Faberman: Deregulation Benefits Are Being Threatened

Posted July 9, 2009 at 1:26pm

Approximately 30 years ago, the American public was given the enormous benefits of airline deregulation, which provided reasonably priced flight options that allowed everyone to visit family and friends, take vacations and meet with business acquaintances. It opened doors that few people thought would ever be opened.

[IMGCAP(1)]Few countries around the world have the travel options available to those of us who live in the United States. Unfortunately, we have begun to see the closing of markets and the disappearance of airlines as a result of economic difficulties and airline consolidation. We have fewer carriers than in the past and the number of carriers could continue to shrink.

While we attempt to maximize international flight options, we continue to see major markets closed in the United States by federal regulation. As a result, those rules have blocked competition from expanding at LaGuardia Airport and other high-density airports.

This is a critical point for the future of airline competition at LaGuardia and throughout the system. As early as 1997, the nation’s low-fare carriers asked the Federal Aviation Administration to take steps to increase options for small carriers attempting to enter LaGuardia, warning that without access, competition will not exist. Since 1977, the Department of Transportation and the FAA have been asked to take steps to modify regulations that block access by smaller carriers. While a few minor steps have been taken, large carriers continue to dominate LaGuardia (the same situation exists at all slot-controlled airports, although the DOT took a very specific action to allow JetBlue to operate and compete at JFK).

As a result of consolidation, a few carriers have increased their control of LaGuardia. Last year, Delta took over Northwest. Therefore, Delta was able to expand its large presence at LaGuardia and the other slot-controlled airports. US Airways (which merged with America West) is the largest slot holder at LaGuardia, and Delta is No. 2. At the same time, the nation’s largest carriers are entering into more alliances.

The department and FAA have on multiple occasions emphasized the importance of preserving competition. In a Notice of Proposed Rulemaking addressing LaGuardia, the FAA noted that it has clear statutory authority to promote competition when it allocates slots:

“Keeping available a variety of adequate, economic, efficient, and low-priced air services; placing maximum reliance on competitive market forces and on actual and potential competition; … maintaining an air transportation system relying on actual and potential competition; encouraging entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive airline industry.— Congestion Management Rule for LaGuardia Airport; Proposed Rule, 71 Fed. Reg. 51360 (proposed Aug. 29, 2006) (to be codified at 14 C.F.R. pt. 93); see also 49 U.S.C. §§ 40101(a)(4), (6), (10)-(13) and (16), and 40105(b) (2005).

The largest carriers have more slots in single markets than limited incumbents have in total! It is essential that the department moves quickly to open closed markets and meet Congressional mandates including:

• The availability of a variety of adequate, economic, efficient and low-priced services without unreasonable discrimination or unfair or deceptive practices.

• Avoiding unreasonable industry concentration, excessive market domination, monopoly powers and other conditions that would tend to allow at least one air carrier or foreign air carrier unreasonably to increase prices, reduce services or exclude competition in air transportation.

As the department has noted on multiple occasions, slot restrictions are a serious barrier to entry and have had a dampening effect on airline competition. Competition cannot expand or exist when a few carriers dominate the most important markets in the country and small carriers cannot expand. Consistent with previous government statements, now is the time to take steps to promote competition and to ensure the future of deregulation. Therefore, the department needs to withdraw some slots at LaGuardia from the largest slot holders and provide those slots to smaller carriers to promote competition and low fares.

In addition to promoting long-term competition, such actions will dramatically increase revenues since approximately 50 percent of all operations at LaGuardia operated by the dominant carriers are with regional jets. As a result, the federal government and the operator of the airport, the Port Authority of New York and New Jersey, lose tens of millions of dollars in fees and taxes each year because there are fewer passengers paying fees and taxes on regional jets. This is another reason why some slots should be moved to low-fare carriers operating large (and quiet) jets.

By allowing low-fare service to expand at LaGuardia by carriers not owned or in alliances with dominant carriers, increased flight options will promote travel and tourism. If actions are not taken now, the dream of deregulation may become just a memory.

Edward P. Faberman is an aviation lobbyist at Wiley Rein.