Flying the Crowded Skies

In ordinary times, the McDonnell family from the small town of Federal Way, Wash., would have passed up the trip. But these are not ordinary times, and pert Jackie McDonnell wanted to attend the 20th reunion of her high school class in Los Angeles. Even though Jackie, Husband Bob and their two children had already taken their summer vacation in Alaska, they were tempted by the new low airline fares. Says Bob, an engineer, "We made our reservations 30 days early, we flew night Super Saver and we figure the four of us saved $259 off the regular fare." He adds: "This year we seem to be flying more miles than we are driving."

The Frank Kambara's of Chicago, a family of four, saved $251 on a round- trip to Miami; now, enticed by the bargain, they plan to spend next Christmas in Hawaii. Reason: they can fly at $545 below the full fares. Thanks to "Chickenfeed" and "Super Saver" discounts, Kathy and Randy Ray were able to fly from Denver to New York City and Miami for $206 less than it normally costs to fly only to Miami.

The McDonnell's, Kambara's and Ray's are typical of countless families throughout the U.S. and many from foreign lands who are hopping aboard bargain flights across the Atlantic and within America. Millions of people are making that extra trip they otherwise would not have made, and many are first-time air travelers. With U.S. airlines and a few foreign carriers offering reductions of up to 50%, air fares are easily the best value in an inflation-ridden global economy.

So far this year, U.S. airlines have carried 180 million passengers, a 16% increase over last year and the largest gain in airline history. Two weeks ago Eastern reached 78% of capacity, meaning that all aircraft flying on major routes at peak periods were totally jammed. Last month there were only seven unoccupied seats on all Pan Am planes arriving in the U.S. from Europe and the Middle East. The earnings of airlines are heading toward unprecedented heights, proving the old (and often ignored) capitalist doctrine that lower prices lead to higher demand, which in turn creates higher profits. In the first six months earnings jumped 16.3%, and for the full year should hit a record $1 billion. This year's surge, says Eastern Air Lines President Frank Borman, the former astronaut, "has been above our wildest expectation. We have become mass transit, and this may be as revolutionary as the introduction of the jet engine itself."

Like all upheavals, this one is rich in uncertainties, anxieties and discomfort. Neither the airlines nor the airports are prepared to cope with the passenger flood. Delays, snafu's and frustration are the daily fare of today's traveler. "No one saw it coming," concedes Richard Ferris, president of United, the largest airline in the non-Communist world. "If anyone had told me last year that we would be up 21% in traffic so far this year, we would have straitjacketed him and locked him away." Now such a prescient person would probably be promoted to Senior Vice President for planning.

As never before, the airlines are being forced to readjust their operations to meet their new mass-transit role and to make the crucial decisions about the planes they need to carry the big new crowds. The old planes on which the world flew into the jet age two decades ago are wearing out. Based on conservative growth estimates made before the travel boom, airlines in the non-Communist world by 1993 will need at least 4,600 new planes worth $138 billion.

In response, the major U.S. and European planemakers are developing a new generation of fat-bellied, thin-winged jets specifically designed to accommodate the traveling masses, whisking them along at far less cost in fuel than today's jets. Yet the new craft are so expensive--$20 million to $30 million--that the airlines must be confident of their own future before they make their purchases.

Never has the future been less certain. The U.S. airline industry has been treated like a semi-monopolistic public utility, with routes and fares controlled by the Civil Aeronautics Board, which has sought to avoid over-competition and ruinous price wars. Now, President Carter seeks to free the airlines from Government economic controls entirely and allow them to fly anywhere at any time and charge any price, no matter how ridiculously low. Later this month the CAB will allow airlines to reduce regular fares as much as 70% in economy and sell first-class tickets at any price they think the traffic will bear. Next, the CAB intends to allow airlines to start flying new routes without asking anyone's permission. The industry's leaders are anxiously pondering the longer-range impact of Carter's policies, but for the present they are unquestionably effective: 40% of all passengers now fly at reduced rates, and many would not have flown without them.

Remarkably, people are putting up with the discomfort of sardine-style flight with good spirits and camaraderie. True, there are some gripes, especially among business travelers who resent being jammed in by passengers paying a fraction as much. Affluent travelers, once the mainstay of the airlines, sometimes are put off by the rumpled chic of youthful interlopers; cut-off jeans and scruffy sandals seem de rigueur for many young passengers who only last year would have been taking the bus or hitchhiking. Inexperienced travelers put an extra burden on the already overtaxed stewardesses. "Some of them don't even know how to fasten their seat belts," moans a Hughes Airwest hostess.

