REMARKS AS PREPARED FOR DELIVERY

U.S. SECRETARY OF TRANSPORTATION RODNEY E. SLATER

WINGS CLUB ADDRESS

TUESDAY, JANUARY 16, 2001

Now, as I prepare to turn my responsibilities over to the next flight crew -- captained by my good friend and Cabinet colleague Norman Mineta -- I have returned to the Wings Club to report on what we have done to meet these challenges.

And as part of that report, under the heading of "enhancing access and competition," I will release three studies and discuss our position on airline competition.

All three of these challenges are challenges of growth; this in and of itself is a measure of how far we have come since 1993. When President Clinton and Vice President Gore took office, U.S. aviation was ‘parked at the gate’ with no clear guidance from the control tower. Eastern and Pan Am were already out of business; other airlines were on the verge of bankruptcy.

economic expansion in history, the lowest unemployment rate in a generation, and the most new jobs ever created under a single administration. For the aviation industry, it also led to nearly six years of record annual profits.

When I spoke to you two years ago, I said that globalization requires us to think ‘beyond open skies.’ We’ve done more than that. The idea of a multilateral approach has taken off and is well on its way to cruising altitude.

As part of the Clinton-Gore Administration’s Partnership for Growth and Opportunity in Africa, we had already launched the Africa Safe Skies Initiative in 1997. This past October I expanded the reach of the safe skies concept at a meeting of regional transport ministers, by proposing an historic Partnership for Safer Skies for the Western Hemisphere.

We have also been working to move beyond bilateralism in Asia. Last year in Singapore, I discussed the need to move toward regional transportation integration with the Asian-Pacific Economic Cooperation (APEC) forum. On November 15, President Clinton and the governments of Brunei, Chile, New Zealand, Singapore and United States moved this effort forward by announcing the first-ever multilateral open-skies aviation agreement for any region. This breakthrough permits unrestricted international air service among all parties for the first time ever.

When I spoke to you in 1999, the United States had signed 32 bilateral open skies agreements; since then, the total has climbed to 52. We have also negotiated other types of liberalized aviation agreements with 41 additional countries, including France, China, Russia -- and just last week -- with Israel.

These bilateral agreements have transformed the international air travel marketplace with important benefits for consumers. Using 1996 as a base year for comparison—

Bilateral arrangements not only mean lower fares and more flight alternatives for travelers, they also mean new airline jobs, with economic benefits for cities and regions. As the result of transatlantic alliances, traffic between New York and Europe jumped by 47 percent between 1995 and 1999, while fares declined by 11 percent. Smaller cites have also benefited.

Traffic to Europe from Austin, Texas, Birmingham, Alabama, and Sioux Falls, South Dakota, have more than doubled, with corresponding fare reductions as high as 33 percent.

A stark contrast to these benefits of competition can be seen in the continuing lack of progress in the U.S-U.K. market. The UK government has been unwilling to remove the barriers to competition in this market until British Airways has established its commercial strategy. This reluctance has had real world costs for citizens on both sides of the Atlantic. For example, compared with fares from New York to Frankfurt and Paris, fares from here to London are almost one-third higher.

While we will continue to negotiate with the UK and others on bilateral agreements, our ultimate goal is a single, open, international aviation market. While many facets of such an arrangement must be worked out, this concept would create significant benefits for carriers and the countries they serve.

To help set the stage for this new approach, I hosted the December 1999 Aviation in the 21^st Century -- Beyond Open Skies Ministerial in Chicago which drew representatives from more than 90 countries. At the conclusion of the ministerial, like-minded nations agreed to continue discussions on the concept, with the understanding that other nations may choose to join these conversations at a later date.

We also addressed the need for a global vision for 21^st century transportation at the International Transportation Symposium I convened this past October here in Washington.

This unprecedented gathering of more than 1,200 representatives from over 100 countries was the crowning achievement of all our international efforts in transportation and included a major focus on aviation.

Focusing on aviation is appropriate. I strongly believe that in the 21^st century, aviation will be the engine of growth for the world that the Eisenhower Interstate Highway system was for America during the latter half of the 20^th century. Travel and tourism is already the world’s largest industry, driving 10 percent of all jobs and investment worldwide. By 2010, the impact of air transportation on the global economy will approach $2 trillion dollars, accounting for more than 30 million jobs worldwide.

Let me now turn from aviation’s response to globalization to the second challenge I discussed with you two years ago -- enhancing access and competition.

Just as we have promoted deregulation in international markets to give our airlines opportunities to compete fairly with foreign carriers, DOT has also promoted competition in domestic aviation to give smaller carriers here in America a fair opportunity to compete.

Since I last spoke to you, the Department published a report entitled Airport Business Practices and Their Impact on Airline Competition. The report concluded that the benefits of competition depend on air carrier access to airport facilities and airport management practices that promote competition.

These conclusions helped frame the language of the subsequently passed FAA Reauthorization Bill (AIR 21), which created significant financial incentives to promote competition.

Large and medium-sized airports dominated by one or two carriers must now submit airport competition plans before the FAA will approve the collection of a new Passenger Facility Charge or before approving a grant application under the Airport Improvement Program.

On our part, DOT has promoted competition by creating slot exemptions for new entrants to serve Chicago-O’Hare, LaGuardia, JFK and Washington’s Reagan National.

Taken together, these efforts have already produced significant results. New entrants, such as Jet Blue, AirTran, Frontier, Midway, Midwest Express, Spirit, and Atlantic Coast are all growing stronger.

Price competition and market access for low-fare airlines are particularly important to the continuing success of airline deregulation. And the impact of low-fare competition in specific markets is often spectacular:

However, every year about 20 million passengers who travel in large, short-distance markets continue to experience high prices because they do not have access to low-fare airline competition.

