ABA Hosts Competition Panel

<B> ABA Hosts Competition Panel</B>

By Barbara Cook

The U.S. Department of Justice is taking longer than expected to wrap up an ongoing investigation of airline competition at hub airports. But it recognizes the importance of the issue and will attempt to conclude the matter promptly, according to John Nannes, deputy assistant attorney general for the antitrust division.

Speaking at a recent American Bar Association forum on airline competition, Nannes said Justice carefully reviews proposed airline alliances. "There are alliances and there are alliances," he said, with some resembling "super interline agreements that don't present concerns," while others are more like a merger and pose more of a problem.

On a panel with Nannes, American Airlines general counsel Anne McNamara acknowledged the competitiveness of the U.S. airline industry, but noted that "it didn't work out the way some people thought it would. Some carriers are not as successful as others." While admitting that predation is possible, she said the government already has adequate remedies to deal with it. And concentration by one or two carriers at hub airports doesn't negate the benefits they offer. "No hub airport wants to go back to being a spoke," she said.

Another panelist, the Consumer Federation of America's director of research Mark Cooper, endorsed federal actions, including the U.S. Department of Transportation's proposed competition policy guidelines, that are designed to foster competition. "It is critically necessary for federal regulators to take action because specific actions threaten to worsen the competitive conditions in the airline market substantially," he said. "The trigger for public policy concern is, as it always should have been, whether anticompetitive practices are hurting consumers. By every measure, the airlines are failing that test."

Arguing against DOT's proposed guidelines, Mark Leddy of the law firm Cleary, Gottlieb, Steen & Hamilton said that while "pockets of anti-competitive behavior" in the industry may exist, they do not justify "government tinkering." History teaches that "once you tinker with the market, people rely on that regulation and you can't take it away." He said DOT's guidelines would have a negative effect on discount pricing and "be difficult to comply with."

Kevin Mitchell, chairman of the Business Travel Coalition, said his organization supports DOT's guidelines because they will deter "the most extreme responses to new entry, thereby renewing investor confidence in the low-fare segment of the industry." During the next two years, Mitchell said, BTC will lobby to ensure new entrant access to U.S. airports and will support legislative initiatives to eliminate foreign ownership and cabotage restrictions in this country as additional ways to enhance competition.

In a panel on airport practices that may affect competition, FAA associate administrator for airports Susan Kurland said that many airports state they "actively" seek competitive service at their facilities. While cautioning that it is premature to comment on DOT's ongoing review of airport practices, she said airports also are reporting greater reliance on shared gate use than was the norm several years ago.

DOT deputy assistant secretary for aviation and international affairs Patrick Murphy noted that while most complaints about anti-competitive aviation practices involve airlines, the department in the past year has heard "concerns" expressed by airlines saying they cannot get gates, or are required to sublease gates with expensive services they don't want.

Some communities that serve as spokes into hubs also have expressed concerns that they don't have access into the hubs they need, Murphy said. He added that the "most amazing" complaints are from hub cities themselves, voicing complaints about their own airports. These communities say the airport is indifferent to competition, or that it is difficult to recruit more competition because of a dominant carrier at the facility. DOT also has received what Murphy described as "Southwest effect" complaints from airports that are losing traffic to other airports offering service from Southwest.

Officials on the panel spoke of their willingness to add competitive service at their facilities. "We have never turned anyone away," said James Wilding, president and CEO of the Metropolitan Washington Airports Authority, which operates Reagan National and Dulles International. "Sometimes it's a weird deal to begin with, but we work it out."

Wilding also noted that airports have obligations to their incumbent carriers.

"This is a complicated business," he said. "It's not like a gas station where people just line up."

Newark International general manager Susan Baer agreed with Wilding, saying carriers have to be flexible in their schedule plans when attempting to institute service at a new airport.

Meanwhile, a panel of financial analysts said U.S. carriers are better prepared to weather a downturn in the economy than they were in the early years of the decade, partly due to cost control and yield management systems now in place. Ray Neidl, senior vice president of ING Barings Furman Selz, said the last economic downturn in the early '90s was "self inflicted" by big capacity increases by major carriers. Since then, airlines have cut capacity, adopted good cost controls and dropped unprofitable secondary markets--actions that will be "a powerful tool to help carriers in the next downturn," he said. He also noted that new carrier management teams tend to be more business-oriented than in the past.

For 1999, Neidl predicted "a strong year," though fuel prices probably won't decline further and the extra capacity being added may cause yields to soften during the first half.

James Higgins, of Donaldson, Lufkin & Jenrette, said he remains "generally optimistic" about the economic state of the airlines, as their cash flow is stronger than in the early '90s and they have more far-flung route networks to spread out any risk of traffic losses. He also said the substantial numbers of older aircraft in U.S. fleets contribute to their financial well-being, since they can be easily removed from service without the carrier having to continue to make lease or mortgage payments.

Reviewing U.S. aviation prospects on a global scale, Charles Hunnicutt, DOT assistant secretary for aviation and international affairs, said that although the United States has progressed in its quest for open skies, more steps need to be taken to move toward a single, open worldwide aviation market.

The nation now has 32 open- skies agreements, which effectively deregulate the markets covered by them, he said. Now we need to remove the remaining restrictions on airline operations from existing bilateral agreements and on international aviation. He added that the United States should expand opportunities for new entry and new business methods. "One of our goals is to provide the airline industry with the freedom to enhance service and competition in airline markets by establishing multiple, competitive systems or networks," he said.