Belated Converts

There are two fundamentally different kinds of businessmen. One kind meets trade recessions by keeping his prices high, letting his goods gather dust on the shelves, laying off his employes, arid concentrating his efforts on hoping business will come back. The other takes the risk of cutting his prices, and often succeeds in wooing back vanishing trade, while he keeps his employes on the job, his goods in circulation, his ledgers in the black. To the first school the Eastern railroads of the U. S. (except for Daniel Willard's Baltimore & Ohio) have largely adhered through Depression I and II. Meanwhile, Western and Southern roads, which chopped deep into their passenger fares, reaped a reward in increased passenger revenues, less idleness for rolling stock and men. Last week, the Eastern roads finally enrolled in the low-price school.

In 1936 the Eastern roads got a forced lesson in low-fare operation when ICC ordered their coach fares cut from 3.6-c- per mile to 2-c-, their Pullman fares from 4-c- to 3-c-. While they talked darkly of a court fight (which they did not make because Baltimore & Ohio refused to join them), the new rates increased passenger revenues. New York Central, whose big, bald President Frederick Ely Williamson headed an indignant protest committee of Eastern road presidents, enjoyed a $7,000,000 rise in passenger income for the year.

But the Eastern roads were not convinced. They credited better business to recovery not to lower fares. So last July, when facing Depression II, they persuaded ICC to up coach rates to 2 1/2-c-. Immediate result: New York Central's August revenues dropped 17% from the same month in 1937, B. & O.'s dropped 19.5%, New Haven's 3%.

This was a lesson in economics. Last week the Eastern roads tacitly admitted that they had learned something from it. Mr. Williamson's committee plumped for lower rates and bigger volume--with a hedge. The Western roads which have profited by low fares have comparatively long passenger hauls. (Average passenger ride on Union Pacific: 560.89 miles. Average on New York Central: 57.85 miles.) So the Eastern roads plan to scale their fares down to encourage longer rides:

Coach fares (now 2 1/2-c- a mile): on a sliding scale, beginning at 2 1/4-c- for round trips up to 100 miles each way, down to 1.7-c- for trips over 900 miles, a 32% cut.

Pullman fares (now 3-c-): to 2.7-c- for trips over 900 miles; for upper berths (now run empty most of the time) ,2.7-c- one way, scaling down to 2.43-c- for round trips over 900 miles; corresponding cuts in the charges for upper berth Pullman space. (The Southern roads which have been operating at cut rates and have found them good, last week filed proposals with ICC for another 10% reduction in round-trip coach fares to a minimum of 1.35-c-.)

Said partly converted Mr. Williamson: "The reductions offered, particularly over the longer distances . . . will create new travel."

Putting the new rates in effect this month, to step up this summer's vacation and World's Fair travel, the cautious Easterns announced they would try them until next January, will continue them if, as plainly indicated by past experience, they work.

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