Northern Hills Homeowner's Association

Aviation Group Calls For Airline Regulation

Oct 04, 2000

U.S. Newswire
3 Oct 15:53

Aviation Consumer Group Calls For 'Reasonable Regulation' of Airline Industry
To: National Desk, Transportation Reporter
Contact: Kathy Lynch of the Aviation Consumer Action Project, 202-638-4000; Web site: http://www.acap1971.org

WASHINGTON, Oct. 3 /U.S. Newswire/ -- Addressing a major conference of business travel executives concerned with Internet travel services, the Internet Air Competition Summit, Paul
Hudson, executive director of the Aviation Consumer Action Project, called for reasonable regulation of the airline industry, possibly including certain Internet airline ticket
sites.

Tracing the history of airline regulation, Hudson noted that the 1978 Airline Deregulation Act effectively made domestic airlines one of the least regulated industries in the U.S.
Airlines are now exempt from state and local consumer protection laws, Federal Trade Commission regulation, and OSHA regulations.
Domestic airlines are also sheltered from foreign competition based on certain Cold War era national security laws, and have received numerous anti-trust waivers to form alliances and joint ventures. Finally, major airlines have in the past used control of ancillary services such as Computer Reservation Systems, and the Airline Reporting Corporation (ARC) which has a monopoly on travel agent writing and clearing of airline tickets, to hamper new entrant airlines and enforce airline policies. Policies such as hidden city ticketing and prohibitions on using back to
back tickets increase airfares for business travelers. Some observers speculate that the new Orbitz Web site, now controlled by the major airlines, would be used to monopolized the use of
new very powerful software and to increase major airline company control over ticket pricing and distribution.

While eschewing any specific regulation of airline Internet sites, Hudson noted that airline booking fees have increased dramatically (over 1,000 percent). Presently, four computer
reservation systems control the tickets purchased by travel agents that account for about 80 percent of airline ticket sales and all travel agents must use the ARC.

As to the 4 percent of ticket sales made through Internet sites, about half of the these sales are made by Travelocity (owned by the Sabre, the leading computer reservation system used by travel agents) and Expedia (owned by Microsoft).
Orbitz, which is organized as an Internet travel agency owned by the major airlines, would compete with the existing business to consumer airline ticket web sites and traditional travel agencies. Initially, Orbitz is reportedly offering a 30 percent discount in booking fees to airlines that agree to make their lowest fares available only on Orbitz.

In considering regulation of Internet airline ticket sites, ACAP favors three concepts:

Disclosure of biases and special relationships between the Web site and airlines or other significant parties;
Transparency in fee structures, so the consumer knows if the fees earned by the site include commission overrides, which might be labeled as kick backs in other industries;
Prohibitions against gross abuses, such as selling personal customer profiles and travel plans and history to others without
customer knowledge or consent.

Hudson also suggested that sites which claim to be universal sites, offering consumers every airline ticket and fare available should perhaps be regulated as stock or commodity exchanges or markets, which are often member organizations with
internal regulation to prevent abuses and lighter government regulation than would otherwise be the case if they were controlled by only the major players in an industry.

In the non-Internet areas, Hudson noted that one of the two remaining consumer protection regulations, authored by ACAP and its founder Ralph Nader: The Bumping Rule (which allows over
booking but requires the airlines to first ask for volunteers and then to compensate passengers denied a seat involuntarily) and the Lost Baggage Liability Rule (now $2,500) have been
successful in providing protection for passengers and helpful to the industry (shielding airlines from unlimited common law liability for over booking or lost luggage).

Needed reasonable regulations favored by ACAP include:

1) Adoption of ACAP's Truth in Scheduling Rule to require airlines to inform passengers of the on time statistic for chronically delayed flights (late more than 50 percent of the time) and to ban deceptively scheduled flights (late more than
80 percent of the time) until an airline files a certificate of scheduling accuracy with the DOT promising 70 percent or better on time performance for the new scheduling times.

2) ACAP's proposed Triple 50 Rule to prevent price gouging by domestic airlines. This rule would cap airfares at 50 cents per passenger mile plus $50 for flights over 50 miles (allowing for
a gross profit of 500 percent to 1000 percent). Many airlines now charge 80 cent to 2 dollars per passenger mile on domestic routes, for unrestricted weekday fares, for a gross profit
margin of up to 2500 percent. This regulation would eliminate price gouging, encourage normal price competition, and place a limit on price discrimination in air fares. Presently, there is
a reasonableness cap on international air fares, but the sky is the limit for domestic air fares. Most other industries are limited by state anti-price gouging laws and state attorney generals' equity enforcement powers.

3) Mandating of shared airport gate use, elimination of long term leases at airports, and the majority in interest clause (giving a dominant airline veto power over airport expansion) which are used by major airlines to establish so-called "fortress hubs" and keep out competing airlines.

4) Anti-predatory pricing rule which would require airlines to lock in low prices for a reasonable period of time and ban
"flooding" whereby a dominant carrier floods the market with many new flights to make sure the public can fly the existing carrier for the same price and more conveniently than the new
carrier, but only until the new carrier to driven out. This differs from the DOT/small airline association proposal which would place a floor on air fares and effectively outlaw price wars between competing carriers.

5) Other Anti-Delay regulations including

a) Mandating a 3 percent reserve for airliners and flight crews to eliminate delays and cancellations now caused by most
airlines currently operating with less than 1 percent reserves of equipment and flight crews;

b) Mandating or encouraging greater use of large bodied jets (300 to 500 passengers) between major U.S. cities to reduce congestion at the 20 busiest airports (4.5 percent of U.S.
airports) which now control over 50 percent of the traffic.

c) Mandating shared use of airport capacity at major U.S. metro areas and greater use of secondary airports to relieve overcrowding and delays at major airports (85 percent of U.S.
airports now only carry 6 percent of the traffic because the airlines concentrate traffic at hubs or major metro airports).

In answer to those who claim no regulation is best, Hudson noted the present system is totally unregulated as to scheduling and pricing and lacks normal fair competition rules. This has
led to major increases in flight times, delays and price gouging, poor service, and fewer airlines. Some observers note that even without delays, air travel is now approaching or exceeding the scheduled flight times of the late 1940's.
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ACAP is a not for profit organization founded by Ralph Nader in 1971 to act as a voice and ear for air travelers on major aviation issues.