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The Canadian Pacific air freight case, before the Air Transport Board and the Canadian Cabinet, 1953 McRae, Robert Wallace 1954

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NOTE As checked by list on pages 32-35 of the thesis, the following Exhibits of Appendix 3 are lacking from copy 1: 22, 29, 31, 34, 35, 33 12 enclosures for 39 Al, 42, 43, and 48. The only supplement with copy 2 is Appendix 3, Exhibit 18A. Library, U.B.C. May 26, 1954 THE CANADIAN PACIFIC AIR FREIGHT CASE Before the Air Transport Board and the Canadian Cabinet, 1953. by Robert Wallace McRae. A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in the Department of Economies, Political Science, and Sociology We accept this thesis as con-forming to -the stmdard required from candidates for the degree of MASTER OF ARTS Member^  of the Department of Economics, Political Science, and Sociology THE UNIVERSITY OF BRITISH COLUMBIA April, 1954. ABSTRACT of thesis entitled THE CAN API AIT PACIFIC AIR FREIGHT CASE Before the Air Transport Board and the Canadian Cabinet, 1953. by Robert Wallace McRae. A THESIS SUBMITTED IH PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in the Department of Economies, P o l i t i c a l Science, and Sociology THE UHF1RSITY OF BRITISH COLUMBIA Ap r i l , 1954. Air transportation^ as an industry, has progressed in no country without substantial government support. Most nations have subsidized their commercial air services to such an extent that f u l l government control has f i n a l l y resulted. In the national Interest, airlines are deemed both desirable and essential, despite their non-capability of f u l l self-support. Hence, with government aid mandatory, i t is logical that legis-lative attempts should be made to keep such aid at the lowest possible level consistent with the provision of safe, efficient and reasonably modern air services. Where a single airline must of necessity be paid a subsidy i t is manifestly uneconomic to permit the entrance of a competitor in the same f i e l d . By so doing, the total subsidy required would undoubtedly increase inasmuch as each operator would move more than doubly distant from achievement of lowest possible unit costs. This concept guided the Hon. CD. Howe in the drafting of the original Trans-Canada Air Dines Act in 1937. By that act, Trans-Canada was given monopoly transcontinental privileges. These privileges were not seriously challenged until 1941. In that year, Canadian Pacific Air lines was formed. This firm to proceeded orogr essively^encroach upon the presumed domain of the government airl i n e . By 1952, Canadian Pacifie had acquired a patchwork coverage of the greater part of Canada, requiring only an east-west link to create a composite operation. To fac i l i t a t e this final step, CP.A. applied in November of 1952 for authority to operate an all-freight service between Montreal and Vancouver, The consequent Air Transport Board hearing and report to the Cabinet, and the ultimate Cabinet decision, provide the basic subject matter dealt with in this thesis. Before the Board, CP.A. contended: 1. that all-cargo carriers in the U.S.A. had been most successful In their operations, 2. that adequate Canadian air freight t r a f f i c poten-t i a l was readily available for diversion from such surface transport f a c i l i t i e s as r a i l express, 3. that conditions in Canada were even more favour-able than in the U.S. for air freight development, 4. that T.CA. had knowingly neglected the air freight f i e l d , concentrating i t s efforts upon the more readily lucrative passenger and mail t r a f f i c , 5 . that the pro-posed CP.A. service would create new air business, would not divert t r a f f i c from T.C.A. to an extent detrimental to the latter's finances. Successive thesis chapters appraise, and in the opinion of the writer, totally negate these Canadian Pacific contentions. In its report to the Cabinet, the Air Transport Board leaned heavily, upon the evidence submitted by CP.A. In essence, the Board report to the Cabinet recommended that the application be approved. The Cabinet chose to do otherwise. The application was denied. Apparently, the ministers had listened with convic-tion to the statements of T.C.A. President, Mr. McGregor and had given heed to the warnings of the economic witnesses, Professor Mhes and Dr. Currie, as to the desirability of avoidance of the p i t f a l l s which have beset Canadian railway exxoerience. In the light of the data assembled within this thesis, the writer contends that the Cabinet decision was f u l l y justified . T.CA.'s slow approach to reduced rate air freight haulage was sound in a l l respects. Unfortunately, however, i t is noted that the application, the hearing and the resultant publicity have pressured Trans-Canada into establishing presently uneconomic air freight services rather than further jeopardize the monopolistic status of the firm. Vickers Viscount Turtine-Propeller Aircraft PREFACE Air transportation is inherently expensive. In no •country has the air transport industry progressed with-out substantial government support. The current govern-ment subsidy for TF.S. airlines is approximately eighty million dollars annually, aside from the considerable financial aid rendered through the furnishing of costly airway f a c i l i t i e s for a fraction of the true service value involved. Aside from the U.S.A., most nations have subsidized their inter-city air carriers to sueh has an extent that ultimate f u l l government control^resulted. Such was the case for British Overseas Airlines and British European Airlines. These nationalized opera-tions are not to be returned to private ownership by the Conservative regime. The continuing annual subsidy requirements preclude such a step, aside from consider-ation of the public funds already invested without return. The concept would appear to be that in the national interest airlines are desirable and essential, despite their non-capability of self-support. Hence, i f government support is mandatory, then i t would seem reasonable that an attempt should be made to keep such support at the lowest possible point consistent with the provision of safe, efficient and reasonably modern air services. It was with that aim in view that the Hon. CD. Howe piloted the original Trans-Canada Ai r lines Act through the Commons in 1937. Trans-Canada was given monopoly privileges in the domestic trunk-line f i e l d as well as prior rights to such international route extensions as deemed desirable by the government . These T.C.A. monopoly privileges were not seriau sly challenged until 1941. In that year, Canadian PadQEb Air Lines was formed. This firm proceeded progressively to encroach upon the presumed domain of the government air l i n e . By 1952, Canadian Pacific had acquired a patch-work coverage of the greater part of Canada, predominantly on a north-south basis. A l l thaT^t was required was an east -west link to create a composite operation. To accomplish this f i n a l step required an open challenge of government policy at government level. To make possible the delivery of this challenge, CP.A. applied in Novem-ber of 1952 for authority to operate an all-freight ser-vice between Montreal and Vancouver. The consequent Air Transport Board Hearing and Report to the Cabinet, and the ultimate Cabinet decision have provided the sub-ject matter with which this thesis is primarily concerned. It will be noted from the Table of Contents that voluminous appendices accompany the Library copies of this thesis. Essentially, they comprise documentary data which the writer felt would be of use to students at some future time in the appraisal of a subsequent and comparable enquiry such as the government will undoubtedly be called upon to conduct. Adequate excerpts are included in the thesis proper to obviate the necessity of reference to the appendices unless a more detailed study of the topic is desired. The only exception involves Appendix III, Exhibit 18A, the Douglas Aircraft Company's submission to the Air Transport Board on the behalf of Canadian "Pacific Air lines. However, a copy of this Exhibit 18A accompanies each thesis volume. Robert W. McRae. Toronto, Ontario. March, 19 54. ,,T'A3LE OF CONTENT'S Chapter I Chapter II Chapter III Chapter IV Chapter V Chapter YT Chapter VII Chapter VIII Chapter IS Chapter 2 Chapter XI -- Preface — Trans-Canada Air Lines Canadian Pacific Air Lines -- The Canadian Pacific Air Freight Application -- The Canadian Pacific Air Freight Case: Part I - The CP.A. Evidence Part II - The T.CA. Evidence — The Air Transport Board Report and The Cabinet Decision — Air Cargo Development in the U.S.A. ->- Railway Express in Canada and the U.S.A. The Gruneau Research, Limited, Survey Conducted for CP.A. — The Douglas Aircraft Company's Survey of CP.A. 