US and AA: AIRLINE MERGER and SMALL COMMUNITY AIR SERVICE MEET AT LGA AND DCA

Note:  this blog is largely comprised of the text contained in a white paper written by me, William S. Swelbar. I would like to acknowledge Mr. Michael D. Wittman for his data collection efforts and deft analytical work that is included in the white paper. All of the air service related tables included in the white paper have a basis in Mr. Wittman’s research.  The conclusions and implications are William Swelbar’s.  The airports are referenced as large, medium, small and non-hub per the FAA’s definition of airport size.

EXECUTIVE SUMMARY

Small community air service and the structural factors that threaten it are certain to be a topic for policy makers in the immediate future.  The threats begin with the per barrel equivalent price of jet fuel in excess of $120; the fact that there is no replacement aircraft in production or even on the drawing board configured at 50 seats or less (the right size for small community air service) because of the high price of oil and associated capital costs [other than the ATR-42]; a looming pilot shortage that will impact the regional sector of the industry before it impacts other sectors; the new flight time/duty time regulations scheduled to be implemented in 2014 that will only exacerbate a potential pilot shortage; and new legislation that requires 1500 hours of flight time for a regional pilot versus the current 500 hours.

Many of these factors stem from past policymaking decisions. The unintended consequences will be reduced service to the nation’s smaller communities.  As the U.S. nears the end of the airline industry consolidation process, policy makers may be faced with yet another decision that could have a further negative impact on small community air service:  a reallocation of slots at each Washington Reagan National Airport (DCA) and New York LaGuardia Airport (LGA) because of the proposed American Airlines – US Airways merger announcement.

If slot divestiture is decided to be necessary, there are important facts to keep in mind:

1. It is the network carriers that are the air service lifeline to small community markets keeping them connected to the national and global air transportation grids – not the low cost carriers;
2. In 2012, US Airways offered service to 40 small and non-hub markets from Washington – DCA while all the low cost carriers combined served 2 such markets;
3. In 2012, Delta Air Lines offered service to 25 small and non-hub markets from New York – LGA while all the low cost carriers combined served 3 such markets;
4. Even before any slot divestiture, service to small and non-hub markets from each DCA and LGA is less than 20 percent of the total service offered from each respective airport.  To disenfranchise these small markets from one or two of their largest passenger demand markets would not be good policy; and
5. Today’s perceived low fare carrier is not yesterday’s low fare carrier:  Between 1995 and 2011, average fares for the low cost carriers as measured by yield increased 45%, average fares for Southwest increased 41% and average fares for the network carriers increased only 14%.

Small community air service faces numerous headwinds just to remain viable over the medium and long-term.  Some of those headwinds cannot be controlled while others stem from policy decisions already put in place.  To exacerbate a situation where small community air service would certainly suffer if slots were to be required to be divested at each DCA and LGA would not be good policy at this late stage of industry consolidation.

BACKGROUND

There is little dispute among the analyst community that the announced intent on February 14, 2013  to merge American Airlines and US Airways will result in the last “big deal” among U.S. airlines.  In the final analysis, the four largest U.S. airlines (American/US Airways, Delta, United and Southwest) would possess more the 85 percent of the capacity flown domestically.  While there may be some consolidation among carriers comprising the remaining 15 percent, no remaining transaction will be the size of American and US Airways or the three transactions that preceded it. 

American Airlines and US Airways have networks that are largely complementary—there are only twelve domestic city-pairs that receive duplicate service by both airlines out of nearly 900 routes in the combined AA-US network.  However, the combined slot holdings of the merged airline at each Washington Reagan National Airport (DCA) and New York LaGuardia Airport (LGA) will undoubtedly receive scrutiny by the US Department of Transportation (DOT) and the US Department of Justice (DOJ).

We don’t have to look too far back in time to find a transaction that involved slots at DCA and LGA.  In August of 2009, US Airways and Delta Air Lines entered into an agreement to swap slots with each other at each DCA and LGA.  In the initial transaction, US Airways agreed to transfer 125 slots at LGA to Delta in exchange for 42 slots at DCA.  Delta was seeking to expand its presence at LGA to establish a domestic hub just as US Airways was looking to augment its position at DCA and bolster connectivity for an increasing number of small communities it proposed serving from National. 

