[Senate Hearing 107-223]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 107-223

    AVIATION COMPETITION AND CONCENTRATION AT HIGH-DENSITY AIRPORTS

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 21, 2001

                               __________

                           Serial No. J-107-7

                               __________

         Printed for the use of the Committee on the Judiciary

                                _______

                  U.S. GOVERNMENT PRINTING OFFICE
76-916                     WASHINGTON : 2002

____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JEFF SESSIONS, Alabama               RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas                CHARLES E. SCHUMER, New York
MITCH McCONNELL, Kentucky            RICHARD J. DURBIN, Illinois
                                     MARIA CANTWELL, Washington
                      Sharon Prost, Chief Counsel
                     Makan Delrahim, Staff Director
         Bruce Cohen, Minority Chief Counsel and Staff Director
                                 ------                                

      Subcommittee on Antitrust, Business Rights, and Competition

                      MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          PATRICK J. LEAHY, Vermont
STROM THURMOND, South Carolina       RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas                CHARLES E. SCHUMER, New York
                                     MARIA CANTWELL, Washington
                 Peter Levitas, Majority Chief Counsel
               Victoria Bassetti, Minority Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     1
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...     2
Schumer, Hon. Charles E., a U.S. Senator from the State of New 
  York...........................................................     4

                               WITNESSES

Healy, Kevin P., Vice President of Planning, AirTran Airways, 
  Inc., Orlando, FL..............................................     9
Kamen, Hershel I., Staff Vice President, International and 
  Regulatory Affairs, Continental Airlines, Inc., Washington, DC.     5
Mitchell, Kevin P., Chairman, Business Travel Coalition, 
  Lafayette Hill, PA.............................................    11

 
    AVIATION COMPETITION AND CONCENTRATION AT HIGH-DENSITY AIRPORTS

                              ----------                              


                       WEDNESDAY, MARCH 21, 2001

                      United States Senate,
    Subcommittee on Antitrust, Business Rights and 
                                       Competition,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 10:06 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine, 
Chairman of the Subcommittee, presiding.
    Present: Senators DeWine, Kohl, and Schumer.

STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE STATE OF 
                              OHIO

    Chairman DeWine. Good morning. Let me begin by thanking my 
colleague, Ranking Member Kohl, for joining me in holding this 
hearing today.
    Herb, thank you very much. He and I share strong concerns 
about airline consolidation and the impact it will have on 
consumers nationwide.
    Just last month, we held a hearing in this Subcommittee to 
examine the competitive impact of the announced mergers 
involving United Airlines, US Airways, DC Air, American 
Airlines, and TWA. At that hearing, we heard from the CEOs of 
each of the airlines involved in the transactions, as well as 
from those at airlines not involved in the mergers. We also 
heard testimony from experts in the aviation field.
    Having considered this testimony, as well as additional 
information that we have gathered, I have weighed the potential 
benefits against the potential competitive problems that are 
likely to result from the pending transactions. I have 
concluded that if the mergers are approved, on balance, 
consumers will be hurt more than helped.
    In light of this conclusion, we needed to take action. So 
along with my colleagues Senator Kohl, Senator Grassley, and 
Senator Reid of Nevada, we have introduced legislation to 
increase and maintain competition in the domestic aviation 
industry. If the traveling public is to have access to 
affordable, quality air service, real competition is essential.
    A big part of protecting competition in the industry 
involves making sure that a sufficient number of competitors 
have access to airports that are essential in this network 
business. Currently, two of these key airports, Reagan National 
and LaGuardia, are subject to Government slot controls which 
limit the number of takeoff and landing slots during a day.
    If the United and American deals are permitted, those two 
airlines will control roughly 65 percent of the slots at Reagan 
National and New York LaGuardia. These are key public resources 
that airlines need reasonable access to in order for 
competition to be maintained. Simply put, competition is not 
served if we allow two airlines to dominate these vital 
airports.
    More important, consumer interests are not served if any 
airline is permitted to gain such a position through mergers. 
That is why my colleagues and I have introduced S. 520. Our 
bill helps to protect access to Reagan National and LaGuardia 
by adding a new section to the Clayton Act, a new section that 
will limit the percentage of slots that carriers already 
holding a large share of the national aviation market can 
control at these two airports.
    Our legislation would ensure that no single airline gains 
an anticompetitive advantage at these slot-controlled airports. 
It would do so by not allowing any large airline that controls 
20 percent of the total slots at those airports to control more 
than 20 percent of the slots over any two-hour period.
    If such an airline did have more than 20 percent of such 
slots, that airline would be required within 60 days to either 
return the slots to the Department of Transportation or sell 
the slots in a blind auction. This procedure would preserve 
competition by giving all airlines equal opportunity to bid for 
the slots and gain access to these airports.
    Again, my overriding concern is the welfare of the 
traveling public. Travelers are frustrated about poor service, 
delays, and high air fares. The answer to those and other 
challenges is not more consolidation. The answer is effective 
competition. We must protect the consumer.
    I fear that the airline industry is moving in the wrong 
direction, toward a consolidated industry, away from a truly 
competitive, consumer-friendly environment. That is not good 
news for the industry, and that certainly is not good for 
consumers. We need to move back to real competition in our 
domestic aviation industry, an industry that we all recognize 
plays a vital and necessary role in our Nation.
    Since we introduced our bill, I have met with Jim Goodwin, 
the CEO of United Airlines, and he has expressed to me his 
concerns about our legislation. I am aware that there are 
different points of view regarding the bill and its full 
impact, and I remain open as to ways this bill can be improved 
to further promote competition and to protect consumers.
    I want to thank our witnesses for being here today and I am 
anxious to hear their testimony.
    Let me now turn to the ranking minority member of the 
Committee, Senator Kohl.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. I thank you, Mr. Chairman, for holding this 
important hearing focusing on our recently introduced 
legislation to bring competition to high-density airports.
    When the airlines were deregulated more than 20 years ago, 
no one could have imagined that we might end up with just three 
airlines dominating the skies. But if we are not careful, in 
only a few months real airline competition may be a thing of 
the past in our country.
    The measure we will examine today could help preserve 
competition among airlines. It is an important step during this 
time of massive consolidation in the airline industry. Our 
legislation would prevent any large national carrier from 
gaining a dominant share of takeoff and landing slots at either 
Washington Reagan National or New York LaGuardia airports.
    Under our measure, any airline with at least a 15-percent 
share of the national market cannot control more than a 20-
percent share of the slots at either Washington Reagan National 
or New York LaGuardia in any two-hour period. If an airline 
exceeds these limits, then it must either return the excess 
slots to the FAA or sell them in a blind auction to its 
competitors.
    We need to do this for a single simple reason. If one or 
two airlines dominate these key airports, then in combination 
with their hubs they can gain effective control of the national 
market. Let me give you one fact that shows how important these 
airports are to America's air transportation system. More than 
one-quarter of the Nation's entire congestion-related flight 
delays resulted from LaGuardia Airport alone.
    Gaining access to slots at these airports is essential for 
smaller and start-up airlines if they are to compete with the 
mega-carriers. And if we want competition to survive in the 
21st century, then we are going to need these small 
competitors. This bill will enable smaller and new carriers to 
have a fair shot at gaining access to these airports and thus 
help bring real competition both to consumers who travel to and 
from New York and Washington and also to the Nation's skies as 
a whole.
    We recognize the importance of maintaining frequent and 
reliable air service to smaller cities, such as those in 
upstate New York, New England, Ohio, and elsewhere, from these 
two crucial airports. Competition at slot-controlled airports 
need not be achieved at the cost of losing service to the 
smaller communities now currently served from these airports. 
We will work carefully with our colleagues who represent these 
communities to ensure that nothing in this bill diminishes this 
vital air service.
    So we thank our panel of witnesses for testifying here 
today and we look forward to hearing their views on this 
proposal.
    Thank you, Mr. Chairman.
    Chairman DeWine. Senator Kohl, thank you very much.
    Let me introduce our panel very briefly.
    Hershel Kamen is the Staff Vice President of International 
Regulatory Affairs for Continental Airlines. His 
responsibilities include international bilateral negotiations, 
the analysis of proposed Federal regulations--good luck--and 
government affairs analysis. He joined Continental in December 
1994.
    Kevin Healy joined AirTran Airways in April 1999 and serves 
as the Vice President of Planning for AirTran Airways. As vice 
president, he oversees the airline's route strategy, 
scheduling, pricing, revenue management, reservations, and 
sales. He most recently served as Director of Domestic Pricing 
for US Airways.
    Kevin Mitchell is the Chairman of the Business Travel 
Coalition. Mr. Mitchell formed the BTC in 1996 to reduce the 
long-term cost structure of business travel through increased 
airline competition. As Chairman of BTC, Mr. Mitchell has 
previously testified before Congress regarding airline 
deregulation.
    We will start with Mr. Kamen, but before we do that let me 
turn to Senator Schumer, who does have an opening statement.

 STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE 
                       STATE OF NEW YORK

    Senator Schumer. Well, thank you. This is my first meeting 
as a member of the Subcommittee, which I am proud to be on, and 
I want to thank you, Mr. Chairman, and Senator Kohl, your 
Ranking Member, for holding this hearing, but in general for 
the great work that you have done in the antitrust area. You 
are a great team and I very much appreciate what you have done 
and the opportunity to serve with you.
    I would just like to say a brief few words about these 
mergers which, as you know, are very important to me and my 
State.
    The proposed merger between United Airlines and US Air 
raises important questions about the future of airline 
competition, in general. First, will the merger of the world's 
largest and Nation's sixth largest carriers consolidate the 
industry to such a degree as to inhibit free and fair 
competition? Will such a merger spur consolidations of other 
carriers like Delta and Continental, and American and 
Northwest? And what will be the effect on the consumer of those 
mergers?
    As to all these questions, the jury is still out. In the 
meantime, various officials, associations, and airlines have 
presented a number of options for legislating and the proposal 
at the forefront is the one by you, Mr. Chairman, and Herb Kohl 
of this Subcommittee.
    The legislation, as I am sure everyone knows here, proposes 
to limit the amount of takeoff and landing slots major airlines 
can own at LaGuardia and National, but the bill's biggest 
effect will be in New York State. As to the overall goal of the 
bill, fostering competition at high-density airports in an era 
of increasing airline mergers, I commend my colleagues. 
However, I just must mention I have two concerns about the 
bill's specifics.
    On its face, forcing major airlines to divest slots in an 
auction where new entrants will be able to compete for the 
acquisition sounds ideal. But by placing the slots on open 
auction, it guarantees that they will go to the carriers with 
the deepest pockets. Is that the right idea? How will that 
affect middle-sized cities, such as the ones I represent 
upstate.
    And even economically speaking, while, of course, an 
auction would be the right way to go, aren't there external 
economies that we have by having airlines in those cities, jobs 
that move to those cities, just the accessibility of those 
cities, et cetera?
    Second, there are no specifics as to which slots a carrier 
must divest. Would United give up one of their ten trips to 
Chicago or Delta's 22 flights to Atlanta instead of their 
service to Syracuse, Dayton, or Burlington? Without provisions 
to protect existing slots for service to underserved 
communities like, in my State, Buffalo, Rochester, Syracuse, 
Ithaca and Albany, the major carrier required to divest slots 
is likely to take them from these communities rather than their 
major cash-cow markets.
    As Senator from New York, I represent not only the airport 
most affected by this legislation and the most sought after for 
entry, but also the interests of upstate communities who have 
insufficient service with hardly any competition. It is for 
these reasons that I ask the Chairman and Ranking Member to 
work with me on the solution to the problems I have laid out so 
we can move forward with legislation that will help foster 
competition in the inevitable environment of airline mega-
mergers we are headed into.
    Mr. Chairman, I thank you again for your leadership on this 
issue. I thank Senator Kohl. I know that some of your cities 
have the same concerns as we do here, a little less so because 
they are further away from the slotted airports, although maybe 
at O'Hare it is the same situation. I don't know, but I hope we 
can work together to deal with these problems.
    Chairman DeWine. Senator, thank you very much. I think your 
points are very well taken and these are things that we clearly 
need to be working on, and we will.
    Mr. Kamen, thank you. What we will do is we have your 
prepared testimony which, without objection, will be made a 
part of the record for all three of you. We would ask you to 
keep your opening statement to 5 minutes. We have lights here, 
so when you get to the yellow light that means you are down to 
60 seconds. Then that will give us the opportunity to have some 
questions.
    Mr. Kamen, thank you.

     STATEMENT OF HERSHEL I. KAMEN, STAFF VICE PRESIDENT, 
  INTERNATIONAL AND REGULATORY AFFAIRS, CONTINENTAL AIRLINES, 
                     INC., WASHINGTON, D.C.

