[Congressional Record Volume 146, Number 99 (Wednesday, July 26, 2000)]
[Senate]
[Pages S7692-S7694]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SENATE RESOLUTION 344--EXPRESSING THE SENSE OF THE SENATE THAT THE
PROPOSED MERGER OF UNITED AIRLINES AND U.S. AIRWAYS IS INCONSISTENT
WITH THE PUBLIC INTEREST AND PUBLIC CONVENIENCE AND NECESSITY POLICY
SET FORTH IN SECTION 40101 OF TITLE 49, UNITED STATES CODE
Mr. McCAIN (for himself and Mr. Gorton) submitted the following
resolution; which was referred to the Committee on Commerce, Science,
and Transportation:
S. Res. 344
Whereas, in 1999 the 6 largest hub-and-spoke airlines in
the United States accounted for nearly 80 percent of the
revenue passenger miles flown by domestic airlines,
Whereas, according to Department of Transportation
statistics, a combined United Airlines and US Airways would
result in at least 20 airline hub airports in the United
States where a single airline and its affiliate air carriers
would carry more than 50 percent of the passenger traffic;
Whereas, the Department of Transportation and the General
Accounting Office have documented that air fares are
relatively higher at those airline hub airports where a
single airline carries more than 50 percent of the passenger
traffic;
Whereas, a combined United Airlines and US Airways would
hold approximately 40 percent of the air carrier takeoff and
landing slots at the 4 high density airports, even taking
into account the parties' planned divestiture of slots at
Ronald Reagan Washington National Airport;
Whereas, most analysts agree that a United Airlines-US
Airways merger would lead to other merger in the airline
industry, likely resulting in combinations that would reduce
the 6 largest domestic hub-and-spoke airlines to 3 airlines;
Whereas, media reports indicate that American Airlines has
made a tangible offer to purchase Northwest Airlines and that
Delta Air Lines and Continental Airlines have engaged in
merger negotiations;
Whereas, it would be difficult for the Department of
Transportation and other responsible Federal agencies of
jurisdiction to disapprove subsequent airline merger
proposals if the government allows the largest domestic
airline, in terms of total operating revenue and revenue
passenger miles flown in 1999, United Airlines, to merge with
the sixth largest airline, US Airways, making United Airlines
substantially bigger than its next largest competitor;
Whereas, 3 larger domestic airlines will have substantially
increased market power, and would have the ability to use
that market power to drive low fare competitors out of direct
competition and to thwart new airline entry into the
marketplace;
Whereas, the Department of Transportation credits nearly
all of the benefits of deregulation (a reported $6.3 billion
in annual savings to airline passengers) to the entry and
existence of low fare airline competitors in the marketplace;
Whereas, a combined United Airlines and US Airways,
including their commuter airline partners, would be the only
carrier offering nonstop flights between at least 26 domestic
airports in 12 States;
Whereas, in 1999 United Airlines and US Airways enplaned 22
percent of all revenue passengers flown by domestic airlines;
Whereas, the transition from 6 major airlines to 3 would
likely result in less competition and higher fares, giving
consumers fewer choices and decreased customers service;
Whereas, it is the role of the Senate Committee on
Commerce, Science, and Transportation and, more specifically
the Subcommittee on Aviation, to conduct oversight of the
aviation industry and to promote consumers' receiving a basic
level of airline customer service;
Whereas, the Air Transport Association member air carriers
agreed to an Airline Customer Service Commitment to improve
the current level of customer service in the airline
industry;
Whereas, in an interim oversight report, the Department of
Transportation Inspector General recently concluded that the
results are mixed with respect to the effectiveness of the
efforts of the major airlines to implement their Airline
Customer Service Commitment;
Whereas, the combination of 2 entities as large as United
Airlines and US Airways could cause at least short-term
disruptions in service;
Whereas, according to the Department of Transportation
statistics for the month of May 2000, for the 10 major
airlines, a combined United Airlines and US Airways would
have had the lowest percentage of ontime flight arrivals, the
highest percentage of flight operations canceled, the second
highest rate of consumer complaints, and the second highest
rate of mishandled baggage: Now, therefore, be it
Resolved, That--
(1) the Senate expresses concern about the proposed United
Airlines-US Airways merger because of its potential to leave
consumers with fewer travel options, higher fares, and
lowered levels of service; and
(2) it is the sense of the Senate that the potential
consumer detriments from the proposed United Airlines-US
Airways merger outweigh the potential consumer benefits.
