Monday, December 20, 1999

High air fares getting attention


Proposals could boost competition

BY PAUL BARTON
Enquirer Washington Bureau

        WASHINGTON — Help finally may be on the way for travelers angered by high air fares out of Cincinnati and other cities with hub airports dominated by one airline.

        Congress and the Department of Transportation are working on a variety of measures to make it easier for smaller, start-up, low-cost air lines to come into hub markets and compete more successfully than they have in the past.

        The actions are intended in large part to help drive down air fares that have provoked an outcry in the Tristate and across the country.

AIRPORT PLANS AT A GLANCE
Here are steps under way in the Clinton administration and Congress to deal with the airport competition and hub airport controversies:

• Competition guidelines: The Department of Transportation is working on a set of new rules that would govern airline competition. They are designed to send a signal to airlines that the department will take action when it thinks a major air carrier is purposely losing money in a market over the short term in order to offer enough cheap fares to drive a smaller airline out of business or out of the market.

• Slot rules: Congress next year is expected to take up a Federal Aviation Administration-related bill that deals in part with the availability of takeoff and landing slots for airlines at O'Hare Airport in Chicago, Kennedy and LaGuardia in New York and Reagan National in Washington. Many smaller airlines that also would serve cities such as Cincinnati need to be able to fly into those airports in order to survive.

• Airport facilities: Advocates for smaller airlines want DOT to be more vigilant in overseeing how airports make gates and other needed facilities available to smaller, start-up airlines. Department officials in turn are urging local airport authorities to make sure that access to gates, facilities and services does not serve as a barrier to competition.

Enquirer Washington Bureau

        Many think a shakeup of the legal and regulatory environment for airlines is imminent.

        “I absolutely believe 2000 will be a critical year,” said Ed Faberman, executive director of the Air Carriers Association, a group that represents smaller airlines.

        The Transportation Department and the Department of Justice already are sending strong signals to major carriers, charging that they see a pattern of tactics to drive smaller airlines out of key markets.

        In particular, they note instances in the 1990s where major airlines have dumped tens of thousands of cheap fares into a market over a short time to the extent that their own revenues from that market actually declined.

        The DOT is proposing rules that would prohibit airlines from engaging in such activity.

        “The pricing at hub airports has become a very big issue over the past two and a half years,” said Kevin Mitchell, chairman of the Business Travel Coalition, a group that includes Cincinnati-based Procter & Gamble Co.

        Relief couldn't come soon enough for many Cincinnati residents who drive to airports in nearby cities such as Dayton or Louisville rather than fly from the Cincinnati/Northern Kentucky International Airport.

        A series of DOT reports in the past two years consistently has shown Cincinnati as one of the five most expensive cities in the country when it comes to air fares.

        The latest such report, covering the first quarter of 1999, is no different.

        It shows travelers out of Cincinnati paying the fourth-highest rates, 30.6 cents per mile.

        Further, another DOT study showed that between 1988 and 1995, those who bought tickets out of Cincinnati went from paying 46 percent above the average for nonhub airports nationwide to 64 percent above the average. The higher ticket costs in Cincinnati and similar markets are referred to by the DOT as “hub premiums.”

        Delta Airlines, which dominates in Cincinnati, got 75 percent of all passenger boardings out of the market in 1998. But Delta's recent acquisition of Comair will drive that figure above 90 percent.

        Congress is hearing the complaints loud and clear, said Rep. Steve Chabot, R-Cincinnati.

        “I think there is a perception, and for the most part I think it is true, that we are paying very high air fares to fly out of the Greater Cincinnati Airport,” he said.

        Mr. Chabot, a member of the House Judiciary Committee, has been involved in hearings on antitrust issues related to airlines.

        “I am supportive of any reasonable measures to increase competition,” he said.

        But Delta contends the DOT studies ranking air fares are flawed.

        “The fares typically referred to represent a small portion of the types of fares that are sold,” said Dave Anderson, spokesman for the airline in Cincinnati.

        “I don't believe we are taking advantage of monopoly power.”

        The higher fares, often paid by corporate travelers, are needed to compensate for the immediate service and seat availability that business demands, he said.

