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AIR SERVICE PROBLEMS IN MAINE
Monday, October 11, 1999
House of Representatives, Subcommittee on Aviation, Committee on Transportation and Infrastructure, Washington, D.C.
The subcommittee met, pursuant to call, at 2:30 p.m., in the Bass Park Complex, Bangor Civic Center Lecture Room, 100 Dutton Street, Bangor, Maine, Hon. John J. Duncan, Jr. [chairman of the subcommittee] Presiding.
Mr. DUNCAN. I'll go ahead and call the Subcommittee on Aviation hearing to order. And I first would like to welcome everyone here today and thank you for taking time out from what I know are very busy schedules to be here for this hearing today.
And it is a privilege, a great privilege for us to be here in Bangor. I was telling Susan Collins, I came here to Maine 30 years ago and went up to Acadia National Park and all through your state, and I think it's one of the most beautiful states in our nation, and it's a real privilege to be here once again at the request of our good friend and your great Congressman, John Baldacci.
And we're going to hold a hearing today about the air service problems that are currently facing Bangor and Maine, and this is—these are problems that we're seeing many places throughout the country, problems of underserved and particularly overpriced areas.
The GAO and others tell us in various studies that airline deregulation has been a great success in most of the country, but they tell us that in about 30 percent of the country there are what are called ''pockets of pain'' where airports and cities are underserved, are overpriced, or both. And actually, I'm beginning to wonder if maybe that 30 percent is not a little bit higher.
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The recent termination of service by Continental and reduction of service by other carriers that serve this city certainly do cause serious problems. All economic development, practically, is dependent upon good air service, and that certainly puts a state or a city at a great disadvantage if the air service is not good.
Just a few weeks ago we heard about some problems facing upstate New York; and in fact, I mentioned in our hearing this morning in New Hampshire, this is the fifth field hearing that we've held around the country this year. We've held hearings in Wichita, Kansas; and Albany, New York; and Huntington, West Virginia; and of course here today in New Hampshire, and now Maine.
And we have Air 21, some legislation that encompasses a bill that I introduced last year, HR 951, the Airline Service Improvement Act, to try to improve air service to smaller communities across the Nation that have not particularly benefited or have actually been harmed by airline deregulation. What we had attempted to do in HR 951 was to try to improve service to smaller markets in a way that did not bring unneeded or unwanted governmental intervention but instead provided market incentives for lower fares and better service. And we included many of the key provisions of this bill in our FAA Reauthorization Bill, HR 1000, the Aviation Investment and Reform Act for the 21st Century, or Air 21 as we have called it in the House. The bill passed the House in June. Congress Baldacci was really a strong supporter of that bill, and I've been proud to say that Air 21 is geared more towards small- and medium-sized airports than probably any legislation in the history of the Congress.
The Senate has now passed their FAA legislation, and I know Senator Collins was very active when that was considered. And in that legislation we attempted to provide a new grant program for the smaller and medium-sized airports, and a new loan program for airlines that would buy the regional jets to serve underserved areas, and we did various other things that hopefully would help improve service to places like Bangor and the entire state of Maine.
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I mentioned this morning that we flew 615 million passengers commercially last year without a single fatality, certainly a phenomenal record. But air passenger traffic is shooting way, way up. It's estimated that within a very short time we'll be up over a billion passengers. And air cargo traffic is going up at a rate two and a half times as fast as air passenger traffic. But the Civil Aviation Review Commission said in 1997 that we would very soon reach gridlock in the air if we didn't have some increased investment in our aviation infrastructure. So we are attempting to do that through Air 21, but we do need to see what we need to do to improve service to some of the areas that are underserved or that have been left behind a little bit in all of this great expansion and improvement of our aviation system that's been going on.
And I think it's very important that we not just stay in Washington but that we get out around the country to see what is happening and what people are doing and what the problems are and so forth, and so that's why we've been holding some of these field hearings; and as I said, we came here today at the request of our friend, John, and I would now like to call on him for any opening statement that he wishes to make. Congressman Baldacci.
Mr. BALDACCI. Thank you very much, Mr. Chairman. And this system obviously works very well. It's not very often you get a politician to move away from a microphone. But I want to thank you, Chairman, for—first of all, for having a hearing here and for scheduling an opportunity for people in Maine and northern and eastern Maine to be able to express their concerns about air service; to be able to have other members here, and Senator Collins and I have enjoyed not only working on legislation, but actually working on getting home from Washington together where we've carpooled together in order to get from here to there. And I would like to thank her for her leadership in the Senate, and to thank Representative Bass and Representative Pascrell, to be able to serve with them on the Aviation Subcommittee as we work bipartisanly to try to bring about a better quality and timeliness of air service for all of the country, not just parts of the country.
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And I think that when there are these pockets which have not seen that rising tide, you know, it's our job to make sure that essential air service, quality service, and availability of service are available. And I think that this hearing is going to afford people an opportunity to, one, give Bangor a national focus and Maine a national focus on the issues and the concerns and struggles that it faces like other communities throughout the country, and to be able to at the same time maybe offer some suggestions about what we could be doing in Washington to make it a little bit better on communities like this. And I agree with the Chairman that when you look at that legislation that we're working on and working on with the Senate, it's going to afford for the first time in a lot of different areas opportunities for basically states like Maine and northern and eastern parts of Maine to be able to have the kind of access to air service that we really need to have in order to have a country that does connect. So I want to thank him and all of you for that and yield back the balance of my time, Mr. Chairman, and afford other members. Thank you.
Mr. DUNCAN. Well, thank you very much, John. And we're very honored to have with us here today a member of the other body, your great senator, Susan Collins, and I would like to call on Senator Collins for any remarks she has.
Senator COLLINS. Thank you very much, Chairman Duncan. Chairman Duncan, Congressman Baldacci, Congressman Bass, and Congressman Pascrell, thank you very much for inviting me to join you today on such an important issue to northern, eastern, and central Maine, and that is, the quality of our air service and the transportation problems faced by rural communities and airports.
I don't know whether our audience is aware that it took unanimous consent of the whole House of Representatives for me to be allowed to sit with this panel today. So I want to thank Congressman Baldacci and the chairman for going to those extraordinary lengths.
I particularly want to express my appreciation to Congressman Baldacci. We have worked very, very closely on a number of transportation problems affecting eastern, northern, and central Maine. Nowhere have the challenges faced by our smaller communities and their airports been more evident in this country than in the state of Maine. In just the past few weeks both Bangor International Airport and Presque Isle Airport have suffered further cutbacks in the airline service, continuing a deterioration of service that I believe is impeding economic development throughout the area.
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For too long we have allowed small- and medium-sized communities, such as Bangor and Presque Isle, to weather the effects of airline deregulation without adequately assessing how deregulation has affected economic development and job creation; the availability, quality and costs of transportation for the residents; and the long-term viability of local airports. It is time to evaluate the effects of airline deregulation in a more comprehensive way, and this hearing is an important step in that direction.
The 1978 deregulation of the airline industry, while a boon to large urban areas, has had a far less positive impact on much of small-town America. Indeed, the number of cities served by more than two airlines has fallen by 21 percent since 1989, and for many of the residents of smaller communities the results of deregulation has been poorer service, fewer choices, and higher costs.
As we will hear from our witnesses today, air service broadly influences a region's ability to grow and prosper. The nation's air transportation network rivals our ground transportation system in its importance. Those areas without air access or with access that is restricted by prohibitive costs of travel, infrequent flights, or smaller, slower planes, are at a distinct disadvantage compared to those areas of the country that enjoy accessible, convenient, and economic air service.
As part of our search for solutions, the Senate last week passed an amendment that I offered to the FAA Reauthorization Bill that would establish a commission to examine the impact of airline deregulation on small-town America, including the effect on economic development.
As my colleagues are well aware and as Chairman Duncan has mentioned, there are several other provisions in the FAA Reauthorization that are intended to encourage the use of regional jets to help regional airports be viable and provide more service.
Our search for solutions continues today. I look forward to hearing from our distinguished witnesses, and again I want to thank you all very much for taking the time to come to the great state of Maine. Thank you.
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Mr. DUNCAN. Well, thank you. Those of us in the House, I'll let Susan Collins in on a little secret. We feel sorry for those in the Senate because they only get to run for office once every six years instead of every other year.
We are pleased also to have another member of the Aviation Subcommittee with us, and he hosted us at our hearing this morning in Nashua, and I would like to call on Charles Bass for any remarks he has at this time.
Mr. BASS. Thank you very much, Mr. Chairman. And I would say that my friend in Maine, Senator Collins, that she now, thanks to unanimous consent, can add a new line to her resume: She now serves in both houses of Congress.
But it is indeed a problem that we face today that is prevalent not only in Maine but in any rural district in this country, and I happen to have the fortune of representing a district that's quite similar to Congressman Baldacci's district, that many small airports, problems with air carriers going in and out from one year to the next, airports that have not really benefited particularly from deregulation of the airlines, an FAA authorization bill over the years that has really been designed to benefit growth in the large urban areas, sometimes to the expense of the rural airports.
