Domestic Aviation

Service Problems and Limited Competition Continue in Some Markets Gao ID: T-RCED-98-176 April 23, 1998

Airline deregulation has led to lower fares and better services for most air travelers, largely because of increased competition spurred by the entry of new airlines into the industry and established airlines into new markets. However, some airports have not experienced such entry and have seen higher fares and less convenient service since deregulation. This testimony summarizes the findings of earlier GAO work on these fare and service trends, factors contributing to the problems, and steps that the Transportation Department and others have taken to address them.

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 or 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) in contrast, the more widespread 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 from the greater economic growth in these regions as well as from the absence of dominant market positions of incumbent airlines and barriers to entry; (5) operating barriers--slot controls, restrictive gate leases, and perimeter rules--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--referred to as slots--that can occur during certain periods of the day at four congested airports--Chicago O'Hare, Ronald Reagan Washington National, and New York's Kennedy and LaGuardia; (7) a few airlines control most of the slots at these airports, which limits new entrants; (8) 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; (9) similarly, marketing and business alliances between major carriers may affect competition in markets where they dominate; (10) 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; (11) DOT has recently undertaken several efforts designed to enhance competition, such as granting slots to new entrants at two airports with slot controls and issuing draft guidelines that define anticompetitive behavior by airlines that could lead to an investigation and possible fines by DOT; and (12) in addition, recently proposed legislation would seek to increase air service in underserved markets and address barriers to competition and predatory behavior by air carriers.

The Justia Government Accountability Office site republishes public reports retrieved from the U.S. GAO These reports should not be considered official, and do not necessarily reflect the views of Justia.