's Proposed Air Freight Route to do with Pot entials. Australian Air Transport, Providing a Contemporary and Parallel Case History for Canadian Guidance. — The Canadian Pacific Air Freight Case - Summation and Conclusions. — Bibliography Page 1 9 2 1 3 1 59 8 4 9 8 1 2 7 1 4 6 1 5 3 1 8 3 1 9 9 2 1 6 APPENDICES II ACCOMPANYING VOLUMES Appendix I — Trans-Canada Air Lines Annual Report for the year 1952. Appendix II — Further Particxilars of CP.A. Application as furnished to the Principal Intervener hy the Air Transport Board. Appendix III -- Air Freight Case Exhibits 1 to 48. Appendix IT -- The Air Transport Board Report to the Cabinet. Appendix V — The Cabinet Decision in the Canadian Pacific Air Freight Case. Appendix YI Appendix YI Appendix YII Appendix YIII — Appendix LX C.A.3. Economic Decisions: (1) Air Freight Rate Investigation.(1948) (2) Directional Rates. (1950) (3) Accumulation Rules. (1950) (4) Air Freight Rate Investigation.(1952) Slick Airways, Incorporated Annual Reports for the years 1951.and 1952. Flying Tiger Line, Incorporated, Annual Reports for the years ending June 30th, 1952 and 1953. Representative selection of f i f t y clippings from Vancouver, Montreal and Toronto newspapers indicating editorial and news treatment of the Canadian Pacific Air Freight Case, the Board Report and the Cabinet Decision denying the application. Transcript sections (255 pages) covering testimony of: Mr. S.f.Gr. McConachie, President, Canadian Pacific Air Lines, Ltd. Mr. CR. McGregor, President, Trans-Canada Air Lines. Mr. H.W. Seagrim, General Manager, Operations, Trans-Canada Air Line s. Mr. T.H. Martin, General Manager, Canadian National Express. TABLES l o . Page 1. Profit and. Loss Data - Canadian Pacific Air Lines - 1941 to 1952, inclusive. 16 2. Proposed CP.A. Air Freight Tolls 20 3(a). Route Segment Load Factors as Forecast 37 "by Canadian Pacific Air Lines 3(b). Route Segment load Factors as Forecast by Douglas Aircraft Company, Inc. 47 4. Costs and Revenues for Projected Service - Douglas Forecast. 49 5(a). Operating costs - Slick and Flying Tigers 103 5(b). Profit and Loss Data - Slick and Flying Tigers - 1946 to 1951, inclusive. 107 6. Ten Top Commodities Carried by Air Freight in the U.S.A. - 1951. 121 7. Ten Top Commodities Carried by T.C.A. 122 8. Average Return Per Ton Mile for T.C.A., CP.A. and U.S. freight carriers. 123 9. Comparison of Cargo Ton Miles as Per-formed by U.S. Carrier Groups, 12 months ended June 30th, 1952. 124 10. Relative Use of Composite and All-Cargo Aircraft by the Domestic U.S. Scheduled Air Lines in Cargo Work. 124 11. T.C.A.'s Average Return per Air Cargo Ton Mile - 1947 to 1954. 125 12. T.C.A.'s Average Return per Express Ton Mile - 1947 to 1952. 125 13. Equipment Performance Data 125 12(a). U.S. Airline Revanue D&ta - 12 months ending September 30th, 1953. 126 12(b). 195£ Passenger Revenues - Ten Leading Airlines and Railroads. 126 13. Distribution of Passenger Deficit Among Types of Passenger Train Traffic. 130 14. Railway Express Agency Efficiency ana Cost Statistics - 1939 to 1951. 13£ 15. Comparison Canada-United States Rail Express Service for Selected Distances. 133 16. Comparison 1st Class Rail Express Rates at 100 l b . level - United States ana Canada 134 17. Comparative Rail Express and M r Cargo Shipments in Canada and the United States. 134 18. Extracts from Analysis of Canadian National Express less Than Carload Rail Express Traffic, Sample Analysis for May 16, 1951. 137 19. C.l.R. Point to Point First Class I.O.I. Traffic: October 16th, 1952. 138 20. Comparative Ontario-Quebec versus British Columbia Fruit and Vegetable Output. 144 E l . Table of Shipping Charges Used by. Gruneau Research, limited During Survey. 147 22. Relative Progress - U.S. and Canadian Air Cargo Services. 154 S3. Profit and loss Data - Trans-Australia and Australian National Airways, for the years 1949 to 1351. 188 24. Breakdown of Trans-Australia Airlines Revenue Bound as to Souree. 189 MAPS, ILLUSTRATIONS AND CHARTS Vickers Tiscount Turbo-propeller Aircraft Frontispiece Map Showing T.C.A. ana CP.A. Schedulea North American Services - 1952. SO Douglas Aircraft Company Graphical Analy-sis of C.P.R. Freight Traffic --January to June inclusive, 195S . 46 Douglas DC-6A - Illustrating Height of Cabin Floor Above Grouna Level. 43 Lockheed Superconstellation Depicted as Cargo Aircraft ana Illustration of Cargo Pod Currently in Con-stellation use by E.A.I, and T.W.A. 58 Bristol 170 Cargo Aircraft Currently Operated by Trans-Canada Air lines 70 Average Daily Air Cargo flow Chart for T.C.A. Trans-continental Route - 195E. 75 Vancouver Sun Newspaper Cartoon by N orr is Summating Public Reaction to lews Coverage of the Air Freight Case. 97 Air Freight Services of American Air lin e s , Inc. as Evidenced by T'ime-Table. 116 Slick Airways, Incorporated Curtiss C-46 War-surplus All-Cargo Aircraft. I l l Douglas DC-6A All-Cargo Aircraft Illustrating Loading Problems Yielded by Cabin Floor 100 inches above Ground Level. 144(a) Lockheed Constellation Cargo Pod 182 Population Chart for Canada and the U.S.A. Illustrating Relative Remoteness and Paucity of Canadian Metropolitan Areas. Included to Further Bear Out the Logic of the Cabinet Decision to Prevent Unwarranted Duplication of Air Transport F a c i l i t i e s . 200(a) Lockheed Supercon*ellation in Flight 216 Air Line Map of Canada and the United States Giving Key to Abbreviations Used *** *** Within the Thesis Text. *** Inoluded with Appendices in the Accompanying Submission - # — -# Chapter I Trans-Canada Air lines Background Data as to format ion ana Selevant Government Policy. Until 1937, Canada lagged behind the United States of America and the countries of Europe in the matter of scheduled air transport. Admittedly, Canadian air ser-vices between r a i l head and the norfhland mining areas had been developed to the point where they were carry-ing more freight each year than were those of any other country in the w©rld. In addition, these frontier opera-tors had built up quite a sizeable mail and passenger business, nevertheless, Canada was virtually the only remaining c i v i l i z e d nation without an air service l i n k -ing i t s main population centres on a competitive basis with paralleling r a i l and highway carriers. Canadian air mail and passenger traffic was being diverted to the transcontinental air lines of the United States. This diversion was facilitated by U.S. operated trans-border links such as Vancouver-Seattle, Winnipeg-Pargo and Montreal-Alb any. A number of major centres, such as Toronto, Hamilton, Windsor and Halifax, were served by no air line whatsoever. This was the state of Canadian air transport in 1937. - In the spring of that year, the federal government enacted a measure setting up Trans-Canada Air lines. - £ -The crown corporation thus created was organized as a wholly owned subsidiary of the Canadian National Rail-way System, the government's existing transportation agency. As conceived hy those enacting the measure concerned, J.C.A. was to fly only the main line, coast might1- he to coast routes plus such ©there asidesignated hy the federal government as he ing