The 30,000 Foot View: Competition and Regulation in the U.S. Airline Industry

All set. Subcommittee will come to order without objection. The chair is authorized to declare recess at any time. We welcome everybody to today's hearing on regulation and competition in the airline industry. Uh, without objection, Mister Nales of Texas will be permitted to participate in today's hearing for the purpose of questioning the witnesses if a member yields them time for that purpose. Uh, I will now recognize myself for an opening statement. Today's hearing will examine competition in the US airline industry and the government regulations that limit such competition. As well, we hear from, well, we will hear from witnesses uh, consumers uh have more choice than ever before when it comes to both domestic and international air travel. Annual passenger traffic has nearly quadrupled since the nineteen seventies. And consumers now benefit from a range of choices, from the legacy airlines to the low-cost and ultra-low-cost carriers. That is all thanks to the Airline Deregulation Act of nineteen seventy eight. Uh, prior to passage of this law, the US airline industry was regulated by a government created body, known as the Civil Aeronautics Board, or CAB. The CAB heavily uh regulated the industry, setting restrictions fares, routes, and entry into the market. In other words, the government played a significant role in choosing which airlines could fly, where they could fly, and what prices they could charge. This system was severely flawed and highly ineffective and protected the existing carriers at the expense of promoting competition. Recognizing these flaws, Congress passed the Airline Deregulation Act, which phased out the old system and allowed airlines to freely compete. This deregulation transformed the market into what we see today. Unshackled from government regulation, what we saw over time was intense comp- competitive pressure that pushed prices down and consumer choice up. But that pressure also led to a significant number of mergers, acquisitions, and bankruptcies. Between nineteen seventy-eight and two thousand five, for example, a hundred and sixty-two airlines filed for bankruptcy. Today's airline industry, while certainly more accessible and more competitive, is also more concentrated than ever before. The big four air carriers American, United, Delta and Southwest control nearly eighty percent of domestic airline travel. And while the Airline Deregulation Act freed the airlines from the decrees of government boards, the government still occupies a major role in commercial aviation that often benefits the incumbents at the expense of new entrants. For example, at seven of the nation's busiest airports, the Federal Aviation Administration or the FAA controls or distributes access to takeoffs and landings through what's known as a slot system. Slot allocations are highly sought after, particularly for new entrants. Uh, an example, at London's Heathrow, for example, a single slot allocated sold for tens of millions of dollars. But the FAA cannot auction these slots, instead distributing them largely to incumbent carriers who own them in perpetuity through what's known as the grandfather rights. Many of these slots allocations also tend to be awarded to air carriers with existing infrastructure such as gate access. At DCA and Chicago O'Hare, for example, slot allocations heavily favor American and United. who operate main hubs. At other major airports such as Atlanta and Dallas-Fort Worth, legacy carriers control over seventy percent of the existing gates. Lease agreements for these gates are often long-term and can last for decades. For example, in two thousand sixteen, Delta signed a twenty year lease agreement with the city of Atlanta for its airport. That lease agreement also stipulated that the city of Atlanta could not operate a second airport. These agreements create a significant barrier to entry for competitors seeking to gain a foothold at major airports. If a competitor can't access a gate, it can't compete for a slot. Airports are also limited by government regulations that make expanding difficult. To build new runways or terminals, airports must submit environmental reviews to the FAA. This process can easily be weaponized to delay airport construction. Across the country, environmental activists filed lawsuits using the National Environmental Policy Act to delay these new projects. These regulations act as a constraint, which in turn limits the airline's ability to expand and compete. Finally, like domestic ocean shipping, the United States reserves domestic air transportation only to its U. S. Air carriers. This practice, known as cabotage, creates significant tension between protecting our domestic airlines and promoting competition. As these examples show, the government is still heavily involved in the airline industry. Consumers deserve a system where airlines compete freely and can innovate and grow, not a system where the government consistently puts its thumb on the scale to foreclose competition. Government imposed barriers destroyed competition, leaving consumers worse off. The most recent example of this was the proposed In twenty twenty three, the Biden-Harris DOJ sued to block the proposed three point eight billion dollar merger. The DOJ claimed the merger would remove spirit from the market and reduce competition. At the time, the proposed merger would have created the fifth largest airline domestically, with ten percent market share and increased competition against the big four. However, one year later, a federal judge in Massachusetts sided Spirit later filed for bankruptcy twice and ultimately shut down operations in May of this year. The blocked merger of Spirit Jet Blue offers a cautionary tale about government over-regulation. By blocking the transaction, regulators prevented the market from testing whether a strong competitor could emerge to challenge the industry's largest incumbents. At a minimum, the case demonstrates the importance of ensuring that antitrust promotes competition rather than merely preserving the status quo. As Congress evaluates the future of the airline industry, we should remain mindful of the lessons of deregulation. Competition, not heavy-handed regulation, has been the primary driver of lower fares, greater consumer choice, and increased innovation. In the words of the Airline Deregulation Act, the airline industry needs a "maximum reliance on competitive market forces." Our goal should be to remove unnecessary barriers to entry, encourage robust competition, and ensure that consumers, not regulators, are the ultimate beneficiaries of airline policy. I look forward to today's discussion. I now recognize uh Miss Balint for an opening statement.

