Paying for Jumbo
A few days ago, four airline chiefs slipped into the White House for an unpublicized hour-long chat with Richard Nixon. Exactly what the quartet --George Keck, president of United, Charles Tillinghast, chairman of TWA, Floyd Hall, president of Eastern and George Spater, chairman and president of American--told the President is supposed to be secret. Anyone who can read a profit-and-loss statement, however, will have little trouble guessing what the meeting was about. The airline chiefs complained to Nixon that their industry is in its worst financial mess since the introduction of passenger jets in the late 1950s, and will need fare increases and possibly some cuts in flight schedules to begin pulling out.
Total airline profits dropped from $412 million in 1967 to $55 million last year. This year the industry is likely to chalk up an aggregate net loss. Six of the twelve major carriers already have reported deficits totaling $92 million for the first half of 1970. The biggest losers: TWA, with $44.5 million, and United, with $20.7 million. The airlines have obligated themselves to pay a cool $10 billion to convert to the jumbo 747 and other wide-bodied jets, the DC-10 and L-1011--$6.6 billion for the planes themselves, the rest for additional equipment and ground facilities. The industry has also saddled itself with costly new routes, and the giant jets are at least temporarily running up expenses faster than they are generating revenues to pay the bills.
Passenger traffic is rising, but as new routes and jumbo jets add capacity, the critically important "load factor"--percentage of seats occupied--is dropping. The jumbos themselves are well filled and efficient, but they are drawing passengers from the smaller jets. In the first seven months of this year, TWA filled only 47.2% of its seats, down from 50.3% a year earlier; American's load factor in early 1970 was 49.6% v. 50.1% in 1969. Airline costs of all varieties are climbing at an accelerating pace. TWA's costs for rental and construction of ground facilities have gone up 15% in the past two years. The advent of the jumbo jets has added another twist to the spiral. Landing fees for a 707 jet last year were $330 in Paris and $738 in London; now it costs $808 to bring a 747 down in Paris and $1,675 in London. Pilots who fly 707s for Pan Am--which lost $19.6 million in 1970's first half--make $46,000 a year, but pilots of the 747s draw $59,000.
The Civil Aeronautics Board last year granted the airlines $300 million yearly in fare increases, but that will barely meet the interest on the debt that the carriers have incurred to buy and service the new jets. Now the major carriers are asking for further fare increases of 4% to 10% on domestic flights. In addition, the airlines may well seek to drop some competing flights that take off at the same times, over the same routes, with mostly empty seats. Pan Am already has cut its West Coast-to-Honolulu flights from 80 a week to 40, and fired 378 men from its flight crews, since the CAB authorized six competing carriers to fly the same route. Last week Pan Am announced that on Sept. 16 it will drop the New York-to-Los Angeles portion of its New York-Honolulu and Sydney run.
In No Mood to Wait. Official Washington is suddenly becoming concerned about the airlines' plight. Though airline executives can decide what kind of planes to buy, how often to fly them and whether to serve steak or salmon aloft, regulatory agencies and Congress, to which the regulators are responsible, have authority over safety rules, routes and fares. Last week Washington's Warren Magnuson, chairman of the Senate aviation subcommittee, announced that he will open hearings next month on "the deteriorating situation in the air-transport industry." Congress and the regulatory agencies, he said, have a "responsibility to take remedial action." Airline executives do not intend to wait. Within a fortnight, they plan to announce a major cut in transcontinental schedules.
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