of national importance. owing Canada had lagged behind the U.S.A. not^4*te to any lack of initiative on the part of private operators but more -fee to lack of airway facilities. Particularly under the Hoover administration, federal funds had been available in lavish amounts to subsidize air line operators in the matter of airway facilities and mail pay. Expenditures for the latter culminated in the alleged scandals revealed by the Roosevelt administra-tion in 19 33-34. However, following the meting out of heavy penalties in this regard, the Democrats went on to spend even more liberally than their predecessors in the matter of airline subsidy. No such large scale expenditures on the development of scheduled air transport took place in Canada prior to the advent of Trans-Canada Air Lines. Until 1927, such aid as was given was confined to rather conservative air mail contracts. In that year, -the Department of National Defence started work on some 92 airports along a proposed trans-Canada route. By the spring of 1930, the Winni-peg-Calgary-Edmonton sector was ready for night or instrument operations. Air mail service commenced in March of that year, being provided by Canadian Airways under contract to the Post Office Department. A day-light mail service was next contracted for between Mono ton-Montreal-Toronto-Detro i t . The link between Detroit and Winnipeg was furnished by existing U.S. air lines. The funds to finance purchase of the neces-sary operating equipment used by Canadian Airways were furnished by the Dominion Government and the Canadian Pacific Railway Company. Each put up #250,000. The presidents of both the Canadian national and the Can-adian Pacific, Mr. Hungerford and Mr. Beatty^ became vice-presidents of the air firm, which had been formed through a consolidation of a group of independent lines. The Duff Commission of 1931 noted that this apparent teamwork "may well prove to be the foundation of a proper co-ordination between the two agencies of trans-port." fl) A l l might have gone well hut for the depression. As it was, the service lasted only two years. The Con-servatives replaced the liberals in Ottawa in 1930. The cancellation of the mail contract was but one plank (1) Report of the Royal Commission to Enquire into Railways and Transportation In Canada, 1931-32; King's Printer, Ottawa, 1 9 3 2 ; p. 57. (Duff) in tiheir platform of financial retrenchment adopted in the recession's depth in 1932, Although actual inter-city mail flying was suspen-ded at that time, planning for an ultimate all-Canadian route continued. Under the Bennett regime, development of intermediate landing fields was carried forward at intervals of ah out one hundred miles across the entire Dominion. The work done, however, was of a most unsat-isfactory nature. Primarily, the program was aimed at keeping the single unemployed out of the cities. The basic rate of pay was 20c7 per day, an amount not con-ducive to efficient labour. By the time the liberal party, under Mackenzie King, was returned to power In 1935, seven millions had supposedly been invested in the airway project, lo specific plans had yet been laid for the flying of the route. With the liberals back in power, the situation changed rapidly. The various governmental agencies for the supervision and assistance of commercial aviation were consolidated into a unit of the newly formed Department of Transport. Hon. C.D. Howe, of Port Arthur, was named haad of this new department and assigned the task of supervising the equipping of the air route with modern instrument flying f a c i l i t i e s , from coast to coast. Beam navigational aids and visual beacons were in-stalled. Meteorological stations, linked together by - 5 -teletype, were provided at a l l base points. Federal grants were made to snob cities as already bad a i r -ports for the purpose of providing lengthened, hard surfaced runways and adequate hangar f a c i l i t i e s for transport aircraft. In some cases, such as at Toronto, entirely new air fields had to be b u i l t . Due in large measure to the industry and organizational a b i l i t i e s of Mr. Howe, the worlc was carried forward rapidly and at f a i r l y reasonable cost. By the spring of 1937 the Winnipeg-Vancouver leg was ready for inauguration of actial scheduled services. The next question to be answered was: ' "Who should operate the proposed services?" Several alternative plans were available for consideration. For one, the government could subsidize an existing operator such as Canadian Airways, with the line then being flown on a basis similar to that on which the U.S. network had been bu i l t . For another, the government could operate the air line i t s e l f , maintaining commission control as is done with Australia's national air l i n e . In actuality, a middle road was followed, a crown corporation being set up to provide the desired services. In the planning, provision for participation of the C.P.B. was made but with negative result. On March 31, 1937, Mr. Howe stated in parliament: . . . . we expected almost until the day when we introduced this b i l l that our two principal railway companies would be shareholders in the entarprise. We learned at the last moment that the directors of one large company decided not to take up the enter-prise, and therefore we had to make a very quick change in the h i l l . I have always been of the opinion that the r a i l -ways were the proper bodies to lend stab-i l i t y to this enterprise. (2) In the Senate, approximately a year later, the question of Canadian Pacific or other private partici-pation was again raised. Senator Meighen gave his own explanation of the situation with the following remarks: , . . although the other private companies did come forward, they did not produce cash . . . . What they were ready to give apparently . . . was some kind of stock. But the government decided to take the whole thing over, and a new situation now has arisen. The Canadian national Rail-ways are now 100$ owners of Trans-Canada Air Lines. (5) In actuality, Canadian Airways and other inde-pendent operators would approach the enterprise only on a basis of offering bush type aircraft in exchange for stock. It should,of course, be noted that Para. 3, Section 7 of the Trans-Canada Act precludes the Canadian National from disposing of more than 49$ of the Capital Stock without prior approval of parlia-ment. It was, therefore, as reasonable that the CP.P.. stayed clear of the enterprise as it was sound policy that the government should include such a restriction. (£) Parliament, Commons, Official report of debates, page £555. (March 31, 1937) (3) Parliament, Senate, Official report of debates, 1938, page 6£. Despite sporadic outbursts from Conservative and O.O.W. members, the great majority in both Houses seemed agreed that direct operation by the government would hinder, rather than help, the proposed air- l i n e . As Mr. Howe pointed outt . . . an accident on the Canadian National at the present time would cost far less in injury claims than would have a similar mishap on the Intercolonial during the days of direct government operation. (4) Further, the logic of placing the airway in con-trol of the C.N.E. was conceded by the majority of those taking part in the discussions. Hence, with such gener-al concurrence in a project sponsored by the party with such a comfortable majority, the b i l l was passed with relative rapidity, receiving royal assent on the 10th of A p r i l , 1937. (5) As Mr. Howe summated: Under this b i l l we shall get the best features of government osmership without the obligations of direct government operation . . . . (6) The extent to which Mr. Howe's contentions proved correct over time must remain a matter essentially of opinion. However, the T.C.A. version of i t s own success may be appraised from the testimony of Mr. McGregor, company president, as given during the course of the 1953 Air Freight Hearing before the Air Transport Board, as dealt with in Chapter IT, Part II, of