Copyright 2000 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
June 13, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4547 words
HEADLINE:
TESTIMONY June 13, 2000 JAMES E. GOODWIN CHAIRMAN AND CEO UNITED
AIRLINES HOUSE TRANSPORTATION AND INFRASTRUCTURE UNITED-US
AIRWAYS-MERGER
BODY:
JUNE 13, 2000
STATEMENT OF JAMES E. GOODWIN, CHAIRMAN AND CEO, UNITED
AIRLINES BEFORE THE HOUSE TRANSPORTATION AND INFRASTRUCTURE COMMITTEE
Chairman Shuster, Ranking Member Oberstar, and other Members of this
distinguished Committee, on behalf of United Airlines' more
than 100,000 employees worldwide, thank you for the opportunity to testify
today. United appreciates the chance to explain why our customer-driven
merger with US Airways should be approved and how this
transaction will significantly benefit consumers and the communities served by
both carriers. As I will explain in more detail in a moment, the
merger is a "win win7 for valued customers of both carriers as
well as all air travelers. It will improve significantly the convenience of air
travel for consumers by greatly expanding single-carrier service on thousands of
routes around the world. At the same time, it will usher in new, competitive air
service at capacity- controlled Ronald Reagan Washington National Airport. It is
important to note that the new service will not simply preserve competition at
Reagan National; it will enhance competition by introducing a new carrier -- DC
Air -- at the capacity-controlled airport serving the nation's capital.
Moreover, communities, especially US Airways hub cities, will
receive considerable travel and economic benefits as a result of the
combination. The combined reach and efficiency of the new network will also
enable United to offer improved service to smaller cities throughout the system.
Mr. Chairman, we are a customer service business that operates in a highly
competitive global industry. Simply put, our success depends on our ability to
anticipate and respond fully to our customers. Our customers tell us they want
hassle free, single- carrier service throughout the U.S. Similarly,
international passengers tell us that they want seamless, global network service
such as that offered by the Star Alliance, the premier alliance with which
United is proud to be affiliated. Listening to the marketplace, the message was
unmistakable - our customers expect us to offer them the benefits of the most
comprehensive air service network possible. Put in that context, let me explain
our decision to acquire US Airways. Like a chain, an airline's
network is only as strong as its weakest link. As United examined its ability to
respond fully to our valued customers, we considered whether we could improve
our efficiency and the sustained level of service we provide. What we discovered
was that United's weakest link was US Airways' strongest link
and vice-a- versa. Accordingly, United concluded that by combining the two
carriers, we would draw upon the strengths of both airlines and simultaneously
fill service voids in each other's existing networks. The result, we believe,
will be the first truly efficient nationwide network that will provide consumers
with unparalleled travel convenience and service. United has an extensive
east-west system in the U.S. with hubs in the Midwest and the West. In contrast,
US Airways has a comprehensive north-south route system along
the East Coast anchored by hubs in Pittsburgh, Philadelphia and Charlotte.
Together, the two networks are highly complementary. Let me emphasize the
complementary nature of our respective networks and tell you the other reasons
why the transaction will produce unprecedented consumer benefits. Unlike
previous airline mergers dating back to the 1980s, United and
US Airways do not share a common hub. Moreover, the
United-US Airways combination will increase competitive service
as we expand our network to improve single-carrier service throughout our
system. For example, we plan to offer new single-carrier service on 560 city-
to-city routes - routes on which neither United or US Airways
even competes today. Examples of new one-stop routes include Sacramento to Erie,
Pa.; Reno, Nev., to Tallahassee, Fla.; Ft. Lauderdale to San Antonio; and Fargo,
N.D., to Panama City, Fla. The 560 new routes also include a number of
international flights as well, including new one-stop flights from Phoenix to
Copenhagen; San Jose, Calif., to Madrid; Birmingham, Ala. to Brussels; and
Tulsa, Okla., to London. Mr. Chairman, let me share several statistics that
illustrate the complementary nature of our networks. I would emphasize that
these statistics are not merely numbers. Instead, they reflect the enormous
customer benefits that will result from combining our airlines. Along the East
Coast, US Airways carries about 38 percent of passengers
compared to just 1.7 percent for United. On the West Coast, in contrast,
US Airways flew under I percent of passengers while our share
of that market is about 25 percent. Not only are consumers and competition
protected by the complementary nature of our respective networks, we have taken
great care to proactively identify and remedy what we thought might be an issue
for regulators. I am referring to the combining of our operations in Washington.