    Mr. Kamen. Good morning, Mr. Chairman, members of the 
Subcommittee. I am Hershel Kamen, Staff Vice President, 
International and Regulatory Affairs, for Continental. On 
behalf of my 53,400 colleagues, I thank you for inviting me to 
appear today. As always, it is a special honor to be able to 
appear before Chairman Mike DeWine, of Ohio, who represents our 
Cleveland hub and the thousands of people we employ.
    Mr. Chairman, Continental Airlines commends you, Ranking 
Member Kohl, and Senators Grassley and Reid for introducing S. 
520. This is exactly the right kind of legislation that must be 
enacted by Congress now. S. 520, as introduced, addresses the 
important issue of concentration of federally-limited resources 
and the need to protect competition in the aviation industry by 
limiting the ability of airlines to dominate two of the most 
important airports in our national aviation system--Washington 
Reagan and New York LaGuardia.
    Just six weeks ago, the Chairman and CEO of Continental, 
Gordon Bethune, sat before you and warned of the impending 
threat that United and American were making to competition in 
the airline industry, and I think it is worth repeating today.
    Mr. Bethune said that the proposed mega-mergers were 
designed to create a duopoly and split the United States 
aviation market, creating an unbalanced competitive 
environment. Mr. Bethune also explained that the airline 
industry would change for the worse, adversely affecting 
competition, consumers, communities, and employees, and he 
urged the Department of Justice to fight the proposed duopoly's 
plans and take actions to stop the mega-mergers. Six weeks 
later, we still believe that United and American should not be 
permitted to divide up the aviation market and split US Airways 
and its rich pool of assets.
    Last month, Mr. Bethune urged the Congress, the Department 
of Transportation, and the Department of Justice to ensure that 
appropriate slots, gates, and facilities at slot- and capacity-
controlled airports be made available to smaller network 
competitors by the two mega-carriers. If the mega-mergers are 
allowed to proceed, United and American will operate almost 80 
percent of the slots at the four federally slot-controlled 
airports.
    At Washington Reagan and New York LaGuardia, the duopoly 
will control over 65 percent of slots. It is clear that such a 
dramatic gap in slot holdings would have a chilling effect on 
competition. Divestiture of slots, gates, and associated 
facilities by merged carriers which exceed a dominance 
threshold would help prevent their domination in a post-merger 
environment.
    There is currently only one airline, US Airways, that 
controls over 20 percent of the slots at Washington Reagan and 
New York LaGuardia. One of US Airways' significant competitive 
advantages has been its immense slot holdings, giving the 
airline the opportunity and the ability to compete with 
airlines more than twice its size. In fact, US Airways, a 
carrier which has recently, and wrongly, been trying to 
convince the Congress that it is a failing enterprise, has 
actually been financially successful over time in part because 
of the niche it has been able to create with its large slot 
holdings.
    S. 520 would have no immediate effect on the current 
distribution of slots at Washington Reagan and New York 
LaGuardia. All current slot-holders would keep their relative 
positions and the current competitive equilibrium would remain. 
However, should the Government approved the United/US Airways/
American mergers, the provisions of S. 520 would prevent 
nationally dominant carriers from exploiting their massive slot 
positions, increasing the concentration of slots, and 
leveraging their market power using their large cache of slots. 
Frankly, S. 520 is good aviation policy.
    Under the proposed legislation, a carrier that has more 
than 15 percent of the national air capacity cannot control 
more than 20 percent of the slots at either Washington Reagan 
or New York LaGuardia. While there are currently 3 airlines 
that have more than 15 percent of the national available seat 
miles--United, American, and Delta--not one of them on its own 
currently own or operate the dominant share of slots envisioned 
in this bill. Frankly, because the Big 3 have not been able to 
dominate slots at slot-controlled airports, a competitive 
equilibrium among the major airlines has developed. This 
equilibrium must be maintained.
    We also support the provisions that allow United, American, 
and other similarly situated carriers to choose how to reduce 
the size of their slot holdings to an acceptable level. The 
bill provides that carriers could sell the slots through a 
blind auction. A blind auction is clearly a fair way to dispose 
of slots, and we believe it will ensure that carriers as big as 
Continental, Alaska, or America West, and as small as AirTran, 
Midway, JetBlue, Frontier, or Spirit could bid in an unbiased 
manner. If a carrier with more than 20 percent slot holdings 
chose not to use the blind auction procedure, the excess slots 
would simply be returned to the FAA for redistribution.
    Clearly, S. 520 should become law. Carriers would not be 
permitted to control the limited resources at Washington Reagan 
and New York LaGuardia, and consumers would benefit from the 
resulting competition. Mr. Chairman, the ability of small and 
medium-size carriers to compete is vital to retaining 
equilibrium in the airline industry. Since the dawn of 
deregulation, this competitive equilibrium has provided great 
benefits for consumers and it must be strengthened, not 
weakened. S. 520 does not stop the mega-mergers from being 
reviewed or even approved. S. 520 is a very important step in 
ensuring that competition is retained.
    If I can leave you with one final message, it would be 
this: As Gordon Bethune has said, the proposed mergers are bad 
for consumers, bad for communities, and bad for airline 
employees. We and many others know that in a post-merger 
environment, the United-American duopoly will crush our ability 
to compete, and we implore you to act now. We believe S. 520 is 
good aviation policy. Without prompt enactment of this bill, no 
one will be able to ensure that consumers are spared the 
turmoil and loss of competition that will be the inevitable 
result of the proposed mega-mergers.
    Mr. Chairman, I would be happy to answer any questions you 
or the Subcommittee have.
    [The prepared statement of Mr. Kamen follows:]

     Prepared Statement of Hershel I. Kamen, Staff Vice President, 
   International and Regulatory Affairs, Continental Airlines, Inc., 
                            Washington, D.C.

