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76–916 DTP 2002

S. HRG. 107–223

AVIATION COMPETITION AND CONCENTRATION

AT HIGH-DENSITY AIRPORTS

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST,

BUSINESS RIGHTS, AND COMPETITION

OF THE

COMMITTEE ON THE JUDICIARY

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MARCH 21, 2001

Serial No. J–107–7

Printed for the use of the Committee on the Judiciary

(
(II)

COMMITTEE ON THE JUDICIARY

ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina

CHARLES E. GRASSLEY, Iowa

ARLEN SPECTER, Pennsylvania

JON KYL, Arizona

MIKE DEWINE, Ohio

JEFF SESSIONS, Alabama

SAM BROWNBACK, Kansas

MITCH MCCONNELL, Kentucky

PATRICK J. LEAHY, Vermont

EDWARD M. KENNEDY, Massachusetts

JOSEPH R. BIDEN, JR., Delaware

HERBERT KOHL, Wisconsin

DIANNE FEINSTEIN, California

RUSSELL D. FEINGOLD, Wisconsin

CHARLES E. SCHUMER, New York

RICHARD J. DURBIN, Illinois

MARIA CANTWELL, Washington

SHARON PROST, Chief Counsel

MAKAN DELRAHIM, Staff Director

BRUCE COHEN, Minority Chief Counsel and Staff Director

SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS, AND COMPETITION

MIKE DEWINE, Ohio, Chairman

ORRIN G. HATCH, Utah

ARLEN SPECTER, Pennsylvania

STROM THURMOND, South Carolina

SAM BROWNBACK, Kansas

HERBERT KOHL, Wisconsin

PATRICK J. LEAHY, Vermont

RUSSELL D. FEINGOLD, Wisconsin

CHARLES E. SCHUMER, New York

MARIA CANTWELL, Washington

PETER LEVITAS, Majority Chief Counsel

VICTORIA BASSETTI, Minority Chief Counsel
(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio ................................ 1

Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin ....................... 2

Schumer, Hon. Charles E., a U.S. Senator from the State of New York ............ 4

WITNESSES

Healy, Kevin P., Vice President of Planning, AirTran Airways, Inc., Orlando,

FL .......................................................................................................................... 9

Kamen, Hershel I., Staff Vice President, International and Regulatory Affairs,

Continental Airlines, Inc., Washington, DC ...................................................... 5

Mitchell, Kevin P., Chairman, Business Travel Coalition, Lafayette Hill, PA ... 11

(1)

AVIATION COMPETITION AND CONCENTRATION AT HIGH-DENSITY AIRPORTS

WEDNESDAY, MARCH 21, 2001

UNITED STATES SENATE, SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS AND

COMPETITION, COMMITTEE ON THE JUDICIARY, Washington, D.C.

The Subcommittee met, pursuant to notice, at 10:06 a.m., in

room SD–226, Dirksen Senate Office Building, Hon. Mike DeWine,

Chairman of the Subcommittee, presiding.

Present: Senators DeWine, Kohl, and Schumer.

STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM

THE STATE OF OHIO

Chairman DEWINE. Good morning. Let me begin by thanking my

colleague, Ranking Member Kohl, for joining me in holding this

hearing today.

Herb, thank you very much. He and I share strong concerns

about airline consolidation and the impact it will have on consumers nationwide.

Just last month, we held a hearing in this Subcommittee to examine the competitive impact of the announced mergers involving

United Airlines, US Airways, DC Air, American Airlines, and TWA.

At that hearing, we heard from the CEOs of each of the airlines

involved in the transactions, as well as from those at airlines not

involved in the mergers. We also heard testimony from experts in

the aviation field.

Having considered this testimony, as well as additional information that we have gathered, I have weighed the potential benefits

against the potential competitive problems that are likely to result

from the pending transactions. I have concluded that if the mergers

are approved, on balance, consumers will be hurt more than

helped.

In light of this conclusion, we needed to take action. So along

with my colleagues Senator Kohl, Senator Grassley, and Senator

Reid of Nevada, we have introduced legislation to increase and

maintain competition in the domestic aviation industry. If the traveling public is to have access to affordable, quality air service, real

competition is essential.

A big part of protecting competition in the industry involves

making sure that a sufficient number of competitors have access to

airports that are essential in this network business. Currently, two

of these key airports, Reagan National and LaGuardia, are subject
2

to Government slot controls which limit the number of takeoff and

landing slots during a day.

If the United and American deals are permitted, those two airlines will control roughly 65 percent of the slots at Reagan National and New York LaGuardia. These are key public resources

that airlines need reasonable access to in order for competition to

be maintained. Simply put, competition is not served if we allow

two airlines to dominate these vital airports.

More important, consumer interests are not served if any airline

is permitted to gain such a position through mergers. That is why

my colleagues and I have introduced S. 520. Our bill helps to protect access to Reagan National and LaGuardia by adding a new

section to the Clayton Act, a new section that will limit the percentage of slots that carriers already holding a large share of the

national aviation market can control at these two airports.

Our legislation would ensure that no single airline gains an anticompetitive advantage at these slot-controlled airports. It would do

so by not allowing any large airline that controls 20 percent of the

total slots at those airports to control more than 20 percent of the

slots over any two-hour period.

If such an airline did have more than 20 percent of such slots,

that airline would be required within 60 days to either return the

slots to the Department of Transportation or sell the slots in a

blind auction. This procedure would preserve competition by giving

all airlines equal opportunity to bid for the slots and gain access

to these airports.

Again, my overriding concern is the welfare of the traveling public. Travelers are frustrated about poor service, delays, and high air

fares. The answer to those and other challenges is not more consolidation. The answer is effective competition. We must protect

the consumer.

I fear that the airline industry is moving in the wrong direction,

toward a consolidated industry, away from a truly competitive, consumer-friendly environment. That is not good news for the industry, and that certainly is not good for consumers. We need to move

back to real competition in our domestic aviation industry, an industry that we all recognize plays a vital and necessary role in our

Nation.

Since we introduced our bill, I have met with Jim Goodwin, the

CEO of United Airlines, and he has expressed to me his concerns

about our legislation. I am aware that there are different points of

view regarding the bill and its full impact, and I remain open as

to ways this bill can be improved to further promote competition

and to protect consumers.

I want to thank our witnesses for being here today and I am anxious to hear their testimony.

Let me now turn to the ranking minority member of the Committee, Senator Kohl.

