[Senate Report 107-130]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 300
107th Congress 
 1st Session                     SENATE                          Report
                                                                107-130
_______________________________________________________________________

                                     


 
                 AVIATION COMPETITION RESTORATION ACT

                               __________

                              R E P O R T

                                 of the

                    COMMITTEE ON COMMERCE, SCIENCE,

                           AND TRANSPORTATION

                                   on

                                 S. 415




   December 19 (legislative day, December 18), 2001.--Ordered to be 
                                printed

                    U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002



       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
                      one hundred seventh congress
                             first session

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida
                     Kevin D. Kayes, Staff Director
                       Moses Boyd, Chief Counsel
                      Gregg Elias, General Counsel
                  Mark Buse, Republican Staff Director
               Jeanne Bumpus, Republican General Counsel

                                  (ii)
                                                       Calendar No. 300
107th Congress                                                   Report
                                 SENATE
 1st Session                                                    107-130

======================================================================




                  AVIATION COMPETITION RESTORATION ACT

                                _______
                                

   December 19 (legislative day, December 18), 2001.--Ordered to be 
                                printed

                                _______
                                

      Mr. Hollings, from the Committee on Commerce, Science, and 
                Transportation, submitted the following

                              R E P O R T

                         [To accompany S. 415]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 415) ``A Bill to amend title 
49, United States Code, to require that air carriers meet 
public convenience and necessity requirements by ensuring 
competitive access by commercial air carriers to major cities, 
and for other purposes'', having considered the same, reports 
favorably thereon with an amendment (in the nature of a 
substitute) and recommends that the bill (as amended) do pass.

                          Purpose of the Bill

  The purpose of the Aviation Competition Restoration Act 
(ACRA), S. 415, is to ensure competitive access to gates, 
facilities, and other assets at the nation's largest airports.

                          Background and Needs

  In 1978, believing that competition among airlines would 
improve air service and lower fares for the traveling public, 
Congress passed the Airline Deregulation Act of 1978. This 
landmark legislation phased out federal government control over 
ticket prices, routes, and services, and preempted local 
actions to regulate such activities.
  Many argue and some independent studies have indicated that 
airline deregulation has brought better service at lower prices 
to the majority of communities and consumers around this 
country. Generally, the development of hub-and-spoke network 
systems and the creation of other types of new service have 
provided the flying public with more service options. By 
bringing passengers from multiple origins (the spokes) to a 
common point (the hub) and placing them on new flights to their 
ultimate destination, the hub-and-spoke system provides for 
more frequent flights and more travel options to many 
communities. Yet, over time, the network system has resulted in 
less competition in some areas. At each of 20 major airports, 
only one carrier and its affiliates dominate service and where 
there is such a dominant carrier at a hub airport with barriers 
to entry, higher air fares have resulted. For example, 
travelers in cities with major hubs have few choices when 
taking short-haul, nonstop flights because the hubbing carrier 
often controls 50 percent or more of the local passenger 
traffic. According to the Department of Transportation (DOT), 
in the January 2001 Dominated Hub Fares study, airfares at so-
called ``fortress hub airports'' are 41 percent higher than at 
hubs with greater competition. In short-haul hub markets 
without a low-fare carrier, passengers pay 54 percent more on 
average than passengers in comparable markets with low-fare 
carriers.
  According to a 1996 study conducted by the General Accounting 
Office (GAO), low-fare point-to-point carriers are the driving 
force behind the benefits of airline deregulation. The entrance 
of a new low-fare carrier injects competition into a market 
and, typically, results in new service being added by both 
established carriers and the new entrant. This so-called 
Southwest Effect (named after Southwest Airlines) has made 
attracting low-fare service a top priority for local business 
and community leaders. In an April 1996 study, DOT estimated 
that almost 40 percent of domestic passengers traveled in 
markets with low-fare competition, saving consumers an 
estimated $6.3 billion in air fares. DOT has attributed 
virtually all of the domestic growth in service and declines in 
average fares in recent years to this growing form of 
competition.
  To compete in a market, an air carrier must have access to 
airport facilities such as gates, ticket counters, and baggage 
carousels. Specific airport-air carrier practices such as 
exclusive-use gate-lease agreements and majority-in-interest 
clauses have limited the ability of new entrants and smaller 
carriers to compete with established carriers. Restrictive gate 
leases, some of which last up to twenty years, at many airports 
have helped single carriers dominate local markets. New 
entrants, including Sun Country Airlines and Air Tran, have 
testified before Congress that, even when gates and other 
facilities are not being used, airlines hoard gates and do not 
make them available to potential competitors, preferring to 
maintain a competitive advantage by stifling new entry. When 
gates are available, they are typically at non-preferred times 
or higher costs. AirTran also testified that if it had just 
four gates at a major airport it could provide 32-40 flights 
per day, enough to provide a competitive spur to incumbent 
carriers.
  Since 1969, the FAA has limited the number of takeoffs and 
landings (collectively known as ``slots'') at Chicago's O'Hare 
International Airport, New York's LaGuardia Airport and Kennedy 
International Airport, and Ronald Reagan Washington National 
Airport. Because established airlines hold the rights to the 
majority of takeoff and landing slots, until recently, new 
entrants were almost shut out of the slot constricted airports. 
Government involvement was necessary to facilitate competitive 
access to these airports, and administrative and Congressional 
actions have enabledsome smaller carriers to get a small 
foothold. Despite the slot regulations, for example, DOT awarded 75 
slots to JetBlue Airways at Kennedy. JetBlue has been thriving and 
offering low fare competition to many markets. The most recent Federal 
Aviation Administration reauthorization act (known as AIR-21; P.L. 106-
181) allowed several new slot exemptions at Reagan National for some 
smaller carriers to provide new services at lower fares.
  Since deregulation, new entrants and low-cost carriers have 
not been able to maintain service in most of the new markets 
(nonstop segments) that they have entered. New entrant carriers 
allege that after they enter a market, incumbent carriers flood 
it with below-cost tickets, and that the incumbent carriers' 
``predatory pricing'' and ``predatory scheduling'' practices 
prevent the new carriers from making a profit and force them to 
withdraw from the market. After the new entrant is successfully 
driven out, the incumbent carrier increases its airfares to 
their original price, or, in some cases, a higher price.
  DOT has expressed concern that responses from incumbent 
carriers have strayed beyond the bounds of fair competition, 
aiming instead to drive their competitors out of the market. 
DOT has noted that some actions of incumbent carriers have 
resulted in their obtaining much lower revenue from their 
service than they would have obtained if they had responded in 
a more measured fashion.
  On May 13, 1999, the Department of Justice (DOJ) filed an 
antitrust lawsuit against American Airlines for monopolizing 
and attempting to monopolize airline passenger service to and 
from Dallas/Ft. Worth International Airport. DOJ contends that 
American repeatedly sought to drive small, start-up carriers 
out of DFW by saturating routes with additional flights and 
reducing fares. On April 27, 2001, a Federal district court 
judge ruled that DOJ could not prove a case based on 
traditional antitrust law principles. DOJ, however, recently 
appealed the ruling.