As a result of complaints by consumers and smaller airlines, DOT has investigated whether established airlines were engaging in unfair competitive practices. Our inquiries led to the decision to publish a proposed set of enforcement guidelines on competitive practices.

The dialogue begun by the publication of our proposed guidelines has served the public well. It has generated a wider discussion on important competitive issues. We received over five thousand comments on our proposal. And, as directed by the Congress, The Transportation Research Board (TRB) issued a report evaluating our proposal and other airline competition issues.

Tonight I am announcing our position on airline competition, including the following decisions and recommendations:

First, we are publishing three studies providing an economic, policy and legal analysis detailing the evidence that airlines may be using a wide variety of tactics to suppress competition. This administration believes that the Department may and should take action against unfair competition.

This research lays the economic and legal foundation for the Transportation Department to use its authority to promote competition more aggressively.

Publishing these studies also provides the industry, as well as the traveling public, with an understanding of the practices we have identified that may deserve the application of the Department’s enforcement powers in the future.

Second, we have decided not to publish guidelines as originally proposed, in the belief that publishing our analyses and developing standards through a case-by-case approach will be a more effective way of proceeding. A "one size fits all" approach won’t work.

Based on the additional studies we have conducted, particularly the report prepared for us by two respected economists, Professors Clinton Oster and John Strong, we have concluded that any determination that an airline has engaged in unfair competitive practices requires an examination of the specific facts of that case.

Our conclusion is consistent with TRB’s recommendation that we analyze the issues further, before adopting guidelines. It is also consistent with a number of comments submitted in response to our proposed guidelines.

Our third recommendation is that DOT should continue to work closely with the Justice Department (as has been our practice during the Clinton-Gore Administration) to maximize the government’s ability to prevent anti-competitive conduct, now and in the future.

Promoting airline competition has been one of my major goals as U.S. Secretary of Transportation. Our efforts have made a difference to millions of passengers in many markets, both domestically and around the world. The effort that went into this review of possible guidelines by everyone who participated will help the Department continue to promote competition in the years ahead. The third challenge I discussed with you two years ago, was improving system efficiency and capacity. This is not a new problem.

In 1993, Governor Baliles and his National Commission to Ensure a Strong, Competitive Aviation Industry called the challenge "congestion."

In 1997, Secretary-designate Mineta’s National Civil Aviation Review Commission called it "gridlock."

But whether you call it congestion or gridlock, one thing is certain. We can’t wait till 2010 for Flight Delay Solutions. We need solutions today. That’s why I convened a series of meetings with industry and labor leaders and consumer groups last August -- including many of you here in this audience.

As a result, I convened two task forces designed to further develop some of the suggestions and ideas shared at those meetings.

Our "Best Practices" Task Force issued its report and recommendations this past October, suggesting ways for airlines and airports to cope with flight delays and to enhance the information flow to passengers. And in November, the Air Carrier On-Time Reporting Advisory Committee issued its interim report calling for more complete disclosure to the public about the nature and causes of flight delays and cancellations by air carriers.

I would also mention the FAA’s Airport Benchmark reviews currently underway at 31 airports to determine the maximum number of landings and takeoffs that can be consistently accommodated during peak demand periods. Nine airports have already been evaluated and the FAA is on schedule for completing the reviews by the end of January.

These benchmarks will provide a factual basis for better-informed discussions regarding airport capacity and clarify what capacity increases can realistically be expected in the foreseeable future from modernization of the air traffic control system, new controller procedures and new airport infrastructure.

These reviews make it clear that this nation needs to improve the capacity of existing airports, especially new runways. However, it should also be noted that we have already made tremendous progress in modernizing our air traffic control systems.

For example, all of our 20 centers throughout the country have new automated workstations and displays for use by controllers. At two of the centers, Free Flight tools are now in use every day. We will continue to build on these successes and we will look to the airlines and airports to work with us to further improve airport capacity.

"Transportation is about more than concrete, asphalt and steel." We also need to work together to move forward in terms of quality of service to customers.

If we do not, I am concerned that there will be increasing public pressure on the Congress to consider at least a partial return to some form of regulation.

I would also mention one final promising development in the area of efficiency and capacity. Based on the recommendations of the National Civil Aviation Review Commission (NCARC) and provisions of AIR-21, President Clinton issued an Executive Order on December 7, creating a Performance-Based Organization (PBO) to manage the nation’s Air Traffic Control System (ATC).

The FAA will now merge all ATC functions into a single entity called the Air Traffic Organization under the oversight of a public interest Board of Directors.

Even though we already have the safest system in world, we are not content. Safety remains President Clinton’s highest transportation priority and the North Star by which we are guided and judged at DOT. This PBO will improve system safety even further by moving the FAA toward a more business-like structure and by establishing priorities for modernization of the national air space system.

It will also implement new operational, financial and personnel systems to provide better information for decision-making. Finally, it will reform acquisition procedures to reduce the lag time in awarding contracts for system modernization.

I am proud of the visionary and vigilant efforts of the U.S. Department of Transportation, 100,000 strong, in moving forward to help this nation realize the full potential of aviation’s second century. And I am grateful for the cooperation and support of the aviation community in our efforts.

When we began our work together eight years ago, the industry was stuck at the starting gate. Today, as a result of our joint efforts, this industry is soaring to higher heights than many of us could dream or imagine. As I said when I spoke to you two years ago "From Kitty Hawk to the International Space Station, America has pioneered the High Frontier for nearly a century."

Now, at the dawn of a new century and a new millennium, government and the industry must continue to work together to meet our historic responsibility. Over the last eight years we have demonstrated what cooperation can produce. And we have done so, essentially, on a bipartisan basis. My final message to you is simple: The momentum must continue.

# # # #