[Congressional Record (Bound Edition), Volume 146 (2000), Part 11]
[Senate]
[Pages 16391-16394]
[From the U.S. 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,

[[Page 16392]]

       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 
     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.

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       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.
  I believe we would end up with three major airlines flying roughly 80 
percent of all the passengers on domestic

[[Page 16394]]

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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