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The $3 billion expansion program in air transport
units, furnishing electricity for a prop-jet on the ground, cost $15,000 each, and an airline may need several dozen of these. Engine starter units cost $18,000 each, and each airline may need two dozen or more. A special tractor designed to tow the DC-8's 310,000 pounds costs $28,000; an airline may need up to twenty of these tractors.
Employee Contracts Also compounding the airlines' conversion problems is the need to negotiate equitable new contracts with employees. Fear on the part of unions that jets will mean layoffs is hindering settlements, although airline industry history indicates that layoffs need not be feared. In the past, larger planes have stimulated additional passenger traffic and have necessitated the hiring of additional personnel. In the United States, the commercial airline fleet of 345 small planes in 1938 has jumped to 1,829 large planes in 1959.
the more the pilot is paid. But large jets are twice as fast and twice as heavy as today's largest piston aircraft, and application of the time-honored formula results in salaries of $30,000 or more a year. Modifications of this formula are being worked out now between airlines and pilots.
Maximum Utilization The huge investment in each jet airplane creates another major problem for the commercial airlines. Economical operation of the airplanes as well as maximum advantage to the passenger from the increased flying speed requires that as little time as possible be lost on the ground. Ground servicing, baggage handling, and ticket counter check-ins must be speeded up with new techniques to achieve the maximum utilization of each aircraft. One manufacturer established experimen-
THE
$3
BILLION
GREAT
IN
The aviation industry's labor problems center around the cockpit. Three questions now under discussion are: How many shall work in the cockpit? Who should they be? What shall they be paid? Large piston engine planes on domestic flights carry two pilots and a flight engineer. The Air Line Pilots Association has asked for three pilots. Two airlines have already agreed on three pilots and a flight engineer on full jet airplanes. The salaries paid cockpit personnel are based on a timehonored formula that the faster the plane and the more it weighs, BUSINESS
HORIZONS
--
WINTER.
CHALLENGE
Throughout its history, the problems of the air transport industry have grown increasingly difficult and complex. The transition to the Jet Age, because it offers the greatest single advance in aircraft speed and capacity yet encountered, presents the industry with its greatest challenge. None of the problems appears to be insurmountable, however. Patience, perseverance, and careful management on the part of the air transport industry will shrink the globe by half and provide air travelers with new comfort and convenience that would have seemed inconceivable a decade ago.
EXPANSION
Salaries
12
tally that a 150-passenger jetliner can be serviced for a turnaround flight in thirty minutes-but doing it requires nineteen pieces of mobile equipment on the ground.
PROGRAM AIR
TRANSPORT by G. W. Start
FOR AN industry with a net worth of little more than $750 million to make commitments of more than $3 billion for the acquisition of new equipment when its existing equipment is not fully employed might be regarded as a bit foolhardy. Yet this is what the airlines of the United States have done over the past year or two, and with a "little bit of luck," to borrow a line from My Fair Lady, Mr. Start is Professor of Public Utilities and Transportation, School of Business, Indiana University. 1959
this long-range planning on the part of the airlines may prove to be just what the industry needs. The $3 billion expansion program involves substantial risks, to be sure, but the airlines cannot stand still. They must go forward or backward, and they have chosen to take the risk in order to go forward at an accelerated pace. The regulatory, operational, and financial problems associated with the coming of jets are many, and as is often the case, they are interrelated. But viewed in its entirety, the program appears much
more realistic than do some of its parts.
