We found, in fact, that since deregulation, substantial regional differences have existed in fare and service trends, particularly among small and medium-sized community airports. In particular, we noted that most low-fare airlines that began interstate air service after deregulation, such as Southwest Airlines and Reno Air, had decided to enter airports serving communities of all sizes in the West and Southwest because of these communities’ robust economic growth. Large communities, in general, and communities of all sizes in the West and Southwest had experienced a substantial increase in the number of departures and available seats as well as improvements in such service quality indicators as the number of available nonstop destinations and the amount of jet service. Airline Barriers to Entry Persist and Predominantly Affect Competition in the East and Upper Midwest

We reported in October 1996 that operating barriers at key hub airports in the upper Midwest and the East, combined with certain marketing strategies of the established carriers, had two effects on competition. The operating barriers and marketing strategies deterred new entrant airlines and fortified established carriers’ dominance of those hub airports and routes linking those hubs with nearby small- and medium-sized-community airports. In the upper Midwest, there is limited competition in part because two airlines control nearly 90 percent of the takeoff and landing slots at O’Hare, and one airline controls the vast majority of gates at the airports in Minneapolis and Detroit under long-term, exclusive-use leases. Perimeter rules at LaGuardia and National further limit the ability of airlines based in the West to compete in those markets. Slots

To reduce congestion, the Federal Aviation Administration (FAA) has limited since 1969 the number of takeoffs and landings that can occur at O’Hare, National, LaGuardia, and Kennedy. By allowing new airlines to form and established airlines to enter new markets, deregulation increased the demand for access to these airports. These exemptions should help to enhance service in the East and upper Midwest. The vast majority of gates at each airport are exclusively leased, usually to one established airline. As a result, it is extremely difficult to gain competitive access to these airports, according to executives at many airlines that started after deregulation. Range of Initiatives Will Likely Be Needed to Address Air Service Problems

Because a variety of factors has contributed to higher fares and poorer service that some small and medium-sized communities in the East and upper Midwest have experienced since deregulation, a coordinated effort involving federal, regional, local, and private-sector initiatives may be needed. Recent efforts by DOT and proposed legislation are aimed at enhancing competition. Airline Deregulation: Barriers to Competition in the Airline Industry (GAO/T-RCED-89-65, Sept. 20, 1989).
Why GAO Did This Study

GAO discussed the air service problems that some communities have experienced since the deregulation of the airline industry in 1978.

What GAO Found

GAO noted that: (1) not all communities have benefited from airline deregulation; (2) certain airports--particularly those serving small and medium-sized communities in the East and upper Midwest--have experienced higher fares and poorer service since deregulation; (3) there are several reasons for the substantial regional differences in fare and service trends, including the dominance of routes to and from these airports by one or two traditional hub-and-spoke airlines and operating barriers, such as long-term exclusive-use gate leases at hub airports; (4) the more widespread entry of new airlines at airports in the West and Southwest since deregulation has stemmed largely from the greater economic growth in those regions as well as from the absence of dominant market positions of incumbent airlines and barriers to entry; (5) operating barriers continue to block entry at key airports and contribute to fare and service problems in the East and upper Midwest; (6) to minimize congestion and reduce flight delays, the Federal Aviation Administration has set limits since 1969 on the number of takeoffs or landings that can occur during certain periods of the day at four congested airports; (7) a few airlines control most of these slots at these airports, which limits new entrants; (8) in 1996 GAO reported that the vast majority of gates at six airports in the East and Upper Midwest were exclusively leased to usually one airline, making it very difficult to gain competitive access to these airports; (9) perimeter rules at two major airports limit the ability of airlines based in the West to compete at those airports; (10) these operating barriers, combined with certain marketing strategies by established carriers, have deterred new entrant airlines while fortifying established carriers dominance at key hubs in the East and upper Midwest; (11) increasing competition and improving air service at airports serving communities that have not benefited from deregulation will likely entail a range of federal, regional, local, and private-sector initiatives; (12) the Department of Transportation is undertaking several efforts to enhance competition; (13) recently proposed legislation would address several barriers to competition: slot controls, the perimeter rule, and predatory behavior by air carriers; (14) recent national and regional conferences exemplify efforts to pool available resources to focus on improving the airfares and quality of air service to such communities; and (15) other steps--such as improving the availability of gates--may also be needed to further ameliorate current competitive problems.