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Innovation in commercial air transportation: are historical changes in factor proportions explained by… Robson, John Wilfred 1975

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INNOVATION IN COMMERCIAL AIR TRANSPORTATION: ARE HISTORICAL CHANGES IN FACTOR PROPORTIONS EXPLAINED BY RELATIVE FACTOR PRICES? by JOHN WILFRED ROBSON B.Sc. M.E., U n i v e r s i t y o f M a n i t o b a , 1971 A T h e s i s S u b m i t t e d i n P a r t i a l F u l f i l m e n t o f t h e Requirements f o r t h e Degree o f MASTER OF ARTS i n I n t e r d i s c i p l i n a r y S t u d i e s We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o the r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1975 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree at the U n i v e r s i t y of B r i t i s h C o l u m b i a , I agree t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u rposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Depa rtment The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada ABSTRACT An examination of h i s t o r i c a l changes i n technical e f f i c i e n c y i n the U.S. a i r transportation industry and trends i n r e l a t i v e factor prices reveals a re l a t i o n s h i p that i s consistent with the economic theory of production. The study attempts to show the extent to which t h i s r e l a t i o n s h i p r e f l e c t s causality. Average factor p r o d u c t i v i t i e s for selected a i r c r a f t introduced between 1948 and 1972 were calculated on an ad hoc basis to document the p a r t i c u l a r events that established the o v e r a l l trends i n technical e f f i c i e n c y . Those a i r c r a f t and innovations that had ch a r a c t e r i s t i c s consistent with p r e v a i l i n g factor price incentives were i d e n t i f i e d and the circumstances surrounding t h e i r introduction analyzed to determine whether factor proportions had been set i n accordance with these incentives. I t i s found that exogenous technological developments and considerations related to the improvement of q u a l i t y of output had just as great an influence i n establishing trends i n technical e f f i c i e n c y as considerations related to the maximization of economic e f f i c i e n c y . The influence of the m i l i t a r y , o l i g o p o l i s t i c interdependence i n the a i r c r a f t manufacturing industry, and the e f f e c t s of speed on qual i t y of output created problems of i d e n t i f i c a t i o n . Possible e f f e c t s on past events of a higher r e l a t i v e price for energy i i were examined. I t i s shown t h a t t h i s m o d i f i c a t i o n o f f a c t o r p r i c e c o n d i t i o n s would q u i t e l i k e l y have had a s i g n i f i c a n t impact on t h e h i s t o r i c a l p a t t e r n o f t e c h n o l o g i c a l development. i i i TABLE OF CONTENTS Page LIST OF TABLES v i i LIST OF FIGURES x INTRODUCTION 1 Statement o f t h e Problem 1 P a s t Trends i n F a c t o r P r i c e s and F a c t o r P r o d u c t i v i t y • 3 Study O b j e c t i v e s . 11 E a r l i e r S t u d i e s . : . 12 The Approach 13 O r g a n i z a t i o n o f t h e Study 15 CHAPTER I THE PISTON ERA 17 INTRODUCTION 17 PART I : EVENTS SURROUNDING THE INTRODUCTION OF SELECTED PISTON AIRCRAFT 17 The F i r s t Long-Haul A i r c r a f t 17 E a r l y P o s t w a r Events 21 New S h o r t - H a u l A i r c r a f t 23 Too L a r g e , Too Soon 25 The ' S t r e t c h i n g ' P r o c e s s 26 Turbo-Compound Power . . 2 8 PART I I : CHANGES IN TECHNICAL EFFICIENCY AND OPERATING COSTS 33 The G e n e r a l Trend 33 H i s t o r i c a l C o s t Data: Aggregate R e s u l t s 34 E x p e r i e n c e o f I n d i v i d u a l C a r r i e r s 43 Changes i n T e c h n i c a l . E f f i c i e n c y 43 Summary 5 3 CHAPTER I I THE TRANSITION PERIOD 5 8 INTRODUCTION 5 8 PART I : EVENTS SURROUNDING THE INTRODUCTION OF VARIOUS AIRCRAFT 5 8 The F i r s t J e t s 58 The F i r s t Commercial Developments 61 The View i n the U.S 64 The Stage i s S e t 67 The Market Emerges 69 The S h o r t - H a u l Market 71 PART I I : CHANGES IN TECHNICAL EFFICIENCY AND OPERATING COSTS 73 The G e n e r a l Trend 7 3 H i s t o r i c a l C ost Data .. 75 i v Page Changes i n T e c h n i c a l E f f i c i e n c y . . . . 81 Summary . 96 CHAPTER I I I THE RECENT PERIOD 100 INTRODUCTION 100 PART I : EVENTS SURROUNDING THE INTRODUCTION OF VARIOUS AIRCRAFT 100 The F i r s t Refinements . ... 100 Engine Improvements 102 S h o r t - H a u l J e t s 105 The ' S t r e t c h i n g ' P r o c e s s 110 R e d u c t i o n s i n the F l i g h t Crew 114 Wide-Body Technology 116 PART I I : CHANGES IN TECHNICAL EFFICIENCY AND OPERATING COSTS 122 The G e n e r a l Trend 122 Comparison o f P r e d i c t e d and A c t u a l R e l a t i v e C o s t s 128 Summary 146 CHAPTER IV AN EXAMINATION OF INNOVATIVE BEHAVIOUR. 150 INTRODUCTION 150 An O u t l i n e o f Market B e h a v i o u r 150 E x p e c t e d Response t o I n n o v a t i o n 152 Summary 154 PART I : THE RATE OF TECHNOLOGICAL CHANGE 155 The I n f l u e n c e o f t h e A i r c r a f t M a n u f a c t u r e r s .... 155 The I n f l u e n c e o f the M i l i t a r y 158 D i f f u s i o n o f New Technology 160 PART I I : THE DIRECTION OF TECHNOLOGICAL CHANGE 165 INTRODUCTION 165 FLAYING PERSONNEL 165 Reduced Crew Complements 166 I n c r e a s e d A i r c r a f t Speed 168 I n c r e a s e d A i r c r a f t C a p a c i t y 172 ENERGY 173 Engine E f f i c i e n c y 174 O v e r a l l E n e r g y - E f f i c i e n c y 178 CAPITAL 180 D i s t o r t i o n s A f f e c t i n g C a p i t a l P r o d u c t i v i t y Measurement 181 D i s t o r t i o n s i n the C o s t o f C a p i t a l 184 E v i d e n c e o f I n n o v a t i v e Response t o the R e l a t i v e P r i c e o f C a p i t a l 186 CONCLUSIONS .. 188 REFERENCES 19 0 BIBLIOGRAPHY 205 APPENDICES 209 v ACKNOWLEDGMENTS The a u t h o r w i s h e s t o thank P r o f e s s o r s G. R. Brown, G. S t e a d , and W. G. Waters I I f o r t h e i r comments and a s s i s t a n c e d u r i n g t h e p r e p a r a t i o n o f the s t u d y . v i LIST OF TABLES T a b l e Page 1.1 H i s t o r i c a l Trend i n the C o s t o f C a p i t a l , :1936-71, . ; 6 1.1 H i s t o r i c a l O p e r a t i n g C o s t Data f o r DC-4/DC-6/ L-049 36 1.2 H i s t o r i c a l O p e r a t i n g C o s t Data f o r DC-6/DC-6B/ DC-7 38 1.3 H i s t o r i c a l O p e r a t i n g C o s t Data f o r L-049/ L-1049 39 1.4 H i s t o r i c a l O p e r a t i n g C o s t Data f o r DC-6B/ DC-7/DC-7C 41 1.5 H i s t o r i c a l O p e r a t i n g C o s t Data f o r L-1049G/ L-1649A . . 42 1.6 D i r e c t O p e r a t i n g C o s t s o f P i s t o n A i r c r a f t , by C a r r i e r 44 1.7 A c t u a l and P r e d i c t e d R e l a t i v e S e a t - M i l e F l y i n g P e r s o n n e l Expenses o f Douglas P i s t o n A i r c r a f t ... 47 1.8 R e l a t i v e Output P e r U n i t o f I n i t i a l I n vestment f o r P i s t o n A i r c r a f t 51 1.9 O r i g i n a l C o s t P e r S e a t f o r Short-Range and Long-Range P i s t o n A i r c r a f t 52 1.10 D i r e c t Maintenance Expenses, DC-6 and DC-7, 1967-68 54 1.11 R e l a t i v e Average F a c t o r P r o d u c t i v i t i e s o f P i s t o n A i r c r a f t 55 2.1 H i s t o r i c a l O p e r a t i n g C o s t Data f o r T r a n s i t i o n P e r i o d A i r c r a f t 76 2.2 A i r p l a n e - M i l e C o s t s o f T r a n s i t i o n P e r i o d A i r c r a f t , 1959, 1963 79 2.3 O r i g i n a l C o s t P e r Se a t f o r T r a n s i t i o n P e r i o d A i r c r a f t , 1956-59 82 2.4 R e l a t i v e Output P e r U n i t o f I n i t i a l I nvestment f o r T r a n s i t i o n P e r i o d A i r c r a f t , 1956-59 83 v i i T a b l e ' Page 2.5 A c t u a l and P r e d i c t e d R e l a t i v e S e a t - M i l e F l y i n g P e r s o n n e l Expenses o f T r a n s i t i o n P e r i o d A i r c r a f t 85 2.6 - ^ D i r e c t Maintenance Expenses o f T r a n s i t i o n P e r i o d A i r c r a f t , 1967-68 91 2.7 F u e l Consumption P e r A i r c r a f t - M i l e f o r T r a n s i t i o n P e r i o d A i r c r a f t 92 2.8 Average F u e l P r o d u c t i v i t y o f T r a n s i t i o n P e r i o d A i r c r a f t . 92 2.9 R e l a t i v e Average F a c t o r P r o d u c t i v i t i e s o f T r a n s i t i o n P e r i o d A i r c r a f t 97 3.1 P r e d i c t e d R e l a t i v e S e a t - M i l e F l y i n g P e r s o n n e l Expense f o r J e t A i r c r a f t . ... 129 3.2 Comparison o f A c t u a l and P r e d i c t e d R e l a t i v e H o u r l y F l y i n g P e r s o n n e l Expense o f J e t A i r c r a f t . 131 3.3 F l y i n g P e r s o n n e l Expenses o f J e t A i r c r a f t P e r Hour, A i r c r a f t - M i l e , and S e a t - M i l e 134 3.4 O r i g i n a l C o s t P e r S e a t f o r J e t A i r c r a f t , 1968-74. 135 3.5 D i r e c t Maintenance C o s t s P e r Seat-Hour f o r J e t A i r c r a f t , 1967-72 140 3.6 S e a t - M i l e Maintenance Expenses o f U n i t e d A i r l i n e s J e t A i r c r a f t , 1971-72 142 3.7 F u e l Consumption P e r M i l e f o r J e t A i r c r a f t 143 3.8 Average F u e l P r o d u c t i v i t y o f J e t A i r c r a f t 144 3.9 R e l a t i v e Average F a c t o r P r o d u c t i v i t i e s o f J e t A i r c r a f t 147 D.l E f f e c t o f High F u e l P r i c e s : 1950 C o n d i t i o n s 233 D.2 E f f e c t o f H i g h F u e l P r i c e s : 1960 C o n d i t i o n s 234 D.3 E f f e c t o f H i g h F u e l P r i c e s : 1970 C o n d i t i o n s 235 D.4 C o n v e r s i o n o f DC-6B t o Turbo-Compound Power w i t h H i g h e r F u e l P r i c e s 237 v i i i T a b l e Page D.5 F u e l P r i c e R e q u i r e d f o r C o n v e r s i o n o f DC-8-20 t o T u r b o f a n Power 238 D.6 Economics o f C o n v e r s i o n o f DC-8-61 t o H i g h -Bypass Engines 2 39 i x LIST OF FIGURES F i g u r e Page 1.1 The H i s t o r i c a l Trend i n Average F a c t o r P r o d u c t i -v i t i e s . . 8 1.1 F u e l Consumption P e r A i r c r a f t M i l e f o r S t a n d a r d and Turbo-Compound P i s t o n A i r c r a f t 49 3.1 S e a t - M i l e C o s t Range o f S e l e c t e d J e t A i r c r a f t , 1967-72 •. ... 124 3.2 C o s t S t r u c t u r e o f V e r s a t i l e and S p e c i a l i z e d A i r c r a f t 126 3.3 Average Speed V e r s u s Stage L e n g t h 133 4.1 H i s t o r i c a l Trend i n A i r c r a f t C r u i s i n g Speed, 1948-70 .- 169 A . i A Two-Factor I s o q u a n t 211 A.2 A Two-Factor I s o c o s t 212 A.3 The E f f e c t o f an I n c r e a s e i n t h e P r i c e o f Labour 214 A. 4 The O p t i m a l C o m b i n a t i o n o f I n p u t s 215 A.5 Change i n B e s t P r a c t i c e Technique A f t e r a Change i n R e l a t i v e F a c t o r P r i c e s 217 A.6 E f f e c t o f a N e u t r a l Change i n Technology 219 A.7 E f f e c t o f a ' B i a s e d ' Change i n Technology ...... 220 A. 8 A Second Type o f ' B i a s e d ' Change 2 22 x INTRODUCTION Statement o f t h e Problem Recent c o n c e r n o v e r d e c l i n i n g energy s u p p l i e s has g i v e n r i s e t o comments t o the e f f e c t t h a t energy consumption has not r e c e i v e d s u f f i c i e n t a t t e n t i o n i n t h e p a s t and as a r e s u l t energy has been wasted.''" The f o c u s o f t h i s c o n c e r n has been p e t r o l e u m - b a s e d energy s u p p l i e s and i t was i n e v i t -a b l e t h a t energy use i n t r a n s p o r t a t i o n became s u b j e c t t o s c r u -t i n y because i t accounts f o r such a l a r g e p o r t i o n o f t o t a l o i l consumption. P a s t t r e n d s i n energy use i n passenger t r a n s -p o r t have n o t been such as t o g i v e encouragement t o tho s e p r o m o t i n g t h e c o n s e r v a t i o n o f energy s u p p l i e s . I t i s appar-e n t , f o r example, t h a t t h e r e has been a s h i f t o v e r time from modes (e.g. bus and r a i l ) t h a t are r e l a t i v e l y low i n energy consumption p e r u n i t ( i . . e . s e a t m i l e ) o f o u t p u t t o those (e.g. 2 auto and a i r ) t h a t a r e r e l a t i v e l y h i g h i n energy consumption. I n a d d i t i o n , t h e r e i s some e v i d e n c e t h a t energy r e q u i r e m e n t s p e r s e a t m i l e have i n c r e a s e d o v e r time w i t h i n i n d i v i d u a l modes. As a r e s u l t o f growing c o n c e r n f o r d w i n d l i n g energy s u p p l i e s , the above o b s e r v a t i o n s o c c a s i o n a l l y g i v e r i s e t o a c a l l f o r changes i n p u b l i c p o l i c y i n o r d e r t o s h i f t demand t o the more ' e n e r g y - e f f i c i e n t ' modes and encourage improved 3 ' e f f i c i e n c y ' f o r a l l modes. E c o n o m i s t s , however, a r e l i k e l y 2 t o c o n s i d e r such r e s p o n s e s i l l - a d v i s e d because they i g n o r e t h e s o c i a l v a l u e o f non-energy r e s o u r c e s as w e l l as d i f f e r e n c e s i n th e s o c i a l v a l u e a t t a c h e d t o t r a n s p o r t a t i o n by t h e v a r i o u s modes. A more r a t i o n a l s o l u t i o n might be s u g g e s t e d t o be as f o l l o w s : i ) a l l o w f i r m s engaged i n the p r o v i s i o n o f t r a n s -p o r t a t i o n t o t a k e i n t o a c c o u n t t h e p r i c e o f energy r e l a t i v e t o t h a t o f o t h e r i n p u t s and s e l e c t the optimum t r a n s p o r t t e c h -n o l o g y a c c o r d i n g l y and, i i ) a l l o w consumers t o choose f r e e l y among t h e v a r i o u s modes whose p a r t i c u l a r energy r e q u i r e m e n t s w i l l be r e f l e c t e d i n t h e i r r e s p e c t i v e f a r e s . The above i s , i n f a c t , the g e n e r a l c o n t e x t i n w h i c h most ec o n o m i s t s would view the e m p i r i c a l o b s e r v a t i o n s o f h i s -t o r i c a l changes i n e n e r g y - i n t e n s i t y ( i . e . energy r e q u i r e d t o produce a g i v e n o u t p u t such as a s e a t m i l e ) . I t has a l l been a m a t t e r o f response t o r e l a t i v e p r i c e s . The p r i c e o f energy has tended t o be low i n t h e p a s t and as a consequence i t has been used h e a v i l y i n o r d e r t o save on o t h e r i n p u t s such as l a b o u r , o r i n c r e a s e t h e q u a l i t y o f o u t p u t , by i n c r e a s i n g speed f o r example. T h i s l i n e o f r e a s o n i n g poses t h e q u e s t i o n : can p a s t changes i n energy consumption p e r u n i t o f o u t p u t w i t h i n a g i v e n mode by e x p l a i n e d s i m p l y i n terms o f an h i s t o r i c a l r e s -ponse t o r e l a t i v e f a c t o r p r i c e s ? I n t h e more g e n e r a l c o n t e x t o f changes i n f a c t o r p r o p o r t i o n s , t h i s q u e s t i o n p r o v i d e s the b a s i s o f t h i s s t u d y . The s t u d y w i l l examine t e c h n o l o g i c a l change, as i t a f f e c t e d f a c t o r p r o p o r t i o n s , i n t h e d o m e s t i c 3 t r u n k a i r t r a n s p o r t a t i o n i n d u s t r y o f t h e U n i t e d S t a t e s between the y e a r s 1948 and 1972. P a s t Trends i n F a c t o r P r i c e s and F a c t o r P r o d u c t i v i t y B e f o r e g o i n g f u r t h e r i n t h i s paper, r e a d e r s may w i s h t o a c q u a i n t themselves w i t h t h e economic t h e o r y on w h i c h i t i s based, the t h e o r y o f p r o d u c t i o n , w h i c h i s o u t l i n e d i n Appendix A. B e f o r e p u r s u i n g t h e s t u d y i t a l s o seems w o r t h -w h i l e t o e s t a b l i s h whether t h e r e i s s u f f i c i e n t e v i d e n c e o f c o m p l i a n c e w i t h p r i n c i p l e s o f t h e economic t h e o r y o f produc-t i o n t o w a r r a n t a more d e t a i l e d e x a m i n a t i o n . I n o t h e r words, can i t be shown i n the a i r t r a n s p o r t a t i o n i n d u s t r y t h a t t h e r e has been an a s s o c i a t i o n between the h i s t o r i c a l t r e n d i n r e l a -t i v e f a c t o r p r i c e s and the h i s t o r i c a l t r e n d i n r e l a t i v e t e c h -n i c a l e f f i c i e n c i e s ? F a c t o r p r i c e t r e n d s a r e o u t l i n e d below and t h e n compared w i t h t r e n d s i n t e c h n i c a l e f f i c i e n c y t o e s -t a b l i s h whether the h i s t o r i c a l r e l a t i o n s h i p s were c o n s i s t e n t w i t h e x p e c t a t i o n s a r i s i n g from the economic t h e o r y o f produce t i o n . i ) F a c t o r P r i c e • 4 M i l l e r and Sawers c a l c u l a t e d an h i s t o r i c a l i n d e x o f f l i g h t crew s a l a r i e s f o r the U.S. d o m e s t i c t r u n k s w h i c h r e -v e a l e d t h a t t h e average wage r a t e f o r f l y i n g p e r s o n n e l r o s e a t an average compound r a t e o f j u s t o v e r 5 p e r c e n t a n n u a l l y between 1948 and 1963. From 1960 t o 1966, f l i g h t crew wages f o r one o f t h e ' B i g Four' t r u n k s i n c r e a s e d 4.6 per c e n t p e r y e a r w h i l e the average wage r a t e f o r a l l U.S. a i r c a r r i e r s r o s e an average o f 9.2 p e r c e n t p e r y e a r between 1967 and 1973. I n terms o f c u r r e n t d o l l a r s t h e n , the wage r a t e f o r l a b o u r i n - , v o l v e d i n t h e o p e r a t i o n o f a i r c r a f t has r i s e n s t e a d i l y between 1948 and 1972 and a t a f a s t e r r a t e i n t h e l a t t e r p a r t , o f t h i s p e r i o d . I n c o n t r a s t , the p r i c e f o r energy t h a t has f a c e d t h e U.S. a i r c a r r i e r s o v e r t h i s p e r i o d has had two main c h a r a c t e r -i s t i c s : i t has been low i n r e l a t i v e terms and has been con-s t a n t o r d e c l i n i n g o v e r t i m e . M i l l e r and Sawers' p r i c e i n -7 dex i n d i c a t e d t h a t between 1948 and 1957 the p r i c e o f a v i a -t i o n g a s o l i n e i n c r e a s e d a t l e s s t h a n o n e - t h i r d t h e r a t e o f i n -c r e a s e i n wages. Such d a t a must be used w i t h c a u t i o n , how-e v e r , because o f changes i n f u e l q u a l i t y ( p r i m a r i l y o c t a n e r a t i n g ) t h a t o c c u r r e d o v e r t h e p e r i o d . Other s o u r c e s s u g g e s t t h a t the p r i c e o f a v i a t i o n g a s o l i n e . d e c l i n e d i n a b s o l u t e terms o v e r t h i s p e r i o d ; p r i c e s g i v e n p e r U.S. g a l l o n were: 16.7 c e n t s i n 1949, 20.0 c e n t s i n 1951, 16.0 c e n t s i n 1959, and g 15.9 c e n t s i n 1967. An o v e r a l l d e c l i n e i n t h e p r i c e o f en-e r g y i s c e r t a i n l y a p p a r e n t when a c c o u n t i s t a k e n o f t h e t r a n -s i t i o n t o l o w e r - p r i c e d t u r b i n e f u e l . The p r i c e f o r t h i s k e r -osene-based f u e l was 12.0 c e n t s p e r g a l l o n i n 1951, 9.1 c e n t s i n 1959, and 9.5-10.0 c e n t s i n 1967. 9 The average p r i c e o f i n v e s t m e n t c a p i t a l o r the ' c o s t o f money' i s measured by an i n t e r e s t r a t e where the c a p i t a l i n p u t i s t o be measured i n terms o f c u r r e n t d o l l a r s as i t was 5 f o r l a b o u r and energy. As shown i n T a b l e 1.1, i n t e r e s t r a t e s f a c e d by t h e U.S. d o m e s t i c t r u n k s f o r l o n g - t e r m debt f i n a n c i n g were r e l a t i v e l y c o n s t a n t from 194 8 u n t i l 1965 a t w h i c h p o i n t they d o u b l e d o v e r a p e r i o d o f f i v e y e a r s . One study 1 1" 1 e s t i m a t e d t h a t l o n g - t e r m r a t e s o f i n t e r e s t f o r the a i r l i n e s averaged a p p r o x i m a t e l y 5.0 p e r c e n t between 1939 and 1959. A n o t h e r source"''"'" s u g g e s t s t h a t from 1964 t o 1966 i n -t e r e s t on l o n g - t e r m debt f i n a n c i n g averaged 4.85 per c e n t . Because f i n a n c i n g was a r r a n g e d p r i o r t o 1968 f o r t h e most r e c e n t a i r c r a f t c o n s i d e r e d i n the s t u d y , t h e s e d a t a s u g g e s t t h a t i t would n o t be i n a p p r o p r i a t e t o assume t h a t t h e p r i c e o f c a p i t a l was e s s e n t i a l l y c o n s t a n t o v e r the p e r i o d o f c o n c e r n . I n summary, 1948-1972.has been a p e r i o d i n w h i c h , measured i n c u r r e n t d o l l a r s , t h e p r i c e o f l a b o u r has r i s e n con-s t a n t l y , the p r i c e o f energy has f a l l e n , and t h e p r i c e o f c a p i t a l has remained unchanged. Under t h e s e c o n d i t i o n s t h e economic t h e o r y o f p r o d u c t i o n ( o u t l i n e d i n Appendix A) p r e d i c t s t h a t , w i t h i n the range o f t e c h n i c a l p o s s i b i l i t i e s , f a c t o r p r o -p o r t i o n s would t e n d t o change i n such a way as t o i n c r e a s e the use o f energy r e l a t i v e t o t h a t o f c a p i t a l and reduce the use o f l a b o u r r e l a t i v e t o c a p i t a l . I n a d d i t i o n , the t h e o r y o f i n d u c e d i n n o v a t i o n p r e d i c t s on the b a s i s o f t h e s e l o n g - t e r m t r e n d s i n r e l a t i v e f a c t o r p r i c e s t h a t s c i e n t i f i c e f f o r t would endeavour t o f i n d means t o reduce p r o d u c t i v e r e q u i r e m e n t s f o r l a b o u r r a t h e r t h a n energy o r c a p i t a l . 6 TABLE I.1 HISTORICAL TREND IN THE  COST OF CAPITAL (1936-71) Year Ca r r i e r A i r c r a f t Financed Interest Rate 1936 1 American DC-3 5% 1948 2 Eastern United Northwest L-649 DC-6 N/A 2-3J% 2% 1949 2 Northwest N/A n 3 o 1956 3 Eastern United American DC-8 DC-8 707 4% 4% 4 196 8* Eastern N/A 4J-6% 4 1971 Eastern N/A 8-1/3% S e l i g A l t s c h u l , "Equipment Trusts Loom Larger", Aviation Week, Vo l . 48, No. 1 (Jan. 5, 1948) p.37. 2 __, "Bank Credits S t i l l A i d A i r l i n e s " , Aviation Week, Vol . 49, No. 9 (Aug. 30, 1948) p.33. 3 Alpheus, W. Jessup, " A i r l i n e s ' High Credit Eases Jet Financing", Aviation Week, Vol. 64, No. 2 (Jan. 9, 1956) pp.96-7. ^Eastern A i r l i n e s Inc., Annual Reports, 1968-1973. 7 i i ) F a c t o r P r o d u c t i v i t y The h i s t o r i c a l t r e n d i n average f a c t o r p r o d u c t i v i t i e s f o r the ' B i g Four' d o m e s t i c t r u n k s i s shown i n F i g u r e 1.1 i n terms o f s e a t - m i l e o u t p u t s p e r u n i t f a c t o r i n p u t . The a v e r -age a n n u a l o u t p u t p e r employee i s shown t o have i n c r e a s e d s t e a d i l y o v e r the p e r i o d o f c o n c e r n t o a l e v e l i n 19 71 w h i c h was a l m o s t n i n e t i m e s t h a t o f 194 8. The t r e n d i n t h e average p r o d u c t o f c a p i t a l ( i n c u r r e n t d o l l a r s ) v a r i e d c y c l i c a l l y o v e r time b u t remained w i t h i n t w e n t y - f i v e p e r c e n t o f a nominal v a l u e o f 40 a n n u a l a v a i l a b l e s e a t m i l e s (ASM) per d o l l a r o f i n v e s t m e n t o v e r the p e r i o d 1948-1966. Energy p r o d u c t i v i t y a l s o v a r i e d c y c l i c a l l y o v e r time b u t energy i s the o n l y f a c t o r t o show a n e t d e c r e a s e o v e r time i n average p r o d u c t i v i t y , l a r g e l y as a r e s u l t o f a sh a r p downward t r e n d between 195 8 and 12 1961. On t h e b a s i s o f t h e s e aggregate d a t a , t h e r e i s e v i -dence t h a t t h e d i r e c t i o n o f changes i n average f a c t o r produc-t i v i t y (or t e c h n i c a l e f f i c i e n c y ) i s s y s t e m a t i c a l l y r e l a t e d t o the h i s t o r i c a l t r e n d i n r e l a t i v e f a c t o r p r i c e s , i n t h a t i t r e f l e c t s : - a monotonic i n c r e a s e i n average f a c t o r p r o d u c t i v i t y f o r t h a t f a c t o r ( l a b o u r ) whose p r i c e r o s e s t e a d i l y o v e r t h e p e r i o d . - no c o n s i s t e n t upward o r downward t r e n d i n average p r o d u c t i v i t y f o r t h a t f a c t o r ( c a p i t a l ) whose p r i c e 8 FIGURE 1.1 THE' HISTORICAL TREND IN AVERAGE FACTOR PRODUCTIVITIES 9 FIGURE 1.1 THE HISTORICAL TREND IN AVERAGE FACTOR PRODUCTIVITIES AVERAGE CAPITAL PRODUCTIVITY U.S. LBIG FOUR' DOMESTIC TRUNKS 1948-1966 (CURRENT DOLLARS) LU I— FIGURE 1.1 THE HISTORICAL TREND IN AVERAGE FACTOR PRODUCTIVITIES c) AVERAGE FUEL PRODUCTIVITY U.S. 'BIG FOUR' DOMESTIC TRUNKS 1951-1970 YEAR 11 was e s s e n t i a l l y c o n s t a n t o v e r the p e r i o d . - a d e c l i n e i n average p r o d u c t i v i t y f o r t h a t f a c t o r (energy) whose p r i c e f e l l o v e r the p e r i o d i n b o t h a b s o l u t e and r e l a t i v e t e rms. Study O b j e c t i v e s A ggregate d a t a f o r U.S. a i r , t r a n s p o r t a t i o n r e v e a l an h i s t o r i c a l r e l a t i o n s h i p between changes i n f a c t o r p r o d u c t i v i t y and t r e n d s i n r e l a t i v e f a c t o r p r i c e s t h a t i s c o n s i s t e n t w i t h t h e economic t h e o r y o f p r o d u c t i o n . T h i s s t u d y w i l l a n a l y z e t h i s r e l a t i o n s h i p f u r t h e r by e x a m i n i n g s e l e c t e d a i r c r a f t b r o u g h t i n t o use by t h e U.S. t r u n k c a r r i e r s between 1948 and 1972. The s t u d y w i l l a t t e m pt t o : a) document t h e changes i n t e c h n i c a l e f f i c i e n c y t h a t accompanied the i n t r o d u c t i o n o f p a r t i c u l a r a i r -c r a f t ; b) e s t a b l i s h whether o r not p a r t i c u l a r changes i n t e c h n i c a l e f f i c i e n c y were c a u s a l l y r e l a t e d t o f a c -t o r p r i c e i n c e n t i v e s ( i . e . r e f l e c t e d c o n s c i o u s e f f o r t s t o optomize economic e f f i c i e n c y ) ; c) e s t a b l i s h whether o r not r e s e a r c h e f f o r t s were ' b i a s e d ' by economic i n c e n t i v e s ( i . e . e s t a b l i s h whether t h e range o f the t e c h n i c a l l y f e a s i b l e expanded i n r e s ponse t o economic i n c e n t i v e s o r a t an autonomous r a t e ) ; and d) o u t l i n e t h e e x t e n t t o wh i c h p a s t t e c h n o l o g i c a l e v e n ts might have d i f f e r e d had t h e p r i c e o f energy been h i g h e r . E a r l i e r S t u d i e s A i r t r a n s p o r t a t i o n has been t h e s u b j e c t o f many s t u d i e s from the p o i n t s o f view o f t e c h n o l o g y , market s t r u c t u r e , and economic performance. R a r e l y , however, has economic a n a l y s i s been r e l a t e d t o t e c h n o l o g i c a l development w i t h i n a s i n g l e s t u d y . Caves, i n h i s c l a s s i c s t u d y o f the U.S. t r u n k l i n e i n -d u s t r y c a l l e d t h e a i r c r a f t i n v e s t m e n t d e c i s i o n "by f a r the most 13 i m p o r t a n t a s p e c t o f market conduct." He acknowledged the i n f l u e n c e o f t h e m i l i t a r y on comm e r c i a l a i r c r a f t development and a l s o argued t h a t government r e g u l a t o r y p o l i c i e s had had 14 i m p o r t a n t e f f e c t s on t h i s development. I n a n o t h e r s t u d y , 15 . . Gellman a t t r i b u t e d government r e g u l a t o r y p o l i c y w i t h o v e r -whelming i n f l u e n c e i n t h e p a t t e r n o f a i r c r a f t a c q u i s i t i o n s by the U.S. t r u n k c a r r i e r s . The view o f b o t h a u t h o r s was t h a t t h e s e i n f l u e n c e s were such t h a t c o s t c o n s i d e r a t i o n s and p r i c e r i v a l r y were s u p p r e s s e d . 16 A r e c e n t s t u d y by P h i l l i p s w h i c h was concerned p r i ^ m a r i l y w i t h t h e market s t r u c t u r e o f commercial a i r c r a f t manu-f a c t u r i n g found t h a t low o p e r a t i n g c o s t s were a n e c e s s a r y b u t i n s u f f i c i e n t f e a t u r e o f new a i r c r a f t t o a s s u r e c o m m e r c i a l s u c -17 c e s s . A n o t h e r s t u d y , by M i l l e r and Sawers, documented the t e c h n i c a l development of. a v i a t i o n t e c h n o l o g y and t r a c e d changes 13 i n o p e r a t i n g c o s t s t o p a r t i c u l a r i n v e n t i o n s and e n g i n e e r i n g f e a t u r e s . . A l t h o u g h a i r c r a f t o p e r a t i n g c o s t s were c o n s i d e r e d i n a l l the above s t u d i e s , t h i s was done i n a g g r e g a t e terms; t h a t i s , i n terms o f t r e n d s i n t o t a l c o s t s r a t h e r t h a n p a r t i c u l a r c o s t components. I n the p r e s e n t s t u d y i t i s t h e r e l a t i v e s h a r e o f the l a b o u r , c a p i t a l , energy, and maintenance compon- . e n t s o f t o t a l o p e r a t i n g c o s t s t h a t i s o f i n t e r e s t . I n a d d i -t i o n , an a t t e m p t i s made t o s e p a r a t e changes i n c o s t s i n t o the e f f e c t s o f changes i n t e c h n i c a l e f f i c i e n c y ( i . e . average p r o d u c t i v i t y ) and changes i n f a c t o r p r i c e s . F o r example, i n l i g h t o f the above f a c t o r p r i c e d a t a , i n c r e a s e s i n f l y i n g p e r s o n n e l expenses need n o t have i n d i c a t e d an i n c r e a s e i n the use o f l a b o u r s i n c e wage r a t e s were i n c r e a s i n g . R e d u c t i o n s i n energy c o s t s , on t h e o t h e r hand, d i d n o t n e c e s s a r i l y r e f l e c t improved t e c h n i c a l e f f i c i e n c y f o r energy because the p r i c e o f energy d e c l i n e d o v e r t i m e . The Approach The i n i t i a l r e q u i r e m e n t o f t h i s s t u d y i s a method o f documenting changes i n average f a c t o r p r o d u c t i v i t i e s f o r the a i r c a r r i e r s . There i s , however, always a g e s t a t i o n p e r i o d between the t ime b e s t p r a c t i c e t e c h n i q u e changes and t h e t ime the i n d u s t r y becomes f u l l y a d j u s t e d t o new f a c t o r p r i c e c o n d i -t i o n s . T h i s i m p l i e s a p e r s i s t e n t gap between the f a c t o r p r o -p o r t i o n s o f b e s t p r a c t i c e t e c h n i q u e and t h e t e c h n i q u e r e f l e c t -ed i n the o v e r a l l performance o f t h e i n d u s t r y . A g g regate 14 measures o f p r o d u c t i v i t y such as t h o s e d e p i c t e d i n F i g u r e 1.1/ i n o t h e r words, r e s p o n d r a t h e r s l o w l y t o changes i n r e l a t i v e f a c t o r p r i c e s because they a r e a r e f l e c t i o n o f the e x i s t i n g s t o c k o f c a p i t a l equipment. 18 19 I n a d d i t i o n , Caves, K e e l e r , and o t h e r s have found aggregate p r o d u c t i o n f u n c t i o n s and c o s t f u n c t i o n s t o be i n -a p p r o p r i a t e f o r a n a l y s i s o f a i r l i n e c o s t s . Both a u t h o r s found an ad hoc c o m b i n a t i o n o f s t a t i s t i c a l and e n g i n e e r i n g 20 c o s t f u n c t i o n s t o be the b e s t a l t e r n a t i v e . S i m i l a r p r o c e -dures were adopted i n t h i s s t u d y p r i m a r i l y because the f o c u s i s on d i s a g g r e g a t e d r e l a t i v e c o s t s - o f v a r i o u s a i r c r a f t as op-posed t o the a g g r e g a t e d c o s t l e v e l s o f v a r i o u s a i r l i n e s . I n l i g h t o f t h e s e o b s e r v a t i o n s , t h i s s t u d y has been based on an a n a l y s i s o f t h e f a c t o r i n p u t c o m b i n a t i o n s embodied i n v a r i o u s a i r c r a f t a c q u i r e d by the c a r r i e r s o v e r t h e p e r i o d o f i n t e r e s t . T h i s c o r r e s p o n d s t o an e x a m i n a t i o n o f a d j u s t -ments a t the margin t o the i n f l u e n c e o f r e l a t i v e f a c t o r p r i c e s . Changes i n f a c t o r p r o p o r t i o n s w i l l be r e p r e s e n t e d i n terms o f i n d i c e s o f f a c t o r r e q u i r e m e n t s p e r u n i t o f an unchanging o u t -p u t , a v a i l a b l e s e a t m i l e s (ASM). These i n d i c e s o f t e c h n i c a l e f f i c i e n c y are based on measures o f average f a c t o r p r o d u c t i v -i t y f o r v a r i o u s a i r c r a f t c a l c u l a t e d from p h y s i c a l and p e r f o r m -ance c h a r a c t e r i s t i c s . F o r example, crew complement, average speed and a i r c r a f t c a p a c i t y p r o v i d e a measure o f t h e average p r o d u c t i v i t y o f f l y i n g p e r s o n n e l w h i c h can be compared w i t h 15 average p r o d u c t i v i t i e s o f o t h e r a i r c r a f t t o e s t a b l i s h the t r e n d o v e r time i n t e c h n i c a l e f f i c i e n c y . H i s t o r i c a l c o s t d a t a are a n a l y z e d b o t h t o c o n f i r m p r e d i c t i o n s o f r e l a t i v e c o s t s based on t h e e s t i m a t e s o f average p r o d u c t i v i t y and a l s o t o p r o -v i d e a proxy measure o f t e c h n i c a l e f f i c i e n c y f o r maintenance. I n a d d i t i o n , h i s t o r i c a l c o s t d a t a p r o v i d e a means f o r i d e n t i -f y i n g the e f f e c t o f changes i n t e c h n i c a l e f f i c i e n c y on o v e r -a l l economic e f f i c i e n c y ( i . e . average c o s t s based on a l l f a c t o r components). Once the h i s t o r i c a l t r e n d o f changes i n r e l a t i v e t e c h -n i c a l e f f i c i e n c y and o v e r a l l economic e f f i c i e n c y was e s t a b -l i s h e d , those a i r c r a f t t h a t b r o u g h t about changes i n f a c t o r p r o p o r t i o n s t h a t were c o n s i s t e n t w i t h the t h e o r y o f p r o d u c t i o n c o u l d be i d e n t i f i e d . On t h e b a s i s o f an o u t l i n e o f t h e c i r -cumstances s u r r o u n d i n g the i n t r o d u c t i o n o f t h e s e a i r c r a f t , an a t t e m p t i s t h e n made to d e t e r m i n e whether r e l a t i v e f a c t o r p r i c e s had had a c a u s a l e f f e c t on t h e i r development. O r g a n i z a t i o n o f the Study The f i r s t p a r t o f the s t u d y i s c o m p r i s e d o f t h r e e c h a p t e r s w h i c h c o r r e s p o n d t o t h r e e minor ' t e c h n o l o g i c a l epochs' i n t h e p e r i o d 1948-1972. These c h a p t e r s have t w o - p a r t f o r m a t s w h i c h d i s c u s s t h e e v e n t s w h i c h surrounded the i n t r o -d u c t i o n o f s e l e c t e d a i r c r a f t and t h e n examine changes i n d i r e c t o p e r a t i n g c o s t s and c a l c u l a t e changes i n t e c h n i c a l e f f i c i e n c y . C h a pter I i s concerned w i t h t h e p i s t o n e r a (1948-1957), Chapter I I w i t h the t r a n s i t i o n t o t u r b i n e power (JL958-1961) and C h a p t e r I I I w i t h t h e r e c e n t p e r i o d (1962-1972). Chapter IV d i s c u s s e s market b e h a v i o u r o f the U.S. a i r t r a n s p o r t a t i o n i n d u s t r y as i t a f f e c t s t e c h n o l o g i c a l change and examines the e x t e n t t o w h i c h t h e r a t e and d i r e c t i o n o f t e c h n o l o g i c a l change i n t h e p e r i o d o f c o n c e r n can be a t t r i b u t -ed t o i n c e n t i v e s a r i s i n g from r e l a t i v e f a c t o r p r i c e s . D i f -f e r e n c e s i n p a s t t e c h n o l o g i c a l e v e n t s t h a t might have a r i s e n had the r e l a t i v e p r i c e o f energy been h i g h e r are d i s c u s s e d i n A ppendix D. CHAPTER I THE PISTON ERA INTRODUCTION The i n t r o d u c t i o n o f t h e DC-3 made a i r passenger t r a n s -p o r t an e c o n o m i c a l l y v i a b l e o p e r a t i o n and by t h e end o f World War I I the a i r l i n e s e n j o y e d a r a p i d r a t e o f growth and were e s t a b l i s h e d as i m p o r t a n t r i v a l s t o o t h e r modes o f t r a n s p o r t . T h i s c h a p t e r i s concerned w i t h t h e a i r c r a f t t h a t were d e v e l o p e d t o accommodate t h i s growth u n t i l t h e appearance o f j e t t r a n s -p o r t s . P a r t I g i v e s t h e g e n e r a l c h a r a c t e r i s t i c s o f s e l e c t e d a i r c r a f t and d e s c r i b e s the c i r c u m s t a n c e s s u r r o u n d i n g t h e i r i n -t r o d u c t i o n . P a r t I I a n a l y z e s d i f f e r e n c e s i n o p e r a t i n g c o s t s among the s e a i r c r a f t and d e v e l o p s i n d i c e s t o measure t h e i r r e l a t i v e t e c h n o l o g i c a l e f f i c i e n c e s i n t h e use o f l a b o u r , c a p i -t a l , e nergy, and maintenance e f f o r t . PART I : EVENTS SURROUNDING THE INTRODUCTION OF SELECTED PISTON AIRCRAFT The F i r s t Long-Haul A i r c r a f t Two y e a r s a f t e r i t had been i n t r o d u c e d i n t o s e r v i c e by i t s s p o n s o r , American A i r l i n e s , t he DC-3 dominated the f l e e t s o f the ' B i g F our' t r u n k s . , The a i r c r a f t c r u i s e d a t 170 m i l e s p e r hour and had a c a p a c i t y o f t w e n t y - f o u r p a s s e n g e r s and a range o f 500-600 m i l e s . I n s p i t e o f i t s low o p e r a t i n g c o s t s , 18 the a i r l i n e s soon found t h a t they c o u l d use a l a r g e r a i r c r a f t . Because o f the overwhelming s u c c e s s o f the DC-3, Douglas was approached t o d e s i g n a new t r a n s p o r t t o the s p e c i f i c a t i o n o f Pan American and t h e ' B i g Four' c a r r i e r s . D e s i g n work on the new model, the DC-4E, began i n 1936 w i t h development f u n d i n g from the a i r l i n e s . I t was t o have g r e a t e r passenger c a p a c i t y and range i n exce s s o f one thousand m i l e s t o a l l o w o n e - s t o p t r a n s c o n t i n e n t a l s e r v i c e compared w i t h t h e t h r e e s t o p s r e q u i r e d by the DC-3. S e v e r a l minor i n n o v a t i o n s were i n c o r p o r a t e d i n the new d e s i g n , b u t i n 19 39, when the a i r c r a f t was ready t o go i n t o p r o d u c t i o n , o n l y U n i t e d A i r l i n e s came f o r w a r d w i t h a f i r m o r -d e r . The o t h e r c a r r i e r s a p p a r e n t l y d e c i d e d t h a t the p r o t o -type was too l a r g e and too c o m p l i c a t e d ; Douglas c a n c e l l e d p r o -d u c t i o n p l a n s and i m m e d i a t e l y began development o f a scaled--down v e r s i o n , the DC-4. Two o f the p a r t i c i p a n t s , Pan A m e r i -can and Trans World A i r l i n e s (TWA), became d i s e n c h a n t e d w i t h the Douglas program and e l e c t e d t o purchase an a i r c r a f t b u i l t by B o e i n g , the B-30 7. The B-307, which e n t e r e d s e r v i c e i n 1940, was the f i r s t c o m mercial t r a n s p o r t t o i n c o r p o r a t e the four-^engined, low-wing c o n f i g u r a t i o n w h i c h had been p i o n e e r e d by a m i l i t a r y a i r c r a f t (the B o e i n g B-17 S t r a t o f o r t r e s s ) and has s i n c e become s t a n d a r d d e s i g n p r a c t i c e f o r l a r g e t r a n s p o r t s . The a i r c r a f t was small^-e r t h a n the DC-4E and was most s i g n i f i c a n t i n t h a t i t was p r e s -s u r i z e d . A l t h o u g h t h e c a b i n p r e s s u r e d i f f e r e n t i a l was r a t h e r 19 low i t was s u f f i c i e n t t o a l l o w an i n c r e a s e i n c r u i s i n g a l t i -tude o f a p p r o x i m a t e l y 6000 f e e t , thus i n c r e a s i n g b o t h speed and f u e l economy. The a i r c r a f t was a p p a r e n t l y cheap t o op-e r a t e b u t i t s low speed and s m a l l c a p a c i t y soon prove d a d i s -a d v a n t a g e . 1 Thus, w h i l e the f i v e a i r c r a f t o r d e r e d by TWA remained i n ' s e r v i c e u n t i l 1950, the B-307 was n o t pu r c h a s e d by any o t h e r t r u n k c a r r i e r . The r e v i s e d Douglas d e s i g n , the DC-4, f l e w i n l a t e 1942 a f t e r e a r l y o r d e r s had been o b t a i n e d from A m e r i c a n , E a s t e r n , and U n i t e d f o r a t o t a l o f s i x t y - o n e a i r c r a f t . The DC-4 was a s t r a i g h t f o r w a r d e x t e n s i o n o f the DC-3 h a v i n g the same f o u r -e n g i n e d c o n f i g u r a t i o n as the B-307. I t was d e s i g n e d t o accom-modate f o r t y - f o u r f i r s t - c l a s s p a s sengers i n a f l a t - s i d e d f u s e -l a g e w h i c h Douglas used i n a l l i t s subsequent p i s t o n a i r c r a f t . The passenger c a b i n was u n p r e s s u r i z e d a l t h o u g h p r o v i s i o n was made f o r i n c o r p o r a t i n g t h i s f e a t u r e i n a l a t e r v e r s i o n . Wing l o a d i n g was i n c r e a s e d and t o t a l power was i n c r e a s e d t o 4400 horsepower (hp) from about 2000 hp i n the DC-3, r e s u l t i n g i n a c r u i s i n g speed on the DC-4 o f 210 m i l e s p e r hour w i t h an accom-2 p a n y m g i n c r e a s e i n runway l e n g t h r e q u i r e m e n t s . A t t h e same time Lockheed was d e v e l o p i n g a l a r g e r and more a m b i t i o u s d e s i g n t o meet t h e r e q u i r e m e n t s o f Howard Hughes 3 o f TWA. The new a i r c r a f t was the Lockheed C o n s t e l l a t i o n , f i r s t o f a s e r i e s t h a t was t o prove the o n l y major c o m p e t i t i o n t o the DC-4 and i t s s u c c e s s o r s u n t i l the m i d - f i f t i e s . I t appeared i n Ja n u a r y 1943, e l e v e n months a f t e r i t s Douglas coun-20 t e r p a r t . The i n i t i a l model, the 049, was s u b s t a n t i a l l y l a r g -e r t h a n the DC-4 and had f u l l y t w i c e t h e power (8800 h p ) , en-a b l i n g i t t o c r u i s e a t 280 m i l e s p e r hour. The t r i p l e - t a i l e d . Lockheed a i r c r a f t a l s o d i f f e r e d from the s i n g l e - t a i l e d DC-4 „ i n t h a t i t s f u s e l a g e (which was p r e s s u r i z e d ) was whale-shaped and o f c i r c u l a r c r o s s - s e c t i o n . T h i s d e s i g n , w h i l e perhaps a e r o d y n a m i c a l l y c l e a n e r , was l e s s s p a c e - e f f i c i e n t and p r o v i d e d a s m a l l e r s e a t i n g c a p a c i t y t h a n the DC-4, r e l a t i v e t o i t s o v e r -a l l l e n g t h and o u t s i d e d i a m e t e r . The C o n s t e l l a t i o n had h i g h e r w ing l o a d i n g than the DC-4 and g r e a t e r range, about 1500 m i l e s . S h o r t l y a f t e r the DC-4 made i t s i n i t i a l f l i g h t , a l l p r o d u c t i o n was t a k e n o v e r by t h e m i l i t a r y as the U.S. e n t e r e d W o rld War I I . The Douglas a i r c r a f t was o r d e r e d i n t o l a r g e -s c a l e p r o d u c t i o n as t h e C-54 t r a n s p o r t and by the end o f the war more th a n one thousand had been b u i l t . The p r o d u c t i o n f a c i l -i t i e s o f the Lockheed Company were c o n v e r t e d t o a s s i s t i n the manufacture o f C-54s, and o n l y the i n i t i a l p r o d u c t i o n r u n o f twenty C o n s t e l l a t i o n s was used by the m i l i t a r y . The DC-4 b e n e f i t t e d from i t s m i l i t a r y c a r e e r as b o t h t h e a i r c r a f t and i t s e ngines were improved i n s e r v i c e and t h e i r r e l i a b i l i t y i n c r e a s e d . I t was found t h a t the DC-4 c o u l d be o p e r a t e d a t t a k e - o f f w e i g h t s f o r t y p e r c e n t g r e a t e r t h a n b e f o r e w i t h an i n c r e a s e i n wing l o a d i n g t o 50.1 pounds p e r square f o o t and an i n c r e a s e i n runway r e q u i r e m e n t s t o 5,250 f e e t . Range was i n c r e a s e d t o o y e r 1,800 m i l e s , n e a r l y as l o n g as t h a t o f the C o n s t e l l a t i o n . A t t h e end o f t h e war, l a r g e numbers o f C-54s (DC-4s) were r e l e a s e d from m i l i t a r y s e r v i c e . Many were a c q u i r e d by a l l the t r u n k c a r r i e r s e x c e p t TWA and by 1947, 169 had e n t e r e d c ommercial s e r v i c e i n t h e U.S.. Two y e a r s l a t e r TWA had p l a c e d t h i r t e e n DC-4's i n s e r v i c e , making i t the f i r s t a i r -• 4 c r a f t s i n c e t h e DC-3 t o e n j o y w i d e s p r e a d use. Large numbers o f DC-3s were a l s o a c q u i r e d from the m i l i t a r y and though t h e y were b e i n g removed from t r u n k l i n e s e r v i c e by 1946, t h e r e r e - . mained more t h a n t h r e e hundred a n d , s i x t y i n s e r v i c e w i t h t r u n k c a r r i e r s i n 1948. M i l i t a r y p r o d u c t i o n had thus g i v e n Douglas the dominant p o s i t i o n as s u p p l i e r o f a i r c r a f t t o U.S. c a r r i e r s . I n 1946, 605 a i r c r a f t o f Douglas manufacture were i n s e r v i c e w i t h t h e t r u n k c a r r i e r s , compared t o t w e n t y - f o u r f o r Lockheed 5 and o n l y f i v e f o r B o e i n g . E a r l y Postwar E v e n t s By 1945 Douglas was i n the f i n a l s t a g e s o f d e v e l o p i n g t h e f i r s t postwar a i r c r a f t , the DC-6, under a 1944. m i l i t a r y con-t r a c t . The war's end r e l e a s e d p r o d u c t i o n t o the a i r l i n e s and Douglas was a b l e t o o f f e r c o m m e r c i a l d e l i v e r i e s i n 1947. The new model had t h e same wing as the DC-4 b u t t h e f u s e l a g e was s t r e t c h e d e i g h t f e e t t o i n c r e a s e f i r s t - c l a s s accommodation t o 50-55 passengers ( l a t e r up t o 76 i n coach c o n f i g u r a t i o n ) . The i n c r e a s e i n g r o s s w e i g h t , i n c r e a s e d wing l o a d i n g and more p o w e r f u l e n g i n e s (2400 hp compared w i t h 1450 hp i n the DC-4) i n c r e a s e d c r u i s i n g speed t o 285 m i l e s p e r hour, somewhat f a s t e r t h a n the C o n s t e l l a t i o n . P r e s s u r i z a t i o n o f t h e c a b i n , i n -c r e a s e d f u e l c a p a c i t y , and a s l i g h t r e d u c t i o n i n engine f u e l consumption r e s u l t e d i n a s t i l l - a i r range o f a p p r o x i m a t e l y 2,500 m i l e s . A t t h e end o f 194 7, b o t h American A i r l i n e s and U n i t e d had more than t h i r t y DC-6's i n s e r v i c e w h i l e t h r e e o t h e r t r u n k s , B r a n i f f , N a t i o n a l , and D e l t a had s m a l l e r f l e e t s . The agreement s i g n e d by Lockheed and TWA d u r i n g the development o f the C o n s t e l l a t i o n c o n t a i n e d a p r o v i s i o n t h a t the a i r c r a f t c o u l d n o t be s o l d t o o t h e r a i r l i n e s o p e r a t i n g 7 t r a n s c o n t i n e n t a l r o u t e s . Thus TWA and E a s t e r n were the o n l y U.S. c a r r i e r s o p e r a t i n g C o n s t e l l a t i o n s a t t h e t i m e . The s i g -n i f i c a n c e o f t h i s market impediment c o u l d n o t have been g r e a t because the DC-6 had l o w e r o p e r a t i n g c o s t s , b u t i t s e t the s t a g e f o r t e c h n o l o g i c a l e v o l u t i o n o v e r the n e x t decade. The a i r c r a f t a c q u i s i t i o n s o f t h e ' B i g Four' were s p l i t between Douglas and Lockheed, e n c o u r a g i n g t h e two m a n u f a c t u r e r s t o i n t r o d u c e c o m p e t i t i v e d e s i g n s . Thus s h o r t l y a f t e r the DC-6 e n t e r e d commercial s e r v i c e i n A p r i l , 1947, Lockheed i n t r o d u c e d t h e f i r s t p o s t w a r C o n s t e l l a t i o n , t h e 649, and s i x months l a t e r t h e l o n g e r range 749. E a r l y i n t h e postwar p e r i o d t h e r e were moves w i t h i n t h e i n d u s t r y t o reduce c o s t s and i n c r e a s e o u t p u t t h r o u g h the i n t r o d u c t i o n o f coach s e r v i c e w i t h f a r e s l o w e r t h a n e x i s t i n g f i r s t - c l a s s f a r e s . C a p i t a l A i r l i n e s was the f i r s t t o i n t r o -duce the new c l a s s o f s e r v i c e a f t e r a p p l y i n g t o the CAB i n 8 1948. The B oard was a t f i r s t c o n v i n c e d t h a t coach f a r e s 9 would s i m p l y d i l u t e revenues and made an a t t e m p t t o d i f f e r s e n t i a t e t h e s e r v i c e from f i r s t - c l a s s by r e s t r i c t i n g coach t o o f f - p e a k ( n i g h t ) o p e r a t i o n s w i t h h i g h - d e n s i t y equipment. As a r e s u l t , t h e e f f e c t i v e s e a t i n g c a p a c i t y o f contemporary a i r -c r a f t was i n c r e a s e d ; C a p i t a l ' s DC-4s f o r example were t o be c o n f i g u r e d f o r 64 pas s e n g e r s i n coach s e r v i c e compared t o 44 i n f i r s t - c l a s s . I n t h e f a l l o f 194 8, American A i r l i n e s was prompted t o remove t h e t e n p e r cent»equipment s u r c h a r g e t h a t had p r e v i o u s -l y e x i s t e d on a l l s e r v i c e s p e r f o r m e d w i t h DC-6s. The s u r -charge was g r a d u a l l y removed from the f a r e s t r u c t u r e o f a l l o t h e r c a r r i e r s / ^ f o r c i n g o l d e r equipment such as the DC-4 to compete a t t h e same f a r e l e v e l w i t h t h e more a t t r a c t i v e postwar a i r c r a f t . T h i s g r a d u a l r e s t r u c t u r i n g o f t h e market took a f u r t h e r s t e p i n 1951 when t h e CAB approved an a p p l i c a -t i o n by N a t i o n a l A i r l i n e s t o p r o v i d e daytime coach s e r v i c e w i t h t h e DC-6, a l l o w i n g t h e new f a r e s t o be o f f e r e d a t a t t r a c -t i v e d e p a r t u r e times w i t h u p - t o - d a t e equipment. New S h o r t - H a u l A i r c r a f t W h i l e Lockheed and Douglas were competing i n t h e market f o r l o n g - h a u l a i r c r a f t , two o t h e r m a n u f a c t u r e r s a t t e m p t e d t o produce a r e p l a c e m e n t f o r t h e v e n e r a b l e DC-3 fo r . s h o r t - r a n g e o p e r a t i o n s . The e f f o r t p r o v e d d i f f i c u l t , h o w e v e r , p r i m a r i l y because o f t h e l a r g e number o f s u r p l u s DC-3s t h a t had been made a v a i l a b l e a t low c o s t from t h e m i l i t a r y . " ' " ^ Two major c o m p e t i -t o r s emerged, C o n s o l i d a t e d and M a r t i n . C o n s o l i d a t e d d e v e l o p e d t h e C o n v a i r 240 f o r an American 12 A i r l i n e s r e q u i r e m e n t and i t e n t e r e d s e r v i c e i n 1948 a f t e r a one y e a r d e l a y caused by development d i f f i c u l t i e s . The f i r s t p o stwar s h o r t - r a n g e d e s i g n t o e n t e r c ommercial s e r v i c e , how-e v e r , was t h e M a r t i n 20 2 w h i c h began o p e r a t i o n s i n 194 7 w i t h N o r t h w e s t A i r l i n e s , one o f t h e medium-sized t r u n k s . The two a i r c r a f t were s i m i l a r i n s i z e and c o n f i g u r a t i o n , w i t h c a p a c i -t i e s o f 40 and 36 f i r s t - c l a s s p a s s e n g e r s r e s p e c t i v e l y . C r u i s i n g speed o f the C o n v a i r , 260 m i l e s per hour, was s l i g h t -l y h i g h e r than t h a t o f t h e M a r t i n and i t was p r e s s u r i z e d , w h i l e t h e M a r t i n was n o t . Range of b o t h was a p p r o x i m a t e l y s i x hun-d r e d m i l e s . The M a r t i n 202 s u f f e r e d from a s t r u c t u r a l weakness and two Northwest a i r c r a f t c r a s h e d soon a f t e r t h ey e n t e r e d s e r v i c e . As a r e s u l t , no o t h e r c a r r i e r p u r c h a s e d th e 202 and 13 a l l o f N o r t h w e s t ' s a i r c r a f t were r e t i r e d w i t h i n f o u r y e a r s . A subsequent v e r s i o n o f the 202 i n c o r p o r a t i n g major s t r u c -t u r a l m o d i f i c a t i o n s was d e v e l o p e d by 1950, b u t o n l y TWA p u r -chased i t . The M a r t i n 404, a ' s t r e t c h e d ' v e r s i o n accommoda-t i n g f o r t y f i r s t - c l a s s p a s s e n g e r s appeared i n 1951 and was somewhat more s u c c e s s f u l . Two t r u n k s , E a s t e r n and TWA purcha; ed a t o t a l o f one hundred a i r c r a f t . C o n v a i r was the more s u c c e s s f u l m a n u f a c t u r e r o f s h o r t -range a i r p l a n e s ; C o n v a i r 240s were o p e r a t e d by f o u r t r u n k c a r -r i e r s b e s i d e s A m e r i c a n . U n i t e d A i r l i n e s p u r c h a s e d an e n l a r g -ed v e r s i o n , the 340, i n 1952 and t h i s a i r c r a f t as w e l l as the s t i l l l a r g e r C o n v a i r 440 were used by s i x t r u n k c a r r i e r s . These C o n v a i r d e s i g n s , a l l o f wh i c h used the P r a t t and Whit-ney Twin Wasp engine which a l s o powered the DC-6, became the s t a n d a r d s h o r t - and medium-range a i r c r a f t i n the U.S. f o r many y e a r s . Many o f them - s i n c e c o n v e r t e d t o t u r b i n e power -remain i n s e r v i c e t o d a y . Too L a r g e , Too Soon A t the same time as the DC-3 was b e i n g r e p l a c e d by new s h o r t - h a u l d e s i g n s , s e v e r a l m a n u f a c t u r e r s were a t t e m p t i n g t o s e l l new a i r p l a n e s w h i c h were c o n s i d e r a b l y l a r g e r t h a n t h e s t a n d a r d l o n g - r a n g e a i r c r a f t , the DC-6 and C o n s t e l l a t i o n . L a r g e s t o f the s e r i e s was t h e C o n v a i r XC-99, a t r a n s p o r t v e r -s i o n o f the B-36 bomber wh i c h was powered by s i x e n g i n e s hav-ing pusher p r o p e l l o r s . The XC-99, wh i c h accommodated f o u r hundred t r o o p s i n i t s m i l i t a r y c o n f i g u r a t i o n , had a t a k e - o f f w e i g h t o f 265,000 pounds, more than two and a h a l f t i m e s t h a t o f t h e DC-6. S l i g h t l y s m a l l e r was the Lockheed C o n s t i t u t i o n , a f o u r - e n g i n e d t r a n s p o r t w h i c h - l i k e t h e XC-99 ^ had a d o u b l e -deck f u s e l a g e . A 128 passenger commercial v e r s i o n was p l a n n e d b u t n e i t h e r t h e C o n s t i t u t i o n nor the XC-9 9 p r oceeded p a s t t h e p r o t o t y p e s t a g e even as m i l i t a r y t r a n s p o r t s . A n o t h e r l a r g e f o u r - e n g i n e d d e s i g n , t h e C-74 Globemaster, had been d e v e l o p e d by Douglas d u r i n g t h e war f o r the m i l i t a r y . Pan American A i r l i n e s - a t t r a c t e d by t h e p r o s p e c t o f low s e a t - m i l e c o s t s -p l a c e d an o r d e r f o r t w e n t y - s i x b u t t h i s was l a t e r c a n c e l l e d i n 1945 and as a r e s u l t no commercial v e r s i o n o f the C-74 appeared. 