    Reagan National Airport: Capacity to Handle Additional Flights and Impact
    on Other Area Airports (Letter Report, 09/17/1999, GAO/RCED-99-234).

    GAO examined the impact of legislative proposals to increase the number
    of flights at Ronald Reagan Washington National Airport on two other
    area airports-Washington Dulles International (BWI) Airport and
    Baltimore/Washington International Airport, focusing on: (1) the most
    prominent proposals that would allow an increased number of takeoffs and
    landings at Reagan National and create exemptions to the perimeter rule;
    (2) the extent to which Reagan National could safely accommodate more
    takeoffs and landings; and (3) whether adding flights at Reagan National
    to and from destinations beyond the current perimeter would cause
    passengers to shift their travel from Dulles or BWI.

    GAO noted that: (1) to improve the access that various communities have
    to Washington, D.C., and to increase competition in some of those
    markets, three major legislative proposals introduced during 1999 would
    provide exemptions to the number of commercial jet flights allowed at
    Reagan National by: (a) adding between 6 to 36 jet flights per day; (b)
    permitting flights to destinations beyond the existing 1,250-mile
    perimeter; and (c) reviewing whether additional flights affect noise,
    safety, and the environment around Reagan National; (2) according to an
    analysis by the Department of Transportation (DOT), Reagan National
    could accommodate up to seven additional flights per hour without
    compromising safety; (3) airport officials acknowledge that Reagan
    National could handle additional hourly flights without incurring
    significant delays, but they believe the number of flights to be less
    than seven per day; (4) DOT and airport officials agree that Reagan
    National could accommodate 36 new jet flights per day, as proposed in
    one bill; (5) DOT has some flexibility to allow airlines to operate
    flights in slots that are available but unused by effectively moving the
    slots to the times that are more compatible with commercial interests
    and consumer demand; (6) according to GAO's analysis of the impact of
    four new airlines on competition among the area's airports, adding
    nonstop flights from Reagan National to destinations beyond the existing
    1,250-mile perimeter would likely cause only a limited number of
    passengers to switch from BWI or Dulles to Reagan National; (7) GAO's
    analysis indicated that many travellers using BWI or Dulles for travel
    beyond the perimeter are likely to continue to prefer them because of
    the price or convenience and would not switch to Reagan National; (8)
    other business travellers are likely to switch if longer-distance
    nonstop flights become available at Reagan National because that is
    their preferred airport; (9) the fares at Reagan National for nonstop
    flights beyond the perimeter may be higher than for similar flights at
    the other airports because low-fare airlines may have difficulty gaining
    access to Reagan National's facilities; and (10) even if all of the 12
    to 24 nonstop flights per day to and from destinations beyond the
    perimeter suggested by the proposed legislation moved from BWI or Dulles
    to Reagan National, they would represent between 1 and 2 percent of the
    total flights at those airports.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  RCED-99-234
         TITLE:  Reagan National Airport: Capacity to Handle Additional
    	     Flights and Impact on Other Area Airports
          DATE:  09/17/1999
       SUBJECT:  Air transportation operations
    	     Airline regulation
    	     Airports
    	     Airline industry
    	     Proposed legislation
    	     Transportation legislation
    	     Competition
    	     Safety standards
    	     Transportation safety
    IDENTIFIER:  Ronald Reagan Washington National Airport (DC)
    	     Dulles International Airport (VA)
    	     Baltimore-Washington International Airport (Baltimore, MD)

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    Cover
    ================================================================ COVER

    Report to the Secretary of Transportation

    September 1999

    REAGAN NATIONAL AIRPORT - CAPACITY
    TO HANDLE ADDITIONAL FLIGHTS AND
    IMPACT ON OTHER AREA AIRPORTS

    GAO/RCED-99-234

    Reagan National Airport

    (348164)

    Abbreviations
    =============================================================== ABBREV

      BWI - Baltimore/Washington International Airport
      DOT - Department of Transportation
      FAA - Federal Aviation Administration
      GAO - U.S.  General Accounting Office
      IFR - Instrument Flight Rules
      MWAA - Metropolitan Washington Airports Authority

    Letter
    =============================================================== LETTER

    B-282375

    September , 1999

    The Honorable Rodney Slater
    Secretary of Transportation

    Dear Mr.  Secretary:

    Over two decades ago, the Congress deregulated the airline industry,
    phasing out the federal government's control over fares and service
    and allowing market forces to determine the price, quantity, and
    quality of domestic air service.  As we have reported,\1 fares have
    declined and service has improved overall since deregulation, but
    deregulation's benefits have not been evenly distributed throughout
    the United States.  Furthermore, the federal high-density rule, which
    controls the number of takeoffs and landings that may occur each day
    within hourly time periods, and perimeter rules, which limit the
    distance of nonstop flights that can serve an airport, have created
    barriers to entry for new airlines wishing to begin service and for
    established airlines seeking to serve new markets, and can influence
    competition.  Ronald Reagan Washington National Airport (Reagan
    National) is subject to both types of rules.  To take off or land
    during any given hour at Reagan National, an airline must first
    obtain a �slot,� which is an authorization from the federal
    government to do so.  In addition, under current restrictions, no
    airline may operate a nonstop flight that exceeds 1,250 miles to or
    from the airport.

    Several legislative proposals currently before the Congress address
    these slot and perimeter restrictions by allowing additional flights
    at Reagan National.  However, questions have been raised about the
    impact of adding flights and extending the perimeter at Reagan
    National on the operations at the other two airports in the
    Washington, D.C., metropolitan area�Washington Dulles International
    (Dulles) and Baltimore/Washington International (BWI).

    To examine the potential impact of these proposals on Dulles and BWI,
    we (1) described the most prominent proposals that would allow an
    increased number of takeoffs and landings at Reagan National and
    create exemptions to the perimeter rule, (2) examined the extent to
    which Reagan National could safely accommodate more takeoffs and
    landings, and (3) analyzed whether adding flights at Reagan National
    to and from destinations beyond the current perimeter would cause
    passengers to shift their travel from Dulles or BWI.

    This study did not evaluate the potential congestion and noise that
    could result from an increase in operations at Reagan National.\2
    Ultimately, as it has done previously in changing the rules governing
    operations at Reagan National, the Congress must balance the benefits
    that additional flights may bring to the traveling public against the
    local community's concerns about the effect of those flights on
    noise, the environment, and the area's other two major airports.

    --------------------
    \1 See list of related GAO products at the end of this report.

    \2 GAO has separate reviews under way examining noise and
    environmental issues related to airport operations.  These include
    broad reviews of the Federal Aviation Administration's noise
    mitigation programs and responsibilities, the effect of airport
    operations on the environment, and the monitoring and enforcement of
    noise abatement procedures at Reagan National.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :1

    To improve the access that various communities have to Washington,
    D.C., and to increase competition in some of those markets, three
    major legislative proposals introduced during 1999 would provide
    exemptions to the number of commercial jet flights allowed at Reagan
    National.  Current law permits 37 jet flights per hour.  The
    proposals would add between 6 and 36 jet flights per day.  In
    addition, two of the proposals would permit flights to destinations
    beyond the existing 1,250-mile perimeter.  These two bills also
    contain provisions that would require reviews of whether the
    additional flights affect noise, safety, and the environment around
    Reagan National.

    According to an analysis by the Department of Transportation (DOT),
    Reagan National could accommodate up to seven additional flights per
    hour without compromising safety.  Above that number, Reagan
    National's infrastructure�such as its gates and runways�begins to
    limit the number of takeoffs and landings, increasing flight delays.
    Airport officials acknowledge that Reagan National could handle
    additional hourly flights without incurring significant delays, but
    they believe the number of flights to be less than seven per hour.
    Thus, DOT and airport officials agree that Reagan National could
    accommodate 36 new jet flights per day, as proposed in one bill.
    Moreover, DOT has some flexibility to allow airlines to operate
    flights in slots that are currently available but unused by
    effectively moving the slots to times that are more compatible with
    commercial interests and consumer demand.

    According to our analysis of the impact of four new airlines on
    competition among the area's airports, adding nonstop flights from
    Reagan National to destinations beyond the existing 1,250-mile
    perimeter, as proposed in the Congress, would likely cause only a
    limited number of passengers to switch from BWI or Dulles to Reagan
    National.  While we did not directly estimate the demand for nonstop
    travel between Reagan National and destinations outside the
    perimeter, our analysis indicates that many travelers currently using
    BWI or Dulles for travel beyond the perimeter are likely to continue
    to prefer them because of price or convenience and would not switch
    to Reagan National.  That is, business travelers who prefer BWI or
    Dulles because these airports are closer to their homes or businesses
    are likely to continue to use them.  However, other business
    travelers are likely to switch if longer-distance nonstop flights
    become available at Reagan National because that is their preferred
    airport.  With respect to leisure travelers, the fares at Reagan
    National for nonstop flights beyond the perimeter may be higher than
    for similar flights at the other airports because low-fare airlines
    may have difficulty gaining access to Reagan National's facilities.
    Consequently, leisure travelers are generally unlikely to switch in
    large numbers.  Finally, even if all of the 12 to 24 nonstop flights
    per day to and from destinations beyond the perimeter suggested by
    the proposed legislation moved from BWI or Dulles to Reagan National,
    they would represent between 1 and 2 percent of the total flights at
    those airports (11 and 21 percent of the nonstop flights from BWI and
    Dulles to destinations beyond the perimeter).

       BACKGROUND
    ------------------------------------------------------------ Letter :2

    Reagan National Airport,\3 built by the federal government, opened on
    June 16, 1941, on the western bank of the Potomac River, across from
    Washington, D.C.  The airport has three runways and 42 air carrier
    gates.\4 The airline with the largest number of operations at Reagan
    National is US Airways, which in 1998 had over 40 percent of all
    large air carrier operations, expressed in terms of aircraft
    departures.\5 The next largest operators at Reagan National are Delta
    Air Lines and American Airlines, with 16 percent and 15 percent of
    departures, respectively.  During 1998, these three airlines together
    accounted for 68 percent of total passenger enplanements\6 at the
    airport.

    Since May 1966, a perimeter rule has been in place at Reagan National
    restricting airlines from operating nonstop flights between it and
    airports of a particular distance.  At first, the Federal Aviation
    Administration (FAA) had concerns that allowing jets to fly into
    Reagan National would create a noise problem and would conflict with
    further development at newly built Dulles Airport.  As a result, with
    the airlines agreeing, the Civil Aeronautics Board approved a
    650-mile perimeter, with exceptions for seven cities between 650 and
    1,000 miles away that enjoyed grandfather status as of December 1,
    1965.\7 In 1981, FAA formalized the perimeter rule, setting the
    perimeter at 1,000 miles.

