Airline Deregulation: Changes in Airfares, Service Quality, and Barriers to Entry
Published: 1999-03-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO reviewed and updated its previous work on airfares and service and reexamined the effect that certain barriers have had on these measures, focusing on: (1) how airfares have changed since 1990 for travel to and from 171 airports serving various U.S. communities; (2) how the quality of air service has changed since 1978 for travel to and from these airports; and (3) the extent to which certain barriers to entry--restrictive gate-leasing arrangements, controls on the number of allowable takeoffs and landings at some airports, and the limits on the distance that flights from some airports can be--influence competition at affected airports.
section_title: What GAO Found
paragraphs: GAO noted that: (1) overall, average airfares declined about 21 percent in constant dollars from 1990 to the second quarter of 1998; (2) not all airports realized a similar decreases in airfares; (3) airports serving medium-large communities had the greatest average decrease in fares, and airports serving small communities had the least average decline; (4) average airfares declined at 168 of the 171 airports GAO examined, often with the introduction of competing service from a low-fare carrier; (5) on the other hand, since 1994, average airfares increased for passengers traveling from 39 airports and generally for passengers making short trips to or from airports serving medium-large and large communities; (6) for passengers flying to or from airports in communities of similar size on trips of similar distances in 1998, one passenger travelling from one airport may have paid almost 3 times as much as a passenger travelling from a different airport; (7) while GAO identified such differences in fares, it should be noted that in developing this report, GAO was unable to account for all factors that may have contributed to them, such as the presence of low-cost competition on particular routes or the extent to which travel on routes tended to reflect generally lower-fare leisure travel or more costly business traffic; (8) the overall quality of air service has improved for airports serving large and medium-large communities, but indicators are mixed for airports in small and medium-sized communities; (9) the quantity of the air service available, as measured by the number of departures and available seats has increased for most of the 171 airports GAO reviewed; (10) airports in large and medium-large communities have experienced a substantial increase in the amount of air service; (11) however, some airports have less air service today than they did in 1978, when the industry was deregulated; (12) other indicators of the quality of air service, including those that measure the number of destinations served by nonstop flights and the type of aircraft used, generally show that quality has improved substantially for airports serving large and medium-large communities; (13) for airports serving small and medium-sized communities the results are mixed; (14) at the 10 airports that, in 1996, GAO reported had restrained competition either because of restrictive gate-leasing arrangements or limits on the number of available takeoff and landing times, competition has changed little; and (15) airfares at these 10 airports continue to be consistently higher than airports of comparable size without constraints.

section_title: Letter
paragraphs: Over two decades have passed since the Congress deregulated the airline industry. The Airline Deregulation Act of 1978 phased out the federal government’s control over fares and service and allowed market forces to determine the price, quantity, and quality of domestic air service. Since 1990, we have reported that, overall, fares have declined and service has improved since deregulation but that deregulation’s benefits have not been evenly distributed throughout U.S. air service markets. We have also reported that some operating and marketing practices have created barriers to entry for new airlines wishing to begin service and for established airlines seeking to enter new markets. We said that these barriers, which contribute directly to higher fares in several key markets, had begun to restrict entry to an extent not fully anticipated by the Congress when it deregulated the industry.
Concerned about these findings, you asked us to update our work on fares and service and to reexamine the effect that certain barriers have had on these measures of competition. Specifically, you asked us to determine (1) how airfares have changed since 1990 for travel to and from 171 airports serving various U.S. communities, (2) how the quality of air service has changed since 1978 for travel to and from these airports, and (3) the extent to which certain barriers to entry—restrictive gate-leasing arrangements, controls on the number of allowable takeoffs and landings at some airports, and the limits on the distance that flights from some airports can be—influence competition at affected airports.
To determine how fares have changed at each of the 171 airports, we analyzed data on airfares to and from those airports provided by the airlines to the Department of Transportation (DOT). To determine how the quality of service at these airports has changed since 1978, we examined several measures of quality–both quantitative indicators of the amount of service available (i.e., the number of scheduled departures and available seats) and qualitative indicators of the type of service available (i.e., jet or turboprop, and nonstop or connecting flights). Finally, to determine whether certain airport limitations that we had previously identified continued to restrict competition, we spoke with airport and airline representatives and analyzed fare information for those airports relative to others. Additional detailed information on our scope and methodology can be found in appendix I.
subsections: section_title: Background
paragraphs: Before 1978, the former Civil Aeronautics Board regulated airlines, controlling the fares they could charge and the routes they could fly.
Concerned that these practices caused economic inefficiencies and inhibited the growth of domestic air transportation, the Congress deregulated the industry in 1978. Deregulation was expected to result in fares that more accurately reflected airlines’ costs and, overall, more vigorous competition throughout the nation.
