A September 30 hearing before the Senate Antitrust Subcommittee was like two hearings in one. There was a collegial discussion of airline competition issues, which was apparently the hearing desired by subcommittee chairman Mike Lee (R-UT) and ranking minority member Cory Booker (D-NJ). And then, when Sen. Josh Hawley (R-MO) got up to speak, the vibe shifted dramatically and it became a hearing like one he would preside over in the McCarthy Subcommittee (which he chairs), full of yelling and posturing. And then things would shift back to normal.

The current airline market is top-heavy. After multiple rounds of mergers, just four carriers (American, Southwest, Delta and United) hold about 80 percent of the domestic market, split relatively evenly between the four. Another five airlines (Alaska-Hawaiian, Spirit, JetBlue, Frontier, and Allegiant) split most of the other 20 percent of domestic traffic. All of the mergers that got us to this point were approved by U.S. antitrust authorities, and those authorities turned down a proposed JetBlue-Spirit merger in January 2024. An immediate consequence of that rejection was Spirit’s November 2024 entry into Chapter 11 bankruptcy protection.

The hearing of this subcommittee of the Senate Judiciary Committee featured testimony from five witnesses – two CEOs of small airlines, two outside experts who are critics of the current competition situation, and a representative of the U.S. airline trade association that represents large and small airlines alike. Click on their name to see their written testimony.

• Allegiant Airlines CEO Gregory Anderson,
• Frontier Airlines CEO Barry Biffle,
• The American Economic Liberties Project’s Senior Fellow William J. McGee,
• Vanderbilt Law School Professor Ganesh Sitaraman, author of the book Why Flying is Miserable: And How to Fix It, and
• Airlines for America Senior Vice President of Policy and Regulatory Affairs Sharon Pinkerton.

In the “all politics is local” department, Antitrust Subcommittee chairman Lee hails from Provo, Utah. Provo is only 40 miles from Salt Lake City, a major Delta hub with all the other major carriers also providing access. But Provo’s own airport is basically just Allegiant, and a new Utah-based startup carrier, Breeze.

Allegiant’s Anderson obviously testified first, and his chief complaint was access to airport gates. Especially at “fortress hubs” dominated by a single airline, he said, new entrant carriers get locked out of gate access, even when existing (and under-enforced) rules call for established carrier sharing underused gates. Anderson indicated support for a bill Sen. Elizabeth Warren (D-MA) introduced in the last Congress, the Airport Gate Competition Act (S. 4269, 118th Congress), which called for all federal grants used to finance airport terminal construction require that the airport ensure “reasonable access” to gates, defined as at least 25 percent of gates at the airport being for common use and no more than 50 percent reserved for a single airline.

Anderson also asked that, if the federal government was going to continue indemnifying American, Delta, and United from antitrust laws for their membership in international codesharing agreements with other legacy carriers, which helps them dominate the international market for U.S. travelers, the government should also approve the proposed codeshare between Allegiant and a Mexican low-cost airline, Viva Aerobus. Allegiant has been waiting since December 2021 for a formal up-or-down from DOT.

Frontier’s Biffle also made gate access the primary focus of his testimony, asking Congress to force the big airlines not to sit on underused gates. He called for both the Warren bill and “use it or lose” it gate rules, with DOT or DOJ enforcement, and also additional transparency in gate lease agreements.

He also pointed out that the big airlines now make more money from their frequent flier plan agreements with affiliated credit cards than they do from actually flying passengers. The credit card money, Biffle said, lets the major carriers subsidize basic economy, drop those prices, and “screw us” smaller carriers.

The next two witnesses, McGee and Pinkerton, sounded like they lived on different planets. On McGee’s World, air travel in the U.S. is a vicious hellscape from which few passengers emerge unscathed (emotionally, if not physically). On this planet, airline regulation was a colossal failure.

Meanwhile, on Planet Pinkerton, deregulation worked out pretty well for consumers, at least on a financial basis. She said this true both long-term (“Since airline industry deregulation in 1978, domestic fares have dropped nearly 50 percent (adjusted for inflation, including fees”) and through the recent period of overall inflation (“from 2019 to 2024, overall consumer prices, as measured by the U.S. Consumer Price Index, rose 23%; in striking contrast, the CPI’s airline fares component fell 1.5%”).

The final witness, Vanderbilt’s Sitaraman, has co-written papers with McGee in the past but has a sunnier delivery (possibly because Sen. Booker kept complimenting him on his lush head of hair). He said more competition is needed, and that the best way to achieve that is to limit how much any one airline can dominate a single airport: “simply place a cap on the market share one airline can have at airports of a given, large size. A cap—for example, 30 percent—would mean that airlines would have to deconcentrate from fortress hubs. But it would also likely mean that other cities would have growth in airports, helping their economies and increasing the strength of other nodes in the network. This would, in turn, improve resilience.”

