Airline Competition: Barriers to Entry Continue in Some Domestic Markets
(Testimony, 03/05/98, GAO/T-RCED-98-112).

GAO discussed the air service problems that some communities have
experienced since the deregulation of the airline industry in 1978.

GAO noted that: (1) not all communities have benefited from airline
deregulation; (2) certain airports--particularly those serving small and
medium-sized communities in the East and upper Midwest--have experienced
higher fares and poorer service since deregulation; (3) there are
several reasons for the substantial regional differences in fare and
service trends, including the dominance of routes to and from these
airports by one or two traditional hub-and-spoke airlines and operating
barriers, such as long-term exclusive-use gate leases at hub airports;
(4) the more widespread entry of new airlines at airports in the West
and Southwest since deregulation has stemmed largely from the greater
economic growth in those regions as well as from the absence of dominant
market positions of incumbent airlines and barriers to entry; (5)
operating barriers continue to block entry at key airports and
contribute to fare and service problems in the East and upper Midwest;
(6) to minimize congestion and reduce flight delays, the Federal
Aviation Administration has set limits since 1969 on the number of
takeoffs or landings that can occur during certain periods of the day at
four congested airports; (7) a few airlines control most of these slots
at these airports, which limits new entrants; (8) in 1996 GAO reported
that the vast majority of gates at six airports in the East and Upper
Midwest were exclusively leased to usually one airline, making it very
difficult to gain competitive access to these airports; (9) perimeter
rules at two major airports limit the ability of airlines based in the
West to compete at those airports; (10) these operating barriers,
combined with certain marketing strategies by established carriers, have
deterred new entrant airlines while fortifying established carriers
dominance at key hubs in the East and upper Midwest; (11) increasing
competition and improving air service at airports serving communities
that have not benefited from deregulation will likely entail a range of
federal, regional, local, and private-sector initiatives; (12) the
Department of Transportation is undertaking several efforts to enhance
competition; (13) recently proposed legislation would address several
barriers to competition: slot controls, the perimeter rule, and
predatory behavior by air carriers; (14) recent national and regional
conferences exemplify efforts to pool available resources to focus on
improving the airfares and quality of air service to such communities;
and (15) other steps--such as improving the availability of gates--may
also be needed to further ameliorate current competitive problems.

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

 REPORTNUM:  T-RCED-98-112
     TITLE:  Airline Competition: Barriers to Entry Continue in Some 
             Domestic Markets
      DATE:  03/05/98
   SUBJECT:  Airline industry
             Commercial aviation
             Airline regulation
             Air transportation operations
             Economic analysis
             Competition
             Restrictive trade practices
             Transportation rates
             Airports

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


Before the Subcommittee on Transportation, Committee on
Appropriations, U.S.  Senate

For Release
on Delivery
Expected at
10 a.m.  EST
Thursday
March 5, 1998

AIRLINE COMPETITION - BARRIERS TO
ENTRY CONTINUE IN SOME DOMESTIC
MARKETS

Statement of John H.  Anderson, Jr.,
Director, Transportation Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-112

GAO/RCED-98-112T


(348080)


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

  DOT -
  FAA -
  SPOKES -
  BTCC -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We appreciate the opportunity to testify on the air service problems
that some communities have experienced since the deregulation of the
industry in 1978.  Airline deregulation has led to lower fares and
better service for most air travelers largely because of increased
competition spurred by the entry of new airlines into the industry
and established airlines into new markets.  As we reported in 1996
and 1997, however, some airports have not experienced such entry and
thus have experienced higher fares and/or less convenient service
since deregulation.\1 Our testimony today summarizes the findings
from our prior work on these fare and service trends, factors
contributing to the problems, and the initiatives by the Department
of Transportation (DOT) and others to address these problems.  In
summary: 

  -- Not all communities have benefited from airline deregulation. 
     Certain airports--particularly those serving small and
     medium-sized communities in the East and upper Midwest--have
     experienced higher fares and/or poorer service since
     deregulation.  There are several reasons for the substantial
     regional differences in fare and service trends, including the
     dominance of routes to and from these airports by one or two
     traditional hub-and-spoke airlines\2 and operating barriers,
     such as long-term exclusive-use gate leases at hub airports.  In
     contrast, the more widespread entry of new airlines at airports
     in the West and Southwest since deregulation--and the resulting
     geographic differences in fare and service trends--has stemmed
     largely from the greater economic growth in those regions as
     well as from the absence of dominant market positions of
     incumbent airlines and barriers to entry. 

