U.S. Air Carrier Economic Authority: Under U.S.C. 41101 and 41102 of the United States Code, anyone who wants to provide air transportation service as a U.S. air carrier must first obtain two separate authorizations from the Department of Transportation: "economic" authority from the Office of the Secretary of Transportation and "safety" authority from the Federal Aviation Administration. Economic authority for U.S. carriers may be in the form of either a certificate for interstate or foreign passenger and/or cargo and mail authority, or an exemption to operate as an air taxi or commuter air carrier if the carrier is operating aircraft designed for no more than 60 passenger seats or 18,000 pounds payload capacity. For information on obtaining certificate or commuter authority, contact the Office of Aviation Analysis. For information on obtaining air taxi (excluding commuter) authority, contact the Air Transportation Division of the Federal Aviation Administration at 202-267-7897, 202-267-7773, or 202-267-9814.

AIRLINE INDUSTRY:

Airline Compensation Payments: Following the terrorist events of September 11, 2001, the Administration and the Congress passed the Air Transportation Safety and System Stabilization Act. Among other things, that Act established two programs to provide financial assistance to airlines. One of these, the Air Carrier Compensation Program, provided up to $5 billion to provide immediate financial relief to the airlines right after the September 11 to ensure that they could continue to provide service. Within three days after the Act was passed, the Department paid over $2.3 billion to the airlines. This action has been credited with saving the airline industry. A list of the U.S. carrier compensation payments paid to date is available on the Department’s web page at www.dot.gov/affairs/carrierpayments.htm.

Airline Distribution Practices: Airlines have significantly changed the way that they distribute their product to consumers, including a multiple carrier, joint-owned travel supplier website. For many years, passengers primarily obtained air tickets travel by going through travel agents or purchasing ticket directly from the individual airlines. Over the past several years, the sale of air transportation has evolved to include sales over the web, ticketless travel, and the proliferation of numerous distribution systems through which to purchase air services. The Office of Aviation Analysis has completed a comprehensive study, Efforts to Monitor Orbitz, that provides a comprehensive analysis of the consumer and competitive effects of the newer distribution systems.

Airline Strikes: If airlines go on strike, there is an immediate impact on consumers, and in the longer run, there can be a significant impact on the airline being struck and on industry competition. The Office of Aviation Analysis is responsible for advising the Secretary on the effect of airline strikes or the potential of airline strikes on these services, including the continued availability of service to consumers, the financial impact on the airline and identifying which markets will be the most affected by the strike action. The Department does not otherwise get involved directly in airline strike matters, but does monitor them to ensure that senior Department officials are aware of the issues involved and the impact on consumers and industry competition.

Bankruptcies: The Office of Aviation Analysis monitors bankruptcy proceedings in conjunction with its responsibilities to monitor the continuing fitness of U.S. airlines and the overall health and structure of the airline industry. The Department of Transportation does not intervene in these proceedings.

Computer Reservation Systems (CRS) Rules: Computer Reservation Systems, also referred to as Global Distribution Systems (GDSs), provide information on air carrier schedules, seat availability, and fares and are used by travel agencies to make airline reservations as well as to book hotel rooms, car rental reservations, and the services of other travel industry suppliers. Airlines and other travel suppliers pay booking fees to CRSs when a reservation is made by an agent using one of these systems. Each system operating in the United States was originally developed and controlled by a U.S. airline.

Competitive abuses by CRSs led to the creation of rules governing the systems’ operations in 1984. After reexamining whether the original rules were necessary and effective, DOT readopted them with some changes in 1992. At that time, one or more airlines controlled each of the systems. In 1997, DOT began a new reexamination of the need for rules and their effectiveness. After reviewing the comments submitted in response to an advanced notice of proposed rulemaking and a supplemental advanced notice of proposed rulemaking, DOT issued a notice of proposed rulemaking on November 15, 2002, that proposed to readopt many but not all of the existing rules.

On December 31, 2003, the Department issued a Final Rule amending its regulations governing the systems. Most of the rules were terminated as of January 31, 2004. The Department readopted the rules prohibiting display bias and adopted rules that prohibit systems from imposing certain types of contract clauses on participating airlines that would unreasonably restrict their ability to choose how to distribute their services. These rules will be effective during a six-month transition period, ending July 31, 2004. The Department found that changes in airline distribution, particularly the growing importance of the Internet, and the divestiture of all CRS ownership interests by U.S. airlines had made the rules unnecessary.

