Airlines: More of Everything but Earnings

U.S. airlines pride themselves on being the industry of tomorrow. On the way to that roseate tomorrow, they are running into considerable turbulence today.

In a sense, the airlines have been buffeted by their own success. Airline revenues have more than tripled during the past decade, and the industry expects to transport 300 million passen gers a year on domestic flights by 1975, compared with 125 million last year. Gearing themselves to the crush of expected business, most major carriers have been busily adding new flights to their schedules and laying out huge sums for stretched jet transports, jum bo jets and supersonic aircraft. In the process, they have found themselves trapped in an ever worsening cost-profit squeeze.

Alarming Rate. With bigger planes operating more flights in anticipation of that happy future, the number of empty seats is growing at an alarming rate. In addition, the industry has been bedeviled by spiraling expenses, which increased by 21.2% last year and are up almost as much more in 1968. The one-two punch has battered the profits of some of the biggest carriers. United has suffered an earnings decline this year of 49.2%, Continental Airlines of 62.5%, Eastern of 63.3%. Even worse off is Trans World Airlines, which lost $1.78 million during the year’s first half, compared with a profit of $7.62 mil lion in the same period last year.

Labor accounts for one of the industry’s fastest-growing expenses, as evidenced by the salary increases of roughly 20% that airline pilots have recently been winning. Air-traffic delays, brought on in large measure by the proliferation of scheduled flights, have cost the airlines some $90 million so far this year. But new aircraft purchases are far and away the most expensive item. Under contract, U.S. airlines will take delivery of 451 new jet planes this year, at a cost of $2.6 billion. In all, they have commitments or options to buy $7.6 billion worth of jets by the end of 1971.

Shakedown Ahead. On the revenue side, the airlines have clearly been misled by overoptimistic passenger projections. Carriers flying between New York and Los Angeles have added enough new seats this year to accommodate an anticipated 15% growth of traffic, but the number of passengers has increased by only 7%. Last year American Airlines scheduled 103 weekly flights from New York to Los Angeles, operated them at 70% of capacity. This year, after adding 43 flights to the route, American has seen that occupancy figure drop to 55%.

If the problem of empty seats persists. airlines may well have to cut back on some flights to increase operating efficiency. In this, they will be getting an extra push from the Federal Aviation Administration, which has tackled the delay problem by proposing traffic-flow limits at congested airports. Nowhere is the saturation of the market—and sky—more glaring than on the run between Chicago and New York, which, with 110 daily flights each way, is one of the world’s most heavily traveled routes. United’s president, George E. Keck, whose company is one of the route’s prime contenders (others include American and TWA), admits that “a shakedown” in the number of flights is probably inevitable. One way to accomplish that would be to set up a computerized pool arrangement that would enable competing airlines to keep track of combined bookings and cancel redundant flights.

Non-Uniform Uniforms. Besides lightening their flight schedules, some airlines may have to cancel or at least defer new aircraft orders. John Crooker Jr., chairman of the Civil Aeronautics Board, is particularly concerned about local feeder lines. Recent jet purchases have enabled these carriers to increase their available seat miles (the number of seats multiplied by the distance flown) by 40% over the past year. However, they have increased passenger traffic by only 27%. Feeder lines, Crocker warns, may have committed themselves to “substantially more equipment than projected traffic warrants.”

The industry as a whole confidently expects passenger traffic to begin catching up with airline capacity by 1970. Until that happens, the airlines will remain in a bind. Engaged in a fierce competitive battle to sell more seats, the industry has been spending lavishly on promotion gimmicks. The results have been mixed. Braniff International, one of the few major carriers to show an earnings increase this year, squeezes its extra mileage in large part from the ideas of Ad Gal Mary Wells (now the wife of Braniff President Harding Lawrence), who dressed stewardesses in Pucci-designed uniforms and painted planes in vivid hues. By contrast, TWA’s decision to doll up stewardesses on transcontinental domestic flights in “foreign accent” uniforms has proved something of a flop. Having hired the Wells agency away from Braniff, TWA next month will instead start outfitting its girls in what it calls “modernistic nonuniform uniforms.” These will consist of casual mufti ensembles, with accessories to suit the individual stewardess’ taste.

Obviously, promotional hoopla alone will not solve the airlines’ earnings problems. They are currently mounting a vigorous campaign for fare increases, notably on such cut-rate promotions as youth, family and excursion fares. Some lines also want increased first-class rates on short-haul flights. Meanwhile, the CAB has intimated to the industry that it should cut down on the costly frills before seeking higher fares.