late each of the AOCI public service objectives enumerated; and this was the unanimous conclusion of the air service committee meeting in Phoenix in January after a comprehensive review of the Bureau's study and the objectives of AOCI. Further, and on the basis of this comprehensive review and evaluation, specific statements of position and specific legislative recommendations were unanimously adopted by the air service committee and forwarded to the Board of Directors of AOCI with a recommendation for its approval at its meeting scheduled for February 20, 1975.

In the discussion of the BOR staff study that follows, the views expressed are those resulting from the unanimous conclusions reached by the air service committee in consequence of its extensive evaluation of the study. The essence of this discussion is contained in the recommendations which, as stated, have been forwarded to the Board of Directors of AOCI for consideration and approval.

AIR SERVICE COMMITTEE EVALUATION, BUREAU STUDY: "THE DOMESTIC ROUTE SYSTEM: ANALYSIS AND POLICY RECOMMENDATIONS"

The study condu ́ted by the Bureau of Operating Rights formalizes, as future policy of the CAB, the route moratorium which has been in effect since 1970. Generally, the proposed rules create a circumstance which prevents the CAB from proceeding on a case-by-case basis by establishing certain economic obstacles (standards) designed to block any requirement for regulatory action. In effect, the standards proposed in the study preclude all other considerations with regard to the determination as to who should be certificated to provide service in a market. They prevent certification in markets that need the service with no incumbent authoriy or, more importantly, in the markets where nonstop authority exists, but no service is provided.

A prejudgment of such issues by the Bureau of Operating Rights by proposing this technique strongly suggests that the Board members themselves should be precluded from assessing and deciding service improvement proposals under the public interest guidelines set down by Congress. This scarcely conforms in any respect to the intent of Congress. It is the Board members themselves in whom the public trust has been vested by the Congress, and by Presidential appointment confirmed by the Senate. It is the individual members who bear the burden and the privilege of decisional responsibility with respect to the ultimate issues of public convenience and necessity and the need for changes in operating authority. The industry (all carriers) and the public are entitled to the Board members' fair consideration of air service improvement proposals and to the full exercise of their responsibilities within the spirit and the explicit criteria of the law under which they are granted the right and the duty to function. The members can neither be prevented nor protected from the exercise of this responsibility. Recommendations

Enlightened regulation can develop the commercial air transport 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 OACI support seven key legislative amendments to the Federal Aviation Act. 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 insure 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:

(1) 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;

(2) Amend or supplement the existing statutory provisions to provide that nonstop authority which is not exercised for one 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;

(3) 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 predicated 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 affect the industry for many years to come.

The regulatory environment should be one that permits, stimulates and directs substantial growth in our air transport industry, the growth that is so vital to the achievement and maintenance of maximum efficiency. It is from this achievement that so many fare, traffic, service and technological benefits have historically flowed. When these occur, they provide substantial stimuli to the national economy through expansion of employment in the airlines, the manufacturing companies, airports and all other air transport related industries.

PREPARED STATEMENT OF JAMES GAGNON

My name is James Gagnon. I am general manager and chief executive officer of the Louisville and Jefferson County Air Board, Louisville, Kentucky. I am also chairman of the ad hoc committee on air service of the Airport Operators Council International. It is in this latter capacity that I offer the following testimony to the Subcomittee on Administrative Practice and Procedure of the Senate Judiciary Committee.

The Airport Operators Council International is an organization of public entities that have the responsibility and authority to accommodate air transportation within their respective communities. The domestic membership numbers 187 cities, counties, states and regional public agencies serving metropolitan areas which account for more than 60 percent of the total U.S. population. For the year ended March 31, 1974, airports operated by the domestic membership of AOCI accounted for about 90 percent of the total U.S. passenger enplanements on the certificated air carriers. With this vast constituency, the AOCI is the organization best suited to represent, at first hand, the public interest in air transportation matters before the Congress and Civil Aeronautics Board. 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 evidentiary 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. These conclusions were:

(1) Since 1970, the Civil Aeronautics Board has overtly engaged in a moratorium on its regulatory activities, which moratorium has prevented the authorization of new, altered and/or competitive domestic air service patterns within the U.S. domestic air transportation system.

(2) The Civil Aeronautics Board's moratorium on regulatory activities relative to domestic air carrier routes is in conflict with the law and legislative mandate of the Congress of the United States.

(3) The Civil Aeronautics Board's moratorium, although it may or may not be in the best economic interests of the U.S. certificated air carriers, is in fact detrimental to the public interest as provided for by the Congress. (4) The Civil Aeronautics Board's moratorium on regulatory activities relative to domestic air carrier routes is contrary to established AOCI objectives and policies as set forth in the organization's bylaws and policy handbook.

