good for business, it would 
be good for competition and most importantly, it would be good for the 
consumer.
    Thank you for the opportunity to testify today. I will be happy to 
answer any questions.

    Mr. Stearns. I thank my colleague.
    The gentlewoman from New York, Ms. Slaughter, for an 
opening statement.

               STATEMENT OF HON. LOUISE SLAUGHTER

    Ms. Slaughter. Thank you, Mr. Chairman. Good morning to you 
and to the members of the committee.
    I am delighted to be here this morning. This is a critical 
issue at a critical time. And I thank you for engaging the 
committee on this matter.
    The current wave of airline mergers is sounding alarm 
bells, and it should. The notion that consolidating the entire 
United States domestic aviation market into three meg carriers, 
the notion that that would be good for consumers is laughable 
on its face and has been ridiculed by virtually every 
independent analysis. These mergers will clearly erode what 
little competition remains in the aviation industry. With fewer 
airlines competing against each other, entire regions of the 
country can expect higher prices, fewer flights, and even worse 
service than they endured over the recent holiday season.
    A GAO report that I along with my colleague James Oberstar 
of Minnesota requested made clear in December that the proposed 
US Airways-United merger would trigger further consolidations 
of the industry, thereby reducing the industry to as few as 
three major airlines. That prediction has come true faster than 
any of us imagined. Last week the Nation lost Trans World 
Airlines with its acquisition by American Airlines. And now 
press reports indicate that Delta, Continental, and Northwest 
are also exploring a strategic alliance.
    But Congress is not powerless in the face of these mergers. 
This is a Committee with a rich history of flexing its muscle, 
and it is time to do just that. Congress must send an 
unambiguous signal to the administration that the mergers 
should not go forward without further study.
    I have authored a bill called the Airline Merger Moratorium 
Act that I introduced with Peter DeFazio, which I urge you to 
take a look at. The bill is straightforward. It says no airline 
mergers for a year, period.
    We need this moratorium to determine how detrimental the 
impact of these mergers will be on the flying public. And it 
will give newly appointed United States Transportation 
Secretary Norman Mineta and U.S. Attorney General John Ashcroft 
the necessary time to fully understand the problems, the 
opportunities, and the constraints faced by new carriers. And 
it will provide the Bush administration with sufficient time to 
establish a new merger policy. These are enormously complex 
mergers where the public interest must be a factor in 
determining whether to allow them to go forward.
    And Congress needs answers to other questions. For example, 
what will the long-term impacts be on airline workers if the 
mergers are approved? I know that the TWA workers are supposed 
to be in good shape, and I wish them well in that endeavor.
    What is the best use of publicly owned takeoff and landing 
time slots at Reagan National Airport? Might it not be better 
if United States government reasserted ownership of those slots 
and give them out or auction them off to other airlines as well 
or should we just hand them over to another airline? We really 
need the answer to that question because if anything has 
plagued us over the years, Mr. Chairman, it is the slot 
question.
    What would be the impact of the airline labor strike if 
these mergers consolidate the industry into three major 
airlines or if finally we have one major airline and it goes on 
strike? A critical question that needs answering is: Is US 
Airways a failing airline? And if it is, why is United paying 
such a huge market premium to acquire it?
    I would suggest that US Airways has a lot of life in it 
with some of the finest pilots and the most competent employees 
in the United States. In February 1998, US Airways posted 
annual earnings of $538 million. And despite recent losses, US 
Airways continues to increase capacity and remains dominant at 
its hubs in Charlotte, North Carolina; Philadelphia; and 
Pittsburgh and seems to be doing fine in Rochester, New York, 
where they carry most of the passengers. It is the No. 2 
carrier at the Baltimore-Washington International Airport, 
where passenger totals increased by more than 7 percent last 
year. Maryland aviation officials report that US Airways gained 
passengers at an even faster pace than at the start of the 
year.
    We really need to ask ourselves: Is this a failing airline? 
I would urge this Committee to view with caution an assessment 
that the US Airways is on the brink of collapse and can only be 
saved by a merger.
    Mr. Chairman, I have not testified before your Committee on 
this issue, and I want to briefly explain my involvement. I 
represent Rochester, New York. We are typical of many mid-sized 
cities served by United and US Airways. For us, deregulation 
was a bust. Back in the 1980's, 13 air carriers served our 
region, affording customers choices and creating a competitive 
environment that produced reasonable fares. Now we have only a 
handful of airlines with US Airways the dominant carrier. 
According to the Department of Transportation, our air fares 
are the third highest in the country.
    Now, one thing different about us is that we are a Fortune 
500 community. And Rochester, New York exports more goods out 
of that one region than all but 9 states of the 50 United 
States. This is a community that has to travel and pays through 
the nose to do it.
    Over the past few years, many firms or businesses have 
either moved out or chosen to expand into other regions of the 
country because of our exorbitant airfares and inconvenient 
flight schedules. And I think if any of you noticed the census 
numbers that have just recently come out, that upstate New 
York, has suffered.
    This is not a position that we have expected to be in. We 
are, as I point out, the largest per capita exporting city in 
the country. And 1.2 million people flew out of our airport 
last year. The 28th District is the proud home of a number of 
500 Fortune companies, such as Eastman Kodak, Xerox 
Corporation, Bausch and Lomb, Johnson and Johnson. Of equal 
importance are the hundreds of small and mid-sized high-
technology firms that have been growing in our region over the 
past several years.
    A bright spot and critical source of price competition is 
JetBlue Airlines, a low-cost airline we managed to attract to 
Rochester last year. But low-cost carriers like JetBlue, 
Southwest, and AirTran will surely find themselves at the mercy 
of these mega carriers should they take over the domestic 
aviation market.
    Let me close by something I have stated before. Generations 
of American taxpayers have poured their tax dollars into 
building our Nation's aviation infrastructure. These same 
taxpayers will find themselves at the mercy of the marketing 
departments of mega carriers, who will decide with impunity 
which regions of the country live or die based on the access to 
air service.
    And in response to my good colleague and fellow New Yorker 
Mr. Towns, if we could only imagine that we had one carrier 
that controlled the whole East Coast from Maine to Florida and 
it went on strike and you imagined the cities that you 
mentioned, the devastation, and the problems that we would 
have, I think it is worthy of great consideration.
    I thank you for your time.
    [The prepared statement of Hon. Louise Slaughter follows:]

   Prepared Statement of Hon. Louise Slaughter, a Representative in 
                  Congress from the State of New York

    Mr. Chairman, thank you for this opportunity to be heard on this 
critical issue at this critical time. I want to praise you for engaging 
the Committee on this matter.
    The current wave of airline mergers is sounding alarm bells--and it 
should. The notion that consolidating the entire US domestic aviation 
market into three mega-carriers will be good for consumers is laughable 
on its face, and has been ridiculed by virtually every independent 
analysis. These mergers will clearly erode what little competition 
remains in the aviation industry. With fewer airlines competing against 
each other, entire regions of the country can expect higher prices, 
fewer flights, and even worse service than they endured over the recent 
holiday season.
    A GAO report that I, along with my colleague James Oberstar (MN), 
requested made clear in December that the proposed US Airways/United 
merger would trigger further consolidation of the industry, thereby 
reducing the industry to as few as three major carriers. That 
prediction has come true faster than any of us imagined. Last week, the 
nation lost Trans World Airlines with its acquisition by American 
Airlines. Now press reports indicate that Delta Airlines, Continental 
Airlines and Northwest Airlines are also exploring a strategic 
alliance.
    But Congress is not powerless in the face of these mergers. This is 
a Committee with a rich history of flexing its muscle, and its time to 
do just that. Congress must send an unambiguous signal to the 
Administration that these mergers should NOT go forward.
    I have authored a bill called the Airline Merger Moratorium Act, HR 
761, that I introduced with Peter DeFazio, which I urge you to take a 
look at. The bill is straightforward: NO AIRLINE MERGERS for a year. 
Period.
    We need a moratorium to determine how detrimental the impact of 
these mergers will on the flying public. It will give newly appointed 
U.S. Transportation Secretary Norman Y. Mineta and U.S. Attorney 
General John Ashcroft the necessary time to fully understand the 
problems, opportunities and constraints faced by new carriers.
    And it will provide the Bush administration with sufficient time to 
establish a new merger policy. These are enormously complex mergers 
where the public interest must be a factor in determining whether to 
allow them to go forward.
    Also, Congress needs answers to other questions:

 What will be the long-term impacts on airline workers if these 
        mergers are approved?
 What is the best use of publicly-owned takeoff and landing 
        time slots at Reagan National Airport?
 What would be the impact of a airline labor strike if these 
        mergers consolidate the airline industry into three major 
        carriers?
 And a critical question that needs answering: Is US Airways 
        really a failing airline? If so, why is United paying such a 
        huge market premium to acquire it?
    I would suggest that US Airways has lot of life in it, with some of 
the best employees in the industry. In February 1998, US Airways posted 
annual earnings of $538 million. And despite recent losses, US Airways 
continues to increase capacity and remains dominant at its hubs in 
Charlotte, N.C., Philadelphia and Pittsburgh. It is the No. 2 carrier 
at the Baltimore-Washington International Airport, where passenger 
totals increased by more than 7 percent last year. Maryland aviation 
officials report that US Airways gained passengers at an even faster 
pace at the start of this year.
    I would urge this committee to view with caution an assessment that 
US Airways is on the brink of collapse, and can only be saved by a 
merger.
    Mr. Chairman, I have never testified before your committee on this 
issue and want to briefly explain my involvement. I represent 
Rochester, New York. We are typical of many mid-sized cities served by 
United and U.S. Airways. For us, deregulation was a bust. Back in the 
1980's, thirteen air carriers served our region, affording consumers 
choices and creating a competitive environment that produced reasonable 
fares. Now, we have only a handful of airlines, with US Airways the 
dominant carrier. According to the Department of Transportation, our 
air fares are the third highest in the country. Over the last few 
years, many firms and businesses have either moved out or chosen to 
expand into other regions of the country because of our exorbitant 
airfares and inconvenient flight schedules.
    This is not a position Rochester thought it would ever find itself 
in. We are the largest per capita exporting city in the U.S. Last year, 
1.2 million people flew out of our airport. The 28th District is the 
proud home of a number of Fortune 500 companies such as Eastman Kodak, 
Xerox Corp., Bausch & Lomb, and Johnson & Johnson. Of equal importance 
are the hundreds of small and mid-sized high technology firms that have 
been growing in our region over the past several years.
    A bright spot, and critical source of price competition is JetBlue 
airlines, a low-cost airline we managed to attract to Rochester last 
year. But low cost carriers like JetBlue, Southwest, or AirTran will 
surely find themselves at the mercy of these mega-carriers should they 
take over the domestic aviation market.
    Let me close by noting something I have stated before: generations 
of American taxpayers have poured their hard-earned tax dollars into 
building our nation's aviation infrastructure. These same taxpayers 
will find themselves at the mercy of the marketing departments of mega-
carriers who will decide with impunity which regions of the country 
live or die, based on their access to air service.
    I thank the Committee members for their time.

    Mr. Stearns. I thank you.
    Mr. DeFazio?

               STATEMENT OF HON. PETER A. DeFAZIO

    Mr. DeFazio. Thank you, Mr. Chairman and members of the 
committee.
    I am pleased to have the opportunity to be here today. I 
have served on the Aviation Subcommittee for 15 years and have 
visited this issue many times.
    You will hear from the airlines today that with this 
merger, what they are offering is seamless service and this is 
what their customers demand: seamless service. You know, it is 
funny. The customers I run into or hear complaints from in my 
office or in meetings in my district are not concerned about 
seamless service. They are concerned about: No. 1, safety; No. 
2, price; and, No. 3, service, but not seamless service. They 
just want to be treated well with basic rights as passengers in 
relationships with the airlines. Seamless service is just some 
bizarre thing that the PR people at the airlines came up with.
    We have code shares. Code shares are allowed under law. 
United Airlines is involved in a code share with 13 airlines. 
You can fly from the most obscure city served by United 
Airlines in the United States of America to Uzbekistan and be 
in their system the whole time through the Star alliance. They 
don't need the seamless service. They don't need to merge. The 
merger will cause market concentration, which is going to be to 
the disadvantage of customers.
    I give the example of my own home city, Eugene-Springfield. 
We are dominated by United Airlines. A round-trip ticket from 
Eugene to Washington, DC, government fare, runs about $1,000. 
If I am willing to drive 2 hours north to Portland, where there 
are airlines competing with United, the round-trip fare is less 
than $500, same airline distance, double the price. The only 
different factor is competition.
    If you allow, if we allow, as Congress, this merger to go 
forward and competition no longer exists, you will find reduced 
competition in 290 of the top 5,000 markets, many represented 
by members of this panel and other Members of Congress. That 
will leave 43 markets with only one airline, one airline 
competing with itself in price and service. I don't think so.
    Also, when you talk about service, you take and merge 
United and US Air. Well, there are already labor disputes. My 
flight was delayed 4 hours last Thursday night out of Dulles 
because the mechanics voted for the merger, but they don't have 
what they were promised in protecting their seniority, and the 
merger seems to be going forward. So they are starting a 
slowdown again.
    You are going to have extraordinary labor problems with 
this merger between the pilots, the mechanics, and the other 
conflicting cultures. Their computer systems are not 
compatible. They say, ``Oh, well. There will be 2 or 3 years of 
extraordinary disruptions for airline travelers, but then the 
benefits will outweigh those 2 or 3 years of additional 
disruptions that will come from this merger.''
    I don't think so because the benefits down the road are 
higher prices, less service, and a bigger airline. Already the 
motto of United, they have numerous mottos, but I have my own 
favorite, which is ``We don't care. We don't have to.'' And you 
think a bigger airline with more market concentration, when you 
have no choice, is going to provide that sort of service. I 
don't think so.
    So I would urge this Committee to look very critically at 
the claims that will be put before you today and question the 
assertions they make and really look. I think the Chairman 
defined it. What are the quantifiable benefits? Not all of this 
seamless service and these things. Tell us about the 
quantifiable benefits. And, in fact, maybe the merging partners 
would like to guarantee for 5 or 10 years that the fares in all 
of these cities will actually be lower because of this merger, 
maybe some quantifiable guarantees that they will put into 
their merger agreement as guarantees to the public and Members 
of Congress that there are benefits. I don't think if we asked 
for those steps that they would continue to advocate for the 
merger.
    I thank the committee for its time. And I would ask that my 
complete and much more articulate statement written by my staff 
be put in the record.
    [The prepared statement of Hon. Peter A. DeFazio follows:]

Prepared Statement of Hon. Peter DeFazio, a Representative in Congress 
                        from the State of Oregon

    Thank you Mr. Chairman and Mr. Ranking Member for holding this 
hearing. I appreciate the opportunity to testify on the timely issue of 
airline mergers. It is no secret that I think the recent rash of 
proposed mergers will have a negative effect on consumers. It will lead 
to market dominance by a few major players and less accountability to 
consumers.
    The Department of Justice's recent approval of American's plan to 
buy TWA and the pending merger between United and U.S. Airways will 
shrink the domestic airline industry from six major players to two or 
three mega-carriers. It is estimated that American Airlines, after its 
purchase of TWA, will hold 23 percent of the airline market while the 
new United would comprise over 25 percent. Together these two airlines 
will make up half of the domestic airline industry and will dominate 
three other major carriers, Delta, Northwest and Continental, who 
together only account for about 35 percent of all domestic airline 
passengers. This kind of market dominance will mean less competition 
and higher fares for consumers. At a time when the airlines are under 
scrutiny for their lack of commitment to good customer service, it will 
also mean fewer options for consumers and less incentive for airlines 
to provide improved service. The only possible benefit of these mergers 
to consumers would be increased competition in markets where neither 
United or U.S. Airways was a major presence, additional nonstop flights 
and additional frequent flier miles for some customers. However, the 
high prices that will accompany the consolidation of airlines will hurt 
consumers much more than new benefits will help them.
    Many consumers are already suffering at the hands of the airline 
industry's powerful market dominance. The deregulation of the airline 
industry may have decreased prices for some consumers in competitive 
markets, but fliers in cities with little competition continue to pay 
more than most. If we allow mergers that further limit competition to 
go forward, prices will rise in markets across the U.S. A December 
report by the General Accounting Office (GAO) found that the United 
merger could reduce competition in 290 of the top 5,000 markets. These 
markets served about 16 million passengers in 1999. Out of the 290 
markets where competition will be reduced, GAO estimates that the 
merger will leave 43 markets with only one airline, effectively 
eliminating consumer choice for over 4 million people. The effects of 
decreased competition will be especially felt here in Washington, D.C., 
where the new United is expected to gain a market share of greater than 
90 percent on flights from Washington to Boston, MA, and from 
Washington to Tampa, Florida.
    If the proposed mergers we are discussing today go forward, United, 
American and their affiliates will dominate at eleven hub airports 
including, Chicago, Charlotte, Dallas, Denver, Miami, New York, 
Philadelphia, Pittsburgh, San Francisco, St. Louis and Washington-
Dulles. United and American will also operate nearly 80 percent of all 
takeoff and landing slots at three of the nation's largest airports, 
including 93 percent at Chicago's O'Hare, 65 percent at New York's 
LaGuardia, and 65 percent at Washington's National Airport.
    A December GAO report compared the proposed United merger with the 
failed attempt Northwest made in 1998 to acquire a majority of 
Continental's voting stock. The GAO found that the proposed United 
merger would have a much larger and more negative impact on competition 
in the airline industry than the Northwest-Continental stock 
acquisition. The United merger will reduce competition in more than 
four times as many markets as the Northwest-Continental proposal and 
will dominate more than twice the total number of markets, affecting 20 
million more passengers.
    According to a study released by the Department of Transportation 
(DOT) in January, fares are lower in markets where discount airlines or 
several major airlines compete. Consumers pay as much as 40 percent 
more in markets with little or no competition. I know something about 
how market dominance and a lack of competition can lead to poor 
service. Until very recently, the Eugene airport, near my home in 
Oregon, was only served by United Airlines with very limited service by 
Horizon. Since Horizon only offers flights on the West Coast, United 
was the only choice for passengers wishing to travel to the East.
    In September of 1999, in a unique partnership, the business 
community of Eugene convinced America West to offer service to Phoenix 
by making a financial deposit towards the purchase of future flights on 
America West.
    Service by America West is still somewhat limited, but the benefit 
to consumers from this additional competition can be clearly seen in 
the following example. A consumer who wants to fly from Eugene to 
Washington National Airport can now choose between American West and 
United. A typical flight on America West would have one lay over and, 
based on prices earlier this week, would cost about $420. A similar 
flight on United would include two stops and cost over $1,000. If the 
same customer were willing to drive two hours to Portland International 
Airport, United would offer a similar flight with only one stop for 
about $460.
    The business community in Eugene has had to take an active role in 
increasing competition, but their efforts have had a positive affect. 
Recently, Horizon began offering a non-stop flight to Los Angeles 
because Eugene business leaders made a financial deposit toward future 
tickets on Horizon. United and America West do not offer direct flights 
from Eugene to Los Angeles and delays through San Francisco were a 
constant source of frustration to business travelers. As soon as 
Horizon began offering its lower priced, non-stop flights to Los 
Angeles, both United and America West adjusted their prices to match 
Horizon's.
    Deregulation left many communities with only one or two airline 
options and customer complaints have risen because of oversold, 
overcrowded, late, delayed and canceled flights. According to 
statistics complied by the DOT, more than one in every four flights 
were delayed, canceled or diverted last year. Among the top carriers, 
United and U.S. Airways accounted for over 50 percent of the total 
number of chronically delayed flights. In December of 2000, 178,707 of 
475,398 scheduled flights failed to arrive on time, the most late 
flights ever reported in a single month. The following month DOT 
received 30 percent more complaints from consumers about flight delays 
or cancellations than they had during the same month the previous year.
    The failure of airlines to meet even the most basic commitments to 
customer service calls into question whether or not they should be 
focusing all their efforts on expanding their market share. It is time 
to put the brakes on merger mania. The airline industry should focus on 
improving customer service and increasing consumer choices, rather than 
rushing to gobble each other up.

    Mr. Stearns. By unanimous consent, so ordered. I thank my 
colleague.
    The gentlewoman from South Carolina, Ms. Myrick.
    Ms. Myrick. From North Carolina.
    Mr. Stearns. North Carolina. I am sorry.
    Ms. Myrick. That is quite all right, but I know Mr.----
    Mr. Stearns. I have got it here. It says, ``North 
Carolina.''
    Ms. Myrick. We have one from each here.
    Mr. Stearns. I know. I know.

                  STATEMENT OF HON. SUE MYRICK

    Ms. Myrick. Thank you very much, Mr. Chairman and the 
members of the committee, for allowing me to be here today and 
discuss the proposed merger between US Air and United.
    I believe that joining US Air with United is good for the 
consumers because it would preserve the broad array of services 
that US Airways has provided to North Carolina. And it would 
ensure that thousands of US Air employees in my state are going 
to have jobs at United.
    The service US Airways offers out of the Carolinas is the 
envy of consumers in many regions across the Nation. In 
Charlotte alone, US Airways currently offers 554 daily 
departures to 110 destinations. This has opened the door for 
thousands of local and international businesses that require 
convenient and frequent air travel. As a result, Charlotte has 
grown into one of the Nation's; indeed, the world's, leading 
banking and financial centers. After combining US Airways and 
United, Charlotte and the Carolinas will be even more connected 
to the global economy at a time when aviation is crucial to our 
future economic development.
    One needs only to compare the services offered out of 
Charlotte to a city of similar size to see what is at stake for 
families in Charlotte. Indianapolis, for example, a city larger 
than Charlotte, has only 178 daily departures because it lacks 
a hometown carrier that is willing to base its operations 
there. Sacramento, another city that is larger than Charlotte, 
has only 134 daily departures, a mere fraction of what 
Charlotte has been able to provide as a result of US Airways' 
commitment to the region. And I question whether the people of 
North Carolina would want to give up what is clearly one of the 
secrets to our great business and economic success.
    The unfortunate fact of all of this is that if left on its 
own, US Airways would not be able to continue to provide this 
level of service to North Carolina consumers. After reporting a 
significant net loss of $269 million for 2000, the company just 
announced it expects first quarter earnings to be well below 
the current estimate of a loss of $1.12 per share. US Airways 
finds itself in this untenable position because, like TWA, 
which is now undergoing its third bankruptcy in 10 years, it is 
being squeezed between the low-cost, low-fare airlines and the 
full-scale, global network carriers. US Airways is struggling 
to cope with unworkable costs and a limited route network, 
putting it at a severe disadvantage against the competition.
    It is a company built in the same mold as TWA and Eastern 
and Pan Am and Braniff. It is clear to me that absent this 
merger, US Airways is in dire financial straits. In addition to 
a loss of services, the Carolinas would face a major loss of 
jobs if the merger was not approved. At a time when our state 
is losing literally thousands of manufacturing jobs, we have 
lost 10,000 in one of my counties alone, and our country is 
experiencing an economic challenge, I don't think we can afford 
to see the 10,500 US Airways employees in North Carolina and 
45,000 across the network lose their jobs. At this point, 
impediments to the approval process only delay the inevitable 
and inflict unnecessary pain.
    There is an alternative to job losses, service reduction, 
and economic hardships because the merger with United provides 
a bright future for its employees, the communities it serves, 
and the economy of North Carolina. The terms of the proposed 
agreement guarantee not only the 10,500 US Airways jobs in 
North Carolina but also those of the entire company at a time 
when many companies are cutting back their workforces. Further, 
no communities will be cut from service, none of them. Indeed, 
with the United service complement, Charlotte and the entire 
Southeast will be even more connected to the global economy.
    I believe it is time to act now to avoid the TWA scenario 
for US Airways. It is time for the Department of Justice to 
approve it so the new company and its employees can begin to 
build for the future.
    I would ask the subcommittee to support his merger on 
behalf of all of us consumers in North America and across the 
world, actually. In a time of economic uncertainty, consumers 
want us to be working to preserve jobs and services at home, 
not supporting efforts and plans to gut them.
    And I would like to submit my whole statement for the 
record, Mr. Chairman.
    [The prepared statement of Hon. Sue Myrick follows:]

  Prepared Statement of Hon. Sue Myrick, a Representative in Congress 
                    from the State of North Carolina

    Mr. Chairman and Members of the Subcommittee, I appreciate the 
opportunity to discuss the proposed US Airways-United Airlines merger. 
Fundamentally, I believe joining United with US Airways is good for 
consumers because it would preserve the broad array of services US 
Airways has provided North Carolina and would ensure that the thousands 
of US Airways employees in my state will have jobs at United.
    The service US Airways offers out of the Carolinas is the envy of 
consumers in many regions across the nation. In Charlotte alone, US 
Airways currently offers 554 daily departures to 110 destinations. This 
has opened the door for thousands of local and international businesses 
that require convenient and frequent air travel. As a result, Charlotte 
has grown into one of the nation's--indeed the world's--leading banking 
and financial centers. After combining US Airways and United, Charlotte 
and the Carolinas will be even more connected to the global economy at 
a time when aviation is crucial to our future economic development.
    One needs only to compare the services offered out of Charlotte to 
a city of similar size to see what is at stake for families in the 
Carolinas. Indianapolis, for example, a city larger than Charlotte, has 
only 178 daily departures because it lacks a hometown carrier that is 
willing to base its operations there. Sacramento, another city larger 
than Charlotte, has only 134 daily departures, a mere fraction of what 
Charlotte has been able to provide as a result of US Airways' 
commitment to our region. I question whether the people of North 
Carolina would want to give up what is clearly one of the secrets to 
our state's economic success.
    The unfortunate fact is that, if left on its own, US Airways would 
not be able to continue to provide this level of service to North 
Carolina consumers. After reporting a significant net loss of $269 
million for 2000, the company just announced that it expects first 
quarter earnings to be well below the current estimate of a loss of 
$1.12 per share. US Airways finds itself in this untenable position 
because, like TWA, which is now undergoing its third bankruptcy in ten 
years, it is being squeezed between the low-cost, low-fare airlines and 
the full scale, global network carriers. US Airways is struggling to 
cope with unworkable costs and a limited route network, putting it at a 
severe disadvantage against the competition.
    US Airways is a company built in the same mold as TWA, as well as 
Pan Am, Braniff and Eastern. It is clear to me that absent this merger, 
US Airways is in dire financial straits. In addition to a loss of 
services, the Carolinas would face a major loss of jobs if the merger 
was not approved. At a time when our state is losing manufacturing jobs 
and our country is experiencing an economic challenge, I don't think we 
can afford to see the 10,500 US Airways employees in North Carolina and 
45,000 across their network lose their jobs. At this point, impediments 
to the approval process only delay the inevitable and inflict 
unnecessary pain.
    But there is an alternative to job losses, service reduction and 
economic hardships. The merger of US Airways with United provides a 
bright future for its employees, the communities it serves and the 
economy of North Carolina. The terms of the proposed agreement 
guarantee not only the 10,500 US Airways jobs in North Carolina, but 
also those of the entire company, at a time when many companies are 
cutting back their workforces. Further, no communities will be cut from 
the service network. Indeed, with new United service, Charlotte and the 
entire Southeast will be even more connected to the global economy.
    It's time to act now to avoid the ``TWA scenario'' for US Airways. 
It's time for the Department of Justice to approve the US Airways-
United transaction so that the new company and its employees can begin 
to build for their future--and for ours. Delay only hurts.
    For these reasons, I urge this Subcommittee to support this merger 
on behalf of consumers in North Carolina and across America. In this 
time of economic uncertainty, consumers want us to be working to 
preserve jobs and services at home--not supporting efforts and plans to 
gut them.