Per the initial transaction, “US Airways would raise its share of departures at DCA from 47 to 58 percent. US Airways' share of slot interests at DCA...would increase from 44 percent to 54 percent...Delta would ascend to a dominant position at LGA, raising its share of departures from 26 percent to 51 percent. Delta's share of slot interests at LGA would more than double, growing from 24 percent to 49 percent.”  To protect the “public interest”, the FAA proposed a divestiture of slots.  The slots would largely be made available to Southwest Airlines and other so-called low cost carriers (LCCs).  This was found to be unacceptable by each Delta and US Airways.

In 2011, a compromise deal was reached between the two carriers and the FAA.  The compromise deal shifted about 20 percent of the LGA slots from US Airways to Delta where about 3 percent of those slot holdings were divested.  At DCA, about 8 percent of the slots were transferred from Delta to US Airways and 2 percent of the slots were divested.  Ultimately this framework was approved and a final order was issued permitting the transaction to move forward.

If slot divestitures are ultimately required at DCA and/or LGA as a result of the combination of American and US Airways, then the same type of analysis of the “public interest” is necessary.  Some regulators, as well as Southwest and other so-called LCCs, will likely suggest using the AA-US merger as an opportunity to reexamine the service makeup of these slot controlled airports. They are likely to claim that at this late stage of consolidating the U.S. market structure to be one of the last opportunities to readjust the competitive profiles at LGA and DCA.  However, an important tradeoff exists between allocating slots to LCCs instead of network carriers: while additional LCC slots may contribute to more robust frequency competition in highly-served city-pair markets or to vacation destinations, it is unlikely to bolster service to struggling small community airports.  On the other hand, further network carrier service allows for small communities to remain connected to the strategically and economically important Washington and New York markets. 

While the network carriers have invested hundreds of millions of dollars in their respective operations to ensure that these smaller markets have access to the nation’s and the globe’s air transportation grid, LCCs have traditionally shown very little interest in serving smaller U.S. markets

In 2012, 44 small and non-hub sized markets received nonstop service at DCA.

In 2012, 35 small and non-hub sized markets received nonstop service at LGA.  

Given the strength of the small community air service network provided from both DCA and LGA and US Airways’ concerted effort to build a connecting hub at Washington National to connect northeastern and southeastern U.S. cities, a comprehensive slot divestiture program at these slot controlled airports as a result of the AA-US merger would likely have a detrimental effect on the nation’s smallest airports that have already been negatively affected by network carrier capacity reductions over the last six years.

TRENDS IN SMALL COMMUNITY AIR SERVICE ACROSS THE ENTIRE U.S. TRANSPORTATION NETWORK

Small community air service as a whole has suffered in the last six years. As a result of the rampant increase in the price of jet fuel and the prolonged economic downturn, U.S. airlines—in particular, the network carriers—began to rethink their service strategies. As a result, the entire U.S. air transportation system has seen a wide-scale reduction in both departures and seats since 2007. Between 2007 and 2012, nearly 1.7 million yearly departures have been removed from the US domestic system in response to the economic shocks mentioned above.  While most U.S. airports were affected by this newfound “capacity discipline,” a disproportionate share of the cutbacks occurred in the non-large hub airports.  In 2012, only 40.6 percent of US domestic departures were flown in non-large hub markets as compared to 44.2 percent in 2007 when there were 1.7 million additional departures.  A large percentage of this reduction in service was due to network carriers—on average, network carrier flights were cut by 27.2% at smaller U.S airports.

However, it was not just the network carriers that were reducing service at the nation’s smaller airport markets.  Southwest Airlines, the carrier hailed as the archetypal LCC, has also started to behave like the network carriers by practicing “capacity discipline” across its network.  In addition to reducing capacity in smaller markets, Southwest also made a decision to vacate 13 small community markets previously served by merger partner AirTran Airways:  Allentown, PA; Asheville, NC; Atlantic City, NJ; Bloomington/Normal, IN; Charleston, WV; Harrisburg, PA; Huntsville, AL; Knoxville, TN; Lexington, KY; Moline, IL; Newport News/Williamsburg, VA; Sarasota-Bradenton, FL; and White Plains, NY.  Southwest flights at smaller airports have been cut by 9.8% since 2007.

On the other hand, other LCCs and ultra-low cost carriers (ULCCs) generally increased service over the analysis period. 

Yet other than jetBlue and Frontier, none of the other LCC and ULCCs operates a hub and spoke system per se; Spirit Airlines is an opportunist with low fares and no frills, Virgin America is struggling to be profitable and Allegiant Air is a travel company that provides only infrequent service to vacation destinations.  While they may offer low fares, these airlines do not offer their passengers high-quality connecting service to the global air transportation network.