    Good Morning Mr. Chairman and members of the Subcommittee. I am 
Hershel Kamen, Staff Vice President, International and Regulatory 
Affairs for Continental Airlines. On behalf of the 53,400 employees of 
Continental, I thank you for inviting me to appear today. It is a 
special honor to be able to appear before a Subcommittee headed by 
Chairman Mike DeWine of Ohio, who represents our Cleveland hub and the 
thousands of people we employee in Ohio. Continental is honored to have 
such strong leadership in the Senate and we thank you for this 
leadership.
    The topic I would like to discuss today is the important issue of 
concentration of takeoff and landing slots in the hands of the largest 
airlines and the need to protect competition in the aviation industry 
by limiting the ability of airlines to dominate slot-controlled 
airports. I would specifically like to discuss S. 520, introduced by 
Chairman DeWine, Ranking Member Kohl, and Senators Grassely and Reid. 
This legislation is a very important step in maintaining effective 
competition in the aviation industry and ensuring that airports where 
access is limited by federal mandate will not be dominated by one or 
two of the largest air carriers.
                            I. Introduction
    There are currently four federally slot-controlled airports: 
Washington Reagan, New York LaGuardia, New York Kennedy, and Chicago 
O'Hare Air-21, enacted last year, ends slot restrictions at Chicago 
O'Hare in 2002 and both New York airports in 2007. No end to slot 
restrictions was legislated for Washington Reagan. In the interim, the 
Department of Transportation was mandated to award slots to new entrant 
and limited incumbent carriers and those airlines that use small 
aircraft to serve small communities from the New York airports. Based 
on the high level of demand for the slots and the inability of the 
airport to handle such high levels of demand, the FAA capped the number 
of slots at New York LaGuardia and allocated slots to new entrant 
carriers and carriers using small aircraft to serve small communities 
based on a lottery system. New York JFK has not faced as much demand 
and no special limitations have been implemented there.
    Given Air-21 and the developments that have taken place since its 
enactment, it can be safely assumed that slot restrictions at New York 
LaGuardia are likely to be reinstated. Additionally at Washington 
Reagan, slot restrictions are expected to remain in place in 
perpetuity. S. 520 therefore correctly identifies Washington Reagan and 
New York LaGuardia as the airports that require special rules to ensure 
continued competition and to prevent undue concentration of slots in 
the hands of any air carrier.
                 II. S. 520 and the Current Environment
    In the current environment, there is only one airline, US Airways, 
that controls over 20% of the slots at either of the two airports in 
question. The remaining slots are distributed among the other carriers 
in the industry. While US Airways is a significant slot holder, this 
has been US Airways' competitive advantage, giving it the opportunity 
and the ability to complete with airlines more than twice its size. 
With less than 9% of domestic capacity (as defined by available seat 
miles), US Airways is classified as a medium sized national carrier. As 
such, it is not a dominant national player, and its disproportionate 
share of slots at Washington Reagan and New York LaGuardia has not 
raised significant competitive concerns. In fact, US Airways has been 
successful in large part because of the niche it has been able to 
create with its large slot holdings.
    S. 520 would have no immediate effect on the current distribution 
of slots at the two aforementioned airports, including for US Airways. 
All current slot holders would keep their relative positions and the 
current competitive equilibrium would remain in effect. What S. 520 
would prevent, however, is a nationally dominant carrier from acquiring 
the slots held by another carrier and thereby increasing the 
concentration of slots, which would permit it to use this large cache 
of slots to effectively exclude competitors and leverage that market 
power nationwide and globally thereby harming competition and 
consumers.
    Under the proposed legislation, a carrier that has more than 15% of 
the national air capacity (as defined by available seat miles, a 
standard measure of industry capacity) cannot control more than 20% of 
the slots at either Washington Reagan or New York LaGuardia. While 
there are currently three airlines that have more than 15% of the 
national available seat miles (United, American, and Delta, ``the Big 
Three''), none currently has the significant level of slots envisioned 
in the Bill. Because these large national carriers have not been able 
to dominate the slot controlled airports, arguably the two most 
important business airports in the United States, a competitive 
equilibrium among the major airlines has developed. Along with the 
``Big Three'', the industry is made up of four medium sized national 
carriers (Northwest, Continental, US Airways, and Southwest) and three 
small national carriers (TWA, America West, and Alaska). There also are 
a number of successful new entrant/low cost/niche carriers that help 
maintain the balance in the airline industry, all of which hold slots 
at various slot controlled airports (i.e. Frontier, Midway, Midwest 
Express, Jet Blue, Spirit, Air Tran).
           III. S. 520 and the Proposed Aviation Mega-Mergers
    I previously stated that S. 520 would have no immediate effect on 
slot distribution. Given this, I think it is important to explain why 
we at Continental Support such a preventative measure.
    Just two months ago the Chairman and CEO of Continental, Gordon 
Bethune, sat before the full Judiciary Committee and warned of the 
impending threat that United and American were about to impose on 
competition within the airline industry. Mr. Bethune said that the mega 
mergers being proposed by United and American would create an 
unbalanced competitive environment in which each of the two resulting 
mega-carriers would be significantly larger than their closed 
competitor and three times as large as Continental, and would 
ultimately drive the remaining major carriers out of business or into 
each others' arms in defensive mergers. Mr. Bethune stated that ``The 
airline industry will change for the worse, adversely affecting 
competition, consumers, communities and employees.'' He called on 
Congress, the Department of Justice, and the Department of 
Transportation to work together to ensure that competition can survive. 
He urged the Department of Justice to fight the proposed plans of 
United and American to form a cartel to dominate the aviation industry, 
and say no to the mega-mergers. United and American, the two largest 
airlines in the world, should not be permitted to split US Airways and 
its rich pool of assets.
    Mr. Bethune is not the only person to call for action. In hearings 
before the Judiciary Committee and the Senate Committee on Commerce, 
Science, and Transportation, the GAO, academic scholars, and many other 
airline executives explained the havoc the mega-mergers would cause the 
discussed specific actions that must be taken to ensure that even a 
small chance of competitive survival would remain.
    At the Judiciary Committee hearing. Mr. Bethune stated the 
``Congress, the Department of Transportation, and the Department of 
Justice must ensure that appropriate slots, gates, and other facilities 
at slot and capacity controlled airports be made available to smaller 
network competitors by the two mega-carriers.'' S. 520 is an excellent 
first step in this direction and on behalf of Continental we applaud 
Senators DeWine, Kohl, Grassley, and Reid for this proposed 
legislation.
    If the mega mergers are allowed to proceed, United and American 
will operate almost 80% of all slots at the four federally slot-
controlled airports. At Washington Reagan and New York LaGuardia the 
two airlines will control over 65% of all slots. By way of comparison, 
Continental (which would be only one-third the size of the mega-
carriers) operates 3% of all slots and less than 5% of slots at 
Washington Reagan and New York LaGuardia. It is clear that such a stark 
difference in the ability to offer service to consumers would 
substantially reduce competition.
    Under the proposed legislation, United, American, and other 
similarly situated carriers would have a choice of how to reduce the 
size of their slot holdings to a level which would allow the minimum 
essential level of competition at these slot-constrained airports. 
Carriers could either sell their slots through a blind auction, a fair 
way to dispose of slots that ensures that carriers as big and 
Continental, Alaska, and America West or as small as Air Tran, Spirit, 
Midway, Frontier, or JetBlue, could bid in an unbiased manner, or, if a 
carrier chose not to use the blind auction procedure, the slots would 
simply be returned to the FAA for redistribution. The Bill would thus 
prevent carriers from both dominating the airline industry and 
leveraging the dominance by controlling the limited resources at 
Washington Reagan and New York LaGuardia. Congress must act now, in the 
face of the impending duopoly, to ensure that consumers are spared the 
turmoil and lost of competition that the United and American mergers 
would bring.
    Mr. Chairman, the ability of small and medium sized carriers to 
compete is vital to retaining competitive equilibrium in the airline 
industry. This competitive equilibrium has provided great benefits for 
consumers and must be strengthened, not weakened by concentration of 
takeoff and landing slots at two of our nation's most vital airports. 
S. 520, is a very important step in ensuring that the competitive 
equilibrium if not replaced with a duopoly and that competition in key 
airports that are federally restricted, and which have high levels of 
demand, is retained.
    Two months ago, after my Chairman and CEO testified before you, 
Chairman DeWine, you stated that his comments are always candid. While 
Mr. Bethune is admittedly a hard act to follow, I hope that I have been 
able to express the importance of the proposed legislation Senators 
DeWine, Kohl, Grassley, and Reid have introduced. Continental urges all 
members of Congress to take this bill, and the threat it is trying to 
protect against, seriously. We urge its swift passage and enactment.
    Mr. Chairman and members of the Subcommittee I think you for your 
giving me the opportunity to discuss this important topic and for you 
attention. I would be pleased to answer any questions that you might 
have.

