AIRLINE COMPETITION: WEAK FINANCIAL STRUCTURE THREATENS COMPETITION

This report focuses on the financial condition of the airline industry. It outlines some of the causes of financial distress and discusses some of the policy options that have been proposed to reverse this trend and promote competition. Over the past decade, several large airlines have developed serious problems that weaken their financial position. Chief among these problems are the high levels of debt some carriers have incurred and the operating and marketing practices some carriers have adopted that prevent other carriers from competing effectively. More recently, the industry was also hit by three severe short-term problems: the ongoing recession, the higher fuel prices resulting from the Iraqi invasion of Kuwait, and the reduction in demand resulting from the threat of terrorism. The financial strain on airlines will be increased by regulatory and legislative requirements for carriers to replace and renovate older aircraft. Certain policy options, such as improving carriers' access to airports and reducing barriers resulting from marketing practices, could help relieve some of the competitive problems facing the industry and also enhance the financial health of some of the weaker carriers. However, if airlines continue to carry excessive debt, they will continue to find it difficult to earn a profit and compete effectively. If some carriers do cease operations, close monitoring of the sales of their assets by the Department of Transportation and the Department of Justice can help mitigate some of the loss of competition. Other options either run counter to the intensions of deregulation or will require more analysis before they can be considered for implementation. These options include reregulating fares and routes and allowing an increased level of foreign investment in U.S. carriers.

  • Supplemental Notes:
    • Report to the Chairman, Subcommittee on Aviation, Comittee on Public Works and Transportation, House of Representatives.
  • Corporate Authors:

    U.S. General Accounting Office

    441 G Street, NW
    Washington, DC  United States  20548
  • Publication Date: 1991-4

Media Info

  • Features: Appendices; References;
  • Pagination: 24 p.

Subject/Index Terms

Filing Info

  • Accession Number: 00616411
  • Record Type: Publication
  • Report/Paper Numbers: GAO/RCED-91-110
  • Files: TRIS
  • Created Date: Oct 31 1991 12:00AM