Of course, the replacement of traditional network carrier service with LCC/ULCC service to high-frequency markets already served or to vacation destinations does indeed boost airline activity at an airport.  To be sure, many small communities are today relying on carriers like Spirit or Allegiant or Sun Country as their primary/sole provider of commercial air service.  However, is infrequent service to vacation destinations on a ULCC as valuable to air travel consumers as frequent service from a network carrier to a hub airport, from which connections can be made to other destinations within the U.S. and throughout the world?  This would seem to be a paramount policy question to consider if slot divestitures are mandated.  A small community with a nonstop flight to a single network carrier hub can open up hundreds of potential domestic and international connecting itineraries.  However, low-frequency service from an ULCC will have a limited impact on improving airport connectivity. 

Mandatory slot divestitures would cause network carriers to potentially drop direct flights from these small community airports to LGA and DCA—limiting the connecting potential for passengers at these airports and hurting small community residents’ access to the global air transportation network.  Replacing network carrier service with LCC or ULCC service is often a poor substitute due to comparatively inferior options for nonstop and connecting destinations. Already, a small percentage of domestic airport markets served by the LCCs are small and non-hub sized airports versus the network carriers where nearly two-thirds of airports served are small community markets.

On the other side of the policy aisle, the DOJ continually points to a tired argument that the entry of LCCs results in lower fares and stimulates new demand.  That may have been true in 1993, but it is less true today.  Again using Southwest Airlines as the archetypal LCC, in the markets entered by the carrier between 2006 – 2011, fares increased 4 percent and traffic increased but 10 percent.  To demonstrate the fact that the LCCs behave a lot like the network carriers today and vice versa, let’s examine system passenger yield growth for the LCCs, Southwest, and the network carriers between 1995 – 2011.  Since 1995, Southwest passenger yields have increased 41 percent on a stage length adjusted basis; all LCC adjusted yields have increased 45 percent and network carrier yields have increased only 14 percent.

SLOT DIVESTITURE AND SMALL COMMUNITY AIR SERVICE AT DCA AND LGA

In the initial Delta – US Airways slot swap comment period, Southwest spent inordinate time and resources claiming that the two carriers needed to surrender more slots than originally proposed because the transaction would “permanently lock out” low fare competition.  But each Delta and US Airways were promising more than low fare competition—the two applicants were offering to build and augment their respective connecting complexes at each DCA and LGA. 

The timing of Delta’s and US Airways’ claim could not have been better as small community markets had seen hub access and connectivity at Pittsburgh and St. Louis virtually disappear.  Hub access at Cincinnati and Memphis was being eroded in a significant way as service cuts at those secondary hubs was proving necessary in the face of high oil prices and a damaged economy.  Now there were two new alternatives for improved connectivity in the name of DCA and LGA.  Even more important was the fact that DCA and LGA are among the largest origin and destination (O-D) markets for many communities in the U.S. – big and small. Hence, DCA and LGA provided the opportunity to build connecting hubs at airports with significant existing local demand – a particularly important ingredient for sustainable air service.

The DOT listened and wrote:  “While we acknowledge Southwest’s claims regarding potential inefficiencies resulting from hub development at slot controlled airports, we must consider both potential operating inefficiencies and expected network benefits typically resulting from hub development or expansion. The Joint Applicants [Delta and US Airways] claim that numerous benefits will accrue to consumers as a result of their transaction. Among the more compelling benefits that they articulate, we are most convinced by their arguments that development of a LGA hub will lead to enhanced service to small communities (even with the small aircraft that Southwest contends would be used) and improved competition versus other east coast hubs, including United’s Newark hub and US Airways’ hub in Philadelphia.”

In that case, the carriers asserted that primary benefits of the transaction will include enhanced service to smaller communities on an overall basis.  And that is exactly what has happened. 

During 2012, US Airways served 69 airports from DCA—the beginning of a true connecting hub.  40, or 58 percent, of those cities served were small and non-hub markets. 

At LGA, Delta served 58 airports during 2012, including 25 (43.1%) small or non-hub markets.

CONCLUSIONS

Despite the growing connecting hubs being built by US Airways and Delta at DCA and LGA respectively, it is important to note that as a whole, small community air service at these airports is already becoming a rare commodity. Today, only about 17 percent of service offered from New York’s LaGuardia Airport is to small communities—down from about 25 percent of all departures just six years ago.