And I only have in opening just a couple of observations. Number one, it is critical in Maine, New Hampshire, any other state, to keep small airports open. Do not let them fall prey to development, golf courses, housing developments, as transportation is critical in rural areas. And although you may think that an airport that only has four or five air operations a day is not important in a community, believe me, over the long-term, if you believe that we're here for a long time, that small airports are going to play an increasingly significant role.
Pass Air 21, the FAA Reauthorization Bill, is as close to the House version as possible. I'm not as familiar with the Senate version. But it does have provisions that do put emphasis on the maintenance and development of small rural airports and actually larger rural airports, as well. This is a very timely topic, one that is important to me, and clearly also important to Congressman Baldacci.
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I would only conclude by saying I'm glad to be back here in Bangor. The last time I was in Bangor, I was working for Congressman Bill Cohen as a field rep for a hundred dollars a week, and I had to pay my own expenses.
Thank you, Mr. Chairman.
Mr. DUNCAN. Thank you, Congressman Bass. And we are very pleased also to have our friend, Bill Pascrell, with us from New Jersey, and he has gone to a lot of trouble, I believe, to get to be here with us today. And I am required, since he's not a member of the Aviation Subcommittee, to ask unanimous consent that he participate in the hearing today, but I'm sure there's no objection, and I know I'm very pleased to have you with us, Bill. So if you would like to make an opening statement or remarks at this time.
Mr. PASCRELL. Yes. Thank you, Mr. Chairman. You know, as a member of the Transportation Committee, overall committee, we're interested in what moves on land and what moves on sea and what moves in the air.
The key airport in my area is Newark Airport, which has 14 hundred planes coming in and out every day. It's kind of a, as we say in Italian, a chimbut, a stew of things.
And trying to organize it and structure it, this is the right time, I think, for Nashua and Bangor to be addressing this problem, because the—Jane Garvey, the FAA administrator, has decided, and I think for the benefit of all, to make sure that we redesign the whole air traffic system. And that beginnings of redesigning the system—I mean, because as soon as you move one schedule, you impact upon the other. And I personally believe this is the time for us to move. It would be great.
I see this beautiful airport out here just a few moments away. It would be great not only for the economic development of this area but for the convenience of folks who want to move to other towns, who want to move back and forth, be it for business, be it for pleasure, be it for leisure, whatever the case may be. I mean, some of the prices of flying into Bangor I believe are demonic almost, and I believe it needs to be addressed, and we need to say it like it is. And the fact that two airlines, both Continental and Delta, have bailed out, does not mean that we should simply accept this.
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And I'm here to be of whatever help I can, Mr. Chairman. And I thank you for taking the time to get us together to address this problem, because if we simply concern ourselves with the larger airports in America, we're missing the boat because they impact upon the schedule of those airports anyway. And now is the time for us to do this. Thank you, Mr. Chairman.
Mr. DUNCAN. Well, thank you, and Bill is a valuable member of the full committee, and he and I have tried to work together for our fire fighters. I know that's been a special interest of his.
I can tell you that my father was one of ten children, and my mother was one of seven children, and I have aunts and uncles and cousins all over the place. And when I looked on the schedule today and saw that the mayor was another Baldacci, I told John, I asked him how many are there up there in Bangor.
But we are pleased to have you with us, Mayor. And Charles Bass was telling a story about his daughter a while ago. And I happened to think back about something that my son, my youngest, who's in the eighth grade now, but I had not thought about it for a long time, but when he was in the second grade I went to his school to present a flag or was going back that day. And when I let him out that morning at school he looked at me very seriously, and he said, Dad, when you come back, he said, don't goof up, or it will really embarrass me. So I hope that what John does doesn't embarrass you.
MAYOR BALDACCI. John usually says that to me.
Mr. DUNCAN. OK. Well, thank you for being here with us, and we would like to have you make any opening statement that you wish to make at this time.
MAYOR BALDACCI. Thank you very much, Mr. Chairman, and Congressman Bass, Senator Collins, Congressman Baldacci, Congressman Pascrell. We welcome you to the City of Bangor. It's the home of 33,000 very friendly and hard-working people, including Stephen King, Secretary of Defense Bill Cohen, Congressman Baldacci, Senator Collins. And both Congressman Baldacci and Senator Collins, along with Senator Snowe, have been hard workers and fighters for the City of Bangor, and we appreciate their efforts very much. They've made a critical difference in the economic development of our region.
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Bangor International Airport was created out of the closure of Dow Air Force Military Base in the 1960's. Today there are 2,000 jobs directly dependent upon that airport, and it has been estimated that BIA is a generator of over $100 million in economic activity for eastern Maine, and it serves a primary market of about a quarter of a million people, and could, with better air service options, serve a market in excess of 350,000 people. So really, the question that we here in Bangor ask you folks to address as urgently and as constructively as can be addressed is how do we make a sound national transportation policy work for small and more rural parts of our country who, even more than our big city counterparts, need quality air service as a key component of our needs for economic development and job creation.
We are fortunate in the City of Bangor to have an unemployment rate of 2.1 percent. However, there are areas of eastern and northern Maine where the unemployment rate is still close to double digits, where personal incomes are still below the national average, and where the population is moving out of town, moving to southern Maine, moving on to other parts of our country. Clearly, there is an economic development challenge, and part of that needs to be addressed through the strength of our airport.
So we thank you for coming to Bangor and for working with our city and our state in creating a national transportation policy that works for all Americans. Thank you very much.
Mr. DUNCAN. Well, thank you very much, Mayor, and it is a real honor and privilege to be here with you today.
MAYOR BALDACCI. Thank you, Mr. Chairman.
Mr. DUNCAN. Our panel consists of five very distinguished witnesses, and I would like to ask that they take their seats at the table at this time. We have Mr. John Coleman, who is Director of the Aviation Analysis for the U.S. Department of Transportation; Mr. Bob W. Ziegelaar, who is the Airport Director at the Bangor International Airport; Mr. John G. Melrose, who is Commissioner of the Maine Department of Transportation; Mr. Norman Ledwin, who is President and CEO of Eastern Maine Health Care, and Chairman of the Eastern Maine Partnership Board; and Ms. Sheila Pechinski, who is President of the Bangor Region Chamber of Commerce and who tells me that her father was from a small town in Tennessee not far from my home.
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And so I'm very pleased to welcome all of you here this afternoon, and we always proceed with statements and testimony in order as listed on the call of the hearing, and that means that Mr. Coleman will start first. You may begin your statement.
TESTIMONY OF JOHN COLEMAN, DIRECTOR OF AVIATION ANALYSIS, U.S. DEPARTMENT OF TRANSPORTATION; BOB W. ZIEGELAAR, AIRPORT DIRECTOR, BANGOR INTERNATIONAL AIRPORT; JOHN G. MELROSE, COMMISSIONER, MAINE DEPARTMENT OF TRANSPORTATION; NORMAN LEDWIN, PRESIDENT AND CEO, EASTERN MAINE HEALTHCARE, AND CHAIRMAN, THE MAINE PARTNERSHIP BOARD; AND SHEILA PECHINSKI, PRESIDENT, BANGOR REGION CHAMBER OF COMMERCE
Mr. COLEMAN. Thank you, Mr. Chairman, members of the subcommittee. I was pleased to be offered the opportunity today to discuss the Department of Transportation's views on airline competition. Most observers continue to agree that airline deregulation, despite a few rough spots, has been enormously beneficial for the American public.
Policy makers, in short, want to make the current system work better, not to reregulate the airline industry. At DOT we believe the best way to preserve the benefits of airline deregulation is to create an environment that provides all carriers with a fair chance to compete and prosper. New competitors with a low fare strategy are absolutely necessary to discipline pricing behavior.
Although average prices for the country as a whole have gone down since the airlines were deregulated in 1978, prices are higher in regions where one major airline is dominant. This unevenness in prices is due to a lack of competition dominated hub airports.
Bangor as a spoke city is actually in fairly good position fare-wise. In the seven largest Bangor markets, passengers pay an average fare of $153 for an average trip length of 1189 miles, compared to an industry average of $172 for the similar—for comparable stage run. This represents a fare discount of 18 percent when compared to other industry markets of similar distance and density.
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However, Bangor also illustrates some of the problems of competition, particularly in short-haul markets that the Department of Transportation seeks to address. The Bangor-Boston market, for example, has more nonstop flights than any other Bangor market, provided by two major network carriers, yet the average fare in this market is $95 for a 201-mile journey, $95. In contrast, a 328-mile journey between Providence and Baltimore has an average fare of $57. What is the difference? A low-fare carrier, in this case, Southwest Airlines, serves the Providence-Baltimore short-haul market.
In 1995—and I'll use that as an example—1995, prior to Southwest's entry into that market, 56,000 passengers flew between those two cities, 56,000. 1998, after Southwest moved in, a total of 642,000 passengers flew in the market. That's an eleven-fold increase. And it illustrates the dramatic effect low-fare competition can have in reducing prices and stimulating market growth.
