Before 1978, the U.S. airline industry was tightly regulated. The federal government controlled what fares airlines could charge and what cities they could serve. Concerned that government regulation had made the industry inefficient, inhibited its growth, and caused airfares to be too high in many heavily traveled markets involving the nation’s largest communities, the Congress passed the Airline Deregulation Act of 1978. The act phased out the government’s control of fares and service but did not change the government’s role in regulating and overseeing air safety. Opponents of economic deregulation warned that relying on competitive market forces to determine the price, quantity, and quality of domestic air service could adversely affect safety and harm the economies of smaller communities. In 1990, both GAO and the Department of Transportation (DOT) reported that fares had fallen since deregulation at airports serving small and medium-sized communities as well as at airports serving large communities. Studies by DOT and others have differed in their conclusions about deregulation’s impact on airline service and safety. Between 1938 and 1978, the Civil Aeronautics Board (CAB) regulated the airline industry, controlling the fares airlines could charge and the markets they could enter. Legislatively mandated to promote and develop the air transportation system, CAB believed that passengers traveling shorter distances—more typical of travel from small and medium-sized communities—would not choose air travel if they had to pay the full cost of service. Thus, in keeping with its mandate, CAB set fares relatively lower in short-haul markets and higher in long-haul markets than would be warranted by costs. In effect, long-distance travel subsidized short-distance markets. In addition, CAB did not allow new airlines to form and compete against the established carriers. Concerned that these practices had, among other things, caused fares to be too high in many markets, the Congress passed the Airline Deregulation Act, which the President signed into law on October 24, 1978. The act phased out CAB’s control of domestic air service and placed reliance on competitive market forces to decide fares and service levels. As a result, fares were expected to fall at airports serving large communities, from which many trips are long-distance over heavily traveled routes. However, without the cross-subsidy present under regulation, fares were expected to increase somewhat at airports serving small and medium-sized communities. In addition, it was expected that airlines, free to make their own decisions concerning service, would stop flying to some smaller communities where they could not make a profit and replace jets with smaller turboprop (propeller) aircraft in others because those communities could not economically support jet service. In 1989, the then-Chairman, Senate Committee on Commerce, Science, and Transportation, concerned that people traveling to and from small and medium-sized communities could be paying higher fares as a result of airline deregulation, asked us to compare the trends in airfares at airports serving small and medium-sized communities with the trend for airports serving large communities. Contrary to the Chairman’s expectation, however, we found that the real (adjusted for inflation) fare per passenger mile was 9 percent lower in 1988 than in 1979 at airports serving small communities, 10 percent lower at airports serving medium-sized communities, and about 5 percent lower at airports serving large communities. Fares had declined at 76 of the 112 airports we reviewed (68 percent), including 38 of the 49 airports serving small communities (78 percent). Nevertheless, airports in several small, medium-sized, and large communities experienced increases in fares of over 20 percent. We noted that the greatest fare increases tended to be in the Southeast, while the largest fare decreases were in the Southwest. In addition to this study, we have reported on several other issues concerning airfares since deregulation, including the effects of market concentration and the industry’s operating and marketing practices on fares. These reports are listed at the end of this report. “Smaller cities have benefited from the shift to hub and spoke service. Most small cities receive more frequent service than previously, and many now receive service to connecting hubs from more than one major airline or their affiliates, thereby providing the traveler with a choice of airlines and routings to most destinations.” Many other studies have been conducted of deregulation’s impact on airfares and service. While generally concluding that fares overall have declined, the studies have reached different conclusions about the impact on the quantity and quality of service. For example, Morrison and Winston estimated that the lower fares since deregulation save passengers $12.4 billion annually. They also estimated that because of the (1) increased number of flights, (2) efficiencies of the hub-and-spoke networks in connecting smaller communities to the overall aviation system, and (3) resulting savings in travel time, passengers save an additional $10.3 billion a year as a result of deregulation. While other studies generally agree that fares have decreased since deregulation, they point out that the lower fares may have been achieved at the cost of reduced service quantity and quality for many smaller and medium-sized communities and that therefore the overall net benefits of deregulation are less clear. Brenner, for example, concluded that service quality has declined for small and medium-sized communities, largely because his research showed that a number of very small communities have lost air service completely and that many small and medium-sized communities are served mostly or entirely by turboprops, as opposed to the jet service they had under regulation. Extensive research has also been conducted on the impact of deregulation on air safety. This body of work commonly acknowledges that since deregulation, the rate of accidents has continued its historic decline. Figure 1.1 shows the sharp decline in the number of airline accidents per million aircraft miles flown since 1960. Although the rate of improvement has slowed in recent years as the number of accidents each year has grown very small, the accident rate for airlines in 1994 (0.004 accidents per million aircraft miles flown) was half the rate