Small community service is also already limited at DCA. Today, small community air service makes up only about 19 percent of service offered from Washington’s Reagan National Airport.

An important and fundamental question to ask is:  Does it really make good policy sense, assuming that slots are required to be divested, to make a slot pair available to a carrier proposing to serve Orlando, Tampa, or Ft. Lauderdale – all markets with metropolitan area nonstop service and a plethora of connecting options by each major carrier with hub choice as well?  Or, does it make better policy sense to maintain slots for small community access to some of the nation’s largest local O-D markets that offer connections as a result of the recent US Airways – Delta Air Lines slot swap?

One more nonstop from a large market to a large market does very little in improving the quality of service for airline consumers on either end of the itinerary.  Whereas the loss of a nonstop service from a smaller community to a large O-D market that offers connections would have a significant negative impact on that smaller community’s connectivity to the global air transportation network.  It is simply intuitive.

DCA and LGA already have excellent service to the nation’s largest markets from both network and low cost carriers.  Maintaining at least the status quo of slots for small community air service at this late juncture in market consolidation helps to maintain quality air service at some of the nation’s smaller markets at a time when service is being cut and hubs are being eliminated for reasons beyond the industry’s control.

Dear Chairman Oberstar: What Do You Mean This Is Not What You Voted For?

Responding to the news that the U.S. Department of Justice had approved the merger of Continental and United, House Transportation and Infrastructure Chairman, James Oberstar said, “This consolidation of the mainline companies into three or four mega-carriers is not what I voted for in 1978. Nor did anyone foresee three international alliances dominating the global airline market.” 

For a guy that has been in and around the U.S. airline industry for longer than it has been deregulated, Oberstar should know better. Since 1978, the predictions have all pointed toward three network carriers.  The formation of the global alliances also addresses exactly what Oberstar and other members of Congress intended three decades ago… more choices for consumers.  

Don’t take my word for what the goals and objectives of U.S. airline deregulation was intended.  The November 6, 1985 report by the General Accounting Office (GAO) spells them out.  The GAO report was requested by U.S. Representatives Norman Mineta (D, California) and James Howard (D, New Jersey) to assess the effects of deregulation as compared to the intentions and expectations.  The GAO report stated the purpose of the deregulation act was to allow competitive market forces, rather than the federal government, to decide the quality, variety, and price of domestic air service.  It was aimed at encouraging the formation of new airlines, expanding service by existing airlines, and bringing lower fares and better service to passengers. Recognizing free competition might result in some communities losing air service, Congress created an Essential Air Service Subsidy Program protecting service to eligible communities.

The GAO compared economic expectations of deregulation with actual changes in the industry's structure (the number of airlines, each airline's share of traffic, and the ease with which they can begin new service to a city-pair), conduct (behavior in setting prices and levels of service), and performance (profitability, efficiency, and responsiveness to consumer preferences). The report does not address airline safety. 

Now, let’s look at today’s aviation industry keeping the goals of the Airline Deregulation Act of 1978 (ADA) in mind.

The GAO report states five years after enactment, there were more airlines competing.  It also highlights a trend prevalent today.  “With increased competition, the largest airlines have been losing passengers to smaller and new airlines (which often offer lower fares). Nationwide, the percentage of passenger miles flown by the largest airlines (formerly called trunks) fell while smaller carriers combined with new airlines almost doubled their percentage of passenger miles flown.”

I think the number of airlines is less important than understanding the levels of domestic capacity held by the top three, five and 10 largest airlines operating in the domestic marketplace.  I looked at available seat miles by all competitors from 1974 to 2009.  In 1979, the three largest U.S. airlines held 48.6% of domestic capacity; the five largest, 72.3%; and the 10 largest, 93.1%.  In 2009, the three largest U.S. carriers held 43.8% of domestic capacity; the five largest, 61.7%; and the 10 largest, 81.8%.  These numbers exclude code sharing and regional capacity.  If included, the levels of concentration would still be less than the levels of concentration in 1979.

The 1985 report cited trends shortly after passage that still hold true today like. Average fares fell, service improved for most passengers, efficiency improved, consumer choice increased but not everyone benefited and, thirty years later, airlines are still adapting to deregulation.

 While 2010 fares are rising as compared to an abysmal 2009, the long term trend is still decreasing real fares. Domestic networks provide passengers in markets large and small with significant choice and access to virtually any market. Airline efficiency including labor, operations and fuel consumption has improved. It’s true not all markets have enjoyed similar levels of benefits, but that is less about consolidation and more about individual community economies and the price of oil. The industry is not static (some would even say stable) and is still adapting to a series of crises including September 11,  SARS, $147 per barrel oil, the Great Recession, Avian Flu, H1N1, volcanic ash and numerous and onerous regulations and taxes imposed by government as well as new competition in domestic markets and emerging world networks.

