Answer. 1970 statistics on intermetropolitan travel between the San Francisco Bay Area and other cities show the following:

Results from the Northeast Corridor Study on 1968 intercity travel show the following distribution of nonbusiness person trips (exclusive of rail trips):

1 Excludes trips by rail. Therefore, each of these entries would somewhat lower if rail trips were included.

Additional Northeast Corridor Study on 1968 intercity travel shows the following distribution of total person trips for given city pairs:

The above statistics do not come from directly comparable surveys which may account for the rather high air travel levels on the East coast as compared to California. Further, it is important to understand that there are major differences in the transportation environment between the Northeast and the San Francisco-Southern California corridor. California is more auto oriented, with far higher levels of automobile ownership per capita. Also, auto travel between Boston and Washington is both much more expensive, with many toll roads and bridges over the route, and slower, inasmuch as the traveler has to pass around the New York metropolitan area. These factors may explain the high percentage of air travel in the Northeast despite its high cost relative to the California corridor.

Question 10. To my way of thinking, the traveling consumer in this Country would be better off if he had more choices. Present regulations permit airlines to compete with each other in terms of quality-that is, they can offer better food, more food, better liquor, prettier stewardesses, or more frequent flights in more modern aircraft, etc., but that entry restrictions and rate setting virtually eliminate price competition. I would prefer to be able to fly from here to Columbia or Charleston for $10 or $15 less, doing without some of these frills. As one who is supposed to speak for consumers, do you think this is an uncommon preference?

Answer. Not at all. We agree that many consumers would prefer, and would benefit from, price competition as well as service competition. As you know, several airlines have recently received approval for "no-frills" service from the CAB, a concept which we support. In addition, we are preparing legislation to end some of the current practices which may tend to prevent price competition. The success of the "no-frills" fare experiment may provide some indication of consumer preferences in support of our view.

Question 11. Do you think the consumer would be better off if the CAB were empowered to regulate all aspects of commercial aviation-or do you think the consumer would be better off if free competition were expanded, thus allowing potentially cheaper and more efficient carriers to offer their services over a certain route?

Answer. We think that more reliance on the free enterprise system and more competition are preferable to expanding the powers of the CAB. Encouraging the Board to regulate all aspects of commercial aviation would benefit neither consumers nor the airlines themselves.

Question 12. How do you evaluate the effectiveness of the Office of Consumer Advocacy within the Civil Aeronautics Board?

Answer. Its establishment was an encouraging sign. In addition, the Board should be commended for a number of other recent actions, such as ending its unofficial moratorium on route awards and expanding consumer options by approving "no-frills" fares. Nevertheless, while such steps are clearly desirable, they do not get to the heart of the problem-too much regulation and too little competition.

Question 13. Do you feel that the authorizing legislation now on the books for the CAB fails to give it enough power to insure the traveling public of adequate service at reasonable prices, that it forces the Board to exercise powers which actually work to the detriment of those goals, or do you feel that current law is just right, but could be administered better?

Answer. We believe that the CAB, and its authorizing legislation, served well when an umbrella of federal protection was needed to promote the development of a new industry. However, now that the airline industry is mature, we believe that the authorizing legislation should be changed so as to provide less regulation and more competition. We are preparing legislative proposals to do so. We appreciate the subcommittee's interest in these areas and its courtesy to our witnesses and staff. If we may be of further assistance, please let us know. Sincerely,

JOHN W. SNOW,
Acting Assistant Secretary for
Congressional and Intergovernmental Affairs.

Mr. SUSMAN. The subcommittee will come to order.

Senator Kennedy will return in a moment, and perhaps Mr. Gagnon, you would commence your prepared testimony.

Our last witness represents the Airport Operators Council, an association of all major American airports. Mr. Gagnon is the general manager of the Louisville and Jefferson Air Board in Louisville, Ky., and has had a wide range of experience in the aviation industry. Perhaps you will begin by introducing your associates.

