Domestic Aviation:

Barriers Continue to Limit Competition

T-RCED-98-32: Published: Oct 28, 1997. Publicly Released: Oct 28, 1997.

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John H. Anderson, Jr
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GAO discussed the barriers that limit aviation competition, focusing on: (1) the actions the Department of Transportation (DOT) has taken to address those barriers; and (2) how the Aviation Competition Enhancement Act of 1997 and other initiatives seek to address those problems.

GAO noted that: (1) a combination of factors continues to limit entry at airports serving small and medium-sized communities in the East and upper Midwest; (2) these factors include the dominance of routes to and from those airports by one or two traditional hub-and-spoke airlines and operating barriers, such as slot controls and long-term exclusive-use gate leases at hub airports; (3) in contrast, the more wide-spread entry of new airlines at airports in the West and Southwest since deregulation--and the resulting geographic differences in fare and service trends--has stemmed largely from the greater economic growth in those regions as well as from the absence of dominant market positions of incumbent airlines and barriers to entry; (4) GAO has found that little progress has been achieved in lowering the barriers to entry since GAO first reported on them in 1990; (5) slot controls continue to block entry at key airports in the East and upper Midwest; (6) GAO recommended that DOT take actions to promote competition in regions that have not experienced lower fares as a result of airline deregulation by creating a pool of available slots by periodically withdrawing some grandfathered slots from the major incumbents and redistributing them in a fashion that increases competition; (7) moreover, GAO suggested that, absent action by DOT, Congress may wish to consider revising the legislative criteria that govern DOT's granting slots to new entrants; (8) GAO also suggested that Congress consider granting DOT the authority to allow exemptions on a case-by-case basis to the perimeter rule at National Airport when the proposed service will substantially increase competition; (9) in response to GAO's recommendations, DOT indicated that it would revise its restrictive interpretation of the legislative criteria governing the granting of new slots; (10) on October 24, 1997, DOT announced its decision on some of the pending requests for slot exemptions; (11) DOT also is evaluating how effectively slots are being used and it is formalizing a policy that will identify anticompetitive behavior as a precursor for formal enforcement action; (12) the proposed Aviation Competition Enhancement Act of 1997 addresses three barriers to competition: slot controls, the perimeter rule, and predatory behavior by air barriers; and (13) increasing competition and improving air service at airports serving small and medium-sized communities that have not benefited from fare reductions and/or improved service since deregulation will entail a range of federal, regional, local, and private-sector initiatives.

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