Since deregulation, numerous new airlines have started operations, while established airlines have expanded into new markets. Many new airlines that began operations shortly after deregulation have failed, as have some long-established carriers, such as Eastern and Pan Am. Nevertheless, a few airlines that were formed in the wake of deregulation still operate, including America West and Midwest Express. In the early 1990s, over a decade after the industry was deregulated, a second wave of new airlines emerged. Airlines such as Vanguard, Spirit, AirTran, and Frontier now compete with established carriers in selected markets throughout the United States. These new entrants’ cost structures tend to be lower than those of their established competitors, permitting them to charge lower fares to a variety of destinations. In recent years, we have reported that these airlines’ ability to enter and compete in selected domestic markets has resulted in lower fares and better service in these markets. However, we also found that many other communities have not yet experienced vigorous competition and have not realized these fare and service-quality benefits.
In 1990, we reported that from 1979—the earliest year for which reliable data on fares were available—through 1988, the average fare per passenger mile, adjusted for inflation, declined by 9 percent at airports serving small communities, 10 percent at airports serving medium-sized communities, and 5 percent at airports serving large communities. In 1996, we reported that the average fare per passenger mile, adjusted for inflation, continued to fall across all sizes of communities but that regional variations were evident. The largest decreases in fares since deregulation occurred at airports located in the West and Southwest, and increases in fares were noted at airports located in the Southeast and in the Appalachian region. The quantity of service, as measured by the number of both departures and available seats, had increased for all airport groups. The quality of service, as measured by factors such as the number of destinations served nonstop and the type of aircraft used, showed mixed results, especially for airports serving small and medium-sized communities.
In 1996, we also reported that three types of “operating barriers” discouraged entry by airlines at several major U.S. airports. First, from 1990 through 1996 a few established airlines had markedly increased their combined control of takeoff and landing times (slots) at airports in Chicago, New York, and Washington. As a result, little new entry had occurred at these airports during this period. Second, long-term, exclusive-use gate leases at six other major airports prevented airlines that did not serve those airports from securing the necessary facilities to begin service and compete on equal terms with incumbent airlines. Third, the federal perimeter rule barring nonstop flights exceeding 1,250 miles exacerbated the impact of slots by preventing airlines from gaining entry into Reagan Washington National Airport.
section_title: Airfares Have Fallen for Most Communities Since 1990, but Many Have Experienced Recent Fare Increases
paragraphs: For all sizes of communities, average airfares have continued the decline noted in our 1996 report. Average airfares (expressed in constant dollars and in cents per mile) fell about 21 percent in constant dollars from 1990 through the second quarter of 1998. On average, airports serving medium-large communities had the greatest decrease in fares, and airports serving small communities, the smallest decline. However, such averages conceal large variations within the sizes of communities. For example, for passengers flying to or from airports in communities of similar size on trips of similar distances in 1998, one passenger traveling from one airport may have paid almost 3 times as much as a passenger traveling from a different airport.
Our review of changes in airfares from 1990 through the second quarter of 1998 indicates that the trends of moderately decreasing average airfares identified in our earlier reports continued at airports serving most communities. Of the 171 airports we examined over the period, average airfares declined at 168. At some airports, the decrease was especially large. For example, at 22 airports, average fares declined by 30 percent or more in constant dollars. At many airports, the decline coincided with the introduction of competing service, often from a low-fare carrier, which, in most cases, was Southwest Airlines. Figure 1 shows the cities in which airfares have declined by the greatest percentage since 1990.
At 3 of the 171 airports we examined, average airfares have increased since 1990. These airports serve Duluth, Minnesota (+2.3 percent); Fargo, North Dakota (+0.8 percent); and Dallas, Texas (Love Field, +7.4 percent). At each of these airports, generally only a single airline provided service.
Northwest Airlines dominates Duluth and Fargo, and Southwest dominates Dallas Love Field.
We were not able to examine in detail each market to determine what factors may have contributed to the decrease in average fares. For example, we were unable to account for differences at airports where competition—and thus airfares—on individual routes may vary widely. On routes out of St. Louis where low-cost airlines offer competing service, fares may be considerably lower than on other routes from the same airport where no such competition exists. Whether the overall average airfare for the airport may have increased or decreased over time depends on the number of passengers flown on all of those routes and the fares they paid. Similarly, we were not able to examine differences in the extent to which certain destinations (such as Las Vegas or Orlando) tend to be more heavily dominated by leisure travel than by business travel. Leisure travel tends to be more price-sensitive, and average airfares in those markets thus tend to be lower than those where there is more business travel.
