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Document 74 of 110.

June 14, 2000, Wednesday

SECTION: CAPITOL HILL HEARING

LENGTH: 27445 words

HEADLINE: HEARING OF THE ANTITRUST, BUSINESS RIGHTS AND COMPETITION SUBCOMMITTEE OF THE SENATE JUDICIARY COMMITTEE

SUBJECT: THE UNITED AIRLINES AND U.S. AIRWAYS MERGER

CHAIRED BY: SENATOR MICHAEL DEWINE (R-OH)

LOCATION: 226 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 10:00 AM. EDT DATE: WEDNESDAY, JUNE 14, 2000

WITNESSES:

JIM GOODWIN, CHAIRMAN AND CEO, UNITED AIRLINES;

STEPHEN M. WOLF, CHAIRMAN, U.S. AIRWAYS, INC.;

DAVID NEELEMAN, CEO, JET BLUE AIRWAYS CORP.;

ROBERT JOHNSON, CEO, DCAIR;

MARK COOPER, RESEARCH DIRECTOR, CONSUMER FEDERATION OF AMERICA;

BODY:
SEN. MIKE DEWINE (R-OH): Good morning. Welcome to the Judiciary Subcommittee on Antitrust, Business Rights and Competition for today's hearing examining the proposed United Airlines-US Airways merger. A little over a month ago, this subcommittee held an oversight hearing on aviation competition and while we knew it was a timely hearing, I have to admit I didn't expect to be examining this industry again quite so soon, but here we are today.

We're here today again to examine this time the proposed merger between United and US Airways. This is a merger of enormous importance not just on its own terms but because of the impact it may have on the airline industry as a whole. It its own right of course the deal is very significant. United is the world's largest airline and it has offered to pay more than $11 billion for US Airways, the sixth largest airline in the country.

The merger would approximately 560 routes to United's already extensive system, practically double the number of United's daily flights and give the airline approximately 27 percent of all domestic passenger seats. To put it simply, this largest, this strongest of airlines would be an even larger and stronger competitor in the world airline market. This added size would offer certain benefits to some consumers. Some consumers who will have access to a larger network with greater flight frequency and more convenient travel options. In addition, the combined airline may extend its network to provide greater service in certain locations that are currently underserved. Of course as with many mergers, the deal poses a number of competitive problems as well. United and US Airways currently go head-to-head in a number of markets and in a number of airports, mostly in the Northeast and Mid-Atlantic area. That head-to-head competition would end with this merger. This merger would decrease competition in those areas.

Some have argued the competition would be significantly decreased on hundreds of routes, including some where United and US Airways are currently the only competitor. For example, my home state of Ohio, this deal will eliminate nonstop competition on routes from Dayton and Columbus to Dulles Airport here in Washington. United and US Airways have attempted to minimize some of the most obvious problems up front by proposing to spin off a number of routes, slots and gates at Reagan National Airport to a new airline, which would be called DC Air.

This airline would compete with the newly merged United Airlines and would at least, in theory, limit the anticompetitive impact of this merger in the Washington, D.C. area. Many within the aviation industry have criticized the DC Air spin off. Critics believe that the new airline would be too reliant on United and US Air for employees and equipment and thus, would not compete aggressively against United.

Some argue the competition would be better served by allocating the DC Air slot to other competitors or by having DC Air bid for those slots independently. Obviously, the competitive vigor of DC Air is of critical importance to the United-US Airways merger plan and we intend to examine this issue carefully today. We have Robert Johnson of DC Air here with us today and we look forward to discussing these issues with him.

Although concerns have been raised about the details of the proposed merger, and as mentioned, many people are critical of the DC Air spin off, those concerns pale in comparison to the big picture implications of this merger. The Justice Department can and will look at the details of this deal. The Justice Department will examine route-by-route details of this merger and should force divestiture and whenever and wherever appropriate. The Justice Department should carefully at DC Air to decide whether it can be a legitimate competitive force in the market and should therefore act accordingly.

But the most important element of this deal and the issue that concerns me the most is the impact this merger will have on the structure of airline competition in the future. United Airlines is already the largest airline in the country. Despite its size, however, the other domestic airlines are currently large enough to compete with them. American Airlines and Delta, the second and third U.S. airline, have been able to stay within shouting distance of United and provide significant competition.

Northwest, Continental, US Airways are also large enough to provide a competitive alternative for consumers, but - but if this deal is approved, the competitive scales would shift dramatically in favor of United. US Airways will be eliminated as a competitor and United will suddenly become much, much bigger than its closest competitors. In fact, United would be roughly 50 percent larger than its next largest competitor. United network would effectively cover almost all the domestic markets further enhancing its dominance.

In these circumstances, the other airlines will almost be forced to react and the most logical reaction will be more mergers.

If this deal is approved, we are likely to see rapid consolidation within the industry and could easily see the domestic aviation market shrink from six major players to three major players in a very short period of time. The competitive implications of such dramatic consolidation are very significant and must examined as part of our oversight responsibility.

We must examine the impact of such a consolidation on consumers, on smaller cities, smaller markets and smaller airports. We need to consider whether such consolidation might lead to further entrenchment of fortress hubs and whether the remaining airlines would compete with each other vigorously or as some fear really carve up the market and allow one airline to dominate each region in the country.

We need to consider whether startup and smaller airlines will be able to compete in such an economic environment. Further, we must consider the impact of such consolidation on existing airports. In Ohio for example, we have major hubs in Cleveland in Cincinnati and I know that my constituents worry about whether both hubs will be maintained if other airlines consolidate. This is an important issue everywhere because when hubs loose passengers, loose convenient access to flights and just as important loose the hub-to-hub competition that helps to discipline prices on one stop flights

Accordingly, we must examine the implication of possible hub consolidation and determine whether or not such consolidations will harm consumers. Of course the answers to all these questions are, to some extent, speculative. We cannot know for sure how other airlines will react to this merger and we cannot predict with certainty that consolidation will lead to consumer harm, but we can be sure that the proposed merger between United and US Airways will have a lasting and significant impact on the competitive environment of the U.S. aviation industry and that we need to examine more than just its specific effect on individual airline routes.

It is critical that policymakers and the enforcement agencies scrutinize this proposal carefully and extensively to ensure that competition is preserved within the industry and the consumers are protected from the impact of excessive consolidation. Now before I turn to the ranking minority member of this committee, Senator Kohl, I would like to state just one more thing. I have been chairing this subcommittee now for approximately three years and during that time we've examined mergers in a wide range of industries.

And almost every time we examine a proposed merger, I hear the same explanation. My competitors are getting bigger so I need to get bigger. I will be very candid. I am worried if this deal goes forward that soon we'll be right back in this room again for another merger hearing listening to a different airline executive tell us the same thing. United is getting bigger so I need to get bigger as well. The problem is that bigger airlines mean fewer airlines and that's not necessarily good for consumers.

And if this deal is bad for consumers, then I have a problem with it. Accordingly, today Senator Kohl and I are sending a letter to Joel Kline of the Antitrust Division asking him to carefully scrutinize this deal. We're asking him to scrutinize the deal and to pay special attention to the impact it may have on future consolidation in the airline industry.

Now let me turn to the ranking member of the subcommittee, Senator Kohl.

SEN. HERB KOHL (D-WI): Thank you, Mr. Chairman. In the last two years, our subcommittee has held several hearings on the wave of consolidation announced with the many areas of the national economy, including most notably the telecommunications and media industries. Now the airline industry looks like it is poised to jump on this merger bandwagon and even if United/USA Airways doesn't open the door to what many predict will be a floodgate of airline mergers, the combination of these two major airlines will clearly create an aviation giant.

The merged carrier will have nearly 1,000 airplanes making 6,500 daily flights to nearly every city in the United States and many cities overseas offering nearly twice as many flights as its closest competitor, American. For these reasons, the burden is squarely on you Mr. Goodwin and Mr. Wolf to demonstrate to us on behalf of the American people that your deal will enhance competition and not harm consumers and frankly I'm skeptical that you can.

We clearly recognize that this merger has the potential to benefit travelers by giving them access to the expanded route network to be offered by the combined airline. Nonetheless, it also raises serious questions that you will need to answer. Will the combined airline's dominance at key hub cities, such as Charlotte, Pittsburgh, Philadelphia, Washington, Baltimore and New York City lead to higher fares and reduced service in these markets?

Will the combined company reduce the frequency and quality of service to many smaller non-hub cities such as Milwaukee, Buffalo or Burlington? Perhaps more importantly is this deal likely to lead to further consolidation as your competitors decide that they need to merge to compete with the breadth of your operations? In my opinion if we reach the point where we get down to only three major carriers, then that will be a disaster for consumers and that's why Senator DeWine and I have sent a letter today to Joel Kline urging the Justice Department to consider any further airline consolidations as part of its evaluation of this deal.

Mr. Goodwin and Mr. Wolf, you've already recognized that there is one market where the level of concentration caused by this merger is unacceptably high, Washington-Baltimore. You have, therefore, decided to spin off many of United's and US Airways routes operating out of Washington's Reagan National Airport to a new airline, DC Air, to be operated by Robert Johnson. Now we all respect the business of human skills and independence that Mr. Johnson has displayed in building BET into a media powerhouse.

Nonetheless, serious questions have been raised about the viability of DC Air as an independent competitor. We understand that it plans to wet lease most of its fleet from the United and US Airways. This means that in addition to leasing the actual airplanes, the pilots, ground crews and even management personnel will be United- US Airways employees. In this situation, how willing and if willing, how able will DC Air be to aggressively challenge and undercut United on price for service.

We hope you can address this panel's doubts on this score. Several weeks ago, the subcommittee held a hearing regarding the current state of airline competition. No one knew of this deal at that time. One of our witnesses, Alfred Kahn, widely regarded as the father of airline deregulation pointed out how deregulation has brought consumers many benefits and I agree, but he also believes that for deregulation to work there must be a sufficient number of competitive alternatives so that consumers have the choice when it comes to air travel and I agree here also.

Because as the chart accompanying me here today indicates, you typically have lower prices when you have more competitors. Fortunately, we have a terrific panel of witnesses here today to help sort out these issues. They're especially interested to here if you three, Mr. Goodwin, Mr. Wolf, and Mr. Johnson, can sustain your burden to convince us that competitive choices will remain in air travel even after this merger and we will give you every opportunity to make your case and so we look forward to hearing your views. I thank you, Mr. Chairman.

SEN. DEWINE: Senator Kohl, thank you very much. Let me turn now to Senator Thurmond.

SEN. STROM THURMOND (R-SC): Thank you very much, Mr. Chairman. Mr. Chairman, I am pleased we are holding this hearing today on airline competition. United, the world's largest airline, recently proposed purchasing US Airways for $4.3 billion. These combined companies would control about 27 percent of the U.S. market and be about 50 percent larger than its next largest competitor.

We must consider whether bigger is better in this case and the answer is not clear. It would be easier and more convenient for travelers to reach more destinations on the combined airline, especially United's focus on the West and US Airways focus on East. However, this convenience may also result in high prices because of fewer choices and less competition. For example, after the merger, the combined airline will control about half of the non-stop daily flights and about half of the flight destinations in the capital of my state, Columbia, South Carolina.

Indeed, a most significant question is whether this merger will lead to a wave of consolidation in the airline industry. It is highly possible that other airlines will try to merge to keep up with the largest airline in the world and we have already heard rumors of other possible mergers.

Widespread consolidation in the airline industry probably would not be a positive development today. It is clear that having only a few players in an industry is not in the best interest of consumers.

Robust competition has been derailing airline processes. Half of their stocks have been low since the deregulation. It is critical to maintain vigorous competition in our airports, including smaller cities. I welcome our witnesses to discuss this merger and its potential implications on the industry as a whole. And Mr. President, I have another engagement, but I would like to place my questions into the record to be answer in writing.

SEN. DEWINE: Senator, thank you very much. The questions will be a part of the record and will be submitted to the witnesses. Thank you, Senator Thurmond. Senator Leahy.

SEN. PATRICK LEAHY (D-VT): Thank you, Mr. Chairman. Thank you for calling this hearing. In fact, I appreciate the hearings that you and Senator Kohl have had. I also appreciate, I might say this about a recall petition by the Republican Party in Ohio, but I also appreciate the even-handed way both you have handled this committee. This is a serious one where their even-handedness is going to be important. There seems to be a mega merger in a different industry almost every week.

Current economic forces are driving rampant consolidation, I understand that and there should be no surprise to anybody that the airline industry is on the bandwagon. But I think if you have consolidation in this industry, you need some very special attention. Air carriers are an essential part of the national transportation network. For rural communities, like in my state, they are a critical element for economic viability. The airline industry also heavily relies upon an infrastructure paid for by passengers, by local communities and by the federal government.

Every significant increase in concentration in this industry has to be carefully examined in terms of competition, accessibility and of course what most consumers see, airfares. We're here to consider the proposed merger of US Airways and United Airlines. Now I see, and I know they'll be testifying, Jim Goodwin and Stephen Wolf, both of these are highly respected CEOs who run excellent companies. And the companies will argue the economic forces require them to merge and they also argue that they're a good fit, except for one city and that one city though is the nation's capital.

But the merger has important implications in other communities at the other end of the line. While US Airways and United have proposed to resolve concerns in the Washington hub market, I have serious concerns about the effect of the merger on Burlington, Vermont. Even with the spin off of DC Air, United Airlines will control 74 percent of the market share in out of Burlington. Just like on the show, the millionaire or the millionaire's show whatever it's called, at the beginning you have three lifelines.

Well in Vermont we have three or four lifelines out of town, but this could be taking one of them away and as the host of that show says, if you take away one of the lifelines, you get in a little bit trouble. And my gut and years of experience, including 25 years of flying back and forth between Washington and Burlington, tell me this merger could send us in the wrong direction. And I'm very concerned that Vermonters have to drive to other states just to get reasonable airfare.

Look at this chart. On this you can go, let's say from Washington, D.C., you go to cities here near Burlington for $88, Albany, Hartford, Manchester on a seven-day advance. It costs $735 to go to Burlington. Now if you want to go a little further, Columbus, cuts about $300 off. There's $419 to London. That's not to London, Connecticut or to London, New Hampshire. It's London, England or $735. Four hundred and two dollars to Los Angeles so $400 to Los Angeles, $419 to London or $735 to Burlington or $88 to places that are just a few miles away.

Now, what I ask is why does a Vermonter have to travel to New Hampshire or Connecticut or New York, nice states though they are, just to get an affordable flight out of town and I looked at Burlington because Burlington is our main hub. We have thousands of people fly in and out of there every day, a lot of them business travelers. Now, let's see what happens if you merge. Here's what you have.

United, US Airways, today. Here we have Vermont passengers, United Airlines, US Airways does 75 percent of it and Vermont seats 76 percent, Vermont departures 72 percent. Now that shows where there should be competition because that shows where the demand is. Now they're going to end up with a pretty significant market share here because we've actually seen a gradual increase in the number of flights, a gradual lowering of prices and the airlines have been going in the right direction.

In the fall, we're going to have Jet Blue flying in from Kennedy Airport. But I can't understand how it could cost less than this $735 and a seven-day advance if you take away one of the airlines. We have J. J. Hamilton (sp) and Joe McNeil (sp) from Burlington here today. They need to have these answers. The employees, I should this incidentally I fly all over the country, the employees of United Airlines and US Airways are there in Burlington, Vermont are the finest people, the nicest people you could ever have, any airline, anywhere in the country but they ought to know about it.

So I'll put the rest of my statement in the record, but Mr. Chairman, I'm very concerned about this as you can probably tell.

SEN. DEWINE: Senator Leahy, thank you very much. Senator Schumer.

SEN. CHARLES SCHUMER (D-NY): Thank you, Mr. Chairman and first I want to thank you and Senator Kohl for the courtesy of being here today as a member of the Judiciary Committee and also I agree with Pat Leahy in the fine way you both together conducted this committee. Let me thank you for holding this hearing on the proposed merger of US Air and United Airlines. The issue is vital to New York, which due to heavy local presence of US Air, will be highly affected by the proposed merger.

