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uations of this ATA study from five leading economists and several Government agencies. The ATA study and the evaluations, together with relevant correspondence, are printed at the end of Dr. James' prepared statement following his testimony of this day, p. 139 ff., below.]

Senator KENNEDY. Let us continue.

RELATIVE DECREASE IN AIR FARES SINCE 1938

Dr. JAMEs. The objectives sought by the theorists or the critics of the present system have been accomplished in a regulated competitive environment. Those who have found fault with the regulatory environment in which air transportation now operates seek to achieve a laudatory goal: air transportation service at minimum and cost-based prices, providing a maximum efficient quality of service. We believe we have accomplished that goal.

Today average scheduled airline passenger fares, in 1938 dollars, are 64 percent less than 37 years ago, when Congress passed the Civil Aeronautics Act. Moreover, if one wishes to switch to current dollar comparisons, from 1948 to 1974 the air fare between New York and San Francisco rose 21 percent. At the same time the price of a pound of roundsteak increased 100 percent, a pair of men's shoes 120 percent, a Chevrolet automobile 220 percent, and, though perhaps not commonly purchased, a year's tuition at Harvard over 640 percent.

Air freight rates have similarly experienced a decline relative to costs of all U.S. goods and services in the period 1946–1974.

Senator KENNEDY. With all due respect, what has that possibly got to do with it? Television has gone down, the cost of radio has gone down, wristwatches have gone down. So what sense does that particular comment make-how does that prove your thesis? I can give as many examples as you have given that have gone the other way. I am not an expert in this, but

Dr. James. The only point I am making, Senator, for every one you can give I can give one above the average. We are standing with a small group of services and products which have actually declined in this time period. We are 64 percent below the average, so obviously there are larger numbers that have gone up than have gone down relative to our performance.

Senator KENNEDY. Maybe that is convincing to some people, but what we do not know without competition is how much further it would have gone down. I would think that would have been the important question. If this is satisfactory to you as an explanation we will be glad to receive it.

Dr. JAMES. We also can compare ourselves with consumer price index and the wholesale price index, and we will have outperformed those.

REGULATED AND UNREGULATED FARES COMPARED Senator KENNEDY. I do not suppose you could mention that the PSA has gone down further than you have, or Texas, so therefore they demonstrate

Dr. JAMES. Senator, I think PSA would be delighted to say that, but they cannot. From 1967–1973 their prices went up 23 percent. Ours went up 17 percent. Since 1973, PSA has increased their prices 25 percent and is applying for 10.5 percent more. Since 1973, our general fares are up 15 percent. Our price record against PSA is very competitive and we beat them.

Senator KENNEDY. Which makes the point that competition does not make much

Dr. JAMES. They are probably within a 1/2-cent yield away from our average, and we have three or four fares that we offer today that are less than what PSA offers on a yield basis.

Senator KENNEDY. Well, the fares, as I understand, are close to half the price.

Dr. JAMEs. They are not, sir. Their yields are close to 6 cents a mile and ours are running close to 7 cents a mile, including the charges that have just been made.

Senator KENNEDY. Well, give me, just to clarify for a layman, what the fare is from San Francisco to Los Angeles for CAĎ regulated and then the PSA.

Dr. JAMES. Well, I see the frame of reference in which you are speaking

Senator KENNEDY. Can you answer that question for me?

Dr. James. I have the airline guide here and I can probably pull out that fare for you, if you wish.

Senator KENNEDY. OK.

Dr. James. The yields I am quoting to you are the average of all of our fares against PSA. If you would like I would also like to elaborate on that in a moment as to the differences of the kind of service that PSA is offering and the different cost against our own carriers. I can do that if you wish while we are attempting to find

Senator KENNEDY. The point that I was making is, I did not understand the relevancy of the increase in Harvard's tuition, and then we got diverted on this other situation, so whatever you like, we will just put those in the record and you can continue.