    Chairman DeWine. Mr. Kamen, thank you very much.
    Mr. Healy?

   STATEMENT OF KEVIN P. HEALY, VICE PRESIDENT OF PLANNING, 
            AIRTRAN AIRWAYS, INC., ORLANDO, FLORIDA

    Mr. Healy. Good morning, Mr. Chairman, Senator Kohl, 
Senator Schumer. I appreciate both the opportunity to testify 
today and your continued attention to the problems related to 
the consolidation of the airline industry and the factors 
restricting the growth of low-cost competition.
    At a time when there are fewer airlines than at any point 
since deregulation, your bill addresses a critically important 
issue. Access to markets like New York LaGuardia and 
Washington's Reagan National Airport is necessary for low-fare 
network carriers like AirTran Airways to provide viable and 
sustainable competition.
    At this point, low-fare carriers operate about 4 percent of 
the slots at the two airports, and we are blocked from growing 
at either airport. If the pending mergers proceed as currently 
structured, the two largest carriers will control two-thirds of 
the slots at Reagan National and nearly 60 percent of the slots 
at LaGuardia.
    This concentration in key airports presents a two-fold 
problem. First, markets like Reagan National and LaGuardia are 
the cornerstone of network operations for both established 
major carriers and low-fare carriers alike. Since deregulation, 
carriers have established hub-and-spoke systems that are 
heavily reliant on access to large cities.
    AirTran Airways is unique in that we are a low-fare carrier 
with a hub-and-spoke system that allows us to successfully 
serve larger markets like Boston, Chicago, and Philadelphia, 
but also small to mid-sized markets such as Akron, Canton, 
Bloomington, and Toledo. Our Atlanta hub gives us the critical 
mass necessary to compete with larger carriers, particularly 
Delta, United, and US Airways.
    Our hub and the ability to serve small to mid-sized 
communities is anchored by service to high-density markets like 
New York. However, the ability to expand this network effect is 
limited due to facility constraints at most major airports. If 
you are blocked from entering DCA, growing at LaGuardia, and 
obtaining critical airport facilities at Philadelphia, Newark, 
and Boston, it becomes impossible to compete in this area of 
the country. At the same time, United and American are 
increasing their control of slots and facilities at each of 
these airports.
    Second, as major carriers developed hubs over the last 20 
years, they have increased regional strength and amassed market 
power, primarily through mergers and acquisitions, that gives 
them the leverage to influence pricing, travel agency and 
corporate distribution, and especially airport facilities. This 
market power allows the major carriers to limit or prevent new 
entry and low-cost competition, limiting or in many cases 
reversing the benefits of deregulation.
    As I mentioned earlier, there are fewer carriers now than 
at any point since deregulation. In fact, according to the 
Transportation Research Board, new-entrant carriers have exited 
more markets since 1996 than they have entered. This is a 
disturbing trend which will only become worse with continuing 
consolidation.
    The negative effects of consolidation have been well 
documented by multiple studies, most recently a study entitled 
``Predatory Practices in the U.S. Airline Industry'' issued by 
the DOT in January. This study outlines the many challenges 
faced by low-cost carriers, including predatory pricing, 
increased flight frequency, capacity and predatory scheduling, 
frequent traveler programs, and travel agency overrides.
    The study notes the benefits of low-fare competition and 
documents the differences in competitive responses to new entry 
by major carriers when the new entrant is another major carrier 
versus a low-fare carrier. The study concludes, ``Since many of 
the continuing gains from airline deregulation come from the 
presence of low-fare carriers, an industry characterized by 
vigorous opportunities for entry is essential for continuing 
consumer gains.''
    The key to vigorous low-fare competition is the ability to 
build and expand effective networks; in other words, the 
critical mass necessary to compete against established and 
entrenched major carriers. The benefits of this competition are 
substantial. The consumer harm from a lack of competition is 
equally dramatic.
    The DOT's most recent report in their competition series 
notes that fares in hubs without low-fare competition are 
generally 41 percent higher. This hub premium is even more 
pronounced in short-haul hub markets where the study concludes 
passengers pay 54 percent more than in similar markets with 
low-fare competition.
    The AirTran Airways business model is designed to compete 
in short-haul markets and has been effective in maintaining 
price discipline in the markets we serve. Based on DOT data, 
the competition that AirTran brings to Atlanta saved consumers 
more than $700 million in 1999. The network strength derived 
from access to Reagan National, New York LaGuardia, and other 
key markets will enable us to expand our business model, create 
other focus cities and hubs, and compete in more dominated hub-
to-hub markets.
    The only counterbalance to major carrier market power and 
hub dominance is the price discipline provided by effective 
low-fare competition. Access to high-density airports both in 
terms of slots and facilities is necessary to create effective 
low-cost competition.
    Senate bill 520 increases the opportunities for low-fare 
carriers to compete at Washington Reagan National and New York 
LaGuardia in the face of further consolidation. This is an 
important step in building or expanding strong low-fare 
networks and continuing the benefits of deregulation, but it is 
a precautionary move against future mergers
    Most of the gains that have been made in competition today 
are the result of legislation such as AIR 21. I respectfully 
urge the Subcommittee to continue to look for more immediate 
means to increase competition with or without further mergers, 
and to encourage the DOT to use its existing authority to 
enforce fair and reasonable competition, and prevent 
anticompetitive practices and unreasonable concentration.
    Thank you again for the opportunity to address these 
critical issues.

    Chairman DeWine. Mr. Healy, thank you very much.
    Mr. Mitchell?