Thank you, Mr. Chair, and good morning. Uh, clearly we could not see things more differently. It's no secret that flying has gotten worse over the years. Tickets cost more, more flights are canceled, and everything from seat selection to carry-ons are now perks that you get to pay for. This is the predictable result of a market that has been allowed to consolidate for over sixty years, and an administration that continues to prioritize the demands of huge corporations at the cost of everyday Americans. Americans were promised that consolidation would produce a more reliable, efficient, and affordable aviation system. It has done the opposite. Flyers face new and rising fees, fewer alternatives, no bargaining power, and increasing barriers barriers to affordable travel. In nineteen sixty, before deregulation, Americans had forty major airline carriers to choose from. Today, just four airlines control over two-thirds, two-thirds of the domestic passenger market. We went from forty to four. That is not competition. At the same time, airline executives argue that further consolidation is necessary to address the industry's challenges. So it was shocking to hear United Airlines, the fourth largest airline in the U S, float a merger with American Airlines, the second largest carrier. The combined United American airline would control thirty-four percent of the domestic market. Transportation Secretary Sean Duffy called the proposal, quote, " interesting." This is alarming. We need to get back to antitrust enforcement on the merits. For instance, in twenty twenty-four, Democrats blocked the Spirit jet blue merger because evidence showed it would raise fares by up to forty percent on dozens of routes. We knew it would cause harm to consumers who could least afford it, and even a Reagan-appointed federal judge agreed. Spirit is gone now, not because of antitrust enforcement. Spirit is gone because of the massive spike in jet fuel costs that are a direct result of President Trump's unconstitutional war with Iran. Even the Spirit CEO said that fuel prices were the biggest factor in closing the airline. President Trump's war of choice has made it all worse. Jet fuel prices have roughly doubled since the beginning of this war. Airlines are passing that burden directly down to passengers through higher fares, more fees, and new fuel surcharges. Americans never agreed to this war, and that's why I introduced a War Powers Resolution to end it, because Congress, not the President, has the constitutional authority to take this country into a military conflict. This unauthorized, uncalled-for war is causing a rolling series of financial blows to Americans across this country. Americans have spent nearly four hundred and fifty dollars more on fuel-related expenses just since February. At the grocery store, food prices have gone up more than three percent since last year. At the airport, fares are up more than twenty percent in just four months. It's the same shock to the system over and over, coming from every direction. For a country our size, flying is not a perk. It is how families see each other. It's how small business owners reach their customers. It's how a Vermont student gets home from college. And when the cost of flying goes up, it does not just inconvenience people, it cuts them off from what has become a necessity in this country. Instead of addressing this rapidly consolidating industry that is squeezing consumers, this administration has spent the last year pandering to the interests of their wealthy friends. The Biden Department of Transportation required airlines to provide cash refunds when customers were owed. And airlines had to disclose all fees up front. Those policies were rolled back by the Trump DOT. These rules were estimated to save consumers more than half a billion dollars a year. Major airlines and their trade associations spent millions lobby- lobbying this administration in the first nine years, excuse me, the first nine months of twenty twenty five to get these key consumer protections cut. So it's no surprise that the current Transportation Secretary, Sean Duffy, was an airline lobbyist before he took his current job. Members of Congress have pushed for an investigation into whether Duffy continues to improperly favor the interests of the industry that he used to represent. Working families across this country deserve so much better than this. Entry Trust laws are supposed to make sure the markets work for us. Americans need to know that antitrust enforcement decisions will be based on law, evidence, and the interests of regular people, not political access, backroom discussions, or the preferences of powerful corporations. Americans simply want choices. We don't want a handful of companies to control and limit our freedom of choice. And we don't want a federal government that approves consolidation because its corporate and political allies want it to. They are the reasons why I will not stop stressing the importance of good rule of law antitrust enforcement and I will keep pressing the current administration on their perversion of this critical tool for consumer protection. Thank you and I yield back.

And I'll let he yields back. Uh, while we wait for Chairman Jordan to arrive, um, I will now recognize the ranking member of the full committee, Mister Raskin, for his opening statement.