                             Concentration

  Since Congress passed the Airline Deregulation Act in 1978, 
there have been concerns that deregulation would lead to 
greater concentration. One chart put into the Commerce 
Committee hearing record by Frank Borman, then CEO of Eastern 
Airlines, showed the top five air carriers accounting for 68.6% 
of the market in 1977. Today, the top five carriers account for 
77% of the market. At the time, the Committee considered S. 
415, the top five would have accounted for 83% of the market. 
Because data suggest that the hubs do compete with one another 
in the long haul markets, concerns about the effect of 
concentration on competition have focused largely on short-haul 
markets.
  The National Academy of Sciences (NAS) in its 1991 study on 
deregulation, Winds of Change, stated:

          Several trends suggest that the industry will 
        continue to concentrate, which at some point might 
        threaten the benefits achieved during deregulation. 
        Additional industry concentration may occur because of 
        the nature of current competition among the largest 
        carriers offering nationwide service. Being an 
        effective major competitor requires, among other 
        things, providing service to a broad network of cities. 
        Only a limited number of carriers will be able to 
        achieve market presence in a sufficient number of large 
        cities to build a national network.
          In addition to the trend toward concentration in the 
        national market, few hub airports are likely to support 
        more than one hubbing carrier because of the 
        substantial risk and cost associated with competing 
        with a carrier at its hub, lack of gates and terminal 
        space at many hub airports, and insufficient local 
        traffic support. These conditions create an almost 
        inevitable drift toward single-carrier dominance at 
        many hubs, which further reduces competition in 
        regional markets and gives the dominating carriers an 
        opportunity to exercise market power.
          It is impossible to predict with certainty how the 
        pending industry shakeout will affect competition and 
        balance sheets. The loss of one or two carriers, for 
        example, may reduce excess capacity in the industry and 
        improve cash flow and profits for the remaining 
        carriers. The loss of too many carriers, however, could 
        reduce the amount of competition to below a level 
        necessary to discipline pricing.\1\
---------------------------------------------------------------------------
    \1\ Winds of Change, p. 2-3.

