```

[Senate Hearing 106-1053]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 106-1053

   AIRLINE COMPETITION IN THE WAKE OF THE PROPOSED US AIRWAYS/UNITED 
                                 MERGER

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 14, 2000

                               __________

                          Serial No. J-106-89

                               __________

         Printed for the use of the Committee on the Judiciary

                   U.S. GOVERNMENT PRINTING OFFICE
74-755                     WASHINGTON : 2001

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                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
             Manus Cooney, Chief Counsel and Staff Director
                 Bruce A. Cohen, Minority Chief Counsel
                                 ------                                

      Subcommittee on Antitrust, Business Rights, and Competition

                      MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
             Pete Levitas, Chief Counsel and Staff Director
        Jon Leibowitz, Minority Chief Counsel and Staff Director

                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     1
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa, 
  prepared statement.............................................    88
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...     4
Leahy, Hon. Patrick, a U.S. Senator from the State of Vermont....     6
Schumer, Hon. Charles E., a U.S. Senator from the State of New 
  York...........................................................     8
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................    19
Thurmond, Hon. Strom, a U.S. Senator from the State of South 
  Carolina.......................................................     5

                               WITNESSES

Cooper, Mark N., Director of Research, Consumer Federation of 
  America, Washington, DC........................................    44
Edwards, Hon. John, a U.S. Senator from the State of North 
  Carolina.......................................................    16
Goodwin, James E., Chairman and Chief Executive Officer, United 
  Airlines, Chicago, IL..........................................    23
Helms, Hon. Jesse, a U.S. Senator from the State of North 
  Carolina.......................................................    10
Johnson, Robert L., Chairman and Chief Executive Officer, DC Air, 
  Washington, DC.................................................    33
Kahn, Alfred, Emeritus Porfessor of Political Economy, Cornell 
  University, Ithaca, NY.........................................    21
Neeleman, David, Chief Executive Officer, Jetblue Airways 
  Corporation, New York, NY......................................    39
Santorum, Hon. Rick, a U.S. Senator from the State of 
  Pennsylvania...................................................    14
Wellstone, Hon. Paul, a U.S. Senator from the State of Minnesota.    13
Wolf, Stephen M., Chairman, US Airways Group, Inc., Arlington, VA    28

                         QUESTIONS AND ANSWERS

Responses of James E. Goodwin to Questions from:
    Senator DeWine...............................................    77
    Senator Grassley.............................................    78
    Senator Kohl.................................................    79
    Senator Leahy................................................    80
Responses of United/US Airway to Questions from:
    Senator Kohl.................................................    81
    Senator Grassley.............................................    82
Responses of Stephen M. Wolf to Questions from:
    Senator Leahy................................................    84
    Senator DeWine...............................................    84
Responses of Robert Johnson to Questions from:
    Senator Kohl.................................................    85
    Senator Leahy................................................    86
    Senator DeWine...............................................    87

                       SUBMISSIONS FOR THE RECORD

Perkins, Ed, Consumer Advocate for the American Society of Travel 
  Agents, Inc., prepared statement...............................    88
Howlett, C.A., Senior Vice President on behalf of America West 
  Airlines, Inc., prepared statement.............................    89

 
   AIRLINE COMPETITION IN THE WAKE OF THE PROPOSED US AIRWAYS/UNITED 
                                 MERGER

                              ----------                              

                        WEDNESDAY, JUNE 14, 2000

                           U.S. Senate,    
    Subcommittee on Antitrust, Business Rights,    
                                        and Competition    
                            Committee on the Judiciary,    
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:09 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine 
(chairman of the subcommittee) presiding.
    Also present: Senators Schumer, Leahy, Thurmond, Kohl, 
Specter, and Torricelli.

OPENING STATEMENT OF HON. MIKE DeWINE, A U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Senator DeWine. Good morning. Welcome to the Judiciary 
Committee, Subcommittee on Antitrust, Business Rights, and 
Competition, for today's hearing examining the proposed United 
Airlines/US Airways merger.
    A little over a month ago, this subcommittee held an 
oversight hearing on aviation competition, and while we knew it 
was a timely hearing, I have to admit I did not expect to be 
examining this industry again quite so soon, but here we are 
today. We are here today again to examine this time the 
proposed merger between United and US Airways. This is a merger 
of enormous importance, not just on its own terms but because 
of the impact it may have on the airline industry as a whole.
    In its own right, of course, the deal is very significant. 
United is the world's largest airline and it has offered to pay 
more than $11 billion for US Airways, the sixth-largest airline 
in the country. The merger would add approximately 560 routes 
to United's already extensive system, practically double the 
number of United's daily flights, and give the airline 
approximately 27 percent of all domestic passenger seats. To 
put it simply, this largest and strongest of airlines would be 
an even larger and stronger competitor in the world airline 
market.
    This added size would offer certain benefits to some 
consumers, some consumers who will have access to a larger 
network with greater flight frequency and more convenient 
travel options. In addition, the combined airline may extend 
its network to provide greater service in certain locations 
that are currently underserved.
    Of course, as with many mergers, the deal poses a number of 
competitive problems, as well. United and US Airways currently 
go head to head in a number of markets and at a number of 
airports, mostly in the Northeast and Mid-Atlantic area. That 
head-to-head competition would end with this merger. This 
merger would decrease competition in those areas. Some have 
argued that competition would be significantly decreased on 
hundreds of routes, including some where United and US Airways 
are currently the only competitors. For example, in my home 
State of Ohio, this deal will eliminate nonstop competition on 
routes from Dayton and Columbus to Dulles Airport here in 
Washington.
    United and US Airways have attempted to minimize some of 
the most obvious problems up front by proposing to spin off a 
number of routes, slots, and gates at Reagan National Airport 
to a new airline, which would be called DC Air. This airline 
would compete with the newly merged United Airlines and would, 
at least in theory, limit the anticompetitive impact of this 
merger in the Washington, DC., area.
    Many within the aviation industry have criticized the DC 
Air spinoff. Critics believe that the new airline would be too 
reliant on United and US Airways for employees and equipment 
and thus would not compete aggressively against United. Some 
argue that competition would be better served by allocating the 
DC Air slots to other competitors or by having DC Air bid for 
those slots independently. Obviously, the competitive vigor of 
DC Air is of critical importance to the United/US Airways 
merger plan and we intend to examine this issue carefully 
today. We have Robert Johnson of DC Air here with us today and 
we look forward to discussing these issues with him.
    Although concerns have been raised about the details of the 
proposed merger, and as mentioned, many people are critical of 
the DC Air spinoff, those concerns pale in comparison to the 
big-picture implications of this merger. The Justice Department 
can and will look at the details of this deal. The Justice 
Department will examine the route-by-route details of this 
merger and should force divestiture whenever and wherever 
appropriate. The Justice Department should look carefully at DC 
Air to decide whether it can be a legitimate competitive force 
in the market and should, therefore, act accordingly.
    But the most important element of this deal and the issue 
that concerns me the most is the impact this merger will have 
on the structure of airline competition in the future. United 
Airlines is already the largest airline in the country. Despite 
its size, however, the other domestic airlines are currently 
large enough to compete with it. American Airlines and Delta, 
the second and third largest U.S. airlines, have been able to 
stay within shouting distance of United and provide significant 
competition. Northwest, Continental, and US Airways are also 
large enough to provide a competitive alternative for 
consumers.
    But if this deal is approved, the competitive scales would 
tip dramatically in favor of United. US Airways will be 
eliminated as a competitor and United will suddenly become 
much, much bigger than its closest competitors. Infact, United 
would be roughly 50 percent larger than its next largest competitor. 
The United network would effectively cover almost all the domestic 
market, further enhancing its dominance.
    In these circumstances, the other airlines will almost be 
forced to react, and the most logical reaction will be more 
mergers. If this deal is approved, we are likely to see rapid 
consolidation within the industry and could easily see the 
domestic aviation market shrink from six major players to three 
major players in a very short period of time.
    The competitive implications of such dramatic consolidation 
are very significant and must be examined as part of our 
oversight responsibility. We must examine the impact of such a 
consolidation on consumers, on smaller cities, smaller markets, 
and smaller airports. We need to consider whether such 
consolidation might lead to further entrenchment of fortress 
hubs and whether the remaining airlines would compete with each 
other vigorously, or as some fear, merely carve up the market 
and allow one airline to dominate each region in the country. 
We need to consider whether start-up and smaller airlines would 
be able to compete in such an economic environment.
    Further, we must consider the impact of such consolidation 
on existing hub airports. In Ohio, for example, we have major 
hubs in Cleveland and in Cincinnati, and I know that my 
constituents worry about whether both hubs will be maintained 
if other airlines consolidate. This is an important issue 
everywhere, because when hubs close, passengers lose convenient 
access to flights, and just as important, lose the hub-to-hub 
competition that helps to discipline prices on one-stop 
flights. Accordingly, we must examine the implications of 
possible hub consolidation and determine whether or not such 
consolidation will harm consumers.
    Of course, the answers to all these questions are, to some 
extent, speculative. We cannot know for sure how other airlines 
will react to this merger, and we cannot predict with certainty 
that consolidation will lead to consumer harm. But we can be 
sure that the proposed merger between United and US Airways 
will have a lasting and significant impact on the competitive 
environment of the U.S. aviation industry and that we need to 
examine more than just its specific effect on individual 
airline routes. It is critical that policy makers and the 
enforcement agencies scrutinize this proposal carefully and 
extensively to ensure that competition is preserved within the 
industry and that consumers are protected from the impact of 
excessive consolidation.
    Now, before I turn to the ranking minority member of this 
subcommittee, Senator Kohl, I would like to state just one more 
thing. I have been chairing this subcommittee now for 
approximately 3 years, and during that time we have examined 
mergers in a wide range of industries. And almost every time we 
examine a proposed merger, I hear the same explanation: My 
competitors are getting bigger so I need to get bigger.
    I will be very candid. I am worried if this deal goes 
forward that soon we will be right back in this room again for 
another merger hearing, listening to a different airline 
executive tell us the same thing. United is getting bigger so I 
need to get bigger, as well. The problem is that bigger 
airlines mean fewer airlines and that is not necessarily good 
for consumers, and if this deal is bad for consumers, then I 
have a problem with it.
    Accordingly, today, Senator Kohl and I are sending a letter 
to Joel Klein of the Antitrust Division asking him to carefully 
scrutinize this deal. We are asking him to scrutinize the deal 
and to pay special attention to the impact it may have on 
future consolidation in the airline industry.
    Now let me turn to the ranking member of the subcommittee, 
Senator Kohl.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. Thank you, Mr. Chairman. In the last few 
years, our subcommittee has held several hearings on the wave 
of competition now sweeping many areas of the national economy, 
including, most notably, the telecommunications and media 
industries. Now the airline industry looks like it is poised to 
jump on this merger bandwagon, and even if United/US Airways 
does not open the door to what many predict will be a floodgate 
of airline mergers, the combination of these two major airlines 
will clearly create an aviation giant. The merged carrier will 
have nearly 1,000 airplanes making 6,500 daily flights to 
nearly every city in the United States and many cities 
overseas, offering nearly twice as many flights as its closest 
competitor, American.
    For these reasons, the burden is squarely on you, Mr. 
Goodwin and Mr. Wolf, to demonstrate to us on behalf of the 
American people that your deal will enhance competition and not 
harm consumers, and frankly, I am skeptical that you can.
    To be sure, we recognize that this merger has the potential 
to benefit travelers by giving them access to the expanded 
route network to be offered by the combined airline. 
Nonetheless, it also raises serious questions that you will 
need to answer. Will the combined airline's dominance at key 
hub cities, such as Charlotte, Pittsburgh, Philadelphia, 
Washington/Baltimore, and New York City, lead to higher fares 
and reduced service in these markets? Willthe combined company 
reduce the frequency and quality of service to many smaller non-hub 
cities, such as Milwaukee, Buffalo, or Burlington?
    Perhaps more importantly, is this deal likely to lead to 
further consolidation as your competitors decide that they need 
to merge to compete with the breadth of your operations? In my 
opinion, if we reach the point where we get down to only three 
major carriers, then that would be a disaster for consumers, 
and that is why Senator DeWine and I have sent a letter today 
to Joel Klein urging the Justice Department to consider any 
further airline consolidations as part of its evaluation of 
this deal.
    Mr. Goodwin and Mr. Wolf, you have already recognized that 
there is one market where the level of concentration caused by 
this merger is unacceptably high, Washington/Baltimore, and you 
have therefore decided to spin off many of United's and US 
Airways' routes operating out of Washington's Reagan National 
Airport to a new airline, DC Air, to be operated by Robert 
Johnson.
    Now, we all respect the business acumen, skills, and 
independence that Mr. Johnson has displayed in building BET 
into a media powerhouse. Nonetheless, serious questions have 
been raised about the viability of DC Air as an independent 
competitor. We understand that it plans to ``wet lease'' most 
of its fleet from United and US Airways. This means that in 
addition to leasing the actual airplanes, the pilots, ground 
crews, and even management personnel will be United/US Airways 
employees. In this situation, how willing--and if willing, how 
able--will DC Air be to aggressively challenge and undercut 
United on price or service? We hope you can address this 
panel's doubts on this score.
    Several weeks ago, this subcommittee held a hearing 
regarding the current state of airline competition. No one knew 
of this deal at that time. One of our witnesses, Alfred Kahn, 
widely regarded as the father of airline deregulation, pointed 
out how deregulation has brought consumers many benefits, and I 
agree. But he also believes that for deregulation to work, 
there must be a sufficient number of competitive alternatives 
so that consumers have choice when it comes to air travel, and 
I agree here also, because as the chart accompanying me here 
today indicates, you typically have lower prices when you have 
more competitors.
    Fortunately, we have a terrific panel of witnesses here 
today to help sort out these issues. We are especially 
interested to hear if you three, Mr. Goodwin, Mr. Wolf, and Mr. 
Johnson, can sustain your burden to convince us that 
competitive choices will remain in air travel even after this 
merger, and we will give you every opportunity to make your 
case and so we look forward to hearing your views. I thank you, 
Mr. Chairman.
    Senator DeWine. Senator Kohl, thank you very much.
    Let me turn now to Senator Thurmond.

STATEMENT OF HON. STROM THURMOND; A U.S. SENATOR FROM THE STATE 
                       OF SOUTH CAROLINA

    Senator Thurmond. Thank you very much, Mr. Chairman. Mr. 
Chairman, I am pleased that we are holding this hearing today 
on airline competition. United, the world's largest airline, 
recently proposed purchasing US Airways for $4.3 billion. The 
combined company would control about 27 percent of the U.S. 
market and be about 50 percent larger than its next largest 
competitor.
    We must consider whether bigger is better in this case, and 
the answer is not clear. It would be easier and more convenient 
for travelers to reach more destinations on the combined 
airline, especially with United's focus on the West and US 
Airways' focus on the East.
    However, this convenience may also result in higher prices 
because of fewer choices and less competition. For example, 
after the merger, the combined airline would control about half 
of the nonstop daily flights and about half of the flight 
destinations in the capital of my State, in Columbia, SC.
    Indeed, the most significant question is whether this 
merger will lead to a wave of consolidation in the airline 
industry. It is highly possible that other airlines will try to 
merge to keep up with the largest airline in the world, and we 
have already heard rumors of other possible mergers. Widespread 
consolidation in the airline industry probably would not be a 
positive development today. It is clear that having only a few 
players in an industry is not in the best interest of 
consumers. Robust competition has been the reason airline 
prices have historically been low since deregulation. It is 
critical to maintain vigorous competition in our airports, 
including smaller cities.
    I welcome our witnesses to discuss this merger and its 
potential implication on the industry as a whole.
    Mr. Chairman, I have another engagement.
    Senator DeWine. Senator, thank you very much.
    Senator DeWine. Senator Leahy.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman. Thank you for 
calling this hearing. In fact, I appreciate the hearings that 
you and Senator Kohl have had. I also appreciate, if I might 
say, this would probably bring about a recall petition by the 
Republican party in Ohio, but I also appreciate the evenhanded 
way both of you have handled this committee. I think this is a 
serious one where the evenhandedness is going to be important.
    There seems to be a mega-merger in a different industry 
almost every week. Current economic forces are driving rampant 
consolidation, I understand that, and it should be no surprise 
to anybody that the Airline industry is on the bandwagon. But I 
think if you have consolidation in this industry, you need some 
very special attention. Air carriers are an essential part of 
the national transportation network. For rural communities, 
like in my State, they are a critical element for economic 
viability. The airline industry also heavily relies upon an 
infrastructure paid for by passengers, by local communities, 
and by the Federal Government.
    Every significant increase in concentration in this 
industry has to be carefully examined in terms of competition, 
accessibility, and, of course, what most consumers see, air 
fares. So we are here to consider the proposed merger of US 
Airways and United Airlines.
    Now, I see, and I know they will be testifying, Jim Goodwin 
and Stephen Wolf. Both of these are highly respected CEO's who 
run excellent companies, and the companies will argue that 
economic forces require them to merge, and they also argue that 
they are a good fit, except for one city, and that one city, 
though, is the Nation's capital.
    But the merger has important implications in other 
communities at the other end of the line. While US Airways and 
United have proposed to resolve concerns in the Washington hub 
market, I have serious concerns about the effect of the merger 
on Burlington, VT. Even with the spinoff of DC Air, United 
Airlines will control 74 percent of the market share in and out 
of Burlington. So like on that millionaire show, at the 
beginning, you have three lifelines. Well, in Vermont, we have 
three or four lifelines out of town, but this could be taking 
one of them away. As the host of that show says, you take away 
one of the lifelines, you get in a little bit of trouble. My 
gut and years of experience, including 25 years of flying back 
and forth between Washington and Burlington, tell me this 
merger could send us in the wrong direction.
    And I am very concerned that Vermonters have to drive to 
other States just to get reasonable air fares. I mean, look at 
this chart. On this, you can go from--I will take it from 
Washington, DC. You can go to cities near Burlington for $88--
Albany, Hartford, Manchester--on a 7-day advance. It costs $735 
to go to Burlington. Now, if you want to go a little further, 
London, you can cut about $300 off that. It is $419 to London--
and that is not New London, CT, or New London, NH, it is 
London, England--or $402 to Los Angeles. So $400 to Los 
Angeles, $419 to London, or $735 to Burlington, or $88 to 
places that are just a few miles away.
    Now, what I ask is, why does a Vermonter have to travel to 
New Hampshire or Connecticut or New York, nice States so that 
they are, just to get an affordable flight out of town? I 
mention Burlington because Burlington is our main hub. We have 
thousands of people who fly in and out of there every day, a 
lot of them business travelers.
    Now, let us see what happens if you merge. Here is what you 
have. Here we have Vermont passengers. United Airlines/US 
Airways does 75 percent of it, and Vermont seats, 76 percent, 
and Vermont departures, 72 percent. Now, that shows where there 
should be competition because that shows where the demand is.
    They are going to end up with a pretty significant market 
share here. We have actually seen a gradual increase in the 
number of flights, a gradual lowering of prices, and the 
airlines had been going in the right direction. In the fall, we 
are going to have JetBlue flying in from Kennedy Airport. But I 
cannot understand how it could cost less than $735 on a 7-day 
advance if you take away one of the airlines. We have J.J. 
Hamilton and Joe McNeil from Burlington here today. They need 
to have these answers.
    The employees--I should say this, incidentally. I fly all 
over the country. The employees of United Airlines and US 
Airways there in Burlington, VT, are the finest people, the 
nicest people you could ever have in any airline anywhere in 
the country, but they ought to know about it.
    I will put the rest of my statement in the record, Mr. 
Chairman.
    Senator DeWine. It will be made a part of the record.
    Senator Leahy. But I am very concerned about this, as you 
can probably tell.
    Senator DeWine. Senator Leahy, thank you very much.
    [The prepared statement of Senator Leahy follows:]

              Prepared Statement of Senator Patrick Leahy

    Mr. Chairman, thank you for calling this hearing on airline 
competition. There seems to be a megamerger in a different industry 
almost every week.
    Current economic forces are driving rampant consolidation across-
the-board. And to the surprise of no one, the airline industry is on 
the bandwagon. But consolidation in this industry deserves special 
attention. Air carriers are an essential part of the national 
transportation network and for rural communities they are a critical 
element for economic viability.
    The airline industry also heavily relies upon an infrastructure 
paid for by passengers, local communities and the federal government. 
Every significant increase in concentration in this industry must be 
carefully examined in terms of competition, accessibility and, of 
course, airfares.
    We are here this morning to consider the proposed merger of United 
Airlines and US Airways. Both are fine companies whose CEOs are highly 
respected in the airline industry. The companies argue that economic 
forces require them to merge. They also argue that they are a good 
fit--except for one city which happens to be the nation's capital.
    However, this merger has important implications in other 
communities--at the other ``end of the line.'' While US Airways and 
United have proposed to resolve concerns in the Washington hub market, 
I have serious concerns about the effect of the merger on Burlington, 
Vermont. Even with the spin off of DC Air, United Airlines will control 
74 percent of the market share in and out of Burlington.
    It reminds me of that Millionaire show. At the very beginning you 
have three lifelines. Well, in Vermont we have three or four lifelines 
out of town and with this merger, we are taking away one of them. As 
Regis Philbin would tell you, when you take away lifeline, you are in 
trouble.
    My gut and years of experience tell me that this merger would send 
us in the wrong direction. Also, I am sick and tired of the fact that 
Vermonters have to drive to other states just to get reasonable air 
fares.
    Just look at the charts. From the Washington area, you can get to 
cities in states bordering Vermont for $88 round-trip, just by calling 
one week in advance. To fly from Burlington, an back, it would cost 
$735.
    Why should a Vermonter have to travel to New Hampshire or 
Connecticut or New York, just to get an affordable flight?
    My second chart demonstrates how much market share United, merged 
with US Air, will end up with in Burlington, even taking into account 
DC Air.
    In Burlington, we have actually seen a gradual increase in the 
number of flights and a gradual lowering of prices. The airlines have 
been moving in the right direction there. In the fall, we will have 
JetBlue flying in from Kennedy airport to introduce more competition in 
the market. These small steps to get more flights and more options to 
Burlington could be cancelled out by a giant leap in the opposite 
direction. If it costs $735 to fly from Burlington, round trip, how 
could it possibly cost any less if you take one of the airlines away?
    I need a sound answer to that question as do J.J. Hamilton, the 
Director of the Burlington Airport, and Joe McNeil, the city attorney 
in Burlington, who are here today.
    United and US Airways want to spin off a new airline, DC Air, that 
will fly out of National Airport. Robert Johnson is a great businessman 
and I wish him the best in this new endeavor. However, DC Air will find 
that leasing is expensive and I understand that the new airline fleet 
will rely heavily on commuter and regional jets, which might limit the 
ability of this airline to become a low-cost carrier.
    Frankly for Burlington, Vermont, and other ``end point'' 
destinations in the Northeast such as Syracuse and Albany, the spin-off 
of DC Air is not an answer to solving the market dominance that United 
will have in our communities.
    Mr. Chairman, I will have a number of questions for all the 
witnesses for the record.

    Senator DeWine. Senator Schumer.

 STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE 
                       STATE OF NEW YORK

    Senator Schumer. Thank you, Mr. Chairman. First, I want to 
thank you and Senator Kohl for the courtesy of being here today 
as a member of the Judiciary Committee. Also, I agree with Pat 
Leahy in the fine way you have both together conducted this 
committee.
    Let me thank you for holding this hearing on the proposed 
merger of US Airways and United Airlines. The issue is vital to 
New York, which, due to heavy local presence of US Air, will be 
highly affected by the proposed merger. The merger represents 
both an opportunity and a danger for upstate New York and I 
intend to fight to make it an opportunity. I plan to be 
aggressive in ensuring that airline competition in upstate New 
York continues to grow, not decline, under this or any future 
merger.
    Mr. Chairman, my general view is that in an economy that is 
based on free market principles, the government should tread 
cautiously when its actions, such as disapproving an airline 
merger, have a major impact on an industry sector. At the same 
time, the hallmark of free markets is competition and a true 
test of whether this merger should be approved as is, should be 
altered, or should be rejected is whether the result would 
ensure competition for consumers and businesses.
    For me, the key question is whether such a merger would 
have a negative impact on regional air service, particularly in 
upstate New York, where US Airways currently dominates the 
market, and by most people's accounts has served them poorly. 
According to local airport authorities, US Airways controls 38 
percent of the air market in Albany, 39 in Buffalo, 43 in 
Rochester, 40 in Syracuse. United Airlines represents 9 percent 
in Buffalo, 15 in Rochester, 8 in Syracuse, and 9 in Albany. So 
a new merged airline would control 50 percent of the market in 
each of New York's major upstate cities, and in Binghamton, the 
new airline would control a staggering 90 percent of the 
market.
    These cities are already saddled with some of the highest 
airfares in the country. Today, the average price of a round-
trip US Airways ticket from Washington to Albany costs $430. 
Buffalo, it is $342; Syracuse, $398; and $358 to Rochester, and 
that is nothing when you compare it to the walk-up fares. The 
price of a walk-up round-trip on US Airways from National to 
both Albany and Buffalo is $758; Rochester, $692; Syracuse, 
$792, and the answer why is simple, no competition.
    When my constituent from New York, Dr. Kahn, developed this 
whole plan for deregulation, when it came to the two New York 
City airports, to National Airport, and to O'Hare Airport, 
there was no competition because there were slots and the 
airlines have used the slots as their own personal property and 
they have not served the public interest.
    So I am concerned that this proposed merger may make a bad 
situation even worse in upstate New York. I believe the merger 
agreement as currently proposed could lead to even higher fares 
and poorer service to the upstate cities like Albany and 
Buffalo and Rochester and Syracuse, and smaller cities like 
Utica, Binghamton, Elmira, and Jamestown could also face fare 
increases and reduced services. Let me give you a couple of 
examples.
    Daily flights from Dulles to Albany would be cut under the 
merger from 9 to 6; Buffalo, 11 to 8; Rochester, 11 to 7; 
Syracuse, 9 to 6. And while the number of DC Air flights from 
National to upstate would stay the same, I understand that they 
plan to use 50-seat regional jets instead of the typical 112-
seat or 142-seat jets currently used by US Air.
    Now, I have the highest respect, as my fellow panelists do, 
for DC Air's new CEO, Robert Johnson, who is without dispute a 
highly successful and public spirited entrepreneur. I look 
forward to working with him. But let me say up front that I 
have been a longstanding critic of US Airways' high prices and 
poor service and I welcome efforts to do better. But I fear 
that DC Air may not have a cost structure that enables it to 
provide true low-cost service.
    The new carrier plans to use regional jets, which can have 
a higher per-passenger operating cost than larger jets. The 
practice that you mentioned, I think, Mr. Chairman and Senator 
Kohl, of wet leasing and other services from outside high-cost 
carriers can add additional costs to base operations.
    And I share the concerns that many have already voiced 
about the specifics of the proposal to grant 222 of US Airways' 
extremely valuable take-off and landing slots from National 
Airport. These slots represent as much as a quarter to a third 
of National's total slot inventory, and while United is now 
proposing to sell them, I believe they are a public asset.
    I am sympathetic to the argument that DC Air, AirTran, and 
other new entrants and low-cost carriers have made that in 
order to compete with the majors of National, they need a 
critical mass of slots. I agree that perhaps DOT's traditional 
method of doling out just a few slots at a time to a diverse 
bunch of small, undercapitalized carriers, only to see them all 
fail, may not be the best way to go. But boy, oh boy, what 
happens if a year later the new airline decides to sell their 
slots, which they can do under the present agreement, so that 
someone else might take these slots and fly to Dallas or 
Chicago or another city that is well-served with competition. 
We would all regret any decision if that happened.
    Competition does work. JetBlue, New York's new low-cost 
carrier, persuaded me and others that they needed a large 
number of slots in New York to effectively serve upstate, and 
they are serving my good friend Pat Leahy's city in Vermont, as 
well, Burlington. So we fought to convince DOT to grant an 
unprecedented 75 slots at Kennedy in return for the carrier's 
promise to serve Buffalo, Rochester, and Syracuse, and JetBlue 
has delivered on its promise. It is overwhelmingly successful. 
It has even forced US Air to lower some of its prices, which 
they said their cost structure would not allow them to do, 
until JetBlue and good old fashioned American competition came.
    I want to follow that successful model of JetBlue in this 
merger and want whatever carrier receives those slots at 
National, which are worth their weight in gold, to guarantee 
they will provide competitive service out of National Airport 
to Albany, Buffalo, Rochester, and Syracuse.
    So in conclusion, Mr. Chairman, I hope that DOJ and DOT 
will take this opportunity to look at the broader question of 
airline competition. I am not at this point opposing this 
merger. I will oppose it if the interests of upstate New York 
are not protected, and thus far in the agreement, they are not.
    Thank you for holding this hearing and I look forward to 
working with the committee, the airlines, and the 
administration during this important process.
    Senator DeWine. Senator Schumer, thank you very much.
    I think we can see the importance of this hearing and the 
importance of this proposed merger by the fact that we have 
four of our colleagues here today to testify, which is, 
frankly, over the 30 hearings that Senator Kohl and I have 
held, we have not had such an amount of interest from our 
colleagues and I think it does speak to the importance of this 
merger.
    Let me start from my left, and we will go from my left to 
my right, with the Honorable Jesse Helms. Senator Helms, thank 
you very much for joining us.

STATEMENT OF HON. JESSE HELMS, A U.S. SENATOR FROM THE STATE OF 
                         NORTH CAROLINA

    Senator Helms. Mr. Chairman, are you sure you do not want 
to use the early bird approach? He was sitting here before I 
got here.
    Senator DeWine. Well, he was pointing to you, Senator, and 
said you should go first.
    Senator Wellstone. I always agree with Jesse Helms. 
[Laughter.]
    Senator Helms. If anybody believes that, I have a little 
swampland down in Eastern North Carolina I want to sell you. 
But he is a good friend, really. I wish he would do something I 
could agree with. [Laughter.]
    Senator Leahy. Jesse, he just did. He yielded to you.
    Senator DeWine. He yielded to you, Senator, so maybe we can 
all agree on that.
    Senator Helms. OK. If we struggle long enough, we will, I 
am sure. Seriously, Mr. Wellstone, I was teasing and I know you 
were, too.
    I do not come here pretending to be an expert on rates, 
what they should be or what they are not. I have some problem 
with the rates from Raleigh-Durham to Washington. When I came 
to Washington, you could buy a round-trip for two times $39, or 
you could buy a single trip for $39. But you look at the cost 
of gasoline and salaries and all the rest now, and I do not 
propose to be an expert on operating an airline and I do not 
come here as such, but I want to make clear that as one who 
remembers Tom Davis--I do not know whether Senator Edwards is 
old enough to remember or not, but US Air was once Piedmont 
Airlines, which was founded in North Carolina and founded by a 
great friend of mine, and then it became US Air and there it 
went.
    Of course, it is good that you examine the impacts that 
this proposed merger may have within the airline industry, and, 
of course, the business community, and more importantly, I 
suppose, the traveling public. Now, I have a hunch that it is 
going to work out in a positive way because I know the people 
involved and you folks either know them or you will know them 
because you are going to be dealing with them on various 
questions that will be raised in this hearing and otherwise.
    It is important that this proposal, of course, be given 
careful study at DOJ and DOT. This has been done in many 
previous mergers and I think that will always continue.
    Now, what I believe the two agencies, Justice and the 
Department of Transportation, will find is that compared to 
some media speculation that harm to consumers and competition 
may result, this merger is going to prove to be, in large 
measure, exceedingly beneficial to the traveling public and the 
U.S. economy.
    Like you, I have had visits with the principals involved 
and I have talked with them and we have talked with candor. US 
Airways is the largest carrier serving North Carolina and one 
of the 20 top employers in my State. After examining the 
details made available to me, I have concluded that this will 
be beneficial for the citizens of North Carolina and to the 
competitive marketplace in general, but having said that, I 
congratulate and commend you for going into this in some 
detail.
    US Airways as now constituted serves Asheville, 
Fayetteville, Greensboro, Winston-Salem, Wilmington, and, of 
course, Senator Edwards' and my hometown of Raleigh-Durham. Of 
course, its principal operation is its hub in Charlotte.
    By the way, I have got to brag a little bit. Charlotte, NC, 
is now the second-largest banking center in the United States, 
and I never thought that I would see that day, either, because 
I used to be the executive head of the North Carolina Bankers 
Association and Wachovia was by far the biggest bank in terms 
of deposits at that time. Wachovia is no longer there, but it 
is still a strong bank.
    US Airways, I am told, employs about 10,000 people in North 
Carolina with an annual payroll of nearly $700 million and with 
expenditures of over $1 billion a year.
    As I stated at the outset, I think this is going to prove 
to be a positive development, but it is your job to decide 
whether what I think is, indeed, a fact. But I believe you are 
going to find out, knowing the people who are involved and 
their wish to operate above board, I believe you are going to 
be satisfied with this with perhaps some adjustments.
    I have two or three pages more that I have put together, 
but having chaired a committee for a while around this place, I 
am going to ask unanimous consent that the balance of my 
statement be printed in the record.
    Senator DeWine. Senator, that will be made a part of the 
record.
    Senator Helms. I thank you, sir, and I yield to whomever is 
next.
    Senator DeWine. We appreciate your testimony, Senator 
Helms, very much.
    [The prepared statement of Senator Helms follows:]

               Prepared Statement of Senator Jesse Helms

    Mr. Helms. Chairman DeWine, Senator Kohl and other distinguished 
members of this sub-committee, thank you for including me to 
participate in your hearing this morning regarding the proposed merger 
of US Airways and United Airlines.
    It is good that you will examine the impacts that this proposed 
merger may have within the airline industry, business community and 
more importantly on the traveling public.
    I believe that the impact will be a positive one for all concerned.
    It is important that this proposal be given careful study by the 
Department of Justice and the Department of Transportation. This has 
been done regarding many previous mergers.
    What I believe the two agencies will find is that, contrary to some 
media speculation that harm to consumers and competition may result, 
this merger will be exceedingly beneficial to the traveling public and 
the US economy.
    Mr. Chairman, US Airways is the largest carrier serving North 
Carolina, and one of the top 20 employers in my state. After examining 
the details made available to me, I have concluded that this will be 
very beneficial for the citizens of North Carolina and to the 
competitive marketplace in general.
    US Airways serves Asheville, Fayetteville, Greensboro, Wilmington, 
Winston-Salem, and Raleigh-Durham. Of course its principal operation is 
its hub in Charlotte (the second largest banking center in the United 
States, by the way) offering nearly 500 daily flights. US Airways 
employs some 10,000 people in North Carolina with an annual payroll of 
nearly $700 million and with expenditures of more than $1 billion each 
year.
    As I stated at the outset, I consider this proposed merger to be a 
positive development for North Carolina but, obviously the principle 
concern in a merger of this size is the possible impact on jobs. I'm 
gratified that all 40,000 US Airways employees will be offered 
comparable positions in the new airline.