    Mr. Stearns. By unanimous consent, so ordered. Just to 
remind the members, what I thought we would do is we would ask 
the questions here to the members as a courtesy. And then after 
the first panel, we would have our opening statements. The 
ranking member and I have both given ours. If Mr. Dingell was 
here, I would offer him his opening statement. So we are going 
to open up for questions here for the members. And then we will 
have the opening statements right afterwards.
    I think my question for you, Ms. Myrick from North 
Carolina, is: Have you got assurance from United? I understand 
it is 534 flights a day out of Charlotte. Have you got 
assurance from them that you are going to have that many 
flights every day and you feel confident with the merger that, 
in fact, the amount of service will remain the same or 
increase?
    Ms. Myrick. Yes. We have been told that, and I feel 
confident that they are telling us the truth.
    Mr. Stearns. Okay. Mr. DeFazio, you know, this whole merger 
with US Air and United has been looked at since last May. Now, 
if we had a moratorium, I think if you look at this merger and 
you look at the balance sheets of these, what benefit is this 
going to have if under the free market system you have this 
give and take and one airline feels that it would be better 
able to serve if they were absorbed? Because other than price 
controls or the government stepping in with some kind of 
Federal regulation, you are not allowing this system to 
operate.
    So I guess the question is: Should we step in and prevent 
this and how long this moratorium in your mind should last? 
Perhaps this is both for you and Ms. Slaughter.
    Mr. DeFazio. Well, first off, the current allegation that 
this is necessary for the financial health of US Air. I asked 
Mr. Wolf that question very directly about 4 months ago before 
the Aviation Committee, very directly. I said: Mr. Wolf, I 
think members of this Committee would like to know. Is this 
essential for the continued operation of US Air and its 
financial health?
    And Mr. Wolf said absolutely unequivocally not. We are 
healthy. We are growing. We are doing great. We are not merging 
because of that issue. That hasn't changed. The basics in the 
whole industry have changed. And everybody is showing losses 
right now. But unless Mr. Wolf was not telling the truth then, 
I would say that the basic assertion has not changed and it is 
not a good rationale for the merger.
    Second, free markets assume a whole lot of things: ease of 
entry and exit, transparency in terms of consumers having all 
of the information they need to make informed choices, no 
market dominance by any one supplier of a product. Those are 
the assumptions of Adam Smith regarding free markets.
    What we are doing here would mean that there would be 
obviously a lot less capability for entry given the size of a 
US Air-United merged airline. They would be able to engage in 
predatory pricing and squeeze out with impunity any future 
competition, as many of the major airlines do already with 
those upstarts that try and come into their markets and drive 
down prices and provide a service to consumers.
    The fact that they would dominate so many airports in the 
East is against the precepts of free and fair markets. I would 
urge, I think, a delay, and I hope a delay that results in no 
merger going forward.
    Mr. Stearns. I understand that Senator Dorgan has drafted a 
bill for a 2-year moratorium. I don't know if you knew that.
    Your conversation with Mr. Wolf you said was 2 years ago?
    Mr. DeFazio. No, no. It was 4 months ago.
    Mr. Stearns. Four months ago.
    Mr. DeFazio. Four months ago. And he was absolutely 
unequivocal. I don't believe the basics of the airline have 
changed since then. The basics of the entire industry have 
changed because of the changing U.S. economy, but I can't 
imagine that the basics of that one particular airline have 
changed that much in 4 months. I can provide that for the 
record.
    Mr. Stearns. We have the great opportunity to explore that.
    Mr. Clyburn, the question--and I will get right to you--is: 
What does D.C. Air bring to the Washington region that was not 
already here with US Air?
    Mr. Clyburn. Well, it brings more competition. It could 
very well bring lower air travel, lower prices. Remember, you 
are not running around the airport. We are leaving Reagan 
National going other places as well. There are three cities in 
my congressional district serviced by US Airways: Florence, 
Columbia, and Charleston. And D.C. Air would be serving those 
cities.
    And also I think that this is important. It may not be 
important to some people. It is very important to me. The fact 
that this merger creates D.C. Air, which is the first 
opportunity for a minority to gain ownership in this business, 
to me would demonstrate the way that we ought to be going. When 
we start talking about increasing competition, I think we also 
ought to be talking about creating opportunities for everybody.
    Mr. Stearns. Ms. Slaughter?
    Ms. Slaughter. Thank you, Mr. Chairman.
    I would like to comment on the government's interest here. 
It has long been a tenet of the United States that the ability 
to move goods and people where they need to go in a timely 
fashion is a bedrock of the economy. And, indeed, the United 
States regulated airlines until fairly recently. I know that 
the President has already announced his intention to impose the 
executive branch in the event there is a strike in Northwest.
    I would like to call your attention to at the time that 
Northwest Airlines was on strike, that there were entire states 
in the Northwestern part of the United States that were 
basically without service for a considerable period of time. So 
the government has always in the past stepped in when these 
kinds of things happen. And I think it is perfectly 
appropriate, if not our obligation, frankly, to look at what 
this means for the traveling public in the United States.
    We are not talking reregulation here. We are simply saying, 
``Give us a year to look to see what this will mean to us.'' I 
don't want a repeat in the Northeast or down the Eastern 
seaboard of what happened when Northwest went out on strike. It 
is a very serious business when you are simply unable to move.
    And also I am very much concerned. I think we are an 
example of what happens when you are pretty much at the mercy. 
We talk about competition. Let me make something clear about 
competition. In the airline industry, too, there is a pretty 
good price correlation, not particularly competition. In my 
district, for example, you can fly on two airlines, from 
Rochester to Chicago. But they will cost you within one penny 
of the same fare. I am not saying here that they all work that 
out, but the truth of the matter is that that it would cost 
exactly the same amount of money.
    The best thing that we had going for us and the thing that 
I concern myself with are the new entrants into the airlines, 
the ones that are providing low-cost service. And they are 
really putting some pressure on to lower the fares.
    One of my concerns about the American merger is that 
American is going into court in May against the Justice 
Department because they have been accused of engaging in 
predatory practices of running airlines out of business. We 
have had a lot of history of this. We could sit here and name 
10 or 15 who used to be here and aren't any more.
    It struck me as very odd that the Justice Department would 
want this merger to go on, at least until they adjudicated the 
case with American, unless they are telling us that they are 
not going to do anything about it. This case has been on the 
books for about a year now in this suit.
    Those are things that I think the government is 
overlooking. We need to know the answers to that. I am 
personally very curious as to what will happen with American 
predatory practices. I am personally counting on the Justice 
Department to make sure that what happens with American gives 
some signal to other airlines of: Don't let this happen again.
    So there is a great government interest here. I hope it 
works.
    Mr. Stearns. Okay. I thank my colleague.
    Mr. Towns?
    Mr. Towns. Thank you very much, Mr. Chairman. Let me thank 
all of my colleagues for their testimony.
    Let me ask Mr. DeFazio a question. I know he has been 
involved in these issues for a long, long time, some 15 years. 
Are low-fare carriers the only force in today's airline market 
forcing major carriers to compete on price?
    Mr. DeFazio. I am sorry?
    Mr. Towns. Low-cost carriers.
    Mr. DeFazio. Where there is head-to-head competition, 
absolutely, but there are many cases where there is no head-to-
head competition, where there is no low-fare carrier available. 
There are significant allegations over a number of years and 
reports on Predatory Pricing Act. A very large airline can run 
at a loss for a considerable length of time, one or two or 
three or five or ten flight legs. And they have been known to 
suddenly match the price of a competing upstart until the 
upstart goes away and then raise the price again. We can 
provide documentation of those things.
    Mr. Towns. Ms. Slaughter, do you want to add to that?
    Ms. Slaughter. That is the case with American now that they 
are being accused of running an airline out of business by 
doing that.
    Mr. Towns. Now, JetBlue went into Rochester.
    Ms. Slaughter. Yes.
    Mr. Towns. Did they have a problem going into the market in 
Rochester?
    Ms. Slaughter. They are doing extremely well, and everybody 
loves them. I was just reading this morning that by some group 
that evaluates airlines Midway Express is rated No. 1, JetBlue 
No. 2. For an airline that has only been in business a year, I 
think that is quite extraordinary.
    We do worry about it, absolutely. We are concerned that if 
these mega mergers go through, that they will squeeze them out.
    Mr. Towns. Mr. Chairman, thank you very much.
    Mr. Stearns. Yes. The Vice Chairman, Mr. Deal?
    Mr. Deal. Thank you. Thank you, Mr. Chairman. I want to 
thank my colleagues for being here today.
    As you know, being from Georgia, which is the home for one 
of the other major airlines, Delta, I would like for I suppose 
Ms. Slaughter or Mr. DeFazio since they alluded to this to 
comment on the pressure that might be placed on the other 
remaining major airlines to themselves consider further mergers 
in order to compete with what may be now the other two mega 
airlines.
    Ms. Slaughter. We understand that there are strategic 
discussions going on now among Delta, Northwest, and 
Continental out of concern; I don't think that they are really 
keen on seeing these mergers go through but out of concern that 
if they go through, they are going to be left out.
    Remember, I think that the United-US Air is going to be 60 
percent of all of the traffic in the United States. Isn't that 
correct? I think that they will dominate that much of the 
market.
    Mr. Stearns. Staff tells me it is 50.
    Ms. Slaughter. Fifty?
    Mr. Stearns. Yes.
    Ms. Slaughter. Okay. So they are very much concerned. I 
know that they are in discussions, yes. And, you know, that 
might not be the end of it. Maybe after we only have three they 
decide only to have two: one east of the Mississippi, one west.
    Mr. DeFazio. Mr. Deal, in fact, I have had more direct 
discussions with representatives of Delta, who have said to me 
that they would have to very seriously consider mergers if this 
merger goes forward just to defend against what they feel would 
be an extraordinary market dominance by this one gigantic new 
airline.
    Mr. Deal. Can any of you offer us any statistical data that 
indicates that previous mergers or experiences of 
consolidations of airlines have led to reduced fares?
    Ms. Slaughter. Reduced fares?
    Mr. Deal. Yes.
    Ms. Slaughter. I certainly wouldn't know of any. Our 
experience, as I mentioned in my testimony, was that not too 
long ago, just before deregulation, we had 13 carriers. Most of 
them completely disappeared. And I haven't seen an instance at 
all that fares have gone down. And, frankly, I don't believe 
that to be the case.
    Mr. DeFazio. I would suggest you direct that question to 
the airline CEOs. You might also ask the question I did in 
reference to the Chairman's question about what a competitive 
industry this is.
    I asked the assembled airline CEOs in a hearing last year 
before Aviation if they could name any other fiercely 
competitive industry, which they tell us this is, where 
everybody raises prices by the same amount on the same day or 
within 24 hours and if that is fierce competition.
    I fear that when there are fewer airlines having to 
coordinate and communicate those things, that you will find 
that it will be even worse in terms of the increase.
    Mr. Deal. Just one final quick question. Based on my 
understanding of how far this has progressed, the bankruptcy 
approval of the bankruptcy court for the purchase of TWA, what 
is your understanding of what role, if any, Congress can play 
in whether this is finalized, blocked, or otherwise? Is it now 
just simply clearing the Federal agencies for their final 
approval, whether it be Justice or Department of 
Transportation? Their sign-offs, is that where we are is your 
understanding?
    Ms. Slaughter. I think we lost that one. I think there are 
just some legal maneuvers that are going to take place. One of 
the interesting biplates of that was when another offer was 
made for TWA. How much I regret the loss of TWA. It was a 
splendid airline with great history. American then doubled the 
price that they paid for it.
    Given that I pointed out the fact that they are facing 
government action in May, I wonder what is the effect having to 
pay double for TWA and any possible fines or judgments against 
them by the Federal Government would mean on their survival.
    Mr. DeFazio. I would have to check the specifics, but 
generally the certificate transfer has to be approved by the 
FAA and the Department of Transportation. I don't think the 
judge has the authority to do that.
    There are a number of criteria that go to fitness and 
capability in the transfer of a certificate. And whether that 
would apply in this case and whether there could be further 
scrutiny, review, or even a slowdown or blockage by DOT, FAA, I 
am not certain. I think Congress certainly has some fairly 
extraordinary powers in this area, but I doubt that we are 
going to wade in.
    I am afraid I would have to agree with Ms. Slaughter. We 
may well have lost that, and that may well start an inevitable 
cascade toward the three big airlines. And, of course, as 
Ranking Member Lipinski on Aviation likes to say, he welcomes 
the idea of three airlines because then it will become clear we 
have to reregulate.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Stearns. The gentleman's time has expired.
    The ranking member of the full Committee, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, you are very gracious. Thank 
you. I have no comments at this time except to commend our 
panel. Thank you for holding this hearing. I will have an 
opening statement at a suitable time, and I thank you.
    Mr. Stearns. All right. Thank you.
    Mr. Whitfield for questions?
    Mr. Whitfield. No, Mr. Chairman, I don't have any 
questions.
    Mr. Stearns. Okay. Ms. DeGette?
    Ms. DeGette. No questions.
    Mr. Stearns. No questions? Shimkus, Mr. Shimkus? Not here. 
Mr. Doyle?
    Mr. Doyle. No questions.
    Mr. Stearns. Okay. Mr. Buyer?
    Mr. Buyer. I just have one question. Mr. Clyburn, you gave 
testimony on D.C. Air. My sense is that D.C. Air might provide 
smaller and less sophisticated aircraft than what we presently 
have under-utilized with US Air. Do you have any comment or do 
you have any insight?
    Mr. Clyburn. I think I do. I have had discussions over the 
weekend with representatives from American Airlines. My 
understanding is that part of the 49 percent agreement with 
American Airlines is--I have been schooled on this, and I hope 
I got it right--lease agreements with American Airlines and 
flying those planes. They will be providing the rolling stock 
for D.C. Air as a part of that 49 percent. So it means that the 
same airplanes you travel with American now you will be 
traveling with D.C. Air.
    Mr. Buyer. Ms. Slaughter, Mr. DeFazio, do you have any 
comment regarding Mr. Clyburn's?
    Ms. Slaughter. I have not had any discussions with anybody, 
but my understanding is that we would be served by smaller 
regional jets.
    Mr. DeFazio. In the testimony before the Aviation 
Committee--and there have been changes of the involvement of 
American Airlines since that time--one of the concerns raised 
by members of the committee was if United Airlines has this 
agreement with D.C. Air, what is the real level of independence 
of D.C. Air, other than the titular 1 percent in terms of 
voting stock and equity interest in the airline? Since the 
pilots, the mechanics, the reservation system, the counters, 
everything would be initially staffed by United Airlines, 
wouldn't this really be United Airlines?
    I am not certain how they have now integrated American. I 
guess you will have a choice of counters and more seamless 
service area. You can go to United, American, or D.C. Air and 
it is essentially the same airline providing the same fixed-
price service, which I expect will be a lot higher.
    Mr. Buyer. Mr. DeFazio, the question is about whether they 
would be smaller, less sophisticated aircraft.
    Mr. DeFazio. As I said, we haven't held a hearing since 
then. Initially it was going to be United's fleet. So, the 
planes would be smaller if United diverts smaller, less 
sophisticated aircraft. They have some pretty crummy stuff, 
they serve my city now with a 1,000-mile flight on a BAE 146. I 
don't know if any of you have ever been on one. It is a plane 
designed to fly about 200 miles. They are really quite sweet. 
Maybe they will bring some of those back here because we sure 
want to get rid of them.
    Mr. Buyer. I yield back the balance of my time.
    Mr. Stearns. The gentleman yields back the balance of his 
time.
    Ms. Harman for questions?
    Ms. Harman. I don't have any.
    Mr. Stearns. Ms. Cubin?
    Ms. Cubin. No questions.
    Mr. Stearns. Mr. Pitts?
    Mr. Pitts. No questions.
    Mr. Stearns. No questions? Ms. Capps?
    Ms. Capps. No questions.
    Mr. Stearns. Mr. Bryant?
    Mr. Bryant. No questions.
    Mr. Stearns. Mr. John?
    Mr. John. No questions.
    Mr. Stearns. Mr. Bass?
    Mr. Bass. No questions.
    Mr. Stearns. Mr. Rush?
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Chairman, I am somewhat intrigued by the possibilities 
that loom for D.C. Air. I would like to ask Mr. Clyburn: Will 
there be any disruptions or do you foresee any disruptions 
created by the merger of US Air and United? And if there are, 
then what effect would D.C. Air's entry into the market have on 
those disruptions?
    Mr. Clyburn. I don't see where the merger would be any 
disruptions. And I have had some extensive discussions with Bob 
Johnson on this merger and with representatives of American and 
US Airways on this. I am not here today having not had some 
background discussions with people on this subject. I do 
believe it enhances.
    I think, if I may, Mr. Rush, I think part of what we see 
experiencing here, if you look at the, I think it was, GAO 
report in 1996, where the indication in that report said that 
the big losers in this, the air fare war, is people in the 
South and Appalachia.
    And if you look at, I think, the results of the Census that 
we just saw, it is kind of significant that here we are trying 
to grow an airline, an airline service, in the regional 
country, where people are moving. If you look at the shift in 
the Nation's population, it is in the same region of the 
country where we now have a problem with air service. So we are 
trying to grow the service in the same area where the Nation's 
growth has taken place. I think it stands to reason that that 
ought to be part of what our discussion is here today.
    I see no disruption. I see an enhancement of service. I see 
more competition. And I think I see a lowering of air fares.
    Mr. Rush. Do you feel that if, in fact, United and American 
had proprietary ownership over the equipment, the rolling 
stock, as it is, that that in some kind of way diminishes the 
responsibility and also the ownership and the possibilities for 
D.C. Air in its own ownership?
    Mr. Clyburn. Absolutely not. You know, who owns what in fee 
simple and who pays what amount for lease, it is all about 
business. You don't have to own the rolling stock in order to 
pay your fair share of use. I mean, if you can lease the 
equipment, you are, in fact, participating as business people 
do. I think that it is an insult to Mr. Johnson or to anybody 
else to think that you own 51 percent and that 51 percent makes 
you different from 51 percent ownership in some other company.
    You are a majority, and you run it. I think that he has 
demonstrated that time and time again with the enterprise you 
currently started after working on this Hill as a staffer. He 
went out, took a risk, went into business, and has built. I 
think the sale I saw was somewhat in excess of $1 billion that 
he sold BET for.
    So I think he has demonstrated that he knows how to play in 
the business world. And I think to look at his 51 percent 
ownership and treat it differently from any other 51 percent is 
an insult.
    Mr. Rush. Thank you, Mr. Chairman. I yield back.
    Mr. Stearns. The gentleman yields back.
    Mr. Terry?
    Mr. Terry. No questions.
    Mr. Stearns. Mr. Luther?
    Mr. Luther. No questions.
    Mr. Stearns. Mr. Upton is not here. Ms. Bono?
    Ms. Bono. No questions.
    Mr. Stearns. No questions? Mr. Burr?
    Mr. Burr. No questions.
    Mr. Stearns. No questions? Mr. Davis?
    Mr. Davis. No questions.
    Mr. Stearns. With that, we thank our colleagues for staying 
and answering questions. And we appreciate your time.
    We would have the second panel if you would come to the 
front desk. And at this point, we will go on with our opening 
statement with the members while you are coming forward. Mr. 
Dingell, would you like to have your opening statement at this 
time?
    Mr. Dingell. Mr. Chairman, I thank you.
    Mr. Chairman, first of all, I commend you for holding this 
important, timely hearing on the impact of airline mergers on 
consumers. Last week the Justice Department approved the 
American Airlines' acquisition of Trans World Airlines. A 
decision on the United Airlines-US Airways-American deal could 
come in the near future.
    We all need to understand that these mega mergers can 
inflict serious, difficult-to-remedy harm on consumers and upon 
the economy. Consumers will have fewer competitors to choose 
from. And the airline's already abysmal record on customer 
service will get worse.
    I would note that the Department of Justice has already, 
however, taken actions to prevent acquisition of stock in 
Continental by Northwest. I hope that we will have a good 
explanation from the Department of Justice on why they are 
treating one merger one way and another merger quite 
differently.
    The irony, Mr. Chairman, here is that in many ways airline 
deregulation has transformed the regulated monopolies of 
yesterday into unregulated monopolies of today. I would note 
that I did not support airline deregulation 23 years ago 
because I was concerned that consumers would be harmed. 
Unfortunately, my concerns have been realized and then some.
    Studies have shown that airline competition has declined, 
and, as that has occurred, passenger service has suffered. Many 
thought we hit a new low in customer service when in January 
1999 thousands of passengers sat on a runway at Detroit 
Metropolitan Airport for 8 hours, many without food, water, or 
working lavatories.
    However, in its February 2001 report assessing airline 
customer service, the Department of Transportation found that, 
``Since the January 1999 incident, the state of aviation as 
measured by delays and cancellations has worsened.'' Last year 
the Department of Transportation received a record number of 
passenger complaints, 14 percent more than 1999. More than one-
quarter of all flights were delayed, diverted, or canceled.
    Mr. Chairman, airline passengers deserve better than this. 
Service will only improve when real competition is forced upon 
the airline industry.
    The pending mergers have enormous consequences for airline 
competition. After merger, the new United and American will 
control 50 percent of the passenger market in the United 
States. Imagine that. And their impact is not going to stop 
there. Further, industry consolidation will occur. And, 
according to analysts, nearly 90 percent of the market in the 
United States will be controlled by 3 major airlines.
    I would be interested to hear how these three new mega 
airlines will compete against each other when there is far tool 
little competition among six major airlines today. This is an 
important question because in theory large networks could 
provide certain benefits to consumers, but in practice real 
benefits do not materialize because of the abuse of market 
power at network hubs and because of the natural monopolistic 
instincts of airlines.
    In fact, in January 2001, the United States Department of 
Transportation released a study which found that from a 
consumer perspective, the primary disadvantage of network hubs 
is the level of market power that the hub carrier is able to 
amass and the higher prices consumers pay as a result. 
Moreover, it found that at the so-called fortress hubs, 24.7 
million passengers pay an average of 41 percent more than other 
passengers who fly in and out of non-hub markets, where low-
fare carriers compete.
    Let me give you an example of what I find particularly 
troublesome. My round-trip fare from Washington to Kalamazoo, 
Michigan requires me to fly to Detroit, to change planes, and 
to fly on to Kalamazoo. That flight is 65 percent cheaper than 
my fare from Washington to Detroit. I wonder if the airlines or 
anybody else has an explanation for that quaint phenomenon.
    The round-trip government fare for me to fly between 
Washington National Airport and Detroit Metro Airport is 
$541.50. Yet, the round-trip government fare between Washington 
and Kalamazoo, which again requires me to change planes in 
Detroit, is only $190. Remarkable. I would note that it is 
cheaper for me to fly to Chicago than it is for me to fly to 
Detroit. One must ask why a flight of 800 miles is cheaper than 
a flight of 600 miles. Perhaps the airlines could explain that.
    Why does it cost less to fly through Detroit to Kalamazoo 
than it costs to fly just to Detroit and, I note again, with a 
change of aircraft? Competition. Kalamazoo has competition. 
Detroit does not.
    Mr. Chairman, I commend you for holding this hearing. I 
look forward to hearing the testimony of witnesses and their 
ideas on how to promote competition and customer service in the 
airline industry. It is desperately needed. Thank you.
    [The prepared statement of Hon. John D. Dingell follows:]

    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    Mr. Chairman, thank you for holding this important and timely 
hearing on the impact of airline mergers on consumers. Just last week, 
the Justice Department approved the American Airlines' acquisition of 
Trans World Airlines. A decision on the United Airlines/US Airways/
American deal could come in the near future. We all need to understand 
that these ``mega'' mergers can inflict serious, difficult-to-remedy, 
harm on consumers. Consumers will have fewer competitors to choose 
from, and the airlines' already abysmal record on customer service will 
get worse.
    The irony is that, in many ways, airline deregulation has 
transformed the regulated monopolies of yesterday into the unregulated 
monopolies of today. I would note that I did not support airline 
deregulation 23 years ago because I was concerned that consumers would 
be harmed. Unfortunately, my concerns have been realized.
    Studies have shown that airline competition has declined, and 
passenger service has suffered. Many thought we hit a low in customer 
service when, in January 1999, thousands of passengers sat on the 
runway at Detroit Metropolitan Airport for over eight hours, many 
without food, water, or working lavatories. However, in its February 
2001 report assessing airline customer service, the Department of 
Transportation found that ``since the January 1999 incident, the state 
of aviation as measured by delays and cancellations has worsened.''
    Last year, the Department of Transportation received a record 
number of passenger complaints--14 percent more than in 1999. More than 
one-quarter of all flights were delayed, diverted, or canceled. Mr. 
Chairman, airline passengers deserve better than this, but service will 
only improve when real competition takes hold in the airline industry.
    The pending mergers have enormous consequences for airline 
competition. After merger, the new United and American will control 50 
percent of the airline passenger market in the United States, and their 
impact will not stop there. Further industry consolidation will occur 
and, according to analysts, nearly 90 percent of the U.S. market could 
be controlled by three major airlines.
    I would be interested to hear how three new ``mega'' airlines will 
compete against each other when there is far too little competition 
among six major airlines today. This is an important question because, 
in theory, large networks could provide certain benefits to consumers. 
But, in practice, real benefits do not materialize because of the abuse 
of market power at network hubs.
    In fact, in January 2001, the U.S. Department of Transportation 
released a study which found that ``from a consumer perspective, the 
primary disadvantage of network hubs is the level of market power that 
the hub carrier is capable of amassing and the higher prices consumers 
pay as a result.'' Moreover, it found that at so-called ``fortress'' 
hubs, 24.7 million passengers pay on average 41 percent more than other 
passengers who fly in hub markets where low-fare carriers compete.
    Let me give you an example that I find particularly troublesome. My 
roundtrip fare from Washington to Kalamazoo, Michigan, which requires 
me to fly to Detroit, change planes and fly on to Kalamazoo, is 65 
percent cheaper than my fare from Washington to Detroit. The round-trip 
government fare for me to fly between Washington National Airport and 
Detroit Metro Airport is $541.50. Yet, the round-trip government fare 
between Washington and Kalamazoo, Michigan, which again requires me to 
change planes in Detroit, is only $190.
    Why does it cost less to fly through Detroit to Kalamazoo than it 
costs to fly just to Detroit? Competition! Kalamazoo has it; Detroit 
does not.
    Mr. Chairman, I look forward to hearing the testimony of the 
witnesses and their ideas on how to promote competition and customer 
service in the airline industry.

    Mr. Stearns. I thank my colleague.
    Mr. Deal, opening statement?
    Mr. Deal. I will submit it for the record.
    Mr. Stearns. Okay. Ms. DeGette, opening statement?
    Ms. DeGette. Thank you, Mr. Chairman.
    Before giving my statement, I would like to give a special 
recognition to a member of the mighty law school class of NYU 
1982, Shelley Longmuir, who is testifying today, who is a law 
school classmate, not only of me but also of my husband. So if 
anybody wants to know the true story about me, they can ask 
Shelley after the hearing because we knew each other in our 
youth.
    I would like to thank you for holding the hearings today. 
The issues surrounding airline transportation, specifically 
airline mergers, have received a lot of attention and, as we 
see today, engender a lot of controversy.
    On the one hand, proponents of the mergers make the case 
that competition will increase and passengers will be provided 
more options at lower cost. Opponents make the case that fewer 
carriers will eliminate competition by leaving consumers with 
fewer options and an increased risk of delayed flights. And 
then, as Mr. Dingell mentioned, there is the mystery of 
disparate fares for different distances.
    When I think about my district in the West--and Mr. Clyburn 
mentioned this briefly--I think that Western markets, a merger 
could, in fact, mean more access from East to West for some of 
these routes. This could benefit not just folks from the 
Southern United States but also folks from the West who are 
unable to easily and conveniently travel to many parts of the 
East Coast. Many folks trying to go from my district to 
Florida, for example, have to spend the night in Chicago on the 
way because they can't get there.
    On the other hand, in the last year, the Nation has been 
inundated with news accounts of major airline flight delays and 
cancellations. For those of us like me and Mr. DeFazio, who fly 
to Denver a lot, we know that last June was the worst month for 
all types of delays since the early 1990's. All of this results 
in tremendous frustration and loss of productivity for American 
travelers.
    The airlines are overbooked and have been overburdened as a 
result of an antiquated air traffic control system, which is 
also reaching its breaking point. Twenty years ago, when the 
airline industry was deregulated, the Nation's airlines carried 
250 million passengers a year. This year 670 million passengers 
are projected to take to the skies.
    While deregulation succeeded in making air travel more 
affordable and accessible for hundreds of millions of 
Americans, I am convinced and I think most of us are as well 
that the infrastructure and safety system to support this 
increase is simply not in place today.
    I am a strong supporter of increased competition in the 
airline industries, and I believe that competition will benefit 
the consumer. I was pleased, for example, to work with 
Secretary Rodney Slater to enable Frontier Airlines to provide 
service to National Airport from Denver International Airport. 
I think that that service is providing passengers with more 
choices and lower fares and also giving some competition.
    Also, as I noted, I am concerned about the dramatic 
increase of flight delays and declining customer service. Last 
year I asked former Secretary Slater to investigate the cause 
of the recent and rapid rise in flight delays and 
cancellations, particularly the dramatic increase in the West.
    I look forward to the testimony here today because I think 
that both of these issues, on the one hand, increased 
accessibility for my constituents and others in the West to 
East Coast routes; on the other hand, the deteriorating 
condition of the airline industry in service today, kind of 
bump heads. I would be interested in hearing how the executives 
here and others will make those work in any kind of proposed 
merger.
    With that, I will yield back the balance of my time.
    Mr. Stearns. Mr. Whitfield?
    Mr. Whitfield. Mr. Chairman, like other members of this 
subcommittee, I have concerns about consolidations taking place 
in the airline industry, but I really am anxious to hear from 
the panel, and I yield back the balance of my time.
    Mr. Stearns. The gentleman yields back the balance of his 
time. Mr. Doyle?
    Mr. Doyle. Mr. Chairman, thank you for convening this 
hearing to discuss the effects of airline mergers on the 
American public. As the only Pennsylvania member on this 
subcommittee and as a representative for the hardworking people 
of Pittsburgh, I appreciate the opportunity to express my views 
on the proposed merger involving US Airways and United.
    Indeed, the US Airways-United merger has a significant 
effect on American consumers, specifically impacting more than 
17,000 Pennsylvania consumers that are employed with US Airways 
operations across my home state. The merger will affect nearly 
10,000 union workers waiting to begin construction on a $130 
million maintenance base at the Pittsburgh airport, setting the 
foundation for continued growth and expansion by United in the 
greater Pittsburgh region. It will also affect countless 
consumers and entrepreneurs hoping to capitalize on 
Pittsburgh's emerging high-technology economic growth by 
expanding nonstop transportation access to national and global 
markets.
    It is no secret, Mr. Chairman, that US Airways is 
faltering. With a loss of $269 million last year and with first 
quarter earnings this year below expectations, the inevitable 
deterioration of US Airways will very likely result in layoffs, 
service reductions, and ultimately Pittsburgh and Philadelphia 
losing vital hub airports.
    This merger is a lifeline for US Airways employees. United 
has promised that no community presently served by US Airways 
will be dropped from United's route network as a result of the 
merger.
    Additionally, I am especially pleased with the creation of 
the Nation's first minority-owned airline, D.C. Air, and am 
proud that this new entrant will offer low-cost air service to 
Pittsburgh. This proposed merger means that many small to mid-
sized communities in the Eastern United States can be assured 
that they will continue to have airline service, rather than 
face possible service reductions if a weak and deteriorating US 
Airways is forced to go it alone and other carriers are left to 
selectively pick up routes.
    My colleagues on the subcommittee, like many of our 
constituents, we all at one time or another experience 
frustration with air travel. Let me stress I remain very 
concerned with the airline industry improving customer service 
and access to air travel options for all American consumers.
    While I certainly do not advocate a blanket pro-merger 
approach, I do feel the government should closely examine 
potential mergers on a case-by-case basis, as opposed to 
restricting them altogether.
    I was pleased and encouraged with the manner in which US 
Airways and United reached out to leaders in our communities 
soliciting input for the proposed merger and listening to our 
concerns.
    Obviously United can and must improve customer service 
operations. And, to their credit, they are implementing 
measures to do just that. Both US Airways and United have 
committed to working within their system and working with 
regional leaders to address these deficiencies. You can be 
assured that we will closely monitor these actions My 
colleagues, during this hearing on the effects of airline 
mergers on consumers, I strongly urge you to consider just how 
vital the effect of preserving the opportunity for an airline 
to correct its own mistakes will have on American consumers, 
workers, and communities. The alternative of allowing a 
faltering airline to fail completely will have a far greater 
effect on consumer choice access and livelihoods.
    In closing, Mr. Chairman, I leave you with the words of the 
former chairman of the House Transportation Committee and a 
fellow Pennsylvanian, Bud Shuster, ``The choice is not between 
this merger and the status quo. Rather, the choice is between 
this merger and a weakened and perhaps failing hometown 
airline. Such a result would be bad for Pennsylvania and tragic 
for the employees of the airline, who would lose their 
livelihoods.''
    Mr. Chairman, thank you. And I look forward to the 
statements of the panel.
    Mr. Stearns. I thank the panel.
    Mr. Buyer, opening statement?
    Mr. Buyer. Mr. Chairman, I am anxious to hear from the 
panel. So my opening statement will be submitted for the 
record. I yield back the balance of my time.
    Mr. Stearns. Ms. Harman?
    Ms. Harman. Thank you, Mr. Chairman. I appreciate the fact 
that we are holding this hearing early in the year. This is a 
critically important subject, I think, for all of us.
    It is a tough issue. There are credible arguments on both 
sides. And, like campaign finance reform, each Member of 
Congress is an expert since almost all of us use airlines every 
single weekend.
    I hail from California, where electricity deregulation is 
an abject failure and where the consolidation of the defense 
industry, which I strongly supported, has substantially reduced 
the size of the industrial base. So those are lessons that I 
have learned.
    Let me point out further that my district, the 36th 
Congressional District of California, is the home of LAX, one 
of the world's largest airports, which was designed to handle 
40 million air passengers per year. And already it is handling 
about 67 MAP.
    LAX is proposing to grow further to 89 million air 
passengers per year, but the growth in the region is projected 
to be 150 million MAP. All of us are questioning where those 
people will go.
    I think that the answer to a region like mine is to 
stimulate the development of a regional plan. That means that a 
large airport, hub airport, like LAX will grow somewhat, but 
also other airports will grow as well. There is no alternative 
for a busy and growing market like Southern California.
    And so I approach this issue in terms of: How will mergers 
of major airlines affect the growth of regional airports? I 
think you can argue, on the one hand, that they will hurt 
growth of regional airports by stifling the development of 
alternative airlines. I think you could argue, on the other 
hand depending on how this plays out, that some new carriers, 
like D.C. Air, can stimulate the growth of regional airports.
    So the questions I will bring to this as we develop this 
subject over the next months will be focused on this, Mr. 
Chairman. I think that the L.A. region is not dissimilar from 
other major regions in the country. And I hope that when this 
all nets out, we will have done something that will stimulate 
the regional development of airports, which I believe in the 
end will help consumers with access and will help generate 
lower prices.
    I yield back the balance of my time.
    Mr. Stearns. I thank my colleague.
    Mr. Pitts?
    Mr. Pitts. Thank you, Mr. Chairman. As the other 
Pennsylvanian on the subcommittee, I thank you for holding the 
important hearing today.
    I realize that mergers of this size result in a great deal 
of discussion about how they will affect available choices for 
the consumer and ticket prices and available service. As a new 
member of this Committee, I look forward to hearing and 
learning from our distinguished panel of witnesses on these 
topics.
    I have come to believe that some of these transactions will 
give customers more choices, more destination options, and more 
convenience. I am most familiar with the United-US Airways 
merger since it has a direct impact on my State of 
Pennsylvania. The United-US Airways merger represents an 
opportunity for regional economic growth and will benefit 
travelers in the Commonwealth of Pennsylvania. I am hopeful 
that the merger will also benefit the Lancaster Airport in my 
district.
    I will submit the balance of my statement for the record. 
And I look forward to hearing our distinguished witnesses.
    [The prepared statement of Hon. Joe Pitts follows:]
    Prepared Statement of Hon. Joseph R. Pitts, a Representative in 
                Congress from the State of Pennsylvania
    Mr. Chairman, thank you for holding this important hearing today. I 
realize that mergers of this size result in a great deal of discussion 
about how they will affect the available choices for the consumer, 
ticket prices, and level of service. As a new member of the Commerce 
Committee, I look forward to hearing and learning from our 
distinguished panel of witnesses on these topics.
    I have come to believe that some of these transactions will give 
customers more choices, more destination options, and more convenience. 
I am most familiar with the United/ US Airways merger since it has a 
direct impact on my state of Pennsylvania. The United/US Airways merger 
represents an opportunity for regional economic growth, and will 
benefit travelers in the Commonwealth of Pennsylvania. I am hopeful 
that the merger will also benefit the Lancaster Airport in my district.
    Mr. Chairman, without this merger, US Airways employees could face 
job losses and downsizing at a time when corporate layoffs and 
furloughs are on the rise in the United States. Moreover, communities 
throughout Pennsylvania could face reductions in service and service 
disruptions. I was pleased to learn that United has committed not to 
furlough any United or US Airways employee, which will preserve jobs in 
an uncertain economic climate. This merger presents a unique 
opportunity to protect the 45,000 jobs and service patterns and 
prevents US Airways from having to face painful layoffs, downsizing, 
and financial uncertainty.
    United has also pledged to continue service to every community 
currently served by either United or US Airways following the merger. 
This means that United will serve each of the sixteen cities in 
Pennsylvania currently serviced by US Airways, including many small and 
medium sized communities.
    This expanded network of United could allow many smaller cities to 
get better access to international destinations, strengthening their 
ability to compete for business, tourism, and investment. As you know, 
the GAO found that the United/US Airways merger could create an 
additional competitor in 65 of the top 5000 markets and could improve 
service and competition in another 265 relatively small markets after 
the merger creates new connections. The GAO also found that the 
American merger could increase competition in 150 markets. 
Additionally, the new DC Air would provide a new competitor for many 
cities based in the east.
    Mr. Chairman, I want to see increased competition and improved 
access for travelers and communities in the Eastern United States and 
throughout the country. I am hopeful that these mergers will do just 
that. Again, thank you for holding this hearing, and I look forward to 
hearing the testimony from our witnesses today.

