Entry and Competition in the U.S. Airline Industry: Issues and Opportunities (1999) / Chapter Skim
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Executive Summary This report updates a 1991 Transportation Research Board (TRB) report, Winds of Change: Domestic Air Transport Since Deregulation.
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2 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY airline mergers, including several involving direct rivals.
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Executive Summa7y 3 since 1990, and the number of air travelers has grown by more than onethird. Adjusted for inflation, average fares fell by about 25 percent from 1990 to 1998, at about the same pace as the real decline in jet fuel and other airline costs -- cost reductions that have stemmed in part from the competitive pressures ushered in by deregulation.
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4 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY ing to fly during off-peak periods and to use uncongested, but typically more remote, airports in return for cheaper fares.
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Executive contributed to an overall increase in the spread between the lowest and highest airline fares. To some observers, however, the widening spread in fares reflects the increasing ability of airlines to segment price-inelastic travelers, and to charge them exceptionally high fares in markets where pricing is not adequately disciplined by competition.
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6 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY tant role in the industrywide decline in average fares since deregulation, not only because of its own low prices but because it has spurred lower prices by other airlines, even compelling some to create special low-fare divisions.
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Executive Summary 7 sponse to entry. Some complained of incumbents offering higher travel agent commissions and bonus frequent-flier miles in contested markets, allegedly to divert enough potential customers to make the new service unprofitable.
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ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY and the consequent ability of incumbent carriers, when challenged by price-cutting rivals, to add and withdraw capacity quickly, can facilitate predation when there are significant barriers to competitive entry.
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Executive Summaiy 9 Because of these risks, a case can be made that federal assessments of anticompetitive conduct should be entrusted primarily to the Department of Justice (DOJ) , which has a clear mandate -- as well as the resources and expertise -- to enforce the nation's antitrust laws.
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10 ENTRY AND COMPETITION IN THE U.S: AIRLINE INDUSTRY that markups on unrestricted fares are subject to a competitive discipline devoid of exclusionary practices. They are optimistic that DOT can do this without becoming overly regulatory and without inhibiting the kind of competitive price cutting that provides lasting fare reductions.
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Executive Summary 11 also the routes airlines choose to fly, how they schedule and design their networks, and the types of equipment they use. Capacity shortages that persist, unresponsive to increasing demand, can limit new competition, particularly entry and expansion by low-cost carriers.
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12 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Ensure that federal rules governing airport funding and spending do not conflict with -- but instead help to achieve -- the goal of increasing the availability of gates and needed infrastructure at major airports.
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Executive Summary 13 In the case of international aviation agreements, the committee recognizes the complexities involved in opening markets governed by restrictive, bilateral aviation treaties. Relaxing bilateral restrictions is important; however, granting antitrust immunity to a few U.S.
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14 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY DOT should monitor and investigate airlines' aggressive and selective use of travel agent incentives -- as well as disincentives -- to divert customers away from rival carriers.
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V Overview and Trends The Transportation Research Board (TRB) study committee that produced Winds of Change held its final meeting in the spring of 1991.
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16 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY spurred by deregulation now is commonly credited with generating large and lasting public benefits.
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Overview and Trends 17 approach to aviation policy. The committee therefore began by reviewing the major developments in commercial aviation during the past decade, induding updated analyses of the passenger fares, competition, and market-entry trends presented in Winds of Change.
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18 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY GENERAL DEVELOPMENTS AND TRENDS DURING THE 1990s The airline industry has evolved in many unanticipated ways during the past decade.
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Overview and Trends 19 Even before this, some startup airlines had complained about what they perceived as intentionally injurious, or predatory, tactics by incumbents. By the mid-1990s, alarm over the major airlines' financial condition was superseded by concern that financially strengthened incumbents were actively seeking the demise of startups and systematically suppressing competition.
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75-500 miles 501-1000 miles II0011 500 miles 1501-2000 miles 2001 or more miles 45 40 35 0) 30 E 25 a, 0 20 15 10 5 0 Year and Quarter NOTE: Average yield per passenger trip (average fare/miles flown)
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140 120 100 80 60 40 20 0 S'2 •? Month-Year Figure 1-2 Trends in Standard Industry Fare Level (SIFL)
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22 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY As the decade of the 1990s progressed, airlines refined their ability to charge different fares to different groups of travelers: this evidently widened the spread in fares paid.
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Overview and Trends 23 In this circumstance, prices set uniformly at their marginal costs would not recover the total costs of supplying the products, including fixed and overhead expenses; and it then becomes necessary to charge buyers prices in excess of incremental cost, if the products are to continue to be supplied without external subsidy. In this situation, the seller can take advantage of buyers attaching widely different values to the same product, if the seller can sort the buyers on the basis of their different product valuations.
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24 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Box 1-1 V Ramsey Pricing Economists generally maintain that prices set equal to the marginal costs of producing goods or services are optimal -- that is, they are "welfare maximizing." However, problems can arise if the marginal costs are less than the average costs for the producer at levels of output that would prevail if prices were set uniformly for all buyers.
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Overview and Trends 25 Box 1-1 continued elers by charging higher prices -- or whatever the traffic will bear -- to price-inelastic, business travelers. In this way, the airlines are able to finance a more extensive network than would have been possible otherwise.
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26 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Box 1-1 continued sey pricing pattern are not welcome to the incumbent producers.
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Overview and Trends 27 for the decision to fly rather than drive. By being able to identif' leisure travelers through ticket restrictions, the price-discriminating airline can offer discounted fares to fill unsold seats on flights that might otherwise fly partially empty; at the same time, it does not permit business travelers to take advantage of these lower fares.
