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 innova

tive 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

when they asked him why he robbed banks. He said that is where the money is. The entrants would go to the 70 markets, that is where the money is.

Senator KENNEDY. I hope there will be one between Boston and Washington.

Mr. LANDRY. If I may get to the other question, the system under 414, I believe it would be a mistake and a serious mistake from the consumer point of view to do away with the antitrust immunity, to do away with section 414. There is a tremendously integrated network with some 24 carriers serving this host of markets in which a number of efficiencies and cost savings are brought about through intercarrier agreements. Those agreements would not be formulated if the carriers were fearful of the very drastic consequences, particularly now under the new law, of the antitrust violations.

I am not saying these agreements are worked out in smoke-filled back rooms or anything of that sort. They are worked out in the open, in front of the observers of the Civil Aeronautics Board, the Department of Justice, the Department of Transportation. I have had the privilege in the last week, for example, to play host to a very dramatic effort of carriers around the world to try to cope with the escalating price of fuel. Some 75 carriers have gathered together to see if they could formulate some joint actions that might bring the price of fuel down, to the benefit of the consumers. Those carriers held a giant meeting last week, observed from beginning to end by the Civil Aeronautics Board, DOT was present throughout, and the Department of Justice had the opportunity to be there. But in any event, any agreement that comes out of that will only go into effect if approved by the Civil Aeronautics Board. Under the holding in the local cartage case, the CAB, if it sees anticompetitive effects, it is not going to approve any such agreement unless it positively and affirmatively finds this the only way to meet a serious transportation need or to secure important public benefits. So, I think all in all this is very close scrutiny. And, the system is working.

Senator KENNEDY. Do they keep transcripts of those meetings? Mr. LANDRY. Minutes are being given to the Civil Aeronautics Board and they are public. And, they allow interested persons to come in and address the meetings.

Senator KENNEDY. Would you support keeping transcripts, as we do here in the Senate?

Mr. LANDRY. In some cases they have transcripts.

Senator KENNEDY. Can you see any reason why they should not keep transcripts? You just talked about how open the meeting was. Do you have any reason why transcripts should not be kept?

Mr. LANDRY. In this case-if transcripts were made available to the oil companies. I imagine that the dialog would not be quite as free. as it would be absent such a transcript. But full minutes are being submitted to the CAB today, as a matter of fact.

Senator KENNEDY. You really cannot have it both ways. I think up to this year the Congress was one of the biggest offenders. We have executive sessions from which the public was excluded, and conferences with the House of Representatives in most instances were closed. That has gone on for some time. It was generally felt that if we opened up these meetings, either the Members themselves would be fighting a

losing battle in front of the press and the various kinds of interested groups, or that there would be a distortion of the legislative process. But it has been demonstrated, and I think quite effectively, that this is not the case in the number of committees which have held the open executive sessions in considering extremely important matters of policy.

I am just wondering why we should not have these airline meetings open, or maintain transcripts; what reluctance you would have to

Mr. LANDRY. Mr. Chairman, I think in this particular set of discussions that I am talking about, I think, it is unique in not having them open with a transcript.

Senator KENNEDY. Do you think they should be open with transcripts unless there is going to be a vote taken by participants to close it?

Mr. LANDRY. No; I believe that the discussions, for example, capacity discussions and so forth, have had consumer groups represented throughout the discussions. I believe they have been fully open to members of the general public and have been held in that kind of goldfish bowl without any adverse consequences.

Senator KENNEDY. Come on, do you favor keeping transcripts, or do you not?

Mr. LANDRY. There were transcripts, I believe, of those capacity discussions and any discussions of that nature. So I say about 90 percent of the time

Senator KENNEDY. It is the other 10 percent that we want to get. The minimum charter discussions that we had last fall, I think the transcript of that meeting would have been fascinating.

Mr. LANDRY. I am not sure of the ground rules for those discussions as to whether there was a transcript. I do not know.

GENERAL FARE INCREASES IN PREVIOUS YEARS

Mr. BREYER. A couple of minor questions.

First, I would just like to clarify this, because we are making an effort to keep our statistics accurate, I have gone over your prepared testimony. I was a little bit disturbed because you stated that contrary to what Senator Kennedy said-contrary to the December 16 statement-last year the domestic airlines were granted fare increases totaling 10 percent. I went back and checked that again and I think we were accurate on that, were we not?

The CAB, on December 16, granted a 5 percent increase. It granted a 6 percent increase in April 1964 and there was a 4 percent increase in April 1974. Then, specifically referred to in the speech, the CAB phased out discount fares which amounted to a 5.4 percent increase. These total 19.4 percent. Senator Kennedy described the increases as "nearly 20 percent."

So I would appreciate your going over your statement because we are making an effort to be accurate. I do not think what the Senator said is contrary to the facts.

Dr. JAMES. We think by putting the discount fare changes in you are mixing apples and oranges, which is something many others have done as well. If you talk about the 5 and the 6 and the 4, the 15 for the 3 general air fare increases, you are talking about the impact we

51-146 76 pt. 19

had on the normal traveler. If you are talking about the discount fares, they affected the family fare traveler and the youth traveler. To many that change was almost as much as 40 percent because it was going from 66 to 75 percent of full fare up to full fare over three stages.

Now, in turn, however, he now has available, beginning this month, 20 to 25 percent off. So the change to many perhaps is only 10 or 15 percent increase. The change to the average nondiscount traveler, the general fare increases then are 15 percent in that time period.

Mr. BREYER. The CAB gave us that number. I would appreciate it if you would check it out.

Dr. JAMES. The difference is whether or not you should have in the calculations the discount fare changes which are really yield changes.

SMALL TOWN SERVICE (CROSS-SUBSIDY)

Mr. BREYER. I just want to stress a point that I had some difficulty understanding. I am not certain what argument you are making when you talk about the complexity of the network. I think at some point what you are saying is that there are a lot of unprofitable routes that are being subsidized by other profitable routes. Now, if that is the case, what is interesting to me about that is the Department of Transportation and the Council of Economic Advisers and people who seriously studied the matter for a number of years argue that there is not any substantial cross-subsidy. If in fact you did have more competition you would still get those little towns served, maybe not every one, but certainly most of them, perhaps by commuter airlines. But you state the contrary is true.

What I would like to ask you to do is to substantiate that claim, come up with lists of costs or lists of those towns that would be cut off. Can you prepare this computer printout or whatever cost studies are necessary, because we have cost studies on one side and I think it would be helpful to have them on the other.

Dr. JAMES. I believe there are two questions there, one on crosssubsidy and our ability to produce this feeder information.

On the cross-subsidy, I believe that that is a concept that has been misused on many occasions, and I would cite this, that if you take the flight that we have from Fresno to Denver to Chicago, and we have 27 passengers that are coming from Fresno to Denver that continue on to Chicago. Now, they are on that major hub that is often looked upon as subsidizing the smaller feed route that they just came on. So they are in effect subsidizing themselves if you call it cross-subsidy. Now, what about the passengers who are on that flight who did indeed originate in Denver and go to Chicago. Are they subsidizing those who were fed into Denver. Well, I believe you can look upon that as if they are not, because what is happening there is that they are getting a higher level of service than they would have gotten without the feeding routes coming into Denver.

Mr. BREYER. What I am asking is that you make a serious effort to prepare the documentation that would bear out the statement. In California they have a competitive system and feeder routes, as well. Noretheless, you think if there were freer entry the feeder systems would be destroyed. I am asking for the subcommittee if you could submit documentation.