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Search Terms: United Airlines AND U.S. Airways AND Merger, House or Senate or Joint

Document 55 of 110.

June 15, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 1482 words

HEADLINE: PREPARED TESTIMONY OF TAMMY L. LEE VICE PRESIDENT CORPORATE AFFAIRS FOR SUN COUNTRY AIRLINES

BEFORE THE HOUSE COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

SUBJECT - PROPOSED UNITED AIRLINES AND US AIRWAYS MERGER

BODY:
Thank you, Chairman Schuster, Congressman Oberstar and members of this committee for your interest in how the proposed airline mergers impact the smaller carders and the traveling public.

It is our opinion, and that of many other smaller carders, that this discussion on the future of the airline industry is more about semantics. It is hard to make the case that competition is flourishing now or that the major airlines actually compete with one another.

Call it what you will: code-sharing, alliances, mergers or acquisitions. We are already at a point where there is little competition among the major airlines and prospects of new competitive entry are limited. Already, the major airlines have divided the country into fiefdoms and areas of domination.

In doing so, they have created mini-monopolies and fortress hubs that often dissuade new entrants from coming in to compete.

Essentially, we already have one giant, nameless, faceless domestic airline. Allowing them to merge on paper will only make the lines of anti-competitive behavior more weakened and blurred.

In fact, the majors have already formed one "virtual" airline, through their on-line internet merger "T2," a reservation engine for all the major airlines.

Furthering the argument that competition already doesn't exist among the majors, consider how the major airlines don't aggressively compete in another carrier's hub and few smaller airlines are willing to come into a hub market.

When Sun Country decided to begin scheduled service last June in the Minneapolis/St. Paul market (after serving the market as a charter airline for the past 16 years), one United States Senator referred to our entry into the fortress hub of Northwest Airlines as a "suicide mission." Northwest, as you'll recall, is the same airline that drove Reno Air from the market in' 1993 and no competitor since had dared enter.

The competitive response from Northwest to our entry into MSP, as expected, has been vigorous. The response from the Department of Transportation to Northwest's predatory pricing and anticompetitive behavior, has been quite the opposite.But let me be clear: airline competition is not just the responsibility of the federal government. In this era mega-mergers, it is also the responsibility of local airports to be the last true watchdog for competitive entry.

Through their use of Passenger Facility Charges (PFCs) airports are able to either limit or promote competition by how they choose to spend the dollars.

In doing so, some airports have essentially become a front for their dominant carrier shouldering the costs for new gates and expansion projects that primarily only benefit the airport's dominant carder -- even though all airlines, large and small, contributed to the PFC pool making these expansions possible.

Even more egregious, why are all carriers often forced to pay higher lease rates than the dominant carrier for less-than-equal facilities? Why are all carders assessed fee increases to pay for facility enhancements that only benefit one carder? Why aren't business leaders and the traveling public holding these publicly-funded airports accountable for doing what's in the best interests of the greater flying community instead of what's in the best interests of just one airline?

Airports also shirk their responsibility to promote competition when they give one airline control of essential facilities that are unattainable or at a premium for new entrants.

In Los Angeles, the LAXII terminal is under management control by Northwest Airlines. With this in mind, it should be no surprise that when Northwest began perceiving us as a competitive threat, they canceled our lease and Sun Country was evicted from the LAXII terminal.

In Minneapolis/St. Paul, Northwest also has managing control of MSP fuel consortium. Because we are not allowed to be a member of the Northwest-run consortium, we are incurring much higher fuel costs, which is our airline's single greatest expense now.

Finally, in Chicago O'Hare, where we were just awarded six slots by the DOT, we are now wondering if we will be able to use them. While we did acquire landing rights, we are having a difficult time getting gates, ticket counter space and the essential facilities needed to enter this market. We have heard that Spirit and National Airlines are having the same trouble. Again, the airport, in the interest of promoting competition, could assist new entrants.

How can airports ensure competition?

One, they can maintain a "threshold of capacity" at airport, meaning they maintain a minimum of 10% of the facility for new entrant competition.

Two, they can assure that PFCs are spent, at a minimum, to level the playing field for all carders and give special consideration to providing additional facilities that attract and benefit new entrants.The DOT has still not resolved a request more than a year ago from Minnesota's Attorney General to investigate Northwest's anti- competitive practices, a signal to the major airlines that they have little fear of retribution from the federal government when they engage in predatory and monopolistic behavior.

Meanwhile, as the DOT continues to review this information, Northwest continues to get additional international routes and continues to profit on its creme-de-la-creme routes where it has no low-fare competition, particularly Reagan National. What incentive does Northwest have to stop its anti-competitive behavior? None.

In another instance of how there already exists just one nameless, faceless, airline, consider how the major airlines engage not in price fixing but price following. Among the majors, one good fare hike deserves another, and the reverse, if one stands alone and doesn't go along with the increase, then they all return to lower fares.

Members of the committee, what we have already is a seemingly unregulated monopoly. But in the current environment, there is still a glimmer of hope that the government may enforce the anti-trust acts, so the major airlines are still careful to keep up the appearances of allowing competition to exist.

However, if action to enforce the anti-trust acts is not taken soon, it will become a predatory free-for-all with the majors becoming even more aggressive with smaller carders and eventually squashing all competition.

Regardless of whether these mergers go through, it's time for the Secretary of Transportation to take vigorous and meaningful action to encourage competition. First, by opening up slot-controlled airports such as Washington D.C.'s Reagan National.

There, the union of United and USAirways would give one mega-carrier 359 slots at one of the nation's busiest airports - nearly half of all of the slots available. Meanwhile, Sun Country and other smaller carriers have zero slots at National.

We believe the DOT has contemplated enough proposals, done enough studies, and held enough public comment periods.

It's time for Secretary Slater to open up domestic airports for new competition as he's said he wants to open up airports throughout the world. Frankly, as a new entrant, we can't understand why opening up London Heathrow would have a greater priority than opening up National.

And now more than ever, on the eve of these proposed mega-mergers, it's also time the DOT finally put into effect their guidelines on competition and put some teeth into penalties for violating them.

Three, they can wrest control of essential facilities from the dominant carrier and ensure that a healthy, competitive environment exists at their airport.

Bottom line, airports should be given two choices: they can willfully promote competition or the DOT can mandate they promote competition and tie any future plans that the airport has to increase their PFCs to evidence that competition does exist at their airport.

I'd like to conclude by revisiting the intent of the Airline Deregulation Act of 1978 which was aimed at opening up markets for new competitive entry. It was also the intent of the act to discourage excessive market domination and monopolization by a single carrier or small group of carriers.

The Act has failed at both. While we are opposed to re-regulation of the industry, it is time that some steps were taken to level the playing field and ensure that the traveling public does have affordable choices for air travel.

Otherwise, in this shadow of new mega-mergers and even greater monopolization, left unchecked, worse predation will likely occur. Consumers, your constituents, will have few options for air travel and any future discussions on new entrant competition will only be historical and philosophical in nature.

We implore the DOT and airports to do the right thing for the traveling public, open up airports and ensure that competition is not just a word in the annals of aviation history.

Thank you.

END

LOAD-DATE: June 16, 2000

Document 55 of 110.


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