[Congressional Record Volume 144, Number 46 (Thursday, April 23, 1998)]
[Senate]
[Pages S3555-S3556]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      AIR SERVICE RESTORATION ACT

 Mr. DORGAN. Mr. President, yesterday I and some of my 
colleagues on the Senate Committee on Commerce, Science, and 
Transportation introduced the Air Service Restoration Act designed to 
help revive air service to those parts of the country that have 
suffered under deregulation. The revitalization of air service for 
small communities is of absolute importance to the economic and social 
well-being for these communities. While this legislation is no panacea, 
it will hopefully provide some tools to help small communities address 
the air service deficit that has hit them since deregulation.
  Some rural states, such as North Dakota, have not enjoyed the 
benefits of competition and deregulation that other regions of the 
country have experienced. In fact, the federal policy of deregulation 
has led to less service, higher fares, and less competition for my 
state and other rural areas. Unfortunately, the air service problems 
facing rural America has gone ignored for too long and we now have an 
air service crisis, in my judgment. This crisis needs immediate 
attention and the Air Service Restoration Act is a modest attempt to 
address this, the chronic air service deficit facing many small 
communities.
  This legislation is based on three principles.
  First, it acknowledges that since deregulation some communities have 
indeed suffered and there is a need for a federal role to address this 
small community air service deficit. It seems to me that we need to 
move beyond the broader debate over whether or not deregulation has 
been a good or a bad thing. It has been good for some and bad for 
others--creating an unacceptable circumstance of air service ``have'' 
and ``have nots.'' This legislation does not seek broad-sweeping policy 
changes that will dramatically alter federal aviation policy. Rather, 
the Air Service Restoration Act attempts to target some modest 
resources and policy objectives to address the problem areas, i.e., the 
``have nots.'' This legislation will not threaten deregulation. Rather, 
it is an attempt to save it by addressing the casualties of a policy 
that has left some parts of the country behind. It is time that we 
develop ``air service development zones'' and allow all regions of the 
nation to participate in a national air transportation system. This 
legislation does that by identifying the problem areas and creating 
opportunities to attract new air service.
  The second principle of this legislation is based on the notion that 
the initiative and locus of solving air service problems for small 
communities must begin at the local level. There is no federal ``silver 
bullet'' and those communities that seek to improve or restore air 
service must roll up their sleeves and develop sustainable public-
private partnerships that will make air service economically 
sustainable. This legislation is a market-based solution to improving 
air service for small communities. The only way small communities are 
going to succeed in attracting new air service is that local officials 
and business leaders will have to get together and identify ways to 
make it economically viable for carriers to add service.

  Finally, this legislation is based on the notion that there is 
clearly a need for a federal role. The U.S. Department of 
Transportation needs to play an active role by providing a means for 
small communities to access the resources and in making the regulatory 
changes necessary to allow new service to flourish. Under this 
legislation, a new office would be created within the U.S. Department 
of Transportation whose sole function would be to work with local 
communities and provide assistance to help them achieve their goals of 
improving air service by providing financial assistance to local 
communities and addressing regulatory hurdles that inhibit air service 
to small communities.
  Hopefully, this legislation will help reverse the air service deficit 
in this country. Since 1978, more communities have lost service than 
the number of communities that have been added to the air service map 
of the United States. Over 30 small communities have lost all air 
service since 1978 and many more have had jet service replaced with 
turboprop commuter service.
  Service decline is not the only disturbing trend plaguing small 
community air service. Consolidation is having its toll as well. As the 
airline industry continues its steady trend of consolidation, the major 
network carriers are pulling out of rural areas. Out of a total of 320 
small communities that had scheduled air service in 1978, 213 of those 
were served by a major carrier. In 1994, only 33 of those small 
communities had service from major carriers. Prior to deregulation, 
North Dakota was served by 6 major carriers and every major market in 
North Dakota had 3 or 4 major carriers in each market, each providing 
jet service. Today, North Dakota has only 1 major carrier that provides 
jet service.
  The number of small communities receiving multiple-carrier service 
decreased from 136 in 1978 to 122 in 1995. Also, the number of small 
communities receiving service to only one major hub increased from 79 
in 1978 to 134 in 1994.
  In 1938, when the Federal Government began to regulate air 
transportation services, there were 16 carriers who accounted for all 
the total traffic in the U.S. domestic market. By 1978 (the year 
Congress passed deregulation legislation) the same 16 carriers (reduced 
to 11 through mergers) still accounted for 94% of the total traffic.
  Today, those same 11 carriers (now reduced to 6 through mergers and 
bankruptcies) account for 80% of the total traffic.
  One export estimated in 1992 that since deregulation, over 120 new 
airlines appeared. However, more than 200 have gone bankrupt or been 
acquired in mergers and today, only 74 remain--most small and 
struggling.
  Between 1979 and 1988, there were 51 airline mergers and 
acquisitions--20 of those were approved by the Department of 
Transportation after 1985, when it assumed all jurisdiction over merger 
and acquisition requests. In fact, DOT approved every airline merger 
submitted to it after it assumed jurisdiction over mergers from the 
Civil Aeronautics Board in 1984. Fifteen independent airlines operating 
at the beginning of 1986 had been merged into six mega carriers by the 
end of 1987. And, these six carriers increased their market share from 
71.3% in 1978 to 80.5% in 1990.
  These mega carriers have created competition free zones, securing 
dominate market shares at regional hubs. Since deregulation, all major 
airlines have created hub-and-spoke systems where they funnel arrivals 
and departures though hub airports where they dominate traffic. Today, 
all but 3 hubs are dominated by a single airline where the carrier has 
between 60 and 90 percent of all the arrivals, departures, and 
passengers at the hub.
  In a report by the General Accounting Office entitled ``Airline 
Deregulation: Barriers to Entry Continue to Limit Competition in 
Several Key Domestic Markets,'' [GAO/RCED-97-4], operating limitations 
and marketing

