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Federal Document Clearing House
Congressional Testimony
June 21, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 5174 words
HEADLINE:
TESTIMONY June 21, 2000 JAMES E. GOODWIN CHAIRMAN AND CEO UNITED
AIRLINES SENATE COMMERCE, SCIENCE AND TRANSPORTATION UNITED
AIRLINES-U.S. AIRWAYS MERGER
BODY:
STATEMENT OF JAMES E. GOODWIN, CHAIRMAN AND CEO, UNITED
AIRLINES BEFORE THE SENATE COMMITTEE ON COMMERCE, SCIENCE AND
TRANSPORTATION JUNE 21, 2000 Chairman McCain, Ranking Member Hollings, 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 win" for valued customers of both carriers as
well as all air travelers. The transaction will create a 21st Century airline
that offers consumers significantly improved choices for more convenient,
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. Moreover, communities, especially
US Airways hub cities, will receive considerable travel and
economic benefits as a result of the transaction. 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, last year this Committee
reminded us that as an industry we need to do a better job listening and
responding to our customers. Frankly, you should not have had to remind us of
this fact since customers are the lifeblood of our business. At United, we
certainly took that advice to heart. We implemented a comprehensive customer
service enhancement program - "our United Commitment" - to improve the traveling
experience of our valued customers. I am proud of the improvements, which that
program continues to produce. However, we are not resting on our laurels. Each
day, the entire United family is striving to provide the best customer service
possible. At the same time, we intensified our efforts to identify what type of
service our customers valued most and expected us to provide. As a result of the
evaluation, this is what we learned. Our customers told us they want hassle
free, single-carrier service in as many city-pair markets throughout the U.S. as
possible. Similarly, international passengers told 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 and
they want such service benefits as soon as 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 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 consumer choice and
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 Charleston, W.V., to Portland, Oregon and San Jose, Calif.;
Charleston, S.C., to Austin and San Antonio, Texas; Bangor, Maine to San Diego,
Calif.; Reno, Nev., to Tallahassee, Fla.; 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 and how it will expand single-carrier service options for consumers.
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. By combining our complementary
domestic systems, passengers on both coasts - especially US
Airways passengers on the East Coast - will be better linked with
United's network of global service. 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. Before I discuss
the significant consumer benefits this transaction will produce by adding DC Air
as a new entrant competitor at Reagan National, let me take a moment to respond
to questions some have raised about DC Air's independence. Simply put, DC Air
will be a wholly independent carrier owned by Mr. Johnson and United intends to
compete vigorously against it just like any other carrier. Mr. Chairman, I
cannot speak for Mr. Johnson but I firmly believe that DC Air intends to compete
vigorously against us as well. To dispel any misperception, let me share some
facts with the Committee. Like any other independently operated carrier, DC Air
will (1) determine its own scheduling, (2) determine its own pricing, (3)
collect its own revenue and (4) hire its own employees. Mr. Chairman, it is true
that we have an arms-length agreement to assist DC Air in the initial phase of
its start-up operations. That commercial arrangement is intended to help DC Air
successfully get off the ground, not to somehow keep it under United's thumb.
Let me be clear, United is merely offering DC Air the opportunity to acquire
services. However, we are not obligating it in any way to do so on a continuing
basis. In addition, the services are being offered to DC Air at market price,
just as our subsidiary UAL Services offers services to a multitude of competitor
carriers around the world. For instance, United is offering to wet-lease 10
Boeing 73 7-200 aircraft to DC Air during its initial two-year transition period
but DC Air can discontinue this arrangement with four- months notice. As is
commercially customary, the agreement also gives DC Air the option of extending
the wet-lease arrangement under certain circumstances. By no means will this
wet-lease arrangement account for DC Air's entire fleet. In fact, DC Air intends
to lease 19 regional jet aircraft that currently are operated by US
Airways commuter affiliates. In addition to aircraft, United also is
offering DC Air the chance to purchase an array of other services at market
price including station handling, maintenance, training, and access to club
facilities. Consistent with industry practice, such agreements can be terminated
by DC Air if it finds a better deal elsewhere. Now, let me turn to the
significant benefits this transaction will create for passengers using Reagan
National. 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 31 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. Mr. Chairman, let me make one
additional point about DC Air which I believe is very important. An important
feature of the DC Air plan is to preserve non-stop air service between Reagan
National and many small and medium-sized communities throughout the eastern U.S.
Under the plan, DC Air will provide non-stop service from Reagan National to
cities such as Charleston, S.C., Charleston W.V., Columbia, S.C., Knoxville,
Tenn., Morgantown, W.V. and Portland, Maine. 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 a new millennium airline 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 fl-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 is 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, Calif.; Washington Dulles and Orange County, Calif.; Raleigh-Durham,
N.C. and San Francisco, Calif.; Austin, Texas and Charlotte, N.C.; Denver,
Colorado and Ft. Lauderdale, Fla.; and between San Francisco, Calif. and Tampa,
Fla. Portland, Oregon will receive new non-stop service to Philadelphia,
Pittsburgh and Charlotte. 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. 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. For
instance, Pittsburgh will gain significant new single- carrier, one-stop service
to the Asia/Pacific region 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 Maine and
Massachusetts seafood industries 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. As
the largest provider of Essential Air Service in the U.S., United has firsthand
experience knowing how vital a link to the national air transportation system is
for smaller cities. However, we are not limiting ourselves to that distinction.
United is already delivering on its promise to expand our service to
communities. Thanks to this Committee and this Congress, the easing of High
Density Rule at Chicago O'Hare has allowed us to add flights from O'Hare to a
number of small and medium-sized communities. United Express recently introduced
service to Springfield, Ill. And by October, we will be offering 22 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. 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 2Y2dollars 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 to compete effectively in the
global economy. As Clyde Prestowitz, the President of the Economic Strategy
Institute, explained in Congressional testimony just last week, our transaction
"reflects the reality that the airline industry is not immune to the impact of
globalization." To respond to consumers, airlines are seeking to build the
strongest and most efficient networks possible. 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.
LOAD-DATE: June 28, 2000, Wednesday