It also demonstrates that a significant amount of traffic is not accommodated in markets with high average fares. Because of the importance of this low-fare service, the Department has, over the last few years, been far more active in promoting new entry and competition than at any time since deregulation 20 years ago.
Since 1996, using our statutory powers to prevent unfair methods of competition which are similar to but somewhat broader than the antitrust laws that are administered by the Department of Justice, we investigated several complaints about major airlines' responses to new entry. We subsequently published a proposed enforcement policy on unfair, exclusionary behavior. The proposed policy made it clear that matching the low fares of new competitors at a hub was perfectly legitimate. However, in some cases major airlines dump so many low-fare seats in the market that their apparent objective is not to maximize profits in the face of competition but to eliminate competition. This behavior appeared to make it impossible for a new entrant to remain in the market. When new competitors are forced out of the market, fares often return to their previous high levels or even higher levels.
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The Department continues to work on this competition policy. We are now considering concerns that were raised by the 5,000 commenters, as well as observations of the Transportation Research Board.
Let me mention a number of other DOT initiatives. We're doing a comprehensive review of the competitive implications of CRS rules, Computer Reservation System rules. We're doing a study of the effects on market shares and fares resulting from recently-formed alliances among the six largest U.S. airlines. We're doing a study of airport business practices, airport business practices that may impair new entrants fair access to gates, ticket counters, baggage handling areas, and other necessary facilities and services at major airports.
The Department plans to issue this report soon and has discussed elements of it with affected industry groups. We've used our exemption authority to give new entrant carriers landing and take-off slots at slot-controlled airports. A few weeks ago the Secretary announced the award of 75 JFK airport slot exemptions to JetBlue Airlines, the new entrant that is planning to begin early next year to bring low-fare service between New York and about 30 cities by the year 2003.
Legislatively we are working with Congress on items such as relaxing and eventually eliminating the high density rule, other means of enhancing responsive air service to all Americans, and I would include among that those provisions that, Mr. Chairman, that you had mentioned earlier and others had mentioned, the forms of legislation that are pending.
We are confident that these efforts are beginning to reap benefits to the traveling public. Some of the low fare airlines that have struggled to hang on are now starting to make money, and a few new airlines are again entering the business. Access Air, for example, started up in March, flying from the midwest to both coasts. National Airlines started service from Las Vegas, Nevada, in the spring. JetBlue Airlines will begin operations early next year with new aircraft, giving consumers in the northeast significant new low-fare options. We expect all of this to have substantial impact on lowering domestic air fares throughout the mid-Atlantic and northeast region.
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I'm cautiously optimistic that JetBlue's operating plan, in particular, with multiple frequencies and low fares in numerous short- and medium-haul markets has rekindled the interest of investors in new entry and in the airline industry, as demonstrated by the substantial capital that JetBlue has generated. They've generated in the neighborhood of $130 million as pre-operating capital.
Mr. Chairman, I believe we are making progress in enhancing service and competition, but as you can see, there's a lot more that we intend to do and that needs to be done. Thank you again for inviting me to this hearing.
Mr. DUNCAN. Thank you very much, Mr. Coleman. Mr. Ziegelaar.
Mr. ZIEGELAAR. Chairman Duncan, Congressman Baldacci, esteemed members of the committee, Senator Collins, good afternoon. It is an honor to welcome you to the city that I've called my home for the last 25 years.
As you already know or will have discovered, Bangor, Maine is a vibrant city with a rich history of domestic and foreign trade. Where once sailing ships packed the waterfront, airplanes now frequent Bangor International Airport. During the past 20 years the city has succeeded in turning a former strategic air command base into a thriving airport. It has become the key economic dynamo for the city as well as for all of central and northern Maine.
Sadly, I must report that Bangor's airport has sustained some serious blows this year in its most crucial area of operations, that of domestic air services. When Delta Airlines decided four years ago to cease operating the Bangor-Boston route, this city's busiest route, after 25 years of stable services, Bangor was jolted. While Delta pulled all of its jets out of Bangor early this year, cutting Bangor off from its Atlanta hub, the community reeled. Since then ComAir, a company closely associated with Delta Airlines, has commenced new services between Bangor and Cincinnati, with excellent results. However, the overall service levels and seats available to the Bangor market have decreased to the point where both business travelers and tourists are experiencing great difficulty in accessing our market. Most recently Continental Airlines announced its withdrawal from the Bangor-Newark market, allegedly due to congestion at the Newark hub.
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As a consequence of these developments and the consequential pricing implications, travelers are now driving anywhere from two to four hours to alternate airports such as Portland, Maine, and Boston, Massachusetts, as well as Manchester, New Hampshire. The measured loss of traffic in Bangor's market this year alone has grown by approximately 20 percent to a total of 35 percent of its traditional market size.
Bangor's new-found isolation is having a disastrous effect not only upon its airport and economy but more importantly upon the way in which this city and this market region are seen by the rest of the country and the global marketplace.
In order for Bangor to progress with its efforts to move into the 21st century, it cannot afford to be seen as is a backwater only to be reached by eastern Massachusetts or southern New Hampshire. Yet this is apparently the way major U.S. airlines seem to want to serve Bangor. This is an ominous trend for the country as a whole, where there are many cities like Bangor at risk of being economically marginalized as a consequence of the consolidation of major air services in the larger markets.
What is driving this trend is the unceasing competitive pressure in the marketplace that has resulted from the total deregulation of the air service industry and the resulting attraction of the U.S. major carriers to the largest and most densely populated markets in the country. The unfettered freedom to price airline seats at any level, realistic or otherwise, consistent or erratic, has created a market in which airlines can no longer afford to operate in any other than the most densely populated geographic regions, and preferably those with the highest numbers of business travelers. Yield has become the mantra of the airline business, where it once was service.
In order to dominate markets, airlines will often sell seats below cost. Marketing efforts are reserved for the most competitive markets only, driving up costs there, yet ultimately the entire route system must pay for the higher costs and lower yields in such competitive markets. The logical victims of this pricing method are the captured travelers, in other words, the business travelers and small market or rural travelers. It does not seem to make any difference that the small market traveler must make do with the small, less appealing, and far less costly aircraft. The price the rural passenger must pay is typically well above what the big city traveler pays for service on a large jet.
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The major carriers, through a network of alliances, have now positioned themselves in such a way that they can effectively control the operations of the smaller carriers and thus can manipulate pricing and yield distribution to their own highest benefit. I ask you therefore, why is it that airlines, unlike many other industries, are permitted to price their product well below reasonable production cost and to cross-subsidize losses or lower yields in highly contested markets by charging premium rates in less competitive and/or captured markets? Aside from the issue of fairness, does it not run counter to the very American notion that all citizens are equal and that rural America, the traditional backbone of our country, needs sufficient if not equal access? I submit to you that if airlines were prevented from favoring certain markets by pricing seats there well below cost while pricing seats elsewhere at much higher cost, most of today's inequities in the air service market would disappear. I fully realize that airline seats are a perishable product and at some time must be sold at last-minute bargain prices. That, however, should be seen as very different from a systematic practice of underpricing large hub seats and overpricing small hub seats.
Finally I would like to call your attention to the fact that the current air service market is not a free market. When air carriers are prevented from introducing more efficient and highly desirable new aircraft in small hub markets because certain interest groups make the claim that this is financially harmful to their interests, small markets end up being arbitrarily denied access to the national and international marketplace. Such obstacles to the freedom of the market and the freedom of travel for all Americans should have no place in our country. They're better known as Scope Clauses, and a government that claims to represent all Americans, and not just those who live in large urban areas or those who are members of certain professional groups, should not tolerate them.
I do believe that the marketplace will ultimately sort out how air services are distributed across our country. What worries me greatly, however, is the damage that is being done by the selective and/or delayed implementation of the some of the benefits of deregulation. Markets such as Bangor cannot afford to be denied equal access to any market. I would urge you to consider any measures that will enhance access to the national air transportation system for all of rural America.
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Thank you for taking the time to come to Bangor and to familiarize yourself with these issues, because they weigh heavy upon our city. Thank you very much.
Mr. DUNCAN. Thank you very much, Mr. Ziegelaar. Mr. Melrose.
Mr. MELROSE. Chairman Duncan, Congressman Baldacci, Congressman Bass, Congressman Pascrell, Senator Collins, it's good to have the—Representative Baldacci here. He had a chance I can remember years ago in the legislature. I didn't think I would have to be in front of him again. Makes me nervous. And looking back also with Senator Collins, many interesting things we've done together over the years, and we're very proud of both of them in representing our state.
On behalf of Governor Angus King, we welcome you to the State of Maine and appreciate this opportunity to appear before you and offer testimony on rural air service, a matter very important to our state.
