Study: Foster Air Competition
<B> Study: Foster Air Competition</B>
By Barbara Cook
The federal government should take decisive steps to promote airline competition, according to a recently released report funded by the U.S. Department of Transportation, but it stops short of endorsing DOT's controversial competition policy guidelines.
The study was conducted by the prestigious Transportation Research Board of the National Research Council, which is the principal operating arm of the National Academy of Sciences and the National Academy of Engineering. The council provides advice under a charter from Congress. DOT said it will respond to the recommendations in the report, which was mandated by Congress, within 60 days.
Members of the TRB panel that wrote the report included Dr. Alfred Kahn, regarded as the father of airline deregulation, as well as former Civil Aeronautics Board member Elizabeth Bailey, former CAB staff member Darius Gaskins and transportation consultant Randall Malin.
While panel members differed on the extent to which DOT should formally police anti-competitive practices in the airline industry, suggesting this is an area for the U.S. Department of Justice, the members agreed that DOT should do what it can to increase competition. Among these pro-competitive actions are eliminating restrictions that limit new carrier entry at certain airports and permitting airport operators to have more flexibility to raise and spend money for airport gate construction. Further, the panel said Justice should closely review proposed airline alliances and partnerships among large airlines.
"Even with the many benefits brought about by deregulation, we noted some alarming trends against healthy rivalry," commented committee chair John Meyer, a professor emeritus of economics at Harvard. "Specific action needs to be taken to counter them."
DOT could attempt to direct air traffic away from the nation's busiest airports and toward secondary airports in major cities by permitting the use of "congestion pricing" that would charge airlines higher fees for using congested airports during peak periods, the panel said. Funds raised by this method would provide extra revenue for gate and terminal construction at key airports in cities such as Chicago, New York and Washington, D.C. This method also would decrease the number of flight delays that occur during peak periods.
The use of congestion pricing also would allow the elimination of airport slots and perimeter rules.
Other methods to increase airport entry for new carriers include linking federal aid for airport construction to airports' efforts to increase gate access. The panel also recommended ending federal restrictions against foreign investment in and ownership of domestic U.S. airlines could generate more seed money for startup carriers.
Committee members disagreed over how DOT should respond to allegations by smaller carriers that they are the subject of predatory practices by major airlines. But panel members said that DOT's proposed competition guidelines are "flawed" and could lead to regulations that would stifle competition more than encourage it.
The report also focused on other areas of concern, including override commissions to travel agents. To combat the ability of airlines to influence agent booking decisions through the payment of bonus commissions, the panel said DOT should more closely monitor the way airlines use agent incentive payments. DOT should also consider new CRS rules to ensure that airlines with codesharing agreements aren't able to shift consumer traffic away from carriers without these agreements through the display of their flights.
The panel noted that through codesharing agreements, one airline now may list another's flights as its own in CRSs to boost market share. "Consumers may benefit if codesharing partners better coordinate baggage handling, flight schedules and other services," the panel said. "But the practice also may dampen competition by shifting consumer traffic away from carriers that don't have such agreements."
DOT secretary Rodney Slater said the TRB report will be fully considered as the department continues to review its proposed competition policy guidelines. Further, he said, DOT will move forward with its reviews of airport practices and CRS systems.