        But the Clinton administration and many key members of Congress — such as Sen. John McCain of Arizona, a leading GOP presidential candidate — contend the recent behavior of major airlines warrants action on the issues of air fares and competition.

Predatory pricing
        The Department of Justice last year filed suit against American Airlines, accusing it of using monopolistic practices to drive smaller airlines out of markets.

        Justice officials also are conducting a more general inquiry into “predatory or exclusionary pricing conduct by airlines at hub airports,” said department spokeswoman Gina Talamona.

        She declined to comment on whether Cincinnati or Delta could be involved.

        DOT also has been examining airline competition issues — including prices at hub airports — and is working on a set of new competition rules designed to prevent airlines from using predatory pricing to drive out other carriers from markets.

        “The high fares charged by network carriers in dominated hub markets prevent large numbers of passengers from flying each year,” a DOT study released earlier this year said.

        A DOT spokesman would not comment on when the new rules would be finalized but airline trade associations say they expect them to be released early in 2000 and finalized soon after.

        Competition advocates are hoping for a replication of the “Southwest Effect,” a reference to decreases in air fares frequently seen when Southwest Airlines — the nation's highest profile low-cost carrier — enters a market.

        “As the message gets out, the marketplace is going to begin to respond,” Mr. Faberman said.

        If they have less to fear from predatory pricing, smaller airlines will find it easier to raise capital and sustain operations in new markets, critics of the current aviation system said.

        Already, a new low-cost airline in the Northeast, JetBlue, said Cincinnati is one of the markets it is considering for expansion in the coming years.

        Vanguard, a low-cost carrier based in Kansas City, returned to to Cincinnati earlier this year, offering service to Chicago.

        “We were doing a lot better when we first started the route and I think somebody at Delta decided we were getting too much of the market,” said Russell Winter, spokesman for Vanguard.

        Vanguard officials, he said, now believe that Delta has made a decision to “come after us.” He noted that Delta matched its $29 fare to Chicago.

        But Mr. Anderson, the Delta spokesman, denied the company has any intent of driving Vanguard from the market.

        The major airlines in general oppose the DOT's proposal for new competition rules, saying they mark a retreat from deregulation of the industry that began in 1978.

        “We don't think the government should get back into the marketplace,” said David Fuscus of the Air Transport Association, which represents major carriers.

        Mr. Fuscus also disputes the notion that major airlines gouge customers flying out of hubs, pointing to a recent George Washington University price analysis that looked at more than just average fares.

        George Washington researchers focused on Minneapolis, considered by industry critics to be one of the nation's most notorious hubs. After analyzing detailed price and fare information made available by Northwest Airlines, the dominant carrier, they said, “the so- called hub premium is a myth.”

Landing rights
        While DOT continues its work on predatory pricing, Congress is looking at other issues that affect competition.

        One of the more arcane, but also one of the most important, involves takeoff and landing rights, referred to as “slots,” at four major airports — O'Hare in Chicago, Kennedy and LaGuardia in New York and Reagan National in Washington. They are controlled by the Federal Aviation Administration.

        Low-cost, start-up airlines have difficulty getting slots.

        And many will be less likely to come to a market like Cincinnati until they know they can fly from those markets to those major airports, industry officials say.

        Still another issue that many contend affects competition is the allocation of gates and other facilities at airports.

        DOT officials have started preaching to local airport authorities that they need to do a better job of making gates available to new airlines in order to encourage competition.

        “I just recently flew into Cincinnati and Delta owns it,” said Rep. Louise Slaughter, D-N.Y., one of the most outspoken critics of the airline industry in Congress.

        She said she was overwhelmed not only by Delta's market share in Cincinnati but also by its dominance of terminals and gates.

        “How much of a major airport in a major city can one airline control? That, I think, is a very legitimate question.”

        Ted Bushelman, communications director for the Cincinnati airport, said the airport continues to try to recruit new airlines.

        “We're talking to everybody we can talk to,” he said.

        Airport officials also say the facility continues to attract record numbers of passengers, despite the publicity about fares.

        “People on the one hand are complaining about fares but they are flocking to our airport in record numbers,” said Joe Feiertag, another airport spokesman.

       



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