Veterans and neophytes alike need to be tough because they must face "the ground barrier." The ordeal begins when the passenger tries to telephone the reservations center. Either the line is busy or a recorded voice says reassuringly, "Your call is being automatically held..." And held and held. Waits of up to ten minutes are common and some are as much as 35 minutes. The volume of calls is up about 35% at most airlines, and each call lasts longer while the clerk figures out the lowest fare and plots the routes over which it is applied. One Eastern reservations clerk spent three hours on the phone with a couple, reckoning a 50-stop trip under the line's $302 to $323 fare that entitles a traveler to unlimited mileage--from Atlanta to Acapulco, from Seattle to San Juan--for 21 days. A new status symbol among businessmen is to know the unlisted reservations numbers that airlines have for VIP travelers. Laments Delta Air Lines President David Garrett: "We've got 18 different fares just between Atlanta and London, and they have all got to be explained in lengthy phone calls. We just can't keep up."

Some airlines offer as many as 90 fares and discount packages, and no one knows how many are in effect on all the lines. In general, however, the international cut-rate fares fall into two price categories. The first is budget, which requires buying a ticket three weeks in advance and checking with the airline a week in advance to find out the departure day. The price: $299 round trip New York-London, vs. $764 for regular economy class. Or, for the same price, the passenger can buy a ticket on the day of departure and "stand by," hoping for a seat. The peril: none may be available. The second is APEX (Advanced Purchase Excursion), which must be bought three or four weeks in advance. The price: $399. The advantage: a confirmed reservation. Domestically, there is an absolute plethora of fares. The Big Four--United, American, TWA and Eastern--all offer a Super Saver fare that cuts 30% to 50% off regular economy rates, but tickets must be bought 30 days in advance. Other lines offer similar savings under a variety of catchy names. Braniffs Small Potatoes, Texas International's Peanuts (25% to 50% off on certain flights), Continental's Chickenfeed (30% to 50% off on most flights). There are also loss-leader fares, which last only a few days or weeks. Braniff offered for four days a 7-11 stand-by excursion from Dallas to Las Vegas. One way was $11 first-class, $7 in economy.

Trips to and from the airport routinely take longer than the flight. At Los Angeles International, the only entry is a five-lane road so clogged that drivers sometimes spend at least 45 minutes inching toward the parking area, then another 15 to 30 minutes to find a space. At Chicago's O'Hare, the nation's busiest, backed-up traffic frequently extends for blocks; frantic travelers spring from boxed-in cabs and dash, bags in hand, for the terminal.

With a few notable exceptions (Dallas-Fort Worth, Houston, Tampa and Seattle), U.S. airports are woefully unprepared to cope with--much less comfort or coddle--the masses of travelers. Prime example: Atlanta, the nation's second busiest airport. Completed in 1961, it was intended to handle 40,000 passengers a day, but is now besieged by more than twice that number. It lacks enough lounges, restaurants and toilets. A $400 million new airport is being built, but at present growth rates, it will be obsolete within three years after it opens in 1981. Warns Richard Jody, the Director of Aviation in Miami's Dade County: "All the crises have been accelerated. If you think traffic and parking are bad now, you haven't seen anything yet."

"Our immediate challenge," says Eastern Senior Vice President Russell Ray Jr., "is to keep people from feeling like cows." Because of the problem of processing passengers through check-in and security inspection, flights often leave and arrive late.

If jam-packed planes are uncomfortable for passengers, they are nightmares for the hostesses, who can barely make their way through the narrow aisles and foothills of hand luggage. Says an Eastern stewardess: "The glamour is gone. We used to be able to sit and talk with passengers. Now we're working twice as hard, twice as fast." Airline food, never a gourmet's delight, is becoming even less palatable as the airlines try to save money on meals to offset the lower fares. The old gray steak has given way to stews of questionable origin. Drink is not a reliable escape; the cocktail ordered just after take-off often arrives just before the passenger gets to dessert.

Arrival is turning into an ordeal. Delays at baggage claim areas can run two hours, and ground transportation is inadequate. Worst of all are the U.S.'s two biggest gateway airports, Los Angeles and J.F.K., both bad greeting cards for foreign visitors. Los Angeles' customs area is so small that inspectors can process only two jumbo-jet loads at a time. Passengers on the other jumbos must wait on board for as long as three hours.

Since as many as eight jumbos touch down at the same hour, pilots compete with each other to land first and get their passengers at the head of the customs line. Some air schedules are being rejiggered to allow an extra half hour for passengers to make connecting flights.

