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I dare say the smaller lines have provided a much greater degree of service to the public, and I dare say, and I will be glad to look at the statistics, that there is more service feeding into the major scheduled airlines now than when the certificated carriers were flying the DC-8's at 1 o'clock in the morning in order to meet with CAB requirements. We have seen how Northeast used to fly down at the most inopportune time in the world, and would be down here 4 or 5 months later saying look, this is all the number of people traveling on it, and trying to get permission to drop it. We saw instance after instance in which they were permitted to drop service. Now we have been able to see the development of a variety of different carriers serving this area—from Boston all the way up the coast of Maine and New Hampshire and Vermont, and we find a much more efficient and effective service, and I dare say the numbers would show they are bringing many more people into the major market areas.

If you are going to make a statement categorically that deregulation would mean inferior service, this is a statement that I think ought to be supported with at least some kind of figures or documentation showing places where that has been the case in the past. If you have some we would welcome it.

Dr. James. Senator, I do not believe the analogy you make necessarily holds, because the service that you now have in the New England area is still a scheduled certificated service. For example, the recent certificating of Air New England as a regional carrier.

Senator KENNEDY. Do you know when Air New England was certificated?

Dr. JAMES. Well, just within the last month.

Senator KENNEDY. We have been flying it for the last 21/2 years. So we can use the figures before it was certificated if you want. I do not want to debate this point.

Dr. James. Perhaps your service is well improved.

Senator KENNEDY. I have been very satisfied with it. If they can improve it, I am delighted.

We will continue. If you have any figures or statistics or studies on this particular point we would welcome them, because obviously the DOT has presented a statement. We will ask them for their data as well, and if you have some we would like a chance to examine it. You must have reviewed this, and we would like to take a look at it.

[In a letter dated February 7, 1975, the chairman of the subcommittee made more explicit his request of Dr. James for a list of routes that would be eliminated under the conditions discussed above. On April 3, 1975, the Air Transport Association submitted its reply which totaled more than 200 pages. The chairman then requested independent evaluations 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. ]

Dr. JAMES. Fine.

THE INTERLINE NETWORK OF AIRLINES

Some claim that, if the present system were deregulated and present carriers elected to leave the smaller markets, commuter carriers or forms of ground transportation would be adequate substitutes. Data developed by Dr. Gary Fromm, formerly of Data Resources, Inc., would indicate differently. The value of an hour's time to an air traveler is approximately $10.50. Taking into account the slower times for accomplishing the same trip by rail, bus, auto or lower speed aircraft, the cost to individuals and therefore to the economy could approach billions of dollars.

The replacement of many of these markets by smaller carrier operations would be a hazardous one. For example, in 1972, of all U.S. cities receiving scheduled passenger commuter service, 74, or 17 percent were abandoned 1 year later and service was added to another 104. Thus, in that time period 178 cities experienced a change in scheduled commuter service--roughly one-third of all cities receiving such service.

The present air transport system represents a wholly integrated network of scheduling, connections, interlining, and routing among and between carriers serving cities of varying size and geographic proximity to each other. A glance at the Official Airline Guide (which contains the schedules for the entire air transport network) provides dramatic evidence of this point. For example, the OAG (North American edition) published on February 1, 1975, is 898 pages long. It depicts the schedules of every scheduled carrier in North America, to and from virtually every community served, with connections indicated. It is this network which would be jeopardized by drastically revising or dismantling the structure so carefully constructed over the last 37 years.

The airline industry believes that the regulatory environment within which we operate has served the public interest well. We believe the results support that conclusion.

However, in certain instances, airlines have opposed and continue to oppose the manner in which the regulatory process has been carried out. And we believe that certain areas of economic regulation of our industry do require increased attention.

For example, the problem of regulatory lag is endemic to the regulatory process throughout much of government. There are areas here where productive changes can be made. The proper requirement for full and complete industry reporting of economic, financial, and statistical data need not result in duplicate and redundant effort on the part of the industry or the regulator. We believe reasonable costbenefit analysis can be usefully applied to certain of these requirements.