    Similarly, since 1969, the federal government has restricted the
    number of commercial takeoffs and landings at Reagan National to 48
    per hour:  37 for jets and 11 for commuter aircraft.  FAA authorizes
    general aviation users�primarily operators of small corporate
    aircraft�to make an additional 12 takeoffs or landings during each
    hour.\8

    In 1986, the Congress elevated the slot and perimeter rules from FAA
    regulation to federal statute as part of the Metropolitan Washington
    Airports Act of 1986.\9 The act also led to the transfer of authority
    over Reagan National and Dulles from the federal government to the
    Metropolitan Washington Airports Authority (MWAA) and set the
    perimeter at 1,250 miles, which allowed nonstop flights to Houston
    and Dallas.  Notwithstanding the regulatory limits on operations, FAA
    used other authority granted it to permit an exemption to enable
    Braniff Airlines to resume operations at Reagan National with four
    slots, even though all air carrier slots were already allocated.\10
    These four slots were later allocated to America West Airlines.\11

    Dulles opened on November 19, 1962.  The federal government built
    Dulles in part to provide a facility for nonstop �long-haul� air
    carrier traffic (that is, flights bound to or from locations beyond
    Reagan National's perimeter) in the Washington, D.C.  area.  Among
    major carriers, United Airlines has the largest number of jet
    operations at Dulles (over 36 percent of large carrier departures in
    1998), and its regional affiliate, Atlantic Coast Airlines, has the
    largest number of commuter operations.  The other major carriers with
    significant numbers of operations at Dulles in 1998 were Delta (13
    percent of departures), US Airways (12 percent of departures), and
    American (10 percent of departures).  Until the mid-1980s, Dulles was
    relatively underutilized.  More recently, however, the number of air
    carrier operations at Dulles has greatly expanded.  During the early
    1990s, �new entrant� airlines, such as ValuJet and Western Pacific,
    initiated service there.  Since early 1999, United has increased by
    more than one-third the number of its departures at Dulles to 118 per
    day.  US Airways' low-cost subsidiary, MetroJet, began operations in
    December 1998 and by June 1999 offered 39 daily flights from Dulles.

    BWI, built by the city of Baltimore and originally named Friendship
    International Airport, was opened on June 24, 1950.  BWI is located
    10 miles southwest of Baltimore and approximately 30 miles northeast
    of Washington, D.C.  US Airways and Southwest Airlines were the
    airport's dominant airlines in 1998, with 36 percent of departures
    and 28 percent of departures, respectively.  Figure 1 shows the
    location of each of the three airports in the metropolitan
    Washington, D.C., area.  Appendix I shows the configurations of
    Reagan National, Dulles, and BWI, illustrating the number of runways,
    the size of terminals, and the restrictions on expansion at Reagan
    National.

       Figure 1:  Location of Reagan
       National, Dulles, and BWI
       Airports Around the Washington,
       D.C., Metropolitan Area

       (See figure in printed
       edition.)

    Until recently, more of the region's passengers used Reagan National
    than the other two airports.  Reagan National has handled about 15
    million passengers per year since the late 1970s.  Using its latest
    available statistics on passenger enplanements, FAA estimated that
    BWI would surpass Reagan National in total passengers in 1999 and
    that Dulles would surpass Reagan National in 2004 (see fig.  2).
    However, by 1998, other data indicated that BWI already was handling
    more passengers than either Reagan National or Dulles.

       Figure 2:  Number of Actual and
       Projected Passengers at Reagan
       National, Dulles, and BWI
       Airports, 1976 Through 2010

       (See figure in printed
       edition.)

    Source:  FAA.

    --------------------
    \3 The airport's official name was changed from Washington National
    Airport to Ronald Reagan Washington National Airport under P.L.
    105-154, 112 Stat.  3 (1998).

    \4 Air carrier (that is, jet) gates are those that are designed to
    accommodate large air carriers, generally defined as jet aircraft
    seating 56 passengers or more.  In contrast, gates designed for use
    by smaller commuter aircraft are referred to as commuter gates.
    Commuter aircraft are generally turboprop aircraft seating fewer than
    56 passengers.  Within the past few years, several commuter airlines
    have begun using small jet aircraft (�regional jets�) in their
    fleets.  To avoid confusion throughout the remainder of this report,
    we will refer to all commuter aircraft, regardless of whether they
    are regional jets or turboprops, as commuter aircraft.

    \5 Smaller commuter carriers, which often serve as regional
    affiliates for major airlines, are not required to report these data
    and are not included.  For example, Atlantic Coast Airlines, which
    flies as United Express and serves as a regional commuter carrier for
    United Airlines, is not required to report these data.  Thus, figures
    for the number of departures for United Airlines do not include those
    made by United Express.

    \6 �Passenger enplanements� represent the total number of passengers
    boarding an aircraft.  A passenger who must make a single connection
    between his or her origin and destination counts as two enplaned
    passengers because he or she boarded two separate flights.  To
    estimate the total number of passengers using an airport, the number
    of passenger enplanements is doubled to account for those passengers
    disembarking at the airport as well.

    \7 Civil Aeronautics Board Order E-23743, May 25, 1966.  The seven
    cities included hubs for major airlines during that period, such as
    Miami, Minneapolis-St.  Paul, and St.  Louis.

    \8 In 1969, facing increasing delays and congestion, FAA applied
    special air traffic rules to certain airports that it designated as
    high-density airports:  Chicago's O'Hare; New York's LaGuardia and
    Kennedy; Newark, New Jersey; and Reagan National.  (DOT dropped
    Newark International Airport's designation as a high-density airport
    in October 1970.) Because of the restricted number of allowable
    operations, these airports are generally known as �slot-controlled,�
    and the special air traffic rules governing the allowable number of
    operations are referred to as �slot rules,� or �high-density rules.�
    The total number of slots allowed at Reagan National has remained
    unchanged since the slot rule was put in place in 1969, although the
    original limit on the number of jet slots was 40 per hour.  FAA
    reduced it to 37 in 1981.

    \9 P.  L.  No.  99-591, 100 Stat.  3341-376, title VI.

    \10 FAA Exemption No.  2927, Feb.  24, 1984.  FAA used its statutory
    authority, since amended, under 49 U.S.C.  section 40109 to grant
    this exemption from its high-density rules on the basis of a public
    interest finding.

    \11 FAA Exemption No.  5133, Jan.  12, 1990.

       RECENT LEGISLATIVE PROPOSALS
       WOULD ADD FLIGHTS AT REAGAN
       NATIONAL
    ------------------------------------------------------------ Letter :3

    During this Congress, several bills have been introduced that would
    provide exemptions to Reagan National's slot and perimeter rules.
    The bills vary in the total number of jet flights (takeoffs and
    landings) that they would add at Reagan National, ranging from 6 to
    36.\12 They also differ on whether and how many flights would be
    permitted to and from destinations beyond the existing 1,250-mile
    perimeter.  No pending bill proposes eliminating the slot and
    perimeter rules at Reagan National.\13 Table 1 summarizes the key
    provisions of the major bills pending as of August 31, 1999,
    including their provisions on maintaining air service to communities
    inside the perimeter and assessing the Washington, D.C., area's
    concerns about possible environmental impacts, including noise.

                                         Table 1

                           Summary of Major Pending Legislation
                         That Would Modify Reagan National's Slot
                                    or Perimeter Rules

                                    Proposed
                                    modifications
    Pending                         to slot and     Other key       Status as of
    legislation     Sponsor         perimeter       provisions      August 31, 1999
    --------------  --------------  --------------  --------------  ----------------
    S. 82           Senator John    Permits 36 new  New service     Passed the
                    McCain,         jet flights     must not        Senate Committee
                    Chairman,       daily (18       reduce travel   on Commerce,
                    Senate          takeoffs and    options to      Science, and
                    Committee on    18 landings).   communities     Transportation;
                    Commerce,       Two-thirds of   within the      pending with
                    Science, and    all new jet     perimeter; DOT  full Senate.
                    Transportation  flights could   must assess
                                    serve           the impact on
                                    destinations    noise, safety,
                                    beyond the      and the
                                    perimeter.      environment.

    H.R. 1000       Representative  Permits 6 new   Requires DOT    Passed the House
                    Bud Shuster,    jet flights     to grant slots  of
                    Chairman,       daily (3        only for        Representatives;
                    House           takeoffs and 3  service to      referred to the
                    Committee on    landings). No   airports where  Senate Committee
                    Transportation  new flight      service is      on Commerce,
                    and             could serve a   insufficient    Science, and
                    Infrastructure  destination     and fares are   Transportation.
                                    beyond the      high.
                                    perimeter.

    S. 536          Senator John    Permits 12 new  New service     Pending with the
                    Warner          jet flights     must not        Senate Committee
                                    daily (6        reduce travel   on Commerce,
                                    takeoffs and 6  options to      Science, and
                                    landings). All  communities     Transportation.
                                    new jet         within the
                                    flights could   perimeter; DOT
                                    serve           must assess
                                    destinations    the impact on
                                    beyond the      noise, safety,
                                    perimeter.      and the
                                                    environment.
    --------------------------------------------------------------------------------
    Source:  GAO's analysis of legislative proposals.

    In our 1996 report and in testimony this past January,\14 we
    suggested that the Congress consider granting DOT the authority to
    modify the perimeter rule at Reagan National when proposed new
    service would substantially increase competition.  We did not
    recommend that the rule be eliminated because doing so could have
    unintended consequences, such as reducing the amount of service to
    smaller communities in the Northeast and Southeast.  This could
    happen if the airlines serving Reagan National were to shift their
    service from these communities to take advantage of more profitable,
    longer-distance routes.  In addition, in our January testimony, we
    recognized that the communities in which the airports are located
    will be concerned with any proposals to accommodate additional
    service because of potential noise, safety, and congestion problems.
    Provisions in some of the pending legislation seek to mitigate these
    concerns.

    --------------------
    \12 Two of these bills would also allow an additional 12 daily
    commuter flights.

    \13 In addition, S.  545, introduced for the Clinton administration
    by Senator Ernest Hollings, has proposed revisions to increase
    competition at the nation's three other slot-controlled
    airports--Chicago O'Hare, New York Kennedy, and New York LaGuardia�by
    phasing out slot controls.  This bill does not suggest similar
    revisions to the rules governing Reagan National.  H.R.  1000 also
    calls for a phaseout of slot controls at O'Hare, LaGuardia, and
    Kennedy.  Slot controls are to be completely phased out at O'Hare by
    2002 and at LaGuardia and Kennedy by 2007.

    \14 Airline Deregulation:  Barriers to Entry Continue to Limit
    Competition in Several Key Domestic Markets (GAO/RCED-97-4, Oct.  18,
    1996) and Federal Aviation Administration:  Issues Concerning the
    Reauthorization of Aviation Programs (GAO/T-RCED-99-68, Jan.  20,
    1999).

       REAGAN NATIONAL HAS THE
       CAPACITY TO ABSORB A LIMITED
       NUMBER OF ADDITIONAL FLIGHTS
    ------------------------------------------------------------ Letter :4

    If the slot and perimeter rules were revised, the constraints of
    Reagan National's infrastructure, such as its relatively short
    runways and limited number of gates, would prevent it from
    accommodating a significantly larger number of flights.  According to
    a 1995 DOT study, the airport could absorb seven more flights per
    hour (for a total of 126 per day) above the current number allowed by
    law, but flights above that number could result in significant
    airport congestion and delay.\15 MWAA officials believe that the
    airport could accommodate fewer flights before delays become
    significant.  However, some flights could be added at Reagan National
    without increasing the total number of currently available slots
    because not all slots at the airport are allocated and because some
    slots that are allocated are not fully used.

    --------------------
    \15 U.S.  DOT, Report to the Congress:  A Study of the High Density
    Rule, May 1995.  This report contained no recommendations but
    provided a factual basis for making decisions pertaining to
    slot-controlled airports.

