State of the Airline Industry:

Strategies for Addressing Financial and Competition Problems

T-RCED-93-21: Published: Mar 10, 1993. Publicly Released: Mar 10, 1993.

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GAO discussed the state of the airline industry and the Federal Aviation Administration's (FAA) use of budgetary resources to help the industry. GAO noted that: (1) due to major financial losses over the last 3 years, airlines are implementing cost cutting programs, laying off employees, cancelling or delaying aircraft purchases, and refocusing services, but these actions may negatively affect their long-term competitiveness; (2) airlines' high debt loads, demand fluctuations, and low fares have decreased competitiveness and profitability to less than half the U.S. average; (3) FAA could help increase the airline industry's efficiency and lower its costs by modernizing the air traffic control system, maintaining and deploying its workforce to areas of greatest need, and improving its airport grant program to relieve congestion and delays; (4) the airline industry needs better access to capital, including greater foreign investments, to ease some restrictions on foreign control of airlines while ensuring national security, job retention, and access to foreign markets; (5) airlines' access to international markets depends upon their financial conditions; (6) industry practices, such as exclusive leases, and FAA high density rule limit access to airports and increase fares; (7) some airline marketing practices, such as computerized reservation systems, frequent flyer plans, and code-sharing agreements, limit competition; and (8) unfair pricing practices by bankrupt airlines and others may aggravate financial problems, but more data are needed before corrective action can be taken.

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