Is the U.S. Giving Away Too Much?

OVERSEAS AIR ROUTES

FOR the U.S. international airlines, the biggest problem of 1957 has spawned the bitterest argument. The problem: increasing competition from foreign carriers, largely because the U.S. is letting more and more foreign lines get into choice U.S. markets. Last week, as Pan American World Airways inaugurated a long-contemplated polar route from San Francisco to Paris, the French government threatened to halt the flights unless its Air France got a similar route--and the U.S. State Department quickly said that it would consider the matter.

The incident was the newest in a long series that has embroiled U.S. airlines in a dust-raising quarrel with the State Department. Airmen charge that State's Office of Transport and Communications, the branch responsible for working out air agreements, is dispensing U.S. routes to foreign operators with far too lavish a hand, and getting little--or nothing--in return. The cumulative effect, say the lines, is that while U.S.-flag carriers flew 80% of all transatlantic traffic in 1947, today they account for slightly less than 50%, even though almost 70% of all passengers are U.S. citizens.

U.S. airmen complain that the U.S. is badly out-traded whenever a new route agreement comes up for negotiation. The airlines point to the 1955 agreement with West Germany's reborn Lufthansa, under which the Germans got rich routes to half a dozen cities up and down both U.S. coasts in return for landing and pickup rights at six German cities. They argue that The Netherlands' KLM Royal Dutch Airlines won new routes last April which will give the Dutch $15 of revenue for every $1 the U.S. gets in return. The latest: a route across the U.S. for Australia's Qantas Airlines which will produce at least $4,000,000 annually in return for concessions (including a route over the South Pole for the U.S.) that U.S. airmen flatly call "worthless."

The great danger, argue the lines, is that by granting foreign rights on prize routes the Government has weakened the competitive position of U.S. lines to the point where the industry may have to come back begging for subsidy payments.

For its part, the State Department argues that the U.S. gets seemingly little only because it has long since won most of what it wants from foreign nations. Most of the basic air agreements were negotiated between 1946 and 1948, when the U.S. was the only nation with the aircraft and the capital to operate overseas routes. Now that other nations can buy the planes and keep them flying, the U.S. must give them a crack at its own markets.

The State Department also marshals impressive statistics to prove that U.S. overseas airlines have not been badly hurt despite increased competition. In 1955, the last year for which figures are available, U.S. airlines got $225 million from overseas operations v. only $119 million for all foreign operations on U.S. routes. State Department economists also note that this year Pan American will carry 20,000 more passengers on transatlantic runs than in 1956, an increase greater than the total transatlantic business of either British Overseas Airways or Air France. Furthermore, while economics technically dictates all route awards, international politics always plays a role. The State Department emphasizes that American airline operations everywhere overseas are almost entirely dependent on the good will of foreign nations, which means that they must be kept reasonably happy. An uproar over routes can arouse surprising bitterness. In the case of Holland's KLM, Queen Juliana herself made an earnest speech for a U.S. route because to the Dutch, like many others, the airline is not merely a business but a national symbol, compensation in part for the vanishing Dutch navy and the lost East Indies.

In any event, says the State Department, the mere granting of routes does not mean an immediate, full-scale competitive attack on U.S. carriers. Of the 62 agreements between the U.S. and foreign nations, 32 have still not been put into action, and many will probably never take effect because of the cost of setting up an airline. But this is one argument that really riles U.S. airlines. While it is true that the airline business is getting more expensive, the fact that international airlines are also instruments of national prestige means that every nation, big or little, wants one, and that governments are only too glad to step in with the necessary subsidies to buy new equipment.

Thus, for better or worse, the U.S. must prepare for increasing airline competition from abroad. The main hope for U.S. lines is not to try to restrict competition but to outrace it by faster aircraft, lower fares, more and better flights, food and service. As in everything else, the businessman who pleases most of the customers most of the time inevitably walks off with most of the business.

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