this the-sis, as well as from the T.C.A. Annual Report for 1952 as sub-mitted with this thesis as Appendix I. (4) Parliament, Commons, Debates, 1937, page 2217. (5) B i l l 74, Ch.43, St. of Canada, 1 George YI, 1937 (6) Parliament, Commons, Debates, 1937, page 2217. Chapter II Canadian Pacific Air Lines The Canadian Pacific Railway Company's interest in commercial aviation dates from 1950. In that year, as noted in the preceding chapter, the railway and the govern-ment put up matching contributions of $250,000 each to form Canadian Airways, Limited. In addition to the joint vice-presidency of Mr. Beatty with Mr. Hunger ford, an additional C.P.R. voice was added to the directorate in the person of Mr. James A. Richardson. A Canadian Pacific director, Mr. Richardson's basic business interests were the Winnipeg grain and investment firms which he headed. In the 1930 C.P.R. Annual Report, a holding is shown of 10,000 shares of Canadian Airways stock of no par value. As the depression deepened, however, the C.P.R.'s concern with its aviation investment steac&y lessened. With the railway's decision not to accept a subsidiary role under the Trans-Cam da Act of 1937 , Canadian Pacific management appeared to have been ruled out of the airline picture. The outbreak of war brought the C.P.R. back into aviation. An Air Services Department was organized in 1940, in co-operation with the British Ministry of Air-craft Production. This department set up the original trans-Atlantic ferrying sendees, moving military craft to - 10 -Britain. To the company's credit, the shareholders were advised, in the 1940 Annual Report of the railroad's opera-tions, that their firm was "being reimbursed only for the direct costs incurred in performing these services." (1) The ferrying duties were taken over by the Royal Air Force on July 15th, 1941, with the O.P.R. switching its wartime assistance to the operation of air observer schools the under^British Commonwealth Joint Air Training Plan. In so doing, the company acquired a number of existing operators whose restricted peacetime activities were seeking outlet in war work. Included amongst these concerns was Yukon Southern Air Transport, headed by Mr. Grant McConachie, a dynamic individual who stayed on with the consolidated venture as General Manager of Western lines. A bush pilot who had graduated to management, Mr. McConachie rapidly saw to it that the operations of the new firm, Canadian Pacific Air lines, were not in any way restricted to the other training of air observers. At that point, the^firms acquired comprised:Arrow Airways, limited, Dominion Skyways, limited, of which the entire eapital stock was purchased* Prairie Airways, Limited; Canadian Airways, Limited; Wings, limited; firms in whieh^controiling interest was obtained. The investment of the parent company to that time was #3,400,000. (2) (1) Canadian Pacific Railway Annual Report, 1940, p. 15. (2) Canadian Pacific Railway Annual Report, 1941, p.12. - 11-By 1942, Canadian Pacific Air lines, Limited, had acquired direct control of five air observer schools, as well as controlling interest in Quebec Airways, limited, operator of two further such schools. The company took a most active part in the development of the Northwest Staging Route to the Orient, as well as in that of the Alaska highway and the Canol project. During the year 1942 agreements were concluded for the purchase and trans-fer of the entire assets of those firms previously only controlled, together with the entire assets of a series of other operators, to the total of eleven in a l l . By the end of that year, the C.P.R. had invested #4,725,917 in its ajfline undertakings, estimating in its yearly report that "90$ of its subsidiary's business handled is directly connected with the war effort." (3) During 1943, two more millions were invested. M r . McConaehie had become General Manager of Operations, and with a James J. Hi l l approach, he was already laying plans for international operations despite the precluding pro-visions of the Trans-Canada Act. The 1943 C.P.R. report stated that: -^Detailed study has been made of the possibili-ties of.your company's air activities and a number of new routes and extensions of existing routes in the international as well as the domestic field will be made whenever this is (3) C.P.R. Annual Report, 1942, p. 13. - 12 -permitted "by the government policy. The in-terim policy announced by the government would exclude private operators from the field of international operations. Your directors feel that, if Canada is to occupy a place in air transportation which its geographical situation and the abilities and experience of its citizens justify, there is urgent need of an air policy which will afford Canadian industry an opportunity equal to that enjoyed by the citizens of other countries. (4) This government policy had been stated most specific-ally in parliament on April 2nd, 1943, by the Eight Hon. W.L. Mackenzie King, Prime Minister, excerpts following: I should like to make a statement of the policy of the government on ci v i l air transport. Pirst with respect to domestic aviation: 4. Trans-Canada Air Lines will continue to be the instrument of the government in maintaining all trans-continental air transport services and in operating services across international boundary lines and outside Canada. The govern-ment will encourage the company to obtain modern aircraft which will keep present services up to modern standards and will expand these services to the fullest extent that post-war conditions permit. The development of supplementary routes will continue to be left to private enterprise, unless considerations of public interest indicate that certain of these routes should be designated by the government as routes to be operated by T.C.A. The operations of T.C.A. will continue to be limited to important services of a mainline character, where the volume of passenger and mail traffic justify i t . Conclusion: 10. The policy of the Canadian government on air transport may be summed up as follows: (4) C.P.R. Annual Report, 1943, p. 13. - 13 -(a) The government sees no good reason for changing its policy that Trans-Canada Air lines is the sole Canadian agency which may operate international air services. (b) Within Canada, Trans-Canada Air Lines will continue to operate all trans-continental systems, and such other services of a mainline character as may from time to time be designated by the government. Competition between air services over the same route will not be "permitted whether between a publicly-owned service and a privately-owned service or between two privately-owned ser-vices. There will remain a large field for the development of air transport in which private Canadian companies may participate, and, while preventing duplication of servloee, the government will continue to encourage private companies to develop services as traffic possibilities may indicate. (5) The Canadian Pacific management undoubtsLly found the foregoing statement of policy adequately clear. How-ever, the investment in C.P.A.L. was furthered to a total of #7,400,000 by the end of 1944. Obviously, the C.P.R. was banking on a government change, or at least a modifioa tion of the Liberal government's policy. The tone of the 1944 report to shareholders, however, was not too hopeful. At the last annual meeting reference was made to the policy announced by the government of Canada with respect to post war aviation. Since that time, legislation has been enacted giving effect to that policy. The act prohibits the issue of a licence for a commercial air service owned, leased or controlled or operated by a carrier engaged in another form of transportation unless the Government-in-Councll is of the opinion that it is in the public interest that such a licence should be issued. ( 6 ) (5) Parliament, Commons, Debates, 1943, Ho. 47, p.17 (6) C.P.R. Annual Report, 1944, p. IS. - 14 -A further provision of the aot referred to in the 1944 C.P.R. report provided