    Additionally, this merger will help North Carolina's burgeoning 
economy grow by providing more flights to more domestic and worldwide 
destinations. Having a hub in Charlotte has indeed helped the Queen 
City's growth and the linkage of Charlotte to United's global network 
will positively impact the Carolinas and the rest of the Southeast.
    US Airways has a domestic North-South service structure with some 
routes to the Midwest, Rocky Mountains, and West Coast. While I admire 
the efforts of US Airways to expand to Europe from Charlotte, it is my 
understanding that US Airways will in the foreseeable future not see 
further international expansion. Links with United's system will give 
Charlotte and the Carolinas access to the economic centers on the West 
Coast, Europe, and Asia.
    Upon completion of the merger United has plans, I'm told, to offer 
non-stop or one-stop service from Charlotte to 249 domestic and 
international destinations, immediately adding non-stop service to 
other high technology centers in Seattle and San Francisco. This will 
amount to 75 additional destinations over US Airways' service today--
and 186 more than are currently available on United.
    Mr. Chairman, the merger of US Airways and United Airlines will 
bring substantial economic benefits to the communities throughout the 
Carolinas.
    Thank you again, Mr. Chairman, and members of this distinguished 
committee.

    Senator DeWine. Senator Wellstone.

STATEMENT OF HON. PAUL WELLSTONE, A U.S. SENATOR FROM THE STATE 
                          OF MINNESOTA

    Senator Wellstone. Thank you, Mr. Chairman and Senator 
Kohl, Senator Leahy. I said to Senator Santorum and say to 
Senator Edwards, I am going to be very brief and make three 
quick points.
    I actually do not think--I appreciate the comments of my 
colleague, I really do, and I think actually the question is 
not so much the individuals. I think we have got some very good 
people that are in management positions. But I think, Mr. 
Chairman, I share your viewpoint. It has to do with the 
question of structure, of competition or lack of competition. I 
think that is the real question. What I am worried about are 
mergers begetting mergers.
    I think this hearing today is going to be viewed with a 
sense of history. Now, I am not trying to be melodramatic. I 
mean that very seriously. I was here testifying on Viacom-CBS 
and I have been on the floor. I have probably given too many 
speeches, Senator Kohl, about the ways in which conglomerates 
have muscled their way to the dinner table in agriculture and 
have pushed producers out. I worry about the concentration of 
power in telecommunications because that is the question of 
flow of information in a democracy. I worried about the Mobil-
Exxon merger. I mean, I feel like I have written enough letters 
and given enough speeches and talked about this over and over 
again for the last couple of years.
    But I really do believe, and it is interesting, I said to 
Senator Santorum, it is interesting, the number of people that 
are concerned about this, and I think the thing that unites us 
is our concern about competition. I mean, I do not think it is 
a good thing for this economy or a good thing for this country 
to have such concentrated economic power. This is a free 
enterprise system. We want to have some free enterprise in the 
free enterprise system. We want to have the competition.
    So I think this hearing is part of a larger question, and 
the reason I think this hearing is going to be viewed with a 
sense of history is that I predict over the next couple of 
years this whole question of these mergers and consolidations 
is going to become a burning issue of American politics and a 
terribly important question for all of us.
    And I think the problem, and I am going to give a Minnesota 
example and that will be my last point, the problem is, and you 
said it, Senator DeWine, it is kind of like everybody says, I 
did not want to do it but I had to do it in order to compete, 
and then it happens, and then somebody else merges and they 
say, we had to do it to compete, and the mergers beget the 
mergers beget the mergers. It seems to me that somebody, 
somewhere, sometime, somehow, someplace has to say, enough.
    Now, if, in fact, the United and US Air deal goes through, 
we now have discussions taking place between Northwest Airlines 
in Minnesota and American Airlines, and what is the argument 
they are making? We are going to have to merge in order to 
compete. And people in Minnesota, and I think you hear this 
from different Senators representing different people in 
different States, are saying, what does this mean for our 
future? Will we still have a hub airport? The employees say, 
are we still going to have our jobs? How is this going to work? 
The business community says, how is this going to affect our 
ability to travel? What are going to be the consequences for 
the people of the State of Minnesota?
    I am here to say that I think that people in Minnesota 
understand very well the dangers of these mergers and this 
consolidation as it affects our communities, the people in our 
State, the jobs, you name it.
    So I will take a somewhat different position. I have 
certainly sent a letter, and I am so pleased that the two of 
you have, given your positions on this committee, to the 
Justice Department, to Joel Klein saying, carefully, carefully 
scrutinize this proposed merger. But for my own part, I believe 
that if the Justice Department is to prevent such a disastrous 
wave of irreversible consolidation in the airline industry, I 
believe it has to move now to block the proposed merger of 
United and US Airways. I want to be up front about that. As a 
Senator from Minnesota, that is the position that I am taking 
today in this hearing and I am going to do everything I can 
with my voice and with what ability that I have as a Senator to 
try to stop this merger from taking place. Thank you.
    Senator DeWine. Senator Wellstone, thank you very much.
    Senator Santorum, thank you for joining us.

STATEMENT OF HON. RICK SANTORUM, A U.S. SENATOR FROM THE STATE 
                        OF PENNSYLVANIA

    Senator Santorum. Thank you, Mr. Chairman. I want to first 
thank you for having this hearing and I want to share Senator 
Helms' comments that it is your responsibility to take a look 
at this and I am certainly glad that you are. I am going to 
take a look at this. I am not an expert in antitrust. I am 
somewhat of an expert on Pennsylvania, so I am going to take a 
look at it from the aspect of how this affects Pennsylvania. 
Frankly, I see a lot of pluses. I see some potential downsides 
and I just wanted to share those with you.
    Number one, we have 17,000 US Airways employees in 
Pennsylvania. I think that may be the largest concentration of 
any State of US Airways employees. We have two hubs, both 
Philadelphia and Pittsburgh. So there probably is not a State 
that is going to be more impacted by this than the Commonwealth 
of Pennsylvania. So I do have some concerns about that.
    Having said that, we have had US Airways be the dominant 
carrier in Pennsylvania for quite some time now. US Airways has 
had its troubled past. I mean, there has been some financial 
difficulty in the past and it has always been sort of a concern 
of those of us in Pennsylvania as to the future of US Airways 
from an economic standpoint as well as the employees' concern 
about the long-term future of US Airways.
    The fact of the matter is that with United now acquiring US 
Airways, that, I think, increases the stability, at least from 
our perspective, of the air carrier in Pennsylvania serving the 
market, and certainly I know in talking to many of the 
employees, they are actually pretty pleased about the fact that 
now they feel like they are with a carrier that is going to be 
there for the long haul, and with the guarantees of employment 
that have been made, I think a lot of the employees in my State 
are very happy with that.
    With respect to service and fares, Pennsylvania has been a 
State that has been subject to having a dominant carrier and 
two hubs, which means relatively high fares. The exchange of 
that is we have a lot of good service. We have great service 
out of Pittsburgh for the size of the city. Philadelphia has 
good service, frankly should have better service given the size 
of the city, and one of the promises that have been made in 
this merger is, in fact, to expand dramatically, particularly 
internationally, the service out of Philadelphia, which I think 
will be beneficial to our region and also expand cargo.
    From a point of view of a user, setting aside fare, and I 
just make comments for the committee and I heard Senator 
Schumer talk about fares, our fares are already high. We 
already have, in a sense, very limited competition within 
Pennsylvania already, and so I do not see this merger really 
fundamentally changing that. I look at it as, are there any 
pluses added to it, and from what I have seen is a discussion 
of an expansion of service in Philadelphia and Pittsburgh, 
particularly the overseas service, which in Pittsburgh is 
something we desperately need and want.
    So I see this as, again, a lot of potential upsides with 
respect to service and, frankly, very limited downside given 
the history of already having high fares and a dominant carrier 
in the Commonwealth, I do not see much difference here with 
respect to that pricing structure and the competition in the 
Commonwealth.
    The biggest concern, frankly, I have is not an economic 
concern but it is the major concern I have and that is the 
impact on several thousand people at a maintenance shop in 
Pittsburgh and at a reservations and training facility in 
Pittsburgh, and I have talked to both of the CEO's about that. 
That is my number one concern about this, as to whether there 
will continue to be a maintenance facility in Pittsburgh. I am 
making no bones about it that that is the principal concern I 
have and want to make sure that that concern is communicated as 
to the impact on jobs in Southwestern Pennsylvania.
    So from your standpoint, obviously, that is not a concern. 
But from my standpoint, that is the major concern I have and 
certainly will be a factor in the long term, whether I support 
this measure or not. Thank you, Mr. Chairman.
    Senator DeWine. Senator Santorum, thank you very much for 
your statement.
    Senator Santorum. I have a statement for the record, if I 
can just put that in.
    Senator DeWine. Your statement will, Senator Santorum, be 
made a part of the record, and all written statements that we 
have received will, of course, be made, without objection, a 
part of the record.
    [The prepared statement of Senator Santorum follows:]

              Prepared Statement of Senator Rick Santorum

    Thank you Chairman DeWine. I appreciate the opportunity to provide 
testimony today on the proposed merger of United Airlines and US 
Airways. As you know, my particular interest in this issue lies in the 
17,000 Pennsylvanians employed by US Airways and the presence of two of 
the airline's hubs in Pennsylvania.
    I understand that the Subcommittee's task today is to examine the 
effects of this proposed merger on airline competition, and this issue 
does concern me. US Airways is the dominant carrrier in Pennsylvania, 
with hubs in both Philadelphia and Pittsburgh, and United is currently 
a major competitor within the state. In fact, the two airlines account 
for more than 65 percent of traffic in and out of Philadelphia and more 
than 75 percent of traffic in and out of Pittsburgh. While I am pleased 
with the potential for increased access for Pennsylvania passengers and 
freight shippers to Asia, Central America, the Carribean, and Europe, I 
have made Mr. Goodwin and Mr. Wolf aware of my concerns with regard to 
competition and pricing. I look forward to reviewing their plans to 
address these issues, as well as others raised during this hearing.
    However, Mr. Chairman, my major concern surrounding this proposed 
merger is the possible adverse effect on the thousands of 
Pennsylvanians who are currently employed by US Airways, and the 
possibility that these jobs could leave Pennsylvania. For instance, 
there are 2,270 maintenance workers at Pittsburgh International 
Airport, one of the finest airports in the world. It is my 
understanding that United recently invested millions of dollrs in a new 
maintenance facility in Indianapolis, which still needs a few thousand 
qualified mechanics. I would like to know before this merger is 
approved whether they intend to move any of my constituents' jobs or 
the extent to which any positions may be eliminated in Pennsylvania.
    Further, I have been contacted by many constituents and local 
government officials about the impact this merger may have upon the US 
Airways training component based in Pittsburgh. This facility employs 
more than 500 workers and has an estimated annual economic impact of 
$80 million on the local economy. Before this merger is approved, I 
would like to know whether the training component and its employees 
will remain in Pittsburgh.
    Finally, because of Philadelphia and Pittsburgh's status as hubs, 
there are thousands of US Airways' flight attendants and pilots who 
make Pennsylvania home. Before this merger is approved, I would like to 
be assured that Philadelphia and Pittsburgh maintain their hub status 
in the new airline.
    As you can see, my constituents and I have a major interest in this 
proposal. We have many questions that need to be answered before we 
sign off on this deal. I again thank the Subcommittee for the 
opportunity to testify and look forward to the public debate that lies 
ahead.

    Senator DeWine. Senator Edwards, thanks for joining us.

 STATEMENT OF HON. JOHN EDWARDS, A U.S. SENATOR FROM THE STATE 
                       OF NORTH CAROLINA

    Senator Edwards. Thank you, Mr. Chairman, and Senators Kohl 
and Specter. Thank you for allowing me to be with you today.
    Senator Helms made reference to this a few minutes ago. 
Obviously, US Air is a major employer in our State, employing, 
I think Senator Helms pointed out, almost 10,000 people in the 
State, almost 8,000 people in the Charlotte area alone. So this 
merger is actually critically important to the people of our 
State. The Charlotte hub is one of the major hubs for US Air. I 
think there are 494 daily flights out of Charlotte and 3,400 
flights out of Charlotte weekly.
    The merger comes at a time when there is increased concern 
among people who fly to the Charlotte hub about competition, 
price competition, or the lack thereof in the Charlotte 
marketplace. I have heard some of the other examples that have 
been given today. Let me give just a couple of examples that 
apply specifically to Charlotte.
    We found a flight, it is on July 4, upcoming July 4, 
originating in Washington, DC, going to Charlotte, then going 
to New Orleans. If you get on that airplane in Washington, DC, 
and fly to New Orleans, the cost of the flight is $220. If you 
get on the same airplane in Charlotte, in other words, roughly 
halfway through the flight, you pay $982. So if you are on the 
flight in Washington, it is $220. If you get on the flight 
midway in Charlotte to New Orleans, it is $982.
    Senator DeWine. So you are better off going to Washington 
first and then starting over.
    Senator Edwards. You are a lot better off. It is a lot 
cheaper, anyhow. When I talked to the two CEO's of the merging 
airlines, first of all, I have to say they were very open and 
very candid in all their conversations with me. It was a very 
helpful meeting. But I asked the question, how can this happen, 
and the answer was, well, probably because there is a 
Southwestern flight out of Washington, DC, going to New 
Orleans. I think that makes the point. I mean, this whole issue 
revolves around the question of competition.
    Let me give just one other example, a flight from 
Washington, DC, to Miami, stopping in Charlotte. Yesterday, the 
fare was $562 if you flew out of Washington. If you do exactly 
the same thing, get on the airplane in Charlotte instead of 
Washington, DC, the fare is $862, $300 more getting on the 
flight midway.
    These are two examples. There are lots of examples that we 
have, and Mr. Chairman, I will provide copies of those examples 
and ask that they be made a part of the record.
    Senator DeWine. They will be, without objection, made a 
part of the record.
    [The information of Senator Edwards was not available at 
presstime.]
    Senator Edwards. The reality is that in many cases, North 
Carolina travelers flying out of the Charlotte hub pay as much 
as 4 times as much as travelers who are flying from other US 
Airways terminals to identical destinations. This is the direct 
result of a lack of price competition in the Charlotte 
marketplace, and without some increase in that competition, 
these prices are not going to go down.
    There is a second concern that we have which this merger 
might affect, which are restrictive airport practices. In my 
State, the Charlotte-Douglas International Airport has 48 jet 
gates and US Airways leases 38 of the 48. In other words, there 
are only 10 that they do not lease.
    In order for an air carrier to compete in that airport, in 
that market, it has to have access to all the airport 
facilities--gates, baggage carousels, and ticket counters. The 
smaller carriers and the new market entrants have expressed 
strong discontent about the particular airport practices that 
are being used there, such as exclusive use gate lease 
agreements and provisions that require that a majority of the 
airlines at an airport approve any new capital expenditure for 
which they will be charged. Obviously, these kinds of practices 
have a direct effect on restricting a small or new carrier's 
ability to compete with established dominant carriers.
    In Charlotte, the leases last until the year 2016. Inmany 
airports, the leases can last more than 20 years, and these sorts of 
deals make it extremely difficult for small airlines to compete with 
the larger more established airlines, and many times the gates are only 
available at a higher cost or at a disadvantageous time.
    So my principal concern with this proposed merger has to do 
with price competition and the potential negative impact this 
could have on competition in general.
    I do want to say a couple of positive things about the 
merger because in my meeting with the CEO's of the two 
companies, I expressed my concern about employees in North 
Carolina and in the Charlotte market, particularly. They have 
assured me that they have a contractual responsibility to not 
lay off any of those non-managerial employees for a period of 2 
years. I think they have made a public commitment that, 
essentially, they have no plan to lay anyone off, and I take 
them at their word. I believe what they say and that does help 
address some of the concerns I have about folks in North 
Carolina who are employed by US Air.
    The reality is that there is a real potential in North 
Carolina for the Charlotte hub to grow as a result of this 
merger and as a result of access to destinations we presently 
do not have access to, and that can have an enormously positive 
economic benefit to not only Charlotte but to all of North 
Carolina. So we know that there is real potential here for 
spurred economic development in Charlotte and all of the State 
of North Carolina.
    I think actually the airlines have done another good thing 
which I have not heard mentioned today, which is they have 
agreed to freeze their three major structural rates for a 
period of 2 years, and as I understand it, all the rates 
basically flow off those structural rates, and I think that is 
a good thing. It is a positive thing. It is something they did 
voluntarily and I think it is something they should be 
commended for.
    But the reality is, we cannot turn a blind eye to the 
presently existing lack of price competition in the Charlotte 
marketplace, and freezing fares in Charlotte only has the 
effect of locking in already existing high prices.
    So I hope that this hearing and your committee will explore 
the impact of this merger on competition and how the Department 
of Justice and FAA review of the merger might help consumers, 
which obviously is something we are very concerned about. Mr. 
Chairman, I thank you very much.
    Senator DeWine. Senator Edwards, thank you very much.
    Before I turn to Senator Specter for an opening statement, 
do any of my colleagues have any questions for the panel?
    [No response.]
    Senator DeWine. We appreciate very much your coming. It has 
been very, very helpful. And again, the fact that the four of 
you took the time to be here really sends a signal, I think, of 
the importance of this, not only the hearing, but more 
importantly, this proposed merger. So we appreciate it very 
much. Thank you.
    As our next panel comes up, let me turn to Senator Specter 
for any opening statement that he would like to make.
    Senator Specter.

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE 
                        OF PENNSYLVANIA

    Senator Specter. Thank you, Mr. Chairman. The proposed 
merger between US Airways and United has enormous effect on my 
State. There are some 17,000 employees. There have been 
enormous investments in both the Pittsburgh and Philadelphia 
airports and substantial reliance on US Airways. There are very 
complex questions as to what impact this merger, if approved, 
would have on the national scene. There are the rumbles about 
Continental and Northwest getting together and American and 
Delta getting together, and I think there is little doubt when 
you take the biggest carrier and one of the biggest carriers 
and put them together that there is going to be a very profound 
impact in the entire industry.
    There is enormous concern at the outset on size. We have 
been warned about that since the days of Thomas Jefferson and 
Justice Brandeis and we have seen the problems which have been 
brought about by the Microsoft situation, a lot of commentary 
in the publications today about oligopoly. There is a suit 
involving a small carrier which tried to go into the market in 
Wichita, KS, to compete with American Airlines on routes into 
Texas. When they did that, American Airlines lowered their 
prices. Predatory practices drove the small competitor out of 
business.
    I am taking a look in some detail to see what kind of 
competition there is or what companies who try to enter the 
markets in Pennsylvania. US Air is the sole carrier between 
Pittsburgh and Philadelphia. There have been a few companies 
which have tried to enter the market--East Wind, Pro Air, 
Vanguard. East Wind was unsuccessful, but there is always a 
risk on size and on predatory practices, which we have seen 
really a great deal of in the American economy, and that is 
something we have to examine very, very closely.
    I am sorry to have arrived at this hearing a little late. I 
was part of the U.S. delegation to the funeral services 
yesterday of President Assad in Damascus. We arrived back about 
1:00 a.m. this morning and then found C-SPAN had these 
hearings, so it was a very late night and I heard some of the 
comments yesterday. I heard a question raised about United. I 
think it was Mr. DeFazio who raised the question about United 
having the worst record of service and the worst on-time 
record. I did not hear an answer from Mr. Goodwin last night, 
but he may have answered it at 3:00 or 4:00 a.m., I am not 
sure. But if he did not, he will have a chance to today.
    I heard the question raised again from Mr. Wolf about what 
is going to happen with the maintenance center in Pittsburgh, 
and it may be a little parochial, but amaintenance service of 
that size with those many jobs involved is something of great concern 
to a Pennsylvania Senator. We have been trying to get an answer from US 
Airways for a long time, and Senator Santorum and I met with Mr. Wolf 
and Mr. Goodwin on May 25 and raised the question again and were told, 
understandably at that time, that in 2 days they had not had a chance 
to have an answer. It was a closely guarded merger matter. Well, it has 
been some time since then and I think Pittsburgh is entitled to an 
answer. I do not know if this subcommittee is entitled to an answer, 
but I think Pittsburgh is entitled to an answer.
    When we have had acquisitions and joinders, we had an 
effort by Norfolk Southern to acquire Conrail in 1984, and in 
this hearing room, I think, we stopped the acquisition, I think 
for the benefit of Pennsylvania, certainly, and the benefit of 
America. Then Conrail has been dismantled since between CSX and 
Norfolk Southern. I have a lot of problems with what has 
happened there.
    Some of the recommenders of this matter told us about First 
Union, which came into Philadelphia 2 years ago. A week ago 
Sunday, the Philadelphia Inquirer had a story about how First 
Union gave the worst consumer service in the country, quite a 
remarkable record, for the entire country.
    So these are matters which are very, very much on my mind 
and I intend to have hearings in Pittsburgh and Philadelphia 
and Allentown. This is a big, big matter for Pennsylvania and I 
think it is a big, big matter for America, so I thank you for 
the chance to make this statement, Mr. Chairman.
    Senator DeWine. Thank you, Senator Specter.
    Senator Specter. We are seeking a quorum on Governmental 
Affairs. This is an operation, this building, where roller 
skates are not sufficient. You have to have elevated capacity, 
as well. But I will return.
    Senator DeWine. Senator Specter, thank you very much.
    Let me invite our second panel to come up. We appreciate 
all of you being here and I will begin to introduce you as you 
come up.
    James Goodwin is Chairman and Chief Executive Officer of 
UAL Corporation and United Airlines. He was previously 
President and Chief Operating Officer with responsibility for 
all operational groups.
    Stephen Wolf is the Chairman of US Airways Group. 
Previously, Mr. Wolf served from 1987 through July 1994 as 
Chairman and CEO of United Airlines.
    Robert L. Johnson is the Chairman and CEO of DC Air. Mr. 
Johnson is also the Chairman and CEO of BET Holdings. He also 
served on the US Airways board and is a member of the Board of 
Governors for the Rock and Roll Hall of Fame in Cleveland, OH. 
I had to get that in there, Mr. Johnson.
    David Neeleman is Chief Executive Officer of JetBlue 
Airways Corporation. He was President and co-founder of Morris 
Air, which was acquired by Southwest Airlines in December 1993.
    Professor Alfred Kahn is an Emeritus Professor of Political 
Economy at Cornell University and a special consultant to 
National Economic Research Associates. He is also the former 
Chairman of the Civil Aeronautics Board. He testified before 
this committee a short time ago. We welcome him back.
    Mark Cooper is Director of Research at the Consumer 
Federation of America and President of Citizens Research. At 
the Consumer Federation, Mr. Cooper has responsibility for 
energy and telecommunications policy and analysis as well as 
internal consulting duties for survey research and economic 
analysis.
    We welcome all of you. We apologize for the delay, but that 
is the nature of the Senate. We are here now ready for your 
testimony, which we appreciate very much.
    I am going to go out of order and I am going to start with 
Professor Kahn, and the reason I am going to do that is that he 
is due in Congressman Henry Hyde's Judiciary Committee in the 
U.S. House of Representatives any moment, and we do not want to 
lose his testimony. We are going to ask him to go first and 
then we will go back to the regular order, which will be 
starting with Mr. Goodwin.
    Professor Kahn, thank you very much, and we hope you can 
stay for questions, but if you have to go, we will understand. 
Thank you for coming.

    PANEL CONSISTING OF ALFRED KAHN, EMERITUS PROFESSOR OF 
  POLITICAL ECONOMY, CORNELL UNIVERSITY, ITHACA, NY; JAMES E. 
GOODWIN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, UNITED AIRLINES, 
CHICAGO, IL; STEPHEN M. WOLF, CHAIRMAN, US AIRWAYS GROUP, INC., 
ARLINGTON, VA; ROBERT L. JOHNSON, CHAIRMAN AND CHIEF EXECUTIVE 
    OFFICER, DC AIR, WASHINGTON, DC; DAVID NEELEMAN, CHIEF 
 EXECUTIVE OFFICER, JETBLUE AIRWAYS CORPORATION, NEW YORK, NY; 
 AND MARK N. COOPER, DIRECTOR OF RESEARCH, CONSUMER FEDERATION 
                   OF AMERICA, WASHINGTON, DC

                    STATEMENT OF ALFRED KAHN

    Mr. Kahn. Thank you, Mr. Chairman. I am honored by your 
second invitation and grateful that it gives me an opportunity 
to repay you a debt. I ran over my allotted time last time by 
several minutes. I will try to give you some of that back 
today.
    As you know, last time, I testified about the question of 
whether the industry was prone to engaging in predatory or 
unfairly exclusionary practices and we talked a little about 
the DOT rules. I think those are terribly important. We are now 
talking about----
    Senator DeWine. Professor, could you pull the microphone 
just a little closer?
    Mr. Kahn. I am sorry.
    Senator DeWine. We want to hear and we also want everyone 
in the room to be able to hear, as well.
    Mr. Kahn. The subject last time was behavioral rules for 
the industry and I think antitrust has these two essential 
aspects, one, control over illegitimate behavior, and second, 
being alert to changes in the structure of an industry that may 
threaten competition. So I will turn with only a few brief 
remarks to the proposed merger.
    Let me point out right away that I do not have a settled 
opinion about the merits of the merger. I am going to suggest 
three areas of inquiry, however, that I am sure the Department 
of Justice will want to undertake, some of which you have 
already identified.
    The first is, of course, the possibility that there is 
direct competition on important routes between the two 
carriers. The Department of Justice has brought suit against 
the proposed acquisition of Continental by Northwest Airlines 
and there it identified some eight major routes, notably 
between their respective hubs, on which they were either the 
only two competitors or preponderant competitors. So I do not 
know to what extent there are such direct competitive overlaps, 
but that is obviously the first place that the Department of 
Justice should look.
    The second is one that I have not heard much alluded to but 
I think is terribly important. In deregulating the airlines, we 
relied very heavily on the threat of potential as well as 
actual competition to prevent exploitation of consumers. It was 
the asserted contestability of airline markets that we thought 
was very important, and it seems to me that it is highly likely 
that there are many routes on which either United or US Airways 
is a potential competitor of the other.
    There were several studies in the 1980's of the pricing 
behavior of the newly deregulated airline industry, and while, 
to my recollection, those studies demonstrated that one 
competitor actually in a market is worth at least two 
contestors in the bush, it also demonstrated that the presence 
of a potential entrant already operating at one or the other 
end of a route did have a disciplinary effect on prices on that 
route. So I think that second topic is one that we really want 
the Department of Justice to talk about.
    I have a bit of history here that is relevant. I went back 
and looked at the notes that I took back in the 1980's when 
Northwest was proposing to merge with Republic Airlines and it 
turned out that there were very few routes on which they were 
direct competitors. There was just a handful. And yet Republic 
was a successful airline. It had a hub at Memphis, which it 
acquired from Southern, Detroit and Minneapolis-St. Paul, and I 
find it difficult to believe--we cannot be sure that it would 
have survived, but I find it difficult to believe that we would 
not have been better off if those two airlines had not gotten 
together, giving Northwest its 80, 90 percent domination of 
those hubs.
    It is that potential competition which I think is 
particularly worth looking at in this case because I take it 
that United's main explanation and justification of the merger, 
at least the one that has been commented on in the press, is 
that United needs a strong hub in the Northeast. The press has 
over the years been pointing that out with respect to both 
United and American Airlines.
    But if United really does feel the need for a big hub in 
the Northeast, this suggests that it is an important potential 
competitor of US Air and that if denied the ability to acquire 
the hub in the easiest non-competitive fashion by acquiring US 
Air's Pittsburgh and Charlotte hubs, it might be impelled to 
construct a hub of its own in direct competition with US Air.
    Now, potential competition, in theory, is supposed to be 
taken into account in the antitrust laws. It has tended to be 
slighted in many of the merger cases that I am familiar with in 
recent years, but in the airline industry, potential 
competition is terribly important.
    Finally, the point that several other people have 
emphasized. If United's acquisition of a competitive advantage, 
by giving it the first claim on traffic feed from US Air's 
extensive network. If that increases the pressure on other 
carriers to do likewise, then we do have to take into account 
in assessing the effects of this merger the possible repetitive 
effect that it may have.
    I happen to have had some involvement in American's 
reaction when United signed a code-sharing agreement and an 
alliance with Lufthansa. American first tried to prevent it. 
Failing that, it seems very clear to me, American's move then 
to acquire a similar partner in the case of British Air was an 
illustration of this possible cumulative effect of the merger.
    So it is these three levels that I am very eager to hear 
the Department of Justice's analysis. Thank you.
    Senator DeWine. Professor, thank you very much.
    Mr. Goodwin.

                 STATEMENT OF JAMES E. GOODWIN

    Mr. Goodwin. Good morning, Chairman DeWine, Ranking Member 
Kohl, and other members of this distinguished subcommittee. On 
behalf of United Airlines' more than 100,000 employees, I would 
like to thank you for this opportunity to testify this morning.
    My name is Jim Goodwin. I am Chairman and CEO of United 
Airlines. Before I took my current position, I was President 
and Chief Operating Officer. At various times, I have managed 
North American operations, international operations, 
maintenance, and marketing. I began my career at United 
Airlines 33 years ago last week.
    In short, I am an airline guy. I have spent my life 
learning this business piece by piece, and in the course of 
that, I have learned what our customers want. They want to be 
able to go anywhere and go there conveniently. They want global 
access and they want global service, and that is what an 
airline must deliver.
    I am excited about this merger because I believe it will 
deliver on that promise. This subcommittee will review the 
antitrust implications of this merger. In my view, this merger 
is strongly pro-competitive. The United/US Airways merger will 
create the Nation's first comprehensive airline network and the 
network economics that result from creating such a network will 
mean substantial benefits for our customers and competition in 
general.
    For example, the network synergies will make it possible to 
add cross-country and international nonstop routes that neither 
United nor US Airways could have justified without the merger. 
United plans to add 93 nonstop domestic and international 
flights the day this merger is consummated. More than half of 
those nonstop flights are on routes where no airline provides 
nonstop service today. This added service means greater 
customer choice and added competition.
    In addition, the network synergies will result in United 
providing new competition on 560 city-to-city routes where 
neither United nor US Airways competes today. The merger will 
make it possible for United Airlines to challenge Delta and 
American in the Southeast and along the Southern tier cross-
country routes, areas of American and Delta strength. The 
merger will also make air travel more convenient for consumers 
by greatly expanding single carrier hassle-free service on 
thousands of routes. We will literally bring the world to 
gateways across America.
    And with that worldwide system comes a world class set of 
services--single check-in, seamless bookings, the industry's 
best airport lounges, a frequent flyer program that offers more 
options for travel to more places throughout the world. All of 
these aspects of having a comprehensive airline network will 
generate significant consumer benefits.
    The basic point in this, in my years in the airline 
industry, I have looked at every single possible combination 
for United and I am here today because this combination is the 
only one that will deliver what our customers need. United 
Airlines is committed totally, with no equivocation and with a 
substantial amount of cash, to this merger. That is the kind of 
big step that requires a very special opportunity.
    United is also committed to addressing any possible issues 
about the overlap of routes. That is why we took the 
unprecedented step of proposing a remedy on the day we 
announced the merger. I am talking about the creation of DC 
Air, an independent new carrier at Reagan National that will 
bring significant new competitive service to the Washington 
area.
    As you know, Congress, the Department of Justice, and the 
regulators will review this proposal carefully. We welcome that 
scrutiny and we are confident that they, like us, will conclude 
that this merger will benefit all air travelers.
    This merger is about expanding customer choice. It is about 
creating growth and economic benefits for communities across 
America. It is about delivering more convenience and more 
travel options to the passengers and shippers alike. Growth 
happens when cities in the West, like Denver, have better 
service to the East. It happens when cities in the Northeast, 
like Albany, have new options to travel in the United States 
and abroad. It happens when Charlotte is given a chance to 
continue its growth as a hub and become a more competitive 
counterbalance to Atlanta in the Southeast.
    Worldwide access, convenient service, community growth, 
that is what this combination will deliver and that is what I 
look forward to talking with each of you about this morning. 
Thank you.
    Senator DeWine. Mr. Goodwin, thank you very much for your 
testimony.
    [The prepared statement of Mr. Goodwin follows:]

                 Prepared Statement of James E. Goodwin

    Chairman DeWine, Ranking Member Kohl, and other Members of this 
distinguished Subcommittee, on behalf of United Airlines' more than 
100,000 employees worldwide, thank you for the opportunity to testify 
today. United appreciates the chance to explain why our customer-driven 
merger with US Airways is pro-competitive under the antitrust laws and 
how this transaction will significantly benefit consumers and the 
communities served by both carriers.
    As I will explain in more detail below, United believes the merger 
is a ``win-win'' for valued customers of both carriers, other airlines 
travelers, and competition generally. The merger's network synergies 
will lead to consumer benefits and increased competition. United plans 
to provide nonstop service in many markets in which no nonstop service 
exists today and will add new competition to routes in which neither 
United nor US Airways competes today. Among other things, United will 
add new competition in the Southeast and along southern cross-country 
routes, taking on Delta's and American's strong presence in those 
areas. In addition, the merger's synergies will allow United to offer 
more extensive connecting service to customers in our hub cities and 
the smaller airports connected to our hubs. Finally, passengers that 
prefer flying on United or US Airways will now enjoy access to a more 
extensive, global on-line network, allowing them to earn and use 
frequent flyer miles on one network, which will result in significant 
consumer benefits.
    The acquisition not only will generate these significant consumer 
and competitive benefits, but has been structured to address any 
potential antitrust issues raised by the combination. United and US 
Airways propose to divest sufficient assets to create a new airline, DC 
Air, the would address antitrust concerns arising from combining the 
two airline networks in Washington D.C. The creation of DC Air will 
alleviate any potential anticompetitive concerns with the transaction 
related to Washington, D.C., and customers will benefit both from the 
synergies resulting directly from the transaction and from the 
additional competition provided by DC Air.
    Mr. Chairman, we are a customer service business that operates in a 
highly competitive global industry. Simply put, our success depends on 
our ability to anticipate and respond fully to our customers. Our 
customers tell us they want hassle free, single-carrier service 
throughout the country. Similarly, international passengers tell us 
that they want seamless, global network service such as that offered by 
the Star Alliance, the premier alliance with which United is proud to 
be affiliated. Listening to the marketplace, the message was 
unmistakable: our customers except us to offer them the benefits of the 
most comprehensive air service network possible.
    Put in that context, let me explain our decision to acquire US 
Airways. Like a chain, an airline's network is only as strong as its 
weakest link. As United examined its ability to respond fully to our 
valued customers, we considered whether we could improve our efficiency 
and the sustained level of service provide. What we discovered was that 
United's weakest link was US Airways' strongest link and vice-a-versa. 
United has an extensive east-west system in the United States with hubs 
in the Midwest and the West. In contrast, US Airways has a 
comprehensive north-south route system along the East Coast anchored by 
hubs in Pittsburgh, Philadelphia and Charlotte. Together, the two 
networks are highly complementary.