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

THE STATE OF WISCONSIN

Senator KOHL. I thank you, Mr. Chairman, for holding this important hearing focusing on our recently introduced legislation to

bring competition to high-density airports.
3

When the airlines were deregulated more than 20 years ago, no

one could have imagined that we might end up with just three airlines dominating the skies. But if we are not careful, in only a few

months real airline competition may be a thing of the past in our

country.

The measure we will examine today could help preserve competition among airlines. It is an important step during this time of

massive consolidation in the airline industry. Our legislation would

prevent any large national carrier from gaining a dominant share

of takeoff and landing slots at either Washington Reagan National

or New York LaGuardia airports.

Under our measure, any airline with at least a 15-percent share

of the national market cannot control more than a 20-percent share

of the slots at either Washington Reagan National or New York

LaGuardia in any two-hour period. If an airline exceeds these limits, then it must either return the excess slots to the FAA or sell

them in a blind auction to its competitors.

We need to do this for a single simple reason. If one or two airlines dominate these key airports, then in combination with their

hubs they can gain effective control of the national market. Let me

give you one fact that shows how important these airports are to

America’s air transportation system. More than one-quarter of the

Nation’s entire congestion-related flight delays resulted from

LaGuardia Airport alone.

Gaining access to slots at these airports is essential for smaller

and start-up airlines if they are to compete with the mega-carriers.

And if we want competition to survive in the 21st century, then we

are going to need these small competitors. This bill will enable

smaller and new carriers to have a fair shot at gaining access to

these airports and thus help bring real competition both to consumers who travel to and from New York and Washington and also to

the Nation’s skies as a whole.

We recognize the importance of maintaining frequent and reliable air service to smaller cities, such as those in upstate New

York, New England, Ohio, and elsewhere, from these two crucial

airports. Competition at slot-controlled airports need not be

achieved at the cost of losing service to the smaller communities

now currently served from these airports. We will work carefully

with our colleagues who represent these communities to ensure

that nothing in this bill diminishes this vital air service.

So we thank our panel of witnesses for testifying here today and

we look forward to hearing their views on this proposal.

Thank you, Mr. Chairman.

Chairman DEWINE. Senator Kohl, thank you very much.

Let me introduce our panel very briefly.

Hershel Kamen is the Staff Vice President of International Regulatory Affairs for Continental Airlines. His responsibilities include

international bilateral negotiations, the analysis of proposed Federal regulations—good luck—and government affairs analysis. He

joined Continental in December 1994.

Kevin Healy joined AirTran Airways in April 1999 and serves as

the Vice President of Planning for AirTran Airways. As vice president, he oversees the airline’s route strategy, scheduling, pricing,
4

revenue management, reservations, and sales. He most recently

served as Director of Domestic Pricing for US Airways.

Kevin Mitchell is the Chairman of the Business Travel Coalition.

Mr. Mitchell formed the BTC in 1996 to reduce the long-term cost

structure of business travel through increased airline competition.

As Chairman of BTC, Mr. Mitchell has previously testified before

Congress regarding airline deregulation.

We will start with Mr. Kamen, but before we do that let me turn

to Senator Schumer, who does have an opening statement.

STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR

FROM THE STATE OF NEW YORK

Senator SCHUMER. Well, thank you. This is my first meeting as

a member of the Subcommittee, which I am proud to be on, and

I want to thank you, Mr. Chairman, and Senator Kohl, your Ranking Member, for holding this hearing, but in general for the great

work that you have done in the antitrust area. You are a great

team and I very much appreciate what you have done and the opportunity to serve with you.

I would just like to say a brief few words about these mergers

which, as you know, are very important to me and my State.

The proposed merger between United Airlines and US Air raises

important questions about the future of airline competition, in general. First, will the merger of the world’s largest and Nation’s sixth

largest carriers consolidate the industry to such a degree as to inhibit free and fair competition? Will such a merger spur consolidations of other carriers like Delta and Continental, and American

and Northwest? And what will be the effect on the consumer of

those mergers?

As to all these questions, the jury is still out. In the meantime,

various officials, associations, and airlines have presented a number of options for legislating and the proposal at the forefront is the

one by you, Mr. Chairman, and Herb Kohl of this Subcommittee.

The legislation, as I am sure everyone knows here, proposes to

limit the amount of takeoff and landing slots major airlines can

own at LaGuardia and National, but the bill’s biggest effect will be

in New York State. As to the overall goal of the bill, fostering competition at high-density airports in an era of increasing airline

mergers, I commend my colleagues. However, I just must mention

I have two concerns about the bill’s specifics.

On its face, forcing major airlines to divest slots in an auction

where new entrants will be able to compete for the acquisition

sounds ideal. But by placing the slots on open auction, it guarantees that they will go to the carriers with the deepest pockets. Is

that the right idea? How will that affect middle-sized cities, such

as the ones I represent upstate.

And even economically speaking, while, of course, an auction

would be the right way to go, aren’t there external economies that

we have by having airlines in those cities, jobs that move to those

cities, just the accessibility of those cities, et cetera?

Second, there are no specifics as to which slots a carrier must divest. Would United give up one of their ten trips to Chicago or Delta’s 22 flights to Atlanta instead of their service to Syracuse, Dayton, or Burlington? Without provisions to protect existing slots for
5

service to underserved communities like, in my State, Buffalo,

Rochester, Syracuse, Ithaca and Albany, the major carrier required

to divest slots is likely to take them from these communities rather

than their major cash-cow markets.

As Senator from New York, I represent not only the airport most

affected by this legislation and the most sought after for entry, but

also the interests of upstate communities who have insufficient

service with hardly any competition. It is for these reasons that I

ask the Chairman and Ranking Member to work with me on the

solution to the problems I have laid out so we can move forward

with legislation that will help foster competition in the inevitable

environment of airline mega-mergers we are headed into.

Mr. Chairman, I thank you again for your leadership on this

issue. I thank Senator Kohl. I know that some of your cities have

the same concerns as we do here, a little less so because they are

further away from the slotted airports, although maybe at O’Hare

it is the same situation. I don’t know, but I hope we can work together to deal with these problems.

Chairman DEWINE. Senator, thank you very much. I think your

points are very well taken and these are things that we clearly

need to be working on, and we will.

Mr. Kamen, thank you. What we will do is we have your prepared testimony which, without objection, will be made a part of

the record for all three of you. We would ask you to keep your

opening statement to 5 minutes. We have lights here, so when you

get to the yellow light that means you are down to 60 seconds.

Then that will give us the opportunity to have some questions.

Mr. Kamen, thank you.

