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

Document 64 of 110.

June 14, 2000, Wednesday

SECTION: PREPARED TESTIMONY

LENGTH: 1602 words

HEADLINE: PREPARED TESTIMONY OF DAVID NEELEMAN CHIEF EXECUTIVE OFFICER JETBLUE AIRWAYS CORPORATION

BEFORE THE SENATE JUDICIARY COMMITTEE SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS AND COMPETITION

BODY:
Mr. Chairman and Members of the Subcommittee:

I am grateful for the opportunity to testify this morning on behalf of JetBlue Airway's more than 600 employees.

JetBlue Airways is New York's low fare hometown airline. This is more than a marketing slogan, its really who we are.

As a new entrant, low fare carder, I am convinced that the only way to always offer the traveling public affordable airfares is to remain a low cost company. In order for JetBlue to remain a low cost company, we needed: unprecedented financing, $130 million; a fleet of brand new modem jets, the Airbus A320; a sound business plan, offering low fares and great service to the world's busiest travel market New York City; and finally an experienced and exceptional management team. I believe we have all four of these ingredients and thus far, the traveling public seems to agree. These cornerstones of our business, coupled with a focus on productivity and efficiency, have allowed us to hire at above market wages and to deliver "the JetBlue Experience" to more than 200,000 customers.

Having inaugurated service in February of this year with flights between New York City and Buffalo, we just took delivery of our fourth new aircraft last week. After the live satellite television screens are installed at each of its 162 leather seats, it will enter low fare service next week to and from Orlando. Shortly after launching Orlando, JetBlue will serve Rochester, New York and Burlington, Vermont, two of the highest priced travel destinations in America. By the end of the year, we will have ten brand new aircraft in ten cities and this growth pace will continue for at least four years and forty aircraft.

Importantly, even at this pace, I know that in four years JetBlue will still be a very small regional carder. This is precisely why certain aspects of the proposed merger, and its potential consequences for the entire industry, are of concern to JetBlue.

From a macro perspective, if this deal is approved, I believe other large carders will feel the need gain additional market strength in order to keep pace with United. Whether or not such moves are economically justified or in the best interest of their shareholders or customers, I still believe this will occur.

This industry consolidation could conceivably result in three or four major carders carrying upwards of 85 percent of all US domestic traffic. As an entrepreneur who has started and then sold companies, including an airline, I am not against airline mergers per se nor am I against the concept of this merger. However, industry consolidation such as would occur through this merger, and others, absent protection for smaller carders trying to compete fairly in the domestic marketplace, can only be seen as harmful to the American consumer.

When there are fewer companies competing in a market, any market, prices tend to rise. Small carriers, whether low fare in nature like JetBlue or otherwise, must be assured a level playing field and the ability to compete. To ensure the consumers continued access to multiple carders and low fares as the industry consolidates, small airlines must be afforded access into concentrated airports as well as access to commercially viable facilities such as gates and counter space at these airports. While some carriers claim airspace is the most pressing issue facing the US airline industry, I believe the ability of small carriers to access concentrated airports and obtain adequate facilities is the most critical issue facing new entrant carriers.

Also, as carriers consolidate their systems and pare down overlapping or inconsistent routes, lessening consumer choices, they will be in a far stronger position to utilize their suddenly available excess equipment to the disadvantage of their competitors, especially smaller carriers and new entrants.

As this deal is reviewed, I believe Congress and the Department's of Justice and Transportation should carefully examine these negative ramifications and consider ways for United and US Airways to eliminate these and similar problems. One approach which may prove to be a good starting point would be to strengthen and enact the Department of Transportation's Competition Guidelines while also increasing the use of the its unfair practices enforcement powers. I suspect the need for the Guidelines may prove greater than ever as the industry consolidates.