    Accordingly, United concluded that by combining the two carriers, 
we would draw upon the strengths of both airlines and simultaneously 
fill service voids in each other's existing networks. The result, we 
believe, will be the first truly efficient nationwide network that will 
provide consumers with unparalleled travel convenience and service.
    Let me now walk through in more detail why the transaction will 
produce substantial pro-competitive benefits. The merger's pro-
competitive synergies reflect the nature of the airlines business. Most 
airline networks are structured as hub-and-spoke networks to route 
passenger traffic efficiently. These networks exhibit certain network 
economies, such that the more extensive the hub-and-spoke network, the 
lower the cost of providing service on each city-pair segment and the 
greater the ability to provide improved quality of service throughout 
the airline's route structure. By combining the complementaryUS Airways 
and United networks, the proposed transaction would allow the combined 
entity to enjoy greater network economies. The merger would therefore 
facilitate adding frequencies and new routes, and improve overall 
quality of service.
    Because of such network synergies, United will be able to add 
nonstop service on many cross-country and international routes on which 
neither United nor US Airways would have found it economic to do so 
without the merger. As a beginning, based on today's market 
environment, United plans to add 93 non-stop flights in 47 routes 
shortly after the merger is consummated. Of these, 64 are domestic 
flights and 29 will be international flights. On domestic routes, for 
example, consumers will benefit from planned new non-stop flights 
between Pittsburgh and San Jose; Philadelphia and Portland, Oregon; 
Washington Dulles and Orange County; Raleigh-Durham and San Francisco; 
Austin and Charlotte; Denver and Ft. Lauderdale; and San Francisco and 
Tampa Bay. United also plans to introduce daily non-stop service to 
other international destinations as well. For example, from Dulles, our 
plan is to offer the only daily non-stop flight from Washington to 
Copenhagen and, subject to government approval, the only daylight 
service to London Heathrow. In Boston, United plans an additional daily 
flight to Frankfurt and the only daily non-stop service to Tokyo.
    These new nonstop flights will add competition along these city-
pair routes. It is important to note that slightly more than half of 
these 93 flights will be on routes where no airline provides non-stop 
service today. Beyond a doubt, the merger will enhance consumer choice 
and add competition on these routes.
    This increase in service and the overall greater connectivity 
created by the merger also will enhance competition along hundreds of 
other city pair routes. After the merger, United will have a 
significant competitive presence on 560 city-to-city routes where 
neither United nor US Airways competes today. Examples of one-stop 
routes where United will provide new competition include Sacramento to 
Erie, Pa.; Reno, Nev., to Tallahassee, Fla.; Ft. Lauderdale to San 
Antonio; and Fargo, N.D., to Panama City, Fla. The 560 new routes also 
include a number of international flights as well, including new one-
stop flights from Phoenix to Copenhagen; San Jose, Calif., to Madrid; 
Birmingham, Ala. to Brussels; and Tulsa, Okla., to London. Adding 
service on these routes results in an unambiguous increase in consumer 
choice and competition.
    The merger will not only increase competition on a route-by-route 
level, but also from a broader perspective. Today, United has minimal 
presence on north-south routes along the East Coast, in the 
southeastern part of the country, and on transcontinental routes across 
the southern tier of the United states. US Airways, while it has a 
strong presence along north-south East Coast routes, does not have the 
network to adequately serve the southeastern part of the country nor 
compete strongly along southern transcontinental routes. By contrast, 
these areas are the strengths of Delta and American Airlines, the 
second and third largest airline carriers. Delta, with its hub in 
Atlanta, is the largest airline in the Southeast, and it has a strong 
presence from this southeastern base along north-south East Coast 
routes and southern transcontinental routes. Similarly, American 
Airlines, with its hubs in Dallas-Fort Worth and Miami, has a strong 
presence in the southeastern part of the country along with southern 
transcontinental routes. American, with its focus, also has a strong 
presence in routes from the United States to South America.
    The merger will allow United to challenge Delta's and American's 
strong presence in these markets. With the newly acquired hub in 
Charlotte, United will have sufficient presence on both sides of the 
country to begin flying transcontinental routes across the southern 
tier of the country, directly challenging American and Delta along 
these routes. Moreover, this transcontinental presence will allow 
United to focus the Charlotte operations on challenging Delta in the 
southeastern part of the country, as the availability of cross-country 
routes will make it more economical for United to expand service from 
Charlotte in the Southeast. Finally, with the expanded presence in the 
southeastern part of the country and southern cross-country routes, 
United can better use Miami as a getaway into South America, where it 
competes with American's service in these markets.
    The combination of United and US Airways also will create an 
airline for the 21st Century that will deliver significant benefits to 
millions of passengers. Over the years, customers feedback and research 
have made one fact abundantly clear: Many business and leisure 
travelers like to travel on a preferred airline, enjoying access to 
airport facilities andamenities provided to preferred customers, and to 
take advantage of corporate discounts with the preferred airline. These 
travelers desire on-line access to as many flights, city-pairs, and 
airports as possible on their airline. The merger, by combining the 
cities and airports served by the two carriers (and the Star Alliance) 
into a global network, will provide such passengers with on-line access 
to the combined network of the two carriers. The result will be 
significant new benefits to millions of consumers.
    The numbers tell the story. For United passengers, the merger will 
create new, single-carrier service to 93 destinations and add about 
5,000 routes to the network. For US Airways passengers, the benefit is 
even greater: new, single-carrier service to 145 destinations and an 
additional 7,000 routes. Overall, United will offer over 80,000 non-
stop, one-stop, and two-stop flights daily, more than double what 
United or US Airways offers today separately.
    In short, this transaction brings together two complementary route 
systems that will result in a new network connecting US Airways' 
eastern U.S. routes with United's western U.S. routes and our 
international network. The result for consumers will be a more 
extensive network in which consumers can enjoy the considerable 
benefits that travel on United offers, benefits that will help simplify 
travel and make it as hassle-free as possible. Those benefits range 
from the convenience of single-carrier service and one baggage check-in 
to United's #1-rated Internet site, the best airport lounges in the 
industry, and a frequent flyer program, Mileage Plus, that delivers 
more opportunities to earn miles and many more destinations for award 
travel throughout the world. Added to that is the reach of our Star 
Alliance partners, which will link passengers to a comprehensive 
network that will directly carry them to destinations around the globe 
in a way not currently possible.
    Let me share a case in point. We have an extensive network in Asia 
while US Airways does not serve that region of the world. The merger 
will fill that service gap for US Airways passengers. As result of the 
merger, a current US Airways passenger in Pittsburgh will enjoy new 
single-carrier, one-stop service to Asia/Pacific destinations such as 
Shanghai, Beijing, Osaka, Taipei, Seoul and Sydney. The same is true 
for new single-carrier, one-stop service from Pittsburgh to Latin 
American destinations such as Caracas, Rio de Janeiro, Sao Paulo, 
Santiago and Buenos Aires. These are a just few examples of how the 
merger will make global travel more convenient in the eastern United 
States.
    Mr. Chairman, that is a summary of the pro-competitive benefits of 
the transaction and we think they are substantial. Now, let me turn to 
the issue of the extent of overlap between the networks and what we are 
doing to address the potential antitrust concerns. At the outset, it is 
worth noting that unlike previous airline mergers dating back to the 
1980s, United and US Airways do not share a common hub. So, our merger 
does not present that concern. We believe also that overall there are 
few overlaps that raise significant antitrust concerns. To cite one 
statistic, within the East Coast, while US Airways carries about 38 
percent of passengers, United only has about 1.7 percent of passengers. 
What that tells you is that in US Airways' strength, the north-south 
network along the East Coast, United is not a significant player there 
today and therefore the merger does not present significant overlaps.
    Nonetheless, we have taken great care to proactively identify and 
remedy what we thought might be potential issues for regulators. We 
recognized from the outset that antitrust concerns might be raised with 
respect to Washington, D.C., United has a hub at Washington Dulles and 
US Airways is the #1 carrier in terms of enplanements at Ronald Reagan 
Washington National Airport. To address any possible issue about the 
overlap on Washington, D.C., routes as a result of the transaction, we 
are voluntarily divesting the bulk of US Airways' significant and 
valuable resources at Reagan National. We will divest these assets to 
DC Air, an independent new-entrant carrier that will bring significant 
new competitive service to the nation's capital.
    We believe there is little doubt that DC Air will provide a viable, 
profitable, and strong competitive presence in Washington, D.C. and 
other markets it serves. Reagan National generates a significant amount 
of local traffic and DC Air will have access to valuable slots to serve 
this market.
    Now, I understand that many have criticized the fact that DC Air 
will have arm's length, market-based contractual relationships with 
United to provide fuel, planes, and other assets for a transition 
period. Somehow, these transitional relationships are supposedto 
suggest that DC Air is not viable. These critics must not work in the 
airline industry, as these types of leasing and contractual 
relationships are common in the industry.
    DC Air will add a new competitive presence in Washington, D.C. 
After the merger and the DC Air divestiture, United's Dulles hub will 
compete with DC Air's base of operations at Reagan National. Both 
airlines will also compete with the other airlines serving the 
Washington, D.C., area. DC Air has indicated it plans to offer service 
from Reagan National to 43 cities. That total includes 31 cities in 
which US Airways' service from Reagan National competes today with 
United's service from Reagan National or Dulles. At a minimum, 
therefore, competition from Reagan National will be maintained, given 
DC Air's low-cost structure, United expects that competition will be 
enhanced. Moreover, in the case of routes between Reagan National and 
three cities--Pittsburgh, Philadelphia and Charlotte--United will enter 
those routes and compete with DC Air in providing service to Reagan 
National. Today, only US Airways provides any service to Charlotte from 
a Washington airport and only US Airways provides service to Reagan 
National from Philadelphia or Pittsburgh. Again, we see that as an 
increase in competition.
    United will acquire and operate the US Airways shuttle between 
Washington, New York and Boston. United today does not provide a 
shuttle service from Washington Reagan National. On these routes, US 
Airways competes with Delta. I can assure you that we will compete 
vigorously with Delta on those popular routes. On a broader city pair 
basis, six airlines (United, US Airways, Delta, Continental, TWA, and 
American) provide service between New York City and Washington D.C. and 
entry is a viable option given the high percentage of local traffic on 
these routes. We see no diminution in competition in these markets 
because of the merger.
    In short, we believe the DC Air divestiture addresses any antitrust 
concerns related to Washington, D.C. And, we believe addressing the 
Washington, D.C., overlap addresses the most significant overlap caused 
by the merger.
    Of course, we understand that regulators and other interested 
parties will scrutinize other possible overlaps between the airlines. 
We do not believe any other overlaps raise significant competitive 
concerns. For example, we understand that the Justice Department will 
look closely at routes between the two airlines' hubs in which United 
and US Airways are the only airlines providing nonstop service today. 
While there are four such routes in which United could be the only 
airline providing nonstop service after the merger, United will still 
face significant competition on these routes. Most of these routes are 
cross-country routes in which other airlines provide direct and 
connecting service; these other airlines already have significant 
shares of traffic in these markets. Most of these routes also have 
logical potential entrants located at one of the hubs. For business 
travelers that travel almost exclusively on a preferred carrier, we 
will offer more frequencies per day on these routes on a single 
carrier, greatly increasing their travel flexibility. And, finally, 
passengers flying out of hub cities will enjoy significant benefits 
overall because of the added service and greater overall on-line 
connectivity available because of the merger.
    Finally, let me address the issue of consolidation in the industry. 
Recently, there have been a number of press reports discussing possible 
consolidation in the airline industry in Europe and elsewhere. Airlines 
are not seeking to get bigger solely for the sake of size alone. That 
is not the case at all. As with this transaction, airlines are being 
forced by the marketplace to build the strongest and most comprehensive 
route structure possible. In doing so, airlines are able to respond 
better to customer demand for seamless, hassle free travel. Also, 
building the strongest possible network enables carriers to maximize 
their operating efficiencies. It also can lead to increased 
competition, as airlines are better able to take on other airlines in 
the other carrier's area of strengths.
     Some have nonetheless said that we should not enjoy all the pro-
competitive benefits from the United-US Airways merger because of the 
possibility that other airlines might merge in the future. I cannot 
speculate on what other combinations might arise. But I can say that 
our merger agreement should be viewed on its merits. No matter what 
other mergers might occur, these facts will remain the same: (1) A 
United-US Airways merger is a merger of complementary networks; (2) A 
United-US Airways merger presents few overlaps of competitive 
significance; (3) A United-US Airways merger includes the creation of a 
new airline (DC Air); and (4) A United-US Airways merger will generate 
numerous pro-consumer benefits. Any other possible combination will 
have to make a similar pro-competitive demonstration under the 
antitrust laws. None of us knows whether such future mergers will 
occur, whether the merging airlines will have the pro-competitive 
benefits of the United-US Airways merger, and whether the merging 
airlines will take the steps we have to ensure that the transaction 
will be pro-competitive. I would also note that the speculation I have 
seen ignores the existence and growth of Southwest Airlines, along with 
a growing number of low-cost discount or regional carriers such as ATA, 
Frontier, and Jet Blue.
    Mr. Chairman, let me conclude by again thanking you for the 
opportunity to testify today. As I have said, we strongly believe this 
transaction should be approved. It is in best interest of consumers, 
communities served by both carriers and the U.S. economy. I would be 
pleased to respond to any questions.

    Senator DeWine. Mr. Wolf.

                  STATEMENT OF STEPHEN M. WOLF

    Mr. Wolf. Chairman DeWine, Senator Kohl, and members of the 
committee, on behalf of the entire US Airways family, I 
appreciate the opportunity to be here with you this morning.
    With over 30 years in aviation, I have been fortunate to 
have been associated with the development of both US Airways 
and United Airlines. From this perhaps unique perspective, I 
would like to offer a few comments on the proposed merger.
    The merger of United and US Airways creates, in the words 
of one major financial analyst, the first airline of the 21st 
century. Indeed, this event will be a milestone in commercial 
aviation, joining the complimentary systems and assets of two 
veteran and geographically different carriers to create the 
Nation's and the world's most efficient route network. For US 
Airways, this merger will enable us to provide the 
comprehensive global service that our valued customers and 
communities we serve demand and, indeed, deserve.
    When I joined what was then US Air a little over 4 years 
ago, I pondered whether or not there was a place in U.S. 
commercial aviation for a mid-sized carrier with mature costs 
that was at that time coming off of multiple years of multi-
billion-dollar losses, a thoroughly weakened balance sheet, a 
frequently talked about bankruptcy candidate, a aging mixed 
fleet of aircraft, subpar service levels, and no strategic 
direction. While these characteristics were indeed significant, 
I believed they were manageable.
    The question I then pondered was where could US Airways 
realistically hope to go long-term, recognizing it was the only 
United States mid-sized mature cost carrier left out of the 
original group of six. Braniff, Eastern, and Pan American were 
gone, and Continental and TWA had gone through bankruptcy twice 
each, and in the process dramatically adjusted their cost 
structure.
    Well, the answer to that question was not clear. We 
nevertheless committed ourselves to establishing US Airways as 
a vibrant, financially secure, global carrier. To this end, the 
dedicated and hard-working employees of US Airways have made 
enormous progress. To take the next critical step, however, in 
becoming a truly global carrier requires access to 
transcontinental and international markets. With this union, US 
Airways has the opportunity to achieve this goal in a single 
stroke. In brief, this is the right step with the right partner 
at the right time.
    Importantly, this is not a merger whose benefits are 
measured in the elimination of duplicate jobs and functions. 
This is a merger whose benefits truly flow from improved 
service, vigorous new competition in domestic and international 
markets, and the seamless web of efficient global travel that 
will occur. This new partnership will employ more people, 
stimulate economic development, and facilitate international 
commerce, trade, tourism, and investment for more U.S. 
communities. These benefits are equally important for the 
multitude of US Airways network cities service through 
Pittsburgh, Philadelphia, and Charlotte, which will have the 
immediate access to the global reach of United's system and the 
Star Alliance.
    An exciting and pro-competitive part of this merger 
proposal is the creation of a highly competitive new entrant 
carrier at Washington's Reagan National Airport, with more than 
100 flights daily to 43 destinations. It also will bring about 
the most significant pro-competitive change in the regional 
market since slots were initiated at Washington National in 
1968.
    Over the past 3 decades, my career has taken me from 
American Airlines to Pan American World Airways to Continental, 
Republic, Flying Tigers, United, and finally US Airways. My 
enthusiasm for this proposal is rooted in a lifetime of 
experience in this industry. This agreement will extend the 
promise of domestic deregulation by enabling more American air 
travelers to more fully enjoy a global network of seamless 
service and benefits of open competition.
    Mr. Chairman, I want to share with you just a second the 
deliberations of our board of directors, who pondered this 
thing very significantly. From the perspective of our three 
constituencies, shareholders, employees, and customers and 
communities we serve, this is certainly fair to our 
shareholders. It is an absolute home run for our employees in 
terms of a guaranteed job and career advancement opportunities 
we could not provide. And for the communities and customers we 
serve, it provides them access to the best route system in the 
entire world and all the economic pluses that come with that, 
which are significant.
    In my judgment, this union provides the ideal free market 
response to the rising customer demand for international 
travel. The enhanced United Airlines will be well positioned to 
extend the benefits of deregulation to the global marketplace 
in the second century of flight. Thank you, Mr. Chairman and 
members.
    Senator DeWine. Mr. Wolf, thank you very much.
    [The prepared statement of Mr. Wolf follows:]

                 Prepared Statement of Stephen M. Wolf

    Chairman DeWine, Ranking Member Kohl, and Members of the Committee, 
on behalf of the entire US Airways family, I appreciate the opportunity 
to be here this afternoon.
    The merger of United and US Airways creates, in the words of one 
major financial analyst, the first airline of the 21st Century. Indeed, 
this event will be a milestone in commercial aviation, joining the 
complementary systems and assets of two veteran and successful carriers 
to create the nation's and world's most efficient and comprehensive 
route network, much to the benefit of the customers and communities we 
serve.
    I am fortunate to have been involved with this industry for over 30 
years and associated with the development of both US Airways and United 
Airlines. From this perhaps unique perspective, I would like to offer a 
few comments on the proposed merger.
    Put simply, both organizations can take great pride in this 
remarkable step--and both can be excited by what it means to the 
traveling public and the communities we serve. The analyst is correct: 
this IS the first airline of the 21st Century.
    Just as the great airlines that emerged from he onset of 
deregulation--the Uniteds and Americans and Deltas and Northwests, 
indeed, in US Airways--have brought the benefits of affordable air 
travel to millions and millions of Americans, so will those benefits be 
expanded even further in the 21st Century evolution of this system. And 
just as the first era of deregulation spawned new and powerful forces 
such as Southwest Airlines, so too can we expect to see a new 
competitive spirit emerge in the coming decades as new opportunities 
arise.
    For US Airways, this merger promises to help us provide the 
efficient, global service that our valued customers demand and deserve. 
I joined what was then US Air a little over four years ago. At that 
time, I pondered whether or not there was a place in U.S. commercial 
aviation for a mid-sized, mature-cost carrier, recognizing that we were 
unique in our position. The industry was made up of many successful, 
incumbent carriers--American, Delta, Northwest and United. The balance 
of the mid-sized, mature-cost carriers had disappeared, those being 
Braniff, Eastern, and Pan American. Then, there were an array of low-
cost carriers, such as Southwest, which operated with a significantly 
lower cost structure and a product that focused on point-to-point 
service. Finally, there were the in-between carriers that were 
generally size-peers of ours, including TWA and Continental. But these 
carriers had substantially reduced their cost structure as a result of 
a series of bankruptcy filings. US Air was none of the above.
    In this difficult business environment, we committed to a five-
point strategic plan to restore financial stability to our company that 
would ultimately lead to our company that would ultimately lead to our 
becoming the ``Carrier of Choice.'' Together, with the dedicated and 
hard-working employees of US Airways, we have made enormous strides in 
transforming the airline and have been successful in attaining our 
goals. We have made spectacular improvements in our operational 
performance, established harmonious labor agreements, begun fleet 
modernization and expanded our international service. What goal 
remains? We are determined to become a world-class, global carrier, 
that provides our customers with efficient, worldwide service.
    To take the next critical step in this five-point strategy requires 
access to transcontinental and international markets. But we are a mid-
sized, high-cost player in an industry characterized by extremely 
vigorous competition. With deregulation and the subsequent emergence of 
small, low-cost regional airlines as well as the growth of global 
alliances, it has become increasingly challenging for us to maintain 
our competitive edge and remain profitable. In this environment, we can 
only go so far if we go it alone. To expand into the global market and 
to realize our full potential, we have to join with a partner that has 
a more extensive scope, breadth and reach. With a route network that 
primarily complements ours, United Airlines is that ideal partner.
    With this union, US Airways has the opportunity to achieve our goal 
of building a truly global carrier--not over many years, but in a 
single stroke. Without it, we would face tremendous hurdles in striving 
to offer the kind of convenience and world wide service that our 
customers both deserve and expect in this competitive era. For the US 
Airways family--our employees, our customers and the communities we 
serve--we are obligated to do the right thing. And this is it: the 
right step, with the right partner at the right time.
    What makes this so right? First, the combination is a superb fit 
that enhances competition and benefits customers. This is an agreement 
that works on many levels and is one in which the consumer benefits of 
the combined carriers will be substantially greater than their 
individual parts. Where there was the potential for overlap between the 
two carriers--primarily in the Washington area--we have eliminated that 
potential conflict by divestiture. In contrast to many mergers whose 
benefits are often measured in the ``synergies'' of eliminating 
duplicative jobs and functions, this is a merger whose benefits truly 
flow from the growth that will occur.
    United's extensive east-west system and western presence nicely 
complement US Airways' comprehensive north-south routes and eastern 
presence. Historically, both US Airways and United are known for their 
high level of service and for the professionalism of their employees. 
Our employee unions are similar. And we each have, in large part, the 
same type of aircraft--all major considerations.
    For the thousands of dedicated and loyal men and women in our 
workforce, this agreement promises a bright future. For nearly a 
decade, the employees of US Airways have faced periods of uncertainty 
about the future of the company. Now they will be part of the most 
exciting development in commercial aviation history, and they will see 
their career opportunities, and their security, increase. United 
Airlines agreed that, given the complementary networks and benefits of 
the combined carrier, they could absorb these employees without the 
need for layoffsand furloughs. Indeed, given the strong projections in 
leisure and business travel, the new partnership actually expects to 
employ more people rather than fewer in the foreseeable future.
    For millions of our customers, this merger will deliver immediate 
benefits, while simultaneously building a foundation for future 
opportunities. This step is both pro-consumer and pro-competitive.
    In today's global economy, more people are flying to more places 
than ever before; and this merger is a natural step to meet that 
demand. Partnered with United, we will be able to provide our customers 
with an unparalleled array of on-line destinations. Our passengers will 
gain new non-stop, same-carrier service to 117 U.S. cities and 28 
international destinations. Our loyal and frequent customers, many of 
whom live in small and medium-size cities throughout the eastern United 
States, will gain instant access to over 500 additional destinations in 
every corner of the globe through the Star Alliance.
    This means that millions of our customers will be linked to a 
system that will directly carry them to commercial centers around the 
globe. On the combined US Airways and United system, for instance, 
travelers will be able to fly from such places as Frankfort, Kentucky 
to Frankfurt, Germany, and from Pittsburgh, Pennsylvania to Silicon 
Valley with never-before-available ease and convenience. After the 
merger, more passengers will enjoy the convenience of one airline, one 
baggage check-in and one frequent flyer program.
    For the US Airways family of communities, this agreement will bring 
home significant benefits. We will bring the world to the doorsteps of 
hundreds of communities by providing easier access to international 
destinations. Many of the mid-size cities we serve--such as Charleston, 
Rochester, and Tampa--will gain seamless access to international 
destinations. Our hub in Charlotte, for example, will gain new non-stop 
service to several West Coast destinations, and one-stop service to new 
destinations such as Hawaii, Australia, New Zealand, Korea and Taiwan, 
as well as to Caracas, Rio de Janeiro, Sao Paulo, Buenos Aires and 
Santiago. In addition, dozens of communities in the eastern United 
States will have enhanced commercial and tourism opportunities with 
new, convenient access to numerous Asian destinations.
    By gaining convenient access to international destinations, these 
communities will see traffic multiply and business opportunities 
flourish. They will strengthen their ability to attract international 
investments, as well as domestic business and tourism. And US Airways' 
hub cities in Pittsburgh, Philadelphia and Charlotte will be better 
able to compete with other carriers' East Coast hubs and international 
gateways.
    This combination will also give rise to a new level of 
competitiveness--in an industry where competition is already thriving. 
The number of airlines in this country is on the increase, not the 
decrease. This is true both in domestic and international markets. In 
the Eastern United States alone, regional and low-cost carriers like 
Southwest, Delta Express, AirTran and JetBlue have transformed the 
landscape and significantly expanded consumer choice. All signs 
indicate that this trend is likely to continue; the merger of US 
Airways and United will not interrupt it, but will augment it. We will 
spark growth industry-wide, starting with the creation of new 
competitive avenues and service options.
    And as an important part of this transaction, certain current US 
Airways assets will be transferred to a new airline--DC Air--that will 
inject fresh competition into the Washington, DC marketplace. DC Air 
will be a Washington-based airline committed to offering high-quality, 
cost-competitive service to consumers and business in this region. It 
will be a major competitive force at Washington's Reagan National 
Airport, with more than 100 flights daily to 43 destinations. It also 
will be the nation's largest minority-owned airline and will bring 
about the most significant pro-competitive change since slot controls 
were initiated at Washington National in 1968.
    I have spoken today primarily in my capacity as Chairman of US 
Airways, and it is natural that my testimony be viewed as 
representative of the interests of my company. And indeed. I speak 
first and foremost for the airline that I have helped to lead for the 
past four years.But I am also here today to address the future of an 
even larger community--the commercial aviation industry.
    I have spent a professional lifetime in this industry. Over the 
past three decades, my career has taken me from American Airlines to 
Pan American World Airways to Continental, Republic, Flying Tigers, 
United and finally US Airways and I bring all of my aviation experience 
to bear on my testimony here today.
    For these thirty years, I have watched the era of deregulation, the 
expansion of regional service and the impact of globalization create a 
revolution in the airline industry. The combination of these two 
carriers is both the most positive response to these new market forces 
and a proactive step into the next generation of flight.
    But the impact of this merger transcends the immediate; it is a 
major milestone in aviation history. By helping to generate new 
competition, it will establish a new era in the industry. It will 
further and enhance America's leadership in the global aviation market.
    As we move into the second century of flight, the international 
marketplace is undergoing a radical transformation. The world has never 
been more interconnected than it is today. The combination of 
technology and free-market principles has led to the free-flow of 
goods, services and information across national borders. Travelers from 
all four corners of the country need to be able to travel throughout 
the country and throughout the world quickly and efficiently. By 
combining the strengths of these two companies, we will have our first 
truly nationwide network that is linked to the world. With this 
partnership, we can further facilitate the flow of international 
commerce. This is especially exciting for many of the eastern 
communities that have been served by US Airways for as many as 50 years 
or more. These communities will not be left behind; they will become 
full-scale participants in the new global economy.
    The legal framework is also evolving to adapt to the changing 
marketplace. Fragmented protectionist bilateral agreements are rapidly 
being replace by ``open skies'' and liberalized regimes on a bilateral 
and even multilateral basis. Eventually, multilateral regimes will 
emerge. The United States now has taken the lead in opening the 
international skies. Now the market place is responding to the 
opportunity created through U.S. government bipartisan leadership.
    When the U.S. deregulated the domestic airline industry more than 
20 years ago, we freed the industry to respond more efficiently to the 
ever-evolving needs of customers. At the same time, we enabled U.S. 
airlines to demonstrate to the world the benefits that come from a 
deregulated marketplace. During the past two decades, consumers have 
enjoyed improved efficiencies, services and price options. Through this 
merger, U.S. airlines once again can demonstrate the consumer benefits 
of a more open marketplace--this time on a global scale. At the same 
time, this agreement will completely fulfill the promise of domestic 
deregulation by enabling more American air travelers to more fully 
enjoy a global network of seamless service and the benefits of open 
competition.
    But it is not just domestic consumer demand to which we must 
respond in order to thrive. We must remain competitive, in a rapidly 
changing international environment. Multi-national carriers in Europe 
and Asia are responding to the new marketplace opportunities. The 
greater efficiencies resulting from this merger will improve services 
and bring down prices, thus enhancing global competitiveness. The new 
merged airline is positioned to compete head to head with the leading 
carriers of Europe and Asia, as these airlines are undergoing a similar 
transformation--although at a slower pace. Allowing U.S. customers to 
respond to the new global market, we can bolster the world leadership 
of our industry. This merger is an important step in doing so.
    For our nation to continue to lead this industry on an 
international scale, we must also have the vision to see beyond the 
historical constraints of a fragmented aviation system. We must 
recognize that an open, global marketplace is inevitable and the 
aviation industry will be no exception.
    Now in the rapidly changing legal and economic environment of the 
world, our industry must continually evolve to meet consumer demand. 
This union provides the ideal free-market response to this rising 
consumer demand for international air travel. It reflects the needs of 
an increasingly interconnected global marketplace. Such an airline is 
well-positioned to extend the benefits of deregulation to the emerging 
global marketplace.
    The benefits of the union will be substantial domestically as well 
as internationally. A merger of US Airways and United will have clear 
and dramatic positive effects on competition in domestic markets. Both 
the economy and consumers will reap the benefits of this enhanced 
competition and improved service. For the US Airways family--from our 
employees to the communities we serve--this partnership will create a 
host of new opportunities. Our customers, too, will enjoy substantial 
benefits, including easier-than-ever access to the world. For all 
involved, the benefits that will arise with this new airline are 
significant.
    Thank you for the opportunity to share my perspective with you.

    Senator DeWine. Mr. Johnson.

                 STATEMENT OF ROBERT L. JOHNSON

    Mr. Johnson. Chairman DeWine, Senator Kohl, and members of 
the subcommittee, thank you for the opportunity to be here this 
afternoon. I am the founder and CEO of BET Holdings, a 
multimedia company whose principal business is operating the 
BET Cable Network, a 24-hour basic cable programming service 
that reaches 60 million homes and is the preeminent business 
serving the entertainment and information needs of African-
Americans. From an initial investment of a half-a-million 
dollars by TCI in 1980, BET Holdings celebrates its 20th 
anniversary with a market capitalization of approximately $2.5 
billion. I own 65 percent of the shares of BET Holdings.
    The recently announced acquisition of US Air by United 
Airlines has created for me another historic and exciting 
opportunity. I have agreed to purchase certain assets of US 
Airways operating out of Reagan National Airport and will be 
launching DC Air. I do so not to create an African-American-
owned airline, though it will be that. I do so not just to make 
sure that air transportation remains competitive, though I will 
definitely do that.
    Rather, I do so and I believe, like my fellow panelist 
here, Mr. Neeleman, to build a great and successful airline 
that I believe with all my heart will benefit the Washington 
area, where I have lived for over 20-plus years, offer high-
quality service and value to passengers traveling to and from 
DC, and make us all proud that our airline is the absolute best 
to fly.
    My vision for DC Air is straightforward: To build on the 
well-established East Coast service that Washington area 
passengers have come to rely on from Washington National 
Airport, and I focus on this word ``rely.'' The three million 
people who fly from 43 cities to and from Washington National 
Airport expect that service to be there every day, and I assure 
you that is our focus, 43 cities flying to and from Reagan 
National Airport.
    They expect us also to provide safe, reliable, high-quality 
service at competitive prices to customers and communities in 
this area, and I focus on those two words, ``safe'' and 
``competitive,'' and I assure you this airline will meet those 
tests.
    We also expect to compete vigorously on price and service 
in the market we serve. Now, some of you on the panel, 
Senators, have raised the question as to whether or not DC Air 
can compete as a result of being a byproduct or a spin-off of 
United and US Air. Let me assure you, I did not achieve the 
things I have achieved in American society, a graduate of the 
University of Illinois, a Master's Degree from Princeton, 
building a $2.5 billion company, by not being able to compete 
in the American system.
    I admit that the airline business is not an industry that I 
was born into. Neither was the communications industry. But it 
is definitely a business I am confident I can master by not 
only focusing my innate intelligence on the issue and my self-
determination to succeed, but also by hiring talented 
executives, and I have done that when I hired Bruce Ashby, a 
14-year veteran of the airline industry, to serve as the acting 
President of DC Air, and the talent that Bruce brings I am sure 
will attract other talented individuals.
    Our goal also is to facilitate the growth and economic 
development that accompanies air service and development and 
maintain an airline that the Washington community will be proud 
to call its hometown carrier.
    Let me make one other point. Unlike the other major 
airlines based in cities who serve Washington's Reagan National 
Airport, we do not see Washington as another spoke in a vast 
hub-and-spoke system and we will not provide service from 
Washington only to a handful of hub cities. Rather, Washington 
is our home base. Washington and the 43 communities we will 
serve from Washington is our entire business. We are focused on 
the needs of our customers in these cities and committed to 
providing them the service they deserve.
    As a result of this transaction, we will become the largest 
carrier at Reagan Washington National Airport. We will offer 
111 daily departures from Washington to 43 cities with a fleet 
of 37 aircraft. On day one, 29 of those aircraft will be jets 
and we plan to become an all-jet carrier as we go forward.
    In addition, we are ready to begin discussions with other 
major airlines, such as American, Delta, Continental, and 
Northwest, to seek out partnering opportunities such as code 
sharing and frequent flyer arrangements. We see these as 
beneficial to our passengers, who would be able to earn 
frequent flyer miles in the major airline programs while flying 
DC Air. We believe our services at National Airport will be 
perceived by these carriers as a desirable feature of the 
extended network.
    As I said, Senators, in summing up, I am in this game to 
compete. I have an enormous investment both of time, money, and 
prestige in this, and there is absolutely no way I am not going 
to pursue every opportunity to compete, whether it is against 
JetBlue, whether it is against United, whether against American 
or Delta, to assure a maximum return on my invested dollars. 
Thank you, sir.
    Senator DeWine. Mr. Johnson, thank you very much for your 
testimony.
    [The prepared statement of Mr. Johnson follows:]

                Prepared Statement of Robert L. Johnson

    Mr. Chairman, Ranking Member Kohl, and Member of the Subcommittee, 
my name is Robert Johnson. I am founder and Chief Executive Officer of 
BET Holdings, Inc., a multi-media company whose principal business is 
the operations of the BET Cable Network, a 24-hour basic cable 
programming service that reaches 60 million cable households.
    From an initial investment of $500,000 by Tele-Communications, Inc. 
in 1980, BET Holdings celebrates it 20th Anniversary with a market 
capitalization of approximately $2.5 billion dollars and is the 
preeminent business serving the entertainment and information needs of 
African Americans.
    The recently announced acquisition of US Airways by United Airlines 
has created for me another historic and exciting opportunity. I have 
agreed to purchase certain assets currently operated by US Airways out 
of Reagan National Airport and will be launching DC Air. I do so not to 
create an African American owned airline, though it will be that. I do 
so not just to make sure that air transportation remains competitive, 
though I will do that. Rather, I do so to build a great and successful 
company that I believe with all my heart will benefit the Washington 
area, offer high quality service and value to passengers traveling to 
and from DC, and make us all proud that ``our airline'' is the best to 
fly.