STATEMENT OF HERSHEL I. KAMEN, STAFF VICE PRESIDENT,

INTERNATIONAL AND REGULATORY AFFAIRS, CONTINENTAL AIRLINES, INC., WASHINGTON, D.C.

Mr. KAMEN. Good morning, Mr. Chairman, members of the Subcommittee. I am Hershel Kamen, Staff Vice President, International and Regulatory Affairs, for Continental. On behalf of my

53,400 colleagues, I thank you for inviting me to appear today. As

always, it is a special honor to be able to appear before Chairman

Mike DeWine, of Ohio, who represents our Cleveland hub and the

thousands of people we employ.

Mr. Chairman, Continental Airlines commends you, Ranking

Member Kohl, and Senators Grassley and Reid for introducing S.

520. This is exactly the right kind of legislation that must be enacted by Congress now. S. 520, as introduced, addresses the important issue of concentration of federally-limited resources and the

need to protect competition in the aviation industry by limiting the

ability of airlines to dominate two of the most important airports

in our national aviation system—Washington Reagan and New

York LaGuardia.

Just six weeks ago, the Chairman and CEO of Continental, Gordon Bethune, sat before you and warned of the impending threat

that United and American were making to competition in the airline industry, and I think it is worth repeating today.

Mr. Bethune said that the proposed mega-mergers were designed

to create a duopoly and split the United States aviation market,
6

creating an unbalanced competitive environment. Mr. Bethune also

explained that the airline industry would change for the worse, adversely affecting competition, consumers, communities, and employees, and he urged the Department of Justice to fight the proposed

duopoly’s plans and take actions to stop the mega-mergers. Six

weeks later, we still believe that United and American should not

be permitted to divide up the aviation market and split US Airways and its rich pool of assets.

Last month, Mr. Bethune urged the Congress, the Department of

Transportation, and the Department of Justice to ensure that appropriate slots, gates, and facilities at slot- and capacity-controlled

airports be made available to smaller network competitors by the

two mega-carriers. If the mega-mergers are allowed to proceed,

United and American will operate almost 80 percent of the slots at

the four federally slot-controlled airports.

At Washington Reagan and New York LaGuardia, the duopoly

will control over 65 percent of slots. It is clear that such a dramatic

gap in slot holdings would have a chilling effect on competition. Divestiture of slots, gates, and associated facilities by merged carriers

which exceed a dominance threshold would help prevent their

domination in a post-merger environment.

There is currently only one airline, US Airways, that controls

over 20 percent of the slots at Washington Reagan and New York

LaGuardia. One of US Airways’ significant competitive advantages

has been its immense slot holdings, giving the airline the opportunity and the ability to compete with airlines more than twice its

size. In fact, US Airways, a carrier which has recently, and wrongly, been trying to convince the Congress that it is a failing enterprise, has actually been financially successful over time in part because of the niche it has been able to create with its large slot holdings.

S. 520 would have no immediate effect on the current distribution of slots at Washington Reagan and New York LaGuardia. All

current slot-holders would keep their relative positions and the current competitive equilibrium would remain. However, should the

Government approved the United/US Airways/American mergers,

the provisions of S. 520 would prevent nationally dominant carriers

from exploiting their massive slot positions, increasing the concentration of slots, and leveraging their market power using their

large cache of slots. Frankly, S. 520 is good aviation policy.

Under the proposed legislation, a carrier that has more than 15

percent of the national air capacity cannot control more than 20

percent of the slots at either Washington Reagan or New York

LaGuardia. While there are currently 3 airlines that have more

than 15 percent of the national available seat miles—United,

American, and Delta—not one of them on its own currently own or

operate the dominant share of slots envisioned in this bill. Frankly,

because the Big 3 have not been able to dominate slots at slot-controlled airports, a competitive equilibrium among the major airlines

has developed. This equilibrium must be maintained.

We also support the provisions that allow United, American, and

other similarly situated carriers to choose how to reduce the size

of their slot holdings to an acceptable level. The bill provides that

carriers could sell the slots through a blind auction. A blind auction
7

is clearly a fair way to dispose of slots, and we believe it will ensure that carriers as big as Continental, Alaska, or America West,

and as small as AirTran, Midway, JetBlue, Frontier, or Spirit could

bid in an unbiased manner. If a carrier with more than 20 percent

slot holdings chose not to use the blind auction procedure, the excess slots would simply be returned to the FAA for redistribution.

Clearly, S. 520 should become law. Carriers would not be permitted to control the limited resources at Washington Reagan and

New York LaGuardia, and consumers would benefit from the resulting competition. Mr. Chairman, the ability of small and medium-size carriers to compete is vital to retaining equilibrium in

the airline industry. Since the dawn of deregulation, this competitive equilibrium has provided great benefits for consumers and it

must be strengthened, not weakened. S. 520 does not stop the

mega-mergers from being reviewed or even approved. S. 520 is a

very important step in ensuring that competition is retained.

If I can leave you with one final message, it would be this: As

Gordon Bethune has said, the proposed mergers are bad for consumers, bad for communities, and bad for airline employees. We

and many others know that in a post-merger environment, the

United-American duopoly will crush our ability to compete, and we

implore you to act now. We believe S. 520 is good aviation policy.

Without prompt enactment of this bill, no one will be able to ensure that consumers are spared the turmoil and loss of competition

that will be the inevitable result of the proposed mega-mergers.

Mr. Chairman, I would be happy to answer any questions you or

the Subcommittee have.

[The prepared statement of Mr. Kamen follows:]

PREPARED STATEMENT OF HERSHEL I. KAMEN, STAFF VICE PRESIDENT, INTERNATIONAL AND REGULATORY AFFAIRS, CONTINENTAL AIRLINES, INC., WASHINGTON,

D.C.

Good Morning Mr. Chairman and members of the Subcommittee. I am Hershel

Kamen, Staff Vice President, International and Regulatory Affairs for Continental

Airlines. On behalf of the 53,400 employees of Continental, I thank you for inviting

me to appear today. It is a special honor to be able to appear before a Subcommittee

headed by Chairman Mike DeWine of Ohio, who represents our Cleveland hub and

the thousands of people we employee in Ohio. Continental is honored to have such

strong leadership in the Senate and we thank you for this leadership.

The topic I would like to discuss today is the important issue of concentration of

takeoff and landing slots in the hands of the largest airlines and the need to protect

competition in the aviation industry by limiting the ability of airlines to dominate

slot-controlled airports. I would specifically like to discuss S. 520, introduced by

Chairman DeWine, Ranking Member Kohl, and Senators Grassely and Reid. This

legislation is a very important step in maintaining effective competition in the aviation industry and ensuring that airports where access is limited by federal mandate

will not be dominated by one or two of the largest air carriers.

