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Study: Government Needs to Boost Airline Competition

Regulation, Predatory Pricing

9.43 a.m. ET (1343 GMT) July 31, 1999

By Glen Johnson

WASHINGTON — A government plan to crack down on predatory practices within the airline industry is flawed and the Transportation Department should take other steps to boost competition, says a report to Congress released Friday.

The National Research Council, in a study commissioned by the department, said airline competition could be improved by dropping flight restrictions at popular airports in New York, Chicago and Washington, and by creating special "congestion fees" that would raise extra money for gate and terminal construction.

In addition, the council said the federal government should end its prohibition against foreign investment in and ownership of U.S. airlines. Doing so "could result in more seed money for start-up carriers, putting them in a stronger position to compete for customers," said a statement issued with the report.

The report stems from efforts by both the department and Congress to improve airline competition in order to increase flights to small and medium communities and reduce airfares throughout the system.

Last year, amid allegations that major airlines were squashing discount rivals, Transportation Secretary Rodney Slater proposed a set of guidelines for determining if airlines were engaging in unfair practices. The airlines panned the proposal and, after debate, Congress asked instead for a new assessment of competition.

The Transportation Department had no immediate response to the report.

John Meenan of the Air Transport Association, a trade group representing the nation's major airlines, said the group had not yet seen the report.

The National Research Council is the principle operating arm of the National Academy of Sciences, which provides advice on science and technology under a congressional charter. The council last studied airline competition in 1991.

The new committee's 11 members includes Alfred Kahn, a Cornell University economics professor who has been dubbed "the father of airline deregulation" for his work on the issue in the 1970s.

In its report, the committee unanimously agreed that the Transportation Department's proposed competition guidelines were "flawed."

In April 1998, the department promised to block airline actions — taken in response to new competition — that officials deemed unreasonable. Such a policy, the committee said, "could lead to regulations that would stifle competition more than encourage it."

The committee members split over remedies, however. Some favored having the department be more aggressive with existing laws against tactics aimed solely at driving out competition. Others favored having the Justice Department take the lead.

The panel said the Transportation Department should try to "steer air traffic away from the nation's busiest airports and toward secondary airports in major cities. ... A recommended tool to achieve this is a system that would charge airlines fees for using congested airports during peak periods."

Such fees, the committee said, would provide revenue for airport construction and reduce delays caused by overcrowded gates. New gates also would break the grip that dominant airlines have on existing gates.

The committee also said takeoff and landing limits in Chicago, New York and Washington airports, as well as a 1,250-mile limit on the length of flights to and from Reagan National Airport in Washington, are barriers to competition by new airlines.

Airlines also received criticism. The committee complained that carriers that give bonus commissions to travel agents who steer business to them can inhibit consumer access to the lowest fares.

It also said the department should consider rules to govern how flights are displayed in computer reservations systems so all airlines have an equal chance for business.