"As the justification for competition in any case does not depend upon the failure or inability of an existing carrier to render adequate service, neither does its ability and wiliinguess to furnish a sufficient volume of service in itself constitute a bar to a competitive service. The greatest gain from competition, whether actual or potential, is the stimulus to devise and experiment with new operating techniques and new equipment, to develop new means of acquiring and promoting business, including the rendering of better service to the customer and to the Nation and affording the Government a comparative yardstick by which the performance of the carriers may be measured. Competition invites comparison as to equipment, costs, personnel, methods of operation, solicitation of traffic, all of which tend to assure the development of an air transportation system as contemplated by the Act."

While this was certainly not a policy of free entry, it nevertheless made it clear that the route system was not fixed when there was simply a carrier providing service the question, instead, was how many carriers could provide that service economically. And, when combined with the "public hearing . . . as speedily as possible" requirement, those provisions produced, in the next two decades a vast system of domestic and international air service.

Not that the CAB granted every application it heard or, for that matter, heard every application on its docket. To the contrary, the CAB quickly abandoned the first-come-first-served policy of assigning priority to applications and used its discretion in this area to approach route applications in a logical sequence, setting down cases in individual markets when adequate support was shown, or instituting on its own motion larger area investigations designed to examine at one time a number of interrelated issues of route authority.

As time passed and the Board found itself faced with a rapidly growing docket of route applications, it took several steps aimed at helping it sort out those most worthy of prompt hearing. In 1902, the Board auopted standards for priority of hearing (14 CFR 399.60) and these are, at least nominally, still in effect. In 1968 and 1969 the Board adopted special procedures under subpart M and subpart N of its procedural regulations. There was a commendable effort to shorten sometimes elaborate hearing procedures in connection with the applications for removal of route restrictions. The thought was that such applications tend to be relatively noncontroversial and thus lend themselves to simplified procedures.

Another action taken by the Board was the establishment in 1963 of subpart K, a standardized system of forecasting the costs of operating routes proposed by local service carriers. In recent years, with the advent of the route moratorium, subparts M and N have fallen into disuse. Subpart K costing, however, is still used. As noted below, subpart K tends to overstate the cost of operating a new route and makes it extremely difficult to show that any new service can be operated profitably. Subpart K results have been relied upon frequently by the Board to support a decision not to hear a route application.

Finally, in recent years we have seen a shift to the "show cause" procedures in those instances where the Board has agreed to entertain relatively minor applications for new route authority such as "route realignments." Under those procedures the Board announces a tenative decision first on the basis of staff recommendation. These tentative findings are later made final if, as is usually the case, no one demands a hearing in terms which the Board finds convincing. The precise limits of Board power to act by show cause order have not yet been established.

NORTH CENTRAL'S EXPERIENCE PRIOR TO THE 1970'S

Before examining the North Central applications that have been victims of the route moratorium, it is important to note the company's experience in more “normal" times. North Central has received many awards of new authority in the 79 years it has been certificated. Four of the most significant for North Central took place in the last half of the 1960's:

1. Twin Cities-Denver nonstop authority (CAB docket 18828). On September 26, 1966, the City of Denver applied for nonstop service to the Twin Cities,

5 Hawaiian Airlines. Ltd., et al., Hawaiian Case, 7 CAB 83, 103-104 (1946). Also see American Export Airlines, Inc.-Certificate of Public Convenience and Necessity (Transatlantic Service). 2 CAB 16, 29-31 (1940); Northeast Airlines, Inc., et al.-Western Atlantic Route Case, 6 CAB 319, 323-326 (1945); Southwest-Northeast Service Case, 22 CAB 52, 60 (1955); Aloha Airlines, Inc., Hawaiian Airlines, Inc., Certificate Amendment Proceeding, CAB order E-25650, at 2 (1967).