TO
BE
BOUGHT
The jets have captured the imagination of the American public, and popular opinion may be that the $3 billion are to be spent on the acquisition of 600-mile-anhour, 150-passenger jets to be used largely in transcontinental and overseas operations. Actually, only a little more than half of the amount will be spent on jets. About 40 per cent of the new aircraft will be turbinepowered and propeller-drivennot jets at all, but what are known in the trade as turboprops. The gas turbine is a more efficient power plant than the conventional engine for the operation of propeller-driven aircraft, and manufacturers are producing turboprops in various configurations for every type of operation from local service to the long-haul overseas transportation of passengers and cargo. In the main, the turboprops being acquired by the airlines will be able to operate from any airport now being served by the trunk lines and eventually will replace all the present four-motored equipment and much of the twomotored equipment. There is nothing unique about this part of the program of the airlines; they are only continuing a practice that they have followed ever since the DC-3 replaced the DC-2 more than twenty years ago. Although the turboprops on long flights will be about a hundred miles an hour slower than the jets, they will, for most operations, be from fifty to a hundred miles an hour faster than the piston-type aircraft that they replace. In addition to being more 14 BUSINESS HORIZONS n WINTEB,
comfortable for the passengers, the new aircraft will in most cases be more economical to operate than conventional aircraft, since they will break even with load factors of from 52 to 55 per cent. We must not assume, however, that the air transportation field will be divided into two neat divisions, one served only by turboprops and the other by jets. Some airlines are still undecided whether to use jets or turboprops for medium-distance domestic operations. Jets are being improved constantly, and engines only a year old are already obsolete. Consequently, experience may indicate that jets should be used in operations now being planned for turboprops. But whether jets or turboprops are used, the problem facing the airlines is not so much one of finding a hundred or more passengers for a 2,000-mile flight as one of getting more people to ride the airlines for 100, 200, or 500 milesthe field in which the railways, the motor bus, and the private automobile still control billions of passenger miles.
PASSENGER
TRAFFIC
To utilize fully the new equipment that the airlines expect to have in service by 1962, there will have to be a substantial increase in the number of persons using the airlines. One study released during the past summer indicated that the carriers would need 90 billion passenger miles by 1962, while the number of miles that might be anticipated by 1962 would be about 52 billion. Once the new equipment is in normal operation, the airlines should make a satisfactory profit operating between 65 and 70 per cent of capacity. To produce 90 billion passenger miles at 70 per cent ca1959
pacity would require nearly 130 billion seat miles. The new equipment, jets and turboprops, will probably not produce more than 60 billion, or at the outside 70 billion, seat miles when it gets into full operation. Last year, the trunk lines and overseas carriers flew about 40 billion seat miles with the equipment that is being replaced and about 50 billion seat miles with all the equipment in service. If we assume that by 1962 the airlines will be flying some 10 billion seat miles with the equipment that has not been replaced by jets or turboprops, then the total seat miles of the industry, other than the local carriers, will be something between 70 and 80 billion, depending on whether we use the higher or the lower figure as the capacity of the new aircraft. Operating at 70 per cent of capacity, 80 billion seat miles will require some 56 billion passenger miles. If air travel increases at the annual rate that it did during the last decade, the airlines by 1962 may expect something like 52 billion passenger miles. There are, however, reasons to believe that, with higher-speed equipment and satisfactory economic conditions, the industry may expect something like 60 billion passenger miles by 1962. Despite the opposition of the CAB,the airlines are getting started in the mass movement of passengers, and coach traffic is gaining much more rapidly than airline traffic as a whole.
MOVEMENT
OF
MAIL
Before long, the Post Office Department will have to make some decisions with respect to the transportation of mail. In 1929, the railways operated approximately 1,500 mail train routes; in
1958, the number of routes had dropped to about 250, and the total mileage operated over these routes dropped proportionately. With the discontinuance of passenger train service by the railways, it is becoming increasingly difficult for the Post Office Department to f u r n i s h satisfactory mail service to many parts of the country. If all first-class mail were to be moved by the quickest method, air mail traffic would approach 160 million ton miles, or nearly twice what it is at present. Air movement of all second-class mail and parcel post packages of six pounds and under moving beyond zone three would produce more than 400 million additional ton miles of cargo for the airlines. Most of the f o u r - m o t o r e d equipment can handle cargo at a direct flying cost of about nine or ten cents a ton mile. Present cargo rates are around twenty cents a ton mile, and the Post Office Department pays from eighteen to twenty cents a ton mile for the transportation of regular mail by air. The transfer of much of the long-distance mail business from surface carriers to the air carriers could produce more ton miles of traffic than the carriers now produce in their total passenger business. Whatever amount of mail business the Post Office Departm e n t decides to transfer to the air carriers between now and 1962-and the amount may be substantial-will provide profitable use for the aircraft now being replaced by jets.
