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North Atlantic versus transcontinental air transport passenger services : cost analysis Vondracek, George Joseph 1969

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NORTH ATLANTIC VERSUS TRANSCONTINENTAL AIR TRANSPORT PASSENGER SERVICES: COST ANALYSIS by GEORGE JOSEPH VONDRACEK Graduate Economist, School of Economics i n Prague, 1962 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Faculty of Graduate Studies We accept this thesis as conforming to the required standard  THE UNIVERSITY OF BRITISH COLUMBIA November, 1969  In presenting this thesis i n partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study.  I  further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives.  It i s understood that copying or publication of this  thesis for financial gain shall not be allowed without my written permission.  Faculty of Commerce and Business Administration  The University of British Columbia Vancouver 8, Canada  November, 1969.  ABSTRACT The purpose of this study i s twofold: f i r s t , to determine whether the level of passenger fares effective on the North Atlantic routes bears close relationship to the cost of operating these routesj and, second, to test a hypothesis that rate making under the International Air Transport Association regulations on the North Atlantic results i n a passenger fare/ cost spread i n excess of that existing i n the Canadian transcontinental commercial air service. While these objectives are intended to reflect general relationships which have existed for some time i n both of these markets, only recent statistics are employed to exemplify them. The 1966 throughout the study supplemented by 1965  and 1967  data are used  information where de-  emed necessary. The assumption i s made that the aircraft operating costs, or direct costs, incurred i n airline operations on the North Atlantic i n 1966 were similar to those experienced i n providing the Canadian transcontinental service as the aircraft used (DC-8  category) and the average stage length  of the routes were similar i n both markets.  However, as demonstrated  through the study, there are differences i n the regulatory and economic conditions between the two markets which might have influenced development of these markets, resulting i n different application of pricing principles in each. The cost and performance data for selected types of turbo-jet and turbo-fan powered aircraft operated by U.S. carriers on International/ Territorial routes i n 1966  are tabulated and analyzed by individual cost  V  ..category. The analysis progresses from general grouping to specific types of DC-8 equipment and to cost analysis of Pan American World Airways Inc. flying DC-8 aircraft on Atlantic routes i n that year. A comparative analysis i s f i r s t performed on statistics relating U.S. international and Canadian North Atlantic cost experience i n  1966.  The second part i s concerned with comparison of cost levels between Canadian North Atlantic and transcontinental services.  In the f i n a l phase,  various cost concepts are introduced and the available data grouped according to criteria of direct and indirect costs, out-of-pocket and f u l l y allocated cost categories.  The f u l l y allocated costs of the North Atlantic  and transcontinental Canadian services are compared with passenger fares effective i n each market i n  1966.  It i s concluded that the level of passenger fares effective on the North Atlantic routes i n 1966 bore very l i t t l e relationship to the cost of airline operations i n that market i n the same year.  An example presented  in the thesis indicates that one-way economy passenger fare between Montreal and London was set at 140 per cent of f u l l y allocated cost of operating this route, at the average load factor of 60.3 per cent. The cost/fare spread i n the North Atlantic services, at 40 per cent over f u l l y allocated cost of operation, i s much higher than that experienced i n the Canadian transcontinental service, at 15 per cent over f u l l y a l l o cated cost. While the conclusions might be valid for other IATA carriers operating on the North Atlantic, i t must be borne i n mind that only Canadian and carriers* cost and performance data were analyzed iii the thesis.  U.S.  ACKNOWLEDGEMENT This thesis could not have been accomplished without the assistance, guidance and encouragement of Professor Trevor D. Heaver, Ph.D., Chairman of the Division of Transportation.  The writer reserves to himself the  responsibility for any errors of commission and omission.  TABLE OF CONTENTS CHAPTER I.  II.  PAGE  INTRODUCTION  1  Objectives of the Study  1  Importance of the Study  2  Methodology  4  Limitations of the Study  5  Definition of Terms  7  Outline of the Study  8  INTERNATIONAL AIR TRANSPORT ASSOCIATION AND AIR TRANSPORT REGULATION Domestic and International Air Transport Regulation  III.  IV.  9 ....  9  The International Air Transport Association  13  Diversity of Interests Among IATA Members  18  NORTH ATLANTIC TRAVEL MARKET DEVELOPMENT  29  Air Passenger Traffic on the North Atlantic  30  Travel Between Canada and Overseas Countries  48  AIRCRAFT OPERATING COST AND PERFORMANCE ANALYSIS  55  Operating Cost of Turbo-Jet and Turbo-Fan Aircraft, 1965 and 1966 Operating Cost of Douglas DC-8 Aircraft i n 1966  57 61  Operating Cost of B-707-300 and DC-8-30 Aircraft i n 1966  63  Conclusions  65  vii CHAPTER V.  PAGE  NORTH ATLANTIC AND TRANSCONTINENTAL ROUTES: COST OF CANADIAN CARRIERS* OPERATIONS  . .  67  Canadian and American Carriers: DC-8 Aircraft Operating Costs on International Routes  67  Canadian Carriers* Operating Costs Analysis: Transcontinental and North Atlantic Cases VI.  VII.  COST CONCEPTS IN TRANSPORTATION ECONOMICS  74 83  Identification of Cost Concepts  85  Direct and Indirect Costs  86  Out-of-pocket Cost  88  Fully Allocated Cost  97  Long Run Consideration  99  SUMMARY AND CONCLUSIONS  101  Summary  101  Conclusions  103  Implications for Public Policy  105  Suggestion for Further Studies  106  APPENDICES A.  PROPORTION OF STATE OWNERSHIP IN MAJOR EUROPEAN AIRLINES IN 1954  B.  LEAST SQUARE NON-LINEAR REGRESSION  C.  METHOD OF COMPUTING DATA PRESENTED IN TABLES XIII—XIX (ALL REVENUE SERVICES)  D.  DC-8 ECONOMICS - GRAPHIC ILLUSTRATIONS  BIBLIOGRAPHY  107 110  113 115 117  LIST OF TABLES TABLE I.  PAGE Selected IATA Carriers, Size of Operations and Total Operating Expense Per Available Ton-mile In 1966  II.  IATA Passenger Fares Between Montreal and London,  1952—1968 III.  VI. VII.  Domestic Product i n U.S. Dollars, 1958—1963 .  41  Distribution of U.S. Families By Level of Income  42  Percentage Distribution of Trans-Atlantic Passengers 43  North Atlantic Air Passenger Scheduled Traffic of IATA Members, 1955—1966  IX.  39  Estimates of Population, Total and Per Capita Gross  By Income VIII.  36  Growth i n Passenger Traffic on the North Atlantic,  1955—1966 V.  35  Air Passenger Traffic Growth on the North Atlantic During 1951—1966  IV.  25  45  North Atlantic Air Passenger Traffic By Type of Flight, 1955—1961  47  X. Residents of Canada Returning Direct from Overseas Countries, 1961, 1964, 1965 XI.  49  Destination Reported By Canadians Returning Direct From Overseas Countries, 1961, 1964,  1965  50  ix TABLE XII.  PAGE Scheduled Passenger Air Travel Between Canada and Europe i n 1 9 6 6  XIII.  Aircraft Operating Cost and Performance By Equipment Group, By Carrier Group, i n 1965—1966 . . . . . . . . . .  XIV.  52  58  Aircraft Operating Cost and Performance By Equipment Type, By Carrier Group, i n 1 9 6 6  62  XV. Aircraft Operating Cost and Performance By Jet Equipment Type, Operated By Pan American World Airways Inc. on Atlantic Routes i n  1966 XVI.  Summary of Aircraft Operating Costs i n 1 9 6 6  XVII.  Jet Aircraft Fleet of Canadian International Scheduled Air Carriers i n 1 9 6 6  XVIII.  64 66  68  Operating Cost and Performance of DC-8 Jet Aircraft Operated on International Routes in  XIX.  1966  70  Operating Cost and Performance of DC-8 Jet Aircraft Operated By Canadian Scheduled Carriers on Long Haul Routes i n 1966  75  XX. Indirect Cost Incurred By Canadian Scheduled Carriers i n Operating Long Range Routes With DC-8 Aircraft i n 1 9 6 6  79  X  TABLE XXI.  PAGE Total Operating Cost Incurred By Canadian Scheduled Carriers In Operating Long Range Routes With DC-8 Aircraft In 1966  XXII.  81  Out-of-pocket Cost Incurred By Canadian Scheduled Air Carriers In Operating DC-8 Equipment on Long Range Routes In 1966  XXIII.  91  Out-of-pocket Cost Per Passenger on Selected Routes In 1966  96  XXIV. Fully Allocated Cost Per Passenger on Selected Routes In 1966  98  LIST OF GRAPHS GRAPH 1.  PAGE  Average Cost Per Available Ton-mile, U.S. Domestic Passenger Airlines, 1958  2.  21  Average Cost Per Available Ton-mile, U.S. Domestic Passenger Airlines, 1966  22  CHAPTER I INTRODUCTION Objectives of the Study This study has two purposes: f i r s t , to determine whether the level of passenger fares effective on the North Atlantic routes bears close relationship to the cost of operating these routes, and second, to test a hypothesis that rate making under the International Air Transport Association regulations on the North Atlantic results i n a passenger fare/cost spread i n excess of that existing i n the Canadian transcontinental commercial a i r service. While these objectives are intended to reflect general relationships which have existed for some time i n both of these markets, only recent statistics are employed to exemplify them. The 1966 data are used throughout this study supplemented by 1965 and 1967 information where deemed necessary. The assumption i s made that the aircraft operating costs, or direct costs, incurred i n airline operations on the North Atlantic i n 1966 were similar to those experienced i n providing the Canadian transcontinental service as the aircraft used (DC-8 category) and the average stage length of the routes were similar i n both markets. However, as demonstrated through the study, there are differences i n the regulatory and economic conditions between the two markets which might have influenced development of these markets, resulting i n different application of pricing principles i n each.  2 Importance of the Study Very few industries, in the post-war period, have experienced growth as rapid as that sustained by the air transport industry. During this period airline operations have achieved an average growth rate of about 15 per cent per annum. This growth rate means that traffic doubles every five years. Air traffic growth rate depends upon the influence of several main factors:^ 1)  Growth of national income and i t s distribution.  2) Reduction of air fares relative to surface fares. 3)  Improvements in the quality of air services relative to alternate modes, particularly speed, comfort, regularity and safety.  4)  Increasing acceptance of air travel as an ordinary means of transport.  These factors expressed in quantitative terms could reflect the state of economic development in a country, and thus provide an indication of the degree of such country*s potential interest in international air transport. The national interest in international air transport may have three aspects: military, political and economic. The relative importance of each of these aspects varies from one country to another. The military importance of a commercial air fleet to a country has been demonstrated in the United States where commercial carriers have Stephen Wheatcroft, Air Transport Policy (London: Michael Joseph Ltd., 1964), p. 18.  3 provided an a i r l i f t of troops to Vietnam, i n support of United States military operations i n that country. The p o l i t i c a l aspect i s oriented primarily towards national prestige and pride.  A country*s *flag carrier* i s a symbol of progress and a high  level of civilization to foreigners and assurance of independence to nationals. Economic nationalism i s supported by very complex forces.  The short  and long-run economic objectives of individual states vary widely. The direct benefits which one country derives from supporting i t s »flag carrier* may materialize i n the form of an inflow of foreign currencies and an improvement i n the balance of payments. Another state may derive fast, frequent and reliable communication with i t s trade partners.  S t i l l another  country may heavily subsidize i t s *flag carrier* i n order to attract tourists from abroad. In order to secure the fulfillment of each state's main national interest, a common ground for the reconciliation of differences must be established.  An international regulatory agency can provide such ground.  However, due to the diversity of national interests, which i n many i n stances are contradictory, i t i s d i f f i c u l t to regulate international air transport on a worldwide scale. Historically, most efforts to regulate international a i r transport have been directed at limiting competition by means of t a r i f f regulation. The t a r i f f regulation represents, i n turn, a means of self-imposed  control  to which the members of the International Air Transport Association (IATA) adhere, i n order to secure a sustained growth of international air  transport.  The setting of standard t a r i f f s has served as a protective  measure against cutthroat competition which could be launched by any one international a i r carrier.  The IATA concept of control of rates and fares  i s of a regional character, related i n some regions to a historical development pattern rather than to common economic denominators such as cost per ton or passenger mile. It would seem to be agreed i n the international airline community, judging by various articles i n a i r transport oriented periodicals and also by arguments presented further i n this study, that IATA*s existence and i t s functions have been one of the major factors enabling the orderly, rapid development of international commercial aviation during the last decade. This study attempts to discuss one of the IATA prerogatives, rate making, i n an important segment under i t s jurisdiction, the North Atlantic market.  Only two relevant questions are attempted to be answered: i s IATA  rate making i n this market based on some costing ground?  If not, how does  the cost/fare spread compare with the same relationship i n Canadian domestic transcontinental market?  It w i l l be evident from statistics presented i n  Chapter III that answers to these questions are very important to Canadians who create about 70 per cent of demand i n the North Atlantic travel market and thus are major contributors to revenues of about 13 international a i r lines operating between Canada and Europe, of which only two are Canadian carriers. Methodology The National Transportation Act and the International Air Transport  5 Association regulations are discussed and contrasted i n the second chapter, providing a regulatory frame work for the study.  The advantages and short-  comings of the IATA powers w i l l be described i n the same chapter, as a nonlinear least square regression of size and per unit cost of airlines i s carried out to show one of the potential areas of friction among the IATA members. Historical developments i n the North Atlantic market outlining the changes i n passenger fares, volume and air/sea competition during a 15 year period w i l l illustrate the rapid pace of progress i n this travel market, as well as the importance of the North Atlantic market to Canadian overseas travellers. The comparative analysis of cost and performance i n the Canadian transcontinental, American, and the North Atlantic markets i s intended to reveal the cost and cost/fare relationships within each market as well as between the North Atlantic and transcontinental travel markets. The analysis w i l l be followed by a discussion of various pricing concepts advocated by transportation economists and a consideration of applicability of a few of these to the rate making i n the above mentioned markets.  Summary of the presented material w i l l be followed by conclusions  i n the f i n a l chapter. Limitations of the Study The unavailability of cost and performance information for other than Canadian and United States air carriers restricted the analysis of the cost of operating the North Atlantic routes to the Canadian and American experiences.  6  There were about twenty IATA members who operated commercial scheduled flights on the North Atlantic routes i n 1967, including two Canadian and two American passenger air carriers.  The analysis and  resulting conclusions w i l l have to be restricted, consequently, to reflecting the cost relationships of these a i r carriers only, rather than covering the North Atlantic experience i n general.  It should be noted,  however, that the IATA Chief Economist, R. Heitmeyer claims, "...there also seems to be some measure of agreement that the North Atlantic costs of North American and European carriers are not generally significantly different, when the figures are prepared on comparable basis.".  This  statement could render the conclusions of this thesis valid on a broader scale than stated above. It i s not only the cost and performance alone which publicity receives l i t t l e attention outside of the North American continent, but also the annual statistics concerning the volume of passengers carried i n various markets are rarely published.  The lack of historical data of this  nature prevents a comparison of the North Atlantic market with, e.g. the South Atlantic a i r travel market. The information published periodically by ICAO i n i t s Financial Data Bulletin, reveals some of the cost and performance statistics of i t s member states airlines, however, this i s quite incomplete and unqualified, 1  and therefore, not readily suitable for interpretation and analysis.  Stated i n a letter to this writer, of February 2, 1968, inter alia.  7 While the intention i s to exemplify on a one and two year data analysis a general cost/fare relationship i n the two markets, a retrospective analysis of time series would be desirable.  Such an analysis  would be unfortunately almost impossible as even the Canadian carriers  1  statistics do not go further than 1962. The cost and performance data presented i n this study refer to operation of aircraft which are configured for passenger service abovedeck, with cargo capacity i n the belly. Definition of Terms North Atlantic Routes.  Routes connecting North American inter-  national airports and European international airports, operated across the North Atlantic or via the North Pole, by IATA member scheduled a i r lines. Transcontinental Routes.  Routes operated by Canadian scheduled  mainline carriers between Montreal or Toronto on one hand and Calgary, Edmonton or Vancouver on the other hand. Direct Cost (Aircraft Operating Cost). The cost which can be directly traced to the operation of aircraft, such as pilot*s pay, fuel, insurance, maintenance and depreciation of flight equipment. Indirect Cost.  The cost which cannot be directly traced to the  operation of aircraft. Total Cost of Operations.  Total cost of operating an airline,  comprised of direct and indirect costs.  8  System Operations.  I n t e r n a t i o n a l and domestic  (territorial),  scheduled and non-scheduled operations of a c a r r i e r . Outline o f the Study The o b j e c t i v e s of the study, importance, l i m i t a t i o n s and methodology were presented i n t h i s chapter.  Chapter I I reviews Canadian and i n t e r -  n a t i o n a l a i r t r a n s p o r t r e g u l a t i o n s and discusses some o f the reasons f o r d i v e r s i t y o f i n t e r e s t s i n the r a t e making a c t i v i t y among i n t e r n a t i o n a l air carriers.  The North A t l a n t i c a i r t r a v e l market development i s i l l u -  s t r a t e d i n Chapter I I I which deals w i t h changes i n passenger f a r e l e v e l s and a i r t r a v e l volume since 1 9 5 2 . The a n a l y s i s o f a i r c r a f t operating costs and performance o f the Canadian and United States c a r r i e r s i s presented i n Chapter IV.  Chapter V is.concerned w i t h Canadian North A t l a n t i c and t r a n s -  c o n t i n e n t a l routes' operating c o s t s , i n d i r e c t and t o t a l costs o f operations. Following t h i s , Chapter VI attempts t o discuss some cost concepts a p p l i c a b l e to the determination o f nanimum p r i c e s i n a i r t r a n s p o r t a t i o n . The summary and conclusions o f the study are o f f e r e d i n Chapter V I I .  CHAPTER II INTERNATIONAL AIR TRANSPORT ASSOCIATION AND AIR TRANSPORT REGULATION l)  Domestic and International Air Transport  Regulation  The National Transportation Act defines national transportation policy of Canada i n the following manner:^ It i s hereby declared that an economic and efficient transportation system making the best use of a l l available modes of transportation at the lowest total cost i s essential to protect the interests of the users of transportation and to maintain the economic well-being and growth of Canada, and that these objectives are most l i k e l y to be achieved when a l l modes of transport are able to compete under conditions ensuring that: a) regulation of a l l modes of transport with due regard to the national interest w i l l not be of such a nature as to restrict the ability of any mode of transport to compete freely with any other modes of transport; b) each mode of transport, so far as practicable, bears a f a i r proportion of the real costs of the resources, f a c i l i t i e s and services provided that mode of transport at public expense; and c) each mode of transport, so far as practicable, receives compensation for the resources, f a c i l i t i e s and services that i t i s required to provide as an imposed public duty. This preamble clearly establishes the national interest and the means of achieving i t s objectives.  While the explicit statement concerning  a competitive spirit among the transport modes within a regulatory framework does not touch upon the inter-modal developments, i t appears to be ^Canada, Parliament, National Transportation Act. 1 9 6 7 Statutes of Canada, Chapter 6 9 .  10 : only logical to assume that the competition must not be restricted among the carriers within one mode. The reality of such assumption has been confirmed already by the Minister of Transport i n his judgements concerning licensing to services of small carriers i n highly populated areas. judgement of May 1 7 , 1968,  In his  concerning an appeal made by Chartier Air Ser-  vices Ltee. which was denied i t s application for authority to operate Class 7 flying training and recreational flying commercial air services from a base at St. Hyacinthe, P.Q.,  o the Minister stated, inter alia, that:  A substantial degree of economic regulation and of limitation of numbers of types of licences may be necessary i n areas where the type and amount of transportation involved i s essential to the coimnunity; when i t i s of paramount importance to ensure that services of the type required are i n existence; and where there i s reason to believe that only by the limitation of licences can maintenance of services be ensured. Where the services do not have this degree of essentiality, i t would seem reasonable to adopt a more l i b e r a l attitude towards licensing and allow the forces of demand and of competitive relationships to play a major part i n adjusting supply. The need for regulating air transport stems, according to S. Wheatcroft, from natural economic characteristics of a i r transportation which are unfavorable to i t s orderly functioning and growth.^  These character-  i s t i c s are said to be following: 1)  The natural conditions of supply are oligopolistic, as only a small number of air carriers can serve one point.  