The merger represents both an opportunity and a danger for Upstate New York and I intend to fight to make it an opportunity. I plan to be aggressive in ensuring that airline competition in Upstate New York continues to grow, not decline, under this or any future merger. Mr. Chairman, my general view is that in an economy that's based on free-market principles, the government should tread cautiously, when its action such as disapproving an airline merger, have a major impact on industry sector.

At the same time, the hallmark of free markets is competition and a true test of whether this merger should be approved as is, should be altered or should be rejected is whether the result would ensure competition for consumers and businesses. For me, the key question is whether such a merger would have a negative impact on regional air service, particularly in Upstate New York, where US Airways currently dominates the market and by most people's accounts have served them poorly.

According to local airport authorities, US Airways controls 38 percent of the air market in Albany, 39 in Buffalo, 43 in Rochester, 40 in Syracuse. United Airlines represents nine percent in Buffalo, 15 in Rochester, eight in Syracuse and nine in Albany. And so a new merged airline would control 50 percent of the market in each of New York's major upstate cities. And in Binghamton, the new airline would control a staggering 90 percent of the market. And these cities are already saddled with some of the highest airfares in the country.

Today the average price of a roundtrip US Airways ticket from Washington to Albany cost $430, Buffalo is 342, Syracuse 398 and 358 to Rochester and that's nothing when you compare it to the walk-up fares. The price of a walk-up roundtrip to US Airways from National both Albany and Buffalo is $758, Rochester $692, Syracuse $792 and the answer why is simple, no competition.

my constituent from New York, Dr. Kahn, developed this whole plan for deregulation when it came to the New York City airports to National Airport and to O'Hare Airport there was no competition because there was flocks and the airlines have used the flocks as their own personal property and they have not served the public interest. So I'm concerned that this proposed merger may make a bad situation even worse in Upstate New York.

I believe the merger agreement as currently proposed to lead to even higher fares and poorer service to the upstate cities like Albany and Buffalo and Rochester and Syracuse. And smaller cities, like Utica, Binghamton, Elmira and Jamestown could also face fare increases and reduced services. Let me give you a couple of examples.

Daily flights from Dulles to Albany would be cut under the merger from nine to six, Buffalo 11 to eight, Rochester 11 to seven, Syracuse nine to six.

And while the number of DC Air flights from National to upstate would stay the same, I understand that they plan to use 50 feet regional jets instead of the typical 112 seat or 142 seat jets currently used by US Air. Now I have the highest respect, as my fellow panelists do, for DC Air's new CEO Robert Johnson, who is without dispute, a highly successful and public spirited entrepreneur. I look forward to working with him, but let me say up front that I've been a long-standing critic of US Airways high prices and poor service and I welcome efforts to do better.

But I fear the DC Air may not have a cost structure that enables it to provide true low-cost service. The new carrier plans to use regional jets, which can have a higher per passenger operating cost than larger jets. A practice that you mentioned, I think, Mr. Chairman and I think Senator Kohl, of wet leasing and other services when outside high-cost carriers can add additional cost to base operations.

And I share the concerns that many have already voiced about the specifics of the proposal to grant 222 of US Airways extremely valuable take-off and landing slots from National Airport. These slots represent as much as a quarter to a third of National's total slot inventory. And while United is now proposing to sell them, I believe they're a public asset. I'm sympathetic to the argument that DC Air, Air Tran (sp) and other new entrants and low-cost carriers have made that in order to compete with the majors of National, they need a critical mass of slots.

I agree that perhaps DOT's traditional method of doling out just a few slots at a time to a diverse bunch of small undercapitalized carriers only to see them all fail may not be the best way to go. But boy oh boy what happens if a year later, the new airline decides to sell their slot, which they can do under the present agreement. So that someone else might take these slots and fly to Dallas or Chicago or another city that's well served with competition. We would all regret any decision if that happened.

Competition does work. Jet Blue, New York's new low-cost carrier persuaded me and others that they needed a large of slots in New York to effective serve upstate and is serving my good friend Pat Leahy's city in Vermont as well, Burlington. So we fought to convince DOT to grant an unprecedented 75 slots at Kennedy and in return for the carrier's promise to serve Buffalo, Rochester and Syracuse and Jet Blue's delivered on its promise. It's overwhelming successful. It's even forced US Air to lower some of its prices, which they said their cost structure wouldn't allow them to do until Jet Blue and good old- fashioned American competition came.

I want to follow that successful model of Jet Blue and its merger and want whatever carrier receives those slots at National, which are worth their weight in gold, to guarantee they'll provide competitive service out of National Airport to Albany, Buffalo, Rochester and Syracuse. So in conclusion, Mr. Chairman, I hope that DOJ and DOT will take this opportunity to look at the broader question of airline competition. I am not at this point opposing this merger. I will oppose if the interests of Upstate New York are not protected and thus far in the agreement, they are not. Thank you for holding this hearing and I look forward to working with the committee, the airlines and the administration during this important process.

SEN. DEWINE: Senator Schumer, thank you very much. I simply can see the importance of this hearing and the importance of this proposed merger by the fact that we have four of our colleagues here today to testify, which is frankly over this 40 hearings that Senator Kohl and I have held we've not had such a amount of interest from our colleagues. So I think it does speak to the importance of this merger.

Let me start from my left and we'll go from left to my right. The Honorable Jesse Helms. Senator Helms. Thank you very much for joining us.

SEN. JESSE HELMS (R-NC): He was the early bird because he was sitting here before I got here.

SEN. DEWINE: But he was pointed to Senator and said you should go first.

SEN.PAUL WELLSTONE (D-MN): I always agree with Jesse Helms, Senator Helms.

SEN. HELMS: Anybody believes that I got a little swamp land down in North Carolina I want to sell you, but he's a good friend really. I wish he would do something I could agree with.

SEN. LEAHY: He just did he yielded to you.

SEN. HELMS: Pardon me?

SEN. LEAHY: I said he just did he yielded to you.

SEN. DEWINE: He yielded to you Senator, so maybe we can all agree on that.

SEN. HELMS: Well okay, if we struggle long enough we will I'm sure. Seriously, Mr. Wellstone I was teasing and I know you were too. I don't come here pretending to be an expert on rates, what they should be or what they are not. I have some problem with the rates from Raleigh-Durham to Washington. When I came to Washington, you could buy roundtrip for two times $39 or you could buy a single trip for $39, but you look at the cost of gasoline and all the rest now and I do not propose to be an expert on operating an airline.

And I don't come here as such, but I want to make clear that as one who remembers Tom Davis (sp) and I don't whether Senator Edwards is old enough to remember or not, but US Air was once Piedmont Airlines, which was founded in North Carolina and founded by a great friend of mine, then it became US Air and there it went. Of course it's good that you examine the impacts that this proposed merger may have within the airline industry and of course more importantly I suppose the traveling public.

Now I have hunch that it's going to work out in a positive way because I know the people involved and you folks either know them or you will know them because you're going to be dealing with them on various questions that will be raised in this hearing and otherwise. Now it's important that this proposal of course be given careful study by the DOJ and DOT. This has been done in many previous mergers and I think that will always continue.

What I believe the two agencies, Justice and Department of Transportation will find, is that contrary to some media speculation that harm to consumers and competition may result, this merger is going to prove to be in large measure exceedingly beneficial to the traveling public and the U.S. economy. Like you, I've had visits with the principles involved and I've talked to them and we have talked with candor. US Airways is the largest carrier serving North Carolina and one of the 20 top employers in my state.

After examining the details made available to me, I have concluded that this will be beneficial for the citizens of North Carolina and to the competitive marketplace in general. But having said that I congratulate and commend you for going into this in some detail. US Airways, now constituted, serves Ashville, Fayetteville, Greensboro, Winston-Salem, Bloomington and of course Senator Edwards and my hometown of Raleigh-Durham. Of course its principle operation is its hub in Charlotte.

By the way, I gotta brag it a little bit, Charlotte, North Carolina is now the second largest banking center in the United States. And I never thought that I would see that day either because I used to be the executive head of the North Carolina Bankers Association and Wachovia was by far the biggest bank in terms of deposits, at that time. But Wachovia is no longer there, but there's still a Charlotte bank. US Airways, I am told, employs about 10,000 people in North Carolina with an annual payroll of nearly $700 million and with expenditures of over a billion bucks a year.

Now as I stated at the outset, I think this is going to prove to be a positive development, but it's your job to decide whether what I think is indeed a fact, but I believe you're going to find out, knowing the people who are involved and their wish to operate above board, I believe you're going to be satisfied with this with maybe perhaps some adjustments. Now I have two or three pages more that I've put together but having chaired a committee for awhile around this place, I'm going to ask unanimous consent that the balance of my statement be inserted in the record.

SEN. DEWINE: Senator, that will be made a part of the record.

SEN. HELMS: I thank you, sir and I yield.

SEN. DEWINE: We appreciate your testimony, Senator Helms, very much. Senator Wellstone.

SEN. WELLSTONE: Thank you, Mr. Chairman and Senator Kohl and Senator Leahy. I'm going to be, I said Senator Santorum and said to Senator Edwards, I'm going to be very brief and make three quick points. I actually don't think, I appreciate the comments of my colleague I really do and I think actually the question is not so much the individuals, I think we've got some very people that are in management positions, but I think, Mr. Chairman, I share your viewpoint. It has to do with the question of structure of competition or lack of competition. I think that's the real question.

And what I am worried about are mergers begetting mergers. I think this hearing today is going to be viewed with a sense of history. Now I'm not trying to be melodramatic. I mean that very seriously. I was here testifying on Viacom/CBS and I've been on the floor probably giving too many speeches about, Senator Kohl, about the ways in which conglomerates have muscled their way to the dinner table in agriculture and have pushed producers out. I worry about concentration of power in telecommunications because that's the question of flow of information in democracy.

I worried about Mobil/Exxon merger. I mean, I feel like I've written enough letters and given enough speeches and talked about this over and over again for the last couple of years, but I really do believe, and it's interesting I said to Senator Santorum, it's interesting the number of people that are concerned about this. And I thing that unites us is our concern about competition. I mean, I don't think it is a good thing for this economy or a good thing for this country to have such concentrated economic power.

I mean, this is a free enterprise system. We want to have some free enterprise in the free enterprise system. We want to have the competition and so I think this hearing is part of a larger question and the reason I think this hearing is going to be viewed with a sense of history is that I predict over the next several years, this whole question of these mergers and consolidation's going to become a burning issue of American politics and a terribly important question for all of us.

And I think the problem, and I'm going to give a Minnesota example and that'll be my last point, the problem is, I mean you said it, Senator DeWine, it's kind of like everybody says I don't want to do it, but I had to do it in order to compete and then it happens. And then somebody else merges and they say we had to do it to compete and the mergers beget the mergers beget the mergers. And it seems to me that somebody somewhere, sometime, somehow, some place has to say enough.

Now if in fact United Airlines and US Air deal goes through, we now have discussions taking place between Northwest Airlines in Minnesota and American Airlines and what is the argument they're making. We're going to have to merge in order to compete. And people in Minnesota, and I think you hear this from different senators representing different people in different states, are saying what does this mean for our future? Will we still have a hub airport?

The employees say, are we still going to have our jobs? How is this going to work? The business community says, how is this going affect our ability to travel? What are going to be the consequences for the people of the state of Minnesota? And I'm here to say that I think that people in Minnesota understand very well the dangers of these mergers and this consolidation as it affects our communities, the people in our state, the jobs, you name it.

So I will take a somewhat different position. I have certainly sent a letter. I'm so pleased that the two of you have, given your positions on this committee, to Justice Department to Joel Kline saying, carefully, carefully scrutinize this proposed merger. But for my own part, I believe that if the Justice Department is to prevent such a disastrous wave of irreversible consolidation in the airline industry, I believe it has to move now to block the proposed merger of United and US Airways. I want to be up front about that as a senator from Minnesota that is the position that I am taking today in this hearing and I'm going to do everything I can with my voice and with what ability that I have as a senator to try to stop this merger from taking place. Thank you.

SEN. DEWINE: Senator Wellstone, thank you very much. Senator Santorum.

SEN. RICK SANTORUM (R-PA): Thank you, Mr. Chairman. And I want to first thank you for having this hearing and I want to share Senator Helms' comments that it is your responsibility to take a look at this and I'm certainly glad that you are and I'm going to take a look at this, you know, I'm not an expert at antitrust. I'm somewhat of an expert on Pennsylvania so I'm going to take a look at it from aspect of how this affects Pennsylvania.

And frankly I see a lot of pluses, I see some potential downsides and I just wanted to share those with you. Number one, we have 17,000 US Airways employees in Pennsylvania. I think that may be the largest concentration of any state of US Airways employees. We have two hubs, both Philadelphia and Pittsburgh. So there probably isn't a state that is going to be more impacted by this than the Commonwealth of Pennsylvania. So I do have some concerns about that.

Having said that, you know, we have had US Airways be the dominant carrier in Pennsylvania for quite some time now. US Airways has its trouble past. I mean there's been some financial difficulty in the past and it has always been sort of a concern of those of us in Pennsylvania as to the future of US Airways from an economic standpoint as well as the employees concern about the long-term future of US Airways. The fact of that matter is that with United now acquiring US Airways that I think increases the stability, at least from our perspective, of the air carrier in Pennsylvania serving the market.

And certainly I know I was talking to many of the employees, they're actually pretty pleased about the fact that now they feel like they're with a carrier that's going to be there for the long haul and with the guarantees of employment that have been made, I think a lot of the employees in my state are very happy with that. With respect to service and fares, you know, Pennsylvania's been a state that has been, you know, subject to having a dominant carrier and two hubs, which means relatively high fares.

The exchange of that is we have a lot of good service. We have great service out of Pittsburgh for the size of the city. Philadelphia has good service, frankly should have better service, given the size of the city and one of the promises that have been made in this merger is in fact to expand dramatically, particularly internationally, the service out of Philadelphia, which I think will be beneficial to our region and also expand cargo.

From a point of view of user setting aside fares, and I just make a comment for the committee and I heard Senator Schumer talk about fares, our fare's already high. We already have in a sense very limited competition within Pennsylvania already and so I don't see this merger really fundamentally changing that. I look at it as are there any pluses added to it and from what I've seen is a discussion of an expansion of service in Philadelphia and Pittsburgh and particularly the overseas service, which in Pittsburgh is something that we desperately need and want.

So I see this as, again, a lot of potential upsides from respect to service and frankly very limited downside given the history of already having high fares and a dominant carrier in the commonwealth I don't see much difference here with respect to that pricing structure and the competition in the commonwealth. The biggest concern frankly I have is not an economic concern but it is the major concern I have and that is the impact on several thousand people at a maintenance shop in Pittsburgh and any reservations and training facility in Pittsburgh and I've talked to both CEOs about that. That is my number on concern about this as to whether there will continue to be a maintenance facility in Pittsburgh.

I am making no bones about it that that is the principle concern I have and want to make sure that that concern is communicated as to the impact on jobs in Southwestern Pennsylvania. So from your standpoint, obviously, that's not a concern, but from my standpoint that is the major concern that I have and certainly will be a factor in the long-term whether I support this merger or not. Thank you, Mr. Chairman.

SEN. DEWINE: Senator Santorum, thank you very much for your comments. Senator Edwards. Your statement will, Senator Santorum, be made a part of the record and all written statements that we have received, will of course be made, without objection, a part of the record. Senator Edwards, thanks for joining us.

SEN. JOHN EDWARDS (D-NC): Thank you, Mr. Chairman and Senators Kohl and Specter, thank you for allowing me to be with you today. Senator Helms made reference to this a few minutes ago. Obviously US Air is a major employer in our state employing, I think Senator Helms pointed out, almost 10,000 people in the state, almost 8,000 people in the Charlotte area alone. So this merger is actually critically important to the people of our state. The Charlotte hub is one of the major hubs for US Air. Think there are 494 daily flights out of Charlotte weekly.

The merger comes at a time when very increased concern among people who fly to the Charlotte hub about competition, price competition or the lack thereof in the Charlotte marketplace. I've heard some of the other examples that have been given today, let me give just a couple of examples that apply specifically to Charlotte.

