domestic passenger fare investigation established the load factor standard at 55 percent in 1974, the average load factor in the BostonDetroit market was 59 percent. Senator Kennedy has cited an example of possible inadequate service at a load factor of 59 percent. To average 59 percent, the Boston-Detroit market shows a monthly load. factor range of 52-67 percent thus further demonstrating the seasonality of our markets.

Senator KENNEDY. You missed the point completely, because I was not really talking about the load factor there, I was talking about the competition that existed in that particular route and pointing out that there was only one carrier traveling that route. There was another one that offered to provide better service and, because the Board had refused to have a hearing, was unable to do so. That is the point that was made. I think it is still a valid one. If you want to draw some kind of reference to the load factor as being the purpose of that comment, then I am glad to clarify that for you at the present time, but that certainly was not the point being made. There is another carrier who wanted to get in, offered more frequent and better service, was never granted a hearing and that opportunity is not available to that young person. If you want to argue with that point I will be glad to hear you. Dr. JAMES. You were citing in your statement, Senator, that the students, for example, between Boston and Detroit would be unable to get on flights between certain periods of time because of lack of service and the refusal of the Board to add additional capacity.

My point is that here is a situation where apparently there was insufficient capacity and yet there was a 59 percent load factor.

Senator KENNEDY. How many carriers are there in that group? Dr. JAMES. I am not aware.

Senator KENNEDY. Oh, now, you know how many carriers there are. Ask your associates. There is one carrier, one non-stop carrier. Dr. JAMES. There are lots of ways of getting between Boston and Detroit, if you are talking nonstop, then there is one carrier. Senator KENNEDY. That is right. OK.

SMALL TOWN SERVICE (CROSS-SUBSIDY)

Dr. JAMES. What is commonly overlooked by observers of the scheduled air transport system system is that 30 percent of our domestic traffic is produced by only 70 larger city-pair markets; another 40 percent is derived from an additional 840 markets; and the final 30 percent is produced in some 57,000 smaller markets. Yet, these smaller markets are an integral part of the system and their loss would seriously damage the adequacy of public air transport service, as well as invoking a severe cost to the national economy.

For example, out of a passenger load of 85 on a typical flight from Denver to Chicago, over three-fourths do not originate in Denver. They are coming from Pueblo, Colo.; Cheyenne, Wyo.; Great Falls, Mont.; Sacramento, Fresno, and San Jose, Calif.; and other cities in the West. If this feeder system were tampered with, the primary market would also became less profitable. As a result, it would receive less service, and the remaining smaller feeder markets would also receive less indirect service.

Senator KENNEDY. Well, how can you say that? I would be interested in your printouts on that particular fact. I just know that with

regard to my part of the country, Air New England provides many more opportunities for the trunk carriers and the scheduled line carriers to move people than when the major scheduled carriers were traveling down into southern Massachusetts and to other parts of the State.

Dr. JAMES. My example would be that the analogy that Air New England, for example, is feeding into Boston, Boston is a major hub serving to Los Angeles or San Francisco. Flights out of Boston are fed by many of the feeders in the New England area. The profitability of those hub routes depends to a large extent on the feeder routes coming into Boston.

I cite an example later in the testimony concerning a flight coming from the West, Fresno on through Denver and Chicago on which I have specific figures which I believe may illustrate the point you are looking for.

Senator KENNEDY. What is the point here?

Dr. JAMES. If you tamper with this system that you will begin to close it in on the periphery, that is the feeder points would be the ones that would begin to shut down. As they were shut down it would also have an effect on the hub. Hub service would be less, and what you are doing, because it is a concentrated industry, is that you are going to end up with only a few markets served by fewer carriers and the air transport service will be seriously compromised.

Senator KENNEDY. Well, that has not been the experience in my State. You may be able to document it in other parts. I dare say that would not hold up in New England. I dare say it would not in California. There may be other parts of the country that it would.

I would be interested in what information you have to show that this has been the situation in any of the places where there has been a reduction of scheduled flights, because it certainly has not been the case in Boston or Massachusetts.