    Mr. Stearns. By unanimous consent, so ordered.
    Ms. Capps?
    Ms. Capps. Thank you, Mr. Chairman. I will be brief because 
I know we have several important witnesses and the subcommittee 
will benefit from hearing from them.
    Today's hearing is on a very important topic. The airline 
industry is a vital part of our economy and can enable business 
and leisure travel to proceed with ease, convenience, and 
affordability. Our airlines are undergoing some of the most 
far-reaching changes since deregulation back in the 1970's.
    The proposed United-US Airways merger coupled with 
American's takeover of TWA, as has been stated, would put 50 
percent of the industry under these 2 new companies. And it 
seems likely to force a merger between some combination of 
Delta, Northwest, and Continental. That could mean that three-
quarters of the airline industry would be controlled by just 
three airlines. I am concerned about what that means for 
competition and pricing.
    GAO and DOT studies that show so many markets completely 
dominated by one airline are troubling. And the pricing 
differences between dominated hubs and those hubs with greater 
competition are rather alarming.
    I am also concerned about what that means for 
predictability. The recent disruptions in service due to labor 
troubles would be magnified with just a few big airlines 
dominating the market. Crippling strikes will not benefit the 
flying public. And constant government action to defer or end 
strikes is not a good option either. Management and labor 
should work their issues out.
    I am not someone who thinks that everything that big is 
bad. There are clearly advantages to operating national airline 
systems and taking advantage of economies of scale, but we have 
to make sure that the real beneficiaries of these changes are 
consumers.
    If economies of scale lower costs, then ticket prices 
should go down. If large national networks are supposed to make 
flying more convenient, then customer service must improve. 
Customer satisfaction ratings of the airlines should reflect 
that.
    Competition is the key to ensuring that customers get the 
best deals and the most choices. Our job is to ensure that 
competition remains the driving force in the airline 
marketplace.
    During the last panel, I found it very intriguing to hear 
two case studies of two remarkable cities, each with their 
corresponding Member of Congress: one, Charlotte, North 
Carolina, a hub; and the other, Rochester, not apparently so 
well-served. The different experiences of these two regions 
illustrates the importance of the relationship between the 
airline industry and the local economy throughout the country.
    So I hope that this hearing will illuminate these issues 
and look forward to hearing from our witnesses. Thank you.
    Mr. Stearns. Mr. Bass?
    Mr. Bass. Thank you, Mr. Chairman.
    I want to thank you for holding this very important and 
timely hearing. The issue of good air transportation, air 
travel is one that I dealt with in some detail as a former 
member of the Aviation Subcommittee of Transportation 
Committee. It is important that consumers as well as Members of 
Congress understand the implications that these mergers, both 
positively and negatively.
    I will submit a longer statement for the record. I thank 
the Chairman.
    Mr. Stearns. Thank the gentleman.
    Mr. Rush?
    Mr. Rush. Mr. Chairman, I want to thank you for holding 
this important hearing on the effect of airline mergers on the 
American consumers. This issue is particularly important to me 
because of the large presence United has in Chicago and the 
inevitable impact this acquisition of US Airways will have on 
my city and, indeed, my state, the State of Illinois.
    As you know, United is a large employer in the State of 
Illinois. It is headquartered in Chicago and has a major hub at 
O'Hare. United employs 17,300 individuals who live and work in 
Chicago, 13,800 of which work at O'Hare Airport. Also, 
statewide United employs 22,000 people. Thus, the merger will 
affect the lives of many Illinoisans for employees and owners 
of United.
    However, the employee-owners of United are not only the 
ones who will benefit from this merger. Currently United lacks 
extensively operations along the East Coast, as has been 
indicated by earlier testimony. The acquisition of US Airways 
will combine two complementary networks by joining US Airways 
north-south East Coast network with United's network. Thus, 
business travelers on the East Coast and in Chicago will be 
able to traverse between the two regions with greater ease and 
fewer disruptions.
    Also, tourists traveling abroad will also benefit. Those 
traveling to Europe will have new access to international 
flights, such as nonstop flights to Rome and to Madrid. 
United's divestiture of most of US Airways' routes at Reagan 
National Airport to create a regional carrier known as D.C. Air 
is also a positive aspect of this acquisition.
    D.C. Air, which will be owned by Black Entertainment 
Television founder, Robert Johnson, will be the first African 
American-owned airline in the industry and serve 43 cities with 
222 daily flights in and out of Reagan National. For this, I 
want to congratulate Mr. Johnson and wish him success in his 
new endeavor.
    While United's acquisition of US Airways and American's 
accession of TWA do have the potential of increasing airline 
efficiency, I would be remiss if I did not point out that thee 
are real reasons for concern. We need look no further than last 
summer's summer madness when flight delays industry-wide rose 
to a record 20 percent and more than 27 percent of all flights 
were delayed, canceled, or diverted.
    I want to also praise United and American Airlines for 
their long, far-ranging, and recent efforts to increase 
consumer satisfaction. United has recently spent $15 million in 
new airport technology. American Airlines has instituted new 
customer service plan enhancements.
    However, the delays and cancellations that American as well 
as Members of Congress face cannot be easily forgotten. We must 
determine how our airline mergers will decrease or exacerbate 
these problems. Specifically, I am interested in hearing from 
the witnesses how they intend to deal with labor issues in a 
way that will fairly address employee concerns while avoiding 
major disruptions in this service.
    In my most recent flight in from Chicago, as I was emerging 
from the plane, one of the flight attendants asked me to really 
focus on the issue of employee concerns and labor issues as it 
relates to this merger.
    I would also like to know how these mergers will impact 
airline rates and service. Will there continue to be enough 
competition to keep airline fares low and service high?
    Mr. Chairman, I look forward to the answers to these 
questions, and I yield back the balance of my time.
    Mr. Stearns. Mr. Terry, you are recognized for 5 minutes.
    Mr. Terry. I yield back my time.
    Mr. Stearns. That is good.
    Ms. Bono?
    Ms. Bono. I yield.
    Mr. Stearns. Mr. Shadegg?
    Mr. Shadegg. I yield back.
    Mr. Stearns. Mr. Burr is not here. Mr. Davis?
    Mr. Davis. Thank you, Mr. Chairman. I appreciate the 
opportunity to make the statement, Mr. Chairman. I am pleased 
to be back with my Commerce Committee colleagues today to talk 
about the pending merger between United and US Airways and the 
benefits that this merger will bring to consumers, both in 
northern Virginia and nationwide.
    This merger will provide for greater competition, more 
convenient travel, and interested job security for tens of 
thousands of working people.
    The simple and powerful fact is that US Airways is at a 
crossroads. Without this merger, its very survivability is at 
issue. If US Airways fails to survive, we will be faced with a 
significantly diminished competitive landscape up and down the 
entire Eastern Seaboard of the U.S.
    I urge this Committee to take a close look at the facts. US 
Airways is a mid-sized carrier that is saddled with high costs 
and limited network. Its situation is eerily similar to that of 
TWA, now in its third bankruptcy. We have all read and heard 
about the need for American Airlines to rescue TWA, a company 
with a proud and memorable legacy in American aviation history 
whose time has passed.
    In the highly dynamic, post-deregulation, competitive 
environment of the aviation industry, TWA is too small to 
compete against the big carriers and too expensive to compete 
against the low-cost carriers, although TWA has gone through 
the bankruptcy court not once but twice and now there for a 
third time it can escape its fundamental structural flaws.
    Like TWA, US Air is too small to compete against the 
Uniteds, the Northwests, the Americans, and the Deltas of the 
world. And its costs are simply too high to cope with the 
competition provided by low-cost carriers within its own region 
of service, such as Southwest, JetBlue, and AirTran. US Air 
must merge or it will die.
    It is the last of the mid-sized air carriers. Its fate will 
be the same as TWA as well as that of Eastern, Braniff, and Pan 
Am. These were great companies in their era, just like Mickey 
Mantle and Magic Johnson were great athletes in their era. But 
the major ends and the era in which a company like US Air can 
survive has come and gone.
    The new era does not have to be a painful one for the US 
Airways family, however, and the communities it serves. As part 
of the proposed merger, United will save the jobs of 45,000 US 
Airways employees at a time when other major U.S. corporations 
are laying off hundreds of thousands of workers or closing 
their doors altogether.
    The bottom line is that the United-US Airways arrangement 
is great news for northern Virginia as US Air employs over 
2,300 people in northern Virginia alone. Also, as part of this 
merger, greater Washington area residents will see 
uninterrupted service and increased, rather than diminished, 
competition.
    One of the keys to enhanced competition is the creation of 
the new D.C. Air, which will be based out of Reagan National 
and owned by one of the Washington area's top corporate 
citizens, Robert Johnson. By taking over most of US Airways' 
routes to 44 cities in and out of Reagan National, D.C. Air 
will shake up one of the areas most convenient airports.
    The benefits to the merger are not limited to Reagan 
National. It will alter the competitive landscape in the 
greater Washington area. United Airlines will have a hub at 
Dulles. D.C. Air will have a strong presence at Reagan 
National. And Southwest Airlines operates aggressively out of 
BWI. All three airlines will be competing to provide service to 
millions of people who travel to the Nation's capital and 
surrounding areas each year.
    In addition to the benefits of increased competition, the 
merger will make travel more convenient for consumers. Because 
US Air plans to merge with United, American Airlines proposes 
to save TWA, and an independent D.C. Air intends to partner 
with American, travelers will be able to reach more 
destinations on a single airline.
    Direct travel is always more efficient in terms of 
connection times, baggage handling, and frequent flyer miles. 
It is also 55 percent cheaper than switching airlines. Again, 
the consumer benefits.
    Mr. Chairman, I wholeheartedly believe that the merger 
between United and US Air will be good not just for my 
constituents but for air travelers across America. This 
transaction will protect and benefit consumers because it will 
spur, rather than stagnate, competition.
    I believe, for these reasons, this transaction deserves 
your strong support.
    Mr. Stearns. I thank my colleague. As my colleagues know, 
we have had the second bell. So we probably have less than 8 
minutes to get to vote.
    I say to the distinguished members of the second panel we 
are going to break now to go vote. We have a series of four 
votes. I think what we would like to do is break also for lunch 
at the same time to get a flavor a little bit of how the 
members feel. So I think we will reconvene at 12:30.
    [Whereupon, at 11:34 a.m., the subcommittee recessed, to 
reconvene at 12:30 p.m. the same day.]
    Mr. Stearns. The Subcommittee on Commerce, Trade, and 
Consumer Protection will come to order. And we have I believe 
two additional opening statements. Mr. Burr?
    Mr. Burr. Thank you, Mr. Chairman. My apologies to the 
witnesses that I had to leave for a while.
    Mr. Chairman, yesterday when I arrived in Washington, I 
flew here. I flew from Winston-Salem, North Carolina. Two of my 
staff members live 23 miles away from the capital on the 
Maryland side. Their commute to work yesterday was longer than 
my flight from my home to my office. They are not calling for 
the Federal Government to take over the route between here and 
their home in Maryland because they understand that weather, 
certain conditions out of their control may make a trip easier 
or worse in a given day. I think it is unfortunate that the 
airlines as a whole have faced many of those days lately and 
that this Committee as well as others have concentrated on the 
consumer protection aspect.
    We are here, really, today to talk about a potential merger 
or mergers because I think it is plural. I think this will set 
some stage for the future.
    I appreciate the comments of my colleagues who are willing 
to come in and testify on both sides. If you didn't have people 
who were for and against, then this body wouldn't be reflective 
of the people that they represent. But the reality is that what 
I learned from what they said was that Congress has a real 
specific decision to make.
    Are we going to reregulate this industry or are we going to 
let market forces drive it? If California had deregulated their 
electricity, we wouldn't be spending half of the time that we 
are not in this hearing thing to figure out how to make sure 
that the lights turn on in California today. But the fact is 
they didn't deregulate.
    We made a decision to deregulate the airline industry to 
allow competition to drive the future, to allow competition to 
drive the rates. For any person that believes that bigger means 
that you create an unlevel playing field, I am not sure that 
they understand how the U.S. economy works. Anybody that 
believes that you can have larger airlines in this country and 
it doesn't create additional competition hasn't visited a Wal-
Mart store that drove down the price of every other competitor.
    We are not here to propose that we outlaw Wal-Marts or that 
we outlaw the new mega retail stores. Even though it is much 
more difficult to get through the checkout line, we know that 
there is a value to it. The unfortunate thing about this 
decision is that the value of more competition, lower fares, 
more routes covered because the network is better can't be 
realized on the front end or promised on the front end.
    Mr. Chairman, I would ask that all members of this 
Committee and of this Congress realize that anything that we 
say and potentially anything that Congress does as justice 
makes a decision as to whether this is a good marriage, this or 
future marriages within the airline industry, will have a great 
effect on capital in this country, the capital of the 
individual who owns the stock, the capital of the banks that 
loan the money, the capital that is needed for the fleet 
replacement by every airline in the industry.
    If we even hint that the Federal Government is going to 
step in and start setting prices or controlling routes or 
owning gates and serving as the cop on the beat for an industry 
that we have already said we want competition to flourish, we 
want economic conditions to determine the decisions that are 
made, that the first thing that will dry up is the capital. We 
will have an industry that won't have the ability to upgrade 
their fleet, to meet the noise reductions that we will be 
targeted with in other committees in this Congress. The 
European routes will be cutoff because we will have antiquated 
aircraft that can't meet their noise requirements. That is 
something that we face today.
    There is more at play here than just: Can I go to my local 
airport, and can I access the same number of flights? My hope 
and my belief is that they will have a greater choice, 
regardless of markets, but I realize that this merger must go 
through before those consumers can realize that benefit.
    I again thank the chairman and the subcommittee for 
allowing me as a full committee member to participate. And I 
yield back.
    Mr. Stearns. Mr. John, opening statement?
    Mr. John. Yes. Thank you, Chairman Stearns. Before I give 
my opening comments, I would like to ask unanimous consent that 
all members of the committee get an opportunity to put their 
opening statements and requests in the record.
    Mr. Stearns. So granted.
    Mr. John. Thank you for holding this hearing, Mr. Chairman. 
I think this is a very important and very timely hearing. I 
want to be clear from the onset that I am not here today and I 
don't think this Committee is here today to berate the U.S. 
airlines and the industry because, frankly, it is a very strong 
industry, it is a very safe industry that we should be very 
proud of. I believe that that should be where this Committee 
goes with this hearing and investigating what is going to 
happen.
    I want to bring a little different perspective, maybe not 
unique. You will hear it from individual Members of Congress 
that represent smaller airports, a little different angle in a 
lot of ways because neither of the major cities in my airlines 
will be the poster child for deregulation in really competitive 
markets. And let me give you just one quick example that 
happened just this week.
    The Port of Lake Charles, obviously the ports around the 
country were here for the associations. Well, the Port of Lake 
Charles also was up here visiting their Members of Congress. Of 
course, Lake Charles and the Calcasieu Parish is a parish of 
about 180,000 residents. The other big municipality in my 
district is Lafayette. Lafayette Parish is about 188,000. So 
these are, at least in my case, pretty big cities. But they 
both have not a rural airport but a regional airport both in 
them.
    I believe that they are both under-served and also not very 
competitive. The reason I say that is a real-life example that 
happened this week. Port of Lake Charles wanted to come up here 
to fly from Lake Charles to Washington, DC. There is only one 
carrier in Lake Charles. The other ones have pulled out. The 
one carrier wanted--let me make sure I am correct on these 
numbers--$1,100 from Lake Charles to Washington and back.
    Lake Charles being only about 2\1/2\ hours from Houston as 
a drive, they said: Well, let us call and see what it would be 
from a price standpoint from Houston to DC, same connection, 
same flight. It was $1,800.
    So they had to look elsewhere to try to put themselves in a 
position to really afford a business ticket to come up here. 
What they wound up doing is driving east for 2\1/2\ hours to 
Lafayette to catch a flight to come up here. It still cost them 
over $1,000.
    In Lafayette, it is a little different situation. There is 
some competition. There are about four airlines that are there 
today. But, frankly, what has happened is Lafayette being what 
I believe is the heartbreak of the offshore and gas industry, 
they have a natural link with Houston in their business 
interests, oil and gas being one.
    What has happened over time is that the price to fly from 
Lafayette to Houston has gone absolutely through the roof. It 
has actually been cited as one of the reasons why south 
Louisiana in the oil and gas industry has lost jobs to Houston 
that there hasn't been enough competition or the prices are too 
high, which means to me that the competition hasn't been quite 
there in Lafayette. So I think that you will see that over and 
over.
    What does that have to do with what we are doing today? I 
am not suggesting that the 1978 act to deregulate the industry 
has failed. I really am not suggesting that. What I am 
suggesting is I am trying to paint a broader picture about this 
merger with United and US Air and how it will impact not only 
Lafayette and Lake Charles because that is parochial and 
because it is where I am from.
    It is some of the other smaller regional airports that 
provide service to our constituents, our customers. And I am 
anxious to hear from you about what your plans are in a lot of 
ways and how it will benefit in a lot of ways those two 
concerns that I have.
    So thank you very much, Mr. Chairman, for having this. I 
look forward to hearing the testimony about this merger in 
particular, but really how it has an impact more on the 
consumers' ability to provide air traffic because I think we 
are not going backwards in this industry.
    America is not going backwards. We are going to go forward. 
There will be more and more people flying as we move into the 
next 2 to 3 to 5 to 10 years. And so it is a problem that we 
have to address. So thank you very much.
    Mr. Stearns. I thank my colleague. We welcome Panel Number 
2. Thank you again for staying with us through lunch. We 
apologize for the sort of cramped conditions here. We want to 
welcome Mr. Stephen Wolf, who is Chairman of the US Airways 
Group, Incorporated; Mr. Joe Leonard, Chairman and Chief 
Executive Officer of AirTran Airways; Mr. Will Ris, Senior VP 
for Government Operations, American Airlines; Mr. Shelley 
Longmuir, Senior Vice President, International Regulatory and 
Government Affairs, United Airlines; Mr. Mark Cooper, Director 
of Research, Consumer Federation of America; Mr. Bill Swelbar, 
Fellow, Economic Strategy Institute; and Mr. Paul Ruden, Senior 
Vice President for Legal and Industry Affairs, American Society 
of Travel Agents.
    Ladies and gentlemen, we welcome you. And, of course, your 
entire statement will be a part of the record. And I would say 
that what we say and do today will probably be read by many 
others, even though perhaps members are not all here. They will 
be drifting in and out. But what you are going to say is 
probably going to be read by many others. And so we appreciate 
your helping us. Thank you.
    Mr. Wolf, we will start with you.

   STATEMENTS OF STEPHEN M. WOLF, CHAIRMAN, US AIRWAYS GROUP, 
  INC.; JOSEPH LEONARD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
    AirTRAN AIRWAYS, INC.; WILL RIS, SENIOR VICE PRESIDENT, 
  GOVERNMENT AFFAIRS, AMERICAN AIRLINES; SHELLEY A. LONGMUIR, 
SENIOR VICE PRESIDENT, INTERNATIONAL REGULATORY AND GOVERNMENT 
AFFAIRS, UNITED AIRLINES; MARK N. COOPER, DIRECTOR OF RESEARCH, 
   CONSUMER FEDERATION OF AMERICA; WILLIAM SWELBAR, FELLOW, 
  ECONOMIC STRATEGY INSTITUTE; AND PAUL M. RUDEN, SENIOR VICE 
PRESIDENT LEGAL & INDUSTRY AFFAIRS, AMERICAN SOCIETY OF TRAVEL 
                          AGENTS, INC.

    Mr. Wolf. Mr. Chairman and members of the committee, on 
behalf of all of us at US Airways, I appreciate the opportunity 
to address the beneficial effect our merger with United 
Airlines will have on consumers.
    If you will allow me, it seems the principal question 
before the committee is: Why did US Airways agree to be 
acquired by United Airlines? And what is the impact on 
consumers? The answer is the US Airways has little choice. And, 
importantly, as a result of the merger, it brings about an 
enormous increase in competition and, thus, the associated 
consumer benefits, provides a job guarantee to 45,000 
employees, and a guarantee of service to a large number of 
small and medium-sized cities.
    When deregulation came into being in 1978, there were six 
mid-sized mature-cost carriers. Three of them are gone. Two of 
them have gone through multiple bankruptcies. And there is US 
Airways. Braniff, Eastern, and Pan Am are gone. Continental and 
TWA have gone through multiple bankruptcies. And that leaves us 
out of that original group of six.
    The simple reality is that in order to compete successfully 
in commercial aviation in the United States, a carrier must be 
on one of two platforms. You must be either a low-cost, low-
fare carrier a la Southwest, American West, AirTran, JetBlue, 
and others or a network carrier. US Airways is neither. And the 
basic fundamental problem cannot be cured by the company 
itself. US Airways does not have the financial resource to 
become a network carrier and cannot reposition itself as a low-
cost carrier, regardless of bankruptcy or multiple 
bankruptcies.
    While US Airways has worked diligently over the past 5 
years to strengthen itself, the competition during that same 
timeframe has intensified significantly. Allow me to show you 
four charts that highlight the heightened competitive 
environment where the company operates within the intra-East 
market.
    What you are looking at is our route structure in the 
continental United States. If you look at the two vertical 
yellow lines, you can see that our operating authority for the 
most part, if not close to exclusively, is in the intra-East 
market, north-south, on the Eastern part of the United States.
    Let me add by saying that on the following slide, we are 
only going to look at that Eastern piece of geography. This is 
the route structure of Southwest Airlines 5 years ago, when I 
joined the company. A very insignificant route structure in the 
East, most Eastern part, is Baltimore. And if you would change 
the chart, please, Gary?
    This is Southwest route structure today. I don't have a 
thing in the world negative to say about Southwest. Quite 
frankly, it is a superb low-cost, low-fare carrier. But, 
indeed, it is precisely that. It is on the low-cost, low-fare 
carrier platform. We are not that, and we are facing enormous 
competition from Southwest as they come into market. So we have 
served for decades.
    When Southwest comes into a market that US Airways serves, 
US Airways has a choice of doing one of two things. We can 
match the fare and lose money with our cost structure or we can 
leave the market. If you will change the slide?
    While Southwest has grown enormously as a low-cost, low-
fare carrier, this slide shows what Delta's growth has been in 
the intra-East market during the past 5 years. This is not 
Delta's route structure intra-East at all. These are the net 
new jet routes that Delta has added in the past 5 years.
    With these charts in mind, I would like to comment on 
intra-East competition post the merger, which goes up 
enormously. Today intra-East Delta has approximately a one-
third share of the capacity in the intra-East market. US 
Airways has approximately a one-third share of capacity in the 
intra-East market. The next largest carrier is Continental in 
the intra-East market but down rather significantly, followed 
by United at 3 percent and American Airlines at 7.5 percent.
    Should the merger go forward, Delta will continue with its 
approximately 32 percent share of capacity intra-East and our 
approximately 32 percent share will be disbursed to United-
American Airlines. United will go from about a 3 percent share 
of capacity to approximately 25-ish percent share of capacity. 
And American will go from a 7.5 percent share of capacity to 
approximately a 15 or 16 percent share of capacity. Southwest 
stays the same, growing significantly under all of us with a 
low cost structure, as does AirTran, JetBlue, et cetera.
    What I suggest to you is that the competition that exists 
today on large carriers in the East is Delta and US Airways, 
Delta with its profoundly strong balance sheet and US Airways 
with its profoundly weak balance sheet. And the change would be 
Delta would be competing with two vigorous network carriers: 
American Airlines and United Airlines intra-East. And 
competition therein would go up significantly.
    US Airways must become part of a network carrier. And it is 
precisely what happens at our merger with United. Importantly, 
United has agreed to two fundamental principles and conditions 
which are exceedingly important. One, United has agreed to an 
ironclad job guarantee for our 45,000 employees. Let me put it 
there for just a second. That is quite unusual. One of the ways 
in which a corporation in the United States justifies an 
acquisition is through efficiency. Efficiency means it takes 
people off the payroll post the merger.
    The largest merger going on in the country today is G.E. 
acquiring Honeywell. Honeywell has 120,000. G.E. has announced 
they are going to lay off 50,000 people, 42 percent of the 
Honeywell workforce. United is providing an ironclad job 
guarantee to our 45,000 employees.
    Two, United has committed to continue to serve the large 
number of small and mid-sized communities in our system. In 
closing, I would like to put up a last chart.
    In the process of United and US Airways merging, this 
merger creates D.C. Air, a new entrant carrier serving 43 small 
to mid-sized communities from National Airport headquartered 
here in Washington, DC, owned and operated in a minority sense 
by Bob Johnson.
    Mr. Chairman and members, thank you.
    [The prepared statement of Stephen M. Wolf follows:]
Prepared Statement of Stephen M. Wolf, Chairman, US Airways Group, Inc.
    Mr. Chairman, Ranking Member Towns, and Members of the 
Subcommittee, on behalf of all of us at US Airways, I appreciate the 
opportunity to address what effect our merger with United will have on 
consumers.
    Fundamentally, as I have said in the opportunities I have had to 
testify since this deal was announced, the merger with United is a 
viable alternative to the difficult economic realities facing US 
Airways and the consumers we serve. As an amalgamation of pre-
deregulation mid-sized regional carriers, US Airways is facing a 
perilous future. It is neither a low-cost, low-fare airline, nor a full 
scale, global network carrier. All other mid-sized, mature cost 
carriers have either disappeared completely or have gone through 
multiple bankruptcies. There are only two platforms for competitive 
success in commercial aviation and US Airways does not fit either. All 
of us are fully aware of what has happened to Braniff, Eastern, Pan Am, 
and now TWA which is facing the bankruptcy court--not for the first 
time, not for the second time--but for the third time.
    At US Airways, our situation is quite stark--and quite simple. The 
status quo is not an option for US Airways, our employees, and the 
communities we serve. In sharp contrast, the merger with United 
Airlines guarantees a secure future for US Airways' employees, 
preserves service to cities that US Airways serves, and enhances 
competition.
    US Airways in its current form is a combination of several small, 
pre-deregulation regional carriers such as Allegheny, Mohawk, and 
Piedmont. As a result, the airline has a route network that, like its 
regional airline predecessors, is largely confined to short-haul routes 
in the Eastern United States. Indeed, US Airways has the shortest 
average stage length of any major carrier. Combined with a route 
structure that is essentially confined to the East Coast corridor, this 
severely limits US Airways' ability to mass enough presence in other 
areas to support any material expansion of its system.
    As a consolidation of pre-deregulation carriers, US Airways also 
pays labor rates that are comparable or higher than those of American, 
Delta, Northwest, and United. The difference between US Airways and 
these other carriers, however, is that the other carriers have vastly 
larger route systems which permit them to spread their costs over a 
great number of more efficient, long-haul segments that are relatively 
less costly to operate.
    Caught in the vice between its short-haul, high costs route system 
and its mature labor structure, US Airways is far and away the highest 
unit cost domestic airline. For the year 1999, US Airways' average 
system cost per seat mile, the measure most commonly used to determine 
costs, was 14 cents. By comparison, the average system costs during the 
same period was approximately 9.5 cents per seat mile for the major 
carriers and 7.5 cents for low-cost competitors such as Southwest. In 
sum, when compared to Southwest, a carrier that is aggressively 
expanding throughout US Airways' East Coast operating territory, US 
Airways has costs that are nearly twice as high.
    When I joined what was then USAir a little over four years ago, I 
recognized the historical reality that placed US Airways in such an 
``in-between'' position--one that could not be sustained over the long 
run. US Airways was neither a ``national'' carrier with an extensive 
nationwide network, nor a ``regional'' carrier with low costs and 
point-to-point routes. Accordingly, with the support of our employees, 
we committed to a strategic plan to restore financial stability to the 
company and establish the carrier's competitiveness, despite our high 
costs and incomplete route structure. To this end, we have made 
enormous progress. We have made significant and sustained improvements 
in our operational performance, established harmonious labor 
agreements, begun fleet modernization, and expanded our international 
service.
    However, the fundamental problems that constrain US Airways--high 
costs, short segments, and a limited network--remain in the face of 
increasingly intense competition. Unfortunately, US Airways does not 
have the financial reserves or the cost structure to support 
significant internal expansion. Because of our reliance on short-haul 
service, we have inherent difficulties earning unit revenues at the 
levels necessary to cover our high costs.
    Meanwhile, competition from well-financed, well-managed low-cost 
carriers such as Southwest, JetBlue, AirTran and others has been 
increasing dramatically on US Airways' most heavily traveled and most 
profitable routes. In 1995, for example, low-cost carriers had 618 
departures per day in the eastern United States, US Airways' major 
service area. By 2000, that number had almost doubled to 1,098. The 
low-cost carrier share of capacity in the region has grown 158 percent. 
These carriers now offer more than one out of every four domestic seats 
up for sale in that region. At the same time, major carriers' share of 
capacity actually fell one percent.
    In the last year alone, Southwest, AirTran and Delta Express, as 
well as new entrants such as JetBlue and Spirit, have added 181 daily 
departures out of East Coast airports--a 25.5 percent increase over 
1999. Since January 1, 1996, Southwest has increased its intra-East 
route system in terms of daily departures by 238% (157 to 531) and in 
terms of aircraft by 326% (19 to 81).
    Facing ever more low-fare competition on its key eastern routes, 
with costs well above the industry average and no realistic way to 
alter that condition, US Airways is increasingly limited in its ability 
to support its route network and maintain profitability. Accordingly, 
as a stand-alone carrier, US Airways, which has sustained significant 
net losses over the past decade, will have no choice but to 
continuously downsize, cutting jobs and service in the process.
    As Chairman of US Airways, I have worked hard to make serving our 
customers my top priority, yet, we face this reality for the entire US 
Airways family--we cannot continue to provide the broad array of 
services we currently offer or employ the 45,000 people who work for us 
without this merger. Since the merger is the only viable option for 
preserving the services and jobs we offer, I hope you will join me in 
concluding that this deal is in the consumers' best interest.
    To evaluate this transaction on consumers, I believe we must first 
consider the services US Airways provides and would continue to provide 
to consumers as a result of the merger. US Airways has invested heavily 
in infrastructure, aircraft and personnel and we have spent many years 
building a network of services around the country. The result is 
convenient access from these cities to hundreds of destinations across 
the country and throughout the world. This has been not only a 
foundation of economic growth over the years, but a lifeline to 
consumers and businesses that require frequent and wide-ranging air 
service. If this lifeline is cut short, scores of communities could be 
left without service.
    One of the key ways the merger will preserve the service US Airways 
customers have enjoyed is through the creation of a new airline, DC 
Air, which will be based out of Reagan National and owned by one of the 
Washington area's top corporate citizens, Robert Johnson. Mr. Johnson 
has made a commitment that DC Air will take over most of US Airways' 
flights in and out of Reagan National to 44 cities, preserving service 
to scores of small and medium-sized communities across America.
    DC Air will also preserve competition by challenging existing 
airlines at one of Washington's most convenient airports, thus bringing 
down the cost of air travel for consumers. Mr. Johnson has already 
committed to operating his airline as a highly competitive carrier, one 
that will clearly alter the competitive landscape in the greater 
Washington, D.C. area. United Airlines will have a hub at Dulles 
International Airport, DC Air will have a strong presence at Ronald 
Reagan National Airport, and Southwest Airlines will have a strong 
presence at Baltimore-Washington International Airport. All three 
airlines will be competing to provide service to the millions of people 
who travel to the nation's capital and surrounding areas each year. In 
the absence of these mergers, the Washington area faces the prospect of 
one primary carrier, the loss of jobs and the loss of thousands of 
daily flights.
    The entire US Airways family will also benefit from the job 
security this merger offers. With major companies announcing lay-offs 
on a daily basis, such as Daimler Chrysler, Lucent, AOL-Time Warner, 
Cisco, Intel, WorldCom and GE, and others like Bradlees, Montgomery 
Ward and TWA declaring bankruptcy, the job security this merger offers 
is especially important in this period of economic instability. It is 
critically important that our 45,000 US Airways employees are able to 
keep their jobs as part of this transaction--while so many other jobs 
in this economy are at risk.
    The merger of US Airways with United provides a bright future for 
our employees, the communities we serve, and competition within the 
industry. I wholeheartedly believe that the merger will have tremendous 
benefits for consumers--both in terms of protecting services to small 
and mid-sized communities and saving thousands of high skilled, high 
paying jobs. In the interest of preserving these consumer benefits, I 
urge you to support this merger.

    Mr. Stearns. Thank you.
    Mr. Leonard, your opening statement?

                   STATEMENT OF JOSEPH LEONARD

    Mr. Leonard. Thank you, Mr. Chairman and distinguished 
members of the subcommittee.
    Again I want to thank you for the opportunity to testify 
here with you today. I especially thank you for putting the 
spotlight on the issue of the most often but overlooked debate 
on the pending airline mergers, and that is the true impact of 
the mergers on the consumers.
    Ironically, a number of major airlines have pointed to 
AirTran in congressional testimony as evidence of the healthy 
state of airline competition today. They cite us as one of the 
competitive checks and balances that would ensure competition 
in the most post-merger world. I say ``ironically'' because 
some of those same major airlines have blocked us from 
expanding our low-cost service to markets and in some cases 
have tried to drive us out of business.
    Let me get straight to the point. The consumers get lower 
fares and better service in markets where there is real 
competition. And in today's marketplace, real competition is 
not defined by the major carriers' much touted seamless service 
but by fair competition from low-fare carriers that force the 
traditional old-line airlines to offer real choices to the 
consumers.
    AirTran is one of those few airlines that, in fact, 
disciplines the marketplace. When AirTran enters a market, 
average fares generally decline by 50 percent. And passenger 
demand grows approximately 125 percent and in some cases much 
more than that.
    According to the statistics of the Department of 
Transportation, AirTran's presence in Atlanta brings public 
savings of $700 million in reduced air fares last year alone. 
We did this with service to major urban areas and to small and 
medium-sized cities.
    Our entry into the Bloomington-Normal market cut the 
prevailing fares an average of 41 percent and stimulated a 930 
percent increase in passenger demand. In Akron-Canton, fares 
went down 44 percent and passenger demand went up an astounding 
1,471 percent.
    These real-time consumer benefits were accomplished in 
markets that were basically abandoned by the traditional old-
line carriers. AirTran did this by flying 140 daily departures 
from a hub that is dominated by another major carrier: Delta. 
Hub service is a critical element of providing the consumer 
benefits in aviation today. On the whole, the majors do not 
compete with each other in their hubs.
    A recent DOT study showed that passengers flying from a hub 
without a low-fare competitor like us pays an average of 41 
percent more for tickets. You don't need to be an economist or 
an analyst to know how much worse that fact is going to become 
if the mergers go through as proposed and become a reality.
    When the dust settles, two carriers would dominate airport 
air sets in the Eastern part of the United States, allowing 
them to block new entrants in competition from the most 
important airports in the most popular cities in the county. 
United and American with their partner D.C. Air will pull 80 
percent of the slots at all of the four slot-controlled 
airports: O'Hare, Kennedy, LaGuardia, and Reagan National, 80 
percent of the slots.
    If this series of mergers goes forward, there will be no 
basis for stopping Delta from acquiring Northwest and 
Continental. They have no choice. That would leave 75 percent 
of the passenger seats in the Nation's hand of 3 airlines. Two 
or 3 years from now let us not be holding hearings to 
investigate why air fares are so high and service is so bad, it 
will be too late to do anything about it at that point.
    With the recent decision of the Justice Department to 
permit TWA's and American's acquisition, these statistics are 
not theories. They are short steps away from reality. 
Administrative action by the Department of Justice and the 
Department of Transportation could seal the fate of these 
deals.
    Mr. Chairman, I don't blame the major airlines for seeking 
consolidation. That is their job. The airline business is 
tough, and it is complicated. Small advantages or disadvantages 
can bring monumental benefits or losses to the airlines. Big 
airlines are especially concerned about being confronted by 
another airline that is even bigger than they are. There is no 
law or regulation that can be enacted short of airline 
reregulation that would change the airline fact of life.
    If the current mergers are somehow turned down, they will 
come back in some other form sooner or later. So I think the 
task at hand for Congress and the executive branch is to figure 
out how to balance the needs of the airlines to achieve 
economies of scale with the need to keep honest competition. 
You balance that scale by using the merger proposals as an 
opportunity to increase competition, rather than decrease it.
    If United or American wants to charge $1,000 a ticket, they 
can do that, but I should be allowed to enter those same 
markets so I can charge $150 a ticket. Quite simply, I cannot 
compete in markets I cannot enter. This is what most of the 
merger activity is all about: sealing off precious slots from 
competitors and taking up gates and other assets wherever 
possible.
    AirTran through two enforcement complaints that were filed 
has asked the Department of Transportation to use its existing 
authority to level the playing field and to free up the benefit 
for the consumer, some of these slots and gates that stand at 
the heart of the assets of the American and United deals.
    I should emphasize that this allocation of slots must be 
significant. There should be enough slots at Reagan National to 
allow a new entrant to build a network with sufficient economic 
power to compete in a variety of markets with the major 
carriers.
    If AirTran were allowed to purchase the slots from D.C. 
Air, for instance, although we are not saying they have to come 
from D.C. Air, we would save consumers in this marketplace $600 
million a year based on our Atlanta model. This isn't pie in 
the sky estimates based on Department of Transportation and GAO 
estimates.
    Mr. Chairman, as I said at the beginning of my statement, 
the consumer issue here is not complicated. Genuine competition 
translates into lower fares and better service. It is, 
therefore, no accident that these mergers involve the airports 
that have the highest barriers to entry to new competition. 
Approval of the merger will build those barriers so high that 
they will be virtually insurmountable by carriers like us. If 
the gates and slots are not made available to new entrants as 
part of this merger equation, it could well lead to the death 
knell of airline competition in this part of the country.
    And the other side of the question is equally true. If low-
fare competitors are allowed to enter these markets as part of 
the mergers, it will result in a renaissance of consumer 
savings in towns and cities throughout the Eastern Seaboard.
    Mr. Chairman, thank you very much.
    [The prepared statement of Joseph Leonard follows:]

  Prepared Statement of Joseph Leonard, Chairman and Chief Executive 
                     Officer, AirTran Airways, Inc.

    Mr. Chairman, Mr. Towns, and distinguished Subcommittee Members, I 
thank you for the opportunity to testify this morning. I especially 
thank you for putting the spotlight on the issue that has most often 
been overlooked in the debate over the pending airline mergers--the 
true impact of the mergers on the consumer.
    For those of you who are not familiar with AirTran Airways, we are 
the largest new entrant carrier formed since 1990. We operate 55 jet 
aircraft from 22 gates at our hub in Atlanta, serving more than 50 
communities with some 314 daily departures. We fly as far west as 
Dallas-Fort Worth, as far north as Minneapolis-St. Paul and Boston, and 
as far south as Miami. We served more than 7.5 million passengers last 
year, and we have had eight consecutive quarters of profitability.
    Ironically, a number of major airlines have pointed to AirTran in 
Congressional testimony as evidence of the healthy state of airline 
competition today. They cite us as one of the competitive checks-and-
balances that would ensure competition in a post-merger world. I say 
``ironically'' because some of those same major carriers have blocked 
us from expanding our low-fare service to other markets and have tried 
to put us out of business.
    Let me give you some additional background. I have been involved in 
the airline and aviation business for more than 30 years, and I am a 
true believer in deregulation and the marketplace. Unfortunately, we do 
not have the open markets and level playing field envisioned by the 
authors of deregulation.
    I have never seen a time at which the near and long term interests 
of the consumer is more threatened than today. We see forming now a 
Perfect Storm of corporate actions and government inactions that could 
leave business and leisure air travelers adrift in a sea of anti-
competitive practices for years to come.
    Let me get straight to the point. Consumers get lower fares and 
better service in markets where there is real competition. That is the 
free enterprise system at work
    I have attached some charts to my statement that show the impact of 
AirTran on fares in various markets. When AirTran enters a market, 
average fares generally decline by as much as 50 percent, and passenger 
demand grows by 125 percent or more. According to the statistics of the 
Department of Transportation, AirTran's presence in Atlanta saved the 
traveling public $700 million in reduced fares last year alone.
    In 1997, DOT granted AirTran exemption slots to fly from Atlanta to 
New York LaGuardia. The resulting competition from New York and our 
connecting cities--which was strongly opposed by a major carrier--saved 
consumers more than $175 million last year.
    We also have enjoyed major success in linking our network to small 
and medium-sized cities. For example, our entry into the Bloomington 
market cut prevailing fares by an average of 41 percent and stimulated 
a 930 percent increase in passenger demand. In Akron-Canton, fares went 
down 44 percent, and passenger demand went up by an astounding 1,471 
percent. As you can imagine, this brings great new opportunities for 
tourism and business development. As your colleagues from Upstate New 
York have testified in numerous forums, adequate and fairly priced 
airfares are a key to economic growth.
    Almost alone among the handful of low-fare carriers that survive 
today, we do this the hard way--by flying 140 daily departures from a 
hub that is dominated by a major carrier. Hub service is a critical 
element of providing consumer benefits in aviation today because, on 
the whole, the major carriers do not compete against each other in 
their hubs. A recent DOT study shows that passengers flying from a hub 
without low-fare competition pay an average of 41 percent more for 
their tickets.
    Southwest Airlines, which is the largest and most successful low 
fare carrier, is often cited as providing strong competition to the 
major carriers. However, Southwest has built its success upon 30 years 
of growth aimed at smaller, non-hub airports. For example, if you want 
to fly out of Washington to New York on Southwest, you drive to 
Baltimore instead of Reagan National, and you land as Islip instead of 
LaGuardia. The major carriers' high fares in parallel markets are not 
affected by Southwest. Southwest is a good competitor, but they avoid 
most business markets and hubs.
    Low fare carriers have been struggling against closed markets and 
an un-level playing field for a number of years, and as a result our 
numbers are dwindling. But just when I thought things could get no 
worse, we now have the merger proposals that would amount to the most 
significant transfer of assets and consolidation in the history of 
commercial aviation.
    When the dust settles, two carriers will dominate airport assets in 
the Eastern United States, allowing them to block new entrants and 
competition from the most important airports in the most populous areas 
of the country. United and American with its partner DC Air would hold 
nearly 80 percent of the slots at the four slot controlled airports--
O'Hare, Kennedy, LaGuardia and Reagan National.
    If these series of mergers go forward, there will be no basis for 
stopping Delta from acquiring Northwest and/or Continental. That would 
leave 75 percent of the passenger seats in the nation in the hands of 
three airlines.
    With the recent decision of the Justice Department to permit the 
American-TWA acquisition, these statistics are not theories--they are 
short steps away from reality. Administrative actions by the 
Departments of Justice and Transportation could seal the fate of these 
deals.
    The merger carriers cite their belief that these vast monopoly 
networks will give them the ``seamless'' service and improved frequent 
traveler programs that their customers want. This has been the 
cornerstone of the current marketing alliances between United and 
Delta, American and US Airways, and Continental-Northwest. To the 
extent that there are any consumer benefits, it would seem that they 
already exist as a result of the many alliance partnerships in place 
today.
    What is clear is that according to a recent GAO report, the mergers 
will reduce competition in 290 city-pair markets, while only 65 markets 
will gain significant new service. According to the GAO, only 2.9 
million passengers may gain some theoretical benefit in getting new 
service, while nearly six times as many--about 16 million passengers, 
will have fewer choices in air carriers. The new United would by itself 
dominate 1,156 markets affecting 61.1 million passengers.
    Mr. Chairman, I do not blame the major carriers for seeking 
consolidation. The airline business is a tough, complicated enterprise, 
and small advantages or disadvantages can bring about monumental 
benefits or losses. Big airlines are especially concerned about being 
confronted with another airline even bigger than they. There is no law 
or regulation that can be enacted that would change this airline fact 
of life. If the current mergers are somehow turned down, they will come 
back in another form sooner rather than later.
    So I think the task at hand for the Congress and the Executive 
Branch is to figure out how to balance the needs of the airlines to 
achieve economies of scale, with the need to keep them honest. You 
balance that scale by using the merger proposals as an opportunity to 
increase competition rather than decrease it. If United or American 
wants to charge $1,000 a ticket, they can do that, but I should be 
allowed to enter those same markets and charge $150.
    Quite simply, I cannot compete in a market that I cannot enter. 
That is what most of the merger activity is all about--sealing off 
precious slots from competitors, and tying up gates and other assets 
wherever possible.
    But slots and gates are not a birthright. Contrary to what the 
airlines would have you believe, there is no question that slots are 
public property. DOT regulations state clearly that slots ``do not 
represent property rights but represent an operating privilege subject 
to absolute FAA control'' and which ``may be withdrawn at any time.''
    Gates are equally as important, and must be made part of a pro-
competition policy. Our initial entry into Philadelphia and Newark was 
blocked by carriers who sought to seal us out by denying us gates. At 
Newark, we literally had an employee stake out a concourse to monitor 
gate usage to prove that gates being claimed as tied up were in fact 
unused. Our operations in Philadelphia remain constrained due to 
inadequate gate access.
    AirTran's proposal to resolve this problem has been to submit to 
the DOT a complaint which calls for strict conditions to be tied to the 
merger agreements. The conditions would include a requirement that 
United and American divest themselves of a meaningful number of slots 
as a condition for approval of the agreements. DOT would in turn 
institute a proceeding, with the participation of the impacted 
communities, on how the slots are to be distributed to new entrant and 
low fare carriers.
    This would not be a ``free'' allocation of slots. Carriers 
receiving slot awards would be required to pay United and American the 
same value that they assigned the slots in their merger and acquisition 
agreements.
    I should emphasize that this allocation of slots must be 
significant in number. There should be enough slots into Reagan 
National to allow a new entrant build a network with sufficient 
economic power to compete in a variety of markets with the major 
carriers. If AirTran, for example, were allowed to purchase all of the 
slots that were proposed for DC Air, we would save the traveling public 
more than $600 million per year. That is not a pie-in-the-sky estimate; 
it is based on the same computations used by DOT and GAO to determine 
our fare impact in our existing markets.
    Mr. Chairman, as I said at the beginning of my statement, the 
consumer issue here is not complicated: genuine competition translates 
into lower fares and better service. It is therefore no accident that 
these mergers involve the airports that have the highest barriers to 
entry for new competition. Approval of the mergers will build those 
barriers so high that they will be virtually insurmountable.
    If gates and slots are not made available to new entrants as part 
of this merger equation, it could well be the death knell of airline 
competition in this part of the country. And the other side of the 
equation is equally true--if low fare competitors are allowed to enter 
these markets as part of the mergers, it will result in a renaissance 
for consumer savings in towns and cities throughout the East Coast.
    I appreciate the Subcommittee's interest in this matter, and I urge 
you to take action without delay.
         Fare comparisons of AirTran Airways and Major Airlines
               Routes are of like mileage and traffic mix

----------------------------------------------------------------------------------------------------------------
                                            AirTran Airways Atlanta      Delta Atlanta to
                                             to Washington- Dulles   Washington- National 547   Major  Airline %
                                                   533 miles                   miles                 Higher
----------------------------------------------------------------------------------------------------------------
Walkup...................................                     $217                      $609               181%
Leisure..................................                      $86                      $104                21%
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                            AirTran Airways Atlanta   American, Delta, United
                                             to Chicago-Midway 590      Atlanta to Chicago-     Major Airline %
                                                     miles               O'Hare 606 miles            Higher
----------------------------------------------------------------------------------------------------------------
Walkup...................................                     $207                      $721               248%
Leisure..................................                      $96                       $96                 0%
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                            AirTran Airways Toledo       Northwest, United
                                             to Washington, DC 382    Detroit to Washington,    Major  Airline %
                                                     miles                 DC 383 miles              Higher
----------------------------------------------------------------------------------------------------------------
Walkup...................................                     $234                      $481               106%
Leisure..................................                     $104                      $141                36%
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                AirTran Airways         United, US Airways
                                             Washington, DC to New     Washington, DC to New    Major  Airline %
                                               Orleans 954 miles         Orleans 954 miles           Higher
----------------------------------------------------------------------------------------------------------------
Walkup...................................                     $264                      $603               128%
Leisure..................................                     $105                      $105                 0%
----------------------------------------------------------------------------------------------------------------
NOTES:All fares listed as each way. Walkup fare is defined as the lowest fare available for one-way travel not
  requiring an advance purchase. Leisure fare is defined as lowest non-sale fare available


    Mr. Stearns. Thank you.
    Mr. Ris?

