Airline Deregulation: Changes in Airfares and Service at Four South
Carolina Communities (Testimony, 03/12/1999, GAO/T-RCED-99-117).

More than two decades have passed since Congress phased out the federal
government's control over airfares and service, relying instead on
competitive market forces to decide the price, the quantity, and the
quality of domestic air service. GAO's testimony addresses the changes
in airfares and service quality at airports serving Charleston and other
communities in South Carolina. GAO also discusses the differences in
airfares charged to business and leisure passengers traveling to and
from Charleston.

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

 REPORTNUM:  T-RCED-99-117
     TITLE:  Airline Deregulation: Changes in Airfares and Service at
	     Four South Carolina Communities
      DATE:  03/12/1999
   SUBJECT:  Commercial aviation
	     Air transportation operations
	     Airports
	     Airline regulation
	     Airline industry
IDENTIFIER:  Greenville-Spartanburg Airport (SC)
	     Charleston Airport (SC)
	     Columbia Airport (SC)
	     Myrtle Beach Airport (SC)
	     Greensboro Airport (NC)
	     Roanoke Airport (VA)
	     Charleston (SC)

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rc99117t GAO United States General Accounting Office

Testimony Before the Committee on Commerce, Science, and
Transportation, U. S. Senate

For Release on Delivery Expected at 10: 00 a. m. EST Friday March
12, 1999

AIRLINE DEREGULATION Changes in Airfares and Service at Four South
Carolina Communities

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

GAO/T-RCED-99-117

  GAO/T-RCED-99-117

Page 1 GAO/T-RCED-99-117

Mr. Chairman and Members of the Committee: Over two decades have
passed since the Congress phased out the federal government's
control over airfares and service, relying instead on competitive
market forces to decide the price, quantity, and quality of

domestic air service. Last week, we issued a report on the changes
in airfares and service quality since deregulation. 1 Our
testimony is based on information that we developed for that
report and specifically addresses the changes in airfares and
service quality at airports serving Charleston and other
communities in South Carolina. We also performed additional

audit work at your request and will discuss the differences in
airfares charged to business and leisure passengers traveling to
and from Charleston. In summary, we found the following:

 Most communities in the United States have benefited from a
decrease in average airfares since 1990. Airfares for passengers
traveling to and from the four South Carolina airports that we
reviewed-- Charleston, Columbia, Greenville- Spartanburg, and
Myrtle Beach-- also declined from 1990 through 1998. Since 1994,
however, the average airfares for Charleston, Columbia, and
Greenville- Spartanburg have increased. The average airfares to
and from these communities are higher than those

for the nation as a whole or for comparably sized communities.
Since deregulation, the overall quality of air service, as
measured by various quantitative (i. e., number of scheduled
departures) and

qualitative (i. e., availability of jet service) factors has
increased at Myrtle Beach and Greenville- Spartanburg. However,
the overall quality of air service has decreased at Charleston and
Columbia.  Airfares charged to business passengers using
Charleston's airport are

much higher than those charged to leisure passengers for flights
of all lengths, and business fares consistently increased from the
second quarter of 1992 through the second quarter of 1998.

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

Page 2 GAO/T-RCED-99-117

Overall Changes in Airfares and Service

Last week, we reported on trends in airfares and the quality of
air service since deregulation for airports serving comparably
sized communities. 2 To determine how fares have changed, we
analyzed data on airfares to and

from 171 airports provided by the airlines to the Department of
Transportation (DOT) from 1990 to 1998. 3 Our findings were
similar to those we reported in 1996-- fares adjusted for
inflation have fallen since deregulation. 4 Average airfares
decreased at 168 of the 171 airports we examined, with airports
serving larger communities tending to experience greater decreases
than smaller ones. Because significant changes could occur over
this span of nearly 9 years, we also examined airfare changes from
1990 through 1993 and then from 1994 through the second quarter of
1998. For this latter period, we found that although average
airfares decreased for passengers flying to or from most airports,
they increased for passengers traveling to and from 39 airports.
Passengers making short trips to or from airports serving larger
communities were most likely to

experience these increases. Although we were able to associate
declines in average airfares with the introduction of competing
service from low- fare carriers, we were unable to account for all
of the factors that can contribute to differences in airfares to
and from airports.