The Deregulation Debate Leading Up to Passage of the ADA

Congressman Oberstar, I assume you listened to the learned economists that participated in the debate as to whether passage of the Airline Deregulation Act would prove to be good policy.  I will highlight some of the economic theories espoused during that debate.  If you read carefully, I believe you will find many of the trends prevalent immediately after passage are still intact.

• Analysts expected deregulation to result in a more competitive market structure by removing barriers to entry into individual markets and allowing new firms to enter the industry.
• According to economic theory, a single firm operating in a market invites entry by a competitor if it is inefficient, charges too high a price, or fails to provide the price/service options consumers want. While entry of a competitor forces the existing firm to become efficient and more responsive to consumer preferences in order to survive, economic theory holds potential competition-- the realistic possibility of entry by a competitor-- may be sufficient to produce performance similar to competing firms.
• The report of the Civil Aeronautics Board special staff on regulatory reform concluded the most detrimental effect of regulatory protection on airline industry performance was probably limiting potential competition.
• Deregulation spurred airline competition by increasing their ability to alter route structures, service offerings and fares to attain the maximum competitive advantage. (true today through domestic code-sharing and alliance formation)
• Economic theory suggested the ability of lower cost firms to enter markets and compete on the basis of price would create downward pressure on fares.

The GAO concluded, “Trends in fares and service quality are generally consistent with predictions of deregulation's effects. It appears that increased competition generally restrained fare increases so that fares are now more closely related to costs and are probably lower on average than they would have been if the regulatory policies in effect from 1974 to 1977 had continued. Service generally improved, a result that not all analysts anticipated, with increased departures and seats and more markets receiving through-plane service by scheduled airlines. It is possible that analysts generally underestimated how much air travel would increase in response to lower fare/lower service options. As expected, smaller airlines using smaller aircraft replaced major airlines in some of the smaller, short-distance markets. Convenience improved as more passengers were able to complete a trip without changing airlines. Load factors, expected to increase, have varied, generally staying above pre- deregulation levels but varying too much from year to year to identify a long-term trend.”

The GAO reported in 1985 in the six years following deregulation, the airline industry recorded the worst financial performance in its 45-year history.  High operating losses raised questions about the industry's future performance under deregulation, but analysts had expected some airlines to have financial problems during the transition from regulation. “Airlines that cannot fully adjust to deregulation will continue to have financial problems; more may go bankrupt. Yet, in the long run, airlines that can reduce costs to match fares of lower cost competitors and find new profit opportunities in meeting unfulfilled passenger preferences will survive. In this way, the industry will become more efficient as those less able to meet the challenges of a deregulated environment go out of business.”

The GAO reported financial performance varied widely, suggesting airlines can be profitable in a competitive market.  “Analysts warn that the transition is not yet complete. During this period of adjustment, airlines that cannot adjust to the more competitive environment may be forced to reorganize or go out of business. Once the industry has fully adjusted to deregulation, it should be profitable over time, although some airlines may occasionally suffer losses and even leave the industry.”

Economists and other analysts expected deregulation would increase efficiency in several ways: (1) new, lower cost airlines would enter markets, reducing average industry cost levels (2) airlines would alter their route structures and aircraft mix, seeking to lower per-passenger costs (3) the ease of entry and increase in fare competition would keep pressure on all airlines to keep costs down. In an unregulated and unprotected environment, bankruptcies would occur when less efficient airlines were unable to adapt to the more competitive environment. By giving airlines freedom to profit or fail, competition would help assure only the most efficient airlines survived.

The GAO concluded “changes in fares, service, and profit are consistent with economists' and other analysts' expectations of the effects of increased competition on a formerly regulated industry.”

Perplexed

In your statement, Congressman Oberstar, you say “This action [DOJ approving the United – Continental merger] points strongly to the need to give broader authority over such mergers to the Department of Transportation, allowing DOT to consider such factors as the impact a merger will have on service to communities and customers, as well as the effect the merger could have on the industry as a whole. There must be consideration of whether a merger will inevitably trigger others, ultimately reducing the industry to a few large carriers, each of which is unwilling to compete seriously in markets dominated by one of the others.”