26 What t o l d a g a i n s t t h e s e a i r c r a f t , a p a r t from any de-f e c t s i n t h e i r d e s i g n , was t h e i r s i z e . The a i r l i n e s were s i m p l y n o t i n t e r e s t e d i n a i r c r a f t w hich c o u l d c a r r y 150 o r 200 p a s s e n g e r s because t h e i r use would have r e q u i r e d an unac-14 c e p t a b l e r e d u c t i o n i n d e p a r t u r e f r e q u e n c i e s . .The o n l y l a r g e a i r c r a f t t o e n j o y even a moderate degree o f s u c c e s s was the B o e i n g B-377 S t r a t o c r u i s e r , a l o n g - r a n g e double-deck a i r l i n e r t h a t was d e v e l o p e d from t h e B-2 9 S u p e r f o r t r e s s bomb-e r . N o r t h w e s t p u t t h i s a i r c r a f t i n t o s e r v i c e i n 1949, con-f i g u r e d f o r e i g h t - o n e f i r s t - c l a s s p a s s e n g e r s , b u t used i t p r i m a r i l y on i n t e r n a t i o n a l r o u t e s . The S t r a t o c r u i s e r was a l s o used by Pan American A i r l i n e s and i n 1951 U n i t e d began o p e r a t i n g i t on t h e i r s e r v i c e t o H a w a i i . A l t h o u g h the B-377 o f f e r e d a h i g h e r degree o f passenger c o m f o r t i n i t s s p a c i o u s c a b i n and had g r e a t e r speed t h a n t h e DC-6, i t had r e l a t i v e l y h i g h o p e r a t i n g c o s t s and was ne v e r used i n t h e t r a n s c o n t i n e n t ^ -a l market. The ' S t r e t c h i n g ' P r o c e s s A s i d e from t h e S t r a t o c r u i s e r , the o n l y a i r c r a f t t o be used i n the l o n g - h a u l market u n t i l t he a r r i v a l o f the j e t s were those d e v e l o p e d from the Douglas DC-6 and Lockheed Con-s t e l l a t i o n . F i r s t t o appear was the DC-6B, a ' s t r e t c h e d ' v e r s i o n o f t h e DC-6. I t had been pr e c e e d e d by a cargo v a r i -a n t , the DC-6A, whi c h was f i v e f e e t l o n g e r than the o r i g i n a l DC-6. The p a s s e n g e r - c a r r y i n g DC-6B was a n o t h e r f o o t l o n g e r and e n t e r e d s e r v i c e two y e a r s l a t e r , i n 1951. Both used t h e 27 same 2400 hp e n g i n e s as t h e DC-6 and c r u i s i n g speeds d i d n o t i n c r e a s e . The DC-6B had 55 f i r s t - c l a s s s e a t s and was l a t e r used i n coach c o n f i g u r a t i o n w i t h as.many as 82 s e a t s . I t s s t i l l - a i r range was the same as the DC-6, about 2,500 m i l e s . The DC-6B was the most e c o n o m i c a l p i s t o n - e n g i n e d a i r -c r a f t e v e r produced and i t remained i n p r o d u c t i o n u n t i l the U.S. j e t t r a n s p o r t s were about t o appear, by w h i c h time a l m o s t t h r e e hundred had been manu f a c t u r e d . The DC-6/6B s e r i e s be-came the p r i m a r y l o n g - r a n g e equipment f o r b o t h U n i t e d and American and by 1957 b o t h a i r l i n e s had f l e e t s o f n i n e t y - f i v e 15 such a i r c r a f t . The DC-6 and DC-6B were used f o r non-stop o p e r a t i o n s between Chicago and C a l i f o r n i a and a l t h o u g h b o t h had t r a n s c o n t i n e n t a l range a t r e d uced p a y l o d , they were never o p e r a t e d i n t h i s manner by any o f the t r u n k s . TWA, the major c o m p e t i t o r o f U n i t e d and A m e r i c a n , rep-l i e d s o l e l y on Lockheed a i r c r a f t and were th e o n l y t r u n k t h a t d i d not a t some p o i n t o p e r a t e postwar Douglas equipment. Lockheed d e s i g n e d t h e i r a i r c r a f t p r i m a r i l y t o t h e s p e c i f i c a t i o n o f TWA and E a s t e r n and were more d r a s t i c t h a n Douglas i n modi-f y i n g t h e i r C o n s t e l l a t i o n s e r i e s a l t h o u g h they were f a r l e s s s u c c e s s f u l i n terms o f s a l e s . Lockheed began by l e n g t h e n i n g t h e f u s e l a g e o f the o r i g i n a l C o n s t e l l a t i o n by e i g h t e e n f e e t t o produce t h e L-1049 Super C o n s t e l l a t i o n . L a r g e r and somewhat f a s t e r than the DC-6B, t h e L-1049 was n o n e t h e l e s s an u n s u c c e s s -f u l d e s i g n because o f i t s h i g h o p e r a t i n g c o s t s and o n l y twenty-f o u r were produced. The L-1049 was i n t r o d u c e d i n t o s e r v i c e by 28 E a s t e r n A i r l i n e s i n December, 1951, e i g h t months a f t e r the DC-6B and was. a l s o o p e r a t e d by Lockheed's o t h e r r e l i a b l e c u s -tomer, TWA. Turbo-Compound Power A more s u c c e s s f u l Super C o n s t e l l a t i o n , the L-1049C, appeared two y e a r s l a t e r , i n 1953. D e r i v e d from a t r a n s p o r t d e v e l o p e d f o r the U.S. Navy, t h i s v e r s i o n was powered by a new type o f p i s t o n e n g i n e , the W r i g h t turbo-compound." The en- , g i n e i n c o r p o r a t e d t u r b i n e s i n t h e exha u s t stream w h i c h aug-mented t h e power t r a n s m i t t e d t o t h e p r o p e l l o r s h a f t t h e r e b y i n c r e a s i n g e n g i n e horsepower from 2700 hp t o 3250 hp w h i l e a t the same time r e d u c i n g s p e c i f i c f u e l c o n s u m p t i o n . 1 ^ C r u i s -i n g speed o f the L-1049C i n c r e a s e d t o 315 m i l e s p e r hour b u t c a p a c i t y remained t h e same - 60 pa s s e n g e r s i n f i r s t - c l a s s and from 88 t o 99 i n mixed o r a l l - c o a c h c o n f i g u r a t i o n . Douglas responded t o the speed advantage w h i c h the L-1049C had o v e r t h e DC-6B by d e v e l o p i n g t h e DC-7, a ' s t r e t c h -ed' a i r c r a f t w h i c h had t h e new turbo-compound e n g i n e s . The. c a b i n s t r e t c h i n g was r e l a t i v e l y minor ( j u s t o v e r two f e e t ) so t h e r e was o n l y a s l i g h t i n c r e a s e i n c a p a c i t y compared t o the DC-6B. American A i r l i n e s , the f i r s t t o o r d e r the new a i r - ^ c r a f t , were a t t r a c t e d by t h e i n c r e a s e i n speed and range o f f e r -ed by t h e DC-7. W i t h a c r u i s i n g speed o f o v e r 325 m i l e s p e r ho u r , t h e DC-7 was some f i f t y m i l e s p e r hour f a s t e r than t h e DC-6B and more i m p o r t a n t l y , i t was s l i g h t l y f a s t e r t h a n the L-1049C and had g r e a t e r range. 29 I n t r o d u c e d i n 1953, t h e DC-7 was the f i r s t c ommercial t r a n s p o r t w h i c h c o u l d c a r r y i t s f u l l p a y l o a d nonstop o v e r t r a n s c o n t i n e n t a l r o u t e s i n b o t h e a s t e r l y and w e s t e r l y d i r e c -t i o n s . American i n i t i a l l y o f f e r e d an e i g h t hour t r a n s c o n t i n -e n t a l s c h e d u l e w h i c h n o t o n l y gave them an advantage o v e r TWA's L-1049C s e r v i c e (which r e q u i r e d a r e f u e l l i n g s t o p west-bound) b u t a l s o a l l o w e d them t o o p e r a t e the r o u t e w i t h a s i n -. 1 7 g l e crew p e r f l i g h t . TWA's response t o t h i s equipment h a n d i c a p i s i n d i c a -t i v e o f t h e form o f c o m p e t i t i v e b e h a v i o u r w h i c h was becoming c h a r a c t e r i s t i c o f the a i r l i n e s i n d u s t r y . The a i r l i n e had been f i r s t t o o f f e r an eastbound nonstop, b u t how f a c e d one and a h a l f y e a r s o f American A i r l i n e s ' DC-7 s e r v i c e and alm o s t a f u l l y e a r o f U n i t e d A i r l i n e s DC-7 s e r v i c e b e f o r e they would r e c e i v e a comparable a i r c r a f t , the L-1049G. TWA urged Lock^-heed t o i n c r e a s e t h e speed o f the Super C o n s t e l l a t i o n s and w i t h some minor aerodynamic r e f i n e m e n t s a t e n m i l e s p e r hour i n c r e a s e i n c r u i s i n g speed was a c h i e v e d . 1 ^ Prompted i n p a r t by t h i s equipment d i s a d v a n t a g e , the b a s i c market o u t l o o k w i t h i n TWA underwent s u b s t a n t i a l change. The a i r l i n e began t o expand coach o p e r a t i o n s and by t h e sum-mer o f 1953 t h e i r s h are o f f i r s t - c l a s s t r a f f i c i n t h e major t r a n s c o n t i n e n t a l markets began t o d e c l i n e . By mid-1954 TWA 19 was i n the f i r s t - c l a s s market o n l y t o a l i m i t e d d e g ree. I t was o n l y upon d e l i v e r y o f t h e L-10 49G t h a t Trans World made a b i d t o r e c a p t u r e t h i s t r a f f i c from American and U n i t e d . 30 S h o r t l y a f t e r the i n a u g u r a t i o n o f nonstop f i r s t - c l a s s t r a n s c o n t i n e n t a l s e r v i c e w i t h t h e new a i r c r a f t , the a i r l i n e i n t r o d u c e d what was then a major i n n o v a t i o n i n m a r k e t i n g s t r a t e g y . Drawing upon t h e i r e x p e r i e n c e i n i n t e r n a t i o n a l s e r v i c e , TWA i n t r o d u c e d m i x e d - c l a s s a i r c r a f t t o the domesti c i n d u s t r y by c o n v e r t i n g t h e f o r w a r d compartment o f t h e i r 20 L-1049GS t o coach c o n f i g u r a t i o n . The o t h e r t r a n s c o n t i n e n -t a l c a r r i e r s were a p p a r e n t l y caught by s u r p r i s e by t h i s move but w i t h i n a y e a r b o t h American and U n i t e d had c o n v e r t e d some 21 o f t h e i r DC-7s t o coach c o n f i g u r a t i o n . Equipment r i v a l r y between members o f t h e ' B i g Four' was thus r e s p o n s i b l e f o r b r i n g i n g about some i m p o r t a n t changes i n t h e m a r k e t i n g behav-22 l o u r o f t h e i n d u s t r y . These l a s t a i r c r a f t o f the p i s t o n e r a a r e a good r e f l e t i o n o f t h e type o f b e h a v i o u r t h a t was r e s u l t i n g from r e g u l -a t o r y r e s t r a i n t and t h e o l i g o p o l i s t i c s t r u c t u r e of the i n d u s -t r y . The DC-7, f o r example, r e p r e s e n t e d i n one sense a r e t r o g r e s s i v e s t e p i n t e c h n o l o g i c a l development because i t s o p e r a t -i n g c o s t s were h i g h e r than t h o s e o f t h e DC-6B. T h i s was the f i r s t t i m e t h a t a new a i r c r a f t had been o r d e r e d t o r e p l a c e an e a r l i e r d e s i g n h a v i n g l o w e r c o s t s , and i t was q u i t e c l e a r t h a t t h e c a r r i e r s had r e a l i z e d t h a t o p e r a t i n g c o s t s would i n -23 c r e a s e . The l e v e l o f passenger c o m f o r t a l s o f e l l w i t h the DC-7; i t s c a b i n was n o i s e r than t h a t o f t h e DC-6B and i t sufr-f e r e d more from engine v i b r a t i o n . Douglas a p p a r e n t l y d i d n o t even want t o p r o c e e d w i t h the DC-7 program because t u r b o - p r o p and j e t a i r c r a f t were a l -ready b e i n g d e v e l o p e d by o t h e r m a n u f a c t u r e r s . The company 24 went ahead o n l y a t t h e u r g i n g o f American A i r l i n e s and w h i l e the DC-7 gave i t s o p e r a t o r s an advantage o v e r th o s e us-i n g Lockheed equipment, American had themselves been prompted t o o r d e r the DC-7 o n l y because they knew t h a t TWA would soon be g e t t i n g f a s t e r , l o n g e r - r a n g e v e r s i o n s o f r t h e Super C o n s t e l -25 l a t i o n s . American's move i n t u r n f o r c e d U n i t e d t o f o l l o w even though they would have p r e f e r r e d t h a t t h e DC-7 had never 2 6 been d e v e l o p e d . By 1956, t h r e e o f t h e m i d d l e - s i z e d t r u n k s , B r a n i f f , D e l t a , and N a t i o n a l had the new a i r c r a f t i n t h e i r f l e e t s and Douglas had a l s o won o v e r Lockheed's major customer, E a s t e r n 27 A i r l i n e s w i t h the DC-7. Some o f th e s e o r d e r s were f o r two v e r s i o n s o f t h e DC-7 t h a t appeared l a t e r , the DC-7B and DC-7C. Both o f th e s e a i r c r a f t had g r e a t e r range than r e q u i r e d f o r dom e s t i c o p e r a t i o n s and were d e s i g n e d p r i m a r i l y f o r l o n g h a u l i n t e r n a t i o n a l s e r v i c e . The DC-7B was s i m p l y a l o n g e r range DC-7 h a v i n g g r e a t -e r f u e l c a p a c i t y and h i g h e r g r o s s w e i g h t . I t e n t e r e d s e r v i c e i n 1955. The u l t i m a t e Douglas p i s t o n d e s i g n , the DC-7C, appeared a y e a r l a t e r . I t s f u s e l a g e was f o r t y i n c h e s l o n g e r t o i n c r e a s e i t s s e a t i n g c a p a c i t y i n t y p i c a l c o n f i g u r a t i o n s by s i x , t o 76 s e a t s . F u e l c a p a c i t y and range were f u r t h e r i n -c r e a s e d and t h e a i r c r a f t p r o v i d e d nonstop t r a n s - A t l a n t i c cap-a b i l i t y f o r the f i r s t t i m e . W i t h t h e DC-7C, Douglas f i n a l l y made a major change i n the d e s i g n o f the w i n g of t h e i r p i s t o n t r a n s p o r t s w h i c h had u n t i l t h e n been th e same as t h a t o f the DC-4 w i t h o n l y minor s t r u c t u r a l m o d i f i c a t i o n s . Wingspan was i n c r e a s e d t o p r o v i d e g r e a t e r l i f t and f u e l c a p a c i t y f o r the DC-7C by i n c o r p o r a t i n g a f i v e f o o t e x t e n s i o n o f each wing a t i t s j u n c t i o n w i t h t h e f u s e l a g e . T h i s movement o f t h e e n g i n e s f a r t h e r o u t on the wing h e l p e d t o reduce the c a b i n n o i s e l e v e l b u t t h e r e was an accompanying i n c r e a s e i n d r a g w h i c h r e d u c e d c r u i s i n g speed. Northwest p u r c h a s e d DC-7Cs f o r d o m e s t i c s e r v i c e t o 2 8 r e p l a c e DC-4s a l t h o u g h t h e a i r c r a f t had been d e s i g n e d p r i -m a r i l y f o r i n t e r n a t i o n a l o p e r a t i o n s . A l t h o u g h Douglas no doubt made a p r o f i t on t h e manufacture o f 121 DC-7Cs, most o f the a i r l i n e s d i d not o p e r a t e them p r o f i t a b l y because o f t h e i r h i g h o p e r a t i n g c o s t s and e a r l y r e t i r e m e n t s a t low d i s p o s a l p r i c e s when t h e j e t s were i n t r o d u c e d l e s s than t h r e e y e a r s i 4- 29 l a t e r . Lockheed f o l l o w e d a p a t t e r n s i m i l a r t o Douglas, devel^-o p i n g u l t r a l o n g - r a n g e p i s t o n a i r c r a f t even a f t e r the f i r s t o r d e r s f o r j e t a i r l i n e r s had been t a k e n . The company was a g a i n l e s s s u c c e s s f u l than Douglas. They pl u n g e d i n t o an ex-p e n s i v e development program f o r t h e i r l a s t p i s t o n a i r c r a f t w h i c h remained i n p r o d u c t i o n l e s s t h a n a y e a r and was a commer-c i a l f a i l u r e . T h i s a i r c r a f t was t h e L-1649A S t a r l i n e r , s l i g h t l y l a r g e r t h a n the Super C o n s t e l l a t i o n and h a v i n g a range i n e x c e s s o f 6,000 m i l e s . The L-1649A was d e s i g n e d f o r l o n g -range i n t e r n a t i o n a l markets b u t s i n c e i t appeared a y e a r a f t e r the DC-7C most o f t h e p o t e n t i a l s a l e s had been l o s t t o D o uglas. Only f o r t y - f i v e were b u i l t and once a g a i n TWA 30 (who o r d e r e d t w e n t y - n i n e ) was t h e major customer. I n p r o d u c i n g th e S t a r l i n e r , Lockheed was a c t u a l l y a t t e m p t i n g t o e x t e n d p i s t o n a i r c r a f t t e c h n o l o g y beyond i t s economic p o t e n t i a l . The a i r c r a f t , w h i c h i n c o r p o r a t e d an en-t i r e l y new wing d e s i g n , c o u l d have been p r o f i t a b l e f o r Lock-heed o n l y i f t h e company had been s u c c e s s f u l i n s e l l i n g a t u r -bine-powered v e r s i o n as o r i g i n a l l y i n t e n d e d . PART I I : CHANGES IN TECHNICAL EFFICIENCY AND OPERATING COSTS The G e n e r a l Trend C o s t r e d u c t i o n s were c l e a r l y n o t t h e s o l e d r i v i n g f o r c e b e h i n d t e c h n o l o g i c a l development i n the postwar p i s t o n e r a . The p r i m a r y t h r u s t was toward i n c r e a s e d range and c r u i s -i n g speed. C a p a c i t y was i n c r e a s e d s t e a d i l y , b u t a t a r a t h e r s l ow pace, and development i n t h i s r e s p e c t had c e r t a i n l y n o t e x p l o i t e d f u l l y the c a p a b i l i t i e s o f t e c h n o l o g y , nor f o r t h a t m a t t e r t h e space a v a i l a b l e i n e x i s t i n g d e s i g n s . As a r e s u l t o f t h e p e c u l i a r c h a r a c t e r i s t i c s o f t h e a i r c a r r i e r i n d u s t r y , the t r e n d was toward improvements i n v a r i o u s a s p e c t s o f the ' q u a l i t y ' o f s e r v i c e o f f e r e d . F o r example, c o n s i d e r a t i o n s f o r the adequacy o f d e p a r t u r e f r e q u e n c i e s were an i m p o r t a n t c o n s t r a i n t on a i r c r a f t c a p a c i t y and t h i s i n t u r n l i m i t e d t h e 34 i n c r e a s e s i n a i r c r a f t p r o d u c t i v i t y w h i c h were a c h i e v e d . However, w h i l e c o n s i d e r a t i o n s r e l a t e d t o o p e r a t i n g economics were n o t o v e r r i d i n g and were perhaps s e c o n d a r y t o n o n - c o s t f a c t o r s , i t i s t r u e t h a t u n t i l the l a s t p a r t o f the p i s t o n e r a each new d e s i g n had b r o u g h t about c o s t r e d u c t i o n s . I n t h e i r s t u d y o f t h e t e c h n i c a l development o f a i r c r a f t , 31 . M i l l e r and Sawers s t a t e d t h a t improvements i n d e s i g n o v e r the twenty y e a r p e r i o d from 1936 t o 1956 produced.a d e c r e a s e i n o p e r a t i n g c o s t s o f about t h i r t y p e r c e n t . T h i s r e d u c t i o n , however,was o n l y as l a r g e as what the DC-3 had a c h i e v e d o v e r e a r l i e r a i r c r a f t i n a s i n g l e s t e p , thus l e a d i n g t h e s e a u t h o r s t o term the p e r i o d w h i c h f o l l o w e d t h e DC-3 a ' t e c h n o l o g i c a l 32 p l a t e a u ! . They a l s o n o t e d t h a t t h e r e had been a s t e a d y r e -d u c t i o n i n o p e r a t i n g c o s t s u n t i l the i n t r o d u c t i o n o f the t u r b o -33 compound powered DC-7 and i t s Lockheed c o u n t e r p a r t s . T h i s s e c t i o n c o m p r i s e s a d o c u m e n t a t i o n o f the changes i n o p e r a t i n g c o s t s t h a t took p l a c e d u r i n g t h e p i s t o n e r a and an e x a m i n a t i o n o f t h e p a r t i c u l a r changes i n t e c h n i c a l e f f i c i -ency w h i c h caused them. H i s t o r i c a l c o s t d a t a a r e examined f i r s t . H i s t o r i c a l C o s t Data: Aggregate R e s u l t s i ) DC-4/ DC-6/ L-049 S i n c e the crew complements o f the DC-4 and DC-6 were the same, the h i g h e r speed and c a p a c i t y o f t h e l a t t e r improved t e c h n i c a l e f f i c i e n c y f o r f l y i n g p e r s o n n e l . I n t h e absence o f an increase i n f a c t o r p r i c e , t h i s improvement should be re-r f l e e t e d i n a corresponding r e d u c t i o n i n costs per a v a i l a b l e seat-mile (ASM). Table 1.1 r e v e a l s t h a t the improvement i n t e c h n i c a l e f f i c i e n c y exceeded any increase i n wage ra t e s be-cause the DC-6 had lower crew costs than the DC-4 every year between 1948 and 1951. Nei t h e r a i r c r a f t e x h i b i t e d a c l e a r s u p e r i o r i t y i n respect of f u e l expense per ASM although the DC-6 might have been expected to have had lower c o s t s because of i t s improved engines, cabin p r e s s u r i z a t i o n , and increased c a p a c i t y . Apparently these e f f e c t s were o f f s e t by the i n -crease i n c r u i s i n g speed and use of higher octane (higher priced) g a s o l i n e . Although a p r i o r i p r e d i c t i o n s of a i r c r a f t maintenance costs are seldom accurate, lower expenses should have been expected on the DC-6 because i t was simply an enlarged and im proved d e r i v a t i v e of the DC-4. The data i n Table 1.1 bear out t h i s p r e d i c t i o n but must be i n t e r p r e t e d w i t h c a u t i o n be-cause of d i f f e r e n c e s i n the average age of the two a i r c r a f t . I t i s apparent t h a t f u e l and labour costs of the Lockheed 049 were comparable to the DC-6 but maintenance costs were higher This confirms the t r a d i t i o n t h a t Douglas t r a n s p o r t s were more e a s i l y maintained than t h e i r contemporaries. i i ) DC-6/ DC-6B/ DC-7 Since the DC-6B was simply a 'stretched' DC-6, i t should be expected to have had lower labour, f u e l , and d i r e c t 36 TABLE 1.1 HISTORICAL OPERATING COST DATA FOR  DC-4/DC-6/L-049 1 Year SEAT-MILE EXPENSE (cents) A i r c r a f t F l y i n g Person-nel Fuel and O i l Direct Main-tenance Total I n c l . 'Other1 Depre-c i a -t i o n Total I n c l . Dep. 1948 DC-4 DC-6 L-049 .245 . .186 .213 .465 .496 .490 .437 .376 .649 1.285 1.200 1.565 .561 .370 .536 1.846 1.570 2.101 1949 DC-4 DC-6 L-049. .296 .230 .219 .567 .505 .526 .452 .406 . .543 1.486 1.290 1.457 .459 .338 .419 1.945 1.628 1.876 1950 DC-4 DC-6 •L-049 .280 .248 .239 .522 .504 .543 .388 .363 .503 1.379 1.255 1.492 .291 .312 .456 1.670 1.567 1.948 1951 DC-4 DC-6 L-049 .256 .254 .272 .479 .544 .566 .381 .381 .506 1.282 1.330 1.536 .186 .319 .421 1.468 1.649 1.957 cased on Aggregate Trunkline Experience. Source: R. M i l l e r and D. Sawers, The Technical Development of Modern  Aviation (London, 1968) pp.288-291. maintenance expenses p e r ASM. However, the a g g r e g a t e d a t a g i v e n i n T a b l e 1.2 r e v e a l no c l e a r r e d u c t i o n i n e i t h e r f u e l o r f l i g h t p e r s o n n e l expenses per s e a t - m i l e . Maintenance expenses o f t h e DC-6B were lower than t h o s e o f the DC-6, b u t t h i s must be a t t r i b u t e d i n p a r t t o the f a c t t h a t i t was a newer a i r c r a f t . R e f l e c t i n g t h e e f f e c t s o f i n c r e a s e d h o u r l y s e a t - m i l e p r o d u c t i v i t y , the DC-7 had l o w e r f l i g h t p e r s o n n e l expenses p e r ASM t h a n t h e DC-6 and DC-6B i n 1954 and 1955 a l t h o u g h t h e improvement i s n o t a p p a r e n t i n l a t e r y e a r s . The DC-7 had s e a t - m i l e f u e l expenses c o n s i s t e n t l y 20-25 per c e n t h i g h e r t h a n t h e e a r l i e r Douglas d e s i g n s . Because e n g i n e e f f i c i e n c y had been improved and aerodynamic d e s i g n was v i r t u a l l y un-changed, t h i s must have been t h e r e s u l t o f i n c r e a s e d c r u i s i n g speed o r t h e use o f h i g h e r - p r i c e d g a s o l i n e . I n c r e a s e d e n gine c o m p l e x i t y a s s o c i a t e d w i t h turbo-compounding r e s u l t e d i n d i r -e c t maintenance c o s t s on t h e DC-7 t h a t were a l m o s t f i f t y p e r c e n t h i g h e r t h a n those o f the DC-6 and DC-6B. Even w i t h o u t t h i s i n c r e a s e i n maintenance, the h i g h s e a t - m i l e f u e l expense of the DC-7 more than o f f s e t t h e s a v i n g i n f l i g h t p e r s o n n e l expense, making i t more e x p e n s i v e t o o p e r a t e than t h e DC-6B. i i i ) L-749/ L-1049 Comparison o f T a b l e s 1.2 and 1.3 r e v e a l s t h a t the L-749 had f l i g h t p e r s o n n e l and f u e l expenses v e r y c l o s e t o those o f the DC-6 and DC-6B but h i g h e r expenses f o r m a i n t e n -38 TABLE 1.2 HISTORICAL OPERATING COST DATA FOR  DC-6/DC-6B/DC-7 1 Year A i r c r a f t SEAT-MILE EXPENSE (cents) F l y i n g Person-nel Fuel and O i l Direct Main-tenance Total I n c l . 'Other' Depre-c i a -t i o n Total I n c l . Dep. 1953 DC-6 DC-6B .300 .294 .522 .561 .363 .302 ' 1.327 1.288 .292 .433 1.619 1.721 1954 DC-6 DC-6B DC-7 .283 .294 .248 .510 .553 .618 .325 .320 .505 1.255 1.328 1.497 .319 .251 .571 1.574 1.579 2.068 1955 DC-6 DC-6B DC-7 .270 .297 .263 .457 .536 .587 .337 .324 .430 1.200 1.391 1.427 .159 .285 .465 1.359. 1.676 1.892 1956 DC-6 DC-6B DC-7 .288 .276 .281 .487 .468 .581 .375 .301 .482 1.272 1.317 1.492 .118 .267 .489 1.390 1.584 1.981 1957 DC-6 DC-6B DC-7 .279 .275 .281 .459 .497 .597 .417 .326 .487 1.290 1.299 1.514 .040 .275 .501 1.330 1.574 2.015 Based on Aggregate Trunkline Experience. Source: R. M i l l e r and D. Sawers, The Technical Development of Modern  Aviation (London, 1968) pp.289-90. 39 TABLE 1.3 HISTORICAL OPERATING COST DATA FOR  L^-049/L-1049 1 Year A i r c r a f t SEAT-MILE EXPENSE (cents) F l y i n g Person-nel Fuel and O i l Direct Main-; tenance Total I n c l . 'Other' Depre-c i a -t i o n Total I n c l . Dep. 1956 L-049 2 L-1049G .287 .262 .511 .535 .573 .493 1.545 1.435 .067 .033 1.612 1.468 1957 L-049 2 L-1049G .325 ' .275 .545 .563 .435 .378 1.666 1.565 .170 .396 1.836 1.961 1958 L-749 L-1049G .404 .312 .642 .620 .500 .563 1.787 1.691 .058 .426 1.845 2.117 Based on Aggregate Trunkline Experience. 2 Includes L-049, used where data f o r longer-range model 749 i s unavailable. Source: R. M i l l e r and D. Sawers, The Technical Development of Modern  Aviation (London, 1968) pp.291-92. 40 ance. The L-1049, i n t u r n , had l o w e r f l i g h t p e r s o n n e l ex-penses than the L-749 - an e x p e c t e d r e s u l t o f i t s g r e a t e r speed and c a p a c i t y - b u t f u e l and maintenance c o s t s were n o t changed i n a c o n s i s t e n t way. i v ) DC-6B/ DC-7/ DC-7C Ta b l e 1.4 shows t h a t t h e DC-7C had lo w e r f l i g h t p e r -s o n n e l expenses p e r s e a t - m i l e than t h e DC-7 whi c h was i n t u r n l o w e r t h a n t h e DC-6B. T h i s i s c o n s i s t e n t w i t h the e f f e c t o f i n c r e a s e d speed and c a p a c i t y . F u e l c o s t s o f t h e t h r e e a i r -c r a f t were s i m i l a r . The DC-7C was s l i g h t l y b e t t e r i n t h i s r e s p e c t t h a n the DC-7 as a . r e s u l t o f the i n c r e a s e i n c a p a c i t y , a c h i e v e d t h r o u g h a i r f r a m e ' s t r e t c h i n g ' . D i r e c t maintenance c o s t s o f the turbo-compound powered DC-7 and DC-7C were, as e x p e c t e d , h i g h e r t h a n those o f t h e DC-6B. v) L-1049G/ L-1649A I n t h e t h r e e y e a r s f o r w h i c h d a t a a r e a v a i l a b l e , f u e l expenses o f b o t h t h e L-1049 and L-1649 were h i g h e r t h a n t h e DC-7 s e r i e s even though a l l had the same e n g i n e s and a p p r o x i -m a t e l y t h e same speed. Comparison o f T a b l e s 1.4 and 1.5 .re-v e a l s t h a t the Lockheed t r a n s p o r t s a l s o had h i g h e r maintenance expenses t h a n the DC-7s. Both f u e l and f l i g h t p e r s o n n e l c o s t s o f t h e L-1649 exceeded t h o s e o f the L-1049. T h i s may have been the r e s u l t o f e i t h e r l o w e r s e a t i n g d e n s i t y on the L-1649 o r e l s e h i g h e r f u e l consumption and h i g h e r wage r a t e s . 41 TABLE 1.4 HISTORICAL OPERATING COST DATA FOR  DC-6B/DC-7/DC-7C 1 "5 fear A i r c r a f t SEAT-MILE EXPENSE (cents) I Flying 5erson-nel Fuel and O i l Direct Main-tenance Total I n c l . 'Other1 Depre-c i a -' t i o n Total I n c l . Dep. ] L958 DC-6B DC-7 DC-7C .285 .274 .237 .480 .524 .505 .250 .320 .323 1.219 1.277 1.220 .297 .425 .414 1.515 1.702 1.634 ] L959 DC-6B DC-7 DC-7C .322 .286 .275 .488 .502 .491 .305 .488 .412 1.343 1.431 1.415 .229 .455 .374 1.572 1.886 1.789 ] L960 DC-6B DC-7 DC-7C .351 .345 .273 .502 .527 .481 1.448 .520 .482 .278 1.564 1.486 .278 .547 .357 1.725 2.111 1.834 Based on Aggregate Trunkline Experience. Source: R. M i l l e r and D. Sawers, The Technical Development of Modern  Aviation (London, 1968) pp.289-90. 42 TABLE 1.5 HISTORICAL OPERATING COST DATA FOR  L-1049G/L-1649A 1 SEAT-MILE EXPENSE (cents) Year A i r c r a f t F l y i n g Person-nel Fuel and O i l Direct Main-tenance Total I n c l . 'Other1 Depre-c i a -t i o n Total I n c l . Dep. 1958 L-1049G .312 .620 .563 1.691 .426 2.117 L-1649A .396 .745 .702 2.131 .697 2.828 1959 L-1049G .342 .598 .486 1.646 .545 2.191 L-1649A .354 .542 .684 1.832 .512 2.344 1960 L-1049G .408 .592 .635 1.863 .650 2.513 1-1649A .416 .570 .645 1.920 .907 2.827 "^Based on Aggregate Trunkline Experience. Source: R. M i l l e r and D. Sawers, The Technical Development Of Modern  Aviation (London, 1968) p.292. . 4 3 E x p e r i e n c e o f I n d i v i d u a l C a r r i e r s T a b l e 1.6 p r e s e n t s c o s t d a t a f o r s e l e c t e d a i r c r a f t by i n d i v i d u a l c a r r i e r and a l l o w s a t e s t o f t h e above o b s e r v a t i o n s w h i c h were based on ag g r e g a t e d a t a . C o n s i s t e n t w i t h t h e e a r l i e r d a t a , a l l c a r r i e r s b u t one had l o w e r c o s t s w i t h the DC-6 th a n w i t h the DC-4, based on f i r s t - c l a s s c a p a c i t i e s . However, the d i f f e r e n c e s were minor and might s i m p l y be the r e s u l t o f the l o n g e r average l e n g t h o f h a u l o p e r a t e d by t h e DC-6. Two c a r r i e r s o p e r a t i n g t h e DC-6 and DC-6B i n 1958 b o t h had l o w e r s e a t - m i l e c o s t s w i t h t h e l a t t e r . I n the same p e r i o d , however, not a l l c a r r i e r s had h i g h e r c o s t s w i t h t h e DC-7 s e r i e s than w i t h t h e DC-6 s e r i e s even i n terms o f a i r -c r a f t - m i l e expenses. The r e l a t i v e economics o f the DC6/6B v e r s u s the DC-7/7C on a s e a t - m i l e b a s i s are shown i n T a b l e 1.6 t o depend on the p a r t i c u l a r s e a t i n g c o n f i g u r a t i o n s chosen. The d a t a f o r Lockheed a i r c r a f t a r e u n s a t i s f a c t o r y f o r making comparisons because o f the e x t r e m e l y s h o r t average h a u l s o f a l l a i r c r a f t e x c e p t t h e L-1649A. Even t h e l a t t e r , however, had o p e r a t i n g c o s t s c o n s i d e r a b l y h i g h e r t h a n most o f the Doug-l a s a i r c r a f t o p e r a t e d by the o t h e r c a r r i e r s . Changes i n T e c h n i c a l E f f i c i e n c y i ) F l y i n g P e r s o n n e l Based on a c a l c u l a t i o n o f h o u r l y s e a t m i l e o u t p u t , f l i g h t crew and c a b i n crew r e q u i r e m e n t s , and e x p e c t e d r e l a t i v e wage r a t e s f o r each crew member, an e s t i m a t e o f s e a t ^ m i l e p r o -44 TABLE 1.6 DIRECT OPERATING COSTS OF PISTON AIRCRAFT, BY CARRIER Ax 7P^  TVs rr& n o r* / D.O.C./ASM (cents) Stage A i r c r a f t F i r s t - C l a s s Coach Trunk Length Mile Seating Seating Average A i r c r a f t C a r r i e r (miles) (cents) Density Density (year) FIRST QUARTER 7 952 DC-4 Bran i f f 202 74.1 1.68 1.12 1.357 Capital 452 79.8 1.81 1.04 C & S 232 62.3 1.42 1.33 Delta 226 66.5 1.51 1.01 National 427 70.1 1.59 1.06 Northwest 310 83.7 1.90 1.40 United 288 56.8 1.29 0.86 Western 191 56.5 1.28 0.94 DC-6 American 606 75.6 1.51 1.08 1.425 Bra n i f f 478 72.6 1.45 1.04 Delta 371 73.5 1.47 1.05 National 569 55.0 1.10 0.79 United 568 65.6 1.31 0.94 L-749 Capital 424 81.6 1.51 1.26 1.461 C & S 401 98.9 1.83 1.52 FIRST QUARTER 1958 DC-6' American 239 101.8 2.04 1.45 1.251 Bran i f f 363 94.1 1.88 1.34 Delta 237 105.5 2.11 1.51 National 309 106.0 2.12 1.51 United 568 121.8 2.44 1.74 DC-6B National 364 104.2 1.89 1.27 1.219 Northeast 701 91.5 1.66 1.12 Northwest 382 113.8 2.07 1.39 United 448 108.3 1.97 1.32 Western 199 93.7 1.70 1.14 Continued 45 TABLE 1.6 Continued A i r c r a f t Carrier Average Stage Length (miles) D.O.C./ A i r c r a f t Mile (cents) D.O.C./ASM (cents) Fi r s t - C l a s s Seating Density S E Coach eating tensity Trunk Average • (year) DC-7 American Delta National United FIT 612 425 221 974 1ST QUARTER 100.0 110.5 113.1 103.5 7 958 1.82 2.17 2.06 1.88 1.11 .1.33 1.26 1.15 1.277 DC-7C Br a n i f f Northwest 582 1660 104.2 100.0 1.68 1.61 1.13. 1.09 1.220 L-749 Eastern TWA 138 360 115.5 115.8 2.14 2.14 1.78 1.78 1.787 L-1049 Eastern Eastern (-C TWA 253 :) 133 302 118.5 126.2 134.0 1.98 2.10 2.23 1.67 1.78 1.89 1.691 L-1649 TWA 1580 116.3 1.94 - 2.131 Source: Aaron J . Gellman, The E f f e c t of Regulation on  A i r c r a f t Choice, unpublished Ph.D. thesis, Massachusetts I n s t i t u t e of Technology (1968) pp.340-406. 46 d u c t i v i t y p e r ' e q u i v a l e n t ' crew hour can be made f o r a g i v e n a i r c r a f t . The r e s u l t s f o r Douglas p i s t o n a i r c r a f t , g i v e n i n Appendix B, r e v e a l t h a t t h e p r o d u c t i v i t y o f f l y i n g p e r s o n n e l i n c r e a s e d s t e a d i l y between 1948 and 1957. Because average c o s t i s i n v e r s e l y p r o p o r t i o n a l t o f a c t o r p r o d u c t i v i t y , t h i s w o u l d i n d i c a t e t h a t f l y i n g p e r s o n n e l c o s t s p e r s e a t m i l e were lower on l a t e r Douglas a i r c r a f t compared t o e a r l i e r d e s i g n s . An e x a m i n a t i o n o f t h i s phenomenon i s made i n T a b l e 1.7, where t h e s e a t m i l e f l y i n g p e r s o n n e l expenses o f v a r i o u s a i r c r a f t r e l a t i v e t o t h o s e o f the DC-6B are compared i n s e l e c t e d y e a r s w i t h c o s t r a t i o s p r e d i c t e d on t h e b a s i s o f the p r o d u c t i v i t y c a l c u l a t i o n s . I n s p e c t i o n o f t h e d a t a r e v e a l s t h a t h i s t o r i c a l c o s t r e l a t i o n s h i p s are g e n e r a l l y c o n s i s t e n t w i t h p r e d i c t e d r e l a t i o n s h i p s . E x a c t agreement w i t h p r e d i c -t i o n s cannot be e x p e c t e d because o f t h e presence i n h i s t o r i c a l c o s t d a t a o f d i s t o r t i o n s due t o d i f f e r e n c e s i n wage r a t e s and o p e r a t i n g c o n d i t i o n s . . The e s s e n t i a l p o i n t t o be no t e d i s t h a t t h e two e a r l i e r a i r c r a f t , t he DC-4 and DC-6, have, c o s t s h i g h e r than t h e DC-6B w h i l e t h e two l a t e r models, the DC-7 and DC-7C, have l o w e r c o s t s . T h i s i s c o n s i s t e n t w i t h a s t e a d y i n c r e a s e o v er time i n the p r o d u c t i v i t y o f f l y i n g p e r s o n n e l . i i ) F u e l No c l e a r p a t t e r n emerged w i t h r e s p e c t t o the e x p e c t e d f u e l consumption o f turbo-compound p i s t o n a i r c r a f t r e l a t i v e t o e a r l i e r ones and i t i s w o r t h w h i l e t o i n v e s t i g a t e o t h e r s o u r c e s . TABLE 1.7 ACTUAL AND PREDICTED RELATIVE SEAT-MILE FLYING PERSONNEL EXPENSES OF DOUGLAS PISTON AIRCRAFT A i r c r a f t Predicted Seat-Mile Cost Relationship Year 1948 1949 1950 2 Actual Seat-Mile Cost Relationship 1951 1952 1953 1954 1955 1956 1957 1958 1959 DC-4/DC-6 1.58 1.32 1.29 1.13 1.01 0.94 1.00 1.22 1.29 1.30 - - • -DC-6/DC-6B 1.10 - - - - - 1.02 .96 .91 1.04 1.01 0.99 1.06 DC-7/DC-6B 0.86 - - - - - - .84 .89 1.02 1.02 .96 .89 DC-7C/DC-6B 0.81 —' — — — — — — — — — .83 .85 "Calculations i n Appendix B. 'From Tables 1-4. 48 The o n l y d a t a a v a i l a b l e was the average performance o f d i f f e r -e n t a i r l i n e s i n t h e y e a r s 196 7 and 196 8, r a t h e r l a t e i n the s e r v i c e l i v e s o f p i s t o n t r a n s p o r t s . W h i l e the d a t a must be i n t e r p r e t e d w i t h c a u t i o n , i t i s i n t e r e s t i n g t o note i n F i g u r e 1.1 t h a t t h e DC-7 and DC-7C a r e n o t shown c o n c l u s i v e l y t o be h i g h e r i n f u e l consumption than t h e DC-6 and DC-6B even i n terms o f g a l l o n s p e r a i r c r a f t m i l e . I n view o f the g r e a t e r c a p a c i t y o f .the f o r m e r , t h e d a t a s u g g e s t t h a t the~ turbo-com-pound t r a n s p o r t s had lo w e r f u e l consumption p e r s e a t m i l e . i i i ) C a p i t a l De f a c t o c a p i t a l expenses p e r u n i t o u t p u t i n a i r t r a n s -p o r t a t i o n a r e i n f l u e n c e d by a number o f f a c t o r s i n c l u d i n g : i n t e r e s t r a t e s , average s t a g e l e n g t h , u t i l i z a t i o n r a t e s and a i r c r a f t s e r v i c e l i n e s . However, i n a g i v e n p e r i o d the r e l a -t i v e c a p i t a l c o s t s o f two a i r c r a f t a r e i n d i c a t e d , c e t e r i s  p a r i b u s , s i m p l y by the i n i t i a l c o s t and h o u r l y s e a t m i l e o u t -p u t r a t e of each. That i s , t h e a n n u a l c a p i t a l c o s t o f each a i r c r a f t i s a f u n c t i o n o f the p r e v a i l i n g i n t e r e s t r a t e ; ex-p e c t e d s e r v i c e l i f e , and o r i g i n a l c o s t o f the a i r c r a f t . An-n u a l o u t p u t i s a f u n c t i o n o f a n n u a l u t i l i z a t i o n and h o u r l y o u t -p u t . A l l o t h e r t h i n g s b e i n g e q u a l , u n i t c a p i t a l c o s t s f o r a g i v e n a i r c r a f t a r e d i r e c t l y p r o p o r t i o n a l t o o r i g i n a l c o s t and i n v e r s e l y p r o p o r t i o n a l t o h o u r l y o u t p u t . E q u i v a l e n t l y , t e c h -n i c a l e f f i c i e n c y i n the use o f c a p i t a l i s d i r e c t l y p r o p o r t i o n -a l t o h o u r l y o u t p u t and i n v e r s e l y p r o p o r t i o n a l t o o r i g i n a l Figure 1.1 Fnel Consumption Per A i r c r a f t Mile f o r Standard and Turbo-Compound Piston A i r c r a f t P E R AIRCRAFT MII-E-zs-t 2.0 + 1.5 4-U-I049& Q- -D C - 7 / 7 C J 3 X Source-.Civil Aeronautics Board, A i r c r a f t Operating Cost and Performance Report, V o l . I l l (August 1969) 5oo IOOO , S 0 ° X ' E R A & E S T A 6 C UENfrTH ( M l u E S ) 4= 50 c o s t . Based on c a l c u l a t i o n s w h i c h appear i n Appendix C, e s t i m a t e s were made o f t h e r e l a t i v e o u t p u t p e r u n i t o f i n v e s t -ment i n v a r i o u s a i r c r a f t f o r s e l e c t e d y e a r s . I n o r d e r t o p r e c l u d e t h e i n c o r p o r a t i o n o f any d i s t o r t i o n w h i c h may be p r e s e n t i n a p r i c e i n d e x , c a l c u l a t i o n s were a r r a n g e d t o a l l o w comparison between d i f f e r e n t a i r c r a f t i n terms o f c u r r e n t d o l l a r s . The r e s u l t s , g i v e n i n T a b l e 1.8, r e v e a l t h a t t e c h n i -c a l e f f i c i e n c y i n t h e use o f c a p i t a l r e a c h e d a peak w i t h the DC-6/6B s e r i e s o f a i r c r a f t and d e c l i n e d t h e r e a f t e r . C a l c u l a -t i o n s show, f o r example, t h a t t e c h n i c a l e f f i c i e n c y was f a r h i g h e r f o r t h e DC-6 th a n f o r t h e DC-4 i n 1947. The DC-6 and DC-6B appear about e q u a l i n 19 51, w h i l e the turbo-compound p i s t o n a i r c r a f t appear i n f e r i o r t o the DC-6B i n 1953 and sub-sequent y e a r s . T a b l e 1.9 shows, on t h e b a s i s o f 1956 p r i c e s , t h a t the i n i t i a l c o s t p e r s e a t f o r v a r i o u s a i r c r a f t was c o r r e l a t e d w i t h a i r c r a f t r a n g e s . I t cannot be assumed, t h e r e f o r e , t h a t the d a t a i n T a b l e 1.8 r e v e a l a f a c t o r s u b s t i t u t i o n o r s i m i l a r e f f e c t i n the post-1953 p e r i o d . I t may be m e r e l y a r e f l e c t i o n o f the f a c t t h a t a i r c r a f t range was i n c r e a s i n g o v e r t i m e . i v ) Maintenance Because i t i s i m p o s s i b l e t o d e f i n e a unique measure o f u n i t i n p u t s f o r maintenance, t e c h n i c a l e f f i c i e n c y i n t h e use o f maintenance can be a n a l y z e d o n l y i n terms o f r e l a t i v e 51 TABLE 1.8 RELATIVE OUTPUT PER UNIT OF INITIAL INVESTMENT  FOR PISTON AIRCRAFT 1947 - 1 9 5 7 1 1947 DC-4 DC-6 L-649 1.0 2.38-2.59 2.13-2.37 1951 DC-6 1.0 DC-6B 0.93-0.99 L-749 0 .99-1.15 L-1049 0.83-0.87 1953 DC-6B 1.0 DC-7 0.78-0.92 L-1049C 0.81-0.83 1956 DC-6B 1.0 DC-7B 0.79-0.85 DC-7C 0.63-0.68 1957 DC-6B 1.0 DC-7B 0.76-0.90 L-1049G 0.67-0.70 L-1649A 0.55-0.58 Based on c a l c u l a t i o n s g i v e n i n Appendix C. 52 TABLE 1.9 ORIGINAL COST PER SEAT FOR SHORT RANGE  AND LONG RANGE PISTON AIRCRAFT 1956 A i r c r a f t S t i l l - A i r Range (miles) I n i t i a l Cost (U.S.$) F i r s t Class Capacity (Passengers) I n i t i a l Cost (U.S.$) Per Seat CV-440 900 658,750 44 14,970 DC-6B 2,600 1,141,000 55 20,760 DC-7B 4,000 1,893,250 55 34,420 DC-7C 5,000 2,230,000 62 35,970 L-1049G 4,000 2,027,000 60 33,780 I n i t i a l cost data frcm: Aaron J . Gellman, The E f f e c t of Regulation on A i r c r a f t Choice, unpublished Ph.D. thesis, M.I.T. (Cambridge, Mass. 1968). 53 c o s t s f o r d i f f e r e n t a i r c r a f t . T h i s has been done i n an e a r l i e r s e c t i o n a l t h o u g h no a t t e m p t was made t o s e p a r a t e t h e e f f e c t s o f a i r c r a f t p r o d u c t i v i t y from t h o s e o f maintenance r e q u i r e m e n t s i n a b s o l u t e ( i . e . p e r a i r c r a f t hour r a t h e r than p e r s e a t m i l e ) terms. C o s t d a t a g i v e n i n T a b l e 1.10 f o r the 1967-68 p e r i o d show t h a t maintenance r e q u i r e m e n t s f o r turbo-compound a i r -c r a f t were s u f f i c i e n t l y h i g h t o overcome th e e f f e c t s o f i n -c r e a s e d a i r c r a f t p r o d u c t i v i t y . DC-7 s e r i e s a i r c r a f t had a i r -frame maintenance expenses p e r b l o c k hour o n e - q u a r t e r h i g h e r t h a n the DC-6/6B and e n g i n e maintenance expenses more th a n t w i c e as h i g h . Summary i ) T e c h n i c a l E f f i c i e n c y T a b l e 1.11 g i v e s i n d i c e s d e v e l o p e d f o r Douglas p i s t o n a i r c r a f t t o show r e l a t i v e t e c h n i c a l e f f i c i e n c y i n the use o f f o u r f a c t o r i n p u t s . The f o l l o w i n g o b s e r v a t i o n s can be made r e g a r d i n g t h e d i r e c t i o n o f i n n o v a t i o n i n the p e r i o d : a) The p r o d u c t i v i t y o f f l y i n g p e r s o n n e l i n c r e a s e d s t e a d i l y as a r e s u l t o f i n c r e m e n t a l i n c r e a s e s i n speed and c a p a c i t y . b) A l t h o u g h i n f l u e n c e d by a number o f i n t e r d e p e n d e n t e f f e c t s , energy p r o d u c t i v i t y was e s s e n t i a l l y con-s t a n t . R e d u c t i o n s i n engine s p e c i f i c f u e l consump-t i o n and i n c r e a s e s i n c r u i s i n g a l t i t u d e s tended t o TABLE 1.10 DIRECT MAINTENANCE EXPENSES,  DC-6 AND DC-7 1967 - 1968 A i r c r a f t Block Hour Expense ($) Airframe Engine Total Engine Percent of Total DC-6/6B1 DC-7/7B/7C2 37.55 45.78 35.38 87.91 72.93 133.69 48.5% 65.8% "Average of middle seven c a r r i e r s out of eleven reporting. 'Average of middle two ca r r i e r s out of four reporting. Source: C i v i l Aeronautics Board, A i r c r a f t Operating  Cost and Performance Report, Vol. I l l (Washington, August 1969). 55 TABLE 1.11 RELATIVE AVERAGE  FACTOR PRODUCTIVITIES OF  PISTON AIRCRAFT 1 (INDEXED TO DC-4) Factor DC-4 DC-6 A I R C R A F T DC-6B DC-7 DC-7B DC-7C Fl y i n g Personnel 1.00 1.58 1.83 2.14 2.14 2.27 Capital 1.00 1.09 . 1.17 0.90 0.85 0.68 Energy. 1.00 1.00 1.00 1.00 1.00 1.10 Maintenance 1.00 1.11 1.29 0.77 0.77 0.83 'Based on data presented i n Chapter 1, Part I I as follows: DC-6B Capital Productivity (ASM/Unit Investment) =1.17 x DC-4 .*. DC-6B Index = 1.17. DC-7 Cap i t a l Productivity =0.77 times that of the DC-6B .*. DC-7 Index = (0.77) (1.17) = 0.90. 4 be o f f s e t by i n c r e a s e s i n c r u i s i n g speed, c) The upward t r e n d i n t e c h n i c a l e f f i c i e n c y f o r c a p i t a l and maintenance peaked upon the i n t r o -d u c t i o n o f turbo-compound a i r c r a f t even though a i r c r a f t p r o d u c t i v i t y c o n t i n u e d t o i n c r e a s e . C o s t / Q u a l i t y T r a d e - o f f s a) U n t i l t h e i n t r o d u c t i o n o f t h e turbo-compound a i r -c r a f t , changes i n p i s t o n a i r c r a f t d e s i g n had been a b l e t o p r o v i d e i n c r e a s e s i n ' q u a l i t y ' ( h i g h e r speed, l o n g e r range, e t c . ) as w e l l as r e d u c t i o n s i n o p e r a t i n g c o s t s . The i n t r o d u c t i o n o f the DC-7 and L-1049C r e v e a l e d t h a t ' q u a l i t y ' was an i m p o r t a n t c o n s i d e r a t i o n s i n c e they p r o v i d e d i n -c r e a s e d range and speed o n l y a t t h e expense o f h i g h e r u n i t c o s t s . b) The f a c t t h a t t h e o b j e c t i v e f u n c t i o n i n a i r c r a f t a c q u i s i t i o n was a compromise o f c o s t and ' q u a l i t y r a t h e r than t h e m i n i m i z a t i o n o f c o s t was r e v e a l e d by t h e a t t e n t i o n p a i d t o f r e q u e n c y o f s e r v i c e . The e f f o r t t o reduce c o s t s was hampered whenever : i n v o l v e d i n c r e a s i n g a i r c r a f t c a p a c i t y . T h i s i s i n d i c a t e d by t h e d e l a y e d i n t r o d u c t i o n o f ! s t r e t c h -ed' d e s i g n s and t h e t o t a l c o mmercial f a i l u r e o f s e v e r a l l a r g e m i l i t a r y t r a n s p o r t s . Exogenous i n f l u e n c e a) One o f t h e most i m p o r t a n t non-market e f f e c t i n t h e p e r i o d a r o s e from American p a r t i c i p a t i o n i n World War I I w h i c h e s t a b l i s h e d Douglas as the dominant m a n u f a c t u r e r o f t r a n s p o r t a i r c r a f t and l e d t o the d e s i g n o f t h e most e c o n o m i c a l p i s t o n t r a n s p o r t , the DC-6. b) The m i l i t a r y had an i m p o r t a n t i n f l u e n c e on a i r -c r a f t e n g i ne development. A l l commercial a i r c r a f t i n t h e p e r i o d r e l i e d on e n g i n e s which had o r i g i n -a t e d w i t h the m i l i t a r y . They were t h e f i r s t t o use turbo-compound e n g i n e s b u t subsequently, aband-oned p i s t o n e n g ine r e s e a r c h i n f a v o u r o f the t u r b i n e e n g i n e . As a r e s u l t , no new commercial p i s t o n e n g i n e s were d e v e l o p e d a f t e r t h e e a r l y postwar p e r i o d . CHAPTER I I THE TRANSITION PERIOD INTRODUCTION The p r o t o t y p e o f t h e f i r s t U.S. commercial j e t , the B o e i n g 70.7, had i t s maiden f l i g h t i n J u l y , 1954 - j u s t e i g h t months a f t e r the DC-7 had e n t e r e d s c h e d u l e d s e r v i c e . Subse-q u e n t l y , the r a p i d i n t r o d u c t i o n o f t h e j e t s b r o u g h t an e a r l y end t o the s e r v i c e l i f e o f t h e l a t t e r s e r i e s o f a i r c r a f t i n what appeared t o be an a b r u p t t e c h n o l o g i c a l t r a n s i t i o n . How-e v e r , t h e d e s c r i p t i o n o f t h e e v e n t s i n t h i s p e r i o d , g i v e n i n P a r t I o f t h i s c h a p t e r , r e v e a l t h a t the t r a n s i t i o n took p l a c e g r a d u a l l y and was not o f t h e n a t u r e o f a sudden t e c h n o l o g i c a l b r e a k t h r o u g h . I n P a r t I I the o p e r a t i n g c o s t s and r e l a t i v e t e c h n o l o g i c a l e f f i c i e n c i e s o f s e l e c t e d a i r c r a f t from b e f o r e and a f t e r the t r a n s i t i o n t o t u r b i n e power are compared. PART I : EVENTS SURROUNDING THE INTRODUCTION OF VARIOUS AIRCRAFT The F i r s t J e t s F o l l o w i n g the e a r l y e x p e r i m e n t s w i t h the j e t engine i n B r i t a i n by i t s i n v e n t o r , F rank W h i t t l e i n the 1920's, the f i r s t j e t - p o w e r e d a i r p l a n e was d e v e l o p e d i n Germany i n 1939. The Germans i m m e d i a t e l y r e c o g n i z e d t h e m i l i t a r y s i g n i f i c a n c e o f the j e t e n g i n e , b u t t h e B r i t i s h had o f f e r e d W h i t t l e l i t t l e e ncour-58 59 agement and i t was not u n t i l 193 7 t h a t he had d e v e l o p e d a work-i n g e n g i n e . I n Germany, c o n s i d e r a b l e work was done on b o t h b a s i c aerodynamic r e s e a r c h f o r j e t a i r c r a f t and on p o s s i b l e m i l i t a r y a p p l i c a t i o n s o f the new e n g i n e , b u t towards the end o f t h e second W o r l d War t h e i r l e a d was l o s t t o t h e B r i t i s h whose f i r s t j e t a i r c r a f t f l e w i n 1941. Soon, development i n B r i t a i n began on a l a r g e r s c a l e w i t h two companies, R o l l s - R o y c e and de H a v a i l l a n d , p r o d u c i n g 4000 pound t h r u s t t u r b o j e t s around 1944. Both o f . t h e s e en-g i n e s , the Nene and Ghost r e s p e c t i v e l y , had c e n t r i f u g a l com-p r e s s o r s . A t about t h e same time R o l l s - R o y c e d e v e l o p e d the D a r t , a 1000 horsepower t u r b o p r o p and some time l a t e r the Avon, a 6500 pound t h r u s t t u r b o j e t , t h e i r f i r s t e n g i ne t o use an a x i a l compressor. M a n u f a c t u r e r s i n A m e r i c a f i r s t began e x p r e s s i n g i n -t e r e s t i n the European developments around 1940. S e v e r a l companies were g i v e n r e s e a r c h c o n t r a c t s by t h e U.S. government t o d e v e l o p new t u r b i n e e n g i n e s w h i l e o t h e r s began t o work under l i c e n s e d i r e c t l y on W h i t t l e ' s d e s i g n s . The e s t a b l i s h e d e n g ine m a n u f a c t u r e r s d i d not t a k e p a r t i n t h e s e e f f o r t s because the government had d e t e r m i n e d t h a t t h e i r f u l l r e s o u r c e s s h o u l d be d i r e c t e d toward the p r o d u c t i o n o f p i s t o n e n g i n e s f o r the war e f f o r t . By t h e end o f the war, b o t h American and B r i t i s h a u t h -o r i t i e s had e s t a b l i s h e d t h a t e x c e p t perhaps f o r l o n g - r a n g e bombers, a l l new m i l i t a r y a i r c r a f t s h o u l d be powered by t u r b o -60 j e t e n g i n e s . Turboprops were f e l t t o be a more s a t i s f a c t o r y p o w e r p l a n t f o r l a r g e bomber a i r c r a f t and t h u s i n t h e i r m i l i -t a r y development programs, t h e B r i t i s h c o n t i n u e d t o r e f i n e t h e e n g i n e s t h a t had been d e s i g n e d d u r i n g the war, i n c l u d i n g the D a r t t u r b o p r o p . The Americans on the o t h e r hand i n i t i -a t e d c o m p l e t e l y new development programs, v i r t u a l l y a l l o f w h i c h were f o r t u r b o j e t e n g i n e s . G e n e r a l E l e c t r i c produced the J-4 7 t u r b o j e t e n g i n e f o r the B o e i n g B-47 bomber and s u b s e q u e n t l y began w o r k i n g on a n o t h e r a x i a l - f l o w d e s i g n , the J-79, w h i c h was t o be used i n a n o t h e r bomber. P r a t t and Whitney, the major a i r c r a f t e n g i ne m a n u f a c t u r e r i n the U.S. were i n i t i a l l y b e h i n d t h e s t a t e - o f -t h e - a r t r e p r e s e n t e d by B r i t i s h e n g i n e s such as the R o l l s - R o y c e Avon, bu t d e t e r m i n e d a t t h e o u t s e t t o c a t c h up by d e s i g n i n g an engine o f g r e a t e r t h r u s t . Thus i n 1946 P r a t t and Whitney de-^ -s i g n e d a n o t h e r m i l i t a r y e n g i n e , t h e J-57, t o produce 10,000 pounds o f t h r u s t compared t o the 6,500 pound t h r u s t Avon. T h i s e n g i n e , d e v e l o p e d w i t h government f u n d i n g o f $150 m i l l i o n " ' " l a t e r became the f i r s t American-made j e t engine s u i t a b l e f o r use on commercial a i r c r a f t and the f i r s t U.S. j e t t r a n s p o r t , the B o e i n g 707 was b u i l t around i t . A l t h o u g h they were f o r a time b e h i n d t h e B r i t i s h i n engine t e c h n o l o g y , t h e Americans took an e a r l y l e a d i n a i r c r a f t development, b e n e f i t t i n g from t h e i r e x t e n s i v e wartime e x p e r i -ence i n the p r o d u c t i o n o f l a r g e m i l i t a r y a i r f r a m e s . They were f i r s t t o adopt the aerodynamic r e f i n e m e n t s s u g g e s t e d by pre-war 61 German r e s e a r c h and d e v e l o p e d t h e f i r s t a i r c r a f t w i t h swept-back w i n g s , t h e B-47 bomber w h i c h f i r s t f l e w i n 1947. The B r i t i s h were more c a u t i o u s , and w h i l e they had s u p e r i o r en-g i n e s i n t h e i r f i r s t j e t bomber - the E n g l i s h E l e c t r i c Can-b e r r a w h i c h f l e w i n 19 49 - they d i d not i n t r o d u c e swept-back wings u n t i l 1951, on the V i c k e r s V a l i a n t . Even t h e n the performance o f t h i s a i r c r a f t was i n f e r i o r t o t h a t o f the American B-47. The F i r s t Commercial Developments The Brabazon Committee, s e t up by t h e B r i t i s h government i n 194 2 t o determine the p a t t e r n w h i c h the commercial a i r c r a f t m a n u f a c t u r i n g i n d u s t r y s h o u l d t a k e a f t e r the war, agreed t h a t one o f the f i r s t p r o j e c t s s h o u l d be a j e t t r a n s p o r t f o r the t r a n s A t l a n t i c a i r m a i l s e r v i c e . S u p p o r t e d by t h e govern-ment's d e s i r e t o see the B r i t i s h l e a d i n j e t e n g i n e s t r a n s l a t e d i n t o a l e a d i n t h e d e s i g n o f j e t a i r c r a f t , t h e de H a v a i l l a n d Company d e c i d e d i n 1946 t o p r o c e e d w i t h development o f the Comet. T h i s was t o be t h e f i r s t c ommercial j e t and was t o c a r r y p a s s e n g e r s as w e l l as m a