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Competitiveness and Viability Subcommittee

Members

  • Glenn Tilton (Subcommittee Chair)
  • Susan Baer
  • Bryan Bedford
  • Severin Borenstein
  • Patricia Friend
  • Ana McAhron-Schulz
  • William McGee
  • Daniel McKenzie
  • Christopher Williams
  • Jack Pelton

Background: Domestic and International

Changes in the global airline industry, particularly since 2000, have redefined competition issues for domestic and international services.  Airline travelers have become more price sensitive due to low cost carriers and Internet-driven changes in airline distribution, which have increased price transparency. Legacy carriers are finding cost-based competition with low cost carriers to be extremely difficult, particularly for domestic service, resulting in bankruptcies and consolidation.  Since 9/11, the domestic airline industry has faced a number of challenges – SARS and H1N1, increasing security threats, volatility in jet fuel prices, economic crises, and changes in demand and capacity.

The future growth opportunities for legacy carriers are largely in international service, where networks provide a competitive advantage. Between 2000 and 2007, international increased to 33 percent of the total legacy sector network. Alliances have become increasing important and, in some cases, members have sought antitrust immunity.  In this environment, doing-business issues become more pressing and challenging for U.S. carriers.

Initial Questions

As airlines change their status in the industry, their operational choices affect multiple stakeholders.

  • What are the prospects of code-sharing and other collaborative ventures between legacy and low-cost carriers?
  • How has intermodal transportation (such as airline/rail code-sharing) evolved over time?  What is its future role?
  • Generally speaking, where do you see the domestic airline industry in the next five / ten / twenty years?
  • What are the primary structural changes taking place in the airline industry?  How should government policies be changed to adapt to these transformations?
  • What is the foreseeable impact of these changes on consumers?

Only a small portion of international city-pairs can be served non-stop, and no airline can efficiently provide service with its own aircraft and crew to most international destinations. Connecting service becomes more valuable to passengers when the service is provided by a networked system, and open skies agreements have supported alliances which enable network growth. To date, DOT has negotiated nearly 100 open skies agreements.

  • What should be the government’s role in a “beyond open skies” environment?
  • What are the effects of global alliances and network expansion on airline business models?  What are the effects on new long-range aircraft development and production?
  • How do you see international airline service evolving over the next 10 years?

Between 2003 and 2008, domestic capacity was reduced by about 28 percent while international ASMs grew by 41 percent.

  • How are U.S. carriers hampered by regulatory requirements across countries, particularly as they seek to develop and integrate their alliances?
  • How are airlines and their employees affected by doing-business challenges in foreign markets?

DOT has engaged in cooperative ventures with foreign competition authorities, particularly in the EU and China.

  • In addition to the existing cooperative ventures, what should DOT emphasize as it continues its work with foreign competition authorities to ensure fair and equal treatment and access to markets?

Background: Improving Efficiency of Essential Air Services

The Essential Air Service (EAS) program was enacted as part of the Airline Deregulation Act in 1978.  EAS was designed to ensure that communities receiving scheduled air service would continue to have at least a basic level of such service.  The basic structure of EAS has remained largely unchanged since its inception, but the aviation landscape has changed dramatically with expansion of the hub-and-spoke system, use of regional jets, greater volatility in fuel prices and growth of low-fare carriers.

Many of these changes have had impacts on EAS.  As low-fare carriers have expanded, many consumers are driving longer distances to the airports these carriers serve—making it more difficult for some individual airports to sustain their own traffic levels.

In addition, EAS program costs have risen over the years as communities require subsidy, and the amount of subsidies to air carriers have increased.  At the same time, the number of carriers providing EAS service has declined.

Funding for the EAS program has often been an issue.  Concerns have also been raised that changes in transportation since 1978 need to be recognized and that, at a time of increasing Federal deficits, no spending program should be immune from examination and necessary adjustments.

Initial Questions

The domestic airline industry is likely to continue to evolve, with new business models and improvements in aircraft.

  • What changes do you expect there to be in carrier service to smaller and rural communities over the next ten to twenty years?
  • Do you think that, without any additional government intervention or external factors coming into play, scheduled service to these areas will expand or contract over that time?

Eligibility for inclusion in the EAS program is based, not on any contemporary assessment of need, but on whether the community received scheduled service in 1978.

  • Is there a better determinant than status in 1978 for having reasonable access to the national air transportation system? What factors should be part of that calculus?

Smaller airports sometimes face issues with declining ridership, leading in some cases to a dependence on EAS as a last resort.

  • What do you see as the major factors causing this?
  • What can smaller airports and communities, especially in rural areas, do on their own to successfully retain scheduled service?

While we have faced a decline in the number of EAS carriers, we have attracted some new ones that have brought ideas and innovations to the program. We want to ensure that this program attracts and retains new carriers, and stimulates ridership and competition.

  • What makes a program like this attractive for carriers?
  • Can it be made more attractive for participation?

Record of Meeting

Updated: Monday, May 20, 2013