in 1978 (0.008 accidents per million aircraft miles flown). Preliminary data for 1995 indicate that the rate increased somewhat, although it remained below the rate in 1978. A study committee sponsored by the National Research Council concluded that the decline in the accident rate has largely been a result of the (1) introduction in the 1960s of more advanced, “second generation” jet aircraft into the U.S. fleet (such as the 727, 737-200, and DC-9) in place of the first generation of jets introduced in the late 1950s (such as the 707 and DC-8) and (2) subsequent advancements in aircraft technology, air traffic control procedures, and pilot training. The committee found little evidence to support concerns that deregulation had negatively affected air safety in general or safety for travelers from small and medium-sized communities in particular. Nevertheless, others have come to different conclusions, holding that deregulation has prevented further gains in safety because the increased competitive pressures brought by deregulation have forced airlines to limit spending on maintenance. Rose, for example, demonstrated some correlation between lower profitability and higher accident rates, particularly for smaller airlines. Many of these researchers also believe that for smaller communities, air safety has decreased since deregulation because substituting commuter carriers and turboprops, which have higher accident rates, for larger airlines and jet aircraft at these airports has increased those communities’ accident risk. Although the accident rate for commuter carriers fell by 93 percent between 1978 and 1995 (from 0.270 to 0.019 accidents per million aircraft miles flown), these researchers note that the accident rate for these carriers in 1995 was still more than three times higher than the rate for the larger airlines. Nevertheless, research has been inconclusive to date on whether the increased presence of commuter airlines and turboprops has resulted in more accidents at airports serving small communities. Noting that several years had passed since our comparison of airfares at airports serving small, medium-sized, and large communities, the Chairman, Senate Committee on Commerce, Science, and Transportation, asked us to update our work and to determine whether the regional differences in airfare trends that we previously observed still existed. In addition, expressing concern that deregulation may have adversely affected small and medium-sized communities to the extent that airlines eliminated service or replaced jets with turboprops and noting that opinions differed on this subject, the Chairman requested that we compare the changes in the quantity, quality, and safety of air service since deregulation for airports serving small, medium-sized, and large communities. In updating our prior comparison of airfares, we analyzed data on fares for the same 112 airports that we had reported on previously. Specifically, we examined the trends in the average yields—fares per passenger mile—between 1979, 1984, 1988, 1991, 1994, and the first half of 1995 for travel out of 49 airports serving small communities, 38 airports serving medium-sized communities, and 25 airports serving large communities. In 1994, these airports accounted for 4.7 million (66 percent) of the 7.1 million domestic airline departures and 320.6 million (67 percent) of the 481.7 million domestic airline enplanements in the United States. In our prior report, we examined the trends using fare data for 1979, 1984, and 1988 for these communities. We updated these trends using data for 1991 and 1994 because (1) 1991 represented the mid-point between 1988 and 1994 and (2) the 1994 fare data were the most current full-year data available at the time of our review. The data for the first 6 months of 1995 provided us with the most current data available. To provide consistent, comparable information, we identified and used the same routes (origin and destination airport combinations) that we reviewed in our prior work. We also adjusted the fare data for inflation, using the consumer price index, so that the fares in each of the years reflect 1994 dollar values. As in our previous study, we used DOT’s “Passenger Origin-Destination Survey” (O&D Survey). The O&D Survey contains data reported quarterly to DOT by airlines from a 10-percent sample of all tickets sold. Because the estimate of the fare per passenger mile is developed from a statistical sample, it has a sampling error. The sampling error is the maximum amount by which the estimate obtained from the sample can be expected to differ from the actual fare per passenger mile if the entire universe of tickets were examined. Each sampling error was calculated at the 95-percent confidence level. This means the chances are 19 out of 20 that if we reviewed all tickets purchased, the results would differ from the estimate obtained from our sample by less than the sampling error. (App. II provides estimates of fares, and app. III provides the sampling error for each of these estimates.) To determine why regional differences in airfares may exist, we analyzed DOT’s data on airline market shares at each of the 112 airports and discussed with DOT analysts and airline representatives how the presence of different carriers may affect fares. To determine the extent to which economic changes could explain any observed regional differences, we analyzed data provided by the Bureau of Economic Analysis on economic growth between 1979 and 1993, which was the latest year for which data were available, for each of the 112 communities served by the airports we reviewed. Appendix VII provides additional details on the scope and methodology of our analyses of airfares. To compare changes in the quantity of air service since deregulation at airports serving small, medium-sized, and large communities, we analyzed data for our 112 airports for May 1978 and May 1995 from the Official Airline Guide (OAG), a privately published list of all scheduled commercial flights. Specifically, we documented changes in the total number of departures as well as the total number of available seats for each airport. We examined data from 1978 because they provided information on air service before deregulation and data from 1995 because they were the latest available at the time of our review. We chose May to avoid the typical seasonal airline schedule changes that occur in the winter and summer months. We used the