Domestic Aviation: Barriers Continue to Limit Competition (Testimony,
10/28/97, GAO/T-RCED-98-32).
GAO discussed the barriers that limit aviation competition, focusing on:
(1) the actions the Department of Transportation (DOT) has taken to
address those barriers; and (2) how the Aviation Competition Enhancement
Act of 1997 and other initiatives seek to address those problems.
GAO noted that: (1) a combination of factors continues to limit entry at
airports serving small and medium-sized communities in the East and
upper Midwest; (2) these factors include the dominance of routes to and
from those airports by one or two traditional hub-and-spoke airlines and
operating barriers, such as slot controls and long-term exclusive-use
gate leases at hub airports; (3) in contrast, the more wide-spread 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; (4) GAO has found that
little progress has been achieved in lowering the barriers to entry
since GAO first reported on them in 1990; (5) slot controls continue to
block entry at key airports in the East and upper Midwest; (6) GAO
recommended that DOT take actions to promote competition in regions that
have not experienced lower fares as a result of airline deregulation by
creating a pool of available slots by periodically withdrawing some
grandfathered slots from the major incumbents and redistributing them in
a fashion that increases competition; (7) moreover, GAO suggested that,
absent action by DOT, Congress may wish to consider revising the
legislative criteria that govern DOT's granting slots to new entrants;
(8) GAO also suggested that Congress consider granting DOT the authority
to allow exemptions on a case-by-case basis to the perimeter rule at
National Airport when the proposed service will substantially increase
competition; (9) in response to GAO's recommendations, DOT indicated
that it would revise its restrictive interpretation of the legislative
criteria governing the granting of new slots; (10) on October 24, 1997,
DOT announced its decision on some of the pending requests for slot
exemptions; (11) DOT also is evaluating how effectively slots are being
used and it is formalizing a policy that will identify anticompetitive
behavior as a precursor for formal enforcement action; (12) the proposed
Aviation Competition Enhancement Act of 1997 addresses three barriers to
competition: slot controls, the perimeter rule, and predatory behavior
by air barriers; and (13) increasing competition and improving air
service at airports serving small and medium-sized communities that have
not benefited from fare reductions and/or improved service since
deregulation will entail a range of federal, regional, local, and
private-sector initiatives.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-RCED-98-32
TITLE: Domestic Aviation: Barriers Continue to Limit Competition
DATE: 10/28/97
SUBJECT: Commercial aviation
Airline industry
Competition
Airline regulation
Airports
Restrictive trade practices
Air transportation operations
Economic analysis
IDENTIFIER: LaGuardia International Airport (New York, NY)
Chicago-O'Hare International Airport (Chicago, IL)
Washington National Airport (DC)
John F. Kennedy International Airport (NY)
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Cover
================================================================ COVER
Before the Committee on Commerce, Science and Transportation, U.S.
Senate
For Release
on Delivery
Expected at
2:30 p.m. EST
Tuesday
October 28, 1997
DOMESTIC AVIATION - BARRIERS
CONTINUE TO LIMIT COMPETITION
Statement by Gerald L. Dillingham
Associate Director, Transportation Issues,
Resources, Community, and Economic
Development Division
GAO/T-RCED-98-32
GAO/RCED-98-32T
(348057)
Abbreviations
=============================================================== ABBREV
DOT -
FAA -
BTCC -
SPOKES -
============================================================ Chapter 0
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to testify on the air service problems
that some communities have experienced since the deregulation of the
airline industry in 1978. Airline deregulation has led to lower
airfares 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 April 1996, however, some airports--particularly those
serving small and medium-sized communities in the East and upper
Midwest--have not experienced such entry and thus have experienced
higher fares and less convenient service since deregulation.\1 In an
October 1996 report and testimonies earlier this year, we reported
that certain industry practices, such as restrictive gate-leasing
arrangements at a number of key hub airports in these regions, have
contributed to these problems.\2 We concluded that the full benefits
of deregulation have yet to be realized because of problems with
access to certain airports and the cumulative effect of certain
marketing strategies employed by established airlines. Our testimony
today summarizes findings from our prior work on operating barriers
and recent actions taken by the Department of Transportation (DOT) in
connection with those findings. We will also discuss how the draft
Aviation Competition Enhancement Act of 1997 and other initiatives
seek to address those problems.
