The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“AIR SERVICE RESTORATION ACT” mentioning the U.S. Dept. of Transportation was published in the Senate section on pages S3555-S3556 on April 23, 1998.
The publication is reproduced in full below:
AIR SERVICE RESTORATION ACT
Mr. DORGAN. Mr. President, yesterday I and some of my colleagues on the Senate Committee on Commerce, Science, and Transportation introduced the Air Service Restoration Act designed to help revive air service to those parts of the country that have suffered under deregulation. The revitalization of air service for small communities is of absolute importance to the economic and social well-being for these communities. While this legislation is no panacea, it will hopefully provide some tools to help small communities address the air service deficit that has hit them since deregulation.
Some rural states, such as North Dakota, have not enjoyed the benefits of competition and deregulation that other regions of the country have experienced. In fact, the federal policy of deregulation has led to less service, higher fares, and less competition for my state and other rural areas. Unfortunately, the air service problems facing rural America has gone ignored for too long and we now have an air service crisis, in my judgment. This crisis needs immediate attention and the Air Service Restoration Act is a modest attempt to address this, the chronic air service deficit facing many small communities.
This legislation is based on three principles.
First, it acknowledges that since deregulation some communities have indeed suffered and there is a need for a federal role to address this small community air service deficit. It seems to me that we need to move beyond the broader debate over whether or not deregulation has been a good or a bad thing. It has been good for some and bad for others--creating an unacceptable circumstance of air service ``have'' and ``have nots.'' This legislation does not seek broad-sweeping policy changes that will dramatically alter federal aviation policy. Rather, the Air Service Restoration Act attempts to target some modest resources and policy objectives to address the problem areas, i.e., the
``have nots.'' This legislation will not threaten deregulation. Rather, it is an attempt to save it by addressing the casualties of a policy that has left some parts of the country behind. It is time that we develop ``air service development zones'' and allow all regions of the nation to participate in a national air transportation system. This legislation does that by identifying the problem areas and creating opportunities to attract new air service.
The second principle of this legislation is based on the notion that the initiative and locus of solving air service problems for small communities must begin at the local level. There is no federal ``silver bullet'' and those communities that seek to improve or restore air service must roll up their sleeves and develop sustainable public-
private partnerships that will make air service economically sustainable. This legislation is a market-based solution to improving air service for small communities. The only way small communities are going to succeed in attracting new air service is that local officials and business leaders will have to get together and identify ways to make it economically viable for carriers to add service.
Finally, this legislation is based on the notion that there is clearly a need for a federal role. The U.S. Department of Transportation needs to play an active role by providing a means for small communities to access the resources and in making the regulatory changes necessary to allow new service to flourish. Under this legislation, a new office would be created within the U.S. Department of Transportation whose sole function would be to work with local communities and provide assistance to help them achieve their goals of improving air service by providing financial assistance to local communities and addressing regulatory hurdles that inhibit air service to small communities.
Hopefully, this legislation will help reverse the air service deficit in this country. Since 1978, more communities have lost service than the number of communities that have been added to the air service map of the United States. Over 30 small communities have lost all air service since 1978 and many more have had jet service replaced with turboprop commuter service.
Service decline is not the only disturbing trend plaguing small community air service. Consolidation is having its toll as well. As the airline industry continues its steady trend of consolidation, the major network carriers are pulling out of rural areas. Out of a total of 320 small communities that had scheduled air service in 1978, 213 of those were served by a major carrier. In 1994, only 33 of those small communities had service from major carriers. Prior to deregulation, North Dakota was served by 6 major carriers and every major market in North Dakota had 3 or 4 major carriers in each market, each providing jet service. Today, North Dakota has only 1 major carrier that provides jet service.
The number of small communities receiving multiple-carrier service decreased from 136 in 1978 to 122 in 1995. Also, the number of small communities receiving service to only one major hub increased from 79 in 1978 to 134 in 1994.
In 1938, when the Federal Government began to regulate air transportation services, there were 16 carriers who accounted for all the total traffic in the U.S. domestic market. By 1978 (the year Congress passed deregulation legislation) the same 16 carriers (reduced to 11 through mergers) still accounted for 94% of the total traffic.
Today, those same 11 carriers (now reduced to 6 through mergers and bankruptcies) account for 80% of the total traffic.