                      STATEMENT OF WILL RIS

    Mr. Ris. Thank you, Mr. Chairman, Mr. Towns, members of the 
committee. I appreciate the opportunity to testify on behalf of 
American Airlines.
    If I can, Mr. Chairman, I would like to begin, first of 
all, by just addressing a couple of issues that were raised 
earlier in the hearing because I think they are very 
interesting issues and particularly for this Committee, which 
sees a lot of different industries. The airline industry is 
probably not as familiar to you as a lot of other industries.
    Most of the industries, to the best of my knowledge, that 
you see in this Committee are industries that make very healthy 
profits. At least a lot of them do. This is not such an 
industry. Over the course of our history in the airline 
industry, we are about at break-even.
    Up until a couple of years ago, we had negative profits 
from the history when the Wright Brothers first flew to this 
point in time. And we are now in a process of carrier by 
carrier announcing its first quarter results, and each one is 
coming in with substantial losses for the first quarter.
    I say that because there has been a lot of conversation 
about air fares and excessive air fares and so on and so forth. 
From an industry point of view, from a shareholder's point of 
view, from an employee point of view, from the point of view of 
vendors from whom we buy equipment, the problem in this 
industry is not that on average our fares are too high because, 
in fact, on average we are getting less money in the door than 
we are paying in terms of costs to provide the service.
    There are certainly issues of disparity between the low 
fares and the high fares. But this is not an industry, unlike a 
lot of others that you have seen, that has excessive profits. 
And that is a very important point as we look at what is on the 
table because consolidation is only part of a much more complex 
puzzle.
    I think a couple of the comments from some of the members, 
particularly Mr. Burr and Ms. DeGette, were very instructive 
because they dealt with the complexities of an inadequate 
infrastructure, of the complexities of complicated labor 
relations, of high capital costs, high labor costs, of soaring 
fuel prices, which obviously this Committee knows a lot about. 
And it makes it very difficult to operate in this particular 
environment.
    Nevertheless, the subject of the hearing today is 
consolidation. I will talk about that, but I think it is 
important to put consolidation in the context that it is only 
one part of a very complex puzzle.
    Now, American Airlines is involved in two transactions. 
One, as has been mentioned many times today, is our acquisition 
of the assets of TWA in bankruptcy. I emphasize that because 
this is not a merger or an acquisition.
    TWA would not be in business today if we had not stepped up 
to the plate, provided $200 million in debt financing, allowed 
them to continue to operate. This is not an issue of: Is it 
good or bad to have American acquire TWA? TWA would not be in 
business today. We would have one less airline under any 
circumstances.
    The second transaction we have is our role in the United-US 
Airways merger and the creation of a new entrant, namely D.C. 
Air. You are quite right to be concerned about consolidation 
and its impact on consumers. And, in fact, so are we.
    But, again, the real question is not whether these 
transactions are good or bad in the abstract. The only really 
relevant question is: Are they good or bad with respect to what 
would happen if they don't get enacted?
    I think that is immensely important. And obviously Mr. Wolf 
testified directly to that about the United-US Airways 
transaction. Let me just repeat that with respect to TWA, I 
don't think anybody or very few people would agree that 
allowing them to liquidate and go out of business was a better 
alternative to American acquiring them. And we were heartened 
when last week the bankruptcy court approved the acquisition by 
America and the Justice Department gave us a green light to go 
forward. Turning down that field would have put 20,000 people 
out of work and would have eliminated the highly competitive 
St. Louis hub.
    Now, obviously the United-US Airways transaction is more 
complex. And I would strongly argue that American's 
participation in this transaction is actually the remedy that 
makes the transaction pro-competitive.
    First I want to address some comments that were made 
earlier and have been made in other forums that somehow our 
agreement with United and US Airways must be part of some kind 
of a conspiracy between us to divide up the Northeast market 
and then declare a truce on competition.
    To us, that is a laughable proposition. It is laughable 
because if there were a conspiracy, then the Justice Department 
would have to be part of the conspiracy because the fact is if 
it wasn't for the express concerns during the process here of 
reviewing this by the Justice Department, we wouldn't have had 
the opportunity to come in, as other airlines also did, and 
negotiate with United for additional divestiture, which makes 
this deal competitive.
    Second, I am fairly sure that at the outset of this 
transaction--and Shelley Longmuir could probably testify to 
this--that it was not United's intention to make American 
Airlines a stronger player in the Northeast. I don't think that 
was their goal as this transaction got underway.
    To put this in perspective, as Mr. Wolf pointed out some I 
think very compelling statistics, American today is a 
relatively small player in the Northeast corridor. We are by 
almost any measure one of the weakest carriers in the Northeast 
corridor. After all, our closest hub is 600 miles away in 
Chicago. We don't participate in the shuttle markets. And for 
us, the Washington airports are simply spokes served from our 
hubs. Our biggest presence is at Reagan National Airport, where 
we only have 13 percent of the traffic. We have far less than 
that at both Dulles and BWI.
    In contrast, as Mr. Wolf pointed out, using the strength of 
their shuttles and the high frequencies in all of the airports 
at the corridor, the dominant north-south carriers in the East 
Coast are Delta and US Airways.
    So let us make it clear. In the Northeast corridor, 
American doesn't have the resources to, quote, ``divide the 
market'' because to date we have little to divide. For us, this 
is really an opportunity to enter into markets where we haven't 
been able to enter or expand into an area of the country where 
others are very firmly entrenched.
    Now, some, like Mr. Leonard, have argued that US Airways 
slots and gates should be divested to new entrant, low-cost 
carriers, but that, in fact, is exactly what is happening with 
the creation of D.C. Air and the divestiture of US Air 
resources to D.C. Air.
    Over the past several weeks and months, we at American have 
gotten to know Bob Johnson, who is the principal owner of D.C. 
Air, very well. And I can tell you he is for real. D.C. Air 
will be an independent organization and will be a very vigorous 
competitor in the Northeast United States.
    Let me just conclude real quickly. I apologize for that. If 
I can--and I can do this in questions--one of the points that 
was made, Mr. Chairman, is this constant point about how many 
carriers there will be in the country at the end of this. From 
a passenger point of view, it doesn't matter how many carriers 
there are in the country. It matters how many carriers are in 
the market that that person wants to serve.
    In the Northeast, as Mr. Wolf pointed out, we are going to 
go from two dominant carriers to at least three, maybe four, if 
the transaction is done. I think that is the most important 
consumer point.
    Thank you.
    [The prepared statement of Will Ris follows:]

   Prepared Statement of Will Ris, Senior Vice President, Government 
                       Affairs, American Airlines

    Good morning. Thank you for the opportunity to appear before this 
Subcommittee to discuss the impact of consolidation in the airline 
industry upon consumers. As much as we would like to provide you with a 
clear-cut answer to the question raised by the title of this hearing, 
it is difficult to do so. Proposals for consolidation in the airline 
industry are only one part of a complex puzzle that impacts consumers. 
Increasing demand for air services, inadequate infrastructure, 
challenging labor relations, increasing environmental restrictions, 
soaring fuel prices, and historically low profitability are all parts 
of the equation as well.
Customer Service
    Let me begin by saying that apart from safety, there is no higher 
priority at American than improving our customer service. We are well 
aware of the frustrations felt by airline passengers trying to struggle 
with an increasingly congested system. Last week, the Federal Aviation 
Administration forecast a continued growth in the record numbers of 
airline passengers during the next few years. To deal with this 
projected surge in traffic, we are spending hundreds of millions of 
dollars on new technology, equipment, training, and facilities to make 
life easier for our customers. I have attached an appendix to this 
testimony that outlines the multitude of steps that we are taking at 
American to improve customer service.
    One of our most important, and most costly improvements has been to 
remove rows of seats on all of our planes to provide more legroom for 
our each of our coach passengers. The cost of doing this, and 
installing a whole new generation of more comfortable seats, has been 
over $400 million. The next important set of improvements will be at 
airports where customers will be able to check in with much greater 
ease at the curb, or at self-service kiosks, or with roving agents, or 
by the internet. Another challenging task is to improve our ability to 
communicate with our customers about delays and changes in schedules. 
This is much more difficult than it appears on the surface, but we 
realize that most passengers just want to know what is going on when 
delays occur. We are already seeing marked improvement in this area, 
but we know we have more to do. In short, we are highly focused on 
making the flying experience better than it is today.
Industry Consolidation
    At the same time we are doing these things, the shape of the 
industry is shifting both in the U.S. and on a global basis. Among 
other things, airlines are increasingly becoming network businesses. 
Not only is this a natural evolution, but the trend has been 
accelerated over the past several years by the U.S. Government, which 
has encouraged and facilitated global airline alliances. These global 
alliances have, in turn, contributed to the movement toward more 
domestic consolidation.
    American is currently involved in two separate and unrelated 
consolidation transactions. The first is our acquisition of the assets 
of TWA which otherwise would be liquidated in bankruptcy. The second is 
our role in the proposed United-US Airways merger, which is to provide 
remedies to concerns about the scope of that transaction as originally 
proposed. I will address each one separately, because they are very 
different.
American/TWA Transaction
    First, let me address TWA--a storied but beleaguered airline that 
after 12 consecutive years of heavy losses and three bankruptcies has, 
in spite of valiant efforts by Bill Compton and his team, simply run 
out of money, time, and options. Carl Icahn had stripped this company 
over a period of years, selling assets, such as the prized route rights 
to London's Heathrow Airport, just to pay the bills. Going into this 
winter, typically the leanest months in the airline business, with the 
price of fuel soaring, TWA had nothing left to sell or mortgage that 
wasn't already encumbered. It also had a debt of $100 million coming 
due on January 15. Unable to secure or justify additional financing 
from traditional sources and with no one willing to purchase the 
airline, TWA in early January faced the very real likelihood that it 
would have to shut down and liquidate.
    From time to time, American had looked at TWA as a possible merger 
candidate. Indeed, its centrally located St. Louis hub provides a nice 
complement to our operations at capacity-constrained Chicago O'Hare. In 
addition, TWA's current management team had--in the face of some 
formidable obstacles--done a very good job of improving the airline's 
operations, and in particular, of modernizing its fleet. Unfortunately, 
very high ownership costs on TWA's new fleet, and an unusual 
arrangement that allows an entity owned by Carl Icahn to sell TWA's 
ticket inventory at a substantial discount, made a potential American/
TWA merger a non-starter.
    TWA's bankruptcy filing and looming collapse, however, presented a 
far different set of circumstances. We stepped in to provide--when no 
one else would--the cash TWA had to have to keep operating. We are not 
proposing to acquire or merge with TWA. Rather, we are acquiring 
substantially all of TWA's assets, we will hire virtually all of TWA's 
employees, and we will continue a hub operation in St. Louis.
    Our bid for TWA's assets has been accepted by the TWA Board and 
approved by the Bankruptcy Court in Delaware. On March 16, the 
Department of Justice announced that it would not challenge the 
acquisition. Therefore, our remaining regulatory hurdle is getting 
final authority from the Department of Transportation for the transfer 
of route certificates and the approval of our transition plan for 
integrating TWA's employees and equipment into our company.
    I feel very comfortable in stating that for many people living in 
St. Louis, Kansas City, and New York, there is no more consumer-
friendly act than saving the jobs of more than 20,000 employees in 
those communities. We are very pleased to have them join the American 
Airlines family. We are keenly aware of TWA's illustrious history, and 
know that were it not for the hard work and great performance of the 
people throughout TWA, they would not be the perfect fit for American 
that we believe they are.
United-USAirways Merger
    Members of this Committee and numerous industry observers have 
expressed strong concerns about the potential impact of a United-US 
Airways merger. We shared that concern when it was first announced. 
Last fall, our CEO, Don Carty, testified to Congress that the proposed 
United transaction had caused us to look long and hard at defensive 
responses.
    That examination resulted in our January announcement of an 
agreement that directly addresses many of our concerns about the size 
and scope of the United-US Airways merger, while positioning American 
as a much more vigorous competitor in the Northeast.
    In an increasingly globalized business such as ours, competition 
will suffer if one network is allowed to dwarf all other networks. From 
a customer perspective, the benefits of broader networks are clear. Our 
customers--both leisure and business travelers--increasingly expect 
their airline of choice to be able to take them everywhere they want to 
go. Accordingly, if one airline is able to grow its route network 
significantly larger than its competitors, that airline would have a 
competitive advantage.
    The original United-US Airways proposal presented just such a 
scenario. Had its initial proposal been approved, United would have 
become 50 percent bigger than its nearest competitor, namely us. As you 
might imagine, for a company like ours that is determined to create a 
domestic and international network that is second to none, this got our 
attention. For air travelers, the unbalanced landscape caused by the 
lack of one or more competing networks of similar size and breadth 
would have surely led to an eventual reduction in overall competition.
    The ultimate size of United's route network was not the only cause 
for concern. As we all know, high market concentration on routes to and 
from the Nation's Capital led United and US Airways to propose creating 
a new entrant at Ronald Reagan Washington National Airport, DC Air. As 
we thought about this, on the one hand we had great admiration for both 
carriers for being able to persuade such an accomplished businessman as 
Robert Johnson to get mixed up in our industry--where margins are thin 
and headaches are plenty. On the other hand, however, the proposed 
relationship envisioned between United and DC Air caused most everyone, 
both inside government and out, to be somewhat skeptical. Simply put, 
it was hard to see any real competitive benefit coming from the 
transaction given that DC Air's aircraft, flight crews, operational 
support, and management staff were mostly being supplied by either 
United or US Airways.
    The potential effect on competition in the Northeast and on routes 
between United's hubs and US Airways' hubs was also problematic. 
American has a relatively small share of the key business routes 
between Boston, New York, and Washington. Our fear was that the 
proposed merger would entrench United, complete with its new, vastly 
larger transcontinental network, in an effective duopoloy with Delta in 
these shuttle markets, an outcome that rightly alarmed outside 
observers as well.
    In the closing months of last year, it became apparent that the 
original United-US Airways proposal would not stand. This prompted 
American--and a number of other competitors--to enter into discussions 
with the merger parties regarding proposals for asset sales.
    In early January, we agreed to acquire certain key strategic assets 
from US Airways and to acquire a substantial financial stake in DC 
Air--both contingent upon the reconstituted United-US Airways merger 
receiving regulatory approval. In a nutshell, we would acquire from US 
Airways 14 gates, 36 slots, 66 owned aircraft and an additional 20 
leased aircraft, as well as the gates and slots necessary for us to 
operate half of the US Airways Shuttle. In addition, to introduce 
immediate new competition on United-US Airways hub-to-hub routes, we 
agreed to guarantee that the following routes would be served by at 
least two roundtrips a day for the next 10 years: Philadelphia-Los 
Angeles, Philadelphia-San Jose, Philadelphia-Denver, Charlotte-Chicago, 
and Washington-Pittsburgh.
    As for DC Air, we agreed to take a 49 percent stake in the carrier 
and enter an exclusive marketing arrangement with it in which DC Air 
will participate in American's frequent flyer program. We will also 
provide DC Air with 11 100-seat Fokker 100 aircraft in an arrangement 
by which American Airlines personnel will be flying and maintaining AA 
aircraft marketed as DC Air service. American will also have the right 
of first refusal on the acquisition of the remaining 51 percent of DC 
Air.
    Taken together, we believe these transactions relieve the 
competitive imbalance in the Northeast. They will also increase 
competition by making DC Air a real competitor with significant 
independent backing while affording us, for the first time, a 
significant presence in Washington and the Northeast. American, for 
example, now accounts for roughly 13 percent of passenger boardings at 
Reagan National, and far less than that at Washington Dulles and BWI. 
As in the Washington area, our expanded presence throughout the upper 
East Coast will ensure that there are at least three major competitors 
of comparable size on the Shuttle routes and at least two competitors 
on the hub-to-hub routes. Moreover, passengers travelling along the 
East Coast will also benefit by our establishing another source of 
connecting service to compete with the service offered by United, 
Delta, Continental, and other East Coast competitors.
    Obviously, we have given the Justice Department and Congress a lot 
to digest. American looks forward to working with both Justice and this 
Committee as you attempt to determine whether what we have put on the 
table sufficiently remedies the United-US Airways merger and, 
ultimately benefits the flying public.
    Regardless of Justice's disposition of the transactions before it, 
we at American have gotten to know Robert Johnson over these past few 
months and are most impressed. He is a take-charge executive who knows 
how to provide consumers a service, and quite frankly, how to make 
money. Let there be no mistake, Robert Johnson and his team will run DC 
Air. He will be the majority owner and he will make the decisions. He 
has already begun recruiting a seasoned management team. If the 
transaction is approved, American will be his marketing partner, and we 
will work closely together to add value to our respective networks. DC 
Air will be a valuable addition to our industry and bring to it the 
first minority-owned airline in more than 30 years. It has taken our 
industry far too long to reach this milestone and we at American are 
proud to be affiliated with it.
    As for the impact of American's entry into this equation, Jim 
Wilding, the president of the Metropolitan Washington Airports 
Authority, was recently quoted as being highly enthusiastic about the 
vigorous competition that American's affiliation with DC Air will bring 
to the Washington market in comparison with the original proposal. In 
Mr. Wilding's words: ``If American and United are anything, they're 
competitors. They're like the cobra and the mongoose wherever they 
go.''
Impact on Consumers
    I would respectfully suggest that the question which the Committee 
should ask is not whether these specific transactions are good for 
consumers in the abstract. The relevant question is whether these 
transactions are better for consumers than the alternative of not doing 
them. In making that judgment, there is often a good deal of focus on 
how many airlines there will beat the conclusion of the transaction. 
But there are two problems with such analysis. First, as in the case of 
TWA, in the absence of the transaction, the carrier would disappear 
from the industry anyway. Second, for a consumer wanting to travel to a 
certain destination, the only meaningful question is how many carriers 
are there in that particular market. Having 10 carriers will not 
benefit consumers if each only operates in its own territory and offers 
no competition with the others. In contrast, having three or four 
carriers that compete in all markets would be much better. The best 
example of this is in the package express market, where there are only 
two major competitors--Federal Express and UPS--but they provide robust 
competition and consumer benefits because they compete vigorously in 
all of each other's markets. As networks get bigger, they compete with 
each other in more and more markets. And that is not bad for consumers.
    In the case of TWA, I don't think anyone believes that allowing TWA 
to liquidate would be better for consumers than American's asset 
acquisition. We will maintain employment for 20,000 people, and 
competitive service for millions of passengers.
    In the case of United and US Airways, we are certainly convinced 
that the participation of American in that transaction mitigates the 
major concerns that we have shared with others about its size and 
scope. United would not be allowed to get so much larger than any other 
airline that we would all be dwarfed. There would be three vigorous 
competitors in the Northeast where today there are just two. And it 
would lead to the creation of a new airline in the Northeast United 
States--DC Air. As to the question of whether the entire transaction is 
better than the alternative of leaving US Airways as a stand-alone 
company, no one can make that case better than US Airways itself.
    That concludes my statement. I am ready to respond to any questions 
that you or the Members of this Committee may have. And if there are 
any I can't answer, I will provide a written response to you for the 
record.

                           American Airlines
                   Customer Service Plan Enhancements

    American Airlines, striving to deliver the best product possible to 
its passengers, developed the following initiatives in the customer 
service arena to help the airline fulfill its commitments under the 
Customer Service Plan. To reinforce its commitment, American Airlines 
has included the provisions of the Customer Service Plan in its 
Conditions of Carriage.

                                 INDEX

Keeping the Customer Informed
 Developed policies and procedures to keep customers advised of 
        delays
 Developed a new Gate Information Display System
 Provides major delay information on the AA.COM website
 Reference card provided on flights to address customer 
        concerns
 Developed voice recognition technology in Reservations for 
        gate & flight inquiries
 Shop By Price Reservations booking tool ties lowest fare to 
        itinerary
 Increased training for reservations and airport agents
 Introduced automation to help keep the ``Guaranteed Fare'' 
        commitment
 Introduced wireless Flight Status Notification through the 
        AA.com website
Keeping the Customer Satisfied
 Created Local Contingency Plans at all airports to minimize 
        inconvenience during delays
 Devised a phone card program for passengers inconvenienced by 
        delays
 Developed a ``We CAAre Kit'' that recognizes customers' needs 
        in delays
 Implemented a new comprehensive refund tracking system
 Added an E-Mail component to the Customer Relations department
 Added resources to Customer Relations
Keeping the Customer Moving
 Streamlining airport process and implementing state of the art 
        technology
 Installed more than 2,500 document readers at 135 airports
 Deployed ``OneStop'' curbside mobile check-in stations at 65 
        airports
 Will roll out ``OneStop'' self-service devices at 30 airports 
        in 2001
 Implemented a ``roving agent'' concept using hand-held devices 
        for check-in
 Added ``operational coordinators'' empowered to resolve 
        complaints on front line
 Added management volunteers at Dallas/Fort Worth during high 
        volume days
Keeping the Customers With Their Bags
 Placed additional emphasis on baggage performance
 Developing programming to print flight departure time on bag 
        tags
 Expediting delivery of delayed bags
 Implementing wireless scanning technology to enhance bag 
        tracking
Keeping the Customer on Schedule
 Modified the Dallas/Fort Worth and Chicago hubs flight 
        schedules
Keeping the Customer Well
 All American Airlines aircraft carry defibrillators and 
        enhanced medical kits
 Purchased 75 percent more oxygen cylinders to meet customer 
        needs
 Introduced the ``SkyCAAre Program'' for passengers needing a 
        nurse
Keeping the Customer Comfortable
 Reconfigured entire fleet to provide more legroom throughout 
        coach cabin
 Invested $400 million in new seats with improved head and back 
        support
 Installing larger overhead bins on MD80, Boeing 757 and Fokker 
        100 fleets
 Spent $1 billion-plus to expand terminals at MIA, JFK, LAX and 
        BOS
 Built new American Eagle terminal at Dallas/Fort Worth 
        International Airport
 American Eagle converting fleet to Regional Jets
                     keeping the customer informed
 Policies and procedures are in place for keeping our customers 
        advised of delays in a timely and accurate manner. Airport 
        agents, mechanics, pilots and flight attendants all share the 
        same commitment, as outlined in our Customer Service Plan. 
        Agents can now reference messages that detail the day's 
        weather, giving our frontline employees an additional tool for 
        communicating delay and potential delay information to our 
        customers.
 To provide more flight information to customers at gate 
        locations, a new Gate Information Display System (GIDS) was 
        developed and is already deployed at Chicago O'Hare, Phoenix, 
        Philadelphia and Columbus, Ohio. This product provides a whole 
        array of flight details, including specific flight messages, 
        destination arrival time and weather conditions, aircraft type 
        and meal service on 36 inch monitors. Additional airports are 
        planned to receive this enhanced gate display functionality.
 The AA.COM website is American's new vehicle for communicating 
        airport delays to our customers. Consumer alerts are posted on 
        the website during periods of significant operational delays. 
        Cancelled flights are also posted on the website home page 
        during significant weather disruptions.
 A small reference card was developed by in-flight services 
        that provides the customer with American's Customer Relations 
        and toll-free Reservations numbers. The card, contained in on-
        board service kits, provides crewmembers with a proactive means 
        for addressing customer service concerns in-flight.
 In reservations, a voice recognition technology is being used 
        to handle telephone inquiries regarding gate assignments and 
        flight status. This technology provides passengers with a new 
        option for obtaining information and frees up agents to handle 
        calls needing special attention more quickly.
 A ``Shop by Price'' reservation booking tool allows 
        reservation agents to automatically match an itinerary to the 
        lowest fare available. Work is progressing to include a ``lower 
        fares may be available on the Internet'' message when customers 
        make their initial phone contact with reservations.
 There are 187,626 hours of training planned for reservation 
        agents in 2001, of which 43% is devoted to Customer Service or 
        the Customer Service Plan.
 Programming was introduced in American's reservations area 
        that will automatically assign a ``next day cancellation'' 
        timeframe on reservations requiring advance purchase. This 
        enhancement will provide a more failsafe means of ensuring 
        customer reservations are held for 24 hours, meeting the 
        ``Guaranteed Fare'' commitment of the Customer Service Plan.
 Customers can now register for flight status notification via 
        the website, AA.com. This product allows customers to sign up 
        online and receive customized notification of flight status to 
        their wireless or wired devices. Once signed up, the 
        notification system subsequently notifies customers of the 
        requested American and American Eagle flight departure or 
        arrival status, including gate information. They are also 
        alerted to known delays, cancellations or diversions. Customers 
        can choose to receive a voice message to their phone, or a text 
        message to a cell phone, alphanumeric pager, personal digital 
        assistant (PDA) or regular e-mail account.

                     KEEPING THE CUSTOMER SATISFIED

 All field locations have created a local airport contingency 
        plan that details airline and airport communication processes 
        for minimizing customer inconvenience when extraordinary delays 
        occur. The plan provides details regarding overnight 
        accommodations, alternate transportation and airline and 
        airport communication processes for handling customer needs 
        during these delays.
 A phone card program has been implemented that allows airport 
        employees to provide a calling card to customers who are 
        inconvenienced or delayed.
 A ``We CAAre Kit'' has been developed that proactively 
        recognizes customer needs during a long delay. The kit contains 
        a phone card, customer comment card, an apology from the 
        employees of American and American Eagle, a travel certificate 
        good for ``dollars'' off on future travel and a headset/drink 
        coupon for in-flight use.
 A new comprehensive refund accounting tracking system was 
        implemented in March 2000 that assigns a batch number, tracking 
        number and date the ticket was keyed into the system for 
        refund. Customer Service Plan timeframe-for-refund can be 
        determined more easily, allowing American to provide a better 
        refund service to our customers.
 The e-mail medium was added to the Customer Relations area in 
        June 2000, providing customers an additional communication 
        vehicle for providing us with comments on their travel 
        experience.
 Customer Relations has added resources that are dedicated to 
        phone and e-mail correspondence to meet customer expectations. 
        In addition, operational debrief meetings are held more 
        frequently to address timeliness goals.

                      KEEPING THE CUSTOMER MOVING

 American has undertaken broad strategic initiatives aimed at 
        streamlining our airport process and implementing state of the 
        art technology to enhance the overall airport experience.
 Over 2,586 document readers have been installed at 135 
        airports allowing agents to scan passport information into the 
        system in one quick swipe, which allows customers to clear 
        Customs in an expedited manner.
 American has deployed ``OneStop'' Curbside mobile check-in 
        stations at 65 airport locations that allow customers to check 
        baggage and obtain boarding passes in one step with skycap 
        personnel. Passengers can then bypass the ticket counter and 
        proceed directly to the gate.
 ``OneStop'' Self-Service devices are currently being rolled 
        out to 30 airports. The self-service device enables our 
        electronic ticketed customers to check-in, obtain a seat 
        assignment and boarding pass, answer security questions and 
        check bags at ticket counter locations.
 American is rolling out a ``Roving Agent'' wireless product at 
        airport locations that will allow agents to use a handheld 
        device to issue boarding passes without customers having to 
        stand in line.
 An operations coordinator position has been created at 
        American's large city ``hub'' locations to focus strictly on 
        customer service issues and handle customers traveling with 
        special needs. More than 180 coordinators are empowered to 
        resolve complaints on the front line.
 A ``Customer Assistance'' program is in place that utilizes 
        headquarter management volunteers to assist DFW agents during 
        heavy passenger volume days or during off-scheduled operations. 
        The volunteers will assist in the boarding process; queuing 
        lines, handling unaccompanied minors and performing other 
        airport required tasks. This allows our agents to devote more 
        of their focus on the customer and customer transactions when 
        additional attention is required.

                 KEEPING THE CUSTOMERS WITH THEIR BAGS

 Additional emphasis has been put on baggage performance with 
        the introduction of the ``Every Bag Counts'' program. In 
        addition, use of a single, systemwide baggage delivery company 
        will be introduced in 2001 that will provide a consistent 
        baggage delivery product when bags are misplaced.
 Programming is complete that will print the flight departure 
        time on the bag tag, regardless of carrier, providing valuable 
        departure information to ramp personnel to enhance the 
        possibility that a bag is loaded.
 American is in the process of transitioning to a single 
        domestic nationwide baggage delivery company, utilizing a web 
        based tracking system, that will provide expedited delivery of 
        delayed bags.
 Wireless scanning technology will provide an enhanced ability 
        to track bags and reunite them with the owner in an expedited 
        manner.

                    KEEPING THE CUSTOMER ON SCHEDULE

 American has modified its Dallas/Ft Worth and Chicago O'Hare 
        flight schedules to provide more connecting time between 
        flights. This initiative will provide greater opportunity to 
        achieve on time departures and give our customers additional 
        time to connect.

                       KEEPING THE CUSTOMER WELL

 American was an industry leader by equipping all aircraft with 
        defibrillators. State-of-the-art medical kits are also standard 
        equipment on all our aircraft.
 American purchased 75% more oxygen units to meet the 
        increasing needs of our customers requiring oxygen. We have 
        significantly enhanced our ability to meet almost 100% of our 
        oxygen requirements due to the purchase of these units.
 American has introduced the ``SKYCAARE'' program to provide 
        skilled medical companions for travelers who need limited 
        medical attention or care during their flight. These companions 
        are registered nurses.

                    KEEPING THE CUSTOMER COMFORTABLE

 Our entire fleet of aircraft is being reconfigured to provide 
        our customers with more legroom in coach. Our entire domestic 
        fleet has already been reconfigured, with our international 
        fleet reconfiguration currently underway. As of March 19, 2001, 
        93% of American's total fleet has been reconfigured.
 American has invested more the $400 million on new first class 
        and coach seats on most of our fleet that offer more comfort 
        through adjustable headrests and improved back and lumbar 
        support.
 American has begun an $80 million project to increase overhead 
        storage capability on nearly 500 of our narrow body jets. More 
        overall storage space will achieve a better boarding process 
        and make it easier to stow and remove bags from overhead bins. 
        The first aircraft with the new larger bins entered service on 
        January 18, 2001.
 $1 billion airport expansions are underway at Miami and New 
        York Kennedy, and expansions of more than $250 million each are 
        taking place at Los Angeles and Boston to ease in-airport 
        congestion and improve facilities for our passengers.
 American Eagle has opened a new 30,000-square-foot terminal at 
        DFW International Airport that will enable American Eagle to 
        offer covered boarding on more flights to more cities as it 
        continues to add regional jet service to and from DFW. Many of 
        American Eagle's turboprops will also park at the satellite 
        terminal, which means customers flying on those aircraft will 
        also enjoy covered boarding at DFW.
 Regional Jets are operating more flights operated by American 
        Eagle. These aircraft provide an enhanced degree of comfort and 
        speed and are preferred by customers over propeller driven 
        aircraft. Additional routes are being added to the American 
        Eagle network as more ``RJs'' are added to the fleet. American 
        Eagles entire operation at Chicago O'Hare is operated by 
        Regional Jets.

    Mr. Stearns. Thank you.
    Ms. Longmuir?