Because some significant changes can occur over the span of nearly 9 years, we examined fare changes from 1990 through 1993 and then from 1994 through the second quarter of 1998. Table 1 summarizes the change in average airfares over the period for airports serving each size of community, according to the length of the passengers’ trips. Although average airfares decreased for most communities throughout the period, since 1994 average airfares increased for certain segments of the traveling public—mostly for passengers making short trips to or from medium-large and large communities.
For the 171 airports we examined, from 1994 through 1998 average airfares decreased at 132 airports, suggesting that most communities—small, medium-sized, medium-large, and large—and travelers from those communities have benefited from deregulation. Average fares for passengers making certain trips to or from several airports dropped by more than 50 percent over the period. Average fares for short-and long-haul trips from St. Petersburg, Florida; medium-haul trips from Dallas Love Field; and long-haul trips from Mission, Texas, and Grand Junction, Colorado, decreased from 52 to 77 percent. Fares in some of those markets appear to have been influenced by the introduction of additional competition, especially from low-cost airlines.
During the same period, however, average fares increased at 39 airports—13 serving small communities, 4 serving medium-sized ones, 9 serving medium-large ones, and 13 serving large ones. In most cases, the control of a large percentage of the airports’ passengers by a single airline contributed to the increase in fares.
Of the 13 airports serving small communities, 12 were served by an individual airline that controlled at least 40 percent of the traffic.
Of the four airports serving medium-sized communities, three were dominated by an individual airline that carried more than 40 percent of the traffic.
Of the nine airports serving medium-large communities, seven were dominated by an individual airline that carried more than 40 percent of the traffic.
Of the 13 airports serving large communities, seven are hub facilities for major airlines.
For example, the average fares for passengers making short trips to or from Greensboro, North Carolina; Roanoke and Norfolk, Virginia; Charleston, South Carolina; and Buffalo, New York, all increased by 30 percent or more from 1994 through 1998. Low-cost airlines, such as AirTran, American Trans Air, or Southwest, served none of the 17 airports at small or medium-sized communities in 1998. For the 22 airports serving medium-large and large communities where average airfares increased since 1994, individual low-cost airlines had market shares in 1998 that exceeded 10 percent at only four–Houston Hobby Field, Dallas Love Field, Cleveland Hopkins International Airport, and Midland/Odessa, Texas. At each of those airports, the low-cost airline was Southwest. Figure 2 shows the location of these 39 airports, most of which are in the East and Southeast.
For passengers flying to or from airports serving communities of similar sizes on trips of similar distances, the fare at one airport can cost almost 3 times as much per mile flown as the fare at a different airport. For example, passengers flying to or from Las Vegas in 1998 paid, on average, 9 cents per mile, while passengers flying to or from Charlotte paid 28 cents per mile. Moreover, passengers flying to or from airports serving small and medium-sized communities in 1998 paid, on average, over 12 percent more than the national average airfare. Similarly, passengers flying to or from airports serving large communities in 1998 paid, on average, over 8 percent more than the national average. Appendix II summarizes the changes in average airfares for each of the cities we examined during this review.
section_title: Large and Medium-Large Communities Have More and Better Air Service, but the Trends for Small and Medium-Sized Communities Are Mixed
paragraphs: Our review of air service quality factors for scheduled airline departures from May 1978 though May 1998 indicates that the overall quality at most communities served by the airports we reviewed has improved since deregulation. However, the extent to which the overall quality of air service has improved for the 171 airports that we reviewed varies by the size of the community served. In general, airports serving larger communities have benefited from a greater increase in the overall quality of air service—the number of departures and seats, jet departures, and destinations served by nonstops—than those serving smaller communities. For example, 90 percent of airports serving large and medium-large communities had an increase in both departures and available seats compared with 45 percent of the airports serving small and medium-sized communities.
Assessing the trends in the overall quality of air service is difficult because many factors contribute to the quality of service. This assessment requires, among other things, a subjective weighting of the relative importance of each measure that is generally considered a dimension of quality. In assessing the overall quality of air service received by each sized community included in our study, we used four commonly accepted measures, including the number of (1) departures, (2) available seats, (3) destinations served by nonstop and one-stop flights, and (4) jet departures compared with the number of turboprop departures. (We used these same measures in our earlier reports.) Nonstop service is generally considered to be preferable to flights requiring a stop, and jet aircraft are preferred over turboprop aircraft.
