[Senate Hearing 107-223]
[From the U.S. Government Publishing Office]
S. Hrg. 107-223
AVIATION COMPETITION AND CONCENTRATION AT HIGH-DENSITY AIRPORTS
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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
_______
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76-916 WASHINGTON : 2002
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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
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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
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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
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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.]