We also believe that the precedent-setting step of establishing performance and efficiency standards for the industry should be subject to regular scrutiny by the Board and amended when and as required in the public interest. These should be done, however, always keeping in mind the need for continuing understanding on the part of the public and the government of the real world economics of the air transport system.

We also believe that the undertaking by the Civil Aeronautics Board of a comprehensive review of route developement policy is desirable. Careful consideration should be given to the view contained in an October 1974 report by the Board that: “* * * regulatory route and route-related policies should be directed to improving the efficiency and quality of the system, through careful expansion of route

authority when required by traffic, and through route rationalization.”

We are also in favor of selected changes in the tariff procedures. We would advocate extending the filing deadline for tariffs from 30 to 45 days with Board decision required after 30 days. This process would provide 15 days advance public notice of tariff changes. A corollary of this would be the adoption of a simplified short-form tariff which would work to enhance public understanding of a given tariff change.

In conclusion, the kinds of changes we feel are worthy of consideration are those which would tend to improve upon the present system, and not destroy it or affect its present high level of performance. The regulated competitive environment of the air transport system has not only fulfilled all of the objectives of an unregulated environment and has been truly responsive to public service needs.

The record of the air transport industry shows: (1) that we are not high priced; (2) we are consumer-responsive; (3) we offer a high quality of service; (4) we are innovative and have introduced a high degree of technology, and (5) we maintain an extensive network of public service.

We believe that there is no way that a major overhaul of the regulatory structure of air transportation, let alone deregulation, could improve on this record.

Thank you, sir.
I am open to additional questions, if you wish.

FARE FLEXIBILITY

Senator KENNEDY. Mr. Beyer will ask some questions, but before we get to that, what was your reaction to some of the proposals made this morning by the DOT in terms of price flexibility, for example, that permit at least some-I think they talk about zone of flexibility.

Dr. JAMES. This is the zone of reasonableness?
Senator KENNEDY. In terms of rates.
Dr. James. Yes, sir.

The carriers are divided. There will be carriers who might show some interest in that, many others who would not. I am not in a position to give a unified industry answer to it except to say that one does have to examine what the purpose would be. It is the purpose to

Senator KENNEDY. Well, I suppose the purpose is to permit somebody who wants to fly, as I did last Thursday, from Washington to San Francisco, to go for $100 instead of $200.

Dr. James. Yes, sir. We have introduced just this month the opportunity for you and others who so wish to use it to fly at discount rates at those distances, and in effect we would view that as part of the zoning.

Senator KENNEDY. With regard to that point, you are generally accepting that proposal that they mentioned there. As I understand from what you are saying now, you have no real problem with it.

Dr. James. What I am saying at this point, Senator, is that in many ways the present practice is meeting the objective that you are seeking.

Senator KENNEDY. Well, if they do not—then, if it is meeting the objective and you are saying that has all ready been done, then I understand you are in general support of it. You say that has already been done, it is not necessary

Dr. James. I am in general support of the wide variety of fares which the industry offers the public, which are in varying combinations.

Senator KENNEDY. If you say they are all ready doing it what is your reluctance to support it? I do not understand it. You say they are already doing it, you are in support if they are already doing it. You cannot have it both ways.

Dr. JAMES. I guess what I am really saying, Senator, is that if we are already doing it one way and accomplishing the objective a second way, why do it the second way!

Senator KENNEDY. Well, then you are against it?
Dr. James. I am not in a position to represent an industry view, sir.
Senator KENNEDY. What is your own personal view?

Dr. James. That we are already meeting a zone of reasonableness by the variety of fares that we are offering the public.

Senator KENNEDY. This is not different from your industry view?