Most communities served by the airports we reviewed had more commercial departures in 1998 than they did in May 1978. During this period, departures increased at 139 of the 171 airports we reviewed. Increases were most likely to occur at airports serving larger communities. All airports at large communities, with the exception of Reagan Washington National Airport (where the number of takeoff and landings is restricted by federal law), and most airports serving medium-large communities had an increase in departures. In comparison, 56 of the 84 airports in small and medium-sized communities had an increase in departures.
From 1978 through 1998, 118 of the 171 airports we reviewed had an increase in the number of available seats, especially those airports serving larger communities. Overall, for airports in large and medium-large communities, the number of available seats increased by about 87 percent. Every airport serving large communities and all but 7 of the 42 airports in medium-large communities experienced an increase. For almost one-quarter of the airports serving large communities, such as Phoenix’s Sky Harbor Airport and Houston’s Hobby Airport, this increase exceeded 200 percent. In contrast, slightly less than half of the airports at small and medium-sized communities in our review had an increase in seats, although about 67 percent had an increase in departures. To some extent this difference can be attributed to the substitution of more frequent service from smaller turboprops for fewer departures of larger jets. Since 1978, the airport serving Champaign, Illinois, for example, had a 66-percent increase in the number of departures and a 34-percent decrease in the number of seats. During this same time period, jet service from this airport was eliminated and replaced entirely with propeller aircraft.
In addition, 27 of the 84 airports serving small and medium-sized communities experienced a decline in both scheduled departures and available seats. These 27 airports were largely concentrated in the upper Midwest—including Lincoln, Nebraska; Rochester, Minnesota; and Bismarck, North Dakota—and the South—including Daytona Beach, Florida; Montgomery, Alabama; and Shreveport, Louisiana. Figure 3 summarizes the percent change in the number of scheduled departures and number of available seats for each category of community. Appendix III contains the information on the number of departures and available seats for each of the 171 airports that we reviewed for May 1978 and May 1998.
Airports serving large and medium-large communities have been the primary beneficiaries of increased nonstop flights. Nonstop flights increased for 71 percent of the airports serving large and medium-large communities but only for 25 percent of the airports serving small and medium-sized communities. Of the 84 airports at small and medium-sized communities that we reviewed, 37 experienced a decline in both nonstop and one-stop service. Only airports serving medium-large communities experienced an increase in one-stop flights. Figure 4 summarizes the percent change in the total number of destinations served by nonstop and one-stop flights by category of community. Appendix IV provides detailed information for each community on the number of destinations served by nonstop and one-stop flights for May 1978 through May 1998.
Overall, all sizes of communities experienced an increase in the number of turboprop departures, but primarily airports serving large and medium-large communities benefited from an increase in the number of jet departures. Of these airports, 75 percent had an increase in jet departures compared with 24 percent of the airports in small and medium-sized communities. Overall, the actual number of jet departures increased by 72 percent at airports serving large communities and by 57 percent at airports serving medium-large communities but declined by 6 percent at airports serving medium-sized communities and by 14 percent at airports serving small communities. Figure 5 summarizes the percent change in the number of jet departures by size of community. Appendix V provides detailed information for each airport for May 1978 through May 1998.
section_title: Competition in Certain Key Airports Continues to Be Inhibited by Lack of Access to Facilities, Slot Controls, and Federal Perimeter Rule
paragraphs: In 1997, over 143 million passengers (23 percent of the total U.S. domestic enplanements that year) traveled through 10 key airports in the east and upper Midwest. In the past, we reported that competition is constrained at these airports because of long-term gate leases or limits on the number of available takeoff and landing slots. During our review, we found that the six airports we had previously described as gate-constrained—Charlotte, Cincinnati, Detroit, Minneapolis, Newark, and Pittsburgh—continue to be predominantly served by one airline. Airport officials and airline representatives said that gates are available to airlines that do not currently serve those airports. However, few of those airlines expressed interest in serving those markets because access to facilities remains difficult and other factors, generally relating to the size of the incumbent carrier and its associated market strength, prevent them from entering at these airports. At the four slot-constrained airports—Chicago O’Hare, New York’s LaGuardia and Kennedy, and Reagan Washington National—established airlines hold the majority of slots, while the share of slots held by airlines started after deregulation remains low. Finally, the federal perimeter rule, which prohibits flights longer than 1,250 miles from Reagan Washington National Airport, continues to deprive certain airlines from serving that airport from some of their hub operations, preventing millions of passengers in western states from gaining nonstop access to the airport.
subsections: section_title: Long-Term, Exclusive-Use Gate Leases Predominate at Six Constrained Airports, but Other Factors Also Inhibit New Competition
paragraphs: Restrictive gate leases are a barrier to establishing new or expanded service at some airports. These leases permit an airline to hold exclusive rights to use most of an airport’s gates over a long period of time, commonly 20 years. Previously, we reported that such leases made it more difficult for nonincumbents to secure necessary airport facilities on equal terms with incumbent airlines. Airlines established after deregulation, especially new entrant airlines, said access to facilities at some airports—Charlotte, Cincinnati, Detroit, Minneapolis, Newark, and Pittsburgh—was difficult. Airport officials and one airline told us that other marketing factors—not gate-leasing arrangements—acted as barriers to entry.
