On Competition

ON COMPETITION Aviation law forum examines the airport competition debate; DOT prepares to release its study BY Monica L. Rausch, Associate Editor August 1999 CHICAGO — The U.S. Department of Transportation's report on airport...


ON COMPETITION

Aviation law forum examines the airport competition debate; DOT prepares to release its study

BY Monica L. Rausch, Associate Editor

August 1999

CHICAGO — The U.S. Department of Transportation's report on airport practices and their effects on air carrier competition is due out sometime this month, according to David Bennett, director of airport safety and standards for FAA. The DOT's investigation is spurring much debate in the industry: Do the actions of airport operators affect air carrier competition? Is it the duty of airports to keep their markets open to air carrier competition? Are regulations necessary?

Bennett, along with Thomas Anderson of Minneapolis-St. Paul International Airport, David Berg of the Air Transport Association, and Nancy Clawson with the Department of Aviation for the City of Chicago, offered their insights into the debate during the American Bar Association's Annual Meeting of the Forum on Air and Space Law held here recently. Here's the highlights from that session.

Boosting Competition
DOT investigators visited 13 large and medium hub airports and made use of a survey sent out by Airports Council International (ACI), according to Bennett. Regarding the study's conclusion, Bennett says, "The study was not intended to make a recommendation for regulations ... but the findings could be the basis for upcoming recommendations."

He also points out several airport practices that increase competition. These include:
1. Work with new entrants to make sure they feel welcome.
2. Monitor gate utilization to ensure the maximum use of gates by existing carriers.
3. Establish "use or lose it" policies: A carrier must use a gate or it will be given to another carrier. "Many airports have it," says Bennett, "but yet a lot of them don't invoke it."
4. Create guidelines for entrance as to what the airport can expect from air carriers and vice versa. Establish when a carrier's operations should begin.
5. Monitor sublease agreements on facilities to make sure terms are reasonable.
6. Convert exclusive use gates to common use.
7. Track passenger facility charges (PFCs) to make sure they're not used in a way that wouldn't promote competition.
8. Make competitive services available for ground handling so new entrants who are subleasing from another carrier are not obligated to buy that carrier's ground handling services.
9. Renegotiate majority-in-interest clauses so they won't prevent projects that would add capacity for new entrants.

Premium Fares and Capacity Issues
Thomas Anderson, general counsel for Minneapolis-St.Paul International Airport (MSP), says DOT's investigation means that airports are now faced with a "new paradigm."

MSP, a hub for Northwest Airlines and one of the airports visited by DOT during the investigation, was identified as one of the "pockets of pain" by DOT, says Anderson.

The DOT and others in industry argue that at their hubs, carriers are able to provide frequent and non-stop service to a large number of destinations, thereby dominating the hub market and charging passengers in excess of what a non-hub carrier would charge if the hub were more open to competition.

This extra charge has been termed a "hub premium" and, according to some sources, ranges from 37 to 49 percent higher than a typical fare, says Anderson.

"One of the most frustrating parts of this debate is that the concept of this ’hub premium' is really driving this entire discussion, and the carriers are vehemently denying whether there is such a hub premium," he notes. "Airports who traditionally do not monitor fare levels É are found caught in the middle and being forced to address the issue based upon the assumption that there is a problem."

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