STATEMENT OF JAMES GAGNON, CHAIRMAN, AD HOC COMMITTEE ON AIR SERVICE, AIRPORT OPERATORS COUNCIL INTERNATIONAL, ACCOMPANIED BY KENNEDY HELM, COUNSEL; BARRY S. CRAIG, DIRECTOR OF AVIATION, GREATER CINCINNATI AIRPORT; MARSHALL P. ARNOLD, DIRECTOR OF ECONOMIC PROGRAMS, LOUISVILLE AND JEFFERSON COUNTY AIR BOARD

Mr. GAGNON. I would like to do that, Mr. Chairman. On my left is Mr. Kennedy Helm who is counsel to the air board. On my right is Mr. Barry Craig who is a member of my air service committee of the AOCI, and on his right is Mr. Marshall Arnold who is a member of my staff in Louisville.

It is in the capacity as chairman of the ad hoc committee on air service of the Airport Operators Council that I come here today. In

this capacity I offer the following testimony to the Subcommittee on Administrative Practices and Procedures of the Senate Judiciary Committee.

We appreciate the invitation to testify before this subcommittee. It is most gratifying to see Congress expressing such timely concern. for the current status of air transportation regulation in this country. In October 1974, the AOCI membership, at its annual business meeting, adopted a resolution that: (1) Requests and urges the Civil Aeronautics Board to rededicate its efforts in the spirit and intent of the Federal Aviation Act of 1958, as amended, to further develop the domestic air transportation system in the public interest; (2) resolves that the Civil Aeronautics Board should immediately reinstate the judicial and evidertiary processes contained in its rules of practice in economic proceedings, involving the potential authorization of new, altered and/or competitive air services; and, (3) directs the AOCI ad hoc air service committee to prepare and implement a program involving the entire domestic membership in an effort to bring to the attention of Congress that the public convenience and necessity for adequate air services can no longer be met by continuation of the moratorium on air route proceedings.

This action was taken after the AOCI air service committee, based upon careful study, reached several firm conclusions relative to the public interest in air transportation matters.

"ROUTE MORATORIUM"

First, the Civil Aeronautics Board has for the past 5 years maintained a moratorium on airline route strengthening and community air service improvements.

The Board has concentrated almost entirely on regulatory and developmental responsibilities on improving the profitability and economic strength of the scheduled airlines, setting aside virtually every other public interest consideration.

Secondly, the moratorium is in clear conflict with the law and the intent of Congress.

A concentration on carrier interests ignores every other consideration mandated by Congress as being in the public interest, and in accordance with the public convenience and necessity.

A moratorium also clearly contravenes the requirement under the law that applications for new or amended air service certificates or for improved public air service are required to be set down for public hearing and to be decided as speedily as possible.

Lastly, the moratorium has had a major adverse impact on the public interest.

It is our firm conviction that the moratorium has been a major contributor to rising unit costs for the airlines, repeated fare increases, reduced competition, reduced public service, ex parte decisions regarding excess competition, and route master planning that usurps the Board's statutory authority and responsibilities.

Further adverse consequences may be identified as follows: an unhealthy dependence by the airlines on the CAB, stifling carrier initiative, efficiency, and discipline; abandonment of route strengthening

as a means for economic benefit to carriers and cities alike; an end to carrier and Board effort to seek out and develop new market potentials; and almost complete disregard of the needs of the cities of America for air service improvements and related economic strengthening.

The Board's concentration on and accommodation to the financial health of the carriers has produced milestone profit results for the industry. It has done more than return the carriers to profitability, it has returned them to an alltime record in profitability. And this result was achieved in the face of record high fuel prices, record high wage levels and record high costs in virtually every other category in an airline operation.

We do not propose the abolition of the CAB, the transfer of its functions or the deregulation of the industry. From 1938 to 1970, under the aegis of the Civil Aeronautics Board, this Nation has produced the finest civil air transportation system in the world.

