Grounded in New York
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
New Yorkers already chafing under the perimeter rule by which the government over-regulates their flights out of La Guardia Airport will be disappointed to hear that yet another effort is underway to limit their air travel options. This attempt is being waged by the airlines themselves. Continental, abetted by Northwest, Delta, and other “legacy” carriers, is trying to slow approval of a new low-cost airline whose flagship route would traverse the continent between San Francisco and New York. They’re doing so by appealing to an antiquated law that might as well be put out of its misery, and ours, sooner rather than later.
The law dates from the 1940s and requires that American citizens own at least 75% of any domestic airline. Its original justification was that it would keep assets of potential military value, such as large aircraft, in American hands. Lately the rule has become a tool that ailing legacy carriers can use to obstruct competition, either by keeping their competitors from tapping into foreign sources of capital or, as in this case, by trying to block the creation of new competitors altogether.
The current furor surrounds Virgin America, whose business plan envisions a California-based low-cost carrier similar to other low-cost carriers bearing the Virgin brand. Although Richard Branson and his Virgin empire are minority shareholders in the venture, most of the capital is coming from Americans in order to stay on the right side of the foreign ownership prohibition. The airline’s top executives are American citizens, who happen also to be former executives of legacy carriers.
Virgin America is currently applying to the Department of Transportation for an operating certificate that will allow it to get off the ground. Mainline carriers have been taking advantage of the comment period to raise objections to the proposal, chiefly by urging the department to investigate the airline’s ownership structure to make extra-triple, super-duper sure it’s legal.
A spokesman for Continental, David Messing, tells us that the airline and its peers are only trying to make sure Virgin America is obeying the law. Others posit different motivations. One theory runs that Continental, along with Delta and Northwest, are trying to use Virgin America as a pawn in their longstanding battle for an agreement with the United Kingdom that would grant them access to Heathrow, one of Europe’s most important airports. Currently only four airlines can fly nonstop to America from Heathrow. Two of those are American owned – American and United – while a third just happens to be Mr. Branson’s Virgin Atlantic.
Opening competition on such routes is a laudable goal, but surely there’s a better way to achieve it than punishing American consumers, who, absent more competition, will likely end up paying higher airfares for their domestic flights. Legacy carriers like Continental are keenly aware of the threat. Another theory explaining the airline’s resistance to Virgin America is that Continental has already been stung by the incursion of another low-cost carrier, JetBlue, into Continental’s hub at Newark International and is keen to avoid a repeat.
The real problem here is that an outdated law is providing Continental and other airlines with a way of thwarting competition. The Bush administration understands this, and has made efforts to loosen its interpretation of the law, a move we noted back in November. Even that attempt, which would preserve the basic 75% ownership requirement, has met stiff resistance. If anyone still needed a reminder that the time is ripe for a total overhaul of the regulation, the travails of Virgin America are it.