  Between 1978 and 1989, during which period the authority to 
approve mergers moved from the Civil Aeronautics Board, to the 
DOT, to the DOJ, virtually all merger requests were approved. 
The CAB approved 10 transactions from 1979 to 1984. (Only one 
transaction, Continental-Western I, was rejected, but later 
approved in Continental-Western II, which was overtaken by 
Frank Lorenzo's bid to combine Texas Air Corporation with 
Continental.) DOT approved 27 mergers.
  Much of the theory of airline deregulation and analysis 
during this period rested on two assumptions that, first, 
actual competition existed and that, second, potential 
competition was always just around the corner. Merger analysis 
by the CAB, and later, DOT, relied heavily on the ability of a 
carrier to possibly enter a market. If one market seemed to be 
a problem, or a barrier to entry existed (e.g. gates at Denver 
in the Continental-Western merger proposals), then the CAB 
would look at the national, rather than the regional, market. 
Using these assumptions and fluid definitions of markets, CAB 
would then determine that entry was easy under deregulation 
because it reasoned that aircraft could move into and out of 
markets whenever fares were too high, and the CAB would approve 
the deal. The flaw in this reasoning was that while aircraft 
are movable, the ability of carriers to respond to new entry by 
changing fares quickly made entry on a route a more difficult, 
complex decision. As computers became more sophisticated in 
providing and responding to fares, and hubs became increasingly 
larger, the decision to enter a specific market became 
difficult.
  Due in part to past merger approval policies, the DOT reports 
that concentration levels at specific hubs are high today.
  While the degree of concentration alone does not necessarily 
indicate that there is a competition problem, dominant carriers 
have the ability to charge premiums on routes to and from the 
hub where barriers to entry exist. In its 1991 report, Winds of 
Change, the National Academy of Science defined a barrier to 
entry as (a)the total inability of a firm to enter a market, 
(b) the existence of costs borne by the new entrant but not borne by 
the incumbent, or (c) advantages that accrue to incumbent firms because 
of economies of scale and scope.
  The NAS then described potential barriers to entry as (a) the 
financial risk of entry, (b) airport capacity constraints that 
diminish the prospects of entry, (c) environmental issues that 
affect airport use and the availability and cost of aircraft, 
and (d) the effects of airline marketing strategies on 
competition.\2\
---------------------------------------------------------------------------
    \2\ Winds of Change, p. 134.
---------------------------------------------------------------------------
  The concerns about competition expressed by the NAS a decade 
ago were restated in the NAS's most recent report on the 
aviation industry, in which it observed that:

          For nearly two decades now, the literature 
        consistently has shown higher fares in city-pair 
        markets that include a concentrated hub as either the 
        origin or destination point; this especially applies to 
        short haul markets. \3\
---------------------------------------------------------------------------
    \3\ Study on Entry and Competition in the U.S. Airline Industry, 
NAS, 1999, p. 72.

  The recent NAS report also noted the ability of hub carriers 
to limit entry by other carriers through control of gates.

                           Predatory Conduct

  Traditionally, predatory pricing regulation has focused on 
companies pricing their products below cost. Despite the 
difficulty of proving below cost pricing, by 1997, DOT believed 
that it could have taken enforcement action against a number of 
carriers, but chose instead to propose rules to prevent 
predatory pricing. The DOT guidelines, which focused on forgone 
revenues rather than actual costs, were controversial.
  Testimony regarding predatory conduct presented to the 
Committee by Spirit airlines, was particularly insightful. 
According to Mr. Kahan, Spirit went into the Detroit-
Philadelphia market with a fare as low as $49 and as high as 
$139. Northwest then matched the fares and increased the number 
of flights and seats by 15%. Eventually, according to Spirit, 
lacking a frequent flyer base in Detroit (which is one of 
Northwest's hubs), Spirit dropped out of the market. Mr. Kahan 
indicated that Northwest immediately raised its fares to $381 
for a one-way flight.
  The guidelines proposed by DOT were supported by most of the 
low cost carriers and opposed by the major, network carriers. 
As a result, as part of the Omnibus Appropriations Act of 1998, 
the National Academy of Sciences was directed to study the 
issue for 6 months and submit a report to Congress. In January, 
2001, DOT declined to adopt its proposed guidelines on 
competition and instead issued a report, cited earlier, 
detailing the competitive problems in the aviation industry.

                          Legislative History

  On February 28, 2001, S. 415, the Aviation Competition 
Restoration Act, was introduced by Senator Hollings and 
cosponsored by Senators McCain, Dorgan, and Grassley. Senators 
Wyden and Reid were subsequently added to S. 415 as cosponsors. 
On March 12, 2001, the Committee held a hearing on S. 415 and 
competition in the airline industry. Witnesses at the hearing 
included representatives of the GAO, the State Attorneys 
General, consumers, and small and large airlines. (The 
Committee held numerous hearings on airline competition and 
consolidation during the 106th Congress.) On March 15, 2001, 
the Committee ordered S. 415 reported with an amendment in the 
nature of a substitute containing technical and substantive 
changes offered by Senators Hollings and McCain.