Omaha, Phoenix and Las Vegas. On April 12, 1967, Denver moved for an expedited hearing. North Central supported that motion as it applied to its application for Twin Cities-Denver authority. The Board granted the motion on July 25, 1967 and instituted a proceeding which culminated on April 2, 1969, with an award to North Central (order 69-4-20).

2. Milwaukee-Dayton/Columbus/Cincinnati authority (docket 19692). On November 24, 1967, the City of Milwaukee and the State of Wisconsin applied for new authority to certain Ohio points. The Board instituted an investigation on March 8, 1968 (order E-26488), and North Central was awarded the authority on October 13, 1969 (order 69-10-57).

3. Milwaukee New York nonstop authority (docket 19097). North Central filed this application in the spring of 1967, together with a motion for an expedited hearing. The Board instituted an investigation on October 11, 1967 (order E25805), and North Central was granted the authority on June 4, 1970 (order 70-6-36).

4. Omaha-Twin Cities nonstop authority (docket 18401). The City of Omaha filed an application on October 21, 1966, and a broad investigation was instituted on April 13, 1967 (order E-24977). North Central was granted Omaha-Twin Cities nonstop authority on July 6, 1970 (order 70-7-24).

In each of these cases North Central was authorized to provide non top service in competition with an incumbent carrier. In general, North Central was chosen over other carriers on the basis of conventional elements of public convenience and necessity including the ability and incentive to provide a superior service. In striking the balance in favor of North Central, the Board gave weight to the fact that the new route would strengthen North Central's existing system, thus helping pay for service at many unprofitable points. A characteristic shared by all local service carriers is a very short average aircraft hop and passenger haul. (Even today the average passenger on North Central's system travels only 220 miles, the lowest passenger haul in the domestic airline industry.) By awarding larger, more dense routes to local service carriers, the Board enables them to spread out their operating costs over a larger base as well as increase their internal traffic load. By the same token each of the routes awarded to North Central was made ineligible for subsidy. They remain as such and now contribute to a reduction of North Central's subsidy need.

It should be emphasized that not every North Central application heard resulted in a route award. The point, however, is that, in a substantial percentage of the cases where applications were heard, it was found that the public convenience and necessity required an award.

POST 1970 EXPERIENCE

North Central has not received a new route award since July 6, 1970. It has not had an application for new route authority set down for hearing since July 19, 1969.8 What has happened in the past 6 years? One thing that hasn't happened is the failure of North Central to file such applications. North Central, as well as a number of other carriers, have continually presented the Board with applications that have either gone unnoticed, have been dismissed without a hearing, or denied a timely hearing.

In the Twin Cities-Milwaukee Southeast Points Investigation (docket 20267), North Central was an unsuccessful applicant for Twin Cities-Milwaukee-Atlanta-Tampa-Miami authority. (Eastern was awarded the route.) Order 70-11-6. In the Chicago-Baltimore Nonstop Service Investigation (docket 21101), North Central was an unsuccessful applicant for Chicago-Baltimore nonstop authority. (TWA was awarded the route.) Order 71-9-64. In fact, in each of the cases where North Central received new authority that authority represented only part of North Central's application.

7 Omaha-Twin Cities nonstop authority. Order 70-7-24. North Central did receive in the interim an exemption to operate a Duluth-Winnipeg route pursuant to the U.S.Canada Air Transport Agreement, after agreeing to accept restrictions required by an opposing carrier.

8 Chicago-Baltimore Nonstop Service Investigation, order 69-6-98. On February 2, 1970 the Board did grant consolidation of a North Central Application (docket 21254) in the Ohio/Indiana Points Nonstop Service Investigation (docket 21162). However, for the last five years no further action has been taken by the Board to move that case toward decision. North Central's petition for route realinement a request that certain restrictions in noncompetitive markets on North Central's system be lifted-was filed on July 16, 1973 (docket 25705) and was granted with modifications by show cause proceedings on February 5, 1975 (order 75-2-22).