2)  Economies of scale do not act as a natural barrier to entry.  Canadian Transport Commission, In the Matter of the Aeronautics Act and of Decision of the Air Transport Committee dated 16 January, 1968, p. 4- Unpublished Internal Documents. 3Stephen Wheatcroft, Air Transport Policy (London: Michael Joseph,  1964), p. 55.  11 3) The possibilities of effective product differentiation are limited. To offset the impact of those conditions on the air transportation development, capacity and/or tariff regulations may be imposed on the industry. The capacity regulation i s implemented by controlling the entry, licensing of routes and other services, and/or by controlling the investment. The tariff regulation materializes by controlling the rates and fares and/or quality of service. The choice of which type of controls should be employed in a particular country depends on a policy adopted by a regulatory agency or legislated in that country. The policy of controlling the entry into commercial air transportation has been practiced by the Air Transport Committee, formerly the Air Transport Board, in Canadian air transportation since 1944.  The control  of investment was introduced only in 1967, and i s restricted to approving the acquisitions by carriers of aircraft having two or more engines and having a maximum authorized take-off weight on wheels in excess of 18,000 pounds. The regulation of international air transport, while of economic character, has a strong political undertone. As i t has been already mentioned in the introduction, the reasons of military and national prestige influence strongly the regulatory framework within which the international air carriers operate. The main goal appears to be not the best allocation of resources, or efficiency, or speed but, predominantly, the accommodation of non-economic objectives of a l l participating states. The importance given air transport in individual states has been reflected in the wide-  12  spread state ownership of national airlines through the world.  A l l major  national or so called 'flag carriers* except the U.S. airlines are either completely or partially owned by i t s government, as indicated i n Appendix A.  The resulting d i f f i c u l t i e s and limitations of airlines* managements  i n their decision making are, of course, related to the underlying objectives of these carriers. Many of these objectives being of other than a profit making nature, make i t hard on a business type of administration to function effectively.  This conflict between the state and airline objec-  tives seems to be one of the reasons which led to the foundation of an independent organization of international air carriers with i t s members aware of the necessity of a voluntary submitting to controls as a result of the aforementioned natural economic characteristics of the industry on one hand, and an effort to avoid a tight control of international air transport by individual states on the other. The underlying cause for International Air Transport Association foundation rested on the natural economic characteristics which are the same for ocean transportation as for international air transport.  Histori-  cally, the oligopolistic conditions of supply i n ocean transportation resulted i n price wars i n ocean shipping i n the last half of the nineteenth century which were detrimental to the orderly functioning of the whole industry.  Groups of ocean shipping companies agreed to apply uniform rates  for the transportation on the regional and directional bases.  Thus, the  Shipping Conferences were created to protect the members from unpopular price wars and wasteful competition.  The shippers also benefitted as  they obtained a regular transportation service even though i t was at a  !3 slightly higher cost.  This situation has persisted during this century  and most of the North Atlantic shipping between Canada and Great Britain i s now performed by Canada—United Kingdom Freight Conference eastbound, and Canadian North Atlantic Westbound Freight Conference i n westbound direction. A protective umbrella for the development of international air services was sought by a group of European airlines at the Chicago Convention i n 1944.  European airlines emerged from the war without proper  equipment, poorly staffed, and as a result were not i n a position to withstand the competitive advantage of American airlines.  American airlines  which had not suffered from the war were promoting free competition.  A  compromise between the two groups resulted i n the agreement under which the uniform t a r i f f s were to be applied and the operations of airlines regulated by the bilaterally negotiated agreements.  Slight modifications  of these basic rules have developed during the last twenty years, but the main regulatory framework persisted and proved to be successful. 2)  The International Air Transport Association The International Air Transport Association was founded by the a i r -  lines of many countries at Havana, Cuba, i n April, 1945.  It i s the  successor of the International Air Traffic Association which was organized at the Hague i n 1919,  but which scale of operation was limited to Europe,  u n t i l i t ceased to function with the commencement of war i n  1939.  The present International Air Transport Association was founded following the formation of the International C i v i l Aviation Organization  14 at the Chicago Convention i n 1944.  It i s the result of an agreement by  both governments and airlines at Chicago that the creation of a parallel airline organization was desirable to aid and supplement the ICAO organization of governments, and also to deal with purely airline problems. Objectives It i s the expressed purpose of the International Air Transport Association:^ 1) To promote safe, regular and economical a i r transport for the benefit of the people of the world, to foster air commerce and to study the problems connected therewith; 2) To provide means of collaboration among the air transport enterprises engaged directly or indirectly i n international air transport service; 3) To co-operate with the International C i v i l Aviation Organization and other international organizations. The objectives of IATA are implemented i n i t s day-to-day activities connected with: 1)  Interline agreements: standardization of forms, procedures, landing agreements and other factors, enabling the most efficient exchange of t r a f f i c among airlines.  2)  The negotiations of international t a r i f f s and rates.  3)  The provision of a clearing house for the settlement of airline accounts with each other.  The most important task of IATA, negotiating the t a r i f f s and rates, i s carried out at Traffic Conference meetings.  ^Canada, Parliament, Act to Incorporate International Air Transport Association, 1945 Statutes of Canada, Chapter 51.  15 Organization As a non-governmental organization, IATA draws its legal status from a special Act of the Canadian Parliament (1st Session 20th Parliament, 9 George VI 1945, Royal Assent received December 18, 1945). It operates under fixed "Articles of Association" adopted at the 1945 Havana Meeting and as amended from time to time. It i s a voluntary, non-exclusive, non-political and democratic organization. Membership i s automatically open to any operating company which has been licensed to provide scheduled air service by a government eligible for membership in ICAO. Airlines engaged directly in international operations are active members, while domestic airlines are associate members. The membership comprised ninety-one active and thirteen associate members as of January, 1968. Basic policies of the Association are established at the annual general meeting where each member carrier has a single vote and each decision must be adopted unanimously. General administration i s performed by an Executive Committee, a Director General and other Executive Officers nominated by the Executive Committee and confirmed at the annual general meetings. Until recently the creative work of the Executive Committee was carried out by its Financial, Legal, Technical, Traffic Advisory and Medical Committees, while negotiations of fare and rate agreements were carried out through independent IATA Traffic Conferences considering passenger and cargo matters at separate Conferences. Definition of Traffic Areas For the purpose of Traffic Conferences IATA divided the World into  16 three geographical traffic conference areas which were as follows: Area 1. Encompasses a l l of the North and South American Continents and islands adjacent thereto; Greenland, Bermuda, the West Indies and islands of the Caribbean Sea: the Hawaiian Islands (including Midway and Palmyra). Area 2. Encompasses a l l of Europe (including that part of the Union of Soviet Socialist Republics in Europe) and the islands adjacent thereto: Iceland; Azores; a l l of Africa and the.islands adjacent thereto: Ascension Island and that part of Asia lying west of and including Iran. Area 3. Encompasses a l l of Asia and the islands adjacent thereto except that portion included in Area 2; a l l of the East Indies, Australia, New Zealand, and the islands adjacent thereto; the islands in the Pacific Ocean except those included in Area 1. The offices of the three traffic conferences have been in New York, Paris and Singapore respectively. In the latter part of 1966 and early in 1967, the IATA head office underwent significant administrative modifications which changed the Committee system into permanent departments under the direction of professional IATA officers at five levels: Heads of Departments; Deputy Heads of Departments; Functional Directors, Senior Officers, and the Officers or Assistants. Subsequent to the 1967 Annual General Meeting, the Directors of the Technical, Traffic, and Legal Departments were each raised to the position of Assistant Director General in addition to their previous duties. Importance of IATA A total of 101 airlines were members of IATA at the end of August, 1967.  In 1966, the 101 member airlines flew 90.7 per cent of the world*s  scheduled international and domestic traffic, as reported by the International Civil Aviation Organization.  Consequently, i t s critics often call  IATA the biggest cartel i n the world, as i t eliminates price competition among the carriers.  While cartels, as monopolistic groups i n various i n -  dustries are subject to severe persecution i n North America where the economic philosophy of competition prevails, some European economists and politicians put the advantages of economies of scale and specialization above those yielded by competitive environment and, hence, favor the existence of cartels.^  However, IATA has obtained blessings of a l l the  governments, despite their various economic philosophies. The regularity, safety, and orderly development of international air transport are of such importance to the governments concerned, that even a remote threat of ruinous competition leading to price wars i s i n tolerable.  Therefore, many of the advocates of the present price fixing  perhaps rightly point out that the relatively higher fares and rates, representing certain misallocation of resources, are, i n effect, well justified i n the long run by assuring the high quality of service. However, among the IATA members constant efforts are made by some airlines to lower the passenger fares and freight rates i n order to better u t i l i z e the capaci t y available and to gross higher revenues.  These airlines generally agree  that the price elasticity of demand warrants the fare reductions. The diversity of interest among IATA members stems not only from different interpretation of the market, but also from size and ownership differences, which w i l l be examined next.  'The agreements about prices or production quotas are made, for example, among chemical or pharmaceutical concerns on a national or international basis i n Europe.  18 3)  Diversity of Interests Among IATA Members The negotiation of fares and rates appears to be the most important  task of IATA.  Once the unanimous agreement on t a r i f f levels i s achieved,  a l l the members have to adhere to them. Through the IATA history there have always been.groups of i t s members striving to lower the t a r i f f s and, consequently, better u t i l i z e the evergrowing available aircraft capacity. Resistance to t a r i f f decreases has been staged by another group which apparently does not believe that demand i s sufficiently price elastic or does not have extra capacity to u t i l i z e more f u l l y .  The historical trend  i n North Atlantic passenger fare levels depicted i n the third chapter shows that both relative and absolute fare decreases during the last ten years were always followed by a t r a f f i c boom. An examination of the scale of operation as one of the strongest bases for contradictory efforts i n the fare level setting i s carried out below. The assumption i s made that the airlines under examination behave i n a rational economic manner, having among their top objectives profit maximization or loss minimization. Size of an Airline The diversity of objectives between individual airlines stems, inter alia, from the differences among their operating costs, i n part caused by differences i n size. A group of U.S. carriers was selected to demonstrate the inverse relationship of operating cost per unit of production and volume of output of an airline, measured i n available ton-miles per annum. The availability  19 of data for those carriers, uniformity of i t s data reporting and processing for analytical use, relative homogenity of their operating conditions and the absence of patronizing by the government, warrant a f a i r comparab i l i t y of their operating results.  The conclusions resulting from such  analysis for international IATA carriers are considered valid. There have been several studies published on the subject of economies of scale i n a i r transport using various categories of American trunk a i r lines grouped according to their size, into large, medium and small classes. Two of these studies, one prepared by John B. Grane i n 1941^  and the other  by Harold D. Koontz i n 1949,^ considered only the U.S. domestic carriers and were based on available ton-miles produced as a measure of output.  A  study carried out by S. Wheatcroft i n 1955 focused on the length of haul, technology used and efficiency of management; the analysis of cost categories used the same output unit as the two previous studies, called here capacity ton-miles.**  Richard E. Gaves used the 1958 data to analyze  further the relationship between costs and size of airline.^ The conclusions of a l l these studies undertaken over a period of seventeen years were basically the same, despite absolute changes i n out6j.B. Crane, "The Economics of Air Transportation", Harvard Business Review. XXII, (1944), pp. 495-509. ?H.D. Koontz, "Economic and Managerial Factors Underlying Subsidy Needs of Domestic Trunk Line Air Carriers", Journal of Air Law and Commerce. XVIII, (1951), pp. 127-156. Wheatcroft, The Economics of European Air Transport (Manchester, England: Manchester University Press, 1956), Chapter 3. Q  R.E. Caves, Air Transport and Its Regulators (Cambridge, Massachusetts: Harvard University Press, 1962), Chapter 1. 7  20 put and relative changes among the size classes.  It was found, and con-  firmed, that there was no distinctive difference in pattern of operating costs between the large, medium and small size U.S. trunk airlines, due to the scale. The economies of scale did not improve beyond the mark of approximately two hundred million available ton-miles produced by an airline per year. The small trunks in Caves* study were represented by Continental and Northeast Airlines which yearly output measured in available ton-miles of a l l services in 1958 was 101.3 million and 106.7 million respectively, while American Airlines, the largest of the big four, offered 1,038 million ton-miles in the same year.^ On the other hand, the operating costs of local service U.S. carriers producing less than fifty million available ton-miles per year were substantially higher than the costs of even small trunk carriers. Graph I depicts this situation in 1958.  The cluster of points at the upper left  end of the Graph represents thirteen U.S. local service carriers which produced less than fifty million available ton-miles each in 1958, at an average unit cost varying from forty-five cents to sixty-two cents per available ton-mile. The points scattered along the flat portion of the curve represent, from left to the right, seven trunk carriers with an annual output between 100 and 310 million available ton-miles, and the *big four* shown towards the right end of the curve. Graph I shows a progressively stronger impact of increasing cost with a decline of output below the two hundred million available ton-miles Civil Aeronautics Board, Monthly Report of Air Carrier Traffic Statistics. Part II - 12-month data (Washington: Government Printing Office, 1958).  21 GRAPH I AVERAGE COST PER AVAILABLE TON-MILE, U.S. DOMESTIC PASSENGER AIRLINES, 1958  600 700 Available ton-miles (000,000)  SOURCE: R.E. Caves, A i r Transport and I t s Regulators sachusetts: Harvard University Press, 1962), page 59. mark.  900  800  1,000  (Cambridge, Mas-  The economies of scale appear to take place approximately  1  at the  two  hundred m i l l i o n mark, but do not accelerate any further with the increase of output. In order to e s t a b l i s h the r e l a t i o n s h i p of operating costs and the output i n more recent years, the 1966  data were analysed using the same c a r r i e r s and  u n i t s of cost and output as Professor Caves i n 1958.  Graph I I on the following  page resulted from the a p p l i c a t i o n of the l e a s t square non-linear regression to the 1966  data, as shown i n Appendix B.  The c l u s t e r of points at the l e f t upper end of Graph II represents, again, l o c a l service c a r r i e r s , the seven points between 200 and 1,350  million  a v a i l a b l e ton-miles depict the u n i t costs of seven trunk c a r r i e r s , while the big four are at the r i g h t end of the curve.  GRAPH H AVERAGE COST PER AVAILABLE TON-MILE, U.S. DOMESTIC PASSENGER AIRLINES, 1966  23 The comparison of the two Graphs reveals that, firstly, the shape of the average curve has changed in 1966 as compared to 1958.  While the  1958 curve has a steep decline between the zero and one hundred available ,ton-miles and then appears to be infinitely flat to the right, the 1966 curve i s U t  t  shaped, relatively mildly down-sloping with a turning point  at 2,100 million available ton-miles output. Second, the sizes of output of a l l the carriers have at least doubled and in many cases trippled. Third, the unit costs have decreased substantially as the group of local carriers moved to the thirty—fifty-three cent range from a former forty-five—sixty-three cent range, and the trunks costs varied in 1966 between fifteen cents and thirty cents as compared to the 1958 range of twenty-four to thirty cents per unit. Fourth, the lowest output which secures a carrier f u l l economies of scale appears to be at 2,100 million available ton-miles. However, the carriers producing more than five hundred million available ton-miles seem to have their operating costs in close proximity to the level achieved at the optimum point of 2,100 production units. It should be noted that contrary to the 1958 situation, the curve describing the 1966 data appears to turn upwards at approximately the 2,100 million mark, to f i t the higher cost points of the »big four*. This would seem to indicate diseconomies of large scale in the airline industry. Unfortunately, the small size of the sample, which was comprised of only four carriers, could not justify any conclusive statement about diseconomies of large scale.  2i  +  The foregoing analysis can be concluded by stating that there i s an apparent inverse relationship between the volume of output, measured i n available ton-miles per year, and unit costs of airline operations. This relationship seems to have held true i n the case of selected American airlines on average up to the output of approximately 2,100 million units of output when i t appeared to enter a direct dependence relationship. While the data represented the 1966 situation, there are no indications that the present relationship should be different. As the 1966 data show, the growth of individual airlines under observation was followed by substantial unit cost decreases.  While there  i s an indirect dependence of unit costs on the size of an airline, i t cannot be claimed that the unit cost decreases were caused i n the past solely by the increase i n airline size, i.e., increase i n produced available ton-miles.  The changes i n technology, route structure and density, man-  agement techniques, and general economic trend i n the country also have strong influence on airline unit cost changes. The applicability of the general relationship between cost and size shown i n the foregoing analysis can be demonstrated by examining operating costs of selected IATA airlines shown i n Table I.  It should be noted that  these data are by no means uniform as their compilation and reporting may differ considerably from country to country, according to the locally established accounting systems, the size of subsidies or patronization by individual governments, and possibly other factors. Group 1 i n the Table i s identical with »big four* i n Graph II and, therefore, does not require any analysis.  25 TABLE I SELECTED IATA CARRIERS, SIZE OF OPERATION AND TOTAL OPERATING EXPENSE PER AVAILABLE TON-MILE IN 1966 Carriers Operating International & Domestic Routes Group 1 American Airlines Eastern Airlines Trans World Airlines United Air Lines  Available Ton-Miles* A l l Services** (in thousands) 3,035,254 l,7/»8,080 3,235,438 3,231,561  Group 2 Air Canada 898,606 Alitalia 634,929 British European Airways 443,702 British Overseas Airways Corp.*** 1,228,704 Canadian Pacific Air Lines 284,496 Deutsche Lufthansa 768, W>0 Japan Air Lines 495,189 K.L.M. Royal Dutch Airlines*** 682,430 Qantas Empire Airways 402,953 Scandinavian Airline System 453,510 Swiss Air Transport 359,934 Group 3 Aer Lingus Aerolineas Argentinas Air Vietnam Austrian Airlines Aviacion T Comercio C i v i l Air Transport East African Airways Finnair Indian Airlines Polish Airlines  50,527 91,427 23,790 36,741 27,277 17,684 62,201 59,245 95,021 45,305  Average Per Group  Total Operating Expenses Per Available Average Ton-Mile Per Group (in U.S. cents)  2,812,583  21.0 27.0 19.0 24.0  22.8  604,810  28.4 34.4 47.2 25.4 23.5 31.2 36.2 29.0 29.8 39.0 37.7  32.9  56.3 43.0 51.0  50,922  53.1 39.2 51.3 49.0 38.7 40.0 57.4  47.9  SOURCES: IATA, World Air Transport Statistics Number 11 (Montreal: Traffic Director of IATA, 1966); ICAO, Financial Data. 1966. Digest of Statistics (Montreal: ICAO Press, 1967). * The original unit of output, available ton-kilometers, were converted into available ton-miles by using a division factor of 1.64. ** ' A l l Services' include domestic and international services in both scheduled and non-scheduled operations. *** International carrier exclusively.  26 The Group 2 annual output varied between 284,496 thousand available ton-miles of Canadian P a c i f i c A i r Lines and 1,228,704 thousand of B r i t i s h Overseas Airways Corporation, which compares with 206,632 thousand of Northeast and 1,348,983 thousand of Northwest A i r l i n e s from the seven U.S. trunks group i n Graph I I .  (See Appendix B.)  