We found a flight it's on July 4, upcoming July 4, originating in Washington, D.C., going to Charlotte then going to New Orleans. If you get on that airplane in Washington, D.C. and fly to New Orleans, the cost of the flight is $220. If you get on the same airplane in Charlotte, in other words roughly halfway through the flight, you pay $982. So if you're on the flight in Washington it's 220. If you get on the flight midway in Charlotte to New Orleans, it's $982.

SEN. DEWINE: So you're better off going to Washington first and then starting over.

SEN. EDWARDS: You're a lot better off, lot cheaper anyhow. And when I talked to the two CEOs of the merger you're analyzing, first of all I have to say they were very open and very candid in all their conversations with me, it was a very helpful meeting, but I questioned how can this happen. And the answer was, well probably because there's a Southwestern flight out of Washington, D.C. going to New Orleans. Well, I think that makes the point. I mean this whole issue revolves around the question of competition.

Let me give just one other example, fly from Washington, D.C. to Miami stopping in Charlotte. Yesterday the fare was $562 if you flew out of Washington. If you do exactly the same thing, get on the airplane in Charlotte instead of Washington, D.C., the fare's $862, $300 more getting on the flight midway. These are two examples. There are lots of examples that we have and Mr. Chairman, I would ask that, I will provide copies of those examples, and ask they be made -

SEN. DEWINE: They will be, without objection, made a part of the record.

SEN. EDWARDS: The reality is that in many cases North Carolina travelers flying out the Charlotte hub pay as much as four times as much as travelers who are flying from other US Airways terminals to identical destinations. This is the direct result of a lack of price competition in the Charlotte marketplace and without some increase in that competition, these prices are not going to go down.

There's a second concern that we have with this merger matter of fact, which are restrictive airport practices. In my state, the Charlotte Douglas International Airport has 48 jet gates and US Airways leases 38 of the 48. In other words, there are 10 that they don't lease. In order for an air carrier to compete in that airport, in that market it has to have access to all of the airport facilities, gates, baggage carousels and ticket counters.

The smaller carriers in the new market entrance have expressed strong discontent about the particular airport practices that are being used there such as, exclusive use gate lease agreements and provisions that require that a majority of the airlines at an airport approve any new capital expenditure for which they'll be charged. Obviously, these kinds of practices have a direct affect on restricting a smaller new carrier's ability to compete with established dominant carriers.

In Charlotte, the leases last until the year 2016. In many airports, the leases can last more than 20 years and these sorts of deals make it extremely difficult for small airlines to compete with the larger more established airlines. And many times the gates are only available at a higher cost or at disadvantageous times. So my principle concern with this proposed merger has to do with price competition and the potential negative impact this could have on competition in general.

I do want to say a couple of positive things about the merger because in my meeting with the CEOs of the two companies, I expressed my concern about employees in North Carolina and in the Charlotte market in particular and they have assured me that they have a contractual responsibility to not lay off any of those non-managerial employees for a period of two years. I think they've made a public commitment that essentially they have no plan to lay anyone off and I take them at their word.

I believe what they say and that does help address some of the concerns I have about folks in North Carolina who are employed by US Air. And the reality is that there is a real potential in North Carolina for the Charlotte hub to grow as a result of this merger and as a result of access to destinations we presently don't have access to and that can have an enormously positive economic benefit to not only Charlotte but to all of North Carolina. So we know that there's real potential here for spurred economic development in Charlotte and all the state of North Carolina.

And I think actually the airlines have done another good thing I haven't heard mentioned today, which is they've agreed to freeze their three major structural rates for a period of two years and as I understand it, all the rates basically flow of their structural rates and I think that's a good thing. It's a positive thing. It's something they did voluntarily and I think it's something they should be commended for. But the reality is we can't turn a blind eye to the presently existing lack of price competition in the Charlotte marketplace and freezing fares in Charlotte only has the affect of locking already existing high prices.

So I hope that this hearing and your committee will explore the impact of this merger on competition and how the Department of Justice and FAA review of the merger might help consumers, which obviously is something we're very concerned about. Mr. Chairman, I thank you very much.

SEN. DEWINE: Senator Edwards, thank you very much. Before I turn to Senator Specter for an opening statement, do any of my colleagues have any questions for the panel? Well, we appreciate very much you coming. It's been very, very helpful and again the fact that the four of you took the time to be here really sends a signal I think of the importance of this not only the hearing, but more importantly this proposed merger. So we appreciate it very much.

Let me turn to, as the next panel comes up, let me turn to Senator Specter for any opening statement that he would like to make. Senator Specter.

SEN. ARLEN SPECTER (R-PA): Thank you, Mr. Chairman. The proposed merger between US Airways and United has enormous affect on my state. There's some 17,000 employees. There have been enormous investments in both the Pittsburgh and Philadelphia airports and substantial reliance on US Airways. There are very complex questions as to what impact this merger, if approved, would have on the national scene. There are the rumbles about Continental and Northwest getting together and American and Delta getting together.

And I think there is little doubt when you take the biggest carrier and one of the biggest carriers and put them together that there's going to be a very profound impact in the entire industry. There is enormous concern at the outset on size. We've been warned about that since the days of Thomas Jefferson and Justice Brandeis and we have seen the problems, which have been brought about by the Microsoft situation, a lot of commentary in the publications today about oligopoly.

There is a suit involving a small carrier, which tried to go into the market in Wichita, Kansas to compete with American Airlines on routes into Texas and when they did that, the American Airlines lowered their prices, predatory practices drove the small competitor out of business. I'm taking a look in some detail to see what kind of competition there is or what companies have tried to enter the markets in Pennsylvania. US Air is the sole carrier between Pittsburgh and Philadelphia.

There have been a few companies, which have tried to enter the market, East Wind (sp), Pro Air (sp), Vanguard (sp).

East Wind was unsuccessful but there is always a risk on size and on predatory practices, which we have seen really a great deal of in the American economy. That's something we have to examine very, very closely. I'm sorry to have arrived at this hearing a little late. I was part of the U.S. delegation to funeral services yesterday President Assad in Damascus and we arrived about 1:00 a.m. back this morning and then found C-SPAN had these hearings so it was a very late night and I heard some of the comments yesterday.

I heard a question raised about United, think it was Mr. Lasso (sp), raised a question about United having the worst record of service and the worst on-time record. I didn't hear an answer from Mr. Goodwin last night, but he may have answered it 3:00 or 4:00 a.m. I'm not sure. But if he didn't, he'll have a chance to today. I heard the question raised again for Mr. Wolf about what's going to happen with the maintenance center in Pittsburgh and it may be a little parochial but a maintenance service of that size and with those many jobs involved is something of great concern to a Pennsylvania senator.

And we've been trying to get an answer from US Airways for a long time and Senator Santorum and I met with Mr. Wolf and Mr. Goodwin on May 25th and raised the question again and were told understandably at that time that in two days they hadn't had a chance to have an answer of course regarding a merger matter. Well, it's been some time since then and I think Pittsburgh's entitled to an answer. I don't know if this subcommittee's entitled to an answer, but I think Pittsburgh is entitled to an answer.

When we've had acquisitions and joiners (sp), we had an effort by Norfolk Southern to acquire Conrail in 1984 and in this hearing room I think we stopped that acquisition I think for the benefit of Pennsylvania certainly and the benefit of America. And then Conrail has been dismantled since between CSX and Norfolk Southern and I have a lot of problems with what's happened there.

And some of the recommendors of this matter told us about First Union, which came into Philadelphia two years ago and a week ago Sunday, the "Philadelphia Enquirer" had a story about how First Union gave the worst consumer service in the country, quite a remarkable record, the entire country. So these are matters, which are very, very much on my mind. And I intend to have hearings in the Pittsburgh and Philadelphia and Allentown. This is a big, big matter for Pennsylvania and I think it's a big, big matter for America.

So I thank for the chance to make this statement, Mr. Chairman. Since you're seeking a quorum on governmental affairs this is an operation this building where roller skates are not sufficient have to have elevated capacity as well but I'll return.

SEN. DEWINE: Senator Specter, thank you very much. Let me invite our second panel to come up. We appreciate all of you being here and I will begin to introduce you as you come up. James Goodwin is chairman and chief executive officer of UAL Corporation and United Airlines. He was previously president and chief operating officer with responsibility for all operational groups.

Stephen Wolf is the chairman of US Airways Group. Previously, Mr. Wolf served from 1987 through July of 1994 as chairman and CEO of United Airlines.

Robert L. Johnson is the chairman and CEO of DC Air. Mr. Johnson is also the chairman and CEO of BET Holdings. He also served on the US Airways board and is a member of the board of governors for the Rock 'N Roll Hall of Fame in Cleveland, Ohio. Had to get that in there, Mr. Johnson.

David Neeleman is chief executive officer of Jet Blue Airways Corp. He was president and co-founder or Morris Air which was acquired by Southwest Airlines in December 1993.

Professor Albert Kahn is a merited professor of political economy at Cornell University and a special consultant to National Economic Research Associates. He's also the former chairman of the Civil Aeronautics Board. He testified before this committee a short time ago. We welcome him back.

Mark Cooper is director of research at the Consumer Federation of America and president of Citizens Research. At the Consumer Federation, Mr. Cooper has responsibility for energy and telecommunications policy and analysis as well as internal consulting duties for survey research and economic analysis.

We welcome all of you. We apologize for the delay, but that's the nature of the Senate and we are here now ready for your testimony, which we appreciate very much. I am going to out order and I want to start with Professor Kahn. And the reason I'm going to do that is that he is due in Senator Henry Hyde's Judiciary Committee in the U.S. House of Representatives any moment and we don't want to loose his testimony. I'm going to ask him to go first and then we'll go back to the regular order, which will be starting with Mr. Goodwin.

And we hope you can stay for questions, but if you have to go, we will understand.

MR. ALFRED KAHN: Thank you, Mr. Chairman.

SEN. DEWINE: Thank you for coming.

MR. KAHN: I'm honored by your second invitation and grateful that it gives me an opportunity to repay you a debt. I ran over my allotted time last time by several minutes. I'll try to give you some of that back today. As you know, last time I testified about the question of whether the industry was prone to engaging in predatory or unfairly exclusionary practices. We talked a little bit about the DOT rules. I think those are terribly important.

SEN. DEWINE: Professor, could you pull the mike just a little closer? We want to hear, and we also want everyone in the room to be able hear as well.

MR. KAHN: So, the subject last time was behavioral rules for the industry, and I think antitrust has these two essential aspects. One, control over illegitimate behavior and second, being alert to changes in the structure of an industry that may threaten competition. So, I'll turn with only a few brief remarks to the proposed merger. Let me point out right away that I do not have a settled opinion about the merits of the merger. I'm going to suggest three areas of inquiry, however, that I'm sure that the Department of Justice will want to undertake -- some of which you have already identified.

The first is, of course, the possibility that there is direct competition on important routes between the two carriers. The Department of Justice has brought suit against the proposed acquisition of Continental by Northwest Airlines, and there it identified some eight major routes, notably between their respective hubs, on which they were either the only two carriers, or two competitors, or preponderant competitors. So, I don't know to what extent there are such direct competitive overlaps, but that's obviously the first place the Department of Justice should look.

The second is one that I haven't heard much alluded to, but I think it's terribly important. In deregulating the airlines, we relied very heavily on the threat of potential, as well as actual, competition to prevent exploitation of consumers. It was the asserted contestability of airline markets that we thought was very important. And it seems to me it's highly likely that there are many routes on which either United or US Airways is a potential competitor of the other. There were several studies in the 1980s of the pricing behavior of the newly deregulated airline industry.

And to my recollection, those studies demonstrated that one competitor actually in a market is worth at least two contesters in the bush. It also demonstrated that the presence of a potential entrant already operating at one or the other end of a route, did have a disciplinary affect on prices on that route. So, I think that second topic is one that we really want the Department of Justice to talk about. And I have a bit of history here that's relevant. I went back and looked at the notes that I took back in the 1980s when Northwest was proposing to merge with Republic Airlines, and it turned out that there were very few routes on which they were direct competitors -- just a handful.

And, yet, Republic was a successful airline.

It had hubs at Memphis -- which it acquired from Southern -- Detroit, and Minneapolis, St. Paul. And I find it difficult to believe -- we can't be sure that it would have survived -- but I find it difficult to believe that we would not have been better off if those two airlines had not gotten together, giving Northwest its 80-90 percent domination in some of those hubs. It's that potential competition, which I think is particularly worth looking at in this case. Because I take it that United's main explanation and justification of the merger, at least the one that has been commented on in the press, is that United needs a strong hub in the northeast.

The press has, over the years, been pointing that out with respect to both United and American Airline. But if United really does feel the need for a big hub in the northeast, this suggests that it is an important potential competitor of US Air. And if it's denied the ability to acquire the hub in the easiest, noncompetitive fashion by acquiring US Air's Pittsburgh and Charlotte hubs, it might be compelled to construct a hub of its own in direct competition with US Air.

Now potential competition in theory is supposed to be taken into account in the antitrust laws. It has tended to be slighted in many of the merger cases that I'm familiar with in recent years. But in the airline industry, potential competition is terribly important. Finally, the point that several other people have emphasized -- if United's acquisition of a competitive advantage by giving it the first claim on traffic (feed?) from US Air's extensive network -- if that increases the pressure on other carriers to do likewise, then we do have to take into account in assessing the affects of this merger, the possible repetitive affects that it may have.

I happen to have had some involvement in American's reaction when United signed a co-chairing agreement -- an alliance with Lufthansa. American first tried to prevent it. Failing that, it seems very clear to me, American moved then to acquire a similar partner in the case of British Air -- an illustration of this possible cumulative affect of a merger. So, it's at these three levels that I'm very eager to hear the Department of Justice analysis. Thank you.

SEN. DEWINE: Professor, thank you very much. Mr. Goodwin.

MR. JIM GOODWIN: Good morning, Chairman DeWine, Ranking Member Kohl, and other members of this distinguished subcommittee. On behalf of United Airlines' more than 100,000 employees, I'd like to thank you for this opportunity to testify this morning. My name is Jim Goodwin. I'm chairman and CEO of United Airlines. Before I took my current position, I was President and Chief Operating Officer. At various times, I've managed North American operations, international operations, maintenance and marketing. I began my career at United Airlines 33 years ago last week.

In short, I'm an airline guy. I've spent my life learning this business piece by piece. And in the course of that, I have learned what our customers want. They want to be able to go anywhere, and go there conveniently. They want global access and they want global service, and that's what an airline must deliver. I'm excited about this merger because I believe it will deliver on that promise. This subcommittee will review the antitrust implications of this merger. In my view, this merger is strongly pro-competitive.

The United-US Airways merger will create the nation's first comprehensive airline network. And the network economics that result from creating such a network will mean substantial benefits for our customers and competition in general. For example, the network synergies will make it possible to add cross country and international nonstop routes that neither United nor US Airways could have justified without the merger. United plans to add 93 nonstop domestic and international flights the day this merger is consummated.

More than half of those nonstop flights are on routes where no airline provides nonstop service today. This added service means greater customer choice and added competition. In addition, the network synergies will result in United providing new competition on 560 city-to-city routes where neither United nor US Airways competes today. The merger will make it possible for United Airlines to challenge Delta and American in the southeast and along the southern tier cross-country routes -- areas of American's and Delta's strength.

The merger will also make air travel more convenient for consumers by greatly expanding single carrier, hassle free service on thousands of routes. We will literally bring the world to gateways across America. And with that worldwide system comes a world class set of services -- single check in, seamless bookings, the industry's best airport lounges, a frequent flyer program that offers more options for travel to more places throughout the world. All of these aspects of having a comprehensive airline network will generate significant consumer benefits.

The basic point in this, in my years in the airline industry, I have looked at every single possible combination for United, and I am here today because this combination is the only one that will deliver what our customers need. United Airlines is committed totally, with no equivocation and with a substantial amount of cash, to this merger. That's the kind of big step that requires a very special opportunity. United is also committed to addressing any possible issues about the overlap of routes. That's why we took the unprecedented step of proposing a remedy on the day we announced the merger.

