The airlines pricing flexibility may have to be restricted if new or incumbent airlines encounter serious problems in gaining access to airports to expand into new routes, Civil Aeronautics Board Chairman Marvin S. Cohen warned yesterday.
"The board is very concerned that current constraints not impair the competitiveness of the system by arbitrarily limiting or precluding existing carriers or new entrants from expanding into new markets," Cohen said in a speech to the Aero Club.
Cohen's warning came amid reports that the Department of Transportation was close to a decision on an interim plan for allocating space at Washington's National Airport among the 23 airlines -- including two new entrants -- seeking to operate there beginning in December.
The airlines, whose representatives in the past have worked out access to National by themselves with the government's blessing, failed to reach a compromise this time and asked DOT to do it. National is one of four airports already subjected to constraints, and there are government predictions that as many as 60 more airports, including 14 major hubs, may reach a near-saturation point within the next decade.
Failure to find some creative solutions to airport access problems threatens what Cohen called "the binding competitive linkage" between the open entry and pricing freedom of the Airline Deregulation Act the board administers. "The ability to move aircraft into and out of markets is the competitive quid pro quo for open pricing," Cohen said. If new entry is severely restricted at critical hub airports, then the incumbents could exercise monopoly power over fares, he said. The airlines were given broad latitude to increase fares only because the threat of competition makes the system self-correcting, he said.
"It therefore seems obvious that if there are serious and unresolvable constraints on access, the board will have to reassess the current broad band on upward fare flexibility and perhaps contract that zone until those constraints are substantially alleviated," he warned.
Cohen also twitted many of the airlines for pursuing a "high-fare strategy" at a time when passenger traffic is going down and fuel costs appear to be declining. "To me it appears that a number of carriers still seem intent on following the old and disastrous chicken-and-egg pricing philosophy the board seemed to have endorsed in the halcyon days of regulation," he said. "As traffic drops, the airlines raise fares to cover costs from fewer customers; this eliminates more customers, forcing them to raise fares again." It is this "seemingly self-defeating marketing technique" which appears, in part, to be encouraging low-fare new entrants into some of those markets, particularly the short-haul routes, Cohen suggested.