  -- Operating barriers--slot controls, restrictive gate leases, and
     perimeter rules\3 --continue to block entry at key airports and
     contribute to fare and service problems in the East and upper
     Midwest.  To minimize congestion and reduce flight delays, the
     Federal Aviation Administration has set limits since 1969 on the
     number of takeoffs or landings--referred to as "slots"--that can
     occur during certain periods of the day at four congested
     airports--Chicago O'Hare, Ronald Reagan Washington National, and
     New York's Kennedy and LaGuardia.  A few airlines control most
     of the slots at these airports, which limits new entrants.  In
     1996 we reported that the vast majority of gates at six airports
     in the East and upper Midwest were exclusively leased to usually
     one airline, making it very difficult to gain competitive access
     to these airports.  In addition, perimeter rules at LaGuardia
     and National airports limit the ability of airlines based in the
     West to compete at those airports.  These operating barriers,
     combined with certain marketing strategies by established
     carriers, have deterred new entrant airlines while fortifying
     established carriers' dominance at key hubs in the East and
     upper Midwest. 

  -- Increasing competition and improving air service at airports
     serving communities that have not benefited from deregulation
     will likely entail a range of federal, regional, local, and
     private-sector initiatives.  DOT is undertaking several efforts
     to enhance competition, such as granting slots to new entrants
     at 2 airports and formalizing a policy that will identify
     anticompetitive behavior and factors DOT will consider if it
     pursues formal enforcement actions to correct such behavior.  In
     addition, recently proposed legislation would address several
     barriers to competition:  slot controls, the perimeter rule, and
     predatory behavior by air carriers.  Recent national and
     regional conferences exemplify efforts to pool available
     resources to focus on improving the airfares and quality of air
     service to such communities.  Other steps--such as improving the
     availability of gates--may also be needed to further ameliorate
     current competitive problems. 


--------------------
\1 Airline Deregulation:  Changes in Airfares, Service, and Safety at
Small, Medium-Sized, and Large Communities (GAO/RCED-96-79, Apr.  19,
1996), Airline Deregulation:  Barriers to Entry Continue to Limit
Competition in Several Key Domestic Markets (GAO/RCED-97-4, Oct.  18,
1996), Airline Deregulation:  Addressing the Air Service Problems of
Some Communities (GAO/T-RCED-97-187, June 25, 1997), and Domestic
Aviation:  Barriers to Entry Continue to Limit Benefits of Airline
Deregulation (GAO/T-RCED-97-120, May 13, 1997).  Related GAO products
are listed at the end of this statement. 

\2 These airlines include the nation's seven largest:  American
Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines,
TWA, United Airlines, and US Airways. 

\3 Rules that prohibit flights to and from airports that exceed a
certain distance. 


   BENEFITS OF DEREGULATION HAVE
   BEEN UNEVEN
---------------------------------------------------------- Chapter 0:1

Our April 1996 report found that since deregulation, as expected,
fares had fallen and service had improved for most large-community
airports.  However, without the cross-subsidy that was present when
the industry was regulated, experts also expected fares to increase
somewhat at airports serving small and medium-sized communities and
expected service to decline.  We found, in fact, that since
deregulation, substantial regional differences have existed in fare
and service trends, particularly among small and medium-sized
community airports.  A primary reason for these differences has been
the greater degree of economic growth that has occurred over the past
two decades in the West and Southwest and in larger communities
nationwide.  In particular, we noted that most low-fare airlines that
began interstate air service after deregulation, such as Southwest
Airlines\4 and Reno Air, had decided to enter airports serving
communities of all sizes in the West and Southwest because of these
communities' robust economic growth.  By contrast, low-fare airlines
had generally avoided serving small- and medium-sized-community
airports in the East and upper Midwest, in part because of the slower
growth, harsher weather, and greater airport congestion in these
regions. 