In summary:
-- A combination of factors continues to limit entry at airports
serving small and medium-sized communities in the East and upper
Midwest. These factors include the dominance of routes to and
from those airports by one or two traditional hub-and-spoke
airlines\3 and operating barriers, such as slot controls\4 and
long-term exclusive-use gate leases at hub airports. In
contrast, the more wide-spread 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.
-- We have found that little progress has been achieved in lowering
the barriers to entry since we first reported on them in 1990.\5
Slot controls continue to block entry at key airports in the
East and upper Midwest. We recommended that DOT take actions to
promote competition in regions that have not experienced lower
fares as a result of airline deregulation by creating a pool of
available slots by periodically withdrawing some grandfathered
slots from the major incumbents and redistributing them in a
fashion that increases competition. Moreover, we suggested
that, absent action by DOT, the Congress may wish to consider
revising the legislative criteria that govern DOT's granting
slots to new entrants. We also suggested that the Congress
consider granting DOT the authority to allow exemptions on a
case-by-case basis to the perimeter rule\6 at National Airport
when the proposed service will substantially increase
competition.
-- In response to our recommendations, DOT indicated that it would
revise its restrictive interpretation of the legislative
criteria governing the granting of new slots. On October 24,
1997, DOT announced its decision on some of the pending requests
for slot exemptions and set forth its new policy on slot
exemptions. DOT also is evaluating how effectively slots are
being used and it is formalizing a policy that will identify
anticompetitive behavior as a precursor for formal enforcement
action.
-- The proposed Aviation Competition Enhancement Act of 1997
addresses three barriers to competition: slot controls, the
perimeter rule, and predatory behavior by air carriers.
-- Increasing competition and improving air service at airports
serving small and medium-sized communities that have not
benefited from fare reductions and/or improved service since
deregulation will likely entail a range of federal, regional,
local, and private-sector initiatives. Recent national and
regional conferences are examples of efforts to pool available
resources to focus on improving the airfares and quality of air
service to such communities. Other steps--such as improving
access to 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).
\2 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.
\3 These airlines include the nation's seven largest: American
Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines,
TWA, United Airlines, and US Airways.
\4 To minimize congestion and reduce flight delays, the Federal
Aviation Administration has since 1969 set limits on the number of
operations (takeoffs or landings) that can occur during certain
periods of the day at four congested airports--Chicago O'Hare,
Washington National, and New York Kennedy and LaGuardia. The
authority to conduct a single operation during those periods is
commonly referred to as a "slot."
\5 Airline Deregulation: Barriers to Entry Continue to Limit
Competition in Several Key Domestic Markets (GAO/RCED-97-4, Oct. 18,
1996).
\6 Rules governing operations at New York's LaGuardia and
Washington's National airports prohibit flights to and from those
airports that exceed a certain distance.
AIRLINE BARRIERS TO ENTRY
PERSIST AND PREDOMINANTLY
AFFECT COMPETITION IN THE EAST
AND UPPER MIDWEST
---------------------------------------------------------- Chapter 0:1
Our April 1996 report found that since deregulation, fares have
fallen and service has improved for most large-community airports.
Our report also found that substantial regional differences exist 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 larger communities and in the West and Southwest. In
particular, we noted that most low-fare airlines that began
interstate air service after deregulation, such as Southwest
Airlines\7 and America West, had decided to enter airports serving
communities of all sizes in the West and Southwest because of those
communities' robust economic growth. By contrast, low-fare carriers
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 those
regions.