    My vision for DC Air is straightforward: to build on the well-
established East Coast service from Washington's National Airport that 
Washington-area passengers have come to rely on; to provide safe, 
reliable, high-quality service, at competitive prices to customers and 
communities in this area; to compete vigorously on price and service in 
the markets we serve; to facilitate the growth and economic development 
that accompanies air service; and to develop and maintain an airline 
that the Washington community will be proud to call its hometown 
carrier.
    In terms of its development and its creation, DC Air is a product 
of the United/US Airways merger, and that is great news for consumers. 
Why?
    The creation of a new airline is no small task in this intensely 
competitive industry. New entrant carriers face numerous obstacles such 
as high, fixed start-up costs, the lack of a strong identity, and an 
unproven route structure and business plan. DC Air, however, is not a 
typical airline startup company. Benefiting from the experience and 
expertise of United and US Airways personnel, we intend to build upon a 
proven network anchored at Washington's National Airport. DC Air will 
be a viable and totally independent competitor from Day One. At the 
same time, it will avoid the mistakes and pitfalls that often confront 
and, in many cases, overwhelm new entrant carriers in this industry. DC 
Air will be the largest carrier (measured by number of departures) at 
Washington's premier, close-in airport, offering 111 daily departures, 
flown by 37 aircraft, serving 43 airports, extending as far as Maine, 
Florida, Kansas City. And as DC Air develops, we will assess 
opportunities to expand service to additional communities.
    For over several decades in some cases, great American cities like 
Albany, Allentown, Birmingham, Buffalo, Burlington, Charleston, 
Columbia, Greensboro, Greenville, Huntsville, Knoxville, Lewisburg, 
Manchester, Morgantown, Norfolk, Roanoke, Rochester and Syracuse, among 
others, have enjoyed nonstop air service to the heart of the nation's 
capital. These communities have relied upon this extensive service 
network, which has provided significant commercial, trade, economic 
development, and governmental relations benefits for these important 
cities.
    The network has been maintained during periods of economic growth 
and recession, during harsh winters and humid Washington summers. 
Sustained service to many of these cities is made possible by the 
efficiency of a network that is centered at the beautifully renovated, 
convenient Ronald Reagan Washington National Airport.
    DC Air is fully committed to sustaining and enhancing this network 
of service that links these critical American cities to our nation's 
capital. As a new entrant, DC Air will provide frequent, competitively 
priced air service, ultimately with an all-jet fleet. Retaining 
synergies of the current route system is absolutely vital to ensure the 
important access for these communities to Washington, D.C.
    History clearly shows that as air carriers acquire the coveted, 
valued slots at Washington National, they use those slots in the most 
profitable way--in service to their hometown hub cities. In fact, 
excluding US Airways, the principal U.S. carriers serving National 
Airport only do so from their hubs or focus cities: America West from 
its hub in Columbus, Ohio; American from its hubs and international 
gateways in Chicago-O'Hare, Dallas, New York-JFK, and Miami; 
Continental from its hubs in Cleveland, Newark, and Houston; Delta from 
its hubs in Atlanta, Cincinnati, and Dallas, its New York-JFK 
international gateway, and its Delta Shuttle cities, New York-LaGuardia 
and Boston; Northwest from its hubs in Detroit, Memphis and 
Minneapolis; TWA from its hub in St. Louis and its New York-JFK 
international gateway; and United from its hub in Chicago O'Hare and 
its Miami international gateway.
    Only US Airways, the current hometown, Washington-based carrier, 
offers breadth of service to the Washington passenger, serving not just 
its hubs in Charlotte, Philadelphia and Pittsburgh, but also 46 
additional communities each day. That is why the creation of the 
hometown D.C. carrier is so critical to the preservation of a route 
system that has served medium and small cities throughout the eastern 
United States for so many decades. That is why themerger proposal 
reflects the strong conviction of each of the three principal players 
that not only must competition be preserved in the D.C. metropolitan 
area, but that new competition must come in the form of a carrier able, 
willing, and completely dedicated to preserving and enhancing the 
existing network of service which the citizens of so many of these 
cities have come to rely.
    The prospects for vigorous new competition and improved quality of 
service to these communities are boundless. DC Air is up to the 
challenge and is eager to assume the historic commitment to these great 
American communities by providing safe, reliable, high-quality service 
with outstanding employees.
    I appreciate that the airline industry is unique in many ways, and 
I further appreciate that the industry is highly unionized. I welcome 
all employees--whether union or non-union--to the DC Air family. My 
plan is to provide fully competitive compensation and benefits 
packages, while fostering an environment of participation and common 
goals for all our employees. This plan, I believe, will result in high 
job satisfaction among DC Air employees, which, in turn, will translate 
into the top-quality service our passengers should expect and demand.

                         STARTUP OF OPERATIONS

    To assist in shaping and realizing the vision of DC Air, Bruce 
Ashby has been named acting President of DC Air. Bruce has 14 years of 
airline experience, most recently with US Airways, where he held the 
position of senior vice president--corporate development. Prior to 
that, he held the positions of senior vice president--planning and vice 
president --financial planning and analysis. Before joining US Airways 
in April 1996, he held corporate officer positions at Delta Air Lines, 
where he was vice president of marketing development, and at United 
Airlines, where he was vice president of financial planning and 
analysis and vice president & treasurer. Bruce played a key role in the 
formation of three ``airline-within-an-airline'' units: MetroJet by US 
Airways, Delta Express, and Shuttle by United, all of which were 
successfully launched and grown by these carriers, and continue to 
operate today. Bruce's broad background at a senior management level in 
the areas of airline finance, planning, marketing, operations, and 
labor negotiations will prove invaluable to DC Air.
    As I mentioned earlier, unlike a typical airline startup, which 
might begin with one or two airplanes flying one or two routes, DC Air 
will be a fully operational airline serving 43 communities from 
National Airport with 111 daily departures. This plan brings important 
consumer benefits, by providing nonstop service and a new, competitive 
force to the 43 communities that we plan to serve, 36 of which are 
served from Washington's Dulles airport well.
    To enable this level of startup, DC Air has entered into a 
memorandum of understanding with United Airlines, as part of the 
proposed United-US Airways merger, that will provide DC Air, from Day 
One, with the hard assets it requires to mount its operations. These 
include 222 departure and arrival slots at Washington National Airport; 
necessary gates and related airport facilities, for which DC Air will 
assume the leases; and the operations of one of its commuter airline 
subsidiaries, including the management staff, turboprop aircraft, and 
related assets. In addition, during a brief transition period in which 
DC Air will build its own fleet, United will ensure near-term aircraft 
availability through customary contractual ``wet-lease'' relationships 
for up to ten B-737-200 aircraft and up to 19 regional jet aircraft. In 
short, DC Air will have the necessary people, aircraft, and airport 
rights and facilities from Day One.
    In addition to the Day One hard assets, United has agreed in the 
memorandum of understanding to provide DC Air, if DC Air so requests, 
with certain supporting services at market rates. These services are 
typically purchased by airlines, and include items such as fuel, 
occasional use gate agreements, station-handling contracts, and 
standard industry interline ticketing and baggage agreements. DC Air is 
free to purchase any and all of these services on the open market from 
the numerous other providers of such services.
    It is critical to appreciate that none of these understandings 
compromise DC Air's independence.
    We are rapidly moving through the process of turning the vision of 
DC Air into an operating reality. We have begun discussions with 
aircraft manufacturers in order to build our long-term all-jet fleet of 
aircraft. We are drafting the definitive documentation with United 
Airlines to implement our memorandum of understanding. We will soon be 
entering into detailed discussions with the DOT and FAA to obtain the 
required permits and certificates. And, we are engaged in working with 
the federal, state and local governments and community leaders to 
ensure that their needs are met.
    In addition, we are ready to begin discussions with other major 
airlines, such as American, Delta, Continental and Northwest, to seek 
out partnering opportunities such as code-sharing and frequent flyer 
arrangements. We see these as beneficial to our passengers, who would 
thus be able to earn frequent flyer miles in these other major airline 
programs while flying DC Air. We believe our service at National 
Airport will be perceived by these carriers as a desirable feature of 
their extended networks.

                                SERVICE

    DC Air's initial aircraft fleet will be composed of turboprop 
aircraft operated by DC Air employees, plus 19 regional jets obtained 
through an industry contractual relationship with current US Airways 
affiliates and 10 Boeing 737-200s obtained through a wet-lease 
arrangement with United Airlines.
    Currently, the market that DC Air will serve are flown by US 
Airways with 34 percent turboprop departures and 66 percent jet 
departures. Of the 111 daily departures to be flown by DC Air, 25 
percent will be turboprops and 75 percent jet departures. We will move 
to an all-jet fleet of aircraft over the first few years of operation; 
ultimately 100 percent of DC Air's service will be flown by jets.
    DC Air intends to retain service to the communities it serves. One 
of the key benefits that comes to the communities we serve is that we 
are purchasing from United all of the slotsrequired to serve these 
communities. Were the slots to be divided up among several larger 
carriers, none of these carriers would have sufficient slots to serve 
all the communities and each would naturally tend to add service to 
high-volume markets, such as hubs and focus cities where they already 
have a significant presence. Conversely, DC Air is committed to 
continuing service to all of our mid-size and smaller communities, and 
its sole focus is on serving these communities with the highest quality 
operation. Access by these 43 cities to the heart of the nation's 
capital will be assured.

                              COMPETITION

    DC air will provide Day One competition to the Washington, DC area, 
with competitive pricing and high-quality service.
    DC Air will offer nonstop competition to larger incumbent carriers 
from National Airport in eight of its 43 markets: Atlanta, Georgia; 
Charlotte and Raleigh-Durham, North Carolina; Columbus, Ohio; Detroit, 
Michigan; Ft. Lauderdale, Florida; and Philadelphia and Pittsburgh, 
Pennsylvania. These constitute 22 of its 111 daily departures, or 19 
percent. All eight of these markets are also served from Washington's 
Dulles airport.
    In addition, DC Air will compete in 28 markets with service 
currently offered from Dulles Airport: Albany, Buffalo, Rochester, 
Syracuse and White Plains, New York; Allentown, Pennsylvania; Hartford, 
Connecticut; Burlington, Vermont; Charleston, Columbia and Greenville, 
South Carolina; Greensboro, North Carolina; Charleston, West Virginia; 
Dayton, Ohio; Indianapolis, Indiana; Kansas City, Missouri; Nashville 
and Knoxville, Tennessee; Louisville, Kentucky; New Orleans, Louisiana; 
Norfolk, Richmond and Roanoke, Virginia; Portland, Maine; Providence, 
Rhode Island; and Jacksonville, Orlando, and Tampa, Florida. These 
constitute 70 of its 111 daily departures, or 63 percent.
    In seven of its markets, DC Air will face no direct competition at 
National or Dulles airports. These include two designated Essential Air 
Service markets (Lewisburg and Morgantown, West Virginia), as well as 
Birmingham and Huntsville, Alabama; Little Rock, Arkansas; Manchester, 
New Hampshire; and West Palm Beach, Florida. Washington's National 
Airport represents the only nonstop link for these communities to the 
nation's capital.

                                SUMMARY

    DC Air is an airline that works. It works for our customers, who 
will receive top-quality service at competitive prices between 
Washington's premier airport and the forty-three other cities we plan 
to serve. It works for our many mid-size and small communities, because 
it will retain nonstop service to National from those communities that 
otherwise would likely be converted to connecting service over another 
carrier's hub. It works for our employees, who will enjoy the benefits 
of working for a competition-focused, all-jet carrier with a clearly 
defined mission. And it ensures that airline competition will grow and 
thrive here in Washington.
                                 ______
                                 

 Robert L. Johnson, Founder, Chairman and Chief Executive Officer, BET 
                           Holdings II, Inc.

    Robert L. Johnson is the founder, chairman and chief executive 
officer of BET Holdings II, Inc., the leading Black-owned and operated 
media-entertainment company in the United States. With the mission of 
established BET as the most-valued consumer brand within the Black 
marketplace, BET has enjoyed extraordinary financial and strategic 
success since its inception in 1980. For two consecutive years, BET 
Holdings, Inc. has been recognized by Forbes magazine as one of the 
``Best Small Companies in America.''
    From 1976 to 1979, Johnson served as vice president of Government 
Relations for the National Cable Television Association (NCTA), a trade 
association representing more than 1,500 cable television companies. 
Prior to joining the NCTA, Johnson was press secretary for the 
Honorable Walter E. Fauntroy, Congressional Delegate from the District 
of Columbia. Johnson previously held positions at the Washington Urban 
League and the Corporation for Public Broadcasting.
    Johnson serves on the following boards: US Airways; Hilton Hotels 
Corporation; General Mills; Gerald Stevens; United Negro College Fund; 
National Cable Television Association's Academy of Cable Programming; 
and the American Film Institute. Johnson is also a member of the Board 
of Governors for the Rock and Roll Hall of Fame in Cleveland, OH.
    Major awards received by Johnson include: 1997 Broadcasting & Cable 
Magazine's Hall of Fame Award; CTAM's Grand Tam Award; Cablevision 
Magazine's 20/20 Vision Award which lists him as one of the twenty most 
influential people in the cable industry; an NAACP Image Award; 
National Women's Political Caucus' Good Guys Award; a Distinguished 
Alumni Aware from Princeton University; and the President's Award from 
the National Cable Television Association.
    Johnson is a graduate of the University of Illinois and holds a 
master's in International Affairs from the Woodrow Wilson School of 
Public and International Affairs at Princeton University. Johnson 
resides in Washington, DC with his wife, Sheila, and their two 
children.
     BET Holdings operates five major cable channels: Black 
Entertainment Television, a 24-hour programming service targeting 
African-American consumers that now reaches more than 60 million U.S. 
homes and more than 90% of all Black cable households; BET On Jazz: The 
Jazz Channel \TM\ and BET International \TM\, 24-hour jazz programming 
services reaching more than 2 million domestic and 1 million 
international subscribers respectively; BET Action Pay-Per-View, a pay-
per-view channel that reaches more than 10 million subscribers; and BET 
Gospel, which was launched in December, 1998, and features 
inspirational speakers and musical programming. In 1998, Johnson 
established BET Pictures II and BET Arabesque Films to produce and 
market Afican-American themed film releases and made for TV movies, 
respectively.
    BET Holdings has also leveraged its brand identity into new 
businesses outside the cable industry. These businesses include direct 
ownership of BET Arabesque Books, the only line of original African-
American romance novels written by Afican-American authors; and co-
ownership with Vanguard Media, Inc. of an impressive roster of 
magazines of Afican-American and urban targeted magazines. Those titles 
include:
     BET Weekend--a glossy magazine reaching 1.8 million 
readers and focusing on lifestyles, arts and entertainment. It is 
circulated once a month in selected Sunday newspapers in 10 major urban 
markets;
     Emerge--a provocative issues-oriented magazine providing 
news, commentary and analysis for an upscale African-American 
readership of 300,000 on a range of topics including politics, 
technology, personal financial and the arts;
     Heart & Soul--a circulation of 400,000 and geared toward 
African-American women with information on how to live well and stay 
fit;
     Honey--a multi-cultural publication focusing on fashion, 
entertainment and lifestyle for today's modern woman; and
     IMPACT--a bi-weekly trade publication focusing on the 
business of urban entertainment, including the IMPACT Super Summit, the 
leading urban music trade conference.
    Other BET Holdings ventures include: BET.com, an interactive web 
site based upon a joint venture with Liberty Digital, News Corporation, 
USA Networks, and Microsoft; BET SoundStage Restaurant, an 
entertainment-themed restaurant in Largo, Maryland; BET SoundStage 
Club, a dance club on Pleasure Island at Walt Disney World Resort in 
Orlando; BET On Jazz Restaurant, a fine dining restaurant in 
Washington; Tres Jazz, a restaurant located inside the Paris Hotel and 
Casino in Las Vegas; and BET Movies/STARZ!, a premium movie channel 
joint venture with Starz Encore Group LLC.

    Senator DeWine. Mr. Neeleman.

                  STATEMENT OF DAVID NEELEMAN

    Mr. Neeleman. Thank you very much, Mr. Chairman, Senator 
Kohl, other distinguished members of the subcommittee. I, too, 
am grateful for the opportunity to come here and share a little 
bit of my insight. Although I am not as old as some of the 
other panelists, I have spent my whole adult life in the 
airline business.
    Senator DeWine. We are not sure who you are referring to.
    Mr. Wolf. Whoever it was, we did not like it. [Laughter.]
    Senator DeWine. They are all shaking their heads, Mr. 
Neeleman.
    Senator Torricelli. I would start over. [Laughter.]
    Senator DeWine. At least he did not refer to the committee.
    Mr. Neeleman. I have plenty of gray hair to show that I 
have been in this business for a while----
    Senator Leahy. I will take hair of any color. [Laughter.]
    Mr. Neeleman. Could I have my time back now?
    Senator DeWine. It is about up, Mr. Neeleman. [Laughter.]
    Mr. Neeleman. But I have been, in my whole adult life, I 
have been in the low-fare business and one of the greatest 
pleasures that I have as a CEO of a low-fare airline is to 
provide travel opportunities to millions of people that would 
not have been able to travel if it were not for our great 
fares.
    Today, I come on behalf of 600-plus employees at JetBlue 
Airways. In just our short little time in existence, we have 
been able to prove that if you provide great service with a 
great product with unbelievably low fares, people fly and you 
can be successful. We are going to add 40 airplanes over the 
next 4 years, but at that point in time, we are still going to 
be small. We are going to be a little guy.
    I have read a lot of interesting things in the press over 
the last few weeks since this arrangement was announced, but 
one particular item caught my eye and it was a quote by 
actually the President of United, Ron Dutta, where he said 
that, and I am very compelled by their arguments, that this 
will create a finished network in the United States and if 
three or four airlines survive from this, that would be of 
great service to the passengers of the United States for the 
reasons they have explained. But he also said that there would 
also be a dozen or so regionals that would then be allowed to 
thrive and offer low fares.
    I just want to make sure that that is the case, and I think 
there are several ways. We are not against mergers per se, 
having been an individual who sold one of my airlines to 
Southwest Airlines. It worked out good for our employees and it 
worked out good for the people in the Western part of the 
United States. But I think there are ways, and maybe there are 
some things that can be done to maybe make this palatable so 
that competition can be allowed to thrive in the areas.
    For example, the Department of Transportation worked for a 
couple of years on some competitive guidelines that they wanted 
to enact. They really had to do with extreme measures, what we 
call capacity dumping, where airlines would go into a market in 
a hub-dominated airport and the incumbent carriers would use 
extreme measures to try and eradicate competition. Those 
competitive guidelines have never been enacted, for example, 
because they have been vehemently opposed by the major airlines 
that are now wanting something from the Justice Department. So 
there are things, I think, that there are some quid pro quos 
that could be discussed, where we could create a finished 
network as well as opportunities to thrive.
    Also, in the area of gate availability, Senator Edwards 
talked about Charlotte, for example. We have had difficulty 
getting into many airports that we would like to fly into. We 
will not fly into an airport where we have to sit and wait for 
gates and put our passengers through that kind of experience. 
We refuse to go to those airports. And so if some gates could 
be freed up and some slots.
    I have a tremendous amount of respect for Robert Johnson 
and what he has been able to accomplish and I wish I had his 
network as one of our 24 channels live on our airplanes, but 
low fares are created by airplanes with great economics and 
with big passengers, and I fear that the plan that DC Air has 
is actually constricting the numbers of seats and the numbers 
of flights out of Washington National Airport.
    Regional jets are used primarily to cater to business 
travelers that pay the highest fares and thereby eliminating 
the leisure traveler. If you have this construction, there have 
been studies that show that there are 16 percent less seats 
that will be available out of Washington National and 8 percent 
less flights. That will cause the leisure traveler to be 
eliminated from this equation and they will have to go to 
another airport in the Washington area, which will, in turn, be 
controlled by United. So obviously it is a very creative plan, 
but I fear that it will have dire consequences for the American 
consumer.
    Just in conclusion, we have not asked for any handouts. We 
have not asked for any government subsidies. All we want is a 
fair chance to compete. We are excited about what we have been 
able to accomplish so far and we will do it in the future. 
Thank you, Mr. Chairman.
    Senator DeWine. Mr. Neeleman, thank you very much.
    [The prepared statement of Mr. Neeleman follows:]

                  Prepared Statement of David Neeleman

    Mr. Chairman and Members of the Subcommittee:
    I am grateful for the opportunity to testify this morning on behalf 
of JetBlue Airway's more than 600 employees.
    JetBlue Airways is New York's low fare hometown airline. This is 
more than a marketing slogan, its really who we are.
    As a new entrant, low fare carrier, I am convinced that the only 
way to always offer the traveling public affordable airfares is to 
remain a low cost company. In order for JetBlue to remain a low cost 
company, we needed: unprecedented financing, $130 million; a fleet of 
brand new modern jets, the Airbus A320; a sound business plan, offering 
low fares and great service to the world's busiest travel market New 
York City; and finally an experienced and exceptional management team. 
I believe we have all four of these ingredients and thus far, the 
traveling public seems to agree.
    These cornerstones of our business, coupled with a focus on 
productivity and efficiency, have allowed us to hire at above market 
wages and to deliver ``the JetBlue Experience'' to more than 200,000 
customers.
    Having inaugurated service in February of this year with flights 
between New York City and Buffalo, we just took delivery of our fourth 
new aircraft last week. After the live satellite television screens are 
installed at each of its 162 leather seats, it will enter low fare 
service next week to and from Orlando. Shortly after launching Orlando, 
JetBlue will serve Rochester, New York and Burlington, Vermont, two of 
the highest priced travel destinations in America. By the end of the 
year, we will have ten brand new aircraft in ten cities and this growth 
pace will continue for at least four years and forty aircraft.
    Importantly, even at this pace, I know that in four years JetBlue 
will still be a very small regional carrier. This is precisely why 
certain aspects of the proposed merger, and its potential consequences 
for the entire industry, are of concern to JetBlue.
    From a macro perspective, if this deal is approved, I believe other 
large carriers will feel the need gain additional market strength in 
order to keep pace with United. Whether or not such moves are 
economically justified or in the best interest of their shareholders or 
customers, I still believe this will occur.
    This industry consolidation could conceivably result in three or 
four major carriers carrying upwards of 85 percent of all US domestic 
traffic. As an entrepreneur who has started and then sold companies, 
including an airline, I am not against airline mergers per se nor am I 
against the concept of this merger. However, industry consolidation 
such as would occur through this merger, and others, absent protection 
for smaller carriers trying to compete fairly in the domestic 
marketplace, can only be seen as harmful to the American consumer.
    When there are fewer companies competing in a market, any market, 
prices tend to rise. Small carriers, whether low fare in nature like 
JetBlue or otherwise, must be assured a level playing field and the 
ability to compete. To ensure the consumer's continued access to 
multiple carriers and low fares as the industry consolidates, small 
airlines must be afforded access into concentrated airports as well as 
access to commercially viable facilities such as gates and counter 
space at these airports. While some carriers claim airspace is the most 
pressing issue facing the US airline industry, I believe the ability of 
small carriers to access concentrated airports and obtain adequate 
facilities is the most critical issue facing new entrant carriers.
    Also, as carriers consolidate their systems and pare down 
overlapping or inconsistent routes, lessening consumer choices, they 
will be in a far stronger position to utilize their suddenly available 
excess equipment to the disadvantage of their competitors, especially 
smaller carriers and new entrants.
    As this deal is reviewed, I believe Congress and the Department's 
of Justice and Transportation should carefully examine these negative 
ramifications and consider ways for United and US Airways to eliminate 
these and similar problems. One approach which may prove to be a good 
starting point would be to strengthen and enact the Department of 
Transportation's Competition Guidelines while also increasing the use 
of its unfair practices enforcement powers. I suspect the need for the 
Guidelines may prove greater than ever as the industry consolidates.
    On a micro perspective, this deal presents several areas that I 
believe need to be addressed. Included here are specific airport access 
and facilities issues as well as specific city-pair routings where the 
only carrier in several large markets will be the new United. Also, in 
this regard, I believe that the proposed DC Air presents and unworkable 
attempt to solve the obvious hub domination issue that will exist in 
the Washington DC-Baltimore metropolitan area.
    From the press accounts I have read, DC Air is poised to become 
Washington DC's new low fare airline; and it is suggested that it will 
be profitable too. I have a tremendous amount of respect for its 
potential new CEO, Robert Johnson. He is one of America's premier 
entrepreneurs with astellar track record.
    Yet the deal itself is not only bad for consumers in the entire 
Washington metropolitan region, it is bad for consumers throughout the 
eastern United States who visit Washington on business or leisure 
travel.
    United Airlines is by far the dominant carrier today at Dulles 
Airport. After the merger, its dominance will increase. After the 
merger, United will also become the carrier at BWI. And right in the 
middle, at Reagan National Airport, DC Air will supposedly eliminate 
that new regional dominance.
    DC Air will be flying a fleet of jets, most of which will have 50 
or fewer seats. Its costs, as a so-called ``virtual airline'' that wet-
leases the vast majority of its operational assets and personnel from 
United, will be high, as will its own operating costs given its 
equipment type and proposed route structure. In fact, with the proposal 
route system as I have seen it, most of DC Air's markets will have far 
less capacity than those markets receive today with US Airways.
    With a decreased supply, and even a steady demand, prices for 
consumers in all DC Air's markets will likely increase. Since the 
deregulation of the domestic airline industry in 1978, passenger 
traffic at Washington's National Airport has actually decreased by 
360,000, a drop of more than five percent. Operations at National have 
also decreased during this period by more than 10 percent. Under DC 
Air's proposal, not only will the daily capacity further decrease at 
National Airport, by 16 percent, but so too will the number of daily 
operations, by 8 percent. With less supply into slot-controlled 
National Airport, leisure travelers seeking lower fares will likely 
find them unavailable and be forced to utilize the two remaining United 
dominated airports in the region.
    I do not believe the DC Air proposal, which will significantly 
reduce capacity at the already under utilized and artificially slot-
controlled National Airport, should be rubber-stamped by the regulatory 
authorities.
    National is a unique airport. New entrants have effectively been 
barred since 1986 as slots cannot be purchased at any price and lease 
prices are prohibitive. Even with the new FAA Reauthorization law, 
there is no end in sight to National Airport's slot regime which has 
yielded less than a one percent growth rate in passenger traffic over 
the past twenty-five years while total domestic enplanements have grown 
by more than 200 percent in this same period. This is clearly not the 
most efficient utilization of the taxpayer's most scarce aviation 
resource. Given the new competitive landscape that will be painted by 
this deal, coupled with National Airport's unique attributes, I believe 
the Department of Justice should insist that a portion of the slots 
that DC Air seeks to purchase at a below market price be returned to 
the government, from whence they came at no cost, and be allocated to 
qualified new entrant carriers who will legitimately spur competition.
    Mr. Chairman, in the end, the post-deregulation airline landscape 
is littered with many start-up carriers that have failed due to a 
combination of weak management, and inability to achieve low costs and/
or a poor business plan. JetBlue is not, nor will it become, this type 
of carrier. We have performed our due diligence and have successfully 
begun to implement our business plan in the largest travel market in 
the nation. All that we seek from those reviewing this merger is to 
correct some of its negative aspects and afford us a fair chance to 
grow our franchise and create further opportunities for customers to 
enjoy the JetBlue Experience.
    In closing, I am reminded of a forward-looking statement recently 
made by the President of United Airlines. He said that with this deal, 
for domestic purposes, United would become a ``finished network.'' 
Possibly speculating on others in the industry, he added that consumers 
would benefit most from the competition of but three or four national 
carriers and dozens of smaller regional carriers. Frankly, with but one 
reservation, I cannot altogether disagree with his prognostication. 
However, my reservation is simply that these dozens of smaller regional 
carriers he refers to have a fair opportunity to compete in every 
market they so choose. This is JetBlue's chief concern.
    I appreciate your asking me to testify today and look forward to 
any questions you may have.
    Thank you.

    [GRAPHIC] [TIFF OMITTED] T4755A.001
    
    Senator DeWine. The Senate now has a vote, and at this 
point we are going to excuse Professor Kahn because he is 
wanted on the other side of the Capitol in Congressman Henry 
Hyde's Judiciary Committee. Professor, thank you for joining 
us.
    When we get back, Mr. Cooper will be our final witness and 
then we will go to questions. Thank you very much.
    [Recess.]
    Senator DeWine. We will reconvene. Thank you all very much 
for your patience.
    Mr. Cooper, it is your turn. Thank you for joining us.

                  STATEMENT OF MARK N. COOPER

    Mr. Cooper. Mr. Chairman, members of the committee, thank 
you for having me today. This is one of those cases where going 
last is actually going best because each of the members of the 
committee has spoken. The problems that I will speak about have 
shown the empirical analysis, 20 years of empirical analysis, 
and this is the experience of the American consumer.
    There is a problem out there and this merger will make it 
worse. There are some mergers to which policy makers should say 
no and this is one of them. This merger would reduce 
competition in an industry that already suffers from a lack of 
competition. It would trigger a round of mergers that would 
lead consumers with fewer choices across the Nation. Professor 
Kahn asked some questions. I actually will answer each of those 
three questions, horizontal market power, network market power, 
and a merger wave.
    Measured at the national level, allowing the number one 
airline to buy the number six airline violates the merger 
guidelines of the Department of Justice. Those guidelines were 
promulgated under the Reagan administration, affirmed under the 
Clinton administration.
    Viewed on an airport-by-airport basis, the merger violates 
the guidelines in more than half a dozen airports, and 
actually, every one of the airports Mr. Schumer mentioned, it 
violates the guidelines, and that raises my count to about a 
dozen.
    On a route-by-route basis, there are numerous cities, we 
have heard as many as 100, that would lose head-to-head 
competition. And whether or not these are hub airports, when 
you lose competition, you reduce choices and ultimately raise 
prices. Twenty years of empirical evidence in this industry has 
shown that when airports become concentrated, when competitors 
leave markets, prices go up by 20 to 40 percent. My testimony 
identifies 2 dozen examples of econometric studies that show 
that, and you have your examples right there. Count the 
airlines. Count what you lose. Those are 20 to 40 percent 
increases by the reduction of competition. That is what the 
consumer experiences. That is what Mr. Edwards, Mr. Kohl, Mr. 
Leahy have talked about.
    Of course, market power is evidenced not only in higher 
prices but also with miserable service, and Mr. Schumer has 
mentioned that. Since airlines do not face effective 
competition, they do not have to respond at the level of 
quality of service. So much for horizontal concentration.
    The geographic extension that this merger would create 
would create a denser national network, and those networks make 
it less and less likely that competitors can attack any 
individual market. As happens with all such networks, travelers 
are locked into single line suppliers, through hubs have their 
traffic concentrated, and then the travelers are further held 
captive with code sharing, manipulation of reservation systems, 
frequent flyer promotions, et cetera.
    As those customers become more and more captured to those 
airlines, entrants have difficulty attracting people for 
segments. The necessary scale of entry gets larger. And, of 
course, the ability of new entrants to get into airports is 
restricted by anti-competitive practices, which Mr. Edwards and 
Mr. Neeleman have mentioned.
    Having gained those advantages, we end up with less 
competition for the traveling public. The merger will also 
trigger a round of mergers across the industry. What we are 
moving from is fortress hubs to fortress regions, with national 
networks that are sprinkled with hubs to hold passengers and 
deny them choices.
    Now, the interesting thing is, of course, is that the 
proponents of the merger recognize their problem so they have 
proposed a series of politically correct but economically 
incorrect and useless band-aids to try and cover over the 
problem. We have the promise of a 2-year price freeze, and it 
is very difficult to figure out whether yield management will 
change the percentage of tickets on any given flight so the 
average price goes up. And besides, 2 years is not a very long 
time. The damage to competition will be permanent. What happens 
after 2 years? It does us no good.
    We have the carve-out of a regional airline, which would 
primarily own non-jets, as I understand it, and rent its jet 
aircraft from the parent. The value in that airline is in those 
slots and those slots can be flipped, turned over after 3 
years, and again, the harm to competition is permanent, not 
temporary.
    We hear promises about routes that might be opened. We have 
heard discussions about facilities, et cetera. Frankly, I do 
not think this committee or the Department of Justice should 
micromanage the industry by negotiating a series of specific 
concessions about Syracuse or Pittsburgh or otherwise. We need 
a public policy that comprehensively gives the consuming public 
competition in the industry.
    The only way to protect the consumer in this industry is to 
provide competition. Allowing this merger to start a merger 
wave will do exactly the opposite, and this is a major national 
issue. The American public now travels, because of the growth 
of income and the mobility of our society. We must have an 
airline industry that is responsive, and the only way to get a 
responsive industry is to have real competition. We believe 
that this merger, starting the wave that will inevitably 
follow, is a step in the wrong direction. Thank you.
    Senator DeWine. Mr. Cooper, thank you very much.
    [The prepared statement of Mr. Cooper follows:]

                Prepared Statement of Dr. Mark N. Cooper

    Mr. Chairman and Members of the Committee, My name is Dr. Mark N. 
Cooper. I am Director of Research for the Consumer Federation of 
America (CFA). CFA is the nation's largest consumer advocacy group. CFA 
is a non-profit association of some 260 pro-consumer groups, with a 
combined membership of 50 million, which was founded in 1968 to advance 
the consumer interest through advocacy and education. I greatly 
appreciate the opportunity to appear before you today to offer our view 
of the proposed United Airlines/US Airways merger.
    There are some mergers to which policy makers and the Department of 
Justice should just say ``no!'' This is one of them. This merger would 
reduce competition in an industry that already suffers from a general 
lack of competition. It would trigger a round of mergers that would 
leave consumers with fewer and fewer choices across the nation. New 
airlines would find it harder and harder to enter these more 
concentrated, integrated markets that would result.
    There was a time when airline problems were largely problems for 
business travelers, but that has changed. The rapid growth of personal 
income over the past decade has made air travel much more common among 
residential consumers, in spite of sharply rising ticket prices. As a 
result, consumer groups such as CFA have become more and more concerned 
about the failures of the airline market--poor service and the abuse of 
market power in a highly concentrated industry.

        HORIZONTAL CONCENTRATION WOULD INCREASE IN MANY AIRPORTS

    On a market-by-market basis the merger violates the Department of 
Justice Merger Guidelines in more than half-a-dozen major airports 
including Philadelphia, Dulles, National, Baltimore, Boston, La 
Guardia, San Francisco and Orlando. There are numerous other smaller 
airports and routes from smaller airports that would also be affected. 
Whether they are hubs or not, the loss of head-to-head competition 
imposes a burden on consumers by reducing choices and ultimately 
increasing prices.