Our review of the trends in fares between 1979 and 1994 for a sample
of 112 small-, medium-sized, and large-community airports identified
15 airports where fares, adjusted for inflation, had declined by over
20 percent and 8 airports where fares had increased by over 20
percent.\5 Each of the 15 airports where fares declined was located
in the West or Southwest, and low-fare airlines accounted for at
least 10 percent of the passenger boardings at all but one of those
airports in 1994.\6 On the other hand, each of the eight airports
where fares had increased by over 20 percent since deregulation was
located in the Southeast and the Appalachian region. 

Our April 1996 report also discussed similar trends in service
quantity and quality since deregulation.  Large communities, in
general, and communities of all sizes in the West and Southwest had
experienced a substantial increase in the number of departures and
available seats as well as improvements in such service quality
indicators as the number of available nonstop destinations and the
amount of jet service.  Over time, however, smaller- and medium-sized
communities in the East and upper Midwest had generally experienced a
decline in the quantity and quality of air service.  In particular,
these communities had experienced a sharp decrease in the number of
available nonstop destinations and in the amount of jet service
relative to turboprop service.  This decrease occurred largely
because established airlines had reduced jet service from these
airports and deployed turboprops to link the communities to those
airlines' major hubs. 


--------------------
\4 Before deregulation, Southwest provided intrastate air service
within Texas. 

\5 Our sample of 112 airports included 49 airports serving small
communities, 38 serving medium-sized communities, and 25 serving
large communities.  In 1994, these airports accounted for about
two-thirds of all domestic airline departures and passenger
enplanements in the United States.  We defined small communities as
those with a metropolitan statistical area population of 300,000 or
less, medium-sized communities as those with a metropolitan
statistical area population of 300,001 to 600,000, and large
communities as those with a metropolitan statistical area population
of 1.5 million or more. 

\6 Of the 15 airports, 5 serve small communities, 5 serve
medium-sized communities, and 5 serve large communities. 


   AIRLINE BARRIERS TO ENTRY
   PERSIST AND PREDOMINANTLY
   AFFECT COMPETITION IN THE EAST
   AND UPPER MIDWEST
---------------------------------------------------------- Chapter 0:2

We reported in October 1996 that operating barriers at key hub
airports in the upper Midwest and the East, combined with certain
marketing strategies of the established carriers, had two effects on
competition.  The operating barriers and marketing strategies
deterred new entrant airlines and fortified established carriers'
dominance of those hub airports and routes linking those hubs with
nearby small- and medium-sized-community airports.  In the upper
Midwest, there is limited competition in part because two airlines
control nearly 90 percent of the takeoff and landing slots at O'Hare,
and one airline controls the vast majority of gates at the airports
in Minneapolis and Detroit under long-term, exclusive-use leases. 
Similarly, in the East, one airline controls the vast majority of
gates under exclusive-use leases at Cincinnati, Charlotte, and
Pittsburgh and a few established airlines control most of the slots
at National, LaGuardia, and Kennedy.  Perimeter rules at LaGuardia
and National further limit the ability of airlines based in the West
to compete in those markets. 

Particularly for these key markets in the upper Midwest and East, the
relative significance of these barriers in limiting competition and
contributing to higher airfares has grown over time.  As a result,
our October 1996 report recommended that DOT take action to lower the
operating barriers and highlighted areas for potential congressional
action.  Our 1996 report also discussed the effects of some marketing
strategies of incumbent airlines on competition. 


