AIRLINES: Hurtling into More Storms

Like a ghost from the past, an ancient blue-and-silver Swallow biplane last week zipped down the runway and into a dawn sky over Pasco, Wash. About two hours and 244 miles later the tiny two-seater landed at Boise, Idaho, to a cheering crowd. The journey was a rerun of the nation’s first airmail flight by an outfit (Varney Air Lines) that later became part of United Airlines, and its purpose was to mark a half-century of commercial aviation in the U.S. The milestone, however, comes at a less than auspicious time for most major carriers. Buffeted by a recession-induced fall-off in air travel, exploding fuel costs and damaging uncertainties about Government regulation, the industry has been bucking one of the stormiest business climates in its history.

Small Profit. Last year the nation’s 11 major scheduled lines had a collective loss of $110 million v. a profit of $321 million in 1974. Only five carriers managed to make a profit in 1975: Northwest, Delta, Braniff, Western and National. The nation’s largest line, United, which on top of everything else was grounded for 16 days in December by a mechanics’ strike, registered a loss of $7.7 million for 1975—and has already dropped another $35 million in the first two months of this year.

Most airline chiefs now agree that the improving economy is brightening airline prospects. Traffic in the first three months was roughly 15% above its 1975 level and the industry, lifted by the performance of its strongest lines, has hopes of making an overall profit this year—perhaps as much as $200 million. Even the most troubled carriers —American, Eastern, TWA, Pan American and United—are not expected to show catastrophic losses, and some could even produce a small profit.

But to get well, the carriers want Civil Aeronautics Board permission to boost their fares even higher, arguing plausibly that operating costs are still rising faster than revenues. The major lines, which complain that Government has dragged its feet on granting fare hikes, have recently won a 3% across-the-board increase, and last week all but Delta were back in Washington seeking a further 2% rise. More rate-boost requests are almost certain. Eastern Chief Frank Borman figures that fares will have to go up at least another 6% this year “to get us back toward a reasonable 12% return on investment.” The lines also expect to fatten revenues by paring back on their bewildering plethora of discount fares this year; in 1975 35% of all scheduled airline passengers in the U.S. traveled on discount tickets.

The carriers are also striving to cut costs. Eastern has frozen employees’ wages, and United laid off 350 workers in March; Pan Am has cut operating costs by $30 million by dropping some of its least profitable flights. On all the carriers, first class is taking a back seat as more vacationers and businessmen settle for coach. To accommodate the trend and squeeze out more revenue, the airlines are pursuing a strategy that will scarcely be cheered by their customers: they are removing about 6,500 first-class seats—some 30% of the total—and replacing them with 12,000 coach seats, all crammed closer together than before. The passenger cabin crunch is resulting in an increase in seats that is the equivalent of adding 40 stretched Boeing 727s to the airlines’ fleets.

While the carriers can count on a relatively healthy 1976, the longer-term prospects are less promising. The darkest cloud is a plan—backed by the Administration as part of its declared war on the regulatory power of Big Government—to loosen federal control of the industry (TIME, Oct. 20).

The Administration plan, now under consideration by the Senate Commerce Subcommittee on Aviation, proposes to sharpen competition by opening all domestic routes to all U.S. carriers, large and small, and permitting them to charge whatever they wish, within certain limits. At present the CAB determines which lines fly over what routes and how much they can charge.

Sweat Blood. In surprising Senate testimony last week CAB Chairman John Robson, reversing the usual stand of regulatory agency chiefs, advocated that CAB authority over airlines be reduced. According to one CAB source, Robson had to “sweat blood” to get other board members to agree on that position. He acknowledged that his agency’s tight regulation of the industry had probably forced up ticket prices unnecessarily. Major airlines counter that the plan would cause debilitating dogfights on the most desirable routes, weaken the industry generally and ultimately lead to the collapse of all but the strongest lines and a massive disruption of service.

Whether or not the plan eventually becomes law, it faces a long legislative struggle. Meantime, the uncertain regulatory outlook and the industry’s depressed revenues are preventing the carriers from borrowing the money they need to buy newer, cheaper-to-run aircraft. United, unable to get financing, was forced to cancel an order for a fleet of new Boeing 727 jets. To keep its present equipment going, the line now faces higher maintenance costs and lower productivity, which cut into its revenues.

Beyond these woes, the airlines confront yet another gnawing worry. Says Citibank Vice President Frederick W. Bradley Jr.: “Over the next few years we do not see sufficient traffic growth to support anticipated further increases in fuel, wage costs and other costs. The long-term outlook at this point is bleak.”

In short, there is a growing question about whether the U.S. market is big enough to support all its major carriers.

If it is not, the weaker lines may well have to be weeded out, through merger or failure, to allow the healthy, resourceful carriers to survive and prosper.