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Aviation History
1963
1963 - 0415.PDF
FLIGHT International, 21 March 1963 AIR COMMERCE First picture of the Viscount together with its jet replacement: a new produc tion Viscount 810 keeps company at Hurn with the first British Aircraft Corporation One-Eleven, now in final assembly i.e., the indispensable ingredient, the prerequisite, the catalyst that makes possible and promotes other economic activities, even though it may not itself yield a directly productive output. This is where the real economic contribution of international air transport lies . . . My point is that by performing your transport function, your in dustry makes possible a great surge of economic activity throughout the world which, but for your existence, would not have occurred. And the fruits of your activity are largely not reaped by you, but they are reaped by society as a whole. Like all forms of transport, you have great difficulty making money. You do make huge amounts of money, but you do not make it for yourselves. "There is another unfortunate characteristic of the transport industry that air transport shares: it is the fact that, in order to get off the ground, it depends upon an enormous foundation of govern ment capital, and various more or less ingeniously concealed forms of continuous government support. But you have had to pay a high price for the tender-loving-care that governments have lavished upon you, and that leads me to my second major observation about your industry. Leaning, as you do, so heavily on government sup port, your industry, more than any other I know, has surrendered economics to politics. By that I mean that your executives are much more concerned with narrow questions of technology (the aspect ratio of the wing and time between overhauls) than they are with broad questions of economic strategy (where should the industry be going and how does it get there?). For many of you, the most vital management decision of all—what kind and how many air craft you should procure—is rammed down your throats by inept political fiat, rather than being a matter of the most meticulous commercial analysis. "The normal rules of profitability and the harsh facts of precarious economic survival that keep other industries constantly on their toes are mostly obscured from your managements by the comforting thought that their governments will always bail them out, since they cannot afford to let them go under. This insulation from economic reality is, of course, immensely reinforced by the delusion that civil aviation is essential to national defence and by the perni cious and enduring myth that a nation's prestige is directly propor tional to the number of shiny jets upon which it can paint its flag. What I am describing is of course not universally applicable, but for so many of you, dependence upon government has meant a weakening, if not sometimes abrogation, of economic responsibility. "One result has been, for your entire industry, a kind of hypnotic fascination with your own phenomenal past economic growth and a blind faith that this growth will continue indefinitely. You still find it difficult to believe that phase 1 of your growth is now con cluded—that phase in which you introduced a nev: product for which there was a huge unfilled demand and you merely had to step in and fill it. Your natural market is now largely exhausted, and in phase 2 of your growth you will have to induce a market, i.e., sell air transport against all other possible uses for the con sumer dollar. "The other result of your industry's isolation from the economic facts of life that I want particularly to call to your attention is its failure to play a constructive part in some of the exciting interna tional economic developments of our time. [Here Mr Heymann referred to the "restrictionist cartel" of Air Union, as reported on page 356 of last week's issue.] "Let me come back, finally, to my point about market develop ment, and this is the last observation I feel I should make about your industry. You do not want to admit it, but the product you are selling, transport, is what economists call 'an undifferentiated product.' You are not selling different kinds of grapes with dif ferent colours and different tastes, but your product is the ability to get somebody from here to there, and the customer doesn't care whether your particular 707 or DC-8 has a Chinese mandarin, the Lion of Judah or a purple dragon painted on it. But in spite of this fact, the efforts of your industry, and, of course particularly your efforts as PR representatives, are overwhelmingly designed to try in every way possible to differentiate your product. "Your purpose, of course, is a very understandable one. You seek to capture and enlarge your share of the market, and to prevent your competitor from getting an edge on you. But some thing gets lost in the process: your concern for the rationality and efficiency of the overall international air transport system, and the total growth of that system. For while it is true that your pro duct is undifferentiated, your market is HO/, and I sometimes wonder if you do not lose sight of this fact. In fact you have a highly dif ferentiated market, consisting of many different kinds of travellers, with many different purposes and many different income levels. More important, you have a potential market that does not even now exist. Even if, today, you know all about the customers you serve, you know almost nothing about those you don't serve. "I believe that, as an industry, you are not well organized to dis cover and to plumb the depths of your market. In the air transport community I have discovered that the word 'discrimination' is a dirty word. To an economist, however, it simply means differen tiating by price among different elements of your market—and it is a desirable, rational and necessary tactic if you are concerned to maximize your profits. Intelligent price discrimination, however, requires price flexibility and experimentation. "With all due respects to my hosts, your IATA ground rules are not well designed for either. For the moment, let me just make an impassioned plea that you take a second look at your cumbersome unanimity rule and your overall hostility to radical experimentation; and above all, before you leave the US, take a ride on the EAL air shuttle between Washington and New York—it is a prime example of what I mean by radical experimentation." FOR THE STRONGER BOOKSHELF WHAT is the average stage length of US local carriers ? And of the domestic trunks? What sort of subsidy do the locals receive and what is their revenue rate? The answers to these and other questions were being sought last week by Flight International for a comparison of BE A's domestic economics with those of US domes tic airlines. At the right moment the prodigious 1962 edition of the CAB document Handbook of Airline Statistics arrived in the office. All the answers were immediately to hand. A superficial glance through this 3ilb reference book suggests that there are few, if any, facts and figures about US airline traffic and finances which are not to be found between its covers, and comprehensively referenced in the index. To a British student of air transport it is a book that cannot fail to whet the appetite for the day when such intimate details of British private-airline finances —and those of the corporations too—are similarly published for all to see, and on a comparable basis. This book, the embodiment of airline public accountability, costs $4.75 a copy and is available from the Superintendent of Documents, US Government Printing Office, Washington 25, DC, USA. D
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