Public Policy: Competition v. Solvency

From the moment President Kennedy appointed him chairman of the Civil Aeronautics Board in 1961, Florida Democrat Alan S. Boyd, 40, made it plain that he was anxious to do something about the plight of the nation’s airlines. Plagued by skyrocketing costs and too many empty seats, the country’s trunk lines dropped over $35 million last year. Boyd’s proposed cure: more mergers to create stronger companies. Said he: “It takes a big company to sustain the burden of keeping pace, when aircraft cost $5,000,000 to $6,000,000 apiece.”

Airline bosses were quick to take Boyd at his word ; early this year faltering Eastern Air Lines, which is the nation’s third biggest trunk carrier, looked over its $9,600,000 losses for 1961 and decided that the best remedy lay in a merger with second-ranking American Airlines, which earned a tidy $7,280,000 last year. Predictably, the proposal evoked a noisy chorus of opposition from rival airlines, the airline unions and the Justice Department’s trustbusters. Last week came the most ominous protest yet: in a 119-page report, CAB Examiner Ralph L. Wiser, 52, urged the board’s members to disapprove the Eastern-American marriage.

Wiser’s prime argument was that an Eastern-American merger would unduly diminish competition in air transport. The merged line would be the world’s largest.

Serving 20 of the 23 biggest air traffic hubs in the nation, it would account for 33% of the U.S. airline industry’s operating revenues, 40% of its freight business and 36% of its total assets. “The only other carrier that would be even close,” wrote Wiser, “would be United, which has about a fourth of the business.” Wiser’s opinion is not binding on the CAB. The board can vote to overrule its examiners (and has on 18 of their last 47 recommendations). But because international routes are involved (Mexico, Bermuda, Puerto Rico), final say in the Eastern-American merger rests not with the CAB but with the White House. In the end, the decision will turn on whether President Kennedy thinks it is more important to keep the airline industry hotly competitive or to keep it solvent.