                      Summary of Major Provisions

  As reported, S. 415 would:
          1. Require DOT to investigate the assignment and use 
        of gates, facilities, and other assets by major air 
        carriers at the largest 35 U.S. airports to determine 
        whether aviation system assets are being hoarded and 
        whether there is meaningful, competitive access.
          2. Allow DOT to require a major air carrier to make 
        gates, facilities, and other assets available to other 
        carriers on terms that are fair, reasonable, and 
        nondiscriminatory to ensure competitive access to the 
        largest airports if, based on its investigation, DOT 
        determines that such assets are not available and that 
        competition would thereby be enhanced at those 
        airports.
          3. Make it an unfair method of competition in air 
        transportation for a dominant air carrier at a 
        dominated hub airport to: (A) fail to use gates, 
        facilities, and other assets fully; and (B) upon 
        request, refuse, deny, or fail to provide a gate, 
        facility, or other underused asset to another carrier 
        on fair, reasonable, and nondiscriminatory terms.
          4. Allow DOT, in fiscal year (FY) 2002, to make up to 
        $300 million in Airport Improvement Program (AIP) 
        grants for the construction of gates, related 
        facilities, and other assets to enhance and increase 
        competition among air carriers for passenger air 
        transportation.

                            Estimated Costs

  In accordance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 403 of the 
Congressional Budget Act of 1974, the Committee provides the 
following cost estimate, prepared by the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 25, 2001.
Hon. John McCain,
Chairman, Committee on Commerce, Science, and Transportation, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 415, the Aviation 
Competition Restoration Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs), Victoria Heid Hall (for the state and 
local impact), and Jean Talarico (for the private-sector 
impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               Congressional Budget Office Cost Estimate


S. 415--Aviation Competition Restoration Act

    Summary: S. 415 would direct the Department of 
Transportation (DOT) to investigate air carriers' use of 
landing slots and facilities at the 35 largest airports, and to 
determine whether reassigning those assets would improve 
competition between air carriers. Under the bill, DOT could 
require an air carrier to relinquish airport landing slots and 
facilities if the agency determines that such assets are not 
fully utilized or made available to other carriers and that 
divestiture would improve competition. S. 415 also would 
authorize the Secretary of Transportation to order air carriers 
to stop hoarding landing slots and facilities that are 
underused at the largest airports. Finally, the bill would 
authorize the appropriation of $300 million to provide grants 
to construct new gate facilities if they are necessary to 
ensure competition among air carriers at the largest airports.
    Based on the spending patterns of current grant programs 
for airports and on information from DOT, CBO estimates 
implementing S. 415 would cost about $294 million over the 
2001-2006 period, assuming appropriation of the necessary 
amounts. Because S. 415 would not affect direct spending or 
receipts, pay-as-you-go procedures would not apply.
    S. 415 contains both an intergovernmental and private-
sector mandate as defined in the Unfunded Mandates Reform Act 
(UMRA) because it would authorize the Secretary of 
Transportation to break contractual arrangements between public 
airport operators and private air carriers under certain 
conditions. CBO estimates that the cost to comply with the 
intergovernmental mandate would not exceed the threshold 
established by UMRA ($56 million in 2001, adjusted annually for 
inflation). CBO cannot determine whether the direct cost to the 
private sector would exceed the annual threshold defined by 
UMRA ($113 million in 2001, adjusted annually for inflation) 
because new requirements on air carriers would depend on 
specific standards that would be established by the Secretary 
of Transportation, and because information on financial and 
business arrangements between air carriers and airports is not 
available.
    Estimated cost to the Federal Government: For this 
estimate, CBO assumes S. 415 will be enacted during fiscal year 
2001 and that the estimated amounts will be appropriated for 
each year. The estimated budgetary impact of S. 415 is shown in 
the following table. The costs of this legislation fall within 
budget function 400 (transportation).


