immediate release -- March 13, 2001.
Contact Bob Brammer, 515-281-6699
remarks of Iowa Attorney General Tom Miller
on Airline Competition
States Senate Committee on Commerce Science and Transportation
S. 415, Aviation Competition Restoration Act
I appreciate the opportunity
to appear before this Committee today. As a point of departure, I believe
we can agree that we are now at a particularly critical juncture in the
nation's efforts to create a competitive airline industry. Travelers and
the business community alike are keenly aware that a major airline consolidation
effort is proposed that would have seemed incredible to industry experts
just a few years ago. If this consolidation isn't halted, we have to consider
the possibility that the entire U.S. air transportation industry may be
in the hands of three or four major companies within the next few years.
The Uneven Impact
Deregulation of the
airline industry has largely been a success with better service and better
prices for the traveling public. Nonetheless, in many areas of the country,
we have witnessed more costly airfares, a reduction in new entrants into
air markets, and lessening competition among the major carriers with their
grasp on key hubs. We have come to understand how fundamentally the lack
of real competition and meaningful access to air service is linked to
the economic development and vitality of our communities and states in
addition to its impact on the leisure traveling public.
Initiatives of State
Over the past three
years I worked closely with over thirty-five state attorneys general who
have learned that the benefits of deregulation have yet to be realized
in significant parts of the states that they represent. Having formed
a multi-state Airline Working Group, the States have taken concrete steps
to ensure access to the advantages of deregulation for their citizens,
especially through the support of an open and fair competitive environment
in which low-cost and new entrant airlines can compete on a level playing
In the course of this
effort we have learned a great deal. We have worked closely with others
interested in these issues, including the Department of Transportation,
the Department of Justice, as well as the Congress. We have also met with
and listened to key consumer and industry groups on numerous occasions.
We filed several sets of comments on proposals that were being considered
by the Department of Transportation for dealing with the problem of unfair
competition against new and emerging small carriers. And we contributed
to the work of the National Transportation Research Board in its study
of these same issues.
Currently we are dedicating
substantial resources to investigating the airline mergers that have been
announced, as well as looking into the possible impact of Orbitz, the
airline owned internet ticket business currently in the formulation stage.
Benefits of Competition
and Increased Airport Access: Specific Examples
In certain fortunate
markets we have learned clear lessons about the benefits of competition
to the consumers and business communities. Competition among the major
airlines in our airports is a good start for our traveling public. We
have also come to realize that low cost carriers can be a real asset for
generating competition. One low cost carrier showing consistent growth
reports that when it enters a new market that fares to the new markets
that it serves are reduced by fifty percent and the passenger traffic
increases by one hundred percent. I think that a few examples effectively
illustrate this point.
Recently upstate New
York has seen the advent of a local low cost carrier which has created
immediate and significant competition for passengers with the result that
some communities went from experiencing some of the highest prices in
the nation to very competitive prices. In the hub city of Atlanta, a low
cost carrier has moderated prices significantly for travelers in many
When the Department
of Transportation has elected to become proactive in encouraging competition
through the distribution of slots, we have witnessed real competitive
results. The provision of 75 slots at Kennedy airport in New York to a
new low cost carrier, for example, has generated competition in numerous
key markets including the traditional high cost area of upstate New York.
On the other hand,
the historical trend can be seen with the acquisition of TWA by American
Airlines. At National Airport in Washington TWA has 49 slots -- all of
which may go to American -- giving that carrier a total of 390 slots at
this airport which is one of the most important in the nation to travelers.
This is precisely the circumstance which this bill is designed to address.
Parenthetically, we believe it is already possible and entirely appropriate
for the Department of Transportation to shift a number of these slots
to competitors, especially low cost carriers which wish to enter the market
but are prevented from doing so by the barriers to entry that we noted
Examples abound of
the barriers to entry presented by a lack of gates, including such constricted
locations as Boston and Philadelphia. When gates have been made available
the results are good for competition and consumers. A low cost carrier
fought for over a year to get gates at Newark where majors held control
of the airport. In a number of instances the gates were not being fully
utilized but were withheld from carriers trying to obtain space to run
their operations. When the gates were finally opened, a reduction in prices
to the markets served by this new competitor were immediately felt by
local travelers. A similar story can be told about another small carrier,
who after a two-year effort finally succeeded at obtaining gates at Detroit,
to the benefit of consumers.
I would like to touch
upon one final point I believe merits this Committee's consideration.
While major airlines challenge the studies showing that consumers pay
a premium at hub airports-- often called fortress hubs --, it seems fairly
clear to most of us that the premiums are real and frequently substantial.
When a competitor, especially a low cost carrier, is allowed to enter
the market and compete for local traffic, the outcome is telling. In Atlanta
a low cost airline has challenged the incumbent carrier in its own hub
and prices to communities served by that airline have dropped substantially.
We feel that this needs to occur elsewhere to provide the benefits of
competition to consumers living in hub cities and this bill helps us do
that. Again, we believe that the DOT can take steps to promote this healthy
competition using its own authority.
S. 415 and Airport
Access: Importance of Slots and Gates to Competition
We come before this
committee in support of efforts by this Congress to pass legislation that
will ensure a fair and equitable opportunity for competing airlines to
obtain slots and gates and thereby access to key airports in our country.
