International Aviation:

Competition Issues in the U.S.-U.K. Market

T-RCED-97-103: Published: Jun 4, 1997. Publicly Released: Jun 4, 1997.

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GAO discussed U.S. aviation relations with the United Kingdom, focusing on the: (1) current status of airline competition in the U.S.-U.K. market and of negotiations between the United States and the United Kingdom; (2) potential competitive impacts of the proposed alliance between American Airlines and British Airways; and (3) obstacles that might prevent U.S. airlines from having adequate access to Heathrow Airport.

GAO noted that: (1) the current bilateral accord between the United States and the United Kingdom places substantial limits on competition; (2) as a result, consumers in both countries have more limited service options and likely pay higher fares than they would in a more competitive environment; (3) in addition, these limits on competition disproportionately impact U.S. airlines, most of whom are not allowed to serve Heathrow; (4) only two U.S. airlines can currently serve Heathrow, and even those two are only permitted to do so from certain designated cities; (5) by contrast, British Airways has already obtained, in previous negotiations, extensive access to the U.S. market; (6) partly as a result, U.S. airlines' share of the U.S.-U.K. market has steadily declined over the past few years, while British Airways' share has risen; (7) with little leverage with which to deal, the Department of Transportation (DOT) has achieved little success in securing increased access for U.S. airlines to Heathrow; (8) as GAO noted in its March 1996 testimony, progress would likely not occur until the United Kingdom identified something else it wanted from the United States; (9) that moment arrived 1 year ago with the announcement by American Airlines and British Airways of their planned alliance; (10) however, several difficult issues, such as the British government's insistence that an open skies agreement also contain a formal mechanism to resolve disputes, have stalemated negotiations; (11) the potential alliance of American Airlines and British Airways, the two largest carriers in the U.S.-U.K. market, raises significant competition issues; (12) in 1996, the two airlines accounted for 60 percent of the scheduled passenger traffic that flew between the United States and the United Kingdom; (13) in addition, they currently provide over 70 percent, and in some cases all, of the service between Heathrow and several key U.S. gateways, including New York, Chicago, Boston, and Miami; (14) as a result of this level of market concentration, DOT's approval of the alliance would further reduce competition unless, as a condition of the approval, other U.S. airlines are able to simultaneously obtain adequate access to Heathrow; (15) barriers exist at Heathrow in the form of a limited number of takeoff and landing slots and a scarcity of available gates and facilities that prevent U.S. airlines from having adequate access to that airport; and (16) as a result, action will be necessary to address these barriers if open skies is to result in increased competition.

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