FOR IMMEDIATE RELEASE
Tuesday, January 16, 2001
Contact: Bill Mosley
Tel.: (202) 366-5571
DOT 11-01

NEW YORK -- U.S. Transportation Secretary Rodney E. Slater, in an address to the Wings Club, today said that unfair competitive practices are a problem in the airline industry and that the U.S. Department of Transportation (DOT) should take continued action to prevent these practices in the future.

The Secretary also discussed the aviation accomplishments of the Clinton administration and looked ahead to future challenges.

Secretary Slater said that because a case-by-case approach is the most effective method to address potentially unfair methods of airline competition, he has decided that the department will not publish competition guidelines, but rather share reports that focus on anti-competitive behavior the department has seen.

"Promoting airline competition has been one of my major goals as U.S. Secretary of Transportation," Secretary Slater said. "Our efforts have made a difference to millions of passengers in many markets, both domestically and around the world. The effort that went into this review of possible guidelines by everyone who participated will help the department continue to promote competition in the years ahead. However, we have decided not to publish guidelines as originally proposed, in the belief that publishing our analyses and developing standards through a case-by-case approach will be a more effective way of proceeding. A ‘one size fits all’ approach won’t work."

DOT today published papers by noted economists Clinton Oster and John Strong which show that in some types of markets, dominant airlines have the ability and incentive to respond to new competition with practices that are intended to, and in fact will, eliminate that competition. These reports and DOT’s analysis are available via the Internet at http://ostpxweb.dot.gov/aviation/domestic-competition.

The department has legal authority to take action against unfair methods of competition, and should continue to work closely on this issue with the Justice Department which enforces the antitrust laws, the Secretary said.

The department began its examination of airline competition in response to the complaints of smaller airlines and communities that incumbent airlines were responding to new competition, especially from low-fare airlines, through unfair practices with the goal of eliminating competition. The department’s informal investigations showed that some of the complaints appeared to be valid.

To initiate a national dialogue on airline competition, in April 1998 Secretary Slater proposed a policy stating that the department would consider certain specified competitive methods to be unfair and would take action to address the situation. The department received more than 5,000 comments on the proposal, and the Transportation Research Board issued a report that discussed the proposal and other airline competition issues.

Promoting airline competition has been one of DOT’s major initiatives under Secretary Slater. The department issued an October 1999 report on airport practices and their impact on competition that recommended practices to promote entry and expanded service. In addition, the department has awarded numerous slot exemptions to new-entrant airlines at the airports with slot limitations -- New York’s LaGuardia and JFK, Chicago’s O’Hare and Washington’s Reagan National -- that have enabled them to enter new markets and expand service. Also, the department has negotiated Open Skies agreements with 52 other countries which allow airlines to decide what markets to enter and fares to charge without the need for regulatory approval. The department also has published information about the pricing behavior of airlines to help consumers in their search for low-fare services.

In addition to his remarks on airline competition, the Secretary addressed other Clinton-Gore administration accomplishments in transportation, and stressed the importance of government and industry working together to address the many challenges that remain. He noted that when the Clinton administration first took office, aviation was in the throes of the worst economic slump in its history. President Clinton and Vice President Gore’s focus on economic recovery has helped the U.S. airline industry return to financial health and enjoy record profits for the past six years.

The Secretary outlined three broad challenges that economic growth has created for U.S. aviation: globalization, enhancing access and competition, and improving system efficiency and capacity.

Globalization of the economy has created the need for a more liberal international aviation environment. The Clinton administration has made removing barriers to free trade in aviation a priority, and as a result the United States now has fully liberalized, Open Skies agreements with 52 aviation partners. During the past eight years, the United States also has reached liberalized agreements with 42 other nations. However, the time has come to look beyond bilateral Open Skies agreements and toward multilateral accords. The first multilateral Open Skies agreement was achieved last November when the United States, Brunei, Chile, New Zealand and Singapore reached agreement to eliminate restrictions on air services between their countries. These achievements stand in stark contrast to the lack of progress in liberalizing the aviation market with the United Kingdom, Secretary Slater said, which has been unwilling to remove barriers to competition.

Secretary Slater said that the economic successes of the past eight years have led to rapid growth in air traffic, making enhancement of the aviation system’s efficiency and capacity even more essential. Last year’s legislation reauthorizing DOT’s Federal Aviation Administration provided funding which will enhance the capacity of U.S. airports. In addition, last December President Clinton issued an executive order creating a Performance-Based Organization to manage the nation’s air traffic control system, which will improve system safety while allowing the Federal Aviation Administration (FAA) to act more like a business. The FAA also is setting benchmarks for the capacity of 31 major airports to determine the maximum number of landings and takeoffs that can be accommodated during peak demand periods. Also, a long-term effort by DOT, FAA and aviation stakeholders resulted in last November’s interim report calling for more complete disclosure to the public about the nature and cause of flight delays and cancellations.

Tom Miller, Iowa Attorney General and head of the Airline Competition Working Group of State Attorneys General: "Secretary Slater and the DOT have conducted a thoughtful process concerning airline competition for over two years. Their analysis of industry competition and their conclusion that a case-by-case enforcement approach to the problem is the proper approach will be very helpful to competition, American consumers, and American communities. The Department today has given us a road map to ensure airline competition in our country."

Kevin P. Mitchell, Chairman, Business Travel Coalition: "These DOT studies expose that airline business practices harmful to competition go well beyond the dumping of extreme amounts of capacity at cheap prices in response to new entry that proposed DOT guidelines were intended to protect against. Given the threat posed by pending airline mega-mergers, the timing and implications of these studies are propitious."

Ed Faberman, Executive Director, Air Carrier Association of America: "We welcome the Department’s conclusion that new entrant low-fare carriers provide the primary fare discipline in the marketplace."

Ivan Michael Schaeffer, President and Chief Executive Officer, RADIUS: "On behalf of the travelers and businesses we assist in finding affordable airfares on a daily basis, we welcome the studies issued today by DOT. The DOT studies explain why many are unable to travel to enhance business opportunities or to visit families and friends to share important moments."

Bill La Macchia, Jr., President and CEO, Sun Country Airlines: "These studies are a good first step to raise consciousness and concern about airline competition, but more needs to be done to protect consumers from the anti-competitive onslaught of major carriers against low-fare airlines."

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Briefing Room