i l . The company r e l i e d on prov e n t e c h n o l o g y as much as pos-s i b l e t o a l l o w more r a p i d development i n o r d e r t o e x p l o i t t h e i r e a r l y l e a d o v e r o t h e r manufacturers.. The engine chosen f o r the Comet was de H a v a i l l a n d ' s own Ghost t u r b o j e t , a proven de-s i g n t h a t would become a v a i l a b l e some time b e f o r e any o t h e r j e t e n g i n e . The Ghost, a 5000 pound t h r u s t c e n t r i f u g a l d e s i g n , was based on wartime t e c h n o l o g y and was b o t h s m a l l e r and l e s s e f f i c i e n t t h a n t h e Avon. Because o f the low t h r u s t o f the e n g i n e , t h e Comet u n v e i l e d i n 1949 had a c a p a c i t y o f o n l y t h i r t y - s i x p a s s e n g e r s and a c r u i s i n g speed o f 460 m i l e s p e r hou r , r a t h e r s l o w f o r a j e t a i r c r a f t . I n f a c t , w i t h i t s un-swept wing and c o n v e n t i o n a l f u s e l a g e d e s i g n , the Comet d i f f e r -ed l i t t l e i n appearance from a p i s t o n t r a n s p o r t a s i d e from the absence o f p r o p e l l o r s . The a i r c r a f t ' s h i g h f u e l consumption and s m a l l s i z e a l s o meant t h a t i t had i n s u f f i c i e n t range t o p r o v i d e nonstop t r a n s A t l a n t i c s e r v i c e . The s h o r t c o m i n g s o f the Comet tended t o r e i n f o r c e the s u s p i c i o n s t h a t many a i r l i n e s and m a n u f a c t u r e r s had about t u r -b o j e t - p o w e r e d a i r c r a f t ; t h e y were c o n s i d e r e d s u i t a b l e o n l y f o r s p e c i a l i z e d a p p l i c a t i o n s . T e c h n i c a l l y the t u r b o j e t was s u i t -a b l e f o r lo n g - r a n g e o p e r a t i o n s where i t s speed would be an ad-vantage and where t h e a i r c r a f t c o u l d c r u i s e a t h i g h speed and h i g h a l t i t u d e t o p r o v i d e e f f i c i e n t p e r f o r m a n c e . O p e r a t i o n a l -l y , however, the e a r l y t u r b o j e t s were i l l - s u i t e d t o t h i s t a s k because o f t h e i r h i g h f u e l consumption and low t a k e - o f f t h r u s t . There remained c o n s i d e r a b l e i n t e r e s t i n t u r b o p r o p p r o p u l s i o n i n w h i c h p r o p e l l o r s would remain b u t p i s t o n e n g i n e s would be r e p l a c e d by t u r b i n e s . T h i s t ype o f p o w e r p l a n t was b o t h more f l e x i b l e and more s u i t a b l e f o r lo n g - r a n g e o p e r a t i o n than the t u r b o j e t s i n c e i t p r o v i d e d g r e a t e r t h r u s t a t t a k e - o f f and a t speeds up t o 4 50 m i l e s p e r hour i t had l o w e r f u e l consumption. The B r i t i s h undertook t o d e v e l o p s e v e r a l e a r l y t u r b o -prop a i r c r a f t , two o f wh i c h a r e s i g n i f i c a n t - one f o r i t s g r e a t s u c c e s s , the o t h e r f o r i t s complete f a i l u r e . The su c -c e s s f u l d e s i g n was a s h o r t - r a n g e f o u r - e n g i n e d t u r b o p r o p , t h e V i c k e r s V i s c o u n t , which used t h e R o l l s - R o y c e D a r t engine and f i r s t f l e w i n 1948. W i t h a range o f a p p r o x i m a t e l y e i g h t hundred m i l e s , the 310 m i l e s p e r hour V i s c o u n t , was not a r a d i c a l d e s i g n b u t showed i t s e l f a l m o s t i m m e d i a t e l y t o be s u p e r i o r t o p i s t o n a i r c r a f t . I t e n t e r e d s e r v i c e i n B r i t a i n i n 1953 and soon became p o p u l a r w i t h b o t h passengers and o p e r a t o r s . I n 1954, C a p i t a l A i r l i n e s , one o f the m i d d l e - s i z e d t r u n k s , o r d e r e d f o r t y V i s c o u n t s and s i g n e d an o p t i o n f o r twen-t y more - the l a r g e s t s i n g l e o r d e r i n t h e V i s c o u n t ' s h i s t o r y . When C a p i t a l p u t the a i r c r a f t i n s e r v i c e i n J u l y , 1955 they became the f i r s t U.S. c a r r i e r t o o p e r a t e t u r b i n e equipment and a l s o t h e f i r s t e v e r t o use an, a i r c r a f t o f f o r e i g n m a n u f a c t u r e . The V i s c o u n t p r o v e d j u s t as p o p u l a r i n the U.S. as i t was on the o t h e r s i d e o f the A t l a n t i c and C a p i t a l e n j o y e d a c o n s i d e r -a b l e c o m p e t i t i v e advantage o v e r t h e i r r i v a l s f o r s e v e r a l 3 y e a r s . The u n s u c c e s s f u l B r i t i s h t u r b o p r o p was a huge l o n g -range t r a n s p o r t d e s i g n e d t o s e r v e t h e N o r t h A t l a n t i c market, the-100 passenger B r i s t o l Brabazon. The a i r c r a f t f i r s t f l e w i n 1949 and had a t a k e - o f f w e i g h t o f a p p r o x i m a t e l y 300,000 pounds, g r e a t e r t h a n t h e f i r s t A merican j e t s w h i c h d i d n o t en-64 t e r s e r v i c e u n t i l a l m o s t t e n y e a r s l a t e r . The Brabazon was powered by e i g h t l a r g e t u r b i n e e n g i n e s c o u p l e d i n p a i r s t o f o u r p r o p e l l o r s and had a c r u i s i n g speed o f 330 m i l e s p e r hour. The a i r c r a f t n e ver got p a s t t h e p r o t o t y p e s t a g e , however, and was i n many r e s p e c t s s i m i l a r t o the e a r l i e r U.S. a t t e m p t s t o produce huge p i s t o n t r a n s p o r t s . Not o n l y was the d e s i g n o v e r - a m b i t i o u s t e c h n i c a l l y , i t s e x p e n s i v e development program was c a r r i e d o u t i n s p i t e o f the d i s i n t e r e s t shown by t h e a i r -l i n e s i n such an a i r c r a f t . The View i n the U.S. American m a n u f a c t u r e r s were w e l l aware o f t h e B r i t i s h e f f o r t s and w i t h t h e B o e i n g B-4 7 and l a t e r the B-52 j e t bomb-e r s e n t e r i n g p r o d u c t i o n i n t h e U.S. i t was becoming c l e a r t h a t t h e l o n g l i n e o f commercial p i s t o n a i r c r a f t would become ob-s o l e t e i n t h e near f u t u r e . I n f a c t , as e a r l y as 1949, two U.S. m a n u f a c t u r e r s began d i s c u s s i n g d e s i g n s , f o r j e t a i r c r a f t w i t h t h e a i r l i n e s , b u t o n l y Pan American e x p r e s s e d any i n t e r -4 e s t and no f u r t h e r a c t i o n was t a k e n . S e v e r a l f a c t o r s a c c o u n t f o r the d e l a y s . Most o b v i o u s were t h e t e c h n i c a l l i m i t a t i o n s o f the e a r l y t u r b o j e t engines. w h i c h , l i k e the B r i t i s h ones had low t a k e - o f f t h r u s t , h i g h f u e l 5 consumption, and s h o r t s e r v i c e l i v e s between o v e r h a u l s . H i g h f u e l consumption i n t u r n meant t h a t the a i r c r a f t would have t o be b u i l t l a r g e and w i t h i n c r e a s e d s e a t i n g c a p a c i t y i n o r d e r t o a c h i e v e a c c e p t a b l e range and economic performance. However, as a l w a y s , t h e U.S. a i r l i n e s were somewhat r e l u c t a n t t o encour-65 age the manufacture o f l a r g e r a i r c r a f t because o f t h e i r f e a r o f o v e r c a p a c i t y o r r e d u c e d d e p a r t u r e f r e q u e n c i e s . The U.S. c a r r i e r s l o o k e d upon the Comet as e s s e n t i a l -l y a p i o n e e r i n g a i r c r a f t w h i c h was uneconomic - a 'manufactur-e r ' s a i r p l a n e ' . However, the Comet was p r o v i n g t o be v e r y p o p u l a r w i t h p a ssengers i n B r i t a i n . I t a t t r a c t e d v e r y h i g h l o a d f a c t o r s (over 80%) and was t h e r e f o r e p r o f i t a b l e on B.O.A.C.'s r o u t e s t o A f r i c a . I t was r e c o g n i z e d , however, t h a t i f one o f t h e d o m e s t i c t r u n k s o r d e r e d the Comet, o t h e r s would have f o l l o w e d &nd each c a r r i e r would th e n be o p e r a t i n g h i g h - c o s t a i r c r a f t w h i c h c o u l d n o t be p r o f i t a b l e a t e x i s t i n g f a r e l e v e l s a t t h e l o a d f a c t o r s t h a t would r e s u l t . I n a d d i t i o n , each o f t h e t r u n k s had a l a r g e f l e e t o f p i s t o n t r a n s -p o r t s w h i c h was g i v i n g s a f e , r e l i a b l e , and p r o f i t a b l e s e r v i c e and no one was w i l l i n g t o upset t h e s t a t u s quo f o r what would be o n l y a t r a n s i t o r y advantage. The c a r r i e r s appeared w i l l i n g t o a w a i t the appearance o f A m e r i c a n - b u i l t j e t a i r c r a f t w h i c h would use the l a r g e r t u r b o j e t s t h a t were t h e n b e i n g g d e v e l o p e d by the m i l i t a r y . There was a t t h e same ti m e c o n t i n u i n g i n t e r e s t i n t u r b o p r o p t r a n s p o r t s on t h e p a r t o f b o t h m a n u f a c t u r e r s and a i r -l i n e s i n the U.S. j u s t as t h e r e was i n B r i t a i n . T h i s i s a p p a r e n t i n an a n a l y s i s o f t h e market s i t u a t i o n i n 1953: W h i l e t h e pure j e t has t h e speed (above 500 mph), i t i s known t o be an optimum p e r f o r m e r o n l y a t c e r t a i n r a n g e s , a f a c t t h a t may p u t 66 s e v e r e r e s t r i c t i o n s on t h e s i z e o f i t s market._ I n e f f i c i e n c y a l o n e , i n c l u d i n g o p e r a t i n g c o s t p e r t o n - m i l e and range and a i r p o r t v e r s a t i l i t y , t he t u r b o p r o p i s b e l i e v e d t o be a s u p e r i o r a i r p l a n e ... but passenger revenue depends upon some unknowns W i t h r e g a r d t o passenger d e s i r e s . A c c o r d i n g l y , t h e b u i l d e r s o f j e t p l a n e s may have t o gamble on t h e a t t r a c t i v e n e s s o f the magic c a r p e t ( s i c ) a t somewhat . h i g h e r f a r e s . o A t t h e t i m e , B o e i n g was the o n l y U.S. m a n u f a c t u r e r t h a t was f i r m l y committed t o t h e t u r b o j e t e n g i n e . Douglas, f o r example, soon a f t e r i n t r o d u c t i o n o f the DC-7, e x p r e s s e d i n t e r e s t i n d e v e l o p i n g a DC-7D t u r b o p r o p w h i c h would o f f e r a 15-20 per c e n t i n c r e a s e i n speed. The p r i n c i p a l o b s t a c l e t o i t s development appeared t o be the l a c k o f a s u i t a b l e , p r o v e n t u r b o p r o p e n g i n e . There was l i t t l e work b e i n g done on t u r b o p r o p s i n t h e U.S. and as a r e s u l t Douglas c o n s i d e r e d 9 t h e use o f a R o l l s - R o y c e e n g i n e . I t i s not c l e a r j u s t how s e r i o u s l y t h e company was c o n s i d e r i n g t h e p r o j e c t , however, s i n c e t h e DC-7 was n o t s t r e s s e d f o r t u r b i n e power and thus c o n v e r s i o n c o u l d not have been a c c o m p l i s h e d w i t h o u t e x p e n s i v e s t r u c t u r a l m o d i f i c a t i o n s and d e s i g n changes. 1^* The company t h a t remained more d e e p l y i m p r e s s e d w i t h t h e c a p a b i l i t i e s o f t h e t u r b o p r o p was Douglas' c o m p e t i t o r , Lockheed, who produced t h e L-1649A p i s t o n t r a n s p o r t w i t h wings s p e c i f i c a l l y d e s i g n e d f o r l a t e r c o n v e r s i o n t o t u r b i n e power. The U.S. A i r F o r c e t e s t e d a t u r b o p r o p v e r s i o n o f t h i s a i r -c r a f t 1 1 b u t a commercial v e r s i o n was never d e v e l o p e d . L a t e r , 67 however, Lockheed.went ahead w i t h p r o d u c t i o n o f a n o t h e r t u r b o -p r o p . The company d i d not d e v e l o p a commercial j e t u n t i l a l -most a decade l a t e r even though t h e y , t . a l o n g w i t h B o e i n g , had been the f i r s t t o come up w i t h a d e s i g n p r o p o s a l . I t was B o e i n g t h a t was p r e s e n t e d w i t h t h e most oppor-tune c i r c u m s t a n c e s f o r c r e a t i n g a commercial j e t t r a n s p o r t . I n the f i r s t p l a c e the company was a l r e a d y p r o d u c i n g two l a r g e j e t a i r c r a f t , the B-47 and B-52 bombers, i n two major m i l i t a r y programs. T h i s h o t o n l y p r o v i d e d t h e company w i t h a l a r g e income i n the e a r l y f i f t i e s b u t a l s o gave them unique produc-t i o n e x p e r i e n c e . B o e i n g a n t i c i p a t e d t h a t t a n k e r a i r c r a f t would be r e q u i r e d f o r i n - f l i g h t r e f u e l l i n g o f t h e i r bombers and gambled t h a t t h e government would d e c i d e t o a c q u i r e a new a i r c r a f t f o r t h i s t a s k r a t h e r than c o n v e r t e x i s t i n g a i r c r a f t . Thus, as d e s i g n s t a f f were r e l e a s e d from t h e B-52 program they were a s s i g n e d t o an i n - h o u s e program f o r development o f a new t a n k e r p r o t o t y p e . T h i s p r o t o t y p e was a l s o t o s e r v e as B o e ing's e n t r a n t i n t h e commercial j e t market i n the com-pany's renewed e f f o r t t o j o i n Douglas and Lockheed i n manu-f a c t u r i n g commercial a i r c r a f t . The Stage i s S e t Meanwhile de H a v a i l l a n d , r e c o g n i z i n g t h e s h o r t c o m i n g s o f the o r i g i n a l Comet, proposed t o i n t r o d u c e an improved y e r r s i o n w h i c h would t a k e advantage o f the l a t e s t advances i n B r i t i s h e n g i n e d e s i g n . T h i s v e r s i o n , t h e f o r t y - e i g h t p a s s e n -ger Comet I I , used R o l l s - R o y c e Avon e n g i n e s and was t o be 68 a v a i l a b l e i n 1954. The Comet I I r e c e i v e d o r d e r s from s e v e r a l non-U.S. a i r l i n e s . O thers i n t e n d e d t o w a i t f o r the s e v e n t y -s i x p a s s e nger Comet I I I w h i c h was t o be b r o u g h t o u t i n 1956. B.O.A.C. were by t h e n o p e r a t i n g the Comet r p r o f i t a b l y on t h e i r A f r i c a n r o u t e s and p l a n n e d t o ex t e n d j e t s e r v i c e t o Japan and A u s t r a l i a and l a t e r t o South A m e r i c a when t h e Comet I I became a v a i l a b l e . The Comet I I I was t o be used on the N o r t h A t l a n t i c r u n soon a f t e r i t s c e r t i f i c a t i o n , p l a n n e d f o r 1956 . These p l a n s prompted a r e a c t i o n i n A m e r i c a . Pan America n , a c a r r i e r t h a t made a t r a d i t i o n o f b e i n g a t the f o r e -f r o n t o f commercial a i r c r a f t t e c h n o l o g y , o r d e r e d t h r e e Comet I l l ' s i n O c t o b e r , 1952 and took o u t o p t i o n s on seven more. A t the same time E a s t e r n A i r l i n e s began e x p r e s s i n g i n t e r e s t i n the B r i t i s h j e t and t h i s t h r e a t e n e d t o f o r c e o t h e r t r u n k c a r r i e r s t o f o l l o w . E a s t e r n ' s 'phantom o r d e r ' n ever m a t e r i a l i z e d a l t h o u g h i t had a n o t i c e a b l e e f f e c t on t h e U.S. m a n u f a c t u r e r s . Each h a s t e n e d t h e i r d e s i g n e f f o r t s and Bo e i n g were prompted t o r e v e a l t h a t t h e i r d u a l - p u r p o s e 707 12 p r o t o t y p e was under c o n s t r u c t i o n . I n any e v e n t , t h e t r a g i c c r a s h e s o f two Comet a i r -l i n e r s i n 1954 and t h e subsequent d i s c o v e r y o f d e f i c i e n c e s i n t h e i r d e s i g n l e d t o t h e s u s p e n s i o n o r c a n c e l l a t i o n o f a l l o r d e r s f o r the Comet p e n d i n g a l o n g p r o c e s s o f i n v e s t i g a t i o n and d e s i g n r e v i s i o n . T h i s sudden s e t b a c k o f t h e B r i t i s h en-deavour was d e c i s i v e i n a l l o w i n g t h e e s t a b l i s h e d American m a n u f a c t u r e r s t o r e t a i n a l m o s t complete dominance o f the com-m e r c i a l a i r c r a f t i n d u s t r y . By t h e time de H a v a i l l a n d r e -t u r n e d w i t h t h e m o d i f i e d Comet IV i n 1958, t h e e a r l y d e s i g n o r i g i n s o f the a i r c r a f t were b e g i n n i n g t o t e l l and i t was no l o n g e r c o m p e t i t i v e w i t h t h e emerging American d e s i g n s w h i c h were b o t h l a r g e r and f a s t e r . The Market Emerges B o e i n g were f i r s t t o emerge w i t h a U.S. commercial j e t ; the 707 t a n k e r - t r a n s p o r t had i t s maiden f l i g h t i n J u l y , 1954. W i t h i n a y e a r the company had won o r d e r s f o r the KC-135 m i l i t a r y v e r s i o n and i n J u l y , 1955 t h e y were g i v e n c l e a r a n c e by t h e A i r F o r c e t o b u i l d c ommercial v e r s i o n s o f the p r o t o t y p e c o n c u r r e n t l y w i t h p r o d u c t i o n o f the m i l i t a r y a i r c r a f t . The 70 7 borrowed h e a v i l y from t h e aerodynamic d e s i g n s o f the B-47 and B-52 bombers and was t o be f i t t e d w i t h f o u r o f t h e 13,000 pound t h r u s t J-57 t u r b o j e t s used on the 13 B-52. The a v a i l a b i l i t y o f t h e s e h i g h e r t h r u s t P r a t t and Whitney e n g i n e s gave the new a i r c r a f t a c r u i s i n g speed o f a p p r o x i m a t e l y 585 m i l e s per hour, f a r g r e a t e r than t h a t o f t h e Comet, and i t s t a k e - o f f w e i g h t o f 190,000 pounds was n e a r l y t w i c e t h a t o f t h e B r i t i s h j e t . The r a p i d p r o g r e s s made by B o e i n g f o r c e d Douglas t o f i n a l i z e p l a n s f o r t h e i r c o mmercial j e t i n J u l y , 1955 t o a v o i d b e i n g c o m p l e t e l y l e f t b e h i n d . T h e i r DC-8 t r a n s p o r t d e s i g n was r e m a r k a b l y s i m i l a r t o t h e B o e i n g p r o t o t y p e , d i f f e r i n g o n l y 70 s l i g h t l y i n s t r u c t u r a l d e s i g n and aerodynamic d e t a i l . B o t h used f o u r J-57 t u r b o j e t s b u t t h e DC-8 had s l i g h t l y l e s s wing sweepback and t h e r e f o r e had a s l i g h t l y l o w e r c r u s i n g speed b u t b e t t e r low-speed h a n d l i n g . The Douglas a i r c r a f t was somewhat l a r g e r t h a n t h e p r o t o t y p e 707, however, and c o u l d e a s i l y accommodate s i x a b r e a s t i n coach c o n f i g u r a t i o n w h i l e t h e B o e i n g d e s i g n c o u l d n o t . . I n a d d i t i o n Douglas was o f f e r -i n g a v e r s i o n o f t h e DC-8 w i t h e n g i n e s o f g r e a t e r t h r u s t , P r a t t and Whitney J-75's, w h i c h p r o v i d e d an a i r c r a f t c a p a b l e o f nonstop t r a n s A t l a n t i c o p e r a t i o n . Douglas won t h e f i r s t o r d e r for> the new j e t s from Pan American i n September, 1955. The a i r l i n e o r d e r e d t w e n t y - f i v e DC-8's and s h o r t l y t h e r e a f t e r o r d e r e d twenty Boeing; 707's i n o r d e r t o ensure t h a t they would be f i r s t t o p u t t h e new a i r f c r a f t i n t o s e r v i c e no m a t t e r w h i c h d e s i g n appeared e a r l i e r . Douglas f i n a l i z e d t h e i r d e s i g n l a t e r than B o e i n g and were a b l e t o make some minor changes s u g g e s t e d by U n i t e d A i r l i n e s . T h i s e n a b l e d them t o o b t a i n the f i r s t o r d e r from a t r u n k c a r -r i e r i n O c t o b e r , 1955. B o e i n g i n i t i a l l y r e f u s e d t o make changes t o t h e i r 707 d e s i g n because t h i s would have reduced i t s commonality w i t h the m i l i t a r y t a n k e r v e r s i o n , d e l a y i n g p r o d u c t i o n and i n c r e a s -i n g c o s t s . However, when B o e i n g r e c e i v e d t h e s m a l l e r o r d e r from Pan American and l o s t o u t t o Douglas w i t h U n i t e d and l a t e r N a t i o n a l A i r l i n e s , t h e company became co n c e r n e d t h a t t h i s swing might be overwhelming. When American A i r l i n e s 71 demanded t h a t the 707 be made r o o m i e r than the DC-8, B o e i n g 14 was f o r c e d t o comply by w i d e n i n g the f u s e l a g e . T h i s meant t h a t t h e o u t s i d e d i m e n s i o n s o f the KC-135 t a n k e r would d i f f e r f r om.those o f t h e commercial 70 7 but r e s u l t e d i n the r e c e i p t o f American's o r d e r f o r t h i r t y a i r c r a f t . E a s t e r n soon f o l -lowed w i t h an o r d e r f o r DC-8's b u t TWA, the f i n a l member o f the ' B i g F o u r ' , d i d not o r d e r any j e t s u n t i l much l a t e r be-cause o f t h e i n d e c i s i o n o f t h e i r c o n t r o l l i n g s h a r e h o l d e r , 15 Howard Hughes. The t u r b o p r o p a i r l i n e r had n o t y e t been abandoned s i n c e i t was s t i l l seen as an economic p e r f o r m e r . I n B r i t a i n , a n o t h e r l o n g - r a n g t u r b o p r o p , the B r i s t o l B r i t a n n i a was b e i n g completed. Though i t was e x p e c t e d t o have low o p e r a t i n g c o s t s , i t s h i g h e s t c r u i s i n g speed (405 m i l e s p e r hour) was much lower than t h a t o f t h e American j e t s . A l t h o u g h con-c e i v e d i n 194 7 the a i r c r a f t had e n c o u n t e r e d development d i f -f i c u l t i e s and was n o t i n t r o d u c e d i n t o s e r v i c e u n t i l 1957, by w h i c h time most o f i t s p o t e n t i a l b u y e r s were w i l l i n g t o w a i t f o r the B o e i n g and Douglas j e t t r a n s p o r t s . The S h o r t - H a u l Market I n s p i r e d by C a p i t a l A i r l i n e s ' s u c c e s s w i t h t h e V i s -c o u n t , U.S. c a r r i e r s r e t a i n e d a c o n t i n u i n g i n t e r e s t i n the t u r b o p r o p f o r t h e i r s h o r t h a n d medium-haul o p e r a t i o n s . I n 1954, American A i r l i n e s h e l d a d e s i g n c o m p e t i t i o n f o r a medium-range t u r b o p r o p and managed t o i n t e r e s t Lockheed i n t h e propo-s a l . T h e i r d e s i g n , the E l e c t r a , was s i m i l a r t o the V i s c o u n t 72 b u t was t o have g r e a t e r c a p a c i t y and l o n g e r range. I t s development was made p o s s i b l e . b y t h e appearance o f the com-m e r c i a l v e r s i o n (the A l l i s o n 501) o f a n o t h e r m i l i t a r y e n g i n e w h i c h was t h e n b e i n g produced f o r a m i l i t a r y t r a n s p o r t b u i l t by Lockheed. The E l e c t r a program gave Lockheed an oppor-t u n i t y t o r e t a i n a share o f the commercial market s i n c e i t was becoming o b v i o u s t h a t t h e market f o r j e t t r a n s p o r t s was n o t l a r g e enough t o s u p p o r t t h r e e U.S. m a n u f a c t u r e r s . The 707 and DC-8 d e s i g n s were a l r e a d y f i r m l y e s t a b l i s h e d so Lockheed was e f f e c t i v e l y d i s p l a c e d from i t s former p o s i t i o n i n the market by the s t r o n g c h a l l e n g e from B o e i n g . A l t h o u g h i t had a p p a r e n t l y been d e c i d e d t h a t t u r b o -j e t s would be r e q u i r e d on l o n g - h a u l r o u t e s because o f t h e i r h i g h speed, most o f t h e t r u n k s e v e n t u a l l y o r d e r e d t u r b o p r o p s f o r t h e i r s h o r t - h a u l r o u t e s . C o n t i n e n t a l o r d e r e d a ' s t r e t c h -ed' v e r s i o n o f the V i s c o u n t w h i l e A m e r i c a n , E a s t e r n , N a t i o n a l , and B r a n i f f o r d e r e d t h e E l e c t r a . A t the end o f 1955 TWA p e r s i s t e d i n h a v i n g n o t h i n g b u t Lockheed p i s t o n t r a n s p o r t s on o r d e r . U n i t e d A i r l i n e s r e t a i n e d some i n t e r e s t i n t h e t u r b o -prop and c o n s i d e r e d making a purchase s e v e r a l t i m e s . Even-t u a l l y t h e y d e c i d e d t h a t no m a n u f a c t u r e r o f f e r e d a t u r b i n e engine t h a t was l a r g e enough t o f i t t h e i r r e q u i r e m e n t s . 1 ^ U n i t e d l a t e r e l e c t e d t o o r d e r a s h o r t - h a u l j e t a i r -c r a f t and r e l i e d on t h e i r DC-6B's u n t i l i t e n t e r e d s e r v i c e i n 17 1960. The a i r c r a f t p u r c h a s e d was t h e C a r a y e l l e , manufac-t u r e d by Sud A v i a t i o n o f F r a n c e . I t had a much lo w e r g r o s s w e i g h t (100,000 pounds) t h a n the l o n g - r a n g e U.S. j e t s and was powered by two engines r a t h e r t h a n f o u r . F o r the f i r s t t i m e the en g i n e s ( R o l l s - R o y c e Avons) were mounted a t t h e back, on t h e f u s e l a g e , and n o t on t h e w i n g s . A l t h o u g h s e v e r a l U.S. m a n u f a c t u r e r s had e x p r e s s e d i n t e r e s t i n produc-i n g a s i m i l a r a i r c r a f t , Sud were the f i r s t t o be committed t o p r o d u c t i o n and they had t h e i r p r o t o t y p e f l y i n g by 1955. I t i s c o n v e n i e n t t o pause a t t h i s p o i n t t o a n a l y z e the v a r i o u s a i r c r a f t t h a t were p l a y i n g a p a r t i n t h i s t r a n s i -t i o n p e r i o d because a l t h o u g h a t r e n d towards t u r b o j e t s was emerging the t u r b o p r o p was s t i l l an a c t i v e c o n t e n d e r . A t the b e g i n n i n g o f 1956, i n f a c t , t h e r e were more o r d e r s f o r E l e c -t r a s t h a n f o r any o t h e r s i n g l e a i r c r a f t among t h e do m e s t i c c a r r i e r s and t h e r e were s t i l l many p i s t o n t r a n s p o r t s y e t t o 18 be d e l i v e r e d . I n t h e second p a r t o f t h i s c h a p t e r the com-p a r a t i v e economics o f p i s t o n , t u r b o p r o p , and t u r b o j e t w i l l be i n v e s t i g a t e d . PART I I : CHANGES IN TECHNICAL EFFICIENCY AND OPERATING COSTS The G e n e r a l Trend Immediately upon i n t r o d u c t i o n t h e j e t s p r o v e d t o be cheaper t o o p e r a t e t h a n even t h e most economic p i s t o n t r a n s -p o r t s . T h i s may n o t appear t o t a l l y s u r p r i s i n g because a i r -c r a f t p r o d u c t i v i t y was i n c r e a s e d t r e m e n d o u s l y as a r e s u l t o f a near d o u b l i n g o f b o t h speed and c a p a c i t y . However, t h i s was 74 not a t o t a l l y e x p e c t e d r e s u l t when the a i r l i n e s f i r s t o r d e r e d the American-made j e t s i n t h e e a r l y f i f t i e s . As Caves remarked: " A l l e v i d e n c e p o i n t s t o the f a c t t h a t the c a r r i e r s were not a t a l l s u r e t h a t t h e l a r g e t u r b o j e t c r a f t would be cheaper t o o p e r a t e than the most modern p i s t o n - e n g i n e d a i r -19 p l a n e s . " Even so, s a i d an o f f i c i a l o f TWA i n 1952: "the p r e f e r e n c e was f o r t u r b i n e a i r c r a f t r e g a r d l e s s o f any o t h e r f a u l t s i t had ... a tremendous a t t r a c t i o n due t o i t s 20 speed." T h i s assessment was echoed by t h e p r e s i d e n t o f A merican A i r l i n e s who s t a t e d i n 1952 t h a t " w h i l e t h e j e t has p r o v e d i t s market a p p e a l , i t has n o t y e t p r o v e d i t s econom-i c s " 2 1 The i n i t i a l o r d e r s f o r j e t s can thus be a t t r i b u t e d l a r g e l y t o demand ( i . e . p a s s enger appeal) c o n s i d e r a t i o n s r a t h e r t h a n t o c o n s i d e r a t i o n s r e l a t e d s p e c i f i c a l l y t o o p e r a t -i n g c o s t s . Even i f t h e U.S. j e t s had had h i g h e r o p e r a t i n g c o s t s t h a n p i s t o n a i r c r a f t , the Comet had p r o v e d t h a t passen^-g e r s would be w i l l i n g t o pay more f o r t h e a d d i t i o n a l speed and c o m f o r t . Turboprop a i r c r a f t never became f i r m l y e s t a b l i s h e d as r i v a l s t o the j e t s . The V i s c o u n t was a s u c c e s s f u l s h o r t -h a u l a i r c r a f t b u t i t s l o n g - r a n g e c o u n t e r p a r t , the B r i t a n n i a , was l a t e i n a p p e a r i n g and b e s e t by t e c h n i c a l problems. The o n l y U.S. t u r b o p r o p , the E l e c t r a , though never c o n c e i v e d as a d i r e c t c o m p e t i t o r t o t h e l o n g - h a u l j e t s , e n c o u n t e r e d even more s e r i o u s t e c h n i c a l problems soon a f t e r i t s i n t r o d u c t i o n 75 when s e v e r a l c r a s h e s o c c u r r e d . S u b s e q u e n t l y the E l e c t r a was f o r c e d t o o p e r a t e a t re d u c e d speed f o r s a f e t y r e a s o n s and was thus h a n d i c a p p e d i n e f f o r t s t o compete w i t h t h e j e t s . However, even though t h e r e were no examples o f a t u r b o p r o p a i r c r a f t w h i c h c o u l d be termed r e p r e s e n t a t i v e o f what t h i s t e c h n o l o g y might have a c h i e v e d i n r e l a t i o n t o j e t a i r c r a f t , i t i s c l e a r t h a t t h e t u r b o p r o p d i d n o t l i v e up t o i n i t i a l ex-p e c t a t i o n s i n r e s p e c t t o e i t h e r speed o r o p e r a t i n g c o s t s . W h i l e proponents o f t u r b o p r o p p r o p u l s i o n had c l a i m e d p r o j e c t -ed c r u i s i n g speeds o f o v e r 50 0 m i l e s p e r hour and c o s t s one-h a l f t h o s e o f j e t s , the t u r b o p r o p s w h i c h had appeared by 1959 22 f e l l f a r s h o r t on b o t h c o u n t s . I t was ap p a r e n t t h a t t h e y were i n f e r i o r t o the j e t s i n pa s s e n g e r a p p e a l and a t b e s t o n l y c o m p e t i t i v e i n o p e r a t i n g c o s t s . H i s t o r i c a l C o s t Data i ) S e a t - M i l e C o s t s Average o p e r a t i n g c o s t s r e p o r t e d by the t r u n k c a r r i e r s t o the CAB f o r t h e 707, DC-8, E l e c t r a , V i s c o u n t , and DC-6B a r e p r e s e n t e d i n T a b l e 2.1 f o r the y e a r s 1959 t o 1964. W h i l e i t must be emphasized once more t h a t i n t e r p r e t a t i o n o f t h e s e r e -s u l t s must be made w i t h c a u t i o n because o f the e f f e c t s o f d i f -f e r i n g o p e r a t i n g c o n d i t i o n s , i t i s c l e a r t h a t o p e r a t i n g c o s t s o f the j e t s were lo w e r than had once been a n t i c i p a t e d . From the o u t s e t , s e a t - m i l e d i r e c t o p e r a t i n g c o s t s (DOC) o f t h e DC-8 and 707 were lo w e r than th o s e o f the DC-6B and by 19.60, TABLE .2.1 76 HISTORICAL OPERATING COST DATA FOR TRANSITION PERIOD AIRCRAFT 1 SFAT-MILE EXPENSE (cents) F l y i n g Fuel Direct T o t a l Depre- • Total Person- and Main- I n c l . c i a - • I n c l . fear A i r c r a f t ; nel O i l tenance 'Other' t i o n Dep. L959 DC-6B : .322 .488 ; .305 1.343 : .229 1.572 Viscount .381 .473 .505 1.526 : .420 :1.946 707 ; .187 .452 .342 1.448 • .320 ' 1.768 1960 DC-6B .351 .502 .359 1.448 .278 • 1.725 Viscount ,385 .488 .447 1.502 .435 :1.937 El e c t r a ,348 .348 .766 1.728 .535 2.263 707 .170 .408 .357 1.301 .250 1.551 DC-8 .1160 . . . .482 : .331. .1.145 . . .386 . 1.531 . 1961 DC-6B .449 .514 .400 1.644 • .369 2.013 Viscount .450 .486 .477 1.593 .453 2.046 El e c t r a .383 .361 : .611 1.672 .617 2.289 707 .194 .472 .298 1.174 .294 1.468 DC-8 . .185 .474 . .274 . 1.071 . .345 .1.416. 1962 DC-6B .467 .518 : ;.515 1.738 .431 2.169 Viscount .446 .453 .514 1.602 .363 1.965 El e c t r a .347 .354 ;.515 1.464 .492 1.956 707 .186 .397 : .303 1.059 .240 1.299 DC-8 .171 .449 ;.241 1.003 . .305 . . 1.308 1963 DC-6B .517 .518 .462 1.619 .281 1.900 Viscount ,415 .451 .621 1.677 .393 2.070 El e c t r a ,380 .357 >570 1.474 .513 . 1.987 707 .192 .365 .247 .954 .282 1.236 DC-8 ' ,156 .406 . .256 . :.923 . . . .255 . . .1.178 . . . 1964 DC-6B .513 .492 .605 1.825 .124 1.945 Viscount ,550 .454 :.527 1.734 .345 2.079 El e c t r a ,385 .348 .628 1.533 .511 2.044 707 .192 .382 :.248 .941 .280 1.221 DC-8 .183 .404 .269 .964 .264 ." 1.228 •^Based on Aggregate Trunkline Experience. Source: R. M i l l e r and D. Sawers, The Technical Development of Modern Aviation (London, 1968) pp.289-94. the t o t a l DOC o f b o t h j e t a i r c r a f t , i n c l u d i n g d e p r e c i a t i o n , were l o w e r than those o f t h e DC-6B w i t h d e p r e c i a t i o n e x c l u d e d . C o s t s o f t h e t u r b o p r o p a i r c r a f t were f a r h i g h e r , due i n p a r t t o t h e l o w e r stage, l e n g t h s o p e r a t e d . The s e a t - m i l e DOC o f the E l e c t r a were u n t i l 196 2 h i g h e r t h a n t h o s e o f the V i s c o u n t and never e x h i b i t e d a s i g n i f i c a n t improvement o v e r "the o l d e r and s m a l l e r t u r b o p r o p . An e x a m i n a t i o n o f t h e components c o m p r i s i n g t o t a l d i r e c t o p e r a t i n g c o s t s r e v e a l s t h e f o l l o w i n g : a) I n 1960 t h e crew expense per s e a t - m i l e (SM) o f the 707 and DC-8 (.170, <r/SM and .160 C/SM r e s p e c t i v e l y ) w a s . l e s s than h a l f what i t was f o r t h e DC-6B (.351 C/SM)• Crew expense f o r t h e E l e c t r a (.34 8 f^/SM) was a l m o s t t h e same as f o r t h e DC-6B w h i l e the V i s c o u n t was h i g h e r (.385 <?/SM) . T h i s c o r r e s p o n d s t o the e x p e c t e d e f f e c t s o f t h e i n c r e a s e d p r o d u c t i v i t y o f t h e f a s t e r , l a r g e r c a p a c i t y j e t s . Crew ex-pense o f t h e DC-6B i n c r e a s e d o v e r time as i t s average s t a g e l e n g t h d e c r e a s e d and t h e medium-range E l e c t r a was f a r cheaper a f t e r 1961 as e x p e c t e d from i t s h i g h e r speed and somewhat g r e a t e r c a p a c i t y . b) F u e l expense p e r s e a t - m i l e o f a l l t u r b i n e a i r c r a f t was l e s s t h a n t h a t o f t h e DC-6B. T h i s was ensured by the lower p r i c e o f t u r b i n e f u e l (kerosene) r e l a t i v e t o a v i a t i o n g a s o l i n e as w i l l be d i s c u s s e d l a t e r . F u e l expenses o f t h e DC-8 and 707 were a l m o s t i d e n t i c a l and i n t h e e a r l y y e a r s a l ^ 78 most the same as f o r t h e DC-6B, i n s p i t e o f the f a c t t h a t the l a t t e r was o p e r a t e d on f a r s h o r t e r s t a g e l e n g t h s . R e f l e c t -i n g t h e most i m p o r t a n t advantage w h i c h t h e t u r b o p r o p had o v e r the j e t , l o w e r f u e l consumption, even t h e medium-range E l e c t r a had a s e a t - m i l e f u e l expense w h i c h was a p p r e c i a b l y l o w e r than t h a t o f t h e l o n g - r a n g e 707 and DC-8. The i n -c r e a s e d f u e l expense (on t h e o r d e r o f .100 C/SM) was m a r g i n a l and was i n any event more than compensated f o r by the s a v i n g s i n crew expense ( a p p r o x i m a t e l y .200 C/SMj on t u r b o j e t a i r -c r a f t . The s m a l l e r V i s c o u n t , a s h o r t - h a u l t r a n s p o r t w i t h l e s s e f f i c i e n t e n g i n e s , had n o t i c e a b l y h i g h e r f u e l expenses p e r s e a t - m i l e t h a n the E l e c t r a . c) The j e t s a c h i e v e d s e a t - m i l e d i r e c t maintenance c o s t s a l m o s t as low as those o f the proven DC-6 p i s t o n a i r -p l a n e i n t h e i r f i r s t y e a r o f o p e r a t i o n and improved o v e r time so t h a t by 1964 d i r e c t maintenance o f t h e l a t t e r c o s t more than t w i c e as much p e r s e a t - m i l e . Perhaps s u r p r i s i n g l y , the t u r b o p r o p a i r c r a f t were much worse i n t h i s r e s p e c t , w i t h the E l e c t r a i n p a r t i c u l a r h a v i n g c o n s i s t e n t l y h i g h d i r e c t m a i n t e n -ance c o s t s , g e n e r a l l y more t h a n t w i c e those o f the j e t s . i i ) A i r c r a f t - M i l e C o s t s Trunk c a r r i e r d a t a f o r s e l e c t e d a i r c r a f t a r e p r e s e n t e d i n T a b l e 2.2 f o r the y e a r s 1959 and 1963 i n terms o f c o s t s p e r a i r c r a f t - m i l e . The d a t a r e v e a l t h a t t h e a i r c r a f t - m i l e c o s t s o f j e t a i r c r a f t w e r e . g e n e r a l l y h i g h e r than t h o s e o f p i s t o n a i r -TABLE 2.2 AIRPLANE-MILE COSTS OF TRANSITION PERIOD AIRCRAFT (1959, 1963) 1959 Expense Per A i r c r a f t - M i l e (cents) Expense per Seat-Mile(cents) F l y i n g Direct Maintenance Total Exclud. Total Includ. Excluding . Including A i r c r a f t Operations Maintenance Burden Depreciation Depreciation Depreciation Depreciation DC-6B 65.4 18.6 13.8 101.3 116.8 1.37 1.58 DC-7B 69.1 26.5 11.5 107.1 139.7 1.34 1.75 L-1049G 71.9 32.2 17.6 121.7 156.4 1.48 1.91 Viscount 51.2 23.3 17.1 85.9 109.1 1.87 : 2.37 Ele c t r a 61.9 23.7 12.4 102.8 142.6 1.25 1.74 B-707 109.5 31.1 12.7 153.3 184.4 1.18 1.42 1963 DC-6B 81.0 34.0 26.2 142.3 165.6 1.92 2.24 DC-7B 77.0 37.0 25.4 140.7 199.3 1.76 2.49 L-1049G 97.3 53.8 37.0 178.9 215.0 • 2.18 2.62 Viscount 56.4 27.9 23.6 108.4 126.6 2.36 2.75 El e c t r a 61.8 45.9 17.4 126.0 166.2 1.54 2.03 B-707 82.4 29.6 •21.6 134.0 168.0 1.03 1.29 DC-8 83.5 32.1 20.9 137.3 167.6 1.06 1.29 Caravelle 70.7 35.3 34.0 140.3 186.1 2.19 2.91 Source: Aviation Week, (December 17, 1960), pp.58-61 (March 11, 1964), pp.60-63. 80 c r a f t b u t d e c r e a s e d o v e r time w h i l e the l a t t e r i n c r e a s e d . When c o n v e r t e d i n t o e q u i v a l e n t s e a t - m i l e c o s t s , t h e DC-8 and 70 7 were m a r g i n a l l y b e t t e r i n 1959 and f i f t y p e r c e n t l o w e r than p i s t o n t r a n s p o r t s by 1963. I n f a c t , as s t a t e d p r e v i o u s -l y , t h e DOC o f p i s t o n a i r c r a f t e x c l u s i v e o f d e p r e c i a t i o n ex-pense exceeded t h a t o f j e t a i r c r a f t w i t h d e p r e c i a t i o n i n c l u d -ed, l e a d i n g t o the e x p e c t a t i o n o f v e r y r a p i d r e t i r e m e n t o f the o l d e r t e c h n o l o g y . The e x c e p t i o n might be the DC-6B whose s e a t - m i l e c o s t s compared f a v o u r a b l y w i t h t h e t u r b o p r o p s and whose d e s i g n was more s u i t a b l e f o r s h o r t - h a u l o p e r a t i o n s t h a n turbo-compound p i s t o n a i r c r a f t such as t h e DC-7 and L-1049G. I n terms o f c o s t p e r a i r c r a f t m i l e , the DC-6B was cheaper than the E l e c t r a i n 1959 and a l s o cheaper, e x c l u d i n g d e p r e c i a t i o n , i n 196 3. I t had l o w e r o p e r a t i n g c o s t s than the one j e t t h a t was o p e r a t e d on s h o r t h a u l s i n 196 3, the Sud C a r a v e l l e , i n b o t h a i r c r a f t - a n d s e a t - m i l e , terms. T h i s ex-p l a i n s why the DC-6B remained i n s e r v i c e on l o w - d e n s i t y s h o r t -h a u l o p e r a t i o n s w i t h some t r u n k c a r r i e r s as l a t e as 1968. I t i s i n t e r e s t i n g t o note from the d a t a t h a t the f i r s t s h o r t - h a u l j e t , the C a r a v e l l e , tended t o c o n f i r m t h e e a r l i e r p r e d i c t i o n t h a t t u r b o j e t a i r l i n e r s were s u i t a b l e o n l y f o r l o n g - h a u l o p e r a t i o n s . The C a r a v e l l e c o s t more t o o p e r -a t e per a i r c r a f t - m i l e than t h e f a r l a r g e r l o n g - r a n g e j e t s and i t s s e a t - m i l e DOC was more than double t h a t o f t h e DC-8 and 707. I t would thus appear t h a t t u r b o p r o p a i r c r a f t such as 81 the E l e c t r a s e r v e d w e l l as economic s h o r t and medium-haul a i r c r a f t , a t l e a s t f o r an i n t e r i m p e r i o d . Changes i n T e c h n i c a l E f f i c i e n c y i ) C a p i t a l High i n i t i a l c o s t i s one r e a s o n w h i c h may h e l p t o e x p l a i n e a r l y f e a r s about th e o p e r a t i n g expenses o f t u r b o j e t a i r c r a f t . The f a c t t h a t each new j e t would c o s t , f o r exam-p l e , more t h a n t h r e e t i m e s as much as a DC-7 was enough i n i t s e l f t o make some a i r l i n e s h e s i t a n t i n making commitments f o r t h e new a i r c r a f t . The c o m p a r a t i v e c a p i t a l r e q u i r e m e n t s i n s t a t i c t e r m s - t h a t i s , i n i t i a l c o s t p e r s e a t - i s g i v e n i n T a b l e 2.3. The o u t p u t o f the l a r g e r and f a s t e r j e t s was, however, f a r g r e a t e r t h a n t h a t o f p i s t o n a i r p l a n e s and as shown i n T a b l e 2.4, i n terms o f s e a t - m i l e p r o d u c t i v i t y a DC-8 o r 707 was e q u i v a l e n t t o a p p r o x i m a t e l y 3.4 DC-6Bs. I r o n i c a l l y i t was t h i s g r e a t i n c r e a s e i n p r o d u c t i v i t y t h a t l e d t o f e a r s about s e r i o u s o v e r c a p a c i t y i n t h e i n d u s t r y by 1959. Combining th e e s t i m a t e s o f h o u r l y s e a t - m i l e p r o d u c t i v -i t y w i t h t h e d a t a f o r i n i t i a l c o s t i t i s found i n T a b l e 2.4 t h a t assuming e q u a l d a i l y u t i l i z a t i o n r a t e s t h e j e t s were about th e same as p i s t o n a i r c r a f t i n terms o f a n n u a l p r o d u c t per d o l l a r o f i n i t i a l i n v e s t m e n t . The V i s c o u n t and E l e c t r a t u r b o p r o p s a r e e s t i m a t e d t o be i n f e r i o r t o the DC-6B i n terms o f t h i s measure o f c a p i t a l p r o d u c t i v i t y . 82 TABLE 2.3 ORIGINAL COST PER SEAT FOR TRANSITION PERIOD AIRCRAFT (1956- 59) A i r c r a f t I n i t i a l Cost ($U.S., millions) Seating Capacity I n i t i a l Cost Per Seat ($U.S., thousands) DC-6B 1.23 67 18.4 Viscount-700 1.20 50 24.0 E l e c t r a 2.39 82 29.1 707-120 4.50 125 36.0 707-320 5.25 144 36.5 DC-8-10 4.70 125 37.6 DC-8-20 5.25 125 42.0 Source: DC-6B, Viscount: Aaron J . Gellman, ' The E f f e c t of Regulation on A i r c r a f t Choice, unpublished Ph.D. thesis, M.I.T. 1968, pp.290-305. A l l other a i r c r a f t : Dero A. Saunders, "The A i r l i n e s ' F l i g h t From Reality", Fortune (February 1956), pp.91-95. 83 TABLE 2.4 RELATIVE OUTPUT PER UNIT OF INITIAL INVESTMENT  FOR TRANSITION PERIOD AIRCRAFT (1956-59) A i r c r a f t Estimated Productivity ASM/hour1 Productivity Relative to DC-6B Annual Ouput Per 2 Dollar Investment (ASM) DC-6B 17,600 . 1.0 36.6 Viscount 11,550 0.7 24.6 E l e c t r a 24,930 1-4 26.7 DC-8-10 62,270 3.4 33.9 707-120 62,270 3.4 35.4 'See Appendix B. 'See Appendix C. Assumes equal annual u t i l i z a t i o n . 84 i i ) F l i g h t P e r s o n n e l The r e d u c t i o n s i n f l i g h t p e r s o n n e l expense bro u g h t about by the j e t s have a l r e a d y been d i s c u s s e d . However, aggregate c o s t d a t a i n c l u d e i m p o r t a n t wage r a t e e f f e c t s and o t h e r d i s t o r t i o n s w h i c h do not a l l o w a c o n s i s t e n t comparison o f crew p r o d u c t i v i t i e s . F o l l o w i n g t h e same p r o c e d u r e as i n 23 the p r e c e e d m g c h a p t e r , t h e e s t i m a t e s o f s e a t - m i l e produc-t i v i t y were combined w i t h a crew complement i n d e x t o p r o v i d e a measure o f f l i g h t crew p r o d u c t i v i t y based s o l e l y on t e c h -n o l o g i c a l c h a r a c t e r i s t i c s o f t h e a i r c r a f t . The r e s u l t s , w h i c h appear i n T a b l e 2.5, r e v e a l a tremendous i n c r e a s e i n p r o d u c t i v i t y , w i t h t h e DC-8 and 70 7 p r o v i d i n g an e s t i m a t e d 20,4 84 a v a i l a b l e s e a t - m i l e s (ASM) p e r e q u i v a l e n t crew hour w h i l e t h e DC-6B p r o v i d e d 6 6 71 ASM per e q u i v a l e n t crew hour. The l a r g e r t u r b o p r o p , the E l e c t r a , had crew p r o d u c t i v i t y i n c r e a s e d by about o n e - h a l f compared t o the DC-6B w h i l e f o r the V i s c o u n t t h e r e was a s l i g h t d e c r e a s e . These e s t i m a t e s o f average p r o d u c t i v i t y were used t o p r e d i c t r e l a t i v e f l y i n g p e r s o n n e l expenses o f t h e s e a i r c r a f t . U s i n g t h e DC-6B as t h e base a i r c r a f t , p r e d i c t i o n s o f s e a t -m i l e crew expense r a t i o s were compared w i t h average t r u n k c a r r i e r r e s u l t s f o r t h e y e a r s 1959 t o 1963. The comparison was r e p e a t e d u s i n g the E l e c t r a as t h e base a i r c r a f t . I n t h e f i r s t c o mparison, h i s t o r i c a l c o s t d a t a agree w e l l w i t h the p r o d u c t i v i t y c a l c u l a t i o n i n the case o f t h e V i s c o u n t w h i l e f o b o t h j e t a i r c r a f t and t h e E l e c t r a the r e l a t i v e f l i g h t p e r s o n -85 TABLE 2.5 ACTUAL AND PREDICTED RELATIVE SEAT-MILE FLYING  PERSONNEL EXPENSES OF TRANSITION PERIOD AIRCRAFT A i r c r a f t ASM/Equivalent Crew Hour Predicted Seat-Mile Expense Relative to DC-6B Predicted Seat-Mile Expense Relative to El e c t r a DC-6B 6,671 1.0 -Viscount 5,958 1.12 1.58 Ele c t r a 9,442 0.71 1.0 707 20,484 0.33 0.46 DC-8 20,484 0.33 0.46 Actual Expense Relative to Actual Expense Relative to DC-6B El e c t r a A i r c r a f t 1959 1960 1961 1962 1963 1960 1961 1962 1963 Viscount 1.18 1.10 1.00 0.96 0.80 1.11 1.17 1.29 1.09 Ele c t r a - 0.99 0.85 0.74 0.74 - - - -707 0.58 0.48 0.43 0.40 0.37 0.49 0.51 0.54 0.51 DC-8 - 0.46 0.41 0.37 0.31 0.46 0.48 0.49 0.41 Source: Table 2.1 and Appendix B. 86 n e l expense per s e a t - m i l e was' h i g h e r than e x p e c t e d . There i s b e t t e r agreement i n l a t e r y e a r s such as 1963 b u t . t h i s i s m i s l e a d i n g because i t may be due p r i m a r i l y t o the i n c r e a s e i n DC-6B c o s t s as i t became r e l e g a t e d t o se c o n d a r y , s h o r t -h a u l r o u t e s . The comparison h i g h l i g h t s t h e d i s t o r t i o n s imbedded i n aggregate d a t a w h i c h r e s t r i c t t h e i r u s e f u l n e s s i n a s s e s s i n g the impact o f t e c h n o l o g i c a l change. E r r o r s ;,in t he produc-t i v i t y c a l c u l a t i o n c o u l d n o t a c c o u n t f o r a d i f f e r e n c e between 25 a c t u a l and p r e d i c t e d c o s t o f f i f t y p e r c e n t . The d i s p a r i t y can be a t t r i b u t e d t o the e f f e c t o f d i f f e r i n g wage r a t e s . A i r l i n e f l i g h t crews r e a l i z e d , w e l l i n advance o f t h e i r i n t r o d u c t i o n , the p r o d u c t i v i t y i n c r e a s e s w h i c h j e t a i r c r a f t would a c c o m p l i s h . T h i s prompted t h e i r u n i o n s t o t a k e a c t i o n . I t was r e c o g n i z e d , f o r example, t h a t t h e h i g h speed o f t h e DC-8 and 70 7 meant t h a t each crew would have t o make perhaps t w i c e as many f l i g h t s t o f u l f i l l t h e i r monthly f l i g h t hour q u o t a as had been r e q u i r e d w i t h p i s t o n a i r c r a f t . S t e p s were t h e r e f o r e t a k e n t o reduce monthly f l i g h t time and i n c r e a s e h o u r l y wage r a t e s when the j e t s were i n t r o d u c e d . I n a d d i -t i o n , i t was g e n e r a l l y the s e n i o r crews o f each a i r l i n e t h a t were a s s i g n e d t o the new equipment w h i l e t h o s e w i t h l e s s s e n -i o r i t y (and lo w e r r a t e s o f pay) took o v e r t h e o b s o l e s c e n t p i s -t o n t r a n s p o r t s . T h i s i n c r e a s e d the r e l a t i v e wage r a t e o f f l y i n g p e r s o n n e l on j e t a i r c r a f t and d i l u t e d t h e o b s e r v e d sav-i n g s i n d i r e c t o p e r a t i n g c o s t s below what might have been 87 e x p e c t e d based on a t e c h n i c a l c a l c u l a t i o n o f p r o d u c t i v i t y . P r o d u c t i v i t y i n c r e a s e s had, i n a sen s e , spawned c o r r e s p o n d i n g wage r a t e i n c r e a s e s . The phenomenon has now been i n s t i t u t i o n -a l i z e d due t o t h e i n c l u s i o n i n u n i o n c o n t r a c t s o f a f l i g h t crew pay f o r m u l a w h i c h t a k e s i n t o a c c o u n t a i r c r a f t speed and g r o s s w e i g h t . i i i ) Maintenance Maintenance cannot be measured d i r e c t l y o t h e r t h a n as an expense i t e m w h i c h means t h a t p r i c e e f f e c t s cannot be i s o -l a t e d from t e c h n o l o g i c a l l y — d e t e r m i n e d i n p u t r e q u i r e m e n t s . I t i s a t t h e same time i m p o s s i b l e t o d e f i n e a c o n s i s t e n t u n i t o f measurement o f i n p u t s s i n c e maintenance e f f o r t i s a pecu-l i a r c o m b i n a t i o n o f l a b o u r , c a p i t a l , and e x p e r t i s e t h a t has i t s e l f been c h a n g i n g o v e r t i m e . Maintenance i s a l s o the expense w h i c h can be p r e d i c t e d w i t h t h e l e a s t degree o f c e r t a i n t y when new t e c h n o l o g y i s b e i n g d e v e l o p e d . T h i s was never more t r u e t h a n i n the t r a n -s i t i o n t o t u r b i n e - p o w e r e d a i r c r a f t . The t u r b o j e t e n g i n e , f o r example, was a s i m p l e r m e c h a n i c a l d e v i c e t h a n t h e e i g h t e e n c y l i n d e r , s u p e r c h a r g e d , turbo-compounded p i s t o n e n g i n e t h a t powered t h e DC-7. However, i t o p e r a t e d a t f a r h i g h e r a v e r -age i n t e r n a l t e m p e r a t u r e s and even a f t e r c o n s i d e r a b l e m i l i t a r y s e r v i c e the t u r b o j e t s remained l a r g e l y an unknown q u a n t i t y when f i r s t d e l i v e r e d t o t h e a i r l i n e s . Turboprops had the added c o m p l e x i t y o f p r o p e l l o r and gearbox u n i t s and i t remain-88 ed t o be seen what e f f e c t t h i s w ould have on t h e i r r e l i a b i l i t y and maintenance r e q u i r e m e n t s . C a p i t a l A i r l i n e s had shown the t u r b i n e ' s p o t e n t i a l f o r r e d u c i n g maintenance c o s t s w i t h t h e i r e x p e r i e n c e w i t h t h e V i s c o u n t i n the m i d - f i f t i e s . The V i s c o u n t ' s R o l l s - R o y c e D a r t p o w e r p l a n t s had a h i g h e r t i m e - b e t w e e n - o v e r h a u l (TBO) t h a n the a i r l i n e ' s . W r i g h t p i s t o n e n g i n e s used on the C o n s t e l l a t i o n and i n a d d i t i o n i t was a s i m p l e r t a s k t o o v e r h a u l the D a r t . The t u r b i n e s r e q u i r e d o n l y 0.24 man-hours i n o v e r h a u l p e r f l y -i n g hour compared t o 0.4 6 man-hours per f l y i n g hour r e q u i r e d 26 by the p i s t o n e n g i n e s . The t u r b o p r o p was a l s o a more r e l i a b l e p o w e r p l a n t i n a i r l i n e s e r v i c e and C a p i t a l found t h a t w h i l e f i f t y - s e v e n p e r c e n t o f t h e m e c h a n i c a l d e l a y s e n c o u n t e r -ed on t h e C o n s t e l l a t i o n were e n g i n e - r e l a t e d , o n l y n i n e t e e n per 27 c e n t o f V i s c o u n t d e l a y s c o u l d be t r a c e d t o t h e e n g i n e s . The V i s c o u n t ' s D a r t engine was, however, a proven p o w e r p l a n t even b e f o r e i t was f i r s t used i n t h e U.S. w h i l e the P r a t t and Whitney t u r b o j e t s used on the 707 and DC^ -8 had been p r e v i o u s l y used o n l y by t h e m i l i t a r y . High e n g i n e t h r u s t had been t h e p r i m a r y o b j e c t i v e when t h e s e t u r b o j e t s were d e s i g n e d and i n o r d e r t o a c h i e v e t h i s the t u r b i n e s o p e r -a t e d a t h i g h t e m p e r a t u r e s and were l o o k e d upon as s h o r t - l i f e u n i t s . The TBO o f the f i r s t e n g i n e s on t h e DCT8 and 707 was under 8 00 hours w h i l e even the turbo-compound p i s t o n e n g i n e s had a 130 0 hour o v e r h a u l l i f e and the e n g i n e s used on the DC-6B had a TBO o f 1800 h o u r s . The j e t s were e x p e c t e d t o 89 improve c o n s i d e r a b l y once t h e i r r e l i a b i l i t y was proven i n o p e r a t i o n a l use, however, and b e t t e r m a t e r i a l s and d e s i g n r e f i n e m e n t s were e x p e c t e d t o e x t e n d t h e l i f e o f h o t - s e c t i o n p a r t s . By 1966 t h e TBO o f some t u r b o j e t s exceeded 8000 hour s and t h e t u r b i n e e n g ine had a t t a i n e d a f a r g r e a t e r l e v e l o f r e l i a b i l i t y t han p i s t o n e n g i n e s c o u l d e v e r have been e x p e c t e d t o a c h i e v e . S i n c e most a i r f r a m e and systems maintenance i s admin-i s t e r e d on a f l i g h t - t i m e - r e l a t e d b a s i s , i n c r e a s e d h o u r l y p r o d u c t i v i t y o f a i r c r a f t would be e x p e c t e d t o reduce t h i s p a r t o f d i r e c t o p e r a t i n g c o s t on a s e a t - m i l e b a s i s . The 707, DC-8 and E l e c t r a a i r f r a m e s were a l s o o f c o u r s e more modern d e s i g n s t h a n p i s t o n a i r c r a f t and t h i s i n i t s e l f w o uld be e x p e c t e d t o reduce maintenance r e q u i r e m e n t s . C o u n t e r a c t -i n g t h i s . h o w e v e r was t h e t r e n d toward i n c r e a s e d c o m p l e x i t y w h i c h improved s a f e t y and r e l i a b i l i t y b u t i n e v i t a b l y tended to i n c r e a s e maintenance r e q u i r e m e n t s . I n o r d e r t o s e p a r a t e the e f f e c t s o f i n c r e a s e d s e a t -m i l e p r o d u c t i v i t y from i n c r e a s e d h o u r l y maintenance r e q u i r e -mentd i n t h e i r combined e f f e c t on d i r e c t o p e r a t i n g c o s t s , e s t i m a t e s were made of r e p r e s e n t a t i v e b l o c k hour maintenance 28 expenses of v a r i o u s a i r c r a f t . These d a t a , based on the e x p e r i e n c e o f the t r u n k s d u r i n g 1967 and 1968,were c o n v e r t e d i n t o a c o r r e s p o n d i n g expense p e r a i r b o r n e hour based on t y p i -c a l t r u n k c a r r i e r e x p e r i e n c e . Combining t h e s e e s t i m a t e s w i t h t h e p r e v i o u s e s t i m a t e s f o r a i r c r a f t s e a t - m i l e p r o d u c t i v i t y 90 p r o v i d e s an i n d i c a t i o n of t h e c h a r a c t e r i s t i c s o f t h e changes i n u n i t maintenance expenses t h a t took p l a c e i n the t r a n s i -t i o n to t u r b i n e t e c h n o l o g y . The r e s u l t s are g i v e n i n T a b l e 2.6; average t r u n k l i n e c o s t d a t a are i n c l u d e d f o r g e n e r a l comparison o n l y . The most s i g n i f i c a n t f a c t w h i c h comes t o l i g h t from t h e s e c a l c u l a t i o n s i s t h a t t h e l a r g e j e t s are c e r t a i n l y n o t as cheap t o m a i n t a i n p e r a i r b o r n e hour as p i s t o n a i r c r a f t (the 707 d i r e c t maintenance expense p e r hour i s a l m o s t t w i c e t h a t o f t h e DC-6B) b u t t h e i r h i g h s e a t - m i l e p r o d u c t i v i t y a l l o w e d f o r a r e d u c t i o n i n s e a t - m i l e c o s t o f a l m o s t f i f t y p e r c e n t . D i r e c t maintenance expenses o f the DC-8 a i r f r a m e were appar-e n t l y somewhat l o w e r than t h o s e o f the 707. The E l e c t r a on the o t h e r hand c o s t a l m o s t t w i c e as much t o m a i n t a i n p e r hour as the DC-8 and i t s l o w e r p r o d u c t i v i t y r e s u l t e d i n a s e a t - m i l e expense more than t w i c e t h a t o f the j e t . The V i s c o u n t was t h e c h e a p e s t a i r c r a f t t o m a i n t a i n p e r f l i g h t hour b u t i t s s m a l l c a p a c i t y r e s u l t e d i n s e a t - m i l e c o s t s t h a t were between tho s e o f the DC-6B and E l e c t r a . i v ) F u e l T a b l e 2.7 g i v e s t h e d a t a , such as can be c o l l e c t e d , o f f u e l consumption p e r m i l e a t s e v e r a l s t a g e l e n g t h s f o r sev-e r a l a i r c r a f t t h a t were i n s e r v i c e w i t h t h e t r u n k s between 1958 and 1961. " I n T a b l e 2.8 t h e s e d a t a have been c o n v e r t e d 91 TABLE 2.6 DIRECT MAINTENANCE EXPENSES OF  TRANSITION PERIOD AIRCRAFT (1967-68) A i r c r a f t Direct Mtce Expense/Air-borne Hour (dollars) Engine Per Cent of Total Hourly Seat-Mile Productivity Predicted Ex-pense/ASM 1967-1968 (cents) Average Ex- 1 pense/ASM 1962-1963 (cents) DC-6B 91.60 49% : 17,600 .520 .489 Viscount 53.83 17% 11,560 .466 .568 El e c t r a 138.08 .: •4 5 % 24,930 .554 .543 B-707 174.93 ; 46% • 62,270 .281 .275 DC-8 150.76 55% 62,270 .242 .249 Source: CAB, A i r c r a f t Operating Cost and Performance Report, V o l . I l l , (August 1969) and Appendix B. TABLE 2.7 FUEL CONSUMPTION PER AIRCRAFT-MILE FOR TRANSITION PERIOD AIRCRAFT A i r c r a f t U.S. gallons per a i r c r a f t - m i l e Average Stage Length (miles) 200 400 600 800 1000 1200 1400 1600 DC-6B 2.06 1.97 1.75 1.72 1.66 1.60 1.57 1.55 Viscount 2.16 1.76 - - -• - - -E l e c t r a 2.83 2.10 1.8 1.65 1.65 - - -Britannia - - 2.30 2.11 2.02 1.95 1.95 1.95 707-120 - - 6.0 5.35 4.95 - - -DC-8-20/30 — — 6.4 5.75 5.15 4.80 4.80 -Source: F l i g h t planning charts f o r DC-6B, El e c t r a and Britannia except at 200 miles; a l l other data from curves constructed from data i n : C i v i l Aeronautics Board, A i r c r a f t Operating  Cost and Performance Report, Vols. III-VI (1967-72). TABLE 2.8 AVERAGE FUEL PRODUCTIVITY OF TRANSITION PERIOD AIRCRAFT A i r c r a f t ASM per U.S gallon Average Stage Length 200 400 600 800 1000 1200 1400 1600 DC-6B 36.9 38.6 43.4 44.2 45.8 47.5 48.4 49.0 Viscount 21.3 35.2 - - - - - -E l e c t r a 29.0 39.0 45.6 49.7 49.7 - • -' -Britannia - - 43.5 47.4 49.5 51.4 51.4 : 51.4 707-120 - - 21.7 24.3 26.3 - - -DC-8-20/30 20.3 22.6 25.2 27.1 27.1 — Source: Based on Table 2.7 data and the following capacities: DC-6B, 76; Viscount, 46; E l e c t r a , 82; Britannia, 100; 707 and DC-8, 130. 