| there are severe
limitations, and that is something that really matters to a significant part of the population and the economy. the state
of federal oversight, in our view, is limited. and, finally,
our observations on the bill--we have full concurrence with the
intent of the legislation, although we have some very specific
concerns on some of the aspects, and i'll repeat those very
briefly. |
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the first area, then, in the state of competition--there's
really two ways to look at this. and if you have the
statement before you, i have a map on page 6 which lists all of the airports hubs that are dominated.
now, the next thing, though, is that domination, by itself,
really is not market power, and it's certainly not the exercise
of market power. so the next thing to turn to is, what's the
evidence of the possible harm that comes from this domination. |
we look at fares, and then we look
at possible exercise of barriers to entry.
on the fares, this issue has been studied for years, and
there is really constant repeated evidence from all the
research that dominated hubs tend to have higher fares. the
most recent study that you, yourself, referred to out of dot,
made it very clear--because it looked within the hubs, and it
looked at the markets that had low-fare competition and didn't.
so the city pares out of the dominated hub. so the evidence
is really conclusive that there are some problems with higher
fares in dominated markets.
but the other side of this is also to look at possible
exercise of market power to restrict entry. and this is something that affects not only the use of airport facilities,
which this bill focuses on, such as gates and counters and
baggage facilities and slots, but also there are marketing and
operating characteristics of airlines where there is the
potential for exercise of market power and the restriction of entry. |
| and we've done many reports on this and, in fact,
concluded several times that there are some real problems.
i could say more, but i'll move on quickly to the second
issue on the status of federal oversight. the airline
deregulation act clearly contemplated an active oversight role,
not only from justice enforcing the antitrust laws, but from
the department of transportation enforcing unfair trade
practices laws. and our review of the kind of exercise of that authority over the past decades is really that very limited
action has been taken.
this basically leads to the third area that i'll cover,
which is comments on the legislation. and what we so fully
concur with is that the real intent of the legislation, as we
read it, is to direct dot to take a more active, affirmative,
pro-competitive oversight role using existing authority, and,
as has been discussed, to some extent, giving them some new
authority. |
what's key about that is that the legislation really
focuses on the single most important impediment to competition,
and that is problems with entry. and that clearly is an important thing to focus on, because the benefits of preserving
and enhancing competition are indisputable, and access to markets is the key factor that's behind the lack of functioning
of competition.
now, the concerns we have really are that the legislation
may be more prescriptive than necessary and, in fact, have more
detailed roles and actions by the department that, themselves,
could further exacerbate some of the competition.
a couple of the points that i mentioned in my statement,
it's actually not clear that the forced divestiture of airport
facilities would even result in real competition in some high-
value markets, because new competitors may or may not have a cost advantage relative to the incumbent. |
| they only have to have under 15 percent of the market share to be able to get
access. and, as we know, not all carriers really compete on price.
now, there's another issue that i know there's a lot of concern on in the congress, and that is that the potential
forced divesture could result in the reduction of service to smaller communities.
let me say, though, that the broader strategy of having an activist dot role, in our view, is not to force more
administrative controls and choosing of winners and losers and
administrative allocation of slots and gates by presumably all-
knowing officials in the department of transportation. it's our
sense that there's really an important urgency to move away
from administrative allocation of assets, which is most
significantly typified by the way slots have been managed for the last 30 years, and to apply more market-based principles to the allocation of scarce facilities. |
what this goes to is actually something senator hutchison
was referring to, and it's really the use of the pricing
mechanism to not only address the critical delays and capacity
shortages and finance that expansion, but really to allocate
the existing space more efficiently and use market forces for that purpose.
i know these are complicated ideas, and i know the amount
of time for the overview remarks is limited, so i'll conclude
there but say that i think the issue, of whether telling dot to be more active amounts to re-regulation, is addressed in the
report that was mandated--the transportation research board--by
the congress on entry and competition in the airline industry. |
|
it brought together some of the best minds. i think they are right on, in terms of the impediments
and the problems in the functioning of competition. and i think
some focus on some of the details to ensure they're truly pro-
competitive and inducing the more strategic pro-competitive
policies that dot should be pursuing is really an important
step forward. chairman and members of the committee:
we appreciate the opportunity to testify on some of the vexing
issues of competition in the commercial aviation industry. extensive
research and the experience of of underscore the
benefits that have flowed to consumers from the 1978 deregulation
of the airline industry, including dramatic reductions in fares and
expansion of . these benefits are attributable to competition--by the entry of new airlines into
industry and established airlines into markets. at the same time,
however, airline deregulation has not benefited everyone; some
communities--particularly small and medium-sized communities in
east and upper midwest--have suffered from relatively high airfares and
a loss of due in to of . |
| passenger airlines have
announced proposed mergers and acquisitions. in may 2000, united
airlines (united) proposed to us airways and divest part of assets to a airline called dc air. more recently,
american airlines (american) has proposed to trans world
airlines (twa) along with assets from united.. .. |