Unfortunately, the average volume of output of the seven U.S. trunk c a r r i e r s was 798,008 thousand, while the IATA average was only 604,810 thousand, and, hence, i t i s d i f f i c u l t to determine t h e i r r e l a t i o n s h i p concerning an average cost per u n i t of production.  However, i t i s possible  to state that while the IATA group's average size of output per c a r r i e r i s about 25 per cent l e s s than the average s i z e of the U.S. c a r r i e r i n Group 2, the IATA average cost per u n i t of production per e a r r i e r i s 50 per cent higher. Concerning Group 3, IATA c a r r i e r s comparison with the l o c a l U.S. carr i e r s , there can be some p a r a l l e l drawn between the average s i z e of product i o n per c a r r i e r , 50,922 thousand per IATA and 58,321 thousand per U.S. c a r r i e r s , at the unit cost of 47.9 cents and 44.2 cents r e s p e c t i v e l y . The average operating u n i t cost l e v e l i s normally an e s s e n t i a l factor i n the p r i c e or t a r i f f .  In the i n d u s t r i e s where competition pre-  v a i l s , a low l e v e l of operating cost per u n i t could enable a company to lower the p r i c e of i t s product i n order to gain a bigger share of a market and outprice the competitors. However, as i t was explained before, t h i s i s impossible i n i n t e r n a t i o n a l a i r transport, where the t a r i f f s are f i x e d f o r a l l p a r t i c i p a t i n g c a r r i e r s f o r a period of time.  I t i s only at T a r i f f  Conferences where the low cost c a r r i e r s can propose lower fares and rates, while the higher cost c a r r i e r s have t h e i r r i g h t to veto such suggestions.  27  With the lowest operating costs, the optimum size airline group would appear to be the most logical one for advocating decreases i n a i r fares as the effect of lowering t a r i f f s i s believed to be reflected i n increased demand for a i r travel.  Chapter 3 w i l l reveal some of the effects of tar-  i f f changes on the total a i r t r a f f i c growth as experienced i n the past. The small, high cost airlines are primarily serving national i n terest and have many routes with low fare elasticity and low t r a f f i c density.  With the mainstay of operations i n this type of market, these  carriers view a few of their long-haul international routes differently than the large ones.  The growth of t r a f f i c on these routes i s not their  major interest, not having the equipment and financial resources to provide for i t .  The higher the fares on these routes are, the larger i s the  contribution of such routes to their system operation revenues.  This  causes, perhaps, the most serious disagreements among the airlines when the Tariff Meetings take place within each IATA Conference. t a r i f f s be set too low, the high-cost carriers  1  Should the  profit from these routes  would decrease i n both absolute and relative terms.  Low-cost carriers,  on the other hand, w i l l be able to make up for a decreased per-passengerrevenue by increasing the frequency of flights or by expanding i t s fleet and, thus, by satisfying the newly induced demand, reap higher revenues i n absolute terms.  The a i r carriers are not only concerned about the  level of t a r i f f s on the routes they f l y , but also about the relative level of t a r i f f s within the Conference of which they are, themselves, members. The diversion of t r a f f i c to the same destination v i a cheaper routes could mean a show-down, or at least worse financial results for 'high-tariff  28  route* carriers.  The danger of an 'open t a r i f f * situation taking place  has always forced the r i v a l groups to negotiations, with compromising solutions i n order to protect a smooth development i n the industry. In concluding the analysis of the scale and cost of airline operation i t should be emphasized that the lower operating costs of large airlines are not a result of large size of an airline alone, but also of a favorable compositioning of i t s other operating conditions l i k e longhaul routes, modern equipment, density of routes, non-competitive  condi-  tions i n the market, high level of managerial competence, and others. Many of those are, i n fact, determinant of the size of a carrier.  As the  strength of these factors bearing on the total costs has not been measured, i t cannot be determined to what degree the scale of operations i n i t s e l f influences the total operating cost of airlines.  It has been shown, how-  ever, that the differences i n scale among the airlines can be one of the sources of the dissent where the level of t a r i f f s i s concerned.  One of  the conciliatory facts, on the other hand, would seem to be the danger of an 'open t a r i f f * situation, which i s the least desirable state of affairs for most of the international airlines.  CHAPTER III NORTH ATLANTIC TRAVEL MARKET DEVELOPMENT While the legal and regulatory framework of international air transportation was discussed i n the preceding chapter, the historical development of passenger t r a f f i c volume and changes i n passenger fares effective on the North Atlantic during the last fifteen years are discussed i n this chapter.  As i t was pointed out i n the Introduction, these changes  throughout the development of this market i l l u s t r a t e the importance of the North Atlantic travel market for the whole North American Continent. The development of t r a f f i c between Canada and Europe shows the importance of the North Atlantic air travel segment for Canada i n particular. The purpose of this chapter i s to identify and discuss some of the important factors which influenced the development of the North Atlantic travel market during the last decade. The historical description of changes i n air travel volume, passenger fares, gross domestic product per capita of selected countries, and results of two travel market studies w i l l illustrate the overall pattern of changes i n this market. The general statistics describing the North Atlantic air travel market during the recent years are presented f i r s t , followed by an account of the most important factors which appear to have influenced the development of this market. The individual factors influencing the air travel growth are then described separately. The second part of this chapter depicts the Canadian nationals travel on the North Atlantic during the 1961—1966 period.  The facts  1  30 revealed by these statistics raise questions concerning the fairness of the present bilateral agreements with some of the European partners.  The use  of the 1966 statistics eliminates distortions which could be caused by the impact of *Expo 67* on the North Atlantic travel i n that year. The 1967 data, where used, should be treated with caution. 1) Air Passenger Traffic on the North Atlantic The North Atlantic travel market i s the largest international air travel market i n the world. Member airlines of IATA carried a record 4,987,400 passengers on scheduled North Atlantic services i n 1967.^  Pas-  senger t r a f f i c increased by 18.8 per cent i n 1967 over 1966; average load factor was off 1.2 per cent at 57.5 per cent. The total number of scheduled flights operated across the North Atlantic by IATA member airlines was up 21.4 per cent to 69,648 from 57,374 i n 1966.  2  The North Atlantic scheduled air passenger t r a f f i c accounted for almost 10 per cent of total international scheduled a i r passenger t r a f f i c In 1967, 25 per cent of passenger miles flown and over 20 per cent of revenues.  In terms of passenger miles flown i n 1965, this t r a f f i c rep-  resented five times North Pacific t r a f f i c and more than ten times South Pacific, Central and South America—Europe and Australasia—Europe/Middle East t r a f f i c combined.  0ne person taking a one-way t r i p i s counted as one passenger. person taking a round-trip i s counted as two passengers. x  One  ^'North Atlantic Traffic", IATA News Review. February, 1968, p. 3.  31 Some of the main characteristics of the North Atlantic travel market 3  are summarized below r 1)  North Atlantic t r a f f i c consists of t r a f f i c between the United States and Europe which accounted for 85 per cent of the total in 1966, and t r a f f i c between Canada and Europe which accounted for the rest.  2)  The proportion of U.S. citizens on the U.S.—Europe service was over 70 per cent i n 1955, about 64 per cent i n 1959, and approximately 61 per cent i n 1966.  3)  On the Canada—Europe service the breakdown i n 1966 was roughly 75 per cent Canadians, 19 per cent European visitors, and 6 per cent immigrants.  4)  The travel for business reasons accounted for a mere 26 per cent i n 1964, while pleasure travel, visiting of relatives or friends and travel for personal reasons, represented the residual 74 per cent.  5)  The proportion of business travel i s smaller for North Americans than for Europeans.  Factors Which Have Influenced the North Atlantic Traffic Development The development of the North Atlantic air passenger travel has been influenced by a range of factors.  The main factors, outlined already i n  the Introduction, are: 1)  Reduction of air fares relative to sea fares.  2)  Improvements i n the quality of air services relative to sea transport, particularly speed, comfort, regularity and safety.  3)  Growth of national income and i t s distribution.  4)  Increasing acceptance of a i r travel as an ordinary means of travel.  "Analysis of Passenger Traffic between Europe and North America i n Bulletin. No. 29, July 17, 1967, pp. 901—920.  1966", ITA  32 The impact of absolute changes i n passenger fares on t r a f f i c growth i s described f i r s t , followed by a comparative analysis of a i r and sea t r a f f i c during the decade between 1955—1966.  The changes i n gross domestic  product and population i n North America and selected Western European countries are illustrated by 1958 and 1963 data.  The development of economy  class t r a f f i c as compared to f i r s t class t r a f f i c on the North Atlantic during this period i s presented last. Passenger Fare Development and Traffic Growth on the North Atlantic Routes The trend i n passenger fares on the international routes during the last fifteen years was strongly influenced by the technological changes i n aviation during that period.  The last fifteen years have witnessed the  introduction into service of improved commercial aircraft, ensuring greater economy of operations and, consequently, a general lowering of passenger fares. The replacement of piston-engined by turbo-jet aircraft around 1959—I960 necessitated the introduction of fares which would attract a new type of traveller to f i l l extra capacity, i n order to secure satisfactory load factors. The general trend during this period has been to lower fares, despite slight increases i n fares i n some years.  The three main features of this  period of fluctuating international passenger fares causing a general downward trend were: l)  The general introduction of second class i n 1952 called tourist class.  33 2)  The introduction of a third class on the North Atlantic i n 1958 called economy class.  3)  The experimental introduction of a great many promotional fares, such as excursion fares, emrnigrants* fares, seasonal fares, etc., especially i n the period after I960.  The acceptance of these lower fares by IATA members presented certain d i f f i c u l t i e s because the introduction of fares led to a passenger shift from higher to lower fare classes.  Hence, the resulting growth of t r a f f i c did  not imply an identical growth i n revenues. The impact of fare reductions on t r a f f i c revenues varied considerably according to the sector of operation and other factors such as size of an airline, composition of i t s network, population income, competition from other modes of transport, air mindedness, etc.  Thus, a reduction of fares might have resulted i n an improved profit  picture of one airline while another may have been affected adversely.  This  i s , perhaps, the reason why the process of lowering the international fares has been so painful at times and caused rows among the international air carriers at IATA Traffic Conferences. The North Atlantic route, as the foremost international a i r transport market, has served traditionally as a proving ground for the introduction of new fares.  The passenger fare developments on this route have been reflected  later i n the fare developments on other major international routes. The structure of North Atlantic fares provides, also, an illustration of the functioning of the IATA t a r i f f setting system. However, this i s a very superficial illustration as a l l the diverse proposals and their reconciling with resulting compromises cannot be described here.  Some of the  reasons of various carriers for this bargaining were analysed i n the second chapter.  34 Table II shows the changes in normal passenger fares on the Montreal— London route from 1952—1968. There were several increases in the first class fares during this period, as shown in the first class column in Table II.  The changes in the first class fares and their reflection in fluctu-  ation of the first class traffic as compared to the economy (tourist) class traffic changes will be analysed in the Internal Elasticity section of this chapter. The major changes in fares other than the first class fares during 1952—1968 are summarized below. Tourist class fares introduced in 1952 were 32 per cent below first class fares which, until then, was the only class available. Economy class fares introduced in 1958 were 20 per cent below the tourist class fares. Excursion fares created in I960 were 28 per cent below economy class fares (not shown in the Table). Group fares (for groups of not less than twenty persons) were introduced in 1962 at a level of 38 per cent below the existing economy fares. Economy and first class fares were cut about 20 per cent in 1964 (except during ten weeks in the summer). Various special fares were introduced between 1963—1964 with resulting reductions of 3—21  per cent.  The changes in the North Atlantic passenger traffic during  1951—  1966 are depicted in Table III, on page 36. The directional imbalance shown in Table III reflects the inflow of immigrants to North America. This difference has grown from 36,000  35  TABLE II IATA PASSENGER FARES BETWEEN MONTREAL AND LONDON, 1952—1968 (IN CANADIAN DOLLARS). Year  First Class O.W. R.T.  1964  390.00 390.00 386.00 386.00 426.00 386.00 421.00 426.00 .(486.00 (426.00 .(486.00 (426.00 .(486.00 (426.00 .(525.50 (460.60 390.30  1965  390.00  741.00  1966  390.00  741.00  1967  390.00  741.00  1968  390.00  741.00  1952 1953 1954  1955 1956 1957 1958 1959 I960 1961 1962 1963  702.00 702.00 694.80 694.80 766.80 694.80 757.20 766.80 874.80* 766.80** 874.80*. 766.80** 874.80* 766.80** 945.90* 829.10** 741.60  Tourist Class O.W. R.T. 265.00 270.00 285.00 285.00 285.00 285.00 310.00 315.00  477.00 486.00 513.00 513.00 513.00 513.00 558.00 567.00  Economy Class O.W. R.T.  247.00 252.00 254.00 234.00 254.00 234.00 254.00 234.00 274.60 274.60 (258.40 (209.80 (258.00 (210.00 (258.00 (210.00 (258.00 (210.00 (258.00 (210.00  444.60 453.60 457.20* 421.20** 457.20*. 421.20** 457.20*. 421.20** 494.30 494.30 491.00*** 398.70**** 490.00*** 399.00**** 490.00. . 399.00 490.00 399.00 490.00 399.00  SOURCE: Air Transport Committee, Fares, Rates & Services Division, Unpublished Documents (Ottawa: 1952—1968). * **  Jet engined aircraft. Piston engined aircraft.  *** Valid from 22 May to 3 August for Europe bound flights and from 17 July, to 28 September for North America bound flights. **** Valid for the rest of the year in both directions.  36 TABLE III AIR PASSENGER TRAFFIC GROWTH ON THE NORTH ATLANTIC, 1951—1966 (SCHEDULED AND NON-SCHEDULED SERVICES OF IATA CARRIERS) Year 1951 1952 1953 1954 1955 1956 1957 1958 1959 I960 1961 1962 1963 1964 1965 1966  Number of Passengers i n Thousands .East bound Westbound  Total  153 208 243 272 330 382 447 598 724 920 1,049 1,252 1,362 1,705 1,971 2,236  189 240 280 309 362 453 572 694 816 1,009 1,127 1,335 1,474 1,846 2,121 2,464  342 448 523 581 692 835 1,019 1,292 1,540 1,929 2,176 2,587 2,836 3,551 4,092 4,700  +36 +17 +12 +21 +16 +17 +34 +21 +27 +14 +19 + 9 +25 +16 +13  +27 +17 +10 +17 +25 +26 +21 +18 +24 +12 +18 +10 +25 +15 +16  +31 +17 +11 +19 +21 +22 +27 +19 +25 +13 +19 +10 +25 +15 +15  Per cent of Change 1951—52 1952—53 1953—54 1954—55 1955—56 1956—57 1957—58 1958—59 1959—60 1960—61 1961—62 1962—63 1963—64 1964—65 1965—66  Average Annual Rate of Growth  19.8  18.7  19.3  SOURCE: IATA.World Air Transport Statistics. 1961, 1966 Issues (Montreal: Traffic Director of IATA, 1967).  37 westbound p e r s o n s i n e x c e s s o f eastbound p a s s e n g e r s i n 1951 t o 1 5 0 , 0 0 0 p e r s o n s i n 1965-  T h i s g r o w t h has n o t been r e s p o n s i v e t o any changes i n  f a r e s d u r i n g t h i s p e r i o d due t o t h e n a t u r e o f t h i s  traffic.  A i r t r a f f i c average a n n u a l r a t e o f g r o w t h d u r i n g t h i s p e r i o d was about 1 9 . 3  per c e n t .  The most s i g n i f i c a n t i n c r e a s e s i n i n d i v i d u a l  years  a r e r e l a t e d t o t h e major p a s s e n g e r f a r e s d e c r e a s e s i n t h e f o l l o w i n g comparison:  Percentage Increase in Air Traffic  Cut i n R e l a t i o n t o t h e Cheapest F a r e then i n Force  F a r e Measures  1951—1952  +31  Introduction of the t o u r i s t c l a s s on 1/5/1952  -32#  1957—1958  +27  I n t r o d u c t i o n o f t h e economy c l a s s on 1 / 4 / 1 9 5 8  -20$  1959—1960  +25  Introduction of excursion fares a v a i l a b l e f o r 17 days f r o m 1/10 t o 31/3  -28$  1963—1964  +25  Numerous f a r e r e d u c t i o n s  f r o m -3% t o  -21%  These changes i n t h e t r a f f i c growth can be l i n k e d t o t h e f a r e as t h e i r predominant c a u s e .  As p o i n t e d out b e f o r e ,  n o t t h e o n l y f a c t o r s i n f l u e n c i n g t h i s development.  cuts  f a r e d e c r e a s e s were T h i s t r a f f i c growth  a l s o c o i n c i d e d w i t h the f o l l o w i n g events o f i n t e r n a t i o n a l importance: 1)  The end o f t h e Korean War i n J u l y , 1951, and w i n t e r and summer O l y m p i c s i n Europe i n 1952 c o u l d have had a s i g n i f i c a n t i n f l u e n c e on t h e 1952 t r a f f i c i n c r e a s e .  2)  The s t a r t l i n g r e v i v a l o f t h e U . S . economy i n t h e m i d d l e o f 1958 and t h e B r u s s e l s *Expo 1958* were t r a v e l i n d u c i n g f a c t o r s f o r N o r t h Americans i n t h a t y e a r .  38 3) The year I960 became a historical milestone for North Atlantic air transport as the jet equipment was generally introduced by most of the IATA carriers serving this market. The economy of Canada and the United States had started the recovery which had not been experienced before. Competitive Elasticity The importance of speed, a predominant qualitative characteristic of a i r transport, i s reflected i n the competitive advantage of this mode, especially on the routes involving long distances. Table IV shows the growth of passenger t r a f f i c on the North Atlantic during 1955—1966 period according to the mode of transportation. Air t r a f f i c had made constant progress during this period, rising at an average annual rate of 19.3 per cent.  Sea t r a f f i c , which had grown  steadily u n t i l 1957, has been declining continuously since then, with the exception of a 5 per cent increase i n 1962 over 1961. The trend during 1955—1966 period can be summarized as follows: 1) In 1957 the total t r a f f i c split approximately half and half between a i r and sea transport. 2) In 1966 a i r t r a f f i c accounted for almost 90 per cent of the total. It i s d i f f i c u l t to determine whether actually the sea t r a f f i c declines i n individual areas occurred due to the shift of i t s users to another mode or i f a portion of i t s users ceased to travel and a new t r a f f i c was attracted to a i r transport at a much higher rate than to sea transport.  However, i t would appear reasonable to assume that the intro-  duction of tourist class fares i n the early 50*s and economy class fares i n the late 50 s stimulated a i r travel on the North Atlantic, thus opening f  39 TABLE IV GROWTH IN PASSENGER TRAFFIC ON THE NORTH ATLANTIC, 1955—1966  Year  Sea Air Total ( i n Thousands of Passengers)  1955 1956 1957 1958 1959 I960 1961 1962 1963 1964 1965 1966  962 1,011 1,027 964 881 879 785 820 810 715 649 603  692 835 1,019 1,292 1,540 1,929 2,176 2,587 2,836 3,551 4,092 4,700  1,654 1,846 . 2,046 2,256 2,421 2,808 2,961 3,407 3,646 4,266 4,741 5,303  + + -  +21 +22 +27 +19 +25 +13 +19 +10 +25 +15 +15 +82  +12 +11 +10 + 7 +16 + 5 +15 + 7 +17 +11 +12 +56  A i r T r a f f i c as a Per cent o f Total 42 45 50 57 64 69 73 76 78 85 86 89  Per cent o f Change 1955—56 1956—57 1957—58 1958—59 1959—60 1960—61 1961—62 1962—63 1963—64 1964—65 1965—66 1962—66  5 2 6 9 0 -11 + 5 - 1 -12 - 9 - 7 -26  SOURCE: "Analysis o f Passenger T r a f f i c Between Europe and North America i n 1966", ITA B u l l e t i n Number 29, July, 1967, pp. 901—920. NOTE: Scheduled and non-scheduled services of IATA member a i r l i n e s and Trans-Atlantic Passenger Steamship Conference t r a f f i c only.  40 the era of increasing acceptance of a i r travel as an ordinary means of travel i n this market. The time saving element (perhaps ten hours by a i r as compared to six days by ship) heavily favoring the use of a i r transport certainly contributed to the rapid growth of a i r t r a f f i c during this period.  The increasing importance of time saving to a traveller during  the last fifteen years i s related to the socio-economic development i n the countries whose residents represented a majority of the North Atlantic travellers.  The sharp increase i n per capita disposable income prepared  the grounds for a new attitude toward overseas travel. Income Elasticity Changes i n population, gross domestic product and per capita domestic product of the countries whose nationals participated heavily i n the North Atlantic travel are shown i n Table V. While the most meaningful indicator of increasing wealth of population would be the disposable income per capita, the only readily available indicator was the per capita gross domestic product. However, for purposes of comparison this index would exclude some distortions which would occur during the procedure of establishing the disposable income, due to the varying practices applied to the compilation of national accounts i n various countries. Table V indicates that the growth of gross domestic product per capita was faster i n the European countries than i n North America between 1958—1963. I t i s not, however, the average income per capita which i n fluences the welfare of an individual.  The distribution of national income  TABLE V ESTIMATES OF POPULATION, TOTAL AND PER CAPITA GROSS DOMESTIC PRODUCT . IN U.S. DOLLARS, 19584,1963 Region & Country  EUROPE Austria Belgium Denmark France Germany, Fed. Rep. of Ireland Italy Netherlands Sweden Switzerland United Kingdom Total for Europe NORTH AMERICA Canada United States Total for North America  Mid-Year Estimates of Population i n millions of  Gross Domestic Product at Factor Cost  Per Capita Gross Domestic Product at Factor Cost  1958  1958  1958  1963  7.0 9.0 4.5 44.8 52.1 2.8 49.0 11.2 7.4 5.2 51.8 - •  17.1 174.9 -  1963 7.2 9.3 4.7 47.9 55.4 2.8 50.5 12.0 7.6 5.8 53.8 -  18.9 189.4  -  1963  5,241 9,444 5,315 52,335 63,624 1,669 33,779 11,609 11,165 7,967 64,199 292,500  6,716 12,301 7,309 71,427 104,159 2,253 49,472 15,503 14,370 11,338 80,530 N.A.  746 1,043 1,177 1,168 1,222 585 689 1,038 1,507 1,532 1,238 966  936 1,324 1,560 1,493 1,879 793 980 1,295 1,890 1,951 1,497 N.A.  28,972 406,474 454,600  37,280 528,287 N.A.  1,692 2,324 1,779  1,970 2,790 N.A.  