93 i n t o s e a t - m i l e s p e r g a l l o n u s i n g t y p i c a l c a p a c i t i e s . Data f o r the B r i t a n n i a a r e a l s o i n c l u d e d t o a l l o w comparison o f a long - r a n g e t u r b o p r o p w i t h t h e DC-6B and the two l o n g - r a n g e t u r b o j e t s . The v e r y h i g h r a t e s o f f u e l consumption o f the DC-8 and 707 a r e o b v i o u s ; they consume more than t h r e e t i m e s as much f u e l p e r m i l e . a s the DC-6B a t a 600 m i l e average s t a g e l e n g t h . What i s more r e l e v a n t , they consume a p p r o x i m a t e l y t w i c e as much f u e l p e r s e a t - m i l e as the p i s t o n t r a n s p o r t . F u e l consumption o f t h e j e t s appears t o f a l l more r a p i d l y w i t h i n c r e a s i n g s t a g e l e n g t h than i t does f o r the p i s t o n o r t u r b o p r o p a i r c r a f t , but even a t an average s t a g e l e n g t h o f 1400 m i l e s they consume about s e v e n t y p e r c e n t more f u e l p e r s e a t - m i l e than the DC-6B. Wh i l e d a t a a r e n o t a v a i l a b l e t o make a t o t a l l y s a t i s -f a c t o r y c o m p a r i s o n , t h e V i s c o u n t appears t o have h i g h e r f u e l consumption p e r s e a t - m i l e t h a n the E l e c t r a . T h i s i s i n accordance w i t h e x p e c t a t i o n s due t o the s m a l l e r c a p a c i t y o f the V i s c o u n t and t h e l e s s e f f i c i e n t c e n t r i f u g a l - d e s i g n en-g i n e s . The E l e c t r a appeared t o be s l i g h t l y s u p e r i o r t o the DC-6B i n terms o f s e a t - m i l e s per g a l l o n a l t h o u g h i t used t u r -b i n e f u e l ( g e n e r a l l y kerosene) r a t h e r than t h e a v i a t i o n gaso-l i n e used by p i s t o n a i r c r a f t . The B r i t a n n i a was e q u a l l y e f -f i c i e n t i n t h e use o f f u e l and produced a l m o s t t w i c e as many s e a t - m i l e s p e r g a l l o n o f f u e l consumed as the j e t a i r c r a f t . T h i s i s the f i r s t c l e a r e v i d e n c e i n t h e development o f commercial a i r c r a f t o f a ' b i a s e d ' change i n f a c t o r p r o p o r t i o n s . The t u r b o j e t , i n e f f e c t i n g s a v i n g s i n f l i g h t crew, c a p i t a l , and maintenance a l s o b r o u g h t about a s i g n i f i c a n t i n c r e a s e i n f u e l consumption. I n o t h e r words, an improvement i n t e c h n i -c a l e f f i c i e n c y f o r t h r e e f a c t o r s was a c c o m p l i s h e d o n l y w i t h a h a l v i n g o f t e c h n i c a l e f f i c i e n c y i n the use o f f u e l . Three r e a s o n s e x p l a i n why t h i s i n c r e a s e i n f u e l con-sumption was n o t c o n s i d e r e d a c r u c i a l d i s a d v a n t a g e . F i r s t o f a l l , t h e new t e c h n o l o g y b r o u g h t w i t h i t such a g r e a t im-provement i n pa s s e n g e r a p p e a l o f a i r t r a v e l t h a t t h e a i r l i n e s would have a c c e p t e d some i n c r e a s e i n o p e r a t i n g expenses! The speed and c o m f o r t o f the j e t s c o u l d command i n c r e a s e d a i r f a r e s and o p e r a t o r s o f p i s t o n equipment would have been h a r d p r e s s e d t o compete by o f f e r i n g l ower f a r e s . I n any case the j e t s b r o u g h t about s i g n i f i c a n t r e d u c t i o n s i n the n o n - f u e l components o f d i r e c t o p e r a t i n g expenses and a t the energy p r i c e s t h a t t h e n p r e v a i l e d t h e s e s a v i n g s compensated f o r t h e i n c r e a s e i n f u e l consumption. Thus, j e t s had l o w e r o p e r a t i n g c o s t s o v e r a l l and i t would n ot have been p o s s i b l e t o o f f e r l o w e r f a r e s on p i s t o n a i r c r a f t . I n a d d i t i o n , what must n o t be o v e r l o o k e d i s t h e f a c t t h a t t u r b i n e p o w e r p l a n t s used a l o w e r grade f u e l t h a n t h e a v i a t i o n g a s o l i n e used i n p i s t o n e n g i n e s . Kerosene i s g e n e r a l l y used t o f u e l j e t and t u r b o p r o p a i r c r a f t and w h i l e i t s h e a t i n g v a l u e was s l i g h t l y l o w e r than t h a t o f g a s o l i n e , i t was a l s o c o n s i d e r a b l y cheaper on a volume b a s i s . 95 I n B r i t a i n , i n 1954, t h e p r i c e o f ker o s e n e was l e s s than t w o - t h i r d s t h a t o f a v i a t i o n g a s o l i n e . The p r i c e o f b o t h f u e l s was low i n the U.S. i n 1959 when t h e j e t s were b e i n g 29 i n t r o d u c e d ; M i l l e r and Sawers r e p o r t t h a t t h e p r i c e o f a v i -a t i o n g a s o l i n e was 16. OC p e r U.S. g a l l o n w h i l e t h e p r i c e o f t u r b i n e , f u e l was 9.125C p e r g a l l o n . T h i s p r o v i d e d t u r b i n e a i r c r a f t w i t h a f a v o u r a b l e r e l a t i v e p r i c e r a t i o o f 0.57:1 t h a t tended t o o f f s e t the h i g h e r f u e l consumption o f the j e t s . These p r i c e s changed v e r y l i t t l e f o r many y e a r s ; i n 1967 t h e p r i c e o f t u r b i n e f u e l r e p o r t e d by the t r u n k s was between 9.5 and 10.0<r p e r U.S. g a l l o n w h i l e the p r i c e o f a v i a t i o n gaso-l i n e was between 15.1 and 16.0C p e r g a l l o n . I t i s i n t e r e s t i n g t o note what r e s u l t s from removal o f the f a v o u r a b l e f u e l p r i c e r a t i o e n j o y e d by t u r b i n e a i r -c r a f t . F o r example, i f t h e p r i c e o f f u e l f o r the 707 and DC-8 i n t h e i r f i r s t y e a r o f s e r v i c e had been t h e same as t h a t o f the a v i a t i o n g a s o l i n e , t h e i r average s e a t - m i l e f u e l ex-pense would have r i s e n t o a p p r o x i m a t e l y .794$ and • .-84.6£ r e s -p e c t i v e l y . S u b s t i t u t i n g t h e s e c o s t s f o r t h e i r a c t u a l f u e l c o s t s r a i s e s t h e i r t o t a l DOC p e r s e a t m i l e t o 2.100C and 1.895*- f o r t h e 707 and DC-8 i n 1959 and 1960 r e s p e c t i v e l y . T h i s r e p r e s e n t s an i n c r e a s e i n d i r e c t o p e r a t i n g c o s t o f 20-25 per c e n t , s u f f i c i e n t t o make t h e s e a i r c r a f t more e x p e n s i v e t o o p e r a t e t h a n the DC-6B. 96 Summary i ) T e c h n i c a l E f f i c i e n c y The i n d i c e s o f t e c h n i c a l e f f i c i e n c y f o r the DC-6B a i r -c r a f t and s e l e c t e d t u r b o j e t and t u r b o p r o p a i r c r a f t shown i n T a b l e 2.9 r e v e a l t h a t : a) The s u c c e s s f u l a i r c r a f t o f t h e p e r i o d , t h e t u r b o j e t s , b r o u g h t about g r e a t i n c r e a s e s i n t h e p r o d u c t i v i t y o f b o t h f l y i n g p e r s o n n e l l a b o u r and maintenance e f f o r t . The p r o d u c t i v i t y o f c a p i t a l was l e f t v i r t u a l l y un-changed compared t o t h e DC-6B bu t t e c h n i c a l e f f i c i -ency i n the use o f energy f e l l by more th a n f o r t y p e r c e n t . b) The u n s u c c e s s f u l a i r c r a f t o f the p e r i o d , .the t u r b o -p r o p s , had (as r e p r e s e n t e d by E l e c t r a ) h i g h e r l a b o u r p r o d u c t i v i t y compared t o the DC-6B b u t lo w e r produc-t i v i t y f o r c a p i t a l and maintenance. Energy produc-t i v i t y was about t h e same as t h a t o f p i s t o n a i r c r a f t , b u t t h i s c o u l d not compensate f o r o t h e r d e f i c i e n c i e s o f t h e a i r c r a f t compared t o t u r b o j e t s . i i ) C o s t / Q u a l i t y T r a d e - o f f s a) The f i r s t ' j e t , the Comet, was i n i t i a l l y s u c c e s s f u l because o f i t s passenger a p p e a l , i n s p i t e o f i t s h i g h o p e r a t i n g c o s t s . Once t h e Comet had p r o v e n i t -s e l f i n B r i t a i n , the American c a r r i e r s were w i l l i n g 97 TABLE 2.9 RELATIVE AVERAGE FACTOR  PRODUCTIVITIES OF TRANSITION  PERIOD AIRCRAFT (Indexed t o DC-6B) A I R C R A F T . . FACTOR DC-6B Viscount . E l e c t r a I.B-707 DC-8 F l y i n g ^ Personnel 1 .00 0.89 i 1.42 i 3.07 3. 07 2 C a p i t a l 1 .00 0.88 .;. 0.83 : 0.94 0. 94 Energy ;1 .oo 3 0.91 ! 1.01 -1 4 .00* -• ; ; 1.09 ; 0.57 i o. 55 ; • . 5 Maintenance . 1 .00 1.12 ' : 0.94 '. : 1.85 • ; 2. 15 'Based on Table 2.5. 'Assumes Constant U t i l i z a t i o n (Table 2.4). Based on Table 2.8, 400 miles average stage length. 1,000 mile average stage length. 'Based on Table 2.6. 98 t o o r d e r U.S. j e t s l a r g e l y on t h e b a s i s o f ' q u a l i t y ' c o n s i d e r a t i o n s b u t t h e r e was c o n s i d e r a b l e u n c e r t a i n -t y o v e r t h e i r e x p e c t e d o p e r a t i n g c o s t s . b) I n t h e e v e n t , t h e t u r b o j e t s were a b l e t o o f f e r im-p r o v e d ' q u a l i t y ' ( h i g h e r speed, l e s s c a b i n n o i s e and v i b r a t i o n , escape from t h e e f f e c t s o f weather) as w e l l as lower u n i t c o s t s because o f f a v o u r a b l e f a c t o r p r i c e r e l a t i o n s h i p s . c) The a l t e r n a t i v e t e c h n o l o g y , the t u r b o p r o p s , were known t o o f f e r l o w e r ' q u a l i t y ' (lower speeds, g r e a t e r v i b r a t i o n ) and were c o n s i d e r e d o n l y because t h e i r o p e r a t i n g c o s t s were e x p e c t e d t o be l o w e r . Because o f the h i g h p r i c e o f l a b o u r r e l a t i v e t o t h a t o f f u e l , the o p e r a t i n g c o s t s o f t h e t u r b o p r o p s d i d n o t compare f a v o u r a b l y w i t h those o f t u r b o j e t s and they became o b s o l e s c e n t . i i i ) Exogenous E f f e c t s a) The U.S. t r u n k c a r r i e r s d i d n o t g e n e r a t e the j e t t r a n s i t i o n i n t e r n a l l y . R a t h e r , i t was prompted by the commercial s u c c e s s o f t h e B r i t i s h Comet, u n i -l a t e r a l e f f o r t s o f the B o e i n g Co. i n d e v e l o p i n g the 707 t a n k e r / t r a n s p o r t , and t h e i n i t i a t i v e o f Pan American A i r l i n e s . The d o m e s t i c t r u n k s appeared t o be r e l u c t a n t i n n o v a t o r s . 99 b) The m i l i t a r y i n f l u e n c e was overwhelming i n d e t e r m i n -i n g the time o f the t u r b i n e t r a n s i t i o n s i n c e a l l the a i r c r a f t used ' o f f - t h e - s h e l f m i l i t a r y e n g i n e s . c) The l a c k o f s u c c e s s o f the t u r b o p r o p must be a t t r i b u t e d i n p a r t t o the absence o f m i l i t a r y de-velopment a c t i v i t y i n t h i s a r e a . CHAPTER I I I THE RECENT PERIOD INTRODUCTION A f t e r the i n t r o d u c t i o n o f the 707 and DC-8, t h e r e was a t e n y e a r p e r i o d o f t e c h n o l o g i c a l s t a b i l i t y d u r i n g w h i c h a i r c r a f t development c o n s i s t e d o f i n c r e m e n t a l improvement and the i n t r o d u c t i o n o f d e s i g n s adapted t o s p e c i f i c o p e r a t i n g r e -q u i r e m e n t s . More s i g n i f i c a n t change o c c u r r e d a t t h e end o f the decade w i t h t h e i n t r o d u c t i o n o f wide-body t r a n s p o r t s and a new g e n e r a t i o n o f j e t e n g i n e s . The c i r c u m s t a n c e s s u r r o u n d i n g the development o f s e l e c t e d a i r c r a f t i n t h i s p e r i o d a re d e s c r i b e d i n P a r t I . o f t h i s C h apter w h i l e P a r t I I compares them on t h e b a s i s o f o p e r a t i n g c o s t s and r e l a t i v e t e c h n i c a l e f f i c i e n c y . PART I : EVENTS SURROUNDING THE INTRODUCTION OF VARIOUS AIRCRAFT The F i r s t Refinements The f i r s t o r d e r f o r t h e American j e t s , from Pan A m e r i -ca n , was f o r a l o n g range v e r s i o n o f the DC-8 w h i c h used t h e h i g h e r t h r u s t P r a t t and Whitney t u r b o j e t , the JT4A ( m i l i t a r y d e s i g n a t i o n J75) r a t h e r than t h e JT3C (J57) wh i c h was s t a n d a r d on t h e domesti c v e r s i o n . B o e i n g f o l l o w e d Douglas' l e a d and were soon o f f e r i n g t he I n t e r c o n t i n e n t a l (707-320) i n a d d i t i o n t o the d o m e s t i c 707-^120. 1 The 707-120 and a l l i n i t i a l v e r -10.0 101 s i o n s o f the DC-8 had c a p a c i t i e s o f about 135 p a s s e n g e r s i n t y p i c a l c o n f i g u r a t i o n w h i l e the 707-320, w h i c h had a somewhat l o n g e r f u s e l a g e , had a t y p i c a l c a p a c i t y o f 145 p a s s e n g e r s . The f i r s t j e t t o e n t e r d o m e s t i c s e r v i c e was a 70 7 o p e r a t e d by N a t i o n a l A i r l i n e s i n O c t o b e r , 1958 on l e a s e from Pan A m e r i c a n . The DC-8 f i r s t e n t e r e d s e r v i c e i n September, 1959 w i t h D e l t a and U n i t e d A i r l i n e s . J e t s were f i r s t used on t h e t r a n s c o n t i n e n t a l market i n J a n u a r y , 1959 when American A i r l i n e s began u s i n g 707's. I n t h e same month the s o l e U.S. t u r b o p r o p , Lockheed's E l e c t r a , e n t e r e d s e r v i c e b u t by t h i s time t h e r e Were a l r e a d y new medium-range j e t a i r c r a f t b e i n g d e s i g n e d t o d i s p l a c e i t . The f i r s t t o appear was an e n t i r e l y new f o u r - e n g i n e d j e t d e v e l o p e d by a l a t e e n t r a n t i n t h e commercial j e t market. T h i s new t r a n s p o r t was the C o n v a i r 8 80 whose d e s i g n was v e r y s i m i l a r t o t h a t o f t h e B o e i n g and Douglas a i r c r a f t e x c e p t 2 t h a t i t used G e n e r a l E l e c t r i c e n g i n e s and was s m a l l e r o v e r a l l , h a v i n g a s h o r t e r and n a rrower f u s e l a g e . Designed i n 1955 as a short-to-medium range j e t , t h e a i r c r a f t g r a d u a l l y e v o l v e d i n t o v i r t u a l l y a d i r e c t c o m p e t i t o r t o the 707 and DC-8 a l t h o u g h i t s p a y l o a d was s m a l l e r . C o n v a i r e n c o u n t e r e d e a r l y t e c h n i c a l problems and l a t e r became e m b r o i l e d i n a d i s p u t e w i t h t h e i r major customer on t h e program, TWA. As a r e s u l t p r o d u c t i o n c o s t s i n c r e a s e d and t h e program was d e l a y e d t o such an e x t e n t t h a t the 880 e n t e r e d s e r v i c e j u s t two months ahead o f a r i v a l medium-range t r a n s p o r t w h i c h had been d e v e l o p e d by B o e i n g . 102 T h i s second a i r c r a f t was the B o e i n g 720, a s m a l l e r v e r s i o n o f the 70 7 t h a t was e i g h t f e e t s h o r t e r e b u t o t h e r w i s e i d e n t i c a l i n e x t e r n a l appearance. The 720 was, i n f a c t , a c o m p l e t e l y d i f f e r e n t d e s i g n w i t h r e s p e c t t o a i r c r a f t w e i g h t and s t r u c t u r a l s t r e n g t h and was o p t i m i z e d f o r more f r e q u e n t l a n d i n g and t a k e - o f f c y c l e s and l o w e r f u e l l o a d s . I t used the same e n g i n e s t h a t were i n s t a l l e d on.the 707 and DC-8. The f i r s t o r d e r f o r t h e 720 came from U n i t e d A i r l i n e s i n 1957 and i t e n t e r e d s e r v i c e w i t h t h i s c a r r i e r i n J u l y , 1960. There was r a p i d l y growing demand f o r j e t s e r v i c e i n a l l h i g h -e r - d e n s i t y markets i n the U.S., many o f wh i c h were o f medium st a g e l e n g t h , and as a r e s u l t the 720 s o l d w e l l and p r o v e d p r o f i t a b l e f o r the m a n u f a c t u r e r . I t was p u r c h a s e d by seven o f t h e t r u n k s : A m e r i c a n , E a s t e r n , B r a n i f f , C o n t i n e n t a l , N o r t h w e s t and Western as w e l l . a s U n i t e d . The s u c c e s s o f the 720 doomed t h e commercial p r o s p e c t s o f the C o n v a i r program; t h e CV-880 was s o l d t o o n l y t h r e e c a r r i e r s (TWA, D e l t a , and N o r t h e a s t ) and C o n v a i r s u s t a i n e d huge l o s s e s on i t s d e v e l o p -ment. Engine Improvements The f i r s t s i g n i f i c a n t improvement i n t h e t e c h n o l o g y o f the new j e t a i r c r a f t came w i t h the development by R o l l s - R o y c e 4 o f t h e Conway bypass j e t e n gine o r t u r b o f a n . The new engine had a f a n i n s t a l l e d f o r w a r d o f compressor s e c t i o n w h i c h f o r c e d an a i r mass f l o w around the c o r e o f the e n g i n e t h r o u g h a bypass d u c t . T h i s i n c r e a s e d t o t a l a i r mass f l o w and de-103 c r e a s e d t h e v e l o c i t y o f the j e t e x h a u s t and had the e f f e c t o f r e d u c i n g e n g i n e s p e c i f i c f u e l consumption by i m p r o v i n g p r o p u l -s i v e e f f i c i e n c y . I n a d d i t i o n t h e t u r b o f a n p r o v i d e d g r e a t e r t a k e - o f f t h r u s t than a t u r b o j e t e n g ine o f s i m i l a r s i z e and had a l o w e r n o i s e l e v e l . B o t h B o e i n g and Douglas o f f e r e d t h e Conway on new s e r i e s , the 707-400 and DC-8-40 r e s p e c t i v e l y . However, none o f the U.S. t r u n k s p u r c h a s e d Conway-powered j e t s ; t hey appar-e n t l y p r e f e r r e d t o a w a i t t h e a r r i v a l o f a P r a t t and Whitney t u r b o f a n , t h e JT3D, wh i c h became a v a i l a b l e i n 1960. The JT3D s h a r e d many components w i t h the JT3C t u r b o j e t t h a t was a l r e a d y b e i n g used by most o f t h e t r u n k s and was f o r t h i s r e a s o n a more a t t r a c t i v e a l t e r n a t i v e . I n a d d i t i o n t h e P r a t t and Whitney t u r b o f a n had a h i g h e r bypass r a t i o t han t h e Con-way and p r o m i s e d t o be more e f f i c i e n t . The JT3D appeared i n 1961 on the S e r i e s - 5 0 DC-8 and on new models o f a l l t h e B o e i n g j e t s , t h e 707-120B and -320B and the 720B. The t u r b o -j e t v e r s i o n s c o n t i n u e d i n p r o d u c t i o n f o r a time b u t were soon superseded by the t u r b o f a n a i r c r a f t . F u e l consumption o f the JT3D was about t w e n t y - f i v e p e r c e n t l e s s than t h a t o f t h e JT3C. T h i s , o f c o u r s e , im-p r o v e d t h e r a n g e - p a y l o a d performance o f the a i r c r a f t . Runway l e n g t h r e q u i r e m e n t s were r e d u c e d s i g n i f i c a n t l y by the i n c r e a s e i n t a k e - o f f t h r u s t and an i n c r e a s e i n a v a i l a b l e c r u i s e t h r u s t a l l o w e d f o r a s m a l l i n c r e a s e i n c r u i s i n g speed compared t o t h e , . . 5 e a r l i e r v e r s i o n s . 104 I t i s i n t e r e s t i n g t o note t h e . r e a c t i o n o f the a i r l i n e s t o the a v a i l a b i l i t y o f t h i s i n c r e a s e i n speed f o r i t i n a sense p a r a l l e l e d the e a r l i e r s i t u a t i o n i n v o l v i n g the t u r b o -compound-powered p i s t o n a i r c r a f t . ^ The appearance o f the t u r b o f a n must have g i v e n one c a r r i e r , U n i t e d , mixed f e e l i n g s because they had o r i g i n a l l y welcomed the a r r i v a l o f j e t a i r -c r a f t as t h e end o f the speed r i v a l r y w h i c h had been c h a r a c -7 . t e r i s t i c o f the p i s t o n era.. , U n i t e d , b e l i e v e d t h a t t h e t u r b o -f a n engine was n o t a w o r t h w h i l e i n v e s t m e n t and p l a n n e d t o f i t t u r b o f a n s o n l y t o a i r c r a f t t h a t would be used on a p a r t i c u l a r -8 l y l o n g r o u t e , C h i c a g o - H a w a i i . American A i r l i n e s , on t h e o t h e r hand, undertook a major program t o e q u i p t h e i r e n t i r e f l e e t w i t h the new e n g i n e . A l l t h e i r subsequent o r d e r s f o r j e t s were f o r t h e t u r b o f a n v e r s i o n s and i n t h e f a l l o f 1960 American began r e t u r n i n g a i r c r a f t t o the m a n u f a c t u r e r f o r r e f i t t i n g w i t h JT3D en g i n e s a t a c o s t o f about one m i l l i o n d o l -l a r s p e r p l a n e . American i n t r o d u c e d t h e t u r b o f a n a i r c r a f t i n t o s e r v i c e i n March, 1961 b u t seemed more i m p r e s s e d w i t h the h i g h e r speed o f f e r e d r a t h e r than w i t h any o f the o t h e r advan-t a g e s . I n f a c t , s i n c e 1958 C o n v a i r had been d e v e l o p i n g a new h i g h speed t r a n s p o r t e q u i p p e d w i t h t u r b o f a n s s p e c i f i c a l l y f o r A merican A i r l i n e s ' r e q u i r e m e n t s . The new a i r c r a f t was the C o n v a i r 990, an e n l a r g e d v e r s i o n o f t h e CV-880 w h i c h , w i t h G e n e r a l E l e c t r i c t u r b o f a n s and wing-mounted "aerodynamic a n t i -shock bodies","'"^ was d e s i g n e d t o o b t a i n h i g h e r speeds than 105 o t h e r j e t s used i n d o m e s t i c s e r v i c e . However, th e d e s i g n f e a t u r e s were not as e f f e c t i v e as had been a n t i c i p a t e d ; the a i r c r a f t was n o t as f a s t as had been hoped and p r o v e d t o be uneconomic, i n p a r t because o f i t s s m a l l (106 passenger) c a p a c i t y . American A i r l i n e s were the o n l y U.S. c a r r i e r t o p u r c h a s e the CV-990 and p r o d u c t i o n ended as soon as t h e i n i t i a l o r d e r s were f i l l e d . The s e t b a c k s w h i c h C o n v a i r s u f f e r e d i n t h e i r a t t e m p t s t o c a r v e o u t a share o f the commercial j e t market subsequent-l y f o r c e d t h e company t o abandon t h e commercial a i r c r a f t man-u f a c t u r i n g i n d u s t r y c o m p l e t e l y . Through a c o m b i n a t i o n o f m i s f o r t u n e and bad judgement i n the CV-8 80 and CV-990 programs C o n v a i r won the dubious d i s t i n c t i o n o f l o s i n g more money on a s i n g l e v e n t u r e t h a n any o t h e r company i n U.S. h i s t o r y . 1 ' ' " Con-v a i r " s d e p a r t u r e l e f t t h e m a n u f a c t u r i n g i n d u s t r y i n the hands of j u s t two f i r m s , B o e i n g and D o u g l a s . I t was thus even more h i g h l y c o n c e n t r a t e d than i t had been i n t h e p i s t o n e r a . S h o r t - H a u l J e t s W h i l e most o f the t r u n k s were o p e r a t i n g s h o r t - h a u l s e r v i c e s w i t h t u r b o p r o p equipment i n t h e e a r l y s i x t i e s , i t was becoming c l e a r t h a t j e t a i r c r a f t had g r e a t e r passenger a p p e a l . I n Europe the F r e n c h C a r a v e l l e was p r o v i n g t h a t j e t s c o u l d be o p e r a t e d s u c c e s s f u l l y o v e r s h o r t s t a g e l e n g t h s . There was thus a growing i n t e r e s t i n new t r a n s p o r t s w h i c h c o u l d s e r v e s h o r t - h a u l markets where medium-range f o u r -e n g i n e d j e t s such as t h e B o e i n g 720 would be uneconomic. 106 B o e i n g i n i t i a t e d a d e s i g n s t u d y f o r such an a i r c r a f t i n 1956 and Douglas began a st u d y o f a s m a l l e r d e s i g n , s i m i -12 l a r t o t h e C a r a v e l l e . The m a n u f a c t u r e r s were r e l u c t a n t t o proceed,however, because the c h o i c e o f e n g i n e s i n a s u i t -a b l e t h r u s t range was l i m i t e d . N e v e r t h e l e s s , U n i t e d A i r -l i n e s needed an a i r c r a f t t o r e p l a c e t h e i r p i s t o n a i r c r a f t 13 s i n c e they had n o t o r d e r e d a t u r b o p r o p and when no U.S. m a n u f a c t u r e r b r o u g h t f o r w a r d a f i r m d e s i g n p r o p o s a l they o r -der e d twenty C a r a v e l l e s i n 1960. The o t h e r t r u n k s , most o f whom o p e r a t e d t h e E l e c t r a t u r b o p r o p , were n o t c o m p e l l e d t o o r d e r t h e C a r a v e l l e ( h a v i n g t u r b o j e t e n g i n e s , i t was a l r e a d y becoming o b s o l e s c e n t ) and were c o n t e n t t o a w a i t t h e d e v e l o p -. . . 14 ment o f a new g e n e r a t i o n o f s h o r t - r a n g e a i r l i n e r s . F i r s t t o appear was the de H a v a i l l a n d T r i d e n t w h i c h had been under c o n s t r u c t i o n i n B r i t a i n s i n c e 1959. The T r i -d e n t, d e s i g n e d t o f i t the r e q u i r e m e n t s o f a s h o r t - h a u l c a r -r i e r , B r i t i s h European A i r l i n e s , had i t s maiden f l i g h t i n 1962. The i n i t i a l v e r s i o n had a p p r o x i m a t e l y the same t a k e -o f f w e i g h t as the s e r i e s V I C a r a v e l l e p u t i n t o s e r v i c e by U n i t e d i n 1961. I t s t y p i c a l p a s s e n g e r c a p a c i t y was a l s o about t h e same, s e v e n t y - s e v e n . The T r i d e n t , however, had t h r e e e n g i n e s r a t h e r than two and t h e s e were R o l l s Royce Spey t u r b o f a n s r a t h e r than t u r b o j e t s as on t h e F r e n c h a i r p l a n e . I n the U.S., B o e i n g a g a i n found themselves w i t h the o p p o r t u n i t y t o s t e p ahead o f t h e i r European r i v a l s i n t h e 107 s h o r t - h a u l market j u s t as they had w i t h t h e 707 a g a i n s t the e a r l i e r Comet. Once a g a i n i t was the e n g ine t h a t was t o prove the d e c i s i v e f a c t o r a l t h o u g h t h i s time the company d i d n o t have t o r e l y f o r t h e i r advantage on a p r o d u c t o f m i l i t a r y r e s e a r c h . P r a t t and Whitney agreed t o d e v e l o p a c o m p l e t e l y new t u r b o f a n e n g i n e , the JT8D, s p e c i f i c a l l y f o r B o e ing's new a i r c r a f t . 1 ^ The h i g h e r t h r u s t o f t h i s e n g i ne (14,0001bt) compared t o t h e Spey (9,8501bt) used on t h e T r i d e n t e n a b l e d B o e i n g t o d e s i g n a somewhat l a r g e r a i r c r a f t w i t h g r e a t e r range and c a p a c i t y . The T r i d e n t had a narrower f u s e l a g e than t h e American f o u r - e n g i n e d j e t s b u t t h e new B o e i n g t r a n s p o r t , the 727, r e t a i n e d the same upper f u s e l a g e s t r u c t u r e used on the l a r g e r 707 and 720. I n o t h e r r e s p e c t s the 727 was s i m i l a r t o the T r i d e n t ; i t s g e n e r a l c o n f i g u r a t i o n was p a t t e r n e d a f t e r 16 t h i s B r i t i s h t r i j e t w h i c h had preceeded i t . The 727 was - l i k e the T r i d e n t - d e s i g n e d s p e c i f i c a l -l y f o r short-to-medium range o p e r a t i o n s and d i d not have t r a n s c o n t i n e n t a l c a p a b i l i t y a t maximum p a y l o a d . However, i t s c a p a c i t y i n t y p i c a l m i x e d - c l a s s c o n f i g u r a t i o n was n i n e t y -s i x p a s s e n g e r s , a l m o s t as g r e a t as t h a t o f the 720 (112 p a s s e n -g e r s ) and a p p r e c i a b l y g r e a t e r t h a n . t h a t o f the T r i d e n t , a f a c t t h a t made i t s e x p e c t e d s e a t - m i l e o p e r a t i n g c o s t s l o o k p r o m i s i n g . The 727 a l s o i n c o r p o r a t e d some i m p o r t a n t t e c h n i -c a l improvements o v e r the f i r s t - g e n e r a t i o n j e t s ; i t s JT8D e n g i n e , f o r example, had a h i g h e r b y p a s s - r a t i o than e a r l i e r t u r b o f a n s and i t s f u e l consumption was t h e r e f o r e l o w e r . I n 108 a d d i t i o n , B o e i n g had d e s i g n e d a new wing f o r t h e a i r c r a f t w h i c h i n c o r p o r a t e d a r a t h e r complex system o f h i g h - l i f t de-v i c e s t h a t improved a i r f i e l d performance and e n a b l e d the 727 t o be o p e r a t e d from many s m a l l e r c i t i e s whose a i r p o r t s were n o t c a p a b l e o f accommodating the e a r l i e r j e t s . The a i r c r a f t was a w e l l t h o u g h t - o u t d e s i g n , i d e a l l y s u i t e d f o r t h e r e q u i r e m e n t s o f many a i r l i n e s , and t h i s i n a d d i t i o n t o t h e growing r e p u t a t i o n o f i t s m a n u f a c t u r e r made the 727 an immediate commercial s u c c e s s , a t t h e expense o f 17 de H a v a i l l a n d ' s T r i d e n t program. When B o e i n g r e v e a l e d t h e i r development p l a n s i n December, 1960 they were a b l e t o announce t h a t E a s t e r n and U n i t e d had each o r d e r e d f o r t y a i r -c r a f t . Two months l a t e r American A i r l i n e s o r d e r e d twenty-f i v e and TWA f o l l o w e d soon a f t e r . When the 727 e n t e r e d s e r -v i c e i n 1964 i t became the f i r s t a i r c r a f t t o be used i n quan-t i t y by. a l l t he ' B i g Four' t r u n k s s i n c e the DC-4. S m a l l e r , t w i n - e n g i n e d a i r c r a f t were a l s o d e v e l o p e d d u r i n g t h i s second round o f j e t a i r c r a f t d e s i g n and a g a i n t h e B r i t i s h were ahead o f t h e Am e r i c a n s . The B r i t i s h A i r c r a f t C o r p o r a t i o n BAC-111 t w i n j e t made i t s maiden f l i g h t i n August, 1963, j u s t s i x months a f t e r the B o e i n g 727 t r i j e t . I t had a c a p a c i t y o f s i x t y - s i x p a s s e n g e r s and w i t h i t s f l i g h t crew r e q u i r e m e n t r e d u c e d t o two w i t h t h e e l i m i n a t i o n o f the f l i g h t e n g i n e e r i t appeared t o be i d e a l l y s u i t e d f o r the p r o v i s i o n o f economic s e r v i c e on l o w - d e n s i t y s h o r t - h a u l r o u t e s . The a i r c r a f t won e a r l y o r d e r s . i n the U.S. even b e f o r e i t f l e w , 1 • 109 from B r a n i f f i n 1961 and Mohawk, the l a r g e s t l o c a l - s e r v i c e c a r r i e r , i n 1962. A m e rican A i r l i n e s , i n p a r t r e s p o n d i n g t o the c o m p e t i t i o n they would f a c e from th e l a t t e r on some o f t h e i r r o u t e s , o r d e r e d a n o t h e r v e r s i o n o f the BAC-111 the f o l -n 18 l o w i n g y e a r . I n the same y e a r a d i r e c t l y c o m p e t i t i v e d e s i g n emerged as Douglas - r e v i v i n g an o l d p r o j e c t - began f a b r i c a t i o n o f a n o t h e r t w i n j e t , the DC-9. The BAC-111 was d e s t i n e d t o share a f a t e s i m i l a r t o t h a t o f t h e T r i d e n t s i n c e the U.S. d e s i g n , though i d e n t i c a l i n c o n f i g u r a t i o n , was s l i g h t l y l a r g e r , had s u p e r i o r e n g i n e s , (JT8Ds r a t h e r than RR Speys) and c a r r i e d the more f a m i l i a r Douglas name. The DC-9, w i t h a normal range o f a p p r o x i m a t e l y 1,200 m i l e s and t y p i c a l s e a t i n g c a p a c i t y o f about s i x t y - e i g h t p a s s e n g e r s , complemented the medium-range 727 and o f f e r e d t h e advantage o f e n g i n e commonality w i t h the 0 . ... 19 B o e i n g a i r c r a f t . W i t h i n weeks o f t h e announcement o f t h e p r o j e c t Doug-l a s r e c e i v e d an o r d e r from D e l t a and by t h e time the DC-9 made i t s maiden f l i g h t i n 1965, two o f t h e ' B i g F our' t r u n k s , Trans World and E a s t e r n had s i g n e d f o r l a r g e o r d e r s . Though the p r o j e c t had. i n i t i a l l y been l o o k e d upon as r i s k y because o f t h e s i m i l a r i t y o f the DC-9 t o the BAC-111, the s u p e r i o r q u a l i t i e s o f t h e Douglas d e s i g n combined w i t h s e t b a c k s i n the d e v e l o p -ment o f t h e B r i t i s h a i r c r a f t soon p r o v e d i t t o be a s u c c e s s f u l 20 one. 110 The ' S t e t c h i n g ' P r o c e s s D u r i n g the m i d - s i x t i e s , when most o f t h e t r u n k s were p u t t i n g i n t o s e r v i c e l a r g e numbers o f new j e t a i r c r a f t , i t became ap p a r e n t t h a t p a r t o f the demand f o r a d d i t i o n a l cap-a c i t y c o u l d be met i n t h e f u t u r e by the development o f l a r g e r a i r c r a f t f o r b o t h l o n g - and s h o r t - h a u l use. A i r p o r t c o n g e s t i o n was becoming a c o n c e r n i n some o f t h e b u s i e r cen-t e r s i n t h e U.S. and i n a d d i t i o n t h e b e n e f i t s o f o f f e r i n g i n -c r e a s e d d e p a r t u r e f r e q u e n c i e s w i t h e x i s t i n g s i z e a i r c r a f t were becoming l e s s s i g n i f i c a n t s i n c e most major markets were 21 s e r v e d a d e q u a t e l y i n t h i s r e s p e c t . I t was known t h a t s e v e r a l j e t a i r c r a f t d e s i g n s c o u l d be l e n g t h e n e d t o i n c r e a s e t h e i r c a p a c i t y w i t h o n l y minor s t r u c t u r a l m o d i f i c a t i o n s and t h e i n s t a l l a t i o n o f h i g h e r t h r u s t v e r s i o n s o f e x i s t i n g t u r b o -f a n s . T h i s ' s t r e t c h i n g ' p r o c e s s was thus a t t r a c t i v e t o the a i r l i n e s , who would r e c e i v e l ower s e a t - m i l e c o s t s i n a i r c r a f t , w h i c h were n o t much d i f f e r e n t from those t h e y a l r e a d y had i n s e r v i c e , as w e l l as t h e m a n u f a c t u r e r s , who c o u l d produce the a i r c r a f t w i t h o u t the r i s k s o f h i g h - c o s t development programs. As p r e v i o u s l y d i s c u s s e d , B o e i n g had been the f i r s t t o e x t e n d t h e f u s e l a g e o f the l o n g - r a n g e j e t s when they i n t r o d u c -ed t h e 707-320 wh i c h was a p p r o x i m a t e l y e i g h t f e e t l o n g e r than 2 2 t h e d o m e s t i c 707-120. Douglas however, i n announcing the DC-8 program i n 1955, had p r o m i s e d t h a t a l l p r o j e c t e d v e r -s i o n s o f the a i r c r a f t would use an i d e n t i c a l a i r f r a m e . They k e p t t h e i r promise w i t h t h e f i r s t f i v e s e r i e s o f DC-8's but I l l i n 1965 announced a d e p a r t u r e from t h i s p o l i c y by r e v e a l i n g t h a t t h r e e advanced, S e r i e s - 6 0 v e r s i o n s o f t h e DC-8 were under development. F i r s t o f t h e s e t o appear was t h e DC-8-61. I t used the same wing as t h e DC-8-50 and a more p o w e r f u l v e r s i o n o f the JT3D t u r b o f a n b u t had a f u s e l a g e a l m o s t t h i r t y - s e v e n f e e t l o n g e r . C a p a c i t y was i n c r e a s e d by a l m o s t f o r t y - f i v e p e r c e n t , t o 195 p a ssengers i n t y p i c a l c o n f i g u r a t i o n . The second v e r s i o n t o be d e v e l o p e d was the u l t r a - l o n g - r a n g e DC-8-62. I t had i n c r e a s e d wingspan and improved e n g i n e pods b u t i t s 23 f u s e l a g e was o n l y s l i g h t l y l o n g e r than t h e s t a n d a r d DC-8-50. The u l t i m a t e v e r s i o n was t h e DC-8-63 which combined the l o n g f u s e l a g e o f the -61 w i t h t h e aerodynamic improvements o f the -62. A l t h o u g h b o t h B r a n i f f and U n i t e d p u r c h a s e d the -62, i t was t h e l a r g e c a p a c i t y o f t h e o t h e r two v e r s i o n s t h a t was a p a r t i c u l a r a t t r a c t i o n t o t h e d o m e s t i c t r u n k s . The DC-8-61 and -63 had t h e l o w e s t s e a t - m i l e c o s t s o f any a i r c r a f t a t the time o f t h e i r i n t r o d u c t i o n i n 1967-68. However, they were p u r c h a s e d o n l y by D e l t a , E a s t e r n , N a t i o n a l , and U n i t e d , a l l o f whom a l r e a d y o p e r a t e d e a r l i e r v e r s i o n s o f the DC-8. B o e i n g r e a l i z e d the economic a t t r a c t i o n s o f a ' s t r e t c h -ed' v e r s i o n o f the 707 t o a i r l i n e s w h i c h c o u l d use the a d d i -t i o n a l c a p a c i t y . They c o n s i d e r e d l e n g t h e n i n g the 707-320 by f o r t y - t w o f e e t t o produce an a i r c r a f t (the 707-820) wh i c h would have had even g r e a t e r c a p a c i t y t h a n t h e DC-8-61/63's. However, because o f t h e g r e a t e r sweepback o f the 7 0 7 ? s w i n g 112 (which demanded g r e a t e r r o t a t i o n on t a k e - o f f ) and t h e g e n e r a l c o n f i g u r a t i o n o f t h e a i r c r a f t , B o e i n g c o u l d n o t o b t a i n s u f -f i c i e n t t a i l c l e a r a n c e on a s t r e t c h e d v e r s i o n w i t h o u t r e d e s i g n -24 i n g t h e l a n d i n g g e a r . The e x t e n s i v e s t r u c t u r a l d e s i g n m o d i f i c a t i o n s r e q u i r e d would have demanded a s a l e s p r i c e f o r 25 the s t r e t c h e d 707 h i g h e r t h a n t h a t o f the DC-8-61. I n any c a s e , B o e i n g found t h a t t h e r e was l i t t l e i n t e r e s t i n the p r o -j e c t because the a i r l i n e s d i d n o t want such a l a r g e a i r c r a f t and t hey abandoned t h e market f o r s t r e t c h e d l o n g - r a n g e t r a n s -p o r t s t o Douglas. A t the t i m e , B o e i n g were o c c u p i e d w i t h t h e i r h i g h l y s u c c e s s f u l 7 27 program and announced i n A u gust, 1965 t h a t t h e y were g o i n g ahead w i t h t h e development o f a s t r e t c h e d v e r s i o n o f t h i s a i r c r a f t . A l t h o u g h the company had a p p a r e n t l y not 2 6 i n t e n d e d from the o u t s e t t o e n l a r g e the 727, the i n i t i a l e n g i n e and a i r f r a m e c o m b i n a t i o n had c o n s i d e r a b l e growth p o t e n -t i a l and the new p r o j e c t seemed o n l y l o g i c a l i n v iew o f the c a r r i e r s ' i n e v i t a b l e d e s i r e f o r i n c r e m e n t a l i n c r e a s e s i n a i r -c r a f t c a p a c i t y . The new 727-200 was twenty f e e t l o n g e r t h a n the i n i t i a l . 727 ( s i n c e d e s i g n a t e d t h e 727-100) but o t h e r w i s e i n c o r p o r a t e d o n l y minor s t r u c t u r a l m o d i f i c a t i o n s and e n g i n e s o f s l i g h t l y h i g h e r t h r u s t . T a k e - o f f . w e i g h t o f the f i r s t 727-200 was no h i g h e r , however, so i t had l e s s range than th e s t a n d a r d 727 due t o t h e i n c r e a s e i n p a y l o a d and empty w e i g h t . The 727-200, w i t h t y p i c a l c a p a c i t y o f 135 p a s s e n g e r s , o f f e r e d t h e a i r l i n e s an a i r c r a f t w i t h about t h e same c a p a c i t y 113 as t h a t o f the 70 7, c a p a b l e o f o p e r a t i n g on medium st a g e l e n g t h s w i t h s e a t - m i l e c o s t s t h a t . w e r e n o t much h i g h e r than what t h e e a r l i e r j e t s c o u l d a c h i e v e on l o n g - h a u l f l i g h t s . The a i r c r a f t e n t e r e d s e r v i c e i n l a t e 1967 and soon a c h i e v e d overwhelming p o p u l a r i t y w i t h the domesti c t r u n k s . When D e l t a f i n a l l y p l a c e d i t i n s e r v i c e i n 1972 i t formed a major p a r t o f t h e f l e e t o f e v e r y t r u n k a i r l i n e i n the U.S.. W i t h -i n a few y e a r s the 727 had o u t s o l d a l l o t h e r j e t t r a n s p o r t s . The s m a l l e r , t w i n - j e t d e s i g n s were a l s o e n l a r g e d . I n f a c t , Douglas had the ' s t r e t c h e d ' DC-9-30 f l y i n g j u s t e i g h t months a f t e r t h e s t a n d a r d DC-9-10 had e n t e r e d s e r v i c e i n November, 1965. I t was f i f t e e n f e e t l o n g e r than the i n i t i a l v e r s i o n and had i t s t y p i c a l s e a t i n g c a p a c i t y i n c r e a s e d t o a p p r o x i m a t e l y n i n e t y - s i x p a s s e n g e r s . The a i r c r a f t had h i g h e r t h r u s t JT8D e n g i n e s , i n c r e a s e d wingspan, and new h i g h -l i f t d e v i c e s s i m i l a r t o those used on t h e B o e i n g 727. E a s t e r n A i r l i n e s was f i r s t t o p l a c e t h e DC-9-30 i n s e r v i c e i n March, 196 7 and i t was e v e n t u a l l y o p e r a t e d by two o t h e r t r u n k c a r r i e r s , . D e l t a and N o r t h e a s t . A n o t h e r v e r s i o n h a v i n g even g r e a t e r c a p a c i t y , the DC-9-40, became a v a i l a b l e i n 196 8 b u t was n o t pu r c h a s e d by any o f t h e U.S. t r u n k s . A r a t h e r l a t e e n t r y i n t o t h e s h o r t - h a u l market was made by Bo e i n g w i t h y e t a n o t h e r a i r c r a f t h a v i n g , t h e same upper f u s e l a g e d e s i g n as t h e 707-720-727 f a m i l y . T h i s t r a n s -p o r t was the 737 wh i c h was d e s i g n e d t o u t i l i z e many o f the components o f t h e l a r g e r 727; i t used the same JT8D en g i n e s 114 and i t s wing d e s i g n was adapted d i r e c t l y from t h a t o f the 727. A s i d e from t h e p o s i t i o n o f i t s e n g i n e s - w h i c h were win g -mounted - and i t s somewhat s h o r t e r and w i d e r f u s e l a g e , the 737 was v e r y s i m i l a r t o t h e DC-9. They were d i r e c t l y com-p e t i t i v e i n b o t h performance and economics. The B o e i n g 737 was t h e f i r s t a i r c r a f t t o be o f f e r e d from t h e e a r l y s t a g e s i n b o t h s t a n d a r d and ' s t r e t c h e d ' v e r s i o n s a l t h o u g h p r o d u c t i o n was soon devoted e n t i r e l y t o t h e l a t t e r . A l s o f o r the f i r s t t i m e , s p o n s o r s h i p o f the new p r o j e c t and the i n i t i a l o r d e r came, not from one o f the U.S. c a r r i e r s , b u t from a f o r e i g n a i r l i n e , L u f t h a n s a o f Germany. The c o m p a r a t i v e apathy w h i c h B o e i n g f a c e d i n t h e U.S. m a r k e t p l a c e upon i n t r o d u c t i o n o f the 737 was not u n d u l y s u r -p r i s i n g because most o f t h e a i r l i n e s t h a t had need f o r such 27 an a i r c r a f t were a l r e a d y committed to:the Douglas DC-9. However, U n i t e d A i r l i n e s had n o t p u r c h a s e d the DC-9 and o r d e r -ed f o r t y 737-200's t o complement t h e i r f a r l a r g e r f l e e t o f 2 8 727's soon a f t e r L u f t h a n s a ' s o r d e r f o r 'the s t a n d a r d model. U n i t e d ' s o r d e r was s u b s e q u e n t l y i n c r e a s e d t o s e v e n t y - f i v e b u t t h e o n l y o t h e r t r u n k t o purchase the 737 was Western A i r l i n e s a l t h o u g h t h e . a i r c r a f t s o l d w e l l t o l o c a l - s e r v i c e c a r r i e r s and to many o p e r a t o r s o u t s i d e the U.S.. R e d u c t i o n s i n the F l i g h t Crew An i n t e r e s t i n g c o n f l i c t w h i c h h i g h l i g h t s the i n t e r a c -t i o n between t e c h n o l o g i c a l change and i n s t i t u t i o n a l f o r c e s s u r f a c e d soon a f t e r U n i t e d had s i g n e d i t s I n i t i a l o r d e r f o r 115 t h e 737. B o e i n g had d e s i g n e d t h e a i r c r a f t f o r o p e r a t i o n by a two-man f l i g h t crew, t h e same as t h e DC-9, w i t h t h e f l i g h t e n g i n e e r ' s s t a t i o n e l i m i n a t e d . U n f o r t u n a t e l y f o r U n i t e d , the l a r g e f u s e l a g e d i a m e t e r o f the 737 gave t h e a i r c r a f t a r o o m i e r c o c k p i t than t h e DC-9 and the u n i o n r e p r e s e n t i n g the c a r r i e r ' s f l i g h t crews, t h e A i r ; L i n e P i l o t s A s s o c i a t i o n (ALPA), became d e t e r m i n e d t o p l a c e a t h i r d man on t h e f l i g h t deck. The i s s u e was a p p a r e n t l y n o t o v e r any t e c h n i c a l r e -quirement s i n c e i t was n o t a t a l l c l e a r what the t h i r d crew member would do, a s i d e from observe t h e a c t i o n s o f t h e o t h e r two from a p o s i t i o n w e l l b e h i n d t h e f l i g h t i n s t r u m e n t s and 29 . . c o c k p i t windows. The u n i o n , however, was r e s o l u t e i n i t s p o s i t i o n and u l t i m a t e l y was s u c c e s s f u l i n n e g o t i a t i o n s w i t h the a i r l i n e . As a r e s u l t U n i t e d ' s crew expenses p e r hour on the 737 a r e a p p r o x i m a t e l y the same as on t h e i r 727's and the s e a t - m i l e o p e r a t i n g c o s t s o f the a i r c r a f t s u f f e r i n c o m p a r i -son w i t h t h o s e o f DC-9's o p e r a t e d by o t h e r t r u n k s . 3 ^ A r e l a t e d i s s u e w h i c h was s e t t l e d more s a t i s f a c t o r i l y w i t h r e s p e c t t o economic e f f i c i e n c y was the r e d u c t i o n i n f l i g h t crew r e q u i r e m e n t s on l o n g - r a n g e a i r c r a f t b r o u g h t about by the i n t r o d u c t i o n o f i n e r t i a l n a v i g a t i o n equipment. T h i s i n n o v a t i o n a l l o w e d t h e a i r c r a f t n a v i g a t o r t o be r e p l a c e d by e l e c t r o n i c equipment w h i c h performed h i s t a s k more a c c u r a t e l y and a t lo w e r c o s t . American A i r l i n e s were t h e f i r s t domes-t i c c a r r i e r t o o r d e r i n e r t i a l n a v i g a t i o n systems i n 1966. They have s i n c e become s t a n d a r d equipment on l o n g - r a n g e - a i r -116 c r a f t , a l l o w i n g the s t a n d a r d crew complement on such a i r c r a f t t o be reduced from f o u r t o t h r e e w i t h a c o r r e s p o n d i n g r e d u c -t i o n i n f l i g h t p e r s o n n e l expenses. Wide-Body Technology One o f t h e c l e a r e s t c ases i n wh i c h p o t e n t i a l s a v i n g s i n s e a t - m i l e c o s t s p r o v e d t o be an i n a d e q u a t e p r e d i c t o r o f the demand f o r a new a i r c r a f t was t h e f a i l u r e o f the s t r e t c h e d DC-8's t o p e n e t r a t e t h e t r u n k c a r r i e r s ' market f o r new e q u i p -ment. T e c h n i c a l l y t h e DC-8-61/6 3 a i r c r a f t were s u p e r i o r t o a l l o t h e r l o n g - r a n g e t r a n s p o r t s because t h e i r p r o d u c t i v i t y was a l m o s t f o r t y - f i v e p e r c e n t h i g h e r t h a n t h a t o f the s t a n -d a r d DC-8 w h i l e t h e i r t o t a l o p e r a t i n g c o s t s were o n l y some 31 t e n p e r c e n t h i g h e r . The new j e t s c o u l d t h e r e f o r e o f f e r s i g n i f i c a n t c o s t s a v i n g s on h i g h - d e n s i t y r o u t e s , and i t was f i r s t e x p e c t e d t h a t f a r e s would be r e d u c e d when th e y e n t e r e d 32 . . . s e r v i c e . A l t h o u g h t h e f a r e r e d u c t i o n never m a t e r i a l i z e d , t h i s s e r v e d o n l y t o make t h e s t r e t c h DC-8's more p r o f i t a b l e f o r t h e i r o p e r a t o r s . The DC-8-61 met w i t h some r e s i s t a n c e , however, p a r t l y because i t s h i g h n o i s e l e v e l s t h r e a t e n e d t o b a r i t from o p e r a t i o n s i n t o New Y o r k , and p a r t l y because t h o s e c a r r i e r s t h a t used B o e i n g 707's may n o t have r e a l i z e d any a p p r e c i a b l e s a v i n g s due t o the h i g h i n i t i a l c o s t s o f i n t r o d u c -i n g an e n t i r e l y new a i r c r a f t t o t h e i r f l e e t s . New developments i n commercial a i r c r a f t t e c h n o l o g y had a f a r more p r o f o u n d i mpact on the Douglas s a l e s campaign f o r t h e DC-8-61/63 s e r i e s . Once a g a i n t h e U.S. m i l i t a r y were 117 t o e x e r t , i n d i r e c t l y , a major i n f l u e n c e on e v e n t s i n the a i r -c r a f t m a n u f a c t u r i n g i n d u s t r y . A c o m p e t i t i o n h e l d i n 1964 by the A i r F o r c e f o r t h e d e s i g n o f a l a r g e t r a n s p o r t w i t h a l a r g e - d i a m e t e r f u s e l a g e c a p a b l e o f h a n d l i n g o u t s i z e c a r g o had r e s u l t e d i n e x t e n s i v e r e s e a r c h and p r e l i m i n a r y a i r f r a m e de-s i g n s by B o e i n g and Lockheed. I n a d d i t i o n , l a r g e new t u r b o -f a n e n g i n e s w i t h h i g h e r b y p a s s - r a t i o s had been d e v e l o p e d by b o t h G e n e r a l E l e c t r i c and P r a t t and Whitney. These e n g i n e s were the f i r s t t r u l y s i g n i f i c a n t advance i n engine d e s i g n s i n c e t h e l a t e 1950's; they had a l m o s t t w i c e t h e t h r u s t o f the JT3 s e r i e s and p r o m i s e d r e d u c t i o n s i n f u e l consumption o f over twenty p e r c e n t compared t o the e a r l i e r t u r b o f a n s . Lockheed and G e n e r a l E l e c t r i c were s e l e c t e d as major c o n t r a c t o r s i n t h e c o m p e t i t i o n and went on t o produce the C-5A m i l i t a r y t r a n s p o r t , t h e l a r g e s t a i r c r a f t i n the w o r l d . Thus, i n t h e f a l l o f 1965, B o e i n g was l e f t f r e e t o p r e s s ahead w i t h d e s i g n s t u d i e s o f a commercial v e r s i o n o f t h e i r C-5 p r o -p o s a l . T h e i r d e s i g n , d e s i g n a t e d t h e 747, came a l m o s t d i r e c t -l y from the m i l i t a r y s t u d y though t h e company d i d not s e l e c t an e ngine i m m e d i a t e l y . Both R o l l s - R o y c e and P r a t t and 33 Whitney were c o n t e n d e r s b u t the e n g i n e w h i c h was chosen e v e n t u a l l y was the l a t t e r m a n u f a c t u r e r ' s JT9D d e s i g n , an en-g i n e which had been d e v e l o p e d a f t e r the r i g h t s t o t h e i r C-5 34 e n g i n e r e s e a r c h had been p u r c h a s e d from t h e m i l i t a r y . When the 747 p r o j e c t was d i s c u s s e d i n 1966, Pan Amer-i c a n was a t f i r s t t h e o n l y a i r l i n e t o e x p r e s s any i n t e r e s t ; 118 most o t h e r a i r l i n e s f e l t t h a t t h e a i r c r a f t would be too l a r g e f o r the t r a f f i c t h a t was a n t i c i p a t e d f o r 1969-70 when the 74 7 35 would become a v a i l a b l e f o r s c h e d u l e d s e r v i c e . Pan A m e rican f e l t t h a t they needed t h e a i r c r a f t t o c o u n t e r the c o m p e t i t i o n they would f a c e from c a r r i e r s o p e r a t i n g the s e r i e s -60 DC-8 a l t h o u g h i t was becoming c l e a r t h a t t h e a i r l i n e s w h i c h had p u r -chased t h e l a t t e r a i r c r a f t were no l o n g e r i n t e n d i n g t o reduce f a r e s . D u r i n g t h e n e g o t i a t i o n s w h i c h f o l l o w e d the 747 be-came even l a r g e r than f i r s t a n t i c i p a t e d because o f Pan Am-e r i c a n ' s d e s i r e f o r a h i g h - c a p a c i t y a i r c r a f t f o r t h e i r major i n t e r n a t i o n a l r o u t e s . When d e t a i l s o f t h e d e s i g n were f i n a l l y announced i n A p r i l , 196 6 ( s i m u l t a n e o u s l y w i t h the news t h a t Pan American had p l a c e d an o r d e r f o r t w e n t y - f i v e ) i t was r e v e a l e d t h a t the s i z e o f t h e new a i r c r a f t was on t h e o r d e r o f t h a t o f the C-5A, p r o v i d i n g a maximum c a p a c i t y o f 490 p a s s e n g e r s . The 747 was t h u s a l m o s t t w i c e as l a r g e as t h e DC-8-61 w h i c h had made i t s f i r s t t e s t f l i g h t j u s t one month e a r l i e r . Compared t o B o eing's f i r s t j e t t r a n s p o r t , the 707-120, the new a i r -c r a f t was t o be a l m o s t t h r e e times as l a r g e i n terms o f g r o s s t a k e - o f f w e i g h t . I n what resem b l e d a r e n e w a l o f the speed r i v a l r y o f the p i s t o n e r a , B o e i n g were a l s o d e s i g n i n g the 74 7 t o have a s l i g h t l y h i g h e r c r u i s i n g speed than f i r s t - g e n e r a t i o n j e t s and a h i g h e r optimum c r u i s e a l t i t u d e w h i c h would a l l o w i t t o f l y above the crowded a i r w a y s used by t h e 707 and DC-8. I n o r d e r t o a c c o m p l i s h t h i s the 747 had t h i n n e r , more h i g h l y 119 swept w i n g s , a s t r o n g e r f u s e l a g e s k i n and more p r e s s u r i z a t i o n equipment; i t s empty w e i g h t was t h e r e f o r e h i g h e r than would o t h e r w i s e have been r e q u i r e d . I t was p r i m a r i l y the passenger a p p e a l o f the 747's wide-body f u s e l a g e t h a t e v e n t u a l l y f o r c e d most c a r r i e r s t o f o l l o w i n g Pan American's l e a d and o r d e r t h e new a i r c r a f t e a r l i e r t h a n t h e y would have p r e f e r r e d . F o r t h i s r e a s o n , even b e f o r e the p r o j e c t had been o f f i c i a l l y announced t h e r e were doubts e x p r e s s e d about the market l o n g e v i t y o f the l o n g -body DC-8's w h i c h some a i r l i n e o f f i c i a l s c o n s i d e r e d the " P o t -3 6 e n t i a l DC-7's o f the j e t age." Trans W o r l d , the o t h e r major U.S. i n t e r n a t i o n a l c a r r i e r , were second t o o r d e r the 747 and i n t h e f a m i l i a r 'domino' p a t t e r n t h i s meant t h a t t h e o t h e r d o m e s t i c t r u n k s would f o l l o w s i n c e the TWA a i r c r a f t were t o be used i n b o t h d o m e s t i c and i n t e r n a t i o n a l s e r v i c e . W i t h i n a y e a r o f Pan American's i n a u g u r a t i o n o f 747 o p e r a t i o n s i n J a n u a r y 1970, n i n e t r u n k c a r r i e r s had p l a c e d t h e new t r a n s -p o r t i n s e r v i c e . TWA began t r a n s c o n t i n e n t a l s e r v i c e i n Feb-r u a r y , 19 70, and American A i r l i n e s f o l l o w e d a week l a t e r w i t h a i r c r a f t l e a s e d from Pan A m e r i c a n . Due t o the c o m p e t i t i v e p r e s s u r e , even E a s t e r n A i r l i n e s o r d e r e d 747's a l t h o u g h the a i r c r a f t was not i d e a l l y s u i t e d f o r t h e i r s h o r t - h a u l r o u t e system and would have s e a t - m i l e o p e r a t i n g c o s t s o n l y on.par w i t h the c a r r i e r ' s DC-8-61's. The f i r s t y e a r o f 747 o p e r a t i o n s c o n f i r m e d t h e a i r -l i n e s ' a p p r e h e n s i o n o v e r Pan Am's f o r c i n g premature i n t r o d u c -120 t i o n o f the huge a i r c r a f t . D u r i n g 19 70, the average l o a d f a c t o r on 74 7 o p e r a t i o n s i n t r u n k l i n e s e r v i c e was 39.1 per c e n t even though, w i t h - t h e i n s t a l l a t i o n o f on-board lounges and stand-up b a r s , t h e t y p i c a l s e a t i n g c a p a c i t y had been 37 reduced t o 341 p a s s e n g e r s and two years, l a t e r t o 317.. N e v e r t h e l e s s t h e passenger a p p e a l o f the wide-body was w e l l r e c o g n i z e d ; d e s i g n s t u d i e s had been under way f o r o t h e r wide-body t r a n s p o r t s even b e f o r e B o e i n g had u s h e r e d i n the new e r a w i t h the f i r s t f l i g h t o f the 747 i n e a r l y 1969. Douglas was a t work on a d e s i g n s t u d y , d e s i g n a t e d t h e DC-10, t o meet a r e q u i r e m e n t t h a t had been i s s u e d by Am-e r i c a n A i r l i n e s i n A p r i l , 1966. The company had once c o n s i d -3 8 e r e d b u i l d i n g an a i r c r a f t n ear the s i z e o f the 747 b u t i n the l i g h t o f the new s p e c i f i c a t i o n r e v e r t e d t o a s m a l l e r , t w i n - e n g i n e d , medium-range d e s i g n . The DCr'10 g r a d u a l l y e v o l v e d i n t o a somewhat l a r g e r a i r c r a f t than t h i s , w i t h t h r e e e n g i n e s r a t h e r than two. The engine s e l e c t e d was t h e CF-6, a n o t h e r h i g h b y p a s s - r a t i o t u r b o f a n t h a t was a commercial de-r i v a t i v e o f t h e G e n e r a l E l e c t r i c e n g i ne w h i c h powered the C-5A m i l i t a r y t r a n s p o r t . A t about t h i s t i m e , w h i l e d i s c u s s i o n s w i t h the a i r l i n e s c o n t i n u e d , Lockheed r e t u r n e d t o t h e commercial a i r c r a f t market a f t e r a t e n y e a r absence w i t h a competing d e s i g n p r o p o s a l . 