New Facts of International Competition

AS U.S. international airlines enter the Jet Age, the U.S. is junking a belief as outdated as its piston planes. The belief was that U.S. flag carriers could hold their lead over a growing flock of aggressive foreign competitors without a drastic change in U.S. air policy. Last week the U.S. airlines got a new warning of the onward march of foreign competition. From the State Department came an announcement that Air France will get an additional U.S. gateway at Baltimore and a polar route to the U.S. West Coast. BOAC will get the right to land at Tokyo on its San Francisco-Hong Kong run, which is expected to take $7,800,000 yearly away from U.S. lines. A CAB examiner recommended that Air India be authorized to fly into the U.S.

But the biggest threat is Russia's Aeroflot, the world's largest commercial airline. Its 1,600 planes fly 350,000 route miles, serve 500 airports from Kamchatka to London. Airmen expect that one of the points of discussion between President Eisenhower and Premier Khrushchev will be yet another jump for Aeroflot: the right to carry passengers to and from the U.S.

If Aeroflot gets rights into New York, Pan American World Airways will fly into Moscow. But the exchange does not tell the whole story. Aeroflot, which now matches International Air Transport Association rates (though it does not belong to I.A.T.A.), is expected to behave for a while. But airlines fear that, as a totally subsidized state airline, it will eventually cut fares to aid Russia's economic offensive.

Despite last week's O.K. on new competition, U.S. lines found some cheer in the decisions. They showed a real change in U.S. policy to conform to the new competitive facts. What made the decisions different was not so much what the U.S. granted--BOAC, Air France and Air India were entitled to the routes under reciprocal exchanges--as the manner of giving. France had formally denounced its bilateral air route agreement with the U.S. 13 months ago, insisted on getting "double trackage" rights, i.e., the right to serve any U.S. city where a U.S. carrier originates a flight for France. The State Department flatly refused.

CAB and the State Department have not always been so alert to protect the interests of U.S. flag lines. When Great Britain and the U.S. laid down the basic postwar air route pattern in Bermuda in 1946, the U.S. was the only nation equipped with planes to operate long-distance service. It campaigned for a free competition agreement, but the plane-short British forced a compromise that provided for an equitable exchange of traffic between nations signing a bilateral pact. Since then the U.S. has often ignored breaches by foreign airlines, drawn criticism from U.S. carriers for giving out fat new routes without getting much in return.

Now the State Department and the President, who has the final say about what international routes the U.S. gives out, are ending the giveaway period in favor of more horse trading and stricter rule watching. The new trend was forced by the awareness that U.S. flag lines could follow the downward path of the U.S. maritime industry. Though 70% of all air passengers between the U.S. and foreign countries are U.S. citizens, the share of traffic carried by U.S. carriers has fallen from 75% in 1949 to 60% today. In the first quarter this year, BOAC nudged out Trans World Airlines as the second biggest transatlantic carrier (No. 1: Pan American), the first time a foreign flag line has flown ahead of a U.S. line.

Foreign carriers have rushed into the U.S. in such numbers that 40 now draw from the U.S. market v. 22 in 1949. Most of them get far more than U.S. carriers out of the bargain, often add extra flights to siphon off as many passengers as possible in violation of the spirit of the Bermuda agreement. In return for permitting Pan American to serve Amsterdam, KLM flies into New York and Houston. Result: last year KLM collected $29.4 million on 86,225 U.S. passengers, while Pan Am got only $1,700,000 from 2,842 Dutch passengers. While cutting into U.S. markets, foreign carriers are strengthening themselves against inroads into their home territory; e.g., European carriers got I.A.T.A. to place a special tariff on transatlantic jet flights because they do not have jets to compete with the Boeing 707.

As the only private, nonsubsidized air fleet in the world, U.S. carriers must find a better way to face competition if the U.S. is to keep its place as a powerful air nation. The most obvious solution would be Government subsidy, but most airlines themselves admit that this is a last resort. What they want is for the U.S. to show a tougher stand in route bargaining and in enforcing current agreements. In the next five years the jets will force a revamping of virtually all of the 54 bilateral agreements between the U.S. and other nations. Unless the U.S. trades much more shrewdly with foreign airlines, U.S. flag carriers may not be able to compete in the Jet Age.

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