    The empirical evidence in the airline industry shows that when 
airports become concentrated or when competitors are removed from 
already concentrated airport, prices go up, by as much as 20 to 40 
percent. Econometric studies of market structure have consistently 
shown that concentration on routes, at airports, and in the industry at 
large are associated with higher fares (see Table 1). Analysis of 
specific events--entry, exit and mergers--confirms these findings. 
Similarly, estimates of the elimination or addition of one competitor 
have been made.
    The average traveler has few, if any choices, and they would become 
fewer if this merger and the ones in its wake are approved. Generally, 
we find that most routes have fewer than four carriers. National 
average concentration ratios (Hirshman-Herfindahl Index or HHI) 
typically are in the very high range. Measured at airports the HHI is 
in the range of 3300--the equivalent of three airlines per airport. 
Measured by city pairs, the HHI is closer to 5000--the equivalent of 
two per route. Given such a high level of concentration, we should not 
be surprised to find that anti-competitive behavior and changes in 
market structure have a significant impact on fares. Exercising market 
power is easy in such highly concentrated markets.
    Market power is evidence both by higher prices wherever it exists 
and miserable service. Since they do not face effective competition, 
they do not feel compelled to improve quality. Flowing from this basic 
observation, we find support for a number of traditional observations 
about public policy. Actual competition is vastly more important than 
the threat of competition. Barriers to entry play a critical role in 
determining the level and nature of competition. Mergers tend to reduce 
competition, increase prices and lower output.

                FORTRESS HUBS AND IMPENETRABLE NETWORKS

    The geographic extension that United is seeking and the denser 
network that the merger would create make it less and less likely that 
competitors will be able to attack these markets. As all such airline 
networks do, it would lock travelers in by concentrating their flow 
throughfortress hubs, coordinating scheduling at those hubs, and 
binding them with frequent flier and other promotional programs. As 
travelers fall more and more under the control of one airline, the 
ability to new entrants to crack markets is reduced, as it become 
harder and harder to attract passengers to flight segments. The 
necessary scale of entry gets larger and larger.
    The centerpiece of industry structure in the deregulated 
environment--the hub and spoke network--is a constant source of public 
policy concern. Part of the complexity of the analysis stems from the 
fact that the characteristics of hubs that appear to confer market 
power are both ``positive'' and negative. Just as competition can 
create efficiencies so too can hub and spoke networks. Unfortunately, 
in practice, the ``positive'' economic advantages of hub and spoke 
networks have been immediately leverage with and overwhelmed by anti-
competitive actions to increase and exploit market power by incumbents 
dominating hubs. Incumbents create barriers to entry by locking in 
customers and disadvantaging competitors in a variety of ways.
    Traffic is diverted to the dominant incumbents through a number of 
marketing mechanisms that extends market power over travelers. These 
include frequent flier programs, deals with travel agents to divert 
traffic, manipulation of computerized reservation systems, code 
sharing, and general policies of market segmentation.
    The ability of competitors to enter hubs is undermined in a number 
of ways. Access to facilities is impeded through a number of mechanisms 
that preclude or raise the cost of entry. These mechanisms include 
denial of gate space, extraction of excess profits on facilities, and 
the inability of entrants to attract adequate passengers to establish a 
presence.
    Having gained this advantage, the incumbents can raise price, 
without risking entry. Prices at hubs are higher. Profits at hubs are 
higher. Studies that try to decompose the market power associated with 
specific practices--hubbing, manipulation of computerized reservations 
systems, frequent flier programs--also reach similar conclusions (see 
Table 1).

                       A CASCADE OF CONCENTRATION

    This merger will trigger a movement from fortress hubs to fortress 
regions. We have already heard reports of retaliatory mergers that 
would organize the country into core regions where largely captive 
customers are funneled into national networks. The inconvenience and, 
in many cases, the impossibility of inter-airline travel, give the 
originating airline enhanced market power over the traveler.
    Industry structure has become sufficiently concentrated to raise a 
fundamental question about whether market forces are sufficient to 
prevent the abuse of market power. Both at individual hubs and in the 
industry as a whole, markets have or would become highly concentrated. 
Attorney's General from 25 states filed comments in support of the 
Department of Transportation's anti-predation rule which identified 15 
airports at which the dominant firm had a market share in excess of 70 
percent (see Table 2). This is the standard generally applied to 
indicate monopoly status. This is not a small airport problem. Six of 
the ten busiest airports in the country are on the list. Over one-third 
of all passenger emplanements took place at these airports.
    Moreover, the monopolized airports are building blocks of potential 
national market power through concentration of the national industry. 
For example, major pending merger/alliances or those being discussed in 
the wake of the proposed United/US Air merger include five of the 
nations busiest airports and eleven fortress hubs.

                     PROPOSED FIXES ARE INADEQUATE

    Recognizing the severe problems that this merger faces, the merging 
parties have offered a series of largely meaningless Band-Aids to try 
to patch over the fundamental problem.
    First, the new giant airline can easily increase it yield by 
reducing the number of discounted seats available. With the immense 
increase in market power up and down the East Coast that will be a 
readily available strategy. Moreover, what happens after two years. The 
damage to competition will be permanent, not temporary.
    Second, they have proposed to carve out a new airline at National 
airport. This addresses only one market and not in a very effective 
manner. The airline simply cannot provide meaningful competition. The 
airline is largely a commuter airline, with turboprops. Its jets will 
be leased from United, which will make it difficult, if not impossible 
to complete on price. The airline's primary assets will be valuable 
landing slots and gates that will be fungible in three years. What 
happens after that? The damage to competition will be permanent, not 
temporary.
    Third, we hear vague promises about extremely long haul, 
continental and international routes that might support non-stop or 
direct flights if the merged company could render the traveler captive.

                               CONCLUSION

    The bottom line is clear. Temporary freezes, feeble spin-offs and a 
few long distance flights cannot make up for the massive increase in 
concentration that will result from this merger. With two decades of 
econometric evidence about competitive problems at the levels of 
structure, conduct and performance reinforced by detailed analysis of 
recent events, one can only hope that the public policy debate will not 
revert to the irrelevant question of whether deregulation served the 
consumer interest. The trigger for public policy concern is, as it has 
always should have been, whether anticompetitive practices are hurting 
consumers. By every measure, the airlines are failing that test at 
present. Allowing a merger wave to further concentrate the industry 
would further diminish the competitive forces in the industry and is 
not in the public interest.

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    Senator DeWine. Mr. Goodwin, Mr. Wolf, Mr. Johnson, while 
it is fresh in your mind, do you want to respond to what Mr. 
Cooper had to say? Let me just ask you if you would start with 
his allegation that we are going to have a wave of mergers, we 
are going to get into fortress regions now and the American 
public is going to suffer. Mr. Goodwin or Mr. Wolf or Mr. 
Johnson?
    Mr. Wolf. Let me say that Mr. Cooper has insight into the 
future that I simply do not possess. But in any event, what is 
before this committee today and what is before the government 
of the United States is the merger of these two airlines with 
the least amount of overlap, I think, in the industry today, 
and with the most amount of pro-competitive and pro-consumer 
benefit if it is allowed to go forward.
    US Airways is basically a north-south operator on the East 
Coast of the United States of America, where we have about a 38 
percent share. United has about a 1 percent share. If you look 
at the communities that we serve, and by the way, we are proud 
to say as an example we started flying from Charlotte to Paris 
some limited number of weeks ago, a very big event for US 
Airways, in Paris, in hosting a little function, we had 
Governor Hunt there with us and the Governor sort of got me 
aside and said, ``Steve, what I really want you to do for North 
Carolina is to get us service to South America.'' I tried to 
respond as positively as I could, but the truth of the matter 
is I conveyed to him that probably not during his natural 
lifetime nor mine would that happen.
    As a result of this merger, North Carolina is going to have 
one-stop service to multiple points of big name cities in all 
of South America, one-stop service to Hong Kong and Beijing and 
Tokyo. I mean, it is an immense plus for the consumers in the 
cities that we serve.
    Mr. Goodwin. Chairman DeWine.
    Senator DeWine. Mr. Goodwin.
    Mr. Goodwin. A couple of other points. Mr. Cooper alluded 
to the fact that this was going to create regional mega-
carriers so that we would sort of divvy up the country. I think 
that is inconsistent with what consumers want. Consumers are 
telling us they want to have access to more places with more 
frequency and more opportunities to travel so they can travel 
on a given airline.
    Senator DeWine. And at the same time, they want it cheaper. 
I mean, we all want everything.
    Mr. Goodwin. Absolutely. They all want it, and they want it 
cheaper.
    Senator DeWine. They all want it all.
    Mr. Goodwin. But that flies in the face that the country is 
going to get divvied up amongst a group of players. Every 
other----
    Senator DeWine. Mr. Goodwin, excuse me. I think the 
premise, though, for that is what Mr. Cooper said and what some 
of us fear is that this is going to set off a wave of mergers. 
Once you have the new wave of mergers, you are going to be down 
to three major airlines. Then you get into this fortress 
region.
    Mr. Goodwin. I cannot speculate on whether there is going 
to be another round of mergers because I do not know whether 
anyone else----
    Senator DeWine. I would like for you to, because it is 
important and we need to have this addressed. If you say you do 
not know, that is fine, but we need for you to try to address 
this because I think it is a public policy issue. We cannot 
look at this merger in isolation--no one has a crystal ball, 
but public policy, I think, demands that we look a little bit 
forward beyond this immediate merger.
    Mr. Goodwin. I agree with you. I think you have a tough 
chore to look at the downstream effects of this and will there, 
in fact, be further mergers. My only point, Mr. Chairman, is I 
am not sure that there is another combination out there that 
will satisfy the antitrust rules as they currently are applied 
to our industry, that will satisfy the needs of the consumer, 
that will satisfy the labor integration issues that any airline 
merger surfaces. I do not know that there is another one out 
there like this. So that is why it is difficult for me to give 
you some definitive answer, but I do recognize the committee's 
need to ask that question.
    Mr. Johnson. Mr. Chairman.
    Senator DeWine. Mr. Johnson.
    Mr. Johnson. Let me respond to Mr. Cooper's comments 
regarding DC Air. I think DC Air is a viable airline today 
operating out of DC National and it will continue to be that 
way. We will transition this airline as quickly as possible to 
an all-jet airline. We focus only on the 43 cities we serve. As 
I mentioned earlier, I have been in the Washington area, I pay 
taxes here, have my business here for almost 30 years. I see no 
reason to acquire this airline for the purpose of flipping it 
and have no intention of doing so.
    In addition, in terms of our relationship with United, as I 
think was mentioned earlier in some of the testimony, we have 
leases with United that are at arm's length, that are at fair 
market prices, and these leases are done across the airline 
industry. Thousands of departures a day are based on types of 
leases from aircraft that are flown by United, US Airways, 
Delta, and Northwest.
    So there is nothing that is sort of unprecedented inwhat we 
are doing at DC Air. We are providing a transition service from United 
that we can walk away from with a 4-month notice and begin to operate 
our own jet aircraft to these 43 cities.
    Senator DeWine. Mr. Johnson, Mr. Neeleman said that under 
DC Air's proposal, daily seat capacity will further decrease at 
National Airport by 16 percent. The number of daily flights 
will also decrease by 8 percent. Is that true, and if it is 
true, what are we to make about that.
    Mr. Johnson. It is not true.
    Senator DeWine. It is not true?
    Mr. Johnson. It is not true. The number of flights that we 
have----
    Senator DeWine. What are the figures, then?
    Mr. Johnson. We have 111 slots, 222 daily departures, and 
we will continue that. In fact, we will look to expand that to 
some cities that we think by sort of reconfiguring our route 
structure might benefit from more flights coming into the city. 
We are going from turbo props, instantly from 66 percent jet to 
75 percent jet. The regional jets that we are looking at, or 
the jets that we are looking at, Boeing, for example, contacted 
us. They have a new jet, 717, that seats, I think, close to 100 
passengers.
    We have not made any final decision on the configuration of 
our fleet, but I can assure you that the three million 
passengers, both business people and tourists who come to 
Washington, DC, and Washington, DC, as you know, is a prime 
tourist market, will continue to have available seats on DC 
Air, and if we see there is a need for more seats, we certainly 
have the financial capacity to reconfigure our fleet schedule 
to meet it.
    Senator DeWine. Mr. Neeleman and Mr. Cooper, do you want to 
respond to that?
    Mr. Neeleman. Well, obviously if the--the 16 percent, I 
think, was a study taken by Sam Butrick, who is an industry 
analyst, and it was based on the--in a lot of markets----
    Senator DeWine. Based on what?
    Mr. Neeleman. Based on, in a lot of markets, planes were 
being substituted. Boeing 737's were being substituted for 
regional jets. So the seats were going from 112 or 128 seats 
down to 50 seats, so obviously there is a reduction there. But 
I do not understand the intricacies of the deal. I just know 
what I read, and if they have the opportunity to substitute 
those planes for bigger airplanes later on, then there is a 
possibility that that could increase again. This is the plan 
that was submitted by them that has those reductions, but Mr. 
Johnson obviously could buy some new, bigger airplanes and 
expand that.
    Mr. Wolf. Mr. Chairman.
    Senator DeWine. Mr. Wolf.
    Mr. Wolf. Could I just expand on that?
    Senator DeWine. Certainly.
    Mr. Wolf. Mr. Neeleman's point is absolutely correct. I 
mean, a larger aircraft and a larger stage link is obviously 
going to produce substantially lower unit cost. One of the 
units here, Dave, is that some of these markets are 35, 50-seat 
airplanes because that is how big the market is and you cannot 
put a big airplane on it because it would be economically----
    Senator DeWine. You are going to have to speak right into 
that microphone.
    Mr. Wolf. DC Air's fleet starts with three types of 
aircraft, turbo prop aircraft, regional jet aircraft, and 737-
200 aircraft, and Bob Johnson and his acting president are 
actively pursuing discussions right now with all the air frame 
manufacturers about what is the best equipment to operate going 
forward.
    Senator DeWine. Mr. Goodwin, United has promised that it 
will not raise its basic rates for 2 years, and we have talked 
a little bit about this today, except to account for underlying 
costs, such as fuel. As you certainly know, airlines use these 
basic rates to set a wide range of different fares, and we have 
all experienced it, being on a plane, how many different fares 
there are and we have had a lot of testimony about it and we 
understand why you do that. You have many different passengers 
at different rates.
    So even if United does not change its basic rates, it will 
still retain, I assume, the ability to vary how many of its 
tickets will be low-price tickets and how many will be high-
price tickets. Will you commit today that United will offer the 
same percentage of low-price tickets on its flights? And let me 
ask another question. How will you price your tickets on the 
new routes that you intend to create?
    Mr. Goodwin. Mr. Chairman, we have committed as part of 
this transaction, as you know, to a 2-year fare freeze on 
structured fares. Structured fares are full fares. They are 14-
day advance purchase fares or 21-day advance purchase fares, et 
cetera.
    We are willing to commit to an oversight process to ensure 
that we stand behind that commitment because we believe very 
strongly that that is an important part of this transaction, a 
statement to the consumer that we want to demonstrate that we 
are not going to raise fares, we are going to sort through this 
transaction. Obviously, United Airlines' unit cost rates are 
significantly lower than US Airways, given the network and size 
of our business. We want to have the ability to integrate and 
see what happens to the overall cost structure.
    Senator DeWine. These fares that you have promised to keep 
constant, what percentage, though, of passengers does that 
consist of? On a given flight, how many on an average would be 
paying that fare? In other words, how many would be affected by 
your commitment? We just need to understand what we are talking 
about.
    Mr. Goodwin. Mr. Chairman, I understand that, but in order 
for me to answer that, I need to make one other statement that 
I did not cover before.
    Senator DeWine. Sure.
    Mr. Goodwin. Those structured fare also are the basis for 
all other sale fares. So when we advertise a 30 percent off 
sale or a 50 percent off sale, those come off of the 21-day 
advance purchase fare. If you just take the structured fares 
per se, they account for, in our airline's case, 45 percent of 
our revenues.
    Senator DeWine. Of your revenue, but what percentage of 
passengers, because that is a different issue.
    Mr. Goodwin. That number, I could not tell you off the top 
of my head, but it is----
    Senator DeWine. Ten percent? Twenty?
    Mr. Goodwin. I will tell you what. I will get that answer 
for you rather than speculate, because I do not know it.
    Senator DeWine. All right. So the answer is, though, to our 
question, we do not know--you cannot make a commitment, you are 
not going to make a commitment about what the mix is going to 
be, which ultimately will determine what the average person, 
the typical person, the non-walk-up to the gate, buy a ticket 
person, will be paying?
    Mr. Goodwin. The non-walk-up----
    Senator DeWine. Everybody else, most of us.
    Mr. Goodwin. The leisure traveler?
    Senator DeWine. Well, it is not just leisure. A lot of us 
plan. People do plan some business that they have to do based 
around this. I mean, the vast majority of passengers do not 
come into the category which you have just stated you will 
guarantee to be constant. The vast majority do not.
    Mr. Goodwin. But Mr. Chairman, the vast majority come in at 
a rate below----
    Senator DeWine. Oh, I understand that. No, I understand. 
All we are trying to do today--I think we are saying the same 
thing--all we are trying to do today is determine what your 
commitment to keep fares constant really means, and what I am 
hearing from you, and then I will turn it over to Senator Kohl 
because I have gone over my time, what I am hearing from you is 
we will keep this basic rate which affects one in five 
passengers. You cannot tell me exactly, but we know it is under 
45 percent because that is what you said the dollar figure was 
and we know this is where your major revenue comes from. So we 
know it is maybe one in five. And you cannot guarantee anything 
about the mix, the percentage mix, which you vary all the time 
based upon how you maximize your profits, which you have a 
right to do.
    Mr. Goodwin. But it also is very seasonal. It is very 
unique and different by each market. So it is very difficult 
when you consider the thousands and thousands of combinations 
to start trying to get that specific.
    Senator DeWine. I understand.
    Mr. Goodwin. So what we tried to do, Mr. Chairman, was to 
find something that was very easy to monitor, very easy to 
track, very easy for someone to hold us accountable for our 
commitment.
    Senator DeWine. All right. I appreciate that. My only point 
is that for the average, the non-business, non-walk-up, pay-
full-fare person, I am not quite sure what your commitment 
means, that is all.
    Senator Kohl.
    Senator Kohl. Thank you, Mr. Chairman.
    Mr. Goodwin, you are, as the CEO of United, trying to 
maximize profits or make investments to benefit your 
shareholders stake. I mean, that is what we do as CEO's, and I 
understand it and I respect that and I appreciate that. For 
many of us, one inevitable conclusion is that a major part of 
this deal is to eliminate a competitor, and by doing so, you 
will make more money. And again, making money is not a bad 
thing. It is a good thing in our society. When you run a 
business and you make money and have a strong return on 
investment, that is a very positive development in our 
democratic, capitalistic system.
    But I find it hard not to inevitably see that whether it is 
now or 2 years from now after your pledge to maintain prices as 
they are, that down the road, this is a move that will make 
more profitable your business because you will have eliminated 
a competitor and you will be able to charge more money on 
routes for that reason. Many of us feel that way. I am sure 
many people out there in America feel that way, that this is 
clearly an attempt to eliminate a competitor so that you can 
charge more money on routes. Why is that not true?
    Mr. Goodwin. Senator Kohl, I would like to go back and add 
another responsibility that I think we, as CEO's, have, and 
that is to serve our customers, no matter what business we are 
in.
    Senator Kohl. Sure.
    Mr. Goodwin. Yes, we are in this for the economics.
    Senator Kohl. Of course.
    Mr. Goodwin. But we are in this to serve customers.This 
transaction is about serving customers. It is not about eliminating a 
competitor. It is about taking a route network today that United 
Airlines operates that is an east-west route network that is primarily 
concentrated Chicago and west and in the international world and 
combining it with an airlines network that is primarily north-south and 
concentrated on the East Coast. We believe that is a very complementary 
overlap.
    Now, are there some routes as a result of this combination 
that are going to result in some changes in competition? 
Absolutely, and we believe as the Justice Department goes 
through their due diligence in this process, as I am sure they 
will do on a route-by-route basis, they will identify those 
issues that are of concern to them and we will have to figure 
out collectively how we work together to try to see if we can 
solve those concerns. We believe we can.
    But in the end of the day, what we are trying to do here is 
enhance competition. We are trying to do that by providing 
customers with more choice, and that is clearly what we are 
doing here. Customers tell us day in and day out they want to 
have access. They want to have access to more places that I 
cannot provide them. Customers also tell us day in and day out 
that they want to do business with a single carrier, if they 
can. It is more convenient. There is one ticket. They do not 
have to go change terminals at airport locations, in some cases 
change airports. So what we are trying to do is to continue to 
refine and build our network so that we can satisfy what our 
customers are telling us they want.
    Mr. Wolf. Senator Kohl, could I add a point that I think 
would be interesting to you, if not the committee and everybody 
else?
    Senator Kohl. Go ahead, Mr. Wolf.
    Mr. Wolf. There is a marketplace in Peoria and there is a 
marketplace in Illinois. There is a U.S. marketplace. But in 
the end of the end, we are vastly approaching only a global 
marketplace. If you look at international passengers per se, US 
Airways on an annualized basis has 1.6 international 
passengers. United has 11.4 international passengers. Combined, 
we have 13 million international passengers. British Airways 
has over 30 million, Lufthansa over 27 million, Air France over 
24 million, American Airlines over 17 million international 
passengers. And we are yet to put our best football team into 
the international marketplace, and this, indeed, is going to be 
a very competitive football team in the international 
marketplace.
    Senator Kohl. At a time when air travel is increasing as 
rapidly as it is, in other words, your industry is not a 
declining industry, it is a very robust industry with huge 
growth potential, which is a good thing and I am sure you 
anticipate it as a good thing, why would we see it as healthy 
to have fewer and fewer companies competing in this industry 
which cannot need that because it is a declining industry. Why 
would we see that as a good thing?
    And after all, you, Chairman DeWine, and the other Senators 
have also all pointed out, we never know what deal is coming 
down next. In fact, as you know, the other airlines are all 
about talking possible deals right now. I would not be 
surprised if some of them are talking to put that fear in us so 
that we say no to you. That would not surprise me. But why 
would we want to start going down that path in an industry with 
such huge growth potential that does not have, after all, 
dozens and dozens of big-time competitors? Why would we want to 
start moving down that path? Yes to you, yes to the next one, 
yes to the next one, and maybe three airlines 5 or 10 years 
from now.
    Mr. Goodwin. Well, Senator, only time will tell if you have 
the opportunity to say yes to another one or another one or 
another one. But what I think is the underlying issue here is 
any carrier, and I think you heard David comment on this a 
moment ago, he wants to be able to grow his franchise. He wants 
to be able to grow his network. He needs some things to make 
that happen.
    We want to grow our network. We have a large geographic 
area that we have no access to. Our customers are asking for 
access. We are trying to provide that to them. Other carriers 
may also have a need for greater access to fill out their 
network. That may be a path they choose to go down, too. But I 
think what you will see happen, Senator, is that competition 
will continue to grow because airlines compete across hubs, not 
in a hub, across their hubs. They build networks that play to 
their strengths.
    There are hundreds of examples of cities around the country 
that have significant competition because of the multiple air 
carriers' operations or hubs. One of the cities I like to talk 
about is Des Moines, because it is in a State that has a lot of 
small cities, a State that likes to have good access to air 
service. Des Moines has service to 10 different hubs. They have 
eight airlines serving their city and they have over 50 flights 
a day to those connecting complexes.
    So there are always going to be opportunities for air 
carriers as they start to fill out their networks to tie cities 
to their respective hubs and that is how competition will 
continue to be fostered in this business, as well as one of the 
carriers which we have not talked about, Southwest. Southwest 
started as a very small local regional carrier, just as JetBlue 
is doing. They now offer today in the United States the same 
number of seats that United Airlines does, and we do not talk 
about that, but that happens. They have access to over 90 
percent of the U.S. population and they are growing at 13 to 15 
percent a year, and I am sure that JetBlue is going to be 
growing at a faster rate because they have developed a product 
that brings value to their customers and they will be bringing 
value to the marketplace and they will continue to compete.
    Mr. Cooper. Mr. Kohl, let me offer an observation, because 
the primary benefit that they keep giving us is access, and if 
you ask yourself, why do we not have access, the answer is 
simple, because we have this fortress hub system. So people who 
say, I want to get to there but I cannot find another airline 
to get to there because when I get to their hub, there is 
nobody else there. This is Mr. Neeleman's problem. He says, if 
I could get access to those hubs, then I could actually compete 
for those customers, and if I compete on price, you know what, 
for that $400, I think people will change planes. At least, 
that is what my members tell me.
    So what he is offering you is a solution to a problem that 
he has created and will only reinforce that. The point is that 
if we want to have competition, we have to have access to 
customers and this merger will make that less. Yes, he is going 
to give me a flight to Beijing, but thepeople who want to get 
from Columbus to Charlotte are paying $500 too much, and Mr. Neeleman 
would like to be able to get into Charlotte so that he can compete on 
that route, and that is his problem. That is a structural problem that 
the industry has created, so I certainly would not let them solve the 
problem by making it worse, which is what they propose to do.
    The benefit is convenience. I would love to go to Beijing 
on a one-stop flight if I live in one of those cities at the 
end of his network. But frankly, on a day-to-day basis, the 
average consumer is more worried about the $500 differential 
that Mr. Edwards presented in such stark terms, and that 
problem is created by policy about closing hubs.
    Senator Kohl. One last question. Mr. Johnson, you are on 
the board, or were on the board of USA.
    Mr. Johnson. I am still a board member, yes, sir.
    Senator Kohl. Is it not of interest that as a member of the 
board of directors--I understand you did not vote on this 
merger--but as a member of the board of directors, you now wind 
up with a brand new business that has a huge profit potential 
or you would not be doing it and it comes to you to some extent 
because you are an insider there, you understand everything, 
they understand you and whatever they decided or you jointly 
decided that you would get out of all this for yourself a shiny 
new business with a huge upside. I mean, I think you need to 
somehow explain that to those of us who are interested in 
protecting, as a member of the board of directors, protecting 
only the value of the shareholders that you represent. That is 
your fiduciary responsibility.
    Mr. Johnson. Yes, Senator. I would be delighted to explain 
that to you because I think it is part and parcel of what I 
call the way the American system works. For many years, we as 
African-Americans have not been in what I call that system of 
access to people who can benefit you in terms of opportunities.
    I went to Princeton, and because I went to Princeton, I was 
referred to a gentleman here in Washington, a guy named Bob 
Gray who owned a big Hill and Knowlton public relations firm. 
That Princeton connection got me my first job with the 
Corporation for Public Broadcasting. It is called being in the 
deal flow.
    Now, I was able to get on Stephen Wolf's board because he 
respected the fact that I also serve on Hilton Hotel's board, 
General Mills' board, and I created a business as a CEO that I 
founded, and he recognized that I knew how to create value, I 
knew how to focus on shareholder interests, and he knew I had 
the first African-American company publicly traded on the New 
York Stock Exchange. So I brought benefit to US Air as a 
director.
    Now, when this opportunity came before me, I was not 
seeking this opportunity. When Steve mentioned the merger, the 
overlap competition in DC Air, he knew he had to spin it off. 
He came to me because I was a businessman who he felt had 
enough confidence and enough capital to take on this 
opportunity. It was fully disclosed to the board. I did not 
participate in any vote on this issue at all, and I think it is 
absolutely the way business is done in the United States, where 
you get access to individuals who can help you, they present it 
to you, it is above board. I am paying full value, my capital. 
This is the American way and I am delighted to be a part of it.
    Senator Kohl. Thank you.
    Senator DeWine. Senator Kohl, thank you very much.
    Senator Specter.
    Senator Specter. Thank you, Mr. Chairman.
    In view of the very limited amount of time that we have on 
the questions in the hearing today, I want to start by asking 
that a number of questions be answered for the record.
    First of all, Mr. Goodwin and Mr. Wolf, I would like to 
know what efforts there have been made by other airlines to 
come in and compete with your carriers, what happened with 
respect to the fares they charged, how you met them, and 
whether they were able to provide any effective competition. I 
want to test to see what your experience has been, like the 
American Airlines which drove a company out of business in 
Wichita, at least under the allegations which have been made in 
that antitrust litigation.
    Mr. Johnson, I would appreciate it if you would provide 
information on the capitalization of your company. The 
information which I have amounts to your purchasing 222 slots, 
leasing 37 planes from United, and no information as to 
capitalization. I note that there have been five shareholder 
lawsuits filed against US Airways directors on an allocation of 
assets to you benefitting at the expense of public shareholders 
and another lawsuit has been filed alleging self-dealing. I 
would like your response to those and to know what kind of 
capital you have, besides leasing these planes preliminarily 
from United and how you are going to make a transition from 
leases to acquiring jets.
    Mr. Goodwin, I would like information from you about what 
happened in the sequence of mergers which followed in 1985, 
United's acquisition of Pan American World Airways. The 
information that I see is that the experts concluded that it 
spurred Northwest's subsequent acquisition of Republic, which 
created the domination of certain markets, and we have already 
talked about a concern here as to the domino effect on the 
mergers between American and Delta andContinental and 
Northwest. I would like to have your analysis as to what the impact on 
the market will be when number one teams up with number six.
    Mr. Wolf, you have made a point as to what has happened to 
similarly situated airlines, about five of them, Braniff and 
TWA and others, on an analogy as to where US Airways stands in 
terms of the future of your company, and one of the matters of 
enormous concern to Pennsylvania is what would happen to US 
Airways if this merger does not occur. So I would like your 
analysis as to what has happened to those other companies in 
terms of what is posed now as a risk to US Airways.
    And included in that I would like the analysis of you, Mr. 
Goodwin, as well, as to how Southwest comes into the picture 
and how AirTran comes into the picture and how they acquire 
slots and gates. As I understand it, there is such a tie-up on 
that that the prospect of another competitor is just very, very 
slight.
    Now, Mr. Goodwin, yesterday, you were asked at the House 
hearings whether United, and it is United because you are going 
to be the survivor here, would you be willing to sign a consent 
decree with the Department of Transportation, perhaps it should 
be with the Department of Justice, guaranteeing that whatever 
commitments are undertaken here for however long a period of 
time, that it would be enforceable. Your response was, you did 
not know the answer to that question and nobody asked you the 
follow-up question, which is if you do not know, who does. You 
are the CEO. Are you prepared today to make a commitment that 
the successor company, if a merger is approved, would be 
willing to enter into a consent decree so that any commitments 
are binding and enforceable?
    Mr. Goodwin. Senator, I think this may be a little bit of 
the same conversation we were having earlier. If you are 
referring to the price conversation that we had yesterday, 
there was a subsequent follow-on discussion about that subject 
and what I have said and what I am willing to commit to is 
United Airlines is unequivocally committing to a 2-year price 
freeze on those fare types that we have indeed identified. We 
believe that it is a fair freeze that will cut across the 
entire industry.
    Senator Specter. Can you come to my question, please?
    Mr. Goodwin. And as a result of that, we are willing to 
accept any monitoring process that we can work out with the 
Department of Transportation, the Department of Justice, to 
ensure that we follow through on our commitment.
    Senator Specter. Well, the way to do that would be a 
consent decree. You enter into a contract, call it a consent 
decree. It is enforceable. Are you willing to do that?
    Mr. Goodwin. We are willing to commit to whatever the 
government believes they need to have ensure that we follow 
through on our commitments.
    Senator Specter. Well, I do not want to leave it to the 
government, that nebulous entity for the future. I want to know 
today if you are prepared to say that you would agree to a 
consent decree. That is the way it is done.
    Mr. Goodwin. If that is the way it is done and if that is 
what we have to do to demonstrate our commitment, we are 
willing to commit to what we have committed to. We want to 
provide our customers with a 2-year fare freeze and we will 
commit to that.
    Senator Specter. I am unwilling to accept your statement, 
``if that is the way it is done, then we will commit to it.'' I 
do not want to get involved in whether that is the way it is 
done. I want to know whether you will make a contractual 
commitment which is binding in a court of law on whatever 
promises you make with respect to fares or anything else.
    Mr. Goodwin. I am testifying to that effect today and we 
are very serious about that. If the legal language is a consent 
decree that we have to commit to in order to satisfy the 
requirement, that is what we will commit to.
    Senator Specter. Well, I will take that to be a yes, Mr. 
Goodwin.
    With respect to the business about furloughs, I understand 
your policy on that. Would you be willing to commit to 
maintaining the same number of jobs so that if people leave by 
attrition, that those same number of jobs would be open, say, 
in Pennsylvania?
    Mr. Goodwin. Senator, no, I would not be willing to make 
that commitment. I think we have made an unprecedented 
commitment to employ all the people that are currently employed 
by US Airways and scheduled to work. Technology, et cetera, are 
changing every day in the marketplace and to make that 
commitment, I could not do so.
    Senator Specter. Well, there are changes and it is up to 
you, but there are an awful lot of nervous people among the 
11,700 employees in Pittsburgh and 5,800 in Philadelphia, and 
you are privileged to make whatever arrangements you choose, 
obviously. You made quite a big deal over saying that there 
would be no furloughs, but that left open the question as to 
whether employment opportunities would be maintained.
    And while technology does change, the question in my mind 
is the fairness of asking you to make a 2-year commitment on 
those job opportunities. It is not an unlimited commitment, but 
it would provide some additional assurance. And I picked 2 
years because that is what you have decided with respect to air 
fares. How about it?
    Mr. Goodwin. Senator, I am not sure exactly what you are 
asking for in that 2-year period----
    Senator Specter. Exactly what I am asking for----
    Mr. Goodwin [continuing]. A cap on employment numbers?
    Senator Specter. Exactly what I am asking for is the same 
number of jobs which are now available by US Air in 
Pennsylvania will be maintained for 2 years.
    Mr. Goodwin. Senator, I am not in a position to be able to 
make that commitment.
    Senator Specter. Fair enough. Your judgment, your business 
judgment. I respect that. But that tells us something at the 
other end as to what is likely to happen to the 17,000 
employees.
    I have taken a look at the pricing fares and the way you 
established prices, and without being facetious, I do not think 
Albert Einstein could understand this. You have 6 months prior 
to departure, 48 days before departure, 13 days before 
departure, 4 hours before departure, 5 minutes before 
departure, overbookings in all the categories, for example, 4 
hours before departure the plane is overbooked by 11 passengers 
but the computer nonetheless authorizes the sale of three more 
coach seats. There is a different standard 5 minutes before 
departure.
    I am taking a look to see what is the meaningfulness of the 
commitment you have made to maintain prices for 2 years. Does 
that maintain a commitment that you are not going to change the 
number of seats available at the lower fare, because if you 
reduce the number of seats at the lower fare, then, in effect, 
the prices will go up, although you have not raised the price. 
Does it affect the special arrangements that you have, because 
if you make changes on the special arrangements, then the 
prices would, in effect, go up.
    What can be done, Mr. Goodwin, Mr. Wolf, to give the 
consuming public some opportunity to understand pricing? Your 
fares are not published, is that correct, Mr. Goodwin?
    Mr. Goodwin. No, Senator, it is not. Fares are published 
widely, both in our system, on the Internet. Consumers have 
access to prices.