          REAGAN NATIONAL'S
          INFRASTRUCTURE LIMITS ITS
          CAPACITY TO HANDLE MUCH
          ADDITIONAL AIR TRAFFIC
    ---------------------------------------------------------- Letter :4.1

    Even if the slot and perimeter rules were revised, Reagan National's
    ability to support an increased number of flights is limited by the
    ability of its runways and gates to accommodate a significantly
    larger number of jet aircraft.\16 A 1995 DOT study on the slot rule
    found that, because of improvements to air traffic management, Reagan
    National's infrastructure could support more flights per hour without
    affecting air safety.  The DOT report indicated that while removal of
    the slot rule would result in an increase in operations, air safety
    would not be affected because FAA's air traffic control staff would
    continue to apply programs and procedures that ensure safety.

    The study estimated that the airport's �balanced capacity�\17 was 67
    flights per hour, or 7 flights per hour more than the 60 currently
    permitted.  (This would result in an additional 126 flights per day.)
    It did not specify how these flights could be divided among jets,
    commuter aircraft, or general aviation aircraft.  The study projected
    that if the number of slots were increased by 7, delays of 15 minutes
    or more as a percent of total operations could increase from about
    0.5 percent to 3 percent and cause the airlines to experience a
    decreased profit.  (The average delay for the other slot-controlled
    airports in fiscal years 1997 and 1998 was about 3.6 percent.) At the
    same time, however, the costs associated with the increase in delays
    would be partially offset by consumer benefits.  Should the slot rule
    be eliminated, the demand for air service could exceed the airport's
    balanced capacity for 10 hours each day, and delays would be much
    greater.  An FAA official told us that the report's key findings are
    generally still applicable.

    MWAA officials thought that Reagan National could accommodate a few
    more flights per hour but perhaps not as many as seven.  They said
    that the number of flights the airport could handle per hour was in
    the �low- to mid-60s� (for a total of about 70 additional flights per
    day) before delays became significant.  They emphasized that they
    remained concerned about any possible noise-related impact that
    additional flights might have on the area.  However, MWAA has not
    conducted its own analysis to determine how many additional flights
    per hour could be safely accommodated without an undue increase in
    delays.

    The length of Reagan National's runways is a key factor restricting
    the number of takeoffs and landings.  Only one of its three runways
    is long enough to routinely accommodate most jet aircraft.  FAA and
    MWAA officials observed that the use of this longest runway is
    increasing because commuter airlines are replacing traditional
    propeller aircraft, which can use the shorter runways, with regional
    jets, which must use the longest runway.

    Furthermore, should the perimeter be expanded, airlines would find
    that Reagan National has a limited capacity to accommodate large
    aircraft.  To date, only narrow-body aircraft, such as the Boeing 737
    and MD-80, have been used at the airport.  Should flights beyond the
    perimeter be allowed, airlines could use wide-body aircraft no larger
    than the Boeing 767-300.\18 Reagan National's renovation allowed
    airlines to use wide-body aircraft as large as the Boeing 767-300,
    but only in limited numbers.  \19 Because of the size of their
    wingspans (156 feet each), two Boeing 767s could not pass each other
    on adjacent taxiways or use adjacent gates.  Furthermore, Reagan
    National has only five gates that could accommodate a Boeing 767, and
    the use of these gates would require that aircraft using adjacent
    gates be smaller in size than could otherwise be used.  In addition,
    even some newer narrow-body aircraft, such as the Boeing 757-300,
    could have difficulty using some of the airport's gates because their
    length would hamper aircraft movements.

    The limited availability of gates and other facilities at Reagan
    National provides incumbent airlines with little opportunity to add
    service or shift flights from Dulles or BWI, as some industry
    observers have suggested could happen if the perimeter rule were
    changed.  For instance, if United were allowed to begin operating
    nonstop service to destinations beyond the perimeter, it would find
    that shifting a significant number of its transcontinental flights
    from Dulles to Reagan National would be difficult.  This is because
    the airline is already using its three gates at Reagan National on a
    frequent basis throughout the day and because the number of slots to
    be offered under proposed legislation is limited.  In addition,
    United has no slots and gates at Reagan National for its regional
    commuter affiliate to bring passengers in from other eastern markets
    that would connect with those transcontinental flights.

    Moreover, if any of the proposed legislation is enacted and airlines
    that do not already serve Reagan National are awarded slots, they may
    have difficulty obtaining the gates, ticket counters, baggage
    handling areas, and other facilities necessary to initiate new
    service, especially at key periods during each business day.  Reagan
    National currently has 42 gates available for jet operations.
    According to MWAA, all of these gates are leased to the incumbent
    �tenant� airlines until 2014.\20 MWAA may make a gate available to
    another airline when it is not needed to support the tenant airline's
    scheduled operations.  While a tenant airline cannot prevent another
    airline from using the gate when it does not need it, the only
    effective opportunity for a new entrant to initiate service at key
    business times of the day�or for an incumbent to expand service�is
    through a contractual arrangement with the tenant airline.  To date,
    this is how new entrants have gained access to the airport.  Until
    1996, for instance, Midwest Express had gate-use agreements,
    initially with United and later with Northwest Airlines, to support
    its daily nonstop service to Milwaukee and Omaha.  In August 1996,
    Midwest Express began leasing its own gate directly from MWAA.
    Today, similar opportunities exist for new entrants to share daytime
    gate space with incumbents whose �turn rates� are relatively low.\21
    Opportunities may exist, for example, to sublease from Trans World
    Airlines, Northwest, and Continental Airlines, none of which makes
    more than six daily turns per gate.

    Several incumbent airlines are unlikely to sublease their gates to
    new competitors because they use them frequently each day to support
    their own operations.  Collectively, the major airlines use Reagan
    National's 42 jet gates at a high rate relative to the industry
    average.  Airline analysts consider Southwest to be the most
    efficient major U.S.  airline because it averages 10 turns per gate
    per day at airports where it operates.  At Reagan National, US
    Airways makes nearly 200 daily flights from its 12 jet gates, for an
    average of eight turns per gate per day.\22 Several of Reagan
    National's other major airlines also use their gates frequently
    throughout the day; Delta and United, for example, make an average of
    eight turns and six turns per gate per day, respectively.\23 Measured
    against the typical industry rate of seven aircraft turns per gate
    per day, these three airlines have little or no ability to sublease
    these gates to new entrants, especially during peak business hours.

    Although MWAA has no plans to increase the number of gates at Reagan
    National, MWAA officials emphasized that they will work with
    incumbent airlines to ensure that any new entrant wishing to serve
    Reagan National can do so.  MWAA officials stated that they address
    gate access whenever necessary.  Since 1986, for instance, MWAA has
    helped two airlines�Midway and Midwest Express�to gain access to
    gates and other facilities at the airport.  In addition, every 3
    years, MWAA undertakes a broad, formal assessment of the airlines'
    use of gates and associated facilities at Reagan National.  Reagan
    National's next formal reassessment is scheduled for the summer of
    2000.

    --------------------
    \16 Reagan National's geographic boundaries also combine to limit the
    airport's ability to accommodate a significant number of additional
    flights.  Reagan National is bordered on the east by the Potomac
    River and on the west by National Park Service land.  The existence
    of these features makes adding or lengthening the airport's runways
    virtually impossible.

    \17 �Balanced capacity� refers to the average ability of an airport's
    runways to support a certain number of operations per hour under
    varying weather and wind conditions.

    \18 We found no standard definition of a wide-body aircraft.
    According to an MWAA official, a wide-body aircraft is generally
    considered to be an aircraft with two aisles, such as a Boeing 747.
    For scale comparisons of this aircraft and other aircraft used at
    Reagan National, Dulles, or BWI, see app.  II.

    \19 Reagan National now has five gates that can accommodate wide-body
    aircraft, but it will have an additional gate when its renovation is
    complete.  In comparison, Dulles has more than 60 gates that can
    serve wide-body aircraft.

    \20 Under certain conditions, MWAA may terminate leases in 2004.

    \21 A �turn� is an informal industry term referring to one aircraft's
    combined inbound and outbound flight operations at a given gate.

    \22 This excludes US Airways' shuttle flights to New York City, which
    operate out of two separate gates.  Each day, the airline operates 15
    shuttle flights from each of these gates (approximately eight turns
    per gate).

    \23 By comparison, at Dulles, United operates approximately 118
    flights from 36 gates, thus averaging fewer than four turns per gate
    per day.

          SOME EXISTING SLOTS AT
          REAGAN NATIONAL HAVE NOT
          BEEN ALLOCATED TO AIRLINES,
          WHILE OTHERS ARE NOT
          EFFICIENTLY USED
    ---------------------------------------------------------- Letter :4.2

    FAA controls the allocation of available jet and commuter slots at
    Reagan National during an 18-hour period every day, from 6:00 a.m.
    until midnight.  Specifically, FAA makes 868 slots available per day
    to jet and commuter airlines--37 jet slots available each hour during
    the 18-hour period, for a total of 670 daily available jet slots, and
    11 commuter slots per hour during the 18-hour period, for a total of
    198 daily available commuter slots.\24

    Of the 670 available jet slots, 86 have not been requested for
    allocation.  Each of these 86 jet slots falls either in the early
    morning (between 6:00 and 7:00) or in the late evening (between 9:00
    and midnight).  According to MWAA officials, these jet slots remain
    unallocated because there is less demand for passenger service during
    these hours and because the airlines do not use aircraft that comply
    with MWAA's stricter noise requirements in effect after 10:00 p.m.
    To date, the airlines also have not requested that FAA allocate 35
    commuter slots for their use.\25

    In addition, not all allocated slots are being used in the most
    efficient manner.  Each day, small commuter aircraft use 36 slots
    designated for jet traffic during busy times of the day.  US Airways
    Express, a commuter airline, uses 20 of these 36 jet slots to serve a
    variety of nearby cities with small propeller aircraft during the
    mid-day hours.  An FAA official acknowledged that commuters often
    operate flights in jet slots but emphasized that this practice is
    permissible under federal regulation.

    Finally, some weekday peak-hour slots at Reagan National are not
    being fully used, resulting in fewer flights at certain times than
    are permitted under the current slot limits.  FAA regulations require
    that an airline use each slot a minimum of 80 percent of the time
    over a 2-month reporting period, or the agency will withdraw it.
    According to FAA's May 1999 analysis of slot-use data recently
    submitted by the major airlines, some airlines report operating
    flights in a staggered manner among allocated slots during the
    standard 2-month reporting periods to ensure compliance with the
    minimum-use regulations for each slot.  For example, because the
    regulations allow a slot to go unused for up to 20 percent of the
    time, a carrier with five slots in 1 hour must operate only four
    flights in that hour on any day to obtain 80-percent use for each of
    its five slots.  The carrier is allowed to �rotate� its four flights
    across the five slots over the 2-month period to prevent FAA from
    withdrawing the slot.  The practice of a carrier's rotating actual
    flights among its allocated slots is commonly referred to as
    "babysitting." FAA officials emphasized that babysitting is not
    prohibited by existing regulation, provided that a slot meets the
    minimum-use requirements.

    --------------------
    \24 In addition to the 37 hourly jet slots, FAA makes available 4 jet
    slots to America West under a special slot exemption authority.
    America West uses these jet slots to operate flights to its Phoenix
    hub via Columbus, Ohio, at 8:00 a.m., 3:00 p.m., 4:00 p.m., and 9:00
    p.m.  FAA includes these four additional jet slots in its count of
    available daily jet slots.  The total number of jet slots available
    each day equals 670.