Consumer Air Fare Report: See Domestic Air Fares.

Empowering Consumers: Ensuring consumers public access to information about the airline industry is a high Department priority. Access to such information assists consumers and civic leaders in better understanding the role of air transportation in local economic growth and how to address their air service issues. The Office of Aviation and International Affairs through the Office of Aviation Analysis and the Office of International Aviation regularly makes available to the public numerous reports and studies about airline services, fares, and competition, most of which are electronically available to facilitate greater dissemination of the information.

Loan Guarantees: Following the terrorist events of September 11, 2001, the Administration and the Congress passed the Air Transportation Safety and System Stabilization Act. Among other things, that Act established two programs to provide financial assistance to airlines. One of these, the Loan Guarantee Program, provided up to $10 billion in loan guarantees to support air carrier attempts to secure loans to sustain their operations in the longer term. The Stabilization Act established the Air Transportation Stabilization Board to administer the program. The Secretary of Transportation, the Secretary of the Treasury, and the Chairman of the Federal Reserve Board serve as voting members of the Board. The Office of Aviation Analysis, in conjunction with the Department’s Office of the General Counsel, analyzes all applications submitted to the Board and advises the Secretary with respect to the Department’s recommendation on each application. Sixteen applications were filed by the June 28, 2002 deadline. The Board has approved five applications of America West Airlines, American Trans Air, Aloha Airlines, Frontier, and US Airways. The Board has conditionally approved (but not closed on) the loan guarantee application of World Airways. The Board also conditionally approved a loan guarantee for Evergreen International Airlines, but the carrier subsequently refinanced its debt in the public market and withdrew its loan guarantee application. Eight applications were denied. The Office of Aviation Analysis maintains a list all loan guarantee applications and the guarantee amounts requested. For further information contact the Office of Aviation Analysis.

Monitoring the Health of the Airline Industry: One of the Department's primary responsibilities is to promote a healthy and competitive airline industry. This Office regularly monitors the fares, costs, traffic, capacity, financial positions, and operations of the airlines, as well as structural changes in the industry and general industry trends and growth. On a case-by-case basis, and at times under emergency circumstances, the Office of Aviation Analysis provides Department decision makers with "quick-turn" analyses of the industry at a particular point in time. The Office provided such an analysis right after the terrorist attacks of September 11 and on a periodic basis since then. Such analyses are also important if an airline files for bankruptcy by enabling the Department to evaluate the competitive effects of the bankruptcies on industry structure and consumers. Such analyses were conducted on the bankruptcies of Continental Airlines, TWA, US Airways and United Airlines. The Office of Aviation Analysis has also conducted several detailed studies on various industry trends and competitive issues in conjunction with the Department's oversight responsibility of the industry. Some examples that are available on this web page are the Dominated Hub Fares study, the Rural Air Fare Study, Transatlantic Deregulation-The Alliance Network Effect.

Reports, Statistics, Studies, and Other Publications: The Office of Aviation and International Affairs publishes many reports, studies, and other publications that are directly related to domestic and international issues of interest or concern to the Department.

September 11 terrorist attacks: Financial recovery of the airline industry since the terrorist attacks of September 11, 2001, has been a top priority for the Department. Many of the airlines in the industry were facing considerable financial difficulties prior to the September 11 terrorist attacks due to sluggish economy as well as high cost structures. The events of September 11 further exacerbated these problems and plunged these airlines, as well as several others, into the worst financial position in aviation history. The Air Transportation Safety and System Stabilization Act, among other things, established two programs to provide financial assistance to the industry in the post-9/11 marketplace. The Office of Aviation Analysis has played a central role in both of these programs. The first is the Air Carrier Compensation Program, which provided up the $5 billion to provide immediate financial relief to the airlines right after September 11 to ensure that they could continue to provide service. Within three days after the Act was passed, the Department paid over $2.3 billion to the airlines. The second program is the Loan Guarantee program, which provided $10 billion in guarantees to support air carrier attempts to secure loans to sustain their operations in the longer term.