We also reported that the overall quality of air service had
generally improved for most communities since 1978, although
larger communities were more likely to benefit from these
improvements than smaller ones.

Assessing trends in the overall quality of air service is
difficult because many factors contribute to the quality of
service. This assessment requires, among other things, a
subjective weighting of the relative importance of each measure
that is generally considered a dimension of quality. In assessing
the overall quality of air service received by communities in each
2 We analyzed data for 171 airports: 42 serving small communities,
42 serving medium- sized

communities, 42 serving medium- large communities, and 45 serving
large communities. Small communities were those in a metropolitan
statistical area with a population of up to 300,000, medium- sized
communities were those in an area with a population of 300,001 to
600, 000, medium- large communities were those in an area with a
population of 600,001 to 1.5 million, and large communities were
in an area with a population of more than 1.5 million. 3 Data from
the second quarter of 1998 were the most current available at the
time of our work. Throughout the remainder of this report,
references to 1998 airfares should be interpreted as those for the
latest four quarters of airfare data available, beginning with the
third quarter of 1997 and ending with the second quarter of 1998.
We measured changes in airfares using data reported by the
airlines on

revenue yields per fared passenger mile. Thus, we excluded from
our calculations passengers flying on free tickets. Throughout
this testimony, we use the term airfare instead of yield.
Additionally, all data in the testimony have been deflated into
dollars reflecting those for the last four quarters.

4 See the list of related products at the end of this statement.

Page 3 GAO/T-RCED-99-117

of the size categories included in our study, we used four
commonly accepted measures, including the number of (1)
departures, (2) available seats, (3) destinations served by
nonstop and one- stop flights, and (4) jet

departures compared with the number of turboprop departures.
Nonstop service is generally considered preferable to flights
requiring a stop, and jet aircraft are favored over turboprop
aircraft.

Charleston, Columbia, and Greenville- Spartanburg Have Benefited
Only Slightly From Decreases in Airfares

Since 1990, for the 171 airports in our review, average airfares
decreased 21 percent. However, the decrease in average airfares at
the airports serving Charleston, Columbia, and Greenville-
Spartanburg was more modest-- less than 7 percent. Of the airports
that serve South Carolina included as part of our review, only
Myrtle Beach experienced a marked decrease in its

average airfares. 5 Its average decrease of 29.8 percent was
similar in magnitude to the average 21- percent decrease reported
for the other airports in our review. Since 1994, average airfares
decreased only for the airport serving Myrtle Beach. Airports
serving the other three communities-- Charleston, Columbia, and
Greenville- Spartanburg-- were among the 39 in our review where
average airfares increased between 1994 and the second quarter of
1998. Of the 39 communities, Charleston had the third highest
increase-- an increase of 20. 3 percent. Only Greensboro, North
Carolina, with an average

increase of 32 percent, and Roanoke, Virginia, with an average
increase of 24 percent, had airfares increase by a higher
percentage during this period. Figure 1 compares the change in
average airfares for Charleston and other comparably sized
communities. 6 5 In most cases, more than one airport serves each
of these communities. For Columbia, we analyzed

data for Columbia Metropolitan Airport; for Myrtle Beach, we
analyzed data for the Myrtle Beach International Airport; and for
Greenville- Spartanburg, we analyzed data for the Greenville-
Spartanburg Airport.

6 We categorized Charleston as a medium- sized community.

Page 4 GAO/T-RCED-99-117

Figure 1: Percent Change in Average Airfares for Charleston and
Comparably Sized Communities, by Length ofTrip, 1994- 98 (Percent
change, 1990- 98)

\

Source: GAO's analysis of data from Data Base Products, Inc.

Since 1994, for Charleston, Columbia, and Greenville- Spartanburg,
the average increase in airfares for short trips exceeded the
average increase for medium- length trips. 7 For example, for
Greenville- Spartanburg, the average increase for short trips was
25.2 percent, but the average increase for medium- length trips
was 15.5 percent. Table 1 summarizes the percent change in average
airfares by community and length of trip for 1990

through 1998. 8 7 For the purpose of our analysis, we defined
short trips as being equal to or less than 750 miles, medium-
length trips as being between 751 and 2, 000 miles, and long trips
as being 2, 001 miles or more. 8 The overall percent differences
represent weighted averages reflecting passenger distributions at
each airport. For the rest of this report, references to average
airfares refer to the weighted average.