As table 2 shows, the vast majority of gates at each of these airports continue to be leased to one established airline. Airport officials at Charlotte, Cincinnati, and Minneapolis said that it is in the best interest of the airports to lease gates over a long term to maintain a stable stream of revenue. For example, Cincinnati airport officials said they depend on signatory airlines to pay their debt obligations. Delta Air Lines—which dominates the Cincinnati airport and holds 50 of the airport’s total 68 jet gates—financed the construction of 43 of those gates.
Officials at each of the airports we visited said they have spoken with or actively recruited nonincumbent airlines to provide new service. Airport officials and one airline official told us that other factors, rather than restrictive gate leases, prevented nonincumbents from providing service at their airports. These factors included the size of the incumbent carriers (coupled with those airlines’ marketing strengths, such as their frequent flyer programs, corporate discounts, and arrangements with local travel agents), the fear of perceived predatory conduct by the major incumbent carrier, and a lack of adequate capitalization. A Charlotte airport official said that the term “gate-constrained” no longer applied, given their flexibility in making some gates available for lease and the airport’s willingness to discuss new service with interested airlines.
A limited number of gates are available for new service at three of the airports we visited, although they may not be available at the times or days that new airlines might prefer. Airport officials at Detroit, Minneapolis, and Newark said there are no gates available now. For the three airports that have available gates, however, incumbent airlines tended to use them. For example, Pittsburgh airport officials said that they have a total of seven jet gates available, but US Airways is the only airline that uses them at this time. In addition, Cincinnati airport officials said there are three gates leased by US Airways that are not being used as fully as they could be.
Officials from airlines that started after deregulation told us that access to facilities was difficult at some airports, including Newark. These airline officials cited a lack of cooperation by airport officials in identifying available gates and the reluctance of both the airports and incumbent airlines in offering leases or subleases longer than on a short-term basis.
section_title: Established Airlines Continue to Expand Their Slot Holdings at Slot-Constrained Airports
paragraphs: Major established airlines have expanded their holdings of domestic air carrier takeoff and landing slots at three of the four slot-constrained airports—Reagan Washington National, New York Kennedy, and New York LaGuardia. Only at Chicago O’Hare did the level of slot concentration held by major established airlines decrease slightly from 1996 to 1999. By contrast, the share held by airlines that started after deregulation remains low. (See table 3.) Our October 1996 report recommended that DOT redistribute some slots to increase competition, taking into account the investments made by those airlines at each of the slot-controlled airports. DOT subsequently began to use the authority that the Congress gave it in 1994 to allow additional slots at O’Hare, LaGuardia, and Kennedy.Through January 1999, DOT granted 62 slot exemptions at O’Hare, 30 at LaGuardia, and 6 at Kennedy. DOT has also granted a total of 48 exemptions for Essential Air Service and 19 for seasonal international service.
section_title: Special Rules at Laguardia and Reagan Washington National and Emerging Capacity Constraints Elsewhere Exacerbate Barriers’ Impacts
paragraphs: The ability of certain nonincumbent airlines to begin service at New York LaGuardia and Reagan Washington National airports is further limited by rules that prohibit incoming and outgoing flights that exceed a certain distance (commonly known as perimeter rules). At LaGuardia, under a rule established by the Port Authority of New York and New Jersey, nonstop flights exceeding 1,500 miles are prohibited. At Reagan Washington National, federal law limits the number of hourly operations and prohibits nonstop flights exceeding 1,250 miles.
The perimeter rules were originally designed to promote Kennedy and Dulles airports as the designated long-haul airports for the New York and Washington metropolitan areas, respectively, and to alleviate air traffic congestion in those areas. The practical effect, however, has been to limit entry and exacerbate the impact of slots. Specifically, because of their proximity to Reagan Washington National, each of the seven largest established carriers is able to serve the airport from its principal hub. By contrast, the rules prevent the second largest airline started after deregulation—America West—from serving LaGuardia and Reagan Washington National from its hub in Phoenix and restrict other airlines with hub operations in the West from serving either airport on a nonstop basis. Thus, for example, the 92 million passengers that flew out of Los Angeles, Phoenix, Portland, Salt Lake City, San Francisco, and Seattle airports in 1997 could not fly nonstop into Reagan Washington National. Officials with Delta Air Lines told us that they would expand service from Salt Lake City to Reagan Washington National if the perimeter rule was relaxed or abolished.