      SLOTS
-------------------------------------------------------- Chapter 0:2.1

To reduce congestion, the Federal Aviation Administration (FAA) has
limited since 1969 the number of takeoffs and landings that can occur
at O'Hare, National, LaGuardia, and Kennedy.  By allowing new
airlines to form and established airlines to enter new markets,
deregulation increased the demand for access to these airports.  Such
increased demand complicated FAA's efforts to allocate takeoff and
landing slots equitably among the airlines.  To minimize the
government's role in the allocation of slots, in 1985 DOT began to
allow airlines to buy and sell them to one another.  Under this
"Buy/Sell Rule," DOT "grandfathered" slots to the holders of record
as of December 16, 1985.  Emphasizing that it still owned the slots,
however, DOT reserved the right to withdraw slots from the incumbents
at any time.  In addition, to mitigate the anticompetitive effects of
grandfathering, DOT retained about 5 percent of the slots at O'Hare,
National, and LaGuardia and in 1986 distributed them in a random
lottery to airlines having few or no slots at those airports. 

Even with the lottery, we found that the level of control over slots
by a few established airlines had increased over time.  By contrast,
the share held by the airlines that started after deregulation has
remained low.  (See app.  I.) To address this problem, in October
1996, we recommended that DOT redistribute some of the grandfathered
slots to increase competition, taking into account the investments
made by those airlines at each of the slot-controlled airports.  We
were envisioning that a small percentage of slots would be
redistributed.  In response to our report, DOT has begun to use the
authority that the Congress gave it in 1994 to allow additional slots
for entry at O'Hare, LaGuardia, and Kennedy.\7 In October 1997, DOT
awarded Reno Air and Trans States Airlines exemptions from slot
limitations at O'Hare, while Frontier Airlines, ValuJet Airlines,\8
and AirTran Airways were granted exemptions at LaGuardia.  These
exemptions should help to enhance service in the East and upper
Midwest.  For example, Trans States Airlines received 8 exemptions to
provide service between O'Hare and its choice of Asheville, North
Carolina; Chattanooga, Tennessee; Roanoke, Virginia; and Tri-Cities,
Tennessee/Virginia.\9


--------------------
\7 The FAA Authorization Act of 1994 (P.L.  103-305, section 206)
created an exemption provision to allow additional slots at O'Hare,
LaGuardia, and Kennedy when DOT "finds it to be in the public
interest and the circumstances to be exceptional." The number of
flights at National Airport is further limited by federal law to
address local concerns about noise.  As a result of these additional
limits, the Congress chose not to extend DOT's exemption authority to
include National. 

\8 ValuJet is now AirTran Airlines. 

\9 Each exemption is one arrival or departure. 


      LONG-TERM, EXCLUSIVE-USE
      GATE LEASES
-------------------------------------------------------- Chapter 0:2.2

Our reports have also identified restrictive gate leases as a barrier
to establishing new or expanded service at some airports.  These
leases permit an airline to hold exclusive rights to use most of an
airport's gates over a long period of time, commonly 20 years.  Such
leases prevent nonincumbents from securing necessary airport
facilities on equal terms with incumbent airlines.  To gain access to
an airport where most gates are exclusively leased, a nonincumbent
must sublet gates from the incumbent airlines--often at nonpreferred
times and at a higher cost than the incumbent pays. 

While some airports, such as Los Angeles International, have
attempted to regain more control of their facilities by signing less
restrictive, shorter-term leases once the exclusive-use leases
expired, our October 1996 report identified several airports where
entry was still limited because of long-term, exclusive-use gate
leases with one airline.  We identified six airports in particular
where this occurred:  Charlotte; Cincinnati; Detroit; Minneapolis;
Newark, New Jersey; and Pittsburgh.  The vast majority of gates at
each airport are exclusively leased, usually to one established
airline.  (See app.  II.) As a result, it is extremely difficult to
gain competitive access to these airports, according to executives at
many airlines that started after deregulation. 