3 9 Both d e s i g n s f o l l o w e d a s i m i l a r e v o l u t i o n a r y p a t h and by t h e time d e s i g n s were f i n a l i z e d i n 196 8 the two a i r c r a f t were a l -most i d e n t i c a l , d i f f e r i n g o n l y i n aerodynamic d e t a i l and i n 121 t h e f a c t t h a t the Lockheed p r o p o s a l i n c l u d e d R o l l s - R o y c e t u r b o f a n s . A f t e r l o n g n e g o t i a t i o n s o v e r s a l e s p r i c e s and s e v e r a l d e s i g n r e v i s i o n s , Douglas won t h e f i r s t o r d e r from American A i r l i n e s i n F e b r u a r y , 196 8. E a s t e r n and TWA e l e c t e d t o p u r c h a s e Lockheed's a i r c r a f t , the L.1011, f o r c i n g Douglas t o reduce the p r i c e o f t h e DC-10 i n o r d e r t o o b t a i n U n i t e d ' s o r d e r . A l t h o u g h the L.1011 was a t one s t a g e f u r t h e r ahead i n i t s development than t h e DC-10, Lockheed e n c o u n t e r e d f i n a n c i a l d i f f i c u l t i e s caused i n p a r t by t e c h n i c a l and f i n a n c i a l p r o b -lems a t R o l l s - R o y c e , e n a b l i n g Douglas t o o f f e r e a r l i e r d e l i v -40 . e r i e s . D e l t a A i r l i n e s gave t h e i r major o r d e r t o Lockheed b u t took d e l i v e r y o f some DC-10's b e f o r e they o b t a i n e d t h e L.1011. Most o f the o t h e r t r u n k s p u r c h a s e d the Douglas a i r -c r a f t . The DC-10 e n t e r e d c o m m e r c i a l s e r v i c e (between C h i c a g o and Los A n g e l e s ) i n August, 1971, e i g h t e e n months a f t e r the 74 7 had f i r s t been o p e r a t e d i n s c h e d u l e d s e r v i c e and e i g h t months ahead of t h e appearance o f the L.1011. The c a p a c i t y o f b o t h wide-body t r i j e t s i n t y p i c a l c o n f i g u r a t i o n i s a p p r o x i -m a t e l y 270 p a s s e n g e r s , about 100 p a s s e n g e r s fewer t h a n the 747. T h e i r d e s i g n range a t maximum p a y l o a d (2,100-2,600 m i l e s ) i s much l e s s than t h a t o f the B o e i n g t r a n s p o r t (6,000 m i l e s ) so the DC-10 and L.1011 have a much l o w e r g r o s s t a k e -o f f w e i g h t , about 430,000 pounds compared t o 713,000 pounds f o r the f i r s t 747's. T h e i r c r u i s i n g speeds and c r u i s e a l t i -122 tudes a re m a r g i n a l l y l o w e r than those o f the l a r g e r a i r c r a f t . PART I I : CHANGES IN TECHNICAL EFFICIENCY AND OPERATING COSTS The G e n e r a l T r e nd The changes i n t r a n s p o r t a i r c r a f t and t h e i r t e c h n o l o g y which have t a k e n p l a c e s i n c e t h e i n t r o d u c t i o n o f j e t s i n 1958-59 have been o f an e v o l u t i o n a r y n a t u r e , a t l e a s t u n t i l t h e i n t r o d u c t i o n o f wide-body a i r c r a f t i n 1970. T h i s s i x t e e n y e a r p e r i o d o f development thus had some o f the c h a r a c t e r i s -t i c s o f t h e postwar t e c h n o l o g i c a l p l a t e a u i n the p i s t o n e r a . There were d i f f e r e n c e s , however, i n t h e manner i n wh i c h s t a t e o f the a r t t e c h n o l o g y was a p p l i e d t o a i r c r a f t d e s i g n . U n l i k e the l a t t e r p e r i o d i n wh i c h t h e r e was a s e r i e s o f i n c r e m e n t a l changes t o l o n g - h a u l equipment, t h e 1960's saw the development o f advanced medium-;<and s h o r t - r a n g e a i r c r a f t w h i l e the l o n g -range d e s i g n s remained e s s e n t i a l l y unchanged. F u s e l a g e ' s t r e t c h i n g ' became t h e standard, p r a c t i c e f o r i n c r e a s i n g a i r c r a f t c a p a c i t y j u s t as i t had i n the p i s t o n e r a . There was a l s o a s i m i l a r p a t t e r n i n engine development between the two p e r i o d s because once a g a i n many o f the s u c c e s s f u l a i r -c r a f t s h a r e d the same p o w e r p l a n t ; the P r a t t & Whitney Twin Wasp and W r i g h t C y c l o n e s e r i e s o f p i s t o n e n g i n e s were r e p l a c e d by the JT3C/JT4A and JT8D s e r i e s o f j e t e n g i n e s . 19 70 marked the end o f t h i s t r e n d w i t h the i n t r o d u c t i o n o f new engine de-s i g n s from t h r e e m a n u f a c t u r e r s . 123 The t r e n d i n o p e r a t i n g c o s t s o v e r the 1968-1972 p e r i o d i s n ot so e a s i l y summarized. E x a m i n a t i o n o f c o s t d a t a f o r r e p r e s e n t a t i v e a i r c r a f t , as shown i n F i g u r e 3.1, r e s u l t s i n a r a t h e r c o n f u s e d p i c t u r e o f the e f f e c t s of d e s i g n changes and does l i t t l e t o e x p l a i n t h e p a t t e r n o f t r u n k c a r r i e r a c q u i s i -t i o n s o v e r the p e r i o d . F o r example, th e B o e i n g 727-100, w h i c h was o p e r a t e d i n l a r g e numbers by most o f the t r u n k s had o p e r a t i n g c o s t s s i g n i f i c a n t l y h i g h e r t h a n t h o s e o f o t h e r d e s i g n s . The DC-8-61, wh i c h was not a g r e a t commercial s u c -41 cess i n the U.S., had v e r y low s e a t - m i l e c o s t s . O b v i o u s l y s e a t - m i l e o p e r a t i n g expenses a l o n e are a poor p r e d i c t o r o f the r e l a t i v e s u c c e s s o r f a i l u r e o f a d e s i g n d u r i n g t h i s p e r i o d . Two f a c t o r s i n a d d i t i o n o f s e a t - m i l e c o s t s w h i c h must be c o n s i d e r e d i n an e v a l u a t i o n o f economic c h a r a c t e r i s t i c s a r e a i r c r a f t - m i l e c o s t s and v e r s a t i l i t y . Both o f t h e s e bear a d i r e c t r e l a t i o n t o t h e f o r m e r b u t i n v o l v e the f u r t h e r c o n s i d -e r a t i o n s o f r o u t e d e n s i t y and v a r i a t i o n o f s t a g e l e n g t h . T h e i r e f f e c t s were i g n o r e d i n t h e e a r l i e r e x a m i n a t i o n o f a i r -c r a f t t e c h n o l o g y because i t was c l e a r t h a t i n t h e e a r l y p e r i o d the h i g h - d e n s i t y , l o n g - h a u l o p e r a t i o n s o f the ' B i g Four' dom-i n a t e d t h e e v o l u t i o n a r y p r o c e s s o f i n n o v a t i o n . T h i s was no l o n g e r t r u e i n t h e j e t e r a s i n c e t h e d i f f e r e n c e s i n the l e v e l o f passenger c o m f o r t and c r u i s i n g speed o f f e r e d by l o n g - h a u l and s h o r t - h a u l a i r c r a f t d i s a p p e a r e d . B o e i n g , f o r example, b u i l t a v a r i e t y o f a i r c r a f t a l l o f which s h a r e d the same c a b i n i n t e r i o r and s e a t i n g l a y o u t . C r u i s i n g speed c h a r a c t e r i s t i c s 124 Figure 3.1 Seat-Mile Cost Range of Selected Jet A i r c r a f t , 1967-' Source:Civil Aeronautics Board, A i r c r a f t Operating Cost  and Performance Report,Vol.Ill (August 1969);Vol.V (July 1971);Vol.VI (July 1973). 125 o f a l l j e t a i r c r a f t were v e r y s i m i l a r so t h a t average speed was p r i m a r i l y dependent on s t a g e l e n g t h . O p e r a t i o n a l con-s i d e r a t i o n s such as s t a g e l e n g t h and r o u t e d e n s i t y t h u s s u r -f a c e d as i m p o r t a n t f a c t o r s i n a i r c r a f t c h o i c e . T h i s meant t h a t v e r s a t i l i t y and a i r c r a f t - m i l e c o s t s became j u s t as im-p o r t a n t as s e a t - m i l e expenses. Compromise a i r c r a f t such as t h e 727, whose c a p a c i t y and a i r c r a f t - m i l e c o s t s might be midway between tho s e o f t h e s h o r t - h a u l DC-9 and l o n g - h a u l DC-8, can i n t h e s e c i r c u m -s t a n c e s become t h e most a t t r a c t i v e d e s i g n . The s e a t - m i l e c o s t s o f t h e medium-range j e t may be h i g h e r t h a n t h o s e o f the DC-9 on s h o r t - h a u l o p e r a t i o n s and h i g h e r t h a n t h o s e o f the DC-8 ( e s p e c i a l l y t h e DC-8-61) on l o n g - h a u l s , b u t i n the c o s t comparison d e p i c t e d i n F i g u r e 3.2 the 727 may s t i l l be more economic o v e r a l l . T h i s i s because the c o s t s o f the 72 7 r e -main c l o s e t o those o f t h e two s p e c i a l i z e d d e s i g n s o v e r a v a r i e t y o f s t a g e l e n g t h s even though i t i s c o n s i s t e n t l y s e c -ond-best at&any p a r t i c u l a r s t a g e l e n g t h . The v e r s a t i l i t y o f t h e 727 may e n a b l e an a i r l i n e t o o p e r a t e a s i n g l e t y p e o v e r a v a r i e t y o f r o u t e s w h i c h would o t h e r w i s e r e q u i r e t h e use o f b o t h t h e DC-9 and DC^-8. T h i s opens p o s s i b i l i t i e s f o r r e d u c -i n g t o t a l c a p i t a l i n v e s t m e n t , i n c r e a s i n g u t i l i z a t i o n r a t e s , s i m p l i f y i n g s c h e d u l i n g and r e d u c i n g maintenance expenses. 126 SfcAT K ILE COST DC-3-30 727-I0O 0C-8-6I STAGE LBM&Trt F i g u r e 3.2 Cost S t r u c t u r e o f V e r s a t i l e and S p e c i a l i z e d  A i r c r a f t - The DC-9-30, w i t h l o w e r f u e l consumption, crew c o s t s , and c a p i t a l expenses, i s cheaper t o o p e r a t e on s h o r t h a u l s t h a n the 727-100. The DC-8-61 i s cheaper t o o p e r a t e than the 72 7 on l o n g h a u l s but not on s h o r t h a u l s where i t s f u e l consumption and ground s e r v i c i n g expenses are h i g h e r . However, the 72 7, though i t has h i g h e r c o s t s t h a n e i t h e r the DC-9 o r DC-8 a t any p a r t i c u l a r s t a g e l e n g t h , may be more economic o v e r a l l when a range o f d i f f e r e n t s t a g e l e n g t h s must be o p e r a t e d . On s h o r t h a u l s i t s c o s t s a r e n o t much h i g h e r than those o f t h e DC-9, and i t i s c o m p e t i t i v e w i t h t he DC-8 on l o n g h a u l s where the DC-9 s u f f e r s from a range l i m i t a t i o n . 127 The same s i t u a t i o n a r i s e s i n comparing t h e DC-10 w i t h the 747. The l a t t e r a i r c r a f t c o u l d be e x p e c t e d t o have l o w e r s e a t - m i l e c o s t s on l o n g - h a u l r o u t e s such as those i n the t r a n s c o n t i n e n t a l market, b u t the s m a l l e r DC-10 i s more adapt-43 a b l e t o o p e r a t i o n on s h o r t - and medium-rhauls t h a n the 747. The i n t e r d e p e n d e n t c o n s i d e r a t i o n s o f r o u t e d e n s i t y and depar-t u r e f r e q u e n c y may f a v o u r the s m a l l e r a i r c r a f t such as the DC-10 i n s p i t e o f the f a c t t h a t i t s s e a t - m i l e c o s t s may be somewhat h i g h e r . T h i s can e a s i l y be i l l u s t r a t e d by r e f e r e n c e t o a s t a n -44 da r d a i r l i n e i n d u s t r y c o n c e p t , break-even l o a d f a c t o r . I f . th e break-even l o a d f a c t o r were t h e same, say 45 p e r c e n t , on a g i v e n r o u t e f o r b o t h the DC-10 and 747, t h e a i r l i n e would r e ^ q u i r e an average o f 122 passengers p e r f l i g h t on the former and 16 8 passengers on t h e l a t t e r i n o r d e r t o o p e r a t e w i t h o u t i n c u r r i n g l o s s e s . I f a t the same time the c a r r i e r c o u l d r e a -s o n a b l y e x p e c t say 360 pa s s e n g e r s p e r day i n t h e market, the demand would w a r r a n t t h r e e f l i g h t s d a i l y w i t h the DC-10 o r two w i t h t h e 747. Gi v e n t h e c h a r a c t e r i s t i c s o f the t r u n k c a r r i e r i n d u s t r y , t h e r e would be a n a t u r a l tendency t o use the s m a l l e r 128 a i r c r a f t s i n c e s e r v i c e f r e q u e n c y i s an i m p o r t a n t b a s i s o f com-p e t i t i o n between the a i r l i n e s . An a d d i t i o n a l d a i l y f l i g h t i s d e s i r a b l e because i t may a t t r a c t a l a r g e r number of p a s s e n -gers and a l l o w the c a r r i e r t o become more f i r m l y e s t a b l i s h e d . . i n the market. The i m p o r t a n c e o f such c o n s i d e r a t i o n s de-t r a c t s from th e u s e f u l n e s s o f s e a t - m i l e c o s t s as a unique parameter by which t o rank t e c h n o l o g i c a l q u a l i t y . Comparison o f P r e d i c t e d and A c t u a l R e l a t i v e ^ C o s t s i ) F l y i n g P e r s o n n e l F l y i n g p e r s o n n e l expenses p e r s e a t - m i l e r e f l e c t many f a c t o r s u n r e l a t e d t o t e c h n o l o g i c a l c h a r a c t e r i s t i c s . Thus, t o a l l o w a c o n s i s t e n t comparison o f v a r i o u s j e t t r a n s p o r t s , the same p r o d u c t i v i t y c a l c u l a t i o n used i n C h a p t e r s I and I I i s a p p l i e d h e r e . The r e s u l t s appear i n T a b l e 3.1 i n terms o f e x p e c t e d s e a t - m i l e c o s t r e l a t i o n s h i p s where the 707/DC-8 and 727-100 are used as base a i r c r a f t f o r l o n g - r a n g e and s h o r t -range d e s i g n s r e s p e c t i v e l y . Long-range a i r c r a f t a r e assumed t o have a f l i g h t crew o f t h r e e and g e n e r a l l y one c a b i n a t t e n d -ant f o r e v e r y t h i r t y p a s s e n g e r s . S i n c e no a c c o u n t i s t a k e n o f s l i g h t d i f f e r e n c e s i n c r u i s i n g speeds, d i f f e r e n c e s i n c o s t a r i s e s o l e l y from the d i l u t i o n o f f l i g h t crew expenses as c a p a c i t y i s i n c r e a s e d . The DC-8-61 i s p r e d i c t e d t o have f l y i n g p e r s o n n e l expenses per s e a t m i l e twenty-two p e r c e n t below those o f the s t a n d a r d DC-8/707. The h i g h c a p a c i t y wide—body a i r c r a f t are 129 TABLE 3.1 PREDICTED RELATIVE SEAT-MILE  FLYING PERSONNEL EXPENSE FOR JET AIRCRAFT - Predicted Relative Relative Crew 2 Relative Seat-Mile A i r c r a f t Requirement Capacity Capacity Expense Base A i r c r a f t : 707/DC-8 707-100) 135 1.0 DC-8-50) 1 1 707-300 1.07 147 1.09 0.99 DC-8-61 1.13 195 1.44 0.78 DC-10 A-ion 1.26 270 2.00 0.63 747 1.46 374 2.77 0.53 720 0.93 115 0.85 1.09 727-100 0.93 98 0.73 1.27 727-200 1.00 135 1.0 1.0 Base A i r c r a f t : 727-100 727-200 1.07 135 1.38 0.78 DC-9-10 0.75 68 0.74 1.01 DC-9-30 0.82 92 0.94 0.87 737-2001 1.00 95 . 0.97 1.03 Assumes Three Man F l i g h t Crew See Appendix B p r e d i c t e d t o have c o s t s r e d u c e d by g r e a t e r amounts; by t h i r t y -seven p e r c e n t f o r the DC-10 and L.1011 and by f o r t y - s e v e n p e r c e n t f o r the 747. O p e r a t i n g o v e r t h e same r o u t e , t h e 727-200 would be e x p e c t e d t o have the same crew expenses as th e o r i g i n a l f o u r - e n g i n e d j e t s w h i l e t h e 727-100 c o s t s would be about twenty-seven p e r c e n t h i g h e r p e r s e a t m i l e . R e f l e c t -i n g t h e s a v i n g s a c h i e v e d by the e l i m i n a t i o n o f t h e f l i g h t e n g i n e e r , the DC-9-30 and 737-200 a r e p r e d i c t e d t o have crew c o s t s t h i r t e e n t o f i f t e e n p e r c e n t l o w e r than t h e 727-100. The s m a l l e r v e r s i o n s o f t h e s e a i r c r a f t would have t h e same expenses p e r s e a t m i l e as the 727-100 w h i l e t h e 737-200 oper-a t e d w i t h a t h i r d crew member would be more e x p e n s i v e . T able 3.2 compares t h e s e p r e d i c t i o n s w i t h the a c t u a l c o s t r e l a t i o n s h i p s f o r a i r c r a f t o p e r a t e d by the ' B i g F o u r ' . Even w i t h d a t a averaged o v e r the p e r i o d 1967-72, t h e r e r e -mains c o n s i d e r a b l e v a r i a t i o n i n t h e r e l a t i v e c o s t r e l a t i o n s h i p s o f p a r t i c u l a r a i r c r a f t among d i f f e r e n t c a r r i e r s . A l t h o u g h t h e p r o d u c t i v i t y c a l c u l a t i o n p r o v i d e d a c c e p t a b l e r e s u l t s i n most c a s e s , t h e r e l a t i v e h o u r l y expenses o f wide^-body a i r c r a f t were o v e r e s t i m a t e d . T h i s can be p a r t i a l l y e x p l a i n e d by the v e r y low s e a t i n g d e n s i t i e s o f t h e s e a i r c r a f t i n t r u n k l i n e s e r v i c e w h i c h r e s u l t e d i n l o w e r than p r e d i c t e d c a b i n crew expenses. The above comparison i s on t h e b a s i s o f c o s t p e r s e a t -hour and i s v a l i d o n l y when average speeds a r e e q u a l . F o r a more r e a l i s t i c assessment o f u n i t c o s t r e l a t i o n s h i p s under a c t u a l o p e r a t i n g c o n d i t i o n s , the e f f e c t o f s t a g e l e n g t h on 131 TABLE 3.2 COMPARISON OF ACTUAL AND PREDICTED  RELATIVE HOURLY FLYING  PERSONNEL EXPENSE OF JET AIRCRAFT Predicted Long Expensel 2 Average of Relative Haul Relative to Hourly Expense A i r c r a f t DC-8/707 American I Eastern Trans World United DC-8-61 1.13 1.19 _ . 1.05 720/720B 0.93 0.99 0.91 - •' 1.02 727-100 0.93 0.95 0.90 0.89 0.92 DC-10/L.1011 1.26 1.07 1.02 1.25 1.20 747 1.46 1.30 — 1.36 1.41 Short-Medium Predicted Ex-Haul pense Relative A i r c r a f t to 727-100 727-200 1.07 0.95 0.88 0.97 1.02 DC-9-10 0.75 - 0.74 0.86 -DC-9-3D 0.82 - 0.91 - — 737-2003 1.00 - - - 1.00 DC-10 A. 1011 1.35 1.16 1.25 . 1.41 1.33 "Based on Table 3.1, Relative Crew Requirement 'Based on Simple Average of Hourly Expense Ratios f o r those years i n which a i r c r a f t was operated between 1967 and 1972 ^Assumes three man f l i g h t crew 132 average b l o c k speeds must be t a k e n i n t o a c c o u n t . As shown i n F i g u r e 3.3, average speed i n c r e a s e s w i t h r o u t e d i s t a n c e . A i r c r a f t p r o d u c t i v i t y and s e a t - m i l e c o s t s a r e thus dependent on s t a g e l e n g t h as w e l l as a i r c r a f t t y p e . T a b l e 3.3 g i v e s h i s t o r i c a l c o s t d a t a f o r r e p r e s e n t a -t i v e a i r c r a f t i n b l o c k hour, a i r c r a f t - m i l e , and s e a t - m i l e t e rms. R e f l e c t i n g t h e e f f e c t o f a s h o r t e r average s t a g e l e n g t h , s e a t - m i l e c o s t s o f t h e 720B were al m o s t t w e n t y - f i v e p e r c e n t above t h o s e of t h e DC-8 and 707 whereas a d i f f e r e n c e o f n i n e p e r c e n t was p r e d i c t e d on t h e b a s i s o f e q u a l b l o c k speeds. O p e r a t i n g on s h o r t e r s t a g e l e n g t h s , the 727-100 had. s e a t - m i l e c o s t s f i f t y - s i x p e r c e n t h i g h e r than t h o s e o f the l o n g-range j e t s w h i l e the p r e d i c t i o n based on i d e n t i c a l op-e r a t i n g c o n d i t i o n s was f o r an i n c r e a s e o f t w enty-seven per c e n t . S h o r t - h a u l a i r c r a f t (737 and DC-9) i n t u r n had u n i t c o s t s s i g n i f i c a n t l y h i g h e r t h a n the 727-100 a l t h o u g h the p r o d -u c t i v i t y c a l c u l a t i o n i n d i c a t e d t h a t t h e i r c o s t s would be low-e r . i i ) C a p i t a l Average a i r b o r n e speed a t a g i v e n s t a g e l e n g t h w i l l be a l m o s t t h e same f o r a l l j e t a i r c r a f t so i t i s p o s s i b l e t o ex-amine t e c h n i c a l e f f i c i e n c y i n the use o f c a p i t a l s i m p l y by r e l a t i n g o r i g i n a l c o s t t o s e a t i n g c a p a c i t y . T a b l e 3.4 p r o v i d e s the r e l e v a n t d a t a based on m i x e d - c l a s s c o n f i g u r a t i o n s . ^ I n r e c o g n i t i o n o f the i n f l u e n c e o f d e s i g n stage l e n g t h on the (miues P E R HOUR) 5t>0 F i g u r e 3.3 Average Speed Ve r s u s Stage Length 400 3oo Z O O Source: Average schedule time f o r selected nonstop f l i g h t s , O f f i c i a l A i r l i n e Guide, North American E d i t i o n , (January 1972). 500 IOOO I50O Eooo N O N S T O P P I S T A N C C (.ntt.es) 1 3 4 TABLE 3.3 FLYING PERSONNEL EXPENSES OF JET AIRCRAFT PER HOUR, AIRCRAFT-MILE, AND SEAT-MILE A i r c r a f t C a r r i e r Year Average Stage Length Crew Expense Per Block Hour Crew Expense Block Per A i r -speed c r a f t Mile Crew Expense Per Seat-M i l e * (miles) (dollars) (mph) (cents) (cents) 7 0 7 - 1 0 0 B American r l 9 7 0 1 1 9 7 1 1 , 0 4 5 9 6 1 1 8 8 1 9 3 4 2 0 4 1 6 4 4 . 8 4 6 . 4 0 . 3 3 0 . 3 4 DC-8-50 United r l 9 7 0 ^ 1 9 7 1 1 , 5 9 2 1 , 4 1 6 1 9 0 204 4 5 5 4 3 8 4 1 . 7 4 6 . 6 0 . 3 1 0 . 3 5 7 2 0 B American r l 9 7 0 1 1 9 7 1 8 6 1 8 8 8 1 8 5 1 9 5 4 1 0 4 1 2 4 5 . 1 4 7 . 3 0 . 3 9 0 . 4 1 7 2 0 United r l 9 7 0 l 1 9 7 1 1 , 0 2 7 1 , 0 0 8 1 8 8 206 4 1 3 4 1 3 4 5 . 5 4 9 . 9 0 . 4 0 0 . 4 3 7 2 7 - 1 0 0 American r l 9 7 0 1 1 9 7 1 5 5 9 5 2 8 1 7 2 1 8 4 356 3 5 8 4 8 . 3 5 1 . 4 0 . 4 9 0 . 5 2 7 2 7 - 1 0 0 United r l 9 7 0 l 1 9 7 1 6 2 1 7 1 0 1 7 3 1 9 2 3 8 2 3 9 5 4 5 . 3 4 8 . 6 0 . 4 6 0 . 5 0 DC -9-10 Trans World" r l 9 7 0 l 1 9 7 1 3 3 9 3 5 8 1 4 0 1 6 7 3 0 3 326 4 6 . 2 5 1 . 2 0 . 6 8 0 . 7 5 7 3 7 - 2 0 0 United r l 9 7 0 l 1 9 7 1 2 4 0 2 9 1 1 8 3 2 1 2 2 6 8 2 9 0 6 8 . 3 7 3 . 1 0 . 7 2 0 . 7 7 * Based on standard capacities given i n Table 3 . 1 Source: C i v i l Aeronautics Board, A i r c r a f t Operating Cost and  Performance Report, V o l . 6 (July 1 9 7 2 ) . 135 TABLE 3.4 ORIGINAL COST PER SEAT FOR JET AIRCRAFT 1 (1968-74) 196 8 LONG HAUL AIRCRAFT O r i g i n a l C o s t / A i r c r a f t C a p a c i t y S e a t ($U.S.) 707-320B 147 52,380 720B 115 • 57,390 DC-8-61 195 42,560 DC-8-63 195 44,870 SHORT-MEDIUM HAUL AIRCRAFT . O r i g i n a l C o s t / A i r c r a f t C a p a c i t y S e a t ($U.S.) 727-100 98 56,120 . 727-200 135 45,200 737-100 72 51,390 737-200 95 43,160 1969 LONG HAUL: WIDE-BODY AND CONVENTIONAL O r i g i n a l C o s t / A i r c r a f t C a p a c i t y S e a t ($U.S.) DC-8-63 195. 45,000 747 394 52,140 LONG HAUL AIRCRAFT O r i g i n a l C o s t / A i r c r a f t C a p a c i t y S e a t ($U.S.) 707-320B 147 72,450 DC-10 270 74,070 L.1011 270 74,070 747 374 69,520 SHORT-MEDIUM HAUL AIRCRAFT O r i g i n a l C o s t / A i r c r a f t C a p a c i t y Seat ($U.S.) 727-200 135 59,260-62,220 DC-9-30 92 56,520 737-200 95 57,900-63,160 ^ C u r r e n t D o l l a r s , No a l l o w a n c e f o r s p a r e s . Source: " A i r l i n e r P r i c e Index", F l i g h t I n t e r n a t i o n a l , ( J a n u a r y 3, 1974) p.7; (June 14, 1973) p.917 and s e l e c t ed d a t a from A v i a t i o n . W e e k . 136 n a t u r e of the compromises made i n p r o d u c i n g an a i r c r a f t d e s i g n , however, comparison s h o u l d not. be made d i r e c t l y between s h o r t -h a u l and l o n g - h a u l a i r c r a f t . The d a t a i n p a r t (a) o f t h e t a b l e r e v e a l t h a t the ' s t r e t c h e d ' DC-8-61 had average c a p i t a l p r o d u c t i v i t y twenty p e r c e n t h i g h e r t h a n t h a t o f t h e s t a n d a r d 707-320B lo n g - r a n g e a i r c r a f t . The medium-range 720B had t h e h i g h e s t o r i g i n a l c o s t p e r s e a t , a p p a r e n t l y because i t had t h e same c o n f i g u r a -t i o n and equipment as t h e 707 b u t l e s s c a p a c i t y . S u r p r i s i n g -l y , the 727-100 t r i j e t c o s t about t h e same p e r s e a t as the 72OB; the r e d u c t i o n i n the number o f e n g i n e s was not r e f l e c t e d i n a s a v i n g s i n c a p i t a l . The ' s t r e t c h e d ' 727-200 was, how-e v e r , s u p e r i o r t o b o t h o f the above. Both 727's were l o w e r i n terms o f t e c h n i c a l e f f i c i e n c y f o r c a p i t a l than c o r r e s p o n d -i n g v e r s i o n s o f the 737. T h i s r e v e a l s . a t r a d e - o f f n e c e s s a r y t o a c h i e v e g r e a t e r v e r s a t i l i t y {((i .e . a c c e p t a b l e s h o r t and medium range p e r f o r m a n c e ) . F u s e l a g e ' s t r e t c h i n g ' p r o v i d e d an i n c r e a s e i n average c a p i t a l p r o d u c t i v i t y o f n i n e t e e n and f i f t e e n p e r c e n t f o r the 727 and 7 37 r e s p e c t i v e l y . I n b o t h cases t h e l a r g e r c a p a c i t y v e r s i o n used t h e same wi n g , e n g i n e s , a v i o n i c s , and f u s e l a g e s t r u c t u r e as the s t a n d a r d model so the improvement i n t e c h n i -c a l e f f i c i e n c y was n e a r l y p r o p o r t i o n a l t o the c a p a c i t y i n c r e a s e . A l t h o u g h 5 ' t h e r e was some v a r i a t i o n i n the p u b l i s h e d s a l e s p r i c e , a n o t h e r ' s t r e t c h e d ' t r a n s p o r t , the DC-8-6 3, appeared t o be s u p e r i o r t o t h e wide-rbody 747 i n terms o f c a p i t a l r e q u i r e m e n t s p e r s e a t . The comparison i s perhaps u n f a i r , however, because the 747 i s c o n s i d e r a b l y more s p a c i o u s than t h e n a r r o w - b o d i e d DC-8 a t t h e assumed c a p a c i t i e s . Of a l l t h e l o n g - r a n g e t r a n s p o r t s t h a t were i n produc-t i o n i n 19 74 the 74 7 was l o w e s t i n terms o f i n i t i a l c o s t p e r s e a t based on t y p i c a l c a p a c i t i e s . The more v e r s a t i l e w i de-body t r i j e t s were s l i g h t l y h i g h e r than t h e 74 7 and about e q u a l t o t h e n a r r o w - b o d i e d 70 7-32OB,. The 727-200 was a l m o s t twenty p e r c e n t cheaper i n terms o f u n i t c a p i t a l r e q u i r e m e n t s than the DC-10 and L.1011 w i t h w h i c h i t i s c o m p e t i t i v e f o r medium l e n g t h s o f h a u l . I t i s e v i d e n t t h a t t h e i n c r e a s e d s p a c i o u s n e s s o f the wide body a i r c r a f t (an a s p e c t o f ' q u a l -i t y ' ) was not a c c o m p l i s h e d w i t h o u t c o s t . I t must be n o t ed t h a t t h e s e d a t a cannot be i n t e r p r e t e d as a d i r e c t r e f l e c t i o n o f t e c h n o l o g i c a l c h a r a c t e r i s t i c s . The f a c t t h a t the 707-320B was h i g h e r t h a n t h e 747 i n o r i g i n a l c o s t p e r s e a t , f o r example, may be more a r e f l e c t i o n o f d i s -c r i m i n a t o r y p r i c i n g t h a n o f t e c h n o l o g y . T h i s i s because p r o d u c t i o n o f DC-8 ended i n 1972, a l l o w i n g B o e i n g c o n s i d e r a b l e l a t i t u d e i n f i x i n g the p r i c e o f t h e 707. I t was t h e o n l y a i r c r a f t o f i t s type s t i l l i n p r o d u c t i o n and any a i r l i n e r e -q u i r i n g l o n g range b u t n o t l a r g e c a p a c i t y had no a l t e r n a t i v e . S i m i l a r l y , i t i s no c o i n c i d e n c e t h a t t h e d i r e c t l y c o m p e t i t i v e DC-10 and L.1011 a r e i d e n t i c a l l y p r i c e d . The p r i c e o f t h e 727 as w e l l does not r e f l e c t d e s i g n f a c t o r s a l o n e . Because o f the l o n g p r o d u c t i o n r u n o f t h i s a i r c r a f t , i t s manufacture 138 i n g c o s t s would be e x p e c t e d t o have dropped r e l a t i v e t o o t h e r a i r c r a f t as a r e s u l t o f l e a r n i n g - c u r v e phenomenon and p o s s i -b l e s c a l e economies. I t i s l i k e l y , however, t h a t t h e 72 7 s a l e s p r i c e has been d e t e r m i n e d i n r e l a t i o n t o the c a p i t a l i z e d v a l u e o f t h e d i f f e r e n c e between i t s n o n c a p i t a l o p e r a t i n g c o s t s and those o f t h e c o m p e t i t i v e wide-body t r i j e t s . i i i ) M aintenance Maintenance c o s t s p e r b l o c k hour f o r a g i v e n a i r c r a f t v a r y c o n s i d e r a b l y b o t h y e a r - t o - y e a r and among d i f f e r e n t c a r -r i e r s i n any p a r t i c u l a r y e a r . S e v e r a l f a c t o r s e x p l a i n t h i s : d i f f e r e n c e s i n a i r c r a f t age, m o d i f i c a t i o n s t a t e , and o p e r a t -i n g c o n d i t i o n s , and d i f f e r e n c e s i n wage r a t e s and management e f f i c i e n c y a r e some o f the more o b v i o u s ones. There i s a l s o a s t r o n g dynamic component s i n c e e n g i n e maintenance r e q u i r e -ments u s u a l l y d e c r e a s e o v e r time as o v e r h a u l i n t e r v a l s a r e i n -c r e a s e d w h i l e a i r f r a m e maintenance r e q u i r e m e n t s depend t o an e x t e n t on a i r f r a m e age. D i r e c t maintenance expense d a t a f o r a i r c r a f t o f U n i t e d A i r l i n e s e x h i b i t t h i s phenomenon as shown i n Appendix C. A l t h o u g h , t h e r e was c o n s i d e r a b l e y e a r t o y e a r f l u c t u a t i o n s based on two t h r e e - y e a r averages, (1967-69 and 1970-72), a i r f r a m e maintenance expense p e r b l o c k hour i n c r e a s -ed f o r t e n a i r c r a f t t y p e s o u t o f e l e v e n w h i l e e n gine mainten-ance d e c r e a s e d f o r n i n e t y p e s o v e r the same p e r i o d . I n o r d e r t o a l l o w a comparison o f v a r i o u s a i r c r a f t , U n i t e d A i r l i n e s ; d a t a were c o n v e r t e d i n t o an expense p e r a v a i l -a b l e s e a t p e r b l o c k hour u s i n g t h e c a p a c i t i e s from T a b l e 3.1. Data f o r a i r c r a f t not o p e r a t e d by U n i t e d were t a k e n from o t h e r ' B i g Four' t r u n k s . The r e s u l t s , g i v e n i n Ta b l e 3.5, show.that even on t h e b a s i s o f t h r e e - y e a r averages t h e r e r e -mains c o n s i d e r a b l e u n e x p l a i n e d v a r i a t i o n w h i c h r e s t r i c t s t he u s e f u l n e s s o f t h e d a t a f o r g e n e r a l o b s e r v a t i o n s . A c o n s i s t e n t f e a t u r e o f t h e d a t a i s t h e lower m a i n t e n -ance expense p e r s e a t o f ' s t r e t c h e d ' a i r c r a f t r e l a t i v e t o s t a n d a r d v e r s i o n s o f t h e same type.. Data f o r the DC-8, 727, and DC-9 r e v e a l t h a t t h e r e were no s i g n i f i c a n t i n c r e a s e s i n maintenance r e q u i r e m e n t s i n a b s o l u t e terms a s s o c i a t e d w i t h the i n c r e a s e i n c a p a c i t y . I t i s a l s o e v i d e n t t h a t t u r b o f a n v e r s i o n s o f the e a r l y f o u r - e n g i n e d j e t s were t h e same i n a i r -frame maintenance as the t u r b o j e t v e r s i o n s b u t were g e n e r a l l y lower i n engine maintenance c o s t s . The t h r e e a i r c r a f t t h a t d i d not a t t a i n g r e a t p o p u l a r i t y w i t h t h e t r u n k s , the CV-990, BAC-111, and C a r a v e l l e had h i g h e r maintenance c o s t s t h a n any o t h e r a i r c r a f t . A l t h o u g h i t i s not p o s s i b l e t o dete r m i n e whether t h i s a s s o c i a t i o n r e f l e c t s c a u s a l i t y , a l l t h r e e were r e - s o l d o r r e t i r e d from s e r v i c e d u r i n g t h e p e r i o d c o v e r e d by the d a t a . D i f f e r e n c e s i n t h e c o n d i t i o n s under w h i c h the. v a r i o u s . a i r c r a f t were o p e r a t e d have v e r y i m p o r t a n t e f f e c t s on ma i n t e n -ance c o s t s p e r s e a t m i l e . Not a l l maintenance i s d i r e c t l y de-pendent on f l i g h t t i me a l o n e ; some expenses a r e a f f e c t e d by the number o f l a n d i n g and t a k e - o f f c y c l e s p e r f o r m e d w i t h the TABLE 3.5 140 DIRECT MAINTENANCE COSTS  PER SEAT-HOUR FOR  JET AIRCRAFT (1967-72) A i r Frame Maintenance . Engine Maintenance A i r c r a f t C a r r i e r Avg. 1967-69 Avg. Avg. 1970-72 1967-69 Avg. 1970-72 DC-8-10 United 41.1 - 32.2 -DC-8-20 United 39.1 45.0 42.9 28.4 DC-8-30 United 38.0 44.8 40.5 28.4 DC-8-50 United 39.1 45.3 32.4 20.9 DC-8-61 United 26.0 31.1 19.3 14.5 707-100B American 41.6 37.6 26.1 28.9 720 United 58.7 43.3 48.6 26.0 72 OB American 54.8 61.7 31.1 39.5 CV990 American 113.8 - 182.0 -727-100 United 47.4 53.2 51.7 34.4 American 47.8 53.4 50.9 39.9 727-200 United 32.7 37.5 31.8 23.9 American 24.7 33.6 13.0 29.4 BAC-111 American 95.1 86.6 64.5 53.7 DC-9-10 Trans World 71.7 72.3 38.0 50.0 Eastern 50.3 51.3 43.7 49.3 DC-9-30 Eastern 38.4 45.5 25.6 35.4 737 United 42.6 49.5 26.8 22.5 Caravelle United 84.6 97.0 51.3 62.4 747 United - 32.0 - 34.6 American - 41.0 - 39.2 DC-10 United - 34.3 - 29.2 American - 29.0 - 10.0 L.1011 Eastern - 52.4 17.8 Trans World - 38.0 76.3 Source: C i v i l Aeronautics Board, A i r c r a f t Operating Cost and Performance Report, V o l . I I I . (August 1969); V o l . V (August 1971) and V o l . VII (July 1973) . 141 a i r c r a f t and thus maintenance r e q u i r e m e n t s a r e g r e a t e r on s h o r t - h a u l o p e r a t i o n s . The more o b v i o u s e f f e c t o f s t a g e l e n g t h d e r i v e s from the d i r e c t i n f l u e n c e on b l o c k speed d i s -c u s s e d i n t h e e x a m i n a t i o n o f crew c o s t s . T a b l e 3.6 shows t h a t s m a l l d i f f e r e n c e s i n maintenance c o s t s p e r s e a t - h o u r are t r a n s f o r m e d by v a r i a t i o n s i n average b l o c k speed t o a d i f f e r e n c e of a l m o s t s e v e n t y - f i v e p e r c e n t i n t h e s e a t m i l e expense o f t h e s h o r t - h a u l and l o n g - h a u l j e t s o p e r a t e d by U n i t -ed A i r l i n e s . i i i ) F u e l Consumption T a b l e 3.7 g i v e s d a t a f o r f u e l consumption p e r , a i r -c r a f t - m i l e o v e r a range o f average s t a g e l e n g t h s . I n T a b l e 3.8 th e s e d a t a ( e x t r a c t e d from c u r v e s c o n s t r u c t e d from a v e r -age performance r e p o r t e d each y e a r by a l l the t r u n k s ) have been c o n v e r t e d i n t o s e a t - m i l e s p e r U.S. g a l l o n . The r e s u l t s a r e r e a l i s t i c i n t h a t they r e f l e c t t h e e f f e c t s o f a i r p o r t con-g e s t i o n and non-optimum c r u i s e p r o c e d u r e s t y p i c a l o f the t r u e o p e r a t i n g environment. However, s i n c e the f u e l consumption-s t a g e l e n g t h c u r v e i s n o n l i n e a r , i t must be emphasized t h a t t h e d a t a r e p r e s e n t average performance when an a i r c r a f t i s o p e r a t e d o v e r a v a r i e t y o f r o u t e s h a v i n g the average s t a g e l e n g t h g i v e n i n the t a b u l a t i o n . T u r b o f a n e n g i n e s r e d u c e d t h e f u e l consumption o f the DC-8 and 70 7 by a p p r o x i m a t e l y 1.0-1.2 g a l l o n s p e r m i l e on medium h a u l s and by 0.7-0.8 g a l l o n s p e r m i l e on l o n g h a u l s 142 TABLE 3.6 SEAT-MILE MAINTENANCE EXPENSES OF  UNITED AIRLINES JET  AIRCRAFT (1971-72) Maintenance Expense Average Maintenance Per Seat- Block Expense A i r c r a f t Hour {<?) Speed (mph) /ASM «Q DC-8-50 66.2 446 0.148 720 69.7 413 .0.169 727-100 87.6 390 0.224 737-200 72.0 280 0.257 Source: C i v i l Aeronautics Board, Performance Report, Vol. A i r c r a f t Operating Cost and VII (July 1973). TABLE 3.7 FUEL CONSUMPTION PER MILE FOR JET AIRCRAFT (U.S. g a l l o n s / s t a t u t e m i l e ) Source: C i v i l Aeronautics Board, A i r - c r a f t Operating Cost & Performance Report, V o l . I l l Average Stage Length ( m i l e s ) (Aug.1969), V o l . V (Aug.1971) & Vol.VII (July 1973). A i r c r a f t 200 300 400 500 C a r a v e l l e 3.80 3.54 -.DC-9-10 3.48 2.82 2.67 — DC-9-30 3.93 3.08 2 .80 — 737-200 3.40 2.92 ;• 2 .45 2.26 727-100 - 4 .34 3.90 3.62 727-200 — 4.70 4 .15 3.87 600 700 800 900. ." 1000 1100 120 0 1400 1600 727-100 3.41 3.65 3.50 3.38 3.25 3.15 3.10 3.05 727-200 3.66 3.58 3.47 — — — _ 720 5.44 5.08 4.76 4 .54 4.39 _ _ 720B 4.37 4.15 3.98 3.86 3.80 3.77 3.75 3.65 3.55 707-100 6.00 5.87 5.32 5.12 4 .94 4.80 4 .70 _ 707-100B 5.00 4.83 4.58 4 .37 4.20 4 .05 3.95 3.80 _ DC-8-20/30 6.35 6 .10 5.74 5.50 5 .15 4.88 4 .80 4.80 4.80 DC-8-50. 5.00 4.73 4.52 4.27 4 .12 4 .05 4.06 4 .05 4 .00 DC-8-61 5.60 5 .40 5.23 5.12 4.98 4.94 4 .91 4.85 4.77 DC-10 - - 5.20 5.10 5.00 4.76 _ L.1011 - - 6 .20 5.95 5 .70 5.30 5.00 747 - - - - 8.20 1800 2000 2200 2400 2600 707-300 5.39 5.20 5.10 5.04 -707-300B - 4 .22 4.10 4.08 _ DC-8-61 - - 4 .55 4.39 4.32 747 7.65 7.50 7.40 7.23 7.18 TABLE 3.8 AVERAGE FUEL PRODUCTIVITY OF JET AIRCRAFT ( A v a i l a b l e s e a t m i l e s / U . S . g a l l o n ) Source: Fuel data from Table 3.8 and capacities from Table 3.7. A i r c r a f t 200 300 400 500 C a r a v e l l e DC-9-10 19.5 24 .1 25 .5 -DC-9-30 23.4 29 .9 32.9 -737-200 38.8 727-100 22.6 25.1 27.1 727-200 28.7 32 .5 34.9 600 700 800 900 1000 1100 1200 1400 1600 727-100 28.7 30.2 31.1 — — — 727-200 36.9 37.7 38.9 - - — 720 21.1 22.6 24 .2 25.3 26.2 - - — 720B 26.3 27.7 28.9 29.8 30.3 30.5 30.7 31.5 . 32.4 707-100 22.5 23.0 25.4 26 .4 27.3 28.1 28.7 - - . 707-100B 27.0 28 .0 29.5 30.9 32.1 33.3 34.2 35.5 -DC-8-20/30 21.3 22.1 23.5 24.5 26.2 27.7 28.1 28.1 28.1 DC-8-50 27.0 28.5 29.9 31.6 32 .8 33.2 33.3 33.4 33.8 DC-8-61 34.8 36.1 37.3 38.1 39.2 39.5 39.7 40.2 40.9 DC-10 - - 51.9 52 .9 54.0 - -L.1011 - - 43.5 45.4 47.4 50.9 -747 - - - - - - 45.6 1800 2000 2200 2400 2600 707-300 27.3 28.3 28.8 29 .2 -707-300B - 34 .8 35.9 36 .0 -DC-8-61 - - .42.9 44.4 45 .1 747 48.9 49.9 50.5 51.7 52.1 145 compared t o t h e t u r b o j e t v e r s i o n s o f t h e s e a i r c r a f t . T h i s r e p r e s e n t s an improvement i n s e a t m i l e terms o f 19-25 p e r c e n t , depending on s t a g e l e n g t h . F u e l consumption p e r m i l e o f the DC-8-61 was 0.6-0.8 g a l l o n s h i g h e r than t h a t o f the s t a n d a r d DC-8-50 b u t s t i l l somewhat lo w e r than t h a t o f the t u r b o j e t - p o w e r e d DC-8-20. Wi t h t h e c a p a c i t y o f the DC-8-61 45 p e r c e n t h i g h e r , i t s f u e l consumption p e r s e a t m i l e was about 20 p e r c e n t l o w e r t h a n t h e -50 and 50 p e r c e n t lower t h a n t h e -20. Over t h e s t a g e l e n g t h s o f 2,000-2,400 m i l e s , t y p i c a l o f t r a n s c o n t i n e n t a l r o u t e s , the s t a n d a r d 707-320B t u r b o f a n had 20 p e r c e n t l o w e r f u e l consumption t h a n the 707-320 t u r b o j e t . The ' s t r e t c h e d ' DC-8-61 was i n t u r n 20 per c e n t l o w e r per s e a t m i l e than t h e 707-300B w h i l e the wide body 747 showed a f u r t h e r 16-20 per c e n t improvement o v e r the DC-8-61. T h i s r e v e a l s q u i t e c l e a r l y the s t e a d y improvement i n t e c h n i -c a l e f f i c i e n c y i n the use o f energy t h a t has t a k e n p l a c e s i n c e the t r a n s i t i o n p e r i o d . Over medium s t a g e l e n g t h s a v e r a g i n g 1,000 m i l e s , the f o u r - e n g i n e d t u r b o j e t s a r e t h e w o r s t p e r f o r m e r s , g i v i n g 26-27 ASM/U.S. g a l l o n w h i l e the n a r r o w - b o d i e d t u r b o f a n t r a n s p o r t s were somewhat b e t t e r a t 30-33 A S M / g a l l o n w i t h l i t t l e v a r i a t i o n between d i f f e r e n t d e s i g n s . The e x c e p t i o n was the DC-8-61 which gave 39 A S M / g a l l o n . The DC-10 and L.1011 wide-body t r i j e t s had t h e l o w e s t f u e l consumption p e r s e a t m i l e a l t h o u g h f o r no o b v i o u s r e a s o n t h e former appeared t o be a n o t i c e a b l y 146 b e t t e r p e r f o r m e r t h a n t h e l a t t e r . On t h e b a s i s o f DC-10 d a t a t h e r e was a r e d u c t i o n i n f u e l consumption o f about one-t h i r d compared t o t h e b e s t n a r r o w - b o d i e d t r a n s p o r t , the DC-8-61. The DC-10 t h u s p r o v i d e d an improvement i n t e c h n i c a l e f f i c i e n c y o f s e v e n t y p e r c e n t compared t o t h e f i r s t U.S. t r i -j e t , the 727-100, and o v e r one hundred p e r c e n t compared t o the f i r s t .medium-range j e t , the 720. A t average s t a g e l e n g t h s below 600-700 m i i e s , f u e l consumption v a r i e s g r e a t l y depending on t h e o p e r a t i n g e n v i r o n -46 ment. Comparison o f d i f f e r e n t a i r c r a f t must be made w i t h c a u t i o n because the d a t a may be s u b j e c t t o d i s t o r t i o n due t o d i f f e r e n c e s i n t h e e x p e r i e n c e s o f t h e v a r i o u s c a r r i e r s oper-a t i n g p a r t i c u l a r a i r c r a f t . The d a t a r e v e a l t h a t t h e t h r e e -e n g i n e d 727 ( e s p e c i a l l y the l a r g e r 727-200) i s more e f f i c i e n t t h an t h e f o u r - e n g i n e d 720B. The s h o r t - b o d y DC-9-10 o b t a i n s a p p r o x i m a t e l y t h e same f u e l consumption p e r ASM as t h e 727-100 b u t the ' s t r e t c h e d 1 t w i n j e t s , the DC-9-30 and 737-200, a r e more e f f i c i e n t than the 727-200. The 737-200 i n p a r t i c u l a r r e v e a l s t h e r e d u c t i o n i n f u e l consumption a c h i e v e d by t h e r e d u c t i o n i n empty w e i g h t o f t h e s p e c i a l i z e d s h o r t - h a u l t r a n s -p o r t s compared t o the more v e r s a t i l e medium/short range 727. Summary i ) T e c h n i c a l E f f i c i e n c y T a b l e 3.9 g i v e s t h e i n d i c e s d e v e l o p e d f o r s e l e c t e d a i r -c r a f t t o i n d i c a t e r e l a t i v e t e c h n i c a l e f f i c i e n c y f o r the f o u r 147 TABLE 3.9 RELATIVE AVERAGE FACTOR  PRODUCTIVITIES OF JET AIRCRAFT  (INDEXED TO DC-8-2 0) AIRCRAFT FACTOR DC-8-20 720B 707-320B DC-8-50 DC-8-6 727-100 727-200 747 DC-10/ L.1011 F l y i n g 1 Personnel 1.00 0.91 1.02 1.00 1.27 0.78 1.00 1.90 1.59 C a p i t a l 2 1.00 0.90 1.00 0.88 1.23 0.93 1.16 (1.03) 3 (0.96) Energy^ 1.00 1.23 - 1.27 1.59 1.32 1.66 .1.00 1.09 (1.2) 1.19 1.41 - - ' 1.53 (1.80)5 Mainten-ance 6 1.00 0.73 n/a 1.11 1.61 0.84 1.20 (1.00) (1.02) (Estimates) ''"Based on Table 3.1 2 Based on Table 3.4 3 -Based on comparison with DC-8-63 m 1968 and posi t i o n of DC-8-63 vs. 707-320B i n 1968 4 Table 3.8 a t 800 miles and 1,200 miles average stage length 5 Average of both a i r c r a f t g Based on Table 3.5 (1970-72), t o t a l d i r e c t maintenance f o r airframe and engines 148 f a c t o r i n p u t s . The f o l l o w i n g o b s e r v a t i o n s can be made r e -g a r d i n g the d i r e c t i o n o f i n n o v a t i o n i n t h e p e r i o d : a) The p r o d u c t i v i t y o f f l y i n g p e r s o n n e l i n c r e a s e d , b u t became s o l e l y a f u n c t i o n o f c a p a c i t y s i n c e c r u i s i n g speed was c o n s t r a i n e d by a t e c h n o l o g i c a l boundary (the sound b a r r i e r ) . Because o f b o t h s m a l l e r c a p a c i t y and t h e lo w e r average speeds a c h i e v e d i n s e r v i c e , i t was l o w e r on s h o r t - r a n g e a i r c r a f t . There were two s i g n i f i c a n t e v e n t s : the ' s t r e t c h i n g ' o f e a r l i e r d e s i g n s and the development o f l a r g e , wide-body t r a n s -p o r t s . b) Energy p r o d u c t i v i t y (at a g i v e n s t a g e l e n g t h ) improved s t e a d i l y w i t h the i n t r o d u c t i o n o f t u r b o f a n e n g i n e s , 'stretch - r -ed' f u s e l a g e s , aerodynamic r e f i n e m e n t s and h i g h b y p a s s - r a t i o t u r b o f a n s . The r a t e o f improvement i n t e c h n i c a l e f f i c i e n c y i n the use o f energy was o f the same o r d e r as t h a t o f f l y i n g p e r s o n n e l , r e l a t i v e t o t h e 707/DC-8 t u r b o j e t s . c) C a p i t a l p r o d u c t i v i t y peaked w i t h t h e i n t r o d u c t i o n o f the DC-6-81 and d e c l i n e d upon t h e i n t r o d u c t i o n o f wide-body t r a n s p o r t s . d) There were s l i g h t improvements i n t e c h n i c a l e f f i c i e n c y f o r maintenance e f f o r t . Data e x h i b i t e d a s t r o n g dynamic com-ponent and were h i g h l y v a r i a b l e w i t h s t a g e l e n g t h and among d i f f e r e n t c a r r i e r s . 149 i i ) C o s t / Q u a l i t y T r a d e - O f f s a) There were e f f o r t s t o i n c r e a s e c r u i s i n g speed i n the r e c e n t p e r i o d as a method o f d i f f e r e n t i a t i n g s e r v i c e where i t was c l e a r t h a t o p e r a t i n g c o s t s would be a t l e a s t as g r e a t as t h o s e o f contemporary d e s i g n s . U n l i k e the p i s t o n e r a , t h e s e e f f o r t s r e s u l t e d o n l y i n h i g h e r c o s t s (e.g. i n t h e CV-990) and v i r t u a l l y no i n c r e a s e i n speed. b) The i n t r o d u c t i o n o f wide-body t r a n s p o r t s i n the r e c e n t p e r i o d , l i k e the i n i t i a l t r a n s i t i o n o f j e t a i r c r a f t , was b r o u g h t about because o f ' q u a l i t y ' - r a t h e r t h a n c o s t c o n s i d -e r a t i o n s . i i i ) Exogenous I n f l u e n c e a) There were t h r e e s i g n i f i c a n t i n n o v a t i o n s t h a t r e s u l t e d from e f f o r t s a l m o s t t o t a l l y i n d e p e n d e n t o f t h e government and m i l i t a r y : t u r b o f a n e n g i n e s , a i r f r a m e ' s t r e t c h i n g ' , and the f a m i l y o f s h o r t - and medium^haul a i r c r a f t . b) The i n t r o d u c t i o n o f wide-body a i r c r a f t can be t r a c e d d i r e c t l y t o a m i l i t a r y development program. However, the i n -n o v a t i o n had s i g n i f i c a n t b e n e f i t s f o r the a i r l i n e s and would p r o b a b l y have been d e v e l o p e d i n d e p e n d e n t l y a t a l a t e r d a t e . CHAPTER IV AN EXAMINATION OF INNOVATIVE BEHAVIOUR INTRODUCTION An O u t l i n e o f Market B e h a v i o u r I n o r d e r t o e s t a b l i s h t h e e x t e n t t o w h i c h the r a t e and d i r e c t i o n o f i n n o v a t i o n i n t h e a i r t r a n s p o r t i n d u s t r y have been dependent upon f a c t o r p r i c e i n c e n t i v e s , i t i s n e c e s s a r y t o have a g e n e r a l u n d e r s t a n d i n g o f t h e t y p i c a l r e s ponse o f a i r c a r r i e r s t o p o t e n t i a l r e d u c t i o n s i n u n i t c o s t s . T h i s can be a c h i e v e d by b r i e f l y o u t l i n i n g a d e s c r i p t i o n o f t h e market b e h a v i o u r o f the i n d u s t r y . The U.S. d o m e s t i c t r u n k a i r c a r r i e r s c o m prise what i s e s s e n t i a l l y a p r i c e - r e s t r a i n e d c a r t e l . P r i c e i s a c c e p t e d w i t h i n the i n d u s t r y l a r g e l y as a r e g u l a t o r - i m p o s e d parameter. The C i v i l A e r o n a u t i c s Board (CAB) f i x e s p r i c e by r e q u i r i n g a l l f a r e s t o be f i l e d w i t h t h e B oard f o r p r i o r i n s p e c t i o n and a p p r o v a l . F a r e l e v e l s are c o n t r o l l e d by r e g u l a t i n g o v e r a l l i n d u s t r y p r o f i t s t o a p r e d e t e r m i n e d 'adequate' r a t e o f r e t u r n on i n v e s t m e n t . 1 R e g u l a t i o n on t h i s b a s i s i s a r a t h e r crude i n s t r u m e n t f o r c o n t r o l l i n g e i t h e r f a r e s o r p r o f i t s A i n any p a r -t i c u l a r market. However, the CAB i s a b l e t o a c h i e v e more d i r e c t c o n t r o l o v e r i n d i v i d u a l c a r r i e r s o r i n p a r t i c u l a r mar-k e t s by g r a n t i n g o r t h r e a t e n i n g t o g r a n t new r o u t e a u t h o r i t y 150 151 t o a d d i t i o n a l c a r r i e r s as a means o f i n c r e a s i n g c a p a c i t y and r e d u c i n g f a r e s and p r o f i t s . W h i l e t h e Board has d i r e c t c o n t r o l o v e r f i r m s i z e t h r o u g h the r e g u l a t i o n o f r o u t e a u t h o r i t y , and p r a c t i s e s d i r e c t o r i n -d i r e c t c o n t r o l o v e r p r i c e , t h e r e i s no r e g u l a t o r y c o n t r o l o v e r e i t h e r q u a l i t y o f s e r v i c e , s c h e d u l e f r e q u e n c y o r t o t a l capa-c i t y . O p e r a t i n g under t h e s e c o n s t r a i n t s , the t r u n k c a r r i e r s r e s o r t t o ' c o m p e t i t i o n ' i n n o n p r i c e , q u a l i t y d i m e n s i o n s i n be^ h a v i o u r c h a r a c t e r i z e d as m a r k e t - s h a r e r i v a l r y . One o f t h e more o b v i o u s ways i n wh i c h t h i s r i v a l r y mani^-f e s t s i t s e l f i s t h r o u g h c o m p e t i t i o n on the b a s i s o f c a p a c i t y o r s c h e d u l e f r e q u e n c y . I t i s known t h a t , s u b j e c t t o d i m i n i s h i n g 2 r e t u r n s , market s h a r e f o l l o w s c a p a c i t y s h a r e ; t h u s , i n mar-k e t s s e r v e d by s e v e r a l c a r r i e r s , c a p a c i t y w i l l be added (by s c h e d u l i n g more f l i g h t d e p a r t u r e s ) u n t i l , a z e r o - r e n t market 3 e q u i l i b r i u m i s e s t a b l i s h e d , a t a c e r t a i n l o a d f a c t o r . The e q u i l i b r i u m l o a d f a c t o r depends upon t h e r e g u l a t o r ' s c h o i c e o f a p r i c e parameter; a r e l a t i v e l y h i g h f a r e l e v e l b r i n g s about low l o a d f a c t o r s and h i g h f r e q u e n c y s e r v i c e ( v i c e - v e r s a f o r low f a r l e v e l s ) . On monopoly r o u t e s , because t h e c a r r i e r s ' r a t e s o f r e t u r n a r e r e g u l a t e d , i t i s t o be e x p e c t e d t h a t s c h e d u l e f r e q u e n c y would be a d j u s t e d such t h a t the p r o f i t r a t e i s n o t h i g h enough t o a t t r a c t a t t e n t i o n o f t h e B o a r d . 