The evolution, growth, and potentialities of air coach

81 Pages·03.75 MB·English

by  Angle, Stewart M

THE EVOLUTION, GROWTH, AND POTENTIALITIES
OF AIR COACH
A Thesis
Presented to
the Faculty of the Department of Trade and Transportation
The University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Master of Business Administration
by
Stewart M. Angle
August 1950
UMI Number: EP43284
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This thesis, 'written by
...Stewart.M,. .Angle.................
under the guidance of h^-3.... Faculty Committee,
and approved by all its members, has been
presented to and accepted by the Council on
Graduate Study and Research in partial fulfill­
ment of the requirements for the degree of
Master of Business Administration
Date.
Faculty Committee
Chairman
TABLE OP CONTENTS
CHAPTER PAGE
I. INTRODUCTION.................................. 1
The problem............................. 1
Considerations for the present investi­
gation ......................... 3
Importance of the s t u d y .................. 5
Definitions of terms u s e d ............... . 6
II. BRIEF COMMERCIAL AVIATION HISTORY ............ 8
Pre World War II commercial aviation
development........................... 10
III. THE DEVELOPMENT OF AIR COACH'SERVICE.......... 18
Early skycoach experiments................ 19
Passenger transportation by non-scheduled
carriers in the immediate post World War
II period............................. 20
Competitive aspects ..................... 24
IV. SCHEDULED AIRLINES AIR COACH EXPERIMENTS . . . . 29
Capital Airlines Air Coach Experiment . . . 29
Trans World Airline's Coach Experiment . . . 30
Civil Aeronautics Board's Policy on Air
C o a c h ............................. 34
American's Sky Coach Proposal ............ 37
Economic justification of reduced coach type
f a r e s ........................... 38
iii
CHAPTER PAGE
Diversion from regulars ervice ............. 42
C. A* B. deviation from stated policy . . . 53
Summary................................. 53
V. ECONOMIC IMPLICATIONS ....................... 56
Some of the problems facing air coach
operation............................. 56
Size of the potential market.............. 58
Area of operation ...................... 59
Equipment ...................... . . . . . 62
Cost and fare levels...................... 64
VI. CONCLUSIONS................................. 66
Market potential ......................... 69
Effects of air coach on airline industry as
a w h o l e ............................. 71
BIBLIOGRAPHY....................................... 73
LIST OP TABLES
TABLE . PAGE
I. .Leading Traffic Segments Showing Relative
Importance of New York-Los Angeles, New York-
Chicago, and Chicago-Los Angeles ............ 43
II* Decline in Traffic Markets New York-Lo‘s Angeles,'
New York-Chicago, and Ghicago-Los Angeles
Versus American Airline's System ............ 45
III. American Airlines, Inc. Estimated Passenger Mile
Return from Proposed Air Coach Service . . . . 48
IV. Comparative Revenue Generating Potential of a
Fifty-two Seat DC-6 Versus a Seventy Seat DC-6 51
V. Concentration of Passenger Revenue Total Domes­
tic and Territorial Traffic Ticketed to and
from Individual Stations .................... 61
CHAPTER I
INTRODUCTION
The problem* It is generally accepted that the
Airline Industry of today has restricted or imperfect com­
petitive characteristics. Efforts of aspirants to enter the
field are vigorously fought by the scheduled carriers who
compose the oldest element of the industry. The most recent
invasion in the field of passenger transportation by air has
been made by the so-called ’’Irregular Carriers” who have been
operating an ’’Air Coach” type of service between high density
population centers. There is little doubt of the desirability
and need of lower fares in air transportation. A major
segment of the public, over 90 per cent, has never used air
travel.'*' C. R. Smith, President, American Airlines has
recognized this need by stating, ’’What the eountry needs is
a good three-cent airline— a fast ride to anywhere in the
2
country.” In 1947 the Air Transportation Association made
#
a joint airline study at New York Airport of passengers going
and coming. They asked them what their incomes were in
November, 1947. Twenty-two per cent had incomes over $15,000;
1 William V. Henzey, "Expanding Coach Network Opens
$15 Million Market,” American Aviation, p. 51, November 15,
1949.
2 C. R. Smith, "What We Need Is a Good Three Cent Air
Line,” The Saturday Evening Post, 218:12, October 20, 1945.
39 per cent had incomes from f>6,000 to $15,000. Adding them
together, 61 per cent had incomes over $6,000. In 1947 only
10 per cent of the families and single persons had incomes
3
over $6,000. This indicates substantially that the airline
industry is reaching only the higher income group.
With only 10 per cent of the public utilizing air-
transportation it is obvious that a tremendous market exists
for low price air transportation. Conditions near and at the
close of World War II gave air transportation a shot in the
arm that sent the entire industry, certificated and non­
scheduled operators, swelling into a post-war bubble that was
to burst sooner than anyone realized at the time. Thousands
of men skillfully trained in every segment of the aviation
industry returned home. Similarly, thousands of planes were
placed on the open market through war surplus. At the close
of the war the demand for transportation exceeded by far the
supply. Returning veterans recognized this condition as an
opportunity to enter the aviation field as irregular operators.
By utilizing war surplus equipment there soon developed a
network of coach type operations that spanned the continent.
Entry into this field was comparatively easy. Letters of
Registration, which permitted limited operation, were issued
3 Testimony by Richard Heilman, public utility
economist, before the Committee on Interstate and Foreign
Commerce United States Senate, Airline Industry Investigation,
part II, 1949.
freely, and apparently without any very definite system of
control, by the C. A. B.
The impact on the scheduled airlines was not antici­
pated by the Civil Aeronautics Board, and thus, this loophole
in the regulation existed, seemingly insignificant. However,
vigorous price competition developed between the irregular
carriers and soon one could fly for approximately one third
the cost on scheduled carriers. This type of service
developed a new second class market and a new element in the
aviation industry was born.
The effect of this new service on the aviation
industry and the public will be discussed at great length,
and in part, is one of the primary subjects of this paper.
Considerations for the present investigation. This
study is based upon the effects of price competition and the
development of a new coach type of service.
In the declaration of policy as stated in the Civil
Aeronautics Act of 1938 it is the duty of the C. A. B. to
consider, among other things, (1) the promotion of adequate,
economical, and efficient service by air carriers at reasonable
charges, without unjust discriminations, undue preferences or
advantages, or unfair or destructive competitive practices;
(2) to permit competition to the extent necessary to assure
the sound development of an air-transportation system properly
adapted to the needs of the foreign and domestic commerce of
the United States, of the postal service, and of the national
4
defense.
Competition should be encouraged unless there is
clear-cut evidence that' the public interest will be adversely
affected. As such, it acts as a powerful incentive to the
initiative and efficiency of the carrier. The transport
field cannot provide a completely competitive field for price
determination, but every effort should be made to preserve as
much competition as possible.
The history of price competition in railway trans­
portation, water transportation, and highway transportation
shows a similar pattern. During the evolutionary period and
in some instances even after fully developed, lack of adequate
regulation has led to destructive competition. The inherent
characteristics of water transportation, for example, has en­
abled them to haul certain commodities at a much lower rate
than rail. This has necessitated some adjustment by the
regulatory agency. With the advent of truck transportation
the price factor was again significant and as a result
destructive competition prevailed until the regulatory agency
ruled on a compensatory rate. With the advent of newer modes
of transportation and technological advancements, economic
4 Civil Aeronautics Act of 1958, Section 2, part (c)
and (d).