I'm talking about the creation of DC Air, an independent new carrier at Reagan National, that will bring significant new competitive service to the Washington area. As you know, Congress, the Department of Justice, and the regulators will review this proposal carefully. We welcome that scrutiny, and we are confident that they, like us, will conclude that this merger will benefit all air travelers. This merger is about expanding customer choice. It's about creating growth and economic benefits for communities across America. It's about delivering more convenience and more travel options to the passengers and shippers alike.

Growth happens when cities in the west, like Denver, have better service to the east. It happens when cities in the northeast, like Albany, have new options to travel in the United States and abroad. It happens when Charlotte is given a chance to continue its growth as a hub, and become a more competitive counter-balance to Atlanta in the southeast. Worldwide access, convenient service, community growth -- that's what this combination will deliver, and that's what I look forward to talking with each of you about this morning. Thank you.

SEN. DEWINE: Mr. Goodwin, thank you very much for your testimony. Mr. Wolf.

MR. STEPHEN WOLF: Chairman DeWine, Senator Kohl, and members of the committee, on behalf of the entire US Airways family, I appreciate the opportunity to be here with you this afternoon. With over 30 years in aviation, I've been fortunate to have been associated with the development of both US Airways and United Airlines. From this perhaps unique perspective, I would like to offer a few comments on the proposed merger.

The merger of United and US Airways creates, in the words of one major financial analyst, the first airline of the 21st century. Indeed, this event will be a milestone in commercial aviation, joining the complimentary systems and assets of two veteran and geography different carriers to create the nation's and the world's most efficient route network. For US Airways, this merger will enable us to provide the comprehensive, global service that our valued customers and communities we serve demand and indeed deserve.

When I joined what was then US Air a little over four years ago, I pondered whether or not there was a place in US commercial aviation for a mid-sized carrier with mature costs that was, at that time, coming off multiple years of multi-billion dollar losses, thoroughly weakened balance sheets, frequently talked about bankruptcy candidate, aging, mixed fleet of aircraft, sub par service levels, and no strategic direction. While these characteristics were indeed significant, I believed they were manageable. The question I then pondered was where could US Airways realistically hope to go long- term, recognizing it was the only United States mid-sized, mature-cost carrier left out of the original group of six.

Braniff, Eastern, and Pan American were gone, and Continental and TWA had gone through bankruptcy twice each and in the process dramatically adjusted their cost structure. Well, the answer to that question was not clear. We nevertheless committed ourselves to establishing US Airways as a vibrant, financially secure global carrier. To this end, the dedicated and hardworking employees of US Airways have made enormous progress. To take the next critical step, however, in becoming a truly global carrier, requires access to transcontinental and international markets.

With this union, US Airways has the opportunity to achieve this goal in a single stroke. In brief, this is the right step with the right partner at the right time. Importantly, this is not a merger whose benefits are measured in the elimination of duplicate jobs and functions. This is a merger whose benefits truly flow from improved service, vigorous new competition in domestic and international markets and the seamless web of efficient, global travel that will occur. This new partnership will employ more people, stimulate economic development, and facilitate international commerce, trade, tourism, and investment for more US communities.

These benefits are equally important for the multitude of US Airways network cities served, through Pittsburgh, Philadelphia, and Charlotte, which will have the immediate access to the global reach of United's system and the Star Alliance. An exciting and pro- competitive part of this merger proposal is the creation of a highly competitive new entrant carrier at Washington's Reagan National airport, with more than 100 flights daily to 43 destinations. It also will bring about the most significant pro-competitive chance in the regional market, since slots were initiated at Washington National in 1968.

Over the past three decades, my career has taken me from American Airlines to Pan American World Airways, to Continental, Republic, Flying Tigers, United, and finally, Us Airways. My enthusiasm for this proposal is rooted in a lifetime of experience in this industry. This agreement will extend the promise of domestic deregulation by enabling more American air travelers to more fully enjoy a global network of seamless service, and benefits of open competition.

Mr. Chairman, I want to share with you just a second, deliberations of our Board of Directors, who pondered this thing very significantly. From the perspective of our three constituencies -- shareholders, employees and customers and communities we serve -- this is certainly fair to our shareholders. It's an absolute homerun for our employees in terms of a guaranteed job and career advancement opportunities we could not provide. And for the communities and customers we serve, it provides them access to the best route system in the entire world and all the economic plusses that come with that, which are significant.

In my judgment, this union provides the ideal free market response to the rising consumer demand for international travel. The enhanced United Airlines will be well positioned to extend the benefits of deregulation to the global market place in the second century of flight. Thank you, Mr. Chairman, and members.

SEN. DEWINE: Mr. Wolf, thank you very much. Mr. Johnson.

MR. ROBERT JOHNSON: Chairman DeWine, Senator Kohl, and members of the subcommittee, thank you for this opportunity to be here this afternoon. I'm the founder and CEO of BET Holdings, a multi-media company whose principal business is the operating the BET Cable Network, a 24-hour basic cable programming service that reaches 60 million homes and is the preeminent business serving the entertainment and information needs of African Americans.

From an initial investment of half a million dollars by TCI in 1980, BET Holdings celebrates its 20th anniversary with a market capitalization of approximately $2.5 billion. I own 65 percent of the shares of BET Holdings. The recently announced acquisition of US Air by United Airlines has created for me another historic and exciting opportunity. I have agreed to purchase certain assets of US Airways operating out of Reagan National Airport and will be launching DC Air. I do so not to create an African American owned airline, though it will be that. I do so not just to make sure that air transportation remains competitive, though I will definitely do that.

Rather, I do so and I believe, like my fellow panelist here, Mr. Neeleman, to build a great and successful airline that I believe with all my heart will benefit the Washington area, where I've lived for over 20 plus years, offer high quality service and value to passengers traveling to and from DC, and make us all proud that our airline is the absolute best to fly. My vision for DC Air is straightforward: to build on the well-established East Coast service Washington-area passengers have come to rely on from Washington International Airport. And I focused on this word "rely."

The three million people who fly from 43 cities to and from Washington National Airport expect that service to be there every day, and I assure you that's our focus -- 43 cities flying to and from Reagan National Airport. They expect us also to provide safe, reliable, high-quality service, at competitive prices to customers and communities in this area, and I focus on those two words -- safe and competitive, and I assure you this airline will meet those tests. We also expect to compete vigorously on price and service in the markets we serve.

Now some of you on the panel, Senators, have raised the question as to whether or not DC Air can compete as a result of being a byproduct or a spin-off of United and US Air. Let me assure you I did not achieve the things I've achieved in American society -- a graduate of the University of Illinois, master's degree from Princeton, building a $2.5 billion company, by not being able to compete in the American system. I admit that the airline business is not an industry that I was born into. Neither was the communications industry. But it's definitely a business I am confident I can master by not only focusing my innate intelligence on the issues, and my self- determination to succeed, but also by hiring talented executives.

And I've done that when I hired Bruce Ashby, a 14-year veteran of the airline industry, to serve as the Acting President of DC Air. And the talent that Bruce brings, I'm sure will attract other talented individuals. Our goal also is to facilitate the growth and economic development that accompanies air service, and develop and maintain an airline that the Washington community will be proud to call its hometown carrier.

Let me make one other point. Unlike the other major airlines based in cities who serve Washington Reagan National Airport, we do not see Washington as another spoke in a vast hub and spoke system, and we will not provide service from Washington only to a handful of hub cities. Rather, Washington is our home base. Washington and the 43 communities we will serve from Washington is our entire business. We are focused on the needs of our customers in these cities and committed to providing them the service they deserve.

As a result of this transaction, we'll become the largest carrier at Reagan Washington National Airport. We'll offer 111 daily departures from Washington to 43 cities, with a fleet of 37 aircraft. On day one, 29 of those aircraft will be jets, and we plan to become an all jet carrier as we go forward. In addition, we are ready to begin discussions with other major airlines, such as American, Delta, Continental and Northwest, to seek out partnering opportunities, such as code-sharing and frequent flyer arrangements.

We see these as beneficial to our passengers, who will be able to earn frequent flyer miles in their major airline programs while flying DC Air. We believe our services at National Airport will be perceived by these carriers as a desirable feature of the extended network. And as I said, Senators, in summing up, I am in this game to compete. I have an enormous investment, both of time, money, and prestige in this, and there's absolutely no way I'm not going to pursue every opportunity to compete, whether it's against JetBlue, whether it's against United, whether it's against American or Delta, to assure a maximum return on my invested dollars. Thank you, sir.

SEN. DEWINE: Mr. Johnson, thank you very much for your testimony. Mr. Neeleman.

MR. DAVID NEELEMAN: Thank you very much, Mr. Chairman, Senator Kohl, other members of the -- distinguished members of the subcommittee. I, too, am grateful for the opportunity to come here and share a little bit of my insight. Although I'm not as old as some of the other panelists, I have spent my whole adult life in the airline business -- SEN. DEWINE: We're not sure who you're referring to.

MR. : Whoever it was, we didn't like it.

SEN. DEWINE: They're all shaking their heads, Mr. Neeleman.

MR. : I'd start over.

SEN. DEWINE: At least he didn't refer to the committee.

MR. NEELEMAN: I have plenty of gray hair to show that I've been in this business for quite awhile, But I have been in -- in my whole adult life, I've been in the low fare business, and one of the greatest pleasures that I have as a CEO of a low fare airline is to provide travel opportunities to millions of people that wouldn't have been able to travel if it were not for our great fares. Today, I come on behalf of 600 plus employees at JetBlue Airways, and in just our short little time in existence, we've been able to prove that if you provide great service, with a great product, with unbelievably low fares, people fly and you can be successful.

We're going to add 40 airplanes over the next four years. But, at that point in time, we're still going to be small. We're going to be a little guy. You know, I've read a lot of interesting things in the press over the last few weeks since this arrangement was announced, but one particular item caught my eye. And it was a quote by, actually the President of United, Ron Dutta, where he said that -- and I'm very compelled by the argument that this will create a finished network in the United States, and if three or four airlines survive from this, and that will be of great service to the passengers of the United States for the reasons they've explained.

But he also said that there would also be a dozen or so regionals that would then be allowed to thrive and offer low fares. And I think I just want to make sure that that's the case, and I think there are several ways -- and, you know, we're not against mergers per se, having been an individual who sold one of my airlines to Southwest Airlines. I mean, it worked out good for our employees and it worked out good for the people in the western part of the United States. But I think there are ways, and maybe there are some things that can be done to maybe make this palatable so that competition can be allowed to thrive in the areas.

For example, the Department of Transportation worked for a couple of years on some competitive guidelines that they wanted to enact. It really had to do with extreme measures -- what we call capacity dumping, where airlines would go into a market, in a hub dominated airport, and the incumbent carriers would use extreme measures to try and eradicate competition. Because those competitive guidelines have never been enacted, for example, because they have been vehemently opposed by the major airlines that are now wanting something from the Justice Department.

And, so, there are things -- I think that there are some quid pro quos that could be discussed, where we could create a finished network, as well as opportunities to thrive. Also, in the area of gate availability, Senator Edwards talked about Charlotte, for example. And we've had difficulty getting into many airports that we would like to fly into. We will not fly into an airport where we have to sit and wait for gates and put our passengers through that kind of experience. We refuse to go to those airports. And, so, if some gates could be freed up and some slots. You know, I have a tremendous amount of respect for Robert Johnson and what he's been able to accomplish, and I wish I had his network as one of our 24 channels live on our airplanes.

But low fares are created by airplanes with great economics and with big passengers. And I fear that the plan that DC Air has is actually constricting the numbers of seats and the numbers of flights out of Washington National Airport. Regional jets are used primarily to cater to business travelers that pay the highest fares, and thereby eliminating the leisure traveler. And there's been studies that show that there's 16 percent less seats that will available out of Washington National and 8 percent less flights.

That will cause the leisure traveler to be eliminated from this equation and they'll have to go to another airport in the Washington area, which will, in turn, be controlled by United. So, obviously it's a very creative plan, but I fear that it will have dire consequences for the American consumers. Just in conclusion, you know, we haven't asked for any handouts. We haven't asked for any government subsidies. All we want is a fair chance to compete. And we will do that and we're excited about what we've been able to accomplish so far, and we'll do it in the future. Thank you, Mr. Chairman.

SEN. DEWINE: Mr. Neeleman, thank you very much. The Senate now has a vote, and at this point we are going to excuse Professor Kahn, because he is wanted on the other side of the Capitol in Henry Hyde's Judiciary Committee. Professor, thank you for joining us. When we get back, Mr. Cooper will be our final witness, and then we'll go to questions. Thank you very much.

(Recess.)

SEN. DEWINE: The hearing will reconvene. Thank you all very much for your patience. Mr. Cooper, it's your turn. Thank you for joining us.

MR. MARK COOPER: Mr. Chairman and members of the committee, thank you for having me today. This is one of those cases where going last is actually going best, because each of the members of the committee has spoken. The problems that I will speak about have shown the empirical analysis -- 20 years of empirical analysis, and this is the experience of the American consumer. There's a problem out there and this merger will make it worse.

There are some mergers to which policymakers should say no, and this is one of them. This merger would reduce competition in an industry that already suffers from a lack of competition. It would trigger a round of mergers that would leave consumers with fewer choices across the nation. Professor Kahn asked some questions. I actually will answer each of those three questions -- horizontal market power, network market power, and a merger wave.

Measured at the national level, allowing the number one airline to buy the number six airline violates the Merger Guidelines of the Department of Justice. Those guidelines were promulgated under the Reagan Administration, affirmed under the Clinton Administration. Viewed on an airport-by-airport basis, the merger violates the guidelines in more than half a dozen airports and, actually, every one of the airports Mr. Schumer mentioned, it violates the guidelines. And that raises my count to about a dozen.

On a route-by-route basis, there are numerous cities -- we've heard as many as 100 -- that would lose head-to-head competition. And whether or not these are hubs at airports, when you lose competition, you reduce choices and ultimately raise prices. Twenty years of empirical evidence in this industry has shown that when airports become concentrated, when competitors leave markets, prices go up by 20 to 40 percent. My testimony identifies two dozen examples of econometric studies that show that, and you have your examples right there.

Count the airlines. Count what you lose. Those are 20 to 40 percent increases by the reduction of competition. That is what the consumer experiences. That is what Mr. Edwards, Mr. Kohl, Mr. Leahy, have talked about. Of course, market power is evidenced not only in higher prices, but also with miserable service, and Mr. Schumer has mentioned that. Since airlines do not face effective competitions, they do not have to respond at the level of quality of service. So much for horizontal concentration.

The geographic extension that this merger would create would create a denser national network. And those networks make it less and less likely that competitors can attack any individual market. As happens with all such networks, travelers are locked into single line suppliers through hubs, have their traffic concentrated, and then the travelers are further held captive with code-sharing and manipulation of reservation systems, frequent flyer promotions, et cetera. As those customers become more and more captive to those airlines, entrants have difficulty attacking people for segments.

The necessary scale of entry gets larger. And, of course, the ability of new entrants to get into airports is restricted by anticompetitive practices, which Mr. Edwards and Mr. Neeleman have mentioned. Having gained those advantages, we end up with less competition for the traveling public. The merger will also trigger a round of mergers across the industry. What we are moving from is fortress hubs to fortress regions, with national networks that are sprinkled with hubs to hold passengers and deny them choices.

Now, the interesting thing is, of course, the proponents of the merger recognize their problem so they have proposed a series of politically correct, but economically incorrect and useless Band-Aids to try and cover over the problem.

We have the promise of a two-year price freeze, and very difficult to figure out whether yield management will change the percentage of tickets on any given flight, so the average price goes up. And, besides, two years is not a very long time. The damage to competition will be permanent. What happens after two years? It does us no good.

We have the carve out of a regional airline, which would primarily own non-jets, as I understand it, and rent its jet aircraft from the parent. The value in that airline is in those slots, and those slots can be flipped, turned over, after three years. And, again, the harm to competition is permanent, not temporary. We heard promises about routes that might be opened. We've heard discussions about facilities, et cetera. Frankly, I don't think this committee or the Department of Justice should micromanage the industry by negotiating a series of specific concessions about Syracuse or Pittsburgh or otherwise. We need a public policy that comprehensively gives the consuming public competition in the industry.