I. INTRODUCTION

There are currently four federally slot-controlled airports: Washington Reagan,

New York LaGuardia, New York Kennedy, and Chicago O’Hare Air-21, enacted last

year, ends slot restrictions at Chicago O’Hare in 2002 and both New York airports

in 2007. No end to slot restrictions was legislated for Washington Reagan. In the

interim, the Department of Transportation was mandated to award slots to new entrant and limited incumbent carriers and those airlines that use small aircraft to

serve small communities from the New York airports. Based on the high level of

demand for the slots and the inability of the airport to handle such high levels of

demand, the FAA capped the number of slots at New York LaGuardia and allocated

slots to new entrant carriers and carriers using small aircraft to serve small commu-
8

nities based on a lottery system. New York JFK has not faced as much demand and

no special limitations have been implemented there.

Given Air-21 and the developments that have taken place since its enactment, it

can be safely assumed that slot restrictions at New York LaGuardia are likely to

be reinstated. Additionally at Washington Reagan, slot restrictions are expected to

remain in place in perpetuity. S. 520 therefore correctly identifies Washington

Reagan and New York LaGuardia as the airports that require special rules to ensure continued competition and to prevent undue concentration of slots in the hands

of any air carrier.

II. S. 520 AND THE CURRENT ENVIRONMENT

In the current environment, there is only one airline, US Airways, that controls

over 20% of the slots at either of the two airports in question. The remaining slots

are distributed among the other carriers in the industry. While US Airways is a significant slot holder, this has been US Airways’ competitive advantage, giving it the

opportunity and the ability to complete with airlines more than twice its size. With

less than 9% of domestic capacity (as defined by available seat miles), US Airways

is classified as a medium sized national carrier. As such, it is not a dominant national player, and its disproportionate share of slots at Washington Reagan and

New York LaGuardia has not raised significant competitive concerns. In fact, US

Airways has been successful in large part because of the niche it has been able to

create with its large slot holdings.

S. 520 would have no immediate effect on the current distribution of slots at the

two aforementioned airports, including for US Airways. All current slot holders

would keep their relative positions and the current competitive equilibrium would

remain in effect. What S. 520 would prevent, however, is a nationally dominant carrier from acquiring the slots held by another carrier and thereby increasing the concentration of slots, which would permit it to use this large cache of slots to effectively exclude competitors and leverage that market power nationwide and globally

thereby harming competition and consumers.

Under the proposed legislation, a carrier that has more than 15% of the national

air capacity (as defined by available seat miles, a standard measure of industry capacity) cannot control more than 20% of the slots at either Washington Reagan or

New York LaGuardia. While there are currently three airlines that have more than

15% of the national available seat miles (United, American, and Delta, ‘‘the Big

Three’’), none currently has the significant level of slots envisioned in the Bill. Because these large national carriers have not been able to dominate the slot controlled airports, arguably the two most important business airports in the United

States, a competitive equilibrium among the major airlines has developed. Along

with the ‘‘Big Three’’, the industry is made up of four medium sized national carriers (Northwest, Continental, US Airways, and Southwest) and three small national carriers (TWA, America West, and Alaska). There also are a number of successful new entrant/low cost/niche carriers that help maintain the balance in the

airline industry, all of which hold slots at various slot controlled airports (i.e. Frontier, Midway, Midwest Express, Jet Blue, Spirit, Air Tran).

III. S. 520 AND THE PROPOSED AVIATION MEGA-MERGERS

I previously stated that S. 520 would have no immediate effect on slot distribution. Given this, I think it is important to explain why we at Continental Support

such a preventative measure.

Just two months ago the Chairman and CEO of Continental, Gordon Bethune, sat

before the full Judiciary Committee and warned of the impending threat that

United and American were about to impose on competition within the airline industry. Mr. Bethune said that the mega mergers being proposed by United and American would create an unbalanced competitive environment in which each of the two

resulting mega-carriers would be significantly larger than their closed competitor

and three times as large as Continental, and would ultimately drive the remaining

major carriers out of business or into each others’ arms in defensive mergers. Mr.

Bethune stated that ‘‘The airline industry will change for the worse, adversely affecting competition, consumers, communities and employees.’’ He called on Congress, the Department of Justice, and the Department of Transportation to work together to ensure that competition can survive. He urged the Department of Justice

to fight the proposed plans of United and American to form a cartel to dominate

the aviation industry, and say no to the mega-mergers. United and American, the

two largest airlines in the world, should not be permitted to split US Airways and

its rich pool of assets.
9

Mr. Bethune is not the only person to call for action. In hearings before the Judiciary Committee and the Senate Committee on Commerce, Science, and Transportation, the GAO, academic scholars, and many other airline executives explained the

havoc the mega-mergers would cause the discussed specific actions that must be

taken to ensure that even a small chance of competitive survival would remain.

At the Judiciary Committee hearing. Mr. Bethune stated the ‘‘Congress, the Department of Transportation, and the Department of Justice must ensure that appropriate slots, gates, and other facilities at slot and capacity controlled airports be

made available to smaller network competitors by the two mega-carriers.’’ S. 520 is

an excellent first step in this direction and on behalf of Continental we applaud Senators DeWine, Kohl, Grassley, and Reid for this proposed legislation.

If the mega mergers are allowed to proceed, United and American will operate

almost 80% of all slots at the four federally slot-controlled airports. At Washington

Reagan and New York LaGuardia the two airlines will control over 65% of all slots.

By way of comparison, Continental (which would be only one-third the size of the

mega-carriers) operates 3% of all slots and less than 5% of slots at Washington

Reagan and New York LaGuardia. It is clear that such a stark difference in the

ability to offer service to consumers would substantially reduce competition.

Under the proposed legislation, United, American, and other similarly situated

carriers would have a choice of how to reduce the size of their slot holdings to a

level which would allow the minimum essential level of competition at these slotconstrained airports. Carriers could either sell their slots through a blind auction,

a fair way to dispose of slots that ensures that carriers as big and Continental, Alaska, and America West or as small as Air Tran, Spirit, Midway, Frontier, or JetBlue,

could bid in an unbiased manner, or, if a carrier chose not to use the blind auction

procedure, the slots would simply be returned to the FAA for redistribution. The Bill

would thus prevent carriers from both dominating the airline industry and

leveraging the dominance by controlling the limited resources at Washington

Reagan and New York LaGuardia. Congress must act now, in the face of the impending duopoly, to ensure that consumers are spared the turmoil and lost of competition that the United and American mergers would bring.