We recognize that the communities where the airports are located will be concerned with any proposals to grant additional slots because of potential congestion, noise, and safety problems. These are sensitive issues, and, ultimately, any final decisions about them can be best resolved through congressional deliberations.
section_title: Airfares at Constrained Airports Higher Than Those at Comparably Sized Community Airports
paragraphs: Airfares at the six gate-constrained and four slot-constrained airports were consistently higher than airfares at nonconstrained airports that serve similar-sized communities, especially in short- and medium-haul markets. In other words, passengers pay a premium to fly to and from these airports. In 1998, overall weighted average fares ranged from being 4 percent higher at Kennedy Airport to 83 percent higher at Pittsburgh International Airport compared with fares at nonconstrained airports serving communities of comparable size. The greatest differences in airfares in 1998 were in short-haul markets.
The average airfares of short-haul markets in 1998 ranged from 29 percent higher in Kennedy to 120 percent higher at Pittsburgh. In medium-haul markets, airfares ranged from 15 percent lower at Detroit to 63 percent higher at Charlotte. In long-haul markets, airfares ranged from 6 percent lower at Reagan Washington National to 42 percent higher at Charlotte. Table 4 summarizes the differences in average airfares between the 10 constrained airports and other airports serving communities of comparable size for 1998.
section_title: Conclusions
paragraphs: Airfares have continued to decline for all sizes of communities since deregulation, although average airfares have increased for certain segments of the traveling public, especially since 1994. Similarly, the overall quality of air service has improved except for that in some small and medium-sized communities. Since deregulation, a number of major airlines have dominated operations at 10 key airports leading to constrained competition and higher airfares. Slots and the federal perimeter rule continue to exacerbate the impacts of barriers by limiting the number of landings and takeoffs and prohibiting incoming and outgoing flights that exceed a certain distance at certain airports. Thus, while deregulation continues to benefit the majority of the nation’s travelers, there remain some communities where those benefits have not been realized.
section_title: Agency Comments
paragraphs: We provided DOT with copies of a draft of this report for its review and comment. We spoke with DOT officials from the Office of the Secretary, including the Deputy Assistant Secretary for Aviation and International Affairs. DOT generally agreed with the information in the report and provided a number of comments to clarify issues addressed in the report; we incorporated these comments as appropriate.
As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days after the date of this letter. At that time, we will send copies to the Secretary of Transportation; the Director, Office of Management and Budget; and other interested parties. We will send copies to others upon request. We conducted our work from November 1998 through February 1999 in accordance with generally accepted government auditing standards.
If you have any questions, please call me at (202) 512-2834. Major contributors to this report are listed in appendix VI of this report.
section_title: Scope and Methodology
paragraphs: To analyze changes in airfares since 1990, we reviewed data on fares covering the period 1990 through the second quarter of 1998 (the most current information available at the time of our work). To provide consistent, comparable information in updating our prior report on trends in airfares since deregulation at airports serving small, medium-sized, and large communities, we reviewed data on the same 112 airports that we examined in our two prior reports. We selected those airports using the following criteria:
All of the airports were in metropolitan statistical areas or (1) an area that included at least one city with 50,000 or more inhabitants and (2) an area with an urbanized area as defined by the Census Bureau (with at least 50,000 inhabitants) and a total metropolitan population of at least 100,000 (75,000 in New England). Small communities were those with populations in a metropolitan statistical area of 300,000 or less, medium-sized communities were those with populations of 300,001 to 600,000, and large communities were those with populations of 1.5 million or more. In our prior reports, we used 1984 U.S. Census data to provide information on community sizes midway between the years reviewed (1979, 1984, and 1988) for each airport location. While keeping the same sample of airports for this report, we reviewed U.S. Census data for 1996 to identify changes in communities’ populations. We did this to ensure that, had some populations changed significantly since our previous report, we would compare those communities with others of similar size.
Almost all of the airports were among those with the largest 175 enplanements in the nation, as determined by the number of passenger enplanements in 1997. This criterion was necessary because as an airport’s rank falls, the number of tickets from that airport in the Department of Transportation’s (DOT) “Passenger Origin-Destination Survey” declines. A smaller number of tickets per route increases the potential for sampling error and may result in calculations that are not representative of the airport’s overall traffic.
All of the airports were located within the 48 contiguous states because airports outside the contiguous states are often special cases. Travel from airports located in Alaska, Hawaii, Puerto Rico, and the Virgin Islands is often for very short distances (between islands) and very long distances (between Alaska or Hawaii and the contiguous states) or may take the place of ground transportation (between cities in Alaska).