Mr. McCAIN. Mr. President, I am pleased to be joined by the Commerce
Committee Aviation Subcommittee Chairman, Senator Gorton, to introduce
a Senate resolution expressing our strong reservations about the
proposed merger of United Airlines and US Airways.
Through Commerce Committee deliberations, Senator Gorton and I have
carefully analyzed the proposed merger, as well as its long-term
consumer effects. We conclude that whatever air travelers stand to gain
from the merger is outweighed by what they stand to lose.
The public interest would likely be harmed by a United Airlines-US
Airways merger. First, almost all analysts agree that the merger would
trigger additional consolidation in the airline industry. The six
largest hub-and- spoke carriers in the country would likely become the
``big three.'' Everything else being equal, basic economic principles
suggest that consumers are better served by having six competitors in a
market rather than three.
Even at this preliminary date, our experience bears out the
prediction of additional industry consolidation. American Airlines has
already made an offer for Northwest Airlines. Delta Air Lines and
Continental have reportedly engaged in merger negotiations.
Consolidation among these network carriers poses additional problems
for the flying public. The likely result of fewer carriers is more
single-carrier concentration at hub airports across the country.
Studies by the Department of Transportation, the General Accounting
Office, and others consistently conclude that air fares are relatively
higher at hub airports ``dominated'' by a single carrier.
Important new entry in the airline industry would be hurt by
consolidation among the major airlines. The mega-carriers would have
additional resources to engage in fierce and prolonged behavior
designed to drive new competitors out of the market, and to single
potential entrants that they dare not compete with the incumbent.
Today, many new entrants simply choose not to enter the major
airlines' hub markets because they fear they cannot survive a sustained
head-to-head battle. A United-US Airways merger, and the consolidation
that would ensue, would further entrench the incumbent air carriers'
positions.
I admit that there are benefits associated with the proposed United-
US Airways merger. The carriers, for instance, tout ``seamless''
connections to international destinations, an expanded frequent flyer
program, and similar benefits that should appeal to travelers on the
United-US Airways system.
United and US Airways also applaud new service to a multitude of
destinations as a consequence of the merger. It is important to note,
however, that what is new to United is not exactly new to the flying
public, since United's ``new'' service is made up of flights that are
now offered by US Airways.
Again, the point is that the anti-competitive harm posed by the
proposed United-US Airways merger outweighs its benefits. And that
conclusion does not even take into account the customer service
problems associated with integrating the work forces of two or more
major airlines.
I want to underscore that this resolution is designed to express our
concerns about the proposed United-US Airways merger. It does not seek
to force any federal agency or department to take any specific action
with respect to the proposed merger. However, our concerns for the
consumer are of such a significant nature that we are compelled to
introduce this resolution.
I ask unanimous consent to have printed in the Record a letter from
the father of airline deregulation, Prof. Alfred Kahn. His letter
outlines his preliminary concerns with the proposed United-U.S. Airways
merger.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
Alfred E. Kahn,
Ithaca, New York, June 9, 2000.
Hon. John McCain,
Chairman, Committee on Commerce, Science and Transportation,
U.S. Senate, Russell Senate Office Building, Washington,
DC.
Dear Senator McCain: I'm very sorry that I can't accept
your invitation to testify before your Committee on June
20th, and hope that you will regard the arrival that day of
[[Page S7693]]
my son and his family from Australia, for a brief visit, as a
sufficient reason. I particularly regret my inability to take
advantage of that opportunity to renew our acquaintance.
