people could submit statements for the record, unless you would like to say anything else.

Mr. MALIN. I would like to challenge your point on congestion American flies the 200-mile segment between La Guardia and Washington in 2 minutes shorter than the PSA flies Los Angeles-San Francisco. This is not comparable, in my book.

Mr. BREYER. Sorry. We had brought out differences in airborne time. If you look at the airborne plus ground times, which takes this delay into account, there is a considerable difference. We have roughly an hour and 10 minutes for the Boston-Washington segment and roughly 59 minutes for the Los Angeles-San Francisco you are right. But look at other routes where total times are about the same. There are a number of other routes which we have on our charts. Take San Diego-Sacramento and compare it with Chicago-Minneapolis. You get total times, ramp-to-ramp times, and still the fare looks about two-thirds as high.

Dr. EHRLICH. Did you calculate what you would expect to be the cost differential simply because of the speed factor and block-to-block times in the PSA route?

Mr. BREYER. We tried to do that. As you know much better than I do, it is extraordinarily complicated. We have all kinds of different numbers. I will give you copies of all the tables. You will have these numbers, and I am sure that there are lots of arguments about them. I think the way to proceed is by written dialog.

Dr. EHRLICH. I would strongly urge that you make a very specific attempt to make that calculation, because what you will find is that most costs are based on block-to-block times. The simple fact that an airplane is forced to fly a lot slower, 200 miles relative to 350 miles, causes the cost increment to increase very, very substantially.

Mr. BREYER. The operating costs of the airplane comprise only one portion of it.

Dr. EHRLICH. I think you will find on a block-time basis that the differential would run into several dollars of cost.

Mr. BREYER. Would you work something out?

Dr. EHRLICH. The other point I would urge you to consider is the differential in landing fees among the airports.

Mr. BREYER. We have that.

Dr. EHRLICH. Based upon landing fees in the PSA operation relative to the east coast corridor is roughly 30 to 35 cents difference per passenger.

Mr. BREYER. Exactly. I think Dr. Summerfield had that in his testimony.

Dr. EHRLICH. I think another element makes a big difference, roughly a half dollar per passenger is the difference in pilot pay in the PSA relative to the trunk carriers on the east coast, and that adds roughly another half a dollar increment.

Mr. BREYER. I would ask Mr. Murphy if you would submit written testimony? Would you like to come up?

Mr. MALIN. Before we step down, one clarification. The Senator was using an operating factor which is percentage of miles completed. That is quite different from delay. Of our operations at La Guardia, 50 percent are delayed to some degree. They may all complete their trip, but it is delay factor that is important.

Mr. BREYER. Do you think it is fair to look at routes that have roughly the same ramp-to-ramp time? It seems to me that is a reasonable way to take delay into account? Do you think so?

Mr. MALIN. Yes.

Mr. BREYER. All right. So we find on fairly comparable routes the fares are still

Dr. EHRLICH. When you consider the implications of on-time performance and the costs

Mr. BREYER. That should show up in ramp-to-ramp time, should it

not.

Dr. EHRLICH. On a performance basis?

Mr. BREYER. Yes; on a performance basis.

Mr. SHIPLEY. Mr. Breyer, I would like to note in connection with your request that we submit written statements on this. Delta certainly will do its best, and if the information is available, or can be made available without undue burden, we will submit a response. Mr. BREYER. Thank you.

[The prepared statements of Dr. Ehrlich, and Messrs. Randall Malin, and Morris Shipley follow:]

PREPARED STATEMENT OF DR. MORTON EHRLICH

The topic of today's hearings has been listed as "Comparison of State and Federal Regulation of Airlines and Comparison of State Air Fares with Interstate Air Fares." The major domestic markets, both long-haul and short-haul, served by Eastern Airlines are in interstate air transportation. Eastern, unlike some of the other Federally-certified carriers, is not authorized to serve any significant intrastate markets, such as Los Angeles-San Francisco on the West Coast or Dallas/Fort Worth-Houston within the State of Texas. For these reasons, insofar as its own operations are concerned, Eastern is not a carrier that is in a position to discuss any comparison of differences that may exist in the State and Federal regulation of air transportation markets, particularly with regard to air fares.

