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Aviation History
1959
1959 - 1602.PDF
5 June 1959 789 1958: THE U.S. FINANCIAL RECORD A MERICAN airlines carry well over half of the world's total air**• traffic. For this reason alone the Air Transport Facts and Figures published annually by the Air Transport Association ofAmerica is an invaluable guide to the financial fortunes of the airline industry. It is hardly surprising that a picture of confusion is describedin this twentieth edition of Facts and Figures, which has been brought up to date by the inclusion of data for 1958. The U.S.airline industry as a whole carried more traffic last year than ever before, total load ton-miles exceeding 4,000 million. But thisfigure was only 2 per cent above the one for 1957; indeed for the first half of the year traffic was running below the previous year'slevel. Passenger traffic rose by only 1 per cent; freight actually fell by a similar percentage. Faced by the recession in scheduledtraffic the U.S. airlines took energetic steps to exploit the charter market—traffic in this field increasing by no less than 21 per cent. Two particular markets felt the brunt of the recession. Thevolume of first-class traffic fell as large numbers of less well-heeled passengers abandoned first-class travel and flew coach-class instead.Traffic was also reduced on the short- and medium-stages, particu- larly those between New England and Florida. Despite these setbacks, the profit level for the whole industryrose slightly. This improvement was due entirely to the fare increases approved by the C.A.B. early in the year, these increaseshaving more than compensated for a fall in the volume of higher rated traffic and for a slight rise in the average level of operatingcosts. Yet by any standards a net profit of $53 million must be considered inadequate on revenues exceeding $2,200 million. The most prominent feature on the cost side of the picture isthe way in which average unit costs for the U.S. industry have stabilized over the past three years. An all-time low was reachedin 1955, but the following year saw a slight rise and the subsequent level has remained at 29 cents per c.t.m. (4 cents per seat-mile).Different groups of airlines have varied in their experiences. The domestic trunk airlines (which account for about two-thirds ofthe total U.S. effort) and the short-haul local service carriers have suffered from gently rising cost levels, their respective unit costsnow standing at 27 and 50 cents per c.t.m. The overseas carriers, on the other hand, continue to enjoy a falling cost level, and lastyear managed to push their average unit costs slightly below the 35 cent mark. For all groups of airlines, expenditure on main-tenance and flying operations (excluding depreciation) accounts for about one-half of total costs. But whereas the domestic trunkand overseas carriers allocate 10 per cent of their total expenditure to cover depreciation, the local service airlines—still largely usingfully depreciated DC-3s—only allocate 5 per cent to depreciation, this low charge being balanced by the proportionately highamount that these short-haul carriers spend on ground services. It is on the revenue side of the picture that improvement wasusually to be found. Fare reductions and low load factors had dragged average revenue per c.t.m. for the whole industry downto 30 cents in 1957. Although the overall load factor was unchanged last year at 56 per cent, the provisional fare increaseresulted in the average revenue rate rising to 31 cents per c.t.m. This narrow change made all the difference between profit and loss.Once again the various groups varied in their experience. The domestic trunk carriers and local service airlines conformed tothe general picture: load factors were more or less unchanged (at 53 and 46 per cent respectively) but revenue rates rose appre-ciably. The domestic trunks received an average of 55 cents for each load ton-mile carried, the corresponding figure for the localservice carriers being about 110 cents (subsidy accounted for about one-third of this latter figure). The overseas airlines, however,continued to face falling revenue rates. The advent of economy- class services on the North Atlantic, and the expansion of tourist-class services on other routes, led to a reduction in average fares which was accompanied by a fall in load factor. This had theeffect of reducing profitability on overseas services to an alarm- ingly low figure. International carriers in the U.S.—with anaverage cost level of 35 cents per c.t.m.—<>nly just managed to break even. It is, therefore, hardly surprising that their inter-national rivals abroad—with equivalent unit costs averaging about 45 cents—usually suffered serious losses. Last year showed thatonly the powerful American airlines can weather over-competition in the intercontinental market.A particular source of strength for the U.S. overseas airlines has been the intensive use to which their capital resources have beenput. These companies have regularly managed to earn revenues that have been about double the amounts of capital employed. Bycomparison, the domestic trunk carriers have managed to turn over their capital only about 1.2 times annually. (Few Europeanairlines are able to turn their capital over once a year.) The financial relief experienced in the American airline industrylast year is, alas, likely to be short-lived. The economics of the first generation of jets do not appear to be sufficiently favour-able to permit a reduction in the present level of unit costs. Furthermore, the scale of re-equipment has been such that averageload-factors are expected to fall. The only remaining salvation must lie in a more enlightened fares policy. Airlines and regu-latory bodies would be well advised to study Professor Cherington's recent work—Airline Price Policy—and to investigate those areaswhere fares could be raised and those where lower fares are indicated. J. c. s. These artist? impressions depict Lockheed's transport ideas for the nineteen-sixties. A 2,000 m.p.h. 80-seat North Atlantic airliner (top right) propelled by chemical fuel would be supplemented by (top left) a "roof-top air- liner" with turbofan engines driving ducted fans and providing jet thrust. Another idea (bottom right) is a 40/50-seat commuter type with six turboprop engines. The remaining picture shows a "limocopter" for commuting in cities and suburbs
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