   STATEMENT OF KEVIN P. MITCHELL, CHAIRMAN, BUSINESS TRAVEL 
            COALITION, LAFAYETTE HILL, PENNSYLVANIA

    Mr. Mitchell. Mr. Chairman and Ranking Member Kohl, thank 
you for the invitation to appear before you this morning.
    BTC supports S. 520. BTC believes the legislation 
effectively addresses immediate and deep concerns regarding 
proposed airline mergers. Moreover, this bill also recognizes 
that the problems of inadequate competition levels, eroding 
passenger service levels, and aviation system gridlock are 
inextricably linked. The proposed legislation would address all 
three issues at Reagan National and LaGuardia Airports, and 
have a positive impact beyond these two airports.
    With respect to inadequate competition levels, U.S. DOT 
studies have demonstrated that new competition at congested 
airports lowers fares, especially for business travelers in 
short-haul markets. Low-fare, new-entrant carriers need access 
to these strategically important airports to augment their 
financial success and to have the opportunity to grow into 
national carriers. Importantly, were the proposed mergers to be 
approved by U.S. DOJ, through this legislation Continental 
Airlines would have an alternative to seeking merger partners, 
thus preventing further industry consolidation.
    There is some concern over the potential through this 
legislation of mid-size communities losing service, as 
incumbents might choose to retain slots for high-density, high-
yield business markets. However, should the proposed mergers be 
approved, these cities would be at risk of loss service or 
degraded service, as well as higher fares, as these new mega-
carriers seek to rationalize routes, hubs, and fleets. There 
are options to prevent these communities from losing service 
that I hope this Committee will consider.
    Regarding eroding passenger service levels, the proposed 
legislation would provide new competitive choices at these two 
important airports, and encourage all carriers to compete not 
just on price, but on customer service as well. It would appear 
that none of the proposed passenger rights bills would be, in 
the long run, as effective in improving customer service as 
additional competition would be.
    Now, to aviation system gridlock. Reportedly, many 
incumbent airlines distort the efficient use of airport 
capacity by sitting on slots, by assigning them to smaller 
aircraft or business affiliates to keep them out of the hands 
of competitors. By eliminating this waste and inefficiency, 
this legislation will encourage the highest and best use of all 
essential airport facilities, including slots and gates. The 
utilization of larger aircraft would have a positive impact on 
airport capacity and on aviation system gridlock.
    So what is the main issue? Members of this Subcommittee, 
economists agree that some markets do not work well; other 
markets do not work at all. After 4 years of national debate 
over competition levels in commercial air transport, the 
problems are well documented. The proposed airline mergers 
would gravely injure what functioning competition is left in 
this market. Your legislation, if enacted, may stave off highly 
undesirable outcomes.
    There are numerous potential short-term negative 
consequences associated with these mergers. The huge cost of 
integrating these firms will likely be financed by business 
travelers in cities like Rochester, Pittsburgh, and other 
captive markets where the new mega-airlines will be able to 
extract monopoly rents. Likewise, customer service problems 
will be serious, if experience from previous mergers teaches us 
anything.
    As serious as the short-term implications are, customers 
who oppose these combinations are most concerned with their 
potential long-term negative outcomes. It is assumed by most 
experienced corporate purchasers that as a consequence of fewer 
competitors, business air fares will climb well above current 
record levels.
    Thank you for requesting the views of the customers of the 
air transportation system.
    [The prepared statement of Mr. Mitchell follows:]

  Prepared Statement of Kevin P. Mitchell, Chairman, Business Travel 
                Coalition, Lafayette Hill, Pennsylvania

    My name is Kevin Mitchell. I am Chairman of the Business Travel 
Coalition (BTC), which represents the business travel interests of 
major corporate buyers of commercial air transportation services, as 
well as the 21,000 independent business travelers who are members of 
the Commercial Travelers Association.
    BTC supports proposed legislation that would prohibit any airline 
with more than 15% of domestic available seat miles to own or operate 
more than 20% of the slots at LaGuardia or Reagan National airports in 
any two-hour period.
    BTC believes the bill strongly addresses immediate and deep 
concerns regarding proposed airline mergers. Moreover, this bill also 
recognizes that the problems of inadequate competition levels, eroding 
passenger service levels and aviation system gridlock are inextricable 
linked. Proposed legislation would address all three issues at Reagan 
National and LaGuardia airports, but its positive impact would be felt 
countrywide.
                              Competition
    U.S. DOT studies have demonstrated that new competition at 
congested airports lowers fares; especially for business travelers in 
short haul markets. Low-fare, new entrant carriers need access to these 
strategically important airports to augment their financial success and 
to have the opportunity to grow into national carriers. Importantly, 
were proposed mergers to be approved by the U.S. DOJ, Continental 
Airlines, through this bill, would have an alternative to seeking 
merger partners, thus preventing further industry consolidation.
    Some are concerned over the potential, through this legislation, 
for mid-size communities to lose service as incumbents might choose to 
retain slots for high density, high yield business markets. However, 
should proposed mergers be approved, these cities would be at even 
higher risk of lost service and higher fares as these new mega carriers 
seek to rationalize routes, hubs and fleets.
    Another concern is low-fare new entrants may be effectively locked 
out of the auctioning process for slots that the legislation calls for 
because of their high prices. I am hopeful that this Committee will be 
receptive to proposals that would address these potential problems. 
These communities would then be assured of continued service under 
multiple scenarios, and additionally, they would benefit from 
affordable airfares.
                           Passenger Service
    Proposed legislation would provide new competitive choices at these 
two important airports and encourage carriers to compete not just on 
price, but on customer service as well. It would appear that none of 
the proposed passenger rights bills would be, in the long run, as 
effective in improving customer service as additional competition would 
be.
                        Aviation System Gridlock
    Reportedly, major incumbent airlines distort efficient use of 
airport capacity by ``sitting and slots'' by assigning them to smaller 
aircraft or business affiliates to keep them out of the hands of 
competitors. This legislation would encourage the highest and best use 
of all essential airport facilities including slots and gates. The 
utilization of larger aircraft would have a positive impact on airport 
capacity and on aviation system gridlock.
                             The Main Issue
    Members of the Committee, economists agree some markets do not work 
well; other markets do not work at all. After fours years of national 
debate over competition levels in commercial air transport, problems 
are well documented. Proposed airline mergers would gravely injure what 
functioning competition is left in this market. Your legislation, if 
enacted, may stave off highly undesirable outcomes.
    There are numerous potential short-term negative consequences 
associated with these mergers. The huge costs of integrating these 
firms will likely be indirectly financed by business ravelers in cities 
like Rochester, Pittsburgh, Charlotte and other captive markets where 
the new mega airlines will be able to extract monopoly rents. Likewise, 
customer service problems will be serious if experience from previous 
mergers taught us anything.
    As serious as the short-term implications are, customers who oppose 
these combinations are most concerned with their potential long-term 
negative outcomes. It is assumed by most experienced corporate 
purchasers, that as a consequence of fewer competitors, business 
airfares will climb above current record levels.
    Of deep concern is that the new airline behemoths will posses 
massive new resources of all manner--political, financial, airport 
facilities, network scale and scope, code sharing and strategically 
targeted frequent flyer, commission override and exclusive corporate 
discount programs--to attack Southwest and other low-fare airlines on 
multiple fronts at once. These low-fare carriers have provided what 
pricing discipline there is in commercial air transport.
    Thank you for requesting the views of the customer of the air 
transportation industry.