Although the development, maintenance, and expansion of airport
facilities is essentially a local responsibility, most airports are
operated under federal restrictions that are tied to the receipt of
federal grant money from FAA.  To address the gate lease problem, we
recommended that when disbursing airport improvement grant moneys,
FAA give priority to those airports that do not lease the vast
majority of their gates to one airline under long-term, exclusive-use
terms.  DOT did not concur with this recommendation.  According to
DOT, because the number of airports that we identified as presenting
gate access problems is sufficiently small, the agency would prefer
to address those problems on a case-by-case basis.  DOT emphasized
that in cases where incumbent airlines are alleged to have used their
contractual arrangements with local airport authorities to block new
entry, the agency will investigate to determine whether the behavior
constitutes an unfair or deceptive practice or an unfair method of
competition.  If so, the agency noted that it will take appropriate
action. 


      PERIMETER RULES
-------------------------------------------------------- Chapter 0:2.3

At LaGuardia and National airports, perimeter rules prohibit incoming
and outgoing flights that exceed 1,500 and 1,250 miles, respectively. 
The perimeter rules were designed to promote Kennedy and Dulles
airports as the long-haul airports for the New York and Washington
metropolitan areas.  However, the rules limit the ability of airlines
based in the West to compete because those airlines are not allowed
to serve LaGuardia and National airports from the markets where they
are strongest.  By contrast, because of their proximity to LaGuardia
and National, each of the seven largest established carriers is able
to serve those airports from its principal hub. 

While the limit at LaGuardia was established by the Port Authority of
New York & New Jersey, National's perimeter rule is federal law.\10
Thus, in our October 1996 report, we suggested that the Congress
consider granting DOT the authority to allow exemptions to the
perimeter rule at National when proposed service will substantially
increase competition.  We did not recommend that the rule be
abolished because removing it could have unintended negative
consequences, such as reducing the amount of service to smaller
communities in the Northeast and Southeast.  This could happen if
major slot holders at National were to shift their service from
smaller communities to take advantage of more profitable, longer-haul
routes.  As a result, we concluded that a more prudent course to
increasing competition at National would be to examine proposed new
services on a case-by-case basis. 


--------------------
\10 The Metropolitan Washington Airports Act of 1986 (49 U.S.C.  Sec. 
49109). 


      MARKETING STRATEGIES
-------------------------------------------------------- Chapter 0:2.4

Our October 1996 report also emphasized that certain marketing
strategies of incumbent airlines, taken together, had created strong
loyalty among passengers and travel agents, making it difficult for
nonincumbents to enter markets dominated by an established airline. 
Two strategies in particular--booking incentives to travel agents and
frequent flier plans--have encouraged business flyers, who represent
the most profitable segment of the industry, to use the dominant
carrier in each market.  Because about 90 percent of business travel
is booked through travel agencies, airlines strive to influence the
agencies' booking patterns by offering special bonus commissions as a
reward for booking a targeted proportion of passengers on their
airline.  Similarly, frequent flier programs have become an
increasingly effective tool to encourage customers' loyalty to a
particular airline.  As such, entry by new and established airlines
alike into a market dominated by one carrier is very difficult.  This
is particularly true given that to attract new customers a potential
entrant must announce its schedule and fares well in advance of
beginning service, thus giving the incumbent an opportunity to adjust
its marketing strategies.  Such adjustments by the incumbent may
include matching low fares offered by new entrant airlines and
selling far more seats at these low fares than are being offered by
the new entrants.  In many cases, we found that airlines chose not to
enter or to quickly exit markets where they did not believe they
could overcome the combined effect of these marketing strategies. 

In October 1996, we reported that the effect of these and other
marketing strategies tends to be the greatest--and fares the
highest--in markets where the dominant carrier's position is
protected by operating barriers.  However, we also noted that the
marketing strategies produced consumer benefits, such as free
frequent flier trips, and concluded that short of an outright ban,
few policy options existed that would mitigate the marketing
strategies' negative impact on new entry. 