To address any possible issue about the overlap on routes we would have as a
result of the transaction, we are voluntarily divesting the bulk of US
Airways' significant and valuable resources at Reagan National. As a
result, DC Air, an independent new-entrant carrier, will be able to bring
significant new competitive service to the nation's capital. Let me underscore
that the transaction will not simply maintain status quo competitive levels and
consumer choice at Reagan National, it will expand both in a meaningful way. For
instance, DC Air has said it plans to offer service from Reagan National to 43
cities. That total includes all 32 cities in which US Airways'
service from Reagan National competes today with United service from Reagan
National or Dulles. In the case of routes between Reagan National and three
cities - Pittsburgh, Philadelphia and Charlotte - that currently are served by
US Airways alone, United will enter those routes and offer
consumers at Reagan National a new competitive choice. As part of the
transaction, United will also operate the shuttle between Washington, New York
and Boston. I can assure you that we will compete vigorously with Delta on those
popular routes. As I mentioned, combining our airlines will create the first
truly efficient nationwide air service network. Now, let me explain how this
translates into benefits for consumers, communities and the U.S. economy. For
consumers, the combination of United and US Airways will create
an airline for the 21" Century that will deliver significant benefits to
millions of passengers. This transaction brings together two complementary route
systems that will result in a new network connecting US
Airways' eastern U.S. routes with United's western U.S. routes and our
international network. The result for consumers: more convenience and more
travel options to more places in the United States and around the world. Added
to that is the reach of our Star Alliance partners, which will link passengers
to a comprehensive network that will directly carry them to destinations around
the globe in a way not currently possible. The transaction will enable consumers
to enjoy the considerable benefits that travel on United will offer - benefits
that will help simplify travel and make it as hassle- free as possible. Those
benefits range from the convenience of single-carrier service and one baggage
check-in to United's #I-rated Internet site, the best airport lounges in the
industry, and a frequent flyer program - Mileage Plus - that delivers more
opportunities to earn miles and many more destinations for award travel
throughout the world. For our cargo customers, the transaction means new,
single- carrier service to more efficiently move freight around the world.
United will continue to serve all cities now served by US
Airways. However, by no means will United simply offer status quo
service. Enhanced service is the hallmark of this customer-driven
merger. Passengers will benefit from 93 planned new non-stop
flights. Of these, 64 are domestic flights and 29 will be international flights.
It's important to note that half of these 93 flights will be on routes where no
airline provides non-stop service today. On domestic routes, for example,
consumers will benefit from planned new non-stop flights between Pittsburgh and
San Jose; Philadelphia and Portland, Oregon; Washington Dulles and Orange
County; Raleigh-Durham and San Francisco; Austin and Charlotte; Denver and Ft.
Lauderdale; and between San Francisco and Tampa. For United passengers, the
merger will create new, single-carrier service to 93
destinations and add about 5,000 routes to the network. For U.S.
Airways passengers, the benefit is even greater - new, single-carrier
service to 145 destinations and an additional 7,000 routes. Let me share a case
in point. We have an extensive network in Asia while US Airways
does not serve that region of the world. The merger will fill
that service gap for US Airways passengers. As a result of the
merger, a current US Airways passenger in
Pittsburgh will enjoy new single-carrier, one-stop service to Asia/Pacific
destinations such as Shanghai, Beijing, Osaka, Taipei, Seoul and Sydney. The
same is true for new single- carrier, one-stop service from Pittsburgh to Latin
American destinations such as Caracas, Rio de Janeiro, Sao Paulo, Santiago and
Buenos Aires. This is but one example of how the merger will
make global travel more convenient in the eastern United States. United also
plans to introduce daily non-stop service to other international destinations as
well. For example, from Dulles, our plan is to offer the only daily non- stop
flight from Washington to Copenhagen and, subject to government approval, the
only daylight service to London Heathrow. In Boston, United plans an additional
daily flight to Frankfurt and the only daily non-stop service to Tokyo. And from
Denver, we plan to offer new service to London Gatwick. I would like to share
another example of how our merger will improve the competitive
landscape for consumers. The transaction will strengthen Charlotte's competitive
position as a hub in the southeastern United States. Charlotte will become an
important, competitive alternative to Atlanta and give the city and its
businesses greater access to key domestic and global trade centers. It will also
make it easier for Charlotte passengers to travel to Latin America, Asia, Europe
and other destinations around the world on United and its Star Alliance
partners. The strength of the Charlotte hub as a competitive counterbalance will
be enhanced by new non-stop service we plan to offer. That new service includes
new non- stop service to three cities --- Portland, Oregon, Austin and San
Antonio --- as well as additional non-stop flights to Denver, Seattle and San
Francisco. In all, United plans to provide non-stop or one-stop service from
Charlotte to 215 cities in the United States, Canada and Mexico as well as to 34
other international destinations In addition to injecting new competition into
the domestic market, the merger will also benefit consumers by
enhancing competition in international markets. US Airways'
system will enable United to serve transatlantic, Latin and Caribbean routes
more effectively. The transaction will significantly enhance the ability of
US Airways' hubs in Pittsburgh, Philadelphia and Charlotte to
grow and compete. Like consumers, communities served by United and US
Airways similarly will benefit from this merger. As
the Committee knows, air service is an engine for commercial activity. This is
especially true in the increasingly global economy that is creating commercial
opportunities literally worldwide. Planned new service and improved access
through United's global network will benefit communities by stimulating economic
activity, spurring tourism and facilitating new commercial opportunities.