Your Ann Choiniere has asked me to offer, as a substitute,
a statement of my--as yet only provisional--opinions about
the proposed merger of United Airlines and US Airways. I am
happy to do so, even though, to repeat, I have by no means a
settled final opinion about whether or not it should be
approved.
I do urge you to give careful consideration to its possible
anticompetitive effects, however. The central premise of
deregulation was that competition would best serve and
protect consumers; that meant vigorous enforcement of the
antitrust laws rather than direct regulation would become
critical in the new regime.
Primary responsibility for making this investigation rests,
of course, with the antitrust agencies. It is my
understanding, however, that the Antitrust Division's
resources are severely strained by their other obligations,
including other proceedings specifically involving the
airlines; if they lack the resources to look at this latest
proposed merger with great care, it seems to me that would be
a case of the government being penny-wise and pound-foolish.
Partly because of the possible direct effects of this merger
and, perhaps even more, because of its threatening to set off
a series of imitative mergers that would substantially
increase the concentration of the domestic industry, there is
a possible jeopardy here to the many billions of dollars that
consumers have been saving each year because off the
competition set off by deregulation.
It seems to me there are several levels at which to assess
these possible anticompetitive effects.
1. The first goes to the question of whether there are any
substantial number of particular routes on which United and
US Airways are already direct competitors. In the case of the
proposed merger of Continental/Northwest, the Antitrust
Division identified several very important routes between
their respective hubs (for example, Houston/Minneapolis-St.
Paul, Houston/Detroit, Cleveland/Minneapolis-St. Paul,
Cleveland/Memphis, Newark/Twin Cities) on which it appeared
those airlines were the two main if not only competitors, and
their merger would simply eliminate that competition. I do
not know to what extent there are similar overlaps between US
Airways and United.
2. In deregulating the airlines we relied very heavily on
the threat of potential as well as actual competition to
prevent exploitation of consumers: an important part of the
rationale of deregulation was the contestability of airline
markets. It seems to me highly likely that there are many
routes in which United or US Airways is a potential
competitor of the other. And it is my recollection that while
studies of the behavior of airline fares after deregulation
(notably one by Winston and Morrison and another by Gloria
Hurdle, Andrew Joskow and others) demonstrated that one
actual competitor in a market is worth two or three potential
contesters in the bush, they nevertheless also found that the
presence of a potential contester--identified as a carrier
already present at one or the other end of a route--did
constrain the fares incumbents could charge.
3. The likelihood that a United/US Airways merger would
indeed result in suppression of this potential competition
would seem to be enhanced by what I take it would be United's
explanation and justification--namely, its need for a strong
hub in the Northeast (commented on widely in the literature,
along with attributions of a similar need to American
Airlines). But if United really does feel the need for a big
hub in the Northeast, this suggests that it is indeed an
important potential competitor of US Airways, and that,
denied the ability to acquire the hub in the easiest,
noncompetitive fashion, by acquisition, it might instead feel
impelled to construct a hub of its own in direct competition
with US Airways; if some place within a couple of hundred
miles of Pittsburgh is the needed location--observe the hubs
of Continental at Cleveland and Delta at Cincinnati--then why
not, say, Buffalo for United? And while I have the impression
that the suppression of potential competition has not played
a major role in most merger litigation, it might properly be
definitive in this case, if only because, either explicitly
or implicitly, United is in effect conceding the potentiality
of that competition in its rationalizations of the merger
itself. The stronger its argument that it does indeed require
a big hub in the Northeast, the more that signifies that the
alternative, if it were denied the opportunity to acquire US
Airways, would be to construct a major competitive hub of its
own.
4. In addition, if indeed United's acquisition of a
competitive advantage by this acquisition--giving it the
first claim on traffic feed from US Airways' extensive
network--does increase the pressure on other carriers,
particularly American to merge similarly, then it seems to me
that is a possible competitive consequence of this particular
merger that should additionally be taken into account in
deciding whether it should be permitted.