OAG as our primary data source because DOT’s database on total annual departures by airport contains only the data reported by the airlines that operate aircraft with more than 60 seats. As a result, DOT’s data on airport operations do not provide information on departures by commuter carriers or air taxis. However, we analyzed DOT’s data on annual departures by the larger airlines and the Federal Aviation Administration’s (FAA) estimates of annual commuter and air taxi departures for each airport to confirm the results of our analyses of the OAG data. To compare changes in the quality of air service since deregulation at airports serving small, medium-sized, and large communities, we analyzed the OAG data described above for the 112 airports in our sample. Specifically, for each airport we calculated the changes in a number of indicators of service quality, including the number of destinations served by nonstop and one-stop flights and the percentage of jet departures. We then summarized these calculations for the three airport groups and compared the trends in the various quality indicators to gain an overall perspective on how service quality has changed. We did not, however, develop a formula that would weight these indicators and provide an overall “quality score” for each airport because developing such weights requires subjective judgments of the relative importance of each indicator. To compare the trends in the safety of air service since deregulation at small, medium-sized, and large community airports, we analyzed National Transportation Safety Board (NTSB) data on airline, commuter, and air taxi accidents (1) that occurred at or near each of the airports in our sample and (2) for which the airport in our sample was the origin or destination of the flight. Using these data, we calculated accident rates per 100,000 departures for each airport from 1978 through 1994. We then calculated the overall rate for each of the three airport groups. We discussed a draft of this report with senior DOT officials, including the Director, Office of Aviation and International Economics. They agreed with our findings concerning the trends in airfares, service, and safety since deregulation and suggested no revisions to the report. Additional details on their comments and our response are provided at the end of chapter 3. We conducted our review from August 1995 through March 1996 in accordance with generally accepted government auditing standards. Overall, airfares, adjusted for inflation, have declined since deregulation at airports serving small, medium-sized, and large communities. The largest reductions have occurred at airports located in the West and Southwest, regardless of the community’s size. Increased competition, stimulated largely by the entry of low-cost, low-fare airlines at these airports, has been a key factor in the decline in fares. By contrast, some airports in our sample, particularly those serving small and medium-sized communities in the Southeast and Appalachia, have experienced large increases in fares since deregulation. At these airports, one or two larger, higher-cost carriers account for the vast majority of passenger enplanements. Until very recently, these airlines have faced relatively little competition, particularly from low-cost new entrant airlines. The geographic disparity in airfare trends also stems from several adverse factors, such as airport congestion and poor weather conditions, that contribute to higher costs and are more prevalent in the eastern United States. Over 5 years ago, we reported that real airfares (adjusted for inflation) had fallen between 1979 and 1988 not only at airports serving large communities, as was expected, but also at airports serving small and medium-sized communities. As figure 2.1 shows, real fares through the first 6 months of 1995 for all three airport groups remained lower than they were in 1979. When full-year data for 1979 and 1994 are compared, fares were 8.5 percent lower at airports serving small communities, 10.9 percent lower at airports serving medium-sized communities, and 8.3 percent lower at airports serving large communities. However, as figure 2.1 also shows, since 1988 fares have risen slightly at airports serving small and medium-sized communities and fallen slightly at airports serving large communities. As figure 2.1 also shows, despite the overall trend toward lower fares since deregulation, fares at small- and medium-sized-community airports have been consistently higher than fares at large-community airports. It is generally accepted that fares tend to be lower at large-community airports because of the economies associated with traffic volume and trip distance. As the volume of traffic and average length of the trip increase, the average cost per passenger mile decreases, allowing for lower fares. Airports serving small and medium-sized communities tend to have fewer heavily traveled routes and shorter average trip distances, resulting in higher average costs and higher fares per passenger mile than those of large-community airports. Nevertheless, fares fell following deregulation for most of the airports that we reviewed. (App. I provides a summary of the overall changes in both fares and service at the airports in our review, and app. II shows the specific fare trends at each airport.) Of the 112 airports in our sample, 73 airports experienced a decline in fares. Specifically, fares declined at 36 of the 49 airports serving small communities, 19 of the 38 airports serving medium-sized communities, and 18 of the 25 airports serving large communities. The general trend toward lower fares has largely resulted from increased competition. Between the onset of deregulation and 1994, the average number of large airlines competing at the small-community airports that we reviewed increased from 1.8 to 2.8, and the average number of commuter carriers increased from 2.5 to 4.5. Similarly, the average number of large airlines competing at airports serving medium-sized communities increased from 2.8 to 4.3, and the average number of commuter carriers increased from 3.3 to 4.6. Finally, the average number of large airlines competing at the large-community airports that we reviewed increased from 9.0 to 11.2, although the number of commuter carriers decreased from 11.3 to 6.4. In addition, the transition to hub-and-spoke systems since deregulation has increased competition at many airports serving small and