(5) There currently is and always has been a lack of public interest representation before the Congress and at the Civil Aeronautics Board. (6) There is a vital need for effective public interest representation before the Congress and Civil Aeronautics Board in the adjudication of and policy determinations in air transportation matters of broad national concern. (7) The service requirements and interests of the smaller communities of the Nation are in particular need of effective national representation.

(8) The Airport Operators Council International is best suited to represent the public interest in air transportation matters before the Congress and Civil Aeronautics Board.

Attachment A to this testimony is the initial report of the AOCI air service committee to the organization's board of directors, submitted October 6, 1974. Attachment B is the supporting documentation for the conclusions and recommendations contained in attachment A.

It is widely recognized that the Federal Aviation Act is a developmental statute; and it will remain so until Congress says otherwise. We strongly adhere to the belief that a great deal of development remains to be done in this industry. Not one of the Act's fundamental objectives has been rendered obsolete. One of its principal aims is to make certain that an air transportation system is developed that will properly accommodate the "present" and "future" needs of this nation. This is a living, ongoing requirement. In the Congressional declaration of policy in the Act, it is stated that the Civil Aeronautics Board, in carrying out its responsibilities under the law, "shall consider" certain factors, among others, "as being in the public interest, and in accordance with the public convenience and necessity." The listing includes the Board's responsibility to "foster sound economic conditions" in the airline industry. No one will deny that a healthy air transportation industry is one of the Board's major considerations. But not to the exclusion of several other major considerations declared to be "in the public interest and in accordance with the public convenience and necessity."

The "encouragement and development of an air transportation system properly adapted to the present and future needs of the . domestic commerce of the United States" is a major responsibility; the recognition and preservation of "the inherent advantages" of air transportation is another; the "promotion of adequate... service by air carriers" is still another. Finally, in dealing with the matter of air transportation services, the Congressional declaration of policy underscores the most basic tenet of the American free enterprise system, the Board's responsibility to provide for "competition to the extent necessary to assure the sound development of an air transportation system properly adapted to the needs of the . . . domestic commerce of the United States." The intent of Congress when it directs the Board, through the very law which created the Board, to hold a hearing on a certificate application and to authorize the services sought if they are required by the public convenience and necessity, is that these concepts, principles and standards must be considered by the Board. When a public hearing is held, the standards by which a proposed service will be adjudged are known factors. How then can the Board escape the application of those standards and deny the authority requested, by the simple expedient of refusing to hear? Section 401 (c) of the Federal Aviation Act (1958) expressly requires the Civil Aeronautics Board to set down for public hearing any certificate application filed with it and to "dispose of such application as speedily as possible." Further, if it finds that the service for which a certificate is sought is "required by the public convenience and necessity," it is incumbent upon the Board to issue a certificate authorizing and requiring the performance of such service by an air carrier (Sections 401(k) and 404 (a)).

It is not possible to weigh and evaluate the public convenience and necessity by inaction or default. Inaction, default or moratorium can only constitute a denial without due process of law-a law which very carefully details what must be considered. It cannot reasonably be assumed that no proposal for public service improvement or for route improvement could offer any real opportunity

for solid and substantial public or carrier benefit. It cannot properly be assumed that none could survive intelligent examination and evaluation, through the hearing process. For the Board to fail and refuse to provide this hearing opportunity does in effect constitute the repeal of an Act of Congress by the Civil Aeronautics Board-a creature of Congress established to carry out the will of Congress.

The elements of the statutory mandate which I have very briefly enumerated can scarcely countenance a moratorium. On the contrary it is clear that a moratorium is repugnant to the intent of Congress. Yet, since 1970 the CAB has admittedly been following a policy of concentrating its regulatory and developmental responsibilities on improving the profitability and economic strength of the scheduled airlines of the nation. It has avowed also, in effect, that any other public interest considerations would be set aside until the carriers' economic needs had been fully satisfied. That policy has been continued and repeatedly emphasized to this date. For all practical purposes, the Board has for several years now rejected any real consideration of the "public interest" in matters pertaining to possible route or public service improvements, even though that is the paramount purpose of the developmental statute under which the Board operates.

Present Board policy is a complete abdication of this function and responsibility. Not only has it stagnated the public interest process and its intended benefits, it appears to be destroying the initiatives and incentives that are so fundamental to a developmental statute. The vacuum created by this policy is literally obliterating vast opportunities for economic growth by carriers and cities alike, and at the same time the need in this nation for air service growth and for improved air services continues to grow at an accelerating pace.