Thank you, Mister Chairman, and thanks to all of our witnesses for joining us today. Spirit Airlines was once the nation's leading ultra-low-cost carrier and one of the strongest forces in the economy, holding down ticket prices for consumers. It's now collapsed. And we cannot have a serious conversation about the demise of Spirit without talking about the obvious main culprit, the president's disastrous and illegal war in Iran. The Iran war has not only cost the lives thirteen American service members and thousands of Iranian civilians, including hundreds of children. It has cost American taxpayers more than a hundred billion dollars and it's cost American consumers more than sixty billion dollars and increased fuel costs alone which averages to more than four hundred and seventy dollars per American household. It also caused the cost of jet fuel to double overnight, forcing Spirit to take on an extra one hundred million dollars in unexpected costs in just a couple of months for an ultra-low-cost carrier like Spirit, which operates on thin margins to deliver the best value to customers, that was a corporate death sentence. As Spirit Airlines explained in its legal filings, the company went under because quote "recent geopolitical events have resulted in a massive and sustained increase in fuel prices." But desperate to avoid any mention of Donald Trump's calamitous and historic blunder in Iran, which has split the Republican Party, my colleagues today have decided instead, somewhat comically, to blame overzealous antitrust enforcement. Americans are paying more today for groceries, gasoline, health care, housing, utilities, and, yes, airfare. At the same time, a vanishingly small number of companies is thriving. Consider the S and P five hundred, the stock market index of five hundred publicly traded U. S. companies. Last month the Financial Times published an analysis, an analysis showing that just five of those five hundred companies or one percent accounted for fifty percent of the growth of the index. In the airline industry, the story of lopsided growth and economic contra- concentration is the same. In two thousand, the four largest carriers controlled roughly sixty percent of domestic traffic. Today, they control about eighty percent. One merger after another has consolidated the market power of the four major airlines, American, Delta, Southwest and United. The result? Higher prices, lower wages, growing profits. Protecting competition requires regulators willing to say no to corporate consolidation. Twenty twenty three, the DOJ blocked JetBlue's attempted acquisition of Spirit. The result? Spirit continued to operate as an ultra-low-cost airline, offering consumers lower prices than competitor airlines, in driving down the price of tickets on competitors. Economists called this, quote, " the spirit effect". When an ultra-low-cost airline like Spirit operates a route, the price of tickets on legacy carriers like American drops by an average of twenty-one percent. As Judge Young, the Reagan-appointed judge who upheld the DOJ decision to block the Spirit-JetBlue merger, explained, quote, "If JetBlue were permitted to gobble up Spirit, at least as proposed, It would eliminate one of the airline industry's few primary competitors that provides unique innovation and price discipline. It would further consolidate an oligopoly by immediately doubling JetBlue's stakeholder size in the industry. Worse yet, the merger would likely incentivize JetBlue further to abandon its roots as a maverick low-cost carrier. DOJ's actions in twenty twenty three protected consumers from increased costs by focusing airlines to continue competing with Spirit in its ultra-low airfares until skyrocketing prices caused by Trump's disastrous war in Iran, caused the airline to collapse. Yet our colleagues have taken the wrong lesson from this story, claiming we need less antitrust enforcement rather than more. This is alarming because under the Trump administration, antitrust enforcement has already been twisted and corrupted beyond recognition. Instead of being a tool to protect competition and innovation and to prevent companies from abusing their market power over consumers, and workers it's become just one more grift perpetrated by the president and his enablers for their own purposes of wealth maximization. Antitrust practitioners talk about a trump transaction tax, the recognition that merger approval depends less on objective considerations um and competition factors and more on a company's willingness to curry subjective political and financial favor with the president and the money-making operation being conducted at the White House. The warning signs of gangster state crony capitalism are everywhere. In the last twelve months, this administration has cleared the Nextar-Tegna local broadcast merger, which will undermine the diversity of independently owned news operations, in which a coalition of state AGs has already obtained a preliminary injunction to halt. It has settled the Live Nation ticket master case with terms so favorable to Live Live Nation that the basic sweeping harms to artists, venues and millions of fans remained largely unaddressed. It cleared the paramount Skydance Warner Brothers discovery deal before career investigators had even completed their antitrust analysis. And every senior antitrust official who has cried foul over this pattern of concentration including Assistant Attorney General Gil Slater at Department of Justice and her Principal Deputy Attorney General, Roger Alford, has been pushed out or fired for the offense of simply doing their jobs the jobs they signed up to do and which the law requires of them. The consequences of this anti-anti-trust, corruption, and pro-monopoly favoritism are simple. Corporations pass the Trump tax onto consumers. We pay higher prices for fewer choices, less competition, less innovation, more instability. Instead of concocting a cover story for the president, which blames Biden for the disastrous consequences of the Trump tariff and the Trump war in Iran, we should be doing serious oversight of an antitrust antitrust enforcement system that has been thoroughly smashed up in this administration. Thank you, Mr. Chairman, and I yield back.