Our involvement with
airline issues has taught us that one of the primary factors that impedes
competition in the industry lies in the ability of airlines to dominate
individual airports. Quite obviously if competing airlines cannot get
access to an airport, competition is impossible, regardless of any other
factor. In our view, airport access is a key to a real competitive marketplace.
Access refers to both the physical space and also the vital time periods
when people want to travel.
Our current system
consists of an unplanned mixture of airport rules, transportation regulations,
lease obligations, and squatters rights, that allow individual carriers
to gain significant power to control access to individual airports. These
conditions allow carriers such as Northwest to dominate the hub at Minneapolis-Saint
Paul, for United and American to dominate O'Hare in Chicago, and for Delta
to dominate Atlanta. And the most remarkable thing about this phenomenon
is that it is effective against even the most powerful competitors in
the industry. Not only making it difficult for small carriers to serve
Chicago, Atlanta and Washington, the lack of access curbs the major carriers'
ability to compete effectively in those markets as well.
is a network business. That is, successful airlines have come to believe
fervently in the idea that their growth and prosperity depends on their
ability to fly everywhere, to offer major corporations and travel agencies
unlimited options for reaching any destination. However, this desire to
create a complete network collides head-to-head with the airport access
We know that true
and effective competition cannot be mandated or regulated. But what the
government can and has the duty to do, is address the artificial structural
barriers to entry created by arcane airport access rules as well as de
facto control of certain airports by the major carriers. We believe that
these tactics are stifling competition.
Support for the General
Principles of S. 415
Airports are public
facilities which must be accessible to all competitors on reasonable terms.
As more and more people crowd the airlines, it is of paramount importance
that the government devise a means of insuring that competitive initiatives
are not thwarted as a result of structural conditions at the airports.
Consequently, we strongly support efforts to create a better system for
the allocation of gates and slots.
As we understand it,
the underpinning of S-415 is twofold:
To grant the Department
of Transportation greater power to approve airline mergers and acquisitions
under new standards, and
to address more effectively the problem of the allocation of slots and
Locus of Enforcement:
DOT and DOJ
First, I want to note
at the outset Transportation Secretary Mineta's recent commitment to place
more emphasis on ways the Department can take a more proactive role in
addressing crucial issues in the airline industry. This is a development
that we welcome.
For some time we have
recognized the potential for DOT to play a significant role in promoting
competition in the market. In January, Secretary Slater and the DOT staff
produced several papers that outlined the authority the Department already
has to address anti-competitive behavior in the industry. In this regard
we believe that the Department of Transportation currently has authority
to take actions in regard slots and gates when their allocation becomes
an impediment to competition. That authority is embodied in current statutes
and has existed for many years. However, to date it has not been employed
To the extent the
S. 415 further develops and enhances the Department's authority specifically
to open access to airports through modest redistribution of slots and
gates, it could move us closer to the open competitive environment we
are seeking. Any legislation that focuses on restructuring the rules that
govern airport access will address one of the most significant impediments
to competition in the industry and the factor that is leading to these
unprecedented consolidation efforts.
I would emphasize
that I do not believe that we should in any way withdraw authority to
review mergers from the Department of Justice. In working closely with
the Justice Department on many investigations of all kinds in the past,
I have come to have great respect for the Department's resources, its
depth of knowledge, and its commitment to applying the appropriate standards
in an objective manner. I would note that it has not been that long since
the Justice Department has had primary responsibility for addressing airline
acquisitions. Changes regarding the primary responsibility for airline
mergers should be made only when a reasonable degree of confidence can
be developed that we are proceeding in the right direction.
Access to Airports:
Opening Slots and Gates to Competition
A principal feature
of the bill is to shift slots and gates to foster real competition in
markets. When the States were participating with the Transportation Research
Board in its examination and evaluation of competition in the airline
industry we began to clearly understand the importance to meaningful competition
of access to airports through the provision of slots and gates. Indeed,
the TRB recommended letting pricing and market-based methods of allocating
slots drive access to markets for competitors to the entrenched major
The TRB went on to
observe that a long history of government involvement with the major carriers
and with the airports themselves had created an artificial barrier to
entry for competitors. Consequently, they suggested that airports should
take steps to assure a sufficient availability of gates to competitors
wishing to enter the market, including allowing for the purchase of gates
from dominant carriers controlling gates at the airport. They additionally
urged that the Department of Transportation monitor the availability of
gates and presumably take steps within its authority to resolve existing
conditions in favor of competition for local passengers.
S. 415 seems to me
to state categorically and unequivocally that access to our key airports
through the provision of gates and slots is crucial to promote competition
that will serve the interest of business and leisure travelers across
the country. Even in the event that this bill does not become law, this
Committee has provided a blueprint for future competition. The dialogue
here today will provide greater awareness and useful information about
how we can open our airports to the clear and convincing benefits of competition.
Time will tell whether these standards work and whether they are effective
in this industry.
I note that there
is still much to learn about the airline industry. There are limits on
our ability to see into the future that we must respect. What we do know
with reasonable assurance is that the lower the barriers are to entry
in the marketplace, the more likely it will be that consumers will find
the choices they prefer at the lowest possible price. Increased access
to our nation's airports through the provision of slots and gates to competitors
will enhance the opportunity for healthy competition that will extend
the benefits of deregulation to communities across the nation. We applaud
your proposals to spur real competition in the airline industry.
Thank you for the
opportunity to appear before you today.
[Iowa Attorney General
Tom Miller is head of the Airline Competition Working Group of 35 State