Alex Padilla U.S. Senator for California

WASHINGTON, D.C. — Amid a spike in the number of flight cancellations and delays, U.S. Senators Alex Padilla (D-Calif.) and Elizabeth Warren (D-Mass.) this week sent a letter urging the U.S. Department of Transportation to fully utilize its statutory authority to protect consumers, promote competition in the airline industry, and hold airlines accountable for delayed and canceled flights. In the letter, the lawmakers raised concerns about Americans’ air travel experiences, which have grown steadily worse over the past year, and laid out specific actions DOT can take to hold airlines accountable for avoidable delays and cancellations and stem the tide of airline consolidation.

“By utilizing its existing licensing and rulemaking authority, the Department can improve experiences for travelers and help bring down exorbitant ticket prices driven in part by anticompetitive mergers,” wrote the lawmakers.

One in five flights has arrived behind schedule this year, while airlines have canceled flights four times as often during high-travel weekends than they did in 2019. Airlines have already canceled nearly 122,000 flights in 2022—more cancellations than occurred during all of 2021. Airline consumer complaints to the Department have increased threefold relative to pre-pandemic levels. Airlines have also increased flight overbookings, causing passengers to be involuntarily denied boarding nearly three times as often this year than they were in 2018. Unions are sounding the alarm that airlines are selling tickets for flights they know they will not be able to staff.

Since January 2022, prices for domestic flights have shot up 47 percent. Although airlines received $50 billion in government assistance, they have failed to issue at least $10 billion in refunds for flight cancellations throughout the pandemic, despite being required to do so by federal law.

The Senators also called for DOT to play a stronger role in the review process for mergers in the airline industry. Under existing statutory provisions, transfers of operating certificates through merger are only permissible when the Secretary of Transportation determines such transfers are consistent with the public interest, which includes an evaluation of competition in the domestic airline industry.

In the letter, the lawmakers highlight the following actions DOT could take to hold the airline industry accountable and help protect consumers:

• Use its existing authority to protect consumers from a wide range of rampant unfair practices in the airline industry, including delays, cancellations, and involuntary re-bookings.
• Promulgate concrete rules requiring airlines to refund passengers for significantly delayed flights—rather than making refund decisions on a case-by-case basis.
• Impose fines on airlines for the delays and cancellations that result from their own poor planning in order to protect consumers from avoidable disruptions. The Secretary may order airlines and ticket agents to stop such practices and may issue fines of up to $37,377 per violation.
• Use its full statutory authority to more vigorously address increasing consolidation and dwindling competition in our airline industry, including withholding operating certification and certificate transfers from airlines attempting anticompetitive mergers.

Full text of the letter here and below:

Dear Secretary Buttigieg and Mr. Putnam,

As airline prices skyrocket, cancellations worsen, and delays grow for Americans flying everywhere, we write to urge the Department of Transportation (the Department) to fully utilize its statutory authority to protect consumers and promote competition in the airline industry.

Over the past year, Americans’ air travel experiences have grown steadily worse. One in five flights has arrived behind schedule this year, while airlines have canceled flights four times as often during high-travel weekends as they did in 2019. Airlines have already canceled nearly 122,000 flights in 2022—more cancellations than occurred during all of 2021. Airline consumer complaints to the Department have increased threefold relative to pre-pandemic levels. Airlines have also increased flight overbookings, causing passengers to be involuntarily denied boarding nearly three times as often in the first quarter of 2022 compared to the first quarter of 2018. Unions are sounding the alarm that airlines are selling tickets for flights they know they will not be able to staff.

Meanwhile, prices for domestic flights have shot up 47 percent since January 2022 and 30 percent compared to pre-pandemic levels. And even after receiving $50 billion in government assistance, airlines have failed to issue at least $10 billion in refunds for flight cancellations throughout the coronavirus disease 2019 (COVID-19) pandemic, despite being required to do so by federal law. Put another way, Americans are spending far more money for a substandard travel experience—and sometimes to not fly at all.