    \25 Current law defines the peak-hour period as between 7:00 a.m.
    and 9:59 p.m.  In certain circumstances, DOT has the authority to
    �re-time� (i.e., change the assigned hour) up to two slots per hour.
    49 U.S.C.  section 41714(d) permits the Secretary of Transportation
    to allow air carriers holding or operating slots to re-time them, but
    only under specified conditions and upon a finding that exceptional
    circumstances exist.  The most important of these conditions are that
    the total number of slots during peak hours are not increased and
    that the number of operations in any 1-hour period not be increased
    by more than two.  The law does not allow DOT to �re-time� off-peak
    slots to peak hours.  For example, in September 1994, DOT allowed
    Midwest Express to obtain two jet slots that were available at 9:00
    p.m., and then re-time them for use at 7:00 p.m.  DOT took this
    action primarily to allow Midwest Express to accommodate passengers
    demanding convenient nonstop service to and from Omaha, Nebraska.
    DOT's decision to provide this exemption to Midwest Express means
    that the total number of slots currently allocated to all airlines at
    7:00 p.m.  exceeds the limit of 37 jet operations per hour at Reagan
    National by 2, as is permitted under 49 U.S.C.  section
    41714(d)(1)(C).  In addition, Midwest Express has applied for Reagan
    National's two remaining unallocated 9:00 p.m.  slots.

       ONLY A LIMITED NUMBER OF
       PASSENGERS ARE LIKELY TO SWITCH
       TO REAGAN NATIONAL FOR SERVICE
       BEYOND THE PERIMETER
    ------------------------------------------------------------ Letter :5

    Only a limited number of passengers might switch from using BWI or
    Dulles to Reagan National to take advantage of nonstop service to
    destinations beyond the perimeter should the Congress provide the
    opportunity.  Previous experiences in the Washington, D.C.,
    metropolitan area with airlines introducing new or low-fare service
    suggest that relatively few passengers are likely to switch from
    using BWI or Dulles to Reagan National.  Furthermore, the amount and
    type of service provided by additional flights at Reagan National as
    a result of the proposals before the Congress would affect the number
    and mix of passengers most likely to switch.

          PREVIOUS WASHINGTON AREA
          AIRPORT EXPERIENCES PROVIDE
          INSIGHT INTO THE EXTENT TO
          WHICH PASSENGERS MIGHT
          SWITCH TO REAGAN NATIONAL
    ---------------------------------------------------------- Letter :5.1

    To gain insight into whether passengers who currently use BWI or
    Dulles might switch to using Reagan National, we determined the
    extent to which passengers switched from one area airport to another
    when provided with an incentive.  Typically, passengers prefer to fly
    from the airport that is most convenient for them.  For the purpose
    of our analysis, we used the introduction of �low-fare� service at
    BWI and Dulles as an incentive that could attract passengers from one
    area airport to another.  (During the 1990s, no airline introduced
    �low-fare� service to or from Reagan National.) We did this because
    the effect of price changes at one airport on the passenger traffic
    and fares at another airport is frequently used as a measure of the
    extent to which passengers view airports as substitutes for one
    another.\26

    In our analysis, we distinguished between the reactions of passengers
    traveling for leisure and for business purposes.\27 As a general
    rule, individuals traveling for leisure purposes tend to be more
    sensitive to price differences than those traveling for business.
    That is, leisure passengers are more likely than business passengers
    to change their travel plans (that is, switch�or substitute�airports)
    in response to differences in airfares.  However, various other
    factors, such as the availability of low fares or nonstop service at
    one airport that is not provided at another, may persuade travelers
    to switch from the airport that they might otherwise use.\28

    To evaluate the impact of low-fare service on passenger choice, we
    identified three cases in which an airline new to an airport (a �new
    entrant�) introduced low-fare service at an area airport and one case
    in which an airline introduced new service without offering low-fare
    service.  We then determined how these �entry events� affected
    passenger traffic and fares for both leisure and business travelers
    at all three area airports.  The four entry events we examined were
    (1) ValuJet's entry into the Dulles�Atlanta market during 1994, (2)
    Southwest's entry into the BWI�St.  Louis market during 1994, (3)
    Western Pacific's entry into the Dulles�Denver market during 1997,
    and (4) Midway Airlines' entry into the Reagan
    National�Raleigh/Durham market during 1995.  Appendix III contains a
    more complete description of our methodology.

    Our analysis indicated that, for a number of reasons, relatively few
    passengers switched airports in response to the service offered by
    the new entrant.  Although the entry of a new carrier substantially
    lowered the fares between the two airports served by the new entrant,
    the low fares at one airport had, at most, only a small effect on the
    number of passengers paying high fares (generally, business
    travelers) at the other area airports.  This indicates that
    passengers who pay high fares have a strong preference for the
    airport that is most convenient for them.  For those passengers, the
    airports are poor substitutes for one another.  In contrast,
    passengers who traveled at low fares (generally, leisure travelers)
    showed some willingness to switch among the area's three airports.
    Yet even this group, which is more sensitive to price changes than
    business travelers, demonstrated some preference for one airport.
    This indicates that for leisure travelers, these airports may be
    modest substitutes for each other.  In addition, the lower fares
    increased the total number of passengers flying.  The results of our
    analyses are summarized in table 2 and described in more detail in
    appendix IV.

                                             Table 2

                             Summary of the Effects on Passengers and
                                 Fares of New Entry at the Three
                                     Washington-Area Airports

    Entrant airline/Airport-
    pair market entered           Airport/Previous Provider     Effect of entry
    ----------------------------  ----------------------------  -----------------------------
    ValuJet/Dulles-Atlanta        Dulles/Delta                  Low fares substantially
                                                                increase the total traffic
                                                                between Dulles and Atlanta.
                                                                Little change in number of
                                                                high-fare passengers.

                                  Reagan National/              Increase in the number of
                                  Delta and TWA                 low-fare passengers.
                                                                Little change in the number
                                                                of high-fare passengers.
                                                                TWA exited market.

                                  BWI/Delta, US Airways, and    Large decrease in the number
                                  TWA                           of low-fare passengers, who
                                                                probably switched to other
                                                                airports.
                                                                Little effect on high-fare
                                                                passengers.

    Southwest/BWI�St. Louis       Dulles/TWA                    Slight decline in the number
                                                                of low-fare passengers who
                                                                possibly switched to BWI.
                                                                Small increase in the number
                                                                of high-fare passengers.

                                  Reagan National/TWA           Large decline in the number
                                                                of low-fare passengers, who
                                                                probably switched to BWI.
                                                                Little effect on high-fare
                                                                passengers.

                                  BWI/TWA and US Airways        Large increase in the total
                                                                number of passengers, most at
                                                                low fares.
                                                                Decline in the number of
                                                                high-fare passengers. US
                                                                Airways exited market.

    Western Pacific/              Dulles/United                 Low fares increased the
    Dulles�Denver                                               number of travelers.
                                                                Large decline in the number
                                                                of high-fare passengers.

                                  Reagan National/none          No nonstop service; Denver is
                                                                outside the current
                                                                perimeter.
                                                                Little change in connecting
                                                                service.

                                  BWI/United                    Lower fares increase both the
                                                                number of low-fare and total
                                                                passengers; no apparent
                                                                switch of passengers.
                                                                Modest decline in the number
                                                                of high-fare passengers.

    Midway/Reagan                 Dulles                        No nonstop service at the
    National�Raleigh-Durham                                     time of Midway's entry.

                                  Reagan National/US Airways    Low fares increased the
                                                                number of travelers.
                                                                Decline in the number of
                                                                high-fare passengers, who
                                                                then traveled at lower fares.

                                  BWI/US Airways                Modest decrease in the number
                                                                of low-fare passengers.
                                                                Large increase in the number
                                                                of high-fare passengers,
                                                                probably because of American
                                                                Airlines' exit.
    -----------------------------------------------------------------------------------------
    We believe there is an unmet demand for nonstop travel between Reagan
    National and destinations outside the perimeter.  However, we were
    unable to directly estimate the size of this unmet demand.  Precise
    estimates of the number of travelers who might switch from using
    Dulles or BWI to Reagan National would depend on a number of major
    assumptions about airline behavior and the markets that would be
    served.  For example, United officials noted that an airline's
    reaction to changes in the slot and perimeter rules would depend on a
    variety of conditions, such as the way the perimeter rule was
    changed, the availability of sufficient facilities at Reagan
    National, and other competitive pressures.  If some version of the
    legislative proposals under consideration were enacted, the effect on
    Reagan National air travelers would depend on which airlines received
    exemptions to the perimeter rule (along with the necessary slots and
    facilities at Reagan National), the amount and type of service they
    provided, and the markets they served.

    If exemptions allowed the major airlines already serving Reagan
    National to operate to and from large western cities, those airlines
    could capitalize on the scarcity of their new nonstop service and
    charge a premium fare.  This would tend to restrict the benefits from
    such service to travelers doing business in downtown Washington,
    D.C., rather than to the more price-sensitive leisure travelers, who
    would be unlikely to switch because lower fares might still be
    available at BWI or Dulles.  Nevertheless, our analysis of the market
    entries by these four airlines indicates that if new nonstop service
    to locations outside the perimeter is allowed, not all business
    passengers are likely to switch to Reagan National from BWI or
    Dulles.  Business travelers who prefer BWI or Dulles because these
    airports are closer to their home or business are likely to continue
    to use these airports.  Other business travelers are likely to switch
    if longer-distance flights become available because they would prefer
    to use Reagan National.  Leisure travelers are generally unlikely to
    switch in large numbers because, under this scenario, the fares at
    Reagan National for nonstop flights beyond the perimeter may be
    higher than for similar flights at the other airports.

    If exemptions were awarded to low-cost airlines, more leisure
    travelers would be likely to benefit.  Often lacking national
    networks and alliance agreements with the major airlines, low-cost
    carriers tend not to attract as many business travelers and thus
    depend more on leisure passengers.  As we pointed out earlier,
    however, the lack of available facilities at Reagan National may
    inhibit the ability of new entrants to initiate service at
    commercially viable times.  MWAA officials told us that they have
    always been able to accommodate airlines that wanted to initiate new
    service at Reagan National.  Nonetheless, the experience of Midwest
    Express indicates that gaining reasonable access to its own
    facilities at Reagan National can take some time.

    --------------------
    \26 This general approach is widely accepted by the economics
    profession and used by the Department of Justice and the Federal
    Trade Commission to determine whether two similar products compete
    with each other or whether they are in distinct markets.

    \27 Airline ticket data do not indicate whether passengers are
    traveling for business or leisure purposes.  To simplify our
    analysis, we assumed that travelers purchasing cheaper tickets, which
    normally require advance purchase and a Saturday-night stayover, were
    leisure travelers and those who purchased more expensive tickets,
    often fares available at the last minute, were business travelers.

    \28 Passenger preference surveys also provide valuable insight into
    this issue.  About every 5 years, the Metropolitan Washington Council
    of Government surveys passengers at each of the three major airports.
    This survey includes questions on which airport passengers prefer to
    use.  The 1992 survey reported that 43 percent of locally originating
    passengers preferred to use Reagan National, 22 percent preferred
    Dulles, and 23 percent preferred BWI, with 12 percent expressing no
    opinion.  The Council of Governments conducted its most recent
    passenger survey in 1998 but has not had the funding needed to
    analyze the data and publish the results.  We believe the more recent
    survey might reflect changes in passenger preferences that could have
    taken place since 1992, especially those that reflect the notable
    increase in employment and population in the vicinity of Dulles
    Airport, along with the introduction of low-fare service discussed in
    this section and the renovation of all three area airports.

