Future of the Airlines

Report Outline
Economic Plight of U.S. Airlines
Development of Commercial Aviation
Looming Problems of Air Transport
Special Focus

Economic Plight of U.S. Airlines

Profit Loss and Slowdown of Passenger Growth

After riding high on the economic expansion of the 1960s, major U.S. airlines came down with record-breaking losses in 1970 and developed a bad case of jitters about the future. The Air Transport Association, a trade organization representing the scheduled airlines, estimated that the nation's 12 major carriers incurred combined losses of $123 million during the year. The ATA warned that without corrective steps—principally a substantial fare increase—1971 and 1972 would be progressively worse. Sen. Stuart Symington (D Mo.) voiced a widespread concern when he told the Senate on Dec. 17 that the United States faced an “economic disaster” unless something was done to help the major airlines.

As in previous periods of economic distress, the airlines' plight spawned rumors of pending bankruptcies. Government and industry officials discounted this speculation, but there was continuing talk of mergers involving virtually all of the scheduled carriers. On the last day of the year, the Civil Aeronautics Board approved, with White House endorsement, the applications of four airlines to merge into two. But it was too early to predict whether the mergers, in themselves, could put the industry back on a sound footing financially. A substantial part of its problem stemmed from the enormous costs of acquiring the giant new Boeing 747 jet aircraft. Ahead lay the probable need for another expensive refit—to the supersonic jets being developed in the United States and Europe—within the decade.

Underlying the economic troubles of airlines in 1970 was the spread of inflation and the general business contraction. Untold thousands of vacationers postponed or eliminated their air-travel plans and corporations cut costs by curtailing business trips. Ironically, the 350-seat 747s increased the capacity of the airlines to move travelers at the very time that passenger growth was declining. The basic unit of revenue in the air transport industry is the “revenue passenger mile”—one paying passenger flown one mile. According to estimates made by the ATA at the end of 1970, the year's increase in revenue passenger miles—international and domestic—was only 4.8 per cent, less than half the 1969 increase (10.1 per cent) and less than a third of the average annual growth rate between 1962 and 1968 (17 per cent). Domestic traffic alone during 1970, as reported by the 12 major airlines, declined by one per cent.