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S. HRG. 105±936 AIRLINE COMPETITION HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED FIFTH CONGRESS FIRST AND SECOND SESSIONS SPECIAL HEARINGS Printed for the use of the Committee on Appropriations ( Available via the World Wide Web: http://www.access.gpo.gov/congress/senate U.S. GOVERNMENT PRINTING OFFICE 53±117 cc WASHINGTON : 1999 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0±16±058362±4 COMMITTEE ON APPROPRIATIONS TED STEVENS, Alaska, Chairman THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont SLADE GORTON, Washington DALE BUMPERS, Arkansas MITCH MCCONNELL, Kentucky FRANK R. LAUTENBERG, New Jersey CONRAD BURNS, Montana TOM HARKIN, Iowa RICHARD C. SHELBY, Alabama BARBARA A. MIKULSKI, Maryland JUDD GREGG, New Hampshire HARRY REID, Nevada ROBERT F. BENNETT, Utah HERB KOHL, Wisconsin BEN NIGHTHORSE CAMPBELL, Colorado PATTY MURRAY, Washington LARRY CRAIG, Idaho BYRON DORGAN, North Dakota LAUCH FAIRCLOTH, North Carolina BARBARA BOXER, California KAY BAILEY HUTCHISON, Texas STEVEN J. CORTESE, Staff Director LISA SUTHERLAND, Deputy Staff Director JAMES H. ENGLISH, Minority Staff Director SUBCOMMITTEE ON TRANSPORTATION AND RELATED AGENCIES RICHARD C. SHELBY, Alabama, Chairman PETE V. DOMENICI, New Mexico FRANK R. LAUTENBERG, New Jersey ARLEN SPECTER, Pennsylvania ROBERT C. BYRD, West Virginia CHRISTOPHER S. BOND, Missouri BARBARA A. MIKULSKI, Maryland SLADE GORTON, Washington HARRY REID, Nevada ROBERT F. BENNETT, Utah HERB KOHL, Wisconsin LAUCH FAIRCLOTH, North Carolina PATTY MURRAY, Washington TED STEVENS, Alaska ex officio Professional Staff WALLY BURNETT ANNE M. MIANO JOYCE C. ROSE PETER ROGOFF (Minority) (II) CONTENTS TUESDAY, OCTOBER 21, 1997 THE IMPLICATIONS OF AIRPORT DEREGULATION Page Statement of Dr. Steven A. Morrison, Department of Economics, Northwest- ern University ...................................................................................................... 1 Prepared statement .......................................................................................... 6 Statement of Jay U. Sterling, Ph.D., C.P.A., associate professor of marketing and logistics, University of Alabama .................................................................. 14 Prepared statement .......................................................................................... 17 Statement of Dr. Fred C. Allvine, professor of marketing, Georgia Institute of Technology ........................................................................................................ 23 Prepared statement .......................................................................................... 26 Statement of Patrick V. Murphy, Deputy Assistant Secretary, Aviation and International Affairs, Department of Transportation ....................................... 35 Restricted airports ................................................................................................... 35 Wright amendment .................................................................................................. 36 DOT position on airport restrictions ...................................................................... 36 Prepared statement of Patrick V. Murphy ............................................................ 37 Statement of Jeff Griffith, Planning Director, Air Traffic Operations, Federal Aviation Administration ...................................................................................... 39 Airspace management ............................................................................................. 39 Economic impact of airport restrictions ................................................................. 40 Fares at airports with capacity or operating restrictions ..................................... 41 Safety in the DFW airport metroplex .................................................................... 41 DOT study of slot-controlled airports ..................................................................... 42 DOT's efforts to enhance competition .................................................................... 42 Questions submitted by Senator Shelby ................................................................ 43 THURSDAY, MARCH 5, 1998 BARRIERS TO AIRLINE COMPETITION Statement of Paul Dempsey, vice chairman, Board of Directors, University of Denver/College of Law ..................................................................................... 49 Prepared statement of Senator Shelby .................................................................. 50 Statement of Senator Lautenberg .......................................................................... 51 Statement of Senator Gorton .................................................................................. 53 Statement of Senator Faircloth .............................................................................. 54 Prepared statement of Paul Dempsey .................................................................... 57 Statement of Mark Kahan, executive vice president and general counsel, Spirit Airlines ....................................................................................................... 111 Prepared statement .......................................................................................... 113 Statement of Michael J. Boyd, the Boyd Group .................................................... 124 Prepared statement .......................................................................................... 126 Statement of Senator Reid ...................................................................................... 139 Statement of John Anderson, Director, Transportation Issues, Resources, Community and Economic Development Division, General Accounting Of- fice ......................................................................................................................... 153 Prepared statement .......................................................................................... 155 Statement of Patrick V. Murphy, Deputy Assistant Secretary, Aviation and International Affairs, Department of Transportation ....................................... 162 Prepared statement .......................................................................................... 164 Gate constraints and fares ...................................................................................... 166 Airline competition .................................................................................................. 167 (III) IV Page Improving aviation competition and service .......................................................... 167 Unfair competitive practices ................................................................................... 168 Enforcement actions ................................................................................................ 169 Airline laws and rules ............................................................................................. 170 Routine studies of fares ........................................................................................... 171 TUESDAY, MAY 5, 1998 AIRLINE TICKETING PRACTICES AND ANTITRUST ENFORCEMENT Statement of Alfred Kahn, professor emeritus, Cornell University .................... 173 Reasons for concern ................................................................................................. 175 Problems with reregulation .................................................................................... 176 Signs of predation .................................................................................................... 178 Dangers of airline alliances .................................................................................... 179 Deregulation versus antitrust law ......................................................................... 180 Closer scrutiny for predation .................................................................................. 181 Preserving competition ............................................................................................ 184 Profit margins and competition .............................................................................. 186 Prepared statement of Alfred E. Kahn .................................................................. 188 Statement of Professor Jenkins, director of the Aviation Institute, George Washington University ........................................................................................ 191 Pricing and yield revenue management ................................................................ 191 Reasons for new entrant failure ............................................................................. 192 Statement of Borden Burr, president, All Seasons Travel Agency ...................... 193 Prepared statement .......................................................................................... 196 Letter from Ivan Michael Schaeffer, president and CEO, Woodside Travel Trust ...................................................................................................................... 198 Statement of Lauraday Kelley, vice president, CruiseLink ................................. 200 Prepared