As a consequence of the chaos, many travelers have horror stories to recount. A young mother traveling with two children to New York City from Bogota was ushered to a lounge to wait for a delayed departure. Three and a half hours later, she saw the distinctively painted Braniff plane taking off and when she checked, found it was hers. The harried agent had forgotten to call her. Bound for Tokyo, Bernie Power, an Executive with Bally Manufacturing Corp., was rerouted and then bumped off a flight in Seoul, where he was informed that the next available booking was two months away. Power got to Tokyo by standing by at the gate almost the entire next day until he found a spare seat. "This doesn't look like Dallas!" exclaimed a middle-aged woman. "No, Ma'am, it isn't," replied a ground clerk. It was Atlanta. In the confusion at London's Heathrow airport, she had boarded Delta instead of Braniff.

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."

A bill that would free the CAB from its legal responsibility to fix fares and routes has passed the Senate but is bogged down in the House. It is expected to pass eventually, though probably not this year. Deregulation would be the most radical change in U.S. aviation history, greatly affecting the lines' ability to raise money for their next cycle of jet purchases.

This is supremely important because, even if the growth in air travel levels out to 6% a year, U.S. lines will need to borrow $56 billion by 1985 to replace their aging jets. Lenders will tend to favor the lines that stand to benefit the most from deregulation, meaning the bigger, richer carriers. Though the U.S. certainly needs more competition and fare flexibility in the air, the specter of unbridled price cutting and route grabbing frightens many financial experts, who fear that some lines will not be able to earn the returns needed to justify large loans. One airline financial officer calls the CAB'S free-enterprising Chairman Albert Kahn "an intellectual giant and a commercial idiot."

Assertive and gregarious, Economist Kahn, a former Cornell University Professor, thrives on controversy. In an interview with TIME Washington Correspondent Jerry Hannifin, he argued that the airlines are excessively panicked by the prospect of being exposed to the full force of a competitive marketplace. "What I suspect is that there is a search for another security blanket now that the CAB security blanket is being removed," he says. Rather than harming the airlines, Kahn contends, deregulation will help many of them prosper. "We are making every carrier in this country a potential competitor of the other carriers by saying if you want to enter a market, we will do everything we can to let you enter that market."

A few small airlines undoubtedly would prosper by moving into profitable niches overlooked by the bigger carriers. Southwest, a small regional carrier, has applied for routes to Chicago with a regular fare 50% below that of the major airlines, and it could perhaps make a marginal profit on that heavily traveled run. Freddie Laker is the perfect example of a small operator who chose a lucrative route and cut rates to fill his planes beyond the break-even point. But Laker incurs none of the costs of providing service to small communities that could not fill up his planes.

European airline leaders, who generally favor controlled competition, have serious quarrels with Carter's approach. Their objections would be more telling if they had done a better job of opening up air travel to the broad public. European fares are still twice as high as those in the U.S.; and promotional cheapies are few. Rather than compete for passengers, the European airlines band together in "pools," or market-sharing arrangements. On the Paris-London run, for example, Air France and British Airways schedule their flights at different times to avoid competition as well as costly excess capacity.

Despite their monopolistic overtones, the Europeans have a point: unfettered competition can have a few bad repercussions. Example: the U.S. inspired stand-by fares. They functioned smoothly only as long as planes were not being filled by passengers with confirmed reservations. Now the standbys are left stranded in appalling situations. To their woe, a few foreign carriers, notably El Al, Iran Air, Air-India and British Airways, have tried to match low U.S. transatlantic fares and have ended up with thousands of irate standbys on their hands. Most foreign airlines have resisted the deep discounts, and they have far fewer problems, at least on the North Atlantic.

Lufthansa Chairman Herbert Culmann predicts that, in a competitive free-for-all, the airlines with the best chance of survival will be those with Government backing. "The American carriers are in danger," he warns. "Whether Air France gets 400 million francs from the French government today or 500 million francs tomorrow, you can be certain of one thing: Air France will still exist." So, he might add, will Lufthansa, British Airways, SAS, KLM, and all those other airlines that are the major flag carriers of their nations.

If Culmann's dire prediction is even partly fulfilled, and some U.S. airlines are financially weakened, the American planemakers that supply them could be hurt. In turn, the nation's balance of payments would suffer. Of all commercial plane sales in non-Communist countries, Boeing rings up about 52%, McDonnell Douglas 28%, and Lockheed 3%. At about $7 billion a year, sales of aircraft, engines and parts abroad are the second largest U.S. export (after food).