The only way to protect the consumer in this industry is to provide competition. Allowing this merger to start a merger wave will do exactly the opposite. And this is a major national issue. The American public now travels because of the growth of income and the mobility of our society. We must have an airline industry that is responsive. And the only way to get a responsive industry is to have real competition. We believe that this merger starting the wave that will inevitably follow is a step in the wrong direction. Thank you.

SEN. DEWINE: Mr. Cooper, thank you very much. Mr. Goodwin, Mr. Wolf, Mr. Johnson, while it's fresh in your mind, you want to respond to what Mr. Cooper had to say. And let me just ask you if you would start with his allegation that we're going to have a wave of mergers, we're going to get into fortress regions now, and the American public is going to suffer. Mr. Goodwin, or Mr. Wolf, or Mr. Johnson. Again, Mr. Wolf, if you pull that close. You have to keep those really close.

MR. WOLF: Mr. Cooper has insight into the future that I simply do not possess. But in any event, what is before this committee today and what is before the government of the United States is a merger of these two airlines, with the least amount of overlap, I think, in the industry today. And with the most amount of pro-competitive and pro- consumer benefits, if it's allowed to go forward. US Airways is basically a north-south operator in the East Coast of the United States of America, where we have about a 38 percent share.

United has about a one percent share. If you look at the communities that we serve -- by the way, we're proud to say as an example, we started flying from Charlotte to Paris some limited number of weeks ago. A very big event for US Airways. In Paris, hosting a little function, we had Governor Hunt there with us and the governor sort of got me aside and said, "Steve, what I really want you to do for North Carolina, is to get us service to South America." Now, I tried to respond as positively as I could, but the truth of the matter is, I conveyed to him that probably not during his natural lifetime, nor mine, would that happen.

As a result of this merger, North Carolina is going to have one- stop service to multiple points in big name cities in all of South American -- one-stop service to Hong Kong and Beijing and Tokyo. I mean, it's an immense plus to the consumers in cities that we serve.

SEN. DEWINE: Mr. Wolf, I'm sorry. We may be having a mike problem. It may not be your problem. That's much better.

MR. WOLF: I apologize. I couldn't repeat that, Mr. Chairman.

SEN. DEWINE: We're good. We got it. We just wanted to make sure that everybody else got it.

MR. WOLF: Alright. Thank you.

MR. GOODWIN: Chairman DeWine.

SEN. DEWINE: Mr. Goodwin.

MR. GOODWIN: Just a couple of other points. Mr. Cooper alluded to the fact that this was going to create regional mega-carriers, so that we would sort of divvy up the country. I think that's inconsistent with what consumers want. Consumers are telling us they want to have access to more places, with more frequency, and more opportunities to travel so they can travel on a given airline.

SEN. DEWINE: And at the same time, they want it cheaper. I mean, we all want everything.

MR. GOODWIN: Absolutely. But that flies in the face that the country is going to get divvied up amongst a group of players. Every other player --

SEN. DEWINE: Mr. Goodwin, excuse me. I think the premise though for that is what Mr. Cooper said and what some of us fear is that this is going to set off a wave of mergers. Once you have the new wave of mergers, you're going to be down to three major airlines. Then, you get into this fortress region.

MR. GOODWIN: Well, I can't speculate on whether there's going to be another round of mergers, because I don't know whether anyone else

SEN. DEWINE: Well, we'd like for you to, because it's important and we need to have this addressed. And if you can say you don't know, that's fine. But we need for you to try to address this because I think it's a public policy issue. We cannot look at this merger in isolation. We cannot look at this merger -- regulatory agencies, I don't think should. Because, you know, no one has a crystal ball, but public policy I think demands that we look a little bit forward beyond this immediate merger.

MR. GOODWIN: I agree with you. I think you have a tough chore to look at the downstream affects of this and will there in fact be further mergers. And my only point, Mr. Chairman, is I'm not sure that there's another combination out there that will satisfy the antitrust rules as they currently are applied to our industry, that will satisfy the needs of the consumer, that will satisfy the labor integration issues that any airline merger surfaces. I don't know that there's another one out there like this.

So, that's why it's difficult for me to give you some definitive answer, but I do recognize the committee's need to ask that question.

SEN. DEWINE: Mr. Johnson.

MR. JOHNSON: Mr. Chairman, let me also respond to Mr. Cooper's comments regarding DC Air. I think DC Air is a viable airline today, operating out of DC National and it will continue to be that way. We will transition this airline as quickly as possible to an all-jet airline. We focus only on the 43 cities we serve. As I mentioned earlier, I've been in the Washington area. I pay taxes here, have my business here for almost 30 years. I see no reason to acquire this airline for the purpose of flipping it, and have no intentions of doing so.

In addition, in terms of our relationship with United, as I think was mentioned earlier in some of the testimony, we have leases with United that are arm's length, that are at fair market prices, and these leases are done across the airline industry -- thousands of departures a day are based on types of leases from aircraft that are flown by United, US Airways, Delta, Northwest. So, there's nothing that's sort of unprecedented in what we're doing at DC Air. We're providing a transition service from United that we can walk away from with a four-month notice and begin to operate our own jet aircraft to these 43 cities.

SEN. DEWINE: Mr. Johnson, Mr. Neeleman said that under DC Air's proposal, daily seat capacity will further decrease at National Airport by 16 percent. The number of daily flights will also decrease by 8 percent.

Is that true, and if it is true, what are we to make of that?

MR. JOHNSON: It's not true.

SEN. DEWINE: Not true.

MR. JOHNSON: Not true. The number of flights --

SEN. DEWINE: What are the figures then?

MR. JOHNSON: We have 111 slots, 222 daily departures, and we will continue that. In fact, we will look to expand that to some cities that we think by sort of reconfiguring our out structure might benefit from more flights coming into the city. We're going from a turbo-prop, instantly from 66 percent jet to 75 percent jet. The regional jets that we're looking at, and the jets that we're looking at -- Boeing, for example, contacted us. They have a new jet, 717, that seats, I think, close to 100 passengers.

And we haven't made any final decision on the configuration of our fleet, but I can assure you that the three million passengers, both business people and tourists who come to Washington, DC -- and Washington, DC, as you know, is a prime tourist market -- will continue to have available seats on DC Air. And if we see where there's a need for more seats, we certainly have the financial capacity to reconfigure our fleet schedule to meet it.

SEN. DEWINE: Mr. Neeleman and Mr. Cooper, you want to respond to that?

MR. NEELEMAN: Well, obviously if the -- the 16 percent, I think, was a study taken by Stan Buttrick (ph), who is an industry analyst, and it was based on the 50 -- in a lot of markets --

SEN. DEWINE: Based on what?

MR. NEELEMAN: Based on, in a lot of markets, planes were being substituted -- Boeing 737s were being substituted for regional jets. So, the seats were going from 112 or 128 seats down to 50 seats, so obviously there's a reduction there. But, I don't understand the intricacies of the deal. I just know what I read. And if they have the opportunity to substitute those planes for bigger airplanes later on, then there's a possibility that that could increase again. This is the plan that was submitted by them that has those reductions. But, Mr. Johnson, obviously could buy some new, bigger airplanes and expand that.

MR. WOLF: Mr. Chairman, could I just expand on --

SEN. DEWINE: Mr. Wolf, certainly.

MR. WOLF: Mr. Neeleman's point is absolutely correct. I mean, a larger aircraft and a larger stage link (ph) is obviously going to produce substantially lower unit costs. One of the issues here today is that some of these markets are 35-50 feet airplanes because that's how big the market is, and you can't put a big airplane on because it would be economically --

SEN. DEWINE: You're going to have to speak right into that mike.

MR. WOLF: Okay. DC Air's fleet starts with three types of aircraft -- a turbo-propped aircraft, regional jet aircraft, and 737- 200 (ph) aircraft. And Bob Johnson and his acting president are actively pursuing discussions right now with all the airframe manufacturers about what is the best equipment to operate going forward.

SEN. DEWINE: Right. Mr. Goodwin, United has promised it will not raise its basic rates for two years, and we've talked a little bit about this today, except to account for underlying costs, such as fuel. As you certainly know, airlines use these basic rates to set a wide range of different fares, and we've all experienced it being on a plane, how many different fares there are, and we've had a lot of testimony about it, and we understand why you do that -- and many different passengers at different rates.

So, even if United doesn't change its basic rates, it will still retain, I assume, the ability to vary how many of its tickets will be low-priced tickets, and how many will be high-priced tickets. Will you commit today that United will offer the same percentage of low- priced tickets on its flights? Let me ask another question as well. How will you price your tickets on the new rates that you intend to create?

MR. GOODWIN: Mr. Chairman, we have committed, as part of this transaction, as you know, to a two-year fare freeze on structured fares. Structured fares are full fares. They're 14-day advanced purchase fares. They're 21-day advanced purchase fares, et cetera. We are willing to commit to an oversight process to ensure that we stand behind that commitment, because we believe very strongly that that's an important part of this transaction -- a statement to the consumer that we want to demonstrate that we are not going to raise fares. We're going to sort through this transaction.

Obviously, United Airlines' unit cost rates are significantly lower than US Airways, given the network and size of our business. We want to have the ability to integrate and see what happens to the overall cost structure.

SEN. DEWINE: These fares that you have promised to keep constant, what percentage though of passengers does that consist of? On a given flight, how many on average would be paying that fare? In other words, how many would be affected by your commitment? We just need to understand what we're talking about here.

MR. GIBBONS: Mr. Chairman, I understand that, but in order for me to answer that, I need to make one other statement that I didn't cover before.

SEN. DEWINE: Sure.

MR. GIBBONS: Those structure fares also are the basis for all other sale fares. So, when we advertise a 30 percent off sale or a 50 percent off sale, those come off of the 21-day advanced purchase fare. If you just take the structured fares per se, they account for, in our airline's case, 45 percent of our revenues.

SEN. DEWINE: Of your revenue, but what percentage of passengers, though, because that's a different issue?

MR. GIBBONS: That number I couldn't tell you off the top of my head.

SEN. DEWINE: 10 percent -- 20?

MR. GIBBONS: I tell you what, I'll get that answer for you, rather than speculate, because I don't know it.

SEN. DEWINE: Okay. So the answer is, though, to our question -- we don't know. You can't make a commitment. You're not going to make a commitment about what the mix is going to be, which ultimately will determine what the average person, the typical person -- the non-walk up to the gate and buy a ticket person will be paying. The non-walk up.

MR. GIBBONS: The leisure traveler --

SEN. DEWINE: Well, it's not just leisure. You know, a lot of us plan -- people do plan some business that they have to do it based around this. I mean, the vast majority of passengers do not come into the category which you have just stated you will guarantee to be constant. The vast majority don't.

MR. GIBBONS: Mr. Chairman, the vast majority come in at a rate below -- SEN. DEWINE: No. I understand that. All we're trying to do today -- you know, I think we're saying the same thing. All we're trying to do today is determine what your commitment to keep fares constant really means, and what I'm hearing from you, and then I'll turn it over to Senator Kohl, because I've gone over my time -- what I'm hearing from you is we'll keep this basic rate, which affects one in five passengers.

You can't tell me exactly, but we know it's under 45 percent, because that's what you said the dollar figure was, and we know this is where your major revenue comes from.

So we know it's maybe one in five. And you can't guarantee anything about the mix -- the percentage mix, which you vary all the time based upon how you maximize your profits, which you have a right to do.

MR. GOODWIN: But it also is very seasonal. It's very unique and different by each market. So, it's very difficult when you consider the thousands and thousands of combinations to start trying to get that specific --

SEN. DEWINE: I understand.

MR. GOODWIN: So, what we tried to do, Mr. Chairman, was to find something that was very easy to monitor, very easy to track, very easy for someone to hold us accountable for our commitment.

SEN. DEWINE: Alright. I appreciate that. And my only point is that for the average -- the non-business, non-walk up, pay full fare person, I'm not quite sure what your commitment means. That's all. Senator Kohl.

SEN. KOHL: I thank you, Mr. Chairman. Mr. Goodwin, you're the CEO of United to maximize profits, return on investments -- to take care of the shareholders' stake. I mean, obviously that's what we do as CEOs and I understand it and I respect that and appreciate that. For many of us, one inevitable conclusion is that a major part of this deal is to eliminate a competitor and by doing so, you will make more money. Again, making money is not a bad thing. It's a good thing in our society. When you run a business, you make money and have a strong return on investment. That is a very positive development in our democratic capitalistic system.

But I find it hard not to inevitably see that whether it's now or two years from now after your pledge to maintain prices, prices as they are, but that down the road, this is seen as a move that will make more profitable your business because you've eliminated a competitor and you'll be able to charge more money, I mean, on routes for that reason. Many of us feel that way. I'm sure many people out there in America feel that way, that this is clearly an attempt to eliminate a competitor so that you can charge more money on routes. Why is that not true?

MR. GOODWIN: Well, Senator Kohl, I'd like to go back and add another responsibility that I think we as CEOs have, and that's to serve our customers, no matter what business we're in. We're in this for the economics. But we're in this to serve customers.

SEN. KOHL: Of course.

MR. GOODWIN: This transaction is about serving customers. It's not about eliminating a competitor. It's about taking a route network today that United Airlines operates that's an east-west route network, that's primarily concentrated in Chicago and west and in the international world, and combining it with an airline's network that's primarily north-south, and concentrated on the East Coast. We believe that's a very complimentary overlap.

Now, are there some routes as a result of this combination that are going to result in some changes in competition? Absolutely. And we believe, as the Justice Department goes through their due diligence in this process, as I am sure they will do on a route-by-route basis, they will identify those issues that are of concern to them. And we will have to figure out, collectively, how we work together to try to see if we can solve those concerns. We believe we can.

But in the end of the day, what we are trying to do here is enhance competition. We're trying to do that by providing customers with more choice, and that is clearly what we're doing here. Customers tell us day in and day out they want to have access. They want to have access to more places that I can't provide them. Customers also tell us day in and day out they want to do business with a single carrier if they can. It's more convenient. There's one ticket. They don't have to go change terminals at airport locations in some case, change airports.

So what we're trying to do is to continue to refine and build our network so that we can satisfy what our customers are telling us they want.

MR. WOLF: Senator Kohl, could I --

SEN. KOHL: Go ahead, Mr. Wolf.

MR. WOLF: I have a point I think it would be interesting to you, if not the committee and everybody else. There's a marketplace in Peoria and there's a marketplace in Illinois. There's a US marketplace. But in the end of the end, we're vastly approaching only a global marketplace. If you look at international passengers per se, US Airways on an annualized basis has 1.6 international passengers. United has 11.4 international passengers. Combined we have 13 million international passengers. British Airways have over 30 million.

Lufthansa is over 27 million. Air France over 24 million. American Airlines over 17 million international passengers.

And we are yet to put our best football team into the international marketplace, and this indeed is going to be a very competitive football team in the international marketplace.

SEN. KOHL: Well, at a time when air travel is increasing as rapidly as it is -- in other words, your industry is not a declining industry, it is a very robust industry with huge growth potential, which is a good thing. I'm sure you anticipate it as a good thing. Why would we see it as healthy to have fewer and fewer companies competing in this industry, which cannot need that because it's a declining industry? Why would we see that as a good thing? And as Senator DeWine and the other Senators have also all pointed out, we never know who's coming down next.

In fact, as you know, they're all talking right now. I wouldn't be surprised if some of them are talking to put that fear in us so that we say no to you. That would not surprise me. But, why would we want to start going down that path in an industry with such huge growth potential -- that doesn't have, after all, dozens and dozens of big time competitors? Why would we want to start moving down that path? Yes to you. Yes to the next one. Yes to the next one. And maybe three airlines five or ten years from now.

MR. GOODWIN: Well, Senator, only time will tell if you have the opportunity to say yes to another one or another one or another one. But, what I think is the underlying issue here is any carrier -- and I think you heard David comment on this a moment ago -- he wants to be able to grow his franchise. He wants to be able to grow his network. He needs some things to make that happen. We want to grow our network. We have a large geographic area that we have no access to.

