Airline Deregulation

GAO reported last year that airline deregulation had led to lower airfares and better service for most air travelers, mainly because of greater competition spurred by the entry of new airlines and the expansion of established carriers into new markets. (See GAO/RCED-96-79, Apr. 1996.) However, some airports--particularly those in the East and upper Midwest--have experienced higher fares and worse service since deregulation. Certain industry practices, such as restrictive gate-leasing arrangements at key hub airports, have contributed to these problems. (See GAO/RCED-97-4, Oct. 1996.) This testimony draws on these two reports and discusses (1) why some airports serving small- and medium-sized communities in the East and upper Midwest have not seen the same level of entry as those serving communities that have benefited from deregulation and (2) GAO's recommendations and other initiatives that may boost competition, reduce fares, and improve the quality of service at those small- and medium-sized community airports.

GAO noted that: (1) the combination of several factors has limited entry at airports serving small and medium-sized communities in the East and upper Midwest; (2) these factors include slower economic growth, harsher weather, and the dominance of routes to and from those airports by one or two established airlines; (3) in addition, operating barriers, such as slot controls, at nearby hub airports and incumbent airlines' marketing strategies, such as special incentives for travel agents and frequent flier plans, have fortified those dominant positions and made it very difficult for nonincumbents to compete effectively; (4) 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 established airlines and barriers to entry; (5) increasing competition and improving air service at airports serving small and medium-sized communities that have not benefitted from fare reductions or improved service since deregulation will likely entail a range of federal, regional, local, and private-sector initiatives; (6) since GAO's October 1996 report, two national conferences have also been held to examine various options; (7) the conferences have spurred several initiatives, including; (a) outreach efforts by communities to better inform airlines of local actions to generate economic growth; and (b) commitments by corporations to support nonincumbents in markets where one or two established carriers dominate; and (8) in combination with such initiatives, commuter airlines' growing use of new regional jets instead of turboprops (propeller aircraft) has the potential to improve the quality of air service in many of the adversely affected small and medium-sized communities.