The chairman yields back. Without objection, all other opening statements will be included in the record. We will now introduce today's witnesses. The Honorable Chris Sununu. Mr. Sununu is the President and CEO of Airlines for America. a trade association of US-based passenger and cargo airlines. He previously served as the governor of New Hampshire and as a member of the executive council of New Hampshire, and worked as an environmental engineer. Mister Timothy Ravitch. Mister Ravitch is a senior counsel at Tressler, where his practice focuses on aviation, aerospace, airport and commercial litigation. He previously was the general counsel of an unmanned aerial systems company. has led research on matters affecting airspace operations and safety for the National Science Foundation and the National Academies of Science, Engineering and Medicine, and is an author of an aviation law textbook. Mister Christian Stout, Mister Stout is Director of Innovation Policy at the International Center for Law and Economics, where his work focuses on competition, telecommunications and artificial intelligence policy. He previously worked as an attorney Taught computer science at Rutgers University and held various roles at technology companies. Professor Nancy Rose. Miss Rose is the Charles P. Kindelberger Professor of Applied Economics at the Massachusetts Institute of Technology. She previously served as the Deputy Assistant Attorney General for Economic Analysis in the DOJ's antitrust division from two thousand fourteen to two thousand sixteen. We welcome our witnesses and thank them for appearing today. We will be swearing you in at this point. Would you please rise and raise your right hand? Do you swear or affirm under penalty of perjury that the testimony you are about to give is true and correct to the best of your knowledge information and belief? So help you God. Let the record reflect that the witnesses have answered in the affirmative. Thank you. Please be seated. Please know that your written testimony will be entered into the record in its entirety. Accordingly, we ask that you summarize your testimony in five minutes. Governor Sununu, you may begin.

Well, good morning. Thank you very much. Great to see everybody. Chairman Fitzgerald, Ranking Mer- Member Boleyn, uh, members of the subcommittee, I see Chairman uh Jordan has joined us as well. Uh, my name is Chris Sununu. I'm currently the President and CEO of Airlines for America. Thank you for inviting me today to testify on behalf of the airline industry. a sector that does support millions of US jobs and drives five percent of our country's GDP. So when examining the state of the airline industry, the defining story over the past two decades is the extensive expansion of consumer choice and travel options. That continues despite significant headwind headwinds the industry has faced particularly over the last eight months. First, we were hit hard by two record-long government-driven shutdowns, which cost the airline's billions and the broader economy billions more. forced flight delays and cancellations, all over political fights that have absolutely nothing to do with our industry and hurt the American traveler. Also, the increase in jet fuel prices due to the closure of the Strait of Hermes means that airlines will take an additional financial hit of more than eight billion dollars this year and it's aggressive competi- it it is aggressive competition that prevents airlines from passing all those costs on to the consumers. Despite these hurdles, the airline industry remains a highly dynamic marketplace, where travelers enjoy a suite of fare options and unprecedented fle flexibility in how they choose to fly. A major catalyst for the for this variety has been the dramatic expansion of airline business models. Twenty-five years ago, about sixty percent of domestic passengers had access to low and lower-cost carriers. These days that has soared to ninety percent. And today the average number of competitors on domestic routes, it sits at an all-time high with nearly half of all passengers Traveling in markets with four or more airline choices. The that range of options has never before existed for the American traveler. It does today. At a time when Americans have spent the last several years facing runaway inflation on basic household good goods competitive airline pricing has bucked that trend. Between twenty nineteen and twenty twenty five, everyday consumer products rose by twenty six percent, domestic airfares fell three and a half percent. Travelers are no longer forced into a one size fits all ticket. They have the freedom to customize their journey and pay only for the services that they value. And the number of Americans flying is greater than ever before. In the seventies, about one in five Americans took a flight on any given year. Today it's about one in two. Airlines continue to prove themselves as an affordability success story for the American public. The best part is that according to the April two thousand twenty six ASCI survey, airlines are doing all of this with all-time high in customer satisfaction. And the recent Spirit Airlines bankruptcy, as unfortunate as that was, was just the first airline bankruptcy in the past thirteen years, indicating stability for both our workforce and networks. Airlines have actively used that stability to reinvest over twenty-four billion dollars annually, every year, back into that customer experience, the people, the product, the planes. And the upgraded products we invest in, include everything from upgraded WiFi and apps that give more control to the customer, to better airports, better food, faster TSA screening, the list goes on and on in terms of customer experience. And most importantly, airlines have invested in their people, doubling the average wages and benefits since two thousand twenty-five, far outpacing most any other industry in this country. Now, given this robust state of competition, it's clear that the biggest threat to healthy and competitive airline industry It's our short-staffed and woefully antiquated air traffic control system. Policymakers can enhance competition not by over-regulating an already very competitive industry but by focusing on building a new air traffic control system that'll be safer allow for more flights and increase choice for the consumer. Congress must build upon its twelve point five billion dollar down payment toward air traffic control modernization with the next round of funding to ensure that technology gaps that have been completely ignored for the last thirty years, that they finally get addressed. Air traffic modernization is one of the few policies that enjoys bipartisan, bicameral support, as well as the support of the nearly sixty member Modern Skies coalition, consisting of stakeholder organizations across the entire country. The American traveler needs Congress to support policies that allow this competitive marketplace to thrive, prevents additional cost to the consumers, and ensures we continue to invest in the safest airspace in the world. Thank you very much. Look forward to the questions.

