U.S. Airlines

Weak Financial Structure Threatens Competition Gao ID: T-RCED-91-6 February 6, 1991

GAO discussed the financial condition of the airline industry and its effects on competition. GAO noted that: (1) high debt levels increased substantially for some carriers between 1980 and 1990; (2) some carriers' operating and marketing practices prevented other carriers from competing effectively; (3) such short-term problems as the recession and high fuel prices worsened some carriers' financial problems; (4) financial problems threatened the survival of several carriers; (5) future investment demands for replacing and renovating aircraft could impose further financial strains; and (6) if additional carriers failed to survive the recession, competition would be adversely affected. In addition, GAO noted that several policy incentives could promote competition and financial health by: (1) reducing the price of jet fuel; (2) allowing airlines to retain revenues from the airline ticket tax; (3) reregulation of fares; (4) opening U.S. airlines to more foreign investment; (5) improving access to airports; and (6) reducing barriers resulting from marketing practices. GAO also noted that further delay by the Department of Transportation in considering such reforms may render them ineffective.

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