medium-sized communities. By bringing passengers from multiple origins (the spokes) to a common point (the hub) and placing them on new flights to their ultimate destinations, these systems provide for more frequent flights and more travel options than did the direct “point-to-point” systems that predominated before deregulation. Thus, instead of having a choice of a few direct flights between their community and a final destination, travelers departing from a small community might now choose from among many flights from several airlines through different hubs to that destination. While real fares fell at the majority of airports, fares rose—in some cases substantially—for 33 of the 112 airports. Table 2.1 shows the five airports of those we reviewed that had the largest fare decreases and the five airports with the largest fare increases. As table 2.1 indicates, those airports experiencing the largest increases in fares serve small and medium-sized communities and have had a decrease or little change in the number of large airlines and commuter carriers. Conversely, the airports experiencing the largest decrease in fares since deregulation have had a substantial increase in the number of large airlines and, to a lesser extent, an increase in the number of commuter carriers. Since deregulation, the largest decreases in fares have occurred at airports in the West and Southwest, and the largest increases in fares have occurred at airports in the Southeast and Appalachian region. In the West and Southwest, fares have declined largely because of increased competition caused by the entry of new airlines, particularly low-cost airlines such as Southwest and Reno Air. Over the last decade, high economic growth, relatively little airport congestion, and more favorable weather conditions have attracted these airlines to serve western airports. By contrast, competition at airports serving the Southeast and Appalachia has been more limited because (1) low-cost carriers have generally avoided the East because of its slower growth, airport congestion, and harsher weather and (2) one or two relatively high-cost carriers have dominated the routes to and from these airports. Although during 1994 one low-cost airline initiated operations in the East and subsequently failed, other low-cost airlines, such as Valujet, have emerged to compete with the higher-cost carriers in some eastern markets. However, data are not yet available to determine the extent to which these low-cost carriers have affected fare trends in the East. As figure 2.2 shows, the airports in our sample that experienced the largest fare decreases following deregulation are predominantly located in the West and Southwest. These substantial declines in real fares were experienced by airports serving large communities as well as by those serving small and medium-sized communities. Of the 15 airports in our sample for which fares declined by more than 20 percent between 1979 and 1994, 5 serve small communities, 5 serve medium-sized communities, and 5 serve large communities. By contrast, the largest fare increases occurred at airports that serve small and medium-sized communities in the Southeast and Appalachia (see fig. 2.2). Of the eight airports for which fares have increased by more than 20 percent since 1979, three serve small communities, four serve medium-sized communities, and one serves a large community. Over the last 17 years, a number of new airlines with very low operating costs—including America West, American Trans Air, Markair, Morris Air, Reno Air, and Southwest—have begun interstate air service, primarily concentrating their operations in the West. These low-cost airlines have focused on the West because of that region’s higher economic growth rates, lesser airport congestion, and more favorable weather. Because of their style of service—high frequency between a limited number of city-pairs and few amenities—these airlines have operating costs that are about 30 percent lower than those of larger airlines such as American and United. As a result, these low-cost airlines are able to charge lower fares. Further downward pressure on fares is caused by the competitive responses of the larger carriers. To date, these responses have ranged from substantial fare cuts in the case of Northwest to the creation by United in late 1994 of a low-cost “airline within an airline”—called Shuttle by United—to compete with Southwest in key markets on the West Coast. We found the presence of low-cost carriers and the resulting increase in competition to be a common factor at the airports in our sample that have experienced the largest fare decreases since deregulation. In 1994, low-cost airlines accounted for at least 10 percent, and often much more, of the total enplanements at 14 of the 15 airports that experienced the largest decreases in fares (see table 2.2). In part, these low-cost competitors have been attracted by the relatively strong economic growth at the communities these airports serve. Between 1979 and 1993, the average annual growth in population, personal income, and employment at these 15 communities substantially exceeded that for the other 97 communities in our sample (see table 2.3). In particular, low-cost airlines have been attracted to the area of strongest economic growth: the Southwest. For example, in Phoenix, Arizona—where fares have fallen by 32 percent since deregulation—the average annual growth in population between 1979 and 1993 was 3.0 percent; in personal income, 3.7 percent; and in employment, 3.7 percent. Moreover, for rapidly growing Las Vegas, Nevada—where fares also fell by 32 percent—the average annual rate of growth exceeded 5.0 percent for all three measures. By contrast, the largest fare increases occurred in the Southeast and Appalachia, where competition has been lacking and economic growth has been comparatively slower. At all eight airports where fares increased by more than 20 percent, Delta and USAir—airlines that have historically had among the highest operating costs in the industry—accounted for the overwhelming majority of enplanements in 1994 (see table 2.4). In part, there has been little new entry at these eight airports because of the slower growth rates for the communities these airports serve. The average annual rates of growth during this period were only 0.1 percent for population, 1.3 percent for personal income, and 0.9 percent for employment. Overall, the average airfare rose slightly