Let me begin by encouraging Congress to continue to fully fund the Essential Air Service program. This program was a blessing when one of our regional airlines went bankrupt, leaving our airports at Bar Harbor, Owls Head, and Augusta without service. Only after five years of hard work and adequate funding are we seeing a turnaround and soon hope to see those airports lead the program. I can tell you that without the Essential Air Service program, and let me emphasize, particularly for today's discussion, the cooperation of a caring regional airline, Colgan Air, we would be without service at these airports today.
Secondly, please note the new technology also offers us opportunity to improve air service. Congress must continue to adequately fund Federal Aviation Administration programs, bring stability to the agency, and provide for the modernization of the air traffic control system. Through the application of technology, we have an opportunity to reduce air space congestion, cited as the reason for Maine's most recent loss of service.
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Third, as we modernize the air traffic control system and create more windows of opportunity within our available air space, the preservation of a proportional share of the newly-created air space may be another tool to help rural communities gain access into the system. Let's not give away or provide the major airlines with an opportunity to consume this valuable commodity without first considering the opportunities it offers for rural markets.
In addition, I urge you to consider shifting a proportionate allocation of slots away from the airlines and to the states or to the small and non-hub airports which are now struggling for access into large hub airports.
Secondly, support programs which have been discussed in Congress which would favor introduction of regional jets into underserved rural markets.
And third, take a harder look at some of the alliances being formed and agreements being reached which are not favorable to rural America.
I would be remiss to close without discussing the Airport Improvement Program. I applaud the efforts of this subcommittee and your determination to stabilize and adequately fund this program. We need to get beyond the fits and starts which plagued this year's program, and also applaud your efforts to give the airport's program greater flexibility. Authorizing the use of state highway specifications on our general aviation airports will bring efficiency and reduce the cost of capital investments on these airports. I encourage you to continue to find opportunities to give the states the same flexibility in working with our airports that we now enjoy with Federal Highway Administration and Federal Transit Administration programs. As an example, over the next biennium we will use the latitude provided by FHWA and FTA to begin the development of three intermodal facilities either on or immediately adjacent to airports at Bangor, at Auburn, and at Trenton, the Bar Harbor airport. These intermodal facilities will increase the utility of the airports by interconnecting all modes of transportation at one location, making these airports much more accessible to the traveling public.
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The role played by the states in supporting capital investments at our airports often goes unrecognized. We have reached a point that we, the State of Maine, are providing a significant share of development costs at our general aviation airports. In fact, we're now approaching a 50/50 relationship with the Federal Government on the general aviation side. By being innovative, pragmatic, and by using all of the flexibility made available to us through our state and Federal programs, we are making significant improvements to our air transportation system. We need to insure that these public investments are matched with efforts by the nation's airlines that are responsive to rural America.
Chairman Duncan, in closing I would like again to express our appreciation to you and members of the subcommittee and Senator Collins for providing us with the opportunity to share with you our thoughts on these most important matters. Thank you.
Mr. DUNCAN. Thank you very much, Mr. Melrose. Mr. Ledwin.
Mr. LEDWIN. Good afternoon. I would like to welcome each of the Congressmen and Senator Collins either to our city or back to our city. We are grateful to Congressman Baldacci for taking the initiative to bring you to Bangor to hear firsthand about the regressive environment being created by the departure of domestic airlines providing service to this region.
As the leader of two organizations you heard about earlier, I would like to tell you that both of those organizations are very active throughout northern, central, eastern Maine in trying to focus our efforts on creating an economic development environment in this state that will further enhance the lives of our citizens and bring more individuals to this community. The healthcare system provides a full continuum of healthcare services throughout the entire region with a budget that's approximating $400 million, servicing a population of 500,000 plus, and employing in excess of 4600 individuals. The Maine Partnership is a unique public/private economic development group which has fostered and nurtured a number of new businesses moving to the region as well as retention initiatives for existing businesses. The private sector has uniquely matched state-allocated funds for marketing in this region. Most recently we entertained nine site selection consultants from throughout the United States and Canada. The Maine Partnership is currently working with ten prospective clients interested in locating in this region. You may be interested to know also that Maine leads all states in having the greatest number of miles along a foreign nation and one day shorter sailing time to and from the European continent. We, maybe we were, poised as the new frontier for economic growth and expansion.
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Today you will hear and you have heard from several individuals about the degradation of air service in our region and the devastating impact upon this region. Most of the country has recovered from the last recession. Just recently northern, eastern, and central Maine, our region, has begun to catch up with the nation. Business and industry, including my own, healthcare, has just begun to enjoy the fruits of growth and prosperity.
This region's attraction and economic growth can be attributed to four basic cornerstones that we enjoying in this region, and those are healthcare, education, the arts, and transportation. Now with the latest turn of events in this region as it relates to the policies and/or departure of commercial airlines, we stand to see this forward movement stalled or regress. As a major metro service area, Bangor is the hub for economic activity throughout this region. Tertiary healthcare, doctoral education, major commerce, the arts, and BIA, transportation, creates an environment for growth. It certainly helps the economy to have charter flights refuel and clear Customs at BIA. But unless we have commercial service which provides reliable service, convenient service, and cost-effective service, retention and growth of existing corporations and the introduction of new businesses will not happen. The productivity of our work force needing to conduct business in other parts of New England and the east coast or beyond has been diminished significantly. The cost of travel from Bangor to a hub which offers reasonable fares is terrible. We are being penalized because we are a rural geographic location.
Furthermore, when recruiting and retention is adversely impacted, when an executive cannot come and go to corporate sales or professional meetings without wasting time on both ends of the trip, when the availability of flights, consumer service and common courtesies like the provision of information is not available, and when you don't know when you can return home, it creates a disincentive to the retention and growth of business and economy in the region.
Let me give you some concrete examples. The plant manager of GE, located on the business park at the airport, has had difficulty attending corporate meetings in Schenectady, New York, because he can't get there and get home. The vice-president of sales for Penobscot Shoe, whose headquarters are located in the region, spends excessive time and money to travel, which creates a disincentive to remain in Maine when in fact they don't have to. Consultants and prospective physicians, staff recruiting for my organization, Eastern Maine Healthcare, is impaired.
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And I can tell when you I just left my office, a consultant told me it was—this was the most expensive travel engagement that he has anywhere in the country, and he comes from the midwest through Cincinnati to Bangor. BMH staff spends more money and more time to attend meetings than counterparts in other parts of the nation, increasing hospital costs.
And those of you who are listening to the BBA 97 discussion know clearly, we can't afford any greater costs, not only our organization but any of our colleagues.
The University of Maine and the Jackson Lab consistently have scheduling and expense difficulties for air travel.
If I were to run an operating room or other healthcare service in the same way airlines are servicing BIA, the Federal Government and/or the state would certainly withdraw our license and certifications to conduct business.
In an effort to improve the situation, a number of businesses—and let me name them—General Electric, Great Northern Paper, Eastern Maine Healthcare, Jackson Lab, University of Maine, and Lemforder—are joining together to form our own air transportation consortium. The combined travel, business and leisure, of these companies approximates $5 million annually. Our coalition is prepared to establish an escrow account, negotiate with a commercial carrier or a private carrier, like Telford Aviation in Bangor, to provide convenient, affordable, and efficient service for our workforce and our families. We would like to have the full support of Congress and the FAA if this initiative is necessary. It is our hope that you can help us avoid this drastic initiative.
We continue to hear the reasons and rationale from several carriers, but they have yet to meet our business and leisure needs. The airlines claim that there are not sufficient business travelers using BIA. But tourism, which might be considered leisure travel to some, is an important part of our business economy in Maine. If airlines are incenting travel agents and setting lower fares to move passengers to Portland, Maine, or Manchester, New Hampshire, it might be considered a discriminatory policy toward a rural community. We must be able to address the need to protect our current businesses and economic base, the need to insure recruiting and retention of skilled personnel and maintenance of our workforce, and the need to provide for future economic growth.
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We, of course, are interested in working with a commercial carrier or, if necessary, a private carrier who would consider a service that is interested in consumer satisfaction, consider flights to a convenient hub other than Boston—Reagan-National, Baltimore and Philadelphia, or Manchester are the preferred of the business coalition—consider reasonable fares, and consider providing reliable service so that employees can get back and forth from Bangor.
During the course of your deliberations and hearings, we would ask you to consider, one, investigating FAA practices and policies which may be contributing to carriers leaving this region; two, investigate the practice of fare discounting in large cities or hubs and increasing rates unreasonably in the rural market; three, consider lucrative route awarding to carriers by the FAA for carriers supporting rural regions; and finally, consider the introduction of regulations similar to the pre–1978 environment for carriers unwilling to service rural states and rural communities in a nondiscriminatory way.
Reliable and convenient air service, even with a limited number of carriers, maintaining reasonable prices, is imperative to the economic well-being of this region.
We thank you for coming to our community to hear firsthand about the intolerable situation which is adversely affecting us. Any action or corrective measures you may implement to modify commercial carriers' behavior would be greatly appreciated. Thank you.
