FlightGlobal.com
Home
Premium
Archive
Video
Images
Forum
Atlas
Blogs
Jobs
Shop
RSS
Email Newsletters
You are in:
Home
Aviation History
1965
1965 - 2526.PDF
798 FLIGHT International, 20 May l%<, AIR TRANSPORT... ATLB hearings on February 23-24, 1965, that BEA's domestic costs were higher than those of the independent companies: the incompatibility of collusion and competition . . . "The rate determined undoubtedly will be a compromise rate, a rate substantially above the competitive level. Economic considera- tions of cost will not be controlling. Moreover, inasmuch as the governments whose carriers participate in the conference will be interested in avoiding the necessity of subsidizing their carriers, those carriers which actually represent their governments as 'chosen instruments' will use every effort available to secure the establish- ment of rates sufficiently high to avoid subsidies. In other words, the non-competitive rates fixed by the conference might well approach the old monopoly level of 'all the traffic will bear . . .' "Aviation is at present a young and vital industry and should be protected from the fate which monopolistic practices have brought upon the railroads. The static character of Pullman service illustrates the effects of restrictive practices. Similarly, the agree- ments to prevent installation of air-conditioning equipment by individual railroads desiring to do so is another illustration of what may be expected to happen to the aviation industry unless it is kept alert by competition . .. "The low costs which justify rate reductions are not the product of routine operations conducted by passive managements. Lower rates normally are to be justified in terms of the plans of airlines for the progressive development of air transportation. Low costs normally are achieved only when management is under competitive pressures to find new and better ways to reduce costs. If the competi- tive pressures are removed, airline managements will tend to become soft and unimaginative and will come before the board and argue in good faith that the proposed rates are necessary and reason- able. On the other hand, these same managements, trained in competitive operations and compelled to meet rate reductions of other airlines, will show greater self-reliance and imagination in devising ways to increase volume and to reduce costs. In short, the developments which would justify the board in ordering rate reductions are unlikely to come to pass if the competitive incentives to efficiency are exchanged for a compromise system of rate making such as is provided by the rate-making conferences . . ." BEA's cost levels and the banning of in-flight films are unhappy illustrations of member Lee's thesis—that the basic charge against I ATA is that it has allowed the cost levels of its less efficient members to influence the level of fares it has recommended. In 1964, the CAB refused to countenance higher Atlantic fares at a time when Pan American and TWA were increasing their profits to levels above those needed to produce the specified target yield of 10 per cent on investment. A similar assault is being mounted now against fare levels in the Pacific area. The CAB philosophy has had a major part in showing up the management problems of Atlantic carriers such as BOAC, KLM and SAS, for all of whom steep fare increases might have been a more comfortable alternative to the stress and heartbreaks of an efficiency campaign. In Europe, on the other hand, no agency has challenged the IATA •decisions. The present level of ordinary intra-European fares is extremely high—and those from London are the highest of all:— 1. EARB cost figures Cents per seat-kmEuropean average, 1963 .. 3.13 BEA, 1963 2.84 Routes International from: 1. London2. Manchester .. 3. Amsterdam .. Domestic: 4. UK 5. US6. Australian Range of single tourist*fares, pence per mile .. 9.0-10.6..8.2 ..7.3 . . 5.7-9.0 .. 5.1-6.1.. 4.3 * Off-peak and promotional rates excluded. An article by J. M. Ramsden in Flight ("Airline Efficiency," June 11, 1964) drew attention to the high costs of the European airlines. Subsequently BEA in particular argued, using EARB figures, that its cost levels compare favourably with those of the other European carriers. On the other hand, it emerged during the 2. Domestic costs*BEA BKS British Eagle Cambrian .. 2.97 .. 2.6 .. 1.9 .. 2.7 * From annual report 1963-64. It appears that the independent carriers overcome the handicaps of the smaller, less efficient aircraft and short, low-density routes by higher staff productivity and other economies. The stimulus they have is the fierce competition for inclusive-tour charters and trooping contracts. As CAB member Lee foresaw, it is competition that reduces costs. Because the normal fares are so much higher than the direct operating costs of even a relatively efficient airline, and inclusive- tour organizers have been able to charter at such low rates, the IATA carriers have been led to the tour-basing (ITX) fare, which is discounted up to 50 per cent. When proposed on US scheduled flights such arrangements were found to be "discriminatory" and thus unlawful by the CAB and there can be little doubt that in Europe this practice is keeping ordinary fares higher than they would be otherwise. The original concept of ITX fares as a method of selling off marginal capacity has developed so that now tour organizers can secure heavily discounted fares on some routes during daylight. Another indirect result of excessively high fares from London to the continent is the dilution of revenues on the UK domestic network. To encourage profitable traffic on the highly rated inter- national routes, the additional (add-on) fare to be paid from the provincial cities to London was set at a low figure—for example £2 tourist from London to Manchester, against the normal fare of £5 10s. Even after the total fare has been divided up by the "pro-rating" procedure, the domestic airline receives less than the normal fare (except in the special case where BEA is the carrier throughout and a special accounting transfer is made). There are thus grounds for believing that the European fare structure should be overhauled drastically and geared to the cost levels of efficient airlines. This would force the European companies to initiate cost-reduction programmes and also perhaps lead them to a more progressive outlook on sandwiches, in-flight entertainment and the supersonic transport. ICAO REPORTS ON 1964 PRELIMINARY estimates by ICAO indicate that the world's airlines (other than those of the USSR and China) made an operat- ing profit of US $600m (£215m) in 1964. Total operating revenues were $8,250m (£2,940m) and expenses were $7,650m (£2,740m), giving an operating profit ratio of 7.8 per cent. The figures for 1963 and 1962 were 4.7 and 1.5 per cent respectively. The safety record on scheduled services, based on the normal yardstick of fatalities per 100m passenger-miles, was ths best so far with a figure—as forecast on a basis of Flight's own records in the issue of January 14, page 44—of 0.61, or 22.5 per cent lower than the previous best year, 1963. As ICAO points out in its annual report, there would have been about 1,500 scheduled passenger deaths in 1964, instead of the 647 recorded, if the accident rates of a decade ago had continued to apply. Jet aircraft, which offered 72 per cent of the total capacity in 1964, had the best safety record. Traffic increase in 1964 was the biggest for nearly a decade with a growth, relative to 1963, of 16.3 per cent to 13,520m ton-miles. The ton-mile total represented by this growth was almost equal to the total scheduled traffic in 1949. The best previous traffic growth was between 1954 and 1955 (17 per cent); in the intervening eight years the average rate of growth has been about 11.6 per cent.
Sign up to
Flight Digital Magazine
Flight Print Magazine
Airline Business Magazine
E-newsletters
RSS
Events