In addition, we added several airports in communities that had not been included in the previous reports. In general, these are airports that are also included within the largest 175 airports located in the continental United States serving medium-large communities with populations between 600,001 and 1.5 million. We excluded Orlando/Sanford airport because origin and destination data from 1991 to 1998 were lacking, and we excluded North Las Vegas Field because it had unusually high fares. We added four other cities—Albany, Huntington, Rochester, and Syracuse—following discussions with the staffs of Representative William O. Lipinski and Representative Peter A. DeFazio for further insight into fares and service for airlines serving small and rural communities.
We obtained the data on airfares from a private contractor, Data Base Products, Inc., which gets its original data from DOT. Data Base Products, Inc., makes a number of revisions to the data submitted to DOT by the airlines to correct for biases and obvious reporting errors. Data Base Products, Inc., also incorporates data from main airlines’ regional commuter partners, thereby providing a more complete picture of passengers’ true itineraries and costs. To enhance the comparability of the data, we converted the airfare information into constant 1998 dollars.Because the number of passengers traveling on routes can change over time, examining fares at two different times could reflect differences in the number of travelers going to various destinations rather than fare changes. Therefore, as with our prior reports, we held the distribution of passengers across distance categories constant at the level found with the latest four quarters ending with the second quarter of 1998.
To add to the information that we published in our previous reports, we also calculated averages for travel of various distances to or from these airports. We believe that additional information provides a greater context than the basic average fare. We recognize that few if any passengers may actually have paid an “average fare” in any one market but believe that such averages provide insightful information for analyzing broad trends in airfares over time.
Because we analyzed data that were drawn from a statistical sampling of tickets purchased, each estimate developed from the sample has a measurable precision, or sampling error. The sampling error is the maximum amount by which the estimate obtained from a statistical sample can be expected to differ from the true universe value. We did not calculate the sampling error for each airport’s fare estimates during this update because the sampling errors calculated in the previous two reports were consistently small. We believe that the same approximate sampling errors would apply to the estimates developed for this review.
To analyze changes in the quality of air service for these same 171 airports, we obtained data on scheduled airline service from DOT’s Bureau of Transportation Statistics. We used these data to analyze changes from 1978 through 1998 in four measures of the quality of service that we reported in the past. Those measures are (1) the total number of scheduled nonstop departures from each airport, (2) the total number of seats available on those flights, (3) the number of scheduled destinations served by nonstop and one-stop flights from each airport, and (4) the number of scheduled jet and turboprop departures at those airports. To reduce “seasonality” associated with air travel (that is, to avoid having the data reflect higher amounts of travel associated with summer vacations or reduced winter travel), we used information from May 1978 and May 1998.
Finally, to determine whether certain airport limitations that we had previously identified continued to restrict competition, we visited those airports to update our work concerning markets restricted by gate, slot, or perimeter barriers to domestic airline markets. Specifically, we conducted interviews with representatives of Charlotte-Douglas International Airport, Cincinnati-Northern Kentucky International Airport, Detroit Wayne County Airport, Minneapolis-St. Paul International Airport, and Pittsburgh International Airport. We held a formal teleconference with officials representing Newark International Airport. We obtained additional information and perspectives on barriers to entry from officials representing Access Air, Continental Airlines, Delta Airlines, Eastwind Airlines, Legend Airlines, Northwest Airlines, US Airways, Spirit Airlines, and Vanguard Airlines. To discuss the effect that the perimeter rule may have on competition, we met with officials representing the Washington Metropolitan Airport Authority, which oversees both Reagan Washington National Airport and Washington Dulles International Airport. We also analyzed airfare data for these airports by comparing their average fares against those for communities of comparable size but excluding the other constrained airports. Because each airport has a different distribution of flight lengths, we made comparisons within each of the three distance categories. To get an overall comparison for each of the 10 constrained airports, we then took a weighted average of the comparisons within each distance category. The resulting percent differences are therefore adjusted for distance as well as for particular passenger distributions at each airport.
section_title: Changes in Average Airfares Per Passenger Mile by Size of Community and by Length of Trip, 1990—98
paragraphs: Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Large-community airports Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Avg.
Cents per passenger mile (constant dollars) (continued)
Avg.