for the setting up of a three man Air Transport Board. This body was to supplant the administration of the Board of Transport Commissioners with respect to aviation. Under the act, the A.T.B. is to advise the Minister of Transport on c i v i l aviation; to license a l l forms of commercial air transport on the basis of public convenience and necessity; and to exercise econ-omic control in the matter of financial responsibility, schedules, rates and charges, insurance and other matters. All existing licences at the time of its inception were to be reviewed by the A.T.B. , powers being provided in the act to cancel or suspend any such licence i t saw f i t . Provision was also made that such licences as were not so cancelled or suspended should cease to be valid one year after the termination of the war in Europe. Despite doubts as to the future, Canadian Pacific Air lines continued to expand. Trans-Canada was expanding rapidly, but not rapidly enough to cope with new route demands or slowlyenough to keep within a balanced budget. In consequence, CP.A. undertook to extend its services from Whitehorse in the Yukon to Fairbanks in Alaska, as agent under contract for T.C.A. Throughout 1945 and 1946, the Air Transport Board con-ducted its appraisal of the industry. By 1947 the survey was completed. Under the terms of the A.T.B. decision, - 15 -Oanadian Pacific relinquished almost a l l of the non-scheduled air charter licences previously held. On the other hand, certain new routes were assigned including the scheduled services between Vancouver and Prince Rupert, Vancouver ant Calgary via Penticton and Cranbrook, Winnipeg and Plin Plon via the Pas, and the Seven Islands -Knob lake run. In order to meet the requirements of the new services, nine new twin engine aircraft were acquired and twenty-six of the smaller planes were disposed of. In 1948 further routes and route extensions were added, including Vancouver to Whitehorse via Sandspit, Dawson City to Aklavik, Montreal to Val d'Or. 1948 saw the commencement of discussions between the C.P.R. and the government to do with C.P.A.L. being enabled to con-duct two proposed international air routes, one to the Orient, the other to the Antipodes. In this regard, explanatory literature is simply not available. However, Trans-Canada was suffering heavy losses on its overseas runs despite subsidy provision. Canadian Pacific was pre-pared to take on the Pacific runs without subsidy, and, incidentally was prepared to purchase North Star aircraft for the purpose from the government sponsored Canadair plant. Canada, Australia and New Zealand had previously agreed that such Pacific runs between Commonwealth countries should be jointly operated by government sponsored flag lines such as Trans-Canada. The objections of Australia - 16 -were overcome in 1949, and the service to that country inaugurated in July of that year. Hew Zealand acceded to Canadian government requests, with service finally started in 1951. The Pas run was extended to Churchill in 1949, as was the operation out of Montreal to lor and a. In 1949 , also, the Orient run was established. By the end of that year Canadian Pacific Air Lines represented, at book values, an eleven million dollar enterprise. Financially, from a profit motive, the C.P.E. direc-torate must have been strictly guided by an appraisal of future returns, as evidenced by the following tabulation of net profits and losses, after depreciation, as taken from the company's annual reports. T a b l e 1 Profit Loss 1943* 236,573 1944 767,109 1945 308,066 372,371 1946 1947 584,266 1948 193,645 1949 113,000 203,000 1950 1,100,000 1951 564,000 1952 #2,059,371 #2,202,659 *the 1943 figure is a cumulated total shown in the report for that year and covering 1941-43, inclusive. Aviation is an unusual business. Canadian Pacific, in the period reviewed above, had lost a Lockheed on a mountain top east of Chilliwack, a North Star in Tokyo Bay, a DC-4 which disappeared off the B.C. coast, a DC-3 which was blown up over Quebec and another DC-3 which crashed on final north - 17 -of Pontic ton. These losses, coupled with the paucity of annual returns indicated in the foregoing table, do l i t t l e to recommend aviation as a field for investment. However, airlines generally, and C.P.A.I, included, employ rapid write-off depreciation plans, amortizing over five to seven years. Hence, reserves for purchase, of new equipment quickly accrue, being available for expansion purposes long before the aircraft so depreciated have been retired from service, further, the aircraft obtained by the company at the war's end were acquired in a depressed market, glutted by war surplus machines. At today's prices, these aircraft have a market value of anywhere up to four times their price at acquisition. Whether this condition will persist with cessation of hostilities in Korea remains to be seen. Korea, incidentally, made possible the profits shown for 1950 to 1952, through the carriage of troops for the United States government. However, regardless of the cause, O.P.A. was making money at last, had recouped most of the previous losses, had evidenced a considerable potential capital gain on assets. In consequence, the company was ready for further expansion as evidenced by the following statement for the Parent company's annual report for 1952: Application has been made to the Air Transport Board for a licence to operate a scheduled com-mercial air cargo service from Montreal to Van-couver , via Toronto, The Pas and Edmonton. Plans - 18 -axe being made for an expansion of the trans-Pacific services to provide for a through route between the Orient, Mexico and South America, f 7) Trans-Canada Air lines was fast losing its monopoly privileges. Mr. Kings statement of policy, as enunciated in 1943 and set out on pages IB and 13, had lost weight in the light of actual events. Mr. Howe, under whose guidance T.C.A. had been conceived and fostered, made periodic attempts to turn the tide. One such, made in the House of Commons on March 17th, 1944, is rather revealing: . . . . . i t is worth while stressing the fact at this times that the Canadian Pacific Railway Company and Canadian Airways were each offered one-third participation in the Trans-Canada Air lines enterprise, and that both refused to par-ticipate in a company with the identical finan-cial arrangements that now apply to Trans-Canada Air Lines. It had been contemplated that Trans-Canada Air Lines would be a non-competitive, non-profit system of transportation by air, planned to avoid duplication of services that were the outgrowth of competitive building for profit in the field of surface transportation. The Trans-Canada Air Act contemplated that Trans-Canada would operate all the principal routes parallel to the inter-national boundary, as well as Canada's interest in a l l international routes, and these on a non-competitive basis. The field of routes into Canada's northland, as well as the field of air services in the settled areas complementary to the Trans-Canada operation, was left to private enterprise. The reason for this is not hard to explain. Trans-Canada was to be a high standard Operation, competitive with paralleling trans-continental air transport services in the United (7) C.P.R. Annual Report, 195£, p. 16. -19-States . Canada, having one-twelfth the popu-lation of the United States, oould support one service of this type, as against three similar parallel services in the United States, hut, obviously, to have a second coast to coast ser-vice in Canada would be wasteful and uniuetifiable. Service to the public must be the paramount con-sideration, and it seemed obvious that the com-petitive type services would not offer the lowest cost to the public. An impartial analysis of the situation today leads to no other conclusion. However, the newly formed Canadian Pacific Air Lines has lost no time in challenging the non-competitive position of Trans-Canada Air Lines, and is reaching out for new franchises; this at a time when it