Airline Competition:

Weak Financial Structure Threatens Competition

RCED-91-110: Published: Apr 15, 1991. Publicly Released: Apr 15, 1991.

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Pursuant to a congressional request, GAO evaluated the financial condition of the airline industry, focusing on the: (1) causes of financial distress; and (2) options for reversing the trends and promoting competition.

GAO found that: (1) high debt levels and the high costs of overcoming operating and marketing practices have weakened the financial condition of several carriers and limited competition; (2) the airline industry estimated a record loss of $2 billion in 1990, due primarily to economic decline, the rise in fuel prices, and reduced demand resulting from the terrorism threat; (3) increased regulatory and legislative requirements will cost the airline industry at least $1 billion over the next 4 years to replace and renovate older aircraft; (4) if several carriers ceased operations, competition could be significantly reduced and increase the need to implement further action to enhance the industry's competitive balance; (5) improving carriers' access to airports and reducing the marketing advantages of dominant carriers could help relieve some of the competitive problems and enhance the financial health of some of the weaker carriers; and (6) reregulating fares and routes and allowing an increased level of foreign investment in U.S. carriers could run counter to the intentions of deregulation and would require further analysis before implementation.