DOT Sets Airport Guidelines

<B> DOT Sets Airport Guidelines</B>

By Barbara Cook

The U.S. Department of Transportation on Oct. 21 issued its final report on airport practices that may affect airline competition, largely echoing the findings it has voiced piecemeal during the 18-month-long study. The report also raised a number of issues for additional study, such as whether DOT should permit passenger facility charges to be spent only on projects that are "common use" for all carriers at an airport.

As promised, the report outlined a list of best practices for airports to follow to enhance competition, including: promoting new entry by becoming advocates for competition; continually monitoring gate utilization practices; invoking use-it-or-lose-it authority for gates if necessary; providing clear guidelines and a timetable to prospective entrants on what they must do to gain entry; monitoring all sub-leases to ensure fees are reasonable; creating an environment in which third-party contractors provide competitive ground-handling and support services; taking actions to recover gates when they become available to convert them to common-use status; ensuring that any new agreements with incumbent carriers do not prevent or delay projects beneficial to new entrants; and using the tools provided by the passenger facility program to finance terminal expansion projects that provide new entrant opportunities.

The report also outlined possible legislative fixes for competition issues and examined whether the "reasonableness" of airport fees should be defined in order to limit the number of gates and related facilities that are built by incumbent carriers in anticipation of demand.

"The task force believes that implementation of its recommendations, coupled with a pro-competitive airport management philosophy, will provide the tools needed to ensure that airport business practices enhance airline competition," the report said.

The department also examined whether PFCs are being used effectively to build facilities that will enhance competition and whether DOT should only allow PFCs to be collected for common-use facilities. "PFCs have played an important role in financing airport capital development projects, but the extent to which PFCs have had an effect on airline competition is not yet clear," DOT said.

DOT also responded to a study of airline competition issued July 30 by the Transportation Research Board of the National Research Council. "The TRB study confirms that the U.S. Department of Transportation has an important role to play in promoting competition in the airline industry," said DOT general counsel Nancy McFadden.

Meanwhile, top officials of four new entrant carriers, testifying on Oct. 20 before the House aviation subcommittee, described alleged anticompetitive tactics used by major carriers to drive them out of certain markets, including flooding the market with added capacity and advertising deeply discounted fares. The committee held two days of hearings to review the state of airline competition, including the status of low-cost carriers.

The subcommittee pointed to a study by the General Accounting Office earlier this year that many small- and medium-size cities in the Northeast and Midwest have experienced dramatic increases in air fares and steady declines in service. Further, new entrant carriers have been slow to enter northeastern and midwestern markets for a number of reasons, GAO said, including barriers such as restrictive airport practices, slot controls at major airports, the dominance of incumbent carriers and slower economic growth in these regions. Restrictive gate leases at Charlotte, Cincinnati, Detroit, Minneapolis, Newark and Pittsburgh have helped single carriers dominate local markets, the subcommittee stated.

AirTran Airways chairman and CEO Joseph Leonard told the panel that one of the key factors restricting the spread of low-fare airline competition is the lack of access to the four slot-controlled airports (Chicago O'Hare, Washington Reagan National and New York LaGuardia and JFK). He said that despite DOT's efforts to distribute slots to enhance competition, at LaGuardia only 4 percent of slots are held by new entrant carriers while no low-cost airlines have slots at National.

Marketing alliances among the majors further compound the slot consolidation problem, said Leonard, pointing to the recent agreement between American and US Airways to combine frequent traveler awards program. While Congress has attempted to promote airline competition through loosening slot restrictions, two recently passed bills "unintentionally" penalize AirTran, Leonard continued, "because we chose to compete in a large hub market and, therefore, are precluded from gaining exemptions to add service between our principal hub in Atlanta and Reagan National."

The pending legislation, while giving special consideration to the popularity of regional jets, overlooks key considerations, Leonard testified. Adding slot exemptions for RJs actually will result in further consolidation of slots among majors and is not likely to mean lower fares, he said. "Regional jets are ideal for short-haul business markets, but are not conducive to low-fare operations. It is not surprising then that the only carriers that have ordered these aircraft are the traditional high-fare carriers. No low-fare, new entrant has placed an order for regional jets."

