As we approach the 20th anniversary of airline deregulation, we are
witnessing proposals that would result in significant consolidation
of an industry that already is highly concentrated. As these
alliances multiply and as actions by large carriers to drive small
airlines out of markets intensify, the dream of true airline
competition under a deregulated environment may be but a memory.
A recent report prepared by Salomon Smith Barney, "Airline
Competition at the Largest U.S. Airports," March 1998, stated that
measures of concentration at the 50 largest airports show an
unprecedented degree of concentration in the airline industry. The
report added that, based on a weighted average of airline market
shares at each of those 50 airports, the concentration for the
industry is at an excessive level -- more than double the level
used by the Department of Justice to classify an industry as being
highly concentrated.
Concentration levels are likely to increase. The U.S. government
is reviewing alliance proposals that would create three alliances
involving the largest six carriers in the U.S.: Delta-United,
American-US Airways and Northwest-Continental. If these alliances
are approved, these three carrier groups will control approximately
82% of the domestic passenger market share. While these carriers
continue to expand, new entrants control a little more than 2% of
the domestic market share.
While these proposed domestic alliances are being reviewed,
additional international and domestic alliances are being proposed
involving the world's largest airlines. A proposed alliance between
American and British Airways brings together the world's No. 1 and
3 airlines, ranked in terms of revenue. Combined with the other
major American Airlines alliance partners -- British Airways, JAL
and US Airways -- this alliance would represent four of the world's
top 10 airlines. The Delta-United alliance would bring together the
world's No. 1 and 2 carriers in terms of passenger boardings.
This new level of consolidation of an already highly
concentrated industry controlling both domestic and international
service causes significant challenges to business growth and the
entirety of the economy of the U.S. This oligopoly -- and in some
cases monopoly -- if left unchecked, guarantees no low-cost
carriers will remain. Further, the cost to all travelers will
increase, fewer people will fly and many more communities will
become underserved, seriously impacting the economic well-being of
those communities and of our economy as a whole.
As consolidation increases, fares continue to escalate.
According to the May 4 edition of Business Week, in the 1980s, the
price of flying rose only a bit faster than the cost of a new
passenger vehicle.
Now, the airlines are showing major pricing clout: Typical
domestic business fares rose 9% in February from the previous year,
reported American Express Travel Related Services, as carriers
benefited from strong demand, little capacity growth and a lack of
low-fare competition. According to the Bureau of Labor Statistics,
ticket prices soared at a 37% annual rate in the first quarter.
If we are going to see a truly deregulated airline system, steps
must be taken to ensure that all markets are open and carriers --
new and old, small and large -- are able to play on a level playing
field. Unfortunately, independent statistics by the General
Accounting Office and others show that barriers to market entry are
higher than ever and that large carriers have utilized
anticompetitive actions to eliminate competitors.
Alfred Kahn, the father of domestic airline deregulation,
speaking before the transportation subcommittee of the Senate
Appropriations Committee on May 5, bemoaned the government's
failure to prosecute a single case challenging what appear to have
been flagrantly predatory practices by major airlines against new
competitors. The history of the airline industry during the last 20
years clearly demonstrates the great importance of new entry by
low-cost, uniformly low-fare carriers in keeping the industry
competitive. Competition and freedom of entry were to be the future
of the deregulated era. That vision has failed. The benefits of
deregulation are yet to be realized, and unless steps are
immediately taken to allow new entry, those opportunities will
disappear forever. The goal must be to expand deregulation to allow
for competition, or for the government to reregulate the industry
to ensure competition.
These issues are so significant that the U.S. government should
suspend consideration of all pending airline alliances -- domestic
and international -- until the impact of these alliances can be
fully evaluated and measures can be put in place to ensure
competition and choice. It is high time for debate and reflection
to end and for the government to undertake its duty to protect the
travelers of this country. That much is at stake.
Ivan Michael Schaeffer is president and chief executive
officer of Woodside Travel Trust, a Bethesda, Md.-based agency
consortium.