Thank you, Governor. Mister Ravitch, we now go to you for your five minutes.

Good morning, Chairman Fitzgerald, Ranking Member Ballant, and members of the subcommittee. Thank you for the invitation and the privilege to speak with you today. As you heard from the kind introduction, my name is Tim Ravitch, I'm a Florida Bar Board Certified Lawyer, working currently with Tressler LLP, which is a law firm in Chicago. President Reagan once said that the nine most terrifying words in the English language are " I'm from the government and I'm here to help." Yet one of the most important deregulatory reforms in American history was championed by Senator Edward Kennedy during the Ford administration, and signed into law by President Jimmy Carter. Airline deregulation was a bipartisan effort. That spirit remains relevant today. We might agree that not every market shortcoming requires a regulatory intervention. Regulation provides benefits. It also carries costs. Aviation depends on both competition and regulation. The title of today's hearing, the Thirty Thousand Foot View, Competition and Regulation, in the US airline industry makes this point, and I think well. Every day millions of passengers and tons of cargo travel around the United States safely and efficiently. The overwhelming majority of trips occur without incident. The success is easy to overlook. In the nearly fifty years since enactment of the Airline Deregulation Act, passenger traffic has increased exponentially. Airfares have declined. Air travel is available to far more Americans than it was before deregulation. During the Senate hearings on airline deregulation decades ago, Senator Kennedy recalled an East Boston constituent who asked why he was holding the hearings about airlines when he had never been able to afford to fly. Kennedy replied, quote, "That's why I'm holding the hearings." I often think of that story when I teach aviation law. At the start of each semester, I ask my students whether they have ever flown on a commercial airline. Every hand goes up. In fact, it may be the only time all semester that happens, but many seem surprised by the question itself. Of course they have flown. That reaction says a great deal about how much aviation has changed over the last half century and how competition has expanded access to air transportation for millions of Americans. As titled, this hearing focuses on the right issue. When is regulation necessary versus when markets should work freely. The competition questions today are different from those Congress confronted in nineteen seventy eight. Competition today is often shaped less by fares and routes than by access, capacity, market concentration, and mergers. These issues deserve attention. But many competition decisions in commercial aviation occur not in the air but on the ground, at airports. A carrier cannot compete without access. Access to gate matters. Access to terminal matters. Infrastructure matters. Competition also requires capacity. No airline can compete with a flight it cannot schedule. And no new entrant can compete without access to gates, terminals, and airport infrastructure. The same is true in the national airspace system. Airlines can only compete through flights they are able to schedule and operate. Discussions about air traffic control, modernization, and capacity are therefore also discussions about competition. Recent litigation involving the proposed acquisition of spared airlines by JetBlue Airways illustrates another challenge. Competition policy often requires regulators and courts to predict future markets and future competitors. Those predictions are not always easy. As we approach the fiftieth anniversary of the Airline Deregulation Act, the central question before this body is whether and how regulatory law can best encourage competition innovation and new entry. That question extends beyond today's airline industry. Drones are here. Flying taxis, referred to as advanced air mobility, are on the horizon. Commercial space transportation is a reality. The issues we will discuss today, access, competition, infrastructure, resource allocation, and yes, regulation, will influence and are precedential as our nation explores the next frontiers in transportation. I look forward to discussing these matters and answering the subcommittee's questions. Thank you.

Thank you, Mr. Ravitch. Mr. Stout, you may begin.