Cents per passenger mile (constant dollars)
section_title: Number of Scheduled Departures and Available Seats at Airports Serving Small, Medium-Sized, Medium-Large, and Large Communities, May 1978 Through May 1998
paragraphs: Total seats, May 1998 (continued)
Total seats, May 1998 (continued)
Total seats, May 1998 (continued)
Total seats, May 1998 (continued)
Total seats, May 1998 (continued)
section_title: Number of Destinations for Nonstop and One-Stop Flights at Airports Serving Small, Medium-Sized, Medium-Large, and Large Communities, May 1978 Through May 1998
section_title: Number of Scheduled Jet and Nonjet Departures at Airports Serving Small, Medium-Sized, Medium-Large, and Large Communities, May 1978 Through May 1998
paragraphs: Nonjet departures, May 1998 (continued)
Nonjet departures, May 1998 (continued)
Nonjet departures, May 1998 (continued)
Nonjet departures, May 1998 (continued)
section_title: Major Contributors to This Report
subsections: section_title: Resources, Community, and Economic Development Division, Washington, D.C.
section_title: Office of the General Counsel
section_title: Related GAO Products
paragraphs: Aviation Competition: Effects on Consumers From Domestic Airline Alliances Vary (GAO/RCED-99-37, Jan. 15, 1999).
Aviation Competition: Proposed Domestic Airline Alliances Raise Serious Issues (GAO/T-RCED-98-215, June 4, 1998).
Domestic Aviation: Service Problems and Limited Competition Continue in Some Markets (GAO/T-RCED-98-176, Apr. 23, 1998).
Aviation Competition: International Aviation Alliances and the Influence of Airline Marketing Practices (GAO/T-RCED-98-131, Mar. 19. 1998).
Airline Competition: Barriers to Entry Continue in Some Domestic Markets (GAO/T-RCED-98-112, Mar. 5, 1998).
Domestic Aviation: Barriers Continue to Limit Competition (GAO/T-RCED-98-32, Oct. 28, 1997).
Airline Deregulation: Addressing the Air Service Problems of Some Communities (GAO/T-RCED-97-187, June 25, 1997).
International Aviation: Competition Issues in the U.S.-U.K. Market (GAO/T-RCED-97-103, June 4, 1997).
Domestic Aviation: Barriers to Entry Continue to Limit Benefits of Airline Deregulation (GAO/T-RCED-97-120, May 13, 1997).
Airline Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Domestic Markets (GAO/RCED-97-4, Oct. 18, 1996).
Domestic Aviation: Changes in Airfares, Service, and Safety Since Airline Deregulation (GAO/T-RCED-96-126, Apr. 25, 1996).
Airline Deregulation: Changes in Airfares, Service, and Safety at Small, Medium-Sized, and Large Communities (GAO/RCED-96-79, Apr. 19, 1996).
International Aviation: Airline Alliances Produce Benefits, but Effect on Competition Is Uncertain (GAO/RCED-95-99, Apr. 6, 1995).
Airline Competition: Higher Fares and Less Competition Continue at Concentrated Airports (GAO/RCED-93-171, July 15, 1993).
Computer Reservation Systems: Action Needed to Better Monitor the CRS Industry and Eliminate CRS Biases (GAO/RCED-92-130, Mar. 20, 1992).
Airline Competition: Effects of Airline Market Concentration and Barriers to Entry on Airfares (GAO/RCED-91-101, Apr. 26, 1991).
Airline Deregulation: Trends in Airfares at Airports in Small and Medium-Sized Communities (GAO/RCED-91-13, Nov. 8, 1990).
Airline Competition: Industry Operating and Marketing Practices Limit Market Entry (GAO/RCED-90-147, Aug. 29, 1990).
Airline Competition: Higher Fares and Reduced Competition at Concentrated Airports (GAO/RCED-90-102, July 11, 1990).
Airline Deregulation: Barriers to Competition in the Airline Industry (GAO/T-RCED-89-65, Sept. 20, 1989).
Airline Competition: Fare and Service Changes at St. Louis Since the TWA-Ozark Merger (GAO/RCED-88-217BR, Sept. 21, 1988).
Competition in the Airline Computerized Reservation Systems (GAO/T-RCED-88-62, Sept. 14, 1988).
Airline Competition: Impact of Computerized Reservation Systems (GAO/RCED-86-74, May 9, 1986).
Airline Takeoff and Landing Slots: Department of Transportation’s Slot Allocation Rule (GAO/RCED-86-92, Jan. 31, 1986).
Deregulation: Increased Competition Is Making Airlines More Efficient and Responsive to Consumers (GAO/RCED-86-26, Nov. 6, 1985).
The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent.
U.S. General Accounting Office P.O. Box 37050 Washington, DC  20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000  or by using fax number (202) 512-6061, or TDD (202) 512-2537.
Each day, GAO issues a list of newly available reports and testimony.  To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone.  A recorded menu will provide information on how to obtain these lists.