   RANGE OF INITIATIVES WILL
   LIKELY BE NEEDED TO ADDRESS AIR
   SERVICE PROBLEMS
---------------------------------------------------------- Chapter 0:3

Because a variety of factors has contributed to higher fares and
poorer service that some small and medium-sized communities in the
East and upper Midwest have experienced since deregulation, a
coordinated effort involving federal, regional, local, and
private-sector initiatives may be needed.  Recent efforts by DOT and
proposed legislation are aimed at enhancing competition.  Additional
public and private activities are currently under way to address
regional and local air service problems.  If successful, these
initiatives would complement, and potentially encourage, the
increasing use of small jets by the commuter affiliates of
established airlines--a trend that has the potential for increasing
competition and improving the quality of service for some
communities. 


      DOT HAS BEGUN EFFORTS TO
      INCREASE COMPETITION
-------------------------------------------------------- Chapter 0:3.1

In response to our October 1996 report, DOT stated in January 1997
that it shared our concerns that barriers to entry limit competition
in the airline industry.  As we mentioned earlier in this testimony,
in October 1997, DOT granted slots to two new entrants at O'Hare and
three new entrants at LaGuardia.  At the same time, DOT set forth its
new policy on slot exemptions, which has been expanded to take into
account the need for increased competition at the slot-controlled
airports.  DOT is currently considering other slot exemptions but
acknowledged that there are only a limited number of exemption
opportunities.  Because some in government and academia believe that
slots at some airports may be underutilized, DOT is also evaluating
how effectively slots are being used at these airports. 

In addition, DOT has expressed concern about potentially
overaggressive attempts by some established carriers to thwart new
entry.  According to DOT, over the past 2 years, there has been an
increasing number of alleged anticompetitive practices--such as
predatory conduct--aimed at new competition, particularly at major
network hubs.  DOT is formulating a new policy to clearly delineate
what is acceptable and unacceptable behavior in the area of
competition between major carriers at their hubs and smaller,
low-cost competitors.  The policy will indicate those factors that
DOT will consider if it pursues formal enforcement actions to correct
unacceptable behavior. 


      PROPOSED LEGISLATION WOULD
      ADDRESS COMPETITION ISSUES
-------------------------------------------------------- Chapter 0:3.2

Over the past several months, a number of bills have been proposed to
promote aviation competition and address some of the problems we
identified.\11 The proposals include creating a mechanism by which
DOT would increase access to the slot-controlled airports by
periodically withdrawing a small portion of the slots that were
grandfathered to incumbent airlines and reallocating them among new
entrant and limited incumbent air carriers.  The proposals also
include requiring DOT to grant exemptions to the perimeter rule at
National under certain circumstances, limiting the time that DOT has
to respond to complaints of predatory behavior, and providing loan
guarantees for commuter air carriers to purchase regional jet
aircraft for use in underserved markets. 


--------------------
\11 For example, see H.R.  2748 (sponsored by Representative J. 
Duncan), H.R.  3160 (sponsored by Representative C.  Schumer), H.R. 
3179 (sponsored by Representative T.  Manton), S.  1331 (sponsored by
Senator J.  McCain), and S.  1353 (sponsored by Senator B.  Frist). 


      REGIONAL, STATE, AND LOCAL
      INITIATIVES UNDERTAKEN TO
      IMPROVE SERVICE
-------------------------------------------------------- Chapter 0:3.3

Recognizing that federal actions alone would not remedy their
regions' air service problems, several airport directors and
community chamber of commerce officials in the Southeast and
Appalachian regions have begun a coordinated effort to improve air
service in their region.  As a result of this effort, several Members
of Congress from these regions in turn organized a bipartisan caucus
named "Special Places of Kindred Economic Situation" (SPOKES).  Among
other things, SPOKES is designed to ensure sustained consumer
education and coordinate federal, state, local, and private efforts
to address the air service problems of communities adversely affected
since deregulation.  Two SPOKES-led initiatives include establishing
a Website on the Internet and convening periodic "national air
service roundtables" to bring together federal, state, and local
officials and airline, airport, and business representatives to
explore potential solutions to air service problems. 