REGULATORY
POLICY
For the past five years, the CAB has increased trunk-line competition by extending the routes of many carriers into territories already being served by one or 16
BUSINESS HORIZONS - -
WINTER,
MOVEMENT,the ceaselessly changing, proves itself ever more strongly the key to our thought. It underlies the concept of function and of variables in higher mathematics. And in physics, the essence of the phenomenal world has been increasingly regarded as motion-process: sound, light, heat, hydrodynamics, aerodynamics; until, in this century, matter too dissolves into motion ....
-Siegfried Giedion MECHANIZATION
more trunk lines. Where a second carrier has been added to a market, it has in some cases improved the services for the public; but beyond a certain point, the public does not benefit from duplication of airline routes. Such duplication serves only to increase the unit cost of operation of the airlines and to add further congestion to the already crowded airways and airports. In addition to the policy of trunk-line route duplication, the CAB has granted twenty-three supplementary carriers certificates for scheduled operation for periods of from two to five years. These carriers may operate between any pair of cities and among as many cities as they choose anywhere in the United States so long as they do not offer more than ten round trips a month between any one pair of cities. The duplication of the services between Washington and New York may be an extreme case from the point of view of duplication, but it is not an extreme indication of CAB policy. At the present time, ten permanently certificated airlines offer service between Washington and New York. In addition to the permanently certificated carriers, the twenty-three supplementary carriers may if they choose offer a total of 230 round trips a naonth between the two cities. From almost any point of view, this 1959
T A K E S COMIV~AND
amount of air selwice between the two cities appears to be more than adequate. After our experience with the railways, it was no accident that Congress should provide in the act creating the CAB that competition should be limited "to the extent necessary to assure the sound development of an air transportation system." On most trunk line routes, the amount of competition introduced by the CAB goes far beyond the original intent of Congress.
THE
OUTLOOK
The expansion progl'am of the air carriers has a good chance to succeed and will in all probability produce more passenger miles than are being forecast at present. The increased speed of the jets will raise the level of passenger miles at least 10 per cent over what might be anticipated without jets. The traffic of the trunk lines this year may reach a level some 15 per cent higher than that of a year ago, and coach travel, with a little cooperation on the part of the CAB, will show much larger annual gains in the coming years than the 15 per cent indicated for all air travel this year. Tile movement of more mail by air, and this seems inevitable, could find the carriers with a shortage rather than a surplus of equipment by 1962.
Employee Contracts Also compounding the airlines' conversion problems is the need to negotiate equitable new contracts with employees. Fear on the part of unions that jets will mean layoffs is hindering settlements, although airline industry history indicates that layoffs need not be feared. In the past, larger planes have stimulated additional passenger traffic and have necessitated the hiring of additional personnel. In the United States, the commercial airline fleet of 345 small planes in 1938 has jumped to 1,829 large planes in 1959.
the more the pilot is paid. But large jets are twice as fast and twice as heavy as today's largest piston aircraft, and application of the time-honored formula results in salaries of $30,000 or more a year. Modifications of this formula are being worked out now between airlines and pilots.
Maximum Utilization The huge investment in each jet airplane creates another major problem for the commercial airlines. Economical operation of the airplanes as well as maximum advantage to the passenger from the increased flying speed requires that as little time as possible be lost on the ground. Ground servicing, baggage handling, and ticket counter check-ins must be speeded up with new techniques to achieve the maximum utilization of each aircraft. One manufacturer established experimen-
THE
$3
BILLION
GREAT
IN
The aviation industry's labor problems center around the cockpit. Three questions now under discussion are: How many shall work in the cockpit? Who should they be? What shall they be paid? Large piston engine planes on domestic flights carry two pilots and a flight engineer. The Air Line Pilots Association has asked for three pilots. Two airlines have already agreed on three pilots and a flight engineer on full jet airplanes. The salaries paid cockpit personnel are based on a timehonored formula that the faster the plane and the more it weighs, BUSINESS
HORIZONS
--
WINTER.
CHALLENGE
Throughout its history, the problems of the air transport industry have grown increasingly difficult and complex. The transition to the Jet Age, because it offers the greatest single advance in aircraft speed and capacity yet encountered, presents the industry with its greatest challenge. None of the problems appears to be insurmountable, however. Patience, perseverance, and careful management on the part of the air transport industry will shrink the globe by half and provide air travelers with new comfort and convenience that would have seemed inconceivable a decade ago.