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28 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY costs associated with creating a brand new, competing hub-and-spoke system.
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Overview and Trends 29 peak, low-fare services for mostly leisure passengers. Under these scenarios, the variation in fares paid by travelers seated side-by-side on the same flight would be small.
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30 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY one time, an airline might be offering a dozen or more different coach fares on a given ffight.
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Table 1-1 Distribution of Fares in Short-, Medium, and Long-Haul Markets, 2nd Quarters of 1992, 1995, and 1998 (adjusted to 1998 dollars) 10th Percentile Fare ($)
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32 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Table 1-2 Share of Total Airline Revenues Derived from Passengers Paying Lowest to Highest Fares for Short-, Medium-, and Long-Haul Markets, Second Quarters 1992, 1995, and 1998 Percentage Share of Total Industry Revenues Derived from: Passengers Paying Lowest Fares Passengers Paying Highest Fares 1st to 25th 26th to 50th 51st to 75th 75th to 95th >95th Percentile Percentile Percentile Percentile Percentile 1992 2nd Quarter Short Haul 14 19 30 29 8 Medium Haul 12 20 24 30 13 Long Haul 13 20 24 30 13 1995 2nd Quarter Short Haul 15 18 25 32 10 Medium Haul 14 18 23 32 13 Long Haul 14 18 23 31 14 1998 2nd Quarter Short Haul 10 27 24 21 18 Medium Haul 13 16 21 34 17 Long Haul 12 16 21 34 17 Note: See Table 1-1 for explanation of data sources, calculations, and definitions.
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Table 1-3 Distribution of Fares in Short- and Medium-Haul Markets for Southwest Airlines and Incumbent Carriers, 2nd Quarters of 1992, 1995, and 1998 (adjusted to 1998 dollars) 25th Percentile 50th (Median)
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34 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY cost conditions, yielding a wider range of fares.' Still, a marked difference in the fare structure of Southwest Airlines and US Airways, two carriers of similar size and scope, is evident in Figure 1-3.
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0.2€ 0.2 O.2 0.2( 0.1€ 0.1€ 0.14 0.1 0.1 75 79 50 51 52 Wi 54 50 sb 151 IJU UW WU UI Year NOTE: Calculations by Steven Morrison. See text for description of Gini coefficient and its application to 0-0 routes by segment and carrier.
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Overview and Trends 37 that the Gini coefficient has not changed significantly. Although there was a move upward from 1995 to 1997, these data do not, by themselves, offer evidence of airlines enjoying greater ability to price-discriminate during the 1990s.
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Billions of Miles 800 700 600 500 400 300 200 100 0 Load Factor Percentage 67.4 68.9 58.9 621 550 550 554 4 419 41 393 ASM RPM Load Factor ou 70 60 50 40 30 20 10 0 90 91 92 93 94 95 96 97 Year Source: FM 1998, IX-16. Figure 1-5 Trends in annual seat-miles (ASM)
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5 4 3 2 1 > CL -2 -3 -4 -5 "vu 000 500 000 500 0 500 000 500 0perating profits 000 ____________________________________ Annualized GDP Growth Rate 19& ?
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40 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY increases have been excessive, exploiting market power.
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Overview and Trends 41 terly entries by incumbent carriers (American, Continental, Delta, Northwest, TWA, United, and US Airways) had been falling throughout the decade.
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300 All Carriers lncumbent Garners - - - 4 quarter moving average 250 200 150 100 50 * 04 - - - 0 % % % Year and Quarter NOTE: A nonstop route is a flight segment operated by a carrier.
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200 150 100 50 0 -50 .100 150 .200 .250 Year and Quarter NOTE: Net entries equals the number of new routes entered minus the number of routes exited. See FIgure 1-7 for definitions and data sources.
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Overview and Trends 45 Other Possible Influences on Entry Dresner and Windle did not examine the influence of the Valujet incident on entry activity but focused on two other possible determinants -- labor costs and aircraft availability. A commonly held but largely intuitive belief among industry observers is that when the supply of labor and ffight equipment is tight -- and accompanied therefore by high prices -- the expense of starting and operating a new airline will dissuade startups.
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80,000 70,000 60,000 50,000 U) 40,000 0 30,000 20,000 10,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Year SOURCE: Dresner and W:ndle 1999 Figure 1-10 Average salary per employee for all carriers and for incumbent carriers only (1998 dollars)
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1000 900 800 700 600 500 400 300 200 100 0 Year NoT1, Data provided by BACK Associates. SOURCE Dresner and Wmdle 1999.
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Overview and Trends 49 Analyses by Dresner and Windle showed some slight correlation between these two factors -- employee compensation and aircraft availability -- and net entry activity. However, this was an area of inquiry the committee did not have time to consider fully.
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50 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY markets in regions with enough population to generate sufficient local traffic to sustain nonstop service.
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Overview and Trends 51 Table 1-4 Passenger Traffic on Southwest Airlines in Busiest U.S. Airports and Largest Metropolitan Areas, 4th Quarter, 1998 25 Busiest Airports by Enplanements by Enplanements by Southwest in Enplanements' Southwest Secondary Airports Metropolitan Area ORD - 635,384 MDW Chicago ATh -- - Atlanta LAX 750,486 853,426 ONT/BURISNA Los Angeles DFW - 814,203 DAL Dallas SF0 99,196 764,092 OAK San Francisco MIA - 188,911 FLL Miami DEN - - Denver JFK - - NewYork DTW 122,383 - Detroit PHX 1,043,034 - Phoenix LAS 1,017,901 - Las Vegas EWR - - New York STh 418,513 - SLLouis MSP - - Minneapolis BOS - 240,464 PVD/MHT Boston IAN 32,443 842,740 HOU Houston MCO 229,377 - Orlando - SEA 182,668 - Seattle LGA - - NewYork PIT - - Pittsburgh SLC 205,920 - Salt Lake City PHL - - Philadelphia CVG - - Cincinnati DCA - 481,566 BWI Washington, D.C.
