Edward Faberman, executive director of the newly formed Air Carrier Association of America, makes an unusual Red Riding Hood, but he is certain he is looking into the eyes of cleverly disguised wolves.
Faberman uses chilling language to describe the actions of the US major carriers against their low-cost competitors: 'They are like a pack of wolves. Wolves might turn on each other and never quite trust each other, but they will work together to feed on their enemies.' In the last 12 months, he says, a 'feeding frenzy' has occurred. It is down to Faberman, it seems, to don his red cloak and help prevent small carriers from becoming carrion.
The ACAA held its first formal meeting in February and its members, all of them US national jet operators, include AirTran Airways, Arrow Air, Carnival Air Lines, Frontier Airlines, Sun Jet, Spirit Airlines and ValuJet Airlines. Reno Air is expected to join shortly. Faberman, formerly vice president of government affairs at American Airlines and a former deputy chief counsel at the Federal Aviation Administration, was approached by the group to represent them. 'I had known a lot of these people before,' says Faberman.'They are a group of carriers that has a number of issues in common. Although they take up their own battles individually, they would like to address some of the common issues collectively.'
Faberman outlines the circumstances which have spawned a counterweight to the 60-year-old Air Transport Association, the 25-member trade organisation that represents all the major US carriers. 'There is a changing environment in this country concerning air service,' he says. 'For a long time, you had an industry that was losing a lot of money and everybody was so concerned about survival that no-one was looking at anything else.' Faberman points out that in the last two years the major carriers have done very well for at least two reasons. First, they have eliminated most of their competition from their major markets and second, they have strengthened their international alliances.
'There is really only one competitive hub left in the US, which is Chicago, and even that is dominated by two majors so there is no price competition. These hubs have really become company towns, but what is even more troubling is that in most of these towns there does not seem to be any real belief that it's important to have competition,' he says.
Faberman stresses that the ACAA is not against growth or profit. 'What we are saying is that, unfortunately, as part of the growth and dominance that the majors have enjoyed, have come road blocks and anti-competitive behaviour that have almost become accepted by the local and federal governments and which prevent any new competition from coming into place. Someone has to come out and say that we want to see some form of competition in this country, because otherwise at the turn of this century we will wake up and find it has gone.'
According to Faberman, the majors have particularly targeted small, low-cost carriers in their efforts to drive out competition. 'Up until the [Florida] crash, ValuJet was making headway. But they had become a threat and the majors are saying that they won't let that happen again. They now have the money and can afford $10-30 million to throw the competition out.'
Meanwhile the majors' new international alliances strengthen them in their hubs and make them even more determined to protect those hubs, says Faberman.
'Majors protecting their hubs is not new, but the level of intensity of it is new. The question is no longer whether they will allow a ValuJet into their hub - they won't even allow one or two flights in. They simply want no competition,' he claims.
The catalyst for the association's creation was Denver-based Frontier's decision to go to the Department of Justice and file eight counts of alleged antitrust violations against United Airlines. By going public, Frontier discovered it was not alone. 'Apparently, we got into United's gunsights,' says a spokesman. 'We had the option of going public or letting them take us into a back room and beat the stuffing out of us. Once our problems became known, other airlines started stepping forward.
'We put our heads together and it appears that the Department of Transportation, which not so long ago was the champion of the startup airlines, was looking the other way after the ValuJet crash. It was open season. I believe that was one of the things that sparked the association. This gives us the opportunity to go to Washington with a united view and the feeling that several voices are louder than one. The association will carry the torch.'
But Frontier's legal complaint, which United strongly denies, remains an individual action with which the association has no dealings. 'But the association members do agree that what we need from the DOT is a policy; we want to see the rules spelled out loud and clear. That is what is being pursued by the association on behalf of its members,' says the Frontier spokesman.
Faberman affirms that 'it is not up to the association to carry any individual complaint to litigation', but says that the ACAA 'will bring to the attention of the administration and the legislative bodies [the fact] that there are policy issues that must be addressed and must be seen to be addressed soon'. Adds Faberman: 'Our objective is to go to Capitol Hill, where we have received a wonderful, positive response, to say this is what is happening throughout the country and [that] what is happening at Frontier should not be regarded as a local issue.'