Chairman, Ranking Member and members of the subcommittee, good morning. Thank you for having me. I am the Director of Innovation Policy at the International Center for Law and Economics and my work focus is on how law and regulation shapes competition. I have filed a longer written statement, so let me make one central point and give three examples. My central point is this. Many of the most important barriers to airline competition arise from policy choices, not from the airlines themselves. The most pro-competitive thing this Congress can do is to clear policy bottlenecks, not pile on new ones. My first example is Spirit. In January twenty twenty four, federal court blocked the JetBlue Spirit merger to protect competition. The government won the case and then it lost the carrier. Spirit went bankrupt twice and shut down this May, a thirty four year old airline gone, and with it the Spirit effect, the downward pressure its low fares put on every competitor in the market. I am not here to say the Justice Department killed Spirit by itself. An engine inspection crisis, high fuel costs, and the big carriers copying Spirit's The point is narrower. The legal framework was too static for a visibly fragile firm in a capital intensive industry. And it failed in two ways that I think are worth your attention. First, the court itself found that a stronger JetBlue would have competed harder against the big four carriers that fly most Americans a benefit to the broad flying public but under the old any market analysis of cases like Philadelphia National Bank and Topco harm to the most price sensitive travelers on a handful of routes control the entire outcome, no matter how large the nationwide benefit. The court blocked a merger it appeared to regard as good for competition overall. To preserve root-level rivalry, the market then itself erased. Second, the failing firm defense asks a yes or no question. Is the company about to collapse with no possible buyer? Spirit could not meet that strict test in early twenty twenty four, so the court treated it as a healthy, durable competitor that would keep disciplining affairs indefinitely. Eighteen months later, it was liquidated. That is the flaw. In a capital-intensive industry, shock-prone, the real question is not whether a carrier has already failed, but how likely it is to still be competing in five or ten years from now. Merger analysis for network industries needs a probability-weighted view of a firm's durability and consistent credit for out-of-market benefits. My second example is airport slots. At the most congested airports, the FAA rations every take-off and landing through slots. Decades ago, those slots were handed to incumbent carriers for free and locked in by grandfather rights. They function as property in a sense, bought, sold, and pledged as collateral worth tens of millions of dollars. Yet a new airline cannot simply decide to add service. And use it or lose it rules push carriers to fly near empty ghost flights, just to keep their slots. Where a low fare entry is actually allowed, fares fall about seventeen percent. The FAA already waives these rules at times so it plainly has the power to move toward real slot markets. My third example is the accumulation of consumer protection mandates. Let me be clear first, I am not against protecting consumers. But airlines run on operational flexibility, the freedom to cancel, swap aircraft, re-book passengers when weather and mechanical problems hit. Every mandate that turns a judgment call into a legal obligation, converts a manageable risk into a fixed cost. A wave of recent rules like automatic cash refunds, a proposed European-style compensation regime, free family seating, new fee disclosure requirements, each of these hits hardest at the unbundled uh ancillary revenue model that lets budget carriers like Spirit operate flexibly. For a legacy airline like uh U- like United or American, any one of these is a friction. For an ultra-low cost carrier on razor-thin margins, the pile-up of these mandates can become fatal. And the Fifth Circuit has already held that one of these rules likely exceeds the department's legal authority a question squarely within the subcommittee's jurisdiction. So my recommendations come down to discipline and humility. Modernize merger analysis for network industries, open underused slots to new entrants, and put every operational mandate through rigorous cost-benefit review tied to a real demonstrated problem. The competition we are missing in the industry is mostly for a close upstream, by runways that the government rations, by capital that it walls off, and by mandates that fall hardest on the carriers least able to bear them. Spirits, empty gates, are a reminder that preserving a competitor on paper is no substitute for letting competition work in fact. Thank you. I look forward to your questions.

Thank you, Mr. Stout. We now recognize Professor Rose.

