Aviation: Flying Cash Registers

With automobiles and yachts, ski weekends and Caribbean vacations, Americans spend more of their income (10%) on transportation than any other people. This $50-billion-a-year penchant for going places has created a healthy tail wind for the nation’s airlines, which last year ticketed more passengers, carried more freight and made more money than ever before.

Last week, aware that the most flights over a given route usually capture the most business, three big airlines placed a dazzling bet on new equipment designed to give them a competitive edge in the race to attract even more Americans to the skies.

Plum for Boeing. United Air Lines, the largest U.S. line, announced the biggest individual order in air transport history: $750 million worth of jet planes and spare parts. Most of the 144-plane plum went to Seattle’s Boeing Co., which thus not only reinforced its position as the world’s largest maker of commercial planes (recently wrested from Los Angeles’ Douglas Aircraft), but also gained dramatically in its race to catch up with Douglas and British Aircraft Corp. in sales of short-range jets. United will acquire 130 Boeing planes in all: 70 twin-jet short-range 737s, 30 medium-range tri-jet 727s and 30 “quick-change” 727s with interiors that can be converted from passenger to cargo fittings in 20 minutes. The new 727s will enable the airline to squeeze an anticipated 31 hours more of daily use from each plane by converting it to haul freight at night.

Though United disappointed Douglas by spurning its short-range DC-9 jet, it handed over $130 million worth of consolation: firm orders or options for 14 long-range DC-8s. Half of them constituted the very first order for the world’s largest commercial jet: the DC-8-61. Now on the assembly line, the huge plane can carry 251 passengers, is a 36-ft. longer version of the DC-8, which accommodates 189 people. Eastern Airlines also ordered four DC-8-61s last week, and American Airlines, already committed to spending $205 million for 49 new Boeing and British Aircraft jets, announced plans to raise $53 million for the purchase of even more aircraft, yet unspecified.

It is little wonder that the airlines are on a buying spree. Since 1962, jet transports have proved to be flying cash registers—twice as fast and three times as profitable as the best piston-engine planes. So efficient are the jets that Boeing 707s, for instance, break even with passenger loads as low as 39% of capacity. The industry’s load average rose to 55% last year, enough to return the eleven U.S. trunk carriers 11% on their $2.3 billion investment, the highest rate in 15 years. This has produced some speculation that the Civil Aeronautics Board may order fare cuts (it regards a 101% return as “fair and reasonable”), but the airlines argue that they need several years of high earnings to pay for the $2.5 billion worth of new jets now on order. For the moment, the CAB seems inclined to agree.

Meager Profits. With 25% of the U.S. airlines’ 1,800-plane fleet already composed of pure jets (and another 18% of efficient turbo-prop models), all this new equipment means that the trunk carriers will soon be flying nearly all their passengers in jets. Even the feeder lines, which operate most of the 1,017 piston-engine craft still in service, are starting to switch. A compelling reason: the new small jets are not only designed for hauls as brief as 100 miles but can operate on runways too short for most other modern planes.

For their makers, however, the jets have paid off stingily. Douglas has yet to break even on its DC-8s despite its 269 orders. Convair lost more than $400 million on its poor-selling 880s and 990s. It took Boeing ten years and 400 orders worth $2.1 billion to reach a break-even point last fall on its pioneering 707s; 319 sales totaling $1.28 billion have also recouped costs on Boeing’s medium-range 727.

The jet takeoff seems to be only beginning. United Chairman William A. Patterson based his line’s huge order on expectations that the industry’s business will grow 60% in five years. Juan Trippe, chairman of Pan American Airways, predicts that traffic will triple in ten. One reason for the optimism: for all their traveling, 80% of Americans have yet to fly. The global potential is even bigger; only 2% of the world’s population has been up in a plane.