Bob Rowen, vice president and general counsel at Reno Air, agrees that anticompetitive behaviour is an important issue to be tackled. 'There is a problem out there, which is predatory pricing,' he says. 'People say it is difficult to define what is predatory pricing and what is healthy competition, but I draw the line when a carrier goes out and intentionally makes the market unprofitable. Normally you manage your yields to maximise your revenues, but what we are seeing among the majors is that they short-change their own revenues. They do it to regain their monopoly and they make it easier to identify because they are so blatant about it. We are seeing this happen repeatedly.'
Rowen believes that the predatory pricing issue should be the ACAA's first priority. 'We need to put the ball squarely in the government's lap,' he says.
The next concern the ACAAwill have to tackle is safety and security, an issue that will affect most low-fare airlines and will become increasingly pertinent during 1997. 'There is a tremendous amount of attention being giving to the safety and security of airlines right now. We feel that the smaller airlines will have a stronger voice here if they speak through an association rather than as individuals. We don't have the tremendous resources that the majors have, such as extensive databases, when it comes to implementing some of these new safety and security proposals, especially the security recommendations,' says Rowen.
Most of the recommendations that Rowen refers to were recently published by the White House Commission on Aviation Safety and Security - the so-called Gore Commission. 'For example there is talk of setting up extensive personal data from passengers. If you have an established database on the individuals already, such as through your frequent flier programme, then that alleviates the cost. Of course, the majors already have these frequent flier programmes in place. The smaller carriers simply do not have them and so it becomes a disproportionate burden for us,' says Rowen.
Another hot potato is the ticket tax versus user fee debate now raging in Washington. 'That's very much a concern to Reno and should be a concern to all passengers because it's a clear attempt by the majors to drive up the costs of short-haul transport,' says Rowen. 'At any point in time over the last 15 years you could have said it was important to form an association to deal with issues like this. But right now you have a group of young airlines that have some pretty good business plans. The reason they are struggling is that the majors seem to have a gameplan to stop the proliferation of smaller carriers. The government has to decide whether it is important to ensure we have competition in the industry.'
Rob Swenson, chairman and chief executive officer at Airways Corp, which owns AirTran Airways, also likes the idea of taking such issues to the government as part of an association. 'The ACAA was founded to give us a voice in DC and to represent the interests of all but the major, monopoly carriers,' he says. Swenson argues that the Regional Airline Association cannot be their voice because most of its members operate under the codes of majors.
'This is an association for a competitive marketplace in the States and to ensure that some of the original precepts of deregulation are really followed through.' Swenson believes there is a 'whole plethora' of issues to be tackled. 'Ours will be the voice of reason,' he asserts. 'The [major] carriers in the last 12 months have crossed the line of fair play. All we hope to do is to allow for representation of this segment of the industry which saves billions of dollars and provides non-stop service to many places that would not otherwise get jet service.'
Undaunted by the number of issues that the association members are identifying, Faberman lists another one he wants to see tackled - barriers to competition. He points out that the General Accounting Office has examined competition among the US airlines since deregulation several times and has expressed concern that certain operating and marketing practices are restricting new entries and contributing to higher fares. One example is incumbent airlines leasing airport gates under long-term, exclusive terms. Another is grandfather slots.
But, as Faberman points out, 'The GAO writes good reports . . . and nothing happens. The situation is worsening. Those barriers, including high density slots, were all provided by the government through taxpayer money. The government decided to make slots marketable and grandfathered them to the existing carriers. In effect, they gave them a rather substantial financial benefit. The large carriers did not purchase these slots and they have had the financial rewards for at least 15 years. It is time for the federal government to say that it will take some of these slots and give them to someone else.
'We don't want to see any city lose service, but on the other hand, if the government is interested in preserving competition, it has to let competitors into prime markets, such as La Guardia. All we are saying is that it's time to open up the franchise.'
