Airline Deregulation:

Changes in Airfares, Service Quality, and Barriers to Entry

RCED-99-92: Published: Mar 4, 1999. Publicly Released: Mar 5, 1999.

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John H. Anderson, Jr
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Pursuant to a congressional request, GAO reviewed and updated its previous work on airfares and service and reexamined the effect that certain barriers have had on these measures, focusing on: (1) how airfares have changed since 1990 for travel to and from 171 airports serving various U.S. communities; (2) how the quality of air service has changed since 1978 for travel to and from these airports; and (3) the extent to which certain barriers to entry--restrictive gate-leasing arrangements, controls on the number of allowable takeoffs and landings at some airports, and the limits on the distance that flights from some airports can be--influence competition at affected airports.

GAO noted that: (1) overall, average airfares declined about 21 percent in constant dollars from 1990 to the second quarter of 1998; (2) not all airports realized a similar decreases in airfares; (3) airports serving medium-large communities had the greatest average decrease in fares, and airports serving small communities had the least average decline; (4) average airfares declined at 168 of the 171 airports GAO examined, often with the introduction of competing service from a low-fare carrier; (5) on the other hand, since 1994, average airfares increased for passengers traveling from 39 airports and generally for passengers making short trips to or from airports serving medium-large and large communities; (6) for passengers flying to or from airports in communities of similar size on trips of similar distances in 1998, one passenger travelling from one airport may have paid almost 3 times as much as a passenger travelling from a different airport; (7) while GAO identified such differences in fares, it should be noted that in developing this report, GAO was unable to account for all factors that may have contributed to them, such as the presence of low-cost competition on particular routes or the extent to which travel on routes tended to reflect generally lower-fare leisure travel or more costly business traffic; (8) the overall quality of air service has improved for airports serving large and medium-large communities, but indicators are mixed for airports in small and medium-sized communities; (9) the quantity of the air service available, as measured by the number of departures and available seats has increased for most of the 171 airports GAO reviewed; (10) airports in large and medium-large communities have experienced a substantial increase in the amount of air service; (11) however, some airports have less air service today than they did in 1978, when the industry was deregulated; (12) other indicators of the quality of air service, including those that measure the number of destinations served by nonstop flights and the type of aircraft used, generally show that quality has improved substantially for airports serving large and medium-large communities; (13) for airports serving small and medium-sized communities the results are mixed; (14) at the 10 airports that, in 1996, GAO reported had restrained competition either because of restrictive gate-leasing arrangements or limits on the number of available takeoff and landing times, competition has changed little; and (15) airfares at these 10 airports continue to be consistently higher than airports of comparable size without constraints.

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