Airline Competition

Airline deregulation has led to lower fares and better service for most air travelers largely because of greater competition spurred by the emergence of new airlines and the expansion of established airlines into new markets. Some airports, however, have not experienced such entry and have seen higher fares or less convenient service since deregulation. This testimony summarizes the findings of earlier GAO work on these fare and service trends, the factors contributing to the problems, and the initiatives by the Transportation Department and others to overcome these problems.

GAO noted that: (1) not all communities have benefited from airline deregulation; (2) certain airports--particularly those serving small and medium-sized communities in the East and upper Midwest--have experienced higher fares and poorer service since deregulation; (3) there are several reasons for the substantial regional differences in fare and service trends, including the dominance of routes to and from these airports by one or two traditional hub-and-spoke airlines and operating barriers, such as long-term exclusive-use gate leases at hub airports; (4) the more widespread entry of new airlines at airports in the West and Southwest since deregulation 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; (5) operating barriers continue to block entry at key airports and contribute to fare and service problems in the East and upper Midwest; (6) to minimize congestion and reduce flight delays, the Federal Aviation Administration has set limits since 1969 on the number of takeoffs or landings that can occur during certain periods of the day at four congested airports; (7) a few airlines control most of these slots at these airports, which limits new entrants; (8) in 1996 GAO reported that the vast majority of gates at six airports in the East and Upper Midwest were exclusively leased to usually one airline, making it very difficult to gain competitive access to these airports; (9) perimeter rules at two major airports limit the ability of airlines based in the West to compete at those airports; (10) these operating barriers, combined with certain marketing strategies by established carriers, have deterred new entrant airlines while fortifying established carriers dominance at key hubs in the East and upper Midwest; (11) increasing competition and improving air service at airports serving communities that have not benefited from deregulation will likely entail a range of federal, regional, local, and private-sector initiatives; (12) the Department of Transportation is undertaking several efforts to enhance competition; (13) recently proposed legislation would address several barriers to competition: slot controls, the perimeter rule, and predatory behavior by air carriers; (14) recent national and regional conferences exemplify efforts to pool available resources to focus on improving the airfares and quality of air service to such communities; and (15) other steps--such as improving the availability of gates--may also be needed to further ameliorate current competitive problems.