In short, North Central encountered the full force of the route moratorium, a policy which came into being quietly and without announcement," but which has been enforced with unremitting diligence. The statute has remained the same; even the former rule on priority of hearings has remained on the books. The Board has steadfastly refused to hear even the most compelling applications to add competitive service.

This is perhaps the most important point, namely, the moratorium has not only been on competitive awards-it has been on hearings.10 The CAB has simply refused to permit a record to be developed on any of these applications. Three North Central case histories will illustrate the situation:

1. Detroit-Boston nonstop authority (docket 24874). American was granted nonstop authority in this market in 1945, making it one of the oldest nongrandfather routes. By 1968 Mohawk (which was later merged into Allegheny) had one-stop authority, but the market had already emerged as the largest remaining nonstop monopoly. By 1972 American was offering only 4 daily nonstop roundtrips with a total of 940 one-way seats per day. The market was producing almost 550 O&D passengers per day. Some of the available seats were also occupied by passengers moving to or from points beyond Detroit. Data filed by American with the CAB revealed that in 1972: the average coach load factor was 66 percent; onehalf of these coach passengers moved on flights with a coach load factor in excess of 75 percent; the prime flights routinely experienced coach load factors from 80 percent to 92 percent; and many passengers were being forced to fly first-class by the high-coach load factors.

On October 27, 1972, North Central filed its application for nonstop authority in the market together with a motion for expedition. North Central's motion was supported by the Massachusetts Port Authority, the communities of Detroit, South Bend, Grand Rapids, Kalamazoo, Flint, Lansing, Saginaw, Midland, Bay City and Green Bay, the States of Michigan and Wisconsin and Delta and Northwest. Allegheny, Delta and Northwest also filed similar applications.

Only July 16, 1973, the CAB denied the motion. Order 73-7-78. The grounds given were: 1) no evidence of existing service deficiencies; 2) a lack of sufficient beyond market traffic; 3) a stated belief that the proposals wouldn't reduce subsidy; and 4) a brief reference to the impending fuel shortage. Member Minetti concurred ut expre ed dismay over the policy of "caution." Member Murphy dissented on the grounds that adequate justification had been given for the institution of a hearing.

On August 10, 19.3, North Central, South Bend, Kalamazoo and the State of Michigan petitioned for reconsideration, contesting the Board's factual “findings" and raising the legality of a policy of "caution." The various parties lined up in support of or in opposition to the petition much as they had in response to the initial motion. This petition was denied on March 27, 1974, by order 74-3120 (which, as we shall see, also denied two other North Central petitions), with the CAB indicating that it had broad discretion to control its own calendar and that it would continue to monitor the incumbent carrier's performance in the market.

At the present time, the market has grown to approximately 600 O&D passengers per day while American's nonstop service has declined from 4 to 3 roundtrips and 750 seats per day instead of 940.

2. Milwaukee-Denver nonstop authority (dockets 19676 and 26646). United has held nonstop authority in this market since 1946. In 1968, North Central filed

The existence of the moratorium as a formal policy was recently acknowledged by the CAB staff domestic route study: "Since approximately 1,970 cases involving new domestic route authority have generally not been set for hearing and applications filed under subpart M and N have been stayed or dismissed." (Foreward, p. i.)

10 The one exception to this is the Atlanta-Detroit/Cleveland/Cincinnati Investigation (docket 20724), where the Board, in effect, found itself with a case that was initiated before the moratorium began. The case was set down on February 12, 1969 (order 69-2-55) and on September 4, 1970. the examiner issued an initial decision finding a need for competitive nonstop service in each of the three nonstop markets at issue, by applicants other than North Central. The Board did nothing for almost 2 years, then issued an order on July 28. 1972, finding that the record was "stale" and remanding it for further hearings. (Order 72-7-98). The Examiner, in a second initial decision, again found a need for competitive service in each of these markets. However on May 3. 1974. the Board denied all applications (Order 74-5-18) on grounds that had no basis in the recordthe alleged fuel shortage. That order is presently being challenged in the U.S. Court of Appeals for the District of Columbia circuit.