    Senator Specter. Do consumers have a spot where they can 
take a look in one document and find out these various costs 
for 6 months, 48 days, 13 days, 4 hours before, 5 minutes 
before?
    Mr. Goodwin. Senator, all the Internet bookings systems 
that are currently in use have a low-fare shopper feature that 
all the consumer has to do is put in the city they are leaving 
from, the city they are going to, the day they want to fly, and 
it will find the lowest fare for them.
    Senator Specter. That does not answer my question, Mr. 
Goodwin. I understand that. I understand you can go to the 
Internet and you can find out where the cheapest fare is today 
to go from point A to point B. But my question to you is 
whether somebody can go and get the whole picture.
    Mr. Goodwin. Well, the information on the whole picture 
only resides in the computer systems, and they can go to those 
computer systems and have access, Senator, to all that 
information. There is not one spot that I personally know of 
that has the thousands or probably millions of fares that are 
displayed in those computer systems today.
    Senator Specter. Just one more question on the one that was 
asked of you yesterday, Mr. Goodwin, and that was the assertion 
made by Mr. DeFazio that United has the worst consumer record 
and the worst on-time record. First of all, was Congressman 
DeFazio correct when he said that at the House hearing 
yesterday?
    Mr. Goodwin. Senator, it depends on what survey or what 
criteria you want to measure against. Senator DeFazio----
    Senator Specter. Is there any survey which shows that?
    Mr. Goodwin. Yes, there is, and then there are comparable 
surveys that say that we are rated number one or number two in 
the industry. So when we talk about our company, I guess we all 
like to pick the one we like the best, but United Airlines' 
service ratings by PLOAG, which is a syndicated research 
company that measures all the airlines all the time and has 
been doing it for the past 20 years, has United rated as number 
one for the last 12 months.
    Senator Specter. On what?
    Mr. Goodwin. On total airline service, all the things that 
customers----
    Senator Specter. How about just on on time, which ought to 
be----
    Mr. Goodwin. On time is clearly one of the elements, sir.
    Senator Specter [continuing]. A little easier to gauge. For 
31 elements here, you have got an Einstein problem. How about 
on time? Was Congressman DeFazio correct that United has the 
worst on-time record of any carrier in the country?
    Mr. Goodwin. The last 12 months, United Airlines' 
performance on on time is we are ranked seventh, not last. His 
comment yesterday, sir, related to the 13-year period from 1987 
to the year 2000.
    Senator Specter. OK, very last question. If you are ranked 
seventh at the present time, which is not too good, are you 
going to be any better if you acquire US Airways and have still 
a bigger system to administer?
    Mr. Goodwin. Absolutely.
    Senator Specter. Thank you.
    Senator DeWine. Senator Leahy.
    Senator Leahy. Mr. Goodwin, if it is any consolation, 
Members of Congress also get rated by a lot of different 
organizations. We tend to, when we run our reelection ads, we 
do not put all the ratings in those ads, either. This probably 
comes as a shock to you, but it is true. But we usually end up 
finding--whoever runs against us finds the other ratings and 
they publish them.
    I would also say on the question of consent decree in the 
form of a contract, like all contracts, you cannot enter into a 
contract unilaterally. I would assume that your answer would 
include the fact that if you are going to have such a consent 
decree, whoever is in the government has to agree to the other 
side of it or you cannot enter into such a contract, is that 
true?
    Mr. Goodwin. Senator, that was the point I was trying to 
make, that whatever we have to do to satisfy the Department of 
Justice requirements, we will do that.
    Senator Leahy. I am thinking of Doc Yeager, one of my 
professors in Contracts 101 at Georgetown, God rest his soul. 
He was a very colorful man, but I do recall we needed more than 
one person in a contract.
    Now, Mr. Goodwin and Mr. Wolf, I think your respective 
boards of directors are probably praising the heck out of you. 
They should. You have entered into an agreement. It is on 
paper. It is a logical fit for both companies. United flies 
primarily east-west. US Airways is a dominant north-south 
carrier on the East Coast. If you spin off DC Air or whatever 
it may end up being called, then you address the United 
domination of the Washington, DC market.
    But, having said all these things complimentarily, and I 
mean them that way, I think you are going to have market share 
problems in many other communities. US Airways was a dominant 
carrier in many communities on the East Coast. If you merge 
with United, it is going to strengthen that grip even more. It 
is the places with the end-point destinations that bother me. 
If there is consolidation of carriers, I do not see how that 
brings down these high air fares.
    You talked about holding air fares in place for 2 years. 
That does not help us when we think the air fare is too high 
already. I have used this chart. I know these prices because I 
fly my family back and forth all the time. I find it a lot 
easier when they say, Dad, let us go to California or Ireland 
or visit our relatives in Italy or whatever else we do than 
going back and forth here. It is going to cost the old man a 
little bit less.
    How do you take care of those end-point areas? Frankly, I 
do not see that if these prices are this high with some 
competition, how could they possibly come down with even less 
competition?
    Mr. Wolf. Can I comment on the----
    Senator Leahy. And I have enormous respect for both your 
airlines. I said before, they fly into Burlington. Your people 
there are among the most professional I have ever met. As I fly 
around the country, US Airways and United, the people I deal 
with in your other hubs and areas are extraordinarily 
professional and helpful people. That is not the issue. It is 
the issue whether a family can go somewhere without taking out 
a second mortgage.
    Mr. Wolf, you were trying to say something.
    Mr. Wolf. Let me try to comment on the round-trip 
Washington, DC, from Burlington. I am assuming these numbers 
are all absolutely correct. My guess is the $735 round-trip 
fare is the walk-up, most expensive----
    Senator Leahy. No, 7 days.
    Mr. Wolf. Seven-day advance for the $735? And the $419 fare 
to London is certainly the largest advance purchase possible--
--
    Senator Leahy. Seven days.
    Mr. Wolf. Seven days also?
    Senator Leahy. Yes; we took these all at 7 days. 
Incidentally, on an earlier question you were asked, and I will 
help you a little bit on this, Mr. Goodwin, and I will go back 
to you, Mr. Wolf, you were asked about these Einsteinian 
charts. The Internet really has changed that, and I think in 
fairness to you I should say so. I know that my kids on their 
last trip from the West Coast they put in to PriceLine or 
Travelocity, one of those, a fare, date, and came back and they 
said no. They put back in the amount again they wanted, and 
after 15 minutes, they got it. This is something we never had 
before. I am not doing that as an ad for any of these 
companies, but I know we find that is very helpful.
    I am sorry, Mr. Wolf. Go ahead.
    Mr. Wolf. Let me go back to it again and try to take a shot 
at it. Let me start by saying, which I do not say with any 
particular pleasure, that US Airways has the highest unit costs 
in the industry. We have the highest unit costs in the industry 
primarily for two reasons. One is our average stage link and 
the average aircraft size, a small airplane and a small stage 
link which drives high unit costs. And two, because we are only 
about half the size of the major carriers and we cannot spread 
our fixed costs over a larger base, which is one of the driving 
forces for the transaction we are proposing.
    I would guess that unit costs between Burlington and 
Washington are 5, 6, conceivably 7 times what they are in that 
transatlantic flight. The load factor in the transatlantic 
flight at that fare level is probably 100 percent, and our load 
factor in Burlington is maybe 60.
    Mr. Chairman, if I could, I would like to go back to the 
fortress hub thing for just a second because fortress hubs have 
this flavor of bad, and I am particularly happy that Senator 
Schumer is back in the room. There are 23----
    Senator Leahy. I just want to add a note on this, Mr. Wolf. 
I recall when there has been competition. Prices still did not 
come down. I mean, it may drive the airline, a regional 
carrier, anything else, to really determine what they will use 
for equipment. I take flights on both of your companies all the 
time. They are usually full. A lot of times, I cannot even get 
on because they are already full. A larger plane which would 
cost you a lot less if it was available would allow them to 
bring down the cost of that ticket, but also there would be 
people there. But I remember when the old Peoples Express was 
flying in and out of Burlington, we had busloads coming down 
from Montreal. We had a lot of others that came there to fly 
it, and while it was going on, prices of everybody came down.
    But anyway, go ahead.
    Mr. Wolf. Well, the larger aircraft would, in fact, would 
be substantially more expensive to operate, but it would 
generate lower unit costs.
    But in any event, if I could go to the hub thing for just a 
second, there are 23 hub cities in the United States of 
America, and because of the economic advantage of being a hub 
city, I suspect every other city in the United States of 
America would like to be a hub city. Hubs compete with hubs, 
which is a little more difficult for us to understand. We all 
understand airlines competing with airlines, but hubs compete 
with hubs, and let me use an example for just a second, and I 
am particularly pleased that Senator Schumer is here.
    We fly from Buffalo to Pittsburgh 4 times a day with full-
size jet aircraft. There are 24 passengers a day that fly 
between Buffalo and Pittsburgh. On average, we have six of them 
per flight. Now, because we run a hub in Pittsburgh, which, by 
the way, obviously we would never fly any times per day from 
Buffalo to Pittsburgh with 24 passengers in total in the 
marketplace, but because we have a hub in Pittsburgh, we are 
able to say to our sales arm in Buffalo, you not only can sell 
a seat to Pittsburgh, you can sell a seat as a result of the 
connecting complex in Pittsburgh to the beyond 35 additional 
destinations, and the sum of that is we generate a load factor 
of about 67 percent and it becomes a sort of a profitable thing 
for us to do.
    But if you look at Buffalo and you look at our operation, 
if you are in Buffalo, you can connect, if you want to go to a 
beyond point--pick the West Coast, where you cannot fly nonstop 
from Buffalo to the West Coast--you can fly over Atlanta 3 
times a day from Buffalo to connect to Los Angeles, or 
Charlotte 3 times a day on us, or O'Hare 10 times a day on 
American or United, or Cincinnati 3 times a day on Delta, or 
Cleveland 6 times a day on Continental, or Dallas once a day on 
America, or Northwest 6 times a day out of Detroit. Hubs 
vigorously compete with hubs, and as a result of that, these 
communities get more service than they would otherwise get. The 
hub city gets phenomenally more than it can justify on an O and 
D basis because of the size of its local market, and the feed 
cities get more than they would get otherwise.
    As a result, frankly, what is going on in the industry with 
this strong desire for low-cost, low-fare carriers to come in, 
perfectly understandable by me as an American consumer, and I 
understand perfectly what they do to mature-cost airlines in 
terms of monitoring their fare levels, because they have 
dramatically lower costs and thus lower fares and that is 
certainly what the American consumer wants, we have to match 
the fare. Whether we lose money or not, we have to match the 
fare, because the option is if we do not match the fare, no one 
is going to fly on us and we are going to have to withdraw from 
the marketplace.
    So I think there is an immense amount of competition in 
this industry today and I think it is going to continue. I 
think JetBlue is going to do exceedingly well and continue to 
grow, and among other things, cause all of us to watch our 
fares because we do not have his costs but we have got to match 
their fare level.
    Senator Leahy. Could I close with this, Mr. Chairman. I am 
going to submit a number of questions, and I realize this is a 
complex area and at some point I would like to talk at further 
length----
    Mr. Wolf. I would like to do that.
    Senator Leahy [continuing]. With you, Mr. Goodwin, and you, 
Mr. Wolf, and you, Mr. Johnson, about this, but Mr. Neeleman, 
let me just say, if I might, Mr. Chairman, one more question, 
Vermonters are excited about the jet service to Burlington. I 
have seen diagrams of these planes----
    Senator Schumer. I have been on them, Mr. Chairman. They 
are very nice.
    Senator Leahy. Actually, they are the kind of plane you 
wish the flight lasted a little bit longer on, unlike many 
times where we are all so busy and we do not want it to last 
any longer, even on the nicest of airplanes. And I understand 
your service to Buffalo--that is in New York, upstate. 
[Laughter.]
    Senator Schumer. I have been there.
    Senator Leahy [continuing]. And to Florida is working out 
extremely well. Now, Vermont is a high-priced destination, so a 
low-fare service is very welcome. You said that youare 
concerned that JetBlue is going to be shut out of National Airport 
because of slotting problems, but there are two other airports in the 
DC area. In fact, a couple of those fares are out of BWI, and we have 
got Dulles. Why is it a problem if you get shut out of National?
    Mr. Neeleman. I think if you look at consistently, 
Washington National is the airport that people want to go to in 
the Washington area. It is the airport that traditionally has--
you cannot buy slots in there, and we made an inquiry as to 
leasing slots and it was so expensive that obviously we could 
not make it work. Obviously, the market dictates and those 
slots obviously were created for the taxpayer and were created 
by the Federal Government and given out and we would like to 
have the opportunity to be able to, thanks to Senator Schumer 
and efforts of many, we were able to have access to Kennedy 
Airport, and from there we have been offering $49 to $99 fares 
to upstate New York and have increased service from three 
flights a day to Buffalo to five flights a day. There are 
thousands and thousands of people now that are traveling where 
they could not have traveled before. All we want is access and 
we want to be able to fly into a market.
    To Mr. Wolf's comment, I understand we cannot be all things 
to all people. We will never fly to Paris out of Charlotte or 
anywhere else. There needs to be a national system that needs 
to be created for a maximum amount of efficiency. You may be 
happy when you fly from Buffalo to New York on us for $49, but 
what happens 1 day when you want to fly to Spokane, WA? You 
have to have a national network.
    I am saying, OK, it makes sense, all the things they say, 
but we need to have, then, if we are going to put so much power 
in such few hands going forward, then let us enact some way 
that we can make sure that competition on a regional basis, 
like what we have been able to do in the State of New York and 
we will do in the State of Vermont, can continue, where they 
cannot take this power and lay it on top of you, and there have 
been many cases of that, to put you out of business just to 
return to status quo.
    I think, too, Southwest has been able to coexist and they 
have flourished. They make hundreds of millions of dollars a 
year. If we were making that now, we would not be so concerned 
about making sure there were competitive guidelines. We hope to 
get to that place someday, and I am sure we will.
    But there are points on both sides. There is the good and 
there is the bad, and I think there is a way to take this 
opportunity to take the good with the bad and make it better 
for the American consumer than it has been heretofore or will 
be in the future if there is something that is not done.
    Senator Leahy. Thank you again, Mr. Chairman, for holding 
this hearing. I think it is extremely valuable.
    Senator DeWine. Thank you, Senator Leahy.
    Senator Schumer.
    Senator Schumer. Thank you, and I thank you, Mr. Chairman, 
for your patience and courtesy which you always extend. I am 
going to try to make it quick because I am in here at the end, 
but I have two questions that I would like to ask each of the 
four panelists, and I will ask them once and let them answer 
seriatim, and then I have one final question for Mr. Neeleman.
    First, how is this merger, given that we have not gotten 
good service in upstate New York--I met Mr. Wolf a while ago 
and complained about the service and he explained to me his 
high costs and I said, well, I am going to have to try to bring 
in competition. He said, well, that is probably what you should 
do.
    Mr. Wolf. That is absolutely correct.
    Senator Schumer. I respected his honesty, and I did. So the 
question is, what will this merger as constituted by you folks 
do for upstate New York better than what is done now?
    And second, given the high cost structure, why is it not in 
my constituents' interests to take these beautiful 212 slots, 
or whatever it is--did I get the right number?
    Mr. Wolf. Two-twenty-two.
    Mr. Johnson. Two-twenty-two.
    Senator Schumer. Two-twenty-two, which are gold, andgive 
them to a low-cost airline, because it seems to me I do not see, given 
the arrangement that you folks have made, that the new airline is going 
to do much better than the old airline, and worse, in a sense, that if 
they do not do well, it may be because they do not have the long-term 
tradition and obligations that US Air had, they will just change. They 
will say, we should not be a Northeast airline. We should be something 
else. Or we could take our slots and give them to the market.
    And so I guess my second question is, are people willing to 
commit that they will serve upstate New York? I do not mean a 
verbal commitment, I mean we work out with Antitrust and the 
Department of Transportation that these slots, which I think 
many people are having doubts about in terms of how the system 
works, are tied to geography as opposed to tied to a carrier. 
Mr. Goodwin, you may go first.
    Mr. Goodwin. I will speak to your question of upstate New 
York. Upstate New York is a very important market to not only 
your constituents but my constituents.
    Senator Schumer. The seventh largest State in America, it 
would be, without any of New York City or the suburbs.
    Mr. Goodwin. We have had a long-term relationship of 
serving upstate New York, principally over our hub in Chicago, 
and most recently with some flights down to Dulles as we have 
expanded across the North Atlantic. It is our intent as part of 
this transaction to continue to provide all the service that we 
have been providing to upstate New York and providing the 
service that will come as part of this transaction to the hubs 
of Pittsburgh and Philadelphia.
    Senator Schumer. Do you think the cost would get any lower?
    Mr. Goodwin. I believe that US Airways has a unique problem 
with their cost structure because of their size and their 
complexity. We have a much larger route network. We are clearly 
going to be able to take their infrastructure costs and spread 
them over a much larger base. That, in my estimation, is going 
to lower costs.
    Senator Schumer. Now, that would not be true of DC Air? 
They will not have the larger base and they will still have 
high costs.
    Mr. Goodwin. No, but Senator, they also do not have 75 
years of history of being an old economy air carrier. They are 
starting from scratch, just like JetBlue has. You have 
different work rules. You have different employment contracts. 
You have different process that we, unfortunately, cannot go 
back and reinvent the wheel. That is why a Southwest and a 
JetBlue and a Frontier and an AirTran and an ATA and all those 
carriers can be successful in the market, because they are not 
tied to the old patterns that we are.
    So upstate New York, in my estimation, is going to benefit 
significantly from this transaction because they are going to 
have more access. They are going to have one carrier. They are 
going to have online capability to basically the global 
markets. And we are very, very hopeful that if we are as 
successful as we think we are, we are hopeful that we are going 
to be able to bring more service to upstate New York from some 
of our other hubs.
    Senator Schumer. Mr. Wolf.
    Mr. Wolf. Senator Schumer, as you and I have talked in the 
past, US Airways' Achilles heel, much to my embarrassment but 
factually, is that we are the highest unit cost carrier in the 
country. We have not done what the other five carriers who were 
mid-sized mature-cost carriers at the beginning of 
deregulation, we were not Eastern, Braniff, or Pan American and 
going out of business. We were not Continental or Delta who 
have gone through bankruptcy twice. We are the sole remaining 
mature-cost carrier of mid-size, and clearly it is an issue of 
significance to us and has some portent about our long-term 
viability.
    Having said that, when this merger is consummated, our unit 
costs are going to come down dramatically because we are going 
to be in a much, much larger base. It is just the way the 
system works. If I could double the size of my own airline 
today, our unit costs would come down absolutely dramatically, 
and that is what will happen when we merge with United 
Airlines.
    Senator Schumer. Why would the price be lower? Let us leave 
out DC for the moment, which is a new entity. Why would the 
price be lowered if there is less competition rather than more? 
You are a businessman.
    Mr. Wolf. I do not agree there is going to be less 
competition. I think there is going to be more vigorous 
competition as a result of doing this than less competition.
    Senator Schumer. How so? You have two airlines and now you 
have one.
    Mr. Wolf. On those routes, on those limited number of 
routes where we go from one to two, it is a real issue. It is a 
Justice Department issue. It is an issue for you. It is one 
that we are going to deal with as aggressively as we can. But 
other than a point-to-point service, if you are in Buffalo and 
you are flying to the hundreds and thousands of cities in the 
United States of America----
    Senator Schumer. Take Chicago.
    Mr. Wolf. To Chicago, you can fly on American or United 
Airlines. But if you go beyond Chicago, you can fly over 
Chicago in those two carriers or over Cleveland or over 
Cincinnati on all different airlines and we are all competing 
for that beyond passenger. So competition isgoing to stay as it 
is and we think it is going to become even more aggressive.
    Senator Schumer. It has not worked very well. Admittedly, 
it has worked the worst in the slotted airports, the two New 
York City, National and O'Hare. But it has not done us much 
good up to now.
    Mr. Wolf. Well, I am not sure I would agree. I mean, the 
GAO Office says that fares of airlines today are some 36 to 40 
percent less on a real dollar basis----
    Senator Schumer. I mean, for upstate New York, it has not.
    Mr. Wolf. The discount fares are still very attractive, but 
if this happens, I am sad to say, you are going to lose the 
highest-cost carrier in the country and you are going to get a 
much bigger carrier with a much broader system and with all the 
economic advantage of going to all those points online, which 
is what Kodak will tell you they want, at a lower cost 
structure.
    Senator Schumer. And let me ask you one other question.
    Mr. Wolf. I want to answer the second one, also.
    Senator Schumer. Go ahead.
    Mr. Wolf. The second one is, why should we give these slots 
to this airline versus a low-cost carrier. There is some 
misconception about ``this airline.'' This is a new airline, 
just like JetBlue, with new employees. They are not taking one 
US Airways employee, unless they hire a member of management 
who goes there willingly. He is going to hire his own employees 
and acquire his own aircraft and he is going to be a low-cost 
carrier starting up. And, too, he is going to be able to 
provide much more competitive fares than anything that we can 
provide today.
    The last thing on that particular point is----
    Senator Schumer. How can he get--well, I will ask Mr. 
Johnson this.
    Mr. Wolf. He is a JetBlue start-up airline with, at this 
point in time, an acting president. He is going to hire a 
president. He is going to hire a chief pilot. He is going to 
hire pilots. He is going to go through the same thing that 
JetBlue has gone through. But what he has to do, which is 
somewhat awkward and unusual, the day after the merger is 
consummated, he has got to serve these 43 cities and he has got 
to do temporary things to get aircraft to operate with until he 
can get his own fleet and his own employees, and he cannot do 
that in advance because we are talking about hundreds of 
millions of dollars in commitment to airplanes and he does not 
even know if he is going to have an airline. So it is only an 
interim situation.
    Senator Schumer. Yes, but at the beginning, to keep the 
service going, he is going to basically take over your 
structure and call it a different name.
    Mr. Wolf. No, he is not. No, he is not. He is going to do 
one of a couple of things. We are going to move a significant 
number of regional jets that we have exclusive contracts with 
today, US Airways, and move those into National Airport to 
serve routes that we are flying with our own aircraft today at 
a much, much higher cost.
    Senator Schumer. Give those to him.
    Mr. Wolf. Well, I am not giving them to him. He is going to 
do this himself. He is going to acquire, own, eight turbo prop 
aircrafts, although he is going to become an all-jet fleet as 
quickly as he can, and he is going to lease from United some 
limited number of 737-200's with crews to operate these routes 
at an arm's length negotiation until he can get his own 
airplanes. He does not have the luxury of doing what JetBlue is 
doing, which is starting up with one, two, three air frames and 
growing that way because he has got to serve the marketplace 
day one. But he will get there as quickly as he can. But he is 
a low-cost, new airline start-up carrier.
    In the alterative----
    Senator Schumer. Why, if you could not do it, can he do it? 
You could have started from scratch, so to speak.
    Mr. Wolf. No, I could not.
    Senator Schumer. You could have gotten new planes. You 
could have looked for new employees.
    Mr. Wolf. No, sir, we could not do that. We are certainly 
doing a good job of buying new aircraft, and we are going to 
take 58 new large jets this year. But I cannot abrogate my 
union contracts. I mean, I have a scope clause that says if I 
buy an airplane and we own an airplane, it is going to be flown 
by our pilots, and it is common in the industry. He is going to 
go out and hire his own pilots. He is going to start up just 
like JetBlue, and I cannot do that. I cannot do it with a 
subsidiary or any other way possible.
    Too, we did look at selling the slots off piecemeal, two 
here, six there, 12 there.
    Senator Schumer. Right.
    Mr. Wolf. We probably could have gotten more money for 
them----
    Senator Schumer. No, I do not want to see them sold, 
because they could go----
    Mr. Wolf. Well, if we would give them away----
    Senator Schumer. What do you think of the idea of tying 
slots geographically?
    Mr. Wolf. Frankly, I have never thought about it, but I can 
tell you this, that US Airways has served a number of these 
small communities for 50 years or more, and we could certainly 
use those slots to larger geographic centers wherethere is more 
revenue, and Bob Johnson is committing to doing the same thing.
    Senator Schumer. OK. We will need more than a verbal 
commitment.
    Mr. Wolf. I think I interrupted you a minute ago.
    Senator Schumer. No, no, no, that is fair.
    Go ahead, Mr. Johnson, the same questions.
    Mr. Johnson. I think I am going to echo in what I am saying 
a lot of exactly what Mr. Wolf said. In what we will do for 
service in upstate New York, the service is going to be better 
than it has been before because, for example, right now you get 
three jets in Buffalo, three jets in Albany, three jets in 
Rochester, three jets in Syracuse. You continue to get that 
same level of service, but in our case you have an airline that 
is totally focused only on serving the 43 cities of which the 
four that I am talking about are your cities.
    Senator Schumer. Binghamton, too. Binghamton, you serve.
    Mr. Johnson. OK. We also serve White Plains, as well.
    Senator Schumer. That is not on your list.
    Mr. Johnson. DC Air is not in Binghamton.
    Senator Schumer. Not in Binghamton, because you do not go 
from Binghamton--US Air does not go now from D.C. to--they just 
go to Pittsburgh. All right. OK.
    Mr. Johnson. So you are going to have a focused airline. It 
is not going to be tied to the mature costs that Stephen Wolf 
mentioned. So we can focus on productivity, we can focus on 
marketing, we can focus on providing a service that is directly 
related to the communities that we serve. We are not looking to 
go across the Atlantic. We are not looking to build up hub 
sites anyplace else. We are only focusing on those 43 cities.
    Now the question you asked, why should you give these 
valuable slots to a low-cost carrier? First of all, they were 
not given to me. They were sold to me, just as slots have been 
sold historically throughout the airline industry or leased 
throughout the airline industry. This is not a give away.
    Senator Schumer. They were sold in a----
    Mr. Johnson. They were sold.
    Senator Schumer. Not in a competitive bidding situation, I 
presume.
    Mr. Johnson. And as far as I know, historically, they are 
not sold in a competitive bidding situations.
    Senator Schumer. No, that is one of the problems.
    Mr. Johnson. Well, I know, but I am only coming to the 
opportunity as it is presented, and so I did exactly what every 
other airline has done and so on.
    Senator Schumer. Right. You realize that is not a great 
argument for upstate New York.
    Mr. Johnson. Well, I think David got--his slots were sort 
of given to him. I do not think he competitive bid for them.
    Senator Schumer. No, but they were tied geographically.
    Mr. Johnson. And we are tied in a way geographically for 50 
years of history and I see no reason to change that history in 
terms of serving these 43 cities.
    Now, the question is, why should you give it to a low-cost 
carrier? My argument is, we will be a low-cost carrier because 
of some of the things that I mentioned before--focused airline, 
rationalized fleet, market commitment to serve just these 43 
cities.
    For example, if you look at the DC Air routes now, the 
total revenue, if you take the total revenue, divide it by the 
three million passengers, the average cost of a point A to a 
point B flight on DC Air is about $125. Now, that is the kind 
of competitive route structure they have now. I think once we 
get a hold of it, and as I said, focused on cost, focused on 
service, those costs are going to be much more competitive.
    Now, will we commit to serve upstate New York? Senator----
    Senator Schumer. Let us put it like this. How will you 
commit beyond a verbal commitment?
    Mr. Johnson. I think we will be more than willing to sit 
down and talk with the people at DOT, the people at Justice 
about how they might ask us to address that issue. But I think 
if you look at what the airline has done in the past, that has 
been its route structure. It has been a valuable route 
structure. It would be certainly no way in my interest to try 
to tamper with that very attractive route structure, and part 
of that route structure are the cities that we mentioned in 
upstate New York. But I will be more than glad to sit down with 
the officials at DOT and Justice to address that issue.
    Senator Schumer. OK, thank you. Now, I would just like Mr. 
Neeleman and Mr. Cooper to, in whatever way you see 
appropriate, either agree with or rebut what has been said by 
Messrs. Goodman, Wolf, and Johnson.
    And just one other question to Mr. Neeleman, which is you 
have done a great job. I mean, I am not wedded to JetBlue. I am 
wedded to good service for upstate New York and you are the 
first one to really provide. But you have a real constraint, 
which is number of jets. How are you going to be able--let us 
say somehow or other you have had a chance to get a bunch of 
those slots and fly to the cities you are flying to from 
National. How would you be able toserve them given that you 
have a constraint on the number of planes you have? So answer whatever 
you want to say in reference to these three guys and then that 
question.
    Mr. Neeleman. OK, great. Let me answer the last one first. 
You know, one of the reasons that I think and I know that 
JetBlue will be successful is that we have a plan and we are 
going to stick to it. As much as this area of the country would 
be nice and I would love to have been in Mr. Johnson's spot to 
get these, we are committed to New York. We are a New York-
based airline. We have committed to you and we have committed 
to everyone that we are going to utilize the slots that we have 
in Kennedy Airport.
    We could not use more than maybe 10 of those slots to 
provide service between here and New York City, which would in 
turn provide service to upstate New York. There are other 
airlines that are lining up saying, we want them all. We will 
divert all of our planes in here. No, we are not here in a 
self-serving way to do that, and I frankly have been 
enlightened today by the fact that Mr. Johnson is not something 
that is going to be attached to United Airlines, that he is 
going to go out on his own. We have a lot of expertise. I was 
just sitting here thinking, maybe we should trade in some of 
our expertise for some of his slots. We could do a quick trade 
here.
    Senator Schumer. As long as you fly to New York State, I 
might support that.
    Mr. Neeleman. Well, you know they will be.
    Mr. Johnson. And Dayton and Columbus, right?
    Mr. Neeleman. And Dayton and Columbus.
    Senator Schumer. Well, that is for the other guys to do 
their thing.
    Mr. Neeleman. But we are committed to New York. We told you 
that. We are, and we are not here to try and grab all the slots 
or probably not any of them, for that matter. But we would like 
to serve the Washington, DC area. If we cannot get into 
Washington National Airport, eventually we will be at Dulles 
and bringing those low fares. We will not be able to provide 
all the things that United Airlines can provide, but we will do 
and we will create our passengers that are not currently 
traveling today.
    Senator Schumer. And what is your judgment on the ability 
of Mr. Johnson, not Mr. Johnson per se, who is a fine, 
accomplished, intelligent man, but of a company starting the 
way it is to be a low-cost carrier, forgetting about where they 
fly and all of that?
    Mr. Neeleman. You know, I think, obviously, in the initial 
stages, there is a policy that is a ``use it or lose it'' 
policy. This is a very creative thing, because if the slots 
were handed to him on a piece of paper overnight, he would lose 
them all.
    So there needed to be a commercial arrangement where these 
planes would be leased and be flown by a regional carrier, 
probably not by United's pilots but one of their regional 
carriers to fly these, and this is the reason where hopefully 
temporarily the seats from Buffalo will contract, and hopefully 
Mr. Johnson, having these assets and these slots, you can 
really make a case the same way we did in Kennedy to build an 
airline in here with really low costs, and hopefully his 
concept will be similar to what ours is. Instead of trying to 
grab the $800 fare, which has been the case here, let us do a 
more rational $200 fare or $300 fare, from $99 to $300 and 
create a whole lot of new business and fly bigger jets on it.
    If this happens, we are all kind of in this war together, 
but we all have similar challenges and wish him all the luck 
because it is a tough business. Like I said, the way it is 
structured, if it is totally not tied to United and if there 
are restrictions that he has to fly to certain places, he can 
make it work. And if his costs are lower, which ours are, 
significantly lower, and we can show him how to do that and we 
would be happy to talk to him about it, then he can make a 
success about it.
    Senator Schumer. Thank you. Just before I get to Mr. 
Cooper, who I see is sitting apart from the other capitalists--
--
    Mr. Cooper. Plus Mr. Kahn here.
    Senator Schumer. OK.
    Mr. Cooper. He was the buffer, see.
    Senator Schumer. But Mr. Johnson, just to clarify 
something, there is no agreement and will be no agreement that 
if you do not use a slot, the slot goes back to United, reverts 
to United?
    Mr. Johnson. Senator, there is no agreement. There will be 
no agreement. I am acquiring all the slots and will operate the 
slots to the 43 cities that we serve.
    Senator Schumer. If that was asked already, I apologize, 
but I thought it had to be.
    OK, Mr. Cooper, you get the last word.
    Mr. Cooper. Mr. Schumer, your defense of upstate New York 
is magnificent, but frankly, as I listened to this discussion 
all morning, we have heard Mr. Neeleman talk about rules on 
predation and access to hubs. We heard Mr. Specter talk about 
his facilities. We have heard the company commit to price 
regulation for 2 years and maybe antitrust. Two to one, I think 
we would have to do three to two and four to three. On any one 
of those routes, you lose that competitor, you have lost 
something. If we go back, actually, we should look at six to 
five and five to four, but let us start at four to three, 
because almost nobody has more than four.
    What we have got here is we are re-regulating the airline 
industry, and frankly, if I walked in here and said, you know 
what, we ought to re-regulate the airline industry, you guys 
would have said, you are nuts. This is one of those liberal 
consumer groups who wants to impose regulation.
    So my answer is simple. Do not cobble together the re-
regulation of the airline industry to defend your interests, 
which I am sympathetic with, or yours or Illinois or 
Pennsylvania. Let us vote for competition. This man represents 
real competition, and let us make sure----
    Senator Schumer. Which man are you pointing to?
    Mr. Cooper. This man right here, Mr. Neeleman. He has 
brought low prices, and occasionally, we have heard the 
history, we do occasionally get a low-price airline, but they 
frequently get run out of the market, and we have got a court 
case about that, and maybe we need regulation. Maybe we need 
legislation.
    But I would urge you, as you have frequently urged me in a 
number of other industries, not to try and cobble together an 
industrial policy on the back of these mergers through consent 
decrees. You hate that for most industries. And so the answer 
is that, from our point of view, to not let this merger go 
forward and maybe look at the way we can introduce competition 
across the board, because you are going to have a chance if 
this one goes forward to do the same thing as a consent decree 
on the next one, and they will tell you, ``I cannot predict 
history.'' The answer is that we know they are coming, just 
like they did in telecommunications and cable TV, et cetera.
    And so from our point of view, public policy ought to be 
set. I will give you the list of things that you should 
accomplish and tell Justice to put on the back end of that 
consent decree, and I guarantee you Mr. Goodwin is not going to 
want to sign that consent decree, which answers all these 
problems.
    The answer is, say no to the merger, continue to press the 
industry to compete, and maybe we need to come back and ask 
this question about hubs, because Mr. Wolf equates the 
concentration of traffic at hubs with the ownership of traffic, 
and that is not necessarily the way the industry has to be 
organized. They want to own the customers through their 
airports so they can control them. It did not have to work that 
way. There are other industries that allow access and 
concentrate traffic without that ownership. Maybe that is the 
legislation we should be looking at.
    But as a matter of principle, we ought not try and cobble 
together this remarkable set of conditions. To preserve your 
options in New York, and it is not only the two to ones, it is 
the three to twos and four to threes, we should say no to this 
merger and insist that we open the industry up down Mr. 
