Mr. Chairman, Senator Kohl and Members of the Subcommittee, I appreciate both the opportunity to testify today and your continued attention to the problems related to the consolidation of the airline industry and the factors restricting the growth of competition.

At a time when there are fewer airlines than at any point since deregulation, your bill addresses a critically important issue. Access to markets like New York LaGuardia and Washington’s Reagan National airports is necessary for low fare network carriers like AirTran Airways to provide viable and sustainable competition. At this point, low fare carriers operate about 4% of the slots at the two airports and we are blocked from growing at either airport. If the pending mergers proceed as currently structured, the two largest carriers will control two-thirds of all slots at Reagan National, and nearly 60% of slots a LaGuardia.

This concentration in key airports presents a two-fold problem. First, markets like Reagan National and LaGuardia are the cornerstone of network operations, for both established major carriers and low fare carriers alike. Since deregulation carriers have established hub-and-spoke systems that are heavily reliant on access to large cities. AirTran Airways is unique in that we are a low fare carrier with a hub-and-spoke system that allows us to successfully serve larger markets like Boston, Chicago and Philadelphia, but also smaller markets such as Akron-Canton, Bloomington and Toledo. Our Atlanta hub gives us the critical mass necessary to compete with larger carriers - particularly Delta, United and US Airways. Our hub, and the ability to serve small to midsize communities, is anchored by service to high density markets like New York. However, the ability to expand this network effect is limited due to facility constraints at most major airports. If you are blocked from entering DCA, growing at LaGuardia and obtaining critical airport facilities at Philadelphia, Newark and Boston, it becomes impossible to compete in this area of the country. At the same time, United and American are increasing their control of slots/facilities at each of these airports.

Second, as major carriers developed hubs over the last 20 years, they have increased regional strength and amassed market power, primarily through mergers and acquisitions, that gives them the leverage to influence pricing, travel agency and corporate distribution, and especially airport facilities. This market power allows the major carriers to limit or prevent new entry and low cost competition, limiting or in many cases reversing the benefits of deregulation. As I mentioned earlier, there are fewer carriers now than at any point since deregulation, in fact according to the Transportation Research Board, new entrant carriers have exited more markets since 1996 than they have entered1. This is a disturbing trend, which will only become worse with the continuing consolidation.

The negative effects of consolidation have been well documented by multiple studies, most recently a study entitled “Predatory Practices in the U.S. Airline Industry” issued by the DOT and written by Professor’s Clinton Oster of Indiana University and John Strong of the College of William and Mary2. This study outlines the many challenges faced by low cost carriers, including predatory pricing, increased flight frequency, capacity and “predatory scheduling”, frequent traveler programs and travel agency overrides. The study notes the benefits of low fare competition and documents the differences in competitive responses to new entry by major carriers when the new entrant is another major carrier versus a low fare carrier. The study concludes,

“Since many of the continuing gains from airline deregulation come from the presence of low-fare carriers, an industry characterized by vigorous opportunities for entry is essential for continuing consumer gains.”3

The key to vigorous low fare competition is the ability to build and expand effective networks – in other words, the critical mass necessary to compete against established and entrenched major carriers. The benefits of this competition are substantial – the consumer harm from a lack of competition is equally dramatic. The DOT’s most recent report in their competition series notes that fares in hubs without low fare competition are generally 41% higher, this hub premium is even more pronounced in short haul hub markets where the study concludes passengers pay 54% more than in similar markets with low fare competition4. The AirTran Airways business model is designed to compete in short haul markets and has been effective in maintaining price discipline in the markets we serve. Based on DOT data, the competition that AirTran brings to Atlanta saved consumers more than $700 million in 1999. The network strength derived from access to Reagan National, New York LaGuardia and other key markets will enable us to expand our business model, create other focus cities or hubs and compete in more dominated hub-to-hub markets.

The only counterbalance to major carrier market power and hub dominance is the price discipline provided by effective low fare competition. Access to high-density airports, both in terms of slots and facilities, is necessary to create effective low cost competition.

Senate bill 520 may increase the opportunity for low fare carriers to compete at Washington Reagan National and New York LaGuardia in the face of further consolidation. This is an important step in building or expanding strong low fare networks and continuing the benefits of deregulation. But it is a precautionary move against future mergers. Most of the gains that have been made are a result of legislation such as AIR215. I respectfully urge the subcommittee to continue to look for more immediate means to increase competition, with or without further mergers, and to encourage the DOT to use it’s existing authority to enforce fair and reasonable competition and prevent anti-competitive practices and unreasonable concentration.

Thank you again for the opportunity to address these critical competition issues.

---------- 5 Although recent slot controls imposed by the FAA has again blocked the opening of LGA to new competition.