Chairman, ranking members and members of the subcommittee, thank you for inviting me to testify. forty years studying competition, antitrust and regulation, including in the airline industry, and has served as the Deputy Assistant Attorney General for Economic Analysis in the antitrust division. I'd like to make three points, drawing from my written testimony today. First, antitrust did not kill Spirit Airlines. Let me say that again because I think you've heard the opposite alleged. Antitrust did not kill Spirit. Spirit's own leadership, as you've heard, identified the cause as sudden sustained spike in jet fuel prices due to the Iran war, that added hundreds of millions of dollars in costs. Instead, antitrust kept Spirit flying two years longer than if JetBlue had been allowed to complete its merger and eliminate Cons- Spirit's consumer-friendly pricing. That mattered not only to Spirit passengers but to everyone who flies. Spirit, as you've heard, pioneered the ultra-low-cost carrier model in this country, and its presence on a route forced other airlines to lower their fares, often by ten to twenty percent or more, what's been called the Spirit effect. For many travelers, Spirit was not a preference, it was the only air travel they could afford. As one Spirit customer recently put it, " We don't fly Spirit because we're cheap, we fly Spirit because we're broke." JetBlue never intended to preserve that model. Its own deal modeling removed seats, repainted the planes, and increased fares by thirty percent. As you've heard after hearing that - that evidence, Judge Young found Spirit to be a uniquely disruptive competitor, important to a particular um, segment of cost-conscious customers and he blocked the deal. That was not overreach. That was the Clayton Act working as Congress intended. Nor was this a failing firm case. The parties did not mount that defense at trial. SPIRIT's executives testified that the company had a plan to return to profitability. It's difficult to predict the future, but they had a plan. And there had been another bitter frontier that management preferred because it recognized The frontier would preserve the ultra-low-cost carrier model without the antitrust risk that JetBlue's offer presented. So when people argue that DOJ should have waved the deal through because Spirit was failing or flailing we need to recognize the danger in that argument it would encourage stronger rivals to rough up competitors and buy them out precisely when consumers most need those competitors to survive. Second, this is not just about airlines. Competition concerns in the airline industry are a window into a much larger problem. Across the economy, consolidation has often left families with fewer choices and higher prices. Four firms dominate cattle buying in the U S, leaving many ranchers with only a handful of buyers and fourth of July hosts paying more for the burgers that they're grilling. Three pharmacy benefit managers control nearly eighty percent of U S prescriptions. Their integration with insurers and pharmacies have forced higher prices throughout the system. Hospital systems have merged and then bought up physician practices, And recent research finds that those acquisitions raise physician prices by fifteen percent with no clear improvement in quality. These are pocketbook issues, what families pay for groceries, medicine, or a doctor's visit. Strong evidence-based antitrust enforcement is one of the tools that we have to keep competition in prices affordable, as did the FTC and a bipartisan group of state AGs when they successfully blocked the Kroger-Albertsons, uh, supermarket merger. Third, antitrust must remain vigilant and independent. When I was at the antitrust division, every new employee heard the same message on day one and repeated often, antitrust is law enforcement. We call balls and strikes based on the evidence, not on personal preferences, political pressure, or who has access in Washington. But that principle has been under strain. In the last year we've seen a very troubling pattern, senior of antitrust officials fired after privately to an inadequate settlement forced from above, the president personally weighing in to support a media merger, um an obstination case against Live Nation secretly settled mid-trial by senior DOJ officials and White House counsel on terms so favorable that Live Nation's share price popped six percent on the announcement. Fortunately in that case, attorney generals from thirty-three states in the district leapt in to assume the litigation lead and kept the trial moving forward to a jury that found for the plaintiffs, on every claim. From the outside, it looks like there's a justice for sale sign hanging on the fifth floor of the RFK building. That should alarm us all, regardless of our party or our ideology. When companies believe that they can buy an outcome in Washington instead of competing on the merits, we all lose. And when antitrust becomes a tool of political favor or disfavor, the predictable environment that businesses need to invest is undermined. Surely we can find bipartisan support for rigorous, evidence-based, politically independent antitrust enforcement that protects the American consumer, the American worker, honest businesses, and the competitive process itself.

Thank you, Professor. We'll now proceed under the five-minute rule with questions. First, recognize the gentleman from California, Mister Eissa, for five minutes.

Thank you, Mr. Chairman. Professor Rose, uh, notwithstanding political comments you made at the end of your opening statement. As a professor, would you say that the number one challenge that creates an antitrust situation is not lack of competition but a lack or b- uh some- sorry but is the in fact barrier to entry. In other words, if if someone begins to assert some benefit from a monopoly or near monopoly, it is in fact the barrier to entry that keeps others from coming in, whatever that barrier is. Is that a basic principle of economics and antitrust?

I teach my students that there are three issues

Ma'am, that was a yes or no, if you don't mind.

Um, that no.

Oh, okay. Mister Stauff, I'm gonna go for a differing opinion. Um, the the fact that uh spirits gates are all being sold off to competitors is that in fact by definition as great or greater a barrier to entry than in fact the consolidation under the previously asked for one or the other mergers would have been, meaning that the gates that were not shared, the gates that were expanded, the ability of - and we'll just take JetBlue as the example - those gates were a major factor, not the aircraft, not the pilots, all of which are important, But ultimately, access to routes and bases and operations, in fact, are sometimes the hardest to get at the most desirable airports. Isn't that true?