                STATEMENT OF SHELLEY A. LONGMUIR

    Ms. Longmuir. Chairman Stearns, Ranking Member Towns, and 
members of the subcommittee, thank you for letting me appear 
before you today to discuss the United Airlines-US Airways 
merger and the consumer benefits we believe this transaction 
will bring.
    The combination of United and US Airways will create the 
first truly national network air carrier. It will include: 
first, improving the travel experience for consumers; second, 
improving global connectivity for American consumers and 
businesses in your communities; and, third, as Will Ris has 
just mentioned and Mr. Wolf has alluded to as well, strengthen 
competition amongst the remaining carriers.
    First, Mr. Chairman, with respect to our consumers, United 
has rededicated itself to improving customer service. And we 
believe we are making good progress as the latest DOT consumer 
rankings would bear out.
    The combination of United and US Airways will make the 
travel experience for passengers more convenient in several 
important ways: fewer tickets for a journey, fewer check-ins, 
easier baggage transfers, faster accumulation of those precious 
frequent flyer miles, and the addition of 89 new nonstop 
flights, hence more access. Passengers will no longer have to 
switch to an entirely different airline on more than 500 
planned new airport-to-airport routes not currently available 
to either US Airways or United Airlines passengers.
    I would like to give you an example of our enduring 
commitment to customer service since I know this is truly a 
focus of this subcommittee. Earlier this month United Airlines 
announced a $150 million investment in new innovations that 
will make air travel easier and more convenient for our 
passengers. These investments are going to include self-service 
check-in kiosks, high-tech flight information displays at 
airports around the country, and a new customer advocate 
center.
    United is truly sensitive to the inconvenience and 
disservice we have put our passengers through and, hence, the 
name, the focus, and the rededication by United. The purpose of 
this center is to resolve problems for passengers even before 
they arrive at the airport when we know of canceled flights, 
weather, or mechanical affecting their journey.
    We are serious about our commitment to customers. We have 
taken the extra step of incorporating our latest customer 
service commitment into our contract of carriage, the document 
that defines United's legal obligations to its customers. In 
short, let me assure you that our commitment to improving 
customer service did not begin nor will it end with our 
acquisition of US Airways.
    Today US Airways is hamstrung by the industry's highest 
unit cost coupled with limited access to cities across the 
United States. Its passengers also have limited options for 
international travel. With United, US Airways passengers will 
gain same carrier service to 117 U.S. cities, 28 international 
destinations, all of which were not currently in the network 
before this merger, as well as the addition of 500 new 
international destinations through United's global network of 
the Star Alliance.
    Finally, we believe that the United and US Airways 
combination will create new hubs to compete with existing hubs 
of competitors, such as United now being able to compete 
against Delta in Atlanta by having a very strong presence in 
Charlotte, thanks to the US Airways acquisition. United will 
also be able to compete out of Philadelphia against Continental 
and Newark.
    It will also raise the competitive bar in the East. Today 
there are three successful network carriers that Will has just 
described: US Airways, Delta, and Continental. United Airlines 
currently carries 1.7 percent of the total traffic up and down 
the East Coast.
    As a result of the pending airline transaction, including 
American Airlines' rescue of TWA, there will be four network 
competitors in the region: United, American, Delta, and 
Continental. This scenario does not even include the ever-
growing presence of Southwest Airlines in the East, whose 
departures have grown 50 percent annually over the last 5 
years.
    The United-US Airways combination will inject new 
competitive service in 32 markets on the East Coast alone. And 
it will introduce a viable new entrant carrier: D.C. Air. Our 
Chairman and CEO, Jim Goodwin, said it best, ``We will be 
making it simpler to move people and products around the 
world.'' We are pleased that the proposed merger has received 
bipartisan support in Congress and in communities across the 
country. We agreed with the New York Times when it 
editorialized earlier this year that our merger and the related 
transactions involving American Airlines are in the public 
interest. We at United are absolutely convinced that this 
combination will bring about the consumer benefits our 
passengers expect and deserve.
    Thank you for the opportunity to testify before you today.
    [The prepared statement of Shelley A. Longmuir follows:]
   Prepared Statement of Shelley A. Longmuir, Senior Vice President, 
  International, Regulatory and Governmental Affairs, United Airlines
    Chairman Stearns, Ranking Member Towns and members of this 
subcommittee, thank you for letting me appear before you today to 
discuss United Airlines' proposed acquisition of US Airways--and the 
consumer benefits we believe this transaction will bring.
    The combination of United and US Airways will create the first 
truly national network that will:

 One, improve the travel experience of our customers;
 Two, improve global connectivity for American consumers; and
 Three, strengthen competition between air carriers.
    First Mr. Chairman, with respect to our customers, United has 
rededicated itself to improving customer service--and we believe we are 
making good progress--as the latest DOT consumer rankings will bear 
out.
    The combination of United and US Airways will make the travel 
experience for air travelers more convenient in several important ways: 
fewer tickets, fewer check-ins, fewer baggage transfers; faster 
accumulation of frequent flyer miles; and, with the addition of 89 new 
nonstop flights, more access. Passengers will no longer have to switch 
airlines on more than 500 planned new airport-to-airport routes not 
currently available to either US Airways or United Airlines passengers.
    I'd like to give you an example of our enduring commitment to 
customer service. Earlier this month, we announced a $150 million 
investment in innovations that will make air travel easier and more 
convenient. These investments include self-service check-in kiosks; 
high-tech flight information displays; and a new Customer Advocate 
Center dedicated to resolving problems before our customers ever arrive 
at the airport.
    We're serious about our commitment to customers. We've taken the 
extra step of incorporating our latest customer service commitment into 
our Contract of Carriage--the document that defines United's legal 
obligations to its customers.
    In short, let me assure you that our commitment to improving 
customer service did not begin, nor will it end, with our acquisition 
of US Airways.
    Mr. Chairman, we also believe our acquisition of US Airways will be 
an important part of the economic push toward globalization. A new 
report by Pulitzer Prize winning author Dr. Daniel Yergin and Richard 
Vietor, of the Harvard Business School, states that the international 
airline industry is both a leading driver of globalization and a 
laggard, trailing other industries in adopting such globalization-
driven strategies as expanded scale, deregulation, and network 
structure.
    Dr. Yergin and Professor Vietor affirm that airlines that build the 
most effective network will most likely be successful in lowering costs 
and delivering the type of service that the broader process of trade 
and economic integration will require.
    Simply put, network air service gives cities--small and large--the 
access they need to thrive in the global marketplace. The United-US 
Airways merger will deliver not only national, but global seamless 
access.
    Today, US Airways is hamstrung by the industry's highest unit cost 
coupled with limited access to cities across the United States. Its 
passengers also have limited options for international travel. With 
United, US Airways passengers will gain same-carrier service to 117 
U.S. cities and 28 international destinations they didn't have before, 
as well as access to more than 500 international destinations through 
the Star Alliance.
    Finally, we believe that the United/US Airways combination will 
create strong new hubs to compete with existing hubs, such as United in 
Charlotte versus Delta in Atlanta and United in Philadelphia versus 
Continental in Newark.
    It will also raise the competitive bar in the East. Today, there 
are three successful network carriers in the East: US Airways, Delta 
and Continental. United carries only two percent of the traffic up and 
down the East Coast.
    As a result of the pending airline transactions, including American 
Airlines' rescue of TWA, there will be four network competitors in the 
region: United, American, Delta and Continental. This scenario does not 
include the ever-growing presence of Southwest Airlines in the East, 
whose departures have grown 50% annually over the last five years.
    The United-US Airways combination will inject new competitive 
service in 32 markets on the East Coast alone. And it will introduce a 
viable, new-entrant carrier--DC Air--that will provide customers access 
to American's global network.
    Mr. Chairman, our combination with US Airways will give passengers 
more choices and more convenience in their air travel; it will increase 
global connectivity for U.S. trade and commerce; and it will strengthen 
airline competition, especially on the East Coast.
    Our Chairman and CEO Jim Goodwin said it best: ``We'll make it 
simpler to move people and products around the world.''
    We are pleased that our proposed merger has received bipartisan 
support in Congress and in communities across the country. We agreed 
with The New York Times when it editorialized that our merger and the 
related transactions involving American Airlines are in the ``public 
interest.'' We at United are absolutely convinced that this combination 
will bring about the consumer benefits we all want.
    Thank you for the opportunity to testify on this important matter. 
I would be glad to answer any questions you may have.

    Mr. Stearns. Thank you.
    Mr. Cooper?
    Mr. Cooper. Thank you, Mr. Chairman. I have a rather 
different view.
    Mr. Stearns. Okay.

                   STATEMENT OF MARK N. COOPER

    Mr. Cooper. The deregulated airline industry has come of 
age. As you heard, it is 21 years since it was deregulated. And 
it must be held accountable for its anti-competitive structure 
and conduct. With miserable service, rising prices, two mergers 
pending between major airlines, a third merger being talked 
about, it is also time for Congress to confront the reality 
that this industry is not now and will never be organized on a 
vigorously competitive basis.
    The airline industry is in the process of organizing itself 
into a private cartel, a cartel that is dominated by two or 
three large national carriers who control the vast majority of 
traffic through fortress hubs in monopoly regions in national 
networks. And they are also prepared to now jointly manage some 
other routes and airlines to cement that control.
    As travelers fall victim, become captives of these 
entities, they suffer what we understand all people suffer from 
unregulated abuse of market power: higher prices and lower 
quality. At the heart of this market power are the fortress 
hubs and predatory anti-competitive practices that have been 
used to prevent entry at those hubs.
    As these networks become larger and larger, it is more and 
more difficult for new entrants to attract traffic or to gain 
access to the key choke points in these national networks. It 
should come as no surprise that in the two decades since the 
airline industry was deregulated, dozens of studies have shown 
that real competition is what gets you low prices.
    The entry and exit of competitors lowers prices between 20 
and 50 percent. And the Department of Transportation has done a 
good job in the last 3 years of demonstrating that with good, 
rigorous analysis.
    As we create these national networks, the barriers to entry 
will grow. And consumers will lose choices. For very one online 
air route that we gain, consumers will lose three head-to-head 
competitors in airports. We lose competition, and prices go up. 
Studies that show you increases in travel ignore the price 
effects of concentration.
    For every one additional online customer, we will probably 
lose between 5 and 10 customers who are driven off the airlines 
by increases in prices. The net public accounting here is 
negative. It is not in the public interest.
    The merging parties have offered a series of excuses and 
Band-Aids and essentially joint operating arrangements to try 
and cover over these fundamental problems. Corporate bankruptcy 
is not a reason to allow the public to be abused by market 
power.
    I have heard the story of TWA. We opposed a restructure of 
TWA through a leasing arrangement that sucked the blood out of 
that airline. We opposed the Piedmont-Allegheny merger, which 
raised prices, we were told, a few weeks ago by 23 percent. 
These concentrations, these deals, which destroyed these 
airlines, were not in the public interest. And we stand on an 
opposition to these events.
    Carve-outs and its swaps of routes and promises for a 
couple of years on pricing will not do the public any good 
because the harm to the competitive structure of the industry 
is permanent. If this industry requires a form of organization 
in which you have three dominant carriers in order to preserve 
the financial integrity of the members of the industry, then 
that is all the more reason for policymakers to take a hard 
look at how to rebuild a competitive structure in this 
industry.
    The starting point must be at the fortress hubs, which are 
the building blocks of monopoly power. Access to these hubs 
must be ensured for new entrants. Predatory practices that 
drive competitors out of these markets must be banned 
vigorously. Consumer protection rights must be enforced, not by 
promises, because the only form of consumer protection that we 
want is competition or regulation.
    Now, we do not want to go back to price and quantity 
regulation, but we also refuse to become the captives of 
unregulated monopolies, who are disciplined neither by market 
forces nor by effective regulation. These unregulated 
monopolies are the antithesis of the market forces we hear 
about so frequently in this country and in this Congress. If we 
can't have vigorous head-to-head competition, then we have to 
have the Congress enter to provide consumers some forms of 
protection because the competitive marketplace is clearly 
failing to provide that today.
    Thank you.
    [The prepared statement of Mark N. Cooper follows:]

 Prepared Statement of Mark N. Cooper, Director of Research, Consumer 
                         Federation of America

    Mr .Chairman and Members of the Committee, I am Dr. Mark N. Cooper, 
Director of Research for the Consumer Federation of America (CFA). CFA 
is the nation's largest consumer advocacy group, a non-profit 
association of some 260 pro-consumer groups, with a combined membership 
of 50 million, founded in 1968 to advance the consumer interest through 
advocacy and education. I appreciate the opportunity to appear before 
you today to offer our view of pending airline mergers
    A couple of years ago I published a paper entitled Freeing Public 
Policy From The Deregulation Debate: The Airline Industry Comes Of Age 
(And Should Be Held Accountable For Its Anticompetitive 
Behavior).1 Since then this industry has experienced a 
dramatic decline in the quality of service, a dramatic increase in 
prices, and now stands on the verge of a merger wave that will make 
matters worse. Not only is it time for the industry to bear 
responsibility for its own actions, it is time for policymakers to 
confront the reality that this industry is not and will not be 
organized on a vigorously competitive basis.
---------------------------------------------------------------------------
    \1\ American Bar Association, The Air and Space Lawyer, January 
1999.
---------------------------------------------------------------------------
    With two mergers pending between major airlines and a third being 
widely talked about, there can be no more uncertainty about the 
structure of the industry. The airline industry is in the process of 
organizing itself into a private cartel. Two or three dominant firms 
will control the vast majority of traffic through monopoly airports in 
fortress regions embedded in national networks that rarely compete with 
one another. A few end points will have vigorous competition, but the 
vast majority of passengers will be trapped on routes with far too few 
alternatives to create an effectively competitive market.
    As travelers fall more and more under the control of one airline, 
the ability of new entrants to crack markets is reduced. It becomes 
harder and harder to attract passengers to flight segments and the 
necessary scale of entry gets larger and larger. The inconvenience and, 
in many cases, the impossibility of inter-airline travel, give the 
originating airline enhanced market power over the traveler and makes 
it more and more difficult for smaller airlines to compete for the 
traffic. As travelers are locked-in to the national networks with fewer 
and fewer choices, they suffer the typical effects of the abuse of 
market power, higher prices and lower quality.

                    THE CREATION OF A PRIVATE CARTEL

    At the heart of the market power wielded by the major airlines is a 
system of fortress hubs and the anticompetitive, predatory practices 
that major airlines use to prevent new entrants from serving the 
fortress hubs. Advocates of deregulation failed to anticipate the 
development of this form of industrial organization.2 While 
they may have recognized the possibility that competition would not 
develop on lightly traveled routes or at small airports,3 
the notion that single airlines would come to dominate and control huge 
airports was unthinkable twenty years ago.
---------------------------------------------------------------------------
    \2\ Rakowski and Bejou (1992), Oum Zhang and Zhang (1995).
    \3\ The unique problems of small airports and low density routes 
were recognized in the legislation ending the existence of the CAB--see 
Meyer and Oster (1984) and Malloy (1985).
---------------------------------------------------------------------------
    Hubs create economies of scale and operating efficiencies as well 
as marketing advantages that make it extremely difficult for 
competitors to enter. The concentration of traffic at hubs allows 
incumbents to achieve lower costs.4 The concentration of 
traffic and prominent position in the hub enables the incumbent to 
achieve both a greater reputation and to offer a broader range of 
options at the hub.5 Advertising and promotion are 
facilitated.6 Scheduling and baggage handling are better 
coordinated.7
---------------------------------------------------------------------------
    \4\ Johnson (1985), McShane and Windle (1989), Oum and Trethaway 
(1990), Berry (1990), Morrison and Winston (1990), Oum (1991), Berry 
(1992), Boucher and Spiller (1994), Joskow, et al (1994).
    \5\ Levin (1987), Bornstein (1989, 1992), Zhang (1996).
    \6\ Evans and Kessides (1993).
    \7\ Oum and Taylor (1995).
---------------------------------------------------------------------------
    Unfortunately, these ``positive'' economic advantages of hub and 
spoke networks never get passed through to consumers. They have been 
immediately leveraged with anti-competitive actions to increase and 
exploit market power by incumbents dominating hubs.
    Incumbent airlines create barriers to entry by locking in customers 
and disadvantaging competitors. Traffic is diverted to the dominant 
incumbent at dominated hubs through a number of marketing mechanisms 
that extends market power over travelers including frequent flier 
programs, 8 deals with travel agents to divert traffic, 
9 manipulation of computerized reservation systems, 
10 and code sharing.11 The ability of competitors 
to enter hubs is undermined in a number of ways. Access to facilities 
is impeded through a number of mechanisms that preclude or raise the 
cost of entry, 12 including denial of gate space, 
13 extraction of excess profits on facilities, 14 
and efforts to prevent entrants from attracting adequate passengers to 
establish a presence.15 When entrants do show up, the 
dominant airlines have engaged in blatantly predatory pricing to drive 
them out of the market.16
---------------------------------------------------------------------------
    \8\ Levine (1987), Oum (1987), Borenstein (1989), Layer (1989), GAO 
(1996).
    \9\ Levine (1987), Borenstein (1989, 1991, 1992), Morrison and 
Winston (1995).
    \10\ Oster and Pickerell (1986), Borenstein (1989), Layer (1989), 
Brenner (1989), Evans and Kessides (1993).
    \11\ Oum (1995) identifies three positive advantages created by 
code sharing--increased frequency of flights, concentration of traffic, 
marketing of single line travel--and one negative--CRS placement 
advantages due to frequency and single line service.
    \12\ Berry (1987), Levine (1987), Borenstein (1989), Butler and 
Houston (1989), Reiss and Spilber (1989), Oum, Zhang and Zhang (1995), 
and Hendricks (1995).
    \13\ Levine (1987), Borenstein (1989), Kahn (1993), GAO (1996).
    \14\ GAO (1996).
    \15\ Credible entry requires the entrant to move sufficiently up 
the S-curve to have a viable economic base (Russon (1992), Vakil and 
Russon (1995). GAO notes that entrant require at least six slots at 
prime times to establish a credible presence.
    \16\ ``Comment of the Attorneys General of the States of Arkansas, 
Connecticut, Florida, Iowa, Kansas, Massachusetts, Michigan, Minnesota, 
Missouri, Montana, Nevada, New York, North Carolina, North Dakota, 
Oklahoma, Oregon, South Dakota, Tennessee, Utah, Vermont, Virginia, 
Washington, West Virginia, Wisconsin, and Wyoming,'' U.S. Department of 
Transportation, 1998, Docket No. OST 98-3713 (hereafter, Attorneys 
General.
---------------------------------------------------------------------------
    The monopolized hubs are building blocks of potential national 
market power through concentration of the industry. The geographic 
extension that United and American are seeking (soon to be followed by 
some combination of Delta, Northwest and Continental) and the denser 
network that the mergers would create make it less and less likely that 
competitors will be able to attack these markets. As all such airline 
networks do, these mergers would lock travelers in by concentrating 
their flow through fortress hubs, coordinating scheduling at those 
hubs, and binding them with frequent flier and other promotional 
programs. These mergers are likely to promote a movement from fortress 
hubs to fortress regions.

                     A HIGHLY CONCENTRATED INDUSTRY

    Industry structure has become sufficiently concentrated to raise a 
fundamental question about whether market forces are sufficient to 
prevent the abuse of market power. Both at individual hubs and in the 
industry as a whole, markets have become or are becoming highly 
concentrated. Attorney's General from 25 states filed comments in 
support of the Department of Transportation's anti-predation rule which 
identified 15 airports at which the dominant firm had a market share in 
excess of 70 percent. This is the standard generally applied to 
indicate monopoly status. Another half dozen airports have a dominant 
carrier (50 to 70 percent market share) close to the monopoly (see 
Exhibit 1).
    This is not a small airport problem. Seven of the ten busiest 
airports in the country are on the list. One-half of all passenger 
enplanements take place at the twenty airports on the list. These 
fortress hubs are the cornerstone of a nationwide problem. The local 
monopolies are reinforced by an industry structure in which there is 
simply inadequate competition to discipline the abuse of market power. 
There are too few competitors in the industry as a whole and in most 
markets on a route-by-route basis.
    Let us step back a moment on consider what constitutes ``too few'' 
competitors. Identification of exactly where a small number of firms 
can exercise market power is not a precise science, but it is widely 
recognized that when the number of significant firms falls into the 
single digits public policy concerns are triggered.17 In 
fact, I like to use what I call the ``Ed Meese tests of market power.'' 
You will recall that based on the extensive theoretical and empirical 
record of decades of analysis, Ronald Reagan's Department of Justice 
headed by Ed Meese issued the Merger Guidelines in 1984.
---------------------------------------------------------------------------
    \17\ Friedman, 1983, pp. 8-9,
    Where is the line to be drawn between oligopoly and competition? At 
what number do we draw the line between few and many? In principle, 
competition applies when the number of competing firms is infinite; at 
the same time, the textbooks usually say that a market is competitive 
if the cross effects between firms are negligible. Up to six firms one 
has oligopoly, and with fifty firms or more of roughly equal size one 
has competition; however, for sizes in between it may be difficult to 
say. The answer is not a matter of principle but rather an empirical 
matter.
---------------------------------------------------------------------------
    The Reagan Administration DOJ established a fundamental threshold 
to separate an unconcentrated market from a moderately concentrated 
market at the level of a Hirschman-Herfindahl Index (HHI) of 1000. This 
level of concentration would be achieved in a market of 10 equal size 
competitors. In this market, the 4-Firm concentration ratio would be 40 
percent. The DOJ established a second threshold at an HHI of 1800. 
Above this level, the market is considered highly concentrated. This is 
roughly equal to a market with fewer than six equal sized competitors. 
A market with six, equal-sized firms would have a HHI of 1667. In a 
market with six, equal-sized firms, the 4-Firm concentration would be 
67 percent.
    The reason the six and ten firm thresholds are important is that 
they constitute well-documented and understood levels of oligopoly. In 
a tight oligopoly with a small a number of firms controlling such a 
large market share, it is much easier to avoid competing with each 
other and harm the public through price increases or quality 
deterioration.
    Shepherd describes this threshold as follows: 18
---------------------------------------------------------------------------
    \18\ Shepherd, 1985, p. 4, see also Bates, B. J. 1993, p. 6.
---------------------------------------------------------------------------
        Tight Oligopoly: The leading four firms combined have 60-100 
        percent of the market; collusion among them is relatively easy.
        Loose Oligopoly: The leading four firms, combined, have 40 
        percent or less of the market; collusion among them to fix 
        prices is virtually impossible.
    By these definitions, airline markets are generally highly 
concentrated. Most routes have fewer than four carriers. National 
averages typically find HHIs in the range of 4000 on a city-pair 
basis.19 One recent study found that, measured at airports, 
the HHI was just under 3300--the equivalent of three airlines per 
airport), but measured by city pairs the HHI was over 5000--the 
equivalent of two per route.20 Given such a high level of 
concentration, we should not be surprised to find that anti-competitive 
behavior and changes in market structure have a significant impact on 
fares. Exercising market power is easy in such highly concentrated 
markets.
---------------------------------------------------------------------------
    \19\ See for example, Dressner, Lin and Windle (1996). City-pair 
markets generally include all flights between to points including 
direct and connecting (single airline) flights.
    \20\ Hayes and Ross.
---------------------------------------------------------------------------
    While market power is best analyzed on a market-by-market basis, 
since it is the monopoly at the point-of-sale that triggers the abuse, 
national markets are not irrelevant. As the industry becomes more and 
more concentrated, the pool of potential major entrants shrinks. The 
ability of the large dominant firms to avoid one another in the market 
and engage in conscious parallelism or strategic gaming increases.
    Before the pending merger wave, the industry had become moderately 
concentrated, with an HHI of approximately 1400. The two pending 
mergers (United/US Airways and American/TWA) would push it above 1800. 
A Delta/Northwest or Delta/Continental merger, which is anticipated as 
a defensive response, would drive it well above 2200. Each of the 
pending consolidations would violate the Merger Guidelines on a 
national scale, as well as in individual markets. Taken together, they 
drive the industry structure well above the highly concentrated level.
    On a market-by-market basis the mergers violate the Department of 
Justice Merger Guidelines in more than half-a-dozen major airports 
including Philadelphia, Dulles, National, Baltimore, Boston, La 
Guardia, San Francisco, Orlando, Miami and St. Louis. There are 
numerous other smaller airports and routes from smaller airports that 
would also be affected. Whether they are hubs or not, the loss of head-
to-head competition imposes a burden on consumers by reducing choices 
and ultimately increasing prices. Subsequent mergers among major 
carriers would affect many more specific airports.

   CONSUMER HARM OF ANTICOMPETITIVE PRACTICES IN THE AIRLINE INDUSTRY

    The lack of competition in the industry costs consumers dearly. 
Consumers do not see economic savings from hub operations. Instead, 
they endure higher prices and poor quality associated with the abuse of 
market power. The dominant incumbents can raise price, without risking 
entry 21 and rely on excessive market segmentation to 
restrict price competition.22 The strategy involves finding 
mechanisms to sort customers into categories with different price 
sensitivities and then offering higher prices in the less price 
sensitive category.23 Prices 24 and profits at 
hubs are higher. 25 Since they do not face effective 
competition, they do not feel compelled to improve quality.
---------------------------------------------------------------------------
    \21\ The fact that higher prices persist at hubs is evidence of the 
ability to sustain prices. Direct tests of the entry decision also 
support this notion (see, for example, Joskow et al (1994).
    \22\ Borenstein (1989) notes that by segmenting markets incumbents 
can diminish the impact of competition at hub airports. Evans and 
Kessides (1993), Oum and Zhang (1993), and Mallaiebiau and Hansen 
(1995) observe a generally low elasticity of demand across all markets.
    \23\ DOT, 2001, notes that while some price discrimination is to be 
expected, it appears to be excessive in concentrated airline markets.
    \24\ Bailey and Wilkins (1988), Huston and Butler (1988), 
Borenstein (1989), Evans and Kessides (1993), Joskow, et al. (1994), 
GAO (1996), DOT (1996).
    \25\ Toh and Higgins (1985), McShane and Windle (1989).
---------------------------------------------------------------------------
    This finding cannot be overemphasized, especially in light of 
recent efforts by airlines to demonstrate that, in theory, 
26 larger networks provide consumer benefits. In practice, 
as the Department of Justice and a great deal of empirical analysis 
demonstrates, the theoretical benefits never materialize in reality 
because the major airlines abuse their market power. Cost savings are 
not passed through to consumers. When competitors enter concentrated 
hubs, prices go down and frequency goes up--both in the number of 
departures and in the number of seats available. This gain occurs not 
only because the new entrant provides new seats at lower prices, but 
also because incumbents do too.
---------------------------------------------------------------------------
    \26\ DOT, 2001, identifies. A study by ESI.KPMG, The Advent of 
National Aviation Networks (October 2000), sought to justify the 
consolidation into three national networks on the basis of an analysis 
that is so fundamentally flawed it lacked any identified authors. The 
analysis ignores all price effects due to the loss of competitors. It 
uses an econometric estimate of gains from online traffic that assumes 
the price of a ticket has no effect on air travel. It excludes all 
large hubs all airports served by Southwest all Essential Air Service 
airports, all airport served within 50 miles of a hub and all airports 
in leisure markets to derive a coefficient for network effects that is 
not statistically significant by traditional standards (i.e. it fails 
the 95 percent confidence interval). It applies this statistic to all 
airports to derive its estimate of positive benefits.
---------------------------------------------------------------------------
    The empirical evidence that the creation of fortress hubs raises 
price is overwhelmingly clear. It should come as no surprise to you 
that dozens of studies show that competition among numerous airlines 
leads to lower prices and higher output. This is true no matter how 
competition is measured. The effect is observable at the micro level in 
the form of the entry of individual airlines into specific markets and 
at the macro level in the form of generalized concentration 
ratios.27 Econometric studies of market structure have 
consistently shown that concentration on routes, at airports, and in 
the industry at large are associated with higher fares (see Exhibit 2).
---------------------------------------------------------------------------
    \27\ A broad range of studies includes the Herfindahl index as a 
measure of concentration. These invariably find that higher levels of 
concentration are associated with higher prices, all other thing 
equal--see, for example, Morrison and Winston (1986), Borenstein 
(1989), Dressner and Trethaway (1992), Dressner and Windle (1996).
---------------------------------------------------------------------------
    Flowing from this evidence, we find support for a number of 
traditional observations about public policy. Actual competition is 
vastly more important than the threat of competition.28 
Barriers to entry play a critical role in determining the level and 
nature of competition.29 Analysis of specific events--entry, 
exit and mergers--confirms these findings. Mergers tend to reduce 
competition, increase prices and lower output.30
---------------------------------------------------------------------------
    \28\ Graham, Kaplan and Sibley (1983), Call and Keeler (1985), 
Morrison and Winston (1986), Moore (1986), Strassman (1990), Petraf 
(1994), Petraf and Reed (1994), provide evidence on actual competition. 
Tests of potential competition have generally shown much smaller 
effects. The evidence suggests that one competitor in the hand is worth 
between three and six in the bush. The empirical evidence from the 
airline industry must be considered a thorough repudiation of 
contestability theory. On this point see Borenstein (1989), Butler and 
Houston (1989), Hurdle (1989), Abbott and Thompson (1991).
    \29\ The clearest examples of the importance of barriers to entry 
are the consistent finding that physical limitations on slots and gates 
result in less competition and higher prices. Virtually every 
econometric analysis includes a slot variable which supports this 
conclusion --see, for example, Morrison and Winston (1986, 1990), 
Hurdle (1989), Whinston and Collins (1992), Windle and Dressner, 1995, 
and Dressner, Lin and Windle (1996). Analysis of legal barriers reaches 
similar results--see Dressner and Trethaway (1992), Burton (1996).
    \30\ Borenstein (1990), Werden et al. (1991), and Morrison and 
Winston (1995).
---------------------------------------------------------------------------
    Estimates of the general impact of competition on price are on a 
similar order of magnitude. Several GAO and DOT studies have found that 
prices are 20-50 percent lower in competitive markets. Similarly, 
estimates of the elimination or addition of one competitor bolster 
these findings. The impact of a low cost competitor is particularly 
pronounced. When specific low cost carriers are identified, like 
People's or Southwest, fares often are 35 to 40 percent lower than in 
markets without such aggressive new entrants. Thus, having one 
additional competitor impacts prices by 20 to 50 percent.
    The econometric and anecdotal evidence is supported by a general 
trend in prices (see Exhibit 3). Airfares, as measured by the consumer 
price index have increased dramatically, particularly when key 
components of airline costs are taken into account. Since the mid-
1980s, fuel prices have dropped by almost 50 percent. The cost of 
capital (measured by AAA corporate bonds) has declined by 20 percent. 
These are two of the three largest costs for airlines. Yet, airfares 
have mounted steadily.
    Examples of clearly abusive pricing are also too frequent and too 
blatant to ignore. The state Attorney's General give three types of 
examples where fares differ by $700 or more: one airport originates 
flights to destination airports with dramatically different levels of 
competition; nearby airports with dramatically different levels of 
competition originate flights to the same destination; prices charged 
before and after a competitor is driven from the market.31 
The Department of Transportation has recently identified 19 routes on 
which new entrants were successful in establishing a presence in short 
haul hub markets in the past three years.32 The resulting 
price reductions were in the range of 33 and 55 percent, with increases 
in passengers of between 61 and 86 percent.
---------------------------------------------------------------------------
    \31\ Attorneys General.
    \32\ U.S. Department of Transportation (2001).
---------------------------------------------------------------------------

                     PROPOSED FIXES ARE INADEQUATE

    Recognizing the severe problems that these mergers create, the 
merging parties have offered a series of excuses and largely 
meaningless Band-Aids to try to patch over the fundamental problem. 
First, they claim these mergers must be allowed to go through to save 
airlines that cannot survive. Corporate bankruptcy is not a reason to 
allow the public to be abused by the undisciplined exercise of market 
power. If the industry requires a form of organization which does not 
allow meaningful competition to achieve financial integrity, then that 
is all the more reason for policymakers to step in and protect the 
public from abuse. Moreover, I must note that CFA opposed the corporate 
shenanigans that allowed TWA to be bled to death and the Piedmont 
merger from which US Airways never recovered.
    Second, the private fixes offered totally inadequate. Carve outs 
and exchanges of assets do nothing to restore meaningful competition. 
Promises not to raise ticket prices for two years will be useless, 
since the airline can easily increase its yield by reducing the number 
of discounted seats available and what happens after two years. With a 
private cartel running the industry, the damage to competition will be 
permanent, not temporary.
    The bottom line is clear. With two decades of econometric evidence 
about competitive problems at the levels of structure, conduct and 
performance reinforced by detailed analysis of recent events, we can 
only hope that the public policy debate will not revert to the 
irrelevant question of whether deregulation served the consumer 
interest. The trigger for public policy concern is, as it has always 
should have been, whether anticompetitive practices are hurting 
consumers. By every measure, the airlines are failing that test at 
present. Allowing a merger wave to further concentrate the industry 
would further diminish the already feeble competitive forces in the 
industry and harm the traveling public.
    If this is the form organization that the industry will take, 
Congress needs to begin to assert greater authority over the industry. 
The starting point should be at the fortress hubs that are the building 
blocks of the anticompetitive structure. Access to these hubs must be 
assured for entrants. The predatory practices that have been used to 
drive new entrants out of markets must be eliminated. Consumer rights 
must be protected. We do not seek to have the government get back in 
the business of price and quantity regulation, we prefer vigorous 
competition. Unfortunately, the industry cannot produce a consumer-
friendly, competitive marketplace, so Congress must step in to ensure 
competitive access to fortress hubs, outlaw predatory practices and 
provide consumers direct protection from poor quality service.

                                EXHIBIT 1
  DOMINANT AIRLINES PROPOSING GREATER CONCENTRATION WITH FORTRESS HUBS
                      THAT EXCEED MONOPOLY STANDARD
------------------------------------------------------------------------
                                                              DOMINANT
              AIRPORT                       AIRLINE          FIRM MARKET
                                                                SHARE
------------------------------------------------------------------------
MONOPLY (70+ PERCENT)
ATLANTA............................  DELTA................          80%
CHARLOTTE..........................  US AIRWAYS/UNITED....          91%
CINCINNATI.........................  DELTA................          90%
DALLAS/FT. W.......................  AMERICAN.............          71%
DENVER.............................  UNITED/US AIRWAYS....          73%
DETROIT............................  NORTHWEST............          78%
HOUSTON INTL.......................  CONTINENTAL..........          83%
MEMPHIS............................  NORTHWEST............          75%
MINNEAPOLIS........................  NORTHWEST............          80%
PHILADELPHIA.......................  US AIRWAYS/UNITED....          73%
PITTSBURGH.........................  US AIRWAYS/UNITED....          89%
SALT LAKE..........................  DELTA................          72%
ST. LOUIS..........................  TWA/AMERICAN.........          76%
WASH. DULLES.......................  UNITED/US AIRWAYS....          74%
DOMINANT FIRMS (50-70 PERCENT)
CHICAGO............................  UNITED/US AIR........          50%
CLEVELAND..........................  CONTINENTAL..........          50%
MIAMI..............................  AMERICAN/TWA.........          56%
NEWARK.............................  CONTINENTAL..........          61%
OAKLAND............................  SOUTHWEST............          68%
SAN FRANCISCO......................  UNITED/US AIRWAYS....           53
------------------------------------------------------------------------


                                EXHIBIT 2
        THE IMPACT OF ANTI-COMPETITIVE MARKET STRUCTURE ON FARES
------------------------------------------------------------------------
                                                              PERCENT
               STUDY                       PRACTICE         INCREASE IN
                                                               PRICE
------------------------------------------------------------------------
GENERAL MEASURES OF COMPETITION
Dressner and Trethaway............  Competition..........           35
GAO (1993)........................  Hub Concentration....           33
GAO (1996)........................  Hub Concentration....           31
DOT (1996)........................  Hub Concentration,              19
                                     1989.
                                    Hub Concentration,              19.7
                                     1994.
                                    Hub Concentration,              22.1
                                     1995.
CHANGE IN NUMBER OF COMPETITORS
Strassman.........................  Add one (2.7 to 3.7).           44
Hurdle (et al.)...................  Loss of one..........           20
Windle and Dressner...............  Add one (2-3)........           17
Oum, Zhang and Zhang..............  Add one (1-2)........           17
Borenstein (1989).................  Add one (1-2)........            8
DOT (2001)........................  Low cost competitor             41
                                     in Hub.
                                    Short Haul Hub.......           54
ENTRY AND EXIT
Dressner and Windle...............  Low cost (Southwest).           35
Whinston and Collins..............  Low cost (Peoples)...           34
DOT (1996)........................  Low Cost (all Hubs)..           35
                                    Low Cost                        40
                                     (Concentrated Hub).
DOT (2001)........................  Low Cost (Hubs)......           42
Joskow et al......................  Any..................           10
GENERAL INDUSTRY PRACTICES
Morrison and Winston..............  Hubbing..............            5.4
(1995)............................  Frequent Flier.......            7.9
                                     CRS Manipulation....            9.4
                                                          --------------
                                      (Subtotal).........           22.7
                                    Fare restrictions....           23.8
                                                          --------------
                                    Total................           46.5
Stavins (1996)....................  Fare restrictions....        20-40
------------------------------------------------------------------------

                                                           [GRAPHIC] [TIFF OMITTED] T1498.045
                                                           

    Mr. Stearns. Mr. Swelbar?
    Mr. Swelbar. Thank you.

                  STATEMENT OF WILLIAM SWELBAR

    Mr. Swelbar. Good afternoon, Chairman Stearns, Congressman 
Towns, and other members of the subcommittee. My name is 
William Swelbar, and I am appearing today in my capacity as an 
Adjunct Fellow of the Economic Strategy Institute.

    I served as coauthor of a recent study on airline 
consolidation produced by ESI. It is this exhaustive analysis 
that I will speak to this afternoon.

    The one constant in this industry, as in virtually every 
other industry, is change. The structure of today's airline 
networks has been reshaped by deregulation of this industry. 
The fact is that the status quo in the airline industry is 
simply not sustainable.

