Government-appointed blue ribbon commissions are usually seen as a burial ground for politically prickly problems. But the congressionally mandated committee assigned to study competition in the U.S. airline industry has defied political gravity and come up with some tough-minded recommendations for expanding and extending the consumer benefits flowing from airline deregulation.
The committee found concrete evidence that things have been going quite well in the deregulated commercial aviation market during the 1990s. Fares are down about 25 percent, after an even greater decline in the previous decade. Air travel measured in passenger miles jumped nearly 35 percent. And despite consolidation in the industry, the percentage of domestic trips by the largest airlines dropped as aggressive low-fare and other competitors captured increased market share.
But no free market is without some problems. And notwithstanding the panel's positive conclusions about the general health of airline competition and deregulation, the committee identified flaws in the airline competitive environment and proposed concrete, important steps to improve it. By and large these proposals entail the removal of obstacles to freer airline competition, improvement and expansion of air system facilities and technologies and tougher policing of potentially anti-competitive airline alliances. These constructive measures include:
Abolition of airport landing slot controls, which ration aircraft landings at major airports such as Reagan National, O'Hare in Chicago and both LaGuardia and JFK in New York. Imposed 30 years ago, these artificial limitations are obsolete and impede access to these major destinations by startup and new entrant airlines.
Rescinding of the "perimeter rules" that block airport access for trips over a certain prescribed length. The effect of these restrictions is to create anti-competitive collars around important airports, most famously Reagan National. There is no operational or safety reason not to allow flights from greater distances.
Use of federal airport financial assistance leverage and other pressure actions to free up airport gates and other essential facilities that are frequently found to be controlled at big hub airports by the dominant carriers, which refuse to make them available to competing airlines, particularly startup new entrants.
Getting much tougher on permitting alliances between U.S. and foreign carriers to receive government approval. There are indications that aspects of these market- sharing collaborations in international aviation are anti-competitive and that, as current alliances come up for renewal and new ones are proposed, the antitrust implications should be more closely scrutinized.
Abolition of the 25 percent limit on ownership of U.S. airlines by foreign investors. The effect would be to increase competition by attracting needed capital on a global basis to fund startup and new entry airlines.
The committee's central assignment was to assess the Department of Transportation's proposed regulation to address complaints by startup airlines that big carriers were employing predatory tactics to drive them from the market. The panel's majority did not recommend adoption of DOT's anti-predation regulation. Instead, it favored having the Department of Justice as the cop on the beat to protect airline competition. Of course, the Justice Department is doing just this in its recently initiated antitrust litigation charging American Airlines with predatory behavior to drive a small competitor from the market.
This report is a call for action. Congress and the administration should heed it.
The writer initiated airline deregulation as chairman of the Civil Aeronautics Board in the Ford administration. He is now an investment banker in San Francisco.