The first roundtable was held in Chattanooga in February 1997.  The
roundtable concluded that greater regional, state, and local efforts
were needed to promote economic growth and attract established and
new airlines alike to serve small and medium-sized markets in the
East and upper Midwest.  Suggested initiatives included (1) creating
regional trade associations composed of state and local officials,
airport directors, and business executives; (2) offering local
financial incentives to nonincumbent airlines, such as guaranteeing a
specified amount of revenue or providing promotional support; and (3)
targeting aggressive marketing efforts by communities toward airlines
to spur economic growth.  A second roundtable was held in Jackson,
Mississippi, in January 1998. 

A regional conference, held in West Virginia in December 1997,
brought together federal and state officials, airport
representatives, and local businesses to discuss ways to restore
quality air service to small communities in the state.  In West
Virginia, for example, Wheeling, Elkins, and Martinsburg have lost
all scheduled air service since deregulation.  Throughout the state,
communities have experienced declines in the number of nonstop
flights, the number of seats available, and the number of jet
flights.  Regional concerns about air service have extended to other
states and conferences were recently held in Iowa and Arizona. 


      PRIVATE-SECTOR INITIATIVES
      ARE ADDRESSING AIR SERVICE
-------------------------------------------------------- Chapter 0:3.4

To grow and prosper, businesses need convenient, affordable air
service.  As a result, businesses located in the affected communities
have increasingly attempted to address their communities' air service
problems.  Perhaps the most visible of these efforts was the
formation of the Business Travel Contractors Corporation (BTCC) by 45
corporations, including Chrysler Motors, Procter & Gamble, and Black
& Decker.  These corporations formed BTCC because they were concerned
about the high fares they were paying in markets dominated by one
established airline.  BTCC held national conferences in Washington,
D.C., in April and October 1997 to examine this problem and explore
potential market-based initiatives.  At the October conference,
attendees endorsed the concepts of (1) holding periodic slot
lotteries to provide new entrant airlines with access to
slot-controlled airports, (2) allowing new entrants and other small
airlines to serve points beyond National's perimeter rule, and (3)
requiring DOT to issue a policy addressing anticompetitive practices
and specifying the time frames within which all complaints will be
acted upon.  While BTCC suspended operations in January 1998, its
lobbying arm--the Business Travel Coalition--plans to continue
efforts to increase competition. 


      AIRLINES' USE OF REGIONAL
      JETS IS IMPROVING SERVICE
-------------------------------------------------------- Chapter 0:3.5

In addition to public and private-sector initiatives, the increasing
use of 50- to 70-seat regional jets is improving the quality of air
service for a growing number of communities.  Responding to
consumers' preference to fly jets rather than turboprops for greater
comfort, convenience, and a perceived higher level of safety,
commuter affiliates of established airlines are increasingly using
regional jets to (1) replace turboprops on routes between established
airlines' hubs and small and medium-sized communities and (2)
initiate nonstop service on routes that are either uneconomical or
too great a distance for commuter carriers to serve with slower,
higher-cost, and shorter-range turboprops. 

Because regional jets can generally fly several hundred miles farther
than turboprops, commuter carriers will be able to link more cities
to established airlines' hubs.  To the extent that this occurs, it
could increase competition in many small and medium-sized communities
by providing consumers with more service options. 


-------------------------------------------------------- Chapter 0:3.6

Mr.  Chairman, this concludes our prepared statement.  We would be
glad to respond to any questions that you or any Members of the
Subcommittee may have. 