51-146 O 76 pt. 1 38

an application for nonstop authority in docket 19676. After North Central received Twin Cities-Denver authority in 1969 with a single-plane restriction on Milwaukee-Denver service, it applied under subpart M for removal of that restriction. The CAB, by order 69-8-77 held that subpart M was not applicable. On July 31, 1970, North Central moved for an expedited hearing. Continental filed a similar application together with a motion for expedition. Order 71-6-7 denied the motions, again over member Minetti's dissent, "without prejudice to these carriers' right to file new motions for immediate hearing at such time as economic conditions have improved."

By January 5, 1973, North Central felt that the economic condition had improved. The market was generating approximately 110 O&D passengers per day (a 17.3 percent increase over 1971) and United was still offering only 3 nonstop roundtrips per day. Accordingly, North Central filed another motion for expedition, supported by the communities of Milwaukee, Denver and Dayton and the State of Wisconsin. Seventeen days after the motion was filed, order 73-1-56 dismissed the underlying application as "stale." Finally, on July 25, 1973, order 73-7-129 denied the motion and upheld the dismissal, with member Minetti once more dissenting. North Central petitioned for reconsideration, the denial of which was accomplished by order 74-3-120.

North Central has refiled the application in docket 26646. At the present time, the market has grown to more than 180 O&D passengers per day while United still offers only 3 nonstop roundtrips.

3. Milwaukee–Philadelphia nonstop authority. Although smaller than the other two markets, it is unique because in 1970 the CAB, in order 70-6–36, found a need for two carrier competitive service and chose Northwest (over North Central and several other carriers) to compete with United. By 1973 Northwest had still not instituted nonstop service and United had dropped out of the market entirely. Accordingly, on April 23, 1973, North Central applied for 5 years, experimental nonstop authority and moved for an expedited hearing. The communities of Milwaukee, Madison, Duluth, and La Crosse, as well as Allegheny and Ozark, supported the motion. United and Northwest answered in opposition.

On August 1, 1973, Northwest instituted nonstop service (1 roundtrip per day). On August 3, order 73-8-24 denied North Central's motion. Another petition for reconsideration was denied by order 74-3-120. At the present time the market is producing more than 110 O&D passengers per day while Northwest still offers only 1 nonstop roundtrip, and United continues to offer no nonstop service.

I believe it would be fair to state that, prior to the post-1970 moratorium, each of the above applications would have at least been noticed for hearing. The facts presented in support of a hearing were not, in our opinion, dissimilar from facts which prior to 1970 resulted not only in hearings but competitive route awards. Again, I am not saying that North Central's application would have been granted in each of these cases. There would have been a number of other applicants in each case, by both local service and trunk carriers. However, the final decisionincluding the decision on whether or not to award any competitive authority— would have been based on an evidentiary record.

In the process of making that record, the forecasts and contentions of all parties, including the CAB's own staff, would have been subjected to review and cross-examination in public proceedings. In lieu of that procedure we have been encountering under the moratorium what amounts to the de facto denial of applications based upon in camera proceedings within the Board. These internal proceedings involve forecasts and contentions of the Board's staff which are not made public or subject to challenge except to the limited extent they may be reflected in the Board's order of denial. Let me emphasize that we are not questioning the obvious and general need of the Board for confidential communications with its staff. Our concern goes only to those instances where such proceedings are used, in effect, as a substitute for the public hearings required by the statute.

POSSIBLE ALTERNATIVES

Has the domestic air transportation system reached its point of optimum growth and should it now be subject only to consolidation and contraction? We obviously think not, and even if there were some truth in this assumption, that could adequately be determined only through the hearing process.