The air fares in Eastern's domestic interstate markets are regulated by the Civil Aeronautics Board under the powers granted to that agency in the Federal Aviation Act by Congress. This is one of the major regulatory functions of the Board and one that has been the subject of intensive proceedings before the Board in recent years. In 1970, the Board instituted the Domestic Passenger Fare Investigation to determine the policies and standards that should be followed by the Board in its review and regulation of domestic air fares. The guiding criteria laid down by Congress to be followed by the Board in completing this large task are set forth in the Declaration of Policy (section 102 of the Federal Aviation Act) and the Ratemaking Standards (section 1002 (e) of the Act). In simplified terms, the job of the Board is to determine the revenues needed by the carriers to cover their costs (including a reasonable return on investment) so they can offer the services that are required by the public interest.

The Board is just now completing the final phases of the Domestic Passenger Fare Investigation. In one of its phases, the Board has determined the overall fare level need of the carriers (based on such standards as load factor, seating configuration, depreciation, rate of return, etc.). The Board has then translated this overall revenue need into a fare structure, which produces fares in individual markets varying by length of passenger haul (with a downward taper in yield per mile as the length of haul increases). This is illustrated in the attachment, which is a chart from the Board's decision in Phase 9 of the DPFI, showing how the Board's fare formula relates to the cost of service at various lengths of haul. While the fare formula does not "track" the cost curve precisely, the basic objective of a cost-related fare formula is achieved. It is of interest that the Board's fare formula in markets of approximately 400 miles or less produces fares that are less than costs at these distances.

While, as indicated above, Eastern does not operate in any major intrastate markets, we are aware of fare comparisons that are sometimes made between the interstate markets in the Northeast corridor (e.g., the New York-Boston and New York-Washington markets served by Eastern) and the intrastate service between Los Angeles and San Francisco. First of all, it must be understood, as

stated above, that under the Federal regulation of interstate markets, fares in individual markets are not set in isolation. The objective of the Board is to establish a basic formula that will produce a rational integrated fare structure for the entire interstate route network where a single market or group of markets is not favored to the detriment of other markets. It is this overall nationwide fare formula that produces Eastern's fares in the Northeast corridor. Specifically, the fares on the air shuttle in the Northeast corridor are precisely equal to the basic coach fare produced under the Board's formula.

Beyond this, there are other factors which demonstrate that it is not possible to make an uncritical comparison of the Northeast corridor interstate fares and the intrastate Los Angeles-San Francisco fares. There are a number of substantial differences in these two operations which are a continent apart. For example, such factors as weather and aircaft traffic congestion are not comparable. There is a substantial difference in the speed at which the aircraft operate in the two services. While the Northeast corridor stage lengths New York-Boston (185 miles) and New York-Washington (214 miles) are shorter than Los Angeles-San Francisco (347 miles), the published travel times are the same (1 hour). This means that Eastern's jet aircraft are able to attain average speeds of only 185 m.p.h. (New York-Boston) or 214 m.p.h. (New York-Washington) compared to 347 m.p.h. betwen Los Angeles and San Francisco. This is important when it is remembered that labor costs are incurred by the hour, a factor which is further compounded by the rate differentials for employees that exist between Eastern's service and the intrastate operations on the west coast. In addition, there are different landing fees in the two services, with a rate of $1.45 at La Guardia compared to $0.40 at Los Angeles per 1,000 pounds landing weight. On an annual basis this amounts to $1,800,000.

In conclusion, Eastern believes that the air shuttle services in the Northeast corridor are an important public service in these markets. The service has been used by over 36 million passengers since its inception and the no-reservation backup section feature has been well received by the public. In this regard, it is important to note that the air shuttle is conducted in a highly competitive environment, with 12 airlines having authority in the corridor, four of them on an unrestricted basis. Thus, the air shuttle competes against other carriers in the market, including those operating on a conventional reservation, two-class service. It is up to the public to make its choice of the types of service in these markets. There is abundant authority in the markets that enables the carriers to offer the public whatever services they desire at fares consistent with the coach fares derived under the Board's industry wide fare formula.