Our customers are asking for access. We're trying to provide that to them. Other carriers may also have a need for greater access to fill out their network. That may be a path they choose to go down to. But I think what you will see happen, Senator, is that competition will continue to grow because airlines compete across hubs not in a hub -- across their hubs. They build networks that play to their strengths. There's hundreds of examples of cities around the country that have significant competition because of the multiple air carriers operating at their hub.

One of the cities I like to talk about is Des Moines because it's in a state that has a lot of small cities -- a state that likes to have good access to air service. Des Moines has service to 10 different hubs. They have eight airlines serving their city, and they have over 50 flights a day to those connecting complexes. So, there are always going to be opportunities for air carriers, as they start to fill out their network, to tie cities to their respective hub, and that's how competition will continue to be fostered in this business, as well as -- one of the carriers which we haven't talked about, Southwest.

Southwest started as a very small, local, regional carrier, just as JetBlue is doing. They now offer today, in the United States, the same number of seats that United Airlines does. And we don't talk about that, but that happened. They have access to over 90 percent of the US population, and they're growing at 13 to 15 percent a year. And I'm sure that JetBlue is going to be growing at a fastest rate because they've developed a product that brings value to their customers and they will bring value to the marketplace, and they will continue to compete.

MR. COOPER: Mr. Kohl, let me offer an observation, because the primary benefit that they keep giving us is access.

And if you ask yourself why don't we have access, the answer is simple. Because we have this fortress hub system. And so people who say, I want to get to there, but I can't find another airline to get to there, because when I get to their hub, there's nobody else there. This is Mr. Neeleman's problem. He says, if I could get access to those hubs, then I could actually compete for those customers. And if I compete on price, you know what, for that $400 I think people will change planes.

At least that's what my members tell me. So what he's offering you is a solution to a problem that he has created, and we'll only reinforce that. The point is that, if we want to have competition, we have to have access to customers, and this merger will make that less. Yes, he's going to give me a flight to Beijing, but the people who want to get from Columbus to Charlotte are paying $500 too much. And Mr. Neeleman would like to be able to get into Charlotte so that he can compete on that route, and that's his problem. That is a structural problem that the industry has created.

So I certainly would not let them solve the problem by making it worse, which is what they propose to do. The benefit is convenience. I'd love to go to Beijing on a one-stop flight if I live in one of those cities at the end of his network. But, frankly, on a day-to-day basis, the average consumer is more worried about the $500 differential that Mr. Edwards presented in such stark terms, and that problem is created by policy about closing hubs.

SEN. KOHL: One last question. Mr. Johnson, you are on the Board of US Air --

MR. JOHNSON: I'm still a Board Member. Yes, sir.

SEN. KOHL: Is it not of interest that as a member of the Board of Directors and you can vote on this merger, but as a member of the Board of Directors, you now wind up with a brand new business that has a huge profit potential -- or you wouldn't be doing it -- and it comes to you, to some extent, because you are an insider there. You understand everything. They understand you and whatever they decided, or you jointly decided, that you would get out of all of this for yourself, a shiny new business with a huge upside.

I mean, I think you need to somehow explain that to those of us who are interested in protecting, as a member of the Board of Directors, protecting only the value of the shareholders that you represent. That's your fiduciary responsibility.

MR. JOHNSON: Yes, Senator, I'd be delighted to explain that to you because I think it's part and parcel of what I call the way the American system works. For many years, we as African Americans have not been in that, what I call that system of access to people who can benefit you in terms of opportunities. I went to Princeton, and because I went to Princeton, I was referred to a gentleman here in Washington, a guy named Bob Grey (ph), who owned a big -- Hill and Knowlton public relations firm. That Princeton connection got me my first job with the Corporation of Public Broadcasting.

It's called being in the deal flow. Now, I was able to get on Stephen Wolf's board because he respected the fact that I also served on Hilton Hotel's board, General Mills' board, and I created a business as a CEO that I founded. And he recognized that I knew how to create value. I knew how to focus on shareholder interest. And he knew I had the first African American company publicly traded on the New York Stock Exchange, US Air as a director. Now when this opportunity came before me, I was not seeking this opportunity. When Steve mentioned the merger, the overlap competition in DC Air, he knew he had to spin it off. He came to me because I was a businessman who he felt had enough confidence, enough capital, to take on this opportunity. It was fully disclosed to the board. I didn't participate in any vote on this issue at all. And I think it's absolutely the way business is done in the United States, where you get access to individuals who can help you. They're presented to you. It's above board. I'm paying full value. It's my capital. This is the American way. And I'm delighted to be a part of it.

SEN. KOHL: Thank you.

SEN. DEWINE: Senator Kohl, thank you very much. Senator Specter?

SEN. SPECTER: Thank you, Mr. Chairman. In view of the very limited amount of time that we have on the questions in the hearing today, I want to start by asking that a number of questions be answered for the record. First of all, Mr. Goodwin and Mr. Wolf, I would like to know what efforts there have been made by other airlines to come in and compete with your carriers. What happened with respect to the fares they charged, how you met them and whether they were able to provide any effective competition? I want to ask to see what your experience has been, like the American Airlines, which billed a company out of business in Wichita, at least under the allegations which have been made in that antitrust litigation.

Mr. Johnson, I would appreciate it if you would provide information on the capitalization of your company. The information which I have amounts to your purchasing 222 slots, leasing 37 planes from United and no information as to capitalization. I note that there have been five shareholder lawsuits filed against US Airways directors on an allocation of assets to you benefiting from -- at the expense of public shareholders and another lawsuit that has been filed alleging self dealing. I'd like your responses to those and to know what kind of capital do you have, besides leasing these planes preliminarily from United and how you're going to make a transition from leases to acquiring jets.

Mr. Goodwin, I'd like information from you about what happened in the sequence of mergers which followed in 1985, United's acquisition of Pan American World Airways. The information that I see is that it's -- the experts concluded that it spurred Northwest's subsequent acquisition of Republic, which created the domination of certain markets. And we have already talked about a concern here as to the domino effect on the mergers between American and Delta and Continental and Northwest. And I'd like to have your analysis as to what the impact on the market will be when number one teams up with number six.

Mr. Wolf, you have made a point as to what has happened to similarly situated airlines, about five of them -- Braniff and TWA and others -- on an analogy as to where US Airways stands, in terms of the future of your company. And one of the matters of enormous concern to Pennsylvania is what would happen to US Airways if this merger does not occur. So I would like your analysis as to what has happened to those other companies, in terms of what is posed now as a risk to US Airways. And included in that, I'd like the analysis -- of you, Mr. Goodwin, as well -- as to how Southwest comes into the picture and how AirTran comes into the picture and how they acquire slots and gates. As I understand it, there is such a tie-up on that that the prospect of another competitor is just very, very slight.

Now, Mr. Goodwin, yesterday, you were asked at the House hearings whether United -- and it is United because you're going to be the survivor here -- would be willing to sign a consent decree, with the Department of Transportation or perhaps it could be with the Department of Justice, guaranteeing that whatever commitments are undertaken here for however long a period of time, that it would be enforceable. Your response was you didn't know the answer to that question. And nobody asked you the follow up question is if you don't know who does, you're the CEO. Are you prepared today to make a commitment? The successor company, if a merger is approved, would be willing to enter into a consent decree so any commitments are binding and enforceable?

MR. GOODWIN: Senator, I think it may be a little bit of the same conversation we were having earlier. And if you're referring to the price conversation that we had yesterday, there was a subsequent follow-on discussion about that subject. And what I had said and what I am willing to commit to is United Airlines is unequivocally committing to a two-year price freeze on those fare types that we have, indeed, identified. We believe it is a fair freeze that will cut across the entire industry.

SEN. SPECTER: Can you come to my question, please?

MR. GOODWIN: And, as a result of that, we are willing to accept any monitoring process that we can work out with the Department of Transportation, Department of Justice to ensure that we follow through on our commitment.

SEN. SPECTER: Well, the way to do that would be a consent decree. You enter into a contract, call it a consent decree. It's enforceable.

You're willing to do that?

MR. GOODWIN: We're willing to commit to whatever the government believes that they need to have to ensure that we follow through on our commitments.

SEN. SPECTER: Well, I don't want to leave it to the government, that nebulous entity, for the future. I want to know today if you're prepared to say if you'd agree to a consent decree. That's the way it's done.

MR. GOODWIN: If that's the way it's done and if that's what we have to do to demonstrate our commitment, we're willing to commit to what we have committed to. We want to provide our customers with a two-year fare freeze. And we'll commit to that.

SEN. SPECTER: Well, I am unwilling to accept your statement, "If that's the way it's done, then we'll commit to it." I don't want to get involved in whether that's the way it's done. I want to know whether you will make a contractual commitment, which is binding in a court of law, on whatever promises you make with respect to fares or anything else.

MR. GOODWIN: Well, I'm testifying to that effect today. And we are very serious about that. If the legal language is a consent decree that we have to commit to in order to satisfy the requirement, that's what we will commit to.

SEN. SPECTER: Well, I'll take that to be a "yes," Mr. Goodwin. With respect to the business about furloughs, I understand your policy on that. Would you be willing to commit to maintaining the same number of jobs, so that if people leave by attrition, that those same number of jobs would be open, say in Pennsylvania? Take Pennsylvania.

MR. GOODWIN: Senator, no. I would not be willing to make that commitment. I think we have made an unprecedented commitment to employ all the people that are currently employed by US Airways. And scheduled work, technology, et cetera are changing every day in the marketplace. And to make that commitment, I could not do, sir.

SEN. SPECTER: Well, there are changes. And it's up to you. But there are an awful lot of nervous people among the 11,700 employees in Pittsburgh and 5,800 in Philadelphia. And you're privileged to make whatever arrangements you choose, obviously. You made quite a big deal over saying that there would be no furloughs. But that left open the question as to whether employment opportunities would be maintained. And while technology does change, the question in my mind is the fairness of asking you to make a two-year commitment on those job opportunities. It's not an unlimited opportunity -- unlimited commitment. But it would provide some additional assurance. And I think two years because that's what you've decided with respect to airfares. How about it?

MR. GOODWIN: Senator, I'm not sure exactly what you're asking for in that two-year period.

SEN. SPECTER: Exactly what I'm asking for --

MR. GOODWIN: A cap on employment numbers?

SEN. SPECTER: Exactly what I'm asking for is the same number of jobs which are now available by US Air in Pennsylvania will be maintained for two years.

MR. GOODWIN: Senator, I am not in a position to be able to make that commitment.

SEN. SPECTER: Fair enough. Your judgment -- your business judgment, I respect that. But that tells us something at the other end as to what's likely to happen to the 17,000 employees. I've taken a look at the pricing fares and the way you establish prices. And without being facetious, I don't think Albert Einstein could understand.

You have six months prior to departure, 48 days before departure, 13 days before departure, four hours before departure, five minutes before departure, overbookings in all the categories. For example, four hours before departure, the plane is overbooked by 11 passengers, but the computer, nonetheless authorizes the sale of three more coach seats. There is a different standard five minutes before departure.

I'm taking a look to see what is the meaningfulness of the commitment you've made to maintain prices for two years. Does that maintain a commitment that you aren't going to change the number of seats available at the lower fare? Because if you reduce the number of seats at the lower fare, then in effect the prices will go up, although you haven't raised the price. Does it affect the special arrangements that you have? Because if you make changes on the special arrangements, then the prices would, in effect go up. And what can be done, Mr. Goodwin, Mr. Wolf, to give the consuming public some opportunity to understand pricing? Your fares are not published, is that correct, Mr. Goodwin?

MR. GOODWIN: No, senator, it is not. Fares are published widely, both in our system, on the Internet. Consumers have access to prices.

SEN. SPECTER: Do consumers have a spot where they can take a look, in one document, to find out these various costs for six months, 48 days, 13 days, four hours before, five minutes before?

MR. GOODWIN: Senator, all of the computer reservation systems, all the Internet booking systems that are currently in use, have a low fare shopper feature that all the consumer has to do is put in he city they're leaving from, the city they're going to, the day they want to fly and it will find the lowest fare for them.

SEN. SPECTER: That doesn't answer my question, Mr. Goodwin. I understand that. I understand you can go to the Internet and you can find out where the cheapest fare is today to go from point A to point B. But my question to you -- my question to you -- is whether somebody can go and get the whole picture.

MR. GOODWIN: Well, the information on the whole picture only resides in the computer systems. And they can go to those computer systems and have access, senator, to all that information. There isn't one spot that I personally know of that has the thousands or probably millions of fares that are displayed in those computer systems today.

SEN. SPECTER: Okay. Just one more question. One was asked of you yesterday, Mr. Goodwin, and that was the assertion made by Mr. DeFazio that United has the worst consumer record and the worst on- time record. First of all, was Congressman DeFazio correct when he said that on the House hearing yesterday?

MR. GOODWIN: Senator, it depends on what survey or what criteria you want to measure it against. Senator DeFazio --

SEN. SPECTER: Is there any survey which shows that?

MR. GOODWIN: Yes, there is. And then there are comparable surveys that say that we are rated number one or number two in the industry. So when we talk about our company, I guess we all like to pick the one we like the best. But United Airlines service ratings by PLOG (ph), which is a syndicated research company that measures all the airlines, all the time, and has been doing it for the past 20 years, has United rated as number one for the last 12 months.

SEN. SPECTER: On what?

MR. GOODWIN: On total airline service, all the things the customer --

SEN. SPECTER: How about just on on-time, which ought to be --

MR. GOODWIN: On-time is clearly one of the elements, sir.

SEN. SPECTER: A little easier to gauge. Well, with 31 elements, here you've got an Einstein problem. How about on-time? Was Congressman DeFazio correct that United has the worst on-time record of any carrier in the country?

MR. GOODWIN: The last 12 months, United Airlines performance on on-time is we're ranked seventh, not last. His comment yesterday, sir, related to the 13-year period from 1987 to the year 2000.

SEN. SPECTER: Okay, very last question.

If you're ranked seventh at the present time, which is not too good, are you going to be any better if you acquire US Airways and have still a bigger system to administer?

MR. GOODWIN: Absolutely.

SEN. SPECTER: Thank you.

SEN. DEWINE: Senator Leahy?

SEN. LEAHY: Mr. Goodwin, if it's any consolation, members of Congress also get rated by a lot of different organizations. (Laughter.) We tend to, when we run our reelection ads, we don't put all the ratings in those ads either. This probably comes as a shock to you, but it's true. But we usually end up finding whoever runs against us finds the other ratings and they publish them.

But I'll just say on your consent -- on the question of a consent decree in the form of a contract, like all contracts, you can't enter into a contract unilaterally. I would assume that your answer would include the fact that if you're going to have such a consent decree, whoever is in the government has to agree to the other side of it or you can't enter into such a contract. Is that true?

MR. GOODWIN: Senator, that was the point I was trying to make, that whatever we have to do to satisfy the Department of Justice requirements, we will do that.

SEN. LEAHY: Thinking of Doc Yaeger (ph), one of my professors in Contracts 101 at Georgetown, God rest his soul, a very colorful man. But I do recall we need more than one person in a contract.

Now, Mr. Goodwin and Mr. Wolf, I think your respective boards of directors are probably praising the heck out of you. They should. You've entered into an agreement on paper. It's a logical fit for both companies. United flies primarily east-west. US Airways is the dominant carrier in the -- north-south carrier on the East Coast. You spin off DC Air or whatever it may end up being called. Then you address the United domination of the Washington, D.C. market.

But, having said all these things complimentary -- and I mean them that way -- I think you're going to have market share problems in many other communities. US Airways is the dominant carrier in many communities in the East Coast. You merge with United, it's going to strengthen that grip even more. It's the places with the end point destinations that bother me. There is consolidation of carriers. I don't see how that brings down these high airfares.

You talk about holding airfares in place for two years. That doesn't help us when we think the airfare is too high already. I've used this chart. I know these prices because I fly my family back and forth all the time. And I find it a lot easier when they say, "Dad, let's go to California," or Ireland or visit relatives in Italy or whatever else we do, than going back and forth here. It's going to cost the old man a little bit less.

