Air Transport World

Hub complex.

Behind DOT's recent concern over a lack of new entry is on obsession that hubs are fee powerful

When the U.S. DOT released its proposed competition policy guidelines last April, federal regulators in reality simply were opening a new front in the long-running battle over the power, purpose and competitive impact of airline hub-and-spoke systems.

Because something like 90% of Major airline activity (Southwest excluded) is devoted to moving passengers to, from or through hubs, they lie at the very heart of any debate about the nature of competition in the industry. Many believe that as these systems become larger, they threaten to undo the public benefits of 20 years of airline deregulation.

This is not a new concern. The theory that cities 'dominated" by one or two carriers pay a penalty for that concentration in the form of higher fares than otherwise would be the case is a staple of post-deregulation lore. Two years ago, DOT declared that "hub-dominant power has been the significant public policy structural problem in the deregulated market." The most recent study of hubs by the U.S. General Accounting Office, released in 1993, stated that lack of competition at 13 "concentrated airports" was largely responsible for an average fare premium of 19.8% compared with fares at 35 "unconcentrated" airports. Similar GAO studies in 1990 and 1988 also found and attributed premiums to lack of competition at hub airports.

So, when Assistant Secretary for Policy and International Affairs Patrick Murphy testified before Congress last April that ''most hub markets have little competition and the passengers in those markets pay relatively high fares," he was merely repeating the conventional wisdom that has dogged the industry for most of the past two decades. And it is a reflection of how familiar this refrain has become that few bother to think it through to its logical conclusion. For if the 40-45% of travelers who begin or end their trips at hubs are paying "relatively high fares," then airline deregulation has failed to achieve its fundamental goal of bringing lower fares to the vast majority of Americans.

That leaves just two possibilities: Either the public has been bamboozled into believing it is saving money when it is not, or the hub issue is a good deal more complicated than people realize. Bet on the latter. The public benefits of deregulation are documented and undeniable, even if a cursory examination shows a pattern of higher average yields in hub O&D markets. That these higher yields have come to be seen as an indictment of the system rather than as an inevitable and logical byproduct probably is owing to an instinctive 20th century distrust of concentration and bigness in business, as well as a nostalgia for a prederegulation era of air transportation that actually never existed. Because this nostalgia influences perceptions of the modern air travel system, re-examining prederegulation air service is a useful exercise.

Looking back through the distorting prism of memory, many recall the regulated era as a period characterized by highly efficient airline networks offering primarily nonstop services. …

Log in to your account to read this article – and millions more.