Copyright 2000 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
June 21, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 1694 words
HEADLINE:
TESTIMONY June 21, 2000 ED PERKINS CONSUMER ADVOCATE FOR THE AMERICAN SOCIETY OF
TRAVEL AGENTS.INC. SENATE COMMERCE, SCIENCE AND TRANSPORTATION
UNITED AIRLINES-U.S. AIRWAYS MERGER
BODY:
STATEMENT OF ED PERKINS CONSUMER ADVOCATE FOR
THE AMERICAN SOCIETY OF TRAVEL AGENTS. INC. On the PROPOSED MERGER OF
UNITED AIRLINES AND U.S. AIRWAYS Statement of Ed Perkins My name is Ed
Perkins. and I Currently serve as the Consumer Advocate for the American Society
of Travel Agents (ASTA). I am also a nationally syndicated travel Columnist and
author of several travel buying guides. I was founding Editor of Consumer
Reports Travel Letter. from which I retired in 1998. In addressing you today. I
am focused solely on the interests of American consumers. not oil those of the
travel industry or any of its components. In my view. we can't -view a proposed
merger of United Airlines and US Airways in isolation. Instead.
we must look at it in the broader context of concentration in the US airline
marketplace. And in that context. I Submit that the merger of
United and US Airways--or any other merger
between any of the six giant lines-- would be highly inimical to the general
public interest and the interests of travel consumers. I base that conclusion on
two sets of issues: pricing and labor. Let's look at each. You've already seen
and heard lots of claims about the merger's possible impact on
prices. Many of the industry's most celebrated economists have published learned
treatises, and they generally seem to agree: fares would either go up, go down,
or stay about the same. Not to disparage those - economists--I used to be one,
myself--but we all know that, depending on how they structure an issue and the
assumptions they make. capable economists can come to diametrically opposite
conclusions about almost any issue. Certainly this one. More to the point: If we
get bogged down in the details of relative costs. overlapping routes. hub
consolidations. differential wage rates, and such, we'll quickly lose sight of
the basic principles that should really govern the decision. Instead of looking
at all those murky details, we should focus on how one or more
mergers would impact the process by which the giant airlines
raise and lower prices--specifically, how they would affect the pricing dynamic
in a commodity market. which is the way today's airline market behaves. Price
increases happen when one giant airline decides an increase would be a good
thing. Immediately the other giant lines study the increase and determine if
they would also like to see higher prices. One by one. those that agree announce
their own hikes-- sometimes following the originator. sometimes with
adjustments. As in the old saying, one airline runs the fare hike up the
flagpole, and the others start saluting it. What's critically important here is
that it now only takes one of the six giant lines to reverse the hike. In
effect, each of those six lines has veto power over price hikes in the entire
national airline marketplace. If any one of them doesn't salute, the hike is
quickly run back down the flagpole and returned to the closet. Clearly, the
fewer the number of giant lines, the less chance that any given price hike will
be vetoed. And, in a worst-case scenario, a concentration down to only three
super-giants would make it easier for any one of them to make price hikes stick.
The Care-cutting process works the same way. It takes only one of the six giants
to kick off a nationwide fare war. And, as you probably know that's when a lot
of ordinary consumers buy their tickets. When it comes to starting, a fare war
six chances for a price cut are far better than five, four or three. Labor
issues too, militate against further concentration. With the largest US line
owning no more than about a 17% share of the domestic market. the nation's
economy can Survive the complete shutdown of any one airline. But only barely:
The last American shutdown showed this how Much disruption resulted from a loss
of just I 1% of the domestic lift. as measured in passengers. If you liked that
strike, You'd love a shutdown of a merged United-US Airways
system. That Would represent just about twice the American share. Even worse. Of
Course, be a merged American and Delta, with a staggering 228% share of total
passengers. We made it through the American stoppage as well as we did, at least
in part. because other five giant airlines--plus the smaller players--managed to
absorb most of American's travelers. over an extended period. But could fewer
other airlines absorb twice as many displaced passengers without far more
serious disruption? Or, in the worst case, could two remaining super giant lines
absorb 28% of the passengers? I don't think so. Instead, the effects of a
super-giant strike would be devastating to the economy. and certainly to the
travel plans of millions of consumers. As with pricing. for labor reasons alone,
we just can't risk more market concentration. One more point: let s not for-et
the largely negative effects of an earlier wave of mergers and
acquisitions. How such user- friendly lines as Air California. New York Air,
PSA. Piedmont. and Republic disappeared in the black hole of
mergers? Don't take my word for it; ask someone from Charlotte
or Detroit. "It needs more study" is the classic way of evading a tough- minded
decision. Or, in Carleton Green's construct, it's a way of handling a tough
question by "dissolving it in a weak solution." I would submit that we don't
need any more study on the merger question. We can't afford a
weak solution. This is one of those cases that should be decided by basic
principles and common sense. not statistical models. And those basic principles
come in with a clear message: No more concentration by merger.
No more buyer out potential competitors rather than competing with them. We
should take merger and acquisition among any of the six giant
lines completely off the table, starting now. If any one of those lines is
desperate to increase its market share anywhere in the US, let that line do it
the old-fashioned way: earn it, with better service and lower fares. Thanks for
your attention.
LOAD-DATE: June 29, 2000, Thursday
