There is no reason in the world it necessarily means you will have more frequency on it. Mr. SHIPLEY. With the slot allocations of Delta at the present time we cannot operate really any more frequency of service. Senator KENNEDY. Who allocates that? Mr. SHIPLEY. It is done. The limit is placed by the FAA and within that hourly limit the carriers primarily on grandfather basis and with approval of the CAB made the actual allocation arrangements. Senator KENNEDY. It is really done within the airlines themselves, is that correct? Mr. SHIPLEY. That is correct. Senator KENNEDY. You would not welcome having some other people trying to come in there and having them really shake up that allocation again. sir. Mr. SHIPLEY. Delta would be delighted to get some more allocations, Dr. EHRLICH. Eastern Airlines has been flying the shuttle for many years now and has one striking characteristic, it seems to be the type of service that people who travel in this corridor are demanding. We at various times attempted to gain a larger share of the market. We run about 70 percent of the market at roughly that load factor. A few years ago we attempted to put on a meal service or a snack service and we noticed that our market share deteriorated several points. We went back to basic no-frills in-flight ticket plan and our market shares snapped right back. Our conclusion, although we have looked at the PSA kind of service, we feel we are providing precisely the type of service that traffic in the corridor is demanding and our success in that area justifies the type of service we are providing. I would also point out that with regard to the slot problem, La Guardia is in precisely the same situation as Washington National. Senator KENNEDY. Well, as I understand, Eastern expansion can expand capacity with larger backup planes in parts of their shuttle. Dr. EHRLICH. That is right. Senator KENNEDY. Why could you not provide both services: a cheaper service that would be available to consumers, maybe at a time when they would need to make a reservation, and also the shuttle. Dr. EHRLICH. We tried that several years ago, recognizing the fact we do have backup service, and that is largely to provide passage for peak hours. We recognize if we could shift traffic off the peaks it would reduce the need for airplanes and thus reduce the need for backup aircraft. We filed for lower fares and the Board approved it, but we did not move one single passenger off peak hours. People have a way of travel and what we found in that particular corridor, we cannot shift them off peak travel hours. Senator KENNEDY. How much did you discount the fare? Dr. EHRLICH. I think it was $3. Senator KENNEDY. Thank you, Dr. Ehrlich. I am going to have to leave. We have Mr. Murphy of the Texas Aeronautics Commission who still has not had a chance to testify. There are a few further points I would like counsel to develop with you. If you can stay, I will ask counsel to proceed. 51-146 O 76 pt. 1 34 Mr. BREYER [presiding]. I think the most efficient thing to do would be the following. The staff has looked through everybody's testimony and the various documents, to try to answer the basic question: Why is it less expensive to fly in California than it is to fly in the East? There are a number of reasons advanced. We have had to use whatever facts were readily available to evaluate them. I would like to spend 10 minutes reading into the record our evaluation of each of the reasons advanced. I would appreciate it if both the airlines and the Board or anyone else who is interested would go through the record and correct any mistake, fact, or evaluation. I think that would be simpler than asking you questions. Everybody could then respond to what is a "rough first draft" effort. These are the various reasons given to explain for the difference in costs: The first is "differences in weather." We asked the FAA for figures, They told us that less than 1 percent of the flights in Washington Airport, New York, and Boston are delayed because of weather. Thus, weather does not account for much of the cost difference. The second factor is traffic density. If you compare the Washington-Boston fare, $44, with the Los Angeles-San Francisco fare of $18.50, and then look at the density, you find that Los Angeles-San Francisco route is much denser. There is no question about that. But other fares in Texas and California, such as the Orange CountySan Francisco fare, are only half as high as the Boston-Washington fare even though their markets are only one-third or one-half as dense as the Boston-Washington market. So that leads us to believe Professor Jordon's statement of the matter: "Once you get to 100,000 passengers a year, density is not a problem." The third factor the CAB mentioned is the direction of traffic flow: That is, does it only move in one direction? It did not seem to us that the Boston-Washington market tends to move in one direction anymore than the California markets, or that it is particularly more seasonal than the California market or the Texas market. The fourth factor is extra reservation costs and other interlining costs. Dr. Summerfield went into that only in some depth, and concluded that it amounts to $1.50 per passenger. Fifth, there are extra labor costs, a third man in the cockpit and a number of miscellaneous costs, meals, frills, and so forth. Dr. Summerfield went into these matters; they came to another $1.58 per passenger or so. So both the extra reservations, the interlining costs, et cetera