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Aviation History
1958
1958 - 0500.PDF
516 FLIGHT AIR TRANSPORT FINDS ITS FEET TWO major changes can be seen in the situation in 1958 ascompared with 1954. The first is in the financial stabilityof the regional airline industry. It can now be said with confidence that it is possible for local European air services to beoperated on a self-sufficient basis; this was hardly true before 1953, although by 1954 it was clear that the financial position ofthe airlines was improving very rapidly. This metamorphosis from deficit to profitability in European air transport will beexamined later. The other major change which has taken place in the past fouryears is the near-revolutionary development in the politico- economic environment in which air transport has to work. Currentmoves towards integration in the economic life of Europe will inevrtably produce, in due course, great changes in the regulationof air transport in this Continent. A fundamental presumption of the new spirit in which Europe moves towards integration isthat economic nationalism must now be abandoned. And in the European air transport industry the abandonment of economicnationalism could result, in my view, in the removal of some of the major barriers which have delayed and perverted the develop-ment of the industry in the past. Economic Progress. To illustrate the progress made in thefinancial position of the European airlines in the past four years it is necessary to review briefly the economic record of B.E.A. from1951 to 1957. B.E.A. is, of course, the largest regional airline in Europe; it carries about 25 per cent of the local traffic. Its resultsare, therefore, of some importance in the overall European picture, but B.E.A. figures are also used for this purpose since, despite thevaliant work of the Air Research Bureau, it is still quite difficult to get published data about the operating costs for the local servicesof most of the other European airlines. During the past six years B.E.A. has been transformed into aprofitable airline. In 1953-4 the Corporation was still making a substantial loss, but during the past three years it has operated ata small profit. In the current financial year it is expected that the profit will be larger than in any previous year and a figure of aboutElm has been mentioned by Lord Douglas. The financial results of the period are set out in Table I. TABLE I: B.E.A. FINANCIAL RESULTS, 1951-1957 YMP 1951-2 1952-3 1953-4 1954-5 1955-6 1954-7 Expenditure («) 12,241.298 14,567,211 16,546,967 17.078,275 20,995,880 23.731,004 Revenue (£) 10,817,687 13,128,080 14,773,170 17,141,314 21,599,494 23.947.774 Profit or Lest (£) -1,423,611 -1,459,131 -1,773,797 + 63,039 + 603,614 + 216,770 Operating Ratio* 88 90 89 100 103 101 Expenditure • Operating ratio is X100 Revenue These figures do not give much due to the reasons for B.E.A.'stransition from losses to profit-making. In 1953-4 the loss was greater than it had been in any of the four preceding years andthe operating ratio—the percentage relationship between revenue and expenditure—showed no sign of improving. Yet it was inthat year that changes took place in the B.E.A. economy which led to a profitable position being reached in the subsequent years. IN these pages Mi. Stephen Wheatcroft, who is economic adviser toB.E.A., re-examine* from the economic standpoint the status of European air transport in 1958 and its prospects over the next few years. Hisconclusions—abstracted from a paper which he delivered recently in Rome before the Centre for the Development of Air Transport—may be considered as bringing up to date his classic study on this subject "The Economics of European Air Transport," which was completedin 1954 and published as a book in 1956. A much more useful guide than overall revenue and expenditureto the significant changes in an airline's economic position is the relative costs and revenue of each unit of traffic year by year;Table II sets out the basic data for B.E.A. TABLE II: ANALYSIS OF B.E.A. FINANCIAL RESULTS. 1951-1957 Year 1951-2 1952-3 1953-4 1954-5 1955-6 1956-7 Output ct.m.(million*) 56.7 69.2 83.6 98.3 124.5 139.1 Exp'ture per ct.m. (d) 51.8 50.6 47.5 41.7 40.5 41.0 Revenue Load-factor (%) 64.7 62.9 64.1 64.7 63.2 64.5 Exp'ture par l.t.m. (d) 80.3 80.5 74.1 64.4 64.0 63.5 Revenue par l.t.m. (d) 70.8 72.1 66.2 64.5 66.0 64.0 Profit or lots perl.t.m. (d) -9.5 -8.4 -7.9 +0.1+ 2.0 +0.5 In this table the cost and revenue for each load ton-mile arecompared and the difference between them expressed as a profit or loss per load ton-mile. The load factor achieved by the airline isclearly a major factor in an analysis of this kind and this has been included in the table. But although the load factor is of greatimportance (and in any one of the profitable years the small surplus could have been wiped out by a small adverse variation in the loadfactor), nevertheless, it was not any change in the load factor which was the most significant development in the 1951-57 period.The significant change took place between 1952 and 1954 when, in general terms, the revenue rate fell rapidly but the cost levelwas reduced at an even greater rate. B.E.A.'s profitable position was first achieved in a year in which both the costs and the revenuelevel had fallen to the lowest in the history of the Corporation. The significance of both of these changes needs to be examined inmore detail and it will be suggested that they are not unconnected. The interconnection between the lower revenue rate and thelower cost level arises from a "benevolent downward spiral.". Lower fares have the effect of developing a higher traffic volume,;the increased traffic enables operations to be conducted on a more intensive plan (including the use of larger aeroplanes), the moreintensive operations lead to a lower level of operating cost and hence the benevolent circle is completed. In their report for 1954-55 B.E.A. quite specifically concludedthat it was exactly this benevolent downward spiral effect which had led them to a profitable position in that year. They stated: —"Tourist fares at reduced rates were introduced by B.E.A. on inter- national services in April 1953. At the time of B.E.A.'s report for1953-54, the long-term economic effect of this policy could not be clearly determined because, although tourist fares increased traffic sub-stantially in 1953, the increase was not immediately as great as had been expected. There was a time-lag in the effect of tourist fares, butthere can be little doubt now that much of the traffic increase in 1954-55 and in the current year have been the result of stimulationfrom the major fare reductions introduced in 1953. "B.E.A.'s new, larger aircraft are capable of achieving lower cost*
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