Domestic Aviation

This testimony discusses air service problems that some communities have experienced since the deregulation of the airline industry in 1978. In summary, a combination of factors continue 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 and operating barriers, such as slot controls and long-term exclusive-use gate leases at hub airports. Little progress has been made in lowering the barriers to entry since GAO first reported on them in 1990. GAO recommended that, in regions that have not seen lower fares as a result of airline deregulation, the Transportation Department (DOT) create a pool of available slots by periodically withdrawing some grandfathered slots from the major incumbents and redistributing them to increase competition. DOT indicated that it would revise its restrictive interpretation of the legislative criteria governing the granting of new slots. In October 1997, DOT announced its decision on some of the pending requests for slot exemptions and set forth its new policy on slot exemptions. DOT is also evaluating how effectively slots are being used and it is formalizing a policy to 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 barriers.

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.