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Federal Document Clearing House
Congressional Testimony
June 21, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2787 words
HEADLINE:
TESTIMONY June 21, 2000 STEPHEN M. WOLF CHAIRMAN US AIRWAYS
GROUP, INC. SENATE COMMERCE, SCIENCE AND TRANSPORTATION
UNITED AIRLINES-U.S. AIRWAYS MERGER
BODY:
Written Testimony of Stephen M. Wolf.
Chairman, US Airways Group, Inc. Senate Committee on Commerce,
Science and Transportation June 21, 2000 Chairman McCain, Senator Hollings and
Members of the Committee, on behalf of the entire US Airways
family, I appreciate the opportunity to be here this morning to discuss the
proposed merger between United Airlines and US
Airways. I have been reflecting on the many comments that have been
made about this transaction by Members of Congress and others over the past
week. I have heard how this endeavor somehow will reduce competition and
therefore lead to less service and higher fares. I have heard how it will
trigger a wave of other mergers and how it will cost employees
their jobs. I have heard how DC Air is not a real carrier and that slots at
Reagan National Airport should go not to a new entrant but should be
redistributed to existing carriers. Mr. Chairman, you have a reputation for
plain speaking and for going to the heart of a matter regardless of the
consequences. If you will allow me, I would like to be similarly direct on the
issue before us today. The hue and cry we have heard - which I am sure has been
well- meaning - has been largely anecdotal and when held to the light of day,
will be shown to reflect sincere if misplaced frustration over fares that people
perceive to be too high and service that people perceive to be too low. These
issues clearly are important, but the central issue before us today is: Will the
merger of US Airways and United Airlines benefit consumers? Mr.
Chairman, the fact of the matter is that this merger will bring
overwhelming new opportunity and competition to scores of communities across
this country by creating significantly expanded service options and greater
consumer choice. It will bring new job opportunities and economic growth to
these communities and a new competitive vigor to U.S. air carriers as they enter
an era of heightened competition in domestic and international air travel. Mr.
Chairman, as a result of this merger: - 37 communities will
gain direct access to the vast United national and international system that
they do not have today. Communities like Bangor, Maine; Erie, Pennsylvania; and
Asheville, N.C. will instantly experience a major increase in their service
options. -For the first time, passengers traveling between 515 city pairs will
have a choice of on-line carriers. For example, today, a passenger traveling
between Albuquerque and Augusta, Georgia, has a choice only of Delta; between
Flint, Michigan and Sacramento, only Northwest; and between Myrtle Beach, South
Carolina, and Portland, Oregon, only Delta. After this transaction, there will
be two choices. 4,943 new city pairs will have on-line service for the first
time. While many of these involve small communities with limited traffic today,
the added opportunity of new service can only mean an increase in the number of
passengers choosing to fly. Examples include Bangor, Maine to Anchorage, Alaska;
Myrtle Beach, South Carolina to Palm Springs, California; and Fargo, North
Dakota to Sarasota, Florida. 103 new flights will be added, almost all of them
transcontinental and international, providing our Charlotte hub, for example,
with new direct service to Austin, San Antonio and Portland, Oregon as well as
new service to Aruba and Barbados, giving it a stronger platform to grow and
compete with Atlanta. Philadelphia's already extensive international service
will grow with flights to Brussels and Amsterdam. In the face of the
overwhelming presence of foreign carriers serving our markets, this transaction
enhances United's competitive position. For example, our hub cities of
Charlotte, Philadelphia and Pittsburgh will now be only one stop away from
Tokyo, Hong-Kong and Seoul to the west as well as Buenos Aires, Santiago and Sao
Paulo to the south. This is an enormous advancement in their patterns of
service. And, Mr. Chairman, all of this will be done with a job guarantee and
all will be done with a two-year fare freeze. If one steps back and looks at the
fare issue, in 1977, just prior to deregulation, more than 240 million people
flew on U.S. air carriers. Last year, U.S. carriers carried more than 635
million people. Those numbers alone attest to the widespread availability of
affordable air travel. I well understand that there is no issue as sensitive as
air fares and I have seen the charts and graphs Members have displayed over the
past week of hearings. Yes, airfares ARE complex today, but this reflects the
competitive nature of this industry. Under regulation, we had a simplified fare
structure characterized by uniformly high fares. Congress' decision to
deregulate led to intense price competition, resulting in an array of fares and
greater consumer choice. The reality is that there has been a 44 percent