Our review of the trends in fares between 1979 and 1994 for a sample
of 112 small-, medium-sized, and large-community airports\8
identified 15 airports at which fares, adjusted for inflation, had
declined by over 20 percent and 8 airports at which fares had
increased by over 20 percent. 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.\9 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 Appalachia.
Our April 1996 report also revealed similar findings concerning the
trends in service quantity and quality at the 112 airports. 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. However, without the
cross-subsidy present under regulation, fares were expected to
increase somewhat at airports serving small and medium-sized
communities, and carriers were expected to substitute turboprop
service for jet. Over time, 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 since deregulation and deployed turboprops to link the
communities to those airlines' major hubs.
We subsequently reported in October 1996 that operating barriers at
key hub airports in the East and upper Midwest, combined with certain
marketing strategies of the established carriers, 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 Southeast and Appalachia,
one airline controls the vast majority of gates under exclusive-use
leases at Cincinnati, Charlotte, and Pittsburgh. Finally, in the
Northeast, a few established airlines control most of the slots at
National, LaGuardia, and Kennedy. As a result, the ability of
nonincumbents to enter these key airports and serve nearby small and
medium-sized communities is very limited.
Particularly for several key markets in the upper Midwest and East,
the relative significance of those operating barriers in limiting
competition and contributing to higher airfares has grown over time.
As a result, our October 1996 report, which specifically addressed
the effects of slot and perimeter rules, recommended that DOT take
action to lower those barriers, and highlighted areas for potential
congressional action.
--------------------
\7 Before deregulation, Southwest provided intrastate air service
within Texas.
\8 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.
\9 Of the 15 airports, 5 serve small communities, 5 serve
medium-sized communities, and 5 serve large communities.
SLOTS
-------------------------------------------------------- Chapter 0:1.1
To reduce congestion, FAA has since 1969 limited 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, DOT in 1985 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 randomly assigned each slot a
priority number and 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 early 1986 distributed them
in a random lottery to airlines having few or no slots at those
airports.
In August 1990, we reported that a few established carriers had built
upon the favorable positions they inherited as a result of
grandfathering to such an extent that they could limit access to
routes beginning or ending at any of the slot-controlled airports.\10
We also reported that while the lottery was successful in placing
slots in the hands of some entrants and smaller incumbents, the
effect on entry over the long term was disappointing, in part because
many of the lottery winners subsequently went out of business or
merged with an established carrier.
Recognizing the need for new entry at the slot-controlled airports,
the Congress in 1994 created an exemption provision to allow
additional slots for entry at O'Hare, LaGuardia, and Kennedy when DOT
"finds it to be in the public interest and the circumstances to be
exceptional."\11 In October 1996, we reported that the level of
control over slots by a few established airlines had increased even
further (see app. I). We found that the exemption authority, which
in effect allows DOT to issue new slots, resulted in little new entry
because DOT had interpreted the "exceptional circumstances" criterion
very narrowly. DOT had approved applications only to provide service
in markets not receiving nonstop service. We found no congressional
guidance, however, to support this interpretation. As a result,
little new entry occurred at these airports, which is crucial to
establishing new service in the heavily traveled eastern and
midwestern markets.
In our 1990 report, we outlined the pros and cons of various policy
options to promote airline competition. These options included
keeping the Buy/Sell Rule but periodically withdrawing a portion of
slots that were grandfathered to the major incumbents and
reallocating them by lottery. Because the situation had continued to
worsen, we recommended in our October 1996 report 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 also said that if DOT did not
choose to do so, the Congress may wish to consider revising the
legislative criteria that govern DOT's exceptional circumstances
provision so that DOT could consider competitive benefits as a key
criterion in deciding whether or not to grant slots to new entrants.
--------------------
\10 Airline Competition: Industry Operating and Marketing Practices
Limit Market Entry (GAO/RCED-90-147, Aug. 29, 1990).