SOURCES: United Nations, Yearbook of National Accounts Statistics 1964 (New York: Statist i c a l Office of the United Nations. 1965); United Nations. Demographic Yearbook 1964 (New York: Statistical Office of the United Nations, 1965). NOTE: For most of the countries represented i n this Table, the estimates are based on the o f f i c i a l gross Domestic Product figures i n national currency. The national data were converted to U.S. dollars by means of the calculated parity rates which were estimated by adjusting the o f f i c i a l or free market exchange rates i n 1938 for each country by the relative change i n the level of prices from 1938 to the year i n question between the United States and the country concerned.  gives the actual indication of the standard of l i v i n g of the nationals i n a particular country. The distribution of the United States family income and i t s development i s shown i n Table VI. TABLE VI PERCENTAGE DISTRIBUTION OF U.S. FAMILIES BY LEVEL OF INCOME (IN CURRENT U.S. DOLLARS)  Income Bracket ($)  1955  1963  27.1 28.1 25.4 10.0  19.6 19.1 24.3 16.1  (52.2-million families-58.7) (Per cent)  Up to 2,999 3 , 0 0 0 — 4,999 5 , 0 0 0 — 7,499 7 , 5 0 0 — 9,999 10,000—14,999 15,000 and over  13«l)_ on Q 3.5)  V  *  4  7.8)  2  0  ,  9  SOURCE: U.S. National Bureau of Economic Research. National Income Distribution (Washington, D.C.: Government Printing Office, 1967). The shortcoming of Table VI i s the use of current dollars which do not encompass the declining purchasing power of that currency due to the inflationary effect.  Nevertheless, the changes shown above illustrate  the improving distribution and, hence, growing affluence of individual Americans.  More than 55 per cent of the U.S. families earned less  than $5,000 i n 1955, while i n 1963 only 38.7 per cent of them belonged to this group.  The income bracket of $7,500—$9,999 population had  grown from 10.0 per cent i n 1955 to 16.1 per cent i n 1963. More than 20 per cent of U.S. families earned over $10,000 i n 1963 as compared to only 9.4 per cent i n 1955.  43 In order to determine the participation of these individual income groups i n the North Atlantic travel, the European Commission for Tourism (ECT) and the Port of New York Authority (PNYA) have carried out market surveys with the following results: TABLE VII PERCENTAGE DISTRIBUTION OF TRANS-ATLANTIC PASSENGERS BY INCOME 1955 ECT  1956—1957 PNYA  Up to $ 2,999 $ 3,000/ 4,999 $ 5,000/ 7,499 $ 7,500/ 9,999 $ 10,000/14,999 $ 15,000/19,999 $ 20,000/29,999 $ 30,000/49,999 $ 50,000/ and over  15  3.0 5.2  -[ 30  12.7 12.7 19.8  26  13.9 14.3 12.1  11  18 8 -(  2 7  ( 100  1963—1964 PNYA  6 11  14  -( 31  1963 ECT  100  6.3 100  22  ( (100  SOURCE: The Port of New York Authority, New York's Overseas Air Passenger Market (New York: Aviation Economics Division, June, 1965). Table VII shows that according to the PNYA study, about 42 per cent of travellers i n 1963—64 originated from the $15,000-and-above income group. This income group represented about 7.8 per cent of U.S. families in 1963 while i n 1955 only 3.5 per cent.  The growth of the number of  families i n the subsequently lower income category was more than 100 per cent between 1955—63 and i t s travel represented about 22 per cent of the total i n 1963—64. We can conclude, therefore, that approximately 21 per cent of American familes performed about 64 per cent of the North Atlantic  44 travel i n 1963—64 according to the PNYA study.  The families i n the same  income categories ($10-15,000 and above $15,000) represented i n 1955 only 9.4 per cent of the total, while i t s travel exceeded 45 per cent of the total travel i n the same year, according to the ECT.  In terms of absolute  numbers, i n 1963 the 12.3 million families carried out 64 per cent of national travel across the North Atlantic, while i n 1955 less than 5 million families performed 45 per cent of this travel. In conclusion of the preceding analysis the importance of income distribution together with the growth of income must be considered as one of the major factors determining the growth of the North Atlantic travel. It i s the personal travel which represents the biggest portion of the travel volume and, therefore, the standard of living of the population i s directly related to the growth of the North Atlantic a i r travel. Internal Elasticity The whole range of a i r passenger fares offered to the public was related to different classes of service i n Table II. The distribution of passengers between the various classes of service can be related to the standard of service i n each class and the price differential between these classes.  The development of the distribution of passengers between f i r s t  and other classes of air service on the North Atlantic i s depicted i n Table VIII. There was only one class of service when the North Atlantic a i r service was commenced, the f i r s t class.  The novelty of service, low  volume of passengers, cost of equipment, was reflected i n relatively high level of fares i n the immediately post-war period. To widen the clientelle  45  TABLE VIII NORTH ATLANTIC AIR PASSENGER SCHEDULED TRAFFIC OF IATA MEMBERS*, 1955—1966  Year  First 189,678 208,994 228,648 255,690 294,160 306,266 244,870  1955 1956 1957 1958 1 9 5 9  I960 1961 1962 1963 1964 1965 1966  Number of Passengers Class of Service Tourist Economy 462,579 576,265 739,498 274,889 64,362 10,245*** —  -—  208,175  192,522 235,876 277,661 322,929  —  -  — — 662,634**  1,008,765 1,444,261 1,674,564 2,063,988 2,229,745 2,833,302  3,333,613  3,874,621  Total 652,257 785,259 968,146 1,193,213 1,367,287 1,760,772 1,919,434 2,272,163 2,422,267 3,069,178 3,611,274 4,197,550  Per cent Change 1955—56 1956—57 1957—58 1958—59 1959—60 1960—61 1961—62 1962—63 1963—64 1964—65 1965—66  + + + + +  10.2 9.4 11.8 15.0 4.1 — 20.0 — 15.0 7.5 - 22.5 + + 17.7 + 16.3  + 24.6 + 28.3 - 62.8 -  76.6  - 84.1*** -100.0 —  -— —  -  — —  + + + + + + +  52.2 43.2 15.9 23.3 8.0 27.1 17.7  + 16.2  + + + + + + + +  20.4 23.3 23.2 14.6 28.8 9.0 18.4 6.6  +  26.7  + 17.7 + 16.2  SOURCE: IATA,World Air Transport Statistics Number 11, 1966 (Montreal: Traffic Director of IATA, 1967). * IATA Members operating on the North Atlantic: 15 airlines in 1955— 57, 17 airlines in 1 9 5 8 — 5 9 , 18 airlines in 1960—62 and 1964—66, 19 airlines in 1963 and 1966. ** Economy Class service introduced 1 April 1958. ***  Tourist Class service withdrawn 30 June I960.  and spur bigger demand for this service, a series of fare reductions started with the introduction of a tourist class i n 1952.  The reduction was direc-  ted towards a traveller who did not require high standard on-board services, with the comfort of wider seats i n the f i r s t class. During the period between 1955 and I960, f i r s t class t r a f f i c grew at about half the rate the tourist class t r a f f i c did u n t i l 1957. Between I960 and 1963 there was a big slump as the f i r s t class t r a f f i c was decreasing at a high rate.  During this period economy class t r a f f i c went  through a sustained growth which had continued u n t i l 1966 and does not show any signs of tapering off i n future.  The last several years, since  1964, the f i r s t class t r a f f i c growth has kept pace with the economy class traffic. The distribution of t r a f f i c has been influenced by: 1)  A gradual discontinuation of pure f i r s t class flights on the North Atlantic since 1955.  2)  An increasing acceptance of a i r transport as a means of travel by the public.  3)  A decrease i n duration of a journey across the North Atlantic and increased comfort of the economy class travel.  4) IATA regulation restricting the services to passengers during the flight i n the economy class. The number of flights operated on the North Atlantic by type of flight are shown i n Table IX. About 25 per cent of the total flights operated i n 1955 were pure f i r s t class flights. and i n 1961 to zero.  In 1957 this proportion dropped to about 12 per cent,  47 TABLE IX NORTH ATLANTIC AIR PASSENGER TRAFFIC BY TYPE OF FLIGHT, 1955—1961 Type of Flight  1955  1956  Number of Flights 1957 1958 1959  I960  1961  First Class Only 5,000 4,050 3,121 2,431 1,532 327 Tourist Class Only 7,048 6,840 6,439 365 9 Mixed Configuration 5,958 10,225 14,189 22,660 23,985 24,091 27,833 Other 1,102 1,737 1,743 5,673 5,142 5,793 6,389 Total 19,108 22,852 25,492 31,129 30,668 30,211 34,222 SOURCE: IATA, World Air Transport Statistics Number 11, 1966 (Montreal: Traffic Director of IATA, 1967). When considering both Table VIII and Table IX, the first class traffic had grown about 61 per cent between 1955 and I960 while economy class traffic more than tripled during the same period.  The discontinuation of  pure first class flights in May, I960, was the consequence of a trend which started in the early fifties.  To utilize the equipment more fully the  standard of service was lowered for certain flights, but the resulting fares, 30 per cent lower than first class ones, were s t i l l contributing to the overall revenues. The more non-first class services were performed in response to public demand, the more frequencies were available on these services. The mixed service flights were adding convenience of choice of timing of a journey with a choice of class of service at the same time. The sharp drop of first class traffic between 1960—1963 coincided with the introduction of new jet equipment to this market and also with the revival of business activity in North America. Between I960 and 1963 the first class traffic dropped by about 30 per cent. The introduction of jet equipment, which provided much larger capacity due to the increased frequencies, caused the average load factor to f a l l off from 64.2 per cent  48 in I960, to 49.1 per cent i n 1963.  The comfort of economy class travel,  when the aircraft were f i l l e d on average to only about 50 per cent of their capacity, could probably match the comfort of f i r s t class service i n propeller equipped aircraft. From 1964  the rate of f i r s t class t r a f f i c growth has been corre-  sponding to the economy class growth rate.  The stiffening of IATA regula-  tions about the difference i n quality of food and drinks during a flight between f i r s t and economy classes might have caused the shift back to a substantially better catering to passengers i n the f i r s t class. load factors jumped on average to 57.5  per cent i n 1964,  Also,  which could have  meant a shortage of space i n the economy class i n summer season or on certain most conveniently departing flights.  On the other hand, a sustained  growth of North American economy since I960 could have produced a large group of travellers to whom the value of service i s worth the difference i n the fares and, thus, resulting growth i n f i r s t class t r a f f i c might have stemmed from the improved economic conditions. 2)  Travel Between Canada and Overseas Countries The North Atlantic air transportation i s of a particular importance  to Canada as most of Canadian travel to overseas countries goes across the North Atlantic. The growth of Canadian travel to overseas countries and particularly to the European countries i n 1961,  1964  and 1965  as shown i n  Table X, w i l l be analysed i n this section. During 1965,  some 386,350 Canadians returned from v i s i t s to overseas  countries, thereby establishing a record high and gain of 19.7  per cent  49 over the 1964 figure.  While the arrivals by air at major airports increased  by more than 21 per cent from 290,494 to 353,681 persons i n 1965 over 1964, the sea t r a f f i c decreased by almost 10 per cent i n the same period. The proportion of a i r travellers arriving at major airports of the total of 386,350 Canadians was about 92 per cent, while sea travel (only major seaports) represented about 5 per cent.  The remaining 3 per cent represent minor a i r and  seaports without determining the mode of travel.  In 1961 the corresponding  proportions were 81 per cent returning by plane, 16 per cent by ship, and 3 per cent at a l l other ports. TABLE X RESIDENTS OF CANADA RETURNING DIRECT FROM OVERSEAS COUNTRIES, 1961, 1964, 1965 Port of Re-entry Major Airports (11) Major Seaports (4) A l l Other Air and Seaports Total  1961 180,731 36,349 6,038 223,118  Number of Persons  1964  290,494 23,683 8,468 322,645  1965 353,681 21,506 11,163 386,350  SOURCE: Dominion Bureau of Statistics, Travel Between Canada and Other Countries, 1965 (Ottawa: Queen's Printer,, July 1967). In addition to direct returns there were about 70,000 Canadians who returned via the United States i n 1965; i n 1964 the figure was approximately the same. By adding this figure to the direct travel, the total of Canadian travel overseas i n 1965 amounted to 456,350 persons. The destinations of these travellers abroad are shown i n Table XI. As Table XI indicates, almost 80 per cent of Canadians travelling overseas i n 1961 crossed the North Atlantic; i n absolute terms, i t was 176,709  50 persons.  Only 13.2 per cent, or 29,452, went to either Bermuda or Carib-  bean or Mexico or Hawaii, while 7.6 per cent, or 16,957, went somewhere else. TABLE XI DESTINATION REPORTED BY CANADIANS RETURNING DIRECT FROM OVERSEAS COUNTRIES, 1961, 1964, 1965 Destination United Kingdom Only United Kingdom & Other European Countries Other European Countries Only Total via North Atlantic Bermuda, Caribbean, Hawaii, Mexico Other Countries Total  Proportion of Travellers i n Per cent  1961  1964  1965  31.2 26.3  25.1 23.9  25.0 22.8  21.7 79.2 13.2 7.6 100  25.3 74.3 21.4 4.3 100  24.0 71.8 24.0 4.2 100  SOURCE: Dominion Bureau of Statistics, Travel Between Canada and Other Countries. 1965 (Ottawa: Queen*s Printer, July, 1967). The distribution of travel among various geographical areas i n 1965 has changed i n i t s proportion, however, due to the absolute increase of travel each area recorded gains i n absolute terms.  The 71.8 per cent of  travel across the North Atlantic, while down more than 8 per cent i n relation to other destinations, represented a sizable 277,399 persons. was about 100,000 travellers more than i n 1961.  This  Travel to the non-European  locations, shown as the second group, had grown from 13.2 per cent i n 1961 to 24.0 per cent, or 92,724 Canadian visitors i n 1965, more than three times the 1961 volume. Despite a relative decrease from 7.6 per cent i n 1961 to 4.2 per cent i n 1965 of travel to other countries, the absolute volume remained approximately the same, at 16,227. While the statistics show that 92 per cent of Canadian travellers  51 to overseas countries used airplane, this proportion does not have to be necessarily the same for each destination. Unfortunately, the precise breakdown by mode according to the destination cannot be determined here. On the assumption that this percentage applies equally to each destination, then the 92 per cent, or 255,207 persons, of the 277,399 Canadians who travelled in 1965 across the North Atlantic were air travellers. The purpose of trip in total percentage in 1965 was about 90 per cent recreation and visiting friends or relatives. The proportion between these two reasons varied with destination. Business was a reason to travel for only 7.5 per cent of persons, health 2.0 per cent and formal study only 0.8 per cent. There were only 132,920 non-immigrants from overseas visiting Canada in 1965.  Of this total, 42.5 per cent came from the United Kingdom, 34.6  per cent from the fourteen member countries of Organization for Economic Co-operation and Development, and 4.2 per cent from other European countries. The DBS statistics for 1966 show that there were almost 300,000 persons who disembarked in Canada from direct scheduled flights from Europe in that year. There were 209,646 Canadian residents among those arrivals or 70.1 per cent. Only 29.9 per cent, or 89,290 persons were non-immigrant visitors from Europe. The breakdown of these statistics i s shown in Table XII. In addition to the figures presented in Table XII, there were approximately 50,000 Canadians who travelled to Europe via the U.S.A. in 1966.  52 TABLE XII SCHEDULED PASSENGER AIR TRAVEL BETWEEN CANADA AND EUROPE IN 1966 Number of Persons Canadians returning direct from Europe using Air Less: North Atlantic Charters originating in Canada Approximate number of Canadians who used the North Atlantic direct (not via U.S.A.) Scheduled air services Overseas visitors to Canada from U.K., other Western Europe and Eastern European Communist countries who used direct North Atlantic air services Less: North Atlantic Charters originating in these countries Approximate number of visitors who used North Atlantic Scheduled air services to travel direct to Canada (not via U.S.A.)  296,879 87.233 209,646  122,985  33,695 89,290  SOURCE: Dominion Bureau of Statistics, Travel Between Canada and Other Countries. 1966 (Ottawa: Queen*s Printer, July, 1968). The imbalance in travel of Canadians as opposed to other nationals resulted, in 1966, in a deficit in the balance of payments on travel account between Canada and overseas countries at $162,000,000. While this figure includes a l l overseas travel, the North Atlantic operation accounts for a sizable part. The statistics describing the split between travel by Canadians and other nationals on the North Atlantic would seem to illustrate the importance of this study. The high proportion of Canadians of the total number of travellers would indicate that Canadian travel in this market i s a much greater source of revenue to any participating airline than either its own nationals or other European originated travellers.  It would follow then  53 that Canada should be interested in the lowering of passenger fares in this market much more than the other nations concerned. If this objective could not be attainable at present, the information gathered and analyzed in this study could be employed in bilateral negotiations to the advantage of Canadian carriers. Summary  The rapid growth of the North Atlantic air transport services has been influenced by an introduction of faster and larger aircraft which required a new fare structure to attract more travellers. The introduction of tourist and economy classes and a variety of special fares over the fifteen year period has gradually lowered the general level of fares to the reach of a substantial proportion of North American and West European population. The absolute level of passenger fares in 1968 was on almost the same level as in 1952, after varying during the last fifteen years in both directions. However, a relative decrease in fare levels has occurred in effect as the standard of living of the population has risen. The Canadian personal disposable income per capita, in 1957 constant dollars, was in 1952 $1,006.00,^ of which the one-way tourist fare of $265.00 represented 26.3 per cent.  In 1957 i t was $1,272.00, of which the same fare  in that year of $285.00 represented 22.4 per cent.  In I960 this proportion  was only 19.2 per cent, considering a jet fare of $254.00, and the disposable income per capita of $1,324.00. In 1966, the percentage f e l l  ^Dominion Bureau of Statistics, National Accounts. Income and Expenditure, 1926—1966 Issues (Ottawa: Queen's Printer, 1967).  54 further to 16.3 per cent, taMng the same fare effective during the summer season. The constant relative lowering of normal fares and introduction of a variety of special fares has been reflected in growing importance of air travel over sea travel. The combination of speed, which permits tourists to spend even short vacation periods overseas with an acceptable fare level, has caused a spectacular development of air passenger traffic on the North Atlantic during the last fifteen years. The other contributing factors were an economic and population growth in the countries on both sides of the North Atlantic. It would appear from the travel of Canadian nationals which reached more than 70 per cent of the total between Canada and Europe in 1966, that i t should be a primary interest of Canadian national air transport policy to strive for further air fare decreases and more favorable deals in bilateral negotiations with European partners.  CHAPTER IV AIRCRAFT OPERATING COST AND PERFORMANCE ANALYSIS The preceding chapters outlined the functioning of IATA, the d i versity of interests among i t s members, the passenger fares development on the North Atlantic routes and i t s relation to the t r a f f i c development during the last fifteen years.  This chapter and the following two are  concerned with the present level of costs incurred i n operating the North Atlantic routes and Canadian transcontinental routes and their relationship to existing passenger fares effective i n these two markets. The objective of this chapter i s to determine cost per production unit of operating an aircraft on long-haul international routes, and more specifically Atlantic routes, i n 1966.  Operating costs of aircraft are  analysed i n view of the performance picture.  The results w i l l be used i n  the next chapter to f a c i l i t a t e the comparison of North Atlantic versus transcontinental routes operating costs and revenue characteristics per unit of production. The d i f f i c u l t y i n obtaining relevant data for international carriers and availability of the U.S. C i v i l Aeronautics Board's statistics disclosing operating costs and performance figures for U.S. carriers influenced the choice of carriers whose performance i s analysed i n this chapter.^* An obvious advantage of this choice i s the relative homogenity of operating  C i v i l Aeronautics Board, Aircraft Operating Cost and Performance Report; 1965 and 1966. Volume I (Washington, D.C.: Government Printing Office, 1967). x  56 conditions, a l l of the carriers being subjected to the same regulations, relatively free of governmental influence, a l l publicly owned, and operating with the objective of achieving profits. Only operating costs w i l l be analysed i n order to eliminate dissimilarities i n allocation of indirect cost per unit of output by i n d i vidual airlines.  Aircraft operating costs are, i n this case, identical  with direct costs of operations as they can be directly traced to the operation of aircraft.  The method of calculating the data used i n  Tables XIII—XIX i s explained i n Appendix C. As the ultimate purpose of this analysis i s to provide a basis for a trans-Atlantic and transcontinental routes cost comparison, the choice of aircraft subjected to the scrutiny was influenced by the characteristics of those routes. North Atlantic routes have been served i n recent years predominantly with four-engine jet or fan turbo equipment.  Canadian trans-  continental routes have been served with one specific type of the same category, DC-8 aircraft. The latest complete data available are the 1966 data.  It should  be noted that there could be some cost and performance anomalies reflected i n the data under investigation as during that year Eastern, National, Northwest, T.W.A. and United suspended a l l operations i n the peak season o  because of a strike which began July 8 and continued through August 19.  2 C i v i l Aeronautics Board, Aircraft Operating Cost and Performance Report: 1965 and 1966. Volume I (Washington, D.C.: Government Printing Office, 1967), p. v i i . NOTE: Concerning terminology i n the following two chapters, the terms »cost» and expense» are used interchangeably, both reflecting expenditures incurred i n the course of operating an airline or aircraft, i n monetary terms. t  57 During that period many of the non-struck carriers altered their normal scheduling pattern to accommodate the inhibited t r a f f i c .  