testimony

Before the U.S. Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition

Regarding Hub Airport Concentration

March 21, 2001

My name is Kevin Mitchell. I am chairman of the Business Travel Coalition (BTC), which represents the business travel interests of major corporate buyers of commercial air transportation services, as well as the 21,000 independent business travelers who are members of the Commercial Travelers Association.

BTC supports proposed legislation that would prohibit any airline with more than 15% of domestic available seat miles to own or operate more than 20% of the slots at LaGuardia or Reagan National airports in any two-hour period.

BTC believes the bill strongly addresses immediate and deep concerns regarding proposed airline mergers. Moreover, this bill also recognizes that the problems of inadequate competition levels, eroding passenger service levels and aviation system gridlock are inextricably linked. Proposed legislation would address all three issues at Reagan National and LaGuardia airports, but its positive impact would be felt countrywide.

Competition

U.S. DOT studies have demonstrated that new competition at congested airports lowers fares; especially for business travelers in short haul markets. Low-fare, new entrant carriers need access to these strategically important airports to augment their financial success and to have the opportunity to grow into national carriers. Importantly, were proposed mergers to be approved by the U.S. DOJ, Continental Airlines, through this bill, would have an alternative to seeking merger partners, thus preventing further industry consolidation.

Some are concerned over the potential, through this legislation, for mid-size communities to lose service as incumbents might choose to retain slots for high density, high yield business markets. However, should proposed mergers be approved, these cities would be at even higher risk of lost service and higher fares as these new mega carriers seek to rationalize routes, hubs and fleets.

Another concern is low-fare new entrants may be effectively locked out of the auctioning process for slots that the legislation calls for because of their high prices. I am hopeful that this Committee will be receptive to proposals that would address these potential problems. These communities would then be assured of continued service under multiple scenarios, and additionally, they would benefit from affordable airfares.

Passenger Service

Proposed legislation would provide new competitive choices at these two important airports and encourage carriers to compete not just on price, but on customer service as well. It would appear that none of the proposed passenger rights bills would be, in the long run, as effective in improving customer service as additional competition would be. Aviation System Gridlock

Reportedly, major incumbent airlines distort efficient use of airport capacity by “sitting on slots” by assigning them to smaller aircraft or business affiliates to keep them out of the hands of competitors. This legislation would encourage the highest and best use of all essential airport facilities including slots and gates. The utilization of larger aircraft would have a positive impact on airport capacity and on aviation system gridlock.

The Main Issue

Members of the Committee, economists agree some markets do not work well; other markets do not work at all. After fours years of national debate over competition levels in commercial air transport, problems are well documented. Proposed airline mergers would gravely injure what functioning competition is left in this market. Your legislation, if enacted, may stave off highly undesirable outcomes.

There are numerous potential short-term negative consequences associated with these mergers. The huge costs of integrating these firms will likely be indirectly financed by business travelers in cities like Rochester, Pittsburgh, Charlotte and other captive markets where the new mega airlines will be able to extract monopoly rents. Likewise, customer service problems will be serious if experience from previous mergers taught us anything.

As serious as the short-term implications are, customers who oppose these combinations are most concerned with their potential long-term negative outcomes. It is assumed by most experienced corporate purchasers, that as a consequence of fewer competitors, business airfares will climb above current record levels.

Of deep concern is that the new airline behemoths will possess massive new resources of all manner--political, financial, airport facilities, network scale and scope, code sharing and strategically targeted frequent flyer, commission override and exclusive corporate discount programs--to attack Southwest and other low-fare airlines on multiple fronts at once. These low-fare carriers have provided what pricing discipline there is in commercial air transport.

Thank you for requesting the views of the customer of the air transportation industry.