I do hope you will undertake this important inquiry: we may
be confronting a very radical consolidation of the industry,
which cannot be a matter of indifference to people like you
and me, who have regarded deregulation as a striking success
thus far.
With warm personal regards,
Sincerely,
Alfred E. Kahn,
Robert Julius Thorne Professor of Political Economy,
Emeritus, Cornell University; Chairman, Civil Aeronautics
Board 1977-78.
Mr. McCAIN. Mr. President, I want to highlight one point Professor
Kahn makes. He asserts that United's main justification for the merger
is the need for a hub in the northeast. He goes on to question,
however, why United doesn't create a hub in the northeast, rather than
follow the path of ``least competitive resistance'' by trying to
acquire on its competitors' hubs. Mr. President, I ask the same
question, and urge my colleagues to join Senator Gorton and me in
supporting this Senate resolution expressing our strong concerns about
a United-US Airways merger.
Mr. President, I thank my friend and colleague, the distinguished
chairman of the Aviation Subcommittee of the Commerce Committee who
joined me in this resolution.
I yield the floor.
The PRESIDING OFFICER. The Senator from Washington.
Mr. GORTON. Mr. President, it is my purpose to join with the Senator
from Arizona today in introducing this sense-of-the-Senate resolution.
Each of us has thought long and hard about this proposed measure, as it
goes to the heart of our air transport system in the United States. I
believe I speak for the Senator from Arizona as well as for myself in
saying this merger seems quite obviously to be beneficial both to
United Airlines and to U.S. Airways. Public policy, however, does not
concern itself primarily with the benefits to the companies involved in
the competitive field. Public policy should concern itself with
consumer interests and with the interests of the millions of Americans
who use these airlines to fly from one place to another across the
United States and for that matter overseas.
A merger of these two airlines would create by far the largest single
airline in the United States. Inevitably, it seems to me that would
lead to two more mergers, at the very least involving the other four of
the largest six airlines in the United States. In fact, it would be
almost impossible to mount a logical and rational defense against such
mergers as those airlines would complain with real justification that
they were no longer competitive with the giant created by a United-U.S.
Airways merger.
From our perspective, we need to consider what the ultimate outcome
of this merger would be and the impact it would have on airline
passengers all across the United States. There would be a significant
increase in the number of hubs overwhelmingly dominated by a single
airline. There would be, in my view, a sharp decrease in the
competition for airline travel in many cities across the United States.
There would certainly be the legitimate desire on the part of the
remaining airlines to maximize their profits. That exists at the
present time. But these three mergers would vastly increase the ability
of the airlines to do so in what would be distinctly a less competitive
market.
I have attended hearings on this subject. I have had meetings with
the CEOs of both airlines seeking to merge and with some of those who
have apprehensions about that merger. I may say there are a number of
ways in which my mind was changed by those meetings. My first reaction
to the proposal was that the creation of one new entrant--D.C.
Airlines--was little more than a sham. The hearings and my meetings
indicated to me that I was almost certainly wrong in that respect, and
that the proposed new owner and manager of D.C. Airlines did intend to
be a real airline to provide real service. But even if we grant the
potential success of that airline, the net effect on competition
overall would be highly negative on the part of this merger.
I join with the chairman of the Commerce Committee in this
resolution. I do not think in the ultimate analysis that this merger is
in the public interest. I believe it would lessen competition among
domestic airlines. I think it would not improve the way in which the
airline passengers are treated, and probably, at least in the short
term and perhaps in the long term, would exacerbate an already
troublesome situation.
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I believe we would end up with three major airlines flying roughly 80
percent of all the passengers on domestic flights in the United States,
and that the net result, by a significant margin from such a merger,
would not be in the public interest.
I hope this resolution becomes more formalized than it is just by the
introduction by these two Members. I suspect the chairman of the
Commerce Committee will bring it up in the Commerce Committee. I hope
it is here for consideration by the entire Senate promptly, and it will
be considered by the regulatory authorities that are dealing with the
proposed merger at the present time.
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