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52 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY fell by 54 percent.
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Overview and Trends 53 Table 1-6 Average Yield for Trips in Short-Haul Markets Served by Southwest Airlines, 3rd and 4th Quarters of 1997 and 1st and 2nd Quarters of 1998 Passengers per Total Share of Average Yield Day Each Way Carrier Passengers Carried Passengers (cents/mile) 2:500 Southwest 63 21,317,380 17.78 N=55 Other 37 12,284,830 16.28 Subtotal 100 33,602,210 17.23 250 to 499 Southwest 73 8,247,880 18.88 N=45 Other 27 3,021,230 16.84 Subtotal 100 11,269,200 18.33 125 to 249 Southwest 67 5,614,250 16.96 N70 Other 33 2,734,330 18.06 Subtotal 100 8,348,580 17.32 50to 124 Southwest 57 1,637,690 16.33 N=54 Other 43 1,256,320 17.93 Subtotal 100 2,894,010 17.02 20 to 49 Southwest 54 670,090 16.82 N=48 Other 46 563,620 16.03 Subtotal 100 1,233,710 16.46 5 to 19 Southwest 60 217,710 16.08 N44 Other 40 145,430 17.54 Subtotal 100 363,140 16.66 All Southwest 65 37,705,000 17.81 N316 Other 35 20,005,850 16.71 Total 100 57,710,850 17.43 NoTEs: See Table 1-1 for explanation of data source and calculations source.
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20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 I- 8.000,000 6,000,000 4,000,000 2,000,000 0 sk, 9ç 9 % , '9.k,, $.& Year and Quarter NOTE: DOT considers the following as low-fare carriers: AirTran, Air South, ValuJet, Western Pacific, American Transair, Reno, Spirit, Vanguard, Nations, Carnival, Kiwi, Morris, Tower, Pro Air, and Frontier. Several smaller carriers not included.
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Overview and Trends 55 have deployed these low-fare, no-frill brands as competitors for Southwest and other low-fare airlines in secondary airport-pairs in major metropolitan markets. Seldom will a low-fare division fly between major airports already served by the incumbent.
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56 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY In October 1978, Midway Airlines became the first completely new airline in 38 years to be granted a CAB certificate; it was quickly followed by New York Air, Muse, People Express, and several others.
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From page 69... ...
Overview and Trends 57 obtaining airport gates from Eastern Airlines. Air Florida, which offered a mix of high and low fares on unconventional routes, such as White Plains to Chicago O'Hare, could not generate passenger volumes sufficient to compete with the major airlines offering service between primary airports, such as Chicago -- LaGuardia (Meyer and Oster 1984, 127)
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58 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY have exited the industry as have entered, including several startup airlines, such as Air South (1994-1997)
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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Year SOURCE: Dresner and Windle 1999 Figure 1-14 Number of newjet carriers entering the industry and number exiting (or merging with others)
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60 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY is Delta's Atlanta hub, from which it serves numerous business and leisure markets in the East, South, and Midwest.
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Overview and Trends 61 concern that entry was being threatened by the unfair competitive practices of incumbent airlines, including "predatory behavior" (DOT 1996, 32)
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62 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Spurred by these lower fares and costs, and boosted by a strong economy, passenger travel has increased along with airline profitability.
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Overview and Trends 63 pressing low-fare competition by sharply reducing fares and then raising them again as soon as the competitor had left the market. REFERENCES ABBREVIATIONS DOT Department of Transportation FAA Federal Aviation Administration GAO General Accounting Office TRB Transportation Research Board Bailey, E., D
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64 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Nethercutt, L.L., and S.W.
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V Airline Competition at Hub Airports and Complaints of Unfair Conduct High average fares in many of the city-pair markets involving the hub airports of major airlines have been a recurrent subject of public concern and policy debate during the past two decades. In recent years, these markets also have served as main entry points for many new, low-fare airlines.
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66 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY the markets for air transportation; in these markets, rivalry and entry activity are most important.
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Airline Competition at Hub Airports and Complaints of Unfair Conduct 67 works.1 Added to that, the increased entry from startup airlines and the expanded operations by formerly intrastate and charter operators made many city-pair markets competitive battlegrounds. The largest increases in competition occurred in the long-haul markets.
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Table 2-1 Passenger Trips by Market Distance and Number of Effective Competitors, 1992 and 1997 Competitors in Market Market Distance 1992 1997 (miles, one way) One Two ThreeorMore One Two ThreeorMore <250 Passengers 4,188010 8,168,650 9,472,110 6,548,290 7,411,970 10,644,560 Percent 19 37 43 27 30 43 251 to500 Passengers 16,124,510 25,261,090 14,641,990 23,887,130 39,643,400 12,119,050 Percent 29 45 26 32 52 16 501 to 750 Passengers 7,797,780 19,316,630 11,200,100 8,206,580 35,837,550 15,589,130 Percent 20 50 29 14 60 26 751 to 1000 Passengers 5,496.280 17,448,370 12,625,720 9,301,150 26,935,660 14,774,580 Percent IS 49 35 18 53 29 1001 to 1500 Passengers 3,544,970 19,252,140 21,795,340 6,124,600 23,691,110 31,685,210 Percent 8 43 49 10 39 52 1501 to 2000 Passengers 3,487,630 9,460,030 9,500,020 5,309,720 9,653,090 15,685,210 Percent 16 42 42 17 31 51 2001 or more Passengers 2,485,400 5,353,550 15,852,040 2,591,510 9,498,690 17,658,870 Percent 10 23 67 9 32 59 All Passengers 43,124,581 104,262,454 95,087,320 61,968,980 152,671,470 118,156,580 Percent 18 43 39 19 46 35 NOTE: An "effective competitor" is any airline carrying 10 percent or more of local traffic in a city-pair market.
