[Congressional Record Volume 144, Number 152 (Thursday, November 12, 1998)]
[Extensions of Remarks]
[Pages E2312-E2313]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


   CONFERENCE REPORT ON H.R. 4328, DEPARTMENT OF TRANSPORTATION AND 
               RELATED AGENCIES APPROPRIATIONS ACT, 1999

                                 ______
                                 

                            HON. BUD SHUSTER

                            of pennsylvania

                    in the house of representatives

                      Thursday, November 12, 1998

  Mr. SHUSTER. Mr. Speaker, earlier this year, the Airline Service 
Improvement Act, H.R. 2748, was approved by the Transportation and 
Infrastructure Committee. This bill contained two sections (sections 
401 and 402) on airline alliances and Department of Transportation 
competition guidelines. H.R. 2748 never passed the House. However, 
sections 401 and 402 were included, without change, in subsections (f) 
and (g) of section 110 of division C of the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act, 1999.\1\ The rationale and 
purpose of these two provisions are more fully explained in the 
Committee's report on H.R. 2748. The number of that report is H. Rept. 
105-822. The relevant portions of that report are set forth below.
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     \1\ See page H11203 of the Congressional Record of October 
     19, 1998.

                        major airline alliances

       Alliances between major airlines and regional airlines are 
     quite common. These usually involve code-sharing and other 
     marketing arrangements. However, such alliances between two 
     major airlines are more unusual.
       Earlier this year, Northwest and Continental, United and 
     Delta, and American and US Airways announced plans to form 3 
     separate alliances. These 6 airlines carry about 70% of 
     passengers within the U.S.\2\ These airlines contend that 
     their alliances will benefit passengers by increasing the 
     number of destinations and flights they can offer 
     economically. Critics, however, argue that this consolidation 
     will undermine the benefits of deregulation by decreasing 
     competition, which will ultimately reduce passengers' choices 
     and increase fares.
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     \2\ Hearings Before the Subcommittee on Aviation of the 
     Senate Committee on Commerce, Science, and Transportation, 
     105th Congress, 2d Session (June 4, 1998) (Statement of John 
     H. Anderson, Jr., Director, Transportation Issues; Resources, 
     Community, and Economic Development Division, U.S. General 
     Accounting Office).
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       Committee members have differing views on the merits of 
     these alliances. However, the Committee does believe that 
     they raise important issues that should be considered by the 
     DOT. Accordingly, the reported bill establishes a procedure 
     under which DOT is given a specified period of time to review 
     the alliances before implementation.
       It is important to note that the reported bill does not 
     expand or diminish DOT's authority to review airline 
     alliances. It simply provides for a waiting period before a 
     proposed alliance can take effect. During that period, DOT 
     can take action it deems necessary under its existing 
     statutory authority. No additional substantive authority is 
     provided by the reported bill.