          LIMITED SHIFT IN AIRLINE
          OPERATIONS AND PASSENGER
          TRAFFIC UNLIKELY TO AFFECT
          DULLES OR BWI SIGNIFICANTLY
    ---------------------------------------------------------- Letter :5.2

    Airline industry experts with whom we spoke said that the impact on
    Dulles or BWI of modifying the perimeter rule would depend on how the
    rule was changed and how many additional flights would be added at
    Reagan National.  Nevertheless, they generally dismissed the notion
    that moderate changes in the slot and perimeter rules at Reagan
    National would adversely affect BWI or Dulles because they do not
    view the Washington, D.C., metropolitan area as a single market for
    the three airports.  Rather, they believe that the market for each of
    the area's three commercial airports is largely different.
    Furthermore, some of the experts did not believe that the number of
    passengers switching would be detrimental to Dulles because of the
    sizable growth of business in the vicinity of Dulles.  They said that
    unlike years ago, when Dulles needed the protection afforded by the
    slot and perimeter rules at Reagan National, Dulles is now an
    established airport with a natural customer base in its geographic
    area.

    The airline experts we spoke with speculated that Dulles would lose
    some business travelers if nonstop long-haul flights to cities beyond
    the perimeter were offered at Reagan National.  However, even if all
    of the 6 to 12 roundtrip nonstop flights per day to destinations
    beyond the perimeter suggested by the proposed legislation moved from
    BWI or Dulles to Reagan National, they would represent between 1 and
    2 percent of the total flights at those airports (11 to 21 percent of
    the nonstop flights to destinations beyond the perimeter).  We
    believe it is unlikely that the 6 to 12 flights would move to Reagan
    National because the existing long-haul service at Dulles relies in
    part on connecting traffic.  In addition, such a scenario would be
    unlikely because some of the passengers flying on new nonstop flights
    from Reagan National would be the same passengers who are currently
    using one-stop service from the airport.  Only US Airways�which does
    not have major long-haul service at Dulles--has a significant
    commuter operation at Reagan National.  United operates more
    transcontinental flights than any other airline at Dulles but has no
    commuter flights into Reagan National to bring connecting passengers
    in from other East Coast locations.  In addition, because of the
    constraints on the size of Reagan National's runways, taxiways, and
    gates, the airport could accommodate only some of the aircraft that
    airlines now use at Dulles or BWI for transcontinental service.
    Thus, we believe that changes to the slot and perimeter rules at
    Reagan National would not result in a significant shift of passenger
    traffic or service among the three area airports and that neither BWI
    nor Dulles would experience significant adverse effects.

       AGENCY COMMENTS
    ------------------------------------------------------------ Letter :6

    We provided copies of our draft report to DOT, FAA, MWAA, and the
    Maryland Aviation Administration.  We met with officials from DOT and
    FAA, including DOT's Deputy Assistant General Counsel and FAA's
    Assistant Manager, Air Traffic Operations.  These agencies generally
    agreed with our findings and provided several comments to clarify
    technical issues concerning slot allocation and use.  We spoke with
    the Director, Policy Development, Maryland Aviation Administration,
    who also agreed with the report's findings and provided us with
    technical comments.  We incorporated the comments on clarity and
    technical issues as appropriate.

    MWAA agrees that Reagan National Airport could support a modest
    number of additional flights and asserts that its reasons for wishing
    to retain existing limits stem primarily from policies that it deems
    important to the operation of the airports in the Washington, D.C.,
    region.  MWAA commented that we did not clearly place Reagan
    National's slot and perimeter rules in the context of these policies.
    In addition, MWAA suggested that our use of �balanced capacity� to
    measure the number of flight operations that Reagan National should
    be able to accommodate overstates the airport's capacity.  We
    believe, as does DOT, that balanced capacity is a superior method for
    determining what the airport's capacity ought to be because it
    accounts for the operation of aircraft during all weather conditions.
    MWAA had several other technical comments, which we addressed in the
    report, as appropriate.  MWAA's comments, along with our responses to
    them, appear in appendix V.

    ---------------------------------------------------------- Letter :6.1

    We conducted our work from March 1999 through August 1999 in
    accordance with generally accepted government auditing standards.

    If you or your staff have any questions about this report, please
    call me or Steve Martin at (202) 512-2834.  Staff contacts and others
    who made key contributions to this report are listed in appendix VI.

    Sincerely yours,

    John H.  Anderson, Jr.
    Director, Transportation Issues

    CONFIGURATION OF THE THREE
    AIRPORTS IN THE WASHINGTON, D.C.,
    METROPOLITAN AREA
    =========================================================== Appendix I

       Figure I.1:  Ronald Reagan
       Washington National Airport

       (See figure in printed
       edition.)

    Source:  Metropolitan Washington Airports Authority.

       Figure I.2:  Dulles
       International Airport

       (See figure in printed
       edition.)

    Source:  Metropolitan Washington Airports Authority.

       Figure I.3:
       Baltimore/Washington
       International Airport

       (See figure in printed
       edition.)

    Source:  Maryland Aviation Administration.

    COMPARISON OF THE SIZES OF VARIOUS
    AIRCRAFT THAT USE REAGAN NATIONAL,
    DULLES, AND BWI AIRPORTS
    ========================================================== Appendix II

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

    Source:  The Boeing Corporation

    SCOPE AND METHODOLOGY
    ========================================================= Appendix III

    To examine the potential impact of several legislative proposals
    currently before the Congress that would address restrictions on
    flights at Ronald Reagan Washington National Airport (Reagan
    National), we (1) described the most prominent proposals that would
    allow an increased number of takeoffs and landings at Reagan National
    and create exemptions to the perimeter rule, (2) examined the extent
    to which Reagan National could safely accommodate more takeoffs and
    landings, and (3) analyzed whether adding flights at Reagan National
    to and from destinations beyond the current perimeter would cause
    passengers to shift their travel from Dulles or BWI.

    To address the first objective, we reviewed the three leading
    legislative proposals that have been introduced in the 106\th
    Congress and compared their similarities and differences.  We also
    examined the legislative history of the federal government's
    involvement with the Washington, D.C., area airports.  This review
    included various laws and regulations, such as the Metropolitan
    Washington Airports Act of 1986, in which the federal government
    ceded control of Reagan National and Dulles to the newly created
    Metropolitan Washington Airports Authority (MWAA).  Finally, we
    reviewed exemptions to the slot and perimeter rules that have been
    permitted over time.

    For the second objective, we determined how airlines are using
    existing slots.  We did this to gain insight into the extent to which
    Reagan National may be able to absorb additional air traffic and
    passengers if the slot and perimeter rules change and if airlines
    operating at Dulles and BWI decide either to initiate service at
    Reagan National or move service from those airports to Reagan
    National.  We analyzed data from the Federal Aviation Administration
    (FAA) on the actual use of allocated air carrier (jet) and commuter
    slots in terms of the existing slot limitations to determine if slots
    are being used in an economically efficient manner.\29 This analysis
    included reviewing data on which airlines operated commuter aircraft
    in jet slots and how airlines met the federal regulatory requirements
    that slots be used 80 percent of the time during 2-month periods.

    We also examined Reagan National's capacity in terms of the maximum
    number of flights allowed by the slot rule.  We determined the
    limitations presented by the airport's runways, taxiways, gates, and
    terminal areas to accommodate not only more flights (with more
    passengers) but also flights by aircraft larger than those normally
    operating there now--aircraft capable of flying long-range or
    transcontinental routes.  We reviewed the data contained in a 1995
    study by the Department of Transportation (DOT) on the high-density
    rule,\30 as well as data provided by FAA on the runway lengths needed
    to accommodate different aircraft capable of flying long-range
    routes.  We also determined from MWAA the number and location of
    gates at Reagan National that had been constructed to accommodate
    larger, heavier aircraft than are now used at the airport.  We
    interviewed FAA and MWAA officials about the effect on Reagan
    National's operations of the introduction of long-range aircraft,
    along with the substitution by commuter carriers of regional jets for
    turboprop aircraft.

    Finally, for the third objective, we analyzed the extent to which
    passengers would shift their travel from any one of the area's three
    airports to another in response to new travel options.  To do so, we
    analyzed cases in which airlines that previously did not fly to and
    from one airport (defined here as �new entrants�) introduced service
    to destinations already served by other airlines (defined here as
    incumbent airlines).  Using data originally provided to DOT by the
    airlines, we identified all new entrants that began operations at one
    of the three airports during the 1990s.  Because individuals
    traveling for leisure are known to be more sensitive to changes in
    prices than individuals traveling for business, we separately
    analyzed the distribution of passengers and the fares they paid for
    each airport.

    We restricted our analyses to cases in which the new entrants
    initiated service at a significant level.  We eliminated those new
    entrants that served only as commuter affiliates to a major airline,
    along with those that failed to carry the equivalent of at least two
    planeloads daily (approximately 20,000 passengers per quarter).  We
    further limited our analysis of those cases to destinations that the
    new entrant served on a nonstop basis.  Thus, we examined the effects
    on passenger traffic and fares that may have been produced by four
    new entrants during the 1990s:  Southwest Airlines' 1993 introduction
    of service at BWI; ValuJet's 1994 introduction of service at
    Washington Dulles; Western Pacific's 1994 introduction of service at
    Washington Dulles; and Midway's 1994 introduction of service at
    Reagan National.  Between the time that they began service in the
    Washington area and the time of our review (through the fourth
    quarter of 1998), according to the most recent available data,
    Southwest and ValuJet (now operating as AirTran Airlines) began
    nonstop service to a number of destinations.  We selected only one
    market for each carrier.  In general, we excluded destination cities
    that are served by more than one airport.  We did this because we
    would not be able to determine whether changes in air traffic and
    fares between the Washington, D.C., area airports and the destination
    city were due to the new competition in the Washington, D.C., area,
    or to competitive effects from the second airport in the destination
    city (for example, we excluded an analysis of the effect of
    Southwest's entry into the BWI-to-Chicago Midway Airport market
    because we would not be able to separately identify any effect that
    Chicago's O'Hare International Airport may exert on traffic and fares
    in the market).\31

    In measuring the number of passengers traveling in a market and the
    fares they paid, we also excluded itineraries involving (1) flights
    making an intermediate stop between their origin and destination,
    except in the case of travel between Denver and the three area
    airports; (2) flights making any stop outside the continental United
    States; (3) nonrevenue flights taken by airline employees or
    passengers using frequent flyer awards; (4) flights for which the
    fare was unknown (for example, charters); and (5) flights with
    certain missing data, such as those on fares, segments, date, or
    operating airline.  We also excluded itineraries involving more than
    one airline.  We reported fares on a one-way basis.

    To determine whether the entry by these airlines produced an effect
    on (1) the number of passengers carried by incumbent airlines at the
    airport where the entry took place; (2) the number of passengers
    carried at either of the other two area airports in the same
    airport-pair market; or (3) fares paid by those passengers, we
    analyzed traffic and fare data for those particular routes, beginning
    2 quarters prior to the new entrants' service and 2 quarters
    afterward.  For example, if an entrant began service in the second
    quarter of 1995, we examined changes in competitors' fares at each of
    the three area airports between the fourth quarter of 1994 and the
    fourth quarter of 1995.  We selected this 4-quarter interval to
    minimize any effects that seasonal air travel might introduce into
    the analysis (during the winter, fewer passengers fly on most routes,
    and fares are generally lower; the situation is reversed during the
    peak summer travel months).