Chairman Lee and full Judicary ranking member Richard Durbin (D-IL) opened the Q and A by letting Anderson and Biffle reiterate the main points from their opening statements. Lee then let Pinkerton respond on behalf of the major carriers, and she replied that there is already federal law requiring airports to give gate access to new entrants and that there are many airports that already have usage requirements in their gate lease agreements. The solution to the gate access problem, she said, is for the FAA to provide oversight and enforce existing law.

Senator Hawley then changed the tone of things by bawling out Biffle for allegedly rewarding employees for enforcing the carrier’s no-carryon policies. This was the subject of a December 2024 hearing of the Permanent Subcommittee on Investigations of the Homeland Security and Governmental Affairs Committee, of which Hawley is a member. That subcommittee is still best known for its 1953-1954 chairman, Senator Joe McCarthy (R-WI), who lent his name forever after to a certain style of questioning.

But Hawley’s relentless focus on ancillary fees (he claimed that Frontier gets 62 percent of its revenues from such fees) brings up something we feel we should point out.

At no point during the hearing did anyone, Senator or witness, let the audience in on the Dirty Little Secret regarding ancillary fees. The Dirty Little Secret is so important that no one should really be allowed to discuss the fee issue in Congress without mentioning it. But you never see it discussed in hearings because it’s too much fun to beat up on the airlines who charge the fees.

The Dirty Little Secret is this:

The federal government gives a tax break to airlines that charge ancillary fees instead of higher airfare. So, before Congress gets bent out of shape about the rising threat of fees, maybe they should stop giving airlines a tax break for choosing to rely more on fee income.

The main source of revenue for the Airport and Airway Trust Fund, which pays for air traffic control operations, FAA safety inspections, and some airport grants, is a 7.5 percent excise tax on airfares. But this tax is only levied on the base airfare itself.

Some new entrant air carriers, like Frontier and Allegiant, charge lower fares for the same city-pair than do legacy carriers, but they also charge ancillary fees for services like bag checking, carry-on luggage, seat selection, etc. that legacy carriers include in the base fare. Those ancillary fees are not taxed.

Imagine a hypothetical city-pair where Big Legacy Carrier and Small Low-Cost Startup both run daily service. The small carrier charges $50 less in base fare but makes it all up in average fees.

Every ten dollars that an airline converts from fare revenue to ancillary fee revenue saves the airline 75 cents in federal taxes. That money adds up.

Later, Senator Booker raised the issue of cities that have been seeing their air service eliminated or reduced. Sitaraman said this is a result of network effects and economies of scale with the four  major carriers rendering smaller markets unprofitable. Pinkerton added that manufacturers stopped making 50-seat regional jets, so some markets that had been getting service from airlines with those planes are now getting fewer flights per day with larger planes or else are losing service altogether.

Sen. Richard Blumenthal (D-CT) brought up something that several other Senators and witnesses brought as well: the flavor of the moment on Capitol Hill (worries about artificial intelligence). His concern was that airlines not be allowed to potentially use AI to gather information about individual consumers and then use that information to set special airfares for that individual. (For example, even the basest level of AI could see that you fly to your parents’ home for one of their birthdays each year, so the airline system could start quoting you higher fares for that weekend than for most other people. Or, a more complex AI could find that you have been doing internet searches for hotels in Belize and preemptively jack up your fare search for a flight there a little.) The airline CEOs, and Pinkerton, said that they/their members were not doing this.

In closing, I want to quote something from Sitamaran’s testimony because he has an interesting outside-the-box proposal for how to fix the problem of smaller cities losing air service entirely because that service is not economical for airlines to maintain. He suggests:

One way to address this problem is to adopt a “draft pick” system, in which smaller and mid-sized cities with no or limited air service are akin to the players and the four biggest airlines in the country are akin to the teams. The airlines would each get a pick order, and have to pick a city from the list until all cities have at least one airline. The airline would have a duty to serve that city with a minimum amount of service. To prevent monopoly pricing, the price on these routes would be no more than an affordable, preset price based on mileage traveled. This would also encourage airlines to pick cities near hubs, adding convenience for passengers. New competitors, of course, would also be free to fly to these cities if they desired, to expand access and enhance competition. But the key feature is that it would guarantee some service between these smaller and mid-sized cities and major hubs. Notably, depending on the design of this program, Congress could consider eliminating the Essential Air Service program, thereby saving taxpayer funds.

This idea is both (a) interesting and (b) fun to think about because you can ponder ideas like how would you organize the draft order, which city would end up the Ryan Leaf of the situation. etc.