                         competition guidelines

       On April 10, 1998, DOT issued a request for comments on an 
     ``Enforcement Policy Regarding Unfair Exclusionary Conduct in 
     the Air Transportation Industry.'' \3\ It took this action in 
     response to complaints from new entrant airlines that the 
     larger more established airlines were using unfair methods to 
     compete against them.
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     \3\ 63 Fed. Reg. 17919. April 10, 1998.
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       Under this proposed policy, DOT stated that it would 
     trigger a review, including possible enforcement action, in 
     the following circumstances:
       1. When the major airline both adds flights and sells such 
     a large number of seats at very low fares that it ends up 
     losing more money than it would have if it had adopted a more 
     reasonable competitive response;
       2. When the major airline carries more passengers at the 
     new airline's low fares than the new airline has in available 
     seats and as a result ends up losing more money than it would 
     have if it had adopted a more reasonable competitive 
     response; or
       3. When the major airline carries more passengers at the 
     new airline's low fares than the new airline carries and as a 
     result ends up losing more money than it would have if it had 
     adopted a more reasonable competitive response.
       The Committee certainly supports fair competition and 
     believes that new entrants should have a reasonable chance to 
     survive since they often are the catalyst for low fares and 
     improved air service to many communities including the sort 
     of communities that are the focus of this bill.
       Many have expressed support for the Department's 
     guidelines. The Attorney General of Iowa, the co-chair of a 
     working group of over 20 states which are reviewing airline 
     competition, stated the proposed guidelines are ``a sound 
     common-sense, and much-needed tool'' with regard to airline 
     competition. In testimony before Congress, Spirit Airlines 
     stated that it was forced out of markets because a major 
     airline, in protecting a monopoly route, was engaging in 
     exactly the type of behavior the Department is proposing to 
     find unlawful. And Alfred Kahn, the father of deregulation, 
     has praised the Department's initiative for promoting 
     competition by providing air carriers clear guidance in 
     distinguishing legitimate competition from what is intended 
     to drive competitors out and exploit consumers.
       However, others have expressed concern that the proposed 
     guidelines will not increase competition but may hurt the 
     very communities that they are designed to help by raising 
     air fares and reducing air service, the exact opposite of the 
     goals of the reported bill. Not only the major airlines, but 
     also small and medium-sized airports, airline employees, both 
     liberal and conservative think tanks, and at least one 
     consumer group have indicated their opposition to the 
     guidelines. For example, the Aviation Consumer Action Project 
     stated that the ``DOT initiative in the area of airline 
     competition is likely to effectively prohibit airfare price 
     wars and increase airfares higher than they would otherwise 
     be'' \4\ and a small airport

[[Page E2313]]

     wrote to DOT on May 25, 1998 complaining that under its 
     guidelines, ``the loser is the consumers in small markets who 
     are looking for increased service and capacity.''
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     \4\ ``Impact of Recent Alliances, International Agreements, 
     DOT Actions and Pending Legislation on Air Fares, Air 
     Service, and Competition in the Airline Industry'' Hearings 
     before the Subcommittee on Aviation of the House Committee on 
     Transportation and Infrastructure, 105-64, 105th Congress, 
     2nd Session, (April 30, 1998) 473.
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       In light of these arguments, it is important that a closer 
     look be taken at the issue. Accordingly, the reported bill 
     mandates two studies.
       The first, by the Transportation Research Board (TRB), 
     would update their highly-regarded work on airline 
     deregulation published 7 years ago.\5\ This is designed to 
     take a broad look at the issue of airline competition today 
     and provide guidance to Congress and DOT for future policy 
     decisions. While it is hoped that TRB can complete its work 
     soon enough so that DOT can take advantage of it in its 
     reconsideration of its guidelines, the issuance of the 
     guidelines is not tied to completion of TRB's work.
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     \5\ Transportation Research Board, National Research Council, 
     ``Winds of Change: Domestic Air Transport Since 
     Deregulation,'' (1991).
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       The second study would be conducted by DOT and would be 
     focused more specifically on the proposed guidelines and any 
     alternatives to it. DOT would be expected to address many of 
     the concerns raised by the opponents of the proposed 
     guidelines in this study.
       No deadline is imposed on DOT for the completion of its 
     study. However, it could not issue final guidelines until the 
     completed study was transmitted to Congress. If as a result 
     of the study, DOT still believes the guidelines are 
     justified, those guidelines would have to be transmitted to 
     Congress as well and there would be a period for 
     Congressional review before those guidelines could become 
     effective.
       As with the alliances, it is important to note here as well 
     that the reported bill does not take any position on DOT's 
     authority to adopt competition guidelines. The reported bill 
     merely calls for studies on the factors which may impact 
     competition in the airline industry. These studies are 
     designed to provide guidance to Congress and DOT in deciding 
     what if any action should be taken to enhance or modify the 
     level of competition in the airline industry.
       If, upon completion of these studies, DOT decides to issue 
     competition guidelines, those guidelines must be within the 
     agency's existing statutory authority. Nothing in the 
     reported bill expands or diminishes DOT's authority in this 
     regard or expresses a position on DOT's existing authority.