----------------------------------------------------------------------------------------------------------------
                                                                     By fiscal year, in millions of dollars--
                                                                 -----------------------------------------------
                                                                   2001    2002    2003    2004    2005    2006
----------------------------------------------------------------------------------------------------------------
                                        Spending Subject to Appropriation

Estimated Authorized Level......................................       1     301       1       1       1       1
Estimated Outlays...............................................       1      52     127      67      31      16
----------------------------------------------------------------------------------------------------------------


    Basis of estimate: S. 415 would direct the Department of 
Transportation to investigate air carriers' use of landing 
slots and facilities at the 35 largest airports within 90 days 
of its enactment. Based on information from DOT, COB estimates 
that conducting this investigation and issuing regulations to 
implement its findings would cost about $1 million in 2001.
    S. 415 would authorize the appropriation of $300 million in 
2002 for grants to construct gates if they are necessary to 
ensure competition among airlines at the largest airports. For 
this estimate, CBO assumes DOT will find that such grants are 
necessary. Based on the spending patterns of current grants to 
airports, CBO estimates implementing this provision would cost 
about $288 million over the 2002-2006 period.
    Under the bill the Department of Transportation could 
require an air carrier to relinquish airport assets (i.e., 
gates or other facilities). Based on information from DOT 
concerning the cost of litigation, CBO estimates that 
implementing this provision would cost about $1 million a year 
over the 2002-2006 period.
    Pay-as-you-go considerations: None.
    Intergovernmental and private-sector impact: S. 415 
contains both an intergovernmental and private-sector mandate 
as defined in UMRA because it would authorize the Secretary of 
Transportation to break contractual arrangements between public 
airport operators and private air carriers if the Secretary 
determines that airport gages, facilities, and landing slots 
are not available or are underutilized and competition would be 
increased by reallocation of those resources.
    CBO estimates that breaking contractual agreements would be 
unlikely to have a significant impact on airport revenues 
because any lost gate fees and airfield fees from one air 
carrier would likely be offset by fees from the new air carrier 
gaining access to the airport gates and facilities. The bill 
would impose no significant cost on airport authorities and 
costs would not exceed the threshold established by UMRA ($56 
million in 2001, adjusted annually for inflation) for 
intergovernmental mandates. S. 415 would benefit airports by 
authorizing the appropriation of $300 million in fiscal year 
2002 for grants to enhance competition among air carriers at 
certain airports. The conditions on such grants would be 
entered into voluntarily by airports.
    The loss of revenues to those air carriers that would be 
required to relinquish their airport facilities and landing 
slots would be a gain to the air carriers that would have 
access to those facilities and slots. CBO cannot determine if 
the net effect to the air carriers in aggregate would exceed 
the threshold for private-sector mandates ($113 million in 
2001, adjusted annually for inflation) because we do not know 
how often the Secretary would use the authority provided in 
this bill or how air carriers would respond to the loss or gain 
of facilities and landing slots. Moreover, details about 
current and future contracts are not available.
    Estimate prepared by: Federal Costs: Mark Hadley, Impact on 
State, Local, and Tribal Governments; Victoria Heid Hall, 
Impact on the Private Sector: Jean Talarico.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      Regulatory Impact Statement

  In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported:

                       NUMBER OF PERSONS COVERED

  Under section 3, major air carriers may be required to make 
available gates, facilities, and other assets at the 35 largest 
airports if DOT determines that there is a lack of competitive 
access and that competition would be enhanced by doing this.
  Section 4 would subject all major air carriers to the 
possibility of DOT civil enforcement action for engaging in 
behavior that fits the expanded definition of unfair methods of 
competition, which is one of the following actions at a 
dominated hub (where the carrier has more than 50 percent of 
the passenger traffic): (1) failure to utilize gates, 
facilities, and other assets fully; and (2) upon request, 
refusal, denial, or failure to provide a gate, facility, or 
other underutilized asset to another carrier on fair, 
reasonable, and nondiscriminatory terms.

                            ECONOMIC IMPACT

  Section 3 could reduce air fares for 25-50 million passengers 
that today are without effective competition. While incumbent 
air carriers could be required to make room for new entrants, 
the number of gates that might be needed to provide effective 
competition at the nation's top 35 airports, and the extent to 
which carriers want to serve those specific airports, is not 
known. Airport proprietors generally lease gates to carriers, 
and if a carrier were required to sublease or return a gate to 
the proprietor, the air carrier would save the cost of the 
lease payment. At many of the largest hubs, the dominant 
carrier controls entire concourses with multiple gates. In most 
cases, it is anticipated that carriers will be able to share 
gates, or gates will be built by the airport operator. It is 
not clear to what extent making a gate or a few gates available 
would impact incumbent carriers. In addition, while dominant 
carriers allege that they would be forced to cut service to 
small communities, protections are included in the bill to 
ensure that this does not occur. The bill does not cover 
commuter gates, which generally are used to service aircraft 
that serve small communities. Smaller air carriers and 
consumers would benefit from increased competition brought 
about by the enhanced availability of gates, facilities, and 
other assets at the 35 largest airports.
  Section 4 may cause dominant air carriers at dominated hub 
airports that engage in the unfair methods of competition 
delineated in this section to incur fines imposed by DOT. 
Consumers and smaller carriers may experience economic gains if 
major carriers are deterred from engaging in unfair methods of 
competition that restrict competitive access at key airports.
  Section 5 authorizes $300 million in FY 2002 for DOT to make 
grants for gates, related facilities, and other assets to 
enhance and increase competition among air carriers for 
passenger air transportation. Grants that expand access to 
restricted airports would benefit consumers and smaller 
carriers by increasing competition.