Earlier, I mentioned the new single-carrier, one-stop service to the
Asia/Pacific region that Pittsburgh would gain as a result of this transaction.
That service will act as an air service trade bridge creating new commercial
opportunities for western Pennsylvania. The same is true for Philadelphia and
eastern Pennsylvania, which will benefit from five new daily non-stop flights to
international destinations that include Brussels, Frankfurt and Amsterdam.
Examples of direct and indirect economic benefits for communities resulting from
improved and expanded air service access range from new export opportunities to
increased foreign investment to tourism. Sometimes such beneficiaries can be far
removed from the airline industry. For instance, I understand the New England
seafood industry may benefit as a result of gaining quicker and more efficient
access to the Japanese market through our planned new, non-stop access to Tokyo
via Boston. Such community and regional economic benefits are inextricably
linked with improvements in air service. This discussion of the benefits of the
transaction for communities must address an issue of great importance to this
Committee - its impact on small community air service. At the root of the
merger is our goal to build a truly national airline network
that will carry passengers as conveniently and efficiently as possible. Small
communities are an important part of both United's and US
Airways' networks. The same will be true for our combined network. Let
me assure the Committee that United will maintain its firm commitment to provide
the best small community air service possible. We understand how critical access
to the national air transportation system is for smaller cities. We also
recognize that small community air service is an important economic development
issue for many small cities and some states. United is already delivering on its
promise to expand our service to communities like these. Thanks to this
Committee and this Congress, the easing of high-density rules at Chicago O'Hare
has allowed us to add flights from O'Hare to a number of small and medium-sized
communities. Within the last month, United Express has introduced service to
Bloomington and Springfield, Ill. And by September, we will be offering 21 new
daily United Express flights - mostly on regional jets - to destinations that
will also include Tulsa, Okla., Columbia, S.C., and Little Rock, Ark. Passenger
feed into our system from small city markets is critical to the efficient
operation of our network. To put it succinctly, our network relies on passengers
from small city markets and therefore we have an important stake in ensuring
that our small community air service remains as vibrant and efficient as
possible. The network efficiencies resulting from the merger
will better position United to fully capitalize on opportunities in small city
markets. For instance, we plan to give consumers in Charleston, S.C., new travel
options by introducing one-stop service to three cities --- Portland, Oregon,
Austin and San Antonio --- and additional one-stop service to three other cities
--- Denver, Seattle and San Francisco. Other small cities like Bangor, Maine,
will gain new one-stop, single-carrier service to important international
destinations such as Tokyo. Simply put, as our network expands and strengthens,
our ability to serve small city markets improves. Finally, the
merger is in the best interest of the U.S. economy. The
transaction will stimulate commerce, jobs and economic development across the
United States. Combining United and US Airways creates a global
airline that will be better able to deliver significant benefits to millions of
passengers, thousands of cargo shippers and hundreds of communities throughout
the United States. There is no doubt that the airline industry is a major
contributor to our nation's economy and its prosperity. Besides its own direct
spending and employment, our industry also contributes significantly to the
creation of earnings and jobs in every major sector of the economy. A study by
the Air Transport Association found that the U.S. airline industry generated
$273 billion in economic activity in 1998 through direct, indirect and induced
expenditures. Each dollar spent directly by the airlines produced another 2V2
dollars in economic activity. Recently, there have been a number of press
reports indicating possible consolidation in the airline industry in Europe and
elsewhere. Airlines are not seeking to get bigger solely for the sake of size
alone. That is not the case at all. As with this transaction, airlines are being
forced by the marketplace to build the strongest and most comprehensive route
structure possible. In doing so, airlines are able to respond better to customer
demand for seamless, hassle free travel. Also, building the strongest possible
network enables carriers to maximize their operating efficiencies. Since the
airline industry is global in scope, it is in the national interest to ensure
that our carriers are not placed at a competitive disadvantage Vis-A-Vis foreign
carriers that are permitted to optimize network operating efficiencies.
Mergers such as ours should be considered with an open mind on
a case-by- case, fact specific basis. Mr. Chairman, let me conclude by again
thanking you for the opportunity to testify today. As I have said, we strongly
believe this transaction should be approved. It is in the best interest of
consumers, communities served by both carriers and the U.S. economy. I would be
pleased to respond to any questions.
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