Effects of Airline Entry Barriers on Fares

T-RCED-90-62: Published: Apr 5, 1990. Publicly Released: Apr 5, 1990.

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GAO discussed the effects on airline fares of airline market concentration and barriers to new airline entry in airports. GAO noted that: (1) fares per passenger-mile at concentrated airports were about 20 percent higher than those at unconcentrated airports; (2) the combination of such barriers as exclusive-use leases, larger airlines' frequent flyer plans and computerized reservation systems, and travel agent commissions made it difficult for new airlines to enter the market; (3) airline fares were proportionately higher according to the carrier's share of leased airport gates; (4) majority-in-interest clauses reduced airports' expansion ability, sometimes resulting in higher air fares; (5) airports with congested runway capacity also had limited expansion ability; (6) airlines' shares of the computerized reservation system market were directly related to their market shares on airport routes; and (7) carriers typically charged higher fares on routes where they had code-sharing agreements than on routes where they did not have such agreements. GAO also noted that possible approaches to dealing with airline competition problems include: (1) imposing limitations on carriers' shares of emplanements; (2) expanding the capacity of existing airports and building new airports; and (3) adopting a wide range of policy options to address airline competition problems related to specific entry barriers.

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