seemed to come to $3 a ticket which did not go very far in explaining $18 difference between interstate and intrastate fares within California, or the $25 fare difference between California and the east coast. The next difference was that the CAB claimed different airplanes are flown on the different routes. We looked to see what airplanes were flown. The airlines in Texas, California, and on the CAB-regulated routes all fly 727's or 737's. On the CAB routes, they fly some DC-9's, too. I don't see why that should make any difference. The seventh factor is airport congestion. Airport congestion seems to be worse in the East. So we tried to look at flights on which rampto-ramp time is roughly the same. That should take into account con gestion both on the ground and in the air. So, if you compare flightlegs with ramp-to-ramp times that are roughly comparable, it looks as if routes with similar times in California or in Texas have about twothirds the fare of CAB-regulated routes. The CAB chart on this is quite interesting. The CAB chart suggests if you look at routes on a fare per minute basis, the California and the Texas fares are about two-thirds or maybe half the east coast fares. Then there were items like regulatory costs, filing fees, et cetera, that is number eight. They did not seem significant. Number nine: The need to support other routes in the system. That seems the most serious and the hardest to get firm information on. To what extent should people who fly Boston-Washington actually pay more to subsidize someone else in a different part of the system? Well, are there such people who are being subsidized? DOT and others say there are not many. The Board says there are not many. Are there, or aren't there? We are trying to get solid information on that. If there are such subsidies, we should like to know why they ought to exist. Number 10: In California and Texas, airlines fill up the plane more and have more seats in the plane. Everyone seems to think this factor is important. Of course, that raises the question of whether the consumer in the East too should be offered a choice of flights with fuller planes, more seats in the plane, and no meals. I think that is a serious question. Now, I have listed the factors. Our rough information on each is contained in our charts. We have to write report that will reflect a dialog with the industry, the Board, and others. It would be helpful to have people look at each of these factors and either substantiate our conclusions, or show these tentative conclusions are wrong. [Tentative conclusions of subcommittee staff follow:] The problem INTERSTATE/INTRASTATE FARE COMPARISON TENTATIVE STAFF CONCLUSIONS Fares on intrastate routes (unregulated by the CAB) are one-half to twothirds the level of fares on apparently similar interstate CAB-regulated routes. For example, the fare for the 338-mile, 55-minute flight from San Francisco to Los Angeles is $18.75; but the fare for the 399-mile, 67-minute flight from Boston to Washington is $41.67. Similarly the fare for the 109-mile, 30-minute flight from Los Angeles to San Diego is $10.10; while the 129-mile, 35-minute flight from Portland to Seattle is $22.22. What explains these fare differences? Proposed explanations The CAB, outside experts, and the carriers have advanced a number of explanations. We have tried to evaluate the importance of each of them: 1. Differences in the weather.-The carriers argue that worse weather conditions in the East add to the cost of eastern flights. The Federal Aviation Agency reports, however, weather conditions cause cancellation or delay of less than 1 percent of all flights at Logan Field (Boston), La Guardia Airport (New York) or National Airport (Washington). Weather does not account for a significant portion of fare differences from $20 to $50. 2. Traffic density. The carriers argue that fare differences arise because it is cheaper to serve routes with a high-traffic density. Although the BostonWashington fare of $41.67 is more than twice as high as the San FranciscoLos Angeles fare of $18.75, nearly 7 million passengers fly between San Fran cisco and Los Angeles, while only 980,000 fly from Boston to Washington. The attached table however, compares Boston-Washington and other routes of varying densities with unregulated routes with less traffic density as well (e.g. Orange County-San Francisco with 300,000 passengers). Once a traffic level of 100,000 is reached, additional density seems to make little, or no cost difference. Thus, this factor is of little significance. 3. Direction of traffic flow.-The CAB pointed out that routes where traffic flows primarily in one direction or are highly seasonal are more expensive to operate. This factor is not relevant in the case of the routes listed on the attached table. 4. Congestion.-The carriers and the Board point out that routes in the Northeast are more expensive to fly because of added congestion in the air and on the ground. This factor can be measured by looking at ramp-to-ramp flight times, for added congestion, either on the ground or in the air, and will simply have the effect of delaying flights and increasing the total flight time. The attached chart allows comparisons among routes of roughly similar ramp-to-ramp times, and, again, it reveals vast fare differences between California-Texas and elsewhere (compare, for example, Boston-Washington with San Diego-San Francisco). Additionally, the CAB's tables show large differences in "fare per minute" (the fare for the route divided by the number of minutes necessary to fly it). Thus it does not appear that congestion could account for more than a small part of the fare difference. 