Dr. JAMES. Well, I do not know that we can demonstrate what the impact would be fully from our standpoint or the standpoint of those, for example, that testified this morning.

Senator KENNEDY. Well, then, how can you make your statements with such assurance?

Dr. JAMES. Let me make this point first, if I may.

The point I was leading up to is that we do not have the experience in this country of shutting down the air transport systems to fully understand what the impact would be in these outlying districts. We have to rely on the evidence we now have that shows the amount of feed that goes into a hub and the importance of that feed to the more profitable routes that continue beyond and assume, then, that if you were to deregulate the low density routes would be the ones in which service would first be dropped, and as it is dropped then the public transportation network begins to be compromised and there is a chain reaction all the way through to the main levels of the hubs in which service is dropped there.

Senator KENNEDY. I think the best opportunity would be to look to places that had certificated carriers which dropped feeder service into these hub areas. One of the clearest examples is my own area, where Northeast was able to drop certain of these routes, and after it was merged with Delta, virtually all of them were dropped.

I dare say the smaller lines have provided a much greater degree of service to the public, and I dare say, and I will be glad to look at the statistics, that there is more service feeding into the major scheduled airlines now than when the certificated carriers were flying the DC-8's at 1 o'clock in the morning in order to meet with CAB requirements. We have seen how Northeast used to fly down at the most inopportune time in the world, and would be down here 4 or 5 months later saying look, this is all the number of people traveling on it, and trying to get permission to drop it. We saw instance after instance in which they were permitted to drop service. Now we have been able to see the development of a variety of different carriers serving this area-from Boston all the way up the coast of Maine and New Hampshire and Vermont, and we find a much more efficient and effective service, and I dare say the numbers would show they are bringing many more people into the major market areas.

If you are going to make a statement categorically that deregulation would mean inferior service, this is a statement that I think ought to be supported with at least some kind of figures or documentation showing places where that has been the case in the past. If you have some we would welcome it.

Dr. JAMES. Senator, I do not believe the analogy you make necessarily holds, because the service that you now have in the New England area is still a scheduled certificated service. For example, the recent certificating of Air New England as a regional carrier.

Senator KENNEDY. Do you know when Air New England was certificated?

Dr. JAMES. Well, just within the last month.

Senator KENNEDY. We have been flying it for the last 22 years. So we can use the figures before it was certificated if you want. I do not want to debate this point.

Dr. JAMES. Perhaps your service is well improved.

Senator KENNEDY. I have been very satisfied with it. If they can improve it, I am delighted.

We will continue. If you have any figures or statistics or studies on this particular point we would welcome them, because obviously the DOT has presented a statement. We will ask them for their data as well, and if you have some we would like a chance to examine it. You must have reviewed this, and we would like to take a look at it.

[In a letter dated February 7, 1975, the chairman of the subcommittee made more explicit his request of Dr. James for a list of routes that would be eliminated under the conditions discussed above. On April 3, 1975, the Air Transport Association submitted its reply which totaled more than 200 pages. The chairman then requested independent evaluations of this ATA study from five leading economists and several Government agencies. The ATA study and the evaluations, together with relevant correspondence, are printed at the end of Dr. James' prepared statement following his testimony of this day, p. 139 ff. below.]

Dr. JAMES. Fine.

THE INTERLINE NETWORK OF AIRLINES

Some claim that, if the present system were deregulated and present carriers elected to leave the smaller markets, commuter carriers or forms of ground transportation would be adequate substitutes. Data

developed by Dr. Gary Fromm, formerly of Data Resources, Inc., would indicate differently. The value of an hour's time to an air traveler is approximately $10.50. Taking into account the slower times for accomplishing the same trip by rail, bus, auto or lower speed aircraft, the cost to individuals and therefore to the economy could approach billions of dollars.

The replacement of many of these markets by smaller carrier operations would be a hazardous one. For example, in 1972, of all ̃U.S. cities receiving scheduled passenger commuter service, 74, or 17 percent were abandoned 1 year later and service was added to another 104. Thus, in that time period 178 cities experienced a change in scheduled commuter service-roughly one-third of all cities receiving such service.