    For example, TWA, despite its storied history, was a shadow 
of its former self. It has lost money since 1988. The carrier 
ultimately declared bankruptcy for the third time since 1990, 
where American Airlines purchased its assets. After amassing an 
additional $150 million in losses through the first 9 months of 
2000, TWA's chances of remaining independent were somewhere 
between slim and none.
    US Airways is in better financial shape, but, as we saw, 
its regional network is far from being a strong competitor to 
the major network airlines. Many analysts have expressed doubts 
about US Airways' ability to remain independent. And the 
carrier was a takeover target well before its proposed deal 
with United.
    Who is driving change in this industry? Mostly it is 
customers and businesses that increasingly need access to all 
regions of the global economy, which, in turn, is pulling the 
airline industry into consolidation. The driving force behind 
these consumer benefits is the network effect that results from 
the aggregation of independent airline networks.
    Prior to deregulation of the U.S. industry in 1978, 
commercial aviation was governed by a patchwork of national 
regulatory systems. Throughout the first 15 years following 
deregulation, the industry underwent a sometimes painful 
rationalization process. But as painful as that transition may 
have been, the industry was now clearly being driven by 
economics and market forces.
    Whereas, today's surviving carriers have undergone 
significant levels of growth over the past 20 years, the 
industry still has some remaining levels of regional 
inefficiencies. Indeed, the current aviation system does not 
reflect a truly national competitive market. The existing 
system features a fragmented network in which airlines have 
disparate regional dominance.
    In the ESI study, we assessed the effects of consolidation 
among six of the ten largest carriers on competition, traffic 
levels, network access, and service availability in the US Air 
transport market. The study examined those effects among 322 
U.S. markets. In the process, we analyzed over 12 million city 
pair combinations. The study excluded the significant 
competitive benefit impacts brought by low-fare, niche-oriented 
carriers, such as AirTran, Jet Blue, Frontier, Spirit, Sun 
Country, and American Trans Air.
    Our study found that net city pair competition increased in 
74 percent of those 322 markets, stayed the same in 13 percent, 
and decreased in 13 percent. Because new online city pair 
service offerings will be created as a result of consolidation, 
we found that consumers will actually have at least one 
additional carrier to choose from on 17 percent more city 
pairs. That net result is an increase in competition and more 
choices for consumers.
    We conclude that consolidation of the U.S. domestic 
industry would set in motion a virtuous cycle that would 
benefit both consumers and merge carriers. Passengers in the 
newly created online city pairs would be able to avoid the high 
cost and hassles associated with interline ticketing, baggage 
handling, or having to use alternative modes of transportation. 
Frequent flyer miles would become more versatile and easy to 
earn. And connecting times will ultimately be optimized. The 
inevitable result will be more convenience in choices for 
consumers.
    Our study also confirmed what others have suggested about 
fares. Consumers forced to use interline travel pay 
significantly higher fares than passengers connected to a 
network offering online service between a desired origin and 
destination. On average, passengers forced to use interline 
service to destinations more than 500 miles away paid 55 
percent more than passengers flying within a network that 
offers online service between the desired points.
    In conclusion, I believe that airline industry 
consolidation is the natural progression of a process initiated 
by deregulation of the industry. Consolidation will result in 
national networks with greater competition from coast to coast. 
Our study concludes that this next phase in the evolution of 
deregulation will likely intensify competition, increase 
traffic, expand access, and broaden commercial opportunity.
    I thank you for the opportunity to present my views and 
request that my testimony and a copy of the study entitled 
``Consolidation: Connectivity, Competition, and Communities, 
the Advent of National Aviation Networks'' be entered into the 
record.
    [The prepared statement of William Swelbar follows:]

    Prepared Statement of William Swelbar, Managing Director, ECLAT 
       Consulting and Adjunct Fellow, Economic Strategy Institute

    Good Morning Chairman Stearns, Congressman Towns, and other Members 
of the Subcommittee. My name is William Swelbar. I am a Managing 
Director of ECLAT Consulting, a firm that specializes in assessing 
economic and financial issues and their impact on the commercial air 
transportation industry. I am also appearing today in my capacity as an 
Adjunct Fellow of the Economic Strategy Institute.
    Prior to ECLAT, I was a partner at GKMG Consulting Services, Inc. 
and served as a co-author, with the Economic Strategy Institute, of a 
study entitled ``Consolidation, Connectivity, Competition and 
Communities: The Advent of National Aviation Networks.'' It is this 
exhaustive analysis that I will speak to this morning.
    Whether we like it or not, change is inevitable in the airline 
industry just as it is in virtually every other industry competing in 
the global marketplace. The structure of today's airline networks has 
undergone a radical metamorphosis following the deregulation of the 
industry. Much of the change has been dictated by changes in government 
views with regard to an ever-changing marketplace, whether it is in the 
domestic or international arena.
    Who is driving this change? It is certainly not a particular 
airline or the airline industry for that matter. Customers and 
businesses that increasingly need access to all regions of the U.S. as 
well as all regions of the world are pulling the airline industry into 
consolidation. The driving force behind these consumer benefits is the 
network effect that results from the aggregation of independent 
networks.
    Current consolidation proposals can be viewed as the natural 
continuation of a process initiated in 1978, when the U.S. government 
deregulated the airline industry. To suggest that a consolidated 
airline industry would be less competitive fails to heed the lessons of 
history.
    Prior to 1978, commercial aviation was governed by a patchwork of 
national regulatory systems. The major carriers quickly learned that 
there were severe cost disadvantages to operating an array of 
uncoordinated point-to-point flights among a large number of cities. 
The carriers responded with an important marketing and logistical 
innovation: the hub-and-spoke system. It is around this system that 
today's domestic and international networks are built.
    Throughout the first 15 years following deregulation, the industry 
underwent a sometimes-painful rationalization process. In this new 
environment, some carriers thrived, many failed, and some new ones 
emerged, while still others were absorbed. In this environment some 
hubs thrived, some failed, and some new ones emerged. And painful as 
the transition may have been, the industry was now clearly being driven 
by economics and market forces--exactly as deregulation proponents had 
suggested.
    Whereas today's surviving carriers and hubs have undergone 
significant levels of growth over the past 20 years, the industry still 
has some remaining regional inefficiencies. Geographic fragmentation 
has continued to limit access for and among a number of communities. If 
the goal is to fly only within a specific region, the current system 
typically serves the passenger well--unless you are one of the 125 
markets that only have access to one network carrier and one hub.
    The regional fragmentation of hubs and international service 
offerings is among the remaining legacies of economic regulation and 
has, in my view, generally negative consequences.
    As a result of deregulation, however, U.S. consumers enjoy more 
frequent service between more domestic and international locations at 
substantially reduced prices. Deregulation of the domestic marketplace 
has also fostered greater competitiveness in international markets. In 
fact, the general model for this final phase of U.S. domestic 
consolidation can be observed by reviewing the positive experience 
consumers have realized following the formation of international 
alliances.
    In a December 1999 study titled International Aviation 
Developments: Global Deregulation Takes Off, the U.S. Department of 
Transportation concluded that:
          Multinational alliances are playing a key role in the 
        evolving aviation economic and competitive environment. They 
        are providing improved, more competitive service in literally 
        thousands of markets
          Multinational alliances have fueled enormous increases in 
        connecting traffic, both in markets that have historically 
        suffered from poor quality interline service and virtually no 
        competitive benefits, but also by providing service 
        alternatives in markets that already have the benefit of 
        seamless service by other individual airlines
    In the ESI/GKMG study, we assessed the effects of consolidation 
among six of the 10 largest carriers on competition, traffic levels, 
network access, and service availability in the U.S. air transport 
market. The study examined those effects among 322 U.S. markets that 
are not major connecting hubs or are currently served by Southwest 
Airlines. In addition the study excluded the significant competitive 
impacts brought within geographic regions by low fare, niche-oriented 
carriers such as Airtran, JetBlue, Frontier, Spirit, Sun Country, and 
American Trans Air.
    The underlying analysis behind the ESI/GKMG study focused on the 
creation of new online points and their potential impact on traffic 
generation and competitiveness among existing and newly created city 
pairs. Analysis of the U.S. domestic market mirrored the analysis 
conducted by DOT in its assessment of the consumer benefits from the 
formation of international alliances: that a strong correlation exists 
between the number of online city pairs and traffic generation and 
produce findings similar to those found by DOT with regard to the 
international marketplace.
    Consolidation of the U.S. domestic industry would set off the 
creation of new online city pairs that would set in motion a virtuous 
cycle that would benefit both consumers and merged carriers. Passengers 
in the newly created online city pairs would be able to avoid the high 
costs and hassles associated with interline ticketing and baggage 
handling or the use of alternative modes of transportation. Frequent 
flyer miles would become more versatile and easy to earn, and 
connecting times would be optimized. The inevitable result would be 
greater levels of traffic and increased revenue for the carrier, and 
more convenience and online choices for consumers.
    Our study found also confirmed what others have suggested about 
fares: consumers forced to use interline travel pay significantly 
higher fares than passengers connected to a network offering online 
service between the desired origin and destination. We found 2,200 city 
pairs with interline traffic in 1999. On average, passengers forced to 
use interline service (because of existing regional fragmentation found 
in the system) to destinations more than 500 miles away paid 55 percent 
more than passengers flying on a network that offers online service 
between the desired points.
    While interline fare reduction is one benefit, the most significant 
benefits of consolidation come from increased access to networks and 
increased online competition. Many government officials and certain 
industry watchers have instilled fear into the marketplace regarding 
the impact of current and prospective industry consolidation. Fears of 
higher prices, reduced service, more monopoly routes, and labor strife 
are not well founded. Their analysis of the industry today parallels 
the analysis appropriate in a regulated period.
    Our study finds that consolidation will result in greater levels of 
traffic by linking cities previously unconnected, not unlike the 
empirical evidence the DOT has cited in its own studies analyzing the 
consumer benefits enjoyed following its decisions to permit alliance 
formation. Further we found that the benefits will accrue to the small 
and medium sized cities in the U.S., those cities that have often been 
the orphans of deregulation.
    Another element of fear being injected into the debate is that as 
we go conceivably from 6 network carriers to 3 that city pair 
competition will decrease. In our study we examined 322 airport markets 
in the U.S. and over 12 million city pair combinations. We found that 
net city pair competition increased in 74 percent of those 322 markets, 
stayed the same in 13 percent, and decreased in 13 percent. Because new 
online city pair service offerings will be created as a result of 
consolidation we found that consumers will actually have at least one 
additional carrier to choose from on 17 percent more city pairs. That 
net result is an increase in competition and more choices for 
consumers.
    Along the eastern seaboard of the U.S. we have some significant 
levels of concentration, yet many of those consumers have access only 
to hubs with a regional bias. Therefore the true demand for air 
transportation in many of those cities cannot be realized. In a post-
consolidation environment we found that the most significant 
improvement in access to the nation's air transportation system will 
accrue to those consumers located in the New England, Middle Atlantic 
and South Atlantic regions of the U.S.
    The linkage between economic development and air transportation has 
been widely documented. Access to the U.S. and global air 
transportation network fosters increased travel, tourism, investment, 
employment, and stimulates economic activity. Unfortunately, not all 
cities in the U.S. have enjoyed the fruits of deregulation. Today's 
network development has mostly benefited large cities. But the air 
service needs of many communities are not being met by the existing 
geographically fragmented system, which in turn limits their 
opportunities to attract business and investment.
    Anticipated airline industry consolidation is the natural 
progression of a process initiated by the deregulation of the U.S. 
airline industry in 1978. The results of our study conclude that this 
next phase in the evolution of deregulation will likely intensify 
competition, increase traffic, expand access, and broaden commercial 
opportunity--all goals which the deregulators had in mind.
    I thank you for the opportunity to present my views, and request 
that my testimony and a copy of the study entitled ``Consolidation, 
Connectivity, Competition and Communities: The Advent of National 
Aviation Networks'' be entered into the record.

    Mr. Stearns. By unanimous consent, so ordered.
    Mr. Ruden, please?

                   STATEMENT OF PAUL M. RUDEN

    Mr. Ruden. Thank you very much, Mr. Chairman.
    The travel agents of the United States really appreciate 
the opportunity to sit at this table and share some of their 
views about what is going on in the marketplace today.
    It is very interesting listening to the stories that you 
are being told here that suggest that it is better for airlines 
in a competitive marketplace to buy their way into new markets 
than fight their way in, which is the concept that underlay the 
Airline Deregulation Act and which underlies competition in 
every place where it actually exists.
    You have heard a lot about the interline bogeyman, that 
passengers are undergoing terrible stress and costs while 
transferring themselves and their bags between carriers. I 
would suggest to you, with respect, that you inquire into the 
percentage of the business that is actually doing that, 
actually experiencing inter-carrier transactions and transfers 
today, and see whether that argument really holds much water.
    It seems to us, Mr. Chairman, that if we accept the United-
US Air merger, then we have to ask the question: What is the 
basis for saying ``no'' to the defensive mergers, which most 
observers have predicted must follow? The defense then will not 
be that we need more seamless service or more through service. 
The argument probably will then be: Well, our network is 
smaller than your network. And so now you have to let us get a 
bigger network to match the large network that you allowed 
United and US Air to create.
    Are we not then locked into accepting the downward 
spiraling logic of the more single carrier service argument 
until we reach the ultimate height or depth of that argument 
and are left with one carrier when everyone has single-carrier 
service? That airline, of course, would be a monopoly. And we 
would have to regulate it or, ironically, you would have to 
break it up. No one seems to think a monopoly or regulation is 
a good idea for consumers or for the country.
    So presumably we should do everything in our power to 
prevent that condition from arising. The question then seems to 
be: How close to the edge of the monopoly cliff can we get 
before we fall over? From the consumer point of view, we are 
already there. If this were a movie, the consumer would now be 
hanging by one hand from a small tree growing hopefully but 
desperately from the side of the precipice.
    The consumer impact aspects of mergers do not, after all, 
come in a vacuum. The air transportation system is critically 
restrained by facilities shortages in airport structure and air 
traffic management. In part, though I assure you not wholly, 
because of these constraints, consumer dissatisfaction with the 
performance of the airline industry is at an all-time high.
    The airline's response to these complaints has been 
grudging at best, characterized by last-minute promises to do 
better if only Congress will not intervene on behalf of the 
public. The airlines label these commitments ``voluntary,'' 
but, in truth, they are driven by their fear of being compelled 
into a true obligation to consumers for dealing with the 
consequences of problems that, in fairness, are not entirely 
their responsibility. These capacity restraints, in any event, 
are not going to go away any time soon. The problem is too huge 
and too ubiquitous to admit of a near-term solution, even if 
and probably we began construction this afternoon.
    In the face of this capacity problem, the airlines are 
simultaneously seeking to gain final control of the process by 
which the distribution of the air product is accomplished.
    The 5 largest carriers, representing about 75 percent of 
domestic air travel production, have entered a joint Web site 
venture called ORBITZ, capitalized according to undenied 
reports in the range of $100 million and probably more to gain 
exclusive access to the lowest air fares and over time in our 
view to eliminate third party participation in internet-based 
air travel distribution. These actions arise in an industry 
that is uniquely immunized from state laws governing the 
treatment of consumers and others in commercial relationships 
due to distorted court interpretations with the Airline 
Deregulation Act's preemption clause.
    On every front, then, the issue is one of choice. The 
vitality of the process that assures us of competitively 
determined prices and services requires consumers to have 
multiple choices. It is the presence of choice that creates 
uncertainty for sellers. And it presses costs and prices down 
and creates the incentive for achieving new efficiencies and 
assures consumers are treated as the most important part of the 
equation.
    The continued concentration of the airline industry in the 
face of a critically restrained infrastructure plainly 
threatens to reduce or eliminate choice and to do so 
poignantly.
    From the standpoint of consumers, this industry is becoming 
a black hole sucking the competitive juices out of the industry 
that make choice effective and possible. The result is, as it 
always is, poor service and higher prices.
    I would commend, in closing, to your attention, Mr. 
Chairman and Committee members, the testimony of Professor 
Levine before the Senate Judiciary Committee on February 7 of 
this year for a very thorough, interesting, and detailed 
explanation of why the points I have made are true.
    Thank you.
    [The prepared statement of Paul M. Ruden follows:]

    Prepared Statement of Paul M. Ruden, Sr. Vice President Legal & 
       Industry Affairs, American Society of Travel Agents, Inc.

    I am Paul M. Ruden, Senior Vice President for Legal & Industry 
Affairs on the staff of the American Society of Travel Agents. ASTA 
represents more than 8,000 travel agency business firms. ASTA 
appreciates this opportunity to address the Congress on important 
issues of consumer welfare in the airline industry.
    As Alfred Kahn, the acknowledged ``father'' of airline 
deregulation, has observed, deregulation can continue ``only in the 
presence of effective competition as the protector of consumers.'' Both 
economic theory and practice within the air transportation industry 
support the conclusion that the availability of comparative information 
about air transportation services is beneficial to vigorous competition 
among the airlines and necessary to the maintenance of affordable fares 
and responsive services throughout the country. Since 1978, the stated 
policy of the United States, as manifested in the Federal Aviation Act 
of 1958, amended by the Airline Deregulation Act of 1978, has been to 
promote aggressively conditions of competition between and among the 
airlines.
    With the U.S. Department of Justice's approval of American Airlines 
acquisition of Trans World Airlines' assets, and the proposed merger of 
United Airlines and U.S. Airways, the Nation will be left with no more 
than three or four giant airlines. The result is an unregulated shared 
monopoly in which consumers face increasing prices, fewer choices and 
further deterioration in already unacceptable service.
    Because of the overwhelming market power of the surviving mega 
carriers in individual markets, it is unlikely that adequate 
competition can ever be restored by non-regulatory, market-based 
processes unless components within the air transportation system can be 
made to serve as a counterweight. But concurrently with the 
consolidation of the production side of air transportation, the 
airlines have taken parallel actions that threaten continued public 
access to independent sources of information and advice such as travel 
agents.
    Rather than rehash the contested arguments about the details of 
relative costs, overlapping routes, hub consolidations, differential 
wage rates and such, there two elements of the question as to which no 
one has come up with convincing contrary views: the impact of 
concentration on the pricing process and on service disruptions due to 
labor disputes.
    The first element is the question how one or more mergers among the 
giant lines would impact the system by which those lines raise and 
lower prices. Specifically, that means how concentration would affect 
the pricing dynamic in a commodity market, which is the way today's 
airline market behaves.
    A price increase happens when one giant airline decides it wants or 
must have more revenue and that demand will sustain it. Immediately, 
the other giant lines study the increase and determine if they would 
also like to see higher prices. One by one, those that agree announce 
their own hikes--sometimes following the originator, sometimes with 
adjustments. As in the old saying, one airline runs the fare hike up 
the flagpole, and others start saluting it.
    The critical point here is that it takes only one of the major 
carriers to reverse the hike. In effect, each of those carriers has 
veto power over price hikes in the entire national airline marketplace. 
If any one of the carriers does not salute, the hike is quickly run 
back down the flagpole and returned to the closet.
    Clearly, the fewer the number of major carriers, the less chance 
that any given price hikes will be vetoed. And, in a worst-case 
scenario, a concentration down to only three super-giants would make it 
far easier for any one of them to make each price hike stick.
    The fare-cutting process works the same way. It takes only one of 
the majors to kick off a nationwide fare war. And, as you know, that is 
when many ordinary consumers buy their tickets. When it comes to 
starting a fare war, six or more chances for a price cut are far better 
than five, four, or three.
    Labor issues, too, militate against further airline concentration. 
With the largest United States airlines owning no more than about 17 
percent of the domestic market, the nation's economy might be able to 
survive the complete shutdown of any one major carrier. But only 
barely; the last American shutdown showed us how much disruption 
resulted from a loss of just 11 percent of the domestic lift, as 
measured in passengers.
    If you liked that strike, you will no doubt appreciate a shutdown 
of a merged United-US Airways system. Such a dispute would involve more 
than twice the American share. Even worse, of course, would be a merged 
American and Delta, with a staggering 28 percent share of total 
passengers.
    Consumers made it through the American stoppage because the other 
five giant carriers, plus the regional carriers, managed to absorb most 
of American's travelers, over an extended period. But could fewer other 
airlines absorb twice as many displaced passengers without fare more 
serious disruption? Or, in the worst case, could just two remaining 
super-gain lines absorb 28 percent of the passengers? We at ASTA do not 
think so. Instead, the effect of a super-giant strike would be 
devastating to the economy, and certainly to the travel plans of 
millions of consumers. As with pricing, for labor reasons alone, 
consumers cannot risk more market concentration.
    Let us not forget the largely negative effects of an earlier wave 
of consolidation--how such user-friendly airlines as Air California, 
PSA, Piedmont, and Republic disappeared in the black hole of mergers. 
Consumers from Charlotte or Detroit would readily agree that service 
had declined since the mergers took place.
    ``It needs more study'' is the classic way of evading a tough-
minded decision on air consolidation. Or, in Carleton Green's 
construct, it's a way of handling a tough question by ``dissolving in a 
weak solution.'' ASTA submits that no more studies are needed on 
airline mergers. A weak solution is out of the question. This is one of 
those cases that should be decided by basic principles and common 
sense.
    And those basic principles come in with a clear message: No more 
major airline concentration by merger. No more buying out competitors 
rather than competing with them. Mergers and acquisitions among any of 
the six major carriers should be completely off the table. If any one 
of the carriers is desperate to increase its market share anywhere in 
the United States, let the carrier do it the old-fashion way: earn it, 
with better service and lower fares.
    Air transportation in the United States is currently in crisis. You 
know this yourselves from your constituent mail. As Congressman Dingell 
has very wisely concluded in H.R. 907, the Airline Competition and 
Passenger Rights Act of 2001, it has become very difficult to separate 
competition from customer service issues.
    Classically, in the absence of competition one can expect not only 
higher prices but also decreasing and inferior service.
    ASTA's position is that a reduction in the number of major carriers 
is in itself unhealthy. Beyond this ASTA believes that no mergers 
should be permitted until outstanding customer service issues are 
resolved in accordance with Congressman Dingell's bill, among others, 
and then only in the presence of the safeguards Congressman Dingell has 
set forth. These include correction of the ambiguous preemption 
language in the Airline Deregulation Act, which has baffled the courts 
in 20 years. Due to a Circuit split, citizens in the Third and Ninth 
Circuit have a far greater chance for a day in court on service issues 
than the rest of us. That is an intolerable situation and one that 
Congress must fix this year.
    Next, the public is entitled to some relief from irrational and 
oppressive fares that make it cheaper to fly coast-to-coast than to an 
intermediate destination. If a passenger holding a coast-to-coast 
ticket wants to deplane at an intermediate stop the freedom interests 
of American citizens should permit him/her to do it. If the airlines 
create pricing rules that entice the public to game the system, they 
should not be allowed to blame the public or travel agents for taking 
the bait. As with any other commodity, when you buy an airline ticket 
you ought to be free to us all or any portion of it.
    Travel agents serve a vital role by enabling the public to leverage 
whatever competition remains in the system. The carriers should not be 
permitted to drive agents out of business. 1The public should have 
equal access to all fares regardless of the means of communication with 
which to make their booking. The lowest airline fares should not be the 
exclusive domain of those who can afford a computer and to have the 
sophistication and interest to use it.
    Mr. Dingell's bill holds the solution to both competition and 
customer service issues and deserves broad and enthusiastic support.