Mr. DUNCAN. Mr. Ledwin, thank you very much. You mentioned the expense. I remember when we held our field hearing in Wichita several months ago, it cost me $1,000 to fly coach round-trip from Knoxville to Wichita, and the staff of the subcommittee told me that that same weekend in the Washington Post they had advertised a round-trip fair to Madrid, Spain and two nights in a hotel for $339.
Mr. PASCRELL. I hope you went to Spain.
Mr. DUNCAN. You would have gone to Spain?
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Mr. LEDWIN. This consultant, Mr. Chairman, has tried every way, booking six weeks in advance, two weeks in advance, ten days in advance. No matter what he does, he can't get the fare under $1,000 to come to Bangor, Maine from Indianapolis, highest rate of any consulting engagements for a hospital in this country.
Mr. DUNCAN. Thank you very much. Ms. Pechinski.
Mr. PECHINSKI. Thank you, Mr. Chairman. And welcome to Bangor, Representative Baldacci, Representative Bass, Representative Pascrell, and Senator Collins. Thank you very much for listening to us.
It is an honor for me to represent the Bangor Region Chamber of Commerce, an organization with nearly 1,000 business members in a region that covers 21 communities in central Maine. In addition, I'm also the Associate Dean of the College of Business, Public Policy and Health at the University, and have been teaching there in strategic planning and entrepreneurship for 20 years.
Three key indicators of a prosperous economy include an increase in new business and decreases in bankruptcies and business failures. Since the early 1990's, the United States has witnessed a modest upturn in the key indicator of economic optimism, new business development. New England, however, continues to suffer a decline in new businesses. The state of Maine, and the central region in particular, have not yet benefited from the so-called economic prosperity. We continue to lose our largest organizations in the manufacturing sector, and have been forced to rely more heavily on tourism as the only industry with growth potential in our state, even though tourism does not offer the high-paying jobs our labor force has lost.
The continued drain on our transportation capability seriously threatens tourism and our economic survival. For any business to survive, it must have consistent support from the key service industries. These include communication, financial services, and transportation. Although we might be tempted to surmise, as the 1960's popular song title suggests, that ''two out of three ain't bad,'' for business it's not good enough. The decision to locate a business is complex, but the ability to move personnel, distribute products, and receive materials is essential.
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In recent years I have heard numerous anecdotes from frustrated business travelers unable to reach critical meetings in New York or other metropolitan locations to the south of us, or unable to schedule important clients to come to the Bangor area. Often a meeting place is selected that is more convenient for the out-of-state traveler, which requires local business travelers to drive to Portland, Manchester, or even into Boston to conduct important business meetings.
For tourism, travel is the prime factor. Without a passenger train system, Maine depends heavily upon air transportation. A recent survey of local travel agents found that all have had difficulty making arrangements for travelers in or out of the state, and it is a particular problem when trying to plan itineraries for group travel. Some comments included: The fares are ridiculous, the service is lacking. As an example, on a recent trip date, the fare from Presque Isle to Newark was less than the fare from Bangor to Newark on the same day by $200, and that was last Monday. Had the reservations declined from Bangor due to lack of passengers, or is it the exorbitant prices? It is the chicken or the egg syndrome. Perhaps if the airlines had maintained equitable pricing, the number of travelers would have increased, as they have nationally.
Air travel has been increasing throughout the country. Nearly every airport has seen an increase in air travel. Some surprising airlines facts: Raleigh-Durham International Airport in North Carolina had 7.2 million passengers in 1998. There are 24 major regional carriers offering more than 500 daily flights to 45 nonstop destinations. Bradley International Airport, Hartford, Connecticut, served 5.2 million travelers with 19 passenger airlines offering over 300 flights each day to and from 80 destinations throughout the United States, Canada, and the Caribbean. In each case, these airports reported a dramatic increase from previous years.
A quality air transportation system would allow us to attract businesses in many sectors, including tourism. A recent visit by several site selection consultants that Norm alluded to and his organization planned to our area was marred by the lack of accessibility, even by this small group, to our region. Luggage was lost, and seven members of the group were delayed by as much as 24 hours. It was not a good first impression.
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In order for central Maine to survive, we must have consistent, reliable, fairly-priced air transportation. Bangor International Airport is Maine's only international airport. Our strategic location next to Canada and closer to the European continent than any other national facility should provide reason for the government to provide incentive to airlines to use our airport. It could save time and fuel. It will save the state of Maine.
Thank you very much for coming.
Mr. DUNCAN. Well, thank you very much, Ms. Pechinski. And you know, it is pretty clear today with the Watts lines and the fax machines and particularly the Internet and other things that businesses really don't have to locate in the large financial cities or centers that they used to years ago. And I remember seeing a poll a few years ago in the Washington Post that said that over half the people in this country would like to live in the small towns or rural areas if they could find good employment there. So I think you have an area that will be very attractive to businesses if you could get the good air services. That's still a very important key.
But I would like to go for the first round of questions to Congressman Baldacci.
Mr. BALDACCI. Thank you very much, Mr. Chairman. And I would like to thank the panel for some very thoughtful comments. And members of the committee and Senator Collins of course knows this, but what you see before you is the leadership of our community and of our state, talking in regards to the issues that are impacting our people and the frustrations that our people go through on a daily basis, probably kept reserved because there's a high degree of frustration I think from getting from here to there. So I would like to thank you for being here and providing your testimony. And I really do think that when we're in Washington and we're reviewing legislation and working on legislation, between the House and the Senate, bipartisanly, with the administration, I think that the comments that you've made are certainly going to be those that ring until the day that that is done from this point forward. I want to thank you for that.
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I was particularly interested, Norm, in the comments—Mr. Ledwin, in regards to the depths of which businesses are willing to go. And you mentioned in willing to be able to escrow close to $5 million, or looking to escrow in terms of $5 million for ticket sales to the degree to have this service. If you would like to expand upon what you recognize as part of our growth opportunities or lack of it because of not being able to address this.
Mr. LEDWIN. Well, we clearly, Congressman, believe that businesses will stay here if they have a convenient way to get in and out of this community, and particularly their families interested in leaving the community. There are many organizations who maybe the other congressmen are not aware of that are now corporately headquartered in other parts of this country but have major facilities in this state, so they need ways to get in and out of the State of Maine on a timely basis.
There are people, and I can tell you myself, I don't dare schedule a meeting the day after I'm supposed to return to Bangor, because more times than not I can't get back to Bangor the day I'm supposed to be back. So the next day I have to keep my calendar open. And there are many executives who do the same thing in this region.
So our intent is to try to work with an airline, either commercial or private, to provide service on a convenient basis in the morning and service in the afternoon to get back to Bangor, to a hub that's reasonable, that stays open most of the time, and that our consortium can use. A good example is the University and Jackson Lab continually travel back and forth to Washington, and so they need that access, and to Washington. So Reagan-National is the hub that we would like to work with, if we can, or Baltimore, or Philadelphia. So that's our intent. If we can't get an airline that's currently servicing Bangor to work with us in a reasonable way with some cost-effective pricing, then we would go out and negotiate our own arrangements with an airline that wants to work with us.
Mr. BALDACCI. Thank you, Norm. I would like to ask maybe Bob if he wouldn't mind commenting on overall strategies at the airport in terms of developing more service and better service, and how this works with what the business industry is looking at.
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Mr. ZIEGELAAR. Well, clearly we see it as our mission to keep the economy in the best possible shape with air service, and so Mr. Ledwin and myself talk frequently about this. Washington is high on our list of desired cities. We're working currently with Atlantic Coast Airlines, which is tied in with United. That is high on our priority list, and I will be seeing the carrier again before the month is out.
Other than that, we have identified our predominant markets from here, such as Philadelphia, as well as Washington D.C., New York, and Chicago. And so all of our discussions with the appropriate carriers that are interested in serving the northeast in general we are talking to about providing services to those hub markets. And again, the key interest there is to, first of all, satisfy our business community, because we realize that's key. And secondly, we are very concerned about the tourism access to this market, because tourism is the number one industry in this state, so that is another major concern. And we are pursuing other actions, as well.
Mr. BALDACCI. Bob, we heard at an earlier hearing that 70 percent of the reason for delays was weather-related, and it was referred to that members of Congress could not do very much about that, whereupon somebody that worked at the Federal level did not want to claim responsibility, could go either way on the question, which we appreciated their deference. But recognizing that we can't do everything in Washington, what are—and the things that come particularly to the surface that we as an Aviation Subcommittee and members of Congress working on legislation were working on the Air 21, which the Chairman referred to, and frankly making some inroads in expanding upon the availability of service and increasing service in a lot of the areas of the United States that haven't been first up at the plate with other Federal programs and other Federal agencies, but have been able to make these improvements with aviation, we're looking at the issue of the regional jets and the access to rural areas. We're looking at the scope clauses. We're looking at the airport improvement programs in the light. And do you have a sense or a strategy that—you know, maybe giving you an opportunity to go into a little more into that we could be developing?