Mr. Chairman, the ability of small and medium sized carriers to compete is vital

to retaining competitive equilibrium in the airline industry. This competitive equilibrium has provided great benefits for consumers and must be strengthened, not

weakened by concentration of takeoff and landing slots at two of our nation’s most

vital airports. S. 520, is a very important step in ensuring that the competitive equilibrium if not replaced with a duopoly and that competition in key airports that are

federally restricted, and which have high levels of demand, is retained.

Two months ago, after my Chairman and CEO testified before you, Chairman

DeWine, you stated that his comments are always candid. While Mr. Bethune is admittedly a hard act to follow, I hope that I have been able to express the importance

of the proposed legislation Senators DeWine, Kohl, Grassley, and Reid have introduced. Continental urges all members of Congress to take this bill, and the threat

it is trying to protect against, seriously. We urge its swift passage and enactment.

Mr. Chairman and members of the Subcommittee I think you for your giving me

the opportunity to discuss this important topic and for you attention. I would be

pleased to answer any questions that you might have.

Chairman DEWINE. Mr. Kamen, thank you very much.

Mr. Healy?

STATEMENT OF KEVIN P. HEALY, VICE PRESIDENT OF

PLANNING, AIRTRAN AIRWAYS, INC., ORLANDO, FLORIDA

Mr. HEALY. Good morning, Mr. Chairman, Senator Kohl, Senator

Schumer. I appreciate both the opportunity to testify today and

your continued attention to the problems related to the consolidation of the airline industry and the factors restricting the growth

of low-cost competition.

At a time when there are fewer airlines than at any point since

deregulation, your bill addresses a critically important issue. Access to markets like New York LaGuardia and Washington’s

Reagan National Airport is necessary for low-fare network carriers

like AirTran Airways to provide viable and sustainable competition.
10

At this point, low-fare carriers operate about 4 percent of the

slots at the two airports, and we are blocked from growing at either

airport. If the pending mergers proceed as currently structured, the

two largest carriers will control two-thirds of the slots at Reagan

National and nearly 60 percent of the slots at LaGuardia.

This concentration in key airports presents a two-fold problem.

First, markets like Reagan National and LaGuardia are the cornerstone of network operations for both established major carriers and

low-fare carriers alike. Since deregulation, carriers have established hub-and-spoke systems that are heavily reliant on access to

large cities.

AirTran Airways is unique in that we are a low-fare carrier with

a hub-and-spoke system that allows us to successfully serve larger

markets like Boston, Chicago, and Philadelphia, but also small to

mid-sized markets such as Akron, Canton, Bloomington, and Toledo. Our Atlanta hub gives us the critical mass necessary to compete with larger carriers, particularly Delta, United, and US Airways.

Our hub and the ability to serve small to mid-sized communities

is anchored by service to high-density markets like New York.

However, the ability to expand this network effect is limited due

to facility constraints at most major airports. If you are blocked

from entering DCA, growing at LaGuardia, and obtaining critical

airport facilities at Philadelphia, Newark, and Boston, it becomes

impossible to compete in this area of the country. At the same

time, United and American are increasing their control of slots and

facilities at each of these airports.

Second, as major carriers developed hubs over the last 20 years,

they have increased regional strength and amassed market power,

primarily through mergers and acquisitions, that gives them the leverage to influence pricing, travel agency and corporate distribution, and especially airport facilities. This market power allows the

major carriers to limit or prevent new entry and low-cost competition, limiting or in many cases reversing the benefits of deregulation.

As I mentioned earlier, there are fewer carriers now than at any

point since deregulation. In fact, according to the Transportation

Research Board, new-entrant carriers have exited more markets

since 1996 than they have entered. This is a disturbing trend

which will only become worse with continuing consolidation.

The negative effects of consolidation have been well documented

by multiple studies, most recently a study entitled ‘‘Predatory Practices in the U.S. Airline Industry’’ issued by the DOT in January.

This study outlines the many challenges faced by low-cost carriers,

including predatory pricing, increased flight frequency, capacity

and predatory scheduling, frequent traveler programs, and travel

agency overrides.

The study notes the benefits of low-fare competition and documents the differences in competitive responses to new entry by

major carriers when the new entrant is another major carrier versus a low-fare carrier. The study concludes, ‘‘Since many of the continuing gains from airline deregulation come from the presence of

low-fare carriers, an industry characterized by vigorous opportunities for entry is essential for continuing consumer gains.’’
11

The key to vigorous low-fare competition is the ability to build

and expand effective networks; in other words, the critical mass

necessary to compete against established and entrenched major

carriers. The benefits of this competition are substantial. The consumer harm from a lack of competition is equally dramatic.

The DOT’s most recent report in their competition series notes

that fares in hubs without low-fare competition are generally 41

percent higher. This hub premium is even more pronounced in

short-haul hub markets where the study concludes passengers pay

54 percent more than in similar markets with low-fare competition.

The AirTran Airways business model is designed to compete in

short-haul markets and has been effective in maintaining price discipline in the markets we serve. Based on DOT data, the competition that AirTran brings to Atlanta saved consumers more than

$700 million in 1999. The network strength derived from access to

Reagan National, New York LaGuardia, and other key markets

will enable us to expand our business model, create other focus cities and hubs, and compete in more dominated hub-to-hub markets.

The only counterbalance to major carrier market power and hub

dominance is the price discipline provided by effective low-fare

competition. Access to high-density airports both in terms of slots

and facilities is necessary to create effective low-cost competition.

Senate bill 520 increases the opportunities for low-fare carriers

to compete at Washington Reagan National and New York

LaGuardia in the face of further consolidation. This is an important step in building or expanding strong low-fare networks and

continuing the benefits of deregulation, but it is a precautionary

move against future mergers

Most of the gains that have been made in competition today are

the result of legislation such as AIR 21. I respectfully urge the Subcommittee to continue to look for more immediate means to increase competition with or without further mergers, and to encourage the DOT to use its existing authority to enforce fair and reasonable competition, and prevent anticompetitive practices and unreasonable concentration.

Thank you again for the opportunity to address these critical

issues.

Chairman DEWINE. Mr. Healy, thank you very much.

Mr. Mitchell?

