Airline Industry Regulation Letter to Members of the Senate Committee on Commerce, Science, and Transportation.

To Members of the Senate Committee on Commerce, Science, and Transportation:

Reducing regulation of the airline industry is the first major opportunity to meet our shared goal of eliminating outdated and excessive government regulation. Sound regulatory reform is a top priority of my Administration. I commend you for the progress you and your colleagues have made in working toward that goal.

I urge you to speed the pace of your deliberations so that a bill can be acted upon by the Senate this year. You have already made significant decisions on many parts of the bill. But the most important decisions still lie ahead. I would like to elaborate upon the principles I set forth in my Message to Congress on March 4, 1977, and share with you my views on pricing and entry.

1. Automatic Route Entry. Pricing flexibility must be accompanied by strong entry provisions. It is entry, or the realistic threat of it, that prevents price flexibility from being abused. Automatic route entry is especially important in keeping prices low, and I consider it to be one of the most important elements of a reform bill. The current provision in the bill allows carriers to enter a very limited number of new markets each year without having to undergo the costly process of obtaining Board approval. The record developed by your Committee clearly supports even greater automatic entry than is provided by the current draft.

2. Presumption in Favor of Entry. Retention of the provision in the bill that would reverse the burden of proof in entry proceedings is essential. The presumption should be that competition is consistent with the public interest. Anyone who is against new competition should have to show that it would be harmful to the public--not the other way around. Indeed, I would prefer a provision reversing the burden of proof immediately upon enactment of the bill, rather than delaying its effectiveness of this provision for three years, as in the current draft.

3. Unused Route Authority. If a carrier has authority to serve a market but has chosen not to use it, a new carrier who would like to serve the public in that market should be given the opportunity to do so. There is simply no justification for preventing new carriers from serving markets which other carriers are not using. The draft bill makes entry against a carrier holding unused authority more difficult than entry into markets where no such unexercised grants of authority are outstanding. I recommend that this provision of the current bill be strengthened.

4. Pricing Flexibility. One of the major aims of reform is to allow carriers to lower their prices wherever possible. The current regulatory scheme permits lower fares only by means of heavily regulated and highly restricted price discounts. I urge you to support the provisions in the bill which take meaningful steps to remove the artificial regulatory barriers to lower prices.

I believe that entry provisions and upward pricing flexibility are intimately related. To the extent that the automatic entry and dormant authority provisions are strengthened, and the burden of proof is reversed at an earlier date, some limited upward pricing flexibility may be warranted. But if these changes are not made, then I would support a move to limit carriers to price increases only where they are justified by rising costs. Alternatively, you might wish to consider explicitly tying entry to pricing; that is, providing for some easing of the bill's entry limitations in those instances where prices have been significantly increased.

There are many aspects of this complex reform legislation, but the value which the ordinary citizen ultimately gains from our efforts mainly depends on the Congress' resolution of these four basic issues.

Sincerely,

JIMMY CARTER

[The Honorable Howard W. Cannon, United States Senate, Washington, D.C. 20510]