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Aviation History
1959
1959 - 0667.PDF
332 FLIGHT, 6 March 1959 AIR COMMERCE Differential Decision IN these pages nearly a year ago* it was suggested that a faredifferential, "as initially proposed, should amount to no morethan, and probably less than, a 5 per cent fare reduction for propeller-driven transports on routes served by jets. It would bea class-for-class differential. ..." This was but one of many contributions to one of the mostdifficult economic problems which air transport has encountered to date: Should there be a differential pricing of jet and propellerservices? So much has been written about the background to the con-troversy that repetition is unnecessary. Suffice it to say that I.A.T.A.'s proposal—subject to government approval—is for afare differential on the North Atlantic of an amount varying between 4 and 6 per cent, class-for-class. The differential willnot, however, take the form of a reduction on propeller services; it will be applied as a surcharge on jet services. The new fare structure, to be valid from April 1, is as follows: — (1) All basic North Atlantic air fares will be increased by $5 perone-way ticket per class, with $15 on de luxe. (2) There will be a further jet surcharge of $15 on one-way economy-class and tourist-class tickets. This is equivalent to a surcharge of 5.8 per cent on economy-class, and 4.7 per cent on tourist-class, thenew basic rates for these types of service being $257 and $320 respec- tively. Surprisingly, tourist-class service has not been abolished. (3) There will be a jet surcharge of $20 on first-class jet services.This is equivalent to 4.5 per cent on first-class tickets, and 4 per cent on de-luxe class tickets. The new basic rates for these classes or servicesare, respectively, $440 and $500. (4) Return jet surcharges will be double one-way.(5) There will be jet surcharges both on first-class and on tourist-class fares to cover all international routes likely to be operated by jets duringthe ensuing months in the area comprising N. and S. America. The New York - Buenos Aires sector, for example (an announced AerolineasArgentinas Comet 4 route, see pages 315 and 316), will bear a jet surcharge of $20, i.e., 3.6 to 4.3 per cent. An Achievement for the System Thus have I.A.T.A., contrary to so many forebodings, survivedthe "government intervention" and "rate-wars" which are always the threatened penalties (though never yet invoked) of failure toagree. To have withstood such a test—and to have agreed on something to which Pan American objected—is indeed an achieve-ment for LA.T.A.'s fare-fixing machinery. According to the chairman of the traffic conference, Mr. V. H. L. Dubourcq ofK.L.M., both sides made "considerable concessions." An unexpected decision was the proposal to raise all basicNorth Atlantic fare levels by $5 per ticket per class. It remains to be seen whether this meets with the approval of I.A.T.A.'smost dreaded bogy—the American Civil Aeronautics Board— whose general policy is to discourage the raising of internationalrates by U.S. airlines (and hence by other airlines operating into the U.S.A.) unless the increases are accompanied by comple-mentary decreases in the lowest-rate services. I.A.T.A. did agree on "a wide variety of low-level creative and inclusive-tour fares"—but in Europe, and not on the Atlantic route. Will the Civil Aeronautics Board agree to the proposed jetsurcharge? The answer is almost certainly in the affirmative, despite the fact that the I.A.T.A. agreement only partially fulfilsthe pertinent C.A.B. "statement of policy." This was laid down last September just before the first I.A.T.A. discussions began,and it ran as follows: — "The Board considers it inappropriate to resolve at this time thesingle question of whether or not a fare differential for jet services would be reasonable. It has been the general policy of the Board thatfare differentials for particular aircraft types are inconsistent with sound rate-making principles. On the basis of the facts presently before us,the Board sees no reason to depart at this time from this policy. "The Board considers it essential that jet services be integrated intothe fare structure in such a manner as will permit their operation in any class of service. Jet equipment shows promise of being moreeconomical than aircraft presently in service. It is particularly important, therefore, ihat opportunity to operate jets in the low fare service beprotected. . . ." But the C.A.B. itself has already accepted the principle of afare differential in America; and—so far as the second part of the above statement is concerned—I.A.T.A. has met the C.A.B.requirement that jets shall be operated in the lowest-fare services. How has the jet surcharge actually been working out in America? The passenger load factor on Boeing 707 jet nights for thefirst 18 days' operation on the U.S. transcontinental route was 99.5 per cent. This was announced in the middle of last