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Airline Competition at Hub Airports and Complaints of Unfair Conduct 69 benefit of choosing among three or more competitors in 1997 -- similar to the level in 1992. Travelers in shorter-haul markets (under 1,000 miles)
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70 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Table 2-2 Passenger Trips in Markets by Density and Number of Competitors, 1992 and 1997 1992 1997 Market Percent of Total Percent of Total Density Competitors Percent Passengers Percent Passengers 20 or fewer One 28 3.2 32 2.9 Two 44 5.1 46 4.1 Three ormore 28 3.2 22 1.9 21to50 One 13 1.2 16 1.2 Two 34 3.1 50 3.6 Three or more 53 4.8 34 2.4 51to100 One 19 1.9 20 1.9 Two 26 2.7 34 3.4 Three or more 55 5.5 46 5.6 101 to 200 One 21 2.9 20 2.3 Two 36 4.9 45 5.1 Three or more 43 5.7 35 4.1 201 to 500 One 20 5.1 20 5.0 Two 50 13.2 45 13.0 Three or more 30 7.8 35 10.0 501 or more One 12 3.5 14 4.9 Two 47 14.0 49 17.0 Three or more 41 12.0 37 12.7 Total Passengers Total Passengers All One 18 43,124,580 19 61,968,980 Two 43 104,260,460 46 152,671,470 Three or more 39 95,087,320 35 118,156,580 Total 100 242,472,360 100 332,797,030 NOTES: Density measured by O-D passengers per day each way.
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Airline Competition at Hub Airports and Complaints of Unfair Conduct 71 Table 2-3 Average Fares Paid by Passengers in Markets with 1,2, and 3 or More Effective Competitors, 1992 to 1997 (adjusted to 1997 dollars) Average Fare ($)
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72 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY could not achieve the high traffic densities to schedule the frequent nonstop ffights desired by local business travelers.
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Airline Competition at Hub Airports and Complaints of Unfair Conduct 73 are the result of differences in traveler preferences among hub and nonhub markets. They point out that hub airports are located in major business centers, which attract many more time-sensitive business travelers.
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74 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY percent of all local traffic or two hubbing carriers together accounted for more than 75 percent.' The following 10 cities were dassifled as concentrated hubs: Atlanta, Charlotte, Cincinnati, Dayton, Denver,6 Memphis, Minneapolis, Pittsburgh, Salt Lake City, and St.
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76 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY instances -- Dayton, Nashville, and Raleigh-Durham -- the hubs since have been abandoned by the incumbent carriers and no airline accounts for more than 35 percent of local traffic.
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50 275 250 225 200 175 0 150 125 100 75 0 D1W MSP ATL H DFW RDU - - STL -- O -- BNA .L SLC CLT S PIT I DEN DAY MEM CVG ORD Year and Ouarter NOTES: Average fares adjusted for inflation using the GDP price deflator. See note to Figure 2-1, and see Appendix D for airport codes.
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78 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Hub City -PairAnalyses More relevant are fare differentials in city-pair markets.
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250 50 Average fares in 249 densest city-pair markets of less than 500 miles: 97 hub and 152 nonhub markets ________ 0 0 0 o65 o 0 0 0 o• 6 ' o on -- .• cc j• 0e j%0 ' ' -- • -- nhub trendline - - -Rib trendhne 150 225 300 375 450 Average fares in 322 densest city-pair markets of 500 to 999 miles: 165 hub and 157 nonhub markets -o 0 - -0-o -- 0 -- .
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Table 2-4 Seventy-five Highest- and Lowest-Fare Markets Among Densest 1,000 in 1997, Controlling for Effects of Population, Income, and Distance Highest-Fare Concentrated Slot Lowest-Fare Concentrated Slot Markets Hub Controls Markets Hub Controls I
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From page 93... ...
Airline Competition at Hub Airports and Complaints of Unfair Conduct 81 These results illustrate the magnitude of the fare differentials at hubs, which have spurred so much public concern. Of course, many of the highest-fare markets in Table 2-4 are among the nation's most popular for business travel; thus many of the unexplained fare residuals might be related not only to market power and the low price elasticity for business travelers, but also to the higher costs of meeting service-oriented demand.
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82 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY few flights per day on dense routes, operating point-to-point service to achieve high load factors on narrow-body aircraft designed for short-haul, high-volume markets.
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From page 95... ...
Airline Competition at Hub Airports and Complaints of Unfair Conduct 83 Air Transport Industry."10 The statement, contained in Appendix A, described DOT's perception of the problem, as well as its authority and its means to address it. In a preface, DOT maintained that its main interest was to discourage incumbents (referred to as "major carriers")
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84 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY The incumbent added capacity and sold a large number of seats at very low fares; The number of local passengers that the incumbent carried at the new entrant's low fares -- or at fares substantially below its own previous pricing -- exceeded the new entrant's total seat capacity; or The number of local passengers that the incumbent carried at the new entrant's low fares -- or at fares substantially below its own previous pricing -- exceeded the number of low-fare passengers carried by the new entrant.
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Airline Competition at Hub Airports and Complaints of Unfair Conduct 85 lieved could reasonably be construed as having predatory aims. There is no universally accepted theory about what constitutes predation or how best to detect and prove its occurrence.