Slots: Since 1969, the FAA has had rules in place that limit the number of operations (takeoff and landing positions or slots) at four congested airports, New York LaGuardia, New York JFK, Chicago O'Hare, and Reagan Washington National. Restricting takeoffs and landings (slots) at certain congested airports has been an effective method of controlling delays for several years. In part because of perceived inequity and inflexibility in the distribution of slots to individual airlines, in December 1985 the Department issued rules that "grandfathered" slots to airlines that held slots. The Department also allowed individual airlines to buy or sell the rights to slots in an attempt to improve the slot-rationing process and make slot-controlled access more rational.

The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21) requires the Department to provide increased access to the four U.S. slot-controlled airports (airports where the number of take-offs and landings by airlines are limited)--Chicago's O'Hare airport, New York's LaGuardia and Kennedy airports and Washington, DC's Ronald Reagan Airport. Because of the congestion at the airports, however, the number of slot "exemptions" (relief from the overall limitations) is limited and the demand toserve them far exceeds the access available. Award of these slots constituted the first domestic route cases since the domestic airline industry was deregulated in 1978. The cases are hotly contested because access to the airports has both important economic and political implications. The slot restrictions at Chicago expired in July 1, 2002. The restrictions at the two New York airports will expire in 2007. The slot restrictions at Ronald Reagan Airport remains in effect with no scheduled expiration date. However, on April 1, 2004, the Department issued two orders granting Beyond-Perimeter and Within-Perimeter Slot Exemptions at Ronald Reagan Washington National Airport.

The primary administration of slots as handled by the Federal Aviation Administration, although the Office of Aviation Analysis is responsible for the allocation and slot exemptions. Over the past two years this Office has completed cases allocating all of the available slot exemptions at these airports.

AVIATION DATA:

Airport Competition Plans--Air Fare Data: The Office of Aviation Analysis collects air fare data and prepares them in compliance with Section 155 of Pub L. 106-181, to be used in the development of Airport Competition Plans. One component of the Competition Plan is an evaluation of the submitting airport’s fares compared to those at other large and medium airports. The fare and traffic data is developed to provide a basis for the requisite analysis. The source of all data is the DOT’s Origin and Destination Survey.

Airline Financial Review: On a quarterly basis the Office of Aviation Analysis produces a report (Financial and Traffic Review) that provides detailed information on the financial condition of U.S. airlines. The information includes staff comments, charts, and tables.

Aviation Data Modernization: There have been several changes in the way that airlines conduct their operations since the Department's data reporting requirements were established after deregulation, including tremendous growth in code sharing both domestically and in international markets. The Department's reporting requirements are no longer in sync with the way the airlines operate, creating a substantial obstacle to effective analysis of the industry. The Office of Aviation Analysis has taken a leadership role in instituting a comprehensive rulemaking to harmonize the Department's aviation data systems with current regulatory and statutory needs; to improve the quality of the Department's aviation databases; and to provide improved submission of and access to the data.

Domestic Air Fares: A key aspect of deregulation of the airline industry in 1978 was the discontinuation of the government’s regulation of the prices that airlines charge customers. While the government no longer regulates the fares that are charged, the Department does provide considerable information to the public with respect to airline fares. The Department through the Office of Aviation Analysis issues the Consumer Air Fare Report on a quarterly basis, which provides information about average prices being paid by consumers in the top 1,000 domestic city-pair markets in the continental United States. These markets account for over 70% of all domestic air travel. A section of the report provides real life examples of concerns and or information pertaining to U.S. airline service to various U.S. cities.

Standard Industry Fare Level: The Airline Deregulation Act of 1978 (ADA), Public Law 95-504, substantially amended the Federal Aviation Act of 1958, setting both deadlines and policies for the economic deregulation of interstate and overseas (domestic) air transportation. Among other things, the ADA significantly limited the Civil Aeronautics Board's (CAB) discretion to prescribe domestic fare levels and required the CAB to establish a "Standard Industry Fare Level" (SIFL), based upon fares in effect on July 1, 1979. To serve the benchmark for evaluating a statutory zone of reasonableness for air fares since deregulation, as required by the deregulation law, the CAB and now the Department periodically updates the SIFL by the percentage change in airline operating cost per available seat-mile. It is also used by others in the government as well as the public in estimating the economic value of transportation services. The Office of Aviation Analysis recalculates the SIFL twice a year and makes available to the public publishable data tables.

