Airlines: Flak from the Boss

The nation’s airline executives felt a little like the man who asked the boss for a raise and wound up being asked to take a cut. They recently petitioned the Civil Aeronautics Board for a 50¢-per-ticket increase in first-class fares, hoping that the raise would make up for some of the $17 million in annual excess-baggage charges that will begin to diminish this week when more generous baggage allowances go into effect.* The CAB not only turned down the proposal, but told the lines that they are in an excellent position now to reduce fares. This was the board’s first significant pronouncement under Lawyer Charles S. Murphy, 55, former Under Secretary of Agriculture, who stepped up to the CAB chairmanship last April after 28 years’ experience in Government jobs—and no experience to speak of in airline affairs.

The CAB, which can order the fare cuts if the airlines balk, was aroused by pressure in Congress and by the industry’s earnings jump after 1963. Profits of the eleven trunk lines rose astronomically, from $10.7 million in 1963 to $136.5 million last year, and will rise even higher in 1965. As a group, the lines have slightly topped the 10.5% return on investment that the CAB considers equitable, and several are doing much better than that.

The airlines have been granted seven rate increases since 1958, including a jet surcharge that was approved under the mistaken assumption that the highly productive jets would cost more to operate than piston planes. Even the industry’s weakest member got a lift last week, when control of money-losing Northeast Airlines was sold by Howard Hughes’s trustee to Miami Beach’s Storer Broadcasting Co.; Storer will provide fresh funds, but Northeast’s future depends on a pending CAB decision as to whether it can continue to fly the New York-Miami run.

Viewed in the longer perspective, airline earnings are not spectacular. The lines lost $35 million in 1961, earned only $8 million in 1962, have just lately climbed into the jet-black yonder. Moreover, while the industry is still amortizing its present jet fleet, it has also ordered 480 new planes that will cost $2.4 billion. To the airline executives, cruising between past expense and future commitments, the present profits did not seem overly lavish—and the boss appeared somewhat unfair.

* Though the new rules vary, most lines will do away with weight limits, permit passengers to take two suitcases and one carry-on bag about the size of a briefcase.