30.5 -8. 6

11.5 -14.4

-2. 1 -8. 1

20.3 -11.7

-20 -10

0 10

20 30

40 Short

Medium Long

Average

Length of trip

Charleston Comparably sized communities

Page 5 GAO/T-RCED-99-117

Table 1: Percent Change in Average Airfares per Passenger Mile by
South Carolina Community and by Length of Trip, 1990- 98

a The percent change from 1990- 98 does not always reflect the
combination of the changes from 1990- 93 and 1994- 98 because of
some airfare decreases between 1993 and 1994. Source: GAO's
analysis of data from Data Base Products, Inc.

Throughout the 1990s, airfares to and from the four airports
serving South Carolina communities have been higher than the
average airfares both for the nation as a whole and for comparably
sized communities. 9 For example, in 1998, travelers flying to or
from Greenville- Spartanburg paid an average of 26.5 cents per
mile. That amount is 81. 8 percent higher than the

national average airfare and 79.5 percent higher than the airfares
paid by passengers at airports serving comparably sized
communities. Travelers flying to or from Charleston paid an
average airfare of 21.3 cents per mile, an amount 46. 0 percent
higher than the national average and 30.2 percent higher than the
average airfares paid by passengers at comparably sized airports.
Only at Myrtle Beach, where passengers paid airfares averaging 16.
6 cents per mile in 1998 were airfares more favorable. Airfares at
that airport were 14. 0 percent higher than the national average
but 0.5 percent lower than the airfares paid at comparably sized
airports. We believe that the average airfares at Myrtle Beach
have compared more favorably than

Percent change in average airfares a Community Length of trip
1990- 98 1990- 93 1994- 98

Charleston Short Medium Long Overall

-8.2 -10.2

4.4 -6.5

-0.7 3.7 9.3 2.3

30.5 11. 5

-2.1 20. 3

Columbia Short Medium Long Overall

-9.6 1.6 14. 6

-3.6 4.2

1.8 15.2

5.0 19. 2

9.8 -4. 0 13. 8

Greenville- Spartanburg Short Medium Long Overall

-1.8 -0.6

8.1 -0.7

8.5 2.2 9.1 6.7

25. 2 15. 5

-2. 3 19. 9

Myrtle Beach Short Medium Long Overall

-34.6 -21.7

-2.4 -29.8

-8.1 -5.2

4.0 -6.3

-12. 5 -6. 6 -2. 2 -10. 5

9 Average airfares for passengers flying to or from South
Carolina's airports are expected to be somewhat higher than the
overall national average because many South Carolina trips tend to
be relatively short. Short trips generally have higher costs per
mile than longer trips, thus accounting for some of the difference
against the national average.

Page 6 GAO/T-RCED-99-117

those at the other South Carolina airports because Myrtle Beach is
principally a vacation destination and it has low- cost
competition. Table 2 identifies the average airfares paid by
passengers at each airport serving the four communities in South
Carolina and table 3 compares the percent

difference in the average airfares paid by passengers in the four
communities with those of comparably sized communities and those
of all U. S. communities included in our review.

Table 2: Average Airfares Paid by Passengers Flying to or From
Communities in South Carolina, 1990- 98 Source: GAO's analysis of
data from Data Base Products, Inc.

Table 3: Percent Difference in Average Airfares Between Airports
Serving Communities in South Carolina and Other Communities, 1990-
98

Source: GAO's analysis of data from Data Base Products, Inc.