\11 FAA Authorization Act of 1994, P.L. 103-305, section 206. 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.
PERIMETER RULES
-------------------------------------------------------- Chapter 0:1.2
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 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.\12
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.
--------------------
\12 The Metropolitan Washington Airports Act of 1986 (P.L. 99-591,
sec. 6012).
LONG-TERM, EXCLUSIVE-USE
GATE LEASES
-------------------------------------------------------- Chapter 0:1.3
Our reports have also identified restrictive gate leases as another
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 long-term, exclusive-use gate leases prevent nonincumbents from
securing necessary airport facilities on equal terms with incumbent
airlines. To gain access to an airport in which 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. Since our 1990 report, 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. Nevertheless, our October
1996 report identified several airports in which entry was limited
because most of the gates were under long-term, exclusive-use leases
with one airline.
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. In our 1990 report, we suggested that
one way to alleviate the barrier created by exclusive-use gate leases
would be for FAA to add a grant restriction that ensures that some
gates at an airport would be available to nonincumbents. Because
many airports have taken steps since then to sign less restrictive
gate leases, we concluded in our 1996 report that such a broad grant
restriction was not necessary. However, to address the remaining
problem areas, 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'S RECENT ANNOUNCEMENTS
INDICATE WILLINGNESS TO
INCREASE COMPETITION
---------------------------------------------------------- Chapter 0:2
In response to our October 1996 report, DOT stated in January of this
year that it shared our concerns that barriers to entry limit
competition in the airline industry. The agency indicated that it
would include competitive benefits as a factor when determining
whether to grant slots to new entrants under the exceptional
circumstances criterion. DOT also committed to giving careful
consideration to our recommendation that it create a pool of
available slots and periodically reallocate them, but that it might
choose to pursue alternative means to enhancing competition. On
October 3, 1997, DOT announced that it would soon publicly issue a
number of initiatives aimed at enhancing competition. Two of those
initiatives related to identified problems: providing access to
high-density airports through slot exemptions and investigating
allegations of anticompetitive behavior.
As of mid-October, DOT had 174 requests for slot exemptions, most of
which were for slots at O'Hare and LaGuardia airports. On Friday,
October 24, 1997, DOT issued its decision on some of the requests for
slot exemptions and 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. 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.
Finally, DOT has expressed concern about potentially over-aggressive
attempts by some established carriers to thwart new entry. According
to DOT, over the past 16 months, there has been an increasing number
of allegations of anticompetitive practices, such as predatory
conduct, aimed at new competition, particularly at major network
hubs. DOT is formulating a policy that will more clearly delineate
what is acceptable and unacceptable behavior in the area of
competition between major carriers at their hubs and smaller,
low-cost competitors. This policy is to indicate those factors DOT
will consider in pursuing remedies through formal enforcement
actions.
AVIATION COMPETITION
ENHANCEMENT ACT OF 1997 WOULD
ADDRESS IDENTIFIED ISSUES
---------------------------------------------------------- Chapter 0:3
The proposed Aviation Competition Enhancement Act of 1997 has been
drafted to promote domestic competition. The legislation targets
three of the barriers to competition: slot controls, the perimeter
rule, and predatory behavior by air carriers.
The bill would create a mechanism by which DOT would increase access
to the slot-controlled airports. Under the draft legislation, where
slots are not available from DOT, the Department would be required to
periodically withdraw a small portion of the slots that were
grandfathered to incumbent airlines and reallocate them among new
entrant and limited incumbent air carriers.\13 Slots would not be
withdrawn if they were already being used to serve certain small or
medium-sized airports. This provision of the proposed bill is
consistent with the spirit of our recommendation on slots and
provides a good starting point for the debate about how such a
process should be used and its potential impact. Our recommendation
recognized the sensitivities with withdrawing and reallocating slots
from one airline to another by stating that such a process should
take into account the investments made by the established airlines.