EXPANSION
Salaries
12
tally that a 150-passenger jetliner can be serviced for a turnaround flight in thirty minutes-but doing it requires nineteen pieces of mobile equipment on the ground.
PROGRAM AIR
TRANSPORT by G. W. Start
FOR AN industry with a net worth of little more than $750 million to make commitments of more than $3 billion for the acquisition of new equipment when its existing equipment is not fully employed might be regarded as a bit foolhardy. Yet this is what the airlines of the United States have done over the past year or two, and with a "little bit of luck," to borrow a line from My Fair Lady, Mr. Start is Professor of Public Utilities and Transportation, School of Business, Indiana University. 1959
this long-range planning on the part of the airlines may prove to be just what the industry needs. The $3 billion expansion program involves substantial risks, to be sure, but the airlines cannot stand still. They must go forward or backward, and they have chosen to take the risk in order to go forward at an accelerated pace. The regulatory, operational, and financial problems associated with the coming of jets are many, and as is often the case, they are interrelated. But viewed in its entirety, the program appears much
more realistic than do some of its parts.
TO
BE
BOUGHT
The jets have captured the imagination of the American public, and popular opinion may be that the $3 billion are to be spent on the acquisition of 600-mile-anhour, 150-passenger jets to be used largely in transcontinental and overseas operations. Actually, only a little more than half of the amount will be spent on jets. About 40 per cent of the new aircraft will be turbinepowered and propeller-drivennot jets at all, but what are known in the trade as turboprops. The gas turbine is a more efficient power plant than the conventional engine for the operation of propeller-driven aircraft, and manufacturers are producing turboprops in various configurations for every type of operation from local service to the long-haul overseas transportation of passengers and cargo. In the main, the turboprops being acquired by the airlines will be able to operate from any airport now being served by the trunk lines and eventually will replace all the present four-motored equipment and much of the twomotored equipment. There is nothing unique about this part of the program of the airlines; they are only continuing a practice that they have followed ever since the DC-3 replaced the DC-2 more than twenty years ago. Although the turboprops on long flights will be about a hundred miles an hour slower than the jets, they will, for most operations, be from fifty to a hundred miles an hour faster than the piston-type aircraft that they replace. In addition to being more 14 BUSINESS HORIZONS n WINTEB,
comfortable for the passengers, the new aircraft will in most cases be more economical to operate than conventional aircraft, since they will break even with load factors of from 52 to 55 per cent. We must not assume, however, that the air transportation field will be divided into two neat divisions, one served only by turboprops and the other by jets. Some airlines are still undecided whether to use jets or turboprops for medium-distance domestic operations. Jets are being improved constantly, and engines only a year old are already obsolete. Consequently, experience may indicate that jets should be used in operations now being planned for turboprops. But whether jets or turboprops are used, the problem facing the airlines is not so much one of finding a hundred or more passengers for a 2,000-mile flight as one of getting more people to ride the airlines for 100, 200, or 500 milesthe field in which the railways, the motor bus, and the private automobile still control billions of passenger miles.
PASSENGER
TRAFFIC
To utilize fully the new equipment that the airlines expect to have in service by 1962, there will have to be a substantial increase in the number of persons using the airlines. One study released during the past summer indicated that the carriers would need 90 billion passenger miles by 1962, while the number of miles that might be anticipated by 1962 would be about 52 billion. Once the new equipment is in normal operation, the airlines should make a satisfactory profit operating between 65 and 70 per cent of capacity. To produce 90 billion passenger miles at 70 per cent ca1959
pacity would require nearly 130 billion seat miles. The new equipment, jets and turboprops, will probably not produce more than 60 billion, or at the outside 70 billion, seat miles when it gets into full operation. Last year, the trunk lines and overseas carriers flew about 40 billion seat miles with the equipment that is being replaced and about 50 billion seat miles with all the equipment in service. If we assume that by 1962 the airlines will be flying some 10 billion seat miles with the equipment that has not been replaced by jets or turboprops, then the total seat miles of the industry, other than the local carriers, will be something between 70 and 80 billion, depending on whether we use the higher or the lower figure as the capacity of the new aircraft. Operating at 70 per cent of capacity, 80 billion seat miles will require some 56 billion passenger miles. If air travel increases at the annual rate that it did during the last decade, the airlines by 1962 may expect something like 52 billion passenger miles. There are, however, reasons to believe that, with higher-speed equipment and satisfactory economic conditions, the industry may expect something like 60 billion passenger miles by 1962. Despite the opposition of the CAB,the airlines are getting started in the mass movement of passengers, and coach traffic is gaining much more rapidly than airline traffic as a whole.