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Mr. ZIEGELAAR. I think it's very important for rural America that the hubs are opened up and that rural America gets access to some of these hubs which are dominated completely now by the larger urban markets. I think it's important that additional hubs be created.
The regional jet clearly is going to be a vehicle for the future for the markets such as Bangor. However, that will only work as long as they can tie into the major national, international airline systems. So we need not only look at the regional jets, we also need to look at where they match up with the larger aircraft and they tie in with. Any relief on the slot issues clearly is critical for the rural markets, as well.
Mr. BALDACCI. Mr. Coleman, finishing with you at this point, and allowing time for members of the committee to ask questions, in reference to the issues that have been raised and also in reference to the competition formula, the DOT plans dealing with proposed competition guidelines. From what has been presented and that issue, do you wish to comment further?
Mr. COLEMAN. I would say this. I think all of the comments that I've heard from all the panelists about what is going on with the service and pricing are absolutely accurate, absolutely right on. There's no question that major airlines are creating their services now on business travel and high yields, and that certainly is affecting both, and squeezing the capacity at the same time. That certainly is affecting both the availability of service and the price of service.
There are—Mr. Melrose, I believe, also mentioned the Essential Air Service program, which is administered by my staff, and prompted me to have this thought. You sort of look at what is going on in this country in terms of air transportation. There's two extremes. On the one extreme, you have the very small communities that do have protection under the Essential Air Service program. That's a tool that we have, and we can continue to administer, and it's adequately funded at this moment and that's fine.
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The other extreme, you have the marketplace which is—which is producing a lot of benefits both in terms of service and price to people who are traveling reasonable distances and reasonably dense markets and can make their plans reasonably far in advance. You can get pretty darn good price bargains.
In the middle is this big gray area to community assistance in Bangor, the smaller—let's call them the medium-sized communities. They are the ones who are suffering, and the problems for them are very difficult.
I don't have solutions. The Department of Transportation recognizes a lot of things that are going on that we regard as competitively perhaps unfair, including airline practices and airport practices, and we're looking at both of those things. I would say that people of the City of Bangor and this area, your Congressional delegation is doing a great job for you in this subcommittee in the form of legislation, such as Air 21.
The one thing that hasn't been mentioned is that there's a—one of the programs that's being considered is what I would call the new small/medium- sized community program. And the beauty of that is that it puts the—it gives broad flexibility to users, you folks, to bring solutions to us. And with the funding that we would have made available to us, we can work as a partnership to perhaps bring some new solutions to these problems.
Mr. DUNCAN. Well, thank you, Congressman Baldacci. Senator Collins.
Senator COLLINS. Thank you very much, Mr. Chairman. Mrs. Pechinski and Mr. Ledwin, you described ably for us the impact on current businesses of the problems with air service into Bangor International Airport. You both are also very involved in efforts to recruit businesses to this area, Sheila, in your case with the Chamber, and Norm, in your case with the Maine Partnership effort. What has been your experience in trying to get businesses to locate in or around Bangor or elsewhere in northern, eastern, and central Maine, as far as the impact of the deteriorating service, on your ability to recruit new business?
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Ms. PECHINSKI. Well, just first I would like to say that the Chamber doesn't really—we're not actively involved in economic development, but we are the contact point for interest; and we have a lot of inquiries, as you might suspect, from organizations around the country looking for relocation packets and information about our region. And I can tell you that in almost every case, of course, they've done their homework and done a considerable amount of research before they request these materials. And when they see the materials, they're very excited about the region, and then they start to make arrangements to get here. And unfortunately, perception is reality, as we know, in marketing. And the old saying, ''you can't get there from here,'' has created a lot of problems. And as I mentioned very briefly in my statement, the negative impressions that either a professional consultant or someone working for an organization that comes to this area in order to actually take a look at the facilities that we have to offer, etcetera, are certainly going to include the transportation issue. And if they can't get here to even come on a preliminary visit, they're certainly not going to make the recommendation to their organization to do so.
And even though we are a small business state and we are very proud of that fact, we also would like very much to be able to keep the businesses who are here and who must work with larger organizations outside our state. So it works both ways. We can't attract new business, and we're having difficulty with the ones that are here maintaining the business because of lack of transportation.
Senator COLLINS. Norm.
Mr. LEDWIN. I think, Senator, Sheila hit on most of the points. I would say that we have had the site selection consultants that came this summer to visit us in August clearly was an effort for us to encourage business and industry to move to this state. That visit was short of a disaster with those consultants. And they are the ones that represent major business and industry across this country and where they might select a location. Infrastructure is very important.
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We have a midwest client who would like to locate in Washington County, and as you know, Washington County is one of our poorest counties for economic growth, and it would be 150 to 200 jobs. They'd ship about 130 truckloads of product out of here on a daily basis. So we need infrastructure. And I refer to the Commissioner on that. We also—they also want air transportation, because that's the primary way to access this particular region. So we have lost some prospective clients, and we can't afford to lose any clients.
We can't afford to lose what we have currently in this state. And there are many businesses that I've talked with in the Partnership that have clearly said, if we can't get our workforce in and out of here, we don't need to stay in Maine. We can locate anywhere in this country. And I would agree with the Chairman, that telecommunications is really great these days, so they don't need to be in any particular area. So we have had a significant difficulty. We have lost clients already because of the situation at the airport.
Senator COLLINS. I think that's a very important point is that not only harms the businesses that are already here and makes it difficult for them to conduct their business, discourages them from expanding here, but also it deters new industry that we desperately need in a lot of areas around Bangor from locating here in the first place.
Mr. Coleman, Ms. Pechinski referred to a punch line of an old Maine story that ''you can't get there from here.'' And I guess our fear is that may become not just the punch line to a cute story but rather the reality for people who are trying to travel to and from Maine. When I met recently with the head of Continental Airlines, Continental Express, he blamed the decision of the airlines to leave Bangor entirely on the FAA's problems with air traffic control. Now, I suspect there's a whole lot more behind the decision than that, so let me say that up front. But what specifically is the Department doing to help rural areas, and specifically to address the problems with air traffic control, that at least one airline which has withdrawn from this area has blamed as the reason for its withdrawal?
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Mr. COLEMAN. The air traffic control issue, I'm not—I'm really not qualified to speak to. It's an FAA issue. I do know Administrator Garvey is going to be addressing that issue later this week. I can say that—in a separate hearing. I can say that I'm not aware that Continental had been making—raising a lot of complaints about that issue with us. Now, whether they had with the FAA I'm not in a position to speak to.
As to what we can do, I agree, that is the crux of the problem. What can we do? In the final analysis, we do not have power in a situation like this to force any airline to go into a market. We don't have the power to do that. The things that you're—the community is doing I think are probably the most effective in the long run. The business community has to coalesce itself and work with prospective new airlines to try to attract them to come in.
And I would also say again that the legislative proposals that are now on the table are being considered to name the Department of Transportation to work in partnership with private enterprise, with communities, with anyone who wants to bring a proposal to us may be a way that we can help communities such as this.
Senator COLLINS. Mr. Chairman, do I have time for one more?
Mr. DUNCAN. Yes.
Senator COLLINS. Mr. Ziegelaar, you have a chance to tell us all today and to tell Mr. Coleman, to relate to the Department of Transportation, what should we be doing? What would be the most helpful regulatory policy or legislative policy that the Federal Government could undertake to help solve this problem?
Mr. ZIEGELAAR. Senator, I've been asked that question before, and I have given it some thought. I think the issue of pricing is probably the most critical aspect of what we're talking about. I will not advocate going back to the days of reregulation, of regulation, but I think there are some common sense principles that can be applied to the way in which airlines price their seats. I know you're looking at that to some extent in the case of American Airlines, but I think there are other aspects of that whole issue, and if there were a more fair way in which airline seats across this country were being priced, I think a lot of these problems we're talking about today would go away, because the airlines would start making more money in the large urban market where they're not making that, their yields would go up there, so the yields in rural America could come down. Beyond that, I think that the Scope Clause issue is something that is pretty critical at this point. I think that will eventually sort itself out. But as I said before, damage will be done in the meantime.
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Senator COLLINS. Thank you, Mr. Chairman.
Mr. DUNCAN. Thank you, Senator Collins.
Congressman Pascrell.
Mr. PASCRELL. I would like to continue along those veins, if I may, Mr. Chairman. The Department of Transportation approves a service market; does it not, Mr. Coleman?
Mr. COLEMAN. Not domestic.
Mr. PASCRELL. In other words, if Continental wanted to open up a line from New York to Poughkeepsie, New York, who approves it?
Mr. COLEMAN. They're free to do that under the current system. They don't need any authority.
Mr. PASCRELL. So in other words, neither the DOT nor the FAA need to approve the opening up of a market; is that correct?
Mr. COLEMAN. That's correct, subject to whatever physical plant requirements there are that the FAA may have at an airport.
Mr. PASCRELL. Likewise, neither the DOT or the FAA needs to approve or disapprove the curtailment of the service; is that correct?
Mr. COLEMAN. Not quite.