On a micro perspective, this deal presents several areas that I believe need to be addressed. Included here are specific airport access and facilities issues as well as specific city-pair routings where the only carrier in several large markets will be the new United. Also, in this regard, I believe that the proposed DC Air presents an unworkable attempt to solve the obvious hub domination issue that will exist in the Washington DC-Baltimore metropolitan area.

From the press accounts I have read, DC Air is poised to become Washington DC's new low fare airline; and it is suggested that it will be profitable too. I have a tremendous amount of respect for its potential new CEO, Robert Johnson. He is one of America's premier entrepreneurs with a stellar track record.

Yet the deal itself is not only bad for consumers in the entire Washington metropolitan region, it is bad for consumers throughout the eastern United States who visit Washington on business or leisure travel.

United Airlines is by far the dominant carrier today at Dulles Airport. After the merger, its dominance will increase. After the merger, United will also become the dominant carder at BWI. And right in the middle, at Reagan National Airport, DC Air will supposedly eliminate that new regional dominance.

DC Air will be flying a fleet of jets, most of which will have 50 or fewer seats. Its costs, as a so-called "virtual airline" that wet- leases the vast majority of its operational assets and personnel from United, will be high, as will its own operating costs given its equipment type and proposed route structure. In fact, with the proposed route system as I have seen it, most of DC Air's markets will have far less capacity than those markets receive today with US Airways.

With a decreased supply, and even a steady demand, prices for consumers in all DC sales markets will likely increase. Since the deregulation of the domestic airline industry in 1978, passenger traffic at Washington's National Airport has actually decreased by 360,000, a drop of more than five percent. Operations at National have also decreased during this period by more than 10 percent. Under DC Air's proposal, not only will the daily capacity further decrease at National Airport, by 16 percent, but so too will the number of daily operations, by 8 percent. With less supply into slot-controlled National Airport, leisure travelers seeking lower fares will likely find them unavailable and be forced to utilize the two remaining United dominated airports in the region.

I do not believe the DC Air proposal, which will significantly reduce capacity at the already under utilized and artificially slot- controlled National Airport, should be rubber-stamped by the regulatory authorities.

National is a unique airport. New entrants have effectively been barred since 1986 as slots cannot be purchased at any price and lease prices are prohibitive. Even with the new FAA Reauthorization law, there is no end in sight to National Airport's slot regime which has yielded less than a one percent growth rate in passenger traffic over the past twenty-five years while total domestic explanements have grown by more than 200 percent in this same period. This is clearly not the most efficient utilization of the taxpayer's most scarce aviation resource. Given the new competitive landscape that will be painted by this deal, coupled with National Airport's unique attributes, I believe the Department of Justice should insist that a portion of the slots that DC Air seeks to purchase at a below market price be returned to the government, from whence they came at no cost, and be allocated to qualified new entrant carriers who will legitimately spur competition.

Mr. Chairman, in the end, the post-deregulation domestic airline landscape is littered with many start-up carriers that have failed due to a combination of weak management, an inability to achieve low costs and/or a poor business plan. JetBlue is not, nor will it become, this type of carrier. We have performed our due diligence and have successfully begun to implement our business plan in the largest travel market in the nation. All that we seek from those reviewing this merger is to correct some of its negative aspects and afford us a fair chance to grow our franchise and create further opportunities for customers to enjoy the JetBlue Experience.

In closing, I am reminded of a forward-looking statement recently made by the President of United Airlines. He said that with this deal, for domestic purposes, United would become a" finished network." Possibly speculating on others in the industry, he added that consumers would benefit most from the competition of but three or four national carders and dozens of smaller regional carders. Frankly, with but one reservation, I cannot altogether disagree with his prognostication. However, my reservation is simply that these dozens of smaller regional carriers he refers to have a fair opportunity to compete in every market they so choose. This is JetBlue's chief concern.

I appreciate your asking me to testify today and look forward to any questions you may have. Thank you.

END

LOAD-DATE: June 15, 2000

Document 64 of 110.


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