How do you take care of those end point areas? I mean, I don't frankly, I don't see, if these places are this high with some competition, how could they possibly come down with even less competition?

MR. WOLF: Can I comment on the --

SEN. LEAHY: And I have enormous respect for both your airlines. As I said before, they fly into Burlington. Your people there are one of the most professional I've ever met. As I fly around the country, US Airways and United, the people in your other hubs and areas are extraordinarily professional and helpful people. That's not the issue. It's the issue of whether a family can go somewhere without taking out a second mortgage.

All right, Mr. Wolf, you were trying to say something?

MR. WOLF: Let me try to comment on the round-trip Washington, D.C. from Burlington. I'm assuming these numbers are all absolutely correct. My guess is the $750 -- $35 round-trip fare is the walk-up, most expensive --

SEN. LEAHY: Seven days.

MR. WOLF: Seven-day advance for the $735? And this $419 fare to London is certainly the largest advance purchase possible.

SEN. LEAHY: Seven days.

MR. WOLF: Seven days also?

SEN. LEAHY: Yeah, we took these all at seven days. Incidentally, on an earlier question, you were asked -- help me a little bit on this, Mr. Goodwin. I'll go back to you, Mr. Wolf. You were asked about these charts. The Internet really had to change that. And I think, in fairness to you, it should say so. I know that my kids, in their last trip from the West Coast, they put into Priceline or Travelocity, one of those, a fare and a date and came back. They said no. They put it back in the amount again they wanted. And after 15 minutes, they got it.

And this is something we never had before. I'm not doing that as an ad for any of these companies. But I know that we find that is very helpful.

I'm sorry, Mr. Wolf, go ahead.

MR. WOLF: Let me go back to it again and take a shot at it. Let me start by saying -- which I don't say with any particular pleasure that US Airways has the highest unit costs in the industry. We have the highest unit costs in the industry primarily for two reasons. One is our average stage length and the average aircraft size, small airplane on a small stage length, which drives high unit cost. And two, because we are only about half the size of the major carriers, so we can't spread our fixed costs over a larger base, which is one of the driving forces for the transaction we're proposing.

I would guess that unit costs between Burlington and Washington are five, six, conceivably seven times what they are in that transatlantic flight. There's a load factor in the transatlantic flight, so that fare level is probably 100 percent. And our load factor in Burlington is maybe 60.

Mr. Chairman, if I could, I'd like to go back to the fortress hub thing for just a second because fortress hubs have this flavor of bad. And I'm particularly that Senator Schumer is back in the room. There are 23 --

SEN. LEAHY: I just want to add a note on this. Mr. Wolf, I recall when there has been competition, prices still haven't come down. I mean, it may drive the airline or regional carrier or anything else to redetermine what they will use for equipment. I take fly both of your companies all the time. They're usually full. A lot of times I can't even get on because they're already full. A larger plane, which would cost you a lot less if it was available, would allow it to bring down the cost of that ticket. But also, there would be people there.

I remember when the old People's Express was flying in and out of Burlington, we had busloads coming down from Montreal. We had a lot of others that came there to fly it. And while it was going on, prices of everybody came down. But anyway, go ahead.

MR. WOLF: Well, the larger aircraft would, in fact, would be substantially more expensive to operate, but it would generate lower unit costs. But in any event, if I could go the hub thing for just a second? There are 23 hub cities in the United State of America. And because of the economic advantage of being a hub city, is suspect every other city in the United States of America would like to be a hub city.

Hubs compete with hubs, which is a little more difficult for us to understand. We all understand airlines competing with airlines, but hubs compete with hubs. And let me use an example for just a second. And I'm particularly pleased that Senator Schumer is here. We fly from Buffalo to Pittsburgh four times a day, with full-sized jet aircraft. There are 24 passengers a day to fly between Buffalo and Pittsburgh. On average, we have six of them per flight.

Now because we run a hub in Pittsburgh -- which, by the way, we'd never fly any times per day from Buffalo to Pittsburgh with 24 passengers in total in the marketplace.

But because we have a hub in Pittsburgh, we're able to say to our sales arm in Buffalo, you not only can sell a seat to Pittsburgh, you can sell a seat, as a result of the connecting complex in Pittsburgh, to the beyond 35 additional destinations. And the sum of that is we generate a load factor of about 67 percent. And it becomes sort of a profitable thing for us to do.

But if you look at Buffalo and you look at our operation, if you're in Buffalo, you can connect if you want to a beyond point. Pick the West Coast where you cannot fly non-stop from Buffalo to the West Coast. You can fly over Atlanta three times a day from Buffalo to connect through to Los Angeles, or Charlotte three times a day, or O'Hare 10 times a day on America or United, or Cincinnati three times a day on Delta, or Cleveland six times a day on Continental, or Dallas once a day on American, or Northwest six times a day out of Detroit.

Hubs vigorously compete with hubs. And as a result of that, these communities get more service than they would otherwise get. The hub city gets phenomenally more than it can justify on an O&D basis because of the size of its local market. And the feed cities get more than they would get otherwise. And as a result, frankly, what is going on in the industry, with the strong desire for low cost, low fare carriers to come in, perfectly understandable by me as an American consumer and I understand perfectly what they do to mature cost airlines in terms of monitoring their fare levels because they have dramatically lower costs and thus, lower fares. And that is certainly what the American consumer wants.

We have to match the fare. Whether we lose money or not, we have to match the fare because the option is if we don't match the fare, no one is going to fly on us and we're going to have to withdraw from the marketplace.

So I think there is an immense amount of competition in this industry today. And I think it's going to continue. I think JetBlue is going to do exceedingly well and continue to grow and, among other things, cause all of us to watch our fares because we don't have his costs, but we've got to match their fare level.

SEN. LEAHY: Could I close with this, Mr. Chairman?

SEN. DEWINE: Please.

SEN. LEAHY: I'm going to submit a number of questions. And I realize this is a complex area. And at some point, I would like to talk at further length with you, Mr. Goodwin and you, Mr. Wolf and you, Mr. Johnson, about this. But Mr. Neeleman, let me just say, if I might, Mr. Chairman, one more question? Vermonters are excited about the jet service to Burlington. I've seen the diagrams of these planes.

MR. NEELEMAN: I've been on them, Mr. Chairman. They're very nice.

SEN. LEAHY: Well, actually, they're the kind of planes you wish the flight would last a little bit longer, unlike where we -- many times, we're all so busy, we don't want it to last any longer, even on the nicest of airplanes. And I understand your service to Buffalo -- that's in New York, upstate. (Laughter.)

SEN. SCHUMER: I've been there. (Laughter.)

SEN. LEAHY: And to Florida is working out extremely well. Now, Vermont is a high priced destination. So a low fare service is very welcome. You said that you are concerned that JetBlue is going to be shut out of National Airport because of slotting problems. But there are two other airports in the D.C. area. In fact, there's a couple of fares out of BWI, then we've got Dulles. Why is it a problem if you get shut out of National?

MR. NEELEMAN: Well, I think it's -- if you look at consistently, Washington National is the airport that people want to go to in the Washington area. It's the airport that, traditionally, has -- you can't buy slots in there. I mean, and we made an inquiry to leasing slots and it was so expensive that, obviously, we couldn't make it work. And so, obviously, the market dictates. Those slots are obviously were created for the taxpayer and were created by the federal government and given out.

We would like to have the opportunity to be able to -- you know, thanks to Senator Schumer and efforts of many, we were able to have access to Kennedy Airport. And from there, we have been offering $49 to $99 fares to upstate New York and have increased service from three flights a day to Buffalo to five flights a day. And there is thousands and thousands of people now that are traveling where they couldn't have traveled before.

All we want is access. And we want to be able to fly into a market. And, you know, to Mr. Wolf's comment, you know, I understand, we cannot be all things to all people. You know, we will never fly to Paris out of Charlotte or anywhere else. And there needs to be a national system that needs to be created for maximum amount of efficiency. You may be happy when you fly from Buffalo, New York -- Buffalo to New York on us for $49, but what happens one day when you want to fly to Spokane, Washington? You know, you have to have a national network.

And I'm saying, "Okay." It makes sense, all the things they say. But we need to have, then, if we're going to put so much power in such few hands going forward, then let's enact some way that we can make sure that competition on a regional basis, like what we've been able to do in the state of New York and we will do in the state of Vermont, can continue, where they can't take this power and lay it on top of you -- and there has been many cases of that -- to put you out of business just to return to status quo. And I think, too, Southwest has been able to coexist. And they have flourished. You know, they make, you know, hundreds of millions of dollars a year. If we were making that now, we wouldn't be so concerned about making sure there were competitive guidelines. We hope to get to that place someday. And I'm sure we will.

But, you know, there are points on both sides. There is the good and there is the bad. And I think there is a way to take this opportunity to take the good with the bad and make it better for the American consumer than it has been heretofore or will be in the future, if there is something that's not done.

SEN. LEAHY: And thank you again, Mr. Chairman, for holding this hearing. I think it's extremely valuable.

SEN. DEWINE: Thank you, Senator Leahy. Senator Schumer?

SEN. SCHUMER: Thank you. When I thank you, Mr. Chairman, for your patience and courtesy, which you always extend. I'm going to try to make it quick because I've been here at the end. But I have two questions that I would like to ask each of the four panelists. And I'll ask them at once and let them answer seriatim. First -- and then I have one final question for Mr. Neeleman -- first, how is this merger, given that we have not gotten good service in upstate New York I met Mr. Wolf a while ago and complained about the service. And he explained to me his high cost. And I said, "Well, I'm going to have to try to bring in competition." And he said, "Well, that's probably what you should do."

MR. WOLF: That is absolutely correct.

SEN. SCHUMER: I respected his honesty. And I did -- (laughing). So the question is, what will this merger, as constituted by you folks, do for upstate New York better than what is done now? Given the high cost structure, why isn't it in my constituents' interest to take these beautiful 212 slots or whatever it is -- did I get the right number? -- 222, which are gold, and give them to a low cost airline? Because it seems to me, I don't see, given the arrangement that you folks have made, that the new airline is going to do much better than the old airline and worse, in a sense, that if they don't do well, maybe because they don't have the long-term tradition and obligations that US Air had, they'll just change. They'll say, "We shouldn't be a northeast airline. We should be something else." Or we could take our slots and give them to the market.

And so, I guess my second question is, are people willing to commit that they will serve upstate New York? I don't mean a verbal commitment. I mean we work out with antitrust and Department of Transportation that these slots, which I think many people are having doubts about, in terms of how the system works, are tied to geography, as opposed to tied to a carrier. Mr. Goodwin, you may go first.

MR. GOODWIN: I will speak to your question of upstate New York. Upstate New York is a very important market to not only your constituents, but my constituents.

SEN. SCHUMER: It's the seventh largest state in America. It would be, without any of New York City or the suburbs.

MR. GOODWIN: We have had a long-term relationship of serving upstate New York, principally over our hub in Chicago and, most recently, with some flights down to Dulles, as we have expanded across the North Atlantic. It is our intent, as part of this transaction, to continue to provide all the service that we have been providing to upstate New York and providing the service that will come as part of this transaction to the hubs of Pittsburgh and Philadelphia.

SEN. SCHUMER: Do you think the cost would get any lower?

MR. GOODWIN: I believe that US Airways has a unique problem with their cost structure because of their size and their complexity. We have a much larger route network. We're clearly going to be able to take their infrastructure costs and spread them over a much larger base. That, in my estimation, is going to lower cost.

SEN. SCHUMER: Now, that would not be true of D.C. airlines? They won't have the larger base and they'll still have the high cost.

MR. GOODWIN: No. But, senator, they also don't have 75 years of history of being an old economy -- or an old economy air carrier. They're starting with -- from scratch, just like JetBlue has. You have different work rules. You have different employment contracts. You have different processes that we, unfortunately, can't go back and reinvent the wheel. And that's why a Southwest and a JetBlue and a Frontier and an AirTran and an ATA and all those carriers can be successful in the market because they aren't tied to the old patterns that we are.

SEN. SCHUMER: Right.

MR. GOODWIN: So upstate New York, in my estimation, is going to benefit significantly from this transaction because they're going to have more access. They're going to have one carrier. They're going to have online capability to basically the global market. And we are very, very hopeful that as we -- if we're as successful as we think we are, we're hopeful that we're going to be able to bring more service to upstate New York from some of our other hubs.

SEN. SCHUMER: Mr. Wolf?

MR. WOLF: Senator Schumer, as you and I have talked in the past, US Airways' Achilles heel, much to my embarrassment, but factually, is that we are the highest unit cost carrier in the country. We have not done what the other five carriers, who were mid-sized, mature cost carriers at the beginning of deregulation. We were not Eastern, Braniff or Pan American and going out of business. We were not Continental or Delta, who have gone through bankruptcy twice. We are the sole remaining mature cost carrier of mid-size. And clearly, it is an issue of significance to us and has some portent about our long- term viability.

Having said that, when this merger is consummated, our unit costs are going to come down dramatically because we're going to be in a much, much larger base. It's just the way the system works. If I could double the size of my own airline today, our unit costs would come down absolutely dramatically. And that's what will happen when we merge with United Airlines.

SEN. SCHUMER: Why would the price be lowered? Let's leave out the PC for the moment, which is a new entity. Why would the price be lowered if there is less competition rather than more? You're a businessman.

MR. WOLF: But I don't agree there's going to be less competition. I think there's going to be more vigorous competition as a result of doing this than less competition.

SEN. SCHUMER: How so? You have two airlines and now you have one.

MR. WOLF: Oh, on those routes, on those limited number of routes where we go from one to two, it's a real issue. It's a Justice Department issue. It's an issue for you. It's one that we're going to deal with as aggressively as we can. But other than in a point to point service, if you're in Buffalo and you're flying through the hundreds and thousands of cities of the United States --

SEN. SCHUMER: Take Chicago.

MR. WOLF: To Chicago, you're going to fly on American or United Airlines. But if you go beyond Chicago, you can fly over Chicago on those two carriers or over Cincinnati on all different airlines. And we're all competing for that beyond passenger. So competition is going to stay as it is. And we think it's going to become even more aggressive. In any event --

SEN. SCHUMER: It hasn't worked very well. Admittedly, it's worked the worse in the slotted airports, the two New York City, Kennedy and -- I mean, National and O'Hare. But it hasn't done us much good up to now.

MR. WOLF: Well, I'm not sure I would agree. I mean, the GA Office says that the fares of airlines today are some 36 to 40 percent on a real dollar basis --

SEN. SCHUMER: I mean for upstate New York, it hasn't.

MR. WOLF: Well, the discount fares are still very attractive. But you're going to -- if this happens, I'm sad to say, you're going to lose the highest cost carrier in the country and you're going to get a much bigger carrier with a much broader system, with all the economic advantage of being going to all those points online, which is what Kodak will tell you they want, at a lower cost structure.

SEN. SCHUMER: And let me ask you one other question.

MR. WOLF: Sure. I'm going to answer the second one also.

SEN. SCHUMER: Go ahead. Great.

MR. WOLF: Second one is, why should we give these slots to this airline versus a low cost carrier? There is some misconception about quote -- "this airline." This is a new airline just like JetBlue, with new employees. They're not taking one US Airways employee, unless they hire a member of management who goes there willingly. He's going to hire his own employees and acquire his own aircraft. And he's going to be a low cost carrier starting up. And two, he's going to be able to provide much more competitive fares than anything that we can provide today.

Last thing on that particular point is --

SEN. SCHUMER: How can he get -- he can get -- he's going to -- well, I'll ask Mr. Johnson this. Okay.

MR. WOLF: I mean, he's a JetBlue start-up airline with, at this point in time, an acting president. He's going to hire a president. He's going to hire a chief pilot. He's going to hire pilots. He's going to go through the same thing that JetBlue has gone through. But what he has to do, which is somewhat awkward and unusual, the day after the merger is consummated, he's got to serve these 43 cities. And he's got to do temporary things to get aircraft to operate with until he can get his own fleet and his own employees. And he cannot do that in advance because we're talking about hundreds of millions in commitment to airplanes. And he doesn't even know if he's going to have an airline. So it's only an interim situation.