Average airfare, in cents per mile Community 1990 1998

Charleston 22. 8 21. 3 Columbia 25. 5 24. 6 Greenville-
Spartanburg 26.7 26.5 Myrtle Beach 23.7 16.6

Percent difference in average airfares Between community and
comparably sized communities Between community and all continental
U. S.

communities Community 1990 1998 1990 1998

Charleston 8.5 30.2 22.5 46. 0 Columbia 21.7 50.5 37.4 68. 8
Greenville- Spartanburg 40.7 79.5 43.7 81. 8 Myrtle Beach 14 -0.5
27.5 14. 0

Page 7 GAO/T-RCED-99-117

Overall Quality of Air Service Has Generally Increased at Myrtle

Beach and Greenville- Spartanburg Although our previous review
found that airports serving smaller

communities were not as likely as those serving larger communities
to experience an overall increase in the quality of air service,
the airport serving Myrtle Beach did experience an increase in
scheduled departures, available seats, and jet service. The
airport serving Greenville- Spartanburg, much like other airports
serving larger communities, also experienced an overall increase
in the quality of air service.

The airports serving Charleston and Columbia, like those serving
other smaller communities, experienced an overall decline in the
quality of air service. For example, from 1978 through 1998, the
airport serving Charleston experienced a 2- percent decrease in
scheduled departures, a

16- percent decrease in available seats, a 10- percent decrease in
nonstop flights, and a 22- percent decrease in jet service. Table
4 provides information on the percent change in the quality of air
service from 1978 through 1998 for each of the four airports in
South Carolina. 10 Figure 2

compares the difference in the quality of air service between
Charleston and other airports serving comparably sized communities
from 1978 through 1998.

Table 4: Percent Change in Measures of Air Service Quality, 1978-
98

Source: GAO's analysis of airline schedule information provided by
the Department of Transportation.

10 All statistics referring to departures in this report are based
on the number of scheduled nonstop flights from each airport.

Percent change in measures of quality, 1978- 98 Community
Departures Seats Nonstop

service One- stop service Jet

service Nonjet service

Charleston -2 -16 -10 19 -22 58 Columbia -50 -28 -67 -33 -19 -78
Greenville- Spartanburg 75 49 9 30 44 285 Myrtle Beach 132 184 71
83 399 -31

Page 8 GAO/T-RCED-99-117

Figure 2: Percent Change in Measures of Air Service Quality at
Charleston and Other Airports Serving Comparably Sized
Communities, 1978- 98 (Percent change, 1978- 98)

Source: GAO's analysis of airline schedule information provided by
the Department of Transportation.

In the Charleston Market, Business Fares Increased While Leisure
Fares Remained Stable

Information on changes in average airfares can provide useful
insights into trends for airfares to or from particular airports.
However, information on average airfares does not reveal how
airfares paid by individuals vary depending on their particular
destination, purpose of travel (i. e., business

or leisure), length of trip, or carrier chosen. Therefore, we
examined some of these variations in much more depth and can now
provide more information on the underlying causes of Charleston's
relatively high

average airfares.

-2 38

-16 15

-10 -7 19

-4 -22

-6 58

167

-40 -10

20 50

80 110

140 170

Departures Seats

Nonstop flights One- stop flights

Jet service Nonjet service

Measures of service

Charleston Comparably sized communities

Page 9 GAO/T-RCED-99-117

Because available airline data do not distinguish the purposes for
which passengers are traveling (i. e., business or leisure), we
estimated changes in airfares paid by Charleston passengers who
purchased business and leisure tickets. We identified
representative airfares for business and leisure passengers for
each carrier in all markets serving Charleston using accepted
analytic techniques to account for the general tendency for
leisure airfares to be less expensive than business airfares. 11

US Airways and Delta Air Lines have dominated Charleston's air
market during this decade. The most recent information indicates
that in 1998, Delta carried 48 percent of passengers and US
Airways carried 41 percent of passengers to and from Charleston.
Against those two carriers' large market presence, there has been
relatively little market entry since 1990. Eastern Airlines
provided service to Charleston until it failed financially, and
American stopped providing service to Charleston in 1994. On the
other hand, Continental and Midway entered Charleston's market, as
did two new airlines-- Air South and AirTran-- neither of which
continues to operate at Charleston. 12 Figure 3 shows the change
in the market share of major airlines, as measured by the percent
of passengers carried, at Charleston from 1990 through 1998.