One export estimated in 1992 that since deregulation, over 120 new airlines appeared. However, more than 200 have gone bankrupt or been acquired in mergers and today, only 74 remain--most small and struggling.
Between 1979 and 1988, there were 51 airline mergers and acquisitions--20 of those were approved by the Department of Transportation after 1985, when it assumed all jurisdiction over merger and acquisition requests. In fact, DOT approved every airline merger submitted to it after it assumed jurisdiction over mergers from the Civil Aeronautics Board in 1984. Fifteen independent airlines operating at the beginning of 1986 had been merged into six mega carriers by the end of 1987. And, these six carriers increased their market share from 71.3% in 1978 to 80.5% in 1990.
These mega carriers have created competition free zones, securing dominate market shares at regional hubs. Since deregulation, all major airlines have created hub-and-spoke systems where they funnel arrivals and departures though hub airports where they dominate traffic. Today, all but 3 hubs are dominated by a single airline where the carrier has between 60 and 90 percent of all the arrivals, departures, and passengers at the hub.
In a report by the General Accounting Office entitled ``Airline Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Domestic Markets,'' [GAO/RCED-97-4], operating limitations and marketing practices of large, dominate carriers restrict entry and competition to an extent not anticipated by Congress when it deregulated the airline industry. The GAO identified a number of entry barriers and anti-
competitive practices which are stifling competition and contributing to higher fares. The GAO issued a similar report in 1990 and the 1996 report said that not only has the situation not improved for new entrants, but things have gotten worse.
The fact is that deregulation has lead to greater concentration and stifling competition. The legislative history of the Civil Aeronautics Act of 1938 shows that Congress was as deeply concerned about destructive competition as it was with the monopolization of air transportation services. Thus, the CAA sought to ensure that a competitive economic environment existed. As we can see, deregulation is realizing the fears anticipated by the Congress in 1938. Competition has not become the general rule. Rather, competition is the exception in an unregulated market controlled largely by regional monopolies.
It has been demonstrated that hub concentration has translated into higher fares and rural communities that are dependent upon concentrated hubs have seen higher fares. Studies from DOT and the GAO have demonstrated that in the 15 out of 18 hubs in which a single carrier controls more than 50% of the traffic, passengers are paying more than the industry norm. The GAO studied 1988 fares at 15 concentrated airports and compared those with fares at 38 competitive hub airports. The GAO found that fares at the concentrated hubs were 27% higher.
The difference between regulation and deregulation is not a change from monopoly control to free market competition. Today, nearly two-
thirds of our nation's city-pairs are unregulated monopolies where a monopoly carrier can charge whatever they wish in 2 out of 3 city-pairs in the domestic market.
A January 1991 GAO Report on Fares and Concentration at Small-City Airports found that passengers flying from small-city airports on average paid 34 percent more when they flew to a major airport dominated by one or two airlines than when they flew to a major airport that was not concentrated. The report also found that when both the small airport and the major hub were concentrated, fares were 42 percent higher than if there was competition at both ends.
A July 1993 GAO Report on Airline Competition concluded that airline passengers generally pay higher fares at 14 concentrated airports than at airports with more competition. The report found that fares at concentrated airports were about 22 percent higher than fares at 35 less concentrated airports. The same report found that the number of destinations served directly by only one airline rose 56 percent to 64 percent from 1985 to 1992, while the number of destinations served by 3 or more airlines fell from 19% to 11% during that same period. This report confirmed similar conclusion reached in previous GAO studies conducted in 1989 and 1990.
The fact is that deregulation, while paving the road to concentration and consolidation, has allowed regional monopolies to control prices in noncompetitive markets. While the entrance of low cost carriers has introduced competition in dense markets, the main difference between today and pre-deregulation is that the monopolies are unregulated.
Deregulation has been both a tremendous success in some aspects and a colossal failure in some circumstances. It's time we started addressing the problems rather than just praising the successes. For hundreds of small communities, it has meant less service, higher fares, and fewer options.
Air transportation in North Dakota is just as important as air service in New York and Denver. It is not in our national interest to allow vast regions of our country to become geographically isolated. That would be not only tragic for our rural communities, but bad for the Nation.
I hope my colleagues will support this legislation and that the Senate Commerce Committee expeditiously act on it this year.
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