The Carriers Want a Lift to Stay Aloft

AT the height of the air-travel boom the U.S. airline industry is moaning low. Though revenues for the first five months of 1957 hit a record $618 million, the airlines reckon their total net operating income at barely $14 million--down by a staggering 63.5% from last year. Five of the twelve major trunk lines--Capital, Northeast, Northwest, United and Trans World Airlines--reported that they were operating in the red, and airline shares have lost 30% to 40% of their market value since 1955. This week, after a long, bitter campaign, the airmen will present their final arguments to the Civil Aeronautics Board for the one thing they claim will head off a serious crash: a 6% fare increase on all domestic routes, their first big raise in nine years.

Many of the experts responsible for advising CAB's five-man policy board argue that U.S. airlines are not so badly off as the operators claim, that the net operating income of previous years--a fat $224 million for 1955 and 1956--should carry the lines through any turbulence in 1957. Even this year, say the critics, U.S. domestic trunk lines will fly an estimated 41 million passengers, 10% more than the 1956 record, and enough to assure possibly a 20% return on investment v. the standard 8% return CAB considers "reasonable."

The airlines challenge CAB's staff at every point. The profits of past years, they argue, have gone largely for new and increasingly expensive fleets of DC-75 and Constellations. As for this year's earnings, the lines charge that CAB arrives at its 20% return on investment by "incorrect" and "dangerous" accounting procedures, which take no account of the multimillion-dollar down payments toward new jet transports slated for future delivery. By eliminating these deposits, the CAB staff reduces every airline's investment base to the point where the investment return looks more favorable, even though overall profits have slipped badly.

The great worry for most airmen is that increasing costs may cause them to lose their profits altogether in the next few years. Since 1938 airline wages have jumped at least 100%; the standard $85,000 DC-3 of 19 years ago is now a $1,800,000 DC-7, and spare parts and equipment to keep it flying have zoomed 27% in the last six months alone. While most other industries have passed their costs on to consumers, the airlines have not. In two decades bus revenues per passenger-mile have gone up 27%, train revenues 42%. But a one-way, first-class plane ticket from New York to Chicago has edged up only 15-c- (to $45.10), is even cheaper on coach flights. Says United Air Lines' Vice President Robert E. Johnson: "We have held the price line to the last nickel; but we cannot keep on holding it when we are conspicuous among the industries around us."

Until recently, the airlines have defeated the cost-price squeeze by flying more efficient planes with more passengers each year. Now their rate of growth is leveling off. While passenger volume climbed 18% in 1955, it increased only 13% in 1956, will probably gain only 10% this year. Moreover, the airlines have reached the economic limit of efficiency with their present fleets. For the first time in commercial air operations, the most modern piston-engine plane, Douglas Aircraft's DC-7, cannot haul enough passengers far enough and fast enough to compensate for its higher initial cost and increased repair and gas bills.

To turn the profit, volume and efficiency curves skyward again, the industry counts on new jets, which will start coming into service in 1959. But they are expensive to buy and operate. An 80-to-112-passenger Boeing 707 costs as much as $5,250,000; its captain may get up to $30,000 annually (v. top pay of $25,000 in DC-7s). Yet many airmen fear that they may not be able to complete payment on the jets. The trunk lines' profits are so shaky that they have been able to find firm financing for only 25% to 33% of their total $2.6 billion in jet fleet orders.

No one can be sure how CAB will rule on the 6% fare hike. One possibility is that it might grant a temporary increase pending the outcome of the long-range General Passenger Fare Investigation, which it is now conducting independent of the 6% request. Whatever happens, most airlines consider a 6% boost only an emergency lift. For the long haul they argue that at least a 10% increase is necessary to preserve the air fleet which the nation's security and economic well-being demands. The alternatives, say the airmen, are two: either the weakest airlines will fold and the middling ones merge, concentrating the air-transport industry, like Detroit's automakers, into a few giant companies, or U.S. airlines will be forced once again to come begging for big subsidies such as those supporting the U.S. shipping industry.

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