Dr. JAMES. Senator, there is a spectrum of fares on that route between Los Angeles and San Francisco. PSA, for example, has a fare $20.25. TWA has a fare for $19.50. Air West has a fare for $18.37, Continental $17.

Senator KENNEDY. Are those the intrastate passengers ?
Dr. James. Between Los Angeles and San Francisco, yes.
Senator KENNEDY. Those are traveling intrastate, right?
Dr. JAMES. Yes.

Senator KENNEDY. Say someone took a plane from Boston, San Francisco, Los Angeles, what would be the cost of the San FranciscoLos Angeles rates ?

Dr. JAMES. Those would be larger.
Senator KENNEDY. Give me those.

Dr. James. I will submit that for the record later. I do not have it with me at this time.

Senator KENNEDY. Well, it must be in the airline guide. You are the experts on it.

You can continue in your testimony.
Dr. James. All right, sir.
Senator KENNEDY. Counsel informs me that it is $38.89.

Dr. James. The airline offers the public a wide range of available fares, and extensive use has been made of these. For the year ending September 1974, for example, use of lower than full fares accounted for almost aneth of a snack revenne passenger miles fiown. Be21.12.::. 21.67 per cera caseri ispunt fare has been intro5.36** **- ,. proude zzattractive cridge between charter and

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THE AMESTIC PAS EXGER FIRE INVESTIGATICS More fubt, te tree that the ri! Aeronautics Board has tamen preguntest-betting stars. throgn the results of its Domestie Paskryer Fare Intation, to ar that the airline industry operates at talarde of offic TV rasponsive to consumer interests. The initiat;n of this in matigatot: came from Members of Congress in late 1969. The initiation began in January 1970. and that portion of it covering for love rate of return procedures produced its first results in May 1973,

The swulting (AB standards of efficiency assure that no automatic fare inrro944. jų charged to consumers for so-called industry cost mistakve of purchasing excess equipment, of misestimating a market and hauling for fow people, or for giving away business through discounting. The CAB standards of efficiency adjust for all of these, and no fare change is made until these adjustments have been made. Each fare increase granted to the industry since 1973, including the 4 percont increase granted last November, has been based on meeting these standardy.

These CAB fare level procedures, resulting from open public hearings are not arbitrary, were not developed from clandestine meetings, and have a clear and comprehensive public interest platform built in. Yet the opposite and misleading impression is often given by critics as an emotional appeal to consumers. As we have shown, in fact, it is the consumer who is the primary beneficiary of these procedures.

Let us turn our attention to the question of load factors, a concept krowly misun«lerstood and misused. Continually our industry is told two things: (1) we are not providing adequate levels of service, and (2) our load factors should be higher. For our industry these objectives are contradictory.

I believe I can make my point by referring to the statement that Senator Kennedy made on the Senate floor on December 16, where he referred to the difficulty a student in Boston might experience in returning to his home in Detroit because of a lack of available seats on that route. Keeping in mind that the Civil Aeronautics Board's

domestic passenger fare investigation established the load factor standard at 55 percent in 1974, the average load factor in the BostonDetroit market was 59 percent. Senator Kennedy has cited an example of possible inadequate service at a load factor of 59 percent. To average 59 percent, the Boston-Detroit market shows a monthly load factor range of 52-67 percent thus further demonstrating the seasonality of our markets.

Senator KENNEDY. You missed the point completely, because I was not really talking about the load factor there, I was talking about the competition that existed in that particular route and pointing out that there was only one carrier traveling that route. There was another one that offered to provide better service and, because the Board had refused to have a hearing, was unable to do so. That is the point that was made. I think it is still a valid one. If you want to draw some kind of reference to the load factor as being the purpose of that comment, then I am glad to clarify that for you at the present time, but that certainly was not the point being made. There is another carrier who wanted to get in, offered more frequent and better service, was never granted a hearing and that opportunity is not available to that young person. If you want to argue with that point I will be glad to hear you.

Dr. James. You were citing in your statement, Senator, that the students, for example, between Boston and Detroit would be unable to get on flights between certain periods of time because of lack of service and the refusal of the Board to add additional capacity.