The present air transport system represents a wholly integrated network of scheduling, connections, interlining, and routing among and between carriers serving cities of varying size and geographic proximity to each other. A glance at the Official Airline Guide (which contains the schedules for the entire air transport network) provides dramatic evidence of this point. For example, the OAG (North American edition) published on February 1, 1975, is 898 pages long. It depicts the schedules of every scheduled carrier in North America, to and from virtually every community served, with connections indicated. It is this network which would be jeopardized by drastically revising or dismantling the structure so carefully constructed over the last 37 years.

The airline industry believes that the regulatory environment within which we operate has served the public interest well. We believe the results support that conclusion.

However, in certain instances, airlines have opposed and continue to oppose the manner in which the regulatory process has been carried out. And we believe that certain areas of economic regulation of our industry do require increased attention.

For example, the problem of regulatory lag is endemic to the regulatory process throughout much of government. There are areas here where productive changes can be made. The proper requirement for full and complete industry reporting of economic, financial, and statistical data need not result in duplicate and redundant effort on the part of the industry or the regulator. We believe reasonable costbenefit analysis can be usefully applied to certain of these requirements. We also believe that the precedent-setting step of establishing performance and efficiency standards for the industry should be subject to regular scrutiny by the Board and amended when and as required in the public interest. These should be done, however, always keeping in mind the need for continuing understanding on the part of the public and the government of the real world economics of the air transport system.

We also believe that the undertaking by the Civil Aeronautics Board of a comprehensive review of route developement policy is desirable. Careful consideration should be given to the view contained in an October 1974 report by the Board that: "*** regulatory route and route-related policies should be directed to improving the efficiency and quality of the system, through careful expansion of route

authority when required by traffic, and through route rationalization." We are also in favor of selected changes in the tariff procedures. We would advocate extending the filing deadline for tariffs from 30 to 45 days with Board decision required after 30 days. This process would provide 15 days advance public notice of tariff changes. A corollary of this would be the adoption of a simplified short-form tariff which would work to enhance public understanding of a given tariff change. In conclusion, the kinds of changes we feel are worthy of consideration are those which would tend to improve upon the present system, and not destroy it or affect its present high level of performance. The regulated competitive environment of the air transport system has not only fulfilled all of the objectives of an unregulated environment and has been truly responsive to public service needs.

The record of the air transport industry shows: (1) that we are not high priced; (2) we are consumer-responsive; (3) we offer a high quality of service; (4) we are innovative and have introduced a high degree of technology; and (5) we maintain an extensive network of public service.

We believe that there is no way that a major overhaul of the regulatory structure of air transportation, let alone deregulation, could improve on this record.

Thank you, sir.

I am open to additional questions, if you wish.

FARE FLEXIBILITY

Senator KENNEDY. Mr. Beyer will ask some questions, but before we get to that, what was your reaction to some of the proposals made this morning by the DOT in terms of price flexibility, for example, that permit at least some-I think they talk about zone of flexibility. Dr. JAMES. This is the zone of reasonableness?

Senator KENNEDY. In terms of rates.

Dr. JAMES. Yes, sir.

The carriers are divided. There will be carriers who might show some interest in that, many others who would not. I am not in a position to give a unified industry answer to it except to say that one does have to examine what the purpose would be. It is the purpose to

Senator KENNEDY. Well, I suppose the purpose is to permit somebody who wants to fly, as I did last Thursday, from Washington to San Francisco, to go for $100 instead of $200.

Dr. JAMES. Yes, sir. We have introduced just this month the opportunity for you and others who so wish to use it to fly at discount rates at those distances, and in effect we would view that as part of the zoning.

Senator KENNEDY. With regard to that point, you are generally accepting that proposal that they mentioned there. As I understand from what you are saying now, you have no real problem with it.

ways

Dr. JAMES. What I am saying at this point, Senator, is that in many the present practice is meeting the objective that you are seeking. Senator KENNEDY. Well, if they do not-then, if it is meeting the objective and you are saying that has all ready been done, then I understand you are in general support of it. You say that has already been done, it is not necessary