Domestic Aviation

An April 1996 GAO report (GAO/RCED-96-79) noted that deregulation of the domestic airline industry has led to lower fares and better service for most air travelers. These benefits stem from greater competition spurred by the emergence of new airlines and the entry of established airlines into new markets. Nevertheless, some airports, mainly in the East and the upper Midwest, have yet to see the lower fares and improved services that deregulation has brought to other markets. An October 1996 GAO report (GAO/RCED-97-4) found that some industry practices, such as restrictive gate-leasing arrangements, impeded entry, particularly at major airports in the East and the upper Midwest. This testimony discusses (1) GAO's findings and recommendations concerning barriers to entry in the airline industry and (2) the Transportation Department's response to the recommendations in GAO's October 1996 report.

GAO noted that: (1) in its October 1996 report, GAO stated that little progress has been achieved in lowering the barriers to entry since GAO first reported on these barriers in 1990; (2) as a result, the full benefits of airline deregulation have yet to be realized; (3) in particular, operating limits in the form of slot controls, restrictive gate leasing arrangements, and perimeter rules continue to block entry at key airports in the East and upper Midwest; (4) several marketing strategies give advantages to the established carriers; (5) these strategies, taken together, continue to deter new as well as established airlines from entering those markets where an established airline is dominant; (6) these strategies' effect tends to be greatest, and airfares the highest, in markets where the dominate carrier's position is protected by operating barriers; (7) GAO recommended that DOT take actions that GAO had previously suggested in 1990 to lower the operating barriers; (8) moreover, GAO suggested that, absent action by DOT, Congress may wish to consider revising the legislative criteria that governs DOT's granting slots to new entrants and consider granting DOT the authority to allow exemptions to National Airport's perimeter rule to increase competition; (9) DOT concurred with GAO's recent findings and expressed concern about "overly aggressive" attempts by established airlines to thwart new entry; (10) to make it easier for new entrants to obtain slots, DOT indicated that it would revise its restrictive interpretation of the legislative criteria governing the granting of new slots; (11) while this is a positive step, additional action will likely be needed because the number of new slots that DOT can grant is very limited; (12) in its report, GAO also recommended that DOT create a pool of available slots by periodically withdrawing a small percentage from the major incumbents at each airport and distribute those slots in a fashion that increases competition; (13) DOT indicated that it is still considering this action; (14) DOT did not agree with GAO's recommendation that the Federal Aviation Administration consider an airport's efforts to make gates available to nonincumbents when making federal airport grant decisions; (15) DOT said that it would rather address this issue on a case by case basis as problems are brought to its attention; and (16) in light of the lack of progress over the past 7 years, however, GAO believes that its recommendations, combined with GAO's suggestions for potential congressional action, offer prudent steps to promote competition in regions that have not experienced the benefits of airline deregulation.