Consumer Benefits
Statements by Department of Transportation as to the Benefits of Low-Fare Service
Department of Transportation, Small Community Air Service Development Pilot Program, Order 2003-9-14, September 17, 2003
Docket OST-2003-15065
Many communities seeking grants also seek lower airfares than are now available from their airports in order to recapture passengers that are now driving to better-served, but less convenient airports and/or airports that offer lower fares. Several communities are seeking funds to attract low-fare carriers, such as AirTran..and Frontier to provide a low-fare option to travelers and also to put competitive pressure on the other airlines serving the community to reduce their fares.
Last year, our award to Akron-Canton, Ohio, for the expansion of AirTran's low-fare service at that community successfully resulting in increased services by other carriers as well, and an overall increase in enplanements at the airport..Fresno seeks services by Frontier to Denver and Knoxville and Charleston seek service by AirTran. These awards will facilitate the first ever low-cost service at these communities or a restoration of low-fare service, providing a material benefit to a large segment of the public.
"Dominated Hub Fares" Select Quotes
Office of the Assistant Secretary for Aviation and International Affairs at the Department of Transportation, January 2001
The negative effects of high hub fares reach beyond hub cities. Spoke communities whose service is predominantly to network hubs by hub dominant carriers may also be subjected to high prices. Buffalo, New York provides a good example of this, and also the benefits of low-fare competitive alternatives. People at Buffalo, and their elected representatives, worked hard to attract low-fare service and they have succeeded. The benefits, in terms of increased service and lower prices, are enormous. For example, average fares declined by 36%, from $185 to $119, in the Atlanta-Buffalo market after AirTran's entry, and the number of passengers in the market increased by 65%.
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In dominated hubs as a whole, 24.7 million passengers pay on average 41% more than do their counterparts flying in hub markets with low-fare competition. It is reasonable to expect that with the benefit of low-fare competitors another 25 to 50 million passengers annually would travel in these markets.
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Passengers in short-haul hub markets without low-fare carriers pay even higher fares, or 54% more on average than passengers in comparable markets with a low-fare competitor.
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Without the presence of effective price competition, network carriers both charge much higher prices and curtail capacity available to price sensitive passengers at their hubs.
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The key to eliminating market power and fare premiums is to encourage entry into as many uncontested markets as possible.
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Barriers to entry at many non-hub markets have the same effect of discouraging new entry. Barriers to entry at dominated hubs are most difficult to surmount considering the operational and marketing leverage a network carrier has in its hub markets.
" Enforcement Policy Regarding Unfair Exclusionary Conduct in the Air Transportation Industry" Select Quotes Docket OST-98-3713, "Findings and Conclusions on the Economic, Policy, and Legal Issues"
Competition gives travelers lower fares and better service, and the lower fares enable many people to fly who otherwise would not have traveled at all. While deregulation has given travelers in the great majority of markets lower fares and better service, some markets have not benefited as much from deregulation since they lack competitive service.
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Travelers are not the only beneficiaries of increased competition. Regions where the lower fares and increased service options created by competition are available are better able to attract new businesses and business expansions; conversely, regions denied access to competitive service suffer economic difficulties.
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Travelers in markets with low-fare airline competition, on the other hand, obtain both the low fares offered by low-fare airlines and the more frequent service and wider range of destinations offered by a hubbing airline.
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New service by a low-fare airline is therefore likely to be the only way that many hub markets will ever benefit from competitive airline service. Since a hubbing airline will likely have only limited competition in most of its hub markets if it can deter entry by low-fare airlines, it is profitable for an incumbent airline to attempt to eliminate actual competition if it can.If the low-fare airline becomes established in one hub market, it may well expand into other markets at the hub.