4 The o t h e r avenue o f t r u n k c a r r i e r r i v a l r y i s i n t h e a r e a o f p r o d u c t d i f f e r e n t i a t i o n . C a r r i e r s may attempt t o i n -c r e a s e t h e i r market share by i n c r e a s i n g t h e q u a l i t y o f s e r v i c e 152 above t h a t o f t h e i r c o m p e t i t o r s , thus e n j o y i n g i n c r e a s e d demand a t t h e common f a r e l e v e l . I n p r a c t i c e , however, the c a r r i e r s r e c o g n i z e such e f f o r t s t o be l a r g e l y s e l f - d e f e a t i n g because they s i m p l y prompt a response from c o m p e t i t o r s , r e s u l t i n g i n a new e q u i l i b r i u m w i t h i n c r e a s e d c o s t s f o r a l l and unchanged market s h a r e s . The t r u n k l i n e i n d u s t r y can be c h a r a c t e r i z e d as a s t a b l e o r 'mature' c a r t e l because t h e p a r t i c i p a n t s i n the market r e c o g n i z e t h i s mutual dependence. E x p e c t e d Response t o I n n o v a t i o n G i v e n t h a t a l l c a r r i e r s o f f e r t h e i r p r o d u c t a t r e g u l a -t o r - i m p o s e d p r i c e s , and t h a t o v e r a l l r a t e s o f r e t u r n a r e sub-j e c t t o r e g u l a t o r y c o n t r o l , i t i s t o be e x p e c t e d t h a t the i n -c e n t i v e s f a c i n g the i n d u s t r y t o e i t h e r i n i t i a t e o r adopt c o s t -r e d u c i n g i n n o v a t i o n s a re l e s s t h a n they would be i n a mono-p o l i s t i c o r p u r e l y c o m p e t i t i v e market. T h i s o b s e r v a t i o n de-r i v e s from t h e f a c t t h a t i n t h e a i r l i n e s i n d u s t r y , a r e d u c t i o n i n average c o s t s l e a d s t o i n c r e a s e d p r o f i t s w h i c h i n t u r n l e a d t o r e d u c e d f a r e s i n o r d e r t h a t t h e a c c e p t a b l e r a t e o f r e t u r n i s n o t exceeded. I n monopoly ma r k e t s , on the o t h e r hand, t h e r e remains an a t t r a c t i o n posed by t h e p r o s p e c t o f h i g h e r p r o f i t s . I n c o m p e t i t i v e m a r k e t s , f i r m s w i l l i n i t i a t e c o s t -r e d u c i n g i n n o v a t i o n s i n an at t e m p t t o e a r n e x c e s s p r o f i t s , o r w i l l be f o r c e d t o adopt them q u i c k l y i n o r d e r t o remain i n the market a f t e r a p r i o r i n n o v a t i o n by o t h e r f i r m s has l e d t o a r e d u c t i o n i n p r i c e . 153 A n o t h e r f a c t o r r e d u c i n g t h e i n n o v a t i v e i n c e n t i v e f a c i n g t h e t r u n k c a r r i e r s d e r i v e s from r e g u l a t o r y c o n t r o l o v e r r o u t e a u t h o r i t i e s . The p o t e n t i a l rewards o f c o s t r e d u c t i o n a r e d i m i n i s h e d i n a b s o l u t e terms because t h e i n n o v a t o r i s p r e v e n t -ed from e n t e r i n g new m a r k e t s . He can reap t h e b e n e f i t s o f o n l y an i n c r e a s e d market share and n o t a l a r g e r market o v e r a l l . An a i r l i n e has l i t t l e i n c e n t i v e i n i n t r o d u c e c o s t -r e d u c i n g i n n o v a t i o n s i n e i t h e r monopoly o r c o m p e t i t i v e r o u t e s because o f r e g u l a t o r y c o n t r o l o v e r r a t e o f r e t u r n . Whether o r n o t o t h e r c a r r i e r s adopt such i n n o v a t i o n s r a p i d l y once the i n i t i a t i v e has been t a k e n by a n o t h e r c a r r i e r depends i n p a r t upon t h e CAB's r e a c t i o n t o t h e r e d u c t i o n i n average c o s t s . Due t o the p r o f i t c o n s t r a i n t , i t i s n o t u n l i k e l y t h a t a u n i l a r t e r a l r e d u c t i o n i n c o s t s w i l l l e a d the i n i t i a t o r t o 'bury' the p o t e n t i a l p r o f i t s by r e d u c i n g l o a d f a c t o r s i n o r d e r t o a v o i d a f o r c e d r e d u c t i o n i n f a r e l e v e l s . T h i s would s i m p l y r e q u i r e an i n c r e a s e i n s c h e d u l e f r e q u e n c y w h i c h may, however, prompt a d e f e n s i v e response by n o n ^ i n n o v a t i n g f i r m s t o p r o t e c t t h e i r market s h a r e s . I t i s o b v i o u s t h a t i n t h i s s i t u a t i o n the i n -c e n t i v e t o e i t h e r i n i t i a t e o r adopt i n n o v a t i o n s i s d i m i n i s h e d by b o t h r e g u l a t o r y c o n t r o l and o l i g o p o l i s t i c market s t r u c t u r e . S i n c e p r i c e i s r e g u l a t e d w h i l e p r o d u c t q u a l i t y i s n o t , i t i s l i k e l y t h a t those i n n o v a t i o n s w h i c h improve q u a l i t y w i l l r e c e i v e more a t t e n t i o n t h a n c o s t - r e d u c i n g ones. That i s , i n -n o v a t i o n i n the i n d u s t r y may be e x p e c t e d t o be more q u a l i t y -o r i e n t e d t h a n c o s t - o r i e n t e d . A f i r m has an i n c e n t i v e t o 154 improve s e r v i c e q u a l i t y e i t h e r t o i n c r e a s e o v e r a l l demand i n the i n d u s t r y , o r t o i n c r e a s e i t s own market share t h r o u g h p r o d u c t d i f f e r e n t i a t i o n . Because o f the absence o f r e g u l a -t o r y c o n t r o l o v e r q u a l i t y t h e r e i s no i n s t i t u t i o n a l b a r r i e r t o d i s c o u r a g e i n n o v a t i o n s w h i c h a f f e c t o n l y q u a l i t y . The i n -c e n t i v e t o i n t r o d u c e such i n n o v a t i o n s i s , however, reduced by o l o g o p o l i s t i c i n t e r d e p e n d e n c e . There may remain an i n c e n t i v e t o improve q u a l i t y i n moderate ways w h i c h would n o t prompt immediate r e a c t i o n s from t h e c o m p e t i t o r s , b u t the e x t e n t o f such i n c e n t i v e s can be a n a l y z e d o n l y i n terms o f 'game 5 t h e o r y ' . Summary I t i s p r e d i c t e d t h a t t h e a i r l i n e s w i l l have l e s s i n c e n -t i v e t o i n n o v a t e t h a n u n r e g u l a t e d , c o m p e t i t i v e o r m o n o p o l i s t i c i n d u s t r i e s . Because p r i c e and p r o f i t s a r e r e g u l a t e d w h i l e s e r -v i c e q u a l i t y i s n o t , i t i s l i k e l y t h a t i n n o v a t i o n w i l l become q u a l i t y - r a t h e r than c o s t - o r i e n t e d . M u t u a l r e c o g n i t i o n o f i n t e r d e p e n d e n c e i n t h e o l o g o p o l i s t i c t r u n k l i n e i n d u s t r y i m p l i e s t h a t c a r r i e r s a r e l i k e l y t o be d e f e n s i v e r a t h e r t h a n a g g r e s s i v e i n n o v a t o r s . T h i s c o u l d be r e f l e c t e d i n l o n g d e l a y s between' t e c h n o l o g i c a l d i s c o v e r i e s and the i n t r o d u c t i o n o f c o r r e s p o n d i n g i n n o v a t i o n s t o the i n d u s t r y , r e g a r d l e s s o f whether the i n n o v a -t i o n s a f f e c t c o s t s o r s e r v i c e q u a l i t y . The r a t e a t wh i c h i n -n o v a t i o n s become d i f f u s e d t h r o u g h o u t t h e i n d u s t r y s h o u l d gener-a l l y be r a p i d where q u a l i t y o f s e r v i c e i s improved, and s l o w e r 155 where c o s t s r e d u c t i o n s a re co n c e r n e d , a l t h o u g h t h i s may be a f f e c t e d by t h e a c t i o n s o f t h e r e g u l a t o r . The r e m a i n i n g s e c t i o n s o f t h i s c h a p t e r c o n s i s t o f two p a r t s w h i c h a n a l y z e , i n t u r n , the r a t e o f i n n o v a t i o n and the d i r e c t i o n o f i n n o v a t i o n d u r i n g t h e p e r i o d d i s c u s s e d i n Chap-t e r s 1-3. P a r t I d i s c u s s e s t h e e x t e n t o f t h e i n f l u e n c e o f f a c t o r p r i c e s on t h e r a t e o f i n n o v a t i o n . I t a n a l y z e s the h i s t o r i c a l e v e n t s i n t h e c o n t e x t o f the above o u t l i n e o f mar-k e t b e h a v i o u r and examines the i n f l u e n c e o f the market s t r u c -t u r e o f t h e a i r c r a f t m a n u f a c t u r i n g i n d u s t r y and exogenous t e c h -n o l o g i c a l development. P a r t I I examines t h e i n f l u e n c e o f r e l a t i v e f a c t o r p r i c e s on the d i r e c t i o n o f i n n o v a t i o n by t e s t -i n g whether o r n o t c a u s a l i t y i s a p p a r e n t i n tho s e e v e n t s i n w h i c h the d i r e c t i o n o f i n n o v a t i o n was c o n s i s t e n t w i t h f a c t o r p r i c e i n c e n t i v e s . PART I : THE RATE OF TECHNOLOGICAL CHANGE The' I n f l u e n c e o f t h e A i r c r a f t M a n u f a c t u r e r s A i r l i n e s c a r r y o u t v i r t u a l l y no t e c h n o l o g i c a l r e s e a r c h t h e m s e l v e s ; i n s t e a d they r e l y upon t h e a i r c r a f t m a n u f a c t u r e r s . The two groups form d i s t i n c t i n d u s t r i e s : the m a n u f a c t u r e r s a r e the o r i g i n a t o r s and p r o d u c e r s o f t e c h n o l o g i c a l i n n o v a t i o n s f o r t h e a i r l i n e s who a r e i n t u r n p r o d u c e r s o f a i r t r a n s p o r t a -t i o n . I t f o l l o w s t h a t a i r c r a f t m a n u f a c t u r e r s w i l l respond i n -d i r e c t l y t o t h e f a c t o r p r i c e s f a c i n g t h e a i r l i n e s because o f t h e d i r e c t e f f e c t such p r i c e s have upon the economic a t t r a c -t i v e n e s s o f p a r t i c u l a r i n n o v a t i o n s . I f i t can be shown, however, t h a t t h e r a t e a t w h i c h m a n u f a c t u r e r s have d e v e l o p e d new t e c h n o l o g y i s r e l a t e d t o the market s t r u c t u r e o f t h e i r own i n d u s t r y ( i . e . t o c i r c u m s t a n c e s w h i c h are exogenous t o the a i r l i n e s i n d u s t r y ) t h i s weakens the argument t h a t a i r l i n e f a c -t o r p r i c e t r e n d s have u n i q u e l y d e t e r m i n e d t h e r a t e o f i n n o v a -t i o n . There i s c o n s i d e r a b l e e v i d e n c e w h i c h s u g g e s t s t h a t t h e r a t e o f i n n o v a t i o n i n a i r t r a n s p o r t has been a f f e c t e d by t h e c o m p e t i t i v e s i t u a t i o n f a c i n g p a r t i c u l a r m a n u f a c t u r e r s . F o r example, Douglas and Lockheed became f i r m l y e s t a b l i s h e d as t h e dominant m a n u f a c t u r e r s o f l o n g - h a u l a i r c r a f t e a r l y i n the postwar p e r i o d , w i t h C o n v a i r and M a r t i n h o l d i n g c o r r e s p o n d i n g p o s i t i o n s i n the manufacture o f s h o r t - h a u l t r a n s p o r t s . I t appears t h a t once the s t r u c t u r e o f t h e s e p a r a l l e l d u o p o l i e s had s t a b i l i z e d by t h e e a r l y f i f t i e s , t h e r a t e s o f i n n o v a t i o n s l owed. S u b s e q u e n t l y , the i n n o v a t i o n s a t t e m p t e d i n the i n d u s t r y were minor i n n a t u r e . Each f i r m appeared c o n t e n t t o i n t r o d u c e d e r i v a t i v e d e s i g n s c o r r e s p o n d i n g l y c l o s e l y t o t h o s e o f t h e i r r i v a l . I t would have been p o s s i b l e f o r an o u t s i d e f i r m t o u p s e t t h i s e q u i l i b r i u m o n l y i f a p r o d u c t d e m o n s t r a b l y s u p e r i o r to t h a t o f the e s t a b l i s h e d f i r m s c o u l d be d e v e l o p e d . P i s t o n t e c h n o l o g y j u s t d i d n o t o f f e r the p o t e n t i a l f o r such r a d i c a l improvement. T h i s i s r e f l e c t e d i n the d e c i s i o n o f t h e Braba-157 zon Committee i n B r i t a i n t o abandon any attempt t o compete d i r e c t l y w i t h Douglas and Lockheed. They chose i n s t e a d t o c o n c e n t r a t e e x c l u s i v e l y on t u r b i n e t e c h n o l o g y i n hopes o f e v e n t u a l l y p e n e t r a t i n g the commercial a i r c r a f t market. G i v e n t h e s t r o n g o l i g o p o l i s t i c p o s i t i o n o f Douglas and Lockheed on t h e one hand, and t h e c h a r a c t e r i s t i c s o f t r u n k l i n e market b e h a v i o u r on t h e o t h e r , i t i s not s u r p r i s i n g t h a t t h e p i s t o n e r a became a t e c h n o l o g i c a l ' p l a t e a u 1 . B o t h Douglas and Lockheed were a p p r e h e n s i v e about the r i s k s i n v o l v e d i n fundamental t e c h n o l o g i c a l change because they had an i n t e r e s t i n m a i n t a i n i n g the- s t a t u s quo. Thus, the f i r s t t u r b o p r o p and the f i r s t j e t were d e v e l o p e d by o u t s i d e f i r m s ( V i c k e r s and de H a v a i l l a n d ) and the two dominant m a n u f a c t u r e r s made no con-c e r t e d attempt t o be f i r s t t o d e v e l o p an American-made j e t . I t was the i n i t i a t i v e o f a new e n t r a n t , B o e i n g , t h a t f i n a l l y prompted them t o take a c t i o n . H a v i n g f a i l e d t o t a k e t h e i n -i t i a t i v e i n t h e t u r b i n e t r a n s i t i o n , Douglas q u i c k l y l o s t t h e i r p o s i t i o n o f dominance i n the i n d u s t r y . Lockheed, i n p a r t i c u - r l a r , appeared i n t e n t on r e s i s t i n g t h e . s h i f t i n t e c h n o l o g y and by expending e f f o r t on a d e r i v a t i v e o f t h e i r o l d d e s i g n s (the L-1649A and p r o j e c t e d t u r b o p r o p v e r s i o n s ) t h e y were d i s p l a c e d by B o e i n g when the market s t a b i l i z e d i n t h e e a r l y 1960's. S i m i l a r b e h a v i o u r i s e v i d e n t t h r o u g h o u t much o f t h e r e c e n t p e r i o d . B o e i n g and Douglas d e v e l o p e d c o r r e s p o n d i n g de-r i v a t i v e s o f t h e 707 and DC-8 l o n g - h a u l . a i r c r a f t and near i d e n -t i c a l s h o r t - h a u l a i r c r a f t , t h e 737 and DC-9 r e s p e c t i v e l y . 158 T e c h n o l o g i c a l change remained e v o l u t i o n a r y between 19 60 and 19 70, and o u t s i d e f i r m s such as C o n v a i r found i t d i f f i c u l t t o g a i n e n t r y . T h i s s u g g e s t i o n t h a t t h e r a t e o f i n n o v a t i o n among a i r l i n e s was a f f e c t e d by t h e s t a t e o f e q u i l i b r i u m o r d i s -e q u i l i b r i u m i n t h e m a n u f a c t u r i n g i n d u s t r y does n o t r e v e a l t h e whole p i c t u r e , however, because the l a t t e r i n d u s t r y i s s u b j e c t t o a s t r o n g exogenous i n f l u e n c e - t h a t o f the m i l i t a r y . The I n f l u e n c e o f the M i l i t a r y T e c h n i c a l p r o g r e s s i n a v i a t i o n r e l i e s t o a c o n s i d e r a b l e degree upon the r e s u l t s o f r e s e a r c h and development c a r r i e d o u t under government a u s p i c e s . Much o f t h e i n n o v a t i o n c a r r i e d o u t by commercial a i r c r a f t m a n u f a c t u r e r s d e r i v e s from a d d i t i o n a l development c a r r i e d o u t a f t e r s e m i n a l r e s e a r c h has been done e l s e w h e r e . W i t h e x t e n s i v e r e s e a r c h and development a c t i v i -t i e s c a r r i e d o u t by n o n - p r o f i t o r g a n i z a t i o n s , and a c t i v e s c i e n t i f i c d i s c i p l i n e s c l o s e l y r e l a t e d t o t h e t e c h n o l o g y o f t h e i n d u s t r y , t h e u n d e r l y i n g s o u r c e o f major i n n o v a t i o n s i n commer-c i a l a i r c r a f t has been exogenous t o the m a n u f a c t u r e r s and, i n t u r n , t h e a i r l i n e s . I n n o v a t i o n i n t h e commercial a i r c r a f t i n -d u s t r y i s o f t e n m e r e l y r e f i n e m e n t and a d a p t a t i o n o f prove n con-c e p t s . F o r example, w i t h o u t u n d e r s t a t i n g t h e c o n t r i b u t i o n w h i c h commercial a c t i v i t y has made i n r e f i n i n g and i m p r o v i n g power p l a n t s , i t can be s a f e l y s t a t e d t h a t almost a l l s i g n i f i -c a n t changes i n t h e s t a t e o f the a r t i n a i r c r a f t e n g i n e t e c h -n o l o g y can be t r a c e d t o m i l i t a r y o r o t h e r governmental r e s e a r c h 159 programs. S i n c e a l l a i r c r a f t a r e d e s i g n e d around engine p a r a -meters^ i t i s c l e a r t h a t t h e t i m i n g o f most i m p o r t a n t a i r c r a f t i n n o v a t i o n s has been l a r g e l y dependent upon the m i l i t a r y . T h i s i s shown by the f a c t t h a t a l l o f the p i s t o n en-g i n e s used on commercial t r a n s p o r t s were m i l i t a r y e n g i n e s o r t h e i r d e r i v a t i v e s . The f i r s t t u r b i n e - p o w e r e d t r a n s p o r t s de-v e l o p e d i n B r i t a i n used e n g i n e s o r i g i n a l l y d e v e l o p e d f o r t h e m i l i t a r y w h i l e t h e f i r s t A merican j e t s , the DC-8 and 707, were n o t i n t r o d u c e d u n t i l t h e i r e n g i n e s (the m i l i t a r y J57 and J75) had been proven i n m i l i t a r y s e r v i c e . The C o n v a i r j e t s used a n o t h e r m i l i t a r y e n g i n e (the J79) as d i d t h e E l e c t r a t u r b o p r o p (the T56). I n a d d i t i o n , t h e engine used on t h e DC-10 i s a d e r i v a t i v e o f the m i l i t a r y TF39 w h i l e the 747's engine was d e v e l o p e d f o l l o w i n g a m i l i t a r y r e s e a r c h e f f o r t . The o n l y two e n g i n e s t h a t do n o t appear t o have had d i r e c t m i l i t a r y p a r e n tage a r e the P r a t t and Whitney JT8D, used on a v a r i e t y o f s h o r t - h a u l a i r c r a f t , and t h e R o l l s - R o y c e RB.211 used on the L.1011. However, th e JT8D i s i n essence a scaled-down JT3D and the l a t t e r i s a d i r e c t d e r i v a t i v e o f the m i l i t a t y J57 and J75 (JT3C and J T 4 A ) . The RB.211, a t h r e e -s h a f t , h i g h - b y p a s s t u r b o f a n , i s t h u s perhaps t h e f i r s t d e p a r t -ure from s t a t e - o f - t h e - a r t technology, t o o r i g i n a t e as a commer-c i a l v e n t u r e . Even s o , i t cannot s e r v e as a good example o f a s u c c e s s f u l i ndependent r e s e a r c h e f f o r t because R o l l s - R o y c e was f o r c e d i n t o b a n k r u p t c y l a r g e l y because o f the f i n a n c i a l burden t h a t r e s u l t e d from t e c h n i c a l d i f f i c u l t i e s w i t h t h e 160 e n g i n e . A s e p a r a t e f a c t o r r e l a t i n g t o the i n f l u e n c e o f the m i l i t a r y d e r i v e s from the f a c t t h a t commercial a i r c r a f t manu-f a c t u r i n g i s a companion i n d u s t r y t o m i l i t a r y a e r o n a u t i c a l and a e r o s p a c e a c t i v i t y . A l l o f t h e f i r m s t h a t have p a r t i c i -p a t e d i n the commercial market i n the postwar p e r i o d have produced m i l i t a r y a i r c r a f t as w e l l . The a v a i l a b i l i t y , o f c a p i -t a l , p r o d u c t i o n f a c i l i t i e s , and human r e s o u r c e s w i t h i n any one f i r m has thus been d i r e c t l y dependent upon t h e s t a t e o f the m i l i t a r y market and, i n p a r t i c u l a r , t h e i r p o s i t i o n i n t h i s market. I n o t h e r words, an exogenous i n f l u e n c e a r i s e s from economic as w e l l as s t r i c t l y t e c h n i c a l c o n s i d e r a t i o n s . D i f f u s i o n o f New Technology The r a t e o f i n i t i a t i o n o f t e c h n o l o g i c a l change has been a f f e c t e d by c o n d i t i o n s e x i s t i n g i n the a i r c r a f t m a n u f a c t u r -i n g i n d u s t r y and a l s o by a s t r o n g m i l i t a r y i n f l u e n c e . The r a t e o f t e c h n o l o g i c a l change has thus been, t o a g r e a t degree, exo-genous t o the a i r l i n e s . The a i r l i n e s a r e more c o r r e c t l y t h o u g h t o f as consumers, r a t h e r than o r i g i n a t o r s , o f changes i n t e c h n o l o g y . Whether t e c h n o l o g y changed i n such a way t h a t f a c t o r p r o p o r t i o n s were a d j u s t e d i n accordance w i t h a i r l i n e r e l a t i v e f a c t o r p r i c e s i s examined i n P a r t I I . However, i n l i g h t o f the above, o b s e r v a t i o n s i t seems a p p r o p r i a t e t o examine the e f f e c t the a i r l i n e s had on t h e r a t e o f t e c h n o l o g i c a l change 7 m terms o f t h e r a t e o f a d o p t i o n (or d i f f u s i o n ) o f i n n o v a t i o n s as opposed to. the r a t e o f t h e i r i n i t i a t i o n . The q u e s t i o n t o be a d d r e s s e d i s : g i v e n the r a t e a t w h i c h new t e c h n o l o g y has become a v a i l a b l e t o the a i r c a r r i e r s , t o what e x t e n t have f a c -t o r p r i c e t r e n d s a f f e c t e d t h e r a t e o f t h e i r a d o p t i o n by the i n d u s t r y ? I t was s u g g e s t e d e a r l i e r t h a t i n n o v a t i o n by t h e t r u n k c a r r i e r s m i g h t be e x p e c t e d t o have been o r i e n t e d more t o q u a l i t y c o n s i d e r a t i o n s . t h a n c o s t r e d u c t i o n . I f t h i s can be shown t o have been t r u e h i s t o r i c a l l y , i t would p r o v i d e the> b a s i s f o r r e j e c t i o n o f t h e h y p o t h e s i s t h a t t h e r a t e o f a d o p t i o n o f new t e c h n o l o g y was dependent s o l e l y upon f a c t o r p r i c e con-s i d e r a t i o n s . There are t h r e e i m p o r t a n t examples o f i n n o v a t i o n w h i c h t o o k p l a c e p r i m a r i l y f o r ' q u a l i t y o f s e r v i c e ' r e a s o n s : t h e turbo-compound p i s t o n a i r c r a f t , j e t a i r c r a f t and wide-body a i r -c r a f t . I n each case t h e r e were s i g n i f i c a n t improvements i n q u a l i t y accompanying and, i n l a r g e p a r t , e x p l a i n i n g the i n n o -v a t i o n . Under p r e v a i l i n g r e l a t i v e p r i c e s , t h e c o s t i m p l i c a -8 t i o n s o f t h e s e i n n o v a t i o n s were, r e s p e c t i v e l y a d v e r s e , ambi-9 10 guous, and n e u t r a l . Based on c o s t c o n s i d e r a t i o n s a l o n e , these i n n o v a t i o n s would n o t have been adopted a t a l l , o r would have d i f f u s e d s l o w l y ; b u t i n each case the r a t e o f d i f f u s i o n was r a p i d because o f q u a l i t y c o n s i d e r a t i o n s . There a r e two o b v i o u s examples o f i n n o v a t i o n s i n t r o d u c e d because o f minor ( p r o d u c t d i f f e r e n t i a t i o n ) q u a l i t y c o n s i d e r a -t i o n s : the JT3D t u r b o f a n and t h e C o n v a i r 990 a i r c r a f t . I n 162 b o t h c a s e s , American A i r l i n e s a c q u i r e d t h e equipment i n o r d e r t o be a b l e t o o f f e r h i g h e r c r u i s i n g speeds t h a n t h e i r r i v a l s . The e f f e c t s on o p e r a t i n g c o s t s were m a r g i n a l i n the f i r s t i n -11 s t a n c e and a d v e r s e i n t h e second. The f a c t t h a t the i n n o v a -t i o n s d i d n o t d i f f u s e t h r o u g h t h e t r u n k l i n e i n d u s t r y i s ex-p l a i n e d by t h e i r v e r y minor i m p a c t on q u a l i t y a t t r i b u t e s -t h e r e was l i t t l e i m p a c t on o v e r a l l t r i p t i m e s . I f i t were f a c t o r p r i c e s t h a t d e t e r m i n e d the r a t e o f a d o p t i o n o f i n n o v a t i o n s i t would be r e a s o n a b l e t o e x p e c t an e a r l y a n a l y s i s o f each p r o s p e c t i v e t e c h n o l o g y f o l l o w e d by e i t h e r complete r e j e c t i o n o r r a p i d a d o p t i o n , depending on whether o r not the i n n o v a t i o n c o u l d p r o v i d e c o s t - s a v i n g s . However, such was c l e a r l y n o t t h e case d u r i n g the t r a n s i t i o n p e r i o d . The Comet, f o r example, was known t o have h i g h e r c o s t s t h a n p i s t o n a i r c r a f t and y e t some o f t h e c a r r i e r s r e -t a i n e d an i n t e r e s t i n i t . I n the e a r l y f i f t i e s , c o s t e x p e c t a t i o n s s u r r o u n d i n g the American-made j e t s were ambiguous, y e t t h e i r a d o p t i o n was f e l t t o be i n e v i t a b l e . On the o t h e r hand, when the p o t e n t i a l f o r c o s t r e d u c t i o n w i t h t h e j e t s became a p p a r e n t t h e r e were no a b r u p t change i n a t t i t u d e on the p a r t o f the t r u n k c a r r i e r s ; they remained d e f e n s i v e r a t h e r than a g g r e s s i v e i n n o v a t o r s . No c a r r i e r f e l t c o m p e l l e d t o t a k e u n i l a t e r a l a c t i o n , y e t once r e a c t i o n s had been prompted by Pan American's j e t p u r c h a s e s the r a t e o f d i f f u s i o n was r a p i d . The r e a s o n s f o r t h i s were q u a l i t y , o r c o m p e t i t i v e c o n s i d e r a t i o n s and n o t f e a r s o f b e i n g 0 163 out-maneuvered i n terms o f c o s t s o r f a r e s . . T h i s b e h a v i o u r was r e p e a t e d a decade l a t e r when the 747 was i n t r o d u c e d . I n b o t h i n s t a n c e s c o s t c o n s i d e r a t i o n s were se c o n d a r y and the i m p a c t o f t h e new t e c h n o l o g y was i n -c r e a s e d s e r v i c e q u a l i t y a t t h e same, o r n e a r l y t h e same, f a r e l e v e l s . B e h a v i o u r was c o n s i s t e n t w i t h t h e p r e d i c t i o n g i v e n e a r l i e r s i n c e t h e r e was e v i d e n c e o f d e f e n s i v e i n n o v a t i o n , mu-t u a l r e c o g n i t i o n o f i n t e r d e p e n d e n c e and c o m p e t i t i o n based on q u a l i t y r a t h e r than c o s t . Perhaps t h e o n l y i n n o v a t i o n s w h i c h i n v o l v e d c o s t con-s i d e r a t i o n a l o n e were tho s e r e s u l t i n g from the ' s t r e t c h i n g ' o f a i r c r a f t , examples o f which are the DC-8-61, 727-200, and DC-9-30. However, because q u a l i t y was u n a f f e c t e d and f a r e s r e g u l a t e d , t h e t r u n k c a r r i e r s were n o t f o r c e d t o adopt th e s e i n n o v a t i o n s , s u g g e s t i n g once more t h a t c o s t c o n s i d e r a t i o n s d i d n o t d e t e r m i n e t h e r a t e o f t e c h n i c a l change. I n f a c t , because the ' s t r e t c h e d ' a i r c r a f t were o f the n a t u r e o f ' b i a s e d -e f f i c i e n c y ' o r ' p u r e - e f f i c i e n c y ' i n n o v a t i o n s t h a t d i d n o t r e -q u i r e t e c h n i c a l b r e a k t h r o u g h s , s h o u l d they have n o t pre-empted the i n i t i a l d e s i g n s i f u n i t c o s t s were c o n s i d e r e d a t a l l ? The answer r e q u i r e s c o n s i d e r a t i o n o f a n o t h e r q u a l i t y v a r i a b l e , s c h e d u l e f r e q u e n c y . As d i s c u s s e d e a r l i e r , h i g h s c h e d u l e f r e q u e n c y i s an e x p l i c i t o b j e c t i v e o f each c o m p e t i t o r i n t h e t r u n k l i n e i n d u s t r y and i t i s one w h i c h c o n f l i c t s w i t h t h e o b j e c t i v e o f r e d u c i n g c o s t t h r o u g h i n n o v a t i o n when such i n n o v a t i o n s i n v o l v e i n c r e a s e s 164 i n a i r c r a f t c a p a c i t y . A new a i r c r a f t (e.g. the DC-8-61) may p r o v i d e reduced u n i t c o s t s o n l y w i t h a h i g h e r o v e r a l l p a s s e nger l o a d because i t s c o s t s p e r a i r c r a f t m i l e may be h i g h e r t h a n e a r l i e r , s m a l l e r d e s i g n s (e.g. the DC-8-50). Under such con-d i t i o n s a r e d u c t i o n i n f r e q u e n c y i s r e q u i r e d t o i n c r e a s e pas-senger l o a d s p e r d e p a r t u r e . However, because u n i l a t e r a l f r e -quency r e d u c t i o n can be e x p e c t e d t o have an a d v e r s e impact on a c a r r i e r ' s market, t h e i n n o v a t o r may f i n d i t i m p o s s i b l e t o a c h i e v e a r e a l c o s t r e d u c t i o n (per passenger m i l e ) i n p r a c t i c e . R e g u l a t o r y c o n t r o l o v e r p r i c e thus removes the i n c e n t i v e t o take u n i l a t e r a l a c t i o n t o reduce f a r e l e v e l s t h r o u g h i n n o v a t i o n . I n such a s i t u a t i o n , the r a t e o f i n n o v a t i o n (where i n n o v a t i o n i n v o l v e s c a p a c i t y i n c r e a s e s ) would be c o r r e l a t e d w i t h the s e c u -l a r i n c r e a s e i n demand i n t h e i n d u s t r y . Suppose t h a t a new, l a r g e r c a p a c i t y a i r c r a f t were a v a i l -a b l e t h a t p r o v i d e d l o w e r s e a t - m i l e c o s t s t h a n contemporary 12 d e s i g n s b u t had a h i g h e r breakeven passenger l o a d . Each time a s e c u l a r i n c r e a s e i n demand o c c u r r e d , a c a r r i e r would have t o t r a d e - o f f the r e d u c t i o n i n average c o s t a t t a i n a b l e by accommodating t r a f f i c w i t h the l a r g e r a i r c r a f t and the i n c r e a s e 13 i n average revenue t h a t would r e s u l t from i n c r e a s e d d e p a r t -ure f r e q u e n c y w i t h a s m a l l e r ( h i g h e r c o s t ) a i r c r a f t . Because t h e l a t t e r e f f e c t i s s u b j e c t t o d i m i n i s h i n g r e t u r n s , t h e e f f e c t on average revenues w i l l e v e n t u a l l y be outweighed by the e f f e c t on average c o s t s . Thus, o n l y when market demand has i n c r e a s e d t o some p o i n t w i l l t h e l a r g e r a i r c r a f t be a c q u i r -165 ed i n s p i t e o f t h e f a c t t h a t i t s u n i t c o s t s are known t o be l o w e r . Such c o n s i d e r a t i o n s would pose an i m p o r t a n t c o n s t r a i n t on the r a t e o f i n n o v a t i o n w h i c h f u r t h e r f r u s t r a t e s any a t t e m p t t o r e l a t e i t t o f a c t o r p r i c e e f f e c t s . PART I I : THE DIRECTION OF TECHNOLOGICAL CHANGE 1NTR0VUCTJ0N The f i r s t p a r t o f t h i s c h a p t e r has o f f e r e d l i t t l e p o s i -t i v e e v i d e n c e t h a t the r a t e o f i n n o v a t i o n can be r e l a t e d t o e i t h e r a i r l i n e c o s t s i n g e n e r a l o r r e l a t i v e f a c t o r p r i c e i n -c e n t i v e s i n p a r t i c u l a r . P a r t I I o f t h i s c h a p t e r c o n s i d e r s f u r t h e r t h e d i s t i n c t i o n between c o r r e l a t i o n and c a u s a l i t y i n t h e h i s t o r i c a l r e l a t i o n s h i p between f a c t o r p r i c e s and t h e d i r e c t i o n o f t e c h n o l o g i c a l change. The d i s c u s s i o n w i l l a t -tempt t o answer the f o l l o w i n g q u e s t i o n : where an i n n o v a t i o n r e s u l t e d i n improved f a c t o r p r o d u c t i v i t y , t o what e x t e n t d i d t h e accompanying e f f e c t on average c o s t s e x p l a i n t h e o c c u r - • r e n c e o f t h e i n n o v a t i o n ? P a r t i c u l a r a t t e n t i o n i s p a i d t o changes i n t e c h n i c a l e f f i c i e n c y f o r f l y i n g p e r s o n n e l , energy 14 . arid c a p i t a l t h a t were c o n s i s t e n t w i t h t h e t h e o r y o f produc-t i o n . 1= LYING PERSONNEL A c o n s i s t e n t and r a t h e r marked improvement o v e r time i n t h e p r o d u c t i v i t y o f f l y i n g p e r s o n n e l i s r e v e a l e d upon i n ^ s p e c t i o n o f t h e p r o d u c t i v i t y i n d i c e s c a l c u l a t e d i n C h a p t e r s 1^ -166 I I I . The f a c t t h a t , as d i s c u s s e d i n t h e I n t r o d u c t i o n , t h e r e was a c o n c u r r e n t i n c r e a s e i n t h e r e l a t i v e p r i c e o f l a b o u r im-p l i e s t h a t the d i r e c t i o n o f t e c h n o l o g i c a l change was, i n t h i s r e s p e c t , c o n s i s t e n t w i t h t h e t h e o r y o f p r o d u c t i o n . Three avenues by w h i c h f l y i n g p e r s o n n e l p r o d u c t i v i t y (FPP) may be i n c r e a s e d - reduced crew complements, i n c r e a s e d a i r c r a f t speed, and i n c r e a s e d a i r c r a f t c a p a c i t y - a r e examined h e r e t o d e t e r -mine whether t h e p a r t i c u l a r changes t h a t have o c c u r r e d o v e r time r e f l e c t c a u s a l i t y . Reduced Crew Complements There has been l i t t l e a c t i v i t y i n the a r e a o f r e d u c -i n g crew complements, p r i m a r i l y because t h e r e was l i t t l e room f o r improvement. T h i s a r i s e s p a r t l y as a r e s u l t o f an i n -d i v i s i b i l i t y ( i . e . i t i s i m p o s s i b l e t o add o r s u b t r a c t i n p u t s o f human r e s o u r c e s i n u n i t s l e s s t h a n one) and p a r t l y because o f s a f e t y r e g u l a t i o n s w h i c h have e s t a b l i s h e d minimum f l i g h t crews a t n o t l e s s t h a n two. There i s a l s o a s a f e t y - r e l a t e d minimum complement o f f l i g h t a t t e n d a n t s r e q u i r e d f o r each a i r c r a f t t y p e . I n a d d i t i o n , because t h e amount o f a t t e n t i o n p a i d t o p a s s e n g e r s by f l i g h t a t t e n d a n t s i s a d i m e n s i o n o f each c a r r i e r ' s s e r v i c e , f l i g h t a t t e n d a n t s s t a f f i n g c o u l d n o t be r e d u c e d w i t h o u t some compromise o f q u a l i t y o f s e r v i c e . As a r e s u l t , t h e o n l y manner i n w h i c h crew complements c o u l d have been reduced was by t h e e l i m i n a t i o n o f n o n - p i l o t members o f the f l i g h t crew such as t h e n a v i g a t o r , f l i g h t e n g i n e e r , o r r a d i o o p e r a t o r . The e l i m i n a t i o n o f r a d i o - o p e r a t o r s must, however, be a t t r i b u t e d t o improvements i n e l e c t r o n i c s t h a t were exogenous t o the a i r t r a n s p o r t i n d u s t r y . W h i l e the a d o p t i o n o f new communications equipment may appear t o be e v i d e n c e o f a c a p i t a l - l a b o u r s u b s t i t u t i o n , t h e r e were a l s o s i g n i f i c a n t q u a l -i t y c o n s i d e r a t i o n s stemming from the g r e a t e r r e l i a b i l i t y o f the new equipment. The e l i m i n a t i o n o f n a v i g a t o r s on s h o r t -range f l i g h t s must be a t t r i b u t e d l a r g e l y t o improvements i n ground-based n a v i g a t i o n equipment, the c o s t s o f w h i c h were ex-t e r n a l t o t h e a i r l i n e s . E l i m i n a t i o n o f t h e n a v i g a t o r on lon g - r a n g e f l i g h t s t h r o u g h the i n t r o d u c t i o n o f i n e r t i a l n a v i -g a t i o n systems was, i n a sense, a s u b s t i t u t i o n o f (low-p r i c e d ) , c a p i t a l f o r ( h i g h - p r i c e d ) l a b o u r b u t once a g a i n t h e r e were s i g n i f i c a n t i n d i r e c t b e n e f i t s . The new equipment was c a p a b l e o f p e r f o r m i n g t h e n a v i g a t i o n t a s k b e t t e r than a human n a v i g a t o r , making p o s s i b l e r e d u c t i o n s i n f l i g h t t i m e s and f u e l consumption on l o n g f l i g h t s . I t i s n o t c l e a r t h a t t h i s i n n o -v a t i o n would n ot have t a k e n p l a c e even i n t h e absence o f an i n c e n t i v e t o economize on l a b o u r ; thus i t i s not c l e a r e v i d e n c e o f the i n f l u e n c e o f a r i s i n g f a c t o r p r i c e . A b e t t e r example o f a r e d u c t i o n i n crew complement b r o u g h t about as an e f f o r t t o reduce f l i g h t crew c o s t s was the e l i m i n a t i o n o f t h e f l i g h t e n g i n e e r on t w i n - e n g i n e j e t s . T h i s was n o t t r u l y an i n n o v a t i o n , however, because s e v e r a l e a r l y a i r c r a f t such as t h e DC-4 and S t r a t o c r u i s e r had been d e s i g n e d 15 t o be o p e r a t e d by two-man crews. The f a c t t h a t t h e s e a i r -16 8 c r a f t and l a t e r p i s t o n and j e t t r a n s p o r t s were o p e r a t e d by three-man crews r e s u l t e d from a 1948 C i v i l A e r o n a u t i c s Board d e c i s i o n r e q u i r i n g f l i g h t e n g i n e e r s on a l l a i r c r a f t h a v i n g a 16 g r o s s w e i g h t i n e x c e s s o f 80,000 pounds. Most a i r c r a f t o f the p o s t war p e r i o d were t e c h n i c a l l y c a p a b l e o f o p e r a t i n g w i t h o n l y the p i l o t and c o - p i l o t , b u t f l i g h t e n g i n e e r s t a t i o n s were s u b s e q u e n t l y i n c o r p o r a t e d i n c o c k p i t d e s i g n s p u r s u a n t t o t h i s 17 d e c i s i o n . Thus, the f a c t t h a t t h e f l i g h t e n g i n e e r was e l i m i n a t e d on t h e BAC-111, DC-9 and s i m i l a r a i r c r a f t r e f l e c t e d a p o l i t i c a l s u c c e s s i n l a b o u r r e l a t i o n s r a t h e r t h a n a t e c h n i -c a l b r e a k t h r o u g h . As a r e s u l t t h e r e i s no c l e a r e v i d e n c e o f i n n o v a t i o n i n t h e postwar p e r i o d w h i c h reduced crew comple-ments i n o r d e r t o economize on l a b o u r . I n c r e a s e d A i r c r a f t Speed Wages f o r f l y i n g p e r s o n n e l have t r a d i t i o n a l l y been bas-ed on hours f l o w n r a t h e r than d i s t a n c e f l o w n so i t f o l l o w s t h a t an i n c r e a s e i n c r u i s i n g speed b r i n g s about a p r o p o r t i o n r e d u c -t i o n i n i n p u t s r e q u i r e d p e r s e a t - m i l e . F i g u r e 4.1 r e v e a l s t h a t , c o n c u r r e n t w i t h the h i s t o r i c a l i n c r e a s e i n wage r a t e s , t h e r e has been a monotonic i n c r e a s e i n a i r c r a f t c r u i s i n g speeds, c o n s i s t i n g o f an a b r u p t i n c r e a s e a t t h e t r a n s i t i o n as w e l l as i n c r e m e n t a l i n c r e a s e s w i t h i n the two p e r i o d s o f t e c h n o -l o g i c a l s t a b i l i t y . However, any a t t e m p t t o a t t r i b u t e t h i s h i s t o r i c a l t r e n d i n a i r c r a f t speed w i t h t h e t r e n d o f f l y i n g p e r s o n n e l wages e n c o u n t e r s an i m p o r t a n t i d e n t i f i c a t i o n p r o b lem 6 0 0 1 500 400 •{ o o o o o op 8 o AGGREGATE AVERAGE SPEED (DOMESTIC TRUNKS) * * ! i # 300 -1 * 200 " L PISTON * A TURBOPROP 100 H O JET T a\ 1948 1950 1*55 I960 1965 1970 YEAR OF INTRODUCTION F i g u r e 4.1 H i s t o r i c a l Trend i n A i r c r a f t C r u i s i n g Speed, 1948-70 170 r e s u l t i n g from the r e l a t i o n s h i p between speed and q u a l i t y o f s e r v i c e . H i g h e r speeds would have been a d e s i d e r a t u m even i n the absence o f a f a c t o r p r i c e i n c e n t i v e . The e a r l y p e r i o d o f p i s t o n a i r c r a f t development b r o u g h t about a s i g n i f i c a n t i n c r e a s e i n t h e q u a l i t y o f a i r s e r v i c e t h a t s t i m u l a t e d demand g e n e r a l l y ( i . e . by r e d u c i n g the d i s u t i l i t y o f i n t e r c i t y t r a v e l l i n g ) and f u r t h e r improved t h e c o m p e t i t i v e p o s i t i o n o f a i r v i s - a - v i s o t h e r modes ( e s p e c i a l l y r a i l ) . F o r 18 example, the i n c r e a s e d range and speed o f the DC-6 compared t o the DC-3 n o t o n l y i n c r e a s e d f l i g h t crew p r o d u c i t i v i t y b u t a l s o r e d u c e d the f l i g h t time r e q u i r e d f o r a westbound t r a n s c o n -T 19 t m e n t a l j o u r n e y from 17-4 hours t o 11 h o u r s . T h i s f l i g h t t ime was reduced t o 8| hours w i t h t h e i n t r o d u c t i o n o f the 20 DC-7. I t c o u l d t h u s be argued t h a t c r u i s i n g speeds i n c r e a s -ed because o f q u a l i t y c o n s i d e r a t i o n s n o t f a c t o r p r o d u c t i v i t y c o n s i d e r a t i o n s . I t would, i n f a c t , be p e r v e r s e t o a t t r i b u t e t h e i n c r e a s e d speed o f t h e DC-7 s e r i e s t o t h e i n f l u e n c e o f r e l a t i v e f a c t o r p r i c e s because the a i r c r a f t s 1 c o s t s were h i g h e r t h a n t h o s e o f e a r l i e r a i r c r a f t i n s p i t e o f t h e i n c r e a s e i n FPP. The i n c r e a s e i n speed w h i c h accompanied t h e t r a n s i t i o n t o j e t a i r c r a f t a l s o b r o u g h t about a marked i n c r e a s e i n FPP b u t once a g a i n t h i s cannot be a t t r i b u t e d t o the i n f l u e n c e o f r e l a t i v e f a c t o r p r i c e s . As d i s c u s s e d e a r l i e r , the r e s e a r c h e f f o r t w h i c h l e d t o t h e development o f j e t a i r c r a f t was exogen-ous t o the a i r l i n e s i n d u s t r y and t h e a i r c r a f t were o r d e r e d by 1 7 1 the t r u n k c a r r i e r s because o f demand c o n s i d e r a t i o n s ; no one was c o m p l e t e l y c e r t a i n what t h e i r o p e r a t i n g c o s t s would be. The i m p o r t a n c e o f q u a l i t y as opposed t o c o s t c o n s i d e r a t i o n s i s r e v e a l e d by t h e comments o f a B o e i n g o f f i c i a l p r i o r t o the i n -t r o d u c t i o n o f the 70 7: Our p h i l o s o p h y i s t o p r o v i d e maximum performance i n an a i r l i n e r t h a t can o p e r a t e w i t h r e a s o n a b l e  economy ... we b e l i e v e t h a t we can compete and have t h e advantage o f j e t performance w i t h o u t p a y i n g what some peopl e might b e l i e v e i s an e x c e s -s i v e p e n a l t y f o r t h a t p e r f o r m a n c e . ^ ^ The e x i s t e n c e o f t h e sound b a r r i e r p r e c l u d e s s i g n i f i -c a n t i n c r e a s e i n FPP t h r o u g h i n c r e a s e s i n the c r u i s i n g speed o f j e t a i r c r a f t . For t h i s r e a s o n , r e c e n t e f f o r t s t o i n c r e a s e s u b s o n i c c r u i s i n g speeds (e.g. the CV-990) cannot be a t t r i b u t -ed t o f a c t o r p r i c e i n c e n t i v e s . I n f a c t , any e f f o r t t o i n -c r e a s e c r u i s i n g speeds a p p r e c i a b l y above tho s e o f the o r i g i n a l s u b s o n i c j e t s i s l i k e l y t o i n v o l v e i n c r e a s e d c a p i t a l and energy r e q u i r e m e n t s and y i e l d o n l y m a r g i n a l improvements i n FPP. Throughout t h e p e r i o d c o n s i d e r e d i n t h i s s t u d y i t ap-p e a r s t h a t w h i l e t h e e f f e c t o f speed on l a b o u r p r o d u c t i v i t y was r e c o g n i z e d , q u a l i t y c o n s i d e r a t i o n s r e l a t i n g t o speed were as i m p o r t a n t , and perhaps more i m p o r t a n t than t h e i n c e n t i v e p r e s e n t e d by r i s i n g wage r a t e s . I r o n i c a l l y , t h e r e i s e v i d e n c e o f a r e v e r s e dependency t h a t c l o u d s t h e p i c t u r e s t i l l f u r t h e r ; the r a t e o f i n c r e a s e i n h o u r l y wages f o r f l y i n g p e r s o n n e l was, i n f a c t , a f f e c t e d by the r a t e a t wh i c h a i r c r a f t speeds were i n -c r e a s e d by c h a n g i n g t e c h n o l o g y . I t was p o i n t e d o u t e a r l i e r t h a t wage r a t e s r o s e a b r u p t -22 l y when the j e t s were i n t r o d u c e d , b u t wages had been i n d e x e d t o c r u i s i n g speeds l o n g b e f o r e t h a t . As e a r l y as 1947, f l i g h t crews i n t h e U.S. were p a i d a c c o r d i n g t o a f o r m u l a t h a t took i n t o a c c o u n t a i r c r a f t speed, d i s t a n c e f l o w n , as w e l l as hours 23 f l o w n . The i m p l i c a t i o n s o f t h i s t y p e o f wage f o r m u l a was a dampening o f t h e i n c e n t i v e t o i n c r e a s e speed p r e s e n t e d by a r i s i n g r e l a t i v e f a c t o r p r i c e ; t h e f a c t o r p r i c e t r e n d was i t s e l f dependent upon t e c h n o l o g y . The i n c e n t i v e was n o t e n t i r e l y removed, however, because t h e wage f o r m u l a was such t h a t an i n -c r e a s e i n c r u i s i n g speed caused a l e s s t h a n p r o p o r t i o n a l i n -c r e a s e i n h o u r l y wage r a t e s . 2 ^ I n c r e a s e d A i r c r a f t C a p a c i t y The parameters w h i c h have i n f l u e n c e d a i r c r a f t c a p a c i t y were d i s c u s s e d i n some d e t a i l e a r l i e r i n t h i s c h a p t e r . I n es s e n c e , i t was argued t h a t i n c r e a s e s i n c a p a c i t y produce sav-i n g s i n a l l i n p u t s and a r e t h u s n o t dependent upon p a r t i c u l a r f a c t o r p r i c e t r e n d s - a r e d u c t i o n i n u n i t o p e r a t i n g c o s t s i s a c h i e v e d r e g a r d l e s s o f the r e l a t i v e p r i c e s o f i n p u t s . Thus, the r a t e a t wh i c h c a p a c i t y i s i n c r e a s e d becomes m a r k e t - o r i e n t -ed and i s n o t dependent upon t e c h n o l o g i c a l c a p a b i l i t y . As a r e s u l t , the f a c t t h a t t h e d i r e c t i o n o f i n n o v a t i o n has been t o -wards i n c r e a s e s i n c a p a c i t y i s not e v i d e n c e o f t h e i n f l u e n c e o f r i s i n g wage r a t e s because t h e r e s u l t a n t s a v i n g s i n l a b o u r i n p u t s would have been e c o n o m i c a l l y a t t r a c t i v e a t any wage r a t e . C a p a c i t y i n c r e a s e s a r e o f the n a t u r e o f ' b i a s e d - e f f i c i e n c y ' t e c h n o l o g i c a l changes because FPP i n c r e a s e s w h i l e t h e produc-t i v i t y o f a l l o t h e r i n p u t s e i t h e r i n c r e a s e s o r remains con-s t a n t . Such i n n o v a t i o n s a r e a t t r a c t i v e under a l l . r e l a t i v e f a c t o r p r i c e c o n d i t i o n s and w i l l n o t o c c u r o n l y i f o t h e r con-s i d e r a t i o n s a r e i n v o l v e d , such as t h e adverse impact here on s c h e d u l e f r e q u e n c y b r o u g h t about by c a p a c i t y i n c r e a s e s . ENERGY The t r e n d i n t h e average p r o d u c t i v i t y o f energy between 1948 and 1972 can be e s t a b l i s h e d from the i n d i c e s p r e s e n t e d i n C h a p t e r s I - I I I and compared w i t h t h e h i s t o r i c a l t r e n d i n t h e r e l a t i v e p r i c e o f energy g i v e n i n the I n t r o d u c t i o n . The com-p a r i s o n r e v e a l s t h a t the r e l a t i o n s h i p between p r i c e and produc-t i v i t y was c o n s i s t e n t w i t h a p r e d i c t i o n based on t h e economic t h e o r y o f p r o d u c t i o n ; e n e r g y - ^ p r o d u c t i v i t y (EP) changed l i t t l e d u r i n g t h e two p e r i o d s o f r e l a t i v e l y c o n s t a n t f u e l p r i c e and dropped s u b s t a n t i a l l y i n t h e t r a n s i t i o n p e r i o d when t h e r e was a s i g n i f i c a n t drop i n the p r i c e o f f u e l . The q u e s t i o n t o be a d d r e s s e d here i s whether i t can be shown t h a t the i n c e n t i v e s r e s u l t i n g from t h i s h i s t o r i c a l f a c t o r p r i c e t r e n d had a c a u s a l e f f e c t on t h e d i r e c t i o n o f i n n o v a t i o n . The d i s c u s s i o n w i l l be d i v i d e d i n t o two s e c t i o n s w h i c h c o n s i d e r , i n t u r n , energy e f f i c i e n c y o f e n g i n e s and o v e r a l l energy e f f i c i e n c y o f a i r -c r a f t . Engine E f f i c i e n c y The energy e f f i c i e n c y o f a i r c r a f t e n g i n e s i s g i v e n by t h e i r s p e c i f i c f u e l consumption ( s f c ) w h i c h measures t h e amount o f f u e l r e q u i r e d , i n pounds, t o produce one horsepower ( p i s t o n and t u r b o p r o p e n g i n e s ) o r one pound o f t h r u s t ( j e t e n g i n e s ) f o r one hour. T h i s parameter a l l o w s a s t r a i g h t f o r -ward comparison between e n g i n e s o f any one t y p e ; comparison 25 between types i s l e f t t o t h e second s e c t i o n . PISTON ENGINES - The d e s i g n o f t h e W r i g h t and P r a t t and Whitney e n g i n e s used i n the DC-3 s e t a p a t t e r n f o r a l l l a t e r 2 6 p i s t o n - e n g i n e s used on commercial a i r c r a f t and a s i d e from the turbo-compound designs< none o f the s e l a t e r e n g i n e s o f f e r e d much improvement i n s f c . I n f a c t , w h i l e the DC-3's e n g i n e s p r o v i d e d a twenty p e r c e n t r e d u c t i o n i n f u e l consumption com-p a r e d t o e a r l i e r d e s i g n s , even t h e s e improvements have been a t -t r i b u t e d l a r g e l y t o changes i n f u e l q u a l i t y w h i c h p e r m i t t e d the 2 7 use o f s u p e r c h a r g i n g and h i g h e r e n g i n e c o m p r e s s i o n r a t i o s . S i n c e t h e s e h i g h e r q u a l i t y ( h i g h e r octane) f u e l s were h i g h e r -p r i c e d , t h i s t e c h n o l o g i c a l improvement was n o t n e c e s s a r i l y d i r e c t e d towards r e d u c i n g f u e l c o s t s t h r o u g h improved energy-e f f i c i e n c y . Even though the turbo-compound p i s t o n e n g i n e s had t h e 2 8 l o w e s t s f c o f any sp a r k i g n i t i o n d e s i g n , they were n e i t h e r d e v e l o p e d n or adopted by t h e a i r l i n e s i n o r d e r t o reduce f u e l c o s t s . Turbo-compound e n g i n e s were d e v e l o p e d f o r the U.S. 175 29 m i l i t a r y t o improve t h e range o f t h e i r s t r a t e g i c bombers. T h e i r development was, i n o t h e r words, exogenous t o the a i r t r a n s p o r t a t i o n i n d u s t r y . The e n g i n e s were adopted by t h e a i r l i n e s n o t w i t h t h e i n t e n t i o n o f r e d u c i n g f u e l consumption, 30 but r a t h e r so t h a t range and c r u i s i n g speeds c o u l d be i n -c r e a s e d w i t h a i r c r a f t such as t h e DC-7. There i s f u r t h e r e v i d e n c e t h a t t h e d i r e c t i o n o f i n n o v a -t i o n i n r e s p e c t t o engine s f c was w h o l l y c o n s i s t e n t w i t h t h e economic model o f response t o f a c t o r p r i c e s . B o t h P r a t t and Whitney and W r i g h t d e s i g n e d low f u e l consumption e n g i n e s dur-i n g t h e 1930's b u t d i d not p r o c e e d w i t h t h e e f f o r t s because a t the time the demand was f o r h i g h e r power wh i c h i n v o l v e d l o w e r 31 c o m p r e s s i o n r a t i o s and l e s s f u e l economy. T h i s r e f l e c t s t h e f a c t t h a t the p r i c e o f f u e l was low and was n o t e x p e c t e d t o i n c r e a s e o v e r t i m e ; t h e r e was l i t t l e i n c e n t i v e t o d e v e l o p more e n e r g y - e f f i c i e n t e n g ine t e c h n o l o g y and thus i n n o v a t i o n c o u l d be d i r e c t e d towards o t h e r g o a l s . JET ENGINES - There was a s i g n i f i c a n t r e d u c t i o n i n s p e c i f i c f u e l consumption between the de H a v a i l l a n d Ghost t u r b o -32 jet used on the Comet and t h e P r a t t and Whitney JT3C, the f i r s t j e t engine t o be used by t h e d o m e s t i c t r u n k s . I n no way, however, can t h e r e l u c t a n c e o f t h e t r u n k s t o o r d e r t h e Comet be a t t r i b u t e d t o h i g h f u e l c o s t s . To the e x t e n t t h a t t h e r e was co n c e r n o v e r t h e i n e f f i c i e n c y o f t h e Ghost e n g i n e , i t was p r i m a r i l y r e l a t e d t o the r e s t r i c t e d r a n g e - p a y l o a d p e r -formance o f t h e Comet and n o t t o the amount o f f u e l consumed. B e h a v i o u r s u r r o u n d i n g t h e n e x t improvement i n e n g i n e e f f i c i e n c y , the t u r b o f a n , a l s o r e v e a l s an i n n o v a t i v e r e sponse t h a t a c c o r d s w i t h t h e o r e t i c a l p r e d i c t i o n . D o u g l a s , f o r ex-ample, i n i t i a l l y o f f e r e d the DC-8 w i t h b o t h American t u r b o j e t s 33 and t h e R o l l s - R o y c e Conway t u r b o f a n . I n s p i t e o f the op-p o r t u n i t y t o reduce f u e l consumption w i t h t h i s bypass e n g i n e , none o f the U.S. t r u n k s o r d e r e d t h e Conway on e i t h e r t h e DC-8 o r 707. The t u r b o f a n was e v e n t u a l l y i n t r o d u c e d i n A m e r i c a , not because of i t s i n c r e a s e d e n e r g y - e f f i c i e n c y , b u t because the h i g h e r c r u i s e t h r u s t o f the e n g ine p e r m i t t e d a s l i g h t i n -c r e a s e i n c r u i s i n g speeds. T h i s l e d American A i r l i n e s t o choose a G e n e r a l E l e c t r i c t u r b o f a n as p a r t o f the e f f o r t t o o b t a i n h i g h e r speed w i t h the C o n v a i r 990 and i n t u r n prompted B o e i n g and Douglas t o o f f e r t h e P r a t t and Whitney JT3D t u r b o -f a n on t h e i r a i r c r a f t . 