5. Additional labor costs, reservation system costs, higher airport costs and other interline system costs.-The airlines argue that being part of a large system imposes additional labor, reservation system, baggage, and other miscellaneous costs on them that the California and Texas carriers can avoid. Dr. Summerfield, an expert consultant hired by the carriers' Air Transport Association, measured the cost burden that PSA-the California carrier-escapes by not being part of such a system. He estimated the burden at $20 million per year, or approximately $3 per passenger. This figure explains only half of the difference between the $18 fare the PSA charges to fly San Francisco-Los Angeles and the $26 (interstate) fare that the CAB-regulated carriers charge to fly exactly the same route. 6. Regulatory costs.-Several witnesses pointed out that the cost of appearing before the CAB is significant. The carriers, in their answers to the subcommittee's questionnaire, however, estimated their cost at several hundred thousand dollars per year, or a few cents per passenger. 7. Different aircraft.-The Board pointed out that different costs are associated with different aircraft. Since the California, the Texas, and the CAB carriers fly 727's and 737's (the CAB carriers also fly some DC-9's), the aircraft types do not appear to account for much of the fare differences. 8. The need to support other routes in the system. The airlines argue that they must charge a higher price on some routes in order to provide enough revenue to subsidize service on other routes. So far, however, the airlines have not provided us with a list of routes that are so subsidized, nor have they claimed that the routes directly comparable to those in California (e.g., BostonWashington) are routes on which their fares are significantly higher than their losses. American has claimed that to provide turn-around service between Boston and Washington would inconvenience those passengers on the plane going beyond Boston or beyond Washington, yet, the inability to provide turnaround service would raise costs only $4 to $5 per passenger. This does not appear to be an inordinate amount, since, according to the CAB, 83 percent of all passengers flying from Boston to Washington get off in Washington. It is not clear why the public should have to do without turnaround service in order to save a few travelers the trouble of changing planes. 9. Seating capacity and load factors.-The major reason for lower costs in California and Texas seems to be that the airlines there put more seats in the airplanes and fill up more seats. For example, PSA puts 158 seats in a 727-30; American puts 121 seats in the same plane. PSA flies at a 60 percent load factor, carrying an average of 95 paying passengers in its 727-30, while American, flying at a 55 percent load factor between Washington and Boston, carries an average of 66 paying passengers in the same plane. *Los Angeles-Sacramento. *San Francisco-San Diego.. Detroit-Philadelphia.. Dallas/Fort Worth-New Orleans_ *Dallas/Fort Worth-Houston. *Dallas/Fort Worth-San Antonio. *Houston-San Antonio. *Intrastate markets. 1 Interstate markets: Coach fare. Intrastate markets: Economy fare. Source: "Official Airline Guide," Feb. 1, 1975. 2 Source: Book of Official CAB Route Maps and Airport-to-Airport Mileages. Most entries are volume-weighted averages of two or more airport-to-airport mileages. 3 Source: Interstate markets-CAB service segment data, special computer tabulation, reporting period from July 1, 1973 to June 30, 1974. Intrastate markets-California PUC form 1504 report, reporting period from Apr. 1, 1973 to Mar. 31, 1974. 4 Revenue passengers-available seats. Entries for California and Texas intrastate markets include PSA and Southwest only. Source: same as reference 3. 5 Average scheduled flight time. Source: Official Airline Guide, Feb. 1, 1975. • California markets include traffic to and from suburban airports. Los Angeles-San Francisco includes 12 airport-pairs, for example: LAX-SFO ONT-SFO 18.75 338 363 2,984, 985 1555 Mr. BREYER. I would like to ask American Airlines a question. Looking at your chart in your prepared statement, you say that you really could make a Boston-Washington commuter service pay if you had 112 passengers, roughly. Is that correct? Mr. MALIN. Yes. Mr. BREYER. Couldn't you put 158 seats in the plane as PSA does? You then would have a lower-load factor and it might be more practical. Mr. MALIN. Yes; it is theoretically practical. It reduces the breakeven load factor to the low seventies. But there would be offsetting diseconomies from taking a fleet of airplanes, say four 727's, isolating them to one market, and just spinning them around. Obviously those airplanes could no longer get lost in the system, so we would lose flexibility. Mr. BREYER. Which might raise costs somewhere else. Mr. MALIN. Could raise costs someplace else. Mr. BREYER. Could you work out the economies? Mr. MALIN. Thirteen out of 15 flights in these markets do go on, so all of that service would be lost. Some Boston residents desiring to get to Memphis would simply have to find some other way to do it. That is the offset, the loss in terms of public service. Mr. BREYER. I think the best thing to do, rather than have me ask questions is simply to leave it at this. You have a set of factors and |