Mr. PASCRELL. Explain to us the difference.
Mr. COLEMAN. Under the Essential Air Service program, every community that was served by a certificated airline the date that the Airline Deregulation Act was passed in October of 1978 is entitled to a guarantee that they will continue to receive commercial air service. And the way we administer that is that if the last airline—it's more complicated than this, but I'll try to simplify it. The last airline that is servicing a community must file a notice with us if it wants to leave that community in its entirety.
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Mr. PASCRELL. So I would it take it then that Continental filed with the DOT when they were going to curtail the service with Bangor?
Mr. COLEMAN. No, because they were not the last airline here.
Mr. PASCRELL. They were not the last airline there?
Mr. COLEMAN. Delta was still there and U.S. Air was still there.
Mr. PASCRELL. So in other words, airlines are free to begin service, be they large or small, into a particular marketplace, and only person—the only airline that has to go to the DOT for approval or disapproval is the last airline when we get to that point.
Mr. COLEMAN. Yes.
Mr. PASCRELL. Well, if I might give you my opinion about that. Since we're here to help, either through the DOT or the FAA, Bangor and Nashua, I mean, that's the purpose of these hearings, it would seem to me that it's kind of convoluted to wait until the last airline has decided to leave an area, you know, when you have dust city, and then make a decision that they may or may not leave. Don't we need some intervention before that, not to break the rules of deregulation, but to really give the opportunity to the community to respond to a dwindling opportunity to fly? I mean, it would seem to me—what am I missing if I suggest that?
Mr. COLEMAN. There's logic to it. The answer—my answer to you has to be that that's the way the statute is written. The way the statute is written, we do not have any power to require the airline to file a notice with us unless they're the last airline in the market. That's the limit of our powers.
Mr. PASCRELL. So in other words, when Continental decided to break service here, there's no need—there's nothing within the law as it stands now, the law that was passed in 1978, that mandates that Continental sit down with the community and try to work something else out, you know, that would be suitable to the community. There is nothing obligating that airline; is that correct?
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Mr. COLEMAN. That's correct.
Mr. PASCRELL. That is correct. Thank you.
Mr. DUNCAN. Thank you very much. Congressman Bass.
Mr. BASS. Thank you very much, Mr. Chairman. Just a quick question for you, Mr. Melrose. Were you suggesting in your testimony that the FAA allocate landing slots at an airport like National to the State of Maine? It says here, consider shifting proportionate allocation slots away from the airlines and to the states. What exactly do you mean by that?
Mr. MELROSE. We mean either the states or the airports, frankly, so that Bangor International Airport would have some ability—.
Mr. BASS. So Maine would have some landing spots at National?
Mr. MELROSE. Perhaps.
Mr. BASS. I'm just curious.
Mr. Ledwin, amazing that you can find a consortium of businesses here willing to put up over $5 million in order to provide some decent transportation out of the Bangor airport. You mentioned in your testimony, and I quote, you would like to have the full support of Congress and the FAA if this initiative isn't necessary. Mr. Coleman, are you aware of any—what could the Congress do to assure that the FAA could provide full support if the initiative were necessary? Is there anything that you could suggest? Or is there anything that the FAA—we'll get that in follow-up, I guess—the FAA does that makes it difficult for a consortium to be created, provides essential transportation for an airport.
Mr. COLEMAN. No, actually, I do not. I commend the idea that businesses would get together and work together with the community. There are a lot of examples of that going on now.
Mr. BASS. But we haven't done anything in Congress, or the FAA hasn't done anything to raise any roadblocks to the establishment of anything like that.
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Mr. COLEMAN. No, sir.
Mr. BASS. OK. My last question. As I recall, Bangor was maybe recently, but certainly 25 years ago, was trying to establish an international business. I think they were working on Customs and all this stuff. And I read in the papers a few weeks ago that—what turned out to be the place where they dump mad passengers or crazy people. And you can tell I'm not in my district. And I'm just wondering if you can tell me the status of—it would seem to me, if I can express an opinion here, that Bangor would be an ideal place for a chartered aircraft company or an international carrier to get through Customs cheaply and quickly and then move on to larger hubs. Has that been something that has worked or not worked, or is there anything we could do to help?
Mr. ZIEGELAAR. Yes, Congressman, there is. That, in fact, has been an important market for us for the last 25 years and continues to be important, although the events of the long—exceedingly long-range airplanes have somewhat undercut that, and we have to look for new niches within that market, perhaps cargo or other activities.
However, we have currently on file with the Secretary of State a letter signed by all members of the Maine Congressional delegation that would give us relief on the issue of serving flights that come out of the Europe, the very flights you're talking about, that are carrying vacationers to Cuba. We used to be able to fuel those flights until 1987, and at that point the Office of Foreign Assets Control decided that that was no longer within the scope of the U.S. policy on the subject, and for twelve years long we have tried to get relief on that issue, and we're very optimistic that we may in fact get that relief in light of the fact that New York and Los Angeles just have been given charter rights to Cuba. So anything you could do there, that would certainly help this airport.
Mr. BASS. Thank you very much, Mr. Chairman.
Mr. DUNCAN. Thank you, Congressman Bass.
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Mr. Ziegelaar, let me follow up on a question that Senator Collins was asking, and you responded by saying that your biggest need was some help with the problem of the pricing. And you said you don't want us to reregulate the airlines, but how exactly do we go about that without reregulating? What do you suggest? I mean, are you—do you think that some sort of a limitation on the variance on a particular flight or telling the airlines that they couldn't vary their prices on a particular flight by more than 25 percent? Do you have something specific in mind?
Mr. ZIEGELAAR. Yes. When I said I would not advocate going back to regulation, that means that was a system where airlines have to file tariffs and file for amendments of tariffs, a very cumbersome system. However, I think it does not take a very great deal of science to figure out what it costs to operate a certain kind of airplane per mile and therefore to deduct what the seat cost per mile is per passenger. And I think that if we simply looked at establishing some ceilings below which an air seat could not be priced, that would have the effect of bringing back the yield in the major markets, thereby allowing the air carriers to reduce the yields in the markets that are less competitive.
Mr. DUNCAN. Now, you have a big airport here, and I take it that your problems are not like a lot of places where they have infrastructure problems. So it would—would a big increase in the airport improvement program not help you as much, or what—how much do you receive in AIP funds now?
Mr. ZIEGELAAR. Well, we used to receive close to $4 million a year. That has dwindled over the last few years. As you know, the AIP program has been cut back. It is about $2 million a year. We do have a very significant infrastructure that we inherited from the U.S. military, so our capital needs are very substantial.
Mr. DUNCAN. To provide upkeep.
Mr. ZIEGELAAR. Absolutely. We have a lot of concrete that's 50 years old that needs to be replaced. The PFC program has been valuable to us, although—.
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Mr. DUNCAN. How many passengers a year do you have?
Mr. ZIEGELAAR. About 450 total; 225 in, 225 out, although this year that will suffer some because of what we are talking about here. We are leaking traffic to airports further south.
Mr. DUNCAN. And Continental tells you that it was mainly an air traffic problem in Newark; is that right?
Mr. ZIEGELAAR. Yes, that's correct, although we understand that there is a profitability issue, as well. When the carrier has a given number of slots, they obviously want to maximize the yield, the bottom line on these slots, and they can do that with a jet out of a larger city more effectively than a turboprop out of Bangor, Maine.
Mr. DUNCAN. Mr. Melrose, we're trying in this current legislation to basically do away with or slowly eliminate the slot problem. Mr. Coleman, counsel tells me that the DOT actually awarded or gave control over some slots to Savannah. Are you familiar with that?
Mr. COLEMAN. Yes, sir.
Mr. DUNCAN. Tell us about that.
Mr. COLEMAN. There was one example that the department did as an experiment, when they awarded several slots in Chicago, O'Hare to two communities. One was Savannah, Hilton Head, and the other was Greenville, Spartanburg, South Carolina, three operating slots apiece. And those communities were permitted to go out and find the airlines and provide the service, but the Department made it very clear that that was—their intent was to do that on a one-time basis. The norm is that the Department awards slots only to airlines, because part of our deliberations is that we want to make a determination that the air service is going to be viable, and of course in order to do that you need to know that the airline is a service air they're proposing to operate.
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Mr. DUNCAN. Well, you know, we got into this at an earlier hearing, but you know that in most industries the trend, unfortunately, seems to be going toward the big giants and toward the consolidation, and fewer and fewer entrants in a particular industry are participants. Do you think that that's going to happen in the airline industry, regardless of all of these efforts that we're making?
Mr. COLEMAN. We have a lot of concern about the growing interest again and alliances in both domestic and international. We're looking very carefully at that. The policies that we adopt with regard to such things as slot exemptions, we have tried as much as we can to encourage new entrants to be the recipients of those slot opportunities on the grounds that they are the airlines who bring the low cost, low price competition in the markets where it's needed. We certainly do share your concern.