STATEMENT OF KEVIN P. MITCHELL, CHAIRMAN, BUSINESS

TRAVEL COALITION, LAFAYETTE HILL, PENNSYLVANIA

Mr. MITCHELL. Mr. Chairman and Ranking Member Kohl, thank

you for the invitation to appear before you this morning.

BTC supports S. 520. BTC believes the legislation effectively addresses immediate and deep concerns regarding proposed airline

mergers. Moreover, this bill also recognizes that the problems of inadequate competition levels, eroding passenger service levels, and

aviation system gridlock are inextricably linked. The proposed legislation would address all three issues at Reagan National and

LaGuardia Airports, and have a positive impact beyond these two

airports.

With respect to inadequate competition levels, U.S. DOT studies

have demonstrated that new competition at congested airports low-
12

ers fares, especially for business travelers in short-haul markets.

Low-fare, new-entrant carriers need access to these strategically

important airports to augment their financial success and to have

the opportunity to grow into national carriers. Importantly, were

the proposed mergers to be approved by U.S. DOJ, through this

legislation Continental Airlines would have an alternative to seeking merger partners, thus preventing further industry consolidation.

There is some concern over the potential through this legislation

of mid-size communities losing service, as incumbents might choose

to retain slots for high-density, high-yield business markets. However, should the proposed mergers be approved, these cities would

be at risk of loss service or degraded service, as well as higher

fares, as these new mega-carriers seek to rationalize routes, hubs,

and fleets. There are options to prevent these communities from

losing service that I hope this Committee will consider.

Regarding eroding passenger service levels, the proposed legislation would provide new competitive choices at these two important

airports, and encourage all carriers to compete not just on price,

but on customer service as well. It would appear that none of the

proposed passenger rights bills would be, in the long run, as effective in improving customer service as additional competition would

be.

Now, to aviation system gridlock. Reportedly, many incumbent

airlines distort the efficient use of airport capacity by sitting on

slots, by assigning them to smaller aircraft or business affiliates to

keep them out of the hands of competitors. By eliminating this

waste and inefficiency, this legislation will encourage the highest

and best use of all essential airport facilities, including slots and

gates. The utilization of larger aircraft would have a positive impact on airport capacity and on aviation system gridlock.

So what is the main issue? Members of this Subcommittee,

economists agree that some markets do not work well; other markets do not work at all. After 4 years of national debate over competition levels in commercial air transport, the problems are well

documented. The proposed airline mergers would gravely injure

what functioning competition is left in this market. Your legislation, if enacted, may stave off highly undesirable outcomes.

There are numerous potential short-term negative consequences

associated with these mergers. The huge cost of integrating these

firms will likely be financed by business travelers in cities like

Rochester, Pittsburgh, and other captive markets where the new

mega-airlines will be able to extract monopoly rents. Likewise, customer service problems will be serious, if experience from previous

mergers teaches us anything.

As serious as the short-term implications are, customers who oppose these combinations are most concerned with their potential

long-term negative outcomes. It is assumed by most experienced

corporate purchasers that as a consequence of fewer competitors,

business air fares will climb well above current record levels.

Thank you for requesting the views of the customers of the air

transportation system.

[The prepared statement of Mr. Mitchell follows:]
13

PREPARED STATEMENT OF KEVIN P. MITCHELL, CHAIRMAN, BUSINESS TRAVEL

COALITION, LAFAYETTE HILL, PENNSYLVANIA

My name is Kevin Mitchell. I am Chairman of the Business Travel Coalition

(BTC), which represents the business travel interests of major corporate buyers of

commercial air transportation services, as well as the 21,000 independent business

travelers who are members of the Commercial Travelers Association.

BTC supports proposed legislation that would prohibit any airline with more than

15% of domestic available seat miles to own or operate more than 20% of the slots

at LaGuardia or Reagan National airports in any two-hour period.

BTC believes the bill strongly addresses immediate and deep concerns regarding

proposed airline mergers. Moreover, this bill also recognizes that the problems of

inadequate competition levels, eroding passenger service levels and aviation system

gridlock are inextricable linked. Proposed legislation would address all three issues

at Reagan National and LaGuardia airports, but its positive impact would be felt

countrywide.

COMPETITION

U.S. DOT studies have demonstrated that new competition at congested airports

lowers fares; especially for business travelers in short haul markets. Low-fare, new

entrant carriers need access to these strategically important airports to augment

their financial success and to have the opportunity to grow into national carriers.

Importantly, were proposed mergers to be approved by the U.S. DOJ, Continental

Airlines, through this bill, would have an alternative to seeking merger partners,

thus preventing further industry consolidation.

Some are concerned over the potential, through this legislation, for mid-size communities to lose service as incumbents might choose to retain slots for high density,

high yield business markets. However, should proposed mergers be approved, these

cities would be at even higher risk of lost service and higher fares as these new

mega carriers seek to rationalize routes, hubs and fleets.

Another concern is low-fare new entrants may be effectively locked out of the auctioning process for slots that the legislation calls for because of their high prices.

I am hopeful that this Committee will be receptive to proposals that would address

these potential problems. These communities would then be assured of continued

service under multiple scenarios, and additionally, they would benefit from affordable airfares.

PASSENGER SERVICE

Proposed legislation would provide new competitive choices at these two important airports and encourage carriers to compete not just on price, but on customer

service as well. It would appear that none of the proposed passenger rights bills

would be, in the long run, as effective in improving customer service as additional

competition would be.

AVIATION SYSTEM GRIDLOCK

Reportedly, major incumbent airlines distort efficient use of airport capacity by ‘‘sitting and slots’’ by assigning them to smaller aircraft or business affiliates to

keep them out of the hands of competitors. This legislation would encourage the

highest and best use of all essential airport facilities including slots and gates. The

utilization of larger aircraft would have a positive impact on airport capacity and

on aviation system gridlock.

THE MAIN ISSUE

Members of the Committee, economists agree some markets do not work well;

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

There are numerous potential short-term negative consequences associated with

these mergers. The huge costs of integrating these firms will likely be indirectly financed by business ravelers in cities like Rochester, Pittsburgh, Charlotte and other

captive markets where the new mega airlines will be able to extract monopoly rents.

Likewise, customer service problems will be serious if experience from previous

mergers taught us anything.

As serious as the short-term implications are, customers who oppose these combinations are most concerned with their potential long-term negative outcomes. It
14

is assumed by most experienced corporate purchasers, that as a consequence of

fewer competitors, business airfares will climb above current record levels.