3 ^ However, the new e n g i n e t e c h n o l o g y d i d n o t d i f f u s e r a p i d l y t h r o u g h t h e i n d u s t r y because o f t h e absence o f a s t r o n g f a c t o r p r i c e i n c e n t i v e . Only t h o s e c a r r i e r s t h a t r e q u i r e d i n -c r e a s e d range o r b e t t e r a i r f i e l d performance were e s p e c i a l l y i n t e r e s t e d i n the JT3D engine because i t s h i g h e r i n i t i a l c o s t outweighed th e r e d u c t i o n i n f u e l expense. B o e i n g , f o r exam-p l e , made c o n c u r r e n t d e l i v e r i e s o f t h e t u r b o j e t - p o w e r e d 720 (to B r a n i f f and E a s t e r n ) and t h e t urbofan-powered 720B (to N o r t h w e s t and Western) i n 1961. American A i r l i n e s were the o n l y c a r r i e r t o s t a n d a r d i z e on t h e t u r b o f a n e n g ine t h r o u g h new 177 o r d e r s and t h e c o n v e r s i o n o f o l d e r a i r c r a f t . T h i s a c t i o n , how-e v e r , r e f l e c t e d a p e c u l i a r m a r k e t i n g s t r a t e g y t h a t may have been 35 i n c o n s i s t e n t w i t h c o s t m i n i m i z a t i o n . The most r e c e n t e v e n t i n w h i c h engine e f f i c i e n c y changed took p l a c e w i t h the development and i n t r o d u c t i o n o f h i g h - b y p a s s t u r b o f a n s w h i c h have an s f c a p p r o x i m a t e l y t h i r t y p e r c e n t l o w e r than t h a t o f the JT3D. Because t h e i r d e v e l o p -ment was l a r g e l y , t h e r e s u l t o f a m i l i t a r y program, i t does n o t r e f u t e t h e p r e d i c t i o n t h a t r e s e a r c h w i l l be d i r e c t e d toward g o a l s w h i c h o f f e r t h e s t r o n g e s t f a c t o r p r i c e i n c e n t i v e . The new t e c h n o l o g y was adopted j o i n t l y w i t h t h e i n t r o d u c t i o n o f wide-body a i r c r a f t , an e v e n t t h a t was l a r g e l y q u a l i t y - o r i e n t e d . I t can be shown, however, t h a t an i m p o r t a n t p r o blem o f i d e n t i f i c a t i o n e x i s t s , i n t h a t r e d u c t i o n s i n e n g ine s f c w ould be a t t r a c t i v e even i f f u e l were a f r e e good. The com-p l i c a t i o n a r i s e s from th e f a c t t h a t an a i r c r a f t must c a r r y n o t o n l y i t s p a y l o a d b u t a l s o the f u e l i t r e q u i r e s t o complete a f l i g h t . Even i f t h e d e s i g n o f t h e a i r c r a f t i s unchanged, any r e d u c t i o n i n e n g ine s f c w i l l a l l o w a commensurate improvement 3 6 i n r a n g e - p a y l o a d performance. The b e n e f i t s o f a r e d u c t i o n i n s f c a r e even g r e a t e r i f i t can be t a k e n i n t o a c c o u n t w h i l e the a i r c r a f t i s b e i n g d e s i g n e d . F o r example, an improvement i n e n g i ne e f f i c i e n c y can r e s u l t i n a s u b s t a n t i a l i n c r e a s e i n b o t h range and p a y l o a d w h i l e h o l d i n g t h e o v e r a l l s i z e o f the a i r c r a f t and engine t h r u s t r e q u i r e m e n t s t h e same as they would have been w i t h l e s s e f f i c i e n t e n g i n e s . There c o u l d a l s o be 178 a r e d u c t i o n i n a i r c r a f t w e i g h t and t h r u s t r e q u i r e m e n t s i f r a n g e - p a y l o a d performance were l e f t c o n s t a n t . F o r example, i f t h e B o e i n g 707 had been d e s i g n e d from t h e o u t s e t w i t h h i g h -bypass e n g i n e s , i t c o u l d have been made l i g h t e r , w i t h r e d u c e d l i f t and t h r u s t r e q u i r e m e n t s , f o r the same range and p a y l o a d 37 performance as t h e t u r b o j e t - p o w e r e d d e s i g n . T h i s would r e -s u l t i n a c o r r e s p o n d i n g r e d u c t i o n i n c a p i t a l c o s t p e r s e a t . I t i s c l e a r t h a t t h e i n c e n t i v e t o reduce e n g i n e s f c i s n o t a d e q u a t e l y r e f l e c t e d i n t h e p r i c e o f f u e l . C e r t a i n l y i t i s t o be e x p e c t e d t h a t a h i g h e r f u e l p r i c e w i l l p r o v i d e a g r e a t e r i n c e n t i v e t o i n c r e a s e e n g ine e f f i c i e n c y , b u t t h i s i n -c e n t i v e does n o t change i n p r o p o r t i o n t o f u e l p r i c e . Even a t a z e r o f u e l p r i c e the i n c e n t i v e t o o p t i m i z e e n g i n e e f f i c i -ency remains because o f i t s e f f e c t on range, p a y l o a d , e n g ine s i z e and/or a i r f r a m e c o s t . Thus, t h e appearance o f more e f f i c i e n t e n g i n e s i n a p e r i o d o f c o n s t a n t f u e l p r i c e s does n o t d i s p r o v e t h e argument t h a t the d i r e c t i o n o f i n n o v a t i o n w o u l d have been towards g o a l s o t h e r than the r e d u c t i o n o f f u e l consumption p e r u n i t o f o u t p u t . O v e r a l l E n e r g y - E f f i c i e n c y Because a i r c r a f t e n e r g y - e f f i c i e n c y has r e c e i v e d a t t e n -t i o n e a r l i e r i n t h i s s t u d y and i s c o n s i d e r e d f u r t h e r i n an Appendix, t h i s s e c t i o n s e r v e s t o i n d i c a t e o n l y two phenomena as e v i d e n c e o f i n n o v a t i v e response t o the d e c l i n i n g r e l a t i v e p r i c e o f f u e l : - improvements i n e n gine e f f i c i e n c y have n o t n e ces-s a r i l y appeared as c o r r e s p o n d i n g i n c r e a s e s , i n o v e r -a l l e n e r g y - e f f i c i e n c y , and - improvements i n o v e r a l l e n e r g y - e f f i c i e n c y have gener-a l l y o c c u r e d o n l y i n a s s o c i a t i o n w i t h e i t h e r improve-ments i n ' q u a l i t y * o r i n c r e a s e s i n t h e p r o d u c t i v i t y o f o t h e r f a c t o r s . E v i d e n c e p r e s e n t e d i n t h i s s t u d y , as w e l l as a n o t h e r 38 s o u r c e i n d i c a t e s t h a t t h e f u e l consumption t h e t h e DC-7 was as g r e a t a s , o r perhaps g r e a t e r than t h a t o f the DC-6B. T h i s appears t o c o n f l i c t w i t h the reduced s f c o f the turbo-compound e n g i n e . The r e a s o n f o r t h i s i s t h e i n c r e a s e d c r u i s i n g speed o f t h e DC-7 w h i c h r e q u i r e d an i n c r e a s e i n e n g i n e t h r u s t . W h i l e the e n g i n e s produced power more e f f i c i e n t l y , the a i r c r a f t r e q u i r e d h i g h e r power o u t p u t s w h i c h , i n e f f e c t , d i s s i p a t e d the b e n e f i t s o f improved e n g i n e e f f i c i e n c y . The same phenomenon o c c u r r e d w i t h the i n t r o d u c t i o n o f t u r b o f a n e n g i n e s . The Con-v a i r 990, f o r example, had more e f f i c i e n t t u r b o f a n e n g i n e s , b u t the i n c r e a s e d t h r u s t r e q u i r e d t o a c h i e v e a h i g h e r c r u i s i n g speed than t u r b o j e t a i r c r a f t negated the e f f e c t o f improved e n g i n e e f f i c i e n c y . Some o f the most s i g n i f i c a n t i n c r e a s e s i n o v e r a l l en-e r g y - e f f i c i e n c y stemmed from the ' s t r e t c h i n g ' o f a i r f r a m e s . As d i s c u s s e d p r e v i o u s l y , however, t h i s t y pe o f t e c h n o l o g i c a l change i s a t t r a c t i v e r e g a r d l e s s o f r e l a t i v e f a c t o r p r i c e s . 180 A n o t h e r s i g n i f i c a n t improvement i n e n e r g y - e f f i c i e n c y accom-p a n i e d the i n t r o d u c t i o n o f wide-body a i r c r a f t b u t t h i s i n n o v a -t i o n , i t has been argued, was t h e r e s u l t o f ' q u a l i t y 1 c o n s i d e r -a t i o n s . I n b o t h o f t h e above examples, the developments would have been a t t r a c t i v e even i n t h e absence o f the improve-ment i n o v e r a l l e n e r g y - e f f i c i e n c y . CAPITAL Data g i v e n i n t h e I n t r o d u c t i o n r e v e a l e d t h a t the p r i c e o f c a p i t a l has been r e l a t i v e l y c o n s t a n t o v e r time and has de-c l i n e d r e l a t i v e t o the p r i c e o f l a b o u r . The i n d i c e s c a l c u -l a t e d i n C h a p t e r s I - I I I show t h a t the p r o d u c t i v i t y o f c a p i t a l remained r e l a t i v e l y c o n s t a n t o v e r time b u t f e l l r e l a t i v e t o the p r o d u c t i v i t y o f l a b o u r . Thus the d i r e c t i o n o f t e c h n o l o -g i c a l change i s once a g a i n c o n s i s t e n t w i t h p r i n c i p l e s o f the t h e o r y o f p r o d u c t i o n . There a r e , however, two o b s t a c l e s w h i c h make i t d i f f i -c u l t t o make c o n c l u s i o n s r e g a r d i n g t h e degree o f c a u s a l i t y im-p l i c i t i n t h i s i n n o v a t i v e b e h a v i o u r . F i r s t o f a l l , t h e r e has a l r e a d y been d i s c u s s i o n i n terms o f two o t h e r f a c t o r i n p u t s , and i t i s d i f f i c u l t t o c o n s i d e r an a d d i t i o n a l parameter w i t h -o u t r e n d e r i n g the a n a l y s i s t a u t o l o g i c a l . F u r t h e r m o r e , t h e r e a r e s e v e r a l c o m p l i c a t i o n s r e l e v a n t t o the a n a l y s i s o f c a p i t a l i n v e s t m e n t w h i c h cannot be t r e a t e d a d e q u a t e l y w i t h i n the scope o f the p r e s e n t s t u d y . T h i s d i s c u s s i o n w i l l t h e r e f o r e o u t l i n e two s o u r c e s o f t h e s e c o m p l i c a t i o n s and, i n t h i s l i g h t , examine 181 whether t h e r e i s s t i l l e v i d e n c e t o s u g g e s t t h a t t h e l e v e l o f i n t e r e s t r a t e s has i n f l u e n c e d the d i r e c t i o n o f t e c h n o l o g i c a l change. D i s t o r t i o n s A f f e c t i n g C a p i t a l P r o d u c t i v i t y Measurement The f i r s t d i s t o r t i o n a f f e c t i n g measurement o f c a p i t a l p r o d u c t i v i t y i s a t e c h n i c a l one w h i c h was a l l u d e d t o i n Chap-t e r I . I t a r i s e s from t h e c o r r e l a t i o n between s t a t i c c a p i -t a l c o s t ( i . e . o r i g i n a l c o s t p e r s e a t ) and a i r c r a f t range. The DC-7C, f o r example, was d e s i g n e d t o p r o v i d e range i n e x c e s s of t h a t r e q u i r e d f o r domest i c o p e r a t i o n s , and t h i s i n -39 e v i t a b l y r e s u l t e d i n a more e x p e n s i v e a i r c r a f t . I n c r e a s e d range o r i n c r e a s e d s a f e t y a re j u s t two o f the dimensions o f a i r c r a f t c a p a b i l i t y t h a t c a nnot be i n c o r p o r a t e d i n t o a measure-40 ment o f c a p i t a l p r o d u c t i v i t y i n terms o f s e a t - m i l e o u t p u t . A r e l a t e d s h o r t c o m i n g o f t h e average c a p i t a l p r o d u c t i -v i t y measurement stems from i t s i n a b i l i t y t o t a k e i n t o a c c o u n t t h a t i n t a n g i b l e q u a l i t y r e f e r r e d t o i n C h a p t e r I I I as v e r s a -t i l i t y . T y p i c a l o f most c a p i t a l equipment, an a i r c r a f t c an-n o t be d e s i g n e d t o p e r f o r m a v a r i e t y t a s k s f o r t h e same p r i c e as a n o t h e r a i r c r a f t d e s i g n e d t o p e r f o r m j u s t one t a s k . T h i s was r e f l e c t e d i n t h e comparison o f c a p i t a l p r o d u c t i v i t y o f t h e s h o r t - t o medium-range 727 and the s h o r t - r a n g e DC-9 and 737. Based on a measurement o f average c a p i t a l p r o d u c t i v i t y p e r s e , the l a t t e r a i r c r a f t appear t o be s u p e r i o r . Y e t i f an a i r -l i n e ' s t o t a l f l e e t a c q u i s i t i o n were examined, the former may be 182 t h e more p r o f i t a b l e i n v e s t m e n t . The v e r s a t i l i t y o f the 727 may, f o r example, a l l o w i t t o be o p e r a t e d o v e r s h o r t - h a u l r o u t e s as w e l l as l o n g e r r o u t e s t h a t a r e beyond t h e c a p a b i l i t y o f the DC-9 and 737. A c a r r i e r may a c c e p t l o w e r c a p i t a l p r o -d u c t i v i t y w i t h t h e 72 7 on i t s s h o r t r o u t e s i n o r d e r t o a c h i e v e s a v i n g s i n t r a i n i n g r e q u i r e m e n t s , maintenance expenses, s p a r e s i n v e n t o r y and perhaps i n c r e a s e d u t i l i s a t i o n as a r e s u l t o f s t a n d a r d i z i n g on one a i r c r a f t t y p e . Thus, a d i r e c t mea-surement o f c a p i t a l p r o d u c t i v i t y may n o t be s u i t a b l e f o r r a n k -i n g a i r c r a f t ; i n terms o f economic e f f i c i e n c y . A d d i t i o n a l c o m p l i c a t i o n s a r i s e from the manner i n w h i c h t h e p r i c e s o f new a i r c r a f t a r e d e t e r m i n e d . T h i s i s a r e s u l t o f o l i g o p o l y power i n t h e m a n u f a c t u r i n g i n d u s t r y and the impact o f f i x e d development c o s t s on s e l l i n g p r i c e s . I t seems r e a s o n a b l e t o e x p e c t t h a t t h e upper l i m i t t o the p r i c e o f a new d e s i g n i s d e t e r m i n e d by t h e p r i c e o f c o m p e t i t i v e a i r -c r a f t c a p a b l e o f p e r f o r m i n g t h e same t a s k ( i . e . h a v i n g the same o r s i m i l a r range, speed, c a p a c i t y e t c . ) . The l o w e r l i m i t t o the p r i c e o f t h e g i v e n a i r c r a f t would be t h e d i r e c t c o s t s o f i t s m a nufacture. S u b j e c t t h e n t o the a v a i l a b i l i t y o f c l o s e s u b s t i t u t e s , t h e m a n u f a c t u r e r i s f r e e t o p r i c e the new d e s i g n anywhere w i t h i n t h i s range. F o r example, the upper l i m i t t o the p r i c e o f t h e DC-8 was f i x e d by the p r i c e o f t h e 707, a d i r e c t l y c o m p e t i t i v e d e s i g n . The p r i c e o f the 727, on the o t h e r hand, was c o n t r a i n e d o n l y by t h e c a p i t a l i z e d v a l u e 183 o f the d i f f e r e n c e i n o p e r a t i n g c o s t s ( e x c l u d i n g d e p r e c i a t i o n ) between i t and the n e x t most s u i t a b l e a i r c r a f t f o r a g i v e n r o u t e s t r u c t u r e . The measure o f c a p i t a l p r o d u c t i v i t y used i n t h i s s t u d y i s a f f e c t e d by t h i s o l i g o p o l i s t i c i n t e r d e p e n d e n c e and thus does n o t r e f l e c t t e c h n i c a l v a r i a b l e s a l o n e . A r e l a t e d d i s t o r t i o n a r i s e s from the f a c t t h a t a s i g -n i f i c a n t p o r t i o n o f an a i r c r a f t ' s s e l l i n g p r i c e r e p r e s e n t s a w r i t e - o f f o f t h e f i x e d c o s t s o f r e s e a r c h and development. To the e x t e n t t h a t two m a n u f a c t u r e r s compete on t h e b a s i s o f p r i c e , t h e r e would l i k e l y be a s t r o n g r e s i s t a n c e t o e s t a b l i s h -i n g a p r i c e below a l e v e l e q u a l t o d i r e c t m a n u f a c t u r i n g c o s t 41 p l u s a p r o - r a t e d s hare o f t o t a l development c o s t s . T h i s development c o s t component o f p r i c e w i l l depend on a n t i c i p a t e d t o t a l s a l e s f o r the t y p e . Thus the demand f o r a i r t r a n s p o r -t a t i o n and, i n t u r n , the d e r i v e d demand f o r new equipment w i l l i m pact upon c a p i t a l . c o s t s . The 747, f o r example, may f a l l i n a r a n g e / c a p a c i t y s p e c i f i c a t i o n f o r w h i c h t h e r e i s l e s s t o t a l demand th a n f o r a i r c r a f t such as t h e DC-10. I f t h i s were so, the s e l l i n g p r i c e o f the former would r i s e r e l a t i v e t o t h a t o f t h e l a t t e r r e g a r d l e s s o f the r e l a t i o n s h i p between t h e i r t o t a l development c o s t s and i n d i v i d u a l d i r e c t m a n u f a c t u r i n g c o s t s . When the above e f f e c t s are t a k e n i n t o a c c o u n t i t be-comes o b v i o u s t h a t t h e p r i c e s o f new a i r c r a f t cannot be t a k e n as t r u e measures o f the m a t e r i a l , l a b o u r and o t h e r i n p u t s i n c o r -p o r a t e d i n t h e i r d e s i g n . T h i s poses an o b v i o u s i d e n t i f i c a t i o n p r o b l em i n t h a t i t i m p l i e s t h a t changes o v e r time i n t e c h n i c a l 184 e f f i c i e n c y i n the use o f c a p i t a l r e f l e c t more th a n s i m p l y an a d j u s t m e n t o f f a c t o r p r o p o r t i o n s . The f o l l o w i n g s e c t i o n w i l l i l l u s t r a t e t h a t even i f a i r c r a f t p r i c e were a r e l i a b l e i n d i c a -t o r o f t h e i n p u t s embodied i n c a p i t a l equipment, the i n c e n t i v e f a c i n g the a i r l i n e s t o maximize c a p i t a l p r o d u c t i v i t y i s n o t always t r u l y r e p r e s e n t e d by i n t e r e s t r a t e s . D i s t o r t i o n s i n the C o s t o f C a p i t a l Any s t u d y o f t h e a i r l i n e s i n d u s t r y would r e v e a l a r e l a t i v e l y low i n c e n t i v e t o m i n i m i z e o v e r a l l c a p i t a l e x p e n d i -t u r e s because o f the p e c u l i a r c o m p e t i t i v e b e h a v i o u r o f the a i r -l i n e s . F o r example, d a i l y a i r c r a f t u t i l i z a t i o n - w h i c h has a d i r e c t i n f l u e n c e on u n i t c a p i t a l c o s t s - i s c o n s t r a i n e d by the f a c t t h a t t r a v e l demand peaks d u r i n g c e r t a i n hours o f the day. M a r k e t - s h a r e r i v a l r y , and c o m p e t i t i o n o v e r the awarding o f new r o u t e a u t h o r i t i e s , d i s c o u r a g e s a i r l i n e s from b e i n g c o n s e r v a -t i v e i n t h e i r a n a l y s i s o f f u t u r e equipment needs and o f t e n l e a d s 42 to c h r o n i c o v e r c a p a c i t y i n the i n d u s t r y . What i s more r e l e -v a n t t o t h i s s t u d y , however, i s a d i s t o r t i o n due t o r e g u l a t o r y r e s t r a i n t w h i c h i m p a c t s upon t h e d e t e r m i n a t i o n o f the optimum c o m b i n a t i o n o f f a c t o r i n p u t s . T h i s d i s t o r t i o n - the A v e r c h -43 Johnson e f f e c t - can u p s e t t h e b e h a v i o u r o f f i r m s i n r e s p e c t t o the optimum l e v e l o f t e c h n i c a l e f f i c i e n c y i n t h e use o f c a p i t a l wherever t h e i n d u s t r y i s s u b j e c t t o r e g u l a t i o n on t h e b a s i s o f r e t u r n on i n v e s t m e n t . The u n d e r l y i n g s o u r c e o f the d i s t o r t i o n i s the f a c t t h a t where t h e r e g u l a t e d r a t e o f r e t u r n i s g r e a t e r than the 185 c o s t o f c a p i t a l b u t l e s s t h a n t h e r a t e o f r e t u r n t h a t would e x i s t i f t h e f i r m were u n r e g u l a t e d , t h e c o s t o f c a p i t a l t o the f i r m no l o n g e r e q u a l s market c o s t . The f i r m w i l l s u b s t i t u t e c a p i t a l f o r o t h e r , . f a c t o r s such t h a t s o c i a l c o s t s are n o t m i n i -m ized because f o r each a d d i t i o n a l u n i t o f c a p i t a l i n p u t the f i r m i s p e r m i t t e d t o e a r n a p r o f i t e q u a l t o the d i f f e r e n c e be-tween the market c o s t o f c a p i t a l and t h e r e g u l a t e d r a t e o f r e t u r n . The e f f e c t i s a n a l o g o u s - t o t h a t o f c h a n g i n g the r e l a -t i v e p r i c e o f c a p i t a l and may f r u s t r a t e any a t t e m p t t o l i n k changes i n b e s t p r a c t i c e t e c h n i q u e d i r e c t l y t o changes i n r e l a -t i v e f a c t o r p r i c e s . The phenomenon can be i l l u s t r a t e d by c o n s i d e r i n g a c a r r i e r e a r n i n g p r o f i t s i n t h e c u r r e n t y e a r o f $10 m i l l i o n w i t h an i n v e s t m e n t base o f $100 m i l l i o n , thus a c h i e v i n g a 10 p e r c e n t r e t u r n on i n v e s t m e n t . To s a t i s f y the Averch-Johnson c o n d i -t i o n s , i t i s assumed t h a t t h e a l l o w e d r a t e o f r e t u r n i s 10 p e r -c e n t and the market r a t e o f i n t e r e s t i s 8 p e r c e n t . I f demand were e x p e c t e d t o i n c r e a s e i n t h e f o l l o w i n g y e a r t o p e r m i t a p r o f i t o f $12 m i l l i o n w i t h no i n c r e a s e i n c a p i t a l i n v e s t m e n t , the c a r r i e r would exceed the a l l o w a b l e r e t u r n and. c o u l d t h e r e -f o r e a n t i c i p a t e a f o r c e d r e d u c t i o n i n f a r e s . However, i f i t were p o s s i b l e t o i n v e s t $20 m i l l i o n i n new a i r c r a f t t h a t had h i g h o p e r a t i n g c o s t s and imposed an economic l o s s o f $0.1 mil^-l i o n , t o t a l p r o f i t s would be r e d u c e d t o $11.9 m i l l i o n . T h i s r e d u c t i o n i n p r o f i t , combined w i t h t h e $20 m i l l i o n i n c r e a s e i n r a t e base would l e a v e the c a r r i e r w i t h a r e t u r n on i n v e s t -186 44 ment j u s t below the a l l o w a b l e l e v e l o f 10 p e r c e n t . The ' l o s s ' i n v e s t m e n t p e r m i t s an i n c r e a s e i n p r o f i t o f $1.9 m i l l i o n f o r an i n v e s t m e n t o f $20 m i l l i o n , y i e l d i n g a r e t u r n o f 9.5 p e r c e n t w h i c h exceeds t h e c o s t o f c a p i t a l . E v i d e n c e o f I n n o v a t i v e Response t o the R e l a t i v e  P r i c e o f C a p i t a l C a l c u l a t i o n s i n C h a p t e r I o f t h i s s t u d y i n d i c a t e d an i n c r e a s e - i n the average p r o d u c t i v i t y o f c a p i t a l between the DC-4 and t h e DC-6. T h i s does n o t , however, appear, t o be e i t h e r a f a c t o r s u b s t i t u t i o n e f f e c t ( f o r i n f a c t t h e p r i c e o f c a p i t a l was d e c l i n i n g r e l a t i v e t o t h a t o f l a b o u r ) nor a r e s u l t o f t e c h n o l o g i c a l change (the DC-6 was s i m p l y a d e r i v a t i v e o f the DC-4). The improvement was s i m p l y the r e s u l t o f c i r c u m -s t a n c e s i n t h e m a n u f a c t u r i n g i n d u s t r y . The DC-4 and the DC-6 had e s s e n t i a l l y the same aerodynamic and s t r u c t u r a l d e s i g n and i t i n e v i t a b l e t h a t b o t h t h e development and m a n u f a c t u r i n g c o s t s 4 5 o f the DC-6 would be below th o s e o f t h e e a r l i e r a i r c r a f t . O r i g i n a l c o s t o f t h e DC-6 may have been f u r t h e r r e d u c e d because, u n l i k e t h e DC-4, i t had o r i g i n a t e d as a m i l i t a r y d e s i g n and i t s e n g i ne had been i n l a r g e s c a l e p r o d u c t i o n f o r the m i l i t a r y be-f o r e t h e commercial v e r s i o n a p p e a r e d . 4 ^ The d e s i g n t h a t appeared a f t e r t h e DC-6, t h e DC-7, had c a p i t a l p r o d u c t i v i t y e q u a l t o 0.77 t i m e s and f l i g h t p e r s o n n e l p r o d u c t i v i t y e q u a l t o 1.17 ti m e s t h a t o f the DC-6B. A t f i r s t g l a n c e , t h i s may appear t o be an i n n o v a t i v e r e s ponse t o the de-c l i n i n g r e l a t i v e p r i c e o f c a p i t a l . I n a c t u a l f a c t , t h e r e i s 187 s t r o n g e v i d e n c e t h a t t h i s change i n f a c t o r c o m b i n a t i o n s can be e x p l a i n e d i n terms o f t h e Averch-Johnson e f f e c t . I n the p e r i o d from 1950 t o 1956, the average r e t u r n on i n v e s t m e n t f o r the 47 d o m e s t i c t r u n k s ranged between 9.4 and 13.6 p e r c e n t , exceed-i n g the CAB r a t e o f r e t u r n s t a n d a r d w h i c h a t t h a t t ime s t o o d 48 a t 8 p e r c e n t . T h i s a l l o w a b l e r a t e o f r e t u r n exceeded the market c o s t o f l o n g - t e r m debt f i n a n c i n g w h i c h was then below 5 p e r c e n t f o r t h e t r u n k s . Thus, the Averch-Johnson c o n d i t i o n s were s a t i s f i e d , and the t r u n k s were f a c e d w i t h an i n c e n t i v e t o p urchase the more c a p i t a l - i n t e n s i v e DC-7's even though t h e i r o p e r a t i n g c o s t s were known t o exceed t h o s e o f the DC-6B. I n f a c t , the CAB was p r e p a r i n g t o t a k e a c t i o n t o reduce the p r o -49 f i t l e v e l s o f t h e c a r r i e r s j u s t as the DC-7 was i n t r o d u c e d . A subsequent d e c l i n e i n t h e average r a t e o f r e t u r n o f the 50 t r u n k s l e d t h e Board t o r e v e r s e t h i s a c t i o n and p e r m i t a f a r e 51 i n c r e a s e i n 1958. I n the l i g h t o f t h i s e v i d e n c e , the DC-7 must be r e j e c t e d as an example o f an i n n o v a t i v e response t o the d e c l i n i n g r e l a t i v e p r i c e o f c a p i t a l . As d i s c u s s e d p r e v i o u s l y , the m i l i t a r y e x e r t e d a p r o -found i n f l u e n c e on the development o f the f i r s t j e t t r a n s p o r t s i n the U n i t e d S t a t e s . The e ngines were ' o f f the s h e l f m i l i -t a r y u n i t s and t h e development c o s t s o f t h e f i r s t U.S. commer-c i a l j e t , the 707, were l a r g e l y w r i t t e n o f f a g a i n s t t h e produc-t i o n o f KC-135 t a n k e r - t r a n s p o r t s . Thus i t i s u n l i k e l y t h a t the p r i c e o f the 707 r e f l e c t e d f a i r l y upon the c o s t s o f t h e new t e c h n o l o g y r e l a t i v e t o t h o s e o f p i s t o n a i r c r a f t . I t i s 188 f a r more l i k e l y t h a t the important c o n s t r a i n t s on the p r i c e of the 70 7 was the expected response of competitive manufacturers as w e l l as the impact of c a p i t a l costs on the o v e r a l l operat-i n g costs of the 707 r e l a t i v e to- p i s t o n a i r c r a f t . The r e l a t i v e l y high o r i g i n a l cost per seat o f the 747 again suggests a p o s s i b l e example of a f a c t o r s u b s t i t u t i o n c r e -ated by a low r e l a t i v e p r i c e f o r c a p i t a l . Again, however, t h i s hypothesis must be r e j e c t e d and the phenomenon a t t r i b u t e d i n s t e a d to o l i g o p o l y power i n a i r c r a f t manufacturing. For example, an e f f o r t might have been made to reduce the o r i g i n a l c o s t per seat of the a i r c r a f t by ' s t r e t c h i n g ' the a i r f r a m e . As i t was however, the 74 7 was f e l t to be too l a r g e a t the time of i t s i n t r o d u c t i o n , and any increase i n c a p a c i t y would un-doubtedly have reduced t o t a l s a l e s and thereby increased the development cost component of the a i r c r a f t p r i c e . I t appears t h a t the o r i g i n a l c o s t of the 74 7 was set i n accordance w i t h the o v e r a l l o p e r a t i n g costs of i t s nearest s u b s t i t u t e ; i t was no coincidence t h a t the lower f u e l and labour costs of the a i r -c r a f t were j u s t o f f s e t by higher c a p i t a l c o s t s , r e s u l t i n g i n t o t a l o p e r a t i n g costs per seat-mile t h a t were competitive w i t h those of the Series-60 DC-8's. CONCLUSIONS a) O l i g o p o l i s t i c interdependence and government r e g u l a t i o n i n the a i r l i n e i n d u s t r y have removed much of the i n c e n t i v e to 189 e i t h e r i n i t i a t e o r adopt c o s t - r e d u c i n g i n n o v a t i o n s . Innova-t i o n has become o r i e n t e d as much t o q u a l i t y as t o c o s t c o n s i d -e r a t i o n s . b) There i s s t r o n g e v i d e n c e t h a t the r a t e o f t e c h n o l o g i -c a l change has been d e t e r m i n e d e x o g e n o u s l y . c) Problems o f i d e n t i f i c a t i o n s u r f a c e when an attempt i s made t o de t e r m i n e whether t h e d i r e c t i o n o f t e c h n o l o g i c a l change has been c a u s a l l y r e l a t e d t o r e l a t i v e f a c t o r p r i c e s . The most c o n v i n c i n g e v i d e n c e t h a t f a c t o r p r i c e had a c a u s a l e f f e c t on the p a t t e r n o f i n n o v a t i o n i s i n t h e h i s t o r i c a l t r e n d o f t e c h n i -c a l e f f i c i e n c y f o r energy. T e c h n i c a l e f f i c i e n c y dropped i n the t r a n s i t i o n p e r i o d t o t a k e advantage o f a l o w e r - c o s t f u e l and was s u b s e q u e n t l y improved o n l y as an i n d i r e c t r e s u l t o f i n n o v a t i o n s adopted t o a c h i e v e o t h e r g o a l s . There were many o p p o r t u n i t i e s f o r i m p r o v i n g energy p r o d u c t i v i t y t h a t were n o t e x p l o i t e d because o f t h e low r e l a t i v e p r i c e o f energy. Appendix D p r o v i d e s f u r t h e r i n s i g h t i n t o t h i s s i t u a t i o n w i t h an e x a m i n a t i o n o f t h e p o s s i b l e i m p a c t s on p a s t t e c h n o l o g i -c a l e v e n t s o f a h i g h e r r e l a t i v e p r i c e f o r energy. REFERENCES INTRODUCTION: 1. C f . M. K a t s o u l i s , Energy Impacts of. Passenger Trans-p o r t a t i o n , pp.1-5 and E. H i r s t , " T r a n s p o r t a t i o n Energy C o n s e r v a t i o n : O p p o r t u n i t i e s and P o l i c y I s s u e s , " T r a n s p o r t a t i o n J o u r n a l ( S p r i n g 1974) pp.42-52. 2. See K a t s o u l i s , op. c i t . ; H i r s t , op. c i t . ; W. E. Mooz, The E f f e c t o f F u e l P r i c e I n c r e a s e s on Energy I n - t e n s i v e n e s s o f F r e i g h t T r a n s p o r t ; and R. A. R i c e , "System Energy and F u t u r e T r a n s p o r t a t i o n , " Technology Review (January 1972) pp.31-37. 3. See K a t s o u l i s , op. c i t . , pp.155-59; W. P. Goss and J . G. McGowan"^ " T r a n s p o r t a t i o n and Energy - A F u t u r e C o n f r o n t a t i o n , " T r a n s p o r t a t i o n , V o l . 1, No. 3 (November 1972) pp,265-89 and D. A. P i 1 a t i , ' A i r p l a n e  Energy Use and C o n s e r v a t i o n S t r a t e g i e s . 4. R. M i l l e r and D. Sawers, The T e c h n i c a l Development o f Modern A v i a t i o n , p.303. 5. A v i a t i o n Week, V o l . 85, No. 18 (October 31, 1966) p.95. The ' B i g Four' t r u n k s are A m e r i c a n , E a s t e r n , Trans World and U n i t e d A i r l i n e s . 6. "ATA A n a l y s i s F o r e c a s t s A i r l i n e Economic Squeeze," "s A v i a t i o n Week, (May 27, 1974). p.27. 7. Op. c i t . , p.303. 8. Sources: 1949, G. L. C h r i s t i a n , "Spark Advance Saves at N a t i o n a l , " A v i a t i o n Week,, V o l . 54, No. 10 (March 5, 1951) p.23; 19 51, A v i a t i o n Week, V o l . 54, No. 4 (January 8, 1951) pp.15-17; 1959, M i l l e r and Sawers, op. c i t . , p.187; 1967, C i v i l Aeronautics Board, A i r c r a f t Operating Cost a'n'dv Performance Report, V o l . I l l (August 1969) . ! 9. So u r c e s : 1951, A v i a t i o n Week, V o l . 54, No. 4 (January 8, 1951) pp.15-17; 1959, M i l l e r and Sawers, op. c i t . , p.187; 1967, CAB,-op. c i t . 10. R i c h a r d E. Caves, s A i r T r a n s p o r t and I t s ' R e g u l a t o r s , p.393. " 11. ' A v i a t i o n Week, (August 21, 1967) p.26. 190 191 12. T h i s i s d i s c u s s e d i n Chapter I I . 13. Op. c i t . , p.30 3. 14. I b i d . , p.421. 15. Aaron J . Gellman, The E f f e c t o f R e g u l a t i o n on A i r c r a f t C h o i c e , p.195. 16. A l m a r i n P h i l l i p s , Technology and Market S t r u c t u r e , p.71. 17. Op. c i t . 18. Op. c i t . , pp.56, 63-68. 19. T. E. K e e l e r , " A i r l i n e R e g u l a t i o n and Market P e r f o r m -ance," B e l l J o u r n a l o f Economics and Management  S c i e n c e , V o l . 3, No. 2 (Autumn 1972) pp.399-424. 20. Caves, op. c i t . , p.67, K e e l e r , op. c i t . , p.402. 192 CHAPTER I : 1. The B-307 was l o o k e d upon as i n f e r i o r t o the a i r c r a f t w h i c h f o l l o w e d i t and met w i t h passenger r e s i s t a n c e i n c o m p e t i t i o n w i t h TWA's r i v a l s d u r i n g t h e l a t e 1940's. See f o r example, P a u l C h e r i n g t o n , A i r l i n e  P r i c e P o l i c y , pp.206, 253-54. 2. Wing l o a d i n g i s d e f i n e d as the g r o s s w e i g h t o f the a i r c r a f t d i v i d e d by t o t a l w i n g a r e a . F o r a g i v e n d e s i g n , an i n c r e a s e i n wing l o a d i n g i m p l i e s an i n -c r e a s e i n t a k e - o f f and l a n d i n g speeds and a conse-quent i n c r e a s e i n runway l e n g t h r e q u i r e m e n t s . Thus, the DC-3 (wing l o a d i n g 24.3 pounds p e r square f o o t ) had a 2680 f o o t runway l e n g t h r e q u i r e m e n t w h i l e the DC-4 (35.6 pounds p e r square f o o t ) r e q u i r e d 4400 f e e t . See M i l l e r and Sawers, op. c i t . , p.130. 3. Hughes had become TWA's p r i n c i p a l s h a r e h o l d e r by 1939. See R. E. G. D a v i e s , A H i s t o r y o f the World's A i r - l i n e s , p.246. 4. Only one t r u n k c a r r i e r , N a t i o n a l A i r l i n e s , took d e l i v e r y o f new DC-4s a f t e r t h e war. Gellman, op. c i t . , p.40. 5. P h i l l i p s , op. c i t . , pp.151-52. 6. T y p i c a l (and maximum) c r u i s i n g speeds g i v e n f o r the DC-4, DC-6, and C o n s t e l l a t i o n by v a r i o u s s o u r c e s range as f o l l o w s : DC-4, 180-227 (234-246); DC-6, 270-310 (310); C o n s t e l l a t i o n , 260-285 (310-328). A l l speeds a re i n m i l e s p e r hour. 7. T h i s s t a t e m e n t i s made i n Caves, op. c i t . , p.100, on the b a s i s o f i n f o r m a t i o n , g i v e n i n T a y l o r , H i g h H o r i z o n s - The U n i t e d A i r l i n e s S t o r y , p.150. 8. C h e r i n g t o n , op. c i t . , pp.186-95. 9. Caves, op. c i t . , p.145. 10. U n i t e d and TWA f o l l o w e d American's l e a d q u i c k l y b u t E a s t e r n r e t a i n e d t h e s u r c h a r g e u n t i l n e a r l y two y e a r s l a t e r . See f o r example, C h a r i n g t o n , opY c i t . , p.341. 193 11. The number o f DC-3s i n s e r v i c e w i t h t h e d o m e s t i c t r u n k s i n c r e a s e d from 174 t o 44 3 between 1942 and 1946 i n s p i t e o f the f a c t t h a t t h e d e s i g n was by t h e n more tha n t e n y e a r s o l d . Because o f the c o n c e n t r a t i o n on the war e f f o r t , no m a n u f a c t u r e r was a b l e t o o f f e r a new d e s i g n u n t i l 1946. 12. American A i r l i n e s o r d e r e d s e v e n t y - f i v e C o n v a i r 240s i n 1946, the l a r g e s t number o f a i r c r a f t o r d e r e d by one c a r r i e r a t one t i m e . C o n v a i r , however, l o s t money on the o r d e r . See P e r r i n S t r y k e r , "There's More Than One Way t o Run an A i r l i n e , " F o r t u n e , F e b r u a r y , 1961, p.100. 13. U n i t e d o r d e r e d f i f t y o f a n o t h e r v e r s i o n , the M a r t i n 303, b u t t h e o r d e r was c a n c e l l e d i n 1947 and the c a r r i e r s u b s e q u e n t l y a c q u i r e d C o n v a i r 340s, an e n l a r g e d v e r s i o n o f the 24 0. I b i d . , p.101. 14. D e p a r t u r e f r e q u e n c y c o n s i d e r a t i o n s a r e d i s c u s s e d i n C h a p t e r I I I , P a r t I I . See a l s o M i l l e r and Sawers, op. c i t . , p.135. 15. P h i l l i p s , op. c i t . , p.200. 16. A r e d u c t i o n i n s p e c i f i c f u e l consumption i m p l i e s t h a t l e s s f u e l i s r e q u i r e d by the e n g i n e t o produce a g i v e n amount o f power. T h i s does n o t n e c e s s a r i l y i m p l y an o v e r a l l r e d u c t i o n i n a i r c r a f t f u e l consumption because t o t a l power r e q u i r e m e n t s may i n c r e a s e . 17. American had d i f f i c u l t y i n meeting the e i g h t hour s c h e d u l e time and were f o r c e d by the CAB t o o f f e r a more r e a l i s t i c t i m e t a b l e . The a i r l i n e was s u c c e s s f u l i n e x t e n d i n g the duty p e r i o d o f f l i g h t crews t o t e n hours so t h a t no crew change would be r e q u i r e d on DC-7 t r a n s c o n t i n e n t a l f l i g h t s . See, f o r example, C h e r i n g t o n , op. c i t . , p.262. 18. I b i d . , p.261. 19. I b i d . , p.25 8. 20. The a i r c r a f t had 20 coach s e a t s f o r w a r d and 47 f i r s t -c l a s s s e a t s a f t . 21. A p p a r e n t l y , DC-7s c o u l d n o t e a s i l y be c o n f i g u r e d f o r mixed c l a s s s e a t i n g . I b i d . , p.265. 194 22. Coach c l a s s s u b s e q u e n t l y grew f a s t e r t h a n f i r s t - c l a s s b o t h r e l a t i v e l y and a b s o l u t e l y , and by 1955 a c c o u n t e d f o r o n e - t h i r d o f the domest i c market. See f o r example, Dero A. Saunders, "The A i r l i n e s ' F l i g h t From R e a l i t y , " F o r t u n e , (February 1956) p.95. 23. C f . , Gellman, op. c i t . , pp.397-400. 24. M i l l e r and Sawers, op. c i t . , p.137. 25. S t r y k e r , op. c i t . , p.146. 26. I b i d . 27. P h i l l i p s , op. c i t . , p.202. 28. I b i d . , p.102. 29. One a n a l y s i s o f the used a i r c r a f t market i n 1960 sug-g e s t e d t h a t the DC-7 was n o t s a l a b l e i n t h e c u r r e n t market, w i t h i t s turbo-compound e n g i n e s c i t e d as a s p e c i a l d i s a d v a n t a g e . See Glenn G a r r i s o n , "Used P l a n e Market S o f t , b u t Not G l u t t e d , " A v i a t i o n  Week, (March 21, 1960) pp.38-39. 30. P h i l l i p s , op. c i t . , p.211. 31. M i l l e r and Sawers, op. c i t . , p.37. 32. I b i d . , p.35. 33. I b i d . , p.128, a l s o Caves, op. c i t . , p.70. CHAPTER I I : 1. M i l l e r and Sawers, op. c i t . , p.156. 2. F o r a d i s c u s s i o n o f t h e r e l a t i v e m e r i t s o f t u r b o p r o p and t u r b o j e t p r o p u l s i o n as seen i n the e a r l y y e a r s , see S. G. Hooker, "The A p p l i c a t i o n o f the Gas T u r b i n e Engine t o A i r c r a f t P r o p u l s i o n , " J o u r n a l  o f t h e R o y a l A e r o n a u t i c a l S o c i e t y , (May 1946) pp.298-335. 3. C f . , Caves, op. c i t . , p.310. 4. "The S e l l i n g o f the 707", F o r t u n e (October 1957) p.131. 5. The J-47 t u r b o j e t used on the B-47 bomber had an i n i t i a l o v e r h a u l l i f e o f o n l y 50 hours (650 hours by 1952), C f . , M i l l e r and Sawers, op. c i t . , p.186. 6. John McDonald, " J e t A i r l i n e r s : Year o f D e c i s i o n , " F o r t u n e , V o l . 57 ( A p r i l 1953) p.244. See, a l s o , Caves, op. c i t . , p.310. 7. I b i d . , p.126. 8. John McDonald, " J e t A i r l i n e r s I I " , F o r t u n e , V o l . 57 (May 1953) p.130. 9. A v i a t i o n Age, (October 1954) p.10; (November 1954) p.8. 10. Donald Douglas, t h e company v i c e - p r e s i d e n t d i d ^ o w e v e r , p r e d i c t t h a t a l a r g e , l o n g - r a n g e t u r b o p r o p t o u r i s t -c l a s s a i r c r a f t would be d e v e l o p e d b e f o r e 1964. A v i a t i o n Age, ( J u l y , 1954) p.11. 11. C r a i g L e w i s , " A i r F o r c e T e s t s Turboprop R e l i a b i l i t y " , A v i a t i o n Week, ( A p r i l 29, 1957) pp.50-61. 12. I t was g e n e r a l l y f e l t t h a t t h i s had been the p r i m a r y o b j e c t i v e of E a s t e r n ' s e x p r e s s i o n o f i n t e r e s t i n the Comet. See, f o r example,McDonald ( A p r i l 1953) op. c i t . , p.244, p.248. 13. See P. M. Bowers, B o e i n g A i r c r a f t S i n c e 1916, p.352. 14. "The S e l l i n g o f the 707," p.246. 196 Dero A. Saunders, "The A i r l i n e s ' F l i g h t From R e a l i t y " , F o r t u n e , V o l . 5 8 (February 1956) p.91, a l s o C. J . V. Murphy and T. A. Wise, "The Problem o f Howard Hughes," F o r t u n e , V o l . 59 (January 1959) p.166. The d e l a y i n TWA's re-equipment r e s u l t e d i n Hughes' removal from c o n t r o l o f the company. A 115 m i l l i o n d o l l a r l a w s u i t f o l l o w e d and remained i n l i t i g a t i o n f o r o v e r a decade. See World A i r l i n e  R e c o r d, pp.466-67. P e r r i n S t r y k e r , "There's More Than One Way t o Run an A i r l i n e , " F o r t u n e , V o l . 63 (February 1961) pp.151-52 . I b i d . , pp.152-53. Saunders, op. c i t . , p.92. Caves, op. c i t . , p.70. TWA sta t e m e n t d u r i n g t h e G e n e r a l Passenger F a r e I n v e s t i -g a t i o n , I b i d . , p.53. McDonald, "The Year o f D e c i s i o n , " op. c i t . , p. 246. The economics o f the E l e c t r a and V i s c o u n t a r e d i s c u s s e d below, b u t t h e r e a r e i n d i c a t i o n s t h a t l a t e r t u r b o -props t h a t were not used i n the U.S. o f f e r e d s u p e r i o r p erformance. Economic c r u i s e speed i n c r e a s e d t o 420 m i l e s p e r hour on the V i c k e r s Vanguard, compared t o 310 and 375 f o r the V i s c o u n t and E l e c t r a , r e s -p e c t i v e l y . See C h a p t e r I and Appendix B. F o r a g i v e n f a c t o r p r i c e , average c o s t i s i n v e r s e l y p r o -p o r t i o n a l t o average p r o d u c t i v i t y . The c a l c u l a t i o n used a v e r a g e , n o t maximum, speed and c a p a c i t y . C a l c u l a t e d from d a t a a p p e a r i n g i n L. Doty, " C a p i t a l R e v e a l s V i s c o u n t O p e r a t i n g C o s t s , " A v i a t i o n Week, (March 11, 1957). pp.38-40. I b i d . i . e . t o t a l a n n u a l d i r e c t expense d i v i d e d by a n n u a l u t i l i z a t i o n o f the a i r c r a f t based on e l a p s e d t i m e s between t e r m i n a l a r r i v a l s and d e p a r t u r e s . Op. c i t . , p.187. 197 CHAPTER I I I : 1. The domestic DC-8-10 and 707-120 used t h e 13,500 pound t h r u s t JT3C engine and had g r o s s w e i g h t s o f 273,000 and 247,000 pounds, r e s p e c t i v e l y . The lo n g - r a n g e DC-8-30 and 707-320 used 15,800 o r 17,500 pound t h r u s t JT4As and had g r o s s w e i g h t s o f a p p r o x i m a t e l y 315,000 pounds. 2. These were, l i k e t he P r a t t and Whitney t u r b o j e t s , a com-m e r c i a l d e r i v a t i v e o f a m i l i t a r y d e s i g n . 3. T h i s was a g a i n due t o t h e e c c e n t r i c i t y o f TWA's c o n t r o l -l i n g s h a r e h o l d e r , Howard Hughes. See " G e n e r a l Dynamics, Who Wants I t ? " , F o r t u n e , (January 1962), p.69. 4. R o l l s - R o y c e had been t e s t i n g t h e s e e n g i n e s s i n c e 1953. 5. Range a t maximum p a y l o a d , w i t h r e s e r v e s , i n c r e a s e d from 3,200 m i l e s t o 4,200 m i l e s . T a k e - o f f r u n t o 35 f e e t was r e d u c e d t o 7,450 f e e t from o v e r 10,000 f e e t . 6. T h i s i s t r u e o n l y t o a degree s i n c e t h e t u r b o f a n s o f f e r e d some c l e a r advantages o t h e r than speed. 7. I n the words o f a spokesman f o r U n i t e d A i r l i n e s , "the j e t has an e f f e c t i v e b a r r i e r - you e i t h e r s t o p j u s t below Mach 1, the speed o f sound, o r you have t o jump way above i t . " See Saunders, op. c i t . , p.217. 8. S t r y k e r , op. c i t . , p.96. 9. Caves, op. c i t . , pp.349-50. Caves a t t r i b u t e s t h e ac-q u i s i t i o n o f the t u r b o f a n by American as a response t o TWA's e f f o r t s t o o f f e r h i g h e r speeds w i t h t h e 707-320. See, a l s o D a v i d H. Hoffman, "TWA May Spark 707, DC-8 J e t Race," A v i a t i o n Week, V o l . 72, (February 29, 1960), p.45. The d i f f e r e n c e s i n speed were s m a l l , however: the c r u i s i n g speed o f the 707-120B was 557-618 m i l e s p e r hour compared t o 549-571 m i l e s p e r hour f o r 707-120. American e x p e c t e d t o be t w e n t y - f i v e minutes f a s t e r t han U n i t e d ' s t u r b o j e t s on the New York-Los A n g e l e s r o u t e . 19 8 10. These were b u l l e t - s h a p e d f a i r i n g s mounted a f t o f the en g i n e pods t o reduce h i g h speed d r a g a c c o r d i n g . t o the a r e a - r u l e p r i n c i p l e . A n o t h e r v e r s i o n o f the 990, d e s i g n e d f o r long-range i n t e r n a t i o n a l r o u t e s , d i d n o t i n c o r p o r a t e t h i s f e a t u r e . 11. By the end o f 1961, l o s s e s on t h e 880 and 990 amounted t o 425 m i l l i o n d o l l a r s , b e a t i n g F o r d ' s 200 m i l l i o n d o l l a r l o s s on the E d s e l . See R. A. S m i t h , " G e n e r a l Dynamics," F o r t u n e , (January 1962) p. 64. 12. R. Sweeney and I . Stone, " M a n u f a c t u r e r s Push t o Meet J e t D e a d l i n e s , " A v i a t i o n Week, ( A p r i l 15, 1957) pp.37-41. 13. U n i t e d d i d o p e r a t e V i s c o u n t s a f t e r t h e i r merger w i t h C a p i t a l A i r l i n e s i n 1961. 14. The C a r a v e l l e was, i n the words o f American's p r e s i d e n t , C. R. S m i t h , "too damn slow." See S t r y k e r , op.  c i t . , p.158. 15. Bowers, op. c i t . , p.380. 16. I b i d . , p.380. 17. The 727 became the most s u c c e s s f u l c o m m e r c i a l j e t i n terms o f t o t a l s a l e s and by 1974 o v e r 1100 had been b u i l t . 18. R. E. G. D a v i e s , A i r l i n e s o f the U n i t e d S t a t e s S i n c e 1914, p.522. 19. The f i r s t DC-9 used a d e - r a t e d v e r s i o n o f the.JT8D and thus had immediate growth p o t e n t i a l . 20. Two B A C - l l l s were l o s t i n the a i r c r a f t ' s c e r t i f i c a t i o n program. The DC-9, w h i c h had the same t a i l d e s i g n as the 111, b e n e f i t t e d from the e a r l i e r B r i t i s h ex-p e r i e n c e . See, f o r example, C. M. P l a t t n e r , "DC-9 U n v e i l e d E a r l y D e s p i t e T a i l Change," A v i a t i o n  Week, (January 18, 1965) pp.30-33. 21. T h i s was t h e view o f most o f the t r u n k s by 1966, a l t h o u g h U n i t e d c o n s i d e r e d f r e q u e n c y t o be " s t i l l o f paramount i n t e r e s t . " C. M. P l a t t n e r , "U.S. F i r m s Study H i g h -C a p a c i t y , Mid-Range J e t T r a n s p o r t , " A v i a t i o n Week, -V o l . 85 (October 31, 1966) pp.42-47. The 707-320 emerged as soon as t h e JT4A e n g i n e became a v a i l a b l e . 199 23. The p o s i t i o n o f the e n g i n e on the wing was changed and the e ngine i n c o r p o r a t e d a f u l l - l e n g t h bypass d u c t t o i n c r e a s e t h r u s t and reduce d r a g compared t o the s t a n d a r d JT3D. 24. The DC-8-61 f u s e l a g e had been made as l o n g as p o s s i b l e w i t h the e x i s t i n g l a n d i n g g e a r . 25. The 707-820 would a l s o have r e q u i r e d a new engine because i t s g r o s s w e i g h t (410,000 pounds) was f a r g r e a t e r than t h a t o f the DC-8-61 (325,000 pounds). See A v i a t i o n Week, (August 9, 1965), p.38. 26. Bowers, op. c i t . , p.380. 27. • The f i r s t DC-9 e n t e r e d s e r v i c e two y e a r s ahead o f the 737 and t h e DC-9-30 n i n e months ahead o f the 737-200. 28. U n i t e d f i n a l l y r e t i r e d i t s f l e e t o f DC-6Bs when the 737s e n t e r e d s e r v i c e i n 1968. 29. A v i a t i o n Week, (February 19, 1968) p.30; (February 26, 1968) p.33. 30. F o r example, crew expenses on t h e 727 were s i m i l a r f o r U n i t e d and E a s t e r n , a t $200 and $213 p e r b l o c k hour, r e s p e c t i v e l y , i n 1972. E a s t e r n ' s crew expenses on the DC-9-30 averaged $164 p e r hour w h i l e U n i t e d ' s 737 expenses were $219 p e r hour. Source: CAB, A i r c r a f t O p e r a t i n g C o s t and Performance  R e p o r t , J u l y 1973 ed. 31. I n 1969, f o r example, d i r e c t o p e r a t i n g expenses on D e l t a ' s DC-8-50 and DC-8-61 were $693 and $781 p e r b l o c k hour, r e s p e c t i v e l y . Because o f the i n c r e a s e i n p r o d u c t i v i t y , s e a t - m i l e c o s t s were 1.34 3C and 0.985^ r e s p e c t i v e l y , a d i f f e r e n c e o f t w e n t y - s i x p e r c e n t . Source: CAB, op. c i t . , August 1971 ed. 32. James R. A s h l o c k , " P l a n n e r s Concerned Over E a r l y 747 Buy", A v i a t i o n Week, (March 26, 1966), pp.38-39. 33. G e n e r a l E l e c t r i c was o c c u p i e d w i t h development o f the TF39 e n g i n e f o r t h e C-5A. 34. M i c h a e l L. Y a f f e , "JT9D Engine f o r 747 Emphasizes T h r u s t f o r C r u i s e , " A v i a t i o n Week, ( A p r i l 18, 1966) pp.42-43. 200 35. A s h l o c k , op. c i t . , pp.38-39 and W. H. Gregory, "Pan American Order f o r 747 Opens New E r a i n A i r l i n e J e t T r a n s p o r t Equipment," A v i a t i o n Week, ( A p r i l 18, 1966) pp.38-40. 36. H a r o l d D. W a t k i n s , "Douglas R o l l s Out F i r s t S t r e t c h e d DC-8," A v i a t i o n Week, (January 31, 1966) pp.32-33. 37. CAB, op. c i t . , August 1972, J u l y 1973 ed.. 38. W a t k i n s , op. c i t . , p.33. 39. See, f o r example, W. M. Magruder, Development o f R e q u i r e -ment, C o n f i g u r a t i o n and D e s i g n f o r the Lockheed 1011  J e t T r a n s p o r t , 40. Lockheed was a b l e t o c a r r y on w i t h the L.1011 program o n l y a f t e r r e c e i v i n g a $250 m i l l i o n government-g u a r a n t e e d l o a n . R o l l s - R o y c e e n t e r e d r e c e i v e r s h i p and were r e - f i n a n c e d i n 1971. 41. I n 1972, 279 727-100's were i n s e r v i c e w i t h n i n e t r u n k s compared t o 49 DC-8-61's o p e r a t e d by f o u r t r u n k s . CAB, op. c i t . , J u l y 1973 ed.. 42. F o r example, t y p i c a l c r u i s i n g speeds f o r B o e i n g a i r c r a f t a r e : 580, 550, 570, and 560 m i l e s p e r hour f o r t h e 747, 707-320B, 727 and 737 r e s p e c t i v e l y . 43. F o r example, TWA f e l t t h a t the L.1011 was s u f f i c i e n t l y f l e x i b l e t o p e r f o r m t a s k s t h a t might o t h e r w i s e have r e q u i r e d two a i r c r a f t . A v i a t i o n Week, ( A p r i l 8, 1968) p.36. " 44. That i s , the f r a c t i o n o f t o t a l s e a t s t h a t must be o c c u p i e d so t h a t , a t e x i s t i n g f a r e l e v e l s , revenues w i l l c o v e r d i r e c t expenses. 45. The o n l y c o n s i s t e n t b a s i s o f comparison i s a s t a n d a r d f i g u r e based on m a n u f a c t u r e r s ' d a t a . The average c a p a c i t y o f the 747, f o r example, d e c l i n e d from 341 i n 1970 t o 317 i n 1972 f o r the t r u n k c a r r i e r s because o f e x c e s s c a p a c i t y i n the i n d u s t r y . The DC-8-61 and DC-8-63, though i d e n t i c a l i n p h y s i c a l d i m e n s i o n s , had average c a p a c i t i e s d i f f e r i n g by f i f t e e n s e a t s i n 1972. 46. On s h o r t e r t r i p s , f u e l consumption i s h e a v i l y i n f l u e n c e d by t h e degree o f a i r p o r t and a i r w a y s c o n g e s t i o n . 201 CHAPTER IV: 1. The 'adequate' r a t e . o f r e t u r n was d e t e r m i n e d t o be 8 p e r c e n t i n the 1950's, 10.5 p e r c e n t i n the 1960's and 12 p e r c e n t i n 1971. See Caves, op. c i t . , p.150 and George W. Douglas and James C. M i l l e r , "The- CAB's Domestic P a s s e n g e r F a r e I n v e s t i g a t i o n , " B e l l J o u r n a l o f Economics and Management S c i e n c e , V o l . 5, No. 1 ( S p r i n g 1974) pp.205-212. 2. Fruhan, The F i g h t f o r C o m p e t i t i v e Advantage, pp.126-39. 3. Cf.-, Douglas and M i l l e r , op. c i t . , pp.209-213. 4. R e g u l a t i o n o f r a t e o f r e t u r n i s a r a t h e r crude i n s t r u m e n t f o r c o n t r o l l i n g p r o f i t s i n a g i v e n market. However, the c a r r i e r s , r e c o g n i z e t h a t the CAB can l i c e n c e a d d i t i o n a l c a r r i e r s t o s e r v e a market t h a t has a l o a d f a c t o r g r e a t e r t h a n t h a t w h i c h t h e Board f e e l s r e f l e c t s 'adequate' s e r v i c e . 5. C f . , Fruhan, op. c i t . , p.145; pp.166-70; pp.179-82. 6. T o t a l engine t h r u s t d e t e r m i n e s a i r c r a f t g r o s s w e i g h t and c r u i s i n g speed; engine s p e c i f i c w e i g h t and s p e c i f i c f u e l consumption d e t e r m i n e range and p a y l o a d c a p a c i t y . 7. A d o p t i o n i s meant t o r e f e r t o the time a t w h i c h an i n n o -v a t i o n i s f i r s t i n t r o d u c e d by any c a r r i e r . D i f f u -s i o n r e f e r s t o t h e r a t e a t w h i c h a p a r t i c u l a r i n n o v a -t i o n i s adopted by the i n d u s t r y as a whole. 8. C o s t s o f the DC-7 were e x p e c t e d t o exceed t h o s e o f the DC-6. 9. When the j e t s were o r d e r e d i t was n o t known whether t h e i r c o s t s would be h i g h e r o r l o w e r than t h o s e o f p i s t o n t r a n s p o r t s . 10. S e a t m i l e c o s t s o f t h e 747 were e x p e c t e d t o be s i m i l a r t o those o f the DC-8-61. 11. The JT3D engine O f f e r e d r e d u c e d f u e l consumption b u t had a h i g h e r i n i t i a l c o s t , r e s u l t i n g i n a m a r g i n a l n e t e f f e c t on c o s t s . The CV-990 had h i g h e r o p e r a t i n g c o s t s t h a n o t h e r j e t s . 202 12. i . e . T o t a l ( a i r c r a f t ) c o s t s were h i g h e r b u t t o t a l c o s t d i v i d e d by c a p a c i t y ( s e a t - m i l e c o s t ) was l o w e r . 13. F o r a g i v e n number o f t o t a l s e a t s i n a market, a h i g h e r f r e q u e n c y would g e n e r a t e a g r e a t e r number o f pas s e n - 1 g e r s , r e s u l t i n g i n g r e a t e r average revenue p e r s e a t ( h i g h e r l o a d f a c t o r ) . 14. Maintenance i s n o t d i s c u s s e d f o r two.reasons: one, i t i s i m p o s s i b l e t o d e f i n e a unique measure o f m a i n t e n -ance i n p u t s t h a t would be v a l i d o v e r the e n t i r e p e r i o d , and two, maintenance p r o d u c t i v i t y g e n e r a l l y changed j o i n t l y w i t h i n n o v a t i o n s t h a t had more i m p o r t a n t i m p l i c a t i o n s f o r o t h e r i n p u t s . 15. C f . C h a r l e s Adams, ' T h i r d Crewman: F l i g h t E n g i n e e r ' , A v i a t i o n Week, V o l . 48, No. 16 ( A p r i l 26, 1948) p.38. 16. I b i d . , a l s o 'Use o f F l i g h t E n g i n e e r s P r o t e s t e d ' , A v i a t i o n Week, V o l . 49, No. 4 ( J u l y 26, 1948) p.40. 17. I b i d . , a l s o 'CAB I n s i s t s on F l i g h t E n g i n e e r s ' , A v i a t i o n Week, V o l . 49, No. 16 (October 18, 1948) p.41. 18. I n c r e a s e d range e l i m i n a t e s the n e c e s s i t y o f making en-r o u t e s t o p s and th e r e b y / . i n c r e a s e s average speed. 