during the first 6 months of 1995 compared with 1994 at all three categories of airports. At small-community airports, real fares rose by 2.6 percent; at medium-sized-community airports, by 2.1 percent; and at large-community airports, by 2.5 percent. Despite these increases, 59 of the 112 airports in our sample continued to have lower real airfares than they had in 1979. Specifically, when the data on the first half of 1995 were factored in, real fares since deregulation were lower at 28 of the 49 small-community airports, 17 of the 38 medium-sized-community airports, and 14 of the 25 large-community airports. The largest fare increases during the first 6 months of 1995 occurred in the East, primarily at small- and medium-sized communities in North Carolina and South Carolina. These fare increases occurred largely because of a loss of competition. In early 1994, Continental Airlines created a separate, low-cost service in the East similar to the operations of the low-cost carriers in the West and Southwest. Continental’s service—commonly referred to as “Calite”—failed and was terminated in early 1995. As table 2.5 shows, all 10 airports that experienced the largest fare increases between 1994 and the first 6 months of 1995 were either served by Calite during 1994 or located near an airport served by Calite. According to DOT analysts and Continental representatives, the termination of Calite service at three airports—Greensboro/High Point, North Carolina; Charleston, South Carolina; and Greenville, South Carolina—greatly lessened overall price competition in the geographical area within about 100 miles of those airports. As a result of the higher fares caused by the loss of Calite service or nearby competition from Calite, the trend toward lower fares since deregulation was reversed at all but 1 of the 10 airports (see table 2.5). According to Continental’s representatives, Calite failed largely because the airline could not successfully compete against the dominant positions of Delta and USAir. Other airline representatives claimed that Calite overextended itself by growing too fast and by attempting to challenge Delta and USAir in too many markets. Since the demise of Calite, however, several other low-cost carriers, such as Valujet and Kiwi, have initiated service in the East. Some industry observers believe that these airlines might succeed because they have focused on a smaller number of markets than Calite did. The most successful of these low-cost carriers to date has been Valujet. After starting service in late 1993 with two airplanes serving three routes, Valujet has grown to 41 aircraft, as of December 1995, serving 25 cities from Atlanta and 11 cities from Washington, D.C. In 1995, it had an operating profit of $107.8 million and an operating profit margin of 29 percent, compared with 9 percent for Delta and 6 percent for both American and United. However, Valujet has begun to experience some of the problems of operating in the East. For example, in late 1995 Valujet was unable to obtain take-off and landing slots at New York’s congested LaGuardia Airport. As a result, it could not begin its planned low-cost, low-fare service between New York and Atlanta. Valujet’s growth has sparked competitive responses from the dominant airlines in the East. Delta, for example, plans to create a separate, low-cost operation of its own in the East starting in mid- to late 1996. However, largely because (1) most of Valujet’s growth occurred in the second half of 1995 and (2) the competitive responses of other airlines are only beginning to unfold, data are not yet available to determine the extent to which Valujet has affected fares in the East. Overall, the quantity of air service has increased since deregulation at small-, medium-sized, and large-community airports. The largest growth has occurred at large-community airports. Not all the airports that we reviewed, however, shared in this general trend toward more air service. Some airports—particularly those serving small and medium-sized communities in the Upper Midwest—have less air service today than they did under regulation. Measuring the overall quality of air service is more problematic because there are many dimensions of “quality” and not everyone agrees on the relative importance of each. In general, the factors that are usually considered to be the primary factors in service quality suggest that for small and medium-sized communities the results are mixed. For large communities, on the other hand, the trends are less ambiguous and quality has improved in almost every dimension. Finally, the safety of air service has generally improved since deregulation at all three categories of airports. Indeed, because so few accidents occur each year, an increase of just one or two accidents in a given year can cause significant fluctuation in the accident rate for any one airport group, making it difficult to reach conclusions about relative safety between the groups. The total number of scheduled commercial departures, which is an important measure of the amount of air service at an airport, has increased for all three airport groups in our sample (see fig. 3.1). Specifically, in May 1995 small-community airports as a group had 50 percent more scheduled commercial departures than they did in May 1978; medium-sized-community airports had 57 percent more departures; and large-community airports had 68 percent more departures. Within each of the three airport groups, a substantial majority of airports had more scheduled commercial departures in May 1995 than in May 1978. Seventy-eight percent of the small- and medium-sized-community airports had an increase in the number of departures, and every large-community airport in our sample had more departures. A second measure of the quantity of air service—the number of available seats—has also increased since deregulation for all three airport groups. (App. IV provides data on departures and available seats for each airport.) However, because of the increased use of smaller, turboprop aircraft, the percentage change in available seats has been less than the percentage change in the number of departures, especially at small- and medium-sized-community airports. (See fig 3.2.) In addition, because of the substitution of turboprops for jets, many small- and medium-sized-community airports have experienced a decrease in the number of available seats even though the number of departures increased. For