[[Page S3556]]

practices of large, dominate carriers restrict entry and competition to 
an extent not anticipated by Congress when it deregulated the airline 
industry. The GAO identified a number of entry barriers and anti-
competitive practices which are stifling competition and contributing 
to higher fares. The GAO issued a similar report in 1990 and the 1996 
report said that not only has the situation not improved for new 
entrants, but things have gotten worse.
  The fact is that deregulation has lead to greater concentration and 
stifling competition. The legislative history of the Civil Aeronautics 
Act of 1938 shows that Congress was as deeply concerned about 
destructive competition as it was with the monopolization of air 
transportation services. Thus, the CAA sought to ensure that a 
competitive economic environment existed. As we can see, deregulation 
is realizing the fears anticipated by the Congress in 1938. Competition 
has not become the general rule. Rather, competition is the exception 
in an unregulated market controlled largely by regional monopolies.
  It has been demonstrated that hub concentration has translated into 
higher fares and rural communities that are dependent upon concentrated 
hubs have seen higher fares. Studies from DOT and the GAO have 
demonstrated that in the 15 out of 18 hubs in which a single carrier 
controls more than 50% of the traffic, passengers are paying more than 
the industry norm. The GAO studied 1988 fares at 15 concentrated 
airports and compared those with fares at 38 competitive hub airports. 
The GAO found that fares at the concentrated hubs were 27% higher.

  The difference between regulation and deregulation is not a change 
from monopoly control to free market competition. Today, nearly two-
thirds of our nation's city-pairs are unregulated monopolies where a 
monopoly carrier can charge whatever they wish in 2 out of 3 city-pairs 
in the domestic market.
  A January 1991 GAO Report on Fares and Concentration at Small-City 
Airports found that passengers flying from small-city airports on 
average paid 34 percent more when they flew to a major airport 
dominated by one or two airlines than when they flew to a major airport 
that was not concentrated. The report also found that when both the 
small airport and the major hub were concentrated, fares were 42 
percent higher than if there was competition at both ends.
  A July 1993 GAO Report on Airline Competition concluded that airline 
passengers generally pay higher fares at 14 concentrated airports than 
at airports with more competition. The report found that fares at 
concentrated airports were about 22 percent higher than fares at 35 
less concentrated airports. The same report found that the number of 
destinations served directly by only one airline rose 56 percent to 64 
percent from 1985 to 1992, while the number of destinations served by 3 
or more airlines fell from 19% to 11% during that same period. This 
report confirmed similar conclusion reached in previous GAO studies 
conducted in 1989 and 1990.
  The fact is that deregulation, while paving the road to concentration 
and consolidation, has allowed regional monopolies to control prices in 
noncompetitive markets. While the entrance of low cost carriers has 
introduced competition in dense markets, the main difference between 
today and pre-deregulation is that the monopolies are unregulated.
  Deregulation has been both a tremendous success in some aspects and a 
colossal failure in some circumstances. It's time we started addressing 
the problems rather than just praising the successes. For hundreds of 
small communities, it has meant less service, higher fares, and fewer 
options.
  Air transportation in North Dakota is just as important as air 
service in New York and Denver. It is not in our national interest to 
allow vast regions of our country to become geographically isolated. 
That would be not only tragic for our rural communities, but bad for 
the Nation.
  I hope my colleagues will support this legislation and that the 
Senate Commerce Committee expeditiously act on it this year.

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