19. See R. E. G. D a v i e s , op. c i t . , p p . 1 3 4 , 246. 20. I b i d . , p.248. 21. V i c e - P r e s i d e n t o f B o e i n g i n 'Boeing 707 J e t T r a n s p o r t Nears R o l l o u t ' , A v i a t i o n Week, V o l . 60, No. 10 ( A p r i l 7, 1954) pp.14-15 [emphasis added]. 22. See Ch a p t e r I I I , P a r t I I , a l s o R. L. Cook, ' J e t Problems K e t t o 1960 Labour T a l k s , ' A v i a t i o n Week, V o l . 72, No. 14 ( A p r i l 4, 1960) pp.40-42. 23. C f . 'EAL, C & S and PCA Agreements C r e a t e Problems f o r P i l o t ' s Pay' , A v i a t i o n Week, V o l . .47, No. 3 ( J u l y 21, 1947) p.58. 24. F o r example, t h e r e remained a s i g n i f i c a n t crew expense component t h a t was independent o f speed: monthly base pay and t r a i n i n g expenses. 203 25. The s e c t i o n on o v e r a l l energy e f f i c i e n c y t a k e s i n t o a c c o u n t b o t h e n g i n e e f f i c i e n c y and t h e a b i l i t y o f a g i v e n a i r c r a f t type t o m i n i m i z e engine t h r u s t r e -qui r e m e n t s r e l a t i v e t o i t s p a s s e n g e r c a p a c i t y . 26. C f . S. D. Heron, H i s t o r y o f the A i r c r a f t P i s t o n E n g i n e , p.28. 27. M i l l e r and Sawers, op. c i t . , p.94. 28. Heron, op. c i t . , p.30. 29. See ' P i s t o n E n g i n e s B o o s t e d t o 4000 Hp', A v i a t i o n Week, V o l . 49, No. 6 (August 9, 194 8) p. 12. 30. The turbo-compound W r i g h t e n g i n e on the DC-7 had a l o w e r s f c t han the DC-6B's eng i n e s and i n a d d i t i o n , power was i n c r e a s e d by about 25% a l l o w i n g f o r an i n c r e a s e i n c r u i s i n g speed. 31. Heron, bp. c i t . , p.111. 32. S f c ' s were, r e s p e c t i v e l y , 1.08 l b : l b t - h r and 0.76 l b : l b t - h r . See 'Leading F o r e i g n J e t E n g i n e s ' , A v i a t i o n Week, V o l . 54 , No. 9 (February 28, 1951) p.165 . 33. See 'Douglas Announces New DC-8 D e s i g n ' , A v i a t i o n Week, V o l . 62 , No. 8 , (February 27, 1956) p.103. 34. George S. S c h a i r e r , 'The R o l e o f C o m p e t i t i o n i n A e r o -n a u t i c s ' , J o u r n a l o f the R o y a l A e r o n a u t i c a l S o c i e t y , V o l . 73 (March 1969) p.202. 35. See S t r y k e r , op. c i t . , p.96. 36. i . e . An i n c r e a s e i n p a y l o a d o r range o r b o t h , s u b j e c t t o p h y s i c a l c a p a c i t y c o n s t r a i n t s . 37. F o r example, f u e l consumption o f a t u r b o j e t 707 on a f l i g h t from New York t o Los A n g e l e s would be a p p r o x i -m a t e l y 78,000 pounds and 16,000 pounds would be r e q u i r e d f o r r e s e r v e f u e l . A r e d u c t i o n i n s f c t o t h a t o f t h e JT9D h i g h - b y p a s s t u r b o f a n c o u l d reduce the r e q u i r e d f u e l l o a d t o perhaps 44,000 pounds ( i n -c l u d i n g 8,000 pound r e s e r v e s ) . T h i s r e d u c t i o n i n f u e l l o a d i s alm o s t as g r e a t as t h e maximum p a y l o a d o f a 707-120, 37,000 pounds'. 38. Gellman, op. c i t . , pp.395-405. 204 The a i r f r a m e , f o r example, must be a b l e t o accommodate •-. h e a v i e r f u e l l o a d s and t h i s i s r e f l e c t e d i n a h i g h e r o r i g i n a l c o s t . The problem a r i s e s from t h e d i f f i c u l t y i n d e f i n i n g an a c c e p t a b l e measure o f o u t p u t s where changes i n q u a l i t y have o c c u r r e d . The p r i c e s e l e c t e d would depend on t h e p e r c e i v e d l e v e l o f p r i c e e l a s t i c i t y i n t h e a i r l i n e s ' demand f o r new equipment. N e i t h e r m a n u f a c t u r e r i s l i k e l y t o be i n d u c e d i n t o s e t t i n g a p r i c e a t w h i c h b o t h f i r m s would s u s t a i n l o s s e s . C f . Fruhan, op. c i t . , pp.124-52.. See Harvey A v e r c h and L e l a n d L. Johnson, 'Behaviour o f t h e F i r m Under R e g u l a t o r y C o n s t r a i n t ' , American  E c o n o m i c -Review, V o l . 52 (December 1962) pp.1052-69. R e t u r n on i n v e s t m e n t would be (12-0.1)/(100+20)=9.9%. i . e . The DC-6 e n j o y e d b e n e f i t s r e s u l t i n g from p r i o r development o f the DC-4 and s h o u l d have had l o w e r manu-f a c t u r i n g c o s t s because o f the ' l e a r n i n g c u r v e ' phenomenon. C o m p e t i t i o n p r o v i d e d by Lockheed's d e s i g n s (L-049, -649 and -749) a l s o e n s u r e d t h a t the p r i c e o f the DC-6 was k e p t r e l a t i v e l y low. Fruhan, op. c i t . , p.30. Caves, op. c i t . , p.150. I b i d . , pp.145-50. To 4.8 p e r c e n t i n 1957 and 6.5 p e r c e n t i n 1958. See Fruhan, op. c i t . , p.30. Caves, op. c i t . , p.151. BIBLIOGRAPHY Adams, C h a r l e s , " T h i r d Crewman: . F l i g h t E n g i n e e r , " A v i a t i o n Week, V o l . 48, No. 16, ( A p r i l 26, 1948), p. 38. A s h l o c k , James R., " P l a n n e r s . Concerned Over E a r l y 747 Buy," A v i a t i o n Week, (March 26, 1966), pp.38-39. . 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L e w i s , C , " A i r F o r c e T e s t s Turboprop R e l i a b i l i t y , " A v i a t i o n Week, ( A p r i l 29, 1957), pp.50-61. L i p s e y , R i c h a r d E., An I n t r o d u c t i o n t o P o s i t i v e Economics, W e i d e n f i e l d and N i c o l s o n , (London: 1963). Magruder, W. M., Development o f Requirement, C o n f i g u r a t i o n  and D e s i g n f o r the Lockheed 1011 J e t Transport", S o c i e t y o f A u t o m o t i v e E n g i n e e r s (October 1968) SAE 680688. McDonald, John, " J e t A i r l i n e r s : Y e a r o f D e c i s i o n , " F o r t u n e , V o l . 57 ( A p r i l , 1953), pp.125-219. , . " J e t A i r l i n e s I I " , - F o r t u n e , V o l . 57, (May, 1953), pp.125-201. M i l l e r , R. and- Sawers, D., ' The T e c h n i c a l Development o f  x Modern A v i a t i o n , P r a e g e r , (New York: 1970) . Mooz, W. 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APPENDIX A CONCEPTUAL BACKGROUND: THE THEORY OF PRODUCTION T e c h n i c a l E f f i c i e n c y , and Economic E f f i c i e n c y The economic t h e o r y o f p r o d u c t i o n p r o v i d e s a c o n v e n i -e n t c o n c e p t f o r e x a m i n a t i o n o f t h e e f f e c t o f f a c t o r p r i c e s on the p r o d u c t i o n t e c h n i q u e s employed by f i r m s . One o f t h e u n d e r l y i n g p r i n c i p l e s o f t h e t h e o r y i s t h e d i s t i n c t i o n between t e c h n i c a l e f f i c i e n c y and economic e f f i c i e n c y . Comparisons o f t h e amount o f energy r e q u i r e d by d i f -f e r e n t modes to produce a g i v e n o u t p u t ( i . e . i n BTU/seat m i l e , f o r example) r e f e r t o d i f f e r e n c e s i n t e c h n i c a l e f f i c i e n c y f o r one i n p u t , energy. T e c h n i c a l e f f i c i e n c y i s n o t h i n g more th a n the average p h y s i c a l p r o d u c t o f c o n v e n t i o n a l economic t h e o r y , the average amount o f o u t p u t produced by one u n i t o f f a c t o r i n p u t . Comparisons on t h i s b a s i s are a p p r o p r i a t e i n t e c h n i c a l l i t e r a t u r e b u t have l i m i t e d economic s i g n i f i c a n c e because an e n t r e p r e n e u r s u p p l y i n g t r a n s p o r t a t i o n s e r v i c e i s c o n c e r n e d , n o t w i t h t e c h n i c a l e f f i c i e n c y , b u t r a t h e r w i t h t h e o v e r a l l eco-nomic e f f i c i e n c y o f p r o d u c t i o n p r o c e s s e s . T h i s i s measured s i m p l y by the degree t o w h i c h a p a r t i c u l a r p r o c e s s m i n i m i z e s t h e money c o s t o f p r o d u c i n g a g i v e n o u t p u t . 1 T e c h n i c a l e f -f i c i e n c y remains an i n d i r e c t c o n c e r n because the component o f average c o s t a t t r i b u t a b l e t o any one f a c t o r (a measure o f the . 209 210 e f f e c t on economic e f f i c i e n c y ) i s d i r e c t l y p r o p o r t i o n a l t o f a c t o r p r i c e and i n v e r s e l y p r o p o r t i o n a l t o the t e c h n i c a l e f f i c i e n c y o f i t s use. B e s t P r a c t i c e Technique The most i m p o r t a n t c o n c e p t i n the t h e o r y o f p r o d u c t i o n i s t he p r o d u c t i o n f u n c t i o n , w h i c h e x p r e s s e s t h e r e l a t i o n be-tween t h e q u a n t i t y o f o u t p u t and t h e i n p u t s r e q u i r e d t o p r o -duce i t , as w e l l as t h e r e l a t i o n between the i n p u t s t h e m s e l v e s . T h i s f u n c t i o n embodies a l l the t e c h n o l o g i c a l c o n s t r a i n t s t h a t r e s t r i c t t h e range o f f e a s i b l e i n p u t and o u t p u t c o m b i n a t i o n s and impose themselves on economic d e c i s i o n s . I m p l i c i t i n the p r o d u c t i o n f u n c t i o n i s a p r e s u m p t i o n t h a t a t e c h n i c a l m a x i m i z a t i o n problem has been s o l v e d such t h a t f o r each com-b i n a t i o n o f i n p u t s t h e maximum p o s s i b l e o u t p u t i s o b t a i n e d . A p r o d u c t i o n f u n c t i o n can be r e p r e s e n t e d by an i s o -quant w h i c h f o r a t w o - f a c t o r p r o d u c t i o n p r o c e s s i s a c u r v e showing t h e v a r i o u s c o m b i n a t i o n s o f t h e two i n p u t s t h a t w i l l y i e l d a ( c o n s t a n t ) g i v e n o u t p u t . F i g u r e A . l shows an i s o -2 quant f o r a p r o d u c t i o n p r o c e s s i n w h i c h l a b o u r (L) and energy (E) are combined i n d i f f e r e n t p r o p o r t i o n s t o produce a f i x e d q u a n t i t y o f o u t p u t (Q). The c o s t s o f d i f f e r e n t c o m b i n a t i o n s o f i n p u t s o f l a b o u r and energy can be shown on a s i m i l a r diagram as an i s o c o s t w h i c h d e s c r i b e s t h e v a r i o u s c o m b i n a t i o n s t h a t can be o b t a i n e d f o r a f i x e d money o u t l a y w i t h c o n s t a n t f a c t o r p r i c e s . F i g u r e A.2 shows a s t r a i g h t - l i n e i s o c o s t drawn i n the same space as 211 (units of labour) F i g u r e A . l A Two-Factor Psoquant - A and B are two f e a s i b l e c o m b i n a t i o n s o f t h e two i n p u t s , l a b o u r and c a p i t a l t h a t w i l l a t t a i n an o u t p u t Q. A i s r e l a t i v e l y more l a b o u r - i n t e n s i v e t h a n B (which i s more e n e r g y - i n t e n s i v e ) . 212 (units of labour) t , (units of energy) F i g u r e A.2 A Two-Factor I s o c o s t - The i s o c O s t shows t h e v a r i o u s c o m b i n a t i o n s o f l a b o u r and energy t h a t can be o b t a i n e d w i t h a f i x e d o u t l a y T = L,P = E,P , where P and P L are f a c t o r p r i c e s . The s l o p e o f t h e i s o c o s t = -P /P , t h e r a t i o o f f a c t o r p r i c e s . 213 t h e i s o q u a n t w i t h t h e c u r v e t r a n s f o r m e d from q u a n t i t i e s o f o u t p u t t o c o m b i n a t i o n s o f i n p u t s . The s l o p e o f the i s o c o s t i s e q u a l t o the r a t i o o f f a c t o r p r i c e s ' and i t s d i s t a n c e from the o r i g i n i s p r o p o r t i o n a l t o the t o t a l o u t l a y f o r f a c t o r s . The s l o p e o f the i s o c o s t changes when the p r i c e o f one f a c t o r changes w i t h r e s p e c t t o the o t h e r as shown i n F i g u r e A.3 f o r an i n c r e a s e i n t h e r e l a t i v e p r i c e o f l a b o u r . 'Best p r a c t i c e t e c h n i q u e ' i s t h e name g i v e n t o t h a t c o m b i n a t i o n o f f a c t o r i n p u t s w h i c h , f o r a g i v e n s t a t e o f t e c h n o l o g y ( i . e . a g i v e n i s o q u a n t ) , m i n i m i z e s t h e t o t a l c o s t s o f p r o d u c i n g a g i v e n o u t p u t a t p r e v a i l i n g f a c t o r p r i c e s . T h i s o p t i m a l c o m b i n a t i o n o f i n p u t s i s g i v e n by t h e p o i n t o f tangency between t h e (given) i s o q u a n t and t h e l o w e s t f e a s i b l e i s o c o s t , as shown i n F i g u r e A.4. Here t h e m a r g i n a l c o n d i -t i o n s f o r c o s t m i n i m i z a t i o n have been s a t i s f i e d . The p o i n t o f tangency i m p l i e s p a r t i c u l a r u n i t l a b o u r and energy r e q u i r e -ments; t h e optimum t e c h n i c a l e f f i c i e n c y i n the use o f b o t h f a c t o r s has been d e t e r m i n e d , c o r r e s p o n d i n g t o the p o i n t o f maximum economic e f f i c i e n c y . Changes i n B e s t P r a c t i c e Technique Because b e s t p r a c t i c e t e c h n i q u e was d e f i n e d i n terms o f the e x i s t i n g p r o d u c t i o n f u n c t i o n ( i . e . s t a t e o f t e c h n o l o g y ) and p r e v a i l i n g f a c t o r p r i c e s , i t changes whenever r e l a t i v e f a c t o r p r i c e s o r t e c h n o l o g y change-. A change i n r e l a t i v e f a c -t o r p r i c e s w i l l a l t e r t h e s l o p e o f the i s o c o s t (as shown i n F i g u r e A.3) and move the p o i n t o f tangency t o a new p o s i t i o n 214 L, (units of labour) F i g u r e A.3 The E f f e c t o f an I n c r e a s e i n the P r i c e o f Labour -The i n t e r c e p t on t h e l a b o u r a x i s moves toward the o r i g i n (from L-j^  t o L 2 ) as P L i n c r e a s e s and t h e number o f l a b o u r u n i t s ob-t a i n a b l e w i t h a g i v e n o u t l a y d e c l i n e s . 215 F i g u r e A. 4 The O p t i m a l C o m b i n a t i o n o f I i t p u t s - The p o i n t o f tangency (C) between the i s o c o s t and i s o q u a n t i s t h e optimum c o m b i n a t i o n o f i n p u t s s i n c e i t p r o v i d e s f o r maximum economic e f f i c i e n c y . T e c h n i c a l e f f i c i e n c y i s not maximized b u t i s s e t i n a ccordance w i t h p r e v a i l i n g f a c t o r p r i c e s a t Q/L^ and Q/E^ f o r l a b o u r and energy r e s p e c t i v e l y . on the i s o q u a n t , i m p l y i n g a new o p t i m a l c o m b i n a t i o n o f i n p u t s . The response i s i n t h e form o f a f a c t o r s u b s t i t u t i o n ; t h e new t e c h n i q u e w i l l a c h i e v e maximum economic e f f i c i e n c y by u s i n g more o f t h e f a c t o r whose r e l a t i v e p r i c e has f a l l e n and l e s s o f t h e f a c t o r whose r e l a t i v e p r i c e has r i s e n . The phenomenon, i l l u s t r a t e d i n F i g u r e A.5, may come about as a r e s u l t o f : a) changes i n t h e method o f o p e r a t i o n o f e x i s t i n g p l a n t o r equipment (e.g. i n c r e a s i n g the speed o f o p e r a t i o n t o economize on l a b o u r ) , b) r e p l a c e m e n t o f o l d equipment w i t h a n o t h e r ( e x i s -t i n g ) d e s i g n w h i c h has lo w e r c o s t s under t h e new s e t o f f a c t o r p r i c e s , o r c) a d o p t i o n o f new ty p e s o f equipment d e s i g n e d ( w i t h e x i s t i n g t e c h n o l o g y ) i n response t o changed f a c t o r p r i c e s . I t must be n o t e d t h a t f a c t o r p r o p o r t i o n s can be charged o n l y w i t h i n the range o f t e c h n o l o g i c a l p o s s i b i l i t i e s d e f i n e d by t h e i s o q u a n t . T h i s s t u d y presupposes t h a t i n n o -v a t i v e p o s s i b i l i t i e s a r e n e u t r a l and s p e c i f i c a l l y e x c l u d e s 3 t h e p o s s i b l e e x i s t e n c e o f c o m p l e m e n t a r i t y between i n p u t s . S i n c e t h e p r o d u c t i o n f u n c t i o n d e f i n e s t h e maximum o u t -put a t t a i n a b l e under e x i s t i n g t e c h n o l o g y f o r a l l f e a s i b l e com-b i n a t i o n s o f i n p u t s , the p o s i t i o n o f the i s o q u a n t i t s e l f w i l l 1 217 6 E, (units of energy) F i g u r e A.5 Change i n B e s t P r a c t i c e Technique A f t e r a  Change i n R e l a t i v e F a c t o r P r i c e s - An i n c r e a s e i n the p r i c e o f energy r e l a t i v e t o t h a t o f l a b o u r from i s o c o s t P D t o P_ r e s u l t s i n a change i n b e s t p r a c t i c e t e c h n i q u e (from D t o F ) . • The new o p t i m a l c o m b i n a t i o n o f i n p u t s (L„,Ep) uses l e s s energy and more l a b o u r than t h a t the o l d ( L D , E D ) . 218 . change o n l y when new knowledge - by e a s i n g t e c h n i c a l c o n s t r a i n t s - opens up a s u p e r i o r range o f p r o d u c t i o n t e c h n i q u e s . The s i m p l e s t type o f t e c h n o l o g i c a l change i s one i n w h i c h t h e i s o -quant i s s h i f t e d towards t h e o r i g i n w i t h o u t a change i n i t s shape o r o r i e n t a t i o n . T h i s i s c a l l e d a n e u t r a l o r 'pure-e f f i c i e n c y ' t e c h n o l o g i c a l change because economic e f f i c i e n c y i s i n c r e a s e d t h r o u g h a p r o p o r t i o n a l change i n t e c h n i c a l e f f i c i -ency f o r e v e r y i n p u t . The e f f e c t o f a n e u t r a l change i n t e c h -n o l o g y on b e s t p r a c t i c e t e c h n i q u e i s shown i n F i g u r e A.6, where the new i s o q u a n t i s t a n g e n t t o a lo w e r i s o c o s t . The p o i n t o f tangency i s p o s i t i o n e d on a l i n e c o n n e c t i n g t h e o r i g i n w i t h t h e former p o i n t o f tangency, i m p l y i n g a p r o p o r t i o n a l r e -d u c t i o n i n a l l i n p u t r e q u i r e m e n t s f o r the same l e v e l o f o u t p u t , ( i . e . f a c t o r q u a n t i t i e s a re reduced b u t f a c t o r p r o p o r t i o n s a re unchanged.) Not a l l changes i n t e c h n o l o g y w i l l s h i f t the i s o q u a n t e x a c t l y as shown i n F i g u r e A.6; t h e movement may be more towards one a x i s than the o t h e r , as shown i n F i g u r e A.7. T h i s i s an example o f a ' b i a s e d ' t e c h n o l o g i c a l change. I t l e a d s t o uneven f a c t o r s a v i n g s because t e c h n i c a l e f f i c i e n c y i s improved more f o r one i n p u t t h a n f o r the o t h e r . T h i s w i l l r e s u l t i n a change i n f a c t o r p r o p o r t i o n s w i t h the new b e s t p r a c t i c e t e c h n i q u e i f r e l a t i v e f a c t o r p r i c e s a re unchanged. Thus, as shown i n F i g u r e A.7 t h e new i s o q u a n t i s t a n g e n t t o a lo w e r i s o c o s t , i m p l y i n g an improvement i n economic e f f i c i e n c y . U n l i k e t h e r e s u l t s o f a n e u t r a l change, however, f a c t o r p r o -219 (units of labour) F i g u r e A.6 E f f e c t o f a N e u t r a l Change i n Technology -I s o q u a n t s and Q 2 d e f i n e t h e c o m b i n a t i o n o f i n p u t s t h a t w i l l produce t h e same o u t p u t under t h e o l d and new t e c h -n o l o g y , r e s p e c t i v e l y . The change i n t e c h n o l o g y was n e u t r a l so f a c t o r p r o p o r t i o n s a r e l e f t unchanged ( L G / E G = L H / E H ) ' 220 (units of labour) F i g u r e A.7 E f f e c t o f a ' B i a s e d ' Change i n Technology - As i n F i g u r e A.6 t h e i s o q u a n t has s h i f t e d (from t o C^) as a r e s u l t o f a change i n t e c h n o l o g y . I n t h i s c a s e , however, the i s o q u a n t s h i f t e d more towards th e l a b o u r a x i s t h a n the energy a x i s . T h i s r e s u l t s i n uneven (b i a s e d ) f a c t o r sav-i n g s ; f a c t o r p r o p o r t i o n s change because t h e r e i s a g r e a t e r s a v i n g s o f energy t h a n o f l a b o u r . However, because the new i s o q u a n t i s everywhere c l o s e r t o the o r i g i n t h a n the o l d , the new t e c h n o l o g y i s more a t t r a c t i v e f o r any s e t o f r e l a t i v e f a c t o r p r i c e s . 221 p o r t i o n s have been a l t e r e d i n accordance w i t h the d i r e c t i o n o f the ' b i a s ' . I t i s i m p o r t a n t t o n o t e , however, t h a t t h e t e c h n o l o g i -c a l change i l l u s t r a t e d i n F i g u r e A.7 would be a t t r a c t i v e under any s e t o f r e l a t i v e f a c t o r p r i c e s . I n o t h e r words, i t would r e s u l t i n improved economic e f f i c i e n c y r e g a r d l e s s o f the s l o p e o f t h e i s o c o s t . I t i s c o n c e i v a b l e , however, f o r new t e c h n o l o g y t o o f f e r an i s o q u a n t t h a t has s h i f t e d away from one a x i s and towards t h e o t h e r , i m p l y i n g a r e d u c t i o n i n t e c h n i c a l e f f i c i e n c y f o r t h e l a t t e r f a c t o r and an improvement f o r the fo r m e r • Such a t e c h n o l o g i c a l change would be a t t r a c t i v e o n l y under a p a r t i c u l a r c o n d i t i o n o f f a c t o r p r i c e s - when the former f a c t o r has a h i g h e r r e l a t i v e . p r i c e . F i g u r e A.8 shows an e n e r g y - i n t e n s i v e b i a s e d t e c h n o l o g i c a l change t h a t i s a t t r a c t i v e ( i . e . o f f e r s improved economic e f f i c i e n c y ) , under one s e t o f r e l a t i v e f a c t o r p r i c e s b u t i s u n a t t r a c t i v e under a n o t h e r . F o r reas o n s t h a t w i l l become apparent l a t e r i n t h i s s t u d y , i t i s c o n v e n i e n t t o r e f e r t o o n l y t h i s t y p e o f t e c h -n o l o g i c a l change as ' b i a s e d ' . The e a r l i e r t y p e , w h i c h i m p l i e d unequal f a c t o r s a v i n g b u t improved economic e f f i c i e n c y r e g a r d -l e s s o f r e l a t i v e f a c t o r p r i c e s w i l l be r e f e r r e d t o he r e as a 4 ' b i a s e d - e f f i c i e n c y ' change. I n n o v a t i v e and I n v e n t i v e ' Responses Technology i s sometimes thought t o be autonomous, o r 5 u n i n f l u e n c e d by f a c t o r p r i c e s . Some economists c o n t e n d , how-e v e r , t h a t t h e s e a r c h f o r t e c h n i c a l knowledge w i l l t e n d t o be 222 F i g u r e A.8 A Second Type o f ' B i a s e d ' Change - The type o f t e c h n o l o g i c a l change shown i n F i g u r e A.7 i s r e f e r r e d t o as ' b i a s e d - e f f i c i e n c y ' because i t improved economic e f f i c i e n c y r e g a r d l e s s o f r e l a t i v e f a c t o r p r i c e s . The 'pure b i a s e d ' change d e p i c t e d here improves economic e f f i c i e n c y o n l y f o r c e r t a i n f a c t o r p r i c e r e l a t i o n s h i p s ( i . e . f o r i s o c o s t P 2 b u t n o t i s o c o s t P, ) 223 d i r e c t e d towards e c o n o m i z i n g on t h e use o f h i g h e r - p r i c e d f a c -t o r s . There has been, f o r example, a l a r g e number o f l a b o u r -s a v i n g i n v e n t i o n s d u r i n g the l a s t c e n t u r y when wages have i n -c r e a s e d f a s t e r than the p r i c e s o f energy and c a p i t a l . T h i s i s termed an i n v e n t i v e response t o f a c t o r p r i c e i n c e n t i v e s and has e f f e c t s analogous t o f a c t o r s u b s t i t u t i o n s a c h i e v e d t h r o u g h d e s i g n changes w i t h g i v e n t e c h n o l o g y ( i . e . i n n o v a t i v e r e s p o n s e s ) . The p o s s i b i l i t y o f the e x i s t e n c e o f ' ' b i a s ' i n the s e a r c h f o r new t e c h n o l o g y was s u g g e s t e d by H i c k s : "A change i n t h e r e l a t i v e p r i c e s o f t h e f a c t o r s o f p r o d u c t i o n i s i t s e l f a s p u r t o i n v e n t i o n , and t o i n v e n t i o n o f a p a r t i c u l a r k i n d - d i r e c t e d t o e c o n o m i z i n g t h e use o f a f a c t o r w h i c h has 6 become r e l a t i v e l y e x p e n s i v e . " A l t h o u g h t h e concept i s n o t a c c e p t e d by a l l e c o n o m i s t s , i t would appear t o h o l d some v a l i d i t y where the t r e n d i n r e l a -7 t i v e f a c t o r p r i c e s i s . c o n s i s t e n t , based on F e l l n e r ' s p r o p o s i -t i o n t h a t a f i r m ' l e a r n s ' t o a n t i c i p a t e f u t u r e f a c t o r p r i c e s on the b a s i s o f p a s t t r e n d s . I n any c a s e , t h e r e c o u l d be no c l e a r d i v i d i n g l i n e between i n n o v a t i v e response and i n v e n t i v e r e s ponse ( i n d u c e d t e c h n o l o g i c a l change) because a l l t h a t can be o b s e r v e d a r e t h e 8 ne t r e s u l t s i n terms o f changes, i n b e s t p r a c t i c e t e c h n i q u e . The two f o r c e s a c t s i m u l t a n e o u s l y : i m p r o v i n g t e c h n i c a l know-led g e expands t h e r e a l m o f t h e t e c h n i c a l l y f e a s i b l e a t the same ti m e t h a t c h a n g i n g f a c t o r p r i c e s shape t h e c h o i c e between t e c h n i c a l a l t e r n a t i v e s . A d i s t i n c t i o n can be made between 9 the two o n l y a t a h i g h l y a b s t r a c t l e v e l . NOTES See R i c h a r d E. L i p s e y , An I n t r o d u c t i o n t o P o s i t i v e  Economics, p.166. By the law o f the d i m i n i s h i n g r a t e o f s u b s t i t u t i o n , a l l i s o q u a n t s are convex t o the o r i g i n . Because t h i s s t u d y i s concerned o n l y w i t h t h e p r o d u c t i o n f u n c t i o n o f c a p i t a l equipment r a t h e r than t h a t o f f i r m s o r i n d u s t r i e s , t h e p o s s i b i l i t y o f s c a l e economies (or d i s e c o n o m i e s ) can be n e g l e c t e d . Thus, the c h a r -a c t e r i s t i c s o f t h e i s o q u a n t would be the same f o r any l e v e l o f o u t p u t . See J . M. Henderson and R. E. Quandt, Microeconomic Theory: A M a t h e m a t i c a l  Approach. As w i l l be shown i n C h a p t e r s I - I I I t h e r e was no e v i -dence t h a t c o m p l e m e n t a r i t y e x i s t e d between any i n -p u t s . F o r a d i s c u s s i o n o f problems t h a t a r i s e w i t h more th a n two f a c t o r s see H. P. Binswanger, "The Measurement o f T e c h n i c a l Change B i a s e s w i t h Many F a c t o r s o f P r o d u c t i o n , " American Economic Review, (December 1974) pp.964-76. A t e c h n o l o g i c a l change may a l s o a l t e r t h e degree o f c u r v a t u r e o f the i s o q u a n t , i m p l y i n g a change i n the e l a s t i c i t y o f s u b s t i t u t i o n . F o r r e a s o n s o u t l i n e d below, t h i s t y p e o f change need not be c o n s i d e r e d h e r e . C f . W. E. G. S a l t e r / P r o d u c t i v i t y and T e c h n i c a l ' Change, p. 33. J . R. H i c k s , The Theory o f Wages, p.125. W i l l i a m F e l l n e r , . "Two P r o p o s i t i o n s i n the Theory o f Induced I n n o v a t i o n s , " The' Economic J o u r n a l , V o l . 71 (June 1961) pp.305-308. Murray Brown, On' t h e Theory and Measurement 1- of^ T e c h n i - c a l Change, p.15. C f . S a l t e r / op. c i t . , p.29. 224 APPENDIX B HOURLY AIRCRAFT PRODUCTIVITY AND TECHNICAL EFFICIENCY FOR FLYING PERSONNEL H o u r l y a i r c r a f t p r o d u c t i v i t y , i n terms o f a v a i l a b l e s e a t m i l e s p e r a i r c r a f t hour was e s t i m a t e d from s e a t i n g c a p a c i t y and c r u i s i n g speed. A l t h o u g h t h e former i s s u b j e c t t o c o n s i d e r a b l e v a r i a t i o n depending upon s e a t i n g d e n s i t y and t h e l a t t e r i s dependent on s t a g e l e n g t h , s i m p l e c a l c u l a t i o n s p r o v i d e a c c e p t a b l e e s t i m a t e s o f average p r o d u c t i v i t y i n r e l a - t i v e terms s i n c e the e f f e c t o f d i f f e r e n c e s i n o p e r a t i n g c o n d i -t i o n s are n o t o f i n t e r e s t h e r e . I n o r d e r t o c o n v e r t e s t i m a t e s o f h o u r l y a i r c r a f t p r o d u c t i v i t y i n t o measures o f t e c h n i c a l e f f i c i e n c y f o r f l y i n g p e r s o n n e l , a method o f c o n v e r t i n g v a r i o u s crew r e q u i r e m e n t s i n t o a c o n s i s t e n t 'crew e q u i v a l e n t ' i n d e x was r e q u i r e d . The method chosen was a system o f w e i g h t s f o r a l l crew members based on e s t i m a t e d r e l a t i v e h o u r l y wage r a t e s . The w e i g h t s s e l e c t e d were as f o l l o w s : P i l o t 1.0 F l i g h t E n g i n e e r 0.50 C o - P i l o t 0.5 4 C a b i n A t t e n d a n t 0.20 225 RESULTS; a) P i s t o n P e r i o d A i r c r a f t Cruising Speed (mph) Seating Capacity Hourly A i r c r a f t Productivity (ASM/hour) Crew Equiv-alent Index Flyi n g Per-sonnel Prod. (ASM/Equiv. hour) Relative Technical Ef f i c i e n c y Expected Relative Seat Mile Expense F i r s t Class Typical Coach DC-4 220 44 54 66 9,680-14,520 2.44 3,967- 5,951 0.63 1.58 DC-6 280 50 56 70 14,000-19,600 2.44 5,738- 8,033 0.85-0.91 1.1-1.2 DC-6B 280 55 64 82 15,400-22,960 2.44 6,310-9,410 1.0 1.0 DC-7 320 . 55 76 90 17,600-28,800 2.44 7,213-11,800 1.14-1.25 0.8-0.87 DC-7C 310 62 76 99 19,220-30,690 2.44 7,877-12,578 1.25-1.34 0.75-0.8 b) T r a n s i t i o n P e r i o d A i r c r a f t Cruising Speed (mph) Typical Seating Capacity Hourly , A i r c r a f t Productivity (ASM/hour) Crew Equiva-len t Index Fl y i n g Personnel Prod. (ASM/Equiv. hour) Relative Techni-c a l Efficiency Expected Relative Seat Mile Expense (A) (B) (A) (B) DC-6B 280 62 17,600 2.64 6,670 1.0 - 1.0 -Viscount 302 45 11,560 1.94 5,958 0.9 0.63 1.12 1.58 E l e c t r a 360 82 24,930 2.64 9,442 1.42 1.0 0.71 1.0 707-120 585 125 62,270 3.04 20,483 3.07 2.17 0.33 0.46 DC-8-10 585 125 62,270 3.04 20,483 3.07 2.17 0.33 0.46 "Assumes speed equal to 0.85•(cruising speed). c) Recent Period A l l j e t a i r c r a f t have very s i m i l a r spaed characteristics so the examination of r e l a t i v e hourly a i r c r a f t productivity and r e l a t i v e technical e f f i c i e n c y for f l y i n g personnel did not take into account speed. Equivalent Relative Typical Relative Expected Rela-A i r c r a f t Crew Crew Seating Relative Technical t i v e Seat Mile Index Requirement Capacity Capacity . Ef f i c i e n c y Expense B a s e A i r c r a f t : 7 0 7 - 1 2 0 707-120 3.04 1.00 135 1.00 1.00 1.00 DC-8-50 3.04 1.00 135 1.00 1.00 1.00 707-300 3.24 1.07 147 1.09 1.01 0.99 DC-8-61 3.44 1.13 195 1.44 1.28 0.78 DC-10 , 3.84 1.26 270 2.00 1.59 0.63 L.1011' 747 4.44 1.46 374 2.77 1.89 0.53 720 2.84 0.93 115 0.85 0.92 1.09 727-100 2.84 0.93 98 0.73 0.79 1.27 727-200 . 3.04 1.00 135 1.00 1.00 1.00 B a s e A i r c r a f t : 7 2 7 - 1 0 0 727-100 2.84 1.00 98 1.00 1.00 1.00 727-200 3.04 1.07 135 1.38 1.28 0.78 DC-9-10 2.14 0.75 68 0.74 0.99 1.01 DC-9-30.. 2.34 0.82 92 0.94 1.15 0.87 737-200 2.84. 1.00 95 0.97 0.97 1.03 Assumes three-man f l i g h t crew. 228 APPENDIX C I . CALCULATION OF TECHNICAL EFFICIENCY FOR CAPITAL a) P i s t o n P e r i o d A i r c r a f t Cruising Speed Seating Capacity O r i g i n a l P r i c e ($U;S., Thousands) 1 Year 1947 1951 1953 1955 1956 1957 DC-4 220 44-66 447 DC-6 280 50-70 614 860 - - - -DC-6B 280 55-82 - 960 1016 - 1141 1230 DC-7 330 55-90 - - 1641 1792 - -DC-7B 330 55-90 - - - 1900 1900 1900 DC-7C 330 62-99 - - - - 2230 -L-649 260 54-88 755 - - - - • -L-749 270 54-88 - 907 - - -L-1049 290 60-88 - 1256 - - - -L-1049C 310 60-88 - - 1459 - - -L-1049G 315 60-88 - • - - 1917 2027 2011 L-1649A 310 60-85 — 2378 'Source: Aaron J . Gellman, The Ef f e c t of Regulation on  A i r c r a f t Choice, unpublished Ph.D. thesis, Massachusett's I n s t i t u t e of Technology (1968) pp.390-405. C a l c u l a t i o n s o f h o u r l y a i r c r a f t o u t p u t were made assuming average speed o f 0.85 t i m e s c r u i s i n g speed. A n n u a l ASM o u t p u t , assuming a u t i l i z a t i o n o f 2,000 a i r b o r n e -hours p e r y e a r , was t h e n c a l c u l a t e d and compared w i t h o r i g i n a l c o s t t o g i v e a measure o f t e c h n i c a l e f f i c i e n c y f o r c a p i t a l i n terms o f a n n u a l ASM o u t p u t p e r d o l l a r o f i n i t i a l i n v e s t m e n t . 229 R e s u l t s : ANNUAL ASM OUTPUT PER DOLLAR YEAR AIRCRAFT FIRST CLASS TYPICAL COACH 1947 DC-4 DC-6 L-649 15.2 39.5 33.4 18.6 44.2 39.6 23.0 55.3 54.5 1951 DC-6 DC-633 L-749 L-1049 28.2 26.2 27.8 23.6 31.6 30.5 33.0 26.3 39.5 39.0 45.4 34.5 1953 DC-6B DC-7 L-1049C 25.8 20.0 21.7 30.0 27.6 24.2 38.4 32.6 31.8 1955 DC-7 DC-7B L-1049G 18.3 22.7 16.8 25.2 23.8 18.7 30.0 28.2 24.6 1956 DC-6B DC-7B DC-7C 24.6 19.5 15.6 28.6 23.9 19.1 36.7 31.1 24.9 1957 DC-6B DC-7B L-1049G L-1649A 22.8 17.3 16.0 13.3 26.5 23.9 17.8 15.7 34.0 28.2 23.4 18.8 230 b) T r a n s i t i o n P e r i o d T e c h n i c a l e f f i c i e n c y f o r c a p i t a l was e s t i m a t e d u s i n g h o u r l y a i r c r a f t p r o d u c t i v i t y from Appendix B, o r i g i n a l c o s t from T a b l e 2,3 and seven a i r b o r n e - h o u r s p e r day f o r the u t i l i -z a t i o n r a t e (2555 a i r b o r n e hours p e r y e a r ) . A sample c a l c u -l a t i o n o f t e c h n i c a l e f f i c i e n c y i s g i v e n below: DC-6B 17,600 ASM/hr x 2,555 h o u r s / y e a r = 4.5 (10 7) ASM/year o r i g i n a l c o s t (1957) $1.23 (10 6) average p r o d u c t i v i t y = 45/1.23 = 36.6 ASM a n n u a l o u t p u t p e r d o l l a r o f i n -vestment. IT. MAINTENANCE MAINTENANCE EXPENSES FOR JET AIRCRAFT  OPERATED BY UNITED A I R L I N E S 1 (1967-72) Airframe Percent Engine Percent A i r c r a f t 1967-69 1970-72 Change 1967-69 1970-72 Change DC-8-10 $55.51 % - — $43.48 $ - — DC-8-20 52.79 60.79 +15.2% 57.86 38.39 -33.7% DC-8-30 51.26 60.53 +18.1% 54.67 38.32 -30.0% DC-8-50 52.72 61.22 +16.1% 43.73 28.25 -35.4% DC-8-61 50.70 60.63 +19.5% 37.63 28.20 -25.1% DC-8-62 46.85 60.35 +28.8% 44.45 46.32 • + 4.2% 727-100 46.43 52.09 +12.2% 50.68 • 33.68 -33.5% 727-QC 45.58 51.34 +11.9% 47.80 33.52 -29.9% 727-200 44.10 50.66 +14.9% 42.99 32.25 -25.0% 737 40.43 46.99 +16.2% 25.43 , 21.33 -16.1% 720 67.54 49.79 -26.3% 55.94 29.92 -46.5% Caravelle 55.01 63.08 +14.7% 33.33 40.57 +21.7% 747 - 119.49 - - 129.55 -DC-10 92.63 (78.89) In d o l l a r s per block hour. APPENDIX D PAST EVENTS UNDER CONDITIONS OF HIGH ENERGY PRICES  I n t r o d u c t i o n One o f t h e c o n c l u s i o n s o f t h i s s t u d y i s t h a t t h e r e has been an a s s o c i a t i o n between t h e d i r e c t i o n o f changes i n t e c h n i c a l e f f i c i e n c y and t h e h i s t o r i c a l t r e n d o f r e l a t i v e f a c t o r p r i c e s t h a t i s c o n s i s t e n t w i t h t h e economic t h e o r y o f p r o d u c t i o n . I n most r e s p e c t s , however, the e v i d e n c e was i n a d e q u a t e t o prove c a u s a l i t y . One way o f t e s t i n g whether p a s t e v e n t s were r e s p o n d i n g t o the p r e v a i l i n g economic i n c e n -t i v e s i s t o h y p o t h e s i z e a d i f f e r e n t s e t o f r e l a t i v e f a c t o r p r i c e s and det e r m i n e whether t h i s would have u p s e t t h e h i s -t o r i c a l p a t t e r n . I t i s e s p e c i a l l y a p p r o p r i a t e , i n l i g h t o f r e c e n t e v e n t s , t o a n a l y z e changes w h i c h might have been c r e -a t e d by a h i g h e r p r i c e f o r energy.. The f i r s t s e c t i o n o f t h i s a p p e ndix c a l c u l a t e s t h e e f f e c t on a i r f a r e s o f s e l e c t e d h i g h f u e l p r i c e s based on t h e t e c h n o l o g y used i n 1950, 1960 and 1970. The c o m p a r a t i v e economics o f v a r i o u s a i r c r a f t and i n n o v a t i o n s a r e th e n re-examined t o r e v e a l t h e impact o f t h e s e new f u e l p r i c e s . E f f e c t s o f H i g h e r F u e l P r i c e s on A i r F a r e s The immediate impact o f a h i g h e r f u e l p r i c e f o r f u e l i s , o f c o u r s e , an i n c r e a s e i n the o v e r a l l o p e r a t i n g expenses o f each a i r l i n e . I n the s h o r t r u n , t h e r e would be no e f f e c t on e i t h e r t e c h n o l o g y , i n v e s t m e n t , o r c o m p e t i t i v e b e h a v i o u r so i t 231 232 can be assumed t h a t a new e q u i l i b r i u m would be r e a c h e d w i t h an unchanged r e l a t i o n s h i p between f a r e s and d i r e c t o p e r a t i n g c o s t s . 1 I n o t h e r words, f a r e s and average c o s t s would r i s e an e q u a l amount t o p r o v i d e t h e c a r r i e r s w i t h t h e same r e t u r n 2 on i n v e s t m e n t assuming a l l n o n f u e l expenses are unchanged. Combining t h i s assumption w i t h f u e l consumption c a l c u l a t i o n s o f C h a p t e r s I - I I I , the e f f e c t o f h i g h f u e l p r i c e s f o r 1950, 1960 and 1970 would be as shown i n T a b l e s D . l , D.2 and D.3. The c a l c u l a t i o n s r e v e a l t h a t the f r a c t i o n o f a i r f a r e a t t r i b u t a b l e t o f u e l expense (which d e t e r m i n e s the i m p a ct ' l e v e r a g e ' o f a g i v e n f u e l p r i c e i n c r e a s e ) has v a r i e d between t e n and twenty p e r c e n t and has d e c l i n e d o v e r t i m e . I n any o f the t h r e e p e r i o d s , t h e impact o f an i n c r e a s e i n the p r i c e o f f u e l t o 30 c e n t s p e r g a l l o n would have been r e l a t i v e l y s m a l l . The impact on f a r e s becomes q u i t e s i g n i f i c a n t ( i n -c r e a s e s e x c e e d i n g 50% i n many cases) a t a f u e l p r i c e o f 65 c e n t s p e r g a l l o n . Not u n e x p e c t e d l y , an i n c r e a s e i n f u e l p r i c e t o one d o l l a r p e r g a l l o n would have had a d r a m a t i c e f f e c t on a i r f a r e s i n any o f t h e p e r i o d s . Because o f t h e r e l a t i o n s h i p between f a r e s t r u c t u r e and t h e v a r i a t i o n o f f u e l consumption w i t h s t a g e l e n g t h , the im-p a c t would have been g r e a t e s t on t h e medium-haul (New Y ork-Chicago) market. I n a l l c a s e s , i t i s o b v i o u s t h a t h i g h e r f u e l p r i c e s c o u l d have had s i g n i f i c a n t e f f e c t s on f a r e s , so i t i s w o r t h w h i l e t o examine t h e i r i m p l i c a t i o n s on the compar-a t i v e economics o f p a r t i c u l a r i n n o v a t i o n s . TABLE D.l EFFECT OF HIGH FUEL PRICES: 1950 CONDITIONS* Based on: DC-6B, 52 seats, 60% load factor, i n i t i a l f u e l price 17C/gal. ABSOLUTE AND PERCENTAGE FARE INCREASES FOR SELECTED HIGH FUEL PRICES Route P £=30<r/gal. P £=65<r/gal. ' P £ = $ l . 00/gal. 1 1 2 Route Fare F u e l 3 Consumption Per Mile (U.S. gal.) Total Fuel Consumption (U.S. gal.) Fuel Consumption Per Pass. • Imbedded' Fuel Cost Percent Of Fare New York-Los Angeles $157.85 1.55/1.75 3973 127.3 $21.64 13.7% New York-Chicago $ 35.00 1.74 1254 40.2 $ 6.83 19.5% New York-Boston $ 11.59 2.10 399 12.8 $ 2.18 18.8% New York-Los Angeles $16.55 11% $61.12 39% $94.03 ' 60% New York-Chicago $5.23 15% $19.30 55% $33.37 95% New York-Boston $1.66 14% $ 6.14 53% $10.62 92% Route lengths are, respectively: 2,453 miles; 721 miles and 190 miles, O f f i c i a l A i r l i n e Guide, November, 1970. 2 One-way coach. M i l l e r and Sawers, op. c i t . , pp.233-36. Federal tax not included. M 3 Chapter I I , Part I I . New York-Los Angeles assumes one stop a f t e r 1,600 miles. OJ TABLE D.2 EFFECT OF HIGH FUEL PRICES: 1960 CONDITIONS* Route Fare New York-Los Angeles $181.45' New York-Chicago $40.25' New York-Boston $ 13.40 Fuel Consumption Per Mile (U.S. gal.) 4.80 6.00 2.80 Total Fuel Consumption (U.S. gal.) 11,774 4,326 532 Fuel Consumption Per Pass. (U.S. gal.) 170.6 62.7 11.1 'Imbedded' Fuel Cost $15.53 $ 5.71 $ 1.00 Percent Of Fare 7.2% 14.2% 7.6% *Based on: DC-8-20, 115 seats, 60% load factor, i n i t i a l f u e l price 9.0<Vgal. except f o r New York-Boston which i s based on Lockheed Elec t r a , 80 seats. ABSOLUTE AND PERCENTAGE FARE INCREASES FOR SELECTED FUEL PRICES Route New York-Los Angeles New York-Chicago New York-Boston Pf=30<:/gal. $35.65 20% $13.10 33% $ 2.32 18% Pf=65<Vgal. $95.38 53% $35.05 87% $ 6.19 47% P£=$1.00/gal. $155.10 86% $ 57.00 142% $ 10.08 77% "Sillier and Sawers, op. c i t . , pp.233-36, one-way coach, Federal tax included. 'Includes j e t surcharge ($10, $3 respectively) U) TABLE D.3 EFFECT OF HIGH FUEL PRICES: 1970 CONDITIONS* Route A i r c r a f t Fuel Consumption Per Mile 1 Total Fuel Consumption Fuel Consumption Per Passenger 2 'Imbedded1 Fuel Cost Percent, of Fare' New York-Los Angeles 707-320 5.04 12,360 147.2 $16.93 11.9% 747 7.23 17,735 89.6 $10.30 7.3% New York-Chicago 720 5.08 3,660 53.1 $ 6.11 12.0% 727-100 3.65 2,630 44.8 $ 5.15 10.1% New York-Boston DC-9-30 3.93 747 13.5 $ 1.56 7.8% Based on: a i r c r a f t as shown, 60% load factor, i n i t i a l f u e l price of 11.5 C per U.S. gallon. ABSOLUTE AND PERCENTAGE FARE^INCREASES FOR SELECTED FUEL PRICES Route New York-Los Angeles New York-Chicago New York-Boston P£=30C/gal. $17-$27 12-19% $ 8-$10 16-19% $ 2.50 12.5% Pf=65C/gal. $48-$79 34-56% $24-$28 47-56% $ 7.24 36.2% P£=$1.00/gal. $79-131 $40-$47 $11.98 56-92% 78-92% 60% A l l f u e l consumptions are i n U.S. gallons. "Capacities from Chapter I I I . 31970 fares were: New York-Los Angeles, $142, New York-Chicago, $51 and New York-Boston, $20. OJ U l 236 E f f e c t o f H i g h e r Energy P r i c e s on Comparative Economics o f  P a s t I n n o v a t i o n s One o f t h e o b v i o u s r e a c t i o n s t o a h i g h e r f u e l p r i c e w o uld have been th e a d o p t i o n o f t h e turbo-compound and l a t e r , the t u r b o f a n engine t o reduce f u e l consumption r a t h e r t h a n i n -c r e a s e c r u i s i n g speeds. C a l c u l a t i o n s i n T a b l e D.4 show t h a t , a t a f u e l p r i c e o f 65 c e n t s p e r g a l l o n , c o n v e r s i o n o f t h e DC-6B t o turbo-compound power would have y i e l d e d a r a t e o f r e t u r n on the i n c r e m e n t a l i n v e s t m e n t w h i c h exceeded th e c o s t o f c a p i t a l . T a b le D.5 r e v e a l s t h a t c o n v e r s i o n o f t u r b o j e t s t o t u r b o f a n s was a m a r g i n a l i n v e s t m e n t a t the f u e l p r i c e p r e v a i l -i n g i n 1960, as s u g g e s t e d by the f a c t t h a t some c a r r i e r s con-s i d e r e d i t w o r t h w h i l e w h i l e o t h e r s d i d n o t . Any s i g n i f i c a n t i n c r e a s e i n f u e l p r i c e d u r i n g t h i s p e r i o d , however, would p r o b a b l y have l e d t o t h e immediate demise o f t h e l e s s - e f f i c i -e n t t u r b o j e t e n g i n e . An e v a l u a t i o n o f c o n v e r s i o n o f the 3 DC-8-61 t o h i g h - b y p a s s t u r b o f a n e n g i n e s done i n 1966 showed t h a t a t e x p e c t e d f u e l p r i c e s (10. 5<r/gal.) t h e c o n v e r s i o n was uneconomic i n s p i t e o f a r e d u c t i o n i n f u e l consumption o f t w e n t y - f o u r p e r c e n t . T a b l e D.6 shows t h a t c o n v e r s i o n o f the DC-8-61 t o the new type o f engine would have become economic a t a f u e l p r i c e o f 24.2 c e n t s p e r g a l l o n . P r e d i c t i n g Induced Changes i n T e c h n i c a l E f f i c i e n c y f o r Energy The above examples make i t c l e a r t h a t t h e d i r e c t i o n o f i n n o v a t i o n would have been d i f f e r e n t i n the p a s t i f f u e l 237 TABLE D.4 CONVERSION OF DC-6B TO TURBO-COMPOUND POWER  WITH HIGHER FUEL PRICES Block f u e l consumption: 466 U.S. gal./nr. Reduction with turbo-compound engine: 15% 69.9 gal/hr Annual f u e l savings at 2,000 hr, u t i l i z a t i o n : 140,000 g a l . = $91,000 at 65$/gal. I n i t i a l Investment: = $700,000.1 2 Annual return on investment: 13% Cost of Cap i t a l : 4% Depreciation (straight l i n e to 15% residual over 10 years) 8.5% Annual cost of investment 12.5% 'Based on the difference i n o r i g i n a l cost between the DC-6B and DC-7B. 'The costs are l i k e l y to be lower or the return higher because of the i n d i r e c t effects of a reduction i n s f c (e.g. increased range/payload). 238 TABLE D.5 FUEL PRICE REQUIRED FOR CONVERSION OF DC-8-2 0 TO TURBOFAN POWER Savings i n f u e l consiamption per mile with turbofan power Daily f u e l savings Daily expense savings Monthly expense savings Based on a 6% rate of in t e r e s t , 12 year l i f e with no residual value, t h i s con-verts into an annuity with monthly payments having a present value of: Based on a conversion cost of one m i l l i o n d o l l a r s , 3 the investment would be p r o f i t a b l e f o r P f > 8.1<r/gal. 0.9 gal./mile"1" (1,200 mile average stage length) 4,050 gallons (4,500 mile d a i l y u t i l i z a -t i o n 2 ) $40.5 (P f) where P f equals f u e l p r ice i n cents per gallon $1,215 (P f) (30 days/month) $1,215 (P f) x 102.5 "Based on difference i n f u e l consumption of DC-8-20 and DC-8-50. The savings would be greater a t shorter average stage lengths. See Chapter I I I , Part I I . Based on average u t i l i z a t i o n of the trunks i n 1963. 'See P e r r i n Stryker, op. c i t . , p.96. 239 TABLE D.6 ECONOMICS OF CONVERSION OF DC-8-61 TO HIGH-BYPASS ENGINES Comparison based on anticipated costs i n 1966:' Increased depreciation Increased maintenance Sub-Total Reduction i n f u e l expense Net Increase $77.60 per airborne hour $52.00 per airborne hour $129.60 per airborne hour $ 56.40 per airborne hour $ 73.20 per airborne hour Assumed engine price of $260,000 for JT3D, $52,000 f o r high-bypass, $120,000 for nacelle; 10 year depreciation, 3,300 hour annual u t i l i z a -t i o n , maintenance equal to 5% of o r i g i n a l cost/1,000 hr; f u e l consumption reduction of 24%, f u e l price of 10.5<r/gal. Conversion would be economic on t h i s basis a t a f u e l price of 24.2<r/gallon required to equate costs and savings ( i . e . reduction of f u e l expense, $125.60). Source: F. Searls and C. Y. Joe, 'Reengining Large Jet Transports i n 1972?', SAE Paper No. 660321, Society of Automotive Engineers, (New York 1966), mimeo, pp.3-4. 240 p r i c e s had been h i g h e r , b u t t h e r e i s l i m i t e d u s e f u l n e s s t o p u r s u i n g t h i s argument f u r t h e r . The r e a s o n f o r t h i s i s t h a t i t i s p o s s i b l e t o a n a l y z e o n l y those i n n o v a t i o n s t h a t a c t u a l l y appeared under h i s t o r i c economic c o n d i t i o n s . From the e a r l i e r d i s c u s s i o n on f a c t o r s u b s t i t u t i o n i t i s o b v i o u s t h a t s p e c i f i c d e s i g n s - r e p r e s e n t i n g p o i n t s on an i s o q u a n t - do not a d e q u a t e l y r e p r e s e n t t h e f u l l range o f a v a i l a b l e t e c h -n i q u e s t h a t c o u l d have been d e v e l o p e d w i t h a v a i l a b l e t e c h n i c a l knowledge. W i t h o u t an e x t r e m e l y d e t a i l e d knowledge o f the t e c h n i c a l background i t i s n o t p o s s i b l e t o make a v a l i d e s t i -m a t i o n o f t h e changes i n f a c t o r p r o p o r t i o n s t h a t might have o c c u r r e d had f u e l p r i c e s been r a d i c a l l y h i g h e r . Thus, w h i l e i t i s l i k e l y t h a t h i g h e r f u e l p r i c e s would have l e d t o g r e a t e r improvements i n t e c h n i c a l e f f i c i e n c y ( f o r energy) t h a n sug-g e s t e d above, any e s t i m a t i o n o f such improvements would be c o n j e c t u r a l . Two c o n s i d e r a t i o n s p r o v i d e some i n d i c a t i o n o f the e x t e n t t o w h i c h t e c h n i c a l e f f i c i e n c y • i n t h e use o f energy might have been improved r e g a r d l e s s o f the economic i n c e n t i v e . The f i r s t c o n s i d e r a t i o n , mentioned e a r l i e r , d e r i v e s from t h e f a c t t h a t t h e r e a re i m p o r t a n t i n d i r e c t b e n e f i t s t o be g a i n e d from a r e d u c t i o n i n f u e l consumption i n a d d i t i o n t o t h e sa v -i n g s i n f u e l expense p e r s e . These b e n e f i t s a r i s e because o f the i n t e r d e p e n d e n c e between f u e l consumption, r a n g e - p a y l o a d 4 performance, and o r i g i n a l c o s t . F o r thes e r e a s o n s , any hypo-t h e t i c a l (or a c t u a l ) i n c r e a s e i n f u e l p r i c e does n o t i m p l y a p r o p o r t i o n a l i n c r e a s e i n t h e i n c e n t i v e t o economize on t h e use o f f u e l . I n a d d i t i o n , t h e r e a r e c o n s t r a i n t s - d e f i n e d by aerodynamic and thermodynamic laws - t h a t ' f o r m a t e c h n i c a l boundary t o r e d u c t i o n s i n f u e l consumption. B a r r i n g f u n d a -m e n t a l t e c h n o l o g i c a l b r e a k t h r o u g h s i t i s t h e r e f o r e u n l i k e l y t h a t a h i g h e r p r i c e f o r f u e l would prompt a g r e a t improve-ment i n t e c h n i c a l e f f i c i e n c y because t e c h n o l o g y i s l i k e l y t o be c l o s e r t o t h i s boundary than t h e low r e l a t i v e p r i c e o f f u e l m ight i n d i c a t e . ^ I n o r d e r t o i l l u s t r a t e the second c o n s i d e r a t i o n , the e x t e n s i v e r e l i a n c e o f commercial a i r c r a f t development on m i l i -t a r y t e c h n o l o g y must be r e c a l l e d . I n c o n t r a s t w i t h the a i r -l i n e s , the m i l i t a r y a r e l i k e l y t o be q u i t e u n r e s p o n s i v e ( i n a t e c h n i c a l sense) t o changes i n t h e p r i c e o f f u e l . Because 6 o f t h e i r s t r a t e g i c c o n c e r n f o r combat r a d i u s and t h r u s t - t o -w e i g h t r a t i o s , and the impact o f f u e l consumption on t h e s e t h e r e w i l l be few avenues f o r i m p r o v i n g f u e l economy o f m i l i -t a r y a i r c r a f t l e f t u n e x p l o r e d . I n o t h e r words, any attempt t o reduce f u e l consumption would l i k e l y r e s u l t i n i n c r e a s e d c o m p l e x i t y , engine w e i g h t e t c . The m i l i t a r y - because o f t h e i r o v e r r i d i n g c o n c e r n f o r a i r c r a f t performance (e.g. speed) - are l i k e l y t o r e j e c t such changes; t h e i r demand f o r c e r t a i n p erformance c h a r a c t e r i s t i c s i s , i n o t h e r words, h i g h l y i n e l a s -t i c w i t h r e s p e c t t o changes i n f u e l p r i c e . H igh f u e l p r i c e s may t h e r e f o r e l e a d t o a s i t u a t i o n i n w h i c h t h e d e s i g n o b j e c t i v e s o f m i l i t a r y and commercial a i r -c r a f t d i v e r g e . I n the h i s t o r i c a l p e r i o d d i s c u s s e d i n t h i s study,, r e l a t i v e f a c t o r p r i c e s were such t h a t c o m m e r c i a l a i r c r a f t m a n u f a c t u r e r s p r o p e r l y emphasized speed r a t h e r t h a n f u e l economy. Because speed was an i m p o r t a n t a t t r i b u t e o f m i l i -t a r y a i r c r a f t , the o b j e c t i v e s o f t h e two groups c o i n c i d e d and commercial a i r c r a f t d e s i g n c o u l d make j o i n t use o f m i l i t a r y •research and development. W i t h a s i g n i f i c a n t i n c r e a s e i n f u e l p r i c e , however, a i r l i n e s would be w i l l i n g t o t r a d e - o f f speed f o r improved f u e l economy w h i l e the m i l i t a r y would con-t i n u e t o emphasize speed. T h i s may r e s u l t i n a dilemma i n w h i c h any e f f o r t t o improve t h e f u e l economy o f c o m m e r c i a l a i r c r a f t would r e q u i r e c ommercial a i r c r a f t m a n u f a c t u r e r s t o i n c u r huge development expenses. A r a d i c a l d e p a r t u r e from t e c h n o l o g y d e v e l o p e d f o r the m i l i t a r y would i n c r e a s e c a p i t a l expenses a t t h e same time t h a t f u e l expenses were r e d u c e d . I n t h i s s i t u a t i o n - e s p e c i -a l l y assuming a t e c h n i c a l b a r r i e r t o l a r g e - s c a l e r e d u c t i o n s i n f u e l consumption - h i g h e r f u e l p r i c e s may have a r e l a t i v e l y s m a l l i m p a ct on the d i r e c t i o n o f t e c h n o l o g i c a l change. Such q u e s t i o n s c a nnot be answered w i t h o u t making some r a t h e r s p e c u l a t i v e assumptions as t o the range o f t e c h n i c a l p o s s i b i l i -t i e s . NOTES 1. T h i s assumes z e r o e l a s t i c i t y o f t e c h n i c a l e l a s t i c i t y o f s u b s t i t u t i o n i n t h e s h o r t r u n . Of c o u r s e , the i n c r e a s e i n average c o s t s may not be r e f l e c t e d i n c o r r e s p o n d i n g changes i n f a r e s i n a l l (e.g. s h o r t -h a u l ) m a r k e t s . 2. T h i s assumes, f o r s i m p l i c i t y , z e r o demand p r i c e e l a s t i -c i t y . 3. F. S e a r l s and C. Y. J o e , " R e e n g i n i n g J e t T r a n s p o r t s i n 1972?," SAE Paper No. 660321, mimeo. 4. F o r example, an i n c r e a s e i n f u e l consumption reduces r a n g e - p a y l o a d performance and/or i n c r e a s e s a i r c r a f t w e i g h t and e n g ine t h r u s t , r e s u l t i n g i n an i n c r e a s e d o r i g i n a l c o s t . 5. T h i s i s i l l u s t r a t e d by t h e f a c t t h a t a i r c r a f t range i s a l m o s t i n e v i t a b l y i n c r e a s e d s i m p l y by i n c r e a s i n g f u e l c a p a c i t y r a t h e r t h a n r e d u c i n g f u e l consumption (e.g. DC-7/DC-7C, DC-8-50/DCT8-62, DC-10-10/DC-10T30). 6. That i s , the d i s t a n c e o v e r w h i c h a m i l i t a r y a i r c r a f t can f l y , p e r f o r m i t s m i s s i o n and r e t u r n t o base. 7. S i n c e a l l f u e l l o a d o f m i l i t a r y a i r c r a f t t y p i c a l l y forms a l a r g e p a r t o f i t s g r o s s w e i g h t , any r e d u c t i o n i n f u e l consumption can have a s i g n i f i c a n t e f f e c t upon t h r u s t - t o - w e i g h t r a t i o and a i r c r a f t p e r f o r m a n c e . 243 

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