    Mr. Stearns. I thank our witnesses. Now I will start with 
the questioning. Mr. Wolf, you sort of indicated that your 
airline is in dire financial straits or is in a position where 
it would be advantageous to be consolidated into United. 
Obviously the high equipment cost and high labor cost are part 
of the problem.
    But when United buys you, won't they just inherit? Because 
you have said United seems to agree that all 45,000 of your 
employees----
    Mr. Wolf. Yes.
    Mr. Stearns. [continuing] will not lose your job. Yet, we 
have heard that G.E. when it goes into buy Honeywell is going 
to lay off 42 percent or something like that. So how is United 
going to be able to buy your airline that has this high labor 
cost and also the high equipment cost and not lay off 45,000? 
Where are they going to get the advantage? And then I would ask 
you the same question.
    Mr. Wolf. Yes, it is more than an appropriate question and 
one of the conditions that we discussed with United, which I 
knew they would have great difficulty accepting.
    The truth of the matter is they do not need our 45,000 
employees. They need a sizable percent of them but not 45,000. 
United is prepared to bear the burden of carrying excess people 
for some period of time as they attrite, one, and as the 
combined company grows. And that will work well for United in 
the long term, but in the short term, indeed, they are going to 
carry expenses that they had no justification for carrying. 
They are prepared to do that.
    Mr. Stearns. Ms. Longmuir, how long are you prepared? You 
are Senior Vice President, Government Operations. You are not 
the CEO. I tried to get the CEO here.
    Ms. Longmuir. I am sorry. He has a board meeting today. 
Otherwise he would have been here.
    Mr. Stearns. Well, I got the CEO of American to call me 
back, but I never got your CEO to call and I called twice. So 
it seems as a courtesy, he should at least call me back. And I 
couldn't get anybody in second command.
    And so when I ask this question to you: Can you make a 
commitment these 45,000 employees are going to remain part of 
the organization forever?
    Ms. Longmuir. Absolutely, Mr. Chairman.
    Mr. Stearns. Forever?
    Ms. Longmuir. And our Chairman, Mr. Goodwin, has said that 
explicitly on the record when he has testified before. And, to 
supplement what Mr. Wolf has said, there is a shortage within 
our industry right now of skilled mechanics and skilled pilots. 
So to be able to tap into the valuable resource of trained and 
skilled professionals at US Airways is a tremendous bonus for 
United Airlines.
    In addition, the underlying thesis of this merger is not 
one of cost-cutting and slashing in order to get the benefits 
of the combination of the two, but, rather, it is recognizing 
the power of the two put together and the growth that we fully 
anticipate we will be able to engender and take the benefit of, 
growing the domestic network to help us grow and make even more 
fertile our international network.
    Mr. Stearns. Okay. I would like staff just to give Mr. 
Cooper the--I have a graph here--Air Transportation 
Association, in which they show the cost per passenger mile has 
increased dramatically since 1978 to the year 2000. Yet, the 
revenues per passenger mile has gone down. And so if I could 
have the staff just give that to Mr. Cooper? In fact, let me 
just give that one. I have got some notes on this one.
    This graph would indicate these are why the airlines are 
merging because the costs are going up, the revenue is going 
down. They have no alternative but to survive. So you are sort 
of indicating we should have a moratorium, but without heavy 
government regulation in the competition, I don't know what 
else we could do so that US Air would have a chance, all their 
employees, to survive. So I am a little unclear how we could go 
if you were in charge.
    Mr. Cooper. Well, let me give you three responses. First of 
all--and we do recognize--you have heard from the airlines 
today a form of the argument from the old days that was called 
destructive competition. If you go back to when we began 
regulating this industry, there was a question about whether or 
not you could survive with atomistic competition because of a 
variety of cost characteristics.
    You have now been told that this industry is going to sort 
itself into two things: the national networks, which are going 
to be no more than three; and maybe some new entrants. That is 
what they are talking about.
    If you will accept three airlines that are going to 
dominate the national networks and account for 70-80 percent of 
the traffic as the economic reality in which in most cases 
consumers have less than two choices--I don't live on the East 
Coast. I live in a specific place. And for the average 
consumer, you have fewer than two choices. That is not a 
competitive market.
    I invite you if you accept their premise that there is not 
going to be a lot of competition, you have to look at other 
ways to protect the public, first answer.
    Second answer, I have provided a graph with a series of 
costs and revenue items that I have taken directly from the 
Bureau of Labor Statistics so that I don't fuss with these 
things. These are average air fares. These are CPI. These are 
fuel prices. These are corporate interest rates. And they don't 
show you anything vaguely looking like the picture over here.
    So I will be glad to take a look at and see what their 
sources are--and I guess these are their private sources--and 
my sources, which are publicly available sources. They show you 
a rather different picture.
    And I will be glad to respond to that question in writing 
when I understand. I know I showed you where I got my numbers.
    Mr. Stearns. Yes.
    Mr. Cooper. We will have to see where they got their 
numbers.
    Mr. Stearns. I just want to show you what we are up against 
with that graph.
    Now we are going to have two rounds of questions. So my 5 
minutes have been up, and we will go to Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Is it Dr. Cooper?
    Mr. Cooper. Yes, sir.
    Mr. Towns. Thank you.
    Dr. Cooper, experience has shown that when concentration in 
an industry reaches a certain level, firms start to recognize 
their interdependence and, thus, engage in less competitive 
behavior. How do we prevent the merged airlines from competing 
less vigorously?
    Mr. Cooper. Well, I think the proposal that you have before 
the Congress, one that recently passed out of subcommittee on 
the Senate side, it takes the industry structure that you have 
described today. That is, if you are going to let these mergers 
go through and put us in the situation of having a small number 
of dominant national carriers, the key to competition against 
network industries is to ensure entry at hubs by smaller 
airlines.
    That is the proposal you have heard and have before the 
Congress. That is, whenever a hub becomes concentrated, 
excessively concentrated--and we can discuss the percentage 
level: Mr. Dingell's bill talks about 40 percent; on the Senate 
side, it was 50 percent--once one airline has half the traffic 
at an airport, the other slots should be allocated to new 
entrants.
    These new entrants can't get into Boston, we heard the 
other day. They can't get into Charlotte. And if they can't get 
into those places, the people who live there are captives. It 
is not the East Coast. I fly from Boston to someplace. I fly 
from Charlotte to someplace.
    So if you identify a level of concentration at individual 
fortress hubs, beyond which you are not allowed to go, you can 
have the competitive effects of the small route-by-route 
entrants and, in theory, the online benefits of the other 50 
percent. The airports you heard about today, Pittsburgh and 
Charlotte and Atlanta, these are fortress hubs, well above the 
50 percent threshold.
    So this Congress should take the act of not reregulating, 
not picking routes, but creating access to competition by 
establishing a level of concentration at individual fortress 
hubs, beyond which the industry will not be allowed to go. And 
then AirTran and JetBlue and other new entrants will have a 
chance to compete at those fortress levels.
    Mr. Towns. Thank you.
    Let me raise a question in terms of generally when you have 
a merger, you are talking about eliminating people, you know, 
people lose their jobs. Now, we have heard other says: Well, 
when we merge, everybody is going to keep their jobs. And then 
they come in maybe 6 months, a year later and they are cutting 
jobs. Now, are you prepared?
    I mean, I guess it is fair, Ms. Longmuir, to ask you this 
question, not being the CEO. The point is: Are you prepared to 
go on record in terms of with documentation saying that this is 
going to happen? We have heard this before, and I can go down 
the list in terms of companies that have said that and then 
come back a few months later and say: Uh-oh. We miscalculated. 
This is what we are going to do. Then, of course, by that time, 
there is not a lot that we can do here.
    I guess I will start with you knowing that you are not the 
CEO but you went to New York Law School. So you are prepared to 
handle it.
    Ms. Longmuir. Great schools in New York.
    Well, it is very easy, sir, for me to make that commitment 
before this Committee since my boss, the Chairman, already has 
elsewhere in public forums as well as across the Hill.
    I understand your anxiety. I guess I would attempt to also 
reassure you about the importance of that commitment internally 
within our company since we are unique, being a majority-owned 
employee-owned company. And I think that the commitment was 
entered into upon a great deal of reflection and internal 
discussion as well as the recognition of: What was the real 
driver for this merger? Was it going to be one for cost-
cutting, downsizing, and getting efficiencies that way or was 
it really going to be to overall increasing the domestic 
network to feed and help grow our international network?
    It is the latter. Given the shortage within the industry 
now of skilled workers, we see it, frankly, as a boon.
    Mr. Towns. All right.
    Mr. Wolf. Congressman Towns, could I just add that along 
with Ms. Longmuir's comments, this agreement of no layoffs is 
contractually binding upon United. It is part of our merger 
agreement. It is a contract which they have signed. It applies 
to the first 2 years.
    As soon as that was discussed openly, Jim Goodwin said: 
Well, I know, but by the end of 2 years, we will sort through 
the issues. Our growth plan will be in effect. The attritions 
and retirements will be coming about, if you will. There won't 
be a need, we don't think, much after 2 years. In any event, to 
set everybody's mind at ease, I will extend it for infinity. It 
is an absolute binding job guarantee made by the chairman of 
the board of the company, and we certainly believe that.
    Mr. Towns. Mr. Chairman, my time has expired. I do have 
some other questions.
    Mr. Stearns. Okay. We will be doing a second round.
    Mr. Towns. Okay. Thank you.
    Mr. Stearns. Next is Mr. Deal.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Chairman, I must admit I have heard testimony here 
today that not only is contradictory from the table but is in 
my opinion contrary to common sense. So I would like somebody 
to explain to me from a common sense level how this works.
    Let me tell you some of the statements that don't seem to 
ring true. On the one hand, we hear Mr. Wolf saying that the 
only way that you can stay in business is either be a low-cost 
carrier or have a network that you have to depend on.
    So along comes United. And, by his admission, he says, Mr. 
Wolf says, his airline, US Airways, pays labor rates that are 
comparable or higher than those of American, Delta, Northwest, 
and United and then United is going to absorb all 45,000 of 
those workers, who he admits you don't need. That doesn't quite 
run along the lines of making things work.
    Ms. Longmuir, how do you reconcile that? Was this just the 
price you had to pay of taking 45,000 workers, all of whom you 
didn't need, that are paid labor wages that are above the 
average in the industry? Was that just the price you had to pay 
to make the merger happen?
    Ms. Longmuir. Well, I guess I will be bold enough to 
disagree with Mr. Wolf on a point, which is I never said and I 
don't believe United has ever said that we don't need these 
employees.
    Mr. Wolf. He did.
    Ms. Longmuir. I am with United. And I am saying on behalf 
of our chairman and our company that we do need them based on 
the internal projections for growth for our company that we 
believe we will be able to stimulate and enjoy as a result of 
this merger.
    I think with respect to your cost comment, the average 
stage length of a United city pair segment of a trip--and I am 
not familiar what the precise average is, but I believe it is 
under 700 miles. Please correct me if I am wrong. It is quite 
short, as compared to what the average stage length of a trip 
is on United Airlines, meaning that we have a much longer haul 
distance over which to amortize a higher unit cost.
    So if Mr. Wolf's average seat mile is 14 cents per mile and 
United's average seat mile cost is 9.5, perhaps 10 cents per 
mile, that, in part, is a reflection of the ability that we 
have nonstop service from Chicago to Beijing versus perhaps 
nonstop service from DCA to upstate New York.
    Mr. Deal. That may be true on operating costs, but when you 
are playing wages that are above, it doesn't matter whether you 
are on a short haul or a long haul. If you are paying an hourly 
wage rate that is above the industry's average, you still are 
having to absorb that.
    Let me then move to the other----
    Ms. Longmuir. Sir, may I respond?
    Mr. Deal. Sure.
    Ms. Longmuir. Respectfully, I think that the average ticket 
price that US Airways can charge as a reflection of that stage 
length is vastly different than the ticket price that United 
may be able to charge based on its stage length so that you do 
have cross-amortization.
    Mr. Deal. Well, does that mean the ticket goes up or down, 
price?
    Ms. Longmuir. It means, sir, that there are some small 
communities that we will be serving that, frankly, will be 
subsidized by some longer-haul markets.
    Mr. Deal. Does that mean the ticket price goes up or down, 
what you just said?
    Ms. Longmuir. It doesn't mean that the ticket price goes 
up, sir.
    Mr. Deal. It does not mean it goes up?
    Ms. Longmuir. Correct.
    Mr. Deal. Okay. So, then, one of the other arguments is 
that the reason that US Airways can't remain profitable and 
stay in business is because of the short-haul arrangements. You 
don't have the network of the long hauls.
    Are you just shifting that, then, to American since they 
are agreeing to buy 20 percent of your current operations, 
including 50 percent of your shuttle between Washington, New 
York, and Boston? Are you just shuttling that unprofitable part 
up to----
    Mr. Wolf. I think he is really talking about US Airways' 
existing operation, of which American would be buying 
approximately----
    Mr. Deal. That is the unprofitable part?
    Mr. Wolf. No. The system in its entirety is obviously 
unprofitable because the company loses money. But, if I could, 
back to the 45,000 employees for a second, there is really no 
dissention between what Ms. Longmuir is saying and what I am 
saying.
    On day one after the merger, in Atlanta, as an example, 
United has a station manager and we have a station manager. We 
don't need two station managers in that city the following day.
    United certainly will need the vast bulk of our 45,000 
employees because they are deployed operating our aircraft and 
our fleet and our service levels. But, indeed, there will be 
some limited number of surplus people up front, which United 
will absorb until they retire over time.
    In terms of what American's acquisition is, I think 
American is a fairly astute airline; quite, as a matter of 
fact. They are buying effectively about 20 percent of US 
Airways' assets. That comes about as a result of a concern the 
Justice Department had. It certainly was United's idea 
initially, but it addresses certain Justice concerns. And that 
is why that transaction is part of the overall transaction 
between ourselves and United Airlines.
    Mr. Deal. Thank you.
    Mr. Stearns. Mr. Doyle?
    Mr. Doyle. Thank you, Mr. Chairman.
    Ms. Longmuir, could you please? We understand US Airways' 
hub at the Pittsburgh International Airport, those of us from 
Western Pennsylvania realize, how critical that is to the 
economy of Western Pennsylvania. Could you please explain 
United's no-furlough policy for all employees and whether 
United anticipates that by strengthening the hub, you will 
create more jobs or stimulate greater economic activity in that 
region?
    Ms. Longmuir. Sir, with respect to Pennsylvania, we have 
looked at what we consider to be some of the many jewels within 
the US Airways network. Certainly both the system in 
Philadelphia as well as in Pittsburgh offer a very strategic 
location for building our East Coast network. We also have been 
in discussions with maintenance operations that are there as 
well as looking also at the tremendous growth that the 
Philadelphia Airport has in place.
    With respect to Pittsburgh, in particular, we see that as 
an area where we will have a net add of aircraft to our overall 
fleet. We obviously currently can't continue to maintain and 
service that fleet with our extant maintenance facilities. So 
on an internal service perspective, we certainly see a growth, 
a tremendous growth opportunity and a growth need for us, 
United, to service our internal fleet.
    With respect to trying to grow the hub at Pittsburgh, that, 
again, is something that is very much in our plans because we 
are certainly not spending several billions of dollars to have 
hubs static. The true value of them is to grow and enable us to 
be more competitive and to raise our market share from 
something greater than 1.7 percent, as it currently is now.
    Mr. Doyle. Thank you.
    Just for the record, too, I would like to give you the 
opportunity to reiterate United's commitment to building the 
multimillion-dollar maintenance facility in Pittsburgh Airport.
    Ms. Longmuir. I think we are in the final stages of 
discussions on the precipice of a formal announcement. So 
perhaps at one point in the future, I can come back and testify 
before you again. I will leave that to my chairman to state 
more explicitly. I won't take that.
    Mr. Doyle. Thank you.
    Mr. Wolf, air service is critical to our economic well-
being. We need more air service, not less. If this merger 
doesn't go through and US Airways starts to shrink and 
downsize, what would the effect on consumers and businesses be 
that have come to rely on US Airways for service?
    Mr. Wolf. Well, I guess, Congressman Doyle, I would say it 
is the obvious. Today US Airways loses money on over 50 percent 
of the routes that we fly. And logic would say: Well, for 
crying out loud, why don't you take some of those routes down?
    The reason we don't do that is because we are trying to 
become a network carrier. And sizing ourselves down is in the 
absolute wrong direction to go. But, indeed, if we are not able 
to go forward with this merger and we have to stare at the 
stark reality of what do we do on an ongoing basis, we are 
going to have to continue. We are going to have to size the 
airline down.
    Mr. Doyle. And I don't know if you were given the 
opportunity to respond to Mr. DeFazio's earlier comments that 4 
months ago you guys were rolling in cash and now you are on the 
verge of bankruptcy. If you haven't had a chance, I would like 
to give you that.
    Mr. Wolf. Congressman, I am really not quite sure where to 
go with that. I sat there and listened to it, as you did: Four 
months ago, I testified before a committee on which Mr. DeFazio 
sits. Nine months ago, not 4 months ago. I don't recall that 
sort of interchange with Mr. DeFazio at all, but let me assure 
you I never said that nor anything like that.
    My position with US Airways has been the same since the day 
I joined the company, at which time I told the board of 
directors there were pressing issues at the outset coming off 
of multiple years of multibillion-dollar losses and no 
strategic sense of direction, at the time on the verge of 
bankruptcy, a balance sheet that had been destroyed. I thought 
those things were sort of manageable in the short term.
    The problem for US Airways is that it is a mid-sized 
mature-cost carrier. It is the last of only six. And it must 
find a way to become substantially larger in order to compete 
long term.
    Mr. Doyle. Thank you, Mr. Chairman. I yield back.
    Mr. Stearns. I thank the gentleman.
    Mr. Whitfield?
    Mr. Whitfield. Thank you, Mr. Chairman.
    Mr. Wolf, you had just mentioned that 50 percent of the 
routes of US Air are not profitable. The routes that D.C. Air 
will be taking over, are those profitable or unprofitable?
    Mr. Wolf. I can't say. I would say an average of our routes 
there are relatively profitable, but, indeed, they will be 
quite profitable with D.C. Air. D.C. Air will have a 
substantial lower-cost structure than US Airways has.
    Mr. Whitfield. Now, D.C. Air, will it be unionized or 
nonunion?
    Mr. Wolf. Well, in many ways, D.C. Air has not yet been 
created. D.C. Air, once the transaction is approved, Bob 
Johnson has to go out and hire employees and hire pilots and 
hire mechanics and lease aircraft, et cetera. Those employees 
will certainly not be in a union at the outset because there is 
no union for them to be in. So they will not be organized.
    Mr. Whitfield. Mr. Ris, you are with American Airlines. And 
you are going to own, what, 49 percent of it. A lot of the 
employees of D.C. Air will be furnished by American. Is that 
correct?
    Mr. Ris. What we will be doing, we will be providing 
services to them through contracts. The actual employees, the 
employees that they hire, permanent employees, will be new to 
D.C. Air.
    Mr. Whitfield. But you will be providing some through 
contract?
    Mr. Ris. We will be providing some through contract. For 
example, the so-called big jet flying that they will do will be 
done on a so-called wet-lease basis, in which our employees and 
our airplanes will be used flying their colors, yes.
    Mr. Whitfield. American Airlines, is it unionized?
    Mr. Ris. Yes, sir.
    Mr. Whitfield. So at least those costs if they are 
contracting to use your employees will probably be higher than 
maybe those that they hire permanently on----
    Mr. Ris. That is possible. And, of course, it is always 
possible for them subsequently because that is a lease 
arrangement to acquire their own aircraft, their own employees 
at lower rates. Yes, sir.
    Mr. Whitfield. Ms. Longmuir, what has to happen for you to 
obtain approval for this acquisition and/or merger?
    Ms. Longmuir. It is currently under review at the 
Department of Justice, Congressman.
    Mr. Whitfield. Okay. And when do you anticipate a final 
answer?
    Ms. Longmuir. I believe we had a second request for 
documents with respect to the component involving American 
Airlines and United Airlines as recently as about 10 days ago. 
So we are in the process of collecting those documents, turning 
them over to Justice. And they will be reviewing them and 
generating additional questions at that point. So I can't give 
you a----
    Mr. Whitfield. But once they make a decision, if they 
approve it, then that is all of the approval that you need to 
move forward?
    Ms. Longmuir. Yes. I believe there also is an additional 
approval at the Department of Transportation to allow the 
certificate to transfer from US Airways to United for purposes 
of the international routes that they fly.
    Mr. Whitfield. Okay. Now, Mr. Leonard, I think in your 
testimony, you talked about that you felt like that one of the 
conditions of this merger should be that United and American 
should divest themselves of a number of slots at I suppose 
Ronald Reagan Airport or other airports.
    Mr. Leonard. Yes, sir.
    Mr. Whitfield. Has that condition been applied?
    Mr. Leonard. No, it hasn't. We have filed complaints at 
both DOT and DOJ asking them to exercise their current 
authority to force that to happen. It has happened before. In 
1983, the FAA withdrew slots and reallocated them when they 
thought there was a maldistribution of slots. So we are not 
asking for anything unprecedented here.
    Our position is that these slots were awarded under an 
entirely different perspective as far as the relative 
concentration of the airlines. And we believe it is national 
policy. There ought to always be a reallocation of slots 
whenever there is a merger of any size.
    We have also contacted US Air, United, and D.C. Air in 
regard to cooperating with them to make that operation work 
smoothly with them. They decided to go with American, rather 
than with us.
    But there are lots of slots. When you add TWA, American, US 
Air, and United, there are plenty of slots to carve out a 
meaningful number for us or people like us. Obviously we would 
prefer it be us, but there are other carriers like us that 
could benefit the consumer if they had a meaningful number.
    Mr. Whitfield. Are you optimistic that that condition might 
be required?
    Mr. Leonard. I don't know. I mean, I guess we are the 
craziest ones to come up here and shoot for it. We accomplished 
a lot at AirTran that people said we would never accomplish. 
And we think while the battle is uphill, we are certainly going 
to continue to fight the fight until people tell us to go away.
    Mr. Whitfield. Mr. Chairman, I see, my time has expired.
    Mr. Stearns. Mr. Rush?
    Mr. Rush. I want to ask you a couple of questions here. I 
understand that air service is an important economic driver in 
local economy. And I was wondering if you would agree that the 
merger by expanding your network will make United an even 
stronger economic catalyst in the Chicago area.
    Ms. Longmuir. Absolutely, Congressman Rush. I mean, we see 
the benefits not only to United, our shareholders, our 
passengers are really telling us what they need. And they are 
telling us where they need to have better access to. But given 
O'Hare's strategic location, we certainly feel that there will 
be an even more powerful contribution to the local and regional 
economy by having increased connectivity from Chicago for the 
Chicago businesses.
    Mr. Rush. Okay. What services do you provide to customers, 
the communities your hubs are located in, and other airlines 
which might explain some of the differences in fares between 
United and other low-fare airlines?
    Ms. Longmuir. I think the route difference, no pun 
intended, is actually the fact that there is a network versus 
perhaps a point-to-point service where we really are connecting 
to a hub-and-spoke system establishing the network thereby that 
will lead to global connectivity. We have the internal support 
structure for frequent flyer miles, all of the other amenities 
that go along with at least a larger network carrier like 
United Airlines.
    Mr. Rush. As you are well-aware, there are issues around 
O'Hare in terms of the density issue, the volume of air traffic 
in the Chicago area. The merger, what effect do you think that 
it would have on the question of density around O'Hare, volume? 
Would we need to increase runway capacity at O'Hare? And in 
your answer you could without putting yourself out too far, 
would you relate your attitudes about the proposed third 
airport, both in Peatone and also in Gary, whether or not this 
would have any impact on that, this merger?
    Ms. Longmuir. I think with respect to your first question 
about demand in capacity at O'Hare, there clearly is an ever-
present demand for more services at O'Hare. United feels very 
strongly about being committed to O'Hare and would like to see 
O'Hare grow.
    I believe our Chairman signed a letter very recently on 
behalf of the Civic Committee indicating that the business 
community wishes a third runway at O'Hare. And that is 
certainly from the perspective of building from a point of 
where you have your resources located and concentrated. That 
would be the most helpful at O'Hare.
    With respect to the creation of a third airport, regardless 
of the location, we also have been on record that we do not 
intend to fly to another airport, whether it is Peatone or 
Gary, for purposes of a hub-and-spoke structure, as you well 
know. That makes it too difficult for us to have split 
operations. But we have also been on record to say that if 
others wish to build it, they certainly may, but Mr. Goodwin, 
our Chairman, really doesn't want our passengers' dollars or 
the fares affiliated with those, to be siphoned off to 
construct an additional airport when there is such a crying 
need for improvements at O'Hare.
    Mr. Rush. My last question is: Right now United is an 
employee-owned company. If the merger were to go through, what 
would happen to the employees from US Air? Would they have the 
same categories or same proprietary responsibilities and powers 
that employees at United currently have?
    Ms. Longmuir. Well, with respect to the governance of the 
company in the sense of a chairman of a board, a board of 
directors, that governance remains in place. With respect to 
new employees becoming employee owners, the term for actual 
wage concessions, where we all suffered a pay freeze--and those 
dollars were taken and invested in ESOP shares and put into an 
individual account for each employee, that period has ended, 
but the structure it was for 5 years, 9 months if I am correct, 
and I will check and correct the record with a submission to 
you if I am not--that term for the addition of new employee 
ownership has ended. But with the number of shares that are 
currently out to all of the current employees of United, we do 
not anticipate any diminishment of the majority ownership by 
the employees. I think it is for something like 16 to 17 years 
if you look at the normal rate of attrition.
    Mr. Rush. Thank you.
    Mr. Stearns. The gentleman's time has expired. Mr. Buyer is 
recognized for 5 minutes.
    Mr. Buyer. Thank you, Mr. Chairman.
    I have some questions for Mr. Wolf and Ms. Longmuir. Back 
in 1990, there was an agreement with United, to build a 
maintenance hub at the Indianapolis Airport. The State of 
Indiana put in $171 million, the city of Indianapolis $111 
million, Hendricks County $8 million. United then invested 
around $800 million in that facility. So, Mr. Wolf and Ms. 
Longmuir, what impact is the merger going to have upon that 
maintenance hub? Hold that.
    The other question I will have is to both of you also, and 
Mr. Leonard if you have a comment. In Congress, we struggle 
with these issues of deregulating industries. And whether it is 
building or improving or providing maintenance upon networks, 
we say it is deregulation, but we are still involved in your 
business.
    This isn't like wanting to create something anew and say, 
``Well, do it, and we will just make sure that it is fair, 
open, and competitive.'' This is a lot different because we 
want to make sure the people in other areas get serviced. It is 
like when Congress had to get involved when they created the 
utilities. They left the rural areas, and they had to create 
INCs to make sure that they were taken care of.
    So Congress provides subsidies called the essential air 
service. What impact is this merger going to have upon us, 
Congress, in our subsidies into a lot of these? I mean, I have 
got the whole list here of all of these different states and 
localities. What impact do you think the merger is going to 
have upon that?
    Last, Mr. Leonard, my question to you Mr. Whitfield touched 
on a little bit--and it is sort of my concern--is: Low-cost 
carriers, if you are going to permit a national network with 
three dominant players and you only have so many gates and so 
many slots, how are you able to provide competition? How do you 
gain that access if we are going to say, ``Well, let us let 
three dominant players have their way?'' Those are my three 
questions.
    Mr. Wolf. I will go first if I could because I was privy to 
the negotiation of the Indianapolis maintenance facility. At 
the time I was employed by United Airlines. It has proved to be 
an absolute marvelous facility. And in the economic stimulus 
that Indianapolis and the State of Indiana anticipated it would 
be, United has built a glorious facility there and continues to 
expand its maintenance activities there.
    There will be no change in that whatsoever. It is a 
commitment on the part of United. United will honor that 
commitment. I think what you might have heard, Congressman 
Buyer, is a moment ago there was reference to a discussion that 
is going on between United and the city of Pittsburgh and the 
State of Pennsylvania about expanding existing US Airways 
facilities in Pittsburgh, where we have a large maintenance 
facility, but that activity held out no effect whatsoever on 
Indianapolis.
    In terms of deregulation, this is going to have no impact 
whatsoever on deregulation. Congress did deregulate the 
industry, deregulated fares, deregulated routes, deregulated 
the industry, and fights very aggressively in an open market 
environment today going forward, the two things you wanted me 
to comment on, I believe.
    Ms. Longmuir. I would only second what Mr. Wolf said about 
Indianapolis. Again, the net increase of new aircraft coming 
into our fleet is going to far outstrip our maintenance 
capabilities.
    I don't think the company could be more pleased with the 
construction of a facility than we are at Indianapolis. And 
also Indiana has been very helpful and supportive of a 
corporate citizen. That is really quite delightful for a 
corporation to experience. So we feel quite a strong commitment 
to Indianapolis.
    With respect to your question on subsidies----
    Mr. Buyer. Does that mean you anticipate increased workload 
at the Indianapolis hub because of the merger?
    Ms. Longmuir. I think that it will be a planful increase, 
but I think that we anticipate growth.
    With respect to the essential air service and the subsidies 
to small and medium-sized cities, United Airlines currently is 
the largest provider of service to EAS communities. We, again, 
have, frankly, a history and a commitment of longstanding to 
consistent service to small communities. And that will not 
change. We have been on record in several public forums, the 
Chairman has, reinforcing that point.
    Mr. Buyer. You just pulled out of Lafayette, Indiana. So I 
am a little scarred. Can you answer my question, please?
    Ms. Longmuir. I will be happy to get you details on that, 
sir, and visit you personally on that.
    Mr. Buyer. Thank you.
    Mr. Leonard. Congressman, first of all, I would say that it 
would be virtually impossible for AirTran to start today and to 
build an airline as large as we are today, virtually 
impossible. We are a direct result of Eastern Airlines' failure 
in Atlanta and, therefore, were able to obtain 22 gates in 
Atlanta. Without that, we would not have been able to get 
going.
    Southwest was protected by the Wright Amendment for many, 
many years so that it could get a foothold. Jet Blue was given 
75 slots at JFK by the government to get it started. So in 
today's environment, without some government assistance or some 
government protection, to give us the ability to compete, it is 
almost impossible.
    I have personally spent 2 years trying to get a gate at 
Philadelphia. We have finally been granted two gates. We are 
going to get two temporary gates starting in June, but it has 
been over 2 years.
    Since I joined the company over 2 years ago, we have tried 
to get gates at Newark. We do not have a gate. We get a piece 
of a gate from time to time. There are plenty of gates 
available at Newark. There was a study done by the airport 
authority that said there was equivalent of about nine gates 
equivalent available at the airport. Yet, new entrants cannot 
get it because the airlines that have those gates are hoarding 
them.
    Our position is these gates were paid for by taxpayers' 
money or through PFC charges and that the government has a role 
here if it wants to stimulate competition. And that is to force 
people to free up some of these public-owned assets so that 
people like us at least have a chance to compete.
    We are not asking for subsidies. We are not asking for 
protection. Just let us in so we can compete. And we have 
proven that our model works and we can go in markets and 
compete effectively if we can get in them.
    Mr. Buyer. Thank you.
    Mr. Stearns. Thank you. Ms. Cubin?
    Ms. Cubin. Thank you, Mr. Chairman. I hardly know where to 
start I have so many things I want to say and so many 
questions.
    Our society has determined that there are some services 
that every single American citizen is entitled to for not only 
their benefit but for the benefit of the country and the 
society as a whole. That is telephone, electricity, other 
utilities. And I think air service is part of that in this 
environment in this economy today.
    I represent the whole State of Wyoming, about 100,000 
square miles. I have no choice who I fly with. I have to fly 
with United Airlines. United Airlines on a daily basis to the 
whole state--well, no. United Express because United Airlines 
doesn't fly into Wyoming. They contract with other companies 
under United Express.
    Forty-five United Express flights go into Wyoming a day 
from United and 16 from Delta. And that serves only the extreme 
western part of the state. There are a couple of flights out of 
Casper. But if I fly Delta from Washington, it takes me an 
extra 2 or 3 hours. So I have no choice. I have to fly with 
United, and most of the people in Wyoming have to fly with 
United.
    Let me start with this. I don't know how United Airlines 
can be considering merging with US Airways when in my opinion 
they don't provide adequate service to the passengers that they 
now have. I think good business would be to provide better 
service to your customers, instead, of the situation that it is 
now.
    I don't know how many of you have flown in Denver. Frankly, 
I wish Mr. Goodwin would have to fly with me for just 1 month. 
In Denver, United Airlines owns the gates down there that 
United Express flies out of. I call it the cattle chute. I 
don't know if you know what a cattle chute is or not, but if 
you are going to load cattle to take them to market to be 
slaughtered, there is a narrow area with a gate there and fence 
down both sides. These cattle are just herded down in there, 
and they are prodded and they are poked. And they get on the 
trucks, and they get on the trains to go to the slaughter or if 
you are going to take them to the feed lot, you just herd them 
in there. I call the United Express area at Denver a cattle 
chute because that is how customers are treated there.
    There were no chairs in that entire area for many years. 
There was no heat. There was no air conditioning. There is no 
drinking fountain. Now I think they have about three seats per 
gate. But what they do is they herd the people down to the 
cattle chute, hold the people in the cattle chute until it is 
time for them to get on the plane and then suffer the things 
that they have to suffer there.
    I could go on and on and on about the kind of service that 
people who fly into Wyoming get. And it is terrible. I know 
what you are thinking because I have had it said to me by every 
single United employee I have ever dealt with: Well, that is 
not our fault. It is United Express.
    Well, I am going to tell you that I have talked with United 
Express carriers, current and past carriers. They tell me that 
the deals that they have to make with United Airlines to not 
lose their business, to be able to keep the planes that they 
have and not lose the investment in the planes that they have, 
those contracts they make with United are such that they either 
can't make a return on their investment or they have to 
severely cut, severely inconvenience services to their 
customers because they don't get enough money out of the cost 
sharing with United.
    Recently flying home, flying back to Washington from 
Wyoming, we were trying to get to Denver. We had to stop in 
Hayden, Colorado due to the weather. The weather broke. Five 
planeloads of people were loaded onto buses to take a 3\1/2\ 
hour drive to Denver. Now, I want to tell you people in Wyoming 
pay their money to United Airlines, and they don't give a flip 
whether United Express is responsible for this or not. They pay 
United. We have got a deal with you. We don't have a deal with 
United Express. Five busloads of people are busloaded to 
Denver, Colorado, 3\1/2\ hour drive, while the planes--I was on 
one--were leaving with empty seats. That is the kind of service 
that we get.
    I hope there is another round because I had to vent about 
those things. I think the fact that Mr. Goodwin refused to call 
the Chairman back is indicative of the attitude that I see with 
United Airlines. I fly with them more than three times a month, 
and that is the kind of service that we get if you are from a 
rural area.
    I guess I have one question for you, Ms. Longmuir. Is 
United Airlines committed to serving rural areas like Wyoming, 
Montana, South Dakota, North Dakota? Is there a commitment by 
United Airlines?
    Ms. Longmuir. Yes, there certainly is, Congresswoman. I 
know I personally have visited with you in the past about times 
when United Express has disserviced you. And we certainly do 
take responsibility for that. I would be more than willing to 
come and talk to you again as well as with U.S. Express 
representatives.
    Ms. Cubin. No. It is not me. It is all of those people that 
fly. It is not fair to make up with me.
    Ms. Longmuir. Congresswoman, we are trying to win back 
every single customer that we lost this summer through an 
extraordinary problem at our own company coupled with some 
really tough issues dealing with bad weather and a crumbling 
infrastructure. We are----
    Ms. Cubin. Would you tell Mr. Goodwin that his example of 
refusing to call the Chairman back certainly isn't a good 
indication of how United Airlines intends to work with us and 
to provide better service?
    Ms. Longmuir. Congresswoman, I don't want to make this 
awkward, but, if I may, I feel duty-bound to defend our 
chairman. When our staff here in Washington contacted the 
Chairman's office and said that I would be available, Mr. 
Goodwin had a board meeting today. We were told by the 
Chairman's staff that there was no need to have Mr. Goodwin to 
call the Chairman at this point. And that is why the call was 
not placed.
    Mr. Stearns. Okay. I knew there was a question mark at the 
end of that comment somewhere there.
    Mr. Terry, do you have a question?
    Mr. Terry. Well, I want my opportunity to kind of vent, 
too, against United.
    Ms. Cubin. You have got to live it.
    Mr. Terry. So maybe it is appropriate Mr. Goodwin didn't 
come today.
    Ms. Longmuir. I am going to put in for combat pay today, 
then.
    Mr. Terry. Yes, but a lot of it is brought on by yourself, 
not you individually or personally but United.
    Ms. Longmuir. Well, I am an employee owner of the company. 
So I take responsibility.
    Mr. Terry. Which really confuses me why. I ride a lot of 
different airlines. I live in Omaha, Nebraska. And you are more 
than welcome into Omaha, Nebraska. I am going to get to that in 
just a second.
    You know, whether I have been in Denver, Chicago, or 
especially here at Reagan National, the rudest airline 
employees I have ever run into or had to deal with were United. 
And that is with almost unanimity. That just confuses me since 
it is an employee-owned airline the arrogance of treating 
customers so badly.
    That is one of the problems that I have with this merger. I 
flat out won't fly United because of the low quality of service 
and respect that they give to their customers. I wouldn't wish 
flying on United on my enemies. I feel sorry for my colleagues 
that are trapped with one airline, like United, like Barbara 
Cubin with United, that they just don't have the choices. 
Fortunately in Omaha, we do have choices and options. And I 
exercise that. It is just unfortunate whenever we have bad 
experiences, you guys try and personalize this like it is just 
us.
    Ms. Longmuir. No.
    Mr. Terry. I take offense to that. Well, you just did that 
to Barbara, but that is what you also did to me. And so I have 
problems with you guys. In a time when we are dealing with 
customer service--I am going to eventually get to a question on 
that--when United has proven themselves to be such a poor 
provider of quality service, why would we want to extend that? 
It is a cancer we would like to eradicate, not expand.
    In Omaha, Nebraska--and that is why I mentioned, Mr. 
Leonard, you are welcome there anytime. I don't think you guys 
are there yet, but on behalf of Eppley Airfield, let me say you 
guys are welcome any time.
    Mr. Leonard. Thank you, Congressman.
    Mr. Terry. When I was on the Omaha City Council, about 
1992, we flirted with the concept of being a mini hub. And I 
don't even remember who it was back then, Continental maybe. 
That seems to come to mind.
    We made a decision, the airport authority with the backing 
of then the city council and the mayor, to not be a mini hub, 
that we wanted as many airlines as possible into that facility 
knowing that when the Southwest or Midwest Express or whatever 
were in there to compete, that we would have good air fare.
    And so my philosophy here is to have the fullest, fairest, 
unabridged, gloves-off competition that we can have in the 
airline industry. And then maybe United will provide better 
quality service to their customers with better rates.
    In one experience that we had in Omaha, Nebraska with lack 
of competition--and, Mr. Cooper, I am going to hurry up and get 
to you--was when United was our only carrier for a while to 
Denver. For some reason, the 2 or 3 other airlines moved out of 
Omaha. And an air fare to Denver shot up 3, 4, 5-fold. It went 
from like $100 to $1,000. Now since Frontier came back, I think 
we have a little bit more competition. It has backed down.
    So I am trying to figure out with all of these great 
numbers, Mr. Wolf, I have got to tell you I appreciate your 
being here because you are being asked tough questions. It is a 
tough issue. And you are handling them well. So I respect and 
appreciate that you are here. But a lot of the numbers are put 
up to show that there is great competition. But then you bring 
us a statistic that kind of hits home with me.
    There are a lot of statistics when you look at the United 
States map, but individually in individual cities, there is 
not. Would you expand on how we sitting up here as laymen could 
determine if there is true competition?
    Mr. Cooper. I actually use--and I outlined it in my 
testimony. I call it the Ed Meese test. I actually ran into Ed 
Meese and described it to him. You remember Ed Meese was the 
predominant consumer protector in the Ronald Reagan 
administration.
    And he wrote the merger guidelines. They published the 
merger guidelines that still govern our antitrust policy. And 
there were two thresholds in those merger guidelines. Even Ed 
Meese understood on the basis of theory and decades of 
empirical evidence that you needed ten or more equal size 
competitors to have an unconcentrated market, ten or more.
    And there was a second threshold at the level of six. If 
you had fewer than six equal size competitors, the market was 
considered highly concentrated because then it becomes a tight 
oligopoly. And so expanse has taught us that if you get markets 
with fewer than six competitors, you start to get market power 
problems.
    This is an airline industry that has gone down to three 
national competitors. This is an airline industry on average 
that the customer has no more than two. And, of course, when 
you are a monopoly and captive, you get treated very badly.
    Since I have now discovered that United visits every member 
of the committee, I will personally visit every member of the 
committee and discuss this issue with you.
    Ms. Longmuir. No. You shouldn't do that because you are 
personalizing it.
    Mr. Cooper. You will get a visit from a consumer advocate 
to explain exactly this problem, but they have now told you 
they can't have six. They have told you this industry will not 
support six national competitors. You are lucky if you get 
three.
    So how do you get out of that problem? You use the new 
entrant problem; the network, that is. It would be wonderful if 
every route segment in this country had a competitor like 
AirTran. Open those 50 routes that are not profitable for US 
Air. The AirTrans. You know what? They will become profitable, 
and they will be much more heavily traveled because the price 
will go down.
    The Department of Transportation has analyzed that. And so 
what we are saying to you, we have always been pro-competitive. 
We are not regulatory. We want open access. So we are telling 
you to figure out a way to crack those fortress hubs. And you 
will get the competition, and you won't see the predatory 
practices of $1,000 down to $100 and back up to $1,000 if you 
make those people reallocate those slots for new entrants and 
they told you that is the only way this Congress can deliver 
competition to the American public is to begin to crack open 
those fortress hubs.
    Mr. Stearns. I thank my colleague.
    I think we will start the second round. I will start. Mr. 
Wolf, when US Air acquired Piedmont, you were at the helm then?
    Mr. Wolf. No, I was not.
    Mr. Stearns. Oh, you were not? Okay. But you probably know 
all of the details of the goods and bads about it, I guess.
    Mr. Wolf. I am really not sure that I do, but I will 
attempt. It was some number of years before I went to US 
Airways, but I will attempt to answer, sir.
    Mr. Stearns. Okay. I am trying to come up with an analogy 
of when US Air acquired Piedmont and then United is acquiring 
US Air, are there lessons to be learned from that acquisition 
that United should be aware of?
    Because when you folks did that, I think you let off 
employees from Piedmont. I mean, it wasn't the statement that 
they were going to keep all 45,000 like United is doing.
    Is it possible that United is going to be in the same spot 
you are in after they acquire you after you acquired Piedmont? 
I am trying to see if there is any kind of----
    Mr. Wolf. If you will allow me to try to respond to the 
sense of the question?
    Mr. Stearns. Sure, yes.
    Mr. Wolf. I don't really know if then Allegheny in 
acquiring Piedmont, if there were any layoffs at the time or 
not. I am not sure.
    Mr. Stearns. Yes.
    Mr. Wolf. But, relative to that point, whether there were 
or there were not, there will not be in this case because we 
have an ironclad job guarantee from the part of United. In 
terms of what are the lessons to be learned, I am really not 
quite sure.
    I look at the current situation. A lesson to be learned 
from the current situation is that it is my firm belief that 
there are only two economic platforms in which one can 
successfully compete in the United States commercial aviation. 
And we are not on either and don't have the financial ability 
to get to either. So United acquiring us, from my perspective, 
three things happen.
    It is a job guarantee to our employees which they do not 
otherwise have going forward in this economic environment; an 
absolute firm commitment with communities we serve. And I 
believe the synergy that will come about from all of that will 
be rather significant growth because United will truly have a 
product offering that is absolutely superb.
    Mr. Stearns. Okay. Mr. Swelbar, staff was saying that you 
had mentioned something about an s-curve. Does that ring a 
bell? Can you explain it for our members, how an s-curve 
impacts consumer in these transactions? Is there a simple 
language for us?
    Mr. Swelbar. I will do my best. The s-curve is a concept 
that as you add capacity in a market, there is a commensurate 
increase in traffic. And so the idea is you add capacity, you 
add seats, you add departures in a market. There is some 
increase in traffic that follows the addition of capacity up to 
some point, when the market is fully served. And then there 
would be the flattening of the curve.
    Mr. Stearns. And the s comes back in?
    Mr. Swelbar. That is correct.
    Mr. Stearns. Do you know what that point is?
    Mr. Swelbar. It is different. It is different for every 
market. So there is no standard measure that is used every day 
that there is a rule of thumb, no.
    Mr. Stearns. So in this airline industry, you are saying 
that you are endorsing this merger and you are saying that by 
the two of them coming together and providing a stronger 
financial bond, people will have greater choices, you are 
saying, for the consumer?
    Mr. Swelbar. Greater choice and more network points 
available. And, if you really look at small and medium-sized 
communities out there that only have access to one hub or two 
hubs that are geographically fragmented, that community is not 
going to be able to realize its true traffic potential.
    By having access to the maximum number of nodes, if you 
will, that is what it is that helps to ensure success. It is 
not that we won't lose service in some communities, but the 
maximum number of nodes does help to ensure that there would be 
service tomorrow. It is a better bet.
    Mr. Stearns. Okay. Dr. Cooper, you have heard Mr. Leonard 
talk about these low-fare carriers and the success they have 
had. And now you have Southwest, AirTran, JetBlue. Does that 
alleviate your concern at all, the fact that these low-fare 
carriers are being successful and making inroads? Do you think 
Mr. Leonard is being pretty optimistic here and aggressive in 
saying that he is going to continue on? Doesn't that sort of 
make your argument that there is going to be less competition 
detract from your argument?
    Mr. Cooper. Well, he also made the point that in each one 
of those cases, certainly in the more recent ones, the only 
reason those people get into the market is because they crack 
open slots. And they crack open slots by government action. If 
you can't get the slots, then you can't compete.
    I have sat on now panels with JetBlue and Spirit and a 
number of other folks. And they identified all of these East 
Coast airports. And, you know, Boston, JetBlue was saying: If 
we could go to Boston, we could accomplish some north-south 
effects, but we can't get a slot at Boston. We can't get a slot 
at Newark. We can't get a slot at St. Louis. We can't get a 
slot at O'Hare.
    So the simple fact of the matter is that the airports were 
primarily built with public funds. They are, in fact, a very 
public resource. And they are being used. They are being used 
to prevent competition.
    Let me make a point about the s-curve.
    Mr. Stearns. Yes.
    Mr. Cooper. The analysis does not take into account price. 
And you have heard the remarkable increases in traffic that 
occur when you get low price. You know, sure, some person will 
have a little better trip someplace and they will go, but you 
reduce the price on the order of magnitude of these new 
entrants and you get increases in traffic that swamp these 
network effects, just dwarf them. Price is a very important 
factor.
    So my answer to you is absolutely, we need to find an 
economic model that makes sure that every route segment out of 
one of those fortress hubs has a chance of being competed for. 
And that is why I think the direction Congress has begun to go 
with Mr. Dingell's bill here and the Hollings-McCain bill on 
the Senate side finding a number that lets the network carriers 
have significant traffic flow, the 50 percent number, and takes 
the rest of it and begins to open those up so that on 
attractive routes--and if you drop the price into Wyoming, 
suddenly you will find a lot more people will fly because you 
will have competition for those routes.
    Mr. Stearns. Let me let Mr. Leonard answer that, too.
    Mr. Leonard. I would just like to add one additional 
comment. We have always talked about Southwest over and over 
and over here today. The fact of the matter is Southwest 
doesn't participate in most of the airports we have been 
talking about. They don't fly to Boston. They don't fly to 
Washington National. They don't fly to LaGuardia. They don't 
fly to JFK. So if you have to fly out of those airports, there 
is no Southwest effect.
    They are very successful. They are the fastest low-fare 
carrier. But in these big business markets that we are talking 
about, Pittsburgh----
    Mr. Stearns. So you agree with him?
    Mr. Leonard. Absolutely.
    Mr. Stearns. Okay.
    Mr. Wolf. Mr. Chairman, I mean, I have to respond to this. 
We have a total in the United States of America of four slot-
controlled airports. And Congress has already passed a law that 
eliminates slots in three of them over the next few years: 
O'Hare, Kennedy, and LaGuardia. We are down to one slot-
controlled airport. Is that stifling competition?
    Two, US Air was criticized because there were no gates in 
Charlotte and Pittsburgh, where we have hubs. We have a hub in 
three cities: Charlotte, Pittsburgh, and Philadelphia. In 
Charlotte and Pittsburgh, there are surplus gates available 
today. And in Philadelphia, there will be 38 new gates coming 
online this year and 12 new gates coming online next year.
    Thank you, sir.
    Mr. Stearns. My time has expired. Mr. Towns?
    Mr. Towns. Thank you very much, Mr. Chairman.
    We keep hearing the word ``competition,'' ``competition.'' 
Mr. Ris, let me ask you. On the key hub-to-hub routes, American 
proposed to offer only token service on important hub-to-hub 
routes in competition with United. It appears somewhat illusory 
when you look at the fact that from Chicago to Charlotte, 
American will offer 3 flights compared to United's 12 flights; 
from Philadelphia to Denver, American only 2 flights, United 8; 
from Philadelphia to Los Angeles, American only 2 flights, 
United 10; from Philadelphia to San Francisco, American 2 
flights and United 9.
    Moreover, isn't it correct that American has a right to 
abandon a service if another carrier offers service, even if 
the new service is to an alternative airport? For instance, let 
us look at Charlotte, say from Charlotte to Chicago O'Hare, 
then Charlotte to Midway. It would seem to me that this looks a 
little peculiar.
    Mr. Ris. I understand what you are saying. In fact, what 
this is, it is a remedy. It is a remedy to a fact that results 
from the merger of United and US Airways in that the markets 
you just described are the markets in which United and US 
Airways actually would compete against each other today and in 
which competition would move from two airlines down to one.
    So in terms of talking to, as we understand it, as the 
parties originally proposed this, as they talk to the Justice 
Department, this is an area that caused a lot of concern. How 
are we going to protect consumers in markets in which you go 
from two carriers to one? The remedy proposed in the 
transaction when American stepped into the case, it would have 
been I think the same, regardless of which airline decided 
ultimately to do the deal, was that we agreed for a long period 
of time to provide service in this market unless somebody else 
came in so that the principle was that at the end of the day, 
if you had two carriers competing in a market today, you will 
also have two carriers competing in the market tomorrow.
    Now, from our point of view, I mean, that is part of the 
costs of doing the business. And we took a look of that and the 
economic impact of that and factored that into the price of 
doing the deal. That is driven by the regulatory authorities as 
part of their traditional antitrust review.
    If that is sufficient from a Justice Department point of 
view, that is great. If it isn't, then we have got to figure 
out some other remedy.
    Mr. Towns. Yes, Mr. Cooper?
    Mr. Cooper. Well, it is really interesting. Let me use the 
example of Charlotte. What he has described to you is getting 
back to a level of competition that is grossly inadequate to 
start with, exactly why this Congress needs to take an action.
    Let us take Charlotte. It is a 90 percent airport. We were 
going to go to a 90 percent airport or some big number like 
that. Let me go back to my Ed Meese test. A 90 percent airport 
gives you an HHI index, a concentration index, of 8,100. So 
this is not a competitive situation. The 6 or fewer is 1,800. 
So it is already 3, 4, 5 times as concentrated as a moderate 
level of competition.
    And so what we got into the situation here is the 
Department of Justice looking at situations and saying: Don't 
let it get worse? And what we are here today telling you is it 
is time to make it better, to give us more competition, rather 
than just stop it from getting any worse because it has been 
getting worse and worse and worse for a number of years.
    Mr. Towns. Let me say very quickly before my time runs out 
that some people are saying that it is cherry-picking in the 
poor South. Actually, people in the Western part of New York 
State are very angry about the sort of lack of service. And 
they feel that, as a result of what is happening now, that is 
not going to improve at all; it is going to get worse. The 
prices are going to be even higher.
    Now, what do I say to people in the Western part of the 
State of New York? Help me.
    Mr. Wolf. If you will allow me, Congressman Towns? I would 
say upstate New York has received more low-fare competition in 
the last 2 years than any other part of the country.
    Mr. Towns. You heard Congresswoman Slaughter this morning, 
didn't you?
    Mr. Wolf. Yes, I did.
    Mr. Towns. Okay.
    Mr. Ris. With all respect, I think they should talk to Mrs. 
Cubin. I mean, the fact is I think you would probably love to 
have the level of service that they have in Rochester. I mean, 
the fact is every major airline serves Rochester from its hubs 
east of the Mississippi.
    Now, we understand the concern about prices and so on. We 
are not saying that it is nirvana or whatever, but there are a 
lot of places in the country I think that would love to have 
Western New York service.
    Mr. Towns. Thank you.
    Mr. Stearns. Mr. Deal?
    Mr. Deal. Mr. Chairman, before I get to my questions, I 
would just like to thank the panel members all for being here. 
It is very obvious to all of you, I am sure, that, even though 
we are somewhat provencal in our concerns and our criticism, 
that we all do have a common interest. And part of that common 
interest I am sure all of you share.
    One of it is: Is the best service available to our 
constituency, which represents the people of this country? And 
the second is, of course, to be sure that whatever occurs in 
these mergers, that the cost of that service does not escalate 
to a point that it becomes unaffordable.
    One of the things that has come out of this, though, does 
concern me. And I am going to get to that in just a minute. But 
I can't help but have a flashback to my childhood in listening 
to your testimony.
    I am reminded of the day I went to the clothing store with 
my father, who was going to buy a suit. The salesman was very 
interested in making sure that he had the sale. And so he was 
convincing my father to buy it because he was telling him that 
he was selling the suit below his cost.
    My father was a man of few words. He listened to that 
argument for several minutes. Finally, he said: Well, how do 
you stay in business if you are selling this suit to me below 
cost?
    The man's answer was one word, ``Volume.''
    I don't want to fall into that trap. I don't want us to 
take the argument that just because we are consolidating and 
the volume gets bigger, that we are solving the problems.
    One of the things that concerns me is this issue. Quite 
frankly, it sounds like a tieing agreement when we start to 
talk about the D.C. Air. It has been acknowledged that that is 
supposed to be a low-cost platform, as I understand it. I 
wasn't quite sure whether or not that was a suggestion that 
came out of DOJ as a condition for approving the merger, that 
there had to be a low-cost provider of services, and if that is 
the case, whether it was their idea or the two airlines' ideas 
that this was an alternative way of providing low-cost service.
    I think we have to get back to the question that Mr. 
Leonard asked. And, by the way, from a provencal point of view, 
we are pleased to have you in Atlanta.
    Mr. Leonard. Thank you.
    Mr. Deal. And that is that if his statistic that 41 percent 
price reduction in those hub markets that have a low-cost 
competitor is true and, as Dr. Cooper says, entry at hubs by 
small airlines is essential, then are we simply throwing D.C. 
Air into this mix as an inducement to Department of Justice to 
approve the merger by saying we are offering you a low-cost 
provider and then with your tieing agreements virtually 
controlling that low-cost provider in the process? Am I 
analyzing this incorrectly?
    Mr. Cooper. I sure would have loved to have had those slots 
made available to any comer, rather than create a semi-
dependent competitor? I understand that we hope that it will be 
a competitor, but one way to do it would be to say we were the 
best and then let the AirTrans and the JetBlues of the world 
grab up the slots and gates and facilities and bring their 
airlines in. Then we would have known we would have had low-
cost carriers coming in, not trying to create one, because we 
knew they weren't going to get the concentration at Reagan past 
the Justice Department.
    Mr. Deal. That is obviously what Mr. Leonard was 
advocating. Did anybody advocate on behalf of any group in the 
presentation to DOJ?
    Mr. Wolf. Congressman Deal?
    Mr. Deal. Yes?
    Mr. Wolf. One of the attributes that Bob Johnson agreed to 
in the creation of D.C. Air, which was fundamentally of 
exceptional importance, was he has agreed to continue to serve 
all of the small and medium-sized communities that US Airways 
serves today out of National Airport. Indeed, you could take 
those slots and strip the service away from all of those small 
communities and fly onto larger population centers and generate 
more revenue doing so.
    Mr. Deal. Why was not that option offered to an existing 
small platform provider?
    Mr. Wolf. We had a number of discussions. I will let Mr. 
Leonard comment in a minute. We had a number of discussions. No 
one committed to serve those small communities. They wanted to 
use those slots to larger population centers, where there 
indeed is substantially more revenue.
    Bob Johnson is going to be saddled with three aircraft 
types: turboprops, regional jets, and large jet aircraft. All 
of the other interested parties wanted to serve the large 
population centers with large jet aircraft, where you can 
generate even lower costs, unit costs, and generate more 
revenue.
    Mr. Deal. Mr. Leonard?
    Mr. Leonard. Yes. Stephen's information is wrong, we 
believe. If we could get the 220 slots, with or without Mr. 
Johnson--and we had extensive conversations with Mr. Johnson to 
team up with him, which we believe at the end the consumer 
would benefit greatly from and he would actually make more 
money than his current dealt; I guess that is our view of the 
world--we have committed that we would fly every city in that 
network for as long as Bob Johnson would be willing to commit 
to do it. We would team up with him or with a commuter airline. 
We would run the jets. Seven seventeens are much, much cheaper 
to operate than regional jets.
    I don't buy the notion, I never have--I have testified to 
that--that D.C. Air will be a low-cost airline. That is a myth. 
It will not be a low-cost airline. It is starting out with 
American's costs. They are providing the vast majority of the 
services. And they are going to downsize the airplanes from big 
jets to regional jets. And you cannot operate a regional jet as 
cheap as you can operate a mainline jet on its cost-per-seat-
mile basis. It is physically impossible to do.
    Mr. Cooper. Mr. Deal, a more fundamental point. If we are 
going to architect route by route, then you are the folks who 
should be doing it, not these guys. This is a public policy 
implication here. They are exactly carving up and managing this 
network. That is a public function. That really should be done 
by public officials.
    Mr. Stearns. The gentleman's time has expired. Mr. Doyle is 
recognized.
    Mr. Doyle. Thank you, Mr. Chairman.
    Well, I don't have any venting to do, although a guy on the 
elevator when I came up here asked me why you canceled that 
Buffalo flight Thursday night. I told him I would ask you, 
Steve.
    Let me ask this: We are all concerned about competition. 
Someone really did ask me that question. I won't tell you who 
the member was, but he was from Buffalo.
    We are concerned about competition at Pittsburgh and at all 
of these hubs. I just wonder: Would you agree with me that the 
new airport funding that has been made possible in Air 21 is 
going to help increase competition by providing funding for 
capacity-enhancing projects, such as building new gates, in 
these airports?
    Mr. Wolf. The answer is absolutely yes, but, in all 
fairness, it is certainly going to be some number of years. The 
surplus in the aviation trust fund has been used by both 
administrations for a number of years, not to spend because 
they couldn't, but used to balance the budget. The truth of the 
matter is the infrastructure industry is years and years behind 
the power curve from getting back to where it should be.
    Mr. Doyle. You know, I fly out of Reagan on US Airways--if 
you live in Pittsburgh, that is the airplane of choice--a lot. 
And I see these e-ticket check-in kiosks there. I have heard 
very, very positive comments about this.
    I am just wondering as you put this merger together if 
United is going to try to incorporate some of these consumer-
friendly ideas into your plan like we see at Reagan with US 
Airways.
    Ms. Longmuir. Yes, Congressman Doyle. We already have a 
number of those already deployed. I think we have 80 already in 
our system at 3 test airports right now. I think it is Chicago; 
an airport in California, which I don't recall at the moment; 
and then a small airport in Colorado.
    What we keep hearing from our customers is that they want 
to have control of the process, whether it is control of the 
information, whether it is control about when they board, when 
they sign on. And this is our attempt to try and, frankly, have 
them have control about seat selection and to giving them the 
benefit of the technology so that they can sign in on the way 
to the gate and really cut down on line weight. So we have 
already planned with our integration project for a rapid 
deployment of that technology as well as others to the now 
current US Airways network.
    Mr. Doyle. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Mr. Stearns. Mr. Whitfield?
    Mr. Whitfield. Thank you, Mr. Chairman.
    Mr. Wolf, you had mentioned earlier that in Philadelphia, 
there would be 38 new gates this year and 12 next year. How is 
it decided which airline can obtain one of those gates?
    Mr. Wolf. Well, the 38 that are coming on line this year is 
a new stand-alone terminal. It is an express terminal, although 
the depositions in gates will take large jet aircraft also. 
Whoever wants to sign up a leasehold for those gates, we are 
going to take a large number of them so we will have gates to 
board our express operation today. But there will be a large 
number of gates that are left over for other carriers. If they 
want to sign a lease to use the gates, they are free to do 
that.
    The other one is the 12 gates that come on line next year, 
which are in the new international arrivals building for 
international departures and arrivals.
    Mr. Whitfield. And what is the custom on the length of 
these leases to obtain a gate?
    Mr. Wolf. It does vary by airport. In the case of 
Philadelphia, I am not sure if they are leases at all or it is 
preferential use with the city. That is, whoever wants to use 
the gate and has activity can use the gate or the next gate or 
the next gate down, if you will.
    Mr. Whitfield. I am assuming you would negotiate and work 
out a price.
    Mr. Wolf. Oh, yes. You pay rent, and you pay landing fees.
    Mr. Whitfield. Okay. Now, I am also assuming just from the 
discussion that the Department of Justice did not require that 
D.C. Air specifically be set up to provide competition. Mr. 
Deal touched on this. I am assuming that Air Trans could have 
provided the competition as well. I was just curious.
    From what Mr. Leonard said, you did enter into negotiations 
with either American or U.S. Air or United or D.C. Air, but 
those negotiations just fell apart. Is that right, Mr. Leonard?
    Mr. Leonard. That is correct.
    Mr. Wolf. Well, I am sort of familiar with the D.C. Air 
side of it. There were negotiations between D.C. Air and 
AirTran. They weren't fruitful for a reason that I would think 
that Mr. Leonard would think is unfortunate. And they wound up 
going on and negotiating with American Airlines, who is going 
to buy 49 percent of it and provide stronger network support 
and make D.C. Air an even more vigorous competitor going north-
south in the Eastern part of the United States.
    I would add, Congressman Whitfield, that in the process of 
the conversation today, there is starting to be a little slur 
about D.C. Air. There should be no slur whatsoever about D.C. 
Air. This is a new entrant carrier being headquartered in 
Washington, DC who is going to serve 43 communities outside of 
this metropolitan area owned and operated by in my opinion a 
superb business individual.
    Mr. Whitfield. And I am sure you are correct on that. I 
don't think that any of us have slurred D.C. Air at all. I 
think we are just trying to get the facts of it.
    Mr. Wolf. I certainly didn't mean you.
    Mr. Whitfield. Okay. Mr. Cooper?
    Mr. Wolf. I am talking about this body here, sir.
    Mr. Whitfield. Mr. Cooper, let me ask you. Do you feel like 
that the way slots are handled and gates are handled in the 
airline industry today is appropriate or do you think that 
there needs to be reform in that area or what?
    Mr. Cooper. Yes. We think that we need to open the fortress 
hubs. We need to open them and in a way that there is 
sufficient capacity so that entrants can compete for routes 
going in and out of those hubs. We think that the Congress has 
begun to hit upon the approach, which is not to get back into 
prescribing routes and prices but to providing open access, 
competitive access.
    Consumer Federation has supported competition throughout 
these industries. And so the key input that is missing for 
competition in the dominated airports is access to gates and 
facilities, not slots, gates and facilities. So we need to find 
a way to begin to open those airports up at 40 percent or 50 
percent. Once they become that concentrated, once you have more 
than half, half the enplanements, you have to let competition.
    Mr. Whitfield. Do the Dingell bill and McCain bill address 
those issues?
    Mr. Towns. They go straight at this question of opening up 
those fortress hubs. Absolutely.
    Mr. Whitfield. Thank you, Mr. Chairman.
    Mr. Stearns. Mr. Rush?
    Mr. Rush. Thank you, Mr. Chairman.
    Ms. Longmuir, let me ask you. We have heard a lot of horror 
stories, frankly, about the level of customer satisfaction, 
customer service for some abounds throughout the system. United 
has been the focus this afternoon in terms of the customer 
satisfaction and customer service.
    Let me ask you: How will this merger increase customer 
satisfaction?
    Ms. Longmuir. Well, I must say thank you for the question. 
I clearly sense the great frustration of the members on this 
Committee. I certainly meant no disrespect in urging my 
personal addressing of your scenario. It, frankly, is no 
different treatment than what we are giving to, unfortunately, 
the many passengers that travel on United. We lift 225,000 
passengers a day, a small city. Frankly, we are trying to 
address on a case-by-case basis with our passengers and to win 
them back.
    Nothing breaks the heart more of the employees at United 
when we don't do what we say we are going to do. We are not 
happy when we inconvenience a passenger. We don't always act as 
we should. That is sad, and that is unacceptable. That is 
precisely why in a time when we are facing a down turn, have 
high labor costs, are renegotiating labor costs, we have 
committed as of 2 weeks ago $150 million in order to try and 
upgrade customer service and to give customers more of what 
they want.
    We have started several months ago with an integration 
team. Currently at United, there are over 700 employees on a 
full-time basis working on: What will day one look like after 
this merger goes through? And it will be very different than 
perhaps what the public expectation might be in the sense that 
it will not be a dramatic change. It will be very measured and 
small.
    Day one United Airways employees will still go to work at 
the same place. US Airways passengers, now United passengers, 
will still go to the same gates, to the same aircraft. There 
will be no visual difference in how the airline looks.
    Why? Because we wanted to make each step in a careful and 
planful way because in the surveys that we have done trying to 
be extremely methodological about this, looking at other 
industries that have merged that have not had a successful 
customer experience, we want to know what went wrong.
    Our customers' greatest fears are: Don't lose me in the 
system. So that is driving everything that we are doing now in 
trying to structure day one, week one, month one, year one 
because it will take that long in order to accomplish a total 
integration.
    Mr. Rush. Thank you very much.
    Mr. Ruden, have you heard of the ORBITZ system?
    Mr. Ruden. Yes, indeed.
    Mr. Rush. Okay. What is the ORBITZ system? Can you explain 
it briefly?
    Mr. Ruden. The ORBITZ system is a Web site operated by a 
joint venture that is owned by the five largest domestic U.S. 
airlines, who have, in turn, contracted out participation in 
the project to another approximately 30 to 35 airlines.
    The concept underlying it is to jointly create a Web site 
at which they say all airline services will be available for 
sale and also other travel products and services with the 
special feature that because of some software that they claim 
has special characteristics, they will be able to offer low 
fares that no one else has at this site.
    The project is also characterized by most favored nation 
agreements among the participants such that if an airline puts 
a low fare up on its own Web site, it must share that fare with 
ORBITZ but does not have to share it with anyone else. That is 
the essence of what the ORBITZ project is.
    Mr. Rush. What type of effect would that have on travel 
agents and agencies?
    Mr. Ruden. Well, I think any marketplace arrangement 
jointly arrived at that deprives those people who currently 
sell most of the air travel in this country and who do so in 
conditions of real and genuine, thorough going competition, any 
system which jointly deprives them of access to some portion of 
the product that the public wants is going to be economically 
destructive to them.
    It is also, more importantly, from a public policy point of 
view going to be destructive of consumer interests because not 
every consumer wants to deal with an airline-owned Web site to 
buy their air transportation. Those people, in all likelihood, 
it appears, will be deprived if ORBITZ is allowed to proceed, 
deprived of access to the lowest fares. We think that is bad 
for the public, inappropriate, and probably unlawful.
    Mr. Stearns. The gentleman's time has----
    Mr. Cooper. I would say that we have serious concerns about 
this sort of arrangement, which really does deny access to a 
critical input to potential competitors.
    Mr. Stearns. Mr. Buyer?
    Mr. Buyer. Thanks. I would note that, Mr. Ris, you are 
about the quietest one on this panel.
    In your testimony, you explain that global alliances 
contributed the movement toward domestics consolidation. So I 
would like for you to explain that.
    I also would like to know whether you or Ms. Longmuir can 
explain for us the clause in the memorandum of understanding 
between American and United which states that if American grows 
to be 7.5 percent larger than United, United may then terminate 
the shuttle venture it has with American. Why was that 
provision necessary? What purpose does it serve?
    I am also very curious, Ms. Longmuir. Why was American 
chosen to buy the 20 percent of US Air assets and have other 
joint ownership of the shuttle? And were other alternatives or 
alternative airlines considered for the purchase?
    Mr. Wolf, I am also curious as to why American was chosen 
to be the one who received the 49 percent of the D.C. Air. Why 
wasn't that opened up to other low-cost airlines? So that is my 
curiosity at the moment.
    Mr. Ris?
    Mr. Ris. Sure. Thank you very much.
    This is on your first question with respect to the global 
network implications. Several years ago, in order to facilitate 
the successful negotiations of open skies agreements with 
various different countries around the world, which was a 
laudable and desirable objective of the U.S. Government, the 
U.S. Government decided to try to induce other countries into 
signing these deals on the basis of allowing the immunized 
agreement between a foreign carrier, first one being KLM, and 
the U.S. carrier, the first one being Northwest--Northwest-KLM 
was the first--in order to allow the entry into the United 
States of the foreign carrier in sufficient levels in order to 
induce the country to have an open skies agreement with the 
United States.
    At the time American was very opposed to this concept 
because it entails obviously co-chairing and behavior that 
otherwise wouldn't be acceptable under antitrust laws. We 
fought it for a long time. We fought it, and we lost.
    It became a pattern of bargaining internationally with the 
U.S. Government. And, as a result, it resulted in the formation 
of global networks, one of which is the Star Alliance, one of 
which we now are part of which is called One World. And Delta 
has its alliance and Northwest-KLM have their alliance.
    Mr. Wolf alluded to the fact that if you are today because 
of the global nature of our business not part of one of those 
alliances, you are at a significant disadvantage. In fact, that 
is where US Airways is today.
    So that is what I was saying in terms of sort of 
affirmative U.S. policy, saying that network size is positive, 
has positive benefits, to the point of which we are going to 
immunize you from the antitrust laws.
    With respect to the second question, which is what we call 
the so-called claw-back provision in the agreement between 
United and American, as you might expect, this is not something 
that American sought. American would prefer not to have such a 
provision, but in the give and take of negotiations, it was 
important to us if we were going to have a role in this deal to 
have at least a piece of the shuttle. The shuttle is really a 
very prime piece of property here that US Airways has, and it 
is a very important component of getting a market presence in 
the Northeast.
    This was one of the conditions that United insisted upon 
and we agreed to as a condition of doing this. We felt like 
there wasn't much danger. We didn't have any particular desire 
to go out and acquire another company that would add 7 percent 
to our rpm. So we decided to go ahead and do it, but it was 
just a negotiated deal.
    Ms. Longmuir. With respect to your third question, why was 
American chosen, were there any other carriers that were 
approached, I was not part of that process at United. I think 
Mr. Wolf may have known more about that.
    My understanding is that we spoke to a number of different 
carriers, at least one other very large network carrier as 
well. There was an active negotiation.
    Mr. Buyer. Thank you.
    Mr. Wolf. On that point, Congressman Buyer, it came about 
as a result of a Justice Department review. They thought, the 
Justice Department thought, that D.C. Air had a viable 
businessman; would be a profitable company; and Bob Johnson 
would be a fine, superb owner. But there were two things he 
didn't like about it.
    Initially D.C. Air would be leasing some aircraft from 
United. And the Justice Department thought there should be 100 
percent sever in any relationship with United. And, two, 
although D.C. Air would be viable and profitable, it could be 
even more so and more competitive if it had some sort of a 
network carrier association strength, whatever, behind it.
    Although D.C. Air talked to a number of airlines in the 
country and ultimately decided to sell 49 percent of it to 
American Airlines, which severs any United relationship 
completely, they will lease some aircraft from American, at 
least initially. And, two, they will have the strength of 
American's frequent flyer program and network behind them.
    So, although D.C. Air will be flying effectively the same 
routes, they will have a strong network carrier supporting 
them. And they will be even a more vigorous competitor going 
north-south in the East.
    Mr. Buyer. Thank you.
    Mr. Stearns. Ms. Cubin?
    Ms. Cubin. Thank you, Mr. Chairman. I just have a couple of 
questions.
    This is for Ms. Longmuir: Of the $150 million that the 
company is investing for customer service improvements, how 
much toward regional air carriers in rural areas will you be 
spending?
    Ms. Longmuir. Well, actually, this is not part of the $150 
million, your reference to the cattle chute. We are actually in 
the process of doing a new terminal for regional express 
carriers at DIA with a completion deadline of 2003.
    What is clear is that in the interim, what we are doing 
isn't satisfactory, but that is something that we have 
allocated from our airport affairs budget, if you will, better 
facilities for serving the regional express carriers.
    Ms. Cubin. That will greatly be appreciated. Another 
question that I would like to ask you and Mr. Ris: I keep 
hearing how these two mergers will raise the bar of competition 
in the East or relieve the competitive imbalance in the 
Northeast. That is good, but I wonder if there are any 
guarantees that you can make regarding the competitive 
imbalance existing in the West?
    Ms. Longmuir. Well, with respect to service from the 
Western part of the country to the East, right now, United, we 
really can't offer you any kind of penetration or presence into 
the East Coast. So what we are hoping as a result of this 
merger is it will then give you opportunities to go perhaps to 
Boston, but you will have a variety of different hubs over 
which you can choose, O'Hare, perhaps Pittsburgh, perhaps 
Philadelphia, maybe even Charlotte.
    But all of those go to the point of having competition, not 
only between the different hubs to get you to your ultimate 
destination, but then that also allows you as the passenger to 
fare shop and compete that ticket on other carriers, who can 
also connect you from perhaps an interior point. But within the 
United system, there will be a variety of different hubs over 
which you could flow to get to your endpoint on the East Coast.
    Ms. Cubin. And certainly we realize in Wyoming that the 
population in space is such that we aren't ever in my lifetime 
going to have direct flights and really don't expect them. So I 
appreciate the improvements that would be made.
    Mr. Ris?
    Mr. Ris. Yes, a couple of thoughts. One, I think with 
respect to American's role in the United-US Airways merger, to 
be candid, there is probably not a lot of impact in the Western 
United States that can be directly seen.
    Ms. Cubin. Right.
    Mr. Ris. In terms of our acquisition of the assets of TWA 
and operating a hub out of St. Louis, there probably are 
because TWA and its express carriers serve a lot of the smaller 
communities, albeit it is a little bit of a stretch to Wyoming.
    One of the things that I think you raised--and it is really 
interesting in the context of this Committee and something that 
we have really been thinking a lot about--is whether Congress 
and the administration and the industry, the consumer groups, 
and everybody should be reevaluating this essential air service 
concept.
    I mean, this is a concept that is as old as deregulation. 
It was 1978. And it is funded at 1978 levels. And it has got a 
concept, the very concept itself, essential air transportation, 
is something that is somewhat debatable because we understand 
that air transportation is about largely economic development. 
And we have this total chicken and egg syndrome, where 
communities come and say: If you will serve our community, we 
will be able to grow business, and you will thrive.
    But we come in and say: If you have business, we will serve 
your community. It is this back and forth kind of a thing.
    Now, this is a Committee that deals with 
telecommunications. And there is a concept in 
telecommunications, as I understand it, universal service. I am 
not advocating that necessarily, but I think it is time to have 
an explicit debate about where we are in this because there are 
parts of the country, as you point out, that are probably not 
going to get service, nonstop service, to New York or Chicago 
or something that may very well as a matter of national 
policy--maybe we should be looking at a system in which we have 
a more robust way of, for lack of a better word, subsidizing or 
incentivizing or providing service that is even above, 
essential, but comes into the sort of necessary service in 
order to attract economic development.
    I think we are thinking about different ways of approaching 
this. And we would like to share ideas on that as we move 
forward because I think you have hit on a very, very 
interesting potential public policy issue.
    Ms. Cubin. Thank you.
    Mr. Stearns. I thank my colleague.
    Mr. Rush, you said you wanted an additional 30 seconds?
    Mr. Rush. Yes. Mr. Chairman, thanks so much.
    I would like to ask Mr. Wolf. Mr. Wolf, how long have you 
been in the airline industry?
    Mr. Wolf. My entire adult life.
    Mr. Rush. Your entire adult life. Have you ever witnessed, 
have you ever seen an opportunity for a minority to become an 
owner of a major airline in your past experiences? How often do 
these types of opportunities----
    Mr. Wolf. Well, there was one 25-30 years ago in Atlanta I 
think that involved 2 or 3 aircraft. It struggled and did not 
succeed.
    Congressman Rush, I personally brought this opportunity to 
Mr. Johnson. He serves on our board of directors. I am 
enormously impressed with Mr. Johnson.
    I must add that part of it deals with my own upbringing. I 
grew up in East Oakland, California, very significant minority 
population. I thought this was a tremendous opportunity for Bob 
and for Bob to be a role model in an industry in which there 
are no African Americans of any stature at all because they 
don't seem to be anywhere in the industry, quite frankly.
    Mr. Rush. So this opportunity to diversify the ownership is 
an opportunity that doesn't come about quite often.
    Let me ask this one question, one final question, here. Is 
there anything extraordinary or out of the ordinary or is there 
anything unconventional about this type of deal that was put 
together with D.C. Air in terms of corporate mergers, in terms 
of business, how business operates within----
    Mr. Wolf. Good question. There is one absolutely 
extraordinary difference in the creation of D.C. Air as a new 
startup airline in the country. And the most recent would be 
JetBlue. It started, I believe, with two airplanes and served 
two cities. The creation of D.C. Air involves 44 cities, 
National Airport in Washington, DC and 43 others, that come 
online effectively almost overnight.
    Because that is the case and because Mr. Johnson today does 
not know whether he is going to own D.C. Air or not because he 
doesn't know whether the Justice Department and the Attorneys 
General are going to approval the transaction, I mean, he can't 
prudently go out and start buying airplanes and hiring pilots.
    He will find out if this is going to be approved and, 
indeed, worked out with the Justice Department. And 90 to 120 
days later, this airline has got to convert from existing 
services that United will have to perpetuate, our services, 
until he can take over.
    It is an extraordinary undertaking, never before happened 
in the history of the industry.
    Mr. Rush. Thank you. I will yield back.
    Mr. Ris. May I say that is precisely why he needs a partner 
like American or AirTran or somebody who is in the business who 
can do it. And let me just add we at American are immensely 
proud to be affiliated and associated with Bob Johnson. He is a 
class act. And it is a source of great pride to us.
    Mr. Rush. Thank you.
    Ms. Cubin. Mr. Chairman?
    Mr. Stearns. Yes?
    Ms. Cubin. Just a brief remark.
    Mr. Stearns. Sure.
    Ms. Cubin. I am unfortunate in that I don't know Mr. 
Johnson. I don't believe that I have ever met him. But I would 
certainly hope that if someone decided they weren't in support 
of the merger, that it would in no way be interpreted as not 
wanting to diversify ownership to minorities.
    I am a member of a minority in several ways. So I certainly 
hope that it wouldn't be construed to be that.
    Mr. Stearns. Duly recognized. Let me conclude the hearing 
by just saying, quite frankly, all of us up here are public 
servants. We are here for our constituents. I counted up just 
under 30 members came in and out of this hearing. It has been a 
long hearing for you. But, frankly, when you go back to your 
office tomorrow and you folks are making a lot more money than 
we are, you are doing a public service yourself, maybe perhaps 
not you, you are doing a public service yourself in being here.
    And so I hope that you participated and realize how 
important it is to have your participation. We thank you 
sincerely, and the subcommittee is adjourned.
    [Whereupon, at 3:10 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