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86 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY to these theories, a single act of predation can have effects that transcend the specific market in which the price cutting has occurred.
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Airline Competition atHubAirports and Complaints of Unfair Conduct 87 One of the difficulties with DOT's approach for detecting predation, however, is ascertaining opportunity costs. In the airline industry, a major airline can operate in thousands of markets that vary widely in profitability at any given time; it is likely, therefore, that the airline has excess or idle capacity somewhere in its system.
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88 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Though possibly incomplete, the 32 complaints, summarized in Table 2-5, illustrate the various kinds of conduct that have prompted concern.
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From page 101... ...
Airline Competition at Hub Airports and Complaints of Unfair Conduct 89 at excessive rates, and the frequent shifting of the gates available to new entrants. In two cases, new entrants complained that incumbents were unwilling to sell airport slots at fair market value.
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Table 2-6 Some Possible and Asserted Cases of Unfair Pricing and Capacity Responses by Incumbents to New Entry Quarter Before Entry Entry YR. Average Seats Avg.
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Table 2-6 continued Second Quarter After Entry Eighth Quarter After Entry a Status of Average Seats Avg. Load Average Seats Avg.
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92 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY In 9 of these cases, average fares for one or more of the incumbents in each market fell by one-third or more.
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From page 105... ...
Airline Competition at Hub Airports and Complaints of Unfair Conduct 93 vice in a market by bypassing its own hub-and-spoke system. For instance, in March 1996, Air South complained that both Continental's and Delta's commuter affiliates had attempted to overlay its new service in three markets: Charleston -- Newark, Columbia -- Newark, and Myrtle Beach -- Newark.
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94 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY under the FTC Act: to guard the marketplace from unfair methods of competition, and to prevent unfair or deceptive acts or practices that harm consumers.
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From page 107... ...
Airline Competition at Hub Air ports and Complaints of Unfair Conduct 95 predatoiy conduct, however, differ from this usual regulatory approach. The incumbent pricing and capacity responses that the criteria focus on are not types of behavior that are prohibited per se.
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96 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY the benefit of allowing agency personnel to develop expertise in industry operations, a concern is that this same attribute, over time, will cause the agency to become overly deferential to industry viewpoints.
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From page 109... ...
Airline Competition atHubAirports and Complaints of Unfair Conduct 97 entry have experienced large reductions in fares during the past 10 years. DOT officials, concerned about high fares at hub airports, have viewed low-fare entry as an antidote to hub dominance, and have therefore expressed alarm about incumbent behavior that might suppress or inhibit entry.
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98 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY testing for predation depend too much on hypothetical scenarios and speculation about alternative responses.
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From page 111... ...
'V Exploiting Opportunities for Airline Entry and Competition Increased opportunities for entry and competition in the airline industry depend on the efficient provision of airport and airway capacity to accommodate current as well as new and varied aviation services. Yet obstacles persist, including longstanding rules that curb access to some of the country's largest airports.
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100 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY ment policy.
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From page 113... ...
Exploiting OpportunitiesforAirline Enhy and Competition 101 Market-Based Approaches for Allocating Airport and Airway Capacity A key point made in Winds of Change was that the performance of commercial airlines is interrelated with the capacity of airports and navigable airspace. The government's provision of this basic transportation infrastructure was not keeping pace then and is not keeping pace now.
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20,000 18,000 16,000 14,000 12.000 0 0 - - 10,000 - - CL o 8,000 - - 6,000 - - 4,000 - 2.000 0 SOURCE: FM 1998 (Table 27) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year Figure 3-1 Scheduled air carrier operations, historical and projected.
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From page 115... ...
Exploiting OpportunitiesforAirline Entiy and Competition 103 For instance, secondary airports in many major metropolitan areas have idle capacity, and even many hubs have extra capacity between connecting banks. Regarding this as an opportunity, Southwest Airlines concentrates its operations at secondary airports and during lulls in hubbing activity at the primary airports where it chooses to operate.
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104 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY to the extent possible.
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Exploiting OpportunitiesforAirline Enhy and Competition 105 landing fees would be discriminatory against users of smaller aircraft, FAA vetoed the Logan Airport proposal. Another practical obstade to runway pricing is that some of the nation's largest airports have lease clauses with their major airline tenants that have the effect of limiting the airport operator's ability to raise fees, including landing charges.
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106 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Background Two major U.S.
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Exploiting Opportun itiesfor Airline Entiy and Competition 107 Another major airport affected by perimeter-flight restrictions was Love Field in Dallas. Several years before the construction of DallasFort Worth International Airport in 1974, all the major interstate carriers promised to abandon commercial service from Love Field.
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108 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY They also maintain that the rules might have industry-wide effects on competition by preventing airlines with hubs located beyond the perimeter from serving key business markets with nonstop flights.
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Exploiting OpportunitiesforAirline Entry and Competition 109 airports in favor of pncing controls that create incentives to find and adopt more direct means of accommodating traffic demands and other technical and operational factors. Slot Controls Federal rules that set hourly quotas on take-offs and landings at four of the nation's most popular airports hinder competition and should be replaced with more direct and efficient means of allocating access.
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110 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY number of instrument flight rules (IFR)
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Exploiting OpportunitiesforAirline Enhy and Competition 111 fic controllers strike prompted FAA to introduce slots at 18 other congested airports. During this period, FAA allowed airlines to trade, buy, and sell slots in order to maintain networks and ensure efficient use.
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112 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY The agency anticipated significant slot turnover as airlines with the most beneficial uses became the highest bidders.