PREPARED STATEMENT OF RANDALL MALIN

1. It is our understanding that the purpose of this phase of the subcommittee's hearings is to discuss the costs of a commuter-type air service in the Boston/ New York/Washington corridor, and to determine if there is justification for fares in these markets to be different than those offered by intrastate carriers such as Pacific Southwest Airlines (PSA) in the Los Angeles-San Francisco market.

2. For purposes of this inquiry, American has appended detailed estimates of operating service in two of the Northeast corridor markets, Boston-Washington and New York-Washington.1

3. Exhibit 1 estimates the costs to American for the type of operation it conducts today in these two markets. Exhibit 2 estimates the costs of conducting a commuter-only operation confined to the carriage of local traffic. For purposes of determining a break-even passenger load factor in the Boston-Washington market, we have used the revenue yield per passenger-mile derived from the fare offered by PSA between Los Angeles and San Francisco. In the New YorkWashington market, we have used PSA's dollar fare ($18.75) because the scheduled block-to-block time is approximately the same as that for Los AngelesSan Francisco.

4. Costs are divided into five major areas: Flight and maintenance, servicing and handling, advertising and sales, administrative overhead, and aircraft ownership. Costs reflect American's actual experience for the type of operation now conducted by American in these two markets. Applying the PSA fare level to these markets, the break-even load factor on a fully allocated cost basis (with no allowance for a proper rate of return) would be the following:

Boston-Washington

New York-Washington

Percent

130. 6

137.2

5. Exhibit 2 estimates the reduced costs if American were to offer a pure commuter operation, carrying only local traffic (excluding interline and intraline passengers moving beyond the terminals of the Boston/New York/Washington corridor). In computing these costs, we have reduced American's experienced unit costs in the following areas:

6. After adjusting costs for these savings, American estimates the following break-even load factors for a commuter-only operation (costs do not include an allowance for a proper return on investment) :

Boston-Washington

New York-Washington_.

Percent

92.6

93. 4

7. In your consideration of whether it is feasible to obtain lower fares in these markets with a commuter-only operation, it should be borne in mind that such an operation may well result in less service for those passengers traveling beyond

1 The routes are comparable to Los Angeles-San Francisco. The distance between Los Angeles and San Francisco is 338 miles. The distance between Boston and Washington is 399 miles. While the distance between New York and Washington is only 214 miles, American's 58-minute block-to-block scheduled time on this route is almost identical to PSA's 60-minute scheduled time between Los Angeles and San Francisco. The relatively slower travel time between New York and Washington is related to ground and air congestion that affects operations in the Northeast corridor. For example, approximately 50 percent of American's operations at La Guardia Airport are subject to some ground or air traffic delay, as compared with approximately 20 percent for American's operations at Los Angeles and San Francisco.

the Boston/New York/Washington terminals. American's local flights to and from Boston now carry the following percentage of passengers moving beyond the Boston/New York/Washington terminals:

Boston-Washington (National) –

New York (La Guardia)-Washington (National).
Boston-New York (La Guardia) ––

Percent

26

30

41

Since American's schedules today are supported by a combination of local traffic and through and connecting traffic, any loss of local traffic would undermine the economic soundness of American's through and connecting service at an affected terminal. In all likelihood, the amount of through and connecting service offered by American would have to be reduced. This result, in our view, would be detrimental both to the general public and to the airline industry.

EXHIBIT 1.-SHORT-HAUL OPERATING RESULTS AT INTRASTATE FARE LEVEL

EXHIBIT 2.-SHORT-HAUL OPERATING RESULTS AT INTRASTATE FARE LEVEL AND MODIFIED COST STRUCTURE

BIOGRAPHICAL SKETCH OF RANDALL MALIN, VICE PRESIDENT, MARKET PLANNING,

AMERICAN AIRLINES, INC.

Randall Malin is vice president of market planning for American Airlines, Inc. In this capacity he is responsible for American's marketing strategies and plans.

2 In Boston, for example, all eight of American's daily flights to La Guardia continue on from New York, providing one-stop service from Boston to St. Louis, Detroit, Toronto, Dallas/Ft. Worth and Memphis. Five of the seven daily flights from Boston to Washington continue on from Washington to Indianapolis, Memphis and Cincinnati.