                       SECTION-BY-SECTION SUMMARY

     Section 401. Joint venture agreements
       Establishes a procedure for DOT review of major airline 
     alliances.
       Subsection (a) defines terms.
       Paragraph (1) defines the sort of alliances between major 
     airlines that are covered by this section. They are--
       (A) Code-sharing, blocked space, long-term wet leases, and 
     frequent flyer programs; and
       (B) Other cooperative working arrangements that affect more 
     than 15% of the major airlines' available seat miles.
       Paragraph (2) cross-references Part 241 of DOT rules to 
     define which airlines are covered by this section.
       Subsection (b) requires major airlines covered by this 
     section to file with DOT a copy of their alliance agreement 
     and other information that DOT, by regulation, requires at 
     least 30 days before an alliance covered by this section 
     takes effect.
       Subsection (c) permits DOT to extend the 30-day period for 
     150 days in the case of an alliance involving code-sharing 
     and for 60 days in the case of any other alliance covered by 
     this section. However, DOT could not automatically extend the 
     time as a matter of course but would have to publish in the 
     Federal Register the reasons that the extension is needed.
       Subsection (d) permits DOT to shorten the waiting periods 
     at any time.
       Subsection (e) makes clear that the waiting periods could 
     not be delayed while DOT is developing regulations to 
     implement this section.
       Subsection (f) directs DOT and the Justice Department to 
     develop a memorandum of understanding on pre-clearance 
     procedures to prevent unnecessary duplication of effort.
       Subsection (g) states that the waiting period for alliances 
     entered into before the date of enactment begins on the date, 
     as determined by the Secretary, on which all of the required 
     information was submitted and ends on the last day under 
     which the waiting period could have been extended under 
     subsection (c) above.
       Subsection (h) makes clear that the procedural authority 
     granted to DOT under this section does not limit the 
     authority of the Justice Department to enforce the antitrust 
     laws.
     Section 402. Competitive practices in the airline industry
       Subsection (a) requires certain studies.
       Paragraph (1) requires the Transportation Research Board to 
     update the portions of its 1991 study of airline deregulation 
     that deal with competition issues in the airline industry and 
     include any recommendations for changes in the statutory 
     framework under which the airline industry operates.
       Paragraph (2) requires this study to be transmitted to 
     Congress and DOT within 6 months of the date of enactment.
       Paragraph (3) requires DOT to respond to this study within 
     2 months.
       Subsection (b) directs DOT to conduct a study and transmit 
     to Congress a report that includes the following:
       (1) A description of complaints DOT has received alleging 
     predatory pricing or unfair competition, the number of such 
     complaints, and specific examples of unfair competition of 
     predatory pricing;
       (2) A description of the options DOT has for addressing 
     these problems;
       (3) An analysis of its proposed competition guidelines 
     including the analysis required by subsection (c) below; and
       (4) A description of how DOT will coordinate the handling 
     of predatory pricing and unfair competition complaints with 
     the Justice Department.
       Subsection (c) prohibits DOT from issuing final competition 
     guidelines until it transmits the report described above to 
     Congress. If DOT decides to issue such guidelines, it must 
     transmit them to Congress. If the guidelines transmitted are 
     different from the ones it originally proposed, DOT must 
     include, as part of its transmittal to Congress, information 
     documenting and quantifying the impact of these final 
     guidelines on the following:
       (A) Scheduled service to small and medium-sized 
     communities;
       (B) Air fares including the availability of senior citizen, 
     Internet, and standby discounts;
       (C) The incentive and ability of major airlines to offer 
     low air fares;
       (D) The incentive of new airlines to offer low air fares;
       (E) The ability of airlines to offer inclusive leisure 
     travel for which air fares are not separately advertised;
       (F) Members of frequent flyer programs;
       (G) The ability of airlines to carry connecting passengers 
     on the portion of the routes served by new airlines covered 
     by the guidelines; and
       (H) Airline employees.
       Subsection (d) requires DOT, in conducting the study, to 
     consult with the Justice Department, airlines, airports, 
     academic and economic experts, airline employees, and 
     passengers.
       Subsection (e) states that, if DOT issues final competition 
     guidelines, those guidelines shall not become effective until 
     12 weeks after they were transmitted to Congress. A week 
     shall only be counted toward the 12 if the House was in 
     session for legislative business (with votes as opposed to a 
     pro forma session) during at least one day of that week.

     

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