At the same time,  there was a diversion of U.S. t r a f f i c between eastern cities and the west coast via Canada, from which both Canadian transcontinental carriers benefitted.  However, a strike also curtailed Air Canada's operations i n  November of that year for approximately two weeks.^ Operating Cost of Turbo-jet and Turbo-Fan Aircraft. 1965 and 1966 Statistical data i n Table XIII represent cost and performance data of international/territorial operations with four-engine jet or fan aircraft i n passenger cabin configuration of U.S. carriers:  Alaska, American,  Braniff, Delta, Eastern, Northwest, Pacific Northern, Panagra, Pan Am, Trans Caribbean, T.W.A., United and Western.  The aircraft under consideration are  Boeing B-707 and B-720 series, Douglas DC-8 series and Convair CV-880 and CV-990 models, i n 1965—1966. The aircraft sample i n Table XIII i s approximately the same for jet and fan models i n 1966, at 62.2 and 62.3 aircraft respectively.  Turbo-fan  equipment was better utilized, being flown for revenue for 10:18 hours per day as compared to jet daily utilization of 9:51 hours.  There was less  than 1 per cent difference i n average stage length which was higher for jet equipment i n 1966 at 1,684 miles. As indicated by both capacity indices, the newer fan models carry more payload.  It was 19.2 average available tons  per aircraft mile as compared to 18.2 tons for jet equipment, and 140.6 average available seats per mile versus 135.4 available seats for jets. 'Air Canada, Annual Report 1966 (Montreal: Air Canada, 1967).  58 TABLE XIII AIRCRAFT OPERATING COST AND PERFORMANCE BY EQUIPMENT GROUP, BY CARRIER GROUP,  IN 1965—1966  Performance,  C h a r a c t e r i s t i c s and Expenses  Turbo-Jet . 12 Months Ended Dec. 31  Turbo-Fan 12 Months Ended Dec. 31  1966  1965  1966  1965  Utilization Avrg. A i r c r a f t Assigned to Service Revenue Hours Per A i r c r a f t Per Day Avrg. Stage Length ( i n miles)  62.2 9.51 li684  64.1 9.48 1,639  62.3 10.18 1,670  48.1 10.01 1,612  A i r c r a f t Capacity Avrg. A v a i l a b l e Tons Per A i r c r a f t Mile Avrg. A v a i l a b l e Seats Per A i r c r a f t M i l e  18.2 135.4  18.3 134.2  19.2 140.6  500 465  ,499 468  PERFORMANCE  AND'CHARACTERISTICS  Speed Avrg. Airborne Speed ( i n MPH) Avrg. Block to Block Speed ( i n MPH)  i.  Productivity Avrg. A v a i l a b l e Ton-miles Per Airborne Hour Avrg. Available Seat-miles Per Airborne Hour  9,093 67,745 ,  Traffic Ton Load Factor (per cent) Seat Load Factor (per cent)  19.1 139.4  465  497 464  501  9,147 67,013  70,424  9,632  9,503 69,366  , 56.1 58.3  52.4 55.7  54.7 58.5  54.8  F l y i n g Operations Crew Fuel and O i l Insurance Other T o t a l F l y i n g Operations  174.54 272.74 11.86 0.67 459.81  172.38 269.53 13.01 1.03 455.95  166.97 13.39 0.38 383.78  160.26 192.41 15.81 0.31 368.79  Maintenance - F l i g h t Equipment  291.51  269.54  186.65  173.28  Depreciation and Rentals - F l i g h t Equipment  143.66  144.37  165.28  . 172.30  869.86  735.72 819.48 1.64 8.579 1.192  714.37 789.33 1.59 8.331 1.150  58.0  AIRCRAFT OPERATING EXPENSES (Per Block Hour i n ,U.S, D o l l a r s )  T o t a l A i r c r a f t Operating Expenses: Per Block Hour Per Airborne Hour Per A i r c r a f t Mile Per Available Ton-mile ( i n cents) Per Available Seat-mile ( i n cents)  and  894.97 1,006.73 2.01  11.076 1.511  963.72 1.93  10.530 1.450  203.04  SOURCE: C i v i l Aeronautics Board, A i r c r a f t Operating Cost and Performance Report: Volume I (Washington, D.C.: Government P r i n t i n g O f f i c e , 1967)-  1966.  1965  NOTE: International and T e r r i t o r i a l operations o f the U.S. c a r r i e r s transporting passengers and cargo, i n passenger cabin configuration, with four engine turbo a i r c r a f t .  59 Both average airborne speed and average block to block speed were the same for fan and jet aircraft. Productivity measured i n average available ton- and seat-miles per airborne hour reflects the relationship concerning aircraft capacity as the speeds did not differ.  While fan aircraft productivity indicator  was 9,632 average available ton-miles and 70,424 available seat-miles, jet respective indices were 9,093 and 67,745. The ton load factor indicates the relationship of revenue ton-miles over available ton-miles i n favor of jets at 56.1 per cent versus 54.7 per cent for fan engine powered planes. Seat or passenger load factor was approximately the same for both groups at 58.3 per cent and 58.5 per cent respectively. The cost per unit of production data reflect the differences i n operational characteristics of the two groups of equipment. Total operating expenses per block hour for fan powered aircraft at $735.72 were only 82.2 per cent of jet powered aircraft operating expenses at $894.97. Of individual cost categories only insurance and depreciation were higher for fan than for jet groups.  A l l other operating aircraft costs per unit  of production reflected the same relationship.  There was a substantial  difference i n cost per available ton-mile and passenger or seat-mile at 11.076 cents for jets and 8.579 cents for fans, and 1.511 cents for jets and 1.192 cents for fans respectively, i n 1966. The comparison of jet and fan powered groups of aircraft performance and costs i n 1966 indicates economic superiority of turbo-fan equipment. Based on the same size of a sample and about the same average stage length, both groups operating on international and t e r r i t o r i a l routes i n the same  60 regulatory environment, there appears to be a reasonable degree of validity i n this finding.  As capacity and, thus, productivity of fan powered planes  i s higher, the costs per unit of output have to be lower, everything else being equal.  The two exemptions, insurance and depreciation, are raised  by the higher capital costs of acquisition of these aircraft.  The i n -  creased seat and ton capacity are not sufficiently high to offset either the capital cost or related insurance premiums. The 1966 over 1965 changes i n performance and operating costs within each group of equipment are analysed below. Concerning performance of the jet group i n 1966, the average number of aircraft decreased slightly and load factors improved a l i t t l e over  1965.  The costs changed upwards i n most categories, resulting i n 2.9 per cent i n crease i n total operating cost per block hour at $894.97 i n 1966 from $869.86 i n 1965Concerning changes i n 1966 over 1965 i n the fan equipment group, the size of fleet increased from 48.1 to 62.3 aircraft, capacity and product i v i t y recorded slight increases while load factors stayed about the same. The relative cost increases i n 1966 were similar to those of jet equipped aircraft, with an increase of 3 per cent of total operating cost per block hour i n 1966 over  1965.  The cost increases over time can be attributed to the general i n crease i n labor and production costs. The analysis of fan group and jet group of aircraft shows lower operating costs being associated with newer, more productive fan powered aircraft, the other operating characteristics and performance being almost equal.  61 Operating Cost of Douglas DC-8  A i r c r a f t i n 1966  The analysis i n t h i s part i s concerned with the same i n t e r n a t i o n a l / t e r r i t o r i a l operations as the previous one. to Douglas DC-8  However, the focus i s turned  equipment type, as t h i s has been the equipment operated by  Canadian International scheduled c a r r i e r s .  Due to the arrangement of pre-  senting these data f o r public use the U.S.  c a r r i e r s operating t h i s type of  equipment i n 1966 cannot be i d e n t i f i e d . As described i n Table XIV, there were only about nine fan powered DC-8  a i r c r a f t used on i n t e r n a t i o n a l / t e r r i t o r i a l routes by U.S.  carriers  i n 1966 while more than twenty-six j e t powered DC-8*s were i n use i n that year.  The d a i l y u t i l i z a t i o n of the newest model, DC-8F, was close to  twelve hours, the next best being DC-8-30, j e t powered, 9.01 hours.  DC-8-20  and DC-8-50 were low at 8.35 and 8.44 hours r e s p e c t i v e l y . The biggest difference among the four models seems to be i n the average stage length flown by each type, which varied from 1,411 miles f o r DC-8-30 as the lowest, to 2,012 miles, high f o r DC-8-50.  The next  d i s t i n c t i o n r e s t s i n a i r c r a f t capacity which varied from the low of 17.4 tons per mile f o r DC-8-30 t o the high of 19.0 f o r DC-8F.  These size char-  a c t e r i s t i c s of i n d i v i d u a l types are r e f l e c t e d i n t h e i r p r o d u c t i v i t y which was at 87,423 available seat-miles f o r DC-8F, more than 40 per cent higher than 62,207 seat-miles a v a i l a b l e with the use of DC-8-30.  Ton and seat  load factors were again highest f o r the DC-8F, at 58.5 per cent and  65.4  per cent respectively. DC-8F had the lowest cost of f l y i n g operations per block hour. However, i t s maintenance cost being much higher than that of DC-8-50 model  62 TABLE XIV AIRCRAFT OPERATING COST AND PERFORMANCE BY EQUIPMENT TYPE, BY CARRIER GROUP IN 1966 Turbo-jet DC-8-20 DC-8-30  Turbo-Fan DC-8-50 DC-8F  Utilization Avrg. A i r c r a f t Assigned t o Service Revenue Hours Per A i r c r a f t - P e r Day Avrg. Stage Length ( i n miles)  12.6 8.35 1,862  13.7 9.01 1,411,  5.8 8.44 2,012  3.1 11.91 1,853  A i r c r a f t Capacity Avrg. Available Tons Per A i r c r a f t Mile Avrg. Available Seats Per A i r c r a f t Mile  16.8 132.4  17.4 127.0  17.5 • 138.1  19.0 172.6  490 450  488  468  Performance, C h a r a c t e r i s t i c s and Expenses PERFORMANCE AND CHARACTERISTICS  Speed Avrg. Airborne Speed ( i n MPH) Avrg. Block to Block Speed ( i n MPH) Productivity Avrg. Available Ton-miles Per Airborne Hour Avrg. Available Seat-miles Per Airborne Hour Traffic Ton Load Factor (per cent) Seat Load Factor (per cent)  516 487  .  517  507  8,663 68,319  8,546 . 62,207  9,030 71,440  9,644 87,423  56.0  54.2 56.1 ,  56.6 63.9  58.5 65.4  62.8  AIRCRAFT OPERATING EXPENSES (Per Block Hour i n U.S. D o l l a r s ) F l y i n g Operations Crew Fuel and O i l Insurance Other T o t a l F l y i n g Operations  188.81 274.05 8.82 0.42 472.11  162.96 285.08 14.27 0.93 463.24  173.69 195.87 9.20 0.43 379.20  132.98 214.50 20.02 0.34 367.83  Maintenance - F l i g h t Equipment  266.76  308.36  181.11  261.19  .150.10  149.80  249.37  208.33  888.97  921.40 1,043.28 2.13 12.208 . 1.678  809.69  837.36 919.11 1.81 9.417 1.032  Depreciation and Rentals - F l i g h t Equipment T o t a l A i r c r a f t Operating Expenses: Per Block Hour Per Airborne Hour Per A i r c r a f t Mile Per Available Ton-mile ( i n cents) Per Available Seat-mile ( i n cents)  947.41  1.84  10.935 1.386  867.28 1.68 9.613 1.214  SOURCE: C i v i l Aeronautics Board, A i r c r a f t Operating Cost and Performance Report: 1965 and 1966. Volume I (Washington, D.C.: Government P r i n t i n g O f f i c e , 1967)• NOTE: International and T e r r i t o r i a l operation o f the U.S. c a r r i e r s transporting passengers and cargo, i n passenger cabin configuration, with four engine turbo a i r c r a f t .  63  puts its total operating cost above the level of DC-8-50. As one would expect, due to the highest capacity and, thus, available productivity, DC-8F type cost per unit of production, either available ton-mile at 9.417 cents or available seat-mile at 1.032 cents, are the lowest among the models considered above. The combination of lowest productivity and shortest stage length made the DC-8-30 model the most expensive to operate at 12.208 cents per average ton-mile and 1.678 cents cost per available seat-mile. The analysis of the four DC-8 types of aircraft would suggest that the largest of those, DC-8F, when operated over long-haul routes, would produce at the lowest rate per unit of production measured in terms of available ton  or seat-miles. If the payload i s not considered, then  DC-8-50 would operate at the lowest rate per hour or mile, and might then become the least expensive equipment for the purpose, for example, of presidential transport or large executive aircraft. Operating Cost of B-707-300 and DC-8-30 Aircraft in 1966 Table XV, showing operating costs and performance by equipment type, reflects the differences between two types of aircraft produced by two different aircraft manufacturers and operated on Atlantic routes by Pan American Airways. There were 10.8 Boeing B-707 and 11.6 Douglas DC-8 used by Pan Am for i t s Atlantic operations in 1966.  B-707 s were flown for 10.44 hours f  per day as compared to only 8.79 hours for DC-S's. Average stage length of B-707 operations was slightly higher at 1,636 miles than the DC-8 one at 1,541 miles. While Boeings could carry an average of 19.6 tons or 142.2  64 TABLE XV AIRCRAFT OPERATING COST AND PERFORMANCE BY JET EQUIPMENT TYPE, OPERATED BY PAN AMERICAN WORLD AIRWAYS INC. ON ATLANTIC ROUTES IN 1966 Performance, C h a r a c t e r i s t i c s and Expenses PERFORMANCE AND  CHARACTERISTICS  '  B-707-300  DC-8-30  .  Utilization Avrg. A i r c r a f t Assigned to Service Revenue Hours Per A i r c r a f t Per Day Avrg. Stage Length ( i n miles) A i r c r a f t Capacity Avrg. Available Tons Per A i r c r a f t Mile Avrg. Available Seats Per A i r c r a f t Mile Speed Avrg. Airborne Speed ( i n MPH) Avrg. Block to Block Speed ( i n MPH) Productivity Avrg. Available Ton-miles Per Airborne Hour Avrg. Available Seat-miles Per Airborne Hour Traffic Ton Load Factor (per cent) Seat Load Factor (per cent)  .  . 10.8 10.44 1,636  11.6 8.79 1,541  19.6 142.2  17.6 128.9  484 443  489 448  9,512 68,890  8,627 63,008  56.5 57.4  52.2 55.3  AIRCRAFT OPERATING EXPENSES (Per Block Hour i n U.S. D o l l a r s ) F l y i n g Operations Crew Fuel and O i l Insurance Other T o t a l F l y i n g Operations  175.53 267.05 10.36 1.18 454.11 .  Maintenance - F l i g h t Equipment  290.30  280.12  Depreciation and Rentals - F l i g h t Equipment  132.04  155.29  T o t a l A i r c r a f t Operating Expenses: Per Block Hour Per Airborne Hour Per A i r c r a f t Mile Per Available Ton-mile ( i n cents) Per A v a i l a b l e Seat-mile ( i n cents)  876.45 999.53 2.06 10.398 1.500  878.32 1,001.53 2.05 11.610 1.591  164.16 . 265.12 13.23 0.40 442.91  SOURCE: C i v i l Aeronautics Board, A i r c r a f t Operating Cost and Performance Report: and 1966. Volume I (Washington, D.C.: Government P r i n t i n g O f f i c e , 1967).  1965  passengers per a i r c r a f t mile, Douglas a i r c r a f t were smaller with 17.6 ton capacity and 128.9 passenger capacity per mile.  There was l i t t l e d i f -  ference i n airborne and block to block speeds of both models. productivity was recorded f o r B-7G7 s T  i n accordance with t h e i r higher  capacity at the same airborne speed at 9,512 miles f o r DC-8 s. ,  Higher  ton-miles versus 8,627 ton-  Higher load factors were shown f o r B-707 group.  T o t a l a i r c r a f t operating expenses of both types of a i r c r a f t per block hour were almost the same.  While there were differences i n the  l e v e l of costs regarding i n d i v i d u a l cost categories, t h e i r mutually o f f setting e f f e c t resulted i n a very s i m i l a r t o t a l operating cost. The difference i n capacity between the two models, which favored Boeing with approximately 10 per cent higher capacity, was r e f l e c t e d i n differences between costs per u n i t of output. available ton-mile versus 11.610 cents f o r DC-8 pared to 1.591  The 10.398 cents per and 1.500  cents as com-  cents per available seat-mile respectively, show an  advantageous p o s i t i o n of higher capacity equipment when other relevant factors are equal.  Conclusions The foregoing analysis shows that the A t l a n t i c operations of average stage length between 1,500  and 1,600 miles, of the largest i n t e r n a t i o n a l  a i r c a r r i e r with j e t four-engine equipment, y i e l d costs per u n i t of production only s l i g h t l y lower than the industry averages depicted i n Tables XIII and XIV.  The summary i s presented i n Table XVI.  While  average stage length and airborne speed of a i r c r a f t were approximately the same f o r a l l the categories of equipment, the capacity varied from  66 larger Boeing B-707-300 equipment at 142 average available seats per aircraft mile to 135 industry average and to the Douglas DC-8-30 capacity of about 129 seats. Boeing 707 aircraft operating costs per unit of output are lower than industry average and DC-8-30 equipment appears to have this index higher than industry average in 1966. TABLE XVI SUMMARY OF AIRCRAFT OPERATING COSTS IN 1966 Ton-Mile  Per Available Seat (Passenger) Mile (in U.S. Cents)  Industry Average of Jet Equipment— Table XIII  11.076  1.511  DC-8-30—Table XIV  12.208  1.678  10.398 11.610  1.500 1.591  Pan Am Operated Equipment on Atlantic Routes—Table XV B-707 DC-8-30  Turbo-fan equipment analysed according to the statistics presented in Tables XIII and XIV appears to have lower total operating costs per block hour than jet equipment and, due to larger available capacity and related productivity, seems to be less expensive per unit of production, everything else being equal.  CHAPTER V  NORTH ATLANTIC AND TRANSCONTINENTAL ROUTES: COST OF CANADIAN CARRIERS» OPERATION The objective of t h i s chapter i s , f i r s t l y , to compare the Canadian carriers  1  a i r c r a f t operating costs on North A t l a n t i c routes with a i r c r a f t  operating costs of the U.S. c a r r i e r s using similar equipment f o r operating i n t e r n a t i o n a l routes of similar stage length i n 1966; and, secondly, to compare a i r c r a f t operating costs, i n d i r e c t costs and t o t a l route operating costs of Canadian a i r c a r r i e r s on the North A t l a n t i c with t h e i r domestic transcontinental experience i n that same year. Canadian and American C a r r i e r s : DC-8 A i r c r a f t Operating Costs on International Routes The U.S. c a r r i e r s  1  a i r c r a f t operating costs and performance charac-  t e r i s t i c s data are drawn from Tables XIII and XIV, shown on pages 58 and 62 respectively.  These data are repeated here f o r the purpose of c l a r i t y and  ease of the analysis. The performance and cost s t a t i s t i c s f o r Canadian c a r r i e r s r e f l e c t part of the operations of A i r Canada and Canadian P a c i f i c A i r Lines i n 1966. They were obtained from o r i g i n a l s t a t i s t i c a l statements f i l e d monthly by these two c a r r i e r s with the A i r Transport Committee at Ottawa.  Some of  the information i s available to the general public on request, some aggregate figures are published p e r i o d i c a l l y by the Dominion Bureau o f Statistics.  The information concerning i n d i v i d u a l route operations i s  secret, and accessible only to the Commissioners and Directors of t h i s  68 Committee.  S p e c i a l p e r m i s s i o n was o b t a i n e d f r o m t h e above-mentioned  r i e r s to use t h e i r route s t a t i s t i c s ,  providing that i n d i v i d u a l  car-  route  f i g u r e s would n o t be i d e n t i f i e d , n o r an i n d i v i d u a l c a r r i e r ' s group o f routes singled out.  As t h o s e g u i d e l i n e s were c a r e f u l l y f o l l o w e d i n p r e -  paration of relevant Tables,  c e r t a i n u n d e s i r a b l e e f f e c t s were p r o d u c e d .  F o r example, s t a g e l e n g t h . o f t h e N o r t h A t l a n t i c and t h e  transcontinental  groups o f r o u t e s d i f f e r c o n s i d e r a b l y , as w e l l as c a p a c i t y i n d i c e s .  The  d e t e r m i n a t i o n o f w h i c h t y p e o f DC-8 a i r c r a f t was o p e r a t e d on w h i c h r o u t e , o r a r a t i o o f t h e m i x t u r e i n equipment u s e d was n o t p o s s i b l e f o r a l a c k of a v a i l a b l e records w i t h the c a r r i e r s concerned. were o p e r a t e d i n passenger c o n t i n e n t a l r o u t e s i n 1966,  The f o l l o w i n g  s e r v i c e s on t h e N o r t h A t l a n t i c and t h e according t o the companies'  aircraft trans-  sources:  TABLE X V I I JET AIRCRAFT FLEET OF CANADIAN INTERNATIONAL SCHEDULED AIR CARRIERS I N 1966 Carrier A i r Canada  Type o f A i r c r a f t D C - 8 - 4 1 , 43  DG-8-54  Canadian P a c i f i c A i r Lines  Lines.  SOURCE:  DC-8-40  No. of A i r c r a f t  Standard No. of Seats  11  117 economy c l a s s 16 f i r s t c l a s s 133 t o t a l  8  123 economy c l a s s 16 f i r s t c l a s s 139 t o t a l 117 economy c l a s s 16 f i r s t c l a s s 133 t o t a l  I n t e r n a l r e c o r d s o f A i r Canada and C a n a d i a n P a c i f i c A i r  The D C - 8 - 4 0 s e r i e s a i r c r a f t d i f f e r f r o m DC-8-30 s e r i e s o n l y i n t h e type of engines.  W h i l e U . S . c a r r i e r s o p e r a t e DC-8-30 models e q u i p p e d w i t h  69  Pratt-Whitney engines, both Canadian carriers had theirs equipped with Rolls Royce engines, and thus originated the 40 series. In order to obtain a comparison as f a i r as possible, the U.S. carriers aircraft operating costs and performance data for DC-8-30 and DC-8-50 types are compared with the Canadian North Atlantic routes experience, where both of these types were flown, i n Table XVIII. The average stage length depicted i n Table XVIII varied considerably between the DC-8-30 and DC-8-40/50, while DC-8-50 record at 2,012 miles was relatively close to DC-8-40/50 stage length of 2,405 miles. Appendix D, consisting of two graphs relating operating costs and operating range, shows higher operating costs at the stage length of 1,461 miles, as compared to either 2,012 or 2,405 miles stage lengths.  The  figures, however, show the difference on the grounds of one flight over that distance, while the averages i n our case represent numerous flights with an overall average distance as specified above. This means that the total cost differential would grow with the number of trips. The difference i n aircraft capacity i n Table XVIII i s caused by the difference between a short ton used by Canadian and a long ton used by American carriers as a measurement unit. Available seat capacity varied from 127.0 seats for DC-8-30 to 133.3 for the Canadian 40/50 combination, to American carriers 138.1 seats for 1  DC-8-50 models. The same order of quality of aircraft characteristics was maintained regarding airborne and block to block speeds, where DC-8-30»s 490 and 450 miles per hour respectively are lower than DC-8-50*s 517 and 488 miles,  70 TABLE XVIII OPERATING COST AND PERFORMANCE OF DC-8 JET AIRCRAFT OPERATED ON INTERNATIONAL ROUTES IN 1966 , Performance, C h a r a c t e r i s t i c s and Expenses  Canadian C a r r i e r s North A t l a n t i c Operations DC-8-40/DC-8-50  U.S. Carriers International/Territorial Operations DC-8-30 DC-8-50  PERFORMANCE AND CHARACTERISTICS Utilization '. Avrg. Stage Length ( i n miles) A i r c r a f t Capacity Avrg. Available Tons Per A i r c r a f t Mile Avrg. Available Seats Per A i r c r a f t Mile Speed Avrg. Airborne Speed ( i n MPH) Avrg. Block to Block Speed ( i n MPH) Productivity Avrg. Available Ton-miles Per Airborne Hour Avrg. Available Seat-miles Per Airborne Hour  2,405  1,411  2,012  17.4 .127.0  17.5 138.1  500 489  490 450  517 488  10,016 66,627  8,546 62,207  9,030 71,440  20.0* 133.3  Traffic Ton Load Factor (per cent) Seat Load Factor (per cent)  50.0 60.3  54.2 56.1 .  