    We obtained these data from DOT's Bureau of Transportation
    Statistics, Office of Airline Information.  These data are reported
    originally by the operating airlines and constitute a 10-percent
    sample of all tickets.  Because they are drawn from a sample, they
    are subject to sampling error (that is, the likelihood that the
    result produced from analyzing the sample is different from the
    �true� value).  We did not calculate the sampling errors during this
    review.  In the past, however, when we have used these data, we have
    found the sampling errors to be very small.\32

    Finally, we examined whether the entry events exerted different
    effects on leisure and business travelers, who generally represent
    separate passenger markets.  Leisure travelers tend to be more
    sensitive to price changes than are business travelers.  Moreover,
    airlines pay special attention to business travelers because these
    travelers are responsible for generating a disproportionate amount of
    airline revenue.  We examined changes in the overall distribution of
    passenger traffic by analyzing for each airline pre-entry and
    post-entry changes in the number of passengers paying fares in
    different fare categories, defined in $50 increments.  Because
    airline ticket data do not indicate the purpose for which individuals
    traveled, we assumed that passengers paying higher fares were
    generally those traveling for business and those paying lower fares
    were generally traveling for leisure.

    We conducted our work from March 1999 through August 1999 in
    accordance with generally accepted government auditing standards.

    --------------------
    \29 We define an �economically efficient manner� to mean the extent
    to which the scarce slot resources are used to serve the greatest
    number of passengers.  We recognize that holders of slots may have
    different perspectives on what they consider to be the best use of
    those slot resources.

    \30 U.S.  DOT, Report to the Congress:  A Study of the High Density
    Rule, May 1995.

    \31 These airlines may have provided nonstop service to other cities
    as well, but we excluded those routes from our analyses because, for
    example, they did not meet our criterion for the minimum passenger
    load.

    \32 See, for example, Airline Deregulation:  Changes in Airfares,
    Service, and Safety at Small, Medium-Sized, and Large Communities
    (GAO/RCED-96-79, Apr.  19, 1996).

    ADDITIONAL INFORMATION ON
    SUBSTITUTABILITY OF AIRPORTS
    ========================================================== Appendix IV

    Since 1993, several new airlines have begun service to the
    Washington, D.C., area.  This appendix describes the impact of four
    of those new airlines on competition among the area's airports.
    Specifically, it describes the effect that (1) ValuJet's new service
    between Washington Dulles and Atlanta's Hartsfield International
    Airport (Atlanta) had on the number of passengers and the fares they
    paid for travel between Atlanta and Reagan National and BWI; (2)
    Southwest Airlines' (Southwest) new service between BWI and St.
    Louis Lambert Field (St.  Louis) had on the number of passengers and
    the fares they paid for travel between St.  Louis and Dulles and
    Reagan National; (3) Western Pacific's new service between Dulles and
    Denver International Airport (Denver) had on the number of passengers
    and the fares they paid for travel between Denver and BWI and Reagan
    National; and (4) Midway's new service between Reagan National and
    Raleigh-Durham International Airport (Raleigh-Durham) had on the
    number of passengers and the fares they paid for travel between
    Raleigh-Durham and Dulles and BWI.  As discussed in the report and
    appendix III, we assessed the substitutability of Washington's three
    airports by determining the extent to which passengers switched from
    one Washington area airport to another when new service became
    available.  The more the airports are substitutable, the more likely
    passengers are to switch airports in response to new service options.

       VALUJET'S ENTRY AT DULLES
       DURING 1994 SUGGESTS THAT
       REAGAN NATIONAL AND DULLES MAY
       BE SUBSTITUTES FOR LEISURE
       PASSENGERS BUT THAT BUSINESS
       PASSENGERS REGARD EACH AIRPORT
       AS SEPARATE
    -------------------------------------------------------- Appendix IV:1

    ValuJet's entry at Dulles significantly increased the number of
    passengers who flew on low-fare tickets for travel between Dulles and
    Atlanta.  The number of passengers paying between $50 and $99 for
    one-way tickets between Atlanta and Dulles increased almost fivefold,
    from about 1,000 to almost 5,000 passengers between the end of 1993
    and the end of 1994.  Similarly, but to a lesser extent, ValuJet had
    the same effect on low fares and passenger traffic at Reagan
    National.  Over the same period, the number of low-fare passengers
    served by Delta Air Lines (Delta) increased modestly, from 7,640 to
    9,850, suggesting that Delta viewed the two airports as substitutes.
    However, the number of low-fare passengers on this route decreased
    overall because Trans World Airlines (TWA) stopped serving this route
    after ValuJet's entry at Dulles.  In contrast, ValuJet's entry at
    Dulles did not exert a downward pressure on the higher fares paid by
    business passengers at any of the three area airports, and the number
    of passengers paying these fares remained about the same.  Since the
    airlines did not need to reduce fares charged to business passengers
    to keep them from switching, we conclude that business travelers did
    not perceive the three airports to be substitutes.  On the other
    hand, because some leisure passengers may have switched from BWI to
    Dulles to obtain lower fares, we conclude that they regard the
    airports as moderate substitutes.

    When ValuJet began service at Dulles in 1994, Delta was the principal
    carrier of passengers between Dulles and Atlanta, an airport that
    also serves as Delta's operations hub.  Delta, and to a much lesser
    extent, TWA and US Airways, provided nonstop service to each of the
    three Washington, D.C., area airports at a wide variety of fares.
    When ValuJet began offering low-fare service between Dulles and its
    base of operations, Atlanta, during the second quarter of 1994, most
    of ValuJet's passengers flew on tickets that cost between $50 and $99
    each way, usually for a round-trip ticket.\33 In comparison, fares
    charged by the other air carriers for travel between Washington's
    three airports and Atlanta ranged between $50 and $549.

    At Dulles, ValuJet's entry into the market for travel between Dulles
    and Atlanta had a significant impact on the fares charged by Delta,
    which appeared to have lowered the fares it charged between those
    airports.  As shown in figure IV.1, the distribution of fares on
    Delta for travel between Dulles and Atlanta shifted substantially in
    favor of lower fares after ValuJet began its operations.\34 Because
    Delta offered more seats at prices matching some of ValuJet's lower
    fares, the fares generally charged to leisure passengers, Delta's
    passenger levels at lower fare levels dramatically increased from
    approximately 11,700 to 29,000 passengers per quarter (or about 130
    to 320 per day) for fares between $50 and $199.  In contrast, the
    impact of ValuJet's entry on the number of passengers traveling at
    the more expensive fares, those between $300 and $399 each way, did
    not change substantially.  These lower fares also resulted in a
    greater number of passengers traveling between Dulles and Atlanta, an
    increase from 54,220 (about 593 passengers per day) to 94,950
    passengers (about 1,038 per day).

       Figure IV.1:  Change in the
       Distribution of Fares and the
       Number of Passengers Flying on
       Delta Between Dulles and
       Atlanta, Before and After,
       ValuJet's Entry Into the
       Dulles-Atlanta Market

       (See figure in printed
       edition.)

    Note:  To ease comparisons on the total number of passengers among
    the three airports, we used the same scale showing the number of
    passengers for each airport.

    Source:  GAO's analysis of DOT's data.

    ValuJet's offering low fares in the market between Dulles and Atlanta
    had a similar, but more modest effect on fares and passenger traffic
    between Reagan National and Atlanta.  The distribution of fares that
    Delta charged for travel between Reagan National and Atlanta changed
    only slightly in response to ValuJet's entry at Dulles.  As figure
    IV.2 shows, the only substantial change was an increase in the number
    of passengers, from 6,600 passengers per quarter to nearly 22,500 per
    quarter, paying between $150 and $199 to travel between Dulles and
    Atlanta.  This increase took place in a fare category whose prices
    exceeded the $50 to $99 charged by ValuJet for the same route.  For
    the $50 to $99 fare category at Reagan National, the increase in the
    number of passengers was quite moderate�an increase of 7,600 to 9,900
    passengers.  In contrast, over the same time period, the number of
    the more expensive business tickets sold changed only slightly.  Part
    of Delta's increased passenger loads may be attributable to TWA's
    dropping service between Reagan National and Atlanta during 1994.

       Figure IV.2:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       Delta Between Reagan National
       and Atlanta, Before and After
       ValuJet's Entry into the
       Dulles-Atlanta Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    After ValuJet's entry at Dulles, the number of BWI passengers
    traveling in the lower fare category--$50 to $99�fell significantly,
    even though Delta did not reduce its total capacity in the market.
    As seen in figure IV.3, the number of low-fare passengers in this
    category decreased from about 43,000 to about 26,000.  Thus, it
    appears that passengers who had been traveling on low fares between
    BWI and Atlanta switched to Dulles.  However, the distribution of
    fares generally paid by business passengers remained largely
    unchanged by ValuJet's entry at Dulles.  US Airways (then USAir) also
    served the route between BWI and Atlanta.  After ValuJet began
    service at Dulles, the distribution of fares paid by passengers on US
    Airways remained largely unchanged.

       Figure IV.3:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       Delta Between BWI and Atlanta,
       Before and After ValuJet's
       Entry Into the Dulles-Atlanta
       Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    --------------------
    \33 These fares are based on round-trip and one-way itineraries and
    are expressed on a one-way basis.

    \34 We examined changes in airfares for the period covering 2
    quarters before the new carrier's entry through 2 quarters after.  In
    this case, we examined changes in Delta's fares in the fourth
    quarters of 1993 and 1994.  Looking at changes across the same
    seasonal quarter also helps minimize any changes in airfares
    associated with seasonality (i.e., comparing traffic and fares during
    peak summer travel with those during the winter off-season).

       SOUTHWEST'S SERVICE BETWEEN BWI
       AND ST.  LOUIS SUGGESTS THAT
       REAGAN NATIONAL, DULLES, AND
       BWI ARE SUBSTITUTES FOR LEISURE
       PASSENGERS BUT NOT FOR BUSINESS
       PASSENGERS
    -------------------------------------------------------- Appendix IV:2

    Southwest's entry into the market between BWI and St.  Louis
    demonstrated that many leisure passengers apparently were willing to
    go to BWI to obtain the low fares available there rather than
    continuing to use Reagan National.  Southwest began service between
    BWI and St.  Louis during the second quarter of 1994.  Before
    Southwest began service between BWI and St.  Louis, TWA and US
    Airways served that route.  Between the fourth quarter of 1993 and
    the fourth quarter of 1994, the total number of passengers flying
    between Baltimore and St.  Louis grew from under 30,000 to over
    80,000 (an increase of over 174 percent).\35 By the fourth quarter of
    1994, Southwest carried nearly 31,000 passengers between BWI and St.
    Louis (almost 340 per day, each way), each of whom paid between $50
    and $99 each way.

