Losing Altitude

In the golden era of jet planes, U.S. airlines are flying in the red. Though their revenues have climbed steadily from $1.4 billion in pre-jet 1957 to an annual rate of $2 billion so far this year, the nation's eleven major domestic airlines collectively have lost some $20 million in the first half of 1961. Trans World Airlines alone lost $10 million, while Eastern, National, Northeast, and Western also turned in deficits. On the usually rich North Atlantic run, Pan American dropped close to $2,000,000, and this month its big jets were winging to Europe little more than half full. Says American Airlines' President C. R. Smith, whose company barely made a six-month profit: "Our industry is in a severe depression, and it will take some real Government understanding and industry effort to pull us out."

Loads Down, Costs Up. The rise in revenue and the drop in profit both can be traced to the same source: the jets. The airlines have invested well over $2 billion to buy 200 jets, have another 200 of them on order. As expected, the high-priced jets have attracted many new passengers, but not nearly enough to fill the expanded number of seats. Load factors have slumped since 1957 from 61.5% to a tree-skimming 54.6%.

Airline costs have increased at jet speed. Interest payments on the lines' big jet debt topped $43 million last year. Maintenance costs have jumped 47% in the past three years, and the airlines must also pay higher rents and landing fees for the bigger planes at newly built jet terminals. Labor bills alone have doubled in the past decade. It costs $30,000 to train a captain for jets, and he now earns an average of $28,000 yearly v. $15,000 on yesterday's piston planes.

In such rough weather, with some airlines in trouble, the Civil Aeronautics Board has pursued a well-intentioned but debatable policy. To keep weaker lines from bankruptcy it has given them good routes in direct competition with the strong lines. With rare exceptions the added competition hurt the strong and weak lines alike. Classic example: hoping to help out much-troubled Northeast Airlines, the CAB permitted it to fly the blue-ribbon New York-Miami route in competition with vigorous Eastern and National. Result: not only has Northeast failed to make a profit, but the sharp competition has turned the other two lines' black ink to red on that route.

Faced with such competition, airlines have spent more energy and money trying to win passengers from one another than trying to woo more people into the air. An estimated 55% of today's air travelers are businessmen, a fact that increased the recent recession's impact on airlines. Companies shifted executives from first class to coach and eliminated unnecessary trips. This year, for the first time in the industry's 40-year history, more than half of all travel is in the less profitable coach class.

More Efficiency, Less Luxury. Airlines are doing their best to cut costs. They have the support of a presidential fact-finding commission in their effort to eliminate the flight engineer from the jet crew, on the ground that the jets already carry three pilots (v. only two for piston craft) and that the simpler engines do not require the attention of a fulltime engineer. (The angered engineers may strike Pan Am this week to dispute the recommendation.) Airlines have also put a new emphasis on efficiency. Continental Air Lines, which makes money, owns only five jets but gets the most out of them by repairing and servicing them at night, claims the industry's best utilization record.

Executives of the airlines have come to realize that low fares and on-time performance attract more passengers than do frills and filet mignons. Eastern Air Lines has had good success with its new air shuttle linking New York, Washington and Boston with older prop planes. Passengers have no reservations but are promised a seat, pay for their tickets aboard. Fares are lower (by some 16%) in return for Spartan service (passengers wheel their own bags to the loading gate, and water is the only flight-time refreshment). Profit-making United Air Lines is trimming costs by serving more modest meals on the jets. Says President William A. Patterson: "It's plain ridiculous to stuff down as much food on a short jet flight as on a long piston one."

Trend to Mergers. No one thinks such economies are enough to solve the industry's troubles. Many transportation experts, among them Harvard's Paul Cherington, argue that the U.S. hardly needs a dozen major lines, that some sensible mergers would eliminate costly separate facilities and ground crews. The CAB's new Chairman Alan S. Boyd, 39, is merger-minded, and he is already hunting a strong mate for Northeast Airlines. His goal is to strengthen the airlines so that they will be able to make the next technological leap forward--to supersonic jets by the early 1970's--without massive federal subsidy. To accomplish that, Chairman Boyd believes that the CAB must abandon its policy of rewarding the weak to keep them alive. "That era has passed," says Boyd. "My philosophy is one of consolidation."

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