The Long Wait

The Civil Aeronautics Board finally gave the U.S. airline industry an E.T.A. last week for its general passenger fare investigation. Estimated Time of Arrival: February 1959, nearly six years after the study was proposed. Grimly, alphabetically, twelve lines have uttered millions of words trying to prove that they need a 20% boost in air fares, especially now that they must raise $2 billion for new jet fleets. Before this simple message even reaches CAB's examiner next summer, it will total some 20,000 pages, not counting exhibits. Then it will take another six paper-strangled months before a decision.

Airmen could tell the story in six minutes. With costs up 45% since 1945, profit margins have slipped. U.S. airlines made only 4.6% profit on a $1.3 billion gross in 1956. Last year the margin skidded to 1.6%, and T.W.A., Northeast and Capital fell into the red with combined losses of $8,700,000. This January and February the industry's overall losses jumped to an estimated $12 million v. $400,000 in the same period last year.

What worries the industry is that by the time red-taped CAB gets around to deciding on a fare boost, so many lines may be in such serious financial shape that they will have trouble competing. Though the industry recently got an interim 6.6% fare increase, it will only boost the 1958 profit margin to 2.6%, far less than is needed to pay for jets. Domestic carriers still need $600 million, but simply cannot make the healthy profit needed to attract bank financing. Wall Street is just as cool to equity financing: common stocks of the twelve lines are selling at 64% of book value.

The answer that airmen dislike but the one they may be forced to by CAB's painful delay is a return to subsidy. Either that, or the industry may see a rash of mergers, leading off with Northeast, which won the rich New York-Florida run last year and still lost $1,000,000 in the first quarter of 1958. National might merge with Northeast to eliminate a rival on the Florida route. Delta and American could also gain entry, help solve their own problems by taking over the struggling line.

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