Now the Europeans are disputing U.S. dominance as never before. The challenger is the Airbus A300, made by a French-German consortium with a Spanish junior partner--and financed by all three governments. It is the world's first twin-engined wide-body jetliner, and it can carry up to 310 passengers for almost 50% less in operating costs per seat mile than the stretched version of the 727, which has similar capabilities. In a sense, the Airbus is the finest American plane that the Europeans could build; its highly efficient engines are produced by General Electric. The Airbus Industrie consortium has sold 157 Airbuses to 16 airlines, and the largest order, for 23, came from Eastern. In 1974, President Borman began begging American planemakers to build a weight-saving twinjet, but they dallied. Next, a new-generation Airbus, designated the A310, will be a direct competitor to Boeing's planned 767. Already the new Airbus, which seats 200 and has most advanced technological features, has been ordered by Air France (four), Lufthansa (ten) and Swissair (six)--and Airbus sales teams are canvassing potential buyers throughout the world.

Since Borman outraged U.S. planemakers by buying a European plane, Boeing has led a campaign in Washington against what Treasurer Jack Pierce calls "predatory financing." Indeed, Borman got a good deal, which includes a $250 million loan guaranteed by European government agencies. Somewhat reluctantly, the U.S. Export-Import Bank has agreed to try to meet the European terms by making more of low-interest loans available to foreign buyers of U.S. aircraft.

So expensive is the creation of an all-new plane that Boeing is looking for partners to help do the work and share the cost. In no other industry are there such large international combines--or so much high-level politicking. When he visited Jimmy Carter last June, British Prime Minister James Callaghan discussed an Anglo-American aviation linkup. British Aerospace, a nationalized collection of airframe and weapon makers, is being courted by the European Airbus consortium and Boeing. As a start, Boeing wants British Aerospace to make the wings for its planned narrow-bodied, 150-passenger 757.

A British connection would probably make Boeing's new-generation aircraft easier to sell in the Common Market. European governments sometimes have forced their airlines to buy their own country's planes even though they were inferior to U.S. craft. France and Britain have been the worst offenders, saddling Air France and British Airways with money losers from the Caravelle to the Concorde. The European carriers now claim that they are free to pick the best jet. The problem is that the Boeing 767 and Airbus 310 are so close in price and performance that the Europeans--and the dozens of Asian and African airlines associated with them in sales and maintenance setups--may decide to buy the local product.

So far, Boeing has bagged the biggest order: a $1.6 billion bundle from United. In the past, such a big deal by United would have sent American, TWA, Eastern and others rushing to place their own orders and thus secure favorable delivery positions. And they would have been crowing about how they were going to create the biggest, all-new, best-everything fleet in the world. So what happened this time? Nothing--so far. U.S. airline chiefs are playing a wait-and-see game. They claim that they will not order new aircraft simply as a reaction to this summer's sudden and unexpected surge. Explains Pan Am's Seawell: "If you buy new capacity for marginally priced traffic, you don't really get an adequate return on your investment."

No one anticipates that passenger volume will continue to grow at the present annual rate of 23%. United's Ferris figures: "A new plateau of travel is now established. We won't see great leaps from that plateau, but growth will be off a higher base." In the future, passenger growth will be somewhere between 6%, which is the historic average, and 10%.

Even at that reduced rate, the surge would give quite a lift to the disparate businesses and entrepreneurs that benefit from travel, including skycaps, tour guides, restaurants, hotels, car rental companies and retail chains. Certainly fares will continue to decline, though the sharpest cuts will be on off-peak, midweek and overnight flights. On the thesis that you get what you pay for, the airlines probably will adopt three classes of service. There will be first class for expense-account executives and wealthy tourists, in some cases with stretch-out beds like Japan Air Lines has begun to offer for a $120 surcharge on its San Francisco-Tokyo flight. There will be second class, with hot meals and some elbow room. And there will be tightly packed sardine class--cold meals, close seating, cheap fares.

More people will fly, including many of that one-third of all American adults who have never been up in a plane. E.H. Boullioun, President of Boeing's Commercial Plane Division, observes: "People's life patterns are changing. Young people are living for today. Let's say a couple has a few hundred dollars on hand. They'll spend it flying to California or somewhere."

The bargain hunters are everywhere. Some companies have started to put junior executives on the cramped, cut-rate flights (while senior managers, complaining of the crush on commercial lines, are clamoring for the firm to buy more executive jets). The General Accounting Office, noting that the Government spends $470 million annually on airline tickets, has urged that the bureaucrats take the bargain flights.

Because of the new masses in motion, the new planes and rapidly changing Government policy, the airlines are flying into uncertain skies. Some of the portents are promising. Says Eastern's Borman: "If people start seeing us as a good replacement for the auto, business could go wild. That's the kind of market we're aiming for. We've taken on the ship and the train, but the private auto is the heavyweight championship." Detroit is not worried yet, but the summer of 1978 has proved that the air travel market can grow much bigger, and that the surest means to exploit it is through lower fares. -

This file is automatically generated by a robot program, so viewer discretion is required.