    As shown in figure IV.4, the new service by Southwest changed both
    the competition in the BWI--St.  Louis market and the distribution of
    fares.  US Airways, which carried about 4,900 passengers (or about 54
    per day) on that route in the third quarter of 1993, dropped its
    service.  TWA, which carried more than three times as many passengers
    than US Airways during the same quarter, matched some of Southwest's
    fares and the number of passengers traveling at low fares increased
    dramatically.  Prior to Southwest's entry, TWA carried about 6,500
    passengers per quarter (slightly more than 70 per day) at fares of
    less than $100 each way during the fourth quarter of 1993.  One year
    later, during the fourth quarter of 1994, the number of passengers
    traveling on TWA at fares of less than $100 increased to over 33,000
    per quarter (about 365 per day).  Some of that increase is likely
    attributable to TWA's increasing its capacity (measured by the amount
    of available seats, reflecting either an increase in flight frequency
    or the use of larger aircraft) between BWI and St.  Louis by almost
    50 percent over the period.  On the other hand, the number of
    passengers paying high fares declined.  The number of passengers
    paying between $200 and $299 declined from more than 3,100 per
    quarter (about 34 per day) to about 500 per quarter (about 6 per
    day).

       Figure IV.4:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       TWA Between BWI and St.  Louis,
       Before and After Southwest's
       Entry Into the BWI-St.  Louis
       Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    Southwest's service between BWI and St.  Louis affected the
    distribution of fares paid for nonstop service offered by TWA between
    Reagan National and St.  Louis, especially for lower fares typically
    paid by leisure travelers.  As shown in figure IV.5, the number of
    passengers paying between $50 and $149 at Reagan National declined
    from about 19,000 per quarter (about 211 per day) to about 6,000 per
    quarter (about 66 per day), despite TWA's adding more than 20 percent
    in capacity in the market.  These passengers likely switched to the
    low-fare service being offered between BWI and St.  Louis�as
    described earlier, the number of passengers flying at fares less than
    $100 each way increased dramatically after Southwest began its
    service.  Thus, many of the passengers who paid low fares�generally
    leisure passengers�were willing to go to BWI for the lower available
    fares rather than continuing with TWA's somewhat higher fares at
    Reagan National.  In contrast, the number of higher-fare passengers
    traveling between Reagan National and St.  Louis (those traveling for
    fares between $200 and $299 each way) declined only marginally during
    the period.  As a result, we conclude that these passengers�who are
    likely to be business passengers�were not willing to substitute BWI
    for Reagan National.

       Figure IV.5:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       TWA between Reagan National and
       St.  Louis, before and After
       Southwest's Entry into the
       BWI-St.  Louis Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    The change in the distribution of passengers and fares paid for
    service between Dulles and St.  Louis is similar to the change
    observed on service between Reagan National and St.  Louis, although
    the number of passengers traveling between Dulles and St.  Louis is
    much smaller.  As shown in figure IV.6, the number of passengers
    paying low fares declined modestly.  The number of passengers paying
    between $50 and $149 each way declined from roughly 4,100 during the
    fourth quarter of 1993 (under 50 per day) to about 2,200 during the
    same quarter of 1994 (less than 25 per day).  Over the same period,
    TWA also increased its capacity between these two airports by roughly
    16 percent.  This shows some willingness on the part of low-fare
    passengers to switch from Dulles to BWI.  In contrast, there is
    little evidence that high-fare passengers are willing to switch.  In
    fact, the number of passengers paying more than $150 each way
    increased.

       Figure IV.6:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       TWA Between Dulles and St.
       Louis, Before and After
       Southwest's Entry Into the
       BWI-St.  Louis Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    An academic study of Southwest's service from BWI to Cleveland and
    Chicago Midway airports is consistent with our analysis.\36 That
    analysis of the effect that Southwest's entry into those markets had
    on passenger traffic and fares from Reagan National and Dulles showed
    that Southwest's entry stimulated significant new passenger traffic
    and lowered fares at BWI and had smaller, less uniform effects at
    Reagan National and Dulles.

    --------------------
    \35 A year before Southwest's entry on this route, the BWI-St.  Louis
    market ranked as the 624\th largest U.S.  domestic city pair, with
    approximately 25,000 passengers per quarter (nearly 280 passengers
    per day).  One year after Southwest entered the market, it was the
    147\th largest market, with about 106,000 passengers flying that
    quarter (nearly 1,200 per day).

    \36 Dresner, Martin, Jiun-Sheng Chris Lin, and Robert Windle, �The
    Impact of Low-Cost Carriers on Airport and Route Competition,�
    Journal of Transport Economics and Policy, Sept.  1996, pp.  309-328.
    The study concluded that Southwest's entry into the Cleveland market
    had no apparent effect on passenger traffic between Reagan National
    or Dulles and Ohio, but that its entry into Chicago's Midway Airport
    may have had some effect on prices between Reagan National and
    Illinois.  While the methodology of this study was somewhat different
    than our methodology, the basic conclusion is the same�the
    introduction of new service did not substantially change the traffic
    at other area airports.  The authors noted that the decline in fares
    between Reagan National and Illinois followed the decline at BWI by 9
    months, and may have been triggered by an unusually steep decline in
    passenger traffic at the airport during the end of 1993 and beginning
    of 1994.

       WESTERN PACIFIC'S SERVICE
       BETWEEN DULLES AND DENVER
       SUGGESTS THAT NEW LONG-HAUL
       SERVICE AT DULLES HAD LITTLE
       EFFECT ON PASSENGERS'
       PREFERENCES FOR REAGAN NATIONAL
       OR BWI
    -------------------------------------------------------- Appendix IV:3

    Western Pacific Airlines was a small, low-cost carrier offering
    service between Dulles and Colorado Springs, which was initially its
    main base of operations.  In 1997, Western Pacific moved its base of
    operations to Denver, which is also a hub for United Airlines
    (United).  Because Western Pacific moved its operations to Denver,
    its nonstop service between Dulles and Denver competed directly with
    United Airlines' nonstop service between those two airports and
    potentially competed with nonstop service between BWI and Denver.
    There is no nonstop service between Reagan National and Denver
    because Denver is outside Reagan National's perimeter.  Western
    Pacific has since ceased its operations.

    The new service offered by Western Pacific between Dulles and Denver
    changed the fares charged by United.  United carried substantially
    more passengers at low fares after Western Pacific moved its
    operations to Denver than it had carried before.  As shown in figure
    IV.7, during the fourth quarter of 1996, United carried approximately
    41,000 passengers (about 450 per day) at fares between $100 and $249
    each way.  After Western Pacific's move, United carried about 73,000
    passengers (about 800 per day) in the same price range.  United made
    this change in fares with only a minor (about 2 percent) increase in
    its total capacity on this route.  The presence of Western Pacific
    also substantially reduced the number of passengers paying high fares
    of between $500 and $699 each way.  Prior to Western Pacific's
    service to Denver, United carried about 13,000 passengers per quarter
    (about 140 per day) at those higher fares, but that figure dropped to
    about 2,400 (less than 30 per day) after Western Pacific's move.

       Figure IV.7:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       United Between Dulles and
       Denver, Before and After
       Western Pacific's Entry Into
       the Dulles-Denver Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    Western Pacific's service between Dulles and Denver had an effect on
    some leisure and business fares for travel between BWI and Denver.
    In addition, the total number of passengers traveling between Dulles
    and Denver increased substantially.  As shown in figure IV.8, after
    Western Pacific began its service, United carried more passengers
    between BWI and Denver.  The number of passengers paying fares
    between $100 and $249 each way increased from about 7,200 (about 80
    per day) to about 13,500 (nearly 150 per day) from the fourth quarter
    of 1996 to the same period in 1997.  This may be because United
    increased the number of available low-fare seats between BWI and
    Denver to be more comparable with the number available between Dulles
    and Denver.  As at Dulles, United added very little capacity to the
    route, increasing its number of available seats by less than 3
    percent.  As such, it is evident that BWI and Dulles are partial
    substitutes for leisure traffic.  Because of the lower fares between
    BWI and Denver, there was a decrease in the number of passengers
    paying relatively high fares.  The number of travelers paying fares
    between $600 and $749 declined from about 2,700 (about 30 per day) to
    about 1,610 (less than 18 per day) per quarter.  However, because the
    number of passengers paying high fares for flights between Dulles and
    Denver also fell during this period, we conclude that the decline in
    the number of high-fare passengers occurred because those passengers
    were able to take advantage of the additional competition to pay
    lower fares at their preferred airport rather than switching from one
    airport to another.

       Figure IV.8:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       United Between BWI and Denver,
       Before and After Western
       Pacific's Entry Into the
       Dulles-Denver Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    In addition to assessing the impact of Western Pacific's new nonstop
    service at Dulles on other nonstop service from the Washington, D.C.,
    area, we assessed the effect that this new service had on the number
    of passengers and fares that used connecting service.  We did so
    because the perimeter rule precludes any nonstop service between
    Reagan National and Denver.  We found that, prior to Western
    Pacific's entry, relatively few passengers took connecting flights
    from the Washington, D.C., area to Denver.  Approximately 25 percent
    of all Washington-Denver traffic took connecting flights, while the
    vast majority flew nonstop between Dulles or BWI and Denver.  Most of
    those who took connecting flights did so from Reagan National, and
    most of them flew at relatively low fares.  After Western Pacific
    began its service, the number of passengers on connecting flights at
    relatively low fares for travel between Reagan National and Denver
    increased by about one-third, while the number of passengers on
    connecting flights at relatively low fares for travel between BWI or
    Dulles and Denver decreased by similar percentages.  We did not find
    that Western Pacific's low-fare service caused any shift in the
    airports used by travelers making connections.

       MIDWAY'S SERVICE BETWEEN REAGAN
       NATIONAL AND RALEIGH-DURHAM
       SUGGESTS THAT PASSENGERS DO NOT
       TREAT REAGAN NATIONAL, DULLES,
       AND BWI AS SUBSTITUTES
    -------------------------------------------------------- Appendix IV:4

    Our analysis of the effect that Midway had on fares for travel
    between the three Washington, D.C., area airports and Raleigh-Durham,
    North Carolina, did not suggest that passengers are willing to change
    airports to obtain different service or fares.  Midway began
    operations in November 1993 at Midway Airport in Chicago.  In March
    1995, it moved its hub to Raleigh-Durham.  It began serving several
    routes, mainly in the eastern United States, that were being dropped
    by American Airlines (American).  One of these routes was between
    Reagan National and Raleigh-Durham.  (American dropped its service
    between Raleigh-Durham and BWI at the end of 1994 and its service
    between Raleigh-Durham and Reagan National in the second quarter of
    1995.) Although Midway is not considered to be a low-fare airline
    like the other new entrant airlines whose experience we examined, we
    included it in our analysis because its initiating service at Reagan
    National was the only such event during the 1990s.