                                PRIVACY

  The bill will not have any adverse impact on the personal 
privacy of the individuals affected.

                               PAPERWORK

  Section 3 will increase paperwork for DOT for investigation 
of the use of assets by major air carriers at the largest U.S. 
airports. It may increase paperwork for major air carriers to 
make assets available to other carriers and for other carriers 
to procure such assets.
  Section 4 may increase paperwork for DOT to enforce penalties 
for the delineated unfair methods of competition in air 
transportation by dominant air carriers at dominated hub 
airports.
  Section 5 may increase paperwork in FY 2002 for DOT and 
airports associated with the issuance of AIP grants to enhance 
competitive access.

                      Section-by-Section Analysis


Section 1. Short Title

  This section states that the short title of the bill is the 
``Aviation Competition Restoration Act''.

Section 2. Findings

  This section sets forth ten congressional findings 
establishing the general basis for enactment of the bill.

Section 3. Competitive Access to Gates, Facilities, and Other Assets

  This section requires the Secretary to investigate the 
assignment and usage of gates, facilities, and other assets by 
major air carriers at the largest 35 domestic airports (in 
terms of air passenger traffic). It gives the Secretary the 
authority to require a major air carrier to relinquish gates, 
facilities, and other assets so that they may be made available 
to other carriers on terms that are fair, reasonable, and 
nondiscriminatory to ensure competitive access to such airports 
if the Secretary determines that such assets are not available 
and that competition would, thereby, be enhanced at those 
airports.
  Airlines have argued that if they are required to relinquish 
gates, facilities, and other assets to make room for 
competition at constricted hub airports, air service to small 
communities will be cut first because of the thin profit 
margins on such routes. However, some airlines may be 
underutilizing such assets in order to limit competition. If 
that is the case, there is room to maintain existing service to 
small communities and accommodate increased competition. 
Nevertheless, this section explicitly protects service to small 
communities by excluding gates, facilities, and other assets 
used exclusively by commuter air carriers (also known as 
regional airlines) from the scope of the Secretary's powers. 
Access to these key hubs is protected for these smaller 
carriers because they provide most of the air service to small 
communities.
  This section also contains definitions for a variety of the 
terms used in the statutory language. For example, the 
definition of ``major air carrier'' is modeled directly on the 
one used by DOT and is tied to the percentage of total domestic 
scheduled-passenger revenues earned by an airline in the 12-
month period ending March 31 of each year. There are also 
definitions for dominant air carrier (more than 50 percent of 
the enplaned passengers at an airport), commuter air carrier, 
asset (which includes slots and slot exemptions), and passenger 
enplanements.

Section 4. Unfair Methods of Competition

  This section makes it an unfair method of competition in air 
transportation for a dominant air carrier at a dominated hub 
airport to: (1) fail to use gates, facilities, and other assets 
fully at that airport; and (2) refuse, deny, or fail to provide 
a gate, facility, or other underused asset at such an airport 
to another carrier on fair, reasonable, and nondiscriminatory 
terms upon request of the airport, another air carrier, or the 
Secretary. An air carrier seeking access to a dominated hub 
must file with the Secretary a copy of the request it has made 
to the dominant carrier. This section also codifies an existing 
provision of law (regarding the Secretary's duty to ensure 
access to some airports) that had been enacted as section 155 
of Public Law 106-181 (AIR-21).

Section 5. AIP Competition Funding

  This section authorizes $300 million in FY02 for the 
Secretary to make grants for gates, related facilities, and 
other assets to enhance and increase competition among air 
carriers for passenger air transportation. If determined 
necessary to ensure competitive access at any of the 35 largest 
airports, the Secretary would make gate construction projects 
eligible for Airport Improvement Program (AIP) funding. (Gates 
are not currently eligible for AIP funding.) Any gate-related 
AIP projects must adhere to the relevant regulatory standards 
that apply to gates constructed using Passenger Facility Charge 
funds.