56.6 63.9  AIRCRAFT OPERATING EXPENSES (Per Block Hour i n U.S. Dollars)-)** F l y i n g Operations Crew Fuel and O i l Insurance). Other ) T o t a l F l y i n g Operations  379.67  162.96 285.08 14.27 0.93 463.24  173.69 195.87 9.20 0.43 379.20  .234.41  308.36  181.11  Depreciation and Rentals - F l i g h t Equipment  149.10  149.80  249.37  T o t a l A i r c r a f t Operating Expenses: Per Block Hour Per Airborne Hour Per A i r c r a f t Mile Per Available Ton-mile ( i n cents) Per Available Seat-mile ( i n cents)  763.18 780.37 I.56 7.805 1.171  921.40 1,043.28 2.13 12.208 1.678  809.69 867.28 1.68 9.613 1.214  Maintenance - F l i g h t Equipment  128.31 213.11 38.25  . '  SOURCES: C i v i l Aeronautics Board, A i r c r a f t Operating Cost and Performance Report: 1965 and 1966. Volume I (Washington, D.C.: Government P r i n t i n g O f f i c e , 1967). • A i r Transport Committee, Canadian Transport Commission, S t a t i s t i c s Section, C a r r i e r s • Statements, 1966, Unpublished documents. ' * Short ton = 2,000 pounds. • *«• Converted from Canadian D o l l a r s at a rate of  $0,926 U.S. per $1.00 Canadian.  71 with the Canadian carriers combination characteristics in between. The variance in speed and capacity among the three groups was reflected in varied productivity of each group. The load factor indicators are influenced predominantly by route structure of the carriers operating a particular type of equipment and have l i t t l e relationship to aircraft characteristics.  In this case, the  ton load factor varied from a low of 50 per cent for the North Atlantic routes to 54.2 per cent for DC-8-30, to 56.6 per cent for DC-8-50. The order changed where seat load factor was concerned from 56.1 per cent for DC-8-30, to 60.3 per cent for the Canadian carriers and 63.9 per cent for the U.S. carriers operating series 50. Aircraft operating expenses showed substantial differences among a l l the groups in each cost category. The crew salaries expense should be associated with the nationality of a carrier rather than the equipment. It i s generally known that there i s a disparity between Canadian and American flying personnel wages, and this disparity i s reflected in the Table. However, this was not the only reason for the difference as each carrier*s salary scale, while always based on the seniority of its employees, has a different formula to determine the level of remuneration on individual routes, taking into consideration the type of aircraft flown, the duration of the total return trip, the destination—whether domestic, territorial or international flight—and other factors. Given these considerations, the average crew cost per block hour on DC-8-50 of the U.S. carriers was at $173.69, about 35.4 per cent higher than the average cost of Canadian crews at $128.31.  72 There was a wide difference among the fuel and o i l costs of the analysed equipment. The DC-8-50 low figure at $195.87 could be attributed, firstly,to its more economical turbo-fan engines and, secondly, to a favorable average stage length at 2,012 miles. The DC-8-50/DC-8-40 combination showed slightly higher costs, which at even longer average stage length of operation have to be attributed to the effect of the DC-8-40 jet engines.  This statement i s justified by a relatively high cost of fuel  for DC-8-30 model which, as explained at the outset, was about the same as the Canadian DC-8-40. Insurance of flying equipment was substantially higher for the Canadian operated equipment, perhaps due to Air Canada's self insurance policy, where the carrier participates in insuring i t s aircraft by accumulating insurance premiums on a portion of its fleet and paying itself part of the damages when an accident occurs. Total flying operation costs of DC-8-30 were high at $463.24 as compared to the other two groups of aircraft, which were about the same at approximately $379.00. Maintenance flight equipment cost depends on the utilization of aircraft and the efficiency of the design of its power plant, the level of salaries paid to the maintenance personnel and on their efficiency. The proportion of these factors importance within the cost of each aircraft groups maintenance i s difficult to determine. Depreciation rate i s determined in accordance with aircraft u t i l i zation, i t s capital cost, and its duration of service expectancy.  As the  depreciation here was combined with rental costs, the difference among individual type groups could be attributed to either one.  73 The Canadian North A t l a n t i c t o t a l operating cost per block hour was at $763.18, the lowest of the three categories compared.  T o t a l operating  cost per block hour of DC-8-50 at $809.69 was only about 6 per cent higher than the Canadian one, while the DC-8-30 cost at $921.40 represents a subs t a n t i a l difference of almost 21 per cent. The comparative l e v e l of other i n d i c a t o r s of operating costs per u n i t of production maintains the same ranking among the analysed equipment as the cost per block hour determined.  The Canadian equipment operated on  the North A t l a n t i c routes produced an available ton-mile at 7.805 cents and an available seat-mile at 1.171 DC-8-50 were 9.613  cents.  The respective figures f o r  and 1.214, f o r DC-8-30 12.208 and 1.678.cents.  The comparative  analysis above has been c a r r i e d out by using the  most relevant data from those a v a i l a b l e .  I t does not mean, however, that  t h i s information provides a uniform basis f o r an analysis of a i r c r a f t operating costs.  Unfortunately, the differences i n a i r c r a f t performance  and c h a r a c t e r i s t i c s of the three groups of DC-8 models, p a r t i c u l a r l y stage length, a i r c r a f t capacity, productivity and t r a f f i c loads, l e a d i n e v i t a b l y to differences i n costs.  While uniform comparable data are  almost impossible to obtain due to the host of i n f l u e n c i n g factors, the aforegoing analysis furnishes an i l l u s t r a t i o n of cost differences which i s f a i r l y close to the r e a l i t y . The comparison and analysis of operating costs of the three groups of a i r c r a f t p a r t i c i p a t i n g i n North A t l a n t i c and i n t e r n a t i o n a l a i r services reveals that so f a r as similar equipment i s concerned,  Canadian c a r r i e r s  have been operating at lower cost than t h e i r American counterparts.  Con-  74 sidering other types of equipment, which aircraft operating costs per production unit were analysed i n the previous chapter, Canadian carriers cost indicators are s t i l l the lowest.  As has already been indicated, the main  reason for this difference appears to be due to the lower cost of crews and maintenance labor of Canadian carriers. Canadian Carriers Operating Cost Analysis: Transcontinental. and North Atlantic Cases 1  Aircraft Operating Cost Analysis The aircraft operating costs of Canadian international scheduled air carriers, Air Canada and Canadian Pacific Air Lines, are examined f i r s t to obtain the differences between their domestic transcontinental and international trans-Atlantic experiences. Table XIX discloses f i r s t , a substantial difference between average stage lengths of the transcontinental and the North Atlantic operations. This difference w i l l , undoubtedly, influence fuel consumption and, thus, fuel costs. The figures presented i n Appendix D show a slight cost d i f ferential between 1,490 miles and 2,405 miles stage length i n dollars per mile and per seat-mile for several DC-8 models. DC-8-50 model cost d i f ferential between the two flying ranges appears to be approximately 5 per cent or 7 cents per statute mile and 4 per cent or 2.5 cents per seatmile.  As the data i n Appendix D relate to a flight over certain mile  range and not to average of mile range and, as there i s no way of determining which actual ranges our average stage lengths are composed of, the monetary differences expressed above cannot be used for adjusting the direct cost differential.  75 TABLE XIX OPERATING COST AND PERFORMANCE OF DC-8 JET AIRCRAFT OPERATED BY CANADIAN SCHEDULED CARRIERS ON LONG HAUL ROUTES IN 1966  Performance, C h a r a c t e r i s t i c s and Expenses  North A t l a n t i c  Routes Transcontinental  PERFORMANCE AND CHARACTERISTICS Utilization Avrg. Stage Length ( i n miles)  2,405  1,490  A i r c r a f t Capacity Avrg. Available Tons.Per A i r c r a f t Mile Avrg. Available Seats Per A i r c r a f t M i l e  20.0 133.3  21.6 128.1  500 489  500 466  10,016 66,627  10,537 62,607  50.0 60.3  52.8 73.3  128.31 213.11  90.76 258.78  38.25  34.75  379.67  384.29  Maintenance - F l i g h t Equipment  234.41  252.99  Depreciation and Rentals - F l i g h t Equipment  149.10  154.56  T o t a l A i r c r a f t Operating Expenses: Per Block Hour Per Airborne Hour Per A i r c r a f t Mile - Per Available Ton-mile ( i n cents) Per Available Seat-mile ( i n cents)  763.18 780.37 1.56 7.805 1.171  791.84 831.00 1.70 7.872 1.327  Speed Avrg. Airborne Speed ( i n MPH) Avrg. Block to Block Speed ( i n MPH) Productivity Avrg. Available Ton-miles Per Airborne Hour Avrg. Available Seat-miles Per Airborne Hour Traffic Ton Load Factor (per cent) Seat Load Factor (per cent) AIRCRAFT OPERATING EXPENSES (Per Block Hour i n U.S. D o l l a r s ) * F l y i n g Operations. Crew Fuel and O i l Insurance). Other ) T o t a l F l y i n g Operations  SOURCE: A i r Transport Committee, Canadian Transport Commission, S t a t i s t i c s Section, C a r r i e r s ' Statements, 1966. Unpublished documents. * Converted from Canadian D o l l a r s at a r a t e o f $0,926 U.S. per $1.00 Canadian. NOTE: A i r c r a f t Insurance expenses o f A i r Canada i n 1966 were about double the usual l e v e l , due to the c a r r i e r ' s adjustment o f i t s depleted insurance funds. T h i s was caused by the payments to the p a r t i e s that suffered i n j u r i e s i n the c a r r i e r ' s a i r c r a f t accident i n 1963Therefore, the 1967 insurance f i g u r e s were used t o r e f l e c t a usual l e v e l o f a i r c r a f t insurance cost per year.  76 The frequency i n which the two models of aircraft were used i n each market and, perhaps, different seat capacity arrangement on individual aircraft resulted i n the differences i n average seat and ton-miles per a i r craft mile i n each market. Block speeds were lower due to shorter hops on transcontinental services, at 466 miles as compared to 489 miles on trans-Atlantic routes. While there were more ton-miles available per airborne hour domest i c a l l y , there were more seat-miles available on North Atlantic routes i n 1966.  The ton load factor on transcontinental routes was 2.8 per cent  higher at 52.8 per cent than on North Atlantic routes.  Seat load factors  were far apart i n the two markets at 73.3 per cent and 60 per cent respectively.  The high seat load factor on transcontinental services indicates  lack of capacity to adequately serve this market. The almost monopolistic position of Air Canada here should gradually change, with more of Canadian Pacific Air Lines transcontinental services being allowed during the 1  coming years, into a semi-competitive  situation which could yield better  quality of services i n that market. While total aircraft operating costs per block hour at $763.18 for North Atlantic services and $791.84 for transcontinental runs were only 3.7 percentage points apart, individual categories of i t s cost components d i f fered substantially. Crew cost at $128.31 per block hour for trans-Atlantic flying was about 41.4 per cent above the transcontinental experience at $90.76 per block hour. The high level of the former group's costs was due to the duration of the actual flying time and a stay abroad overnight when  77 waiting to operate the next f l i g h t on the return leg of i t s journey.  The  associated higher pay per hour when the f i r s t several hours at normal rates are exceeded and higher allowances for a stay abroad cause the d i f f e r e n t i a l between the crew costs. Fuel and o i l costs appear to be higher i n transcontinental f l y i n g at $258.78 over $213.11 per block hour. The difference i n average stage length, as indicated before, was reflected i n higher costs i n t h i s category as well as perhaps high load factors on t h i s segment of the domestic market. The differences between the two markets costs i n a l l other cost categories appear to be r e l a t i v e l y i n s i g n i f i c a n t , with an offsetting tendency regarding the t o t a l costs.. I t should be noted that Canadian P a c i f i c Air Lines had rented a l l i t s DC-8 equipment while A i r Canada owned a l l of i t s DC-8 a i r c r a f t i n 1966. I t appears to be primarily high cost of f u e l and o i l which causes the t o t a l cost per any unit of production of transcontinental service to exceed the costs of North Atlantic operation.  In addition to fuel cost,  s l i g h t l y higher maintenance, depreciation and rental costs not only offset the r e l a t i v e l y low l e v e l of crew cost but bring the t o t a l cost above the North Atlantic t o t a l . The cost per available ton-mile at 7.805 cents and available seatmile at 1.171 cents for North Atlantic service compares favorably with 7.872 cents and 1.327 cents respectively for transcontinental service. I t has to be realized here, that the variation i n available capacity per a i r c r a f t mile brings the difference i n costs of capacity indicators even further apart.  While the direct operating costs i n the two markets are not identical, they are quite close where a block hour production indicator i s concerned. The difference between the North Atlantic operation cost at $763.18 and the transcontinental one at $791.84 i s only $28.66 i n favor of the former. This represents only about 3.6 per cent of the latter cost. Indirect Cost Analysis The indirect costs of Canadian carriers incurred i n operation of the North Atlantic and transcontinental routes are shown i n Table XX. These costs are related to the same type of operation as the direct costs analysed above. The f i r s t cost category i n Table XX, direct maintenance, ground property and equipment, was slightly higher for the transcontinental routes at $13.66 than for the North Atlantic group of routes at $11.58 per block hour. The same relationship was maintained concerning depreciation cost, where the level per block hour was $15.68 and $13.63 respectively. Passenger services also appeared to be more costly on the domestic group of routes than on the international ones at $171.35 and $162.03 respectively. The cost of aircraft and t r a f f i c servicing which includes station and regional expenses and landing fees, i s much higher for the North Atlantic routes at $235.38 as compared to $175.74 for the transcontinental routes.  The t r a f f i c and servicing costs here have been allocated to each  route according to a certain key . T  T  Those costs, as well as a l l the costs  compared above, were, i n absolute terms, higher for the North Atlantic group of routes.  However, due to much larger total volume of flying on  those routes, which measured by any production indicator exceeded 150 per  79 TABLE XX INDIRECT COST INCURRED BY CANADIAN SCHEDULED CARRIERS IN OPERATING LONG RANGE ROUTES WITH DC-8 AIRCRAFT ,IN 1966 Indirect Expenses  Routes North Atlantic Transcontinental  (Per Block Hour i n U.S. Dollars) Direct Maintenance Ground Property & Equipment  $ 11.58  $ 13.66  13.63  15.68  Passenger Services  162.03  171.35  Aircraft & Traffic Servicing*  235.38  175.74  Promotion & Sales  395.11  283.59  General Administration  71.93  65.06  Interest Expenses  78.95  79.67  968.61 990.40 1.98 9.888 1.486  804.75 863.49 1.73 8.015 1.349  Depreciation Maintenance Equipment, Ground Property & Equipment  Total Indirect Expenses: Per Block Hour Per Airborne Hour Per Aircraft Mile Per Available Ton-mile (in cents) Per Available Seat-mile (in cents)  SOURCE: Canadian Transport Commission, Air Transport Committee, Statistics Section, Carriers' Statements, 1966. Unpublished documents. *  Includes Landing Fees.  80 cent of the transcontinental routes production, those costs per unit of production were lower than on the latter group of routes i n a l l cases, with the exception of aircraft and traffic, servicing.  It would appear to i l l u s t r a t e  the economies of scale achieved on the North Atlantic routes. So far as landing fees were concerned, this category, of costs was directly traceable to the operation of each group of routes.  As these costs  were incurred as a result of the performance of transportation they should be grouped with direct, or out-of-pocket costs.  The total cost of landing  fees i n the North Atlantic operations was, i n absolute terms, about five times as high as the total incurred i n the transcontinental operations. The cost of landing per block hour on transcontinental routes was approximately U.S. $28.00, while on the North Atlantic routes i t reached about U.S. $93.00 per block hour. Promotion and sales appear to be much costlier i n case of the North Atlantic operations than the transcontinental services. It was $395.11 for the former and $283.59 for the latter group of routes. General administration costs at $71.93 and $65.06 on the North Atlant i c and transcontinental routes respectively were not too far apart. Interest expenses were on approximately the same level at $78.95 and $79.67 respectively. Total indirect,expenses at $968.61 per block hour on the North Atlantic routes and $804.75 on transcontinental routes differed by $163.86. This difference was composed of about $70.00 for higher landing fees charged for international flights and about $112.00 for promotion and sales, which also partly offset the lower costs for some other expense items.  The costs  81 per aircraft mile were $1.98 on the North Atlantic routes and $1.73 on the transcontinental routes.  The respective costs per available ton-mile  were 9.888 cents and 8.015 cents while per available seat-mile were 1.486 cents and 1.349 cents. It could be concluded that the indirect costs of operating the North Atlantic scheduled routes by Canadian carriers were higher than those of operating the transcontinental scheduled routes i n 1966 by approximately 10 per cent when an available seat-mile i s used as a yardstick, and between 15 per cent and 23 per cent when other production indicators were considered. Total operating expenses per unit of production, composed of a i r craft operating costs and indirect costs, are shown i n Table XXI below. TABLE XXI TOTAL OPERATING COST INCURRED BY CANADIAN SCHEDULED CARRIERS IN OPERATING LONG RANGE ROUTES WITH DC-8 AIRCRAFT IN 1966  .  Routes North Atlantic Transcontinental (in U.S. Dollars)  Total Operating Cost: Per Block Hour $ 1,731.80 Per Airborne Hour 1,770.80 Per Aircraft Mile 3.54 Per Avrg. Available Ton-mile (in cents) 17.679 Per Avrg. Available Seat-mile (in cents) 2.658  $ 1,596.59 1,675.56 3.43 15.902 2.676  SOURCE: Tables XIX and XX, pp. 75 and 79. It follows from the foregoing analysis that the difference between operating costs per block hour on the North Atlantic routes and the transcontinental routes was caused primarily by the categories of costs which, according to this classification of costs, belonged to the indirect costs  82 group. These were landing fees and promotion and sales costs which even offset the favorable cost picture of the North Atlantic routes when only aircraft operating costs were considered.  In that group i t was clearly  the influence of a substantially longer average stage length which resulted in lower expenses on the North Atlantic routes regarding fuel costs and maintenance. When an average seat-mile i s used as a yardstick, the cost d i f ferential between the two groups of routes disappears.  As the average  aircraft capacity varied between the North Atlantic and transcontinental services, this indicator could not be considered as a good one for the' comparison.  However, i t should be noted that the capacity of aircraft  has a tremendous impact on the operating costs measured by production indicators which take i t into consideration. The proportion of direct and indirect costs of the total operating cost i s depicted below. Per cent Direct Cost  Indirect Cost  Total  Transcontinental Operations  49.6  50.4  100  North Atlantic Operations  44.1  55.9  100  While the transcontinental route costs were approximately equally divided between the direct and indirect, the North Atlantic direct costs reached only about 44 per cent of the total costs on those routes.  CHAPTER VI COST CONCEPTS IN TRANSPORTATION ECONOMICS The two preceding chapters dealt with a comparison of aircraft operating costs, indirect and total route operating costs of American and Canadian a i r carriers.  This cost breakdown was adopted from the data  sources available to the public i n that form only.  This form and the de-  t a i l disclosed are guided by accounting rules of individual U.S. carriers and the International C i v i l Aviation Organization for the purpose of comparability of the yearly financial results. For the purpose of a simple quantitative comparison, this breakdown was quite satisfactory. However, for the purpose of determining the relationship between airline pricing and the cost of operations on the North Atlantic as compared to the same relationship on the transcontinental routes i n Canada, this breakdown i s unsuitable. The objective of this chapter i s , therefore, to discuss various cost concepts used by transportation economists and to determine which concept should be employed i n establishing a f a i r basis for airline pricing on the North Atlantic as compared to the Canadian transcontinental routes. It should be noted at the outset that this chapter i s not intended to examine thoroughly a l l transportation costing concepts, but only so far as deemed necessary for the purpose of this thesis. Identification of Cost Concepts Variable Costs.  Costs which, i n the aggregate, vary with output.  84 Fixed Costs. Those costs which are, i n the aggregate, absolutelyfixed when a change i n output takes place.  In effect, they are the aggre-  gate amount of costs which would be incurred by the firm even i f no output took place. Total Cost.  Fixed cost plus variable cost.  When divided by output  this i s often termed »fully allocated cost , though this i s a contradiction 1  in terms as fixed costs can never be identified with a particular output. Marginal Cost.  Strictly speaking, marginal cost i s the extra cost  of the last unit of output produced, or, to put i t differently, the expense that might be saved by cutting one unit from the total volume of production. The similarity of the definitions of variable cost and marginal cost may be noted.  The marginal cost for the last unit of output i s the same as the  variable cost of that unit.  However, when the variable costs are averaged  over a l l the output, the resulting average variable costs do not correspond to the marginal cost of the additional unit of output. Out-of-pocket Costs.  Out-of-pocket costs are defined as those extra  costs which are incurred by reason of the transportation of a particular lot of goods, which would not have been incurred i f the goods had not been transported. This definition of out-of-pocket would correspond to the definition of marginal cost i f only one extra unit were transported.  I f the additional  output, referred to the entire transportation of a particular commodity, outof-pocket cost would correspond to average variable cost i f divided by the output.  85  Joint Cost. Joint costs are costs incurred jointly by two types of service, i n that one cannot be produced without the other.  An empty return  journey i s a joint cost which i s incurred because the outward journey was made. The cost of either the outward or the return journey (apart from small directly allocated costs such as are incurred i n passenger-handling, loading freight) cannot be isolated. A l l that can be done i s to allocate the joint cost over the total t r a f f i c i n both directions. Common Cost. A common cost i s one that i s incurred by two or more services, for instance, passenger and freight services. A joint cost i s i n e v i t a b l e — i f A is. to be produced then B must also be produced—as i n the case of a return journey. But a common cost i s not inevitable. I f A i s to be produced, then i t i s not inevitable that B i s also produced.  