monthby American Airlines, who introduced the 707 into daily non- stop service between New York and Los Angeles on January 25. * Flight, April 18,1958: "The Case For The Fare Differential," p. 521. IN Paris on February 26 agreement was finally reached by I.A.T.A. onthe controversial issue of the jet v. propeller fare differential. A Jet surcharge was agreed on North Atlantic jet services. Thus has I.A.T.A.survived its severest test to date. This article reviews the implications. The airline's vice-president, sales, Mr. Charles A. Rheinstrom,described results as "even beyond the airline's most optimistic expectations." A load factor as high as 99.5 per cent over 18 days is anastonishing feat, reflecting as much credit on American Airlines' reservations system as on the appeal of their jet. And it suggeststhat the airline is turning away as many passengers as it actually flies (3,720 up to February 11). All this has been achieved despitea jet surcharge. Before they introduced the Boeing 707, American Airlines askedthe C.A.B. for permission to charge $10 extra on the price of each one-way ticket between New York and Los Angeles. Thenormal first-class fare on this route is $166.25, and the coach-class fare is $104.00. This means that A.A. sought a jet surcharge—taking into account their present seating configuration (68 first- class four-abreast, 38 coach-class six-abreast)—of 6.35 per cent.Surcharges on other sectors were also sought, namely $3 per ticket New York - Chicago, and $7 per ticket Chicago - SanFrancisco/Los Angeles. At the same time National Airlines, following their 707 lease-agreement with Pan American, also sought surcharges on their New York - Miami routes. However, the economics of this requestwere rather different. They were also rather complicated, but well worth sorting out. The 707 concerned would, of course, have exactly the samePan American seating arrangement as used on the North Atlantic route—namely, 40 de-luxe class seats and 71 economy-class seats.What National sought was a $10 surcharge on U.S. domestic first-class rates for a seat in the I.A.T.A. de-luxe class 707 cabin.In addition, they sought to charge the normal U.S. domestic first- class fare for a seat in the economy-class cabin, a fare which isabout the same in terms of cents per seat-mile as the I.A.T.A. economy fare (an interesting reflection, incidentally, on the dif-ference between I.A.T.A. and American-domestic fare levels!). National therefore wanted to charge extra for: (1) a class ofaccommodation not yet introduced in America—de-luxe; and (2) normal first-class fares for a seat (I.A.T.A. economy-class)below normal U.S. domestic first-class standard. The C.A.B. granted provisional approval to all these surcharges,this approval being limited in the case of A.A. until July 31,1959, and in the case of National until May 31, 1959. Thus was the principle of a jet versus propeller fare differentialfirst established. The fact that jet load factors have not been impaired as a result is indisputable. (National have been record-ing 90 per cent, which though less than A.A.'s is still remarkable.) Jet Novelty and Scarcity But jets are still a novelty both in America and on the Atlantic, and jet capacity will remain scarce, relative to propeller capacity, throughout 1959. The reason for the "provisional" nature of the C.A.B. and I.A.T.A. jet-surcharge approvals is simply that it will not be possible fully to analyse the effect of surcharges until jets and propellers have been operating side by side for at least a year. At the moment the jet surcharge is a charge for what the market will bear, and therefore as a short-term measure it makes sound economic sense. As a long-term measure the fare differential makes economic sense, too. It does not matter how, or for what reasons, the fare differential has come about. It is now established, and funda- mental decisions of this kind, agreed after heated controversy- have a habit of sticking. And if the principle of the fare-differential does stick, it may well be that (to quote Flight of Oct. 3, 1958): — "[The fare differential] is the means by which the air transporfindustry can relax its obsession with 'quality competition.' ... If the pace of re-equipment is not checked the airlines will be squeezed moreand more tightly between heavy depreciation costs and the financing of new technical advances such as ... supersonics. . . . Once a dif-ferential were established it would keep quality-competition in checK and would encourage technology to be devoted more to the productionof cheap transport aircraft, uncompromised by performance." These sort of arguments have hardly been voiced in I.A.T.AThe differential has come into being due to the sour demand1 of airlines without jets—the "have-nots." But these airlines haveestablished—albeit with a wrong argument—a right principle. j. M. R. (A note on the implications for B.E.A. and B.O.A.C. appears on the next page.)
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