From my understanding, that's correct.

And so, as we're looking at antitrust relative to aviation, and I'm gonna go to the governor in a moment, we are looking at whether the opportunity for competition is there, every bit as much as the professor's narrow theory that a entity that was losing money because they said we'd like to turn around, we we hope to turn around, we have a plan to turn around, somehow was a a perfectly good reason to take a money-losing airline and not sell it to an airline that might in the combination make money.

I- is your question is uh allowing competitors to enter, would that have helped offset some of the concerns about that transaction? Is that correct?

Correct.

I believe that's correct.

Secondly, on your opening statement you you said something I think that was very profound. Every time we in Washington or our agencies create new rules, new nice-to-have, socially interesting and responsible rules, we do not disfavor the large airlines. We in fact hurt the very entities like Sprint that wanna offer a low budget and do not necessarily have the means of a United or American. Is that correct?

Yes, I believe that is correct.

Thank you. Governor, more welcome. For more than twelve years, you led a a state successfully. You're now looking at a myriad of companies that are struggling against international competition. Now, I this is an antitrust hearing, and we will we will focus on that more than anything else today. If in fact the relevant market are the domestic airlines, the four plus a plethora of smaller airlines, and we ignore global giants, including ones backed by their governments, do we in fact almost guarantee the demise of the US-based airline industry as we know it?

You absolutely have to keep in mind that uh w- when you look at the worldwide market, you have so many actors out there that are state-sponsored, they're state-supported, state-subsidized. They they aren't free markets and uh again to um ignore that fact on a competitive basis would definitely be to our to our demise we are competing against entire governments as as individual airlines we're effectively competing against the financial wherewithal of entire of entire governments.

Now I'm gonna touch on the same subject that I didn't get the answer I wanted from the professor on. If we, the federal government, using our ability to lean into expanding routes, modernization, uh, and places to put the aircraft when they're on the ground. If we modernize that and make there more of them available, will we inherently give an ability for entrance to new and competitive airlines?

Absolutely. I, I think Breeze is a good example. I don't represent Breeze, but Breeze is a fairly new airline, uh, opening up by gates that might not be traditional airports, but gate access and slot access and com- competition there is very important.

Thank you. Mister Stout, with the remaining time, should this committee look at referring to the other committees of jurisdiction, the idea that we do lean into that and we also uh look at the barriers created by over-regulation maybe even a two-tier system to to allow smaller airlines to waive those large mandates.

I think that's right. I think if we find ways to introduce markets into slot access that we could have a lot of pro-competitive benefits.

Thank you. I yield back.

Gentleman yields back and I'll recognize the ranking number of the full committee, Mister Raskin again for five minutes.

Mister Chairman, thanks much. Um, Professor Rose, um, as a professor, you give grades, right?

I do.

What grade would you give the antitrust enforcers in the Trump administration today?

I would have to fail them.

So what letter grade would that be?

F.

Give them an F?

I do. I don't give that very often at MIT, but in this case I think it's fully merited.

So w- and and so wha- what's your justification for that?

That we no longer have an antitrust enforcement agency at the Department of Justice that's based on principles of evidence. It seems instead to be based on principles of either who has the the administration's ear or their their willingness to pay.

So it's a game of political influence rather than objective economic factors.

As an outsider, it appears to be the case.

I saw an article a couple days ago in the Wall Street Journal, uh, titled " They can't fly Spirit anymore, so they're taking the bus instead." Um, it reported that Greyhound and other bus services saw passenger traffic increase thirty percent on the one hundred and thirty routes that they had shared with Spirit. So what does that surge in bus travel say about the importance that

I think that's exactly what I alluded to in my testimony, that Spirit is was really focused in this model of stripping down fares to be the lowest possible and other airlines, while they're making inroads into that, do not have the same impact. So many passengers who flew on Spirit could not afford the higher fares at other airlines. As a consequence,

So

they're either not flying or uh not flying or or or not making the trip.

So w- w- uh are you basically saying that the combination of terribly foolish

I think it's definitely contributing to it.

What are some of the problems associated with high levels of concentration and consolidation?

So, particularly when consolidation or concentration happens because you're buying up your competitors, you tend to see higher prices, lower quality, less choice for consumers. Um, and I think that follow- flows right through to pocketbook issues that households are facing. On the same - at the same time you may see also workers have less, um, ability to c- to - to, um, compete for - for their services with employers, and so you can also see wages going down. Um, and workers have less choice.

So can you can you explain that a little bit further? I think people understand why the diminished competition is terrible for consumers but how do workers in the industry suffer from that kind of, economic concentration?