Faberman argues that the small carriers open up new markets that the majors are often not serving. 'I have lots of letters to our members from consumers. People who write to these airlines and say they have a dying relative who they have been able to visit only because there was an alternative, low air fare. Parents who can now afford to take their kids on trips. The small businessman who cannot always buy his ticket 28 days in advance, but who needs a reasonable ticket price. For many of these people, this is the first time for them to come in. That is what this is all about.'
The ACAA is particularly concerned about air service to smaller cities, such as Chattanooga in Tennessee, and to rural states like North Dakota. Faberman says it is often here that the consumer is hurt most by lack of competition. 'Actions such as anti-competitive pricing and scheduling behaviour forces the lower fare carriers out of these markets then, in almost every case, once the smaller carrier leaves the market the mega carrier raises fares and reduces its schedule,' he says. He highlights the now infamous case of Mobile, Alabama, where Delta Air Lines raised its Atlanta-Mobile fares by more than five times after ValuJet withdrew its service.
During the hearings for the nomination of DOT secretary Rodney Slater, Senator Byron Dorgan highlighted this particular problem. 'Rural states like North Dakota have, by all measures, not enjoyed the benefits of competition and deregulation that other regions of the country have experienced,' says Dorgan. 'Federal policy of deregulation has led to less service, higher fares and no competition for my state and other rural areas. It is my hope that we have reached a point where addressing these problems will be treated as a top priority by the DOT. Unfortunately, the air service problems facing rural America have gone ignored for too long and we now have an air service crisis.'
Dorgan believes there are two sides to the deregulation coin: 'Deregulation has been both a tremendous success in some aspects and a colossal failure in some circumstances. It's time we started addressing the problems rather than just praising the successes,' he says.
According to Dorgan, 167 non-hub communities have lost all air service since 1978, while only 26 have gained new service. Prior to deregulation, North Dakota was served by six majors; today just one major carrier provides jet service. 'In short, deregulation has meant less service, higher fares and fewer options for rural America,' says Dorgan, who is also urging the DOT to clamp down on anticompetitive behaviour. 'It seems to me that the Department needs to take a much more aggressive approach in combating anti-competitive practices and removing the barriers that are thwarting competition,' says the senator. 'I think this is one area where my concern is shared by those who are strong advocates of deregulation. Because of long-term inaction by the DOT, we now have to look at how we restore competition to areas where new entrants have been squashed.'
By retrenching to their respective hubs, the mega carriers have created 'thiefdoms', says Dorgan. 'The difference between regulation and deregulation is not a change from monopoly control to free market competition. Rather, the change is from having regulated monopolies serving 93 per cent of the market to deregulated monopolies serving 85 per cent of the market.'
In addition to gaining support from senators like Dorgan, the ACAA is talking to a number of tourist authorities in smaller cities and building alliances with them. 'They understand the importance of having one of these airlines come in and fly five times a week or even once a day because it encourages tourism. Some people would like the option of a direct flight rather than having to go through a hub,' says Faberman, who believes that the government should turn to the example of Southwest Airlines. 'Look at their success, and no one has gone out of business because Southwest is at Midway Airport. They have generated new markets.'
Ironically, Southwest, champion of the no-frills airlines, will stay put at the ATA. 'While we have some issues in common with them and we will work with them, Southwest does not face all the problems that our members face,' says Faberman. 'They have been around for 30 years, they are strong and they don't want to get into high density airports, so they don't face the same behavioural patterns that the small carriers face.'
Southwest says it wishes the association well. 'If we can be on the same side as them on issues such as the ticket tax, then we will work with them,' says the airline. 'But we do not expect there to be any formal allegiance.'
To date, the ACAA has not had any formal contact with the ATA, but Faberman, while keeping his distance, is not seeking any hostility. 'We are more than prepared to sit with any organisation,' he says genially.
For a man who has a number of battles ahead of him, Faberman is looking remarkably sanguine. But then, it probably doesn't do to look sheepish when there are wolves around.
Source: Airline Business