In the face of these challenges, the Department of Transportation has the authority to take meaningful actions to hold airlines accountable for avoidable delays and cancellations and stem the tide of airline consolidation. By utilizing its existing licensing and rulemaking authority, the Department can improve experiences for travelers and help bring down exorbitant ticket prices driven in part by anticompetitive mergers. We write to highlight several of these authorities.

Consumer Protection

First, the Department of Transportation is empowered to act as a consumer-protection watchdog. Under 49 U.S.C. § 41712(a), the Secretary of Transportation has the authority to independently investigate whether airlines are engaged in “unfair or deceptive practice[s]” or “unfair method[s] of competition.” The Secretary may order airlines and ticket agents to stop such practices and may issue fines of up to $37,377 per violation pursuant to 49 U.S.C. § 46301. This authority could be utilized to protect consumers from a wide range of rampant unfair practices in the airline industry, including:

• Delays. Some delays are inevitable, but consistently delaying flights for reasons within an airline’s control is an unfair and deceptive practice. The Department has the authority to tackle this problem by issuing a rule under § 41712 that imposes fines on airlines for the delays they cause. The Department could also issue more concrete rules requiring airlines to offer refunds to passengers whose flights are delayed. Currently, passengers are entitled to a refund for “significantly delayed” flights, but that term is not defined, and the Department makes refund decisions only on a case-by-case basis, a significant barrier to large-scale enforcement of these important consumer protections.

• Cancellations. When airlines cancel flights—whether due to their own poor operations and staffing practices or through intentional schemes to offer flights they know they can’t staff in order to later cancel the least-profitable flights—they should be held accountable. For airlines, flight cancellations may just be business as usual. For air travelers and employees, however, they represent huge disruptions to lives and livelihoods. The Department’s consumer protection authorities are meant for exactly these kinds of practices, and it should use that authority to impose fines designed to change airlines’ calculus about harming consumers to pad their own profits.

• Involuntary re-bookings. For decades, airlines have systematically oversold their flights, offering tickets they know they can’t fulfill. When this gamble fails, it should be airlines—not consumers—that pay the price. Under the Department’s current policy, airlines’ responsibility is only to “ensure that the smallest practicable number of persons holding confirmed reserved space on that flight are denied boarding involuntarily.” But with passengers being booted off flights more and more frequently, the Department could use its authority to end this practice altogether. Airlines should know that when they overbook flights, they should be prepared to compensate passengers enough to encourage voluntary re-bookings or else pay a hefty fine (in addition to compensating the passenger).

We were encouraged by the Department’s announcements of proposed rulemakings aimed at refunds for tickets, checked bags, and ancillary services. Strong refund rules are long overdue, and we appreciate the Department’s ongoing efforts in that area.

Mergers and Transfers Authority

The Department of Transportation also has the authority to block airline mergers that would stifle competition. Under 49 U.S.C. § 41102, airlines (whether domestic or international) must receive a certificate from the Department of Transportation that authorizes them to operate a given route. The Secretary of Transportation must approve any transfer of these certificates to another carrier, an authority that gives the Secretary de facto merger-blocking authority. These transfers are only permitted when the Secretary determines that a transfer would be “consistent with the public interest.” If a transfer is approved, the Secretary must include a report that discusses the effects of the transfer on, among other areas, “competition in the domestic airline industry.”

The Department must use this authority more vigorously to address increasing consolidation and dwindling competition in our airline industry. Before the deregulation of the industry in 1978, more than 400 airlines offered flights to millions of consumers in the United States. Today, four airlines — American, Southwest, Delta, and United — control about 80 percent of the domestic market, cementing their dominance through numerous mergers including Delta-Northwest in 2008, United-Continental in 2010, and American-US Airways in 2013. This excessive consolidation has been a consistent driver of price hikes for consumers. Even the airlines admit as much behind closed doors: American Airlines CEO Scott Kirby said during an internal presentation that his airline was “able to pass along [three fare hikes] to customers because of consolidation.”