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Exploiting OpportunitiesforAirline Entry and Competition 113 Effects of Slot Controls on Airline Efficiency and Competition Despite the repeated modifications of slot controls, many fundamental concerns remain. Perhaps the most enduring criticism is that they allocate access to key airports on arbitrary distinctions among operators of large jet, commuter, and general aviation aircraft rather than on the most efficient use of the slots.
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114 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY use-or-lose rule; another is that they lease slots to affiliated commuter flights on a short-term basis for the same purpose (DOT 1995)
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Exploiting OpportunitiesforAirline Entry and Competition 115 ers, or that dispensing slots to spur new competition and expanded service might be futile. Use of slots for other purposes -- for example, to promote new entry -- reflects the way the high density rule has evolved beyond its original purposes -- to control traffic congestion.
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116 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY demand.
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Exploiting OpportunitiesforAirline Entry and Competition 117 As discussed earlier, direct economic means of allocating access to these key airports -- for example, by peak-period pricing for use of airports or air traffic control services and by supply-side investments in reliever airports -- are preferable to slot controls and other administrative schemes for rationing airport and airway access. Recommendation on Slot Controls The committee recommends the early elimination of slot controis, to be replaced by pricing and other market-based methods for allocating and supplying airport and airway capacity to control congestion and other undesirable effects from air traffic.
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118 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY and even compelled through the withholding of federal aid -- to make sufficient facilities available.
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Table 3-1 Gate Leasing and Use Arrangements at Major U.S. Airports Airport Exclusive Use (% of Total)
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120 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY contracts to hold onto gates that otherwise sit idle for much of the day -- for instance, during the periods between connecting banks.
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Exploiting OpportunitiesforAirline Entry and Competition 121 by some airlines and airports.16 Meanwhile, some of the older agreements have many years left before they expire. Other Funding Sourcesfor Gates and Passenger Facilities A source of funds for airport development not tied to airlines is the federal aid provided under the Airport Improvement Program (ALP)
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122 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY and gate capacity.
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Exploiting OpportunitiesforAirline Enhy and Competition 123 bents, if necessary. DOT, which can identify airports where gate availability is a recurrent problem, should monitor them closely; moreover, federal aid should be contingent on the airport having welldefined plans to ensure sufficient gate supply.
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124 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY unclear why U.S.
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Exploiting OpportunitiesforAirline Entiy and Competition 125 Background on the Ticket Distribution System With the deregulation of the airline industry, complex fare and service offerings have proliferated. Faced with an unprecedented variety of choices, travelers have relied on travel agents to book their trips.
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126 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Role of Computer Reservation Systems Because of these sometimes-conflicting incentives, the relationship between the travel agent and airline industry has often been questioned.
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From page 139... ...
Exploiting OpportunitiesforAirline Entry and Competition 127 In response to these problems, in 1984, CAB -- in its last major action -- issued rules prohibiting unfair and anticompetitive CRS vendor practices. These requirements included unbiased displays of fare and flight information and availability to all airlines on a nondiscriminatory basis.
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128 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Website distribution also offers the prospect of reducing laborintensive, in-house reservation systems.
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Exploiting OpportunitiesforAirline Entiy and Competition 129 rides are returned as fare rebates to the traveler, the Winds of Change committee nevertheless recommended a requirement that agents must disclose any financial incentives to their customers. This committee agrees with that recommendation.
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130 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY SUMMARY Increasing airport and airway capacity is essential to opportunities for competition and entry in the airline industry.
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Exploiting OpportunitiesforAirline Entry and Competition 131 locating scarce airport and airway space more efficiently and fairly among competing airlines and taking into account other technical and operational factors. Ensure that federal rules for airport funding and spending authority do not conflict with the goal of increasing gate availability at major airports but are used positively to achieve it.
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fl V Effects of Airline Alliances and Partnerships on Competition The series of mergers and failures of domestic carriers from the mid1980s to the early 1990s led to ominous predictions that the decade would end with a more concentrated industry consisting of a few large airlines exploiting their market power. Winds of Change, released shortly after several major airline mergers and failures, expressed concern that these trends might continue, possibly jeopardizing the many consumer benefits achieved from deregulation.
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134 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY lines, and 67 percent on the top 5 (Table 4-1)
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Effects ofAirlineAiiances and Partnerships on Competition 135 These "vertical" affiances benefited consumers and did not involve airlines that competed or were likely to compete in the same markets. What is new over the last half-dozen years is that codeshare agreements and other airline partnerships have become common in international aviation, and now are being adopted by some large domestic carriers.
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From page 148... ...
136 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY in, and ticketing, as well as other less tangible benefits, such as the enhanced service level and safety requirements major carriers can impose on their codeshare partners.
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Effects ofAirlineAiiances and Partnerships on Competition 137 national restrictions on ownership and entry (or cabotage)
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138 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Northwest-Continental plan -- and none has developed ftirther; yet each opens up the possibility of two major competitors joining on routes between their hubs.
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Effects ofAirline Alliances and Partnerships on Competition 139 west with Republic are prominent examples involving competitors -- TWA and Ozark shared a hub in St. Louis, and Northwest and Republic shared hubs in Detroit and Minneapolis.
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140 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY course, some travelers might feel misled by the portrayal of interline service as online.
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Effects ofAirline Alliances and Partnershps on Competition 141 Table 4-2 Example of Domestic Codeshare Schedule Listing in OfficiaMirline Guide OAG FlightDisk - Worldwide Edition Effective 5/1/99 thru 6/14/99 CONNECTIONS Outbound Date: From: Corpus Christi, Texas 5/19/99 To: Wayne County Airport - Detroit Airlines: All PAU Connectina Fliehts ] st Arrive Connect Duration XThSaSu - CO 1888/CO 174 6:00a CRP 11:24a DTW IAN 04:24 XThSaSu HP*
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142 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY ffights in the market, or that they had the potential to become rivals in the market, because most nonstop and one-stop routes involve the partners' hubs either as an end or transfer point.