Like you, I agree the Department of Transportation should have broader authority over such mergers because they understand the industry. The Department of Transportation had the wisdom to approve the immunized alliances all the while recognizing the benefits conferred on customers and communities of all sizes.  Whether mergers spur others will always be speculation.  Just like the economic theory surrounding deregulation, which I assume you relied upon to ultimately vote in favor of deregulating the industry, a single carrier operating in a market invites competition. The same is true today. 

To say large carriers are unwilling to compete with one another is simply not true.  Look at some of the recent markets the U.S.’s largest domestic carrier, Southwest Airlines, has entered:  Washington Dulles - a United hub; Denver - a United hub; San Francisco - a United hub; Minneapolis/St Paul - a Delta hub; Milwaukee - a Midwest/Republic hub; New York Laguardia and Newark – a Continental hub. These large markets are homes to all major carriers.

You said “when Congress deregulated the airlines in 1978, we were promised better service, added competition, and more choices for consumers. With the United-Continental merger, our domestic carrier fleet will have shrunk to four network carriers. Moreover, each merger appears to trigger another, as carriers feel the need to get bigger in order to compete with the newly merged airlines. American merged with TWA, then America West merged with US Airways [I ask, would either carrier be here today if they had not merged?], followed by Delta absorbing Northwest, and now United merging with Continental. Can a US Airways-American Airlines merger be far behind?”

Congressman, just look at some of the choices enjoyed by consumers.  They are plentiful and choice continues to be built into the consumer’s decision to buy or not to buy.  One can even argue the consumer is more empowered today than at any time over the past 32 years.  There is a choice to fly on a full-service airline or a low cost, no frills airline; there are choices when ticketing like paying more for a better seat; there is a choice to fly on an airline that charges for bags or one that does not. Under the bilateral regime, airline choices were limited by the number of destinations and frequencies allocated to respective carriers. Today that is not true, and today, alliances give consumers the option of garnering frequent flyer miles and benefits for their entire trip, not just portions of a trip. I could go on but the promise of more choices for consumers in the ADA is alive and thriving.

There are many issues that are considered when thinking about a merger partner in addition to the structure of the market.  But I take you back to the analysis performed that points to the fact that the industry is less concentrated today among the largest airlines than it was in 1979.  Throughout the deregulated period, there have been mergers, there have been failures, there has been opportunistic growth by various sectors of the industry, and there have been significant cuts in capacity in response to the price of oil and the strength of the economy.  In every instance the industry has adapted to change in one way or another, but no fix concentrated the industry more heavily.

Concluding Thoughts and An Ask of You

Congressman Oberstar said, “airline consolidation brings consumers and communities fewer choices and less competition, usually leading to increased fares and reduced levels of service. And that runs directly counter to the promise of deregulation” is confounding.  Confounding in that the opposite is happening today.  Confounding because the Airline Deregulation Act you supported is playing out in the manner in which it was envisioned based on the economic analysis performed by the GAO.  To re-regulate will only make the industry even smaller following the cutbacks since 2002 employing still fewer people all the while disenfranchising small communities from the airline map.  Consolidation activity was prevalent before deregulation as six of the 16 trunk airlines were gone by the time the ADA was passed.  Consolidation at home should not be feared nor should alliance formation.  Each action is about adapting to a new environment and that is precisely what the industry is doing.

When the ADA was passed, trunk airlines were predominantly domestic airlines.  During the past seven years each of the network carriers except one has nearly 50% of their capacity exposed to international markets.  The domestic systems the network carriers operate are most important extensions of their international operations.  These extensions have a domestic benefit to customers as well.  Airlines are consolidating at home in order to prepare to compete globally unlike the consolidation period in the mid-1980s which was domestically focused.  Today’s industry is less about getting to Duluth from Dubuque and more about getting to Duluth from Dubai. That’s the world today, one deregulation helped open up to all of us.

Congressman Oberstar, in your statements surrounding the approval of the most recent two mergers you have not provided a single shred of evidence contradicting the GAO study that dutifully outlined the foundational facts and analysis upon which you cast your vote in 1978.  It would seem that you are basing your comments largely on perception and even making some statements – like US Air merging with AA - that are specious at best.

Congressman Oberstar I have one ask of you.  Reconsider your position on mergers and consolidation.  The United States was once the absolute leader in aviation. That cannot be said today.  We need carriers that have the financial wherewithal to raise the (our) flag in every world region.  The solution you seek in your message will only further marginalize U.S. commercial aviation in a global context.