example, because the average aircraft size per departure at Fargo, North Dakota’s airport decreased from 106 seats in 1978 to 67 seats in 1995, Fargo had 21 percent fewer available seats in May 1995 than in May 1978 even though the number of departures increased by 25 percent. Nevertheless, as table 3.1 shows, when both measures are considered, a plurality of the small- and medium-sized-community airports and every large-community airport have experienced an increase in the quantity of air service they receive. The airports that have experienced an increase in the quantity of air service are located throughout the country. Large communities in particular have experienced an increase in service quantity, in part because of their relatively strong economic growth during this period. For example, between 1979 and 1993, the average annual income growth for the large communities was 2.2 percent, compared with 1.8 percent for both the small and medium-sized communities in our sample. On the other hand, the 17 airports that have experienced an decrease in both departures and seats are primarily small- and medium-sized-community airports located in the Upper Midwest, where economic growth has been slower. Figure 3.3 demonstrates the widespread increase in service quantity since deregulation and identifies where the sharpest decline in air service—a decline of at least 20 percent—has occurred. The three communities whose airports have experienced the sharpest declines—Sioux Falls, South Dakota; Lincoln, Nebraska; and Rochester, Minnesota—had relatively slow economic growth during this period. For these three communities, the average annual growth rate was only 0.4 percent in population, 1.3 percent in personal income, and 1.4 percent in employment. The quality of air service a community receives is generally measured by four variables: the number of (1) departures and available seats, (2) destinations served by nonstop flights, (3) destinations served by one-stop flights and the efficiency of the connecting service, and (4) jet departures compared with the number of turboprop departures. Largely because of their central role in hub-and-spoke networks, large-community airports have experienced a substantial increase in the number of departures and cities served via nonstop flights since deregulation, a corresponding decrease in the number of cities served by one-stop flights, and only a slight decline in the share of departures involving jets. For small- and medium-sized-community airports, hub-and-spoke networks have resulted in more departures and more and better one-stop service. However, because much of this service is to hubs via turboprops, small and medium-sized communities have fewer destinations served by nonstop flights and relatively less jet service. In light of this mixed record, it is difficult to judge the overall change in the quality of air service at airports serving small and medium-sized communities because such an assessment requires, among other things, a subjective weighting of the relative importance of the four variables. As discussed earlier, the number of departures has increased since deregulation at airports serving small and medium-sized communities. However, airlines have generally directed these departures to hub airports, often eliminating nonstop service to other small and medium-sized communities. Overall, we found that the average number of cities served by nonstop flights has declined by 7 percent from small-community airports and by 2 percent from medium-sized community airports (see fig. 3.4). However, because more flights from these airports are destined for hubs, the number of destinations served on a one-stop basis has increased by 9 percent at small-community airports and by 26 percent at medium-sized-community airports. As figure 3.4 also shows, large-community airports, many of which serve as hubs, have experienced a sizable increase since deregulation in the number of nonstop destinations. As a result, large communities’ need for one-stop service has decreased. The number of nonstop destinations has decreased at many airports serving small and medium-sized communities: 55 percent of the small-community airports and 42 percent of the medium-sized-community airports have experienced decreases. As figure 3.5 shows, the small- and medium-sized-community airports experiencing the sharpest decline in nonstop destinations were primarily located in the slower-growing Upper Midwest and Southeast. In some cases, the communities served by these airports have contracted. For example, Moline, Illinois’ average annual change in population between 1979 and 1993 was –0.5 and Bristol, Tennessee’s was –0.1. By contrast, those airports experiencing the largest increases in the number of nonstop destinations are located primarily in fast-growing cities in the Southwest and Florida as well as in Upper New England, such as Burlington, Vermont. For many small and medium-sized communities, the decline in nonstop service options has been substantial. For example, as shown in figure 3.6, the number of cities served nonstop from Fayetteville, North Carolina, decreased by 78 percent, from nine in May 1978 to two in May 1995. Nevertheless, most communities that experienced a decline in the number of nonstop destinations experienced an increase in the number of one-stop destinations. This increase largely occurred because the remaining cities served on a nonstop basis are often hubs for the major airlines, thereby yielding a significant increase both in the number of connections possible and the efficiency of that service. For example, the two destinations served nonstop from Fayetteville in 1995—Atlanta and Charlotte—are hub airports for Delta and USAir, respectively. As a result, the number of destinations served on a one-stop basis from Fayetteville, as listed in the OAG, increased by 60 percent between May 1978 and May 1995. Moreover, we found that passengers flying from places like Fayetteville were better connected to the entire domestic aviation system in 1995 than they were in 1978. For example, travelers from Fayetteville had an average of nine daily flights to Atlanta and six daily flights to Charlotte in May 1995, compared with three daily flights to Atlanta and one daily flight to Charlotte in May 1978. This increased frequency of service expands passengers’ choices and reduces layover times between connections. As figure 3.7 illustrates, a traveler from Fayetteville