The proposed bill does not specify details about how DOT should
implement this process. Because of the sensitivities in making any
reallocations, DOT would need to carefully consider balancing the
goals of increasing competition with fair treatment of affected
parties.
The bill also addresses the perimeter rule by requiring the Secretary
of Transportation to grant exemptions to the existing 1,250 mile
limit at Washington National Airport under certain circumstances.
There are legitimate concerns about whether or not exemptions to the
rule would negatively affect the noise, congestion, and safety at
Washington National, as well as air service to and from different
communities within the perimeter. The bill addresses these concerns
by specifying that only stage 3 aircraft (aircraft that meet FAA's
most stringent noise standards) can be used and that exemptions would
not be allowed to affect the number of hourly commercial operations
at National Airport. The bill further specifies that the Secretary
certify that whenever exemptions to the rule are granted, noise,
congestion, and safety will not deteriorate relative to their 1997
levels. The Secretary must similarly certify that air service to
communities within the existing perimeter will not worsen.
Finally, the bill also contains a provision intended to limit the
time that DOT has to respond to complaints of predatory behavior. As
we noted previously, because of its concerns in this area, DOT plans
to announce a policy that will more clearly delineate the factors it
will consider in pursuing remedies through formal enforcement
actions.
--------------------
\13 The proposed bill specifies that generally not more than 10
percent of incumbents' grandfathered slots could be withdrawn
initially and not more than 5 percent every 2 years thereafter. It
generally defines a limited incumbent carrier as one holding no more
than 12 slots at an airport.
RANGE OF INITIATIVES WILL
LIKELY BE NEEDED TO ADDRESS AIR
SERVICE PROBLEMS
---------------------------------------------------------- Chapter 0:4
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. In addition to DOT's
planned actions and the proposed legislation, several public and
private initiatives that are currently under way, as well as other
potential options, are discussed below. 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.
REGIONAL, STATE, AND LOCAL
INITIATIVES
-------------------------------------------------------- Chapter 0:4.1
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 recently initiated a coordinated effort to
improve air service in their regions. As a result of this effort,
several members of Congress from the Southeast and Appalachian
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 under way include establishing and developing
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. On February 7,
1997, the first roundtable was held in Chattanooga.
A key conclusion of the February 1997 roundtable was 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
nonincumbents, such as guaranteeing a specified amount of revenue or
providing promotional support; and (3) communities' aggressive
marketing efforts to airlines to spur economic growth.
PRIVATE-SECTOR INITIATIVES
-------------------------------------------------------- Chapter 0:4.2
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 has been 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 BTCC's October conference,
attendees endorsed the concepts of (1) holding periodic slot
lotteries to provide new entrant carriers with access to slot
controlled airports, (2) allowing new entrants and other small
carriers to serve points beyond Washington 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.
REGIONAL JETS
-------------------------------------------------------- Chapter 0:4.3
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 0:4.4
Mr. Chairman, this concludes our prepared statement. We would be
glad to respond to any questions that you or any member 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 United 66 83 87
Other established airlines 28 13 9
Financial institutions 0 3 2
Post-deregulation airlines 6 1 1
--------------------------------------------------------------------------------
Kennedy Shawmut Bank, American, and Delta 43 60 75
Other established airlines 49 18 13
Other financial institutions 0 19 6
Post-deregulation airlines 9 3 7
--------------------------------------------------------------------------------
LaGuardi American, Delta, and US Airways 27 43 64
a
Other established airlines 58 39 14
Financial institutions 0 7 20
Post-deregulation airlines 15 12 2
--------------------------------------------------------------------------------
National American, Delta, and US Airways 25 43 59
Other established airlines 58 42 20
Financial institutions 0 7 19
Post-deregulation airlines 17 8 3
--------------------------------------------------------------------------------
Notes: Numbers may not add to 100 percent due to 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 FAA.
RELATED GAO PRODUCTS
============================================================ Chapter 1
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. ***