    Chairman DeWine. Mr. Mitchell, thank you very much.
    Let me first start with a question to all of you, and I 
want to follow up on a comment that was made by Senator 
Schumer. Some people have raised the concern that large 
carriers will choose to drop service to some small or mid-size 
communities if they are required to divest slots pursuant to 
our bill. Others have noted that while that may happen in a few 
markets, competitive carriers will almost certainly enter the 
markets after the large carriers pull out.
    I just wonder what your opinion about all that is. Mr. 
Kamen?
    Mr. Kamen. Small and medium communities have service today 
because there is a market for them. That is the reason US 
Airways operates them today. They are not operating them to 
lose money. They are operating them because there is a market 
there.
    If slots are transferred and the carriers that have to 
transfer the slots cease operations in those markets, there 
will still be a market. There will still be passengers that 
want to fly between Washington Reagan, New York LaGuardia and 
those small communities, and so other carriers will start to 
pick up those cities.
    Chairman DeWine. That is not something that a larger 
airline uniquely has the ability to be competitive and make 
money on?
    Mr. Kamen. I don't think so, I don't think so. 
Additionally, as Mr. Healy said as well, carriers are trying to 
build connecting complexes at these airports. So you need a 
broad mix of communities to serve. You need large communities, 
smaller communities, to make the network work.
    If I can give you one example, with our small slot position 
we have today at New York LaGuardia, we currently serve two of 
our hub airports, Houston and Cleveland. We serve two large 
Florida cities, Fort Lauderdale, and Orlando. But we also serve 
four small communities. We serve Richmond, Buffalo, Madison, 
and Grand Rapids. We are not trying to take all the slots and 
move them only to large communities. There needs to be a broad 
base in order to make the network work.
    Chairman DeWine. Mr. Healy?
    Mr. Healy. Senator, I think there are a couple of issues 
there. The first thing I would say is that a number of small 
communities have already lost service as the major carriers are 
building up markets like DCA-Boston. DCA-Manchester has fewer 
flights today than it did a year ago.
    The other is the ability to serve smaller communities. As I 
mentioned before, our network and the core strength that we 
gain in our network has allowed us to go into markets that 
large carriers have abandoned. Akron-Canton is a good example. 
Toledo, Bloomington, and Moline are all markets that either no 
longer had jet service or in some cases hardly had any service 
at all.
    The key, though, is the strength of the network and being 
able to serve multiple destinations in large markets. As major 
carriers pull down in cities, that does in some ways give us an 
opportunity, particularly in small to mid-size communities, to 
come in and initiate service.
    It is often stated that, well, the communities weren't 
large enough to support the traffic or jet service. What we 
have proven time and again--when we entered into Akron-Canton 
to Atlanta, we cut fares by more than 50 percent and traffic 
grew by about 1,400 percent. So the communities are certainly 
strong enough. Given the opportunity and the strength that we 
can garner through access to large markets, we certainly hope 
to expand service going forward.
    Chairman DeWine. Mr. Mitchell?
    Mr. Mitchell. Yes, Senator, I would make a comment first 
and then respond to your question. The comment is that I have 
been trying since being invited to testify before you today to 
determine what is the number of slots at both LaGuardia and 
Reagan that are currently being used for service to mid-sized 
communities. I cannot find the answer to that and it is an 
important question because it defines what the scope of the 
potential problem is here.
    To answer your question directly, I think it is pretty 
clear that some carriers, if relegated to the 20 percent, would 
consider pulling service out of mid-size communities. But they 
would not do so because those routes are unprofitable. Indeed, 
they are some of the highest-yield markets in the system.
    Why they would be pulling these flights out would 
principally be because where they do face competition, they 
would be loathe to put themselves in a position of having fewer 
frequencies vis-a-vis their competitors. So they will be 
pulling out not because of profitability.
    What will happen? Well, it will open up the opportunity for 
niche carriers to fill in there, and it is a beneficial 
strategy for them because they are staying out of the big guy's 
way, and that has been proven to be helpful. So you are going 
to get service to be provided by new entrants.
    There is a third benefit here, and that has already been 
brought up in some respect, and that is you will be giving 
these smaller carriers some feed through their system that will 
allow them to serve even more markets and grow into national 
carrier status.
    David Needleman of JetBlue made this point before a Senate 
Committee a couple of weeks ago where he said, we would love to 
serve some of Senator Hollings' airports, but without access to 
Boston we can't get the feeder traffic through Kennedy.
    Chairman DeWine. Well, my time is up, but let me just 
follow up with you, Mr. Mitchell. Why can't you get this 
information that you are looking for?
    Mr. Mitchell. It could be a function of I didn't have 
enough time.
    Chairman DeWine. That works with all of us, I guess.
    Mr. Mitchell. But I have made several calls over to DOT and 
the data are not easily available, apparently.
    Chairman DeWine. Really? I am surprised by that.
    Senator Kohl?
    Senator Kohl. Thank you, Senator DeWine.
    Mr. Kamen, if all the pending airline mergers and 
acquisitions are completed as planned, then the two large 
remaining airlines, American and United, and their affiliated 
and partner carriers will control about two-thirds of the 
takeoff and landing slots at Reagan and at New York LaGuardia. 
These two airlines will also control about half of the national 
market after these mergers.
    In your opinion, what will be the consequences for 
competitors like Continental if American and United gain such 
domination at these two slot-controlled airports?
    Mr. Kamen. I think United and American will use their 
position, their two-thirds and possibly growing position at 
Reagan and LaGuardia to further intensify their domination of 
the national aviation system.
    Other carriers like Continental--we have testified and 
stated for the record that we do not believe we will be able to 
compete with carriers that are three or possibly more times as 
large as we are without being able to access vital markets like 
LaGuardia and Washington Reagan, and we will just lose further 
and further ground on the national scale as we lose ground in 
these two vital airports. Competition will be lost.
    I think that the Chairman of Continental, Mr. Bethune, was 
very clearly when he testified before the full Committee six 
weeks ago that we will have no choice but to look for other 
options, consolidation options, if the mega-mergers are allowed 
to proceed. We just will not be big enough. We will not be able 
to grow big enough without help in order to do that.
    S. 520 gives us a fighting chance. It allows us the 
opportunity to bid on slots. We may win them, we may not win 
them, but if we do, it gives us a fighting chance to go on by 
ourselves and not have to consolidate. But without it, we just 
will not have any choice.
    I should note that S. 520 would affect Continental if it 
went ahead and was forced to consolidate with another airline. 
There has been wide speculation that Continental would be 
talking to Delta Airlines about possibly consolidating those 
two carriers. S. 520 would affect us if we merged with a Delta 
Airlines the same way that it is affecting United and American. 