Of deep concern is that the new airline behemoths will posses massive new resources of all manner—political, financial, airport facilities, network scale and scope,

code sharing and strategically targeted frequent flyer, commission override and exclusive corporate discount programs—to attack Southwest and other low-fare airlines on multiple fronts at once. These low-fare carriers have provided what pricing

discipline there is in commercial air transport.

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

Chairman DEWINE. Mr. Mitchell, thank you very much.

Let me first start with a question to all of you, and I want to

follow up on a comment that was made by Senator Schumer. Some

people have raised the concern that large carriers will choose to

drop service to some small or mid-size communities if they are required to divest slots pursuant to our bill. Others have noted that

while that may happen in a few markets, competitive carriers will

almost certainly enter the markets after the large carriers pull out.

I just wonder what your opinion about all that is. Mr. Kamen?

Mr. KAMEN. Small and medium communities have service today

because there is a market for them. That is the reason US Airways

operates them today. They are not operating them to lose money.

They are operating them because there is a market there.

If slots are transferred and the carriers that have to transfer the

slots cease operations in those markets, there will still be a market.

There will still be passengers that want to fly between Washington

Reagan, New York LaGuardia and those small communities, and so

other carriers will start to pick up those cities.

Chairman DEWINE. That is not something that a larger airline

uniquely has the ability to be competitive and make money on?

Mr. KAMEN. I don’t think so, I don’t think so. Additionally, as

Mr. Healy said as well, carriers are trying to build connecting complexes at these airports. So you need a broad mix of communities

to serve. You need large communities, smaller communities, to

make the network work.

If I can give you one example, with our small slot position we

have today at New York LaGuardia, we currently serve two of our

hub airports, Houston and Cleveland. We serve two large Florida

cities, Fort Lauderdale, and Orlando. But we also serve four small

communities. We serve Richmond, Buffalo, Madison, and Grand

Rapids. We are not trying to take all the slots and move them only

to large communities. There needs to be a broad base in order to

make the network work.

Chairman DEWINE. Mr. Healy?

Mr. HEALY. Senator, I think there are a couple of issues there.

The first thing I would say is that a number of small communities

have already lost service as the major carriers are building up markets like DCA-Boston. DCA-Manchester has fewer flights today

than it did a year ago.

The other is the ability to serve smaller communities. As I mentioned before, our network and the core strength that we gain in

our network has allowed us to go into markets that large carriers

have abandoned. Akron-Canton is a good example. Toledo, Bloomington, and Moline are all markets that either no longer had jet

service or in some cases hardly had any service at all.
15

The key, though, is the strength of the network and being able

to serve multiple destinations in large markets. As major carriers

pull down in cities, that does in some ways give us an opportunity,

particularly in small to mid-size communities, to come in and initiate service.

It is often stated that, well, the communities weren’t large

enough to support the traffic or jet service. What we have proven

time and again—when we entered into Akron-Canton to Atlanta,

we cut fares by more than 50 percent and traffic grew by about

1,400 percent. So the communities are certainly strong enough.

Given the opportunity and the strength that we can garner through

access to large markets, we certainly hope to expand service going

forward.

Chairman DEWINE. Mr. Mitchell?

Mr. MITCHELL. Yes, Senator, I would make a comment first and

then respond to your question. The comment is that I have been

trying since being invited to testify before you today to determine

what is the number of slots at both LaGuardia and Reagan that

are currently being used for service to mid-sized communities. I

cannot find the answer to that and it is an important question because it defines what the scope of the potential problem is here.

To answer your question directly, I think it is pretty clear that

some carriers, if relegated to the 20 percent, would consider pulling

service out of mid-size communities. But they would not do so because those routes are unprofitable. Indeed, they are some of the

highest-yield markets in the system.

Why they would be pulling these flights out would principally be

because where they do face competition, they would be loathe to

put themselves in a position of having fewer frequencies vis-a-vis

their competitors. So they will be pulling out not because of profitability.

What will happen? Well, it will open up the opportunity for niche

carriers to fill in there, and it is a beneficial strategy for them because they are staying out of the big guy’s way, and that has been

proven to be helpful. So you are going to get service to be provided

by new entrants.

There is a third benefit here, and that has already been brought

up in some respect, and that is you will be giving these smaller

carriers some feed through their system that will allow them to

serve even more markets and grow into national carrier status.

David Needleman of JetBlue made this point before a Senate

Committee a couple of weeks ago where he said, we would love to

serve some of Senator Hollings’ airports, but without access to Boston we can’t get the feeder traffic through Kennedy.

Chairman DEWINE. Well, my time is up, but let me just follow

up with you, Mr. Mitchell. Why can’t you get this information that

you are looking for?

Mr. MITCHELL. It could be a function of I didn’t have enough

time.

Chairman DEWINE. That works with all of us, I guess.

Mr. MITCHELL. But I have made several calls over to DOT and

the data are not easily available, apparently.

Chairman DEWINE. Really? I am surprised by that.

Senator Kohl?
16

Senator KOHL. Thank you, Senator DeWine.

Mr. Kamen, if all the pending airline mergers and acquisitions

are completed as planned, then the two large remaining airlines,

American and United, and their affiliated and partner carriers will

control about two-thirds of the takeoff and landing slots at Reagan

and at New York LaGuardia. These two airlines will also control

about half of the national market after these mergers.

In your opinion, what will be the consequences for competitors

like Continental if American and United gain such domination at

these two slot-controlled airports?

Mr. KAMEN. I think United and American will use their position,

their two-thirds and possibly growing position at Reagan and

LaGuardia to further intensify their domination of the national

aviation system.

Other carriers like Continental—we have testified and stated for

the record that we do not believe we will be able to compete with

carriers that are three or possibly more times as large as we are

without being able to access vital markets like LaGuardia and

Washington Reagan, and we will just lose further and further

ground on the national scale as we lose ground in these two vital

airports. Competition will be lost.

I think that the Chairman of Continental, Mr. Bethune, was very

clearly when he testified before the full Committee six weeks ago

that we will have no choice but to look for other options, consolidation options, if the mega-mergers are allowed to proceed. We just

will not be big enough. We will not be able to grow big enough

without help in order to do that.

S. 520 gives us a fighting chance. It allows us the opportunity

to bid on slots. We may win them, we may not win them, but if

we do, it gives us a fighting chance to go on by ourselves and not

have to consolidate. But without it, we just will not have any

choice.

I should note that S. 520 would affect Continental if it went

ahead and was forced to consolidate with another airline. There

has been wide speculation that Continental would be talking to

Delta Airlines about possibly consolidating those two carriers. S.