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Effects ofAirline Alliances and Partnerships on Competition 143 DOT has authority to review the competitive effects of partnerships among major U.S. airlines.
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144 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY have important international operations.
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Efficts ofAirline Alliances and Partnerships on Competition 145 DOT generally has favored the formation of international alliances, granting several of them immunity from antitrust laws, in the belief that the public will benefit from the network efficiencies as well as from the new competition, and will suffer relatively little from the allied airlines cooperatively setting fares and capacity. In its early approvals, DOT reasoned that immunity would enhance competition in international markets by allowing airlines with small market shares to combine their networks and become more effective in competing against larger airlines.
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146 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY hub in Amsterdam.
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Efficts ofAirline Alliances and Partnershps on Competition 147 petitive position of two relatively minor transatlantic airlines and to introduce international service to several U.S. cities.
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148 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY In the case of American Airlines' proposed alliance with British Airways, however, DOJ expressed concern that competition in too many U.S. -- U.K.
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Effects ofAirlineAiiances and Partnerships on Competition 149 used as an enticement or concession in negotiating agreements, without regard to direct competitive effects. Certainly, DOT must recognize the important role that antitrust immunity has played in inducing foreign governments to renegotiate bilateral treaties under the open skies regime.
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150 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY mainline gateway routes, if the allied carriers previously had been rivals or might have competed directly after liberal open skies agreements were implemented.
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Effects ofAirline Alliances and Partnershps on Competition 151 mately dictate the number of U.S. carriers that can maintain international operations, possibly reducing the number of domestic airlines capable of survival.
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152 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY assessing the competitive effects of antitrust immunity requests, a potentially conflicting set of consequences.
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Effects ofAirlineAlliances and Partnerships on Competition 153 Outright mergers -- widespread 10 to 15 years ago -- have become the exception. Other collaborations among airlines have become more common, such as sharing codes and frequent -- ffier programs.
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154 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY those applications acceptable on competitive considerations.
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V Competition and Entry in Smaller Markets This study has focused on some of the most significant and well recognized means of enhancing airline entry and competition, especially in larger markets. However, smaller markets are promising and deserving candidates for competitive activity.
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156 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY to their customers, even when other airlines are purchasing miles.
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Competition andEnhy in Smaller Markets 157 of their competitors.2 They also might provide possibilities for new entrants to develop niche markets and services. In all these cases, they would enhance service and competitive choices in moderate-size markets.
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158 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY to consider positive actions for increasing competitive services.
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Appeildix A Statement of Enforcement Policy Regarding Unfair Exclusionary Conduct Department of Transportation Office of the Secretary April 1998 (Docket No. OST-98-3 713, Notice 98-16)
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160 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY have observed, however, appear to be straying beyond the confines of legitimate competition into the region of unfair competition, behavior which, by virtue of 49 U.S.C.
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Statement ofEnforcement Policy Regarding Unfair Exclusionary Conduct 161 on this strategy while continuing our scrutiny of any other strategies that may threaten competition. Our policy represents a balance between the imperative of encouraging legitimate competition in all of its various forms and the imperative of prohibiting unfair methods of competition that ultimately deprive consumers of the range of prices and services that legitimate competition would otherwise afford them.
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162 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY These advantages have translated into the power to charge higher local fares.
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Statement of Enforcement Policy Regarding Unfair Exclusionaiy Conduct 163 charging lower fares, the new entrant can profitably serve that portion of a local market's demand which the major carrier has mostly not been serving; the resultant competition can bring fares down for most travelers. Traffic stimulation and reductions in average fares can both be dramatic.
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164 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY a strategy involving drastic price cuts and flooding the market with new low-fare capacity (and perhaps offering bonus frequent-ffier miles and higher commission overrides for travel agents as well)
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Statement ofEnforcement Policy Regarding Unfair Exclusionary Conduct 165 pay just $50, and instead of $3 million, these passengers now account for revenue of less than $0.5 million per quarter. To make up the difference, the major carrier would have to carry six more passengers for each passenger diverted from the $350 fare to the $50 fare.
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166 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY ENFORCEMENT ACTION We will determine whether major carriers have engaged in unfair exdusionary practices on a case-by-case basis according to the enforcement procedures set forth in Subpart B of 14 CFR Part 302.
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Statement ofEnforcement Policy Regarding Unfair Exclusionaiy Conduct 167 with Southwest, the most successful low-fare carrier, on a broad scale and are nevertheless reporting record or near-record earnings.7 We will consider whether a major carrier's response to new entry is consistent with its behavior in markets where it competes with other new-entrant carriers or with Southwest. Conceivably, a major carrier could both lower its fares and add capacity in response to competition from a new entrant without any inordinate sacrifice in local revenues.
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168 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY of competition in increasing numbers of local hub markets over the long term.
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Appeildix B Recommendations from Winds of Change * Concerning Competition and Other Relevant Topics ANTITRUST POLICY The Committee recommends that the Department of Justice (DOJ)
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170 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY sumers should be used as a test for the adequacy of competition in "over hub" traffic when merger and acquisition proposals are considered, including acquisitions of individual assets, such as gates.
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Appeildix Informal Complaints to DOT by New Entrant Airlines About Unfair Exclusionary Practices March 1993 to May 1999 UNFAIR PRICING AND CAPACITY RESPONSES 1. Date Raised: May 1999 Complaining Party: AccessAir Camp lainedAgainst.