It is just good aviation policy. It is trying to help people 
not be forced to consolidate; it is trying to give competition.
    Senator Kohl. Mr. Healy, why is it important to your 
airline and to other small airlines to gain access to the slots 
at LaGuardia and Reagan? How does the inability of your airline 
to obtain takeoff and landing slots at these airports affect 
your ability to compete with American and United and the other 
large airlines?
    Mr. Healy. The main issue, Senator, is the network strength 
that you gain by serving the primary airport. Flying into 
LaGuardia--you know, the revenue garnered off that percentage 
is greater than the actual percentage of the seats. It gives 
you the ability to go in and compete in the market that the 
people want to go to. That then gives us the ability to serve 
smaller markets. The differential for consumers is significant. 
Our fare from Atlanta to Dulles is $217 at the last minute. The 
corresponding fare on Delta Airlines into National is $609. 
That is the sort of difference that we hope to make.
    We fought very hard to get into LaGuardia. It took about 
two tries. We had attempted to lease slots and were out-bid and 
finally got exemption slots into LaGuardia, and that has given 
us the core strength to continue to grow. Even looking at 
Newark as an alternative, it took us longer to get into Newark 
than it did to get into LaGuardia.
    So in many cases there isn't an alternative, and without 
the ability to fly in a network to markets that people want to 
go to, you don't have the competitive strength to withstand the 
forces of the major carriers.
    Senator Kohl. Well, what about some of these nearby 
airports like Baltimore, Dulles, and Newark? Could you provide 
effective competition to the large carriers by flying out of 
some of these nearby airports?
    Mr. Healy. Well, again, even with Baltimore, if you look at 
the Southwest effect and say is that effective competition--
Baltimore to Hartford, Southwest charges about $70 on a walk-up 
basis. From DCA to Hartford, the price is $290. That I don't 
think is vigorous competition that is good for consumers.
    In New York City, there really are no alternatives within a 
50-mile radius. We can't get a gate at Newark Airport either. 
We are forced to lease services from United Airlines. From our 
perspective, that puts artificial constraints on the time that 
we can schedule flights in and out of Newark Airport, and it 
also substantially increases our costs of operation because we 
are forced to use their employees at their cost structure, plus 
a profit margin. We fly there at a lower margin than we could 
otherwise, but do that because it strengthens the overall 
network that we operate.
    Senator Kohl. Thank you.
    Mr. Mitchell, you represent business travel consumers. Do 
you support efforts to prevent the large airlines from gaining 
dominant ownership of slots at the slot-controlled airports, 
and if so why do you believe it is important to consumers that 
there be limits on the amount of slots that large airlines are 
able to control?
    Mr. Mitchell. Senator, I think there are three reasons. The 
first is if ever there is an airport to be a poster child for 
requiring price discipline, it would be LaGuardia or DCA. So 
the first thing is we need more competition. We have just come 
off a year of six price increases for business travelers.
    The second thing is having access to these strategically 
important business centers, these airports, will in many cases 
be the difference between profit and loss for a start-up 
carrier. And if ever we needed more new entrants, it is today 
and it is at a moment in the history of the industry where it 
is consolidating. So we need to do everything we can to ensure 
a steady stream of entrants.
    Thirdly, these carriers today--it would be analogous to the 
Federal Government saying to Ford Motor Company, you can sell 
cars in every city in the country except for Washington and New 
York. So it is not very equitable from that point of view as 
well.
    Senator Kohl. Thank you, Mr. Chairman.
    Chairman DeWine. Thank you, Senator.
    Mr. Mitchell, S. 520 requires excess slots to be sold in a 
blind auction so that all carriers will have an opportunity to 
obtain them. But will these provisions allow the low-fare 
carriers the opportunity really to enter these airports?
    Mr. Mitchell. I think, in theory, these slots are very 
valuable assets and that there would be opportunity for low-
fare carriers to seek financing for them. I also think that as 
this bill were to play out in the marketplace that you would 
see some pretty innovative financing take place, perhaps low-
fare carriers getting together with other vested interests in 
communities or airports.
    But I think it needs to be understood that, for example, if 
a Frontier were to come in and have to pay $500,000 for slots, 
its prices will have to go up, its fares will have to go up. 
Surely, there still will be a difference between it and the 
major carriers, but the effect is that there is a whole stratum 
of business travelers from smaller companies or independent 
business travelers that will be wiped out of the market. They 
will no longer be able to afford a $500 air fare to LaGuardia.
    Chairman DeWine. Mr. Healy, pursuant to this bill, if a 
large airline has a code-sharing agreement with a smaller 
airline at either LaGuardia or at Reagan National, then the 
slots of that smaller airline will count toward the 20-percent 
slot limit that the large airline may own or operate. That is 
the way the bill is written.
    Do you believe it is important to include those slots in 
the calculation?
    Mr. Healy. Yes, I do. Having a code-share relationship 
particularly with some of the smaller commuter airlines--they 
essentially are an extension of the major airline franchise, 
particularly if you look at United's new relationship with 
Atlantic Coast Airways that flies predominantly as United 
Express.
    In the past, ACA had some autonomy over their fares and 
their schedules. Under their new structure, United Airlines 
guarantees them a profit margin for flying and has complete 
control of the schedule and pricing. So except for a strict 
ownership, that essentially is a United Airlines flight and 
they have absolute control over it, so it should be counted as 
part of their allocation.
    Chairman DeWine. Senator Kohl?
    Senator Kohl. I think this is a very important piece of 
legislation, Mr. Chairman. I clearly understand that our 
witnesses agree with it, and I appreciate the fact that you are 
willing to come here today and take your time and express your 
opinions about this. We will do everything we can.
    Chairman DeWine. Let me just give our witnesses one last 
opportunity to make any other general comments about how we 
might improve the bill. Does anyone have a comment besides what 
you have already said?
    Mr. Mitchell?
    Mr. Mitchell. I think there are a couple of ideas that 
could be considered to address this mid-size community 
situation. One is to have a set-aside or slots that would be 
competed for, auctioned off to new entrants if the new entrants 
were to commit to serving these mid-sized communities.
    The other idea and the one I like even more is to get to 
that number of how many mid-sized communities are being served 
today and use that as a baseline, and have a triggering 
mechanism in the legislation such that if the number of 
communities falls below that original benchmark, then you might 
kick in a set-aside provision to ensure that these communities 
continue to be serviced.
    Chairman DeWine. Well, let me thank our witnesses. I 
appreciate your testimony very much. It has been important and 
helpful. If you have additional comments, we would certainly 
welcome them in the weeks ahead.
    We intend to continue to work with the aviation industry 
and with those interested in this legislation in the coming 
weeks as we move toward a mark-up in the full Judiciary 
Committee.
    Thank you all very much.
    [Whereupon, at 10:55 a.m., the Subcommittee was adjourned.]