Transportation of Mail: 49 USC 41903 requires that duly licensed U.S. certificated carriers transport mail on their authorized foreign air transportation service and their services within Alaska. 49 USC 41901 and 41907 require the Department to “set fair and reasonable rates” that the U.S. Postal Service will pay air carriers to transport international mail and mail within Alaska. The Office of Aviation Analysis issues orders seeking mail rates.

U.S. International Air Passenger and Freight Statistics: The U.S. International Air Passenger and Freight Statistics report has been developed to provide the public with additional access to international aviation data relating to service and traffic levels in specific international markets. The report is restricted to nonstop commercial traffic traveling between international points and U.S. airports.

COMPETITION ANALYSIS:

Alliances and Code Shares Between and Among Major U.S. Carriers: U.S. air carriers are required to submit cooperative service agreements that they have with each other, such as reciprocal code sharing, joint frequent flyer and lounge access, and joint marketing, to the Department for review before they implement those agreements. 49 USC 41720. The Department does not approve or disapprove the agreements. Rather, the Department reviews the agreements to ensure that they would not harm the public or are anti competitive. The Department can take action under its statutory authority to preserve competition under 49 USC 41712. The Department has recently reviewed two major alliances—one involving United Air Lines and US Airways, and the other involving Continental Airlines, Delta Air Lines, and Northwest Airlines—that presented significant competitive issues. For further information, contact the Office of Aviation Analysis and the Office of International Aviation.

Anti-Competitive Practices: 49 U.S.C. 40101 mandates that the Department prevent unfair, deceptive predatory, or anti-competitive practices in both domestic and international aviation. The domestic airline industry was deregulated in 1978, making it possible for all airlines to compete in all U.S. domestic markets. The Office of Aviation Analysis, in conjunction with the Department’s Office of the General Counsel, reviews complaints of unfair competitive practices involving domestic air services on a case-by-case basis. The Office of International Aviation handles complaints by U.S. carriers regarding discriminatory and unfair competitive practices in international air transportation. See Complaints by U.S. carriers against foreign governments and/or foreign carriers.

Competitive Impact of International Code Sharing and Alliances: U.S. carrier relationships with foreign airlines play a major role in the U.S. aviation industry's participation and competitive position in the "global" marketplace. A study by the Office of Aviation Analysis served as the economic basis for development of the Department's international aviation policy to encourage international alliances and spread deregulation's benefits to world markets. As a result, there has been considerable growth in U.S. carrier code-sharing arrangements with foreign airlines as well as growth in the more comprehensive U.S. carrier alliances (cooperative service and marketing agreements) with foreign airlines. The alliance agreements, which nearly always include a code-sharing component, are frequently accompanied by requests for relief from the antitrust laws, which otherwise might prevent the carriers from cooperating on certain aspects of their joint services, such as fares and capacity, as though they were a single airline. Major code-sharing and alliance arrangements require careful examination in terms of their impact on competition in both domestic and international markets. The Office of International Aviation processes U.S./foreign carrier code-share applications and maintains a list of code-share arrangements between U.S. and foreign carriers. The Office of Aviation Analysis is responsible for processing applications for anti-trust immunity and maintains a list of all immunized alliances. Two major studies by the Office of Aviation Analysis have been instrumental in developing the Department's ongoing policies regarding international alliances: Global Deregulation Takes Off (1999) and Transatlantic Deregulation-The Alliance Network Effect (2000).

Domestic Aviation Competition Briefs: Learn more about low-fare entry and competition in the domestic airline industry with our short analytical briefs and re-issued Special Features from the Domestic Consumer Air Fare Report.

Ensuring Fair Competition Among Airlines: An ongoing responsibility of the Department is to deal with complaints of unfair competitive practices. The domestic airline industry was deregulated in 1978, making it possible for all airlines to compete in all U.S. domestic markets. The Department of Transportation has a statutory responsibility to ensure that such competition is conducted fairly. The Office reviews complaints of unfair competitive practices on a case-by-case basis. (Also see Anti-Competitive Practices)

Promotion of Competition in the U.S. Airline Industry: Increasing competition in the U.S. airline industry is a fundamental responsibility of the Department of Transportation under our governing statute. It is the Department's policy to encourage the entry of new airlines into the market. New entry not only increases the level of airline service and choice available to the public, but also promotes lower airfares for consumers and brings innovation to the industry. Over the past several years, new entrants have greatly expanded the scale and scope of their operations. Increased competition has spurred the incumbent carriers to lower their fares, to become more efficient, and to develop new services to compete with these new entrants. Three major studies by the Office of Aviation Analysis have contributed significantly toward the development of this pro-entry policy: The Southwest Effect (1993), The Low Cost Airline Service Revolution (1996), and Dominated Hub Fares (2001).