The  operation of passenger services over a line does not mean that a freight service must also be produced.  If a carrier chose to run only passenger  flights, the cost could be directly allocated to passenger services. I f the line i s used also to run freight flights some of the station expenses become common costs.  The cost can be set against the aggregate movement  of the t r a f f i c but i t cannot be precisely allocated as between passengers and freight. Overhead Costs.  When the variable costs have been separated from  total cost, the remaining costs may be termed 'overheads*. This i s a term used to describe those indivisible costs which cannot be directly allocated to particular units of t r a f f i c . joint, and common cost.  It, therefore, includes elements of fixed,  It also includes elements of variable costs when  86 the u n i t of output i s l a r g e r than the r e s u l t i n g u n i t of c o s t .  For example,  d i r e c t labour i s a v a r i a b l e cost but i t i s overhead when the cost of one passenger i s being  considered.  D i r e c t and I n d i r e c t Costs As was mentioned before, none of the above concepts are r e l a t e d d i r e c t l y t o the form i n which the cost data were presented i n the l a s t chapter. The most f i t t i n g d e f i n i t i o n f o r t h i s group of costs appears to be that of Professor Cherington: A i r c r a f t Operating Expenses, sometimes c a l l e d d i r e c t operating expenses or simply d i r e c t expenses, i n c l u d e those items of expense which can be d i r e c t l y t r a c e d t o the operation of a i r c r a f t , such as p i l o t s * pay, f u e l , d i r e c t a i r c r a f t maintenance and a i r c r a f t d e p r e c i a t i o n . Ground and I n d i r e c t expenses i n c l u d e a l l other operating expense items i n c l u d i n g t r a f f i c s o l i c i t a t i o n and handling, ground operations, and a d m i n i s t r a t i v e expenses. D i r e c t operating cost categories as grouped by the U.S.  c a r r i e r s and  the ICAO, are shown below: 1)  F l y i n g operations - Crew s a l a r i e s ; Fuel and O i l ; F l i g h t Equipment Insurance;  2)  Maintenance and overhaul of f l i g h t equipment;  3)  Depreciation of f l i g h t equipment and i t s r e n t a l .  This group does not i n c l u d e landing fees as these do not r e l a t e d i r e c t l y t o the a i r c r a f t operation, nor does i t i n c l u d e e n t i r e crew s a l a r i e s category.  A l l f l y i n g personnel, crews and cabin attendants, have i n most  ^Submission of the Province of B r i t i s h Columbia t o the Royal Commission on Transportation, Part I I ( V i c t o r i a , B.C.: Government P r i n t i n g Office,.. February, I960), pp. 14—15. P a u l W. Cherington, A i r l i n e P r i c e P o l i c y (Boston: Graduate School of Business A d m i n i s t r a t i o n , Harvard U n i v e r s i t y , 1958), p. 45. 2  87 airlines fixed yearly salary and, on top of i t , a bonus pay for flying certain routes.  This grouping does not include any cabin attendants expense  at a l l . While Canadian carriers* statistical reports include landing fees in the direct cost group, for the purpose of the comparison with the  U.S.  carriers i t had to be transferred to the indirect cost group. The following costs may be identified as indirect operating costs as they cannot be directly traced to the operation of aircraft: 1)  Direct maintenance of ground property and equipment;  2)  Depreciation of maintenance equipment and ground property and equipment;  3)  Passenger service—Cabin crew salaries; Passenger food and supplies;  4)  Aircraft and t r a f f i c servicing—station and regional costs;  5)  Promotion and sales;  6)  General and administration;  7)  Interest expense.  From the point of view of f a i r allocation of indirect cost to various services like passenger, cargo or mail, domestic or international, costs such as administrative and general expenses, station and regional expense, depreciation of ground property, represent common costs, and i t i s d i f f i c u l t to determine exactly which service should bear what part of these expenses. Each individual airline has i t s own *key* by which the costs are allocated and, hence, i t i s hardly realistic to compare airline unit cost per certain type of service, route, or equipment, due to these inherent heterogenities in allocation of indirect costs.  88  According t o the Canadian P a c i f i c A i r Lines experience i n 1965, the proportion of d i r e c t and i n d i r e c t costs was the f o l l o w i n g : Per cent D i r e c t Cost  I n d i r e c t Cost  Total  Domestic Operations  60  40  100  I n t e r n a t i o n a l Operations  52  48  100  T o t a l Operations  55  45  100  Of the t o t a l d i r e c t cost of 55 per cent about 25 per cent represents  flight  operations, 17 per cent maintenance, and 12 per cent d e p r e c i a t i o n of f l y i n g equipment. In concluding the d i s c u s s i o n of d i r e c t and i n d i r e c t costs, i t would appear, from the economist's viewpoint, that r e l a t i n g these costs t o ' a i r c r a f t operation' i s i n c o r r e c t as the purpose o f an a i r l i n e i s not t o operate a i r c r a f t but, by the means o f u t i l i z i n g a i r c r a f t , t o transport passengers o r goods between points of o r i g i n and d e s t i n a t i o n f o r monetary consideration. In other words, i t i s the operation of an a i r l i n e as a company r a t h e r than operation of a i r c r a f t which a t t r a c t s the focus o f the economic a n a l y s i s f o r the purpose of the minimum r a t e  determination.  Moreover, the economist's i n t e r e s t being centred on the a l l o c a t i o n of scarce resources, the marginal cost, or the v a r i a b l e cost o f the l a s t u n i t produced would seem t o r e f l e c t the relevant cost concept important f o r the consideration of a minimum r a t e b a s i s . Out-of-pocket Cost Professor G.W. Wilson, i n h i s a n a l y s i s o f economist's d e f i n i t i o n o f  89  cost relevant to minimum pricing concept, indicates the d i f f i c u l t i e s incurred by determining an actual level of marginal cost per unit of production, and finds the following variables to influence the magnitude of marginal costs:^ 1)  The different elasticities of transport demand;  2)  The degree of temporal and spatial excess capacity;  3)  Geographical cost differences;  4)  The time span and contractual agreements of the various suppliers of transport;  5)  The relative importance of the particular t r a f f i c ;  6)  Whether the additional t r a f f i c helps to balance the movement or not; and  7)  Whether the t r a f f i c i s offered sporadically or regularly.  The complexity of varying cost, whether during the long or short run, and the magnitude of variables involved led Professor Wilson to a statement that: "...marginal cost i s a most elusive and variable quantity i n transportation".^ Minimum rates i n a cost oriented pricing system should be related to out-of-pocket costs.  The out-of-pocket cost based pricing appears to have  had most advocates among the economists, one of the strongest being Professor Roberts;5 ^G.W. Wilson, Essays on Some Unsettled Questions i n the Economics of Transportation (Bloomington, Indiana: Foundation for Economic and Business Studies, Indiana University, 1962), p. 34. ^Ibid., p. 40. 5  -'Merril Roberts,. "Regulation and Economic Efficiency", Traffic World (April, 1959), p. 26; Dudley F. Pegrum, "Do We Have a New Rule of Rate Making", Traffic World (February, 1959), p. 54.  90 The path t o economic e f f i c i e n c y l i e s i n market-oriented p r i c e s or i n administered p r i c e s that are patterned a f t e r them. The pursuit of e f f i c i e n c y requires b a s i c a l l y that ( l ) out-of-pocket costs be recognized as the relevant cost measure i n competitive p r i c i n g and that (2) these costs be f u l l y asserted i n the i n t e r e s t s of low-cost c a r r i e r s and shippers, as well as of society at l a r g e . F u l l y d i s t r i b u t e d costs are a f a l s e p r i c i n g standard because of adverse e f f e c t s on revenue generation. I t i s quite meaningless to establ i s h as a norm f o r rates a sum composed o f out-of-pocket cost plus an a r b i t r a r y pro r a t a share of the overhead....In many circumstances a rate lower than the f u l l y d i s t r i b u t e d costs y i e l d s a greater t o t a l contribution to p r o f i t than one which equates with t h i s s t a t i s t i c a l allocation. I t follows from the foregoing discussions, that i n order to determine the r e l a t i o n s h i p between the costs on the North A t l a n t i c and transcontinental markets, a f a i r cost basis has t o be established. of-pocket  As the out-  cost concept appears to be the most acceptable one, the a v a i l a b l e  costs concerning  the above-mentioned routes are grouped i n accordance with  the out-of-pocket cost c r i t e r i a i n Table XXII. The f i r s t f i v e categories i n Table XXII correspond t o the categories shown i n Table XX i n Chapter V as a i r c r a f t operating costs, or d i r e c t costs. The d i r e c t cost per block hour t o t a l l e d $763.18 on the North A t l a n t i c routes as compared to $791.84 on the transcontinental routes.  By adding landing  fees and cabin crew and passenger supplies costs to the t o t a l s above, the new t o t a l s o f out-of-pocket costs disfavor the North A t l a n t i c runs at $1,018.30 over the transcontinental runs at $991.45 by $26.85 per block hour.  The difference i s very low at approximately 2.6 per cent o f the  cost incurred on the North A t l a n t i c . This difference i s even lower when an airborne hour i s used as an i n d i c a t o r .  Then  $1,041.23  i s only $0.74  above the lower cost f o r the transcontinental routes at $1,040.49. The  cost per available ton-mile i s s t i l l higher f o r the North A t l a n t i c operation at 10.405 cents as compared to 9.874 cents, while the s i t u a t i o n changes i n the case of the comparison of a i r c r a f t - m i l e s and available seat-miles between the two groups of routes.  TABLE XXII OUT-OF-POCKET COST INCURRED BY CANADIAN SCHEDULED AIR CARRIERS IN OPERATING DC-8 EQUIPMENT ON LONG RANGE ROUTES IN 1966 Routes Out-of-pocket Cost  North A t l a n t i c  Transcontinental  (Per Block Hour i n U.S. D o l l a r s ) Crew  $  Fuel and O i l  128.31  $  90.76  213.11  258.78  38.25  34.75  Maintenance—Flight Equipment  234.41  252.99  Depreciation and R e n t a l s — F l i g h t Equipment  149.10  154.56  93.09  28.26  162.03  171.35  Insurance and Other  Landing Fees Cabin Crew, Passenger Food and Supplies Total: Per Per Per Per Per  Block Hour Airborne Hour A i r c r a f t Mile Available Ton-mile ( i n cents) Available Seat-mile ( i n cents)  $  1,018.30 1,041.23 2.08 10.405 1.563  $  991.45 1,040.49 2.13 9.874 1.662  SOURCE: Canadian Transport Commission, A i r Transport Committee, S t a t i s t i c s Section, C a r r i e r s Statements, 1966. 1  As the t o t a l volume of miles flown on the North A t l a n t i c routes i n 1966 was much higher, not only i n absolute terms but also i n r e l a t i v e proportion to the t o t a l costs, t h i s was r e f l e c t e d i n lower cost per a i r c r a f t -  92 mile at $2.08 over $2.13 which was experienced on the transcontinental operations. As there were, on average, more seats available per aircraftmile on the North Atlantic than on the transcontinental routes, the out-ofpocket cost per available seat-mile was lower on the former than on the latter routes. The respective costs were at 1.563 cents and 1.662 cents. The comparison of out-of-pocket costs can be concluded with a fairly accurate statement that these costs for both groups of routes were approximately the same in 1966 when a block hour, airborne hour or aircraftmile were used as a yardstick. These three indicators would also appear to reflect the least amount of distortion, due to dissimilarities between the two groups of routes. While the hypothesis of the cost similarity was based on the similarity of the equipment used, stage length and the socioeconomic characteristics of the travellers, the average stage length similarity turned out to be questionable. There actually i s a certain dissimilarity between the average stage lengths and this i s reflected in a l l cost indicators of production per unit. However, as this difference, when measured on the almost flat portion of the curve describing the relationship between direct cost per seat-mile and operating range in statute miles i s not substantial, this factor does not lessen the validity of the findings, as shown in Appendix D. If either available ton-miles or available seat-miles were used as a yardstick, the exogeneous effect of using a slightly different mix of DC-8-40 and 50 types of equipment in each market which resulted in the difference in aircraft capacity between the two markets, would distort the comparison to a greater degree . /  In spite of the differences between the individual categories of outof-pocket cost, the total out-of-pocket costs are almost the same for both markets.  The relationship between the total out-of-pocket costs i n each  market allocated per passenger, and i t s relationship to a one-way economy fare i n that market w i l l be computed below. Before the computation i s started, several assumptions have to be made i n order to achieve comparability between the costs i n the two markets. Firstly, the routes considered here are only those between Montreal and Vancouver on one hand, and Montreal and London on the other hand. In actual l i f e , while most of the flights were performed along those routes, there were other routes flown as well.  For example, there i s actually no  direct flight between Montreal and Vancouver; at least one stop-over i s made at Toronto, often more at other points like Winnipeg, Calgary, or Edmonton.  On the North Atlantic routes, Canadian Pacific Air Lines serves  Amsterdam and Air Canada f l i e s to many other cities i n Europe. The stopovers are reflected i n the average stage length, which i s far below the great circle distances considered i n this per passenger allocation of costs. Secondly, where the duration of journey i s concerned, as actual average figures are not available, Air Canada's and Canadian Pacific Air Lines' timetables were used to determine the flying time between the relevant points. Thirdly, i t i s assumed that f i r s t class passenger fares and a variety of special discount fares applicable i n both markets, have an offsetting effect which brings an average passenger fare close to the level of economy  94 fare.  This simplification was necessary as no origin—destination  t i c s reveal a breakdown of passengers by the fare they paid.  statis-  It i s believed  that this information could be obtained from the carriers concerned, however, s t r i c t l y on a confidential basis, and not for publication purposes. It i s further assumed that a l l the costs are related to the carriage of passengers only. In order to determine the relationship between out-of-pocket cost per passenger and one-way economy class fare i n each market, the out-ofpocket costs per block hour and per aircraft-mile are employed. Routes North Atlantic Transcontinental Total Out-of-pocket Cost Per Block Hour (in Canadian Dollars)  $ 1,099.66  $ 1,070.67  0  Total Block To Block Time of a Flight From Montreal to London (hours) From Vancouver to Montreal (hours)  6.30 5.30  Total Cost Per Flight (computed by $ 7,147.79 multiplying the duration of journey by out-of-pocket cost per block hour)  $ 5,888.69  Out-of-pocket cost per passenger i s arrived at by dividing the average number of passengers per flight into total cost per flight.  Average number  of passengers i s , i n turn, computed by applying seat load factor i n each market to average available seats per aircraft-mile indicator i n that market. Hence, 60.3 per cent seat load factor applied to 133.3 available seats on the North Atlantic routes results i n 80.4 passengers carried on Figures from Table XXII converted from U.S. dollars to Canadian dollars at a rate of $1.0799 Canadian per U.S. dollar. i  95 average on one flight.  The same figure for the transcontinental market i s  73.3 per cent of 128.1, which i s 93.9 passengers. Montreal—London Out-of-pocket Cost Per Passenger (Out-of-pocket Cost Per Flight) (Average Number of Passengers ) One-way Economy Passenger Fare i n 19667  Vancouver—Montreal  $ 88.90  $ 62.71  210.00  120.00  The figures above show that the economy fares are considerably above the out-of-pocket costs per passenger at the average load factor levels experienced i n 1966 i n both cases.  The lower of the two regular fares ap-  plicable on the North Atlantic during the off-season period i s at $210.00, more than twice as high as the cost per one passenger at $88.90. In other words, this cost represents a mere 42.4 per cent of the fare.  The same  relationship i n the case of the transcontinental route i s $62.71 cost and $120.00 one-way economy fare; the cost here represents about 53 per cent of the fare. When the same computing process i s followed through using out-ofpocket cost per aircraft-mile, the resulting figures are only slightly d i f ferent, as shown i n Table XXIII.  The North Atlantic routes out-of-pocket  cost i s slightly higher at $90.98 using this indicator of output, and the transcontinental slightly lower at $57.51, than when cost per block hour i s . used as a basis.  ?See Table II i n Chapter III, p. 35.  96 The results of both computations provide proof that neither the North Atlantic nor transcontinental passenger fares are closely related to the out-of-pocket cost of transportation of passengers on these routes. TABLE XXIII OUT-OF-POCKET COST PER PASSENGER ON SELECTED ROUTES IN 1966 North Atlantic Transcontinental (in Canadian Dollars) Out-of-pocket Cost Per Aircraft-mile  $  Total Statute Mileage Between Montreal and London  2.25  $  2.30  3,251  Vancouver and Montreal  2,348  Total Out-of-pocket Cost Per Flight  $ 7,314.75  $ 5,400.40  Out-of-pocket Cost Per Passenger  $  $  90.98  57.51  SOURCES: Table XXII, p. 91; IATA Mileage Manual (Montreal: Traffic Director of IATA, 1966). The out-of-pocket cost as a basis for minimum pricing i n accordance with the economic theory i s applicable only to certain highly competitive segments of operations (routes i n the case of airline operation) i n the short run, providing that the total operation revenues cover the overhead and yield a profit.  As i t was stated i n Chapter II, the element of rate competition i s  neither present i n the North Atlantic market nor i n the transcontinental commercial a i r transport operations.  The concept of f u l l y allocated costs  as a basis for pricing i s discussed i n the next section as the more pract i c a l one from the viewpoint of the current situation i n both markets.  97 Fully Allocated Cost While i t can be argued by economists that only prospective costs are relevant i n the economic theory, and that those assets not to be replaced or used for other purposes are costless, this concept would not be acceptable to the entrepreneurs investing i n transportation.  This factor was  recognized by the Interstate Commerce Commission where the inter-carrier competition was concerned: ...no form of transportation should be expected to operate on an out-of-pocket cost basis or on one approximating out-of-pocket costs, and i t could not be expected that any would do so for very long. Accordingly, a carrier should not be permitted to reduce i t s rates to an out-of-pocket level for the purpose, or with the probable result, of depriving shippers of the service of other carriers with lower f u l l costs... The low-cost form transportation (all, costs considered) should normally be the rate making form. Within reason, other carriers should be permitted to meet the rates of the low-cost carrier.** For long run competitive equilibrium under private (that i s , profitable) operation, rates that reflect long run f u l l cost rather than d i q rectly traceable cost are essential. Table XXIV reveals that,the total cost of operating the route between London and Montreal allocated per passenger, at the average seat load factor of 60.3 per cent, was $151.20 i n 1966, or 72 per cent of one-way economy fare.  Statement before the House Committee on Interstate and Foreign Commerce, 1956. Reprinted by American Trucking Associations Inc., pp. 3—5. %.W. Wilson, Essays on Some Unsettled Questions i n the Economics of Transportation (Bloomington, Indiana: Foundation for Economic and Business Studies, Indiana University, 1962), p. 87.  98 TABLE XXIV FULLY ALLOCATED COST PER PASSENGER ON SELECTED ROUTES IN 1966 North Atlantic Transcontinental (in Canadian Dollars) Total Costs Per Block Hour  $ 1,870.17  Total Block to Block Time i n Hours Per Flight From Montreal to London Vancouver to Montreal  $ 1,724.16  6.30  5.30  Total Cost Per Flight  $12,156.11  $ 9,482.88  Fully Allocated Cost Per Passenger  $  151.20  $  100.99  One-way Economy Fare i n 1966 Between Montreal—London (off-season) Vancouver—Montreal  $  210.00  $  120.00  SOURCES: Table XXI, Chapter V, p. 81; IATA Mileage Manual (Montreal: Traffic Director of IATA, 1966); Air Canada, Timetables of North American and International Services, Summer, 1966. On the transcontinental route between Vancouver and Montreal, the fully allocated cost at 73.3 per cent seat load factor was $100.99, which figure represented 84.2 per cent of the Montreal—Vancouver one-way economy fare effective i n 1966. The difference of only about 15 per cent on the transcontinental route may, perhaps, lead to the conclusion that there i s some relationship between fully allocated cost and the price for passenger transportation on this route. Whether this 15 per cent markup i s justified, and why 15 per cent rather than say 5 per cent could be the subject of further study. As the general knowledge of a i r rate making would suggest, fares are not based on cost of operations, and the figures shown above do not prove otherwise.  99 While the transcontinental economy fares would appear to be only 15 per cent above the f u l l y a l l o c a t e d cost of operating those routes, the North A t l a n t i c s i t u a t i o n , i l l u s t r a t e d on the Montreal—London route d i f ference between f u l l y a l l o c a t e d cost and economy f a r e , seems to be much greater at 28 per cent.  The d o l l a r difference per passenger at $19.00  and $58.50 respectively, appears to be even more convincing o f the p r i c i n g inequity between the two routes.  As IATA never held that operating costs  had played an important r o l e i n the rate making, i t i s only correct to conclude that neither out-of-pocket  costs nor f u l l y a l l o c a t e d costs have  served as a basis f o r rate setting on the North A t l a n t i c .  Long Run Consideration As almost a l l of the s t a t i s t i c a l data throughout t h i s t h e s i s were r e l a t e d to 1966 operations, the conclusions would tend t o r e f l e c t  every  bias pertinent t o that year and, also, i n e v i t a b l y , r e f l e c t short run consideration.  While i t would mean a heavy workload to compile s t a t i s t i c s  f o r another f o u r — e i g h t years of operation and analyse them, t h i s would also introduce many inconsistencies regarding type of a i r c r a f t , fare l e v e l s , and other v a r i a b l e s .  