Chairman Rockefeller Remarks on the Financial State of the Airline Industry and the Implications of Consolidation

June 17, 2010

JDR Head ShotWASHINGTON, D.C.—Air transportation is absolutely essential to our economy. I have been working on aviation my entire career, and I have seen just how important it is for our communities to be able to move people and products anywhere in the world in a short time. In West Virginia, air service provides a critical link for many rural communities – giving them the tools to compete, fostering economic activity, connecting families, and providing access to basic services.

Unfortunately, even in the best of economic times, the airline industry struggles to stay healthy. Over the last decade, two recessions, war, and unstable oil prices have created a very fragile industry. Airlines have lost $60 billon, eliminated nearly 150,000 jobs, terminated pensions, seen several major carriers declare bankruptcy, and made deep cuts in service to small communities. We need a strong airline industry in the United States if we are serious about making certain all of our communities have access to the global marketplace.

Today, the airline industry appears to have weathered the worst of the financial storms, but the core question is whether it has done enough to shore up its bottom-line and survive the next crisis. Will it be able to cope with the next spike in oil prices? Can it survive a recession in Europe?

In an effort to become stronger, United and Continental have announced their intention to merge, creating the world’s largest airline – comparable to Delta after its merger with Northwest. If this merger is approved, our passenger aviation system will have one less global network carrier, and I am not sure if this is good or bad, but it is increasingly clear that the current structure is not financially sustainable. I do not want to advocate for higher fares, but the truth is that brutal competition and too many seats have probably led to artificially low fares—the terrible irony is that a weak airline industry can be good for consumers.

Opponents of consolidation argue that it will lead to less competition, higher fares, and lower service levels. There is a lot of concern from passengers lately about the proliferation of small add-on fees—for baggage, food, seat selection, and the latest surcharge, proposed a few weeks ago, for peak travel times. These are legitimate concerns, and I expect the airlines to address them directly and completely.

I also very much recognize that if we want air carriers to survive and grow, to compete with foreign carriers, and continue to offer stable jobs in our communities, they need to maintain their financial health. If consolidation creates the conditions not only to survive, but also to thrive in a competitive global industry – and I hope it does – I will support it.

I do not believe consolidation alone will create a healthy industry. We very much need to pass the FAA reauthorization bill to modernize the air traffic control system. Nothing will kill this nascent recovery quicker than a return to delays, congestion, and gridlock in the skies. It is a delicate balance, but we need to find a way for air carriers to provide service – including service to small communities – in a financially sustainable manner. We have to get this right for air travelers, airline workers and for our national economy.

I want to thank today’s witnesses for participating. These are complex issues, and I know your experience and perspective will allow us to begin answering the tough questions ahead.