Beyond national market shares, the Department should consider the competitive impacts of proposed mergers on individual routes. A given airport may offer slots to several airlines; however, the competitive set is often much smaller for any particular destination, leaving customers with less choice than the full array of airlines serving their local areas. A study by the Government Accountability Office found that when competitiveness was assessed at the route level, every market segment analyzed—from the largest cities to the smallest—was “highly concentrated.” At 40 of the 100 largest airports, a single airline controls a majority of the market. At 93 of the top 100 airports, one or two airlines control a majority of the seats. Airlines often indirectly coordinate to avoid competing along a given route.

Furthermore, mergers allow airlines to box out potential new entrants to routes they currently dominate, and they facilitate coordinated behavior among legacy airlines. For example, large airlines often “lead” ticket prices by briefly lowering air ticket costs for a particular flight to see if other airlines follow suit, and then raising the price again if they do not. This strategy can only succeed when there are few players in the first place. Accordingly, the Department must view the possible effects of any merger or acquisition through a dynamic lens, focusing on the structure of any particular market and on the anticompetitive practices like price fixing or capacity reduction that a deal may incentivize. 

This year, Spirit Airlines has been in talks with both Frontier and JetBlue about a potential merger, which could significantly reduce competition among the lowest cost carriers. If Spirit ultimately merges with Frontier, the new company would be the only remaining major ultra-low-cost carrier. Absent real competition at that price point in most of Spirit-Frontier’s routes, consumers would likely soon see higher fares. JetBlue meanwhile is already the subject of a Department of Justice antitrust suit over its anticompetitive alliance with American Airlines. A merger with Spirit could allow it to raise fares in routes with limited low-cost carrier competition and would leave Frontier as the only large ultra-low-cost carrier.

We urge the Department to strongly consider the impacts these transactions would have on the routes where these airlines operate. By using its statutory authority to block transfers that are inconsistent with the public interest and that would harm domestic competition, the Department could stop anticompetitive airline mergers altogether.

Conclusion

Decades of deregulation and consolidation have created an airline industry that routinely heaps inconvenience and abuse on consumers. After receiving tens of billions of dollars in assistance from American taxpayers, major airlines have reciprocated by dramatically increasing ticket prices and reaching new lows in their treatment of travelers. To put an end to these harmful consumer practices and safeguard competition in the industry, the Department must play a leading role by aggressively using the authority it has been given by Congress.

            Last year, President Biden issued a groundbreaking executive order directing agencies like the Department of Transportation to do exactly that. The order directs the Department to develop and enforce guidance and rules related to delays, cancellations, and fees. It also directs the Department to further define “unfair” and “deceptive” practices and to coordinate with the Department of Justice to ensure competition in air transportation. As the Transportation Secretary and a member of the White House Competition Council, you are uniquely positioned to ensure these directives are carried out to their fullest extent. The recently announced Airline Passengers with Disabilities Bill of Rights is a shining example of the meaningful progress the Department can make toward improving air travel for Americans. That effort produced a comprehensive set of protections for individuals with disabilities — including rights to information, accessibility standards, airport assistance, and seating accommodations — and appropriate implementing regulations to make sure these rights become a reality.

We urge the Department to take a similarly bold and thoughtful approach to additional consumer and market safeguards. We appreciate your continued attention to and leadership on this important matter.

To better understand how the Department has used its statutory tools to protect consumers and promote competition, we ask that you submit answers to the following questions by August 9, 2022:

Consumer protection

1. During the Biden Administration, how many hearings has the Department held to assess whether an air carrier is engaged in an unfair or deceptive practice or unfair method of competition?
2. During the Biden Administration, how many orders has the Department issued enjoining any unfair or deceptive practices or unfair methods of competition? Please identify any such orders.
3. Please describe the status of all rulemakings pertaining to airline consumer protections currently under way and any proposed rulemakings the Department is currently considering.

Mergers and transfers authority

4. Since 2000, how many certificate transfers has the Department declined to approve? Please identify any such instances.
5. What factors does the Department consider when assessing whether a transfer is consistent with the public interest?
6. What impacts on competition in the domestic airline industry does the Department consider inconsistent with the public interest?
7. Please describe the status of all rulemakings pertaining to airline industry competition currently under way and any proposed rulemakings the Department is currently considering.
8. What additional competition authorities would aid the Department in its efforts to ensure a robust, competitive domestic airline industry?

Sincerely,

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