   Prepared Statement of Hon. Gregory W. Meeks, a Representative in 
                  Congress from the State of New York

    Chairman Stearns, Ranking Member Towns, and other distinguished 
Members of the committee, thank you for the opportunity to submit my 
testimony. I seek to go on the record because of the tremendous impact 
aviation has on my district's current and future economic welfare, as 
well as the significant role aviation has on our country's economic and 
national security infrastructure.
    For the record, I understand and share some of the concerns 
expressed regarding consolidation in the airline industry. Since I was 
elected to Congress three years ago, I have fought vigorously for 
service to smaller communities and increased competition. Despite much 
opposition from local elected officials in New York City as well as 
civic organizations in my district, I successfully brokered a 
compromise in the historic AIR-21 legislation that increased service 
opportunities to upstate New York and other under-served destinations 
around the country from both New York City airports.
    Furthermore, I worked tirelessly with former Secretary of 
Transportation Rodney Slater and Senator Schumer to get Jet Blue the 
regulatory approval to operate out of John F. Kennedy International 
Airport, which lies in the center of my congressional district.
    My record on aviation issues has been well-balanced against the 
interests of consumers, employees, airlines, labor, communities that 
neighbor airports and environmentalists.
    However, the announced agreements between United Airlines and US 
Airways as well as American Airlines successful acquisition of TWA's 
assets have my strong support because I believe that both deals will 
increase domestic competition, continue air service to communities that 
now have service, and protect the jobs and retiree health and pension 
benefits of thousands of current and former employees. I judge each 
deal on a case-by-case basis weighing the merits and public interest 
benefits. That is why I am very pleased that the bankruptcy court, as 
well as the U.S. Justice Department approved the American-TWA 
transaction. This was the right course of action, saving thousands of 
jobs and preserving the economic interests of the communities TWA 
serves. It is my hope that the Members of this committee, as well as 
the Justice Department will come to the same conclusion with the 
United-US Airways proposal and quickly approve this deal. US Airways is 
a financially-distressed airline and immediately needs the financial 
and operational help United Airlines will provide.
    In the United-US Airways proposal, consumers, employees, creditors 
and other stakeholders will benefit from not having a financially-
distressed airline go out of business like their former counterparts 
Pan Am, Eastern, and Braniff.
    It is important for you to recognize the economic impact of having 
an airline go out of business. My district still suffers from the 
devastating economic losses of Eastern Airlines and Pan American World 
Airways. In both cases, the court allowed the airlines' assets to be 
liquidated to the highest bidder. It resulted in the two airlines' 
competitors acquiring Eastern and Pan Am's most prized routes. However, 
it also resulted in thousands of permanent displaced workers, who, in 
many cases, were employed by one of the carriers for more than 30 
years. This action by the bankruptcy court left those American workers 
without a job and no benefits after a lifetime of service and 
dedication to Eastern or Pan Am.
    Despite the claims by opponents that are being made against the 
announced merger agreement, if you look back closely to the Eastern and 
Pan Am case, you will see a contradiction to the argument being made 
against the United-US Airways deal. Eastern and Pan Am's competitors 
achieved greater market concentration with their newly acquired assets 
from two liquidated defunct-airlines. Mr. Chairman, how did this 
increase competition? It did not. As I stated earlier, it only resulted 
in the employees and retirees of Eastern and Pan Am being hurt the 
most. We must not repeat that mistake again!
    Let me be very clear, the proposed agreement between United-US 
Airways is in the public interest. As a recent New York Times editorial 
said: ``Travelers in the Northeast will probably see more competition 
as a result of this agreement.'' I agree. For example, these deals will 
bring a strong third competitor in the lucrative Boston-NewYork-DC 
shuttle market. Meanwhile, the nationwide competitive impact will be 
enhanced greatly. For example, United's Charlotte hub will compete more 
vigorously with Delta's Atlanta hub, United's Philadelphia hub will 
compete more vigorously with Continental's Newark hub, and American's 
St. Louis hub will compete more vigorously with Northwest's Minneapolis 
hub. The Northeast market which is currently dominated by Delta, 
Continental and US Airways will receive new competition from United and 
American Airlines as well as the new-entrant carrier--DC Air--created 
only if the United-US Air deal is approved.
    Meanwhile, the DC Air/American deal will also ensure strong 
competition between United and DC Air in the Washington, DC region. DC 
Air's agreement with American Airlines also ensures the initial success 
of DC Air as an independent entity with a lower cost structure which 
can be translated into lower fares for the consumers which will be 
served on the 45 routes by DC Air.
    The DC Air/American Airlines partnership enables DC Air to move 
from a virtual airlines which it must remain until the United/US 
Airways merger is approved, to a fully operational airline serving some 
45 communities from Washington National Airport overnight. It ensures 
that the commitment which DC Air has made to uninterrupted service to 
these communities will be kept.
    On a personal note, I am honored to support this endeavor by Bob 
Johnson. Bob has made significant contributions to the African-American 
community and our country. I enthusiastically welcome his entry into 
the aviation industry for three reasons: First, as a businessman, Bob 
has successfully demonstrated time-and-again, that he can efficiently 
and effectively manage an organization from the ground-up.
    Secondly, Bob Johnson is a man of the highest character and 
integrity. He would be a welcome addition to an industry that once-
upon-a-time, not too long ago, was represented by two individuals whom 
I believe have the lowest of character and no integrity. Two 
individuals who intentionally bankrupted successful companies for their 
own personal gain. And finally, this transaction represents the first 
minority-ownership of an airline in 30 years.
    Let me also add my remarks regarding some of the proposed ideas 
regarding these transactions. Some interest groups, certain airline 
executives, as well as some of my colleagues have suggested that if the 
United-US Airways deal is approved it should be so only if ``slots'' 
are taken away from United/US Airways/American or DC Air at 
Washington's Reagan National, JFK or LaGuardia Airports. This is bad 
public policy and something I strongly oppose. I have said on many 
occasions that the redistribution of slots is fundamentally unfair. 
Slots were imposed on the airlines by Congress in the late 60s. Since 
today's largest slot holders are airlines that invested heavily at the 
slot-controlled airports or acquired their slots through mergers or 
acquisitions, it will be inequitable for Congress, the Justice or 
Transportation Departments to redistribute slots to new entrants or 
smaller carriers under the false premise that this action will promote 
competition. What happens to airlines like Delta who is currently 
investing $1.6 billion at JFK; or American who is currently investing 
$1.4 billion at JFK; or United who is currently investing more than 
$700 million at JFK? These airlines are assuming large amounts of risk 
with no guarantee that they will receive a return on their investment. 
Is it fair that we take some of their most valuable assets and 
redistribute them to some of their competitors? Meanwhile, for example, 
what will happen if slots are given to smaller carriers like an Air 
Tran at National and LaGuardia airports and Air Tran goes out of 
business?
    In a market-driven economy, the airlines that own the slots should 
have the right to sell, lease, or use them however they feel it best 
fits in their business plan. If a new entrant or small carrier wants 
take-off and landing rights at a particular slot-controlled airport, 
they should pay the current market-price if the slot owner is willing 
to sell. That is how a deregulated environment is designed to work--not 
through artificial advantages imposed by policymakers or regulators 
reacting to pressure from certain special interest groups.
    In conclusion, thanks again for the opportunity to submit my 
written testimony. I hope that this distinguished committee sees the 
many public interest benefits of the United-US Airways, the recently 
approved American-TWA, as well as the DC Air transactions. Fostering an 
environment that allows low-cost carriers such as Southwest, Jet Blue, 
DC Air and others to grow alongside the global network, full-service 
major airlines is the best means to encourage competition and 
affordable air travel.

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