Majority Statement

• John D. Rockefeller, IV

  Senator
  Read statement

  Majority Statement

  John D. Rockefeller, IV

  (AS PREPARED)

   

  We are approaching the thirtieth year of airline deregulation.  Airline deregulation changed the very nature of air travel in this country.  For millions of Americans in large urban areas, it ushered in an era of affordable air travel, but for hundreds of small communities, including all of West Virginia’s, deregulation meant a loss of service and convenience, and often higher prices.  It seemed to me that the big jets disappeared from West Virginia within days of deregulation. 

   

  Deregulation brought dramatic change to the airline industry.  The only constants deregulation brought to the airline industry was brutal competition and financial instability.  Legendary airlines such as Pan Am, Eastern Airlines, and TWA could not survive the competitive onslaught that deregulation brought nor could many others.  However, deregulation allowed airlines like Southwest and other low-cost carriers to thrive and provide consumers, mostly in large markets, lower fares and more choices. 

   

  In the industry’s frequent periods of financial trouble, airlines either merged or went out of business.  It comes as no surprise that after the last several years of serious financial difficulty that the industry is on the precipice of consolidation again.  With the proposed merger of US Airways, the product of a recent combination of US Airways and America West Airlines itself, and Delta Airlines, all other legacy airlines would likely seek partnerships of their own. 

   

  However, the consolidation this time would be different and have far greater consequences.  In previous rounds of consolidation, regional carriers merged to create larger airlines to allow them to compete or healthy carriers bought the assets of weak carriers.  No one merger threatened the competitive balance of he industry.  If the largest carriers in the industry decided to merge, our nation would have a dramatically different aviation market.  We would go from having six major network carriers to three, which would have major policy implications for this country, especially in the area of small community air service. 

   

  There is no question that our airline industry is just emerging from one of the most difficult periods in its history.  U.S. air carriers are beginning to see the results of ongoing cost reduction efforts and increased passenger flow.  The Air Transport Association, the primary trade organization of the nation’s airlines, recently projected an aggregate net profit of $2 billion to $3 billion for 2006, and more than $4 billion aggregate net profit in 2007 on operating revenues exceeding $150 billion. 

   

  Despite this recent economic upturn in the industry, we must remember that between 2001 and 2005, the domestic U.S. airline industry posted $35 billion in cumulative net losses.  The poor financial performance of air carriers over this period was heavily exacerbated by a number of external factors, beginning with the September 11, 2001, terrorist attacks, which precipitated a dramatic slowdown in air passenger traffic. 

   

  We must also remember that this return to profitability has not come without a price.  The legacy carriers have aggressively sought to cut costs by reducing labor expenditures and by decreasing capacity through cuts to flight frequency, use of smaller aircraft, or the elimination of service to some communities.  Airlines cut almost 140,000 jobs in the last five years.  Those employees who kept their jobs did so by accepting billions of dollars in wage and benefit reductions.  The airlines have used bankruptcy to terminate defined-benefit pension plans, costing the Pension Benefit Guarantee Corporation and airline employees billions of dollars. 

   

  There is clearly a strong probability that air fares will continue to go up in a number of markets.  Consolidation may accelerate this trend.  No one wants to advocate for higher air fares for consumers, but for too long, the competitive environment that carriers faced forced them to offer their services at an unrealistic cost.  Financially weak carriers may produce benefits for consumers who have choices, but they are devastating for small communities. 

   

  As we all know, small and rural communities are the first to bear the brunt of bad economic times and the last to see the benefits of good times.  The general economic downturn in the aviation industry over the last five years has placed exceptional burdens on air service to our most isolated communities. In West Virginia, Tri-State Airport in Huntington lost service to Pittsburgh and Atlanta, the Harrison-Marion Regional Airport in Clarksburg lost service to Cincinnati and Washington, DC. 

   

  As the General Accountability Office has noted, most small communities’ service levels remain far below their pre-September 11^th levels despite the airlines increasing capacity levels.  West Virginia has five communities that currently only have one air carrier.  The proposed merger between US Airways and Delta would put 100% of West Virginia’s second largest airport, Tri-State, and over 60% of our largest airport, Yeager Airport, into the hands of into the hands of one company.  Because of the lack of competition in many West Virginia markets, air service options are extremely limited and fares are high.   

   

  The airline industry’s restructuring has been brutal and it may not be over.  Although there is a positive outlook for the immediate future, the long-term financial outlook for the industry is still uncertain at best.  The industry has enormous debt levels, fuel prices are vulnerable to spiking upward, and newly found pricing power may collapse as competition increases.   

   

  Over the last two years, I have met with almost every major airline Chief Executive Officer (CEO).  I have heard most of them advocate for consolidation within the industry.  I am not unilaterally opposed to consolidation, but I believe that every transaction has to be considered on its own merits.  I know that our nation needs a financially healthy airline industry.  Air service to small communities in my state and across the country depends on network carriers who use hub-and-spoke operations.  We do not have any other options.  Low-cost carriers are not going to serve West Virginia’s communities because they are too small. 

   

  Our hearing today will allow to examine the potential impact another round of consolidation would have on the airline industry and the communities and consumers they serve.  Given that this proposed merger between US Airways and Delta Airlines could set off a round of industry consolidation, this Committee needs to understand the effects consolidation would have on competition and small community air service.   