Conversely, Leonard said, AirTran took delivery of four of its 50 new Boeing 717s, which he said are ideal for markets such as Reagan National. However, based on the legislation's restrictions, AirTran cannot apply for an exemption to serve Atlanta-Reagan National.

Legend Airlines chairman and CEO Allan McArtor called for Congress "to ensure that the clear intention of deregulation will continue into the next century." Unless the federal government eliminates all barriers to entry and all forms of anticompetitive behavior, the steps it has taken so far "will have been for naught."

He explained the dispute his company has had with American Airlines over Legend's efforts to fly out of Dallas Love Field. "Three years and millions of dollars later we are preparing to fly but still face American-sponsored lawsuits, although Congress and the Department of Transportation have unequivocally stated that we had the authority to operate out of Love Field," he said. Given American's conflicting claims about the strength of Dallas Fort/Worth as a viable hub, "It would be appropriate for DOT to put a freeze on new international routes at DFW until American admits that neither it nor DFW is about to go out of business," McArtor suggested.

The tactics of "delay, challenge and slow down" are being utilized by several large carriers to add to new entrants' cost of operating, McArtor stated. "Those dominating the marketplace understand that if you can delay entry into an airport or market for a few months or an entire season, it allows the incumbent to charge monopoly fares for that period of time and will make it even harder for the new entrant to gain any market share." McArtor also said that, if Congress is unable to create a reasonable number of new slots or the slot rule is not eliminated entirely, Congress should withdraw slots from the incumbent carriers to redistribute to new entrants at all four high-density airports.

McArtor also pointed to FAA's recent decision to convert international slots at O'Hare and LaGuardia airports held by U.S. and Canadian carriers to permanent domestic slots. "The end result is that two Canadian carriers, one owned in part by American (the carrier controlling more high-density slots than any other carrier) and the other in an alliance with United, have significantly more slots than all new entrants combined," he said. "We urge this committee to insist that all airports--high-density and major hubs--be immediately available to all new entry."

Spirit Airlines vice chairman and COO Mark Kahan noted that the TRB report did not reach a consensus on the administrative workability of DOT's proposed competition guidelines, which remain under review at the department following the filing of hundreds of comments. This lack of consensus should not obscure "the many examples of predatory behavior" that TRB found, Kahan said.

He reminded the panel that four of the 13 start-up carriers since 1989 have failed entirely and one, Reno Air, has been acquired by American. The most recent data for the 12 months ended June 1999 shows that the carriers together comprise only 2.45 percent of domestic revenue passenger miles, he said. Kahan told lawmakers that his company has had "excellent success" with the slot exempts it received from DOT in 1998.

Spirit's new services from LaGuardia to Melbourne, Fla., and Myrtle Beach, S.C., "were highly popular almost from their inception," he said. Spirit should carry more than 200,000 passengers on these two routes this year, he added.

Sun Country Airlines chairman William LaMacchia also provided information for the subcommittee on his carrier's efforts to obtain gates at the new terminal at Minneapolis/St. Paul International. "The new terminal will be great," he said, "but it has been an exhaustive effort to get there."

He said that while his company's past encounters with the Metropolitan Airport Commission in Minneapolis have been contentious. "We have agreed to put the past behind us and move forward in a new partnership." However, LaMacchia said it has been difficult to break into a market dominated by Northwest Airlines, and noted that the Minnesota Attorney General has asked DOT to investigate possible unfair competitive practices by Northwest against Sun Country.

Most recently, LaMacchia said, Northwest has been using its subsidiary and affiliate companies to compete with Sun Country, including MLT, a charter vacation tour operator, and Champion Airlines, a charter airline used by MLT. Together, MLT and Champion are able to undercut several Sun Country fares, LaMacchia said. He added that Northwest in August terminated its agreement to provide flight attendant training for Sun Country attendants and on Oct. 4 gave notice that it would discontinue the smaller carrier's pilot training. "Not only does this inconvenience us, it also makes it more difficult to meet the FAA training requirements," LaMacchia said.

Northwest's spokesperson told the Minneapolis Star Tribune that the carrier canceled the training because Sun Country is "trying to steal our customers." LaMacchia stressed that his company does not favor reregulation, but he said that to ensure that competition will thrive, DOT must adopt its proposed guidelines.