North Central, as well as other carriers, have not given up and continue to seek new authority that they believe will benefit themselves as well as the entire system." The possibility of judicial redress through a mandamus action, while available," is frankly a difficult step to take, if for no other reason that the reluctance of the courts to intervene in matters of agency discretion.13

13

North Central believes that it, and other applicants, are entitled to something more in keeping with the statute than the moratorium of the last 6 years. One possible alternative was suggested by the CAB staff in its recently released study of the domestic route system " which called for the adoption of new formal standards for granting hearings. Presumably the standards proposed by the staff would be in lieu of the present moribund rule on priority of hearing.

The staff proposal would have the advantage of equating policy with practice, but unfortunately it seems to create a presumption that most applications should not be heard. The key problem is that the proposed standards-which require the applicant to submit, inter alia, a 2-year profit and loss not only for itself but also for any other carrier competing in the market-go far beyond the the information the CAB requires in order to make the kind of threshold determination needed to manage its docket. The proposed standards would be, in effect, decisional standards, precisely of the type the CAB might apply to a record developed in a public hearing. Under the staff's proposal, however, there would be no hearing to test the reliability and probative value of the information submitted, and the CAB would still be free to deny hearings at will, something it could do quite easily :

One proposed standard would require an applicant for competitive authority to demonstrate that the proposed operations would earn at least a 12 percent rate of return on investment in the first year. This requires a forecast of traffic and costs. For local carriers, subpart K presumably would be used to forecast the costs. However, that subpart establishes an impossibly high return and tax requirement. Because of a number of faulty premises (including an assumption that every operation will be conducted with newly purchased aircraft), Subpart K requires a profit generally to approximate 40 percent of the operating costs on a typical route proposal. Put another way, unless the applicant can project that revenues will exceed expenses by 40 percent in the first year, a hearing will be denied. In our judgment this burden of proof has no proper relationship to the question of whether or not the application should be heard. Another proposed standard would deny a hearing unless the applicant could show that it would not divert more than 35 percent of the incumbent carrier's traffic. This may or may not be adequate grounds for denying an application after a hearing, but the fact is that, in the absence of public hearing delving into the question of the incumbent's service in the market, it is simply not possible to determine an acceptable level of diversion.

In short, the alternatives suggested by the CAB staff would seem likely to merely memorialize the in camera process that North Central and others in the industry have experienced during the past several years.

What then are the other alternatives? In an ideal world of course priority of hearing standards would not be required because the Board would be compelled to set down and hear all applications in literal compliance with the "speedily as possible" language of the statute. However, this is a "luxury" which the appropriations process has never seen fit to provide, apparently on the assumption that, if all applications were heard promptly, time and money, both governmental and nongovernmental, would be wasted.

11 For example, North Central recently filed an application for Chicago-New Orleans nonstop authority together with a motion for expedition. The market is similar to Milwaukee-Philadelphia in that competitive service was authorized only a few years ago but has since disappeared.

12 Section 10(e) of the Administrative Procedure Act (5 U.S.C. 706) confers the ability to seek a mandatory injunction to "compel agency action unlawfully withheld or unreasonably delayed." See International Assn. of Mech.&A. Wkrs. v. N.M.B., 425 F.2d 527 (D.C. Cir. 1970); Kessler v. FCC, 328 F.2d 673 (D.C. Cir. 1963); Harvey Radio Laboratories v. U.S. & FCC, 289 F.2d 458 (D.C. Cir. 1961); Dearing Milliken, Inc. v. Johnston, 295 F.2d 856 (4th Cir. 1961).

13 See City of San Antonio v. CAB, 374 F.2d 326, 329 (D.C. Cir. 1967); Frontier Airlines, Inc. v CAB 349, F.2d 587, 591 (10th Cir. 1965); Great Lakes Airlines, Inc. v. CAB, 293 F.2d 153 (D.C. Cir. 1961).

14 CAB, Bureau of Operating Rights, The Domestic Route System: Analysis and Policy Recommendations (October 1974).