PERCENTAGE OF DOMESTIC AIR CARRIER
SLOTS HELD BY SELECTED GROUPS
=========================================================== Appendix I

Airport           Holding entity                 1986              1991              1996
----------------  -----------------  ----------------  ----------------  ----------------
O'Hare            American and                     66                83                87
                   United
                  Other established                28                13                 9
                   airlines
                  Financial                         0                 3                 2
                   institutions
                  Post-                             6                 1                 1
                   deregulation
                   airlines


-----------------------------------------------------------------------------------------
Kennedy           Shawmut Bank,                    43                60                75
                   American, and
                   Delta
                  Other established                49                18                13
                   airlines
                  Other financial                   0                19                 6
                   institutions
                  Post-                             9                 3                 7
                   deregulation
                   airlines


-----------------------------------------------------------------------------------------
LaGuardia         American, Delta,                 27                43                64
                   and US Airways
                  Other established                58                39                14
                   airlines
                  Financial                         0                 7                20
                   institutions
                  Post-                            15                12                 2
                   deregulation
                   airlines


-----------------------------------------------------------------------------------------
National          American, Delta,                 25                43                59
                   and US Airways
                  Other established                58                42                20
                   airlines
                  Financial                         0                 7                19
                   institutions
                  Post-                            17                 8                 3
                   deregulation
                   airlines
-----------------------------------------------------------------------------------------
Notes:  Numbers may not add to 100 percent because of rounding.  Some
airlines that held slots have gone bankrupt, and as a result,
financial institutions have acquired slots. 

Source:  GAO's analysis of data from the Federal Aviation
Administration. 


AIRPORTS WHERE POST-DEREGULATION
AIRLINES REPORTED DIFFICULTY
GAINING COMPETITIVE ACCESS TO
GATES, AND THE LEASING
ARRANGEMENTS AT THOSE AIRPORTS,
1996
========================================================== Appendix II

                                Gates under       Major lease holders
Airpor            Total number  exclusive-use     and dates of lease
t                 of jet gates  leases            expiration
------  ----------------------  ----------------  ---------------------------------------
Charlo                      48  43 (90%)          34 gates leased to USAir until 2007
tte

Cincin                      67  67 (100%)         50 gates leased to Delta with 9 leases
nati                                              expiring in 2015 and 41 expiring in
                                                  2023

Detroi                      86  76 (88%)          64 gates leased to Northwest until the
t                                                 end of 2008, with all but 10 under
                                                  exclusive-use terms

Minnea                      65  65 (100%)         49 gates leased to Northwest with 16
polis                                             leases having expired as of 1996 and on
                                                  month-to-month basis, and remainder
                                                  expiring at various times ranging from
                                                  the end of 1997 to 2015

Newark                      94  79 (84%)          43 gates leased to Continental until
                                                  2013, 36 gates leased to the other
                                                  established airlines until 2018, and 15
                                                  gates reserved primarily for
                                                  international use

Pittsb                      75  66 (88%)          50 gates leased to USAir until 2018
urgh
-----------------------------------------------------------------------------------------
Source:  GAO's presentation of the airports' data, from Airline
Deregulation:  Barriers to Entry Continue to Limit Competition in
Several Key Domestic Markets (GAO/RCED-97-4, Oct.  18, 1996). 



RELATED GAO PRODUCTS
============================================================ Chapter 1

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). 

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). 

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). 

Airline Competition:  Essential Air Service Slots at O'Hare
International Airport (GAO/RCED-94-118FS, Mar.  4, 1994). 

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

Airline Competition:  Options for Addressing Financial and
Competition Problems, testimony before the National Commission to
Ensure a Strong Competitive Airline Industry (GAO/T-RCED-93-52, June
1, 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 Competition:  Weak Financial Structure Threatens Competition
(GAO/RCED-91-110, Apr.  15, 1991). 

Airline Competition:  Fares and Concentration at Small-City Airports
(GAO/RCED-91-51, Jan.  18, 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:  DOT's Implementation of Airline Regulatory
Authority (GAO/RCED-89-93, June 28, 1989). 

Airline Service:  Changes at Major Montana Airports Since
Deregulation (GAO/RCED-89-141FS, May 24, 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. ***