Neeleman's path of real competition rather than jury-rigging 
some substitute while we create national airlines.
    Senator Schumer. Thank you, Mr. Cooper. Thank you, Mr. 
Chairman.
    Senator DeWine. Mr. Goodwin, some cities such as Akron 
currently enjoy nonstop service to competing hub airports such 
as Washington-Dulles, United's hub, and Pittsburgh, US 
Airways's hub. Now that these will no longer be competing hubs, 
will cities such as Akron continue to have nonstop service to 
both cities or will the merged United/US Air cut nonstop 
service to either Washington-Dulles or Pittsburgh?
    Mr. Goodwin. Senator, I do not have in front of me what we 
are planning in Akron, but I would be more than happy to get it 
to you by first thing tomorrow morning, if you would permit me 
to do that.
    Senator DeWine. That would be great. Let me ask you another 
question. Your answer may be the same. There are at least two 
routes from Ohio cities Columbus and Dayton to Washington-
Dulles where United and US Airways are the only carriers 
currently offering nonstop service. If the merger is permitted 
to go through, basically, these communities would lose all 
competition on these routes. Why should passengers in Dayton 
and Columbus not be concerned about that?
    Mr. Goodwin. Again, not having the specific flight schedule 
in front of me, but I will be happy to get those to you and we 
will be happy to address that question, sir.
    Senator DeWine. All right. Let me give you the final one 
that you can get back to us. I guess this is more directed to 
Mr. Wolf. There are several Ohio markets where US Airways 
Express, in joint relationship with other smaller carriers, 
provides the only nonstop service on certain routes. For 
example, in Columbus, US Airways Express partners with small 
carriers to provide nonstop service to communities such as 
Grand Rapids, MI, and Indianapolis, IN. What will happen to 
routes like this after the merger?
    Mr. Wolf. Mr. Chairman, we have some almost 5,000 flights a 
day and serve over 200 cities. My assumption is that we do that 
for an economic reason today, not philanthropic----
    Senator DeWine. We assume.
    Mr. Wolf [continuing]. And I would like to think that we 
would have the sense to continue doing that tomorrow.
    Senator DeWine. Let me thank all of our witnesses here 
today. We have had a very distinguished panel of witnesses. You 
all have been very patient with us. We appreciate this very 
much.
    I must say that I am still concerned that this merger will 
lead to other mergers in the aviation industry, and frankly, I 
did not hear anyone, any of the six witnesses, who could tell 
me, ``No, Senator DeWine, that is just crazy,'' or, ``That is 
not going to happen.'' So I happen to think it will happen, and 
I think your silence on the issue and your inability to say 
that this is probably not going to happen clearly indicates to 
us this is what is going to happen.
    So I think when Justice looks at this and we look at this 
as far as public policy, we have to assume this is the first of 
two, three mergers and I think we can pretty well project what 
U.S. airlines are going to look like, the domestic industry, 
and I think we are going to be down to three major players. I 
think we have to look at that and I think we have to be 
concerned about that.
    This subcommittee will continue to monitor the progress of 
this merger and the impact it has on competition in the airline 
industry. This is an industry obviously very critical to the 
U.S. economy and this merger is of great importance to 
consumers.
    So again, we appreciate all of you being here. You have 
shed a lot of light, I think, on the issue and we appreciate it 
very much and the hearing is adjourned.
    [Whereupon, at 1:27 p.m., the subcommittee was adjourned.]
                              ----------                              

                         Questions and Answers

     Responses of James E. Goodwin to Questions From Senator DeWine

    Question 1. In the past five years, has your airline included new 
entrant carriers in your frequent flyer programs? If not, why not? Will 
United's frequent flyer arrangement with DC Air be exclusive, or will 
other small airlines be allowed to participate? Will DC Air be 
permitted to participate in other airlines' frequent flyer program
    Answer. In the past five years, United has not added any new 
entrant carriers to our frequent flyer program. Unfortunately, no new 
entrant carrier has met our criterion of complementing our network in a 
way that creates attractive new redemption opportunities for Mileage 
Plus members. Should a new entrant carrier meet such criterion, we 
would consider them for participation in our program.
    With respect to our frequent flyer relationship with DC Air, there 
is no exclusivity with DC Air.

    Question 2. Mr. Goodwin, in your written testimony you state that 
the merger is not anticompetitive, in part, because new low cost 
carriers will provide sufficient competition. Given that, would you 
agree with those who argue that low cost carriers should be given 
greater access to slot controlled and gate constrained airports? If so, 
how should this be accomplished?
    Answer. Low-cost carriers such as Southwest, Air Tran, JetBlue, 
Frontier and others have been growing aggressively and expanding 
competitive entry in numerous markets. The recently enacted FAA 
Reauthorization law contains a number of provisions that will further 
improve and accelerate the competitive entry of low-cost-carriers. With 
respect to slots, the new law phases out slot controls at Chicago 
O'Hare, New York LaGuardia and New York Kennedy. During the phase-out 
period, the new law immediately provides new access for low-cost 
carriers that do not presently offer more than 10 daily rountrip 
flights to these airports or are seeking to serve small communities. 
United favored immediate elimination of slot controls but Congress 
instead decided to phase-out these restrictions. We believe the phase-
out of artificial slot constraints will make competition at O'Hare, 
LaGuardia and Kennedy even more vigorous than it is today.
    Similarly, the new FAA Reauthorization law addressed concerns about 
gate access. The new law requires 40 airports--hubs where one or two 
carriers control more than 50 percent of the passenger boardings--to 
file competition plans if they seek higher PFCs, new PFCs or new 
Airport Improvement Program (AIP) grants. We understands this provision 
is intended to give airports an incentive to develop and implement 
plans to promote competition and capacity enhancement, including 
expanding gate access.

    Question 3. Some cities, such as Akron, Ohio, currently enjoy 
nonstop service to competing hubs such as Dulles and Pittsburgh. Now 
that these will no longer be competing hubs, will cities such as Akron 
continue to have nonstop service to both cities.
    Answer. We have committed to maintain all existing routes into 
Akron and after the merger. We will continue to provide such service 
from Akron to both Dulles and Pittsburgh. Our Akron service will 
continue to compete with service offered by other carriers. Every city 
that is served from both of these hubs today will continue to receive 
service to both of them after the merger. We will not be able to 
achieve the revenue benefits that we project without being able to 
offer the truly global network that the combination of hubs in our 
network offers. In the case of Akron, service to Pittsburgh allows us 
to offer connections throughout the Midwest and western United States 
while Dulles allows access to the East Coast, Europe and the Caribbean.

    Question 4. There are several markets where US Airways Express, in 
joint relationships with other, small carriers, provides the only 
nonstop service on certain routes. For example, in Columbus, US Airways 
Express teams with small carriers to provide nonstop service to 
communities such as Grand Rapids, MI and Indianapolis., IN. What will 
happen to these routes, and others like them, after the merger?
    Answer. Overall, United is committed to maintaining service levels 
in Columbus. Today, service from Columbus to Fort Wayne and Grand 
Rapids is provided by Chautauqua Airlines, an independent regional 
carrier. Without knowing the specific profitability of the US Airways 
Express service, we cannot make a concrete commitment to continuing 
these specific flights. However, after the transaction closes, we will 
work with the Express carriers to evaluate all current US Airways 
Express routes. The passenger feed regional carriers such as Chautauqua 
Airlines provides to US Airways' network will continue to be very 
important to United's global network after the merger is completed and 
we expect to maintain service on all current routes.

    Question 5. There are at least two routes from Ohio cities 
(Columbus and Dayton) to Washington Dulles where United and US Airways 
are the only carriers currently offering nonstop service. If this 
merger is permitted to go through, these communities will basically 
lose all competition on these routes. Doesn't this merger harm 
consumers in those communities? What should be required during the 
merger review process to ensure that all nonstop competition is not 
lost on these routes?
    Answer. The merger will have no anticompetitive effects in terms of 
service between these Ohio cities and Washington D.C. With the DC Air 
divestiture, DC Air will be the second competitor providing service 
between Columbus and Dayton and Washington D.C., providing the only jet 
service between these cities United expects the Justice Department, as 
part of its review process to analyze competition in all nonstop city 
pair markets from Washington.
                                 ______
                                 

    Responses of James E. Goodwin to Questions From Senator Grassley

    Question 1. Recently, Section 155 of the AIR-21 legislation found 
that 15 large hub airports are each dominated by one air carrier with 
each such carrier controlling more than 50 percent of the traffic at 
the hub. The FAA actually has 41 airports on its list. The General 
Accounting Office has found that such levels of concentration lead to 
higher airfares. A merged United-US Airways would be the dominant 
carrier in 10 major US airports. How can this Committee be certain that 
this market dominance will not harm the American traveler both through 
increased hub dominance, higher prices and reduced services? These 
airports must submit competition plans to the FAA before an increase in 
the Passenger Facility Charge can be approved. How does this merger 
help these airports comply with the law to receive PFC increases?
    Answer. United and US Airways have little presence at each other's 
hubs, so the merger will have insignificant effect in terms of 
increased shares at the carriers' eight hubs. The DC Air divestiture 
will address the only hub airport at which the merger could have been 
viewed as arguably having a significant effect at a hub airport. Nor 
will the merger have a significant effect on the combined presence of 
the two airlines at other airports. Indeed, at some airports, the 
merger will permit the combined entity to be a more effective 
competitor with the #1 carrier at those airports.
    As you are aware, the new FAA Reauthorization law requires 40 
airports--hubs where one or two carriers control more than 50 percent 
of the passenger boardings--to file competition plans if they seek 
higher PFCs, new PFCs or new Airport Improvement Program (AIP) grants. 
As we understand the provision, it is intended to encourage such 
airports to develop and implement plans to promote competition and 
capacity enhancement. We believe these plans will be useful since they 
will encourage airports to focus on ways to expand ground side capacity 
at existing airports. To be eligible for PFC increases in the future, 
covered airports will be required to prepare such competition plans 
irrespective of our proposed combination. Accordingly, our proposed 
merger appears not be directly relevant to an airport's decision 
whether to develop a competition plan as a precondition for seeking a 
PFC increase.

    Question 2. Concerns have been raised that this merger would create 
a frenzy of airline consolidations that would eventually lead to higher 
prices and reduced choices. We've already heard rumblings of other 
airlines talking about consolidation. Do you believe that if the 
United-US Airways transaction prompts other airlines to merge, this is 
good for the average American traveler? What about the concerns that a 
strike by the workers at one of these mega-airlines would be 
catastrophic for travelers?
    Answer. What matters is the number of airlines that are actual 
competitors in a particular city pair market, not the number of overall 
airlines. A merger can, in fact, enhance competition at a city pair 
level, because the combined entity may be able to compete in city pair 
markets that were not economically viable for the two airlines 
separately. For that reason, industry consolidation is not necessarily 
inconsistent with increased competition.
    United does not necessarily believe that it is likely that other 
airlines will merger, nor does it discount this possibility. The 
competitive effects of any subsequent airline merger would have to be 
considered on its own merits and United believes it is premature to 
speculate on the likely competitive effects of hypothetical mergers. In 
any industry, one can always speculate that a sufficient number of 
future mergers may occur such that eventually there might be harmful 
competitive effects. If this hypothetical possibility were sufficient 
to prevent a merger, no merger would ever be approved. United also 
notes that the merger of United and US Airways is a merger between two 
complementary airlines with little competitive overlap and will 
generate significant benefits for passengers, a combination that other 
airline mergers may have difficulty establishing.
    Often, the most significant competitive factor affecting 
competition in a city pair market is the presence of a low cost 
carrier. Neither the United-US Airways merger nor the industry 
consolidation hypothesized by many would have adverse effects on low 
cost carriers. Indeed, with the creation of DC Air, the United-US 
Airways merger would lead to the creation of a new low cost carrier at 
Reagan National.
    Under no circumstances would hypothesized consolidation result in 
just three major carriers as some suggest. Southwest Airlines, the 
fastest growing and most profitable airline today, will continue to 
compete vigorously and discipline prices. At its current rate of 
growth, Southwest is likely to be the largest domestic U.S. carrier 
within the next few years. Moreover, other low-fare carriers also will 
continue to compete effectively and offer consumers competitive air 
service options.
    With regard to any possible concern about a strike, the combined 
carrier would be subject to the same labor laws and strike protections 
that apply to the individual carriers. The Railway Labor Act which 
governs carrier and employee conduct during a strike has a series of 
steps which preclude strikes or other forms of economic self-help. 
These steps include the ability of a carrier to seek injunctive relief 
and a Presidential Emergency Board (PEB) which can be convened by the 
President if the dispute ``threatens substantially to interrupt 
commerce.'' Congress also has the ability, which it has used on 
occasion, to pass special legislation further prohibiting parties from 
resorting to self-help, submitting the dispute to a second PEB or even 
accepting the PEB's recommendations.
                                 ______
                                 

      Responses of James E. Goodwin to Questions From Senator Kohl

    Question 1. What do you think of this, Mr. Goodwin? Would you agree 
to those types of ``market opening'' conditions in order to gain 
approval of the merger?
    Answer. United intends to cooperate fully with the Justice 
Department's investigation of the merger and is willing to work with 
the agency proactively to address potential anticompetitive concerns. 
In that regard, United will be willing to listen to any ideas or 
suggestions the Justice Department might have along these lines. United 
would note that any proposed condition to the merger should generate 
pro-competitive effects and it does not believe that limiting United's 
ability to add service (or requiring United to eliminate service) is 
pro-competitive, nor does United believe the Justice Department will 
likely view reductions in service as pro-competitive or beneficial to 
consumers.

    Question 2. Mr. Goodwin and Mr. Wolf, do you believe it is likely 
that this deal will lead to other mergers among major airlines? If so, 
shouldn't we be concerned that additional consolidation in the airline 
industry will be harmful to competition? And, in your view, what is the 
minimum number of major airlines we need to ensure vigorous competition 
in the domestic airline industry?
    Answer. United does not necessarily believe that it is likely that 
other airlines will merge, nor does it discount this possibility. The 
competitive effects of any subsequent airline merger would have to be 
considered on its own merits and United believes it is premature to 
speculate on the likely competitive effects of hypothetical mergers. In 
any industry, one can always speculate that a sufficient number of 
future mergers may occur such that eventually there might be a 
competitive effect. If this hypothetical possibility were sufficient to 
prevent a merger, no merger would ever be approved. United also notes 
that the merger of United and US Airways is a merger between two 
complementary airlines with little competitive overlap and will 
generate significant benefits for passengers, a combination that other 
airline mergers may have difficulty establishing.
    Regarding the number of airlines needed to ensure competition, what 
matters is the number of airlines that are actual or potential 
competitiors in a particular city pair market, not the number of 
overall airlines. A merger can, in fact, enhance competition at a city 
pair level, because the combined entity may be able to compete in city 
pair markets that were not economically viable for the two airlines 
separately. For that reason, industry consolidation is not necessarily 
inconsistent with increased competition. Moreover, often the most 
significant competitive factor affecting competition in a city pair 
market is the presence of a low cost carrier, and neither the United-US 
Airways merger nor the industry consolidation hypothesized by many 
would have adverse effects on low cost carriers. Indeed, with the 
creation of DC Air, the United-US Airways merger would lead to the 
creation of a new low cost carrier at Reagan National.

    Question 3. Mr. Goodwin, would it be good for competition if other 
airlines besides DC Air had a chance to obtain some of these slots at 
DC National?
    Answer. As we considered the sale of assets at Reagan National 
Airport, we took into account a number of factors. First, we wanted to 
sell the assets to a carrier that was committed to serving the 
Washington, DC area on a long-term basis. Second, we wanted to ensure 
our shareholders that we received fair market value for the assets in 
an arm's length transaction where the purchase price reflected the 
give-and-take of negotiations. Finally, we wanted to identify a carrier 
that would maintain the current service pattern between Reagan National 
and many small and mid-sized communities that currently rely on US 
Airways for non-stop access to Reagan National. If slots were sold-off 
on a piecemeal basis as the question suggests, we believe this service 
to small city markets would be put at risk. In contrast, by selling the 
slots in a block to DC Air, we believed we will preserve small city air 
service access to Reagan National from numerous small communities 
throughout the eastern U.S.
                                 ______
                                 

      Responses of James E. Goodwin to Question From Senator Leahy

    Question 1. Will the newly merged airline keep the same number of 
seats flying to and from the Burlington, Vermont airport? Will the 
newly merged airlines fly the same number and type of aircraft to and 
from Burlington? What commitments has United made to provide such 
service?
    Answer. United will maintain all existing service operated to/from 
Burlington with the exception of service to Reagan Washington National. 
Burlington/Reagan Washington National service will be taken over by DC 
Air which has announced that it intends to offer two roundtrip flights 
per day and upgrade from turboprop to regional jet service. With 
respect to United's Burlington service after the merger, we intend to 
operator the same number of flights as we do today. We also plan to 
operate all existing jet service with jet aircraft, but the exact types 
of aircraft cannot be determined at this time since we have not made 
final allocation decisions. We expect to make such decisions close to 
completion of the merger and the time we produce our first combined 
schedule.

    Question 2. US Airways has regional codeshare agreements with 
Allegheny and PSA operating out of Burlington. Will the merged airline 
keep all of the combined regional airline codeshare agreements? Will 
all of the regional airlines be effectively assumed into the new 
operation?
    Answer. The passenger feed that these regional carriers provide to 
US Airways' current hubs will be crucial to our combined network after 
the merger. At this time, the exact structure of that ongoing 
relationship with PSA and Allegheny will take after the merger has yet 
to be determined. Today, Allegheny serves the New York La Guardia 
market and we will maintain the 5 flights they provide. PSA serves 
Burlington only to Reagan Washington National airport and DC Air will 
provide this service after the merger.

    Question 3. In the past, US Airways has placed marketing and sales 
focus on the Northeast region during ski season. Does the newly merged 
United intend to dedicate as much marketing and sales focus to the 
Northeast as did US Airways? This is of particular concern to Vermont 
since United has, in the past, focused on sales to the Colorado ski 
market.
    Answer. As the ``Skier's Airline of Choice,'' United has solid 
leisure strategy for the Ski market. Our Leisure Sales organization has 
devoted a full time ``ski specialist,'' at our headquarters level to 
coordinate all aspects of our ski customers needs. Additionally, we 
have a dedicated wholesale desk in Detroit, which provides reservation 
sales support to our more than 30 regional and national ski wholesale 
partners, as well as, all major resort central reservation offices 
throughout the Colorado Rocky Mountain region. United is poised to 
expand its wholesale relationships with other ski specialist in 
Vermont, once our merger agreement with US Airways is concluded.
    United plays an important role with establishing ``seasonal direct 
air service'' to many of the primary ski resorts. Something that we 
would certainly evaluate with the ski resorts in Vermont, given our 
planned merger with US Airways.
    Although United's focus in the past has been in the Colorado 
region, we anticipate our strong Midwest presence, and the effective 
north/south route structure by US Airways, will make us a winning 
combination for our existing wholesalers, and other leisure partners, 
selling the Vermont ski areas.

    Question 4. Metrojet is a low-cost carrier that is a wholly owned 
subsidiary of US Airways. It effectively competes with Southwest in the 
Northeast particularly in Albany, Manchester and Hartford. Will United 
create a similar low-cost service to those destinations?
    Answer. United has not made a final decision on the status of 
Metrojet but we recognize the importance of providing a low-cost 
operation in the East as a competitive counterbalance to not only 
Southwest Airlines but other low-fare carriers such as JetBlue and 
AirTran. We have not decided on the exact deployment of such a service 
but it is likely to include such cities as those mentioned. The routes 
currently served by Metrojet at Albany and Manchester are being 
discontinued for the time being but they will be reevaluated as our 
plans for low-fare operation in the East evolve.

    Question 5. Will United continue to operate all existing hubs as 
hubs?
    Answer. The hallmark of our proposed merger is to expand single-
carrier service for passengers throughout our global network. To 
accomplish this goal, we will need all of our current hubs plus the 
Charlotte, Pittsburgh and Philadelphia hubs currently operated by US 
Airways. Accordingly, we plan to continue to operate all existing hubs.

    Question 6. What factors did United Airlines consider in deciding 
to run the shuttle from Reagan National Airport to LaGuardia Airport, 
rather than sell that route to DC Air? Why were these routes left out 
of the deal with DC Air?
    Answer. United is generally very pleased with the performance of 
its Dulles hub but there is a very strong demand from New York to 
Washington for service to Reagan Washington National that we are not 
able to satisfy today. As a result, we decided to include the Shuttle 
operations at Reagan Washington National in our purchase of US Airways. 
They deliver considerable benefits, which are part of the value of the 
deal and we felt that the presence these operations gave in Washington, 
New York and Boston would be a necessary part of the merger.
    We also believe that in the case of Washington to New York the 
markets using the Shuttle at Reagan National and the service at 
Washington Dulles are distinct and the merger therefore does not 
present an overlap.

    Question 7. Did United consider creating its own big hub in the 
northeast, rather than acquiring one from US Airways?
    Answer. We presently operate a hub at Washington Dulles 
International Airport. Primarily, it is an east-west hub for domestic 
service. It also serves as an important international gateway hub for 
flights to Europe and other destinations such as Mexico City. 
Responding to customer demand for improved single-carrier service in 
the north-south market in the eastern U.S., a little over a year ago we 
significantly increased our service at Dulles. While consumers welcomed 
this new service, it became apparent to us that expanding our existing 
hub at Dulles would not permit us to respond quickly and fully enough 
to our customer demand for greater single carrier service in the 
Eastern U.S. Instead, we concluded that the only way to do so was to 
acquire existing, well-established hubs like Pittsburgh and 
Philadelphia. Simply put, our decision to acquire US Airways was driven 
by our realization that expanding the current hub at Dulles or building 
a new northeastern hub from scratch was not a practical or economically 
efficient way to respond fully to customer demand for improved single-
carrier in the north-south market along the East Coast.
                                 ______
                                 

     Responses of United/US Airways to Questions From Senator Kohl

    Question 1. [For Goodwin and Wolf]: Mr. Goodwin and Mr. Wolf, do 
you believe it is likely that this deal will lead to other mergers 
among major airlines? If so, shouldn't we be concerned that additional 
consolidation in the airline industry will be harmful to competition? 
And, in your view, what is the minimum number of major airlines we need 
to ensure vigorous competition in the domestic airline industry?
    Answer. It is important to address the question of other future 
mergers in this industry in the proper context. To begin with, this 
merger brings together two complementary route structures that have 
little overlap (United's east-west routes and western presence and US 
Airway's north-south network in the eastern U.S.). The result is a 
truly national carrier that serves all four corners of this country in 
a way that will (i) greatly benefit our consumers and the communities 
we serve and (ii) enhance competition.
    I do not know if there are other combinations that work as well as 
this combination does for the traveling public. For example, is there 
another combination that will inject new competition into more than 500 
city-pairs currently served by only one carrier (as the United-US 
Airways merger will)? Is there another combination that will provide 
on-line service for the first time to over 4,000 city-pairs (as the 
United-US Airways merger will)? Is there another combination that will 
publicly commit to a two-year freeze on structure fares (as United has 
already done)? Is there another combination that will publicly commit 
to a no-furlough guarantee for the tens of thousands of employees from 
both carriers (as United has already done)? Is there another 
combination that would bring together two route networks with very 
little overlap (as with the United-US Airways combination)? Is there 
another combination that expressly provides for the creation of an 
independent new entrant carrier (as with the creation of DC Air)? Is 
there another combination that will guarantee no reduction for two 
years in domestic standard base commission rates for travel agents (as 
United has done)? I do not know the answers to these questions; so I 
would not want to speculate on whether there will be additional mergers 
among the other majors airlines.
    Even if other mergers come about, they must be reviewed closely on 
their own individual merits to determine, among other things, whether 
they provide pro-competitive and pro-consumer benefits like the United-
US Airways merger does. Although I would not predict that the U.S. 
airline industry will only have five, four, or even three major 
carriers in the future, there is every reason to conclude that such an 
industry would continue to be characterized by intense competition. The 
major network carriers will continue to compete vigorously with each 
other for domestic and international traffic over their respective 
networks. Low-cost carriers will continue to grow, offering intense 
competition and lower fares in regional markets. Indeed, the industry 
is currently undergoing a wave of new entry by well-regarded low cost 
carriers such as JetBlue, Air Tran, National, Vanguard, Spirit, and 
others. Moreover, just as this transaction will result in a new entrant 
carrier in DC Air, other transactions may likewise produce new carriers 
and lead to the divestiture of assets creating even more opportunities 
for new entry and increased competition.

    Question 2. [For Goodwin]: Mr. Goodwin, wouldn't it be good for 
competition if other airlines besides DC Air had a chance to obtain 
some of these slots at DC National?
    Answer. No response.
                                 ______
                                 

   Responses of United/US Airways to Questions From Senator Grassley

    Question 1. Recently, Section 155 of the AIR-21 legislation found 
that 15 large hub airports are each dominated by one air carrier with 
each such carrier controlling more than 50% of the traffic at the hub. 
The FAA actually has 41 airports on its list. The General Accounting 
Office has found that such levels of concentration lead to higher 
airfares. A merged United-US Airways would be the dominant carrier in 
10 major U.S. airports. How can this Committee be certain that this 
market dominance will not harm the American traveler both through 
increased hub dominance, higher prices and reduced services? These 
airports must submit competition plans to the FAA before an increase in 
the Passenger Facility Charge can be approved. How does this merger 
help these airports comply with the law to receive PFC increases?
    Answer. The United-U.S. Airways merger will not harm consumers 
through increased hub dominance, higher fares, or reduced service. The 
merger of United and US Airways will greatly benefit our consumers and 
the communities we serve. Consumers will enjoy enhanced competition and 
expanded service options in both domestic and international markets.
 The combined carrier's route network will continue to complete 
    vigorously with the hub-based networks of other carriers and will 
    inject new competition into more than 500 city-pairs currently 
    served by only one carrier. By linking United's east-west and 
    international routes with US Airway's eastern network, the merger 
    will provide competitive alternatives in US Airways' hubs in 
    Charlotte, Philadelphia, and Pittsburgh to other existing hubs and 
    gateways. Moreover, the merger will result in a new independent 
    carrier based at Reagan Washington National Airport, providing 
    service to 43 communities form the nation's capital.
 Overall services offered by the combined United-US Airways' 
    will be greatly expanded: new, first-time on-line service to over 
    4,000 city-pairs, and 93 new nonstop fights to international and 
    domestic destinations.
 With respect to fares or pricing, United has publicly 
    committed to an unprecedented, and easily monitored, two-year 
    freeze on structure fares (except for CPI and full cost increases).
    Because this merger creates a truly efficient nationwide network, 
creating more choice for consumers in hundreds of markets, it will 
enhance competition, stimulate growth, commerce and jobs across the 
U.S. and provide a wealth of benefits in the form of vastly more 
convenient service for consumers.
    With respect to the new law requiring airports seeking an increase 
in Passenger Facility Charges to submit competition plans, the merger 
does not directly relate to these proposals, which are directed 
primarily toward ensuring competitive access at hub airports. This 
merger, however, will enhance competition at hub airports by expanding 
choice for consumers and injecting new competitive alternatives in 
hundreds of markets currently served only by one carrier. We see this 
merger thus as consistent with the objectives of AIR-21.

    Question 2. Concerns have been raised that this merger would create 
a frenzy of airline consolidations that would eventually lead to higher 
prices and reduced choices. We've already heard rumblings of other 
airlines talking about consolidation. Do you believe that if the 
United-US Airways transaction prompts other airline to merge, this is 
good for the average American traveler? What about the concerns that a 
strike by the workers at one of these mega-airline would be 
catastrophic for travelers.
    Answer. It is important to address the question of other future 
mergers in this industry in the proper context. To begin with, this 
merger brings together two complementary route structures that have 
little overlap (United's east-west routes and western presence and US 
Airways' north-south network in the eastern U.S.). The result is a 
truly national carrier that serves all four corners of this country in 
a way that will (i) greatly benefit our consumers and the communities 
we serve and (ii) enhance competition.
    I do not know if there are other combinations that work as well as 
this combination does for the traveling public. For example, is there 
another combination that will inject new competition into more than 500 
city-pairs currently served by only one carrier (as the United-US 
Airways merger will)? Is there another combination that will provide 
on-line service for the first time to over 4,000 city-pairs (as the 
United-US Airways merger will)? Is there another combination that will 
publicly commit to a two-year freeze on structure fares (as United has 
already done)? Is there another combination that will publicly commit 
to a no-furlough guarantee for the tens of thousands of employees from 
both carriers (as United has already done)? Is there another 
combination that would bring together two route networks with very 
little overlap (as with the United-US Airways combination)? Is there 
another combination that expressly provides for the creation of an 
independent new entrant carrier (as with the creation of DC Air)? Is 
there another combination that will guarantee no reduction for two 
years in domestic standard base commission rates for travel agents (as 
United has done)? I do not know the answers to these questions; so I 
would not want to speculate on whether there will be additional mergers 
among the other major airlines.
    Even if other mergers come about, they must be reviewed closely on 
their own individual merits to determine, among other things, whether 
they provide pro-competitive and proconsumer benefits like the United-
US Airways merger does. Although I would not predict that the U.S. 
airline industry will only have five, four, or even three major 
carriers in the future, there is every reason to conclude that such an 
industry would continue to be characterized by intense competition. The 
major network carriers will continue to compete vigorously with each 
other for domestic and international traffic over their respective 
networks. Low-cost carriers will continue to grow, offering intense 
competition and lower fares in regional markets. Indeed, the industry 
is currently undergoing a wave of new entry by well-regarded low cost 
carriers such as JetBlue, Air Tran, National, Vanguard, Spirit, and 
others. Moreover, just as this transaction will result in a new entrant 
carrier in DC Air, other transactions may likewise produce new carriers 
and the lead to the divestiture of asset creating even more 
opportunities for new entry and increased competition.
    Any strike at a major carrier would have a serious impact on the 
traveling public, whether it was United, American, Delta, or Southwest. 
The proposed United-US Airways merger is a pro-labor, pro-union 
agreement and, as such, we believe it reduces chances of any such labor 
strikes. For starters, United has publicly committed not to furlough 
any employees as a result of this merger. For US Airways employees, the 
merger with United represents and unprecedented opportunity for job 
security with a financially strong, well-regarded global carrier with a 
strong international alliance. In addition, US Airways employees will 
benefit from enhanced job growth opportunities with the world's largest 
carrier.
                                 ______
                                 

      Response of Stephen M. Wolf to a Question From Senator Leahy

    Question 1. [Stephen Wolf, Chairman of US Airways] Without this 
union, what hurdles would US Airways have faced in achieving its stated 
goal of ``building a truly global carrier''? Do you anticipate that 
other airlines that attempt to compete with the newly merged airline 
will face these same barriers?
    Answer. In the past few years, the dedicated and hard-working 
employees at US Airways have made great strides toward our goal of 
becoming the carrier of choice for travelers. That being said, however, 
certain marketplace realities confront us. US Airways is currently 
unique in its position as a mid-sized carrier with a mature cost 
structure. We have the costs of our large network competitors, but 
unlike them, we lack the ability to spread these costs over a larger 
network with longer average stage lengths. In the post-deregulation 
era, all other carriers similarly situated to US Airways have either 
gone out of business or have gone through bankruptcy proceedings.
    Braniff and TWA provide very instructive examples. Both Braniff and 
TWA were pre-deregulation carriers that were not able to respond 
efficiently to the challenges of the deregulated marketplace. They were 
both mid-sized carriers that did not expand their route systems to 
match the challenge from United, American, Delta, and Northwest. 
Despite several bankruptcies and restructuring, Braniff ultimately 
disappeared. TWA also has undergone bankruptcies and restructuring 
which have substantially reduced its costs and enabled it to survive by 
finding a new competitive niche. TWA's long-term position in the 
industry, however, is uncertain.
    Without this proposed merger, US Airways would need to confront, 
and seek to overcome, these hurdles in the coming years--recognizing 
that the history for similarly situated carriers has not been pleasant.
    I would not anticipate that other airlines competing with the newly 
merged airline will face these same barriers because, as I noted above, 
US Airways' situation is unique. We have the highest unit operating 
costs in the industry with a route network comprised principally of 
short/medium-haul services. No other carrier that I can think of is 
confronted by these same circumstances.
                                 ______
                                 

      Responses of Stephen M. Wolf to Questions From Senator DeWine

    Question 1. Mr. Wolf, you have made several statements in the past 
about the necessity of increased access to slots and gates at foreign 
airports to bring the benefits of increased competition. Many smaller 
carriers have similarly complained about their ability to gain slots at 
closed airports, and gates at other airports in the U.S. market. Do you 
think it would benefit competition if carriers were required to 
relinquish some slots and gates at those airports where they have a 
dominant market share?
    Answer. The situation at certain foreign airports cannot be readily 
compared to the situation of carriers operating domestic services at 
slot-controlled airports in the United States. The U.S. Government has 
bent over backwards to ensure that foreign carriers seeking to operate 
at U.S. slot controlled airports have access to such airports by either 
awarding them slots free-of-charge or providing them with slot 
exemptions. Other countries, however, have not provided reciprocal 
access for U.S. carriers. It took well over a year, for example, after 
US Airways received governmental approval to operate Charlotte-London 
service before we obtained the necessary slots at Gatwick Airport.
    In the domestic market, there are only four airports with slot 
restrictions--Chicago O'Hare, New York LaGuardia, New York JFK, and 
Washington National. All other airports in this country are open to any 
carrier wishing to increase existing service or initiate new service. 
Even at those airports where slots are currently required, under the 
new FAA reauthorization legislation, AIR-21, passed this year by 
Congress, slots are being phased out, opening the way for free and open 
access. The only exception is Reagan Washington National Airport where 
Congress essentially left the slot regime in place. But even there 
Congress provided for 24 new slot exemptions, and new entrants such as 
National, Spirit, and Frontier, among others, are already taking 
advantage of the increased access.
    In structuring this merger, we addressed the issue of concentration 
in Washington, DC straight on--with the creation of an independently 
owned and operated new entrant carrier, DC Air, at Washington National 
Airport, serving 43 communities with 37 aircraft from the heart of the 
nation's capital.
    To our knowledge, gates should be and are available at almost all 
airports for new entrant service. No airline has even been prevented 
from serving one of US Airways hubs--Philadelphia, Pittsburgh, or 
Charlotte--as a result of a lack of gates. New entrants, including Air 
Tran, America West, Vanguard, and Midway, have all been able to gain 
access.

    Question 2. A merged United/US Airways will control a significant 
number of slots at slot-controlled airports. For example, it will have 
control roughly 42% of the slots at New York LaGuardia where slot 
restriction will be in place until 2007. Do you believe this high level 
of concentration in this large air travel market is anti-competitive?
    Answer. Even though slots at LaGuardia will not be phased out 
entirely until 2007, under the new AIR-21 legislation passed by 
Congress this year, slots are no longer required for carriers that 
propose to add flights or initiate new service from LaGuardia to small 
hub or non-hub airports with regional jet or other small aircraft. The 
result is that smaller markets are seeing a dramatic increase in their 
service to LaGuardia.