decrease in average fares since 1977, the last year prior to deregulation. Lower
fares are the direct result of the efficiencies and the intense competition
built into the far-reaching networks that have been created over the past two
decades - efficiencies and competition that would be enhanced by this
transaction. And this doesn't even begin to take into account the enormous
impact of the Internet in giving consumers instant access to appealingly low
fares for an extraordinarily wide array of travel. There have been suggestions
that this industry will move to three or four or five network carriers - a
future I for one do not have the wisdom to predict. But under any of these
scenarios, this industry will continue to be characterized by intense
competition. In fact, it would be enhanced in other ways beyond network
competition. Just as DC Air is a new entrant by- product of the US
Airways-United merger, it is inevitable that there
would be other opportunities for new entrants and low-fare carriers as gates and
other facilities are divested. These would add to the pool of aggressive
carriers that have learned, from past failures and today provide an added level
of competition - carriers such as America West and Frontier, JetBlue and
AirTran, Spirit and Legend and, of course, Southwest, which now is the fifth
largest airline in the world in terms of passengers carried and growing rapidly
into a national carrier of immense scope with the highest market capitalization
of any U.S. carrier. For US Airways and the customers and
communities it serves, this transaction offers an instant solution to the
question of long- term competitiveness. US Airways is the
smallest of the six major network carriers. Yet we have the highest costs in the
industry. We already have seen what has happened to other mid-sized, mature-
cost carriers operating at the beginning of deregulation. Braniff, Eastern, and
Pan Am no longer exist and two others, Continental and TWA, exist only after
having crone through bankruptcy twice. In this environment, to provide our
consumers with the truly national and global service they demand, we have to
join with a partner that has a more extensive scope, breadth and reach. With a
route network that primarily complements ours, a merger with United
Airlines ' is the right thing to do. The result will be more jobs, more
growth, and greater economic development for the communities we serve. And we
have taken steps to ensure that US Airways' service to numerous
medium and smaller sized cities from our nation's capital would' continue
through a new entrant carrier, DC Air. Some have argued that the slots at Reagan
National should be put up for auction. This was considered but I firmly believe
it would be the wrong solution. Make no mistake about it, history clearly shows
that as airlines acquire slots at Reagan National, they use those slots in a way
that is most profitable to them. That means serving National from their hub or
hometown airports with additional frequencies. If US Airways'
slots at Reagan National are redistributed piecemeal to incumbent carriers who
will use that access to add more frequencies to Washington from their principal
network cities, there will be an abrupt and painful loss of service to smaller
communities such as Portland, Maine; Charleston, West Virginia; Columbia, South
Carolina, and Burlington, Vermont. Instead, Bob Johnson, a person of impeccable
business credentials, has pledged to continue service to all 43 cities now
served from National and to improve it through the addition of more jet
aircraft. In closing, allow me to step back for a moment and reflect upon this
business of which I have been privileged to have been a part for more than three
decades. Other than the world of the computer, I can't think of another industry
that has been more dynamic and more vibrant than the world of aviation. It is a
dynamic business driven by competition and change. Just as none of us could have
predicted 20 years ago that Southwest would be carrying more passengers than all
but four other airlines in the world, neither can we judge this latest evolution
of the system within the framework of 1980. The aviation marketplace today is
global in scope. It demands ease of access to Beijing and Budapest with the same
urgency as to Sacramento and Knoxville. The world has never been more
interconnected than it is today. Goods and services flow across borders and
oceans with speeds and ease unimagined only 20 years ago. If our aviation system
is to remain the envy of the world, we must look ahead, further into the 21't
Century, not backward. The enhanced United Airlines will lead
the way into that future, bringing with it opportunity for communities all
across this nation. At the same time, the nature of its evolution will enhance
not only competition among the major networks but also the entry of new carriers
that has been one of the key transforming features of the era of deregulation.
Mr. Chairman, we have a unique opportunity, if only we have the courage and
wisdom to seize it. Thank you for allowing me to share my thoughts with you
today.
LOAD-DATE: June 29, 2000, Thursday