   

  My state needs healthy network carriers if we are to attract new air service. At present, low-cost carriers are not going to fill the service void in our markets.   Congress and the Administration need to develop policies that promote competition but also make sure all communities have access to affordable air service.  Balancing these competing values will not be easy. 

   

   As much as I believe that regulating the airline industry again is necessary, I recognize that we are not going back.  The industry is far too changed and far too global for us to return to a completely regulated environment.  However, I am becoming increasingly convinced that some regulation may become an option to make sure small communities are not harmed by consolidation. 

   

  I look forward to hearing from our witnesses today.  I know that the future of the airline industry will be a continuing issue for this Committee.

   

  ###

   

• Daniel K. Inouye

  Senator
  Read statement

  Majority Statement

  Daniel K. Inouye

  Over the past five years, the airline industry has suffered its worst financial performance in the history of commercial flight.  Collectively, domestic air carriers have lost nearly $40 billion, but after intense restructuring among the major carriers, the industry may have turned a corner.  Even conservative estimates suggest the airline industry will turn a profit of $4 billion in 2007.  Despite this positive outlook, most industry observers warn that external factors or other negative business trends could dramatically impact any potential profits next year or beyond.

   

  In this climate, US Airways has proposed a merger with Delta Air Lines that many believe would lead to rapid consolidation of the legacy air carriers serving the United States.  Due to the industry-wide implications of the proposed consolidation, it is critical that the Senate Commerce Committee review and understand the potential effects of such a deal.  Aviation is vitally important to our nation’s system of transportation and commerce.  We must be quite certain that the likely benefits of various merger proposals far outweigh any potential consequences.

   

  Financial analysts generally agree that consolidation will be good for the airline industry because it will quickly ease problems of overcapacity.  However, industry is just one part of the equation the Congress must consider.  We must also weigh the extent to which consolidation is in the best interest of consumers, particularly since the impact of decreased capacity on travelers and local communities is less clear. 

   

   Multiple mergers would reduce air service where combined route structures overlap significantly, and consequently allow industry to raise fares and maintain much higher fares.  Both of these consequences -- fewer options and sustained higher prices -- hurt the consumer.  Further, airline workers, who have already given so much in wage and benefit cuts during the past five years, would have to compete for the fewer jobs that remain after consolidation of the fleet.

   

  In the coming months, the Commerce Committee will be working on a significant reauthorization of the Federal Aviation Administration (FAA).  We will continue to closely follow the state of the industry and the impact of airline mergers on the American public.  If the benefits of consolidation are less than promised, we will have to consider addressing this matter in the context of the FAA Reauthorization legislation we plan to develop this Congress.

• Frank R. Lautenberg

  Senator
  Read statement

  Majority Statement

  Frank R. Lautenberg

  Let me thank Chairman Inouye for holding today’s hearing on airline mergers and their effect on the flying public. 

   

  And let me congratulate Senators Rockefeller and Lott for their leadership positions on the Aviation Subcommittee.  I look forward to working with my new chairman and ranking member as we consider FAA Reauthorization this year.

   

  This proposed merger between Delta and US Airways—two largely East Coast airlines—would create the nation’s largest carrier.  It would dominate the market in seventy one U.S. cities, many of them along the Eastern Seaboard.

   

  As, my colleagues know, I have a business background.  As a businessman, I learned that taking care of customers and employees is vital for success.  So I view any merger as not only affecting a bottom line, but also for its potential effects on consumers and employees. 

   

  When I hear that this merger will create the country’s largest carrier, and management intends to trim the airline’s service by ten percent, keep fares low and not let a single operational employee go, I need some convincing.

   

  These two airlines, which are ranked third and seventh in terms of size, are ranked fifteenth and seventeenth, in customer satisfaction, according to the Department of Transportation.

   

  Take the shuttles between Washington, D.C. and New York and we can see why:  Sometimes I spend more time on the ground than in the air on those flights.

   

  It’s no wonder that more people now ride Amtrak than fly between New York and Washington.  The train is more convenient to use, less hassle in terms of security, and is competitively priced.

   

  All travelers should expect high-quality service when they buy a ticket and get on an air plane.

   

  So when it comes to this merger—and any other merger before us—we need to know that the management teams are thinking about the long-term interests of their companies along with their customers and employees—not just short-term dreams about inflated stock-prices and golden parachutes.

   

  I look forward to hearing from Mr. Grinstein and Mr. Parker, and their plans for promoting the long-term interests of their companies and their customers.

   

  Thank you, Mr. Chairman.

   

                                        

Opening Remarks

• The Honorable Johnny Isakson

  U.S. Senator

  Georgia

Testimony

• Mr. Mark N. Cooper

  Director of Research

  Consumer Federation of America
  Download Testimony (155.52 KB)

• Mr. Doug Parker

  Chairman and Chief Executive Officer

  US Airways
  Download Testimony (51.28 KB)

• The Honorable Andrew B. Steinberg

  Assistant Secretary for Aviation and International Affairs

  U.S. Department of Transportation
  Download Testimony (48.44 KB)

• Mr. Gerald Grinstein

  Chief Executive Officer

  Delta Air Lines, Inc.
  Download Testimony (870.85 KB)