SEN. SCHUMER: Yeah, but at the beginning, to keep the service going, he's going to basically take over your structure and call it a different name.

MR. WOLF: No, he's not. No, he's not. He's going to do one of a couple of things. We are going to move a significant number of regional jets that we have exclusive contracts with today, US Airways, and move those into National Airport to serve routes that we are flying with our own aircraft today at a much, much higher cost.

SEN. SCHUMER: You'll give those to him?

MR. WOLF: I'm not giving it, though. He's going to do this himself.

He's going to acquire, own eight turbo-prop aircraft, although he's going to become an all-jet fleet as quickly as he can. And he's going to lease from United some limited number of 737s --200 with crews to operate these routes at an arms length negotiation until he can get his own airplanes. He doesn't have the luxury of doing what JetBlue is doing, which is starting up with one, two, three airplanes and growing that way because he's got to serve the marketplace day one. But they'll get there as quickly as he can. But he's a low cost, new airline, start-up carrier.

In the alternative --

SEN. SCHUMER: Why, if you couldn't do it, can he do it? You could have started from scratch, so to speak.

MR. WOLF: No, I couldn't.

SEN. SCHUMER: You could have gotten new planes. You could have looked for new employees.

MR. WOLF: No, sir. We couldn't do that. We are certainly doing a good job of buying new aircraft. And we're going to take 58 new large ships this year. But I can't abrogate my union contract. I mean, I have a scope clause that says if I buy an airplane and if we own an airplane, it's going to be flown by our pilots. And it's common in the industry. He's going to go out and hire his own pilots. He's going to start up just like JetBlue. And I can't do that. I can't do it with a subsidiary or any other way possible.

Two, we did look at selling the spots off piecemeal -- two here, six there, 12 there.

SEN. SCHUMER: Right.

MR. WOLF: Probably could have gotten more money for them.

SEN. SCHUMER: I don't want to see them sold because they could go --

MR. WOLF: We would give them away --

SEN. SCHUMER: What do you think of the idea of tying slots to a geographic -- tying them geographically?

MR. WOLF: Frankly, I've never thought about it. But I can tell you this, that US Airways has served a number of these small communities for 50 years or more. And we could certainly use those slots to larger geographic center where there is more revenue. And Bob Johnson is committing to doing the same thing.

SEN. SCHUMER: Okay. We'll need more than a verbal commitment.

MR. WOLF: I think you had -- I interrupted you a minute ago.

SEN. SCHUMER: No, no, no. That's fair. Go ahead, Mr. Johnson, same question.

MR. JOHNSON: Well, I think I'm going to echo, in what I'm saying, a lot of exactly what Mr. Wolf said. What we'll do for service for upstate New York, the service is going to be better than it has been before because, for example, right now you get three jets in Buffalo, three jets in Albany, three jets in Rochester, three jets in Syracuse. You continue to get that same level of service. But in our case, you have an airline that's totally focused only on serving the 43 cities, of which the four that I'm talking about are your cities.

SEN. SCHUMER: Binghamton too. Binghamton you serve.

MR. JOHNSON: Okay. We also serve White Plains as well.

SEN. SCHUMER: That's not on your list.

MR. JOHNSON: Not on my list. DC Air is not in Binghamton.

SEN. SCHUMER: It's not in Binghamton because you don't go from Binghamton -- US Air does not go now from D.C. to -- they just go to Pittsburgh. Right. Okay.

MR. JOHNSON: So you're going to have a focused airline. It's not going to be tied to the mature cost that Stephen Wolf mentioned. So we can focus on productivity. We can focus on marketing. We can focus on providing a service that's directly related to the communities that we serve. We're not looking to go across the Atlantic. We're not looking to build up a hub site anyplace else. We're only focusing on the 43 cities.

Now the question is, why should you give these valuable slots to a low cost carrier? First of all, they weren't given to me. They were sold to me, just as slots have been sold historically throughout the airline industry or leased throughout the airline industry. This is not a giveaway.

SEN. SCHUMER: They were sold?

MR. JOHNSON: They were sold. Right.

SEN. SCHUMER: Not in a competitive bidding situation, I presume.

MR. JOHNSON: And as far as I know historically, they are not sold in a competitive bidding --

SEN. SCHUMER: No, that's one of the problems.

MR. JOHNSON: Well, I know, but I'm only coming to the opportunity as it's presented. And so I did exactly what every other airline has done and so on.

SEN. SCHUMER: You realize that's not a great argument for upstate New York.

MR. JOHNSON: Well, I think David got his slots were sort of given to him. I don't think he competitive bid for him.

SEN. SCHUMER: No, but they were tied geographically.

MR. JOHNSON: And we're tied, in a way, geographically for 50 years of history. And I see no reason to change that history, in terms of serving these 43 cities. Now the question is why should you give it to a low cost carrier? My argument is we will be a low cost carrier because of some of the things I mentioned before -- focused airline, rationalized fleet, market commitment to serve just these 43 cities. For example, if you look at the DC Air routes now, the total revenue, if you take the total revenue divided by the three million passengers, the average cost of a point A to point B flight on DC Air is about $125.

Now that's the kind of competitive route structure they have now. I think once we get a hold of it -- and as I said, focused on cost, focused on service -- those costs are going to be much more competitive.

SEN. SCHUMER: Now --

MR. JOHNSON: When we commit to serve upstate New York, senator

SEN. SCHUMER: Let's put it like this, how will you commit beyond a verbal commitment?

MR. JOHNSON: I think we will be more than willing to sit down and talk with the people at DOT, the people at Justice about how they might ask us to address that issue. But I think if you look at what the airline has done in the past, that's been its route structure. It's been a valuable route structure. It would be certainly no way in my interest to try to tamper with that very attractive route structure. And part of that route structure are the cities that we mentioned in upstate New York. But I'll be more than glad to sit down with the officials at DOT and Justice to address that issue.

SEN. SCHUMER: Great. Okay, thank you. Now, I'd just like Mr. Neeleman and Mr. Cooper to, in whatever way you see appropriate, either agree with or rebut what has been said by Messrs. Goodman, Wolf and Johnson. And just one other question to Mr. Neeleman, which is you've done a great job. I mean, I'm not wedded to JetBlue. I'm wedded to good service for upstate New York. And you have -- you're the first one to really provide.

But you have a real constraint, which is number of jets. And how are you going to be able -- let us say, somehow or other, you had a chance to get a bunch of those slots and fly to the cities you're flying to from National. How would you be able to serve them, given that you have a constraint on number of planes you have? So answer, you know, whatever you want to say in reference to these three guys, and then that question.

MR. NEELEMAN: Okay, great. Let me answer the last one first. You know, one of the reasons that I think and I know that JetBlue will be successful is that we have a plan and we're going to stick to it. You know, as much as this area of the country would be nice and I would love to have been in Mr. Johnson's spot to get these, we're committed to New York. We're a New York-based airline. We've committed to you and we've committed to everyone that we're going to utilize the spots that we have in Kennedy Airport. And where this -- we could not use more than, you know, maybe 10 of those slots to provide service between here and New York City, which would in turn provide service to upstate New York.

There is other airlines that are lining up saying, "We want them all. We'll divert all of our planes in here." You know, we're not here in a self-serving way to do that. And I frankly have been enlightened today by the fact that Mr. Johnson -- it's not something that's going to be attached to United Airlines, that he's going to go out on his own. We have a lot of expertise. I was just sitting here thinking, maybe we should trade in some of our expertise for some of his slots. (Laughter.) We could do a quick trade here.

SEN. SCHUMER: As long as you fly to New York state, I might support that.

MR. NEELEMAN: Right. Well, you know they will be.

SEN. DEWINE: And Dayton and Columbus, right?

MR. NEELEMAN: And Dayton and Columbus.

SEN. SCHUMER: Well, that's for the other guys to do their thing. (Laughter.)

MR. NEELEMAN: But that's, you know, we're committed to New York. We told you that. We are. And we're not here to try and grab all the slots or, you know, we probably won't end up with any of them, for that matter. But we'd like to serve the Washington, D.C. area. We can't get into Washington National Airport. Eventually, we'll be at Dulles and, you know, bringing those low fares. And we won't be able to provide all the things that United Airlines can combine, but we'll do and take -- we'll create our passengers that are currently traveling today.

SEN. SCHUMER: And what is your judgment on the ability of Mr. Johnson? Not Mr. Johnson, per se, who is a fine, accomplished, intelligent man, but of a company starting the way it is, to be a low cost carrier, forgetting about where they fly and all of that?

MR. NEELEMAN: You know, I think, obviously, in the initial stages, they're the policy that -- it's a use it or lose it policy. So, you know, this is a very creative thing because if the slots were handed to him on a piece of paper overnight, then he would lose them all, so there needed to be a commercial arrangement where these planes would be leased and be flown by a regional carrier, probably not by United's pilots, but one of their regional carriers, to fly these. And this is the reason where, hopefully temporarily, the seats from Buffalo will contract.

And hopefully, that Mr. Johnson -- you know, having these assets and these slots, you can really make a case, the same way we did in Kennedy, to build an airline in here with really low costs. And, you know, hopefully that his concept will be similar to what ours is, instead of trying to grab the $800 fare, which has been the case in that here. Let's do a more rational, couple hundred dollar fare or a $300 fare, from $99 to $300, and create a whole lot of new business and flyer bigger jets on it.

You know, if this happens, we're all kind of in this war together. But, you know, we all have similar challenges and wish them all the luck, because it's a tough business. But, you know, like I said, the way it's structured and it's not tied -- if it's totally not tied to United and if there are restrictions that he has to fly to certain places, he can make it work. And if his costs are lower, which ours are significantly lower, and we can show him how to do that. We'd be happy to talk to him about it. Then he can make a success out of it.

SEN. SCHUMER: Thank you. Just before I get to Mr. Cooper, who I see is sitting apart from the other capitalists.

MR. COOPER: Talk to Mr. Kohn here. (Laughter.)

SEN. SCHUMER: Oh, okay.

MR. COOPER: He was the buffer, see.

SEN. SCHUMER: Gotcha. But just, Mr. Johnson, just to clarify something, there is no agreement and will be no agreement that if you don't use a slot, the slot goes back to United, reverts to United?

MR. JOHNSON: Senator, there is no agreement. There will be no agreement. I'm acquiring all the slots and will operate the slots to the 43 cities that we serve.

SEN. SCHUMER: If that was asked already, I apologize. But I thought it had to be. Okay, Mr. Cooper, you get the last word.

MR. COOPER: Mr. Schumer, your defense of upstate New York is magnificent. But frankly, as I listened to this discussion all morning, we've heard Mr. Neeleman talk about rules on perdition and access to hubs. We've heard Mr. Specter talk about his facilities. We've heard the company commit to price regulation for two years and maybe antitrust. Two to one, I think we'd have to do three to two and four to three. On any one of those routes, you lose that competitor, you have lost something. And if go back, actually, we should look at six to five and five to four, but let's just start at four to three, because almost nobody has more than four.

What we've got here is we're re-regulating the airline industry. And frankly, if I walked in here and said, "You know what? We ought to re-regulate the airline industry," you guys would have said, "You're nuts. This is one of those liberal consumer groups who wants to impose regulations." So my answer is simple. Don't cobble together the re-regulation of the airline industry to defend your interests, which I am sympathetic with, or yours or Illinois or Pennsylvania. Let's vote for competition. This man represents real competition. And let's make sure --

SEN. SCHUMER: Which man are you pointing to?

MR. COOPER: This man right here, Mr. Neeleman. He's brought low prices. And occasionally, we've heard the history, we do occasionally get a low-price airline. But they frequently get run out of the market. And we've got a court case about that. And maybe we need regulation. Maybe we need legislation. But I would urge you, as you have frequently urged me and a number of other industries, not to try and cobble together an industrial policy on the back of these mergers through consent decrees. You hate that for most industries. And so the answer is that, from our point of view, to not let this merger go forward and maybe look at the way we can introduce competition across the board because you're going to have a chance, if this goes forward, to do the same thing on a consent decree on the next one. And they're tell you I can't predict history. The answer is that we know they're coming, just like they did in telecommunications and cable TV, et cetera.

And so, from our point of view, public policy ought to be set. I'll give you the list of things that you should accomplish and tell Justice to put on the back end of that consent decree. And I guarantee you Mr. Goodwin is not going to want to sign that consent decree, which answers all these problems. The answer is, say no to the merger, continue to press the industry to compete.

And maybe we need to come back and ask this question about hubs because Mr. Wolf equates the concentration of traffic at hubs with the ownership of traffic. And that's not necessarily the way the industry has to be organized. They want to own the customers through their airports so they can control them. Didn't have to work that way. There are other industries that allow access and concentrate traffic without that ownership.

Maybe that's the legislation we should be looking at. But as a matter of principle, we ought not try and cobble together this remarkable set of conditions to preserve your options in New York. And it's not only the two to ones, it's the three to twos and the fours to threes. We should say no to this merger and insist that we open the industry up down Mr. Neeleman's path of real competition, rather than jerry-rigging some substitute, while we create a national airline.

SEN. SCHUMER: Thank you, Mr. Cooper. Thank you, Mr. Chairman.

SEN. DEWINE: Mr. Goodwin, some cities, such as Akron, currently enjoy non-stop service to competing hub airports, such as Washington Dulles, a United hub and Pittsburgh, a US Airways hub. Now that these will no longer be competing hubs, will cities such as Akron continue to have non-stop service to both cities? Or will the merged United-US Air cut non-stop service to either Washington-Dulles or Pittsburgh?

MR. GOODWIN: Senator, I don't have in front of me what we're planning in Akron, but I'd be more than happy to get it to you by first thing tomorrow morning, if you permit me to do that.

SEN. DEWINE: That would be great. Let me ask you another question. Your answer may be the same. There are at least two routes from Ohio cities Columbus and Dayton to Washington Dulles where United and US Airways are the only carriers currently offering non-stop service. If there merger is permitted to go through, basically these communities would lose all competition on these routes. Why shouldn't passengers in Dayton and Columbus be concerned about that?

MR. GOODWIN: Again, not having the specific flight schedule in front of me. But I'll be happy to get those to you. And we'll be happy to address that question, sir.

SEN. DEWINE: All right. Let me give you the final one that you can get back to us. I guess this is more directed to Mr. Wolf, but there are several Ohio markets where US Airways Express, in joint relationship with other smaller carriers, provides the only non-stop service on certain routes. For example, in Columbus, US Airways Express partners with small carriers to provide non-stop service to communities such as Grand Rapids, Michigan and Indianapolis, Indiana. What will happen to routes like this after the merger?

MR. WOLF: Mr. Chairman, we have some almost 5,000 flights a day and serve over 200 cities. My assumption is that we do that for an economic reason today, not --

SEN. DEWINE: We assume.

MR. WOLF: And I would like to think that we would have the sense to continue doing that tomorrow.

SEN. DEWINE: Okay. Well, let me thank all of our witnesses here today. We've had a very distinguished panel of witnesses. You all have been very patient with us. We appreciate this very much. I must say that I'm still concerned that this merger will lead to other mergers in the aviation industry. And frankly, I didn't hear anyone who -- any of the six witnesses -- who could tell me, "No, Senator DeWine, that's just crazy," or "That's not going to happen." So I happen to think it will happen. And I think your silence on the issue and your inability, really, to say that this is probably not going to happen clearly indicates to us that this is what's going to happen.

So I think when Justice looks at this and we look at this, as far as public policy, we have to assume this is the first of two, three mergers. And I think we can pretty well project what U,S. airlines are going to look like, the domestic industry. And I think we're going to be down to three major players. And I think we have to look at that. And I think we have to be concerned about that.

This subcommittee will continue to monitor the progress of this merger and the impact it has on competition in the airline industry. This is an industry, obviously, very critical to the United States economy. And this merger is of great importance to consumers.

So again, we appreciate all of you being here. You have shed a lot of light, I think, on the issue. And we appreciate it very much. And the hearing is adjourned.

END

LOAD-DATE: June 16, 2000

Document 74 of 110.


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