wanting to fly to San Francisco in 1978 had no other choice but to fly through Atlanta. The passenger could take a morning, noon, or mid-afternoon flight from Fayetteville to Atlanta and then take one of two flights from Atlanta to San Francisco. However, because the first flight from Fayetteville to Atlanta did not arrive until 9:27 a.m. and both flights from Atlanta to San Francisco were in the morning (the first flight leaving at 8:46 a.m. and the second at 10:25 a.m.), the passenger had only one real connection option. Otherwise, the person had to spend the night in Atlanta to catch the next morning’s flight to San Francisco at 8:46 a.m. In 1995, that same traveler from Fayetteville could fly to San Francisco via either Atlanta or Charlotte. The passenger would have the choice of nine daily flights to Atlanta connecting to six daily flights to San Francisco or six daily flights to Charlotte connecting to three daily flights to San Francisco (see fig. 3.7). For example, the passenger could take a flight from Fayetteville to Atlanta that arrives at 7:25 a.m. and connect to a flight to San Francisco that leaves Atlanta at 8:20 a.m. Because of the increased service frequency, during any given day in May 1995 the passenger would have six real connection options at Atlanta, with an average layover time of 82 minutes. The passenger also had the option of taking one of two night flights from Fayetteville to Atlanta, spending the night in Atlanta, and catching the next morning’s flight to San Francisco at 8:20 a.m. Finally, as figure 3.8 shows, Fayetteville’s access to the domestic system has been expanded in terms of the geographic location of the cities accessible through one-stop service. For example, in 1978 Fayetteville had possible one-stop connecting service to six different cities in West Virginia but no such service to such larger cities as San Diego, California; Salt Lake City, Utah; and Seattle, Washington; or such preferred vacation locations as Honolulu, Hawaii, or St. Thomas, Virgin Islands. As a result of the hub-and-spoke system, Fayetteville in 1995 had one-stop service to those cities as well as one-stop service to four cities in West Virginia. While the number of jet departures has declined slightly at small-community airports and increased slightly at medium-sized- community airports, the proportion of departures involving jets has fallen substantially for both groups since deregulation, as shown in fig. 3.9. At small-community airports, the percentage of departures involving jets fell from 66 percent in May 1978 (21,632 of 32,744 total departures) to 39 percent in May 1995 (18,968 of 48,960 total departures). As a result, the growth in turboprop departures accounted for all of the growth in total departures since deregulation at the small-community airports that we reviewed. At airports serving medium-sized communities, the percentage of departures involving jets fell from 77 percent in May 1978 (31,126 of 40,561 total departures) to 56 percent in May 1995 (35,554 of 63,854 total departures). By comparison, at large-community airports, the number of jet departures increased by 47 percent, although with the growing use of turboprops the share of departures involving jets actually fell from 81 percent of all departures in May 1978 to 71 percent in May 1995. We found that the substantial growth in the use of turboprops since deregulation has occurred at airports serving small and medium-sized communities in all regions of the country. Two factors have caused this trend. First, large airlines have used turboprops to link small and medium-sized communities to their major hubs. Airlines would be unable to earn a profit on many of these routes if they deployed jets, which are larger and more costly to operate than turboprops. Second, since 1978 the commuter and air taxi segments of the industry have grown significantly.Commuters, in particular, have emerged as (1) affiliates of the large airlines to “feed” traffic traveling from small and medium-sized communities to the airlines’ hubs and (2) key providers of air service between small and medium-sized communities. DOT’s data on total departures in 1978 and 1994 by large airlines at the airports in our sample and FAA’s estimates of commuter and air taxi departures at those airports demonstrate the growth of the commuter and air taxi segments of the industry. Our analysis of these data shows that commuter carriers and air taxis accounted for 56 percent of departures at small-community airports in 1994, compared with 29 percent in 1978. At medium-sized-community airports, commuter carriers and air taxis accounted for 47 percent of departures in 1994, compared with 25 percent in 1978. Finally, at large-community airports, commuter carriers and air taxis accounted for 27 percent of departures in 1994, compared with 18 percent in 1978. In evaluating overall changes in the quality of air service to small and medium-sized communities since deregulation, the increased service frequency and one-stop options must be weighed against the decline in jet service and nonstop options. While the substantial gains in quantity and nonstop destinations for large-community airports clearly outweigh the corresponding decline in one-stop service and slight decrease in jet service relative to turboprops, weighting the changes experienced by small and medium-sized communities is more problematic for two reasons. First, the value placed on each factor depends on a subjective determination that will vary by individual. For example, DOT analysts we interviewed stated that in their view the number of departures was the most important factor because the increase in flight frequency saves travelers time and increases their possible connections. These analysts noted that they believed that the type of aircraft was the least important factor, largely because the size and safety of turboprops and the service they provide have improved dramatically over the last 17 years. Thus, they believe that turboprops provide a level of service equivalent in many cases to that of jets. Other industry analysts that we interviewed, however, considered the loss of nonstop service to be the most important change. Second, it is not possible to convert each factor into a common measure, such as total travel time. Although most of the factors can be measured in terms of travel time, one cannot: the perceived levels of amenities and comfort that travelers associate with the different