520 would affect us if we merged with a Delta Airlines the same

way that it is affecting United and American. It is just good aviation policy. It is trying to help people not be forced to consolidate;

it is trying to give competition.

Senator KOHL. Mr. Healy, why is it important to your airline and

to other small airlines to gain access to the slots at LaGuardia and

Reagan? How does the inability of your airline to obtain takeoff

and landing slots at these airports affect your ability to compete

with American and United and the other large airlines?

Mr. HEALY. The main issue, Senator, is the network strength

that you gain by serving the primary airport. Flying into

LaGuardia—you know, the revenue garnered off that percentage is

greater than the actual percentage of the seats. It gives you the

ability to go in and compete in the market that the people want

to go to. That then gives us the ability to serve smaller markets.

The differential for consumers is significant. Our fare from Atlanta

to Dulles is $217 at the last minute. The corresponding fare on
17

Delta Airlines into National is $609. That is the sort of difference

that we hope to make.

We fought very hard to get into LaGuardia. It took about two

tries. We had attempted to lease slots and were out-bid and finally

got exemption slots into LaGuardia, and that has given us the core

strength to continue to grow. Even looking at Newark as an alternative, it took us longer to get into Newark than it did to get into

LaGuardia.

So in many cases there isn’t an alternative, and without the ability to fly in a network to markets that people want to go to, you

don’t have the competitive strength to withstand the forces of the

major carriers.

Senator KOHL. Well, what about some of these nearby airports

like Baltimore, Dulles, and Newark? Could you provide effective

competition to the large carriers by flying out of some of these

nearby airports?

Mr. HEALY. Well, again, even with Baltimore, if you look at the

Southwest effect and say is that effective competition—Baltimore

to Hartford, Southwest charges about $70 on a walk-up basis. From

DCA to Hartford, the price is $290. That I don’t think is vigorous

competition that is good for consumers.

In New York City, there really are no alternatives within a 50-

mile radius. We can’t get a gate at Newark Airport either. We are

forced to lease services from United Airlines. From our perspective,

that puts artificial constraints on the time that we can schedule

flights in and out of Newark Airport, and it also substantially increases our costs of operation because we are forced to use their

employees at their cost structure, plus a profit margin. We fly there

at a lower margin than we could otherwise, but do that because it

strengthens the overall network that we operate.

Senator KOHL. Thank you.

Mr. Mitchell, you represent business travel consumers. Do you

support efforts to prevent the large airlines from gaining dominant

ownership of slots at the slot-controlled airports, and if so why do

you believe it is important to consumers that there be limits on the

amount of slots that large airlines are able to control?

Mr. MITCHELL. Senator, I think there are three reasons. The first

is if ever there is an airport to be a poster child for requiring price

discipline, it would be LaGuardia or DCA. So the first thing is we

need more competition. We have just come off a year of six price

increases for business travelers.

The second thing is having access to these strategically important business centers, these airports, will in many cases be the difference between profit and loss for a start-up carrier. And if ever

we needed more new entrants, it is today and it is at a moment

in the history of the industry where it is consolidating. So we need

to do everything we can to ensure a steady stream of entrants.

Thirdly, these carriers today—it would be analogous to the Federal Government saying to Ford Motor Company, you can sell cars

in every city in the country except for Washington and New York.

So it is not very equitable from that point of view as well.

Senator KOHL. Thank you, Mr. Chairman.

Chairman DEWINE. Thank you, Senator.
18

Mr. Mitchell, S. 520 requires excess slots to be sold in a blind

auction so that all carriers will have an opportunity to obtain them.

But will these provisions allow the low-fare carriers the opportunity really to enter these airports?

Mr. MITCHELL. I think, in theory, these slots are very valuable

assets and that there would be opportunity for low-fare carriers to

seek financing for them. I also think that as this bill were to play

out in the marketplace that you would see some pretty innovative

financing take place, perhaps low-fare carriers getting together

with other vested interests in communities or airports.

But I think it needs to be understood that, for example, if a Frontier were to come in and have to pay $500,000 for slots, its

prices will have to go up, its fares will have to go up. Surely, there

still will be a difference between it and the major carriers, but the

effect is that there is a whole stratum of business travelers from

smaller companies or independent business travelers that will be

wiped out of the market. They will no longer be able to afford a

$500 air fare to LaGuardia.

Chairman DEWINE. Mr. Healy, pursuant to this bill, if a large

airline has a code-sharing agreement with a smaller airline at either LaGuardia or at Reagan National, then the slots of that smaller airline will count toward the 20-percent slot limit that the large

airline may own or operate. That is the way the bill is written.

Do you believe it is important to include those slots in the calculation?

Mr. HEALY. Yes, I do. Having a code-share relationship particularly with some of the smaller commuter airlines—they essentially

are an extension of the major airline franchise, particularly if you

look at United’s new relationship with Atlantic Coast Airways that

flies predominantly as United Express.

In the past, ACA had some autonomy over their fares and their

schedules. Under their new structure, United Airlines guarantees

them a profit margin for flying and has complete control of the

schedule and pricing. So except for a strict ownership, that essentially is a United Airlines flight and they have absolute control

over it, so it should be counted as part of their allocation.

Chairman DEWINE. Senator Kohl?

Senator KOHL. I think this is a very important piece of legislation, Mr. Chairman. I clearly understand that our witnesses agree

with it, and I appreciate the fact that you are willing to come here

today and take your time and express your opinions about this. We

will do everything we can.

Chairman DEWINE. Let me just give our witnesses one last opportunity to make any other general comments about how we

might improve the bill. Does anyone have a comment besides what

you have already said?

Mr. Mitchell?

Mr. MITCHELL. I think there are a couple of ideas that could be

considered to address this mid-size community situation. One is to

have a set-aside or slots that would be competed for, auctioned off

to new entrants if the new entrants were to commit to serving

these mid-sized communities.

The other idea and the one I like even more is to get to that

number of how many mid-sized communities are being served
19

today and use that as a baseline, and have a triggering mechanism

in the legislation such that if the number of communities falls

below that original benchmark, then you might kick in a set-aside

provision to ensure that these communities continue to be serviced.

Chairman DEWINE. Well, let me thank our witnesses. I appreciate your testimony very much. It has been important and helpful.

If you have additional comments, we would certainly welcome them

in the weeks ahead.

We intend to continue to work with the aviation industry and

with those interested in this legislation in the coming weeks as we

move toward a mark-up in the full Judiciary Committee.

Thank you all very much.

[Whereupon, at 10:55 a.m., the Subcommittee was adjourned.]

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