Two weeks ago, this Subcommittee met to examine the competitive implications of international aviation alliances. Today, we meet to explore the state of competition in the domestic aviation industry. Specifically, we want to examine the “hub and spoke” system. We need to determine whether hubs are producing the benefits of competition, or, as some argue, permitting the dominant carrier at the hub to impose monopoly prices on the public. This issue is vitally important to the traveling public, especially business travelers who must take the quickest, most direct route, and have limited flexibility in scheduling their travel.

During the last year, there has been rising concern among some of the smaller airlines that the seven largest passenger carriers in the U.S. are no longer competing against each other. Essentially, the argument goes, the “Big Seven” have carved up the U.S. aviation market and will not tolerate any competition from small start-ups. Whenever a new airline announces a new service, particularly into a so-called “fortress hub,” it faces stiff price competition, bracketing of its schedule, and new added service from the dominant carrier.

Needless to say, it is difficult to attract capital once the market determines that a start-up venture will face fierce, or even anti-competitive, behavior. For these reasons, there have been repeated calls for the Department of Transportation and Department of Justice to take some action to improve and to increase competition in the domestic aviation market.

On the other hand, the major carriers must be allowed to respond to competitive threats. U.S. carriers sustained record losses in the early 1990s and have only recently attained profitability, allowing them to repay debt and purchase new, more efficient aircraft. It is unreasonable to expect the major airlines to ignore new competitors who are entering the market and targeting some of their most lucrative routes.

The question, of course, is whether the tactics used are merely good, tough competition, or predatory practices. The Department of Transportation, in coordination with the Department of Justice, has been examining the practices of the major carriers. The Department of Transportation Draft Guidelines were due to be released last month -- in fact, they were close enough to being released that the Wall Street Journal had an article discussing them. However, they were never actually released, and I understand that they are now being revised again.

I would like to see the Draft Guidelines, and so would many of you. I want to be sure that we are not embarking on an effort to issue new regulatory rules for an already heavily regulated business sector.

I would like to emphasize one thing: we got out of the airline regulation business 20 years ago. I will not support anything that would reverse that significant step. In addition, it may be the case that the Justice Department can sufficiently address predatory practices through enforcement of laws which are already on the books. Accordingly, we need to further explore whether these Guidelines are necessary.

Our witnesses today, however, are the best ones to tell us whether new measures are needed and if the existing ones are working or not. We have representatives of two of the largest airlines in the country, United and Northwest, and two of the smaller airlines, Vanguard and Pro Air. We also have with us a neutral expert, who has studied this industry extensively. We look forward to hearing the testimony from all of our witnesses.