JULY/AUGUST 1998 � VOLUME 19� NUMBER 7&8

The jump comes at a time when major airlines and discount carriers are battling over the competitiveness of industry markets.

Low-fare airlines argue they are unable to effectively compete with their larger rivals, which have controlled access to most of the takeoff and landing slots at the biggest airports since the 1980s. They also contend that the six biggest airlines -- Continental, American, United, US Airways, Delta and Northwest Airlines -- try to run them out of new markets by temporarily slashing fares and offering more seats, and then hiking prices when the competitors are eliminated. The big losers? Passengers stuck paying inflated ticket prices.

The Department of Transportation (DOT) announced earlier this year that it would issue guidelines on unfair practices within the industry. The major airlines mounted a fierce lobbying campaign against the proposal and tried in June 1998 to quash the guidelines as part of a bill that would expand low-fare carriers' access to airport slots. They argue that DOT's plan would make the airline industry less competitive by precluding the major carriers from offering comparable prices and additional seats if more people were attracted to a specific market.

As part of their intense lobbying campaign, the Congressional Economic Leadership Institute -- a non-profit educational foundation whose corporate backers include American Airlines -- sponsored an airline issues conference in Florida in June. More than 40 congressional staffers, executives from the major airlines, and industry lobbyists such as James Burnley, the former transportation secretary, attended the conference.

Shortly after the conference, the House of Representatives Transportation Committee passed legislation that did not give the big carriers everything they wanted -- but did buy them some time. A provision in the bill requires the DOT to study airline competitiveness and submit its findings and new guidelines to Congress. Congress would have up to 12 weeks -- not including weeks when it is in recess -- to review DOT's proposals.

Discount airlines scored a win with another provision that would give the DOT more control over new airline alliances such as the one between Northwest and Continental. Low-fare airlines are represented by Ed Faberman of the Air Carrier Association of America, a former lobbyist for American Airlines.

The Senate Commerce Committee adopted similar legislation in July. The committee rejected a discount-airline-backed proposal requiring the major carriers to give start-ups access to their ticketing and fare systems. The measure would have allowed passengers to fly on two separate airlines but buy only one ticket and have their bags checked through to their final destination.

The top Senate recipient of airline contributions is Senate Minority Leader Tom Daschle, D-South Dakota, who is up for re-election this fall. He has received $53,250 from the airline PAC and individual contributions this cycle. More than 72 percent of these contributions -- $38,500 -- came from Northwest Airlines' PAC and executives who work for the company. Northwest was also represented at Daschle's September 1997 fund-raiser at Mount Rushmore by Richard Blum, one of its main investors and husband of Senator Dianne Feinstein, D-California. For his last re-election bid, Daschle only received $2,500 from the airline. Daschle's wife Linda, who works for the lobbying firm Baker, Donelson, has lobbied for Northwest since July 1997. She was deputy administrator at DOT's Federal Aviation Administration between 1993 and 1997. Since becoming a lobbyist, Linda Daschle says she has voluntarily chosen not to lobby the Senate because of her husband's position.

John McCain, R-Arizona, the Senate Commerce Committee chair who is also up for re-election this fall, is the third leading Senate recipient of airline industry money, taking in $33,500 from airlines. In early March -- shortly after the Justice Department started its own investigation into airline anti-competitive practices -- four airlines under investigation, including United, Northwest, American and Delta, and the Air Transport Association of America contributed $9,000 to McCain through their political action committees.

So far in the 1997-98 election cycle, airlines have made at least $2.2 million in PAC, soft money and individual contributions to federal candidates and parties, 60 percent to Republicans. Contributions from the six major airlines and the Air Transport Association of America represent 88 percent of this total.

This is not the first time that major airlines have used their clout to try and keep discount carriers out of their markets. Last summer the industry won a long battle over how tickets should be taxed. The big airlines wanted taxes based on distance rather than cost. They lobbied to change the 10 percent ticket tax to a user fee -- and faced much opposition from discount competitors, which argued they would be forced to hike their fares. The major carriers argued that the 10 percent tax unfairly disadvantaged their passengers. But in December 1996, the General Accounting Office reported that the major airlines' user fee proposal would place an unequal burden on discount carriers and save the big carriers $600 million.

Despite this report and fierce opposition from the low-cost airlines, their competitors got much of what they wanted in the 1997 budget bill. Lawmakers gradually reduced the 10 percent ticket tax to 7.5 percent and imposed a new $1 fee -- up to $3 in 2002 -- on each leg of a plane trip. This jacks up the price for discount flights, which make more stops.

-- Jennifer Schecter