Dr. JAMES. It is not different from our industry practice. The industry view would be different from the industry practice, depending upon the spectrum of answers to the questionnaire that you have on this same subject.

Senator KENNEDY. That makes it very clear.

FREER ROUTE ENTRY

How about freer entry into the market area? You say the administration strongly supports liberalization of entry into the airline industry and the proposal provides substantial entry and exit liberalization.

Dr. JAMES. Yes, we feel very strongly that if you had complete freedom of entry in these markets that only the larger more profitable markets would survive and only a few carriers would survive, and the value we now have in the total 58,000 city-pair markets would be destroyed, and it would not be too long until we find that our ability to get more—to get service between more than 70 to 200 pairs out of this 58,000 would be a reality. We would not be able to get more service than that.

Senator KENNEDY. Well, how do you respond to the points that were given this morning that, if some carriers drop by the wayside because they are poorly administered, they do so because they are inefficient? There are others that can run an airline better. Why do they not have the ability to come in and offer a price and service to the public that

Dr. JAMES. I simply do not accept the fact that we have as a group, a poorly managed airline. Between 1969 and 1974, we have reduced our employees 312 percent. At the same time we increased our volume of traffic, passengers hauled by 20 percent, passenger-miles by 30 percent.

Senator KENNEDY. If they are doing such a good job what do they have to fear from anybody coming in?

Dr. JAMES. The thing you have to fear is the loss of some 57,000 city-pair services.

Senator KENNEDY. Why do you say that? You say they are all doing a complete job, are not overpriced, are consumer responsive and innovative and give extensive public service, so what should they have to fear? It seems to me the people who have something to fear are the people who are sticking their neck out.

Dr. JAMES. Sir, I think it is the public, the Government that should have the fear, the fear that the public service to all of these city-pairs will be destroyed or effectively compromised. The surviving carriers in this should have nothing to fear, but there would be few of them serving very few markets.

Senator KENNEDY. At a lower price, I suppose ?

Dr. JAMES. Not necessarily, because if you compare our price performance over the past 30 years, we are marketing better than the economy. That is, better in the sense that we are priced lower relatively to them.

Senator KENNEDY. We are back to the question of whether fares might not be even less if you had competition or free entry.

It reminds me of the patient who had a temperature of 101 and his temperature was 98 one day and went up to 101 the next and 102 the next, and the doctor said you are getting better because you are getting sicker more slowly.

How do you know if, with competition, you might not be doing better, even further below the national average!

Dr. JAMES. I think my answer would be this. Could anyone say that we could do better- I do not think we could—but let us assume that we did, on 70 markets, and with two or three carriers, at the cost of serving the rest of the network that now exists. If they think we would improve then they are overlooking the cost, the cost to the public in particular.

Senator KENNEDY. We will never know, though, if we follow your position, because you would not permit or at least not encourage new entry of other carriers into the market. The way that I understand your answer is that nothing would be more disastrous for the whole traveling public than if you opened it up to any kind of competition. If we follow your testimony, we will have no way of knowing, will we?

Dr. JAMES. I think in response to that question, it is well advised to keep in mind that those who advocate this, as they essentially did this morning, were also in extreme wonderment as to just whether or not you could go through this transition and not effect the city service that we now have. Many questions were raised on their part as well.

Senator KENNEDY. I raised most of them.
Dr. JAMES. You did, and I appreciate that.

CAB AUTHORITY TO IMMUNIZE INTERCARRIER AGREEMENTS FROM THE

ANTITRUST LAWS

Senator KENNEDY. What about the antitrust immunity? How do you stand on that?

Dr. James. I would like to refer, if I may, to our chief legal counsel, Mr. Landry.

Mr. LANDRY. Thank you, Mr. Chairman.

If I could just add one comment to what Dr. James has been saying about the consequences of free entry as to what would happen. As he has emphasized, you have 70 markets equalling the support from 57,000 city-pairs. That fact reminds you of what Willie Sutton said

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