U.S. Airline Mergers and Acquisitions: Section 7 of the Clayton Act prohibits mergers and acquisitions that may substantially lessen competition or create a monopoly. While the Department of Justice enforces this statute, the Department of Transportation conducts its own competitive analysis of mergers and submits its views to the Justice Department. The Office of Aviation Analysis provided extensive analyses of the proposed merger between United Air Lines’ and US Airways, the proposal of Aloha Airlines and Hawaiian Airlines to merge, and American Airlines’ acquisition of Trans World Airlines. The United/US Airways and Aloha/Hawaiian merger proposals were later withdrawn. The Department does exercise jurisdiction over the transfer of international operating authority in conjunction with airline acquisitions as well as ensuring that the acquiring entity meets the Department’s citizenship and fitness requirements to be a U.S. certificated air carrier.

SMALL COMMUNITY AIR SERVICE:

Essential Air Service: The Airline Deregulation Act, passed in 1978, gave airlines almost total freedom to determine which markets to serve domestically and what fares to charge for that service. The Essential Air Service (EAS) program was put into place to guarantee that small communities that were served by certificated air carriers before deregulation maintain a minimal level of scheduled air service. The Department currently subsidizes commuter airlines to serve approximately 100 rural communities across the country as well as 35 in Alaska that otherwise would not receive any scheduled air service. For further information contact the Office of Aviation Analysis.

Service to Small Communities: This Office administers two programs designed to improve service to small communities. The Essential Air Service (EAS) program guarantees that certain small communities will receive a minimum level of service to provide them access to the National air transportation system. This program provides over $100 million annually to support service at these communities. Service to small communities was severely impacted by the events of September 11. The operating costs for these services increased and significant traffic declines resulted in substantially reduced revenues. As a result, over 100 subsidy rates for EAS services had to be renegotiated quickly to facilitate a continuation of service at these points. The Small Community Air Service Development Pilot Program is a grant-in aid program that provides financial assistance to small communities to improve their air service. For the past two fiscal years this program has worked with an annual budget of $20 million. In June 2002, the Department made the maximum number of grant awards under the statute to 40 communities in 38 states. The Office is currently in the process of soliciting proposals for the fiscal year 2003 available funds. Because of many changes in airline service over the years, the needs of small communities for air service have changed considerably which affects these two small community programs. The Department has initiated major legislative changes to restructure the way the Department provides financial assistance to small communities in conjunction with their air service to make it more efficient and responsive to community needs. (See Small Community Air Service Development Pilot Program)

Small Community Air Service Development Program: On April 5, 2000, the President signed the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21), Public Law 106-181. Among other things, the statute established the Small Community Air Service Development Pilot Program, a new pilot program designed to help smaller communities to enhance their air service. This program was reauthorized for five years, through FY 2008, by Vision 100-Century in Aviation Reauthorization Act, P.L. 108-176, and eliminated the "pilot" status of the program. The statute directs the Secretary to assist communities in developing projects that will enhance their access to the national air transportation system through public-private partnerships, and to help communities overcome factors that might be inhibiting improvements in their current air service. The Department provides this assistance in the form of financial grants. The program was not funded in its first year, fiscal year 2001, but was funded and implemented in each of fiscal years 2002 and 2003. In 2002, the Department awarded 40 grants. In FY 2003, the Deaprtment awarded 36 grants. For FY2004, in the FY 2004 Consolidated Appropriations Act, P.L. 108-199, Congress appropriated approximately $20 million for the program. On March 15, 2004, the Office of Aviation Analysis issued an order soliciting community grant proposals from interested eligible communities. 2004 Request for Proposal.

Revised on Thursday, April 1, 2004
Content provided by Randall Bennett, Director
(202) 366-5903