(5 of 9)
The men who run the nation's airlines also wonder where they are going. Since the jet-age began 20 years ago, their mercurial industry has ridden through three booms and three busts. During expansive periods, lines have ordered too many new jets, and seats have been left unfilled when the economy leveled off or turned down. This time the airline chiefs are determined to avoid the riches-to-rags syndrome.
Whether they can or cannot do so will depend largely on the cheap fares. They are so low that carriers must continue to attract more passengers just to break even. The airlines are now making sizable profits because six out of ten passengers are still paying the regular tariff, and those fares provide enough revenue to cover the expenses of the flight. Hence, proceeds from the low-fare passengers, who fill up the remaining seats, are gravy.
But what if just about everyone begins to fly cut-rate? The break-even point will rise until airlines can no longer turn a profit no matter how packed the planes may be. Eastern's Borman is worried because his line's revenue is down from 8.840 per passenger mile in the first half of 1977 to 8.60 this year. Consequently, Eastern's break-even point has risen from 55% to 62% of capacity—that is, it makes money only when 62% of the seats are filled. Shuddering at the prospect of the CAB'S approval of another 70% reduction in some fares, Delta President Garrett declares: "At some point, the fare structure must be stabilized. There is no way you can cut fares 70% and continue to profit, because costs are simply too high."
Still lower fares are only part of Carter's plan for the airlines. His goal is total deregulation. The Government would continue to police safety, but the companies would be unencumbered by other federal regulations. For example, a line must now go through a lengthy CAB examination before it can win a new route, and once that route is granted, must provide satisfactory service or face CAB sanctions. Under the White House plan, the airlines would be free to start or stop service wherever they liked. Some small communities that have already lost their rail service would probably be deserted as well by the airlines, which would dump marginal and money-losing routes. The biggest lines would have an advantage over smaller ones because they could concentrate their vast fleets on the most lucrative markets. They could also use their financial muscle to set rates at such low levels that weaker lines would be forced to fold.
Not surprisingly, United and Pan Am, which are two of the biggest airlines, are the most vocal advocates of deregulation. Explains Pan Am's Chairman, William T. Seawell: "The brightest and most satisfying prospect in Pan Am's future is our entry—at long last—into the American domestic market, as part of the deregulation trend." Delta and Eastern strongly oppose deregulation. Smaller and medium-size carriers are trying to line up merger partners to keep from being swallowed up by the big airlines if and when deregulation goes through. Texas International is trying to take over National. Defensive linkups are also planned by Southern and North Central as well as Continental and Western. Says one worried Western executive: "To us, United Air Lines seems just like a big cougar perched on a rock waiting to pounce on us."