                      Rollcall Votes in Committee

  In accordance with paragraph 7(c) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following description of the record votes during its 
consideration of S. 415:
  Senators Hollings and McCain offered an amendment in the 
nature of a substitute to make technical and substantive 
changes. On a rollcall vote of 12 yeas and 10 nays as follows, 
the Managers' amendment was adopted:
        YEAS--12                      NAYS--10
Mr. Hollings                        Mr. Rockefeller
Mr. Inouye                          Mr. Cleland
Mr. Kerry                           Mr. Stevens
Mr. Breaux                          Mr. Burns
Mr. Dorgan                          Mr. Lott
Mr. Wyden                           Mrs. Hutchison
Mrs. Boxer                          Ms. Snowe
Mr. Edwards                         Mr. Brownback\1\
Mrs. Carnahan                       Mr. Smith\1\
Mr. McCain                          Mr. Allen\1\
Mr. Fitzgerald
Mr. Ensign

    \1\ By proxy.

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, changes in existing law made by the bill, 
as reported, are shown as follows (existing law proposed to be 
omitted is enclosed in black brackets, new material is printed 
in italic, existing law in which no change is proposed is shown 
in roman):

                        TITLE 49. TRANSPORTATION

                    SUBTITLE VII. AVIATION PROGRAMS

                    PART A. AIR COMMERCE AND SAFETY

                    SUBPART II. ECONOMIC REGULATION

                  CHAPTER 417. OPERATIONS OF CARRIERS

SUBCHAPTER I. REQUIREMENTS

           *       *       *       *       *       *       *


Sec.  41712. Unfair and deceptive practices and unfair methods of 
                    competition

  (a) In General.--On the initiative of the Secretary of 
Transportation or the complaint of an air carrier, foreign air 
carrier, or ticket agent, and if the Secretary considers it is 
in the public interest, the Secretary may investigate and 
decide whether an air carrier, foreign air carrier, or ticket 
agent has been or is engaged in an unfair or deceptive practice 
or an unfair method of competition in air transportation or the 
sale of air transportation. If the Secretary, after notice and 
an opportunity for a hearing, finds that an air carrier, 
foreign air carrier, or ticket agent is engaged in an unfair or 
deceptive practice or unfair method of competition, the 
Secretary shall order the air carrier, foreign air carrier, or 
ticket agent to stop the practice or method.
  (b) E-Ticket Expiration Notice.--It shall be an unfair or 
deceptive practice under subsection (a) for any air carrier, 
foreign air carrier, or ticket agent utilizing electronically 
transmitted tickets for air transportation to fail to notify 
the purchaser of such a ticket of its expiration date, if any.
  (c) Underutilization of Gates, Facilities, or Other Assets.--
          (1) In general.--It is an unfair method of 
        competition in air transportation under subsection (a) 
        for a dominant air carrier at a dominated hub airport--
                  (A) to fail to utilize gates, facilities, and 
                other assets fully at that airport; and
                  (B) to refuse, deny, or fail to provide a 
                gate, facility, or other asset at such an 
                airport that is underutilized by it, or that 
                will not be fully utilized by it within 1 year, 
                to another carrier on fair, reasonable, and 
                nondiscriminatory terms upon request of the 
                airport, the other air carrier, or the 
                Secretary.
          (2) Requesting carrier must file with dot.--An air 
        carrier making a request for a gate, facility, or other 
        asset under paragraph (1) shall file a copy of the 
        request with the Secretary when it is submitted to the 
        dominant air carrier.
          (3) Availability of gates and other essential 
        services.--The Secretary shall ensure that gates and 
        other facilities are made available on terms that are 
        fair and reasonable to air carriers at covered airports 
        where a `majority-in-interest clause' of a contract or 
        other agreement or arrangement inhibits the ability of 
        the local airport authority to provide or build new 
        gates or other essential facilities.
          (4) Definitions.--In this subsection:
                  (A) Dominant air carrier.--The term 
                ``dominant air carrier'' has the meaning given 
                that term by section 41722(c)(2).
                  (B) Dominated hub airport.--The term 
                ``dominated hub airport'' means an airport--
                          (i) that each year has at least .25 
                        percent of the total annual boardings 
                        in the United States; and
                          (ii) at which 1 air carrier accounts 
                        for more than 50 percent of the 
                        enplaned passengers.
                  (C) Covered airport.--The term ``covered 
                airport'' has the meaning given that term by 
                section 47106(f)(3).
                  (D) Asset.--The term ``asset'' includes slots 
                (as defined in section 41714(h)(4)) and slot 
                exemptions (within the meaning of section 
                41714(a)(2)).