My point is that here is a situation where apparently there was insufficient capacity and yet there was a 59 percent load factor.

Senator KENNEDY. How many carriers are there in that group? Dr. James. I am not aware.

Senator KENNEDY. Oh, now, you know how many carriers there are. Ask your associates. There is one carrier, one non-stop carrier.

Dr. JAMES. There are lots of ways of getting between Boston and Detroit, if you are talking nonstop, then there is one carrier.

Senator KENNEDY. That is right. OK.

SMALL TOWN SERVICE (CROSS-SUBSIDY)

Dr. JAMES. What is commonly overlooked by observers of the scheduled air transport system system is that 30 percent of our domestic traffic is produced by only 70 larger city-pair markets; another 40 percent is derived from an additional 840 markets; and the final 30 percent is produced in some 57,000 smaller markets. Yet, these smaller markets are an integral part of the system and their loss would seriously damage the adequacy of public air transport service, as well as invoking a severe cost to the national economy.

For example, out of a passenger load of 85 on a typical flight from Denver to Chicago, over three-fourths do not originate in Denver. They are coming from Pueblo, Colo.; Cheyenne, Wyo.; Great Falls, Mont.; Sacramento, Fresno, and San Jose, Calif.; and other cities in the West. If this feeder system were tampered with, the primary market would also became less profitable. As a result, it would receive less service, and the remaining smaller feeder markets would also receive less indirect service.

Senator KENNEDY. Well, how can you say that? I would be interested in your printouts on that particular fact. I just know that with regard to my part of the country, Air New England provides many more opportunities for the trunk carriers and the scheduled line carriers to move people than when the major scheduled carriers were traveling down into southern Massachusetts and to other parts of the State.

Dr. James. My example would be that the analogy that Air New England, for example, is feeding into Boston, Boston is a major hub serving to Los Angeles or San Francisco. Flights out of Boston are fed by many of the feeders in the New England area. The profitability of those hub routes depends to a large extent on the feeder routes coming into Boston.

I cite an example later in the testimony concerning a flight coming from the West, Fresno on through Denver and Chicago on which I have specific figures which I believe may illustrate the point you are looking for.

Senator KENNEDY. What is the point here?

Dr. JAMES. If you tamper with this system that you will begin to close it in on the periphery, that is the feeder points would be the ones that would begin to shut down. As they were shut down it would also have an effect on the hub. Hub service would be less, and what you are doing, because it is a concentrated industry, is that you are going to end up with only a few markets served by fewer carriers and the air transport service will be seriously compromised.

Senator KENNEDY. Well, that has not been the experience in my State. You may be able to document it in other parts. I dare say that would not hold up in New England. I dare say it would not in California. There may be other parts of the country that it would.

I would be interested in what information you have to show that this has been the situation in any of the places where there has been a reduction of scheduled flights, because it certainly has not been the case in Boston or Massachusetts.

Dr. JAMES. Well, I do not know that we can demonstrate what the impact would be fully from our standpoint or the standpoint of those, for example, that testified this morning.

Senator KENNEDY. Well, then, how can you make your statements with such assurance ?

Dr. James. Let me make this point first, if I may.

The point I was leading up to is that we do not have the experience in this country of shutting down the air transport systems to fully understand what the impact would be in these outlying districts. We have to rely on the evidence we now have that shows the amount of feed that goes into a hub and the importance of that feed to the more profitable routes that continue beyond and assume, then, that if you were to deregulate the low density routes would be the ones in which service would first be dropped, and as it is dropped then the public transportation network begins to be compromised and there is a chain reaction all the way through to the main levels of the hubs in which service is dropped there.

Senator KENNEDY. I think the best opportunity would be to look to places that had certificated carriers which dropped feeder service into these hub areas. One of the clearest examples is my own area, where Northeast was able to drop certain of these routes, and after it was merged with Delta, virtually all of them were dropped.

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