The membership of the AOCI is aware that the matters over which the Civil Aeronautics Board has purview are complex and we acknowledge the need for careful deliberation into the effect of regulation or lack thereof in the air transportation industry. We do not, on the other hand, acknowledge or accept that the regulation of air transportation need be so sophisticated as to defy understanding nor so esoteric as to be performed without public knowledge or consultation.

It is our further view that the imposition of this moratorium has frozen, and in many instances, degraded an imperfect air transportation system in the United States. During the time that the public voice has been silenced at the CAB through the moratorium on public hearing processes, the following consequences, adverse to the public interest and in conflict with the intent of Congress, have become manifest: (1) increasingly higher unit costs for the airlines; (2) repeated fare increases; (3) reduced competition; (4) reduced public air service; (5) ex parte decisions regarding excessive competition; and (6) the concept of master air route system planning without the legal requirement for evidentiary process; worse yet, the Board's Bureau of Operating Rights contemplates a predetermination of the shape and substance of the nation's air service network by the staff through a proposed rulemaking proceeding that would foreclose the Board members from the exercise of their quasi-judicial responsibilities on a case-by-case basis.

It may be said that these consequences have further consequences in that they have produced: (a) an unhealthy dependence by the airlines on the CAB which has had the affect of stifling carrier initiatives, efficiency, and good management discipline; (b) the abandonment of route strengthening which has historically been successful as a means for better economic health for the carriers and the communities alike; (c) an indifferent effort by the carriers and the CAB to seek out and develop new markets and new communities of interest; and (d) almost complete disregard of the needs of the cities of America for air service improvements and strengthening.

The Board's continuing eagerness to concentrate on and accommodate to the carriers' financial health has produced milestone results for the airline industry.

I am advised that while this moratorium has been perpetuated, and in light of the standards developed in the domestic passenger fare investigation, the domestic trunkline industry earned a 12.4 percent rate of return on its investments in fiscal year 1973 (CAB 73-190, dated October 12, 1973), and a 12.1 percent return on investment in calendar year 1973, (CAB 74-188, dated August 23, 1974). This exceeds the 12 percent rate established by the CAB as "fair

and reasonable . . . (and) sufficient to compensate the carriers for their cost of capital, provide the equity owner with returns comparable to returns on investments in enterprises having comparable risks, and enable the carrier to maintain their credit and to attract capital." (CAB order 71-4-58). The earnings for the domestic trunkline carriers have further improved dramatically in 1974 with operating profits up 73 percent to $761 million, and net income up 114 percent to $359 million for fiscal year ended September 1974, (Interim financial report, September 1974). Even before the adjustments to the standards developed by the CAB, there are five domestic carriers earning the full rate of return or substantially more than the full rate of return on investments. The eight regional carriers' earning for the same period are at 14.3 percent and climbing.

Thus we see that the CAB's concern for the airlines' profitability, to the exclusion of the public need, has provided the carriers with not just a return to profitability, but a return to an all-time record in profitability, while the public requirements for improved service go begging. It should be noted, too, that these all-time profit records were 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. Little wonder then, with such all-time high profits bestowed by the benevolent hand of the CAB, that the airlines, individually and collectively, have been hesitant to protest the Board's abandonment of the processes of route strengthening and public service improvement. There is a basic reluctance to disturb things in this "too good to believe" world.

With the Board's abdication of its public service responsibilities, the public interest has gone unattended; public interest consideration has been virtually shut out. That situation must be changed! The public's essential right to representation, participation and a just determination on the merits must be restored at the earliest possible time.

The AOCI is represented by professional people operating facilities which serve millions of the American public day in and day out. From their quasi-public, quasi-governmental posture, they are directly involved in a number of air transportation matters every day in nearly every city of any size across the nation. Accordingly, AOCI has a vital interest and responsibility in air transportation matters of broad national concern.

Their is a deep-seated public interest in expanding and strengthening air routes and services. In recognition of its own public responsibility in these matters, the AOCI is endeavoring to insure that there is provided for the communities and the public that it represents a climate within which each city, acting on its own, will have the opportunity to obtain whatever quality and quantity of air service that it can justify; an atmosphere in which both the cities and the carriers will have an opportunity to achieve substantial economic strengthening through air route and air service improvements.

The Board of Directors of AOCI, meeting in San Diego in October of last year, reviewed the extensive work and analysis of its all 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 the following:

That the CAB shou'd lift its moratorium, immediately and totally; That the CAB should resume the use of the numerous public interest procedures provided for it under the law, and several that it devised itself for the purpose of expediting public service improvements and carrier route strengthening;

That the CAB also lauch 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;

the possibility of transferring a carrier's unused or noorly used operating authority to a carrier with more incentive and aptitude for its more effective use; and

further route consolidation proceedings designed to streamline carriers' operating authority in the public interest.