alone seems able to buy new and mod ern e qu ipment. To clarify the situation, the Prime Minister made a statement with respect to policy . . . in 1945. . . . . The policy then enunciated con-tinues to be the policy of this government. This statement of policy, I regret to say, failed to bring about the desired effect in the development of privately owned air services within Canada, nor did i t end intervention of private interests in the international field. It is becoming obvious that ownership of airways by our two competing railway systems implies extension of railway competition into transport by air, regardless of the government's desire to avoid competition between air services. In the old days, competitive railway building developed pressure methods for obtaining new franchises. Such methods must not have a place in the development of our airways. (8) However, Government policy may not have changed, that fact seemed immaterial to C.P.R. management. Canadian Pacific Air Lines continued to nibble its way piecemeal into Trans-Canada's supposedly restricted economic larder. Government policy was not so much being changed as it was being pro-gressively undermined. (8) Parliament, Commons, Debates, 1944, Ho.33, p.1618. .* Chapter III The: Canadian Pacific Air Freight Application As indicated in the map on the preceding page, by 1952 Canadian Pacific Air lines had a patchwork coverage of the greater part of Canada. A l l that was required was an east-west link to create a composite operation. To accomplish this f i n a l step required more than the usual route segment skirmishing. It called for an open challenge of government policy at government level. Hence, CP.A.I. proceeded to prepare for same, to the accompaniment of much publicity fanfare and with the apparent tacit blessing of certain members of the government i t s e l f . Specifically, Canadian Pacific applied to the Air Trans-port Board for a licence to operate: fon a cargo only basis) Scheduled commercial air service between the ter-minals Montreal, P.O.. and Toronto, Ontario and the terminal Vancouver, B.C. serving the inter-mediate points of The Pas, Manitoba and Edmonton, Alberta. Traffic originating at Montreal destined Toronto or originating in Toronto destined Montreal will not be carried, (1) In subsequent testimony i t was learned that C.P.A.l. had been preparing for this application since early 1951, a survey of the proposed route's potential having been made by the Douglas Aircraft Company on the airline's behalf in April of that year. However, it was a well kept secret, at least from the public viewpoint, inasmuch as no press refer-ence to the plan was made until November 10th, 1952. (1) Application, as f i l e d with Air Transport Board by C.P.A.l; Particulars of Application, 1.1, 1952. - 22 -Notice as to this application's receipt was pre-pared by the Board for mailing to a l l interested parties. Said notice contained a supplementary rider that con-siderably widened the scope of the proposed hearing, stating that: The Board desires to obtain from as many interested persons and public bodies as possible views on the necessity or other-wise for the development of, domestic air cargo services. For this reason the Board invites representations from persons and public bodies in the area affected. (£) Hence, i t was the Board's intent to endeavour to appraise both public and private opinion on the subject of Trans-Canada's monopoly privileges. Assuming that every effort would be made to reveal a l l relevant facts', the broadened nature of the enquiry was well con-ceived. In any case, the Board would not have the f i n a l word in the matter. Under the provisions of the Aero-naties Act, the Air Transport Board is simply a fact finding body when i t comes to decisions involving changes in government policy to do with air lines owned by surface carriers. In such cases, the Board i s charged with the responsibility of gathering in a l l relevant data, assimilating same into an unbiased report, with or without recommendations," to be forwarded to the Cabinet for consideration and decision at that level. The Notice of Application was mailed from the Air Transport Board offices on November 10th, 1952. From the (2) Notice of Application, C.P.A-^., A.T.B., l o / l l / 5 2 . - 23 -standpoint of helpful Canadian Pacific publicity timing, the date of mailing was well chosen. On that date, at Montebello before the Air Industries and Transport Associ-ation, Hon. Lionel Chevrier made a series of broad state-ments covering the application's receipt, the proposed general hearing plus comments indicative of impending changes in government policy relative to air transport. At one point in his address, Mr. Chevrier said: . .there are plenty of grounds for optimism, given initiative on the part of the operator . . . . in the air coach and air cargo markets there are great sources of new traffic." (3) It should be noted that i t was in the furtherance of these two fields that Trans-Canada Air Lines had been accused, from time to time in the press, of being unduly tardy. Mr. Chevrier went on to deal with government policy in the regulation of competition, stating: In the domestic field, trans-continental air ser-vices of the type presently provided by T.C.A. will continue to be reserved for T.C.A. Canada does not enjoy the extremely high volume of trans-continental traffic that exists in the United States and the government's policy is soundly based on present economic considerations. However, with the substantial growth of traffic in Canada it is no longer necessary to insist on monopoly conditions with regard to regional scheduled services. . . . . .The policy I have described does not rep-resent any change in basic objectives but rather an adjustment to ensure that, as conditions change, we are providing a policy that will (3) Address by the Hon. L. Chevrier, Minister of Trans-port, Seigniory Club, Montebello, P.O.., November 10th, 1952, reprints issued by Department of Trans-port, Ottawa, p. 2. - 24 -assist in achieving those objectives. We in-tsnd to provide the best conditions for favor-able development of Canadian commercial aviation. For example, Canada has been some-what behind the United States in the development of regular all-cargo air routes but certain applications now before the Air Transport Board mean that we will have an opportunity for f u l l review of the policy we shoiald follow in this matter. (4) For Canadian Pacific Air Lines, Mr. Chevrier's words radiated a welcoming green light; to Trans-Canada Air Lines in there was i l l U E i a t e d a rather bewildering intermingling of amber and impending red. Inasmuch as Trans-Canada's directors had, in the months immediately preceding the Montebello speech, committed their firm to a thirty-teo million dollar expansion programme, they were naturally concerned. With the finalization of the Royal Commission on •fce do '.vitto Canadian Transportation in 1951, Trans-Canada had felt secure in going ahead with its long range plans for balanced development of passenger, mail and freight services. Canadian Pacific had had its chance to contest the nation's "chosen instrument" transport policy at the time of the Commission hearings. However, "no specific complaints were laid before the Commission with respect to air transportation." (5) Further, as to the state of competition in the field of Canadian Air Transport, the Commission commented: Under present conditions the policy followed with regard to competition over scheduled (4) Ibid., p. 8. (5) Innis*ningir§7*Turgeon; Royal Commission to do on with. Canadian Transportation, King's Printer, Ottawa, 1951, p. 259. - 25 -routes appeared well conceived. In order that the public may continue to enjoy the advantage of reg-ular air services, operators of such services must be assured of a l l the traffic offered "between the points which they serve. However, the Air Trans-port Board has made some exceptions to the estab-lished policy and has permitted competition when satisfied that such competition would not unduly prejudice the scheduled operator. (6) In consequence of the notice of Application's receipt, Trans-Canada Air lines by letter dated lovember 19th, 1952, requested the Air Transport Board to supply further partic-ulars to do with the proposed service. Such were requested inasmuch as any person desiring to make representations had been advised in the Notice of Application to fil e a complete submission with the Board by December 31st, 1952, and to send a copy concurrently to the Applicant in Vancouver, B.C. On December 11th, data of a primarily general nature went forward to T.C.A. This data indicated that two DC-4 aircraft with 16,000 pound capacity each were to be assigned to the route. A table of tolls, as set out below, together with a "statement of public interest" were included. Proposed Tolls W) Table 2. Prom: To: Edmonton Montreal The Pas Toronto Vancouver 4 # 4 j j $ 4 # _ 4_ _ I Edmonton 2 Z26 21.80 S 6 . 