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“REGARDING THE RE-REGULATION OF THE AIRLINE INDUSTRY” mentioning the U.S. Dept. of Justice was published in the House of Representatives section on pages H1387-H1388 on April 3, 2001.
The publication is reproduced in full below:
REGARDING THE RE-REGULATION OF THE AIRLINE INDUSTRY
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Illinois (Mr. Lipinski) is recognized for 5 minutes.
Mr. LIPINSKI. Mr. Speaker, before I get into my Special Order, since the gentleman from Maryland (Mr. Hoyer) is still here, I simply want to say that the reason the Duke Blue Devils won the NCAA championship is because the referees managed to foul out almost every Big 10 player that was in the tournament, and the second reason is the fact that the coach of the Blue Devils happens to be of Polish-American heritage from the city of Chicago.
American Airlines' acquisition of TWA, which declared bankruptcy in January, is nearly complete. The American-TWA transaction was approved in March by a U.S. bankruptcy court judge. The Department of Justice issued a statement declaring that the agency would not challenge the merger, in essence, approving it.
The Department of Transportation is currently working on the transfer of TWA's certificates and international routes to American Airlines. Although American Airlines must still survive some legal challenges during the bankruptcy appeals process, and, more importantly, gain approval from its unions, it will, by the end of this month, acquire 190 TWA planes, 175 TWA gates at airports throughout the Nation, 173 TWA slots at the four slot-controlled airports, TWA's hub in St. Louis, and 20,000 TWA employees.
As a result, American Airlines will now enjoy the title of the world's largest airline with a 20 percent share of the U.S. domestic market.
Unfortunately, American Airlines' quest to become bigger does not end there. American Airlines has also joined in the fray of the proposed United-USAirways merger.
Last summer, United Airlines announced plans to purchase USAirways for a total of $11.6 billion. Now American Airlines plans to pay United Airlines $1.2 billion for 20 percent of the USAirways' assets, which includes 86 jets and 14 gates at six East Coast airports.
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As part of the deal, American and United would join together to operate the highly lucrative shuttle routes between Washington, D.C., New York, and Boston, which are now operated by US Airways. In addition, American Airlines is willing to pay $82 million for a 49 percent stake in DCAir, the airline created to allay antitrust concerns about the proposed United-US Airways merger. DCAir plans to take over most of US Airways' operation at Reagan Washington National Airport.
If approved, United Airlines and its arch rival, American Airlines, will control half of the U.S. air travel market. Delta Airlines, United and America's next biggest competitor, will be left behind with only 18 percent of the domestic U.S. market.
In response to this unprecedented consolidation of the airline industry, the CEO of the low-fare airline AirTran called the proposed merger one of the most brazen attempts by any two dominant businesses in any industry to simply accomplish together what they so vigorously resisted in recent years, the reregulation of the airline industry. However, instead of the Federal Government doling out routes and dividing up airport assets, it is the airlines themselves that are gobbling up their weaker rivals and carving up the Nation.
With new hubs in Charlotte, Pittsburgh and Philadelphia to complement the existing operation at Washington-Dulles, United will rule the eastern seaboard in a proposed merger era. American will dominate the Midwest with the addition of St. Louis to its hubs at Dallas-Fort Worth and Chicago O'Hare. American will also have a significant presence at Reagan Washington National and New York's Kennedy airports.
Faced with this tremendous market power possessed by a combined United-US Airways and a combined American-TWA-US Airways, the remaining network carriers, namely Delta Airlines, Northwest Airlines and Continental, will have to merge in some fashion to survive. This is the only way that they can acquire the size and scale necessary to compete in a rapidly consolidating industry. Therefore, in a postmerger era, it will not be two megacarriers dividing up half of the U.S. market, but, rather, three or four megacarriers controlling 80 percent of the U.S. market.
Low-fare carriers will have to compete vigorously for the remaining 20 percent. This is, of course, if the megacarriers allow them to survive. Even today, when competition supposedly is alive and well, major carriers use their power to frustrate new entrant carriers and drive smaller competitors out of their established hubs.
The major carriers use everything in their power, including airplane capacity, airport assets, and frequent flier programs, to squash competition from low-fare, new entrant airlines. Yet, the major carriers do not vigorously compete with one another. The U.S. Department of Transportation (DOT) found that major network airlines have raised fares the most in markets where they compete only with one another. When they are forced to compete against a low-fare carrier, prices have not risen nearly as much. In fact, according to the DOT, in a market lacking a discount competitor, 24.7 million passengers per day pay on average 41 percent more than their counterparts in a hub market with a low-fare competitor.
Three mega-carriers will have mega-market power and even more tools to drive out and keep out new competition. And, if six major carriers do not compete against each other today, why would three mega-carriers compete against each other in a post-merger tomorrow? Therefore, if the U.S. airline industry is allowed to consolidate, we will be left with essentially a re-regulated airline industry where the airlines call the shots and set the fares. With so few choices, airlines would have a captive consumer. Customer service would decline--if that is even possible given the level it is at today--and fares would increase. It's a lose-lose situation for customers. In that case, the federal government will have no choice but to step in and, in the public interest, assume its role as regulator. That's right. I firmly believe that if there are only three or four mega-carriers serving the U.S. market, the federal government will once again have to regulate the airline industry--overseeing fares, routes, and access to airports--in order to ensure a healthy state of competition.
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