    Unlike the other entry events that we examined, Midway did not enter
    the market with substantially lower fares than American had been
    charging.  Midway carried about the same number of passengers at each
    fare level as American had carried before eliminating its service
    between Reagan National and Raleigh-Durham, although Midway carried a
    somewhat higher number of passengers at lower fares.  For example, in
    the first quarter of 1995, American carried 43 percent of its Reagan
    National-Raleigh-Durham passengers at fares of between $100 and $149
    each way.  In the first quarter of 1996, Midway carried 47 percent of
    its passengers for the same amount.  As shown in figure IV.9, US
    Airways carried more passengers between Reagan National and
    Raleigh-Durham at fares of between $50 and $149 than it had before
    the service provided by Midway replaced the service provided by
    American.  US Airways had not significantly increased its capacity on
    that route between the first quarters of 1995 and 1996.  It appears
    instead that US Airways made more seats available at those fares.  We
    do not believe that the increase US Airways experienced is related to
    Midway's replacing American on that route.  Rather, we believe that
    Midway generally gained its passenger traffic from former American
    passengers.\37

       Figure IV.9:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       US Airways Between Reagan
       National and Raleigh-Durham,
       Before and After Midway's Entry
       Into the Reagan
       National-Raleigh-Durham Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    The service offered by Midway between Reagan National and
    Raleigh-Durham had little impact on the number of passengers or the
    fares that they paid for travel between BWI and Raleigh-Durham,
    suggesting that travelers did not treat Reagan National and BWI as
    substitutes.  Figure IV.10 shows the number of passengers and the
    fares that they paid for travel between BWI and Raleigh-Durham before
    and after Midway began its service at Reagan National.  The greatest
    difference is the large increase in the number of passengers paying
    between $250 and $299 each way, which was most likely caused by the
    exit of American Airlines.  This increase is largely offset by a
    decrease in the number of passengers paying lower fares.  However,
    the modest decrease in passengers paying low fares does not indicate
    that Midway's new service caused any shift of traffic from BWI to
    Reagan National.  Although this change in passenger traffic suggests
    that passengers did not treat these airports as substitutes, the
    change in the number of passengers and the fares they paid could also
    be explained by the fact that Midway's entry did not substantially
    lower the fares that other airlines charged for service between
    Reagan National and Raleigh-Durham.

       Figure IV.10:  Change in the
       Distribution of Fares and
       Number of Passengers Flying on
       US Airways Between BWI and
       Raleigh-Durham, Before and
       After Midway's Entry Into the
       Reagan National-Raleigh-Durham
       Market

       (See figure in printed
       edition.)

    Source:  GAO's analysis of DOT's data.

    Because there was no nonstop service from Dulles to Raleigh-Durham,
    we could not measure whether passengers would view those airports as
    substitutes.

    (See figure in printed edition.)Appendix V

    --------------------
    \37 Midway also has a frequent flyer program relationship with
    American.

    COMMENTS FROM THE METROPOLITAN
    WASHINGTON AIRPORTS AUTHORITY AND
    OUR EVALUATION
    ========================================================== Appendix IV

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    The following are GAO's responses to the Metropolitan Washington
    Airports Authority's (MWAA) August 16, 1999, letter.

    1.  As we have reported in the past, operational barriers such as
    slot and perimeter rules impede airline competition�the goal of the
    industry's 1978 deregulation.  In this report, we clearly state that
    the report was done to examine the impact of various legislative
    proposals on the operations of the Washington, D.C., area airports
    and not to assess any underlying policies.  We agree that the draft
    report could have more clearly stated that it is not intended to
    analyze the potential effect of changes in operations at Reagan
    National on noise, congestion, and other environmental concerns, and
    we made appropriate changes.

    2.  We believe, as does DOT, that �balanced capacity� is a more
    appropriate method for determining an airport's capacity than the
    method suggested by MWAA.  While MWAA contends that Instrument Flight
    Rules (IFR) should be used to measure capacity, DOT's Technical
    Supplement No.  3 to its 1995 report\38 points out that IFR airfield
    capacity is indicative of the lowest level of available capacity, and
    thus virtually ensures constant availability of an airfield.\39 In
    practice, this approach would leave large amounts of airfield
    capacity unused because a significantly higher capacity could be
    achieved during the better weather conditions under which Visual
    Flight Rules apply.\40 According to data from FAA, less than 0.5
    percent of all air traffic operations at Reagan National in 1998 were
    delayed because of weather conditions.  Because setting the number of
    slots on the basis of balanced capacity reflects both bad and good
    weather conditions, we did not revise our report.

    3.  By limiting its comments to how delays would change in IFR
    conditions, MWAA suggests that the prevailing weather conditions at
    Reagan National require IFR operations every day.  However, as noted
    earlier, FAA data show that less than 0.5 percent of all air traffic
    operations at Reagan National in 1998 were delayed because of weather
    conditions.  We do not agree that we understated the potential delay
    caused by weather, having noted in the report that delays of 15
    minutes or more could increase.  Furthermore, we clearly indicate how
    delays would increase if the slot rule were eliminated.  Thus, we did
    not revise our report.

    4.  MWAA correctly notes that the DOT study estimated that adding
    seven additional slots per hour would result in an overall net loss
    and an increase in delays.  The DOT study points out, however, that
    consumers would benefit from additional flight services and that the
    airport would benefit from an increase in landing fees, even as the
    airlines would experience a net loss because of delays.  MWAA also
    correctly notes airlines' increasing use of regional jets.  However,
    FAA and DOT do not believe that this change alters their calculations
    of Reagan National's balanced capacity.  Thus, we did not revise the
    report.

    5.  We do not believe our report implies that MWAA supports an
    increase in operations.  Rather, the report acknowledges MWAA's
    recognition that the airport could accommodate additional flights.

    6.  MWAA correctly notes that federal law permits airlines to operate
    small jet aircraft (that is, �regional jets�) in commuter slots.
    However, we do not believe that clarification is necessary in
    response to this comment.  A footnote in our report explains that we
    considered both regional jets and turboprop aircraft seating fewer
    than 56 passengers to be commuter aircraft, and that we considered
    aircraft seating 56 passengers or more (that is, �large aircraft�),
    most of which are not turboprops, to be jets.  Large aircraft are not
    permitted to use commuter slots.

    7.  MWAA correctly notes that the transfer of Reagan National and
    Dulles airports from federal to local authority did not take place
    immediately upon the passage of the Metropolitan Washington Airports
    Act of 1986.  Rather, that act led to the transfer of authority in
    June 1987.  We modified our report in response to this comment.

    8.  We used actual and projected data that were the most currently
    available from FAA at the time of our work.  In addition, data
    submitted by the airlines to DOT indicate that, in 1998, BWI handled
    more passengers than Dulles, and nearly as many as Reagan National.
    Thus, we continue to believe that these data are valid and made no
    change to the report.

    9.  MWAA notes that preferential gate use at Reagan National is not a
    �use-or-lose� concept.  In response, we clarified the narrative.
    Also in response to MWAA, we revised the report to clarify that a
    tenant airline may not prevent a new entrant from gaining access to a
    gate when the gate is not being used and that MWAA could reallocate
    gates at any time, not just during the formal reassessment periods
    that take place every 3 years.

    --------------------
    \38 U.S.  DOT, Report to the Congress:  A Study of the High Density
    Rule, May 1995.

    \39 Instrument Flight Rules govern procedures for conducting aircraft
    operations during weather conditions when the cloud ceiling is less
    than 1,000 feet and/or visibility is less than 3 miles, requiring
    certain aircraft separations and other operating standards.

    \40 Visual Flight Rules govern procedures for conducting aircraft
    operations when the cloud ceiling is more than 1,000 feet and
    visibility is 3 miles or more.  Airport capacity under these
    conditions is generally significantly higher than under conditions
    under Instrument Flight Rules.

    GAO CONTACTS AND STAFF
    ACKNOWLEDGMENTS
    ========================================================== Appendix VI

    GAO CONTACTS

    John H.  Anderson, Jr.  (202) 512-2834

    Steven C.  Martin (202) 512-2834

    ACKNOWLEDGMENTS

    In addition to those named above, Sonja Bensen, Stephen Brown, Aaron
    Casey, David Hooper, Joseph Kile, and Lewison Lem made key
    contributions to this report.

    RELATED GAO PRODUCTS
    ============================================================ Chapter 0

    Airline Deregulation:  Changes in Airfares, Service Quality, and
    Barriers to Entry (GAO/RCED-99-92, Mar.  4, 1999).

    Aviation Competition:  Effects on Consumers From Domestic Airline
    Alliances Vary (GAO/RCED-99-37, Jan.  15, 1999).

    Aviation Competition:  Proposed Domestic Airline Alliances Raise
    Serious Issues (GAO/T-RCED-98-215, June 4, 1998).

    Domestic Aviation:  Service Problems and Limited Competition Continue
    in Some Markets (GAO/T-RCED-98-176, Apr.  23, 1998).

    Aviation Competition:  International Aviation Alliances and the
    Influence of Airline Marketing Practices (GAO/T-RCED-98-131, Mar.
    19.  1998).

    Airline Competition:  Barriers to Entry Continue in Some Domestic
    Markets (GAO/T-RCED-98-112, Mar.  5, 1998).

    Domestic Aviation:  Barriers Continue to Limit Competition
    (GAO/T-RCED-98-32, Oct.  28, 1997).

    Airline Deregulation:  Addressing the Air Service Problems of Some
    Communities (GAO/T-RCED-97-187, June 25, 1997).

    International Aviation:  Competition Issues in the U.S.-U.K.  Market
    (GAO/T-RCED-97-103, June 4, 1997).

    Domestic Aviation:  Barriers to Entry Continue to Limit Benefits of
    Airline Deregulation (GAO/T-RCED-97-120, May 13, 1997).

    Airline Deregulation:  Barriers to Entry Continue to Limit
    Competition in Several Key Domestic Markets (GAO/RCED-97-4, Oct.  18,
    1996).

    Domestic Aviation:  Changes in Airfares, Service, and Safety Since
    Airline Deregulation (GAO/T-RCED-96-126, Apr.  25, 1996).

    Airline Deregulation:  Changes in Airfares, Service, and Safety at
    Small, Medium-Sized, and Large Communities (GAO/RCED-96-79, Apr.  19,
    1996).

    International Aviation:  Airline Alliances Produce Benefits, but
    Effect on Competition Is Uncertain (GAO/RCED-95-99, Apr.  6, 1995).

    Airline Competition:  Higher Fares and Less Competition Continue at
    Concentrated Airports (GAO/RCED-93-171, July 15, 1993).

    Computer Reservation Systems:  Action Needed to Better Monitor the
    CRS Industry and Eliminate CRS Biases (GAO/RCED-92-130, Mar.  20,
    1992).

    Airline Competition:  Effects of Airline Market Concentration and
    Barriers to Entry on Airfares (GAO/RCED-91-101, Apr.  26, 1991).

    Airline Deregulation:  Trends in Airfares at Airports in Small and
    Medium-Sized Communities (GAO/RCED-91-13, Nov.  8, 1990).

    Airline Competition:  Industry Operating and Marketing Practices
    Limit Market Entry (GAO/RCED-90-147, Aug.  29, 1990).

    Airline Competition:  Higher Fares and Reduced Competition at
    Concentrated Airports (GAO/RCED-90-102, July 11, 1990).

    Airline Deregulation:  Barriers to Competition in the Airline
    Industry (GAO/T-RCED-89-65, Sept.  20, 1989).

    Airline Competition:  Fare and Service Changes at St.  Louis Since
    the TWA-Ozark Merger (GAO/RCED-88-217BR, Sept.  21, 1988).

    Competition in the Airline Computerized Reservation Systems
    (GAO/T-RCED-88-62, Sept.  14, 1988).

    Airline Competition:  Impact of Computerized Reservation Systems
    (GAO/RCED-86-74, May 9, 1986).

    Airline Takeoff and Landing Slots:  Department of Transportation's
    Slot Allocation Rule (GAO/RCED-86-92, Jan.  31, 1986).

    Deregulation:  Increased Competition Is Making Airlines More
    Efficient and Responsive to Consumers (GAO/RCED-86-26, Nov.  6,
    1985).

    *** End of document. ***