6 0 23 20.35 § Oo" Montreal 26 21.3D - - 18 15.20 31 27.45 The Pas 8 6.60 18 15.20 17 14.75 14 12.30 Toronto 23 20.35 - - 17 14.75 30 25.05 Vancouver 9 7.95 31 27.45 14 12.30 30 25.05 -4 - Cents per pound. $ - Dollars per 100 lbs.. (6) Ibid., p. 261. n. ^ (7) Particulars of Application made by Canadian Pacific Air Dines, as supplied to T.C.A. by A.T.B., para. 7.1 To do with, the foregoing table, a footnote stated that rates in dollars per 100 pounds were to be applic-able to shipments weighing 100 pounds and over, and rates for less than 100 pounds in cents. Further, these rates were to include pick-up and delivery from and to Canadian Pacific warehouses in city centres. The paragraph referred to concerning "evidence of public interest" follows: The great growth of and development in the trans-portation by air Of air cargo by air services designed for that purpose in many other countries of the world is a clear indication that a service of this type would peculiarly meet the needs of Canada as a whole where distances are so great and the transportation of goods even by the fastest surface means available so relatively slow. (8) As to queries from Trans-Canada Air lines regarding data contained in the submissions of other interested parties, the Air Transport Board advised by letter of 9th January 1953 that " i t is not the practice of the Board to provide copies of these submissions to interveners." (9) This aspect of the Board's regulations is dealt with in more detail in Chapter ZI of this thesis. However, following further correspondence, much additional data from the C.P.A.l. application was ob-tained. This information is contained in the "Supple-mentary Particulars of Application" transcribed in Appendix II of this thesis. It went forward to T.C.A. on December (8) Ibid., page 1, para. 8. (9) G.I. Younger for A.T.B., letter dated 9/l/53. 17th, together with notification of an extension of the time limitation for submission by interveners, as had been requested by T.C.A. The new deadline was set at January 15th, 1955. On the basis of Booed upon^the information contained in Appendix II, Trans-Canada Air lines prepared the submission set out in Appendix III of this report. It will be noted that Appendix III is comprised of the exhibits, or summations of same, as filed with the Board during the course of the hearing. Hence, the T.C.A. submission appears as Exhibit 30 in the appendix, having been so designated by the Board. On January 16th, 1953, the Air Transport Board formally announced that the Caaadian Pacific Air Freight Hearing would commence at 10 a.m. February 17th, 1953, in the Auditorium, Dominion Bureau of Statistics Build-ing, Tunney's Pasture, Ottawa, Ontario. In retrospect, the period from November 10th, 1952 to February 17th, 1953, must have been spent in rather different fashions by the executives of the two corpora-tions concerned. With the submission of their application, i t is reasonable to suppose that C&iadian Pacific Air lines1 preparation for the hearing was relatively complete. Their executive attitude must have been one of joyously placid expectancy. Members of Trans-Canada Air lines' officialdom, on the other hand, presumably spent a very - 28 -busy three months endeavouring to outguess one another as to the evidence that might or might not be produced by Canadian Pacific Air lines. Such evidence could conceivably cause the Cabinet to modify its policy as regards Trans-Canada's monopoly privileges. Trans-Canada had made a slow approach to- the air freight industry. Their reasons for so doing, as outlined in the chapters that follow, were based upon their assess-ment of the economics: of this phase of the aviation industry in the world at large and in the United States of America in particular. However, the Board and the consider public could moaour this inaction as disinterest and conclude that C.P.A.I. should have an opportunity to operate a parallel all-freight service across the Dom-inion. In consequence, following upon the announcement of the application, T.C.A. intensified its activities in relation to air cargo. Efforts were made to ensure that no cargo offered was either turned down or delayed, whether its carriage was economically justified or not. In this regard, the press recorded some rather negative results for Trans-Canada Air lines. First, T.C.A. attempted to set up a supplementary all-freight service between Montreal and Winnipeg using a leased C46 aircraft. The lessor was to have been Dorval Air Transport, Can-adian subsidiary of a dominant U.S. all-cargo carrier, Slick Airways, Incorporated. This service was cancelled by the Air Transport Board the day i t was to start. The relevant ruling was to the effect that Dorval's licence did not oover the proposed lease haulage. Simultaneously, a supplementary Trans-Atlantic freight service was attempted by T.C.A. For this route, a Tudor aircraft, leased complete with crew from Lome Airways of Toronto, was to be employed. The Depart-ment of Transport cancelled this service the day prior to its commencement, stating that the aircraft was not properly equipped with anti-icing facilities. Admittedly, the aircraft was not so equipped. However, it had been flying back and forth on Atlantic routes for Lome Air-ways on charter freight operations for some considerable time prior to the above mentionned grounding order. Thus prevented from augmenting its freight haulage facilities, T.C.A. next proposed to meet the proposed rates of the CP.A. service as eovered by the application. The new tariff was filed with the Board by Air cargo, Inc., T.C.A.'s general freight agent, giving February 15th as the effective date. This tariff revision was suspended by the Board on January £0th, with the rider that fur-ther consideration would be given to it after completion of the impending hearing. T.C.A. just could not win a point, and possibly, at that juncture, the government's airline would have been better advised not to have tried. In theory at least, Trans-Canada l i r lines was about to go before the Air Transport Board with i t s long term accomplishments subject to review. Hence, government action to circum-scribe Trans-Canada's last minute efforts to plug up any real or hypothetical holes in its dykes was to a great extent justified, assuming, of course, that an impartial review of the evidence involved was to be conducted by the Air Transport Board. Chapter IV The Air Freight Case Evidence Put Befor e the Air Transport Board to do with the Canadian Pacific Air Freight Application §§§Part I - The CP.A. Evidence Canadian Pacific Air lin e s ' basic arguments to sub-stantiate their application's justification are set out in Appendix II of this report, comprising the "Evidence of Public Convenience and Necessity" portion of their original submission. Hence, these should be f i r s t read to give clarity to what follows. In this chapter the witnesses and their respective contributions are dealt with chronologically as they appeared before the Board. Inasmuch as the transcript for the hearing ran to a total