types of turboprops and jets. As a result, developing a formula that combines the various factors to produce a single, objective “quality score” is problematic. The only such formula that we identified during our review was developed in the 1960s by the Civil Aeronautics Board (CAB). The CAB’s formula was weighted heavily toward changes in the number of departures and did not account for passengers’ perceptions of the service quality associated with the various types of jets and turboprops. In providing us with this formula, DOT analysts emphasized that it has never been updated and should not be used to gauge changes in service quality since deregulation. We therefore declined to use it and did not attempt to develop a new formula during our review. Nevertheless, when considering those airports in our sample that had either (1) lower fares and positive changes in every quality dimension or (2) higher fares and negative changes in every quality dimension, clear geographical differences emerge. In particular, as figure 3.10 shows, fast-growing communities of all sizes in the West, Southwest, Upper New England, and Florida have lower fares and better service. Nevertheless, as figure 3.10 also shows, some small and medium-sized communities in the Southeast and Upper Midwest are clearly worse off today. These pockets of higher fares and worse service stem largely from both a lack of competition and comparatively slow economic growth over the past two decades. (App. I provides an overall summary of the changes in fares and service at each airport in our sample.) In general, the long-term decline in the rate of accidents has continued since deregulation. These safety gains are attributed to advances in aircraft technology and improved pilot training in the early and mid-1980s, especially for turboprops and commuter carriers. As noted in chapter 1, the overall accident rate for commuters has fallen by over 90 percent since deregulation. In our sample, the rate of accidents at the airports in each group was lower in 1994 than in 1978. At small-community airports, the rate fell from 0.47 accidents per 100,000 departures to 0.14 accidents per 100,000 departures in 1994. At medium-sized-community airports, the rate fell from 1.29 accidents per 100,000 departures in 1978 to 0.00 in 1994. At large-community airports, the rate fell from 0.41 accidents per 100,000 departures to 0.14 in 1994. However, because there are so few accidents each year, an increase of just one or two accidents in a given year can cause a significant fluctuation in the accident rates, as figure 3.11 shows. Attempts to discern trends between the airport groups by smoothing the data—employing, for example, such common practices as calculating a 3-year moving average—did not help to identify any trends. Our analysis of accidents on routes to and from the airports in our sample were similarly inconclusive. Thus, while commuter carriers and turboprops generally do not have as good a safety record as the larger jets they replaced in many markets serving small and medium-sized communities, it is difficult to discern the impact of the change on relative safety at the airports in our sample because of the small number of annual accidents and the consequent wide swing in rates from year to year. We discussed a draft of this report with senior DOT officials, including the Director, Office of Aviation and International Economics. They agreed with our findings concerning the trends in airfares, service, and safety and stated that the report provides useful information. They also noted that the 112 airports in our sample account for a sizable majority of the nation’s air travelers. These officials commented, however, that the small-community airports in our sample represented the larger “small” airports in the United States and therefore were not completely representative of the nation’s smallest airports. They stated that they have recently completed a study, which they expect to issue soon, on the trends in fares and service at the smallest airports and that the conclusions of their study are consistent with our findings. They noted that although the airports included in their study account for only about 3 percent of the total passenger enplanements in the United States, they believe that it provides a valuable and necessary complement to our report because it focuses on the very smallest airports. We agree that DOT’s study could serve as a valuable complement to our report. As we state in appendix VII, we examined data on the same 112 airports that we examined in our 1990 report in order to provide consistent, comparable information in updating that report. In selecting those airports, one of our criteria was that the airport had to be among the largest 175 in the nation. This criterion was necessary because as an airport’s traffic level falls, the number of tickets from that airport listed in DOT’s O&D Survey also declines. A smaller number of tickets increases the potential for sampling error, leaving the true change in fares uncertain. As a result, we excluded the airports serving the nation’s smallest communities.

Summary: Pursuant to a congressional request, GAO examined the deregulation of the airline industry, focusing on: (1) airfares and the quantity, quality, and safety of air service since deregulation. GAO noted that: (1) the average fare per passenger mile is 9 percent lower at small-community airports, 11 percent lower at medium-sized airports, and 8 percent lower at large-community airports; (2) the largest increase in fares occurred in the Southeast and Appalachian regions, and the largest decrease occurred in the West and Southwestern regions; (3) this geographic disparity exists because of the intense competition between low-cost, new carriers in the west and dominant, high-maintenance carriers in the Southeast; (4) the overall quantity of air service at airports has increased, but large communities have experienced the largest increase; (5) air service quality is difficult to measure and depends on the number of destinations served by nonstop flights and one-stop connections, and the type of aircraft used; (6) air service quality since deregulation has been mixed largely due to the airlines hub networks and greater use of turboprop aircraft; and (7) the overall accident rate since deregulation has dropped, but there are no statistically significant differences in air safety trends for any of the airport groups.