INTERNATIONAL AIR FARES

The Jets Are Driving Them Down

OF the many jet-age problems facing the world airline industry, the most pressing is how to find enough passengers to fill all the expensive new planes that will soon be flying. At the 15th annual meeting of the International Air Transport Association in Tokyo last week, Director General Sir William P. Hildred posed the problem, and provided an obvious answer: "We shall have to feed progressively larger gobbets of traffic to these monsters or they will eat us up, capital and all ...

Our markets are inexhaustible so long as we keep the fares down, down, down." Yet after three weeks of bitter wrangling at a Honolulu traffic conference, the 90 airlines from 50 nations who belong to IATA could not agree on any general scheme of fare reductions on world air routes. The international rate-setting conference broke up in failure, and the stage was set for a rate war when the current air-fare agreement runs out.

Few airlines argue with the basic premise that fares must be reduced to make the big jets pay off. As the British Comets and U.S. Boeing 707s complete their first full year of operation, the planes are proving far more efficient than most airlines expected. The lines first thought that one big, swift jet would do the work of two conventional planes; the ratio is closer to one-to-three. So far, with only a relatively few jets in operation, the new planes are justifying their $5,500,000 price tag and then some. Pan American reports more than 90% load factors on its transatlantic jet runs. Next spring, when all but two of the 13 IATA transatlantic lines have jets, so many new seats will be available that load factors may well drop below profitable margins. Three hundred jets will be in operation by the end of the year, and within twelve months jets will be delivering more payload than the 3,400 piston-engined aircraft IATA had in operation at the beginning of this year.

The airlines cannot count on an automatic increase in air travel to fill the new seats. While IATA international air travel has been increasing at a rate of about 15% a year, that is not enough to fill the new jet capacity. The obvious solution is to cut fares to bring air travel within reach of a wider market. The idea has already been tried on the North Atlantic; last year for the first time IATA allowed "economy" fares 20% below tourist rates, and the lines reported a passenger increase of 26.8% for the year.

Pan American argues that similar increases can be expected in world air traffic if rates are cut. The airline recently completed a jet study that forecast a 65%-to-80% increase in passenger traffic between North America and the Orient over the next three years, if fares are reduced 20% to 25%.

The stumbling blocks that wrecked the IATA conference last week were 1) when to cut, and 2) by how much. Under IATA rules every action requires unanimous consent of the lines involved, and each one, big or little, has an equal vote. The result was near-paralysis. As one delegate said: "It was not just a case of the jets v. the jetless. The voting was all over the lot by chaps with pistons, chaps with turboprops and chaps with both, not to speak of some who have jets on order and are now beginning to wonder how they are going to pay for them."

Pan American, TWA and a large group of farsighted smaller lines argued for the abolition of the tourist fare and adoption of new worldwide economy fares 12% to 15% below the present minimum rates. Such a "two-tier" fare system was blocked by Britain's big BOAC, which fought for a "three-tier" system (economy, tourist, first class) with the lowest fares pegged as much as 20% below tourist rates. Other lines felt that fare schedules are already complex enough, gave the British plan no support. Ranged against any immediate fare cut were some of the small national flag airlines, which are government-owned and heavily subsidized; they operate at a loss already and fear that lower rates would only push them farther into the red. Said one delegate from a small national airline: "If economy fares were approved and tourist fares retained, my company would have to operate at 114% of capacity to make money."

Many carriers who must wait their turn on jet-production lines are anxious to hold off until they receive their planes and are ready to compete. Both Alitalia and Japan Air Lines, which get their first jets next spring, do not want to lower fares or lift surcharges on jet flights (first class: $30 to Japan, $20 to Europe) in their areas immediately. Says one Japan Air Lines man: "We'll cut when we have our own jets, and that's the position of any airline without jets."

Pan American is threatening to cut worldwide fares on its own next summer, and BOAC is ready to extend lower fares to British colonies around the world. IATA has until the end of March to hammer out a compromise. If it fails, the organization may break up as fares fall.

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