MOVEMENT
OF
Before long, the Post Office Department will have to make some decisions with respect to the transportation of mail. In 1929, the railways operated approximately 1,500 mail train routes; in
1958, the number of routes had dropped to about 250, and the total mileage operated over these routes dropped proportionately. With the discontinuance of passenger train service by the railways, it is becoming increasingly difficult for the Post Office Department to f u r n i s h satisfactory mail service to many parts of the country. If all first-class mail were to be moved by the quickest method, air mail traffic would approach 160 million ton miles, or nearly twice what it is at present. Air movement of all second-class mail and parcel post packages of six pounds and under moving beyond zone three would produce more than 400 million additional ton miles of cargo for the airlines. Most of the f o u r - m o t o r e d equipment can handle cargo at a direct flying cost of about nine or ten cents a ton mile. Present cargo rates are around twenty cents a ton mile, and the Post Office Department pays from eighteen to twenty cents a ton mile for the transportation of regular mail by air. The transfer of much of the long-distance mail business from surface carriers to the air carriers could produce more ton miles of traffic than the carriers now produce in their total passenger business. Whatever amount of mail business the Post Office Departm e n t decides to transfer to the air carriers between now and 1962-and the amount may be substantial-will provide profitable use for the aircraft now being replaced by jets.
REGULATORY
POLICY
For the past five years, the CAB has increased trunk-line competition by extending the routes of many carriers into territories already being served by one or 16
BUSINESS HORIZONS - -
WINTER,
MOVEMENT,the ceaselessly changing, proves itself ever more strongly the key to our thought. It underlies the concept of function and of variables in higher mathematics. And in physics, the essence of the phenomenal world has been increasingly regarded as motion-process: sound, light, heat, hydrodynamics, aerodynamics; until, in this century, matter too dissolves into motion ....
-Siegfried Giedion MECHANIZATION
more trunk lines. Where a second carrier has been added to a market, it has in some cases improved the services for the public; but beyond a certain point, the public does not benefit from duplication of airline routes. Such duplication serves only to increase the unit cost of operation of the airlines and to add further congestion to the already crowded airways and airports. In addition to the policy of trunk-line route duplication, the CAB has granted twenty-three supplementary carriers certificates for scheduled operation for periods of from two to five years. These carriers may operate between any pair of cities and among as many cities as they choose anywhere in the United States so long as they do not offer more than ten round trips a month between any one pair of cities. The duplication of the services between Washington and New York may be an extreme case from the point of view of duplication, but it is not an extreme indication of CAB policy. At the present time, ten permanently certificated airlines offer service between Washington and New York. In addition to the permanently certificated carriers, the twenty-three supplementary carriers may if they choose offer a total of 230 round trips a naonth between the two cities. From almost any point of view, this 1959
T A K E S COMIV~AND
amount of air selwice between the two cities appears to be more than adequate. After our experience with the railways, it was no accident that Congress should provide in the act creating the CAB that competition should be limited "to the extent necessary to assure the sound development of an air transportation system." On most trunk line routes, the amount of competition introduced by the CAB goes far beyond the original intent of Congress.
THE
OUTLOOK
The expansion progl'am of the air carriers has a good chance to succeed and will in all probability produce more passenger miles than are being forecast at present. The increased speed of the jets will raise the level of passenger miles at least 10 per cent over what might be anticipated without jets. The traffic of the trunk lines this year may reach a level some 15 per cent higher than that of a year ago, and coach travel, with a little cooperation on the part of the CAB, will show much larger annual gains in the coming years than the 15 per cent indicated for all air travel this year. Tile movement of more mail by air, and this seems inevitable, could find the carriers with a shortage rather than a surplus of equipment by 1962.