11 Leisure travelers generally pay less than business travelers do
because they can take advantage of discounts associated with
advance purchase and overnight stay requirements, whereas business
travelers often cannot. To estimate the difference in these types
of airfares, we examined the distribution of airfares in each
market. We assumed that airfares at the 25 th percentile are

representative of airfares paid by leisure travelers and that
airfares at the 75 th percentile are representative of airfares
paid by business travelers. This is the same approach being used
by the Transportation Research Board for its ongoing review of
competitive issues in the airline industry. 12 Last week,
Continental Express, Continental's regional subsidiary, began new
nonstop service to

Houston using a 50- passenger regional jet. This daily service
will complement Continental's current service to Houston, which
stops at Atlanta.

Page 10 GAO/T-RCED-99-117

Figure 3: Percent of Charleston Passengers Carried by Major
Airlines, 1990- 98

Source: GAO's analysis of information from Data Base Products,
Inc.

In 1998, approximately 1. 4 million passengers flew to or from 288
different airports serving the Charleston market. However, more
than half of those passengers flew to or from just 17 airports.
Those 17 airports are generally dominated by either one or both of
two airlines-- US Airways and Delta Air

Lines. There is no low- cost competition in these markets.
Relatively few of these markets are among the nation's largest, as
measured by the number of passenger trips made between those
points of origin and destination. Of all city- pair markets in the
United States in 1998, the market between Charleston and Atlanta
(Charleston's largest market) ranked 830 th ,

that between Charleston and New York City (including all three of
that area's major airports) ranked 440 th , and that between
Charleston and Washington, D. C. (Reagan National), ranked 870 th
in the United States in 1998. Charleston's 17 largest markets
served an average of 193 passengers per day. Figure 4 identifies
Charleston's top 17 markets. 5.0% 10.0%

15.0% 20.0%

25.0% 30.0%

35.0% 40.0%

45.0% 50.0%

Page 11 GAO/T-RCED-99-117

Figure 4: Charleston's Top Origin and Destination Markets

From the second quarter of 1992 through the second quarter of
1998, leisure airfares generally decreased while business airfares
rose significantly. Among trips of various distances, the
difference in airfares

for leisure and business passengers was greatest for short trips.
In 1992, one- way business airfares on short trips originating in
Charleston cost, on average, $0. 46 per mile, while similar
leisure airfares cost $0.22 (a difference of 113 percent). 13 In
1998, one- way business airfares on short trips originating in
Charleston cost, on average, $0.55 per mile, while similar leisure
airfares cost $0.18 (a difference of 207 percent). Figure 5
compares average business and leisure airfares for 1992, 1995, and
1998.

13 Cities included in the short trip category include Atlanta, New
York, Washington, Pittsburgh, and Detroit.

Page 12 GAO/T-RCED-99-117

Figure 5: Average Business and Leisure Airfares, by Length of
Trip, in Constant Dollars, for 1992, 1995, and 1998 (Constant 1998
cents per mile)

Source: GAO's analysis of information from Data Base Products,
Inc.

In summary, at three of the four airports serving communities in
South Carolina that we reviewed-- Charleston, Columbia, and
Greenville- Spartanburg-- airfares have fallen slightly since 1990
but have increased over the last few years. At Charleston and
Columbia, the overall quality of air service has also declined. In
addition, at Charleston, business

fares have increased significantly, particularly to many of the
destinations important to the community's passengers. Only at the
airport serving Myrtle Beach did the community benefit from both a
significant decrease in

average airfares and an increase in the quality of air service. We
believe that Myrtle Beach may have benefited from deregulation
more than the other communities in our review because it is
primarily a leisure destination and has low- cost competition. As
we have reported consistently, competition is the most important
factor in ensuring that the benefits of deregulation are extended
throughout the country.

0.0 10. 0

20. 0 30. 0

40. 0 50. 0

60. 0 Business 1992

Leisure 1992 Business 1995

Leisure 1995 Business 1998

Leisure 1998 Short Medium Long

Page 13 GAO/T-RCED-99-117

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

Page 14 GAO/T-RCED-99-117

Page 15 GAO/T-RCED-99-117

Related GAO Products 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- RCED98-
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/TRCED-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).

Related GAO Products Page 16 GAO/T-RCED-99-117

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 MediumSized 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 TWAOzark Merger (GAO/RCED-88-217BR, Sept. 21, 1988).

Competition in the Airline Computerized Reservation Systems
(GAO/TRCED-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).

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