We can only say, however, that had the policies of the last 5 years prevailed during the first 33 years, we would scarcely have progressed beyond the DC-3 era. In this circumstance we have and will present some specific suggestions for returning the Board to its responsibilities for enlightened regulation. The Board has, over the years, generally been regarded as one of the best administrative agencies in our system of government. We believe our objectives and our proposals are designed to help ensure that it achieve its full potential.

The Board of Directors of AOCI, meeting in San Diego in October of last year, reviewed the extensive work and analysis of its air service committee and completely endorsed the committee's recommendation that AOCI seek congressional support for an immediate and complete termination of the Civil Aeronautics Board's moratorium. Pursuant to that action, the board of directors directed its air service. committee to prepare and implement a program to that end.

Among the air service committee's recommendations on which the board of directors' action was premised were: That the CAB should lift its moratorium, immediately and totally; that the CAB also launch investigations looking toward the elimination of unnecessary public service restrictions in airline certificates; the more effective use of existing air carrier authority, some of which has lain dormant for many years; and the possibility of transferring a carrier's unused or poorly used operating authority to a carrier with more incentive and aptitude for its more effective use.

CAB STAFF STUDY ON ROUTE ENTRY POLICY: THE DOMESTIC ROUTE SYSTEM

Work went forward by the air service committee toward further definition, refinement, and implementation of these objectives. However, on January 3, 1975, the air service committee received a copy of a study by the Bureau of Operating Rights of the Civil Aeronautics Board which was released New Year's Eve, 1974. The study was entitled "The Domestic Route System: Analysis and Policy Recommendations," a staff study by the Bureau of Operating Rights, October 1974.

A superficial glance at the study suggested that the Bureau's staff was recommending a termination of the moratorium and a full re

LEGISLATIVE PROPOSALS

Mr. GAGNON. We have suggested seven legislative initiatives, Senator, and we are suggesting that the law needs a little bit of fine tuning. Some of the things we are suggesting as legislative initiatives, to be sure, might be able to be taken into regulatory policy. But there is no assurance that that regulatory policy will be consistent in its application. We need some legislation and some regulatory authority for all seasons. We need it (the CAB) to have a regulatory system that works in good times as well as bad times. So we feel that enlightened regulation can develop the commercial air transportation industry as the primary mass transportation means for intercity travel. It is obvious to us that this capacity is present within the existing regulatory framework. The first step called for is to place the operating authority in the hands of the air carriers fit, willing and able to provide the service. We need specific direction from Congress to the CAB to move forward.

The air service committee in January unanimously proposed to the AOCI Board of Directors that AOCI support seven key legislative amendments to the Federal Aviation Act of 1958, as amended. The amendments are designed to emphasize, in specific terms, the intent of Congress with respect to the need for continuing development and improvement of the air route structure and the public air services of this country, and to ensure that the language of the Federal Aviation Act permits no misunderstanding or misinterpretation of Congressional policy and intent in these matters. It is our belief that the basic data. contained in the Bureau's study supports our recommended legislative initiatives completely.

Three of the key legislative recommendations are as follows:

First, amend or supplement the existing statutory provisions to require prompt and expeditious hearing for any application for new or improved air service in a market in which at least one of the two cities principally affected, and at least one certificated air carrier, request such a priority hearing.

Two, amend or supplement the existing statutory provisions to provide that nonstop authority which is not exercised for 1 year will be presumed to be abandoned. At any time thereafter, the authority to provide such service should be granted to any carrier fit, willing, and able to exercise the authority, upon application of any party in interest. And, to amend or supplement the existing statutory provisions to require the award of new competitive authority wherever it can be shown that the carriers' operations in the market will produce reasonable results. This proposed amendment is predicted upon the demonstrated fact that competition develops traffic, improves service, lowers fares, and lowers unit costs by expanding service and promoting efficiency, all for the public benefit.

In conclusion, it should be emphasized that the present economic condition of the industry or the country should not influence the design of regulatory policies which must necessarily look forward to a future period in which such circumstances will no longer prevail. A positive regulatory program will prove effective for the industry in good times as well as in bad times. Decisions made today will effect the industry for many years to come.