    LaGuardia is, and will remain, an intensely competitive airport. 
Several low-cost carriers have increased their operations at the 
airport in recent years. There is every reason to believe that this 
type of new entry and competition will continue. Moreover, this merger 
will result in the unprecedented commitments by United to freeze fares 
for two years, maintain service to every city on the joint carriers' 
route maps, and guarantee no job loss for employees of both companies.

    Question 3. There are several markets where US Airways Express has 
entered into relationships with other, small carriers such as PSA, 
Piedmont and Allegheny to provide airline service--sometimes the only 
nonstop service on certain routes. Some reports indicate that US 
Airways' authority to operate the slots and gates being utilized by 
these joint arrangements will be transferred to DC Air. What effect 
will the merger have on these joint arrangements? Specifically, will 
the routes serviced by these joint arrangements continue to be served 
and what will happen to the employees of the airlines that supported 
the arrangements with US Airways Express?
    Answer. With respect to the arrangements that US Airways Express 
has entered into with regional carriers such as PSA, Piedmont, and 
Allegheny, United, as the purchasing carrier, will assume all of the 
contractual rights, duties, and obligations that are contained in those 
agreements. Because of the structure of the merger, and the need to 
divest assets at Washington National Airport, some of the services 
provided by US Airways Express carriers will be operated by DC Air, 
which ultimately plans to convert all of its turbo-prop services at 
Washington National to jet services. While the exact structure of 
United's ongoing relationships with the regional carriers has not been 
finalized, the passenger feed that US Airways Express carriers provide 
to US Airways' current hubs will continue to be an important part of 
the United network.

    Question 3a. Is anything being done now to ensure that these small 
carriers have clear and adequate notice of any changes that would 
result if the merger were approved, to ensure that they remain viable 
competitors and their employees don't leave because of uncertainty?
    Answer. United has publicly committed that no city currently served 
by US Airways or United will lose service as a result of this merger. 
United has also committed to assuming all of US Airways' obligations 
regarding the US Airways Express carriers.
                                 ______
                                 

       Response of Robert Johnson to a Question From Senator Kohl

    Question 1. Mr. Johnson, some commentators have called your planned 
airline, DC Air, a ``virtual airline.'' They are worried that your 
airline will not be an independent competitor to United and US Airways 
because, at least initially, many of your airplanes will be ``wet 
leased'' from United and US Airways. This means that, not only will DC 
Air lease these airplanes, but the pilots, ground crews, and even 
management personnel will be employees of the combined United/US 
Airways. Many wonder how, in these circumstances, DC Air can vigorously 
and aggressively compete with United/US Airways.
    Mr. Johnson, is it true you plan to ``wet lease'' many of your 
planes in this manner when you commence operations at DC Air? And, if 
so, how will it be possible for DC Air to aggressively compete against 
United/US Airways on price or service when, at the start of your 
operations, most of your planes, flight crews, and management will be 
part of United/US Airways?
    Answer. With regard to our relationship with United, there are 
really two issues to address. First, as part of the creation of DC Air 
we will purchase a number of assets, including slots at Washington 
Reagan National, and assume ownership or leases of aircraft, facilities 
and equipment required for our business in a one-time transaction. 
Second, we will enter into standard industry contractual relationships 
for an appropriate transition period, at market rates, to ensure the 
continuation of air services on day one for those communities where DC 
Air will replaces US Airways' services. For example, United will 
contract with us to provide fuel at our airports, and will wet-lease 
ten Boeing 737 aircraft to us at market rates. The remaining twenty-
seven aircraft we will operate day one will be a mix of aircraft that 
we own and aircraft that we will operate under contract with regional 
carriers who make a business of providing such services to other 
airlines. Additionally, we are ready to begin discussions with other 
major carriers to seek out partnering opportunities such as code-
sharing and frequent flyer arrangements.
    These contracts address the logistical issues associated with 
ensuring complete continuity of service to Washington, D.C. from the 43 
communities we will serve on day one of our operations. Typically, a 
new entrant carrier begins with one or two aircraft and grows by adding 
one aircraft at a time over a period of years. DC Air is unique in that 
it is imperative to the successful implementation of our plan that we 
from day one serve 43 cities from Washington, D.C. so that there is no 
interruption of service to any of the communities presently being 
served by US Airways. We will do this with thirty-seven aircraft, 
replacing current US Airways service in well-developed, profitable 
markets with a long history of service and a customer base of some 3 
million passengers per year.
    Although United is contracting with DC Air to provide these 
transition services to us to ensure that our customers will enjoy the 
continuity of service, wet leasing aircraft in no way impedes DC Air's 
ability to complete with United or anyone else. In a wet lease, 
operational control of the aircraft is left to United, by United will 
have no influence over our management, pricing, marketing, identity, 
aircraft scheduling, or other activities. We expect to compete 
vigorously with United and other airlines including Delta, Southwest, 
AirTran, and others, on the basis of price and service across our 
network.
    Our cost projections indicate that DC Air will start ``out of the 
box'' with costs per seat mile that are significantly lower than US 
Airways' costs for operating its Washington Reagan National routes. 
This reduction is due to several factors:
    DC Air, as a new entrant carrier with a focused operation, will 
have lower overhead costs; With the exception of the ten B737 aircraft 
to be wet-leased for a transition period from United, DC Air's unit 
labor costs will be consistent with other new entrant and regional 
carriers, and will not be burdened with the productivity issues 
associated with the complex operations of traditional ``mainline'' U.S. 
carriers;
    Our fleet of aircraft, which will ultimately be an all-jet fleet, 
will be appropriate for the routes we will serve.
    And, as we phrase out of our transition agreements with United, we 
expect our costs to be further reduced.
    Because our costs are lower, and because we will have a singular 
focus on serving Washington, D.C. to/from the 43 other communities in 
our network, we will be able to offer high quality service and 
extremely competitive fares.
                                 ______
                                 

      Responses of Robert Johnson to Questions From Senator Leahy

    Question 1. What kind of service--frequency, cost, nonstop, one-
stop to major cities, discounted tickets--will DC Air be providing to 
Vermont? What commitments has DC Air made to provide such service?
    Answer. DC Air is committed to continuing US Airways' current two 
daily round trip frequencies from Washington Reagan National to 
Burlington, but we will upgrade that service from the current turboprop 
aircraft to regional jets. Connections will be available to popular 
destinations such as New Orleans, Orlando, Tampa, West Palm Beach, Ft. 
Lauderdale, Raleigh, and Atlanta, among others. We will bring a special 
focus on the Washington, D.C. passenger, and we are committed to 
providing high quality service at the lowest possible fares to the 
communities we serve.

    Question 2. Did DC Air negotiate to purchase US Air's profitable 
shuttle service from Reagan, National Airport to LaGuardia Airport. In 
your view, why were these routes left out of the deal?
    Answer. The Shuttle was not discussed as part of the transaction 
that will create DC Air. The Shuttle is a highly specialized operation, 
requiring different aircraft from those DC Air will use to serve our 
markets, and with some very specialized marketing and operational 
requirements as well.

    Question 3. Does DC Air intend to operate as a low-cost carrier, 
such as Southwest Airlines as opposed to a ``competitive carrier''?
    Answer. Our cost projections indicate that DC Air will start ``out 
of the box'' with costs per seat mile that are significantly lower than 
US Airways' costs for operating its Washington Reagan National routes. 
This reduction is due to several factors:
    DC Air, as a new entrant carrier with a focused operation, will 
have lower overhead costs; With the exception of the ten B737 aircraft 
to be wet-leased for a transition period from United, DC Air's unit 
labor costs will be consistent with other new entrant and regional 
carriers, and will not be burdened with the productivity issues 
associated with the complex operations of traditional ``mainline'' U.S. 
carriers; Our fleet of aircraft, which will ultimately be an all-jet 
fleet, will be appropriate for the routes we will serve.
    Because our costs are lower, and because we will have a singular 
focus on serving Washington, D.C. to the 43 other communities in our 
network we will be able to offer high quality service and extremely 
competitive fares.
    However, Southwest Airlines' costs per seat mile will likely be 
lower than DC Air's. This is largely due to structural factors: 
Southwest provides high frequency service to larger population centers, 
with larger aircraft, and does not fly to the type of small and mid-
sized communities that will make up the core of DC Air's business.
                                 ______
                                 

      Responses of Robert Johnson to Questions From Senator DeWine

    Question 1. Some reports indicate that DC Air will service 
Columbus, Ohio and Dayton, Ohio with regional jets. It appears that 
these communities are currently served with larger jets. Estimates 
indicate that the switch to regional jets will reduce seat capacity at 
each of these cities from at least 320 seats a day to around 150. Will 
you continue to offer the same level of pricing, including the same 
number of lower fare seats, with this reduced seat capacity?
    Answer. DC Air's initial fleet plan includes eight turboprop 
aircraft, nineteen regional jets, and ten Boeing 737-200 aircraft, 
which will be used to serve 43 communities from Washington Reagan 
National, including Columbus and Dayton. Under this initial fleet plan, 
these two cities will be served with three round trips each day using a 
mix of jets and regional jets, with the majority of departures being 
flown with regional jets. We are currently in discussions with aircraft 
manufacturers regarding our long-term aircraft fleet. We have committed 
that we will become an all-jet carrier, but have not yet selected the 
quantity and seat size for our long-term aircraft.
    Currently US Airways serves Columbus and Dayton with three round 
trips per day using jets with an average seat size of 100 to 110 seats. 
However, these aircraft historically have departed less than half full, 
with the ``local'' (i.e., Washington, D.C.-bound) passengers per 
departure averaging 41 per trip for Columbus and 39 per trip for 
Dayton. Based on these historical patterns, we are comfortable that we 
will be able to accommodate the needs of these cities for Washington, 
D.C. service. And, by using a more efficient aircraft that is better 
suited to the market, we will be able to offer the same number of 
departures at a significantly lower cost, and this will translate into 
the ability to offer lower fares.
    In the event that demand increases, we will have some flexibility 
to reallocate jet aircraft within our system to accommodate that 
demand.

    Question 2. There are several markets where US Airways Express has 
entered into relations with other, small carriers such as PSA, Piedmont 
and Allegheny to provide airline service--sometimes the only nonstop 
service on certain routes. Some reports indicate that US Airways' 
authority to operate the slots and gates being utilized by these joint 
arrangements will transfer to DC Air. What effect will the merger have 
on these joint arrangements? Specifically, will the routes serviced by 
these joint arrangements continue to be served and what will happen to 
the employees of the airlines that supported the arrangements with US 
Airways Express?
    Answer. As part of the proposed merger transaction between United 
and US Airways, DC Air will acquire 222 take-off and landing slots at 
Washington Reagan National. Some of these slots are currently operated 
by the wholly owned US Airways Express subsidiaries (Allegheny, 
Piedmont and PSA) and some by affiliated US Airways Express carriers 
(such as Mesa). The vast majority of routes flown by these airlines 
currently will be flown by DC Air. Allegheny, Piedmont and PSA also 
provide significant feeder service to US Airways in other locations, 
particularly in the hub cities of Charlotte, Philadelphia and 
Pittsburgh, as well as in Baltimore and Washington Dulles. It is 
expected that these entities will continue to provide feeder service to 
the combined operations of US Airways and United going forward.
    Final plans as to what assets will be acquired by DC Air have not 
yet been made. We are negotiating with United/US Airways as to the 
specific assets and in what corporate vehicle they will be packaged. It 
is possible that one of US Airways' existing subsidiaries or a yet-to-
be-formed subsidiary will be the nucleus from which DC Air will be 
formed. In that event, some number of employees employed by that 
subsidiary may transfer with its other assets to DC Air. Because DC 
Air's initial operations are relatively small when compared to the 
operations of US Airways' existing subsidiaries, we do not expect that 
a significant impact would occur with respect to the existing employees 
or operations.
                              ----------                              

                       Submissions for the Record

Prepared Statement of Hon. Charles E. Grassley, a U.S. Senator From the 
                             State of Iowa

    Mr. Chairman, thank you for holding this hearing. As you know, 
competition and anti-trust policy are of special interest to me, but 
I've been especially focused on airline competition issues because 
Iowans have such limited choices in their air travel. Since United is 
the world's largest carrier, and US Airways is the nation's sixth 
largest carrier, the proposed merger between United and US Airways 
raises serious anti-trust questions. My recent experience with the AIR-
21 legislation showed me the importance of increasing airline 
competition into the marketplace, yet this merger seems to be heading 
the industry in the opposite direction. As a Senator from Iowa, the 
proposed merger worries me even more since large sections of the 
Midwest already experience high prices and few options. Both of these 
airlines currently provide air service to Iowans, and I cannot help but 
worry about the impact it may have on air travel for my constituents. 
In fact, I've urged both the Departments of Justice and Transportation 
to carefully scrutinize this transaction. But my hope is that before 
the Justice Department approves this merger, United and US Airways will 
fully address these concerns.

 Prepared Statement of Ed Perkins, Consumer Advocate for the American 
                     Society of Travel Agents, Inc.

    My name is Ed Perkins, and I currently serve as the Consumer 
Advocate for the American Society of Travel Agents (ASTA). I am also a 
nationally syndicated travel columnist and author of several travel 
buying guides. I was Founding Editor of Consumer Reports Travel Letter, 
from which I retired in 1998. In addressing you today, I am focused 
solely on the interests of American consumers, not on those of the 
travel industry or any of its components.
    In my view, we can't view a proposed merger of United Airlines and 
US Airways in isolation. Instead, we must look at it in the broader 
context of concentration in the U.S. airline marketplace. And in that 
context, I submit that the merger of United and US Airways--or any 
other merger between any of the six giant lines--would be highly 
inimical to the general public interest and the interests of travel 
consumers. I base that conclusion on two sets of issues: pricing and 
labor. Let's look at each.
    You've already seen and heard lots of claims about the merger's 
possible impact on prices. Many of the industry's most celebrated 
economists have published learned treatises, and they generally seem to 
agree: fares would either go up, go down, or stay about the same. Not 
to disparage those economists--I used to be one, myself--but we all 
know that, depending on how they structure an issue and the assumptions 
they make, capable economists can come to diametrically opposite 
conclusions about almost any issue. Certainly this one. More to the 
point: If we get bogged down in the details of relative costs, 
overlapping routes, hub consolidations, differential wage rates, and 
such, we'll quickly lose sight of the basic principles that should 
really govern the decision.
    Instead of looking at all those murky details, we should focus on 
how one or more mergers would impact the process by which the giant 
airlines raise and lower prices--specifically, how they would affect 
the pricing dynamic in a commodity market, which is the way today's 
airline market behaves.
    Price increases happen when one giant airline decides an increase 
would be a good thing. Immediately, the other giant lines study the 
increase and determine if they would also like to see higher prices. 
One by one, those that agree announce their own hikes--sometimes 
following the originator, sometimes with adjustments. As in the old 
saying, one airline runs the fare hike up the flagpole, and the others 
start saluting it.
    What's critically important here is that it now only takes one of 
the six giant lines to reverse the hike. In effect, each of those six 
lines has veto power over price hikes in the entire national airline 
marketplace. If any one of them doesn't salute, the hike is quickly run 
back down the flagpole and returned to the closet.
    Clearly, the fewer the number of giant lines, the less chance that 
any given price hike will be vetoed. And, in a worst-case scenario, a 
concentration down to only three super-giants would make it far easier 
for any one of them to make price hikes stick.
    The fare-cutting process works the same way. It takes only one of 
the six giants to kick off a nationwide fare war. And, as you probably 
know, that's when a lot of ordinary consumers buy their tickets. When 
it comes to starting a far war, six chances for a price cut are far 
better than five, four, or three.
    Labor issues, too, militate against further concentration. With the 
largest U.S. line owning no more than about a 17% share of the domestic 
market, the nation's economy can survive the complete shutdown of any 
one giant airline. But only barely: The last American shutdown showed 
us how much disruption resulted from a loss of just 11% of the domestic 
lift, as measured in passengers.
    If you liked that strike, you'd love a shutdown of a merged United-
US Airways system. That would represent just about twice the American 
share. Even worse, of course, would be a merged American and Delta, 
with a staggering 28% share of total passengers.
    We made it through the American stoppage as well as we did, at 
least in part, because the other five giant airlines--plus the smaller 
players--managed to absorb most of American's travelers, over an 
extended period. But could fewer other airlines absorb twice as many 
displaced passengers without far more serious disruption? Or, in the 
worst case, could two remaining super-giant lines absorb 28% of the 
passengers? I don't think so. Instead, the effects of a super-giant 
strike would be devastating to the economy, and certainly to the travel 
plans of millions of consumers. As with pricing, for labor reasons 
alone, we just can't risk more market concentration.
    One more point: let's not forget the largely negative effects of an 
earlier wave of mergers and acquisitions. How such user-friendly lines 
as Air California, New York Air, PSA, Piedmont, and Republic 
disappeared in the black hole of mergers? Don't take my word for it; 
ask someone from Charlotte or Detroit.
    ``It needs more study'' is the classic way of evading a tough-
minded decision. Or, in Carleton Green's construct, it's a way of 
handling a tough question by ``dissolving it in a weak solution.'' I 
would submit that we don't need any more study on the merger question. 
We can't afford a weak solution. This is one of those cases that should 
be decided by basic principles and common sense, not statistical 
models.
    And those basic principles come in with a clear message: No more 
concentration by merger. No more buying out potential competitors 
rather than competing with them. We should take merger and acquisition 
among any of the six giant lines completely off the table, starting 
now. If any one of those lines is desperate to increase its market 
share anywhere in the U.S., let that line do it the old-fashioned way: 
earn it, with better service and lower fares.
    Thanks for your attention.
                                 ______
                                 

Prepared Statement of C.A. Howlett, Senior Vice President on Behalf of 
                      America West Airlines, Inc.

    America West Airlines, Inc. offers these comments in conjunction 
with the Committee's evaluation of the public interest impact on 
competition of the proposed merger between United Airlines and U.S. 
Airways and the sale of Washington Reagan National Airport slots to a 
proposed new airline DC Air. America West is very concerned that 
already serious competitive barriers, particularly at airports where 
United and U.S. Airways have dominant or strong positions, will only be 
exacerbated should the merger be approved in its proposed form.
    For America West and other post deregulation carriers, government 
imposed or sanctioned competitive barriers including the perimeter 
rules at Reagan National and LaGuardia airports, continuing slot 
constraints at National, LaGuardia and Kennedy, and the unavailability 
of economically usable gates at many metropolitan airports including 
National, LaGuardia, Newark, Logan and O'Hare, make it virtually 
impossible for new post deregulation carriers to launch meaningful 
competition at these airports. America West appreciates the positive 
changes to the slot rules enacted by Air 21. However, the proposed 
merger highlights the immediate need, before any merger which 
contributes to these constraints goes forward, for more expansive 
Congressional action to induce badly needed new competition to key 
airports in the East and in Chicago.

                               BACKGROUND

    In 1977, Alfred Kahn, chairman of the Civil Aeronautics Board, 
noted that ``Whenever competition is feasible it is, for all its 
imperfections, superior to regulation as a means of serving the public 
interest.'' The following year, the Airline Deregulation Act was 
implemented, phasing out government control over fares and service. 
From that point on, Congress intended that market forces would dictate 
the price, quantity and quality of domestic air service. In the 
deregulated environment, consumers would reap the benefits of open 
competition in a free marketplace.
    America West Airlines provides the model for post-deregulation 
success. It initiated service on Aug. 1, 1983, with three aircraft, 280 
employees and a route system consisting of five destinations. As a 
small start-up carrier competing head-to-head against much larger and 
better-established airlines, its potential for success would be defined 
by its ability to effectively distinguish itself from the competition 
and build a solid base of loyal customers. Today, America West, the 
nation's ninth largest commercial airline, is the only post 
deregulation airline to achieve major carrier status. It has 
established an effective marketing and operational niche as the only 
major network airline to offer a combination of full-service and low 
fares. Its customers enjoy the same full range of services provided by 
larger airplanes, including advance seat assignments, First Class 
cabins in every aircraft, a competitive frequent-flyer program, an 
airport lounge club, electronic and online booking, onboard audiovisual 
entertainment systems and inflight meal service. America West's 1999 
unit cost of 7.52 cents per available seat mile was, for the sixth 
consecutive year, the lowest unit cost of all full-service major 
carriers. These low costs enable America West to deliver upon 
deregulation's promise of expanding the reach of commercial air service 
by developing new markets to smaller communities not otherwise served 
by major carriers. America West's East Coast to West Coast ``walk-up'' 
fares and average fares are substantially below those of the largest 
incumbent carriers.
    America West has achieved this success while weathering the storms 
of the marketplace. Mergers, bankruptcies, severe increases in the 
price of fuel, and deep traffic losses caused by war and recession have 
all been overcome. America West is committed to bringing more East-West 
competition to key Eastern airports like Logan, LaGuardia, Newark and 
Reagan National, and to expand at O'Hare. To provide viable competition 
for business travelers, America West must offer a total of at least 
five roundtrips a day to its hubs. Slots, perimeter rules and lack of 
gates prevent the full development of this service and deprive the 
public of the benefits of competition by America West and other lower 
cost carriers. These barriers to competition remain as a result of 
government inaction. Without Congressional action, regardless of the 
outcome of the pending merger these barriers will remain. Further 
consolidation of the industry without government action to alleviate 
these barriers to entry will doom the competitive environment. Congress 
must act to ensure complete and unfettered access to the marketplace by 
eliminating archaic slot and perimeter rules while ensuring all 
competitors have access to gates and associated facilities at federally 
funded airports.

Slots
    Congress recently made some additional new entrant slots available 
at O'Hare, LaGuardia and Kennedy airports and repealed the High Density 
Rule (HDR) governing Chicago's O'Hare to be fully effective in 2001 and 
New York's LaGuardia and Kennedy airports in 2007. While this action 
was important, LaGuardia and JFK will remain subject to slot rules for 
seven more years. At these airports, slots will continue to hinder 
competitive entry. Moreover Air 21 did very little to stimulate 
competition at Reagan National Airport where the HDR restricts the 
number of hourly slots allocated for commercial takeoffs and landings 
to 37 for jets and 11 for commuter aircraft which total to 
approximately 760 commercial operations per day. The 24 daily exemption 
slots provided under Air 21 constitute only a three percent increase in 
slots. America West hopes to stimulate competition to the West at 
Reagan National with the slot exemptions it received under Air 21. 
However, its ability to do so is limited by the fact that it canoperate 
only three daily round trips rather than the five it requested from the 
Department of Transportation. As a result of slot restrictions, DCA is 
one of the highest cost airports in the country, with virtually no 
ability to expand capacity or otherwise improve the competitive 
environment.
    As America West has pointed out over the last decade, DOT/FAA 
attempts to increase competition at slot-controlled airports in general 
and at DCA in particular have been woefully inadequate. See Government 
Accounting Office, Airline Deregulation: Barriers to Entry Continue to 
Limit Competition in Several Key Domestic Markets, Letter 3 (Letter 
Report, 10.18/96, GAO/RCED-9704) (hereafter, ``GAO Airline Deregulation 
Report''). According to the GAO, the trend toward market concentration 
at slot-controlled airports has continued throughout the past decade:
    Since the early 1990s, a few established carriers have continued to 
build upon the favorable positions they inherited as a result of 
grandfathering. By contrast, the share held by the airlines that 
started after deregulation has remained low.
    Because the number of slots is largely fixed and the holding of 
those slots is concentrated among a few established carriers, a 
seller's market has emerged, and slots have become very expensive. . . 
. Moreover, in order to mount competitive service in a market, an 
airline generally needs about six slots, with at least three slots 
falling during the peak periods so that the airline can offer a flight 
schedule that is attractive to business travelers. As a result, for the 
airlines that started after deregulation, the cost of purchasing the 
slots necessary to compete effectively may be prohibitive.
    Even if financing can be arranged, buying slots is extremely 
difficult for newer airlines because the established carriers rarely 
sell their slots, and when they do, the buyer is usually an airline 
that already holds a large number of slots at the airport.
    GAO Airline Deregulation Report, Letter 3:1. The net result, 
according to the GAO: ``[L]ittle or no entry has occurred at'' Reagan 
National and other slot-controlled airports. GAO Airline Deregulation 
Report, Letter 3. America West urges Congress to advance the date for 
the termination of slots at LaGuardia and JFK, and to also act to 
abolish slots at Reagan National.
    If the High Density Rule at Reagan National cannot be repealed, 
then slots must be added. In its 1995 slot study the Department of 
Transportation reported that DCA could easily handle an additional 7 
slots an hour or 126 flights per day. Given the Stage 3 noise 
requirement, these slots could be added with no significant impact on 
noise or increase in delays. If Congress added 100 slots (50 additional 
round trips) for either inside or outside perimeter flights, to post 
deregulation carriers operating large aircraft, it would generate 
substantial new competition. Since 50 additional round trips by post 
deregulation carriers like America West could have a substantial 
competitive impact in many markets, the competitive concerns associated 
with the proposed transfer of slots to DC Air would be lessened. 
However, without a substantial increase in slots, any approval of the 
proposed merger should require the transfer of the proposed DC Air 
slots to post deregulation carriers that can maximize competition.

                            PERIMETER RULES

Washington Reagan National
    The perimeter rule at Reagan National limits non-stop flights to a 
distance of 1,250 miles. The perimeter rule never served any safety 
purpose. It was a tool created to divert traffic to the fledgling 
Washington Dulles International Airport. However, the primary effect of 
the rule has been to bolster the ability of the large incumbent 
carriers to flow East-West traffic through their primary hubs by 
offering multiple daily connecting flights and preventing new low fair 
competition. A recent GAO study shows that unrestrained access to 
Dulles and BWI by low-fare carriers has had little or no impact on 
fares at Reagan National, primarily because, for reasons of 
convenience, air travelers in the Baltimore Washington region 
(particularly business travelers) are unlikely to switch airports. GAO 
Letter Report, Reagan National Airport: Capacity to Handle Additional 
Flights and Impact on Other Area Airports, Letters 1 and 5 (GAO/RCED-
99-234, Sept. 1999). This situation would only be exacerbated if the 
proposed merger was permitted to go forward while the perimeter rule 
remains in effect.
    Moreover, there is no longer any need to protect Dulles, which has 
established itself as a significant domestic and international 
destination. The airport's emplacements are already comparable to those 
at DCA. In addition much of the area's growing high tech enterprises 
and new residential development are located near Dulles which is the 
fastest growing airport in the United States as reflected in the 
recently announced a six year $3.4 billion building plan that includes 
a new runway. Dulles to Undergo Major Expansion, The Washington Post, 
July 20, 2000 at A-1. The pending transaction demonstrates the 
importance of Dulles and United's commitment to it. When faced with the 
perceived need to divest overlapping routes involving the Washington, 
D.C. area, United And US Airways voluntarily chose to retain Dulles and 
substantially reduce service to National. Today, the perimeter rule 
simply distorts the market while conferring no consumer benefits.

New York LaGuardia
    The perimeter rule governing LaGuardia was imposed decades ago 
primarily to control ground congestion at and around the facility and 
to generate service at the newly developed JFK. Subsequent changes at 
LGA and JFK as well as aircraft technology over the intervening years 
makes the rule a superfluous barrier to entry that deprives New York 
travelers the full range of options that should be available at all 
three airports serving the New York metropolitan area. The Department 
of Transportation has found LaGuardia constitutes a unique market apart 
from these other airports. Barring action by the Port Authority of New 
York and New Jersey, only Congress is in a position to enact 
legislation to preempt the locally imposed perimeter rule--a 
significant barrier to competition at this critically important New 
York airport. The proposed merger would likely further restricted East-
West competition from LaGuardia unless the perimeter rule is abolished.

                                 GATES

    Lack of adequate gate access and related facilities has hindered 
new entrants at many major Airport. Inability to obtain gates has hurt 
America West's ability to compete at major airports and remains a 
serious problem at eleven major airports including Newark, LaGuardia 
Philadelphia, Hartford, Baltimore-Washington, O'Hare, Atlanta and San 
Francisco. America West believes consumers would reap a high benefit 
from improved access by America West and other post deregulation 
carriers if gates at these airports were available.The gate and airport 
facilities problem will only be exacerbated by regulatory approval and 
closure of United--U.S. Airways merger, which consolidates gate 
holdings of United and US Airways at many of these airports. Without 
reasonable access to adequate gates and related facilities, new entry 
at key airports is effectively blocked. See Department of 
Transportation, FAA/OST Task Force Study, Airport Business Practices 
and Their Impact on Airline Competition, October 1999. Congress has 
responded to the Task Force Study by including in Air 21 a requirement 
for major airports to prepare a competition plan and requiring the 
Secretary of Transportation to ``ensure that gates and other facilities 
are made available at costs that are fair and reasonable.'' America 
West applauds this action but believes Congress needs to take more 
aggressive action in this area.
    Airport officials at Newark where 84 percent of the gates are 
subject to exclusive-use leases recently confirmed there are currently 
no gates available at that airport. At LaGuardia and O'Hare, 83 percent 
and 85 percent respectively of the gates are the subject of exclusive 
use agreements. According to the Metropolitan Washington Airports 
Authority (MWAA), all 42 gates available for jet operations at Reagan 
National are leased to the incumbent tenant airlines until 2014. Reagan 
National Airport: Capacity to Handle Additional Flights and Impact on 
Other Area Airports (Letter Report, 09/17/99, GAO/RCED-99-234). 
Although MWAA officials are committed to addressing gate access, a 
recent GAO report remains decidedly pessimistic:
    MWAA may make a gate available to another airline when it is not 
needed to support the tenant airline's scheduled operations. While a 
tenant airline cannot prevent another airline from using the gate when 
it does not need it, the only effective opportunity for a new entrant 
to initiate service at key business times of the day or for an 
incumbent to expand service is through a contractual arrangement with 
the tenant airline. To date, this is how new entrants have gained 
access to the airports.
    These arrangements have been generally inadequate for new entrants 
and today the incumbents are withdrawing gates they have made available 
in the past. While incumbents may not use some gates and under utilize 
other gates at these airports, America West has been unable to obtain 
its own gates and is forced to enter into short therm handling 
agreements with incumbents subject to 30 or 60 day termination clauses 
to operate at these facilities. For example, at O'Hare America West 
uses Continental gates under a master handling agreement. However, if 
as expected, Continental expands its O'Hare service, America West may 
be forced out of the airport. In this connection, the rapid growth of 
regional jets will soon put additional pressure on gate availability 
and post deregulation carriers will likely be squeezed out of many key 
airports if action to protect access is not taken soon. In addition, at 
O'Hare where America West has attempted unsuccessfully for over a year 
to obtain its own gates, it pays an annual fuel surcharge of between 
$250,000 and $300,000 because it is not a signatory airline. These 
additional charges place America West at a competitive disadvantage to 
incumbent carriers. At BWI, America West's short term agreement with 
Continental was recently terminated forcing America West to relocate to 
the International terminal, where it is the only domestic airline using 
international gates for domestic service. Moreover, BWI officials have 
stated that if it obtains additional international flights America West 
must give up these gates. If America West cannot locate gates with 
another incumbent it will be forced out of this important airport. 
Finally at San Francisco, another United stronghold, America West 
currently is handled by TWA. America West has requested two own gate 
from the airport. However, despite the renovation of the airport and 
Congressional concern that airports be pro-active in providing access 
for new entrants, America West's request will be considered only if 
Delta, which as a signatory airline has a preference does not take 
these gates.
    America West's experience confirms the findings of the Department 
of Transportation and the GAO that exclusive use leases and majority in 
interest agreements to be barriers to entry. Task Force Study at 38. 
America West believes Congress should direct DOT to take immediate 
action to compel airports to provide reasonable gate access and other 
facilities to new entrant carriers where exclusive use or other 
agreements thatare vestiges of the pre-deregulation system block 
competitive new entry. It is clear from the Task Force Study that 
current federal law--including Section 155 of Air 21, airport grant 
agreements with the FAA, and DOT's authority to prevent unfair trade 
practices by airlines--is sufficient to enable DOT to act aggressively 
to ensure new entrants gain reasonable access to gates. Should the 
Department of Justice consider approval of the merger, it must require 
United and US Airways to make available a reasonable number of gates at 
Reagan National, LaGuardia, Boston Logan, O'Hare and Newark to permit 
needed competition to be introduced by post deregulation carriers.

                                 DC AIR

    Like many of the witnesses who testified on the proposed merger at 
the Committee hearings, America West questions whether DC Air 
represents a real competitive force at Reagan National. Certainly, DC 
Air will not be independent of United and this lack of independence 
means there will not be real competition against the merged carrier. DC 
Air will wet-lease ten 737-200 aircraft from United for at least two 
years. United will provide gates to DC Air, which as emphasized above, 
it is not prepared to do for other new entrants at Reagan National that 
could compete against it. United will also provide maintenance services 
and DC Air will participate in United's frequent flyer program. Such 
dependence, as members of this Committee have pointed out, does not 
create the true independence required to provide meaningful competition 
to the combined United/US Airways in any market.
    America West and other post deregulation carriers have been 
essentially excluded from serving Reagan National. In this light, it 
would be unconscionable to permit United and US Airways to determine 
that a single start-up airline serving predominantly short-haul routes, 
dependent on United for aircraft and support and linked to United's 
frequent flyer program and international alliance will solve any 
competitive concerns at the airport. In essence this would be like 
allowing American and British Airways to spin off a ``new'' airline at 
Heathrow that uses BA aircraft and crews and is a member of their 
oneworld alliance, to provide new competition at that airport.

                               CONCLUSION

    Regardless of any conditions the Department of Justice may propose 
to United and US Airways to find this merger acceptable, America West 
believes additional Congressional action is necessary to eliminate 
those vestiges of the pre-1978 regulatory environment that continues to 
inhibit competition at key airports. Specifically, America West 
believes Congress should immediately:
     Advance the date for abolishing the slot restrictions at 
LaGuardia and Kennedy airports.
     Abolish slot restrictions at Reagan National or in the 
alternative provide 100 additional slots to be made available to post 
deregulation carriers.
     Abolish the perimeter rules at Reagan National and 
LaGuardia airports.
     Instruct the Secretary of Transportation to take the 
necessary steps to ensure that any post deregulation carrier can obtain 
sufficient gates and related facilities at major airports to operate up 
to five round trips a day to that carrier's primary hub airports.
    By taking these steps, Congress will bring the benefits of 
deregulation to key airports in the East and Midwest where government 
policies and the historic dominance of the pre-deregulation carriers 
has prevented meaningful competition and unfairly tilted the playing 
field in favor of the major high fare carriers. Congress took an 
important first step in Air 21 to open up slots, and by permitting a 
few beyond perimeter flights at Reagan National. Now is the time for 
Congress to complete the process of deregulation and level the playing 
field so America West and other low cost highly competitive carriers 
can serve these important markets that remain subject to restraints 
that serve no purpose but to protect the largest incumbent airlines.

                                
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