Mr. DUNCAN. About a year and a half ago I went down to speak to the Florida Airport Managers Association in Orlando, and they asked me to come over to the Daytona Beach Airport while I was there. And they told me a story very similar to yours, and they said that their airport had become almost like a ghost airport, because they said they only had primarily tourists and retirement people. And they said that what the airlines are looking for are the business travelers. And Mr. Cohen mentioned that while we were flying up and again here today.
And when—there are some groups that seem to want to base everything on tourism, but there's just too many minimum wage jobs, as somebody mentioned, in the tourism industry. And it's all right to have some of that, but you need to have a balance. And what I'm getting at, I'm wondering, what are you doing, Mr. Ledwin, or maybe Mayor Baldacci can tell me, are you offering—how do your tax rates compare to other parts of the country? Are you offering similar type incentives as other communities and other states to try to attract industries, and is that the problem, or is it almost entirely this air service situation?
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Mr. LEDWIN. Well, I'll let the mayor speak about Bangor. He's probably better equipped to do that. But I think there are a number of incentives that are being offered. Both the Governor has established incentive programs. There's another organization called Maine Company, which is really an initiative that the Governor has started in this state to attract business and industry. So there are initiatives to help reduce the tax burden and other initiatives.
For example, an organization is offering fixed healthcare contracts to business industry that move to the area. Electric companies are doing the same thing to try to incent organizations to come to this area. So I think there are a number of initiatives that are ongoing to help business industry that want to move to Maine, and I know that there are also tax incentives. And I defer to the mayor for that.
MAYOR BALDACCI. We have a whole range of tax increment finds and programs that were done with General Electric and a number of other national and international corporations. And as I said, the unemployment rate in the greater Bangor is fairly low. We're really affected, though, because we're a hub in terms of retail trade and finance for eastern and northern Maine, which economically is still a little bit—is still behind the curve. We have unemployment rates in Aroostook and Washington County that are higher than the national average, and personal incomes in terms of higher-paying jobs we need to attract.
I know the governor, who inherited a recessionary type economy, has worked very hard in attracting outside business, and has worked hard in helping community economic development, so we have a ways to go. Our tax rate in Bangor is comparable with other similar municipalities throughout the northeast.
One issue among many economic development issues, not just air service, our electric rates are 40 percent above the national average. That's obviously an effect that has on our economy. But I think the state, over the last four years, is working towards an economic development strategy. I know Governor King, Norm Ledwin through his group, and other people are trying to work together in a more cooperative venture, but we have a ways to go.
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Mr. DUNCAN. Well, I can tell you that we focused this morning in New Hampshire on air traffic control problems, and that's leading into a hearing that we're holding on Thursday with Jane Garvey, the head of the FAA, and several others, on those types of problems and why there are so many delays with all the billions and billions of dollars we're investing and have invested in new equipment over the last few months and last two or three years.
And then later this month we're holding a hearing with the subcommittee on all the issues involving competition within the industry, and the problems of start-up airlines, and many of the problems we're focusing on here this afternoon. So both of these hearings this morning are preliminary to the hearings that we're going to hold later in Washington. We're going to keep working on these things. So if any of you have any suggestions or ideas or things that you want to get to us, you should let your Senator and your Congressman know.
Let me see if anyone else—Senator Collins, Congressman Bass, does anybody have any other questions or comments?
Mr. PASCRELL. No, Mr. Chair.
Senator COLLINS. I just have one final question, if I could, and it was for Mr. Coleman, and it follows up on a very intriguing issue that the Chairman raised. But first I want to say I've turned mine off (cell phone). And that is, you raised an intriguing issue about awarding slots since we do have the issue of the Federal Government still controlling slots. I know that the—both the House and Senate bill liberalize the slots and phase them out for some of the hub airports. But why not award slots to underserved cities like Bangor? Wouldn't that be something very specific that we could do right now that would help with the problem of underserved cities like Bangor?
Mr. COLEMAN. I can tell you the reason that we haven't, which doesn't necessarily mean it would be a bad idea in the future. The reason we haven't is because we're talking about slot exemption now, in other words, permission for airlines to operate, perform operations in excess of the ceilings that we've previously established by law, by aviation regulations. There is such a demand, there's a very, very strong demand for that kind of relief. And at any moment in time we have a lot of applications already pending, and so what we have done is to limit our look at applications, proposals that have actually been made, applications that have been filed by airlines that have the aircraft and have already expressed an interest in going into a particular market. And our thinking is that if we do that, we know that—we know that those slot exemptions are going to be used for a specific market. If they're not used for that purpose, the slots come back and they can be given to a different airline. But the reason has been, frankly, a practical one, that we want to know that the authority will be used, and we want to know the market it will be used in and by what airline.
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Senator COLLINS. I guess my final comment is I really would like to encourage you to look at that issue. When I brought that up I saw some nodding heads, which suggests that perhaps that would be a valuable thing for us to pursue. It seems to me that if the airline knows that it can only get the increased slot if it's to Bangor, all of a sudden we're going to have a flight. So I would ask that you look at that.
And again, thank you, Mr. Chairman, for your indulgences, and thank you, congressmen, for inviting me today.
Mr. BALDACCI. The unanimous consent wasn't very easy to get.
Mr. BASS. I didn't know about it.
Mr. BALDACCI. New Hampshire has always given us a hard time in hockey and this, but we'll still fight.
Mr. DUNCAN. We actually have provisions in the House FAA bill to award some of those slot openings to underserved communities until such time as they can be phased out entirely. So the suggestion by Senator Collins is a very good one and one we're attempting to achieve. House conferees have already been appointed, and the Senate conferees are supposed to be appointed tomorrow. And so we're going to go to conference, I think, within the next few days and hopefully work out a lot of these things. But I'll go now to Congressman—did you have any other questions?
Mr. PASCRELL. No.
Mr. DUNCAN. I'll go to Congressman Baldacci for any closing comments that he wishes to make.
Mr. BALDACCI. Well, thank you, again, Mr. Chairman, members of the panel, Senator Collins, for all of your indulgences on this holiday day. But I think it is a timely consequence with the conferees being appointed and our national policy being discussed and debated and decided upon this week as the conferees between the House and Senate get together and could hear from the people in our community, the leaders in our community, to be able to discuss these issues and the impact. And I think that we have had some really enlightening, insightful comments and thoughtful presentations made that I think that will leave us with some work to do, and I think that I'm proud of what we've been able to put together here and the combination of the state and local communities and business communities working together. I think the issues as it pertains to making sure that FAA's responsiveness on the competitiveness issue and the timeliness of those rules in terms of being able to work with the ventures, whether they're—whether they're ones that are there now or ones that have offered themselves up in the future to work with our community and the issues that we have before us, I just really feel very strongly about this, because as we deregulated the airline transportation industry, we have also got an obligation to the infrastructure portion of transportation, and airline is a part of that infrastructure. And if ''you can't get there from here,'' the business and industry and individuals that need to have the basic services provided in order to do that, whether it's ports or airports or roads or air, that is what the work of our committee and the Congress is, is to provide that, so that businesses and industry can locate and compete. The Internet is a great system, and it's great to do your business in Blue Hill, Maine, or Mt. Desert Island, where the ocean hits the mountain, and be able to do those things, but at the same time we need to have a basic infrastructure for the fiberoptics, for the telecommunication system, in order to get connected to the Internet. And it was no difference that when we developed the E rate for rural communities to assure them certain access to that market that we look at doing the same thing with air transportation and making sure that rural areas have that access, because that is the very essence of what has happened, I think, with deregulation, and what you're witnessing with the consolidation and the alliances.
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I just want to thank you again, Mr. Chairman, and I appreciate your attendance, and thanking my members who are here. I really do appreciate Congressman Pascrell coming in today, when they were dedicating Portuguese statues down at the Penobscot River. But I appreciate having all of you here, and you're each going to be affixed with a small portion of lasagna and an even smaller portion of lobster to go with you.
Mr. DUNCAN. Well, John, thank you very much. I can tell you that my father told me many years ago, he said, everything looks easy from a distance. And the longer I live, the more truth I see in that statement. And we do have a system in which there are over 22,000 commercial flights a day, and on a typical weekday more than two million passengers flying. And I remember hearing on NPR radio a few years ago that the Russian Aeroflot system sometimes had delays as long as four days. We get upset if our planes leave 40 minutes, or arrive 40 minutes late. So we do have a pretty good system, I think a very good system overall.
But John and I were talking on the way up, and I told him—in fact, I think he mentioned it earlier, that it seems that the real big cities get most of the Federal grants and most of the goodies in the various programs, no matter what department or agency it is. And the medium-sized cities are next in line, and the small towns and the rural areas get sort of shafted or get very little, get the crumbs. So we're trying very, very hard, particularly in this recent FAA legislation, to turn that around a little bit and try to treat the small towns and the smaller cities and the medium-sized cities much more fairly than they have been treated in the past.
But we thank you very much for letting us come be with you today, and this will conclude this hearing.
[Whereupon, the subcommittee was adjourned.]
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