Citing $2.7 Billion in Earnings from Baggage Fees, House Transportation Chairman Indicates He Wants to Re-Regulate the Airlines
June 16, 2010 - 5:40 PMCongressmen May Bring Back Airline Regulation
At a hearing on the merger, Reps. James Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee, and Jerry Costello, D-Ill., chairman of the panel's aviation subcommittee, expressed concern about the impact the proposed deal could have on consumers and airline workers.
Deregulation has been credited with making airline travel affordable for the average American. But Oberstar pointed to the $2.7 billion the airlines earned in baggage fees in 2009 as evidence that consumers are no longer benefiting from the system. He said he believes there's support in the House for re-regulation.
"Hardly a day passes where I don't walk out on the (House) floor that someone asks me, 'When are we going to re-regulate the airlines?'" Oberstar told reporters after the hearing.
The legislation would impose federal regulation of airline pricing and re-establish a government gatekeeper role similar to that played by the old Civil Aeronautics Board prior to deregulation in 1978, Oberstar said. The board set standards for companies trying to enter the airline market and decided on a case-by-case basis which companies should be granted permission to fly passengers.
Deregulation worked for a while, bringing new, lower-cost carriers into the market and driving down fares, said Oberstar, who--as a junior congressman--voted in favor of deregulation. Most of those air carriers--as well as several "legacy" carriers dating back prior to deregulation--are gone.
The CEOs of United and Continental, who testified at the hearing, complained that competing against a steady influx of low-cost carriers who drive prices artificially low and then go bankrupt has weakened the airline industry.
Airlines have also suffered repeated shocks in recent years, including the Sept. 11 terror attacks, the SARS virus, volatile oil prices and the economic downturn. They have shed more than 158,000 full-time jobs since employment peaked in 2001 and lost an estimated $30 billion to $60 billion in recent years. At least 13 airlines have filed for bankruptcy in the past several years.
"The status quo for this industry is unacceptable," said United's Glenn Tilton.
United's proposed merger with Continental would create the nation's largest airline. Tilton and Continental's Jeffery Smisek said the new company would be able to compete more effectively against large, foreign carriers in the international market.
The new airline's financial success will be based on "synergies" produced by combining the two carriers, not higher fares, Tilton said.
However, industry experts and consumer advocates were skeptical there would be any synergy savings other than reduced competition.
Costello said the committee will ask the Justice Department, which is reviewing the merger proposal, to determine if there is evidence to support the synergy claims.
"I'm looking for a way to preserve competition," Oberstar said. "That's what I voted for in 1978."
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