Summary: Pursuant to a congressional request, GAO examined the effectiveness of the Department of Transportation's (DOT) airline oversight activities, focusing on how DOT: (1) developed and implemented its policy for approving airline mergers; and (2) protected airline passengers from unfair and deceptive trade practices.
GAO found that: (1) major changes occurred in the airline industry between 1979, when the Civil Aeronautics Board (CAB) formed its assumptions about airline contestability, and 1985, when DOT used CAB assumptions to approve mergers; (2) airlines developed such new strategies as frequent-flyer programs and computerized reservations systems to compete for business and limit new competition; (3) DOT studied the roles of potential competitors, rather than the combined effects of the new strategies on competition; (4) DOT considered such physical barriers as airports' capacity to handle take-offs and landings as the only meaningful measure of whether a merger would significantly limit competition; (5) although the DOT merger authority under the CAB Sunset Act should have expired in 1988, an act anomaly allowed DOT to continue its authority to bring administrative proceedings against airline mergers that violated antitrust laws; and (6) although the Federal Trade Commission (FTC) and the Department of Justice continued to receive premerger notification, DOT and Justice would be the only two agencies that could stop mergers. GAO also found that: (1) DOT improved some aspects of its consumer protection functions; (2) DOT resolved almost 41,000 consumer complaints in 1987 and conducted 378 investigations in 1988 that resulted in $174,500 in fines for violations; (3) although DOT stated that a major priority of the investigative effort was to look for violation patterns, it failed to follow up on several companies' deceptive trade practices; and (4) DOT policies on deceptive advertising caused confusion and prompted state actions to establish other advertising guidelines.