One of these, passenger load f a c t o r , can be singled  out and the impact of i t s v a r i a t i o n s on the c o s t — f a r e r e l a t i o n s h i p could exemplify the long run s i t u a t i o n . I f passenger load f a c t o r over the l a s t f i v e years averaged 55 per cent, c e t e r i s paribus, f u l l y a l l o c a t e d cost per one passenger would change: North A t l a n t i c F u l l y a l l o c a t e d cost per passenger at 55 per cent load f a c t o r  $ 166.20  Transcontinental $ 134.80  100 While there would s t i l l be quite a differential to absorb further decrease in the load factor on the North Atlantic, the present transcontinental fares would not cover fully allocated costs. The breakeven point, when fully allocated cost of operations in 1966 would equal passenger economy fare in that year on transcontinental routes, appears to be at 61.5 per cent seat load factor. The breakeven point on the North Atlantic routes would appear to be at about 43 per cent seat load factor.  CHAPTER VII SUMMARY AND CONCLUSIONS Summary The North Atlantic a i r travel market i s the largest international travel market i n the world when measured by almost any yardstick.  About  5.5 million passengers were carried i n scheduled service i n 1967 by IATA carriers alone, an increase of 18 per cent over the 1966 record.  This  t r a f f i c alone accounted for almost 10 per cent of the total international scheduled a i r passenger t r a f f i c i n that year. There was about 15 per cent of the total North Atlantic passenger t r a f f i c , or some three-quarter of a million passengers carried between Canada and Europe i n 1966. dians.  Approximately 75 per cent of those were Cana-  About eleven international airlines operated between Canada and  Europe i n 1966, of which only two were Canadian carriers.  This situation  would seem to result i n a heavy outflow of Canadian currency abroad. The size of Canadian dollar expenditure for this transportation depends to a great extent on the level of passenger fares on the North Atlantic.  In a retrospective view of passenger fare changes presented i n  Chapter III no substantial fare change i n absolute terms was detectable when 1964—68 and 1952 levels were compared.  However, as the 1957 price  index (1957 = 100) reached 121.8 i n 1966, as compared to i t s 1952 level of 90.5, there was actually a substantial fare decrease during this period, in terms of the purchasing value of the Canadian dollar.^" •^Dominion Bureau of Statistics, National Accounts Income and Expenditure, 1926—66 Issues (Ottawa: Queen's Printer, 1966).  102 The level of passenger fares on the North Atlantic routes i s determined by unanimous consent of IATA carriers at periodical Tariff Conferences. The diversity of objectives i n the pricing area was shown to exist, i n part, due to the range of sizes of international carriers. In order to obtain some measure of passenger fare and cost relationship between an IATA regulated market and a domestic market the transcontinental experience of Canadian mainline carriers was analyzed.  The f i r s t  step was the determination of a comparability of these two markets on the basis of similarity of equipment, average stage length and out-of-pocket costs.  When the out-of-pocket costs per block hour were found almost  identical, the f u l l y allocated costs incurred i n each market were related to one-way economy passenger fares i n respective markets.  It has been  found that the markup above the fully allocated costs represents a much lower percentage of one-way economy fares on the transcontinental route than i n the North Atlantic market. The results of the comparative analysis of cost of the North Atlantic operations of Canadian and U.S. carriers and transcontinental operations of Canadian carriers could be summarized as follows: 1)  The aircraft operating costs (direct costs) incurred by Canadian and U.S. carriers i n operating long range routes with similar equipment did not differ substantially i n 1966 when a block hour was considered a production unit. The Canadian a i r craft operating costs appeared to be slightly lower, mainly due to the lower cost of labor.  2)  The aircraft operating costs (direct costs) of Canadian carriers were slightly lower i n the North Atlantic operations, about 3.6 per cent, than i n the transcontinental service i n 1966. It seemed to be mainly higher cost of fuel and o i l which brought higher total cost on transcontinental service. A lower average stage length on transcontinental service was partly responsible for higher cost of fuel and o i l .  103 3)  The indirect operating costs for a group of the North Atlantic routes of Canadian carriers i n 1966 appeared to be higher than those incurred i n operating a group of routes i n the transcontinental service. The proportion of direct costs of the total cost i n the former market was 44.1 per cent while i n the latter i t was 49.6 per cent. The resulting total operating cost was higher i n the North Atlantic operation by about 8.5 per cent i n 1966.  4)  The out-of-pocket costs of operating the North Atlantic services and transcontinental services i n 1966 were about identical per block hour, airborne hour or aircraft-mile, with only a few percentage points difference. The, difference i n aircraft capaci t i e s i n each of these markets accounted for variances when available ton or seat-mile production units were considered.  5)  If f u l l y allocated cost i s considered a f a i r basis for the determination of passenger fare levels i n the oligopolistic market conditions caused by the existence of IATA regulatory power, there would appear to be about 40 per cent markup, over the f u l l y allocated cost, i n the one-way economy fare between Montreal and London, U.K., i n 1966. Using the same approach, at the average seat load factor prevailing on transcontinental routes i n 1966, the markup above fully allocated cost on the transcontinental service seems to be about 15 per cent of the one-way economy fare between Montreal and Vancouver.  6)  While the North Atlantic normal economy passenger fares i n 1966 were below the 1952 tourist fare level and the f i r s t class fares stayed approximately the same, i n absolute terms, there was a substantial continuous decrease i n the real fare level experienced during this period.  7)  It follows from the review of the growth of Canadian travel abroad and the social origin of such travellers, that the high markup above fully allocated cost resulting i n high fares, relative to Canadian transcontinental fares, i s borne primarily by the Canadian travellers. As there were only two Canadian carriers competing i n the Canada—Europe market with nine foreign carriers i n 1967, and 70 per cent of the travellers were Canadians, this situation caused misallocation of resources and a heavy drain on the Canadian dollar.  Conclusions It would appear from the analysis i n Chapters IV, V, and VI, that the level of passenger fares effective on the North Atlantic routes i n 1966  104 bore very l i t t l e relationship to the cost of airline operations i n that market i n the same year.  From the example constructed i n Chapter VI, the  one-way economy passenger fare between Montreal and London, U.K.,  was a l -  most at 140 per cent of f u l l y allocated cost of operating this route at the average seat load factor of 60.3 per cent.  While i t i s conceivable  that i n a certain year an average seat load factor might be lower and cost of airline operations higher than those experienced i n 1966,  the fact that  a breakeven point of the North Atlantic operations at the 1966  cost level  was at approximately a 43 per cent seat load factor, leaves a doubt that the cost of operations have been considered i n IATA rate making on the North Atlantic i n the recent past.  It must be borne i n mind, however, that  of the nineteen IATA passenger airlines serving the North Atlantic market i n 1966,  the cost of operations of only Canadian and American IATA member  carriers were included i n the analysis. As the North Atlantic operating costs of some of the other air carriers could be higher than the North American carriers* costs, the North Atlantic rate structure might bear closer relationship to their operating costs. The cost/fare spread i n the Canadian transcontinental operation of scheduled airlines would seem to be much lesser than i n the North Atlantic case.  An example of the 1966  cost/fare data analysis shows that one-way  passenger economy fares were set at approximately 119 per cent of fully allocated cost of operations. seat load factor of 73.3  This relationship holds true at an average  per cent experienced i n 1966.  While the 19 per  cent markup could not be considered proof of cost orientated rate making, i t i s much smaller than the 40 per cent markup on the North Atlantic routes.  105 As was explained i n this study, the differences i n historical development and regulatory frame work would offer some explanation for the difference i n the rate making process and i t s results i n these two markets. These conclusions should not be generalized unduly as the statist i c a l data employed were related predominantly to the Canadian and U.S. carriers* experience i n one year.  The assumptions made throughout the  study must be considered when assessing the results. Implications For Public Policy The conclusions of the study point out substantial differences between passenger fares and costs of operation for the North Atlantic passenger a i r service.  This fact does not appear to serve Canadian interests  i n this market best.  It should become a policy of Canadian international  carriers to use their influence at the IATA Tariff Conferences to lower the North Atlantic passenger fares. At the same time, the International Transport Policy Committee of the Canadian Transport Commission should attempt to introduce a concept of relative travel of nationals into i t s negotiations of bilateral agreements with other countries. Canada should draw some benefits from travel of i t s residents on the North Atlantic which i s high i n comparison with nationals of the countries whose scheduled airlines serve Canada on a regular basis. This study indicates that i n the lucrative Canada—Europe market a keen interest of foreign carriers i s stimulated by the Canadian propensity and potential to travel. These two policies should be developed i n parallel as the attempt to lower fares i n this market alone, i f successful, could result i n even  106 higher absolute outlay of Canadian currency for a i r transportation performed by foreign carriers.  This phenomenon could occur as a result of  price elastic demand i n this market. Suggestion For Further Studies As already indicated i n this Chapter, a more detailed study would have to be undertaken i n order to provide a factual basis for bilateral negotiations where travel of both countries* residents would become part of an agreement. With the rapidly developing community of interest between Canada and the Far Eastern countries, particularly Japan, the investigation of changes and growth i n the Pacific travel market should be carried out. Similar objectives could be pursued as i n this study, i n order to acquire indications for policy setting i n this market.  The history of changes i n the North  Atlantic market development could serve as a yardstick when analyzing the Pacific market.  107 APPENDIX A  PROPORTION OF STATE OWNERSHIP IN MAJOR EUROPEAN AIRLINES IN 1954  Country  Airlines  ,Member of IATA  C a p i t a l Ownership i n 1954  Belgium  Sabena  Yes  25$ Belgian State 25% Belgian Congo 50% Private  Denmark  S.A.S.  Yes  D.D.L. (Danish A i r l i n e s ) one-third partner S.A.S. D D L -(50$ Danish State *~(50$ Private  Finland  F i n n a i r (Aero O/Y)  Yes  73% Finnish State 27% Private  France  A i r France A i r A t l a s - A i r Maroc  Yes No  U.A.T. (Union Aeromaritime de Transport)  Yes  Germany (F.R.)  Lufthansa  Yes  Iceland  Iceland Airways (Flugfelag Islands) Icelandic A i r l i n e s (Loftleidir)  Yes  Ireland  Aer Lingus  Yes  60$ I r i s h Government through Aer Rienta 40$ B.E.A.  Italy  Alitalia  Yes  60$ I t a l i a n State 30$ B.E.A. 10$ Private  No  100$ French S t a t e 20% French State through A i r France 33 1/3$ French State through A i r France 66 2/3% Private (Shipping) 1  85$ German State 5% Lander and Federal Railways 10% Private 33 1/3% Iceland State 66 2/3% Private (Shipping) 100$ Private  108 APPENDIX A—Continued  CountryItaly (cont'd.)  Airlines  Member of IATA  Capital Ownership i n 1954  L.A.I. (Linee Aeree Italiane)  Yes  60$ Partly Italian State through Riconstruzione Industriale i$ T.W.A.  Netherlands  K.L.M.  Yes  90$ Dutch Government 10% Private and Public Corporations  Norway  S.A.S.  Yes  D.N.L. (Norwegian Airlines) i s one-third partner i n S.A.S. n I\T T (50$ Norwegian State (50$ Private  Portugal  T.A.P. (Transportes Aeros Portugueses)  Yes  100$ Portuguese State  Spain  Iberia A.Y.C. (Aviacion y Comercib)  Yes Yes  100$ Spanish State 100$ Private  Sweden  S.A.S.  Yes  A.B.A. (Swedish Airlines) i s one-third partner i n S.A.S. A B A -(50$ Swedish State *~(50$ Private  Switzerland  Swissair  Yes  33 1/3$ Swiss State, Cantons and Municipalities 66 2/3$ Private  Turkey  D.H.Y. (Turkish State Air Lines)  No  100$ Turkish State  Yes Yes  100$ British State 100$ British State  Luxembourg  United Kingdom B.E.A. B.O.A.C.  2  109 APPENDIX A—Continued  Country  Airlines  United Kingdom (cont'd.)  Hunting Clan Airwork^ Eagle Aviation  Member of IATA Yes Yes No  Capital Ownership i n 1954 Private (Shipping) Private (Shipping) Private  SOURCE: S. Wheatcroft, The Economics of European Air Transport (Manchester: University Press, 1956). I3© per cent of shares may be transferred to public bodies and private individuals. 25 per cent of shares may be held by Spanish shipping companies. ^Airwork operates only cargo services within Europe.  .110 APPENDIX B LEAST SQUARE NON-LINEAR REGRESSION The curve presented i n Graph II, Chapter II, page 22, i s based on the operating expenses of selected U.S. carriers, shown i n the Table on page 111. The least square non-linear regression i s carried out to determine the curve, using the following estimating equation:  Y  =  1 a + bx - c x  2  The three normal equations used are: I. II. III. Where  N  =  j  +  b  i£x=  a £ xy  +  £  a^x^ +  x = 2  N  =24 =  £*y  a  xy  +  c  x y  b «£• x^y  +  c  x^y  b  +  c £. x y  x y 3  2  4  ^ x = 17,572  8.14  The resulting values of the three constants are: a  =  2.194  b =  0.0032  c =  0.000 000 772  The values of the constants are used i n the estimating equation at different production volumes (x) to determine the values on the curve (Y), as shown on page 112.  Ill APPENDIX B—Continued OVERALL AVAILABLE TON-MILES AND TOTAL OPERATING EXPENSES (ALL SERVICES) FOR SELECTED CARRIERS IN CALENDAR YEAR 1966 (IN U.S. DOLLARS) Total Avrg. Cost Per Available Avrg. Overall Operating Ton-mile Available Available Expenses* for for Ton-miles* Ton-miles (000) Individual Carrier for Carrier (OOO) Group (All Services) (All Services) Carrier Group  Carrier American Eastern T.W.A. United  3,035,254 1,748,080 3,235,438 3,231,561  629,838 472,035 632,427 785,362  .21) • 27)_ .19) .24)  22.8  2,812,583  Braniff Continental Delta National Northeast Northwest Western  696,815 821,314 1,218,910 744,319 206,632 1,348,983 528,082  163,117 121,411 284,618 134,983 61,823 210,664 124,207  .23) .15) .23) .18).30) .16) .23)  21.1  795,008  95,388 43,568 28,811 89,990 28,139 90,202 74,422 61,322 37,642 66,316 44,603 65,476 32,299  39,500 16,749 14,014 27,359 14,970 38,111 37,296 28,932 16,480 28,978 20,428 25,976 16,331  .41) .38) .49) .30) .53) .42) .50).47) .44) .44) .46) .40) .51)  44.2  58,321  AlleghenyBonanza Central Frontier Lake Central Mohawk North Central Ozark Pacific Piedmont Southern Trans-Texas West Coast  SOURCE: Civil Aeronautics Board, Form 41, reports filed by the carriers. * Includes domestic and international operations for those carriers performing international operations.  112 APPENDIX B—Continued CALCULATION OF VALUES ON THE CURVE AT DIFFERENT LEVELS OF PRODUCTION  X  X  a + bx (2.194 + 0.0032x)  2  cx' (0.000 000 772X )  a + bx - c x  2  2  Y*  10  100  2.226  0.00007  2.226  44.92  50  2,500  2.354  0.002  2.352  42.52  80  6,400  2.450  0.005  2.445  40.90  100  10,000  2.514  0.008  2.506  39.90  150  22,500  2.674  0.017  2.657  37.64  200  40,000  2.834  0.031  2.803  35.68  300  90,000  3.154  0.069  3.085  32.41  400  160,000  3.474  0.124  3.350  29.85  500  250,000  3.794  0.193  3.601  27.77  700  490,000  4.434  0.378  4.056  24.65  1,000  1,000,000  5.394  0.772  4.622  21.64  1,500  2,250,000  6.994  1.737  5.257  19.02  2,000  4,000,000  8.594  3.088  5.506  18.16  2,100  4,410,000  8.914  3.405  5.509  18.15  2,200  4,840,000  9.234  3.736  5.498  18.19  2,300  5,290,000  9.554  4.084  5.470  18.28  2,500  6,250,000  10.194  4.825  5.369  18.63  3,000  9,000,000  11.794  6.948  4.846  20.64  * Y =  1 a + bx - cx^  113 APPENDIX C METHOD OF COMPUTING DATA PRESENTED IN TABLES XIII—XIX (ALL REVENUE SERVICES) ' Average aircraft assigned to service during the year  =  Aircraft days assigned to service 365  Revenue hours per aircraft per day  =  Revenue aircraft hours Aircraft assigned to service  Average stage length  =  Revenue aircraft miles Total departures performed i n scheduled and non-scheduled revenue services  Average available tons per aircraft mile  Available ton-miles i n scheduled and non-scheduled services Revenue aircraft miles  Average available seats per aircraft mile  Available seat-miles i n scheduled and non-scheduled services Revenue aircraft miles  Average airborne speed (in statute miles per hour)  =  Revenue aircraft miles Revenue aircraft hours  Average block to block speed (in statute miles per hour)  =  Revenue aircraft miles Aircraft block hours  Average available ton-miles per airborne hour  Available ton-miles i n scheduled and non-scheduled services Revenue aircraft hours  Average available seat-miles per airborne hour  Available seat-miles i n scheduled and non-scheduled revenue services Revenue aircraft hours  Ton load factor (per cent) (scheduled revenue service)  Revenue ton-miles i n scheduled revenue service Available ton-miles i n scheduled revenue service  Seat load factor (per cent) (scheduled revenue service)  Revenue passenger miles i n scheduled revenue service Available seat-miles i n scheduled revenue service  114 APPENDIX C—Continued Aircraft operating expense per block hour are computed on the basis of totals i n each expense category divided by aircraft block hours performed i n a l l services. Total aircraft operating expense per airborne hour  Total aircraft operating expense Revenue aircraft hours  Total aircraft operating expense per aircraft mile  Total aircraft operating expense Revenue aircraft miles  Total aircraft operating expense per available ton-mile (scheduled revenue service) (in cents)  Total aircraft operating expense per aircraft mile Average available tons per revenue aircraft mile (scheduled revenue service)  Total aircraft operating expense per available.seat-mile (scheduled revenue service)  =  Total aircraft expense per a i r craft mile Average available seats per a i r craft mile (scheduled revenue service)  DC-8  EM  CENTS/SEAT ST Ml  2.0 *.  15 CENTS / SEAT MILE  1.0  -—  •  (  • •—  ™mm'  mmm  ^  '  _  "  —  —  „  50 •  1000  NOTE: CANADIAN DOLLARS PAYLOAD-PASS & BAGGAGE  a  mmm  2000  3000 RANGE (ST Ml)  55 62 63 61  -.. .  4000  ,  5000  6000  1000 NOTE : CANADIAN DOLLARS PAYLOAD-PASS & BAGGAGE  2000  3000 RANGE (ST  4000  5000  6000  BIBLIOGRAPHY BOOKS Besse, G., and R. Mathieu. Ten Years of Commercial Aviation. Institut du Transport Aerien, 1965. Bock, Edwin A. (ed.). Government Regulation of Business. C l i f f s , New Jersey: Prentice-Hall Inc., 1965. Caves, R.E. Air Transport and Its Regulators. University Press, 1962. Cherington, Paul W. Press, 1958.  Airline Price Policy.  Paris:  Englewood  Cambridge, Mass.: Harvard  Norwood, Mass.: The Plimpton  Corbett, David. Politics and the Airlines. Unwin Ltd., 1965.  London: Geo. Allen and  Croxton, F.E., and D.J. Cowden. Applied General Statistics. Prentice-Hall Inc., 1953.  New York:  Dearing, Ch., and W. Owen. National Transportation Policy. Washington, D.C.: The Brookings Institution, 1949. Phillips, Charles F. The Economics of Regulation. Irwin Inc., 1965. Ross, Myron H. Income: Analysis and Policy. Company, 1964Wheatcroft, S.  Air Transport Policy.  Homewood, 111.:  R.D.  Toronto: McGraw-Hill Book  London: Michael Joseph,  . The Economics of European Air Transport. University Press, 1956.  1964.  Manchester: Manchester  Wilson, George W. Essays on Some Unsettled Questions i n the Economics of Transportation. Bloomington, Indiana: Foundation for Economic and Business Studies, 1962.  PUBLICATIONS OF GOVERNMENTS AND OTHER ORGANIZATIONS Air Canada. Annual Report for 1966.  Montreal: Air Canada, 1967.  118 Canada, Parliament. Chapter 69.  National Transportation Act.  1967 Statutes of Canada,  Canada, Parliament. Act to Incorporate International Air Transport Association. 1945 Statutes of Canada, Chapter 51. C i v i l Aeronautics Board. Aircraft Operating Cost and Performance Report: 1965 and 1966. Volume I. Washington, D.C.: Government Printing Office, 1967. . Handbook of Airline Statistics, I967. Washington, D.C.: Government Printing Office, 1968. . Monthly Report of Air Carrier Traffic Statistics, 1958. ton, D.G.: Government Printing Office, 1958.  Washing-  Dominion Bureau of Statistics. National Accounts, Income and Expenditure. 1926—1966 Issues. Ottawa: Queen*s Printer, 1967. . Travel Between Canada and Other Countries, 1965. Printer, July, I967.  Ottawa: Queen*s  International Air Transport Association. World Air Transport Statistics. Nos. 6 and 11. Montreal: Traffic Director of IATA, 1967. .  IATA Mileage Manual. Montreal: Traffic Director of IATA, 1966.  International C i v i l Aviation Organization. Financial Data, 1966. of Statistics No. 129- Montreal: ICAO Press, 1967.  Digest  Submission of the Province of British Columbia to the Royal Commission on Transportation. Part II. Victoria, B.C.: Government Printing Office,  I960.  The Port of New York Authority. New York*s Overseas Air Passenger Market. New York: Aviation Economics Division, 1965. United Nations. Demographic Yearbook 1964. of the United Nations, 1965.  New York: Statistical Office  . Yearbook of National Accounts Statistics 1964. t i s t i c a l Office of the United Nations, 1965.  New York: Sta-  United States National Bureau of Economic Research. National Income Distribution. Washington, D.C.: Government Printing Office, 1967.  119 PERIODICALS "Analysis of Passenger Traffic Between Europe and North America i n 1966," ITA Bulletin, No. 29, July 17, 1967, pp. 901—920. "North Atlantic Traffic," IATA News Review, February, 1968, p. 3. Koontz, H.D. "Economic and Managerial Factors Underlying Subsidy Needs of Domestic Trunk Line Air Carriers," Journal of Air Law and Commerce, XVIII, 1951, PP. 127—156. Pegrum, Dudley F. "Do We Have a New Rule of Rate Making," Traffic World, February, 1959, p. 54. Roberts, Merril. "Regulation and Economic Efficiency," Traffic World, April, 1959, p. 26. "Three Airlines Are Better Than Two," The Economist, May 3, 1969, pp. 59—60. Volpe, John A. "Volpe Suggests International Air Fares Be Brought Into Line With Actual Cost," Traffic World. June, 1968, pp. 37—38.  UNPUBLISHED MATERIALS Canadian Transport Commission, Air Transport Committee. Decisions and other unpublished documents.  The Committee  . Aviation Statistics Centre. "Fleet Report By Aircraft Type, By Carrier, as of January 15, 1966." Mimeographed. .  Carrier  Statements, 1966.  

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