Travel groups urge Congress to study airline competition

WASHINGTON – A group of travel organizations is urging Congress to create a national commission to study airline competition, after a decade of consolidation and a year of record profits.

A similar commission gauged the industry's health in 1993. But groups including the Travel Technology Association, Airports Council International-North America, the U.S. Travel Association and the American Society of Travel Agents contend that much has changed in the last quarter-century and the industry deserves a new look.

Major subjects that the groups would like to study include:

--Consolidation that has left four airlines – American, Delta, Southwest and United – controlling 80% of the domestic market.

--Agreements with 100 other countries to allow unhindered international travel, under a policy called “Open Skies.”

--Alliances between U.S. and foreign airlines that combine routes and sell each other’s tickets.

“All of these topics we believe are worth exploring to better understand the competitive landscape of air travel in the U.S.,” said Steve Shur, president of the Travel Technology Association, which represents travel agents and distribution systems for comparing fares outside airline websites.

The groups hope to include a provision for the commission in policy legislation for the Federal Aviation Administration, which is due to expire March 31. The groups sent letters to key committee members in the House and Senate that will consider the legislation.

“We have seen tremendous interest from members on both sides of the aisle to look at this,” Shur said.

The 1993 study, from the National Commission to Ensure a Strong Competitive Airline Industry, found more competition and lower costs for travelers in the first years under deregulation. But it also found the industry wasn’t making a substantial return on investment, lost skilled workers and had trouble entering international markets because of foreign governments.

Since then, concerns about competition grew because of consolidation during the last decade when Northwest became part of Delta, Continental became part of United, AirTran became part of Southwest and US Airways became part of American.

But whether those combinations hurt travelers with fewer choices or costlier fares — or not — is hotly contested.

“On one hand, many former hubs have seen a significant decline in traffic: Memphis, Cleveland, Cincinnati are just a few examples,” said Paul Lewis, vice president for policy and finance at the Eno Center for Transportation. “That said, these regions might not be profitable hubs in any case, and the consolidation of hubs and airlines might be yielding some efficiencies to keep fares lower than would be in a more dispersed case.”

A high-profile marker is when cities lose an airline hub and the travel options it provides. From 2006 to 2012, a Government Accountability Office report found those cities included:

--Cincinnati lost a Delta hub and departing passengers declined from 7.5 million to 2.8 million.

--Cleveland lost a United hub and passengers declined from nearly 5.3 million to nearly 4.2 million.

--Memphis lost a Northwest hub and passengers declined from nearly 5.3 million to 3.3 million.

--Pittsburgh lost a US Airways hub and passengers declined from 4.8 million to 3.8 million.

--St. Louis lost an American hub and passengers declined from nearly 6.9 million to 6.1 million.

Matt Cornelius, vice president for air policy at Airports Council International-North America, which represents 380 airports, said the concern about airline consolidation is both about loss of service at former hubs and a concentration at larger markets where a single airline can control 80% of the traffic.

"We advocate for price and service competition — that's good for the traveling public and it's good for airports," Cornelius said. "We have seen after the mergers of the large legacy carriers a reduction in that competition."

Airlines are reporting 2015 profits that are the largest at least since Congress deregulated the industry in 1978.

But airlines also invested $12 billion in new aircraft, entertainment, routes and terminals during the first nine months of 2015. Airlines also paid down $6 billion in debt and returned $7.7 billion to shareholders.

When accounting for inflation, U.S. travelers on average are flying farther for lower fares under deregulation, according to Transportation Department statistics.

The average round-trip flight in 1979 spanned 1,947 miles, compared to 2,379 miles in 2014, according to the department. But when counting inflation that raised prices 226% during that period, average tickets with bag and change fees declined from $442 to $275 in 2000 dollars, according to the department.

Fares have rebounded  bit in the years since the economic collapse. In constant 2000 dollars, average fares have climbed from the low of $231 in 2009 to $275 in 2014, according to the department. The actual fare hikes appear steeper during that period, climbing from $308 to $400, according to the department.

"We need a healthy airline industry, but buyers want and need competition," said Mike McCormick, executive director of the Global Business Travel Association, a group that advocates for business travelers.

Justice Department opens probe of airlines for possible collusion

The Justice Department announced in July 2015 that it was investigating U.S. airlines for possible collusion to limit seats for sale and keep fares high.

But the carriers' trade group, Airlines for America, denied any collusion and said they compete vigorously every day.

The first Open Skies agreement came in 1992 – about the time of the last national commission on aviation – with the Netherlands. Since then, the government has negotiated agreements with more than 100 countries to eliminate interference with decisions about routes, available seats and pricing.

The State Department estimated 70% of international departures in 2011 were to Open Skies destinations. At that point, Portland, Ore., estimated direct flights to Tokyo, Amsterdam and Frankfurt generated $240 million in airport and visitor revenue.

Liberalizing air travel between countries will increase traffic roughly 16%, according to a June 2015 study for the departments of State and Transportation by InterVISTAS.

“If anything, our results are more conservative than many of the other studies,” the report said.

U.S. airlines ask for immediate action against Gulf rivals to stem job loss

But U.S. airlines have formally complained that state-owned airlines in the Middle East are unfairly subsidized.

American, Delta and United airlines alleged that Emirates, Etihad and Qatar airlines received $42 billion in subsidies during the last decade.

The Gulf carriers denied the allegations and said U.S. airlines received $70 billion in benefits from U.S. bankruptcy and pension law that they don’t have.

The U.S. airlines asked the departments of State, Transportation and Commerce a year ago to reopen Open Skies agreements with Qatar and United Arab Emirates, and prevent more subsidized flights from arriving in the U.S. But the Gulf carriers contend the U.S. rivals are trying to stifle competition.

There is no deadline for a U.S. government decision.

Airline alliances in providing international travel is another subject the groups would like a commission to explore.

The alliances allow Delta and Air France to sell tickets to Paris that either airline could fly while sharing profits. Or United and Lufthansa selling tickets to Frankfurt. Or American and British Airways to London. One advantage from alliances is that more U.S. cities gain international connections that a single airline might not provide on its own.

But the travel groups would like to study whether the alliances hurt competition by preventing the alliance partners from undercutting each other.

“It takes one player off the field,” Shur said. “It reduces that competition for a particular city pair.”