           *       *       *       *       *       *       *


Sec.  41722. Competitive access to gates, facilities, and other assets

  (a) DOT Review of Gates, Facilities, and Assets.--Within 90 
days after the date of the enactment of Aviation Competition 
Restoration Act, the Secretary of Transportation shall 
investigate the assignment and usage of gates, facilities, and 
other assets by major air carriers and their affiliated 
carriers (other than commuter air carriers) at the largest 35 
airports in the United States in terms of passenger 
enplanements. The investigation shall include an assessment 
of--
          (1) whether, and to what extent, gates, facilities, 
        and other assets are being fully utilized by major air 
        carriers and their affiliated carriers at those 
        airports;
          (2) whether gates, facilities, and other assets are 
        available for competitive access to enhance 
        competition; and
          (3) whether the reassignment of gates, facilities, 
        and other assets to, or other means of increasing 
        access to gates, facilities, and other assets for, air 
        carriers (other than dominant air carriers) would 
        improve competition among air carriers at any such 
        airport or provide other benefits to the flying public 
        without compromising safety or creating scheduling, 
        efficiency, or other problems at airports providing 
        service to or from those airports.
  (b) Authority of Secretary To Make Gates, Etc., Available.--
          (1) In general.--The Secretary shall require a major 
        air carrier and its affiliated carrier, upon 
        application by another air carrier or on the 
        Secretary's own motion, to relinquish gates, 
        facilities, and other assets available so that those 
        facilities may be leased by the airport sponsor, or, in 
        the case of slots, be reallocated by the Secretary, to 
        other air carriers on terms that are fair, reasonable, 
        and nondiscriminatory to ensure competitive access to 
        those airports if the Secretary determines, on the 
        basis of the investigation conducted under subsection 
        (a), that such gates, facilities, and other assets are 
        not available, or are underutilized, and that 
        competition would be enhanced thereby at those 
        airports.
          (2) Protection of small communities.--Paragraph (1) 
        does not apply to any gate, facility, or asset 
        exclusively used by a commuter air carrier.
  (c) Definitions.--
          (1) Major air carrier.--In this section the term 
        ``major air carrier'' means an air carrier certificated 
        under section 41102 that accounted for at least 1 
        percent of domestic scheduled-passenger revenues in the 
        12 months ending March 31 of each year, as reported to 
        the Department of Transportation pursuant to part 241 
        of title 14, Code of Federal Regulations, and 
        identified as a reporting carrier periodically in 
        accounting and reporting directives issued by the 
        Office of Airline Information.
          (2) Dominant air carrier.--The term ``dominant air 
        carrier'' means an air carrier that accounts for more 
        than 50 percent of the enplaned passengers at an 
        airport.
          (3) Commuter air carrier.--The term ``commuter air 
        carrier'' has the meaning given it by section 
        41714(h)(1).
          (4) Asset.--The term ``asset'' includes slots (as 
        defined in section 41714(h)(4)) and slot exemptions 
        (within the meaning of section 41714(a)(2)).
          (5) Affiliated carrier.--The term ``affiliated 
        carrier'' has the meaning given it by section 41714(k).
          (6) Passenger enplanements.--The term ``passenger 
        enplanements'' means the annual number of passenger 
        enplanements, as determined by the Secretary of 
        Transportation, based on the most recent data 
        available.

CHAPTER 471. AIRPORT DEVELOPMENT

           *       *       *       *       *       *       *


Sec.  47138. Competition enhancement program

  (a) In General.--Notwithstanding any provision of this title 
to the contrary, the Secretary of Transportation may make 
project grants under this subchapter from the Airport and 
Airway Trust Fund for gates, related facilities, and other 
assets to enhance and increase competition among air carriers 
for passenger air transportation, selected by the Secretary on 
a case-by-case basis, at airports described in section 
41722(a). In carrying out this subsection, the Secretary shall 
give priority to gates that will enhance service to small and 
medium-sized communities.
  (b) Secretary May Incur Obligations.--The Secretary may incur 
obligations to make grants under this section.
  (c) Consistency of Requirements.--
          (1) In general.--The Secretary shall make gates 
        eligible for project funding under chapter 471 at any 
        airport described in section 41722(a) where the 
        Secretary determines that such funding is necessary to 
        ensure competitive access at that airport.
          (2) Parity between aip-financed and pfc-financed 
        gates.--The Secretary shall by regulation require that 
        projects related to gates described in paragraph (1) 
        are subject, to the extent appropriate, to the 
        requirements set forth in Appendix A to part 158 of 
        title 14 of the Code of Federal Regulations for--
                  (A) non-exclusivity of contractual 
                agreements;
                  (B) carryover provisions; and
                  (C) competitive access.
  (d) Authorization of Appropriations.--There are authorized to 
be appropriated from the Airport and Airway Trust Fund 
$300,000,000 for fiscal year 2002, such amount to remain 
available until expended.

                                
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