Crash Warning

For more than a year, U.S. airline operators have been flying in a pilot's nightmare: the higher they flew, the closer they came to a crash. Though domestic-airline revenues rose to new records, the drag of faster-rising costs reduced profits to the point where net operating income dropped to $101 million in 1956, v. $123 million in 1955. Last March seven major airlines petitioned the Civil Aeronautics Board for a 6% "emergency" fare inr crease pending the outcome of a full-scale general fare investigation of their entire rate structure. Last week, in their first-quarter reports, Capital Airlines and Eastern showed how much worse the profit squeeze has become.

Plus Equals Minus. Capital was in such trouble, said President J. H. ("Slim") Carmichael, that it will have to "defer" a $60 million order for 14 British-built Comet jetliners and 15 Viscount turboprops that it hoped to add to its fleet. Some of the planes were already coming off the production line, freshly painted with Capital markings; now they will go to other lines until Capital's finances are in better shape. While Capital had increased its operating revenues by 62% to $19.2 million for the quarter, said Carmichael, rising costs, coupled with bad winter flying weather, which grounded many flights, produced a net loss of $1,870,171 for the quarter.

What was true of Capital was true throughout the industry. For its first quarter, Eastern Air Lines announced record operating revenues of $70.7 million. But because costs jumped 29.4%, Eastern's net earnings tumbled 30% to $3,238,428. Wage costs were up 33%, fuel 33%, other expenses as much as 120%. United Air Lines was in even worse shape. It boosted first-quarter revenues 6%--and lost $884,609. National Airlines, also operating at near record rates, expects a 25% drop in profits this year; American Airlines, Braniff and Delta are also down. Trans World Airlines boosted its revenue 10.5% last year, yet lost $2,300,000 v. $5,400,000 profit in 1955. This year operating revenue is up 17% over last year's first quarter--and the deficit has increased by 22%, forcing the line to lay off 2,000 employees.

Back on Subsidy? The airlines' basic argument is that fares have not increased substantially in 15 years, while everything else in the U.S. economy has gone higher. Says Delta President C. E. Woolman: "In 1939 we were carrying people in $120,000 planes at 160 m.p.h. at an average investment per seat of $5,000. Today we are carrying them in $2,000,000 planes at 370 m.p.h. at an average seat cost of $25,000. This, it would seem, would justify some sort of increase."

The situation will grow even worse in 1958 and 1959. Every major carrier has placed orders for swift new jet transports whose initial cost is three times more than current piston-engine planes. Estimates are that over the long run the planes will be able to earn twice as much money as their older counterparts. Yet rising costs are eating away the profits the lines had hoped to set aside to buy them. American Airlines, for example, has $250 million worth of new jets and turboprops on order. It has a $135 million loan to pay for part of the cost, but $115 million of the total must come from earnings.

Some time within the next four months, CAB will decide on the industry's 6% fare increase. No one knows how CAB will rule, but the outlook for an immediate increase is dim. Instead, CAB may wait for the outcome of the general fare investigation, which will probably last another 18 months at least. By then, say airline men, the industry may well be in such trouble that some lines will be forced back on Government subsidy.

This file is automatically generated by a robot program, so reader's discretion is required.