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172 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Date Raised: March 1999 Complaining Party: AccessAir ComplainedAgainst Delta, Northwest, and TVVA Description: AccessAir was a new entrant air carrier, headquartered in Des Moines, Iowa.
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From page 185... ...
Informal Complaints to DOTby New EntrantAirlines 173 Continental immediately lowered its lowest unrestricted fare in the Buffalo-Newark market to $79, which was matched by USAirways. Kiwi says that Continental took this step solely to defend its "fortress hub" at Newark, where Continental controls 65 percent of the gates, rather than due to economics of the market.
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174 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY arrangement, and Delta's leisure market fares reverted to match the ValuJet leisure fare level.
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Informal Complaints to DOTby New EntrantAirlines 175 flights and entry into the DFW-Phoenix and Cincinnati markets were designed to force Vanguard to withdraw from those markets and did not constitute a legitimate competitive response to Vanguard's entry. First, American substituted jet service for its commuter airline service in the DFW-Wichita market, which had been a major Vanguard market.
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176 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY than Air South's fares, thereby effectively undercutting Air South's fares.
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Informal Complaints to DOTby New Entrant Airlines 177 levels that could not have been economic for US Airways, and it began operating flights from Dulles to Boston and Hartford that undercut Valujet's fares. Valujet claimed that USAir within the last 10 years had not inaugurated service from Dulles to any city that was not a USAir hub.
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178 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY GATE ACCESS AND AIRPORT IMPEDIMENTS Date Raised: April 1999 Complaining Party: AirTran Airlines Complained Against: Newark International Airport and several airlines Description: AirTran wanted to start service from Atlanta to Newark International Airport but was unable to obtain any gate facilities for its flights, even though several gates were underused.
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Informal Complaints to DOTby New EntrantAirlines 179 Date Raised: October 1998 Complaining Party: Colgan Airways ComplainedAgainst TWA Description: Colgan stated that it was being treated unfairly by TWA at LaGuardia Airport. Colgan had been leasing 12 LaGuardia slots from TWA for an extended period.
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180 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY to D-North in order to provide additional space for Delta.
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Informal Complaints to DOTby New Entrant Airlines 181 DTW domestic terminal even though gate space was available. Reno Air ftirther alleged that DTW, in concert with Northwest, offered gate positions at the more expensive international terminal.
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From page 194... ...
182 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY OTHER AND COMBINED COMPLAINTS Date Raised: November 1998 Complaining Party: Pro Air ComplainedAgainst Northwest Airlines Description: Pro Air contended that (1)
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From page 195... ...
Informal Complaints to DOTby New Entrant Airlines 183 Denver markets, particularly on Frontier's Denver -- North Dakota routes and including Denver to Billings, Bismarck, Bozeman, Fargo, Minot, and Missoula. Frontier alleged that United unreasonably refused to sign a full ticketing and baggage agreement with Frontier and refused to codeshare with Frontier.
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From page 196... ...
184 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY Continental to travel agencies, to display inaccurate and incomplete information on Kiwi's services.
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From page 197... ...
Informal Complaints to DOTby New EntrantAirlines 185 Description: UAL complained that MSP turned down its request to lease airport Gate 43 to (1) accommodate UAL's existing operations and future expansions of its schedule, and (2)
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From page 198... ...
Ilpp011diX D Airport Identification Codes U.S. commercial service airports are identified by a three-letter code assigned by the International Air Transport Association.
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Airport Identjfication Codes 187 BUF Buffalo International Airport, Buffalo, New York BUR Burbank-Glendale-Pasadena Airport, Burbank, California BWI Baltimore-Washington International Airport, BWI Airport, Maryland CAE Columbia Metropolitan Airport, West Columbia, South Carolina CHS Charleston International Airport, Charleston, South Carolina CLE Cleveland Hopkins International Airport, Cleveland, Ohio CLT Charlotte/Douglas International Airport, Charlotte, North Carolina CMH Columbus International Airport, Columbus, Ohio COS Colorado Springs Municipal Airport, Colorado Springs, Colorado CRP Corpus Christi International Airport, Corpus Christi, Texas CVG Cincinnati International Airport, Covington, Kentucky DAL Dallas Love Field, Dallas, Texas DAY Dayton (James M
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188 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY HOU Houston William P
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Airport Ident/1cation Codes 189 ORD Chicago-O'I-Iare International Airport, Chicago, Illinois ORF Norfolk International Airport, Norfolk, Virginia PBI Palm Beach International Airport, West Palm Beach, Florida PDX Portland International Airport, Portland, Oregon PHL Philadelphia International Airport, Philadelphia, Pennsylvania PHX Phoenix Sky Harbor International Airport, Phoenix, Arizona PIE St. Petersburg International Airport, St.
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Study Committee Biographical Information John R Meyer, Chairman, is James W
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From page 203... ...
Study Committee Biograp hical Information 191 Jonathan B Baker is an associate professor of law at American University's Washington College of Law.
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Study Committee Biograp hical Information 193 Airline Passengers. He has published several artides on airline deregulation and air safety and was a member of the NRC Committee for the Study of Air Passenger Safety and Service Since Deregulation.
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194 ENTRY AND COMPETITION IN THE U.S. AIRLINE INDUSTRY a wide variety of regulatory matters and testified frequently at CAB, Department of Transportation, and Congressional hearings.
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The Transportation Research Board is a unit of the National Research Council, which serves the National Academy of Sciences and the National Academy of Engineering. The Board's mission is to promote innovation and progress in transportation by stimulating and conducting research, facilitating the dissemination of information, and encouraging the imple- mentation of research results.
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