of 1499 legal size pages of typewriting, only those details considered salient have been included. As before the Board, the CP.A. case is dealt with f i r s t , then th at for T.C.A. Actual appraisal of the evidence for either side, for the pur-pose of this report, is not attempted until succeeding chapters. At this point i t should be noted that the three key individuals taking part, aside from the witnesses, were the Hon. Philippe Brais, Q.C , counsel for CP.A., Mr. Hugh 0'Donne 11, Q.C , counsel for T.C.A. , and, of course, Mr. John Baldwin, Board Chairman. Top level legal assist-ance had been thus obtained, Mr. Brais being one of the 23 directors of the C.P.R. and Mr. O'Donnell a br i l l i a n t Mont-real corporation counsel with a record of achievement on the Canadian National's behalf to do with r a i l freight cases. - S E -As a general guide to the detail that w i l l follow, a statement of exhibits f i l e d with the Board during the course of the hearing is set out below. As noted pre-viously, these exhibits, in f u l l or summated form, are gathered together in Appendix III of this report. Exhibits f i l e d with Board Exhibit Exhibit Submitted lumber. Title By: 1 Details of Cargo Capacities Mr. Cray £ Statement of freight Ton Miles Mr. Gray 3 Statement, tr.S. freight and ' Express Revenues Mr. Gray 4 Statement, Express Volume, CP . Express Mr. Gray 5 Statement, Revenue per return tri p Mr. Gray .6 Ground Operation and Maintenance Chart Mr. Gray 7 Brief, Sherbrooke Chamber of Commerce Mr. Rheaume 8 Brief, Kitchenper Chamber of Mr. Rau Commerce 9 Brief, Woodstock Board of Trade Mr. Magill 10 Brief, The Pas Board of Trade Mr. CoX 11 Brief, f l i n flon Chamber of Com. Mrj. Hughes 12 Brief, Prince Albert Board of T. Mr. Cuelenaere 13 Brief, North Battleford Board of Trade Mr. Chad wick 14 Brief, LloycLmins ter Board of T. Mr. Short e l l 15 Brief, Edmonton purchasing Agents Association Mr. Walker 16 Brief, Edmonton Chanber of Com. Mr. McDonald - 33 -17 18 18A 19 20 EI E1A EE S3 E4 E5 25A E6 S7 E8 E9 30 31 3E 33 Brief, Alberta and northwest Chamber of Mines Mr. Brochure, Douglas Aircraft Corp. Mr. Appendix to the above Mr. Douglas DC-6A Air Freight Study Mr. Statement, Air cargo Potentials Mr. Studies, Attitudes and Opinions re Aircargo Service Mr. Appendix to the above Mr. Statement, Express Statistics, C P . Express Mr. Statement, Indirect Cost Analysis Mr. Mr. Memorandum of Agreement Between C.P.A.l. and CP. Express Statement T.C.A. Aircargo and Air Express Mr. letter re Weight and Revenue of T.C.A. Air Freight and Air Ex-press Traffic Statement, T.C.A. Revenue Subject to Competition Freight Ton Miles of United States Trunk and local Service Airlines by Type of Equipment Fish - Canadian national Rail Express Rates per 100 pounds from The Pas to Winnipeg, etc. Mr. Fresh Fish, Rail Express Mr. T.C.A. Submission Mr. Aircargo and Express, T.C.A. 1948-52 Mr. lette r , May 21, 195E, Air Trans-port Board to T.C.A. Mr. Letter, June 3, 1952, T.C.A. to Air Transport Board Mr. McDonald C r i l l y Orilly O'Donnell C r i l l y Myl es Myles Myles McConachie MeConachie Brais Mr. Brais Mr. McConachie Mr. O'Donnell O'Donnell Brais O'Donnell Johnston O'Donnell O'Donnell - 34 -Statement, Fish Shipments Mr. Brais Statement, Time and Departures of Freight Mr. Brais l i s t of Bequests from T.C.A. Mr. Brais Submission of Prof. Waines, TJ. of Manitoba. U.S. v. Canadian Rail Express Mr. Martin Letter, March 1, 1953, T.C.A. to C.P.A.L. , with 12 enclosures: Mr. Brais A - lumber of firms on T.C.A. air cargo mailing l i s t . B.- Direct operating costs per available ton-mile (T.C.A.) 0 - Direct operating costs per mile. (T.C.A.) D - Question and answer re pay-load, route segment Toronto Winnipeg under average con-ditions, with DC-3 and Bristol 1V0 aircraft. E - Question and answer re pay-load of DC-3 and Bristol 170 under average coalitions between Toronto and Winnipeg with any desired stop en route, e.g. Lakehead. F - Transcontinental scheduled time with one hour at each en route stop for both DC-3 and Bristol type aircraft, G - lorth Star direct operating cost par available ton-mile. H. - lorth Star direct operating cost per mile. 1 - Operational weight figures of lorth Star passenger aircraft converted to all-car go use, as proposed by T.C.A. J - Details of shipments of furni-ture as requested by Mr. Brais from witness Seagrim. - 35 -E - Maximum permissible take-off weight, maximum permis-sible landing weight, opera-tional weight empty, zero fuel and o i l weight, floor loading, for DC-3 for 1952. 1 - T.C.A. average load on the Toronto-Winnipeg leg, average for months March and September combined. 40 41 42 43 44 45 le t t e r , March 1st, 1953, T.C.A. to Mr. Hamilton, counsel for the Associated Airways of Edmonton. Mr. O'Donnell Mr. Dyment do. do. Submission of Dr. Currie, IT. of Toronto. Exhibits lumber 41 to 43, inclusive, comprised supporting T.C.A, contentions regarding data to do wlth^IIorth Star cargo craft. Statement of delivery dates of T.C.A. aircraft on order. Mr. McGregor 46 Cost Analysis of Bristol 170 Mr. McConachie 47 Statement of ton^miles carried, 1948 as compared with 1951, by dis t r i c t s . Mr. McConachie 48 Analysis of Canadian Pacific proposed routes, prepared by Douglas Aircraft Company, A p r i l , 1951. Mr. McConachie - 35 -Statement of Witnesses 1 1 ' TJranscript Exhibits Day Date Witness Page Filed. 1 Tuesday Mr. Gray - CP.A. Diree- 7 1-5 17/2/53 tor of Engineering. 2 Wed. Board of Trade witnesses. 155 7-17 18/2/53 Mr. Andrews - CP.A. Dir- 273 ector of Plight Dispatch. 3 Thurs. Mr. C r i l l y - Dir. Douglas 300 18-20 19/2/53 Aircraft Market Research. 4 Friday Mr. C r i l l y 461 20/2/53 5 Monday Mr. C r i l l y 555 23/2/ 53 Mr. Myles - Market Analyst 572 21-22 Gruneau Research, limited. 6 Tuesday Mr. Myles 621 24/2/53 Mr. McConachie - President 632 23-29 Canadian Pacific Airlines. 7 Wed. Mr. McConachie 776 25/2/53 8 Thurs. Mr. Seagrim - General Mgr. 789 30 26/2/53 Operations, Trans-Canada. 9 Friday Mr. Johnston - Director, 935 31-36 27/2/53 T.C.A. Aircargo Department. 10 Monday Prof. Waines - Dean of Arts 980-Fri. 37 2/3/53 Faculty, U. of Manitoba. 997-Mon. Mr. Martin - Gen. Manager, 1026 38 Canadian national Express. Mr. Johnston - brief recall 1073 Mr. Wiley - T.C.A. Traffic 1084 Dept. - brief appearance on point of methodology. - 36 -11 IE Tuesday Hearing adjourned un t i l Wednesday 3/3/53 in deference to Canadian Pacific Air lines personnel, their Comet aircraft haying crashed at Karachi9 India, the night of March 2nd, 1953. Wed. 4/3/53 Mr. Dyment - Director of 1119 39-43 Engineering, T.C.A. Dr. Currie - Professor, 1154 44 University of Toronto.. Mr. McGregor - President, 1180 45 Trans-Canada Air Lines. Mr. McConachie - President, 1224 46-48 Canadian Pacific Air Lines. Thurs. Hearing adjourned u n t i l Friday to 5/3/53 permit counsel time to prepare for fi n a l summating afgument. Friday Mr. Brais - Attorney for 6/3/53 Canadian Pacific Air Lines, 1256 13 Sat. Mr. O'Donnell - Attorney for 1359 7/3/53 Trans^Canada Air Lines. - 56 -In addition to Mr. O'Donnell, counsel for the principal intervener, T.C.A., there appeared throughout other the hearing two^further lawyers representing interested companies. These were.Mr. J.B. Hamilton, intervening on behalf of Associated Airways, Limited of Edmonton, and Mr.' J.E. Wells, for Maritime Central Airways, whose operations link with those of T.C.A. in the Maritimes. Mr. Hamilton's firm sought to support the Canadian Pacific application, with the acknowledged intent of seeking similar freight run rights parallel to the exist-ing, scheduled passenger-mail-express-freight run of C.P.A.L.'s from Edmonton north to the Yukon, should the latter firm be successful in its application. Mr. Wells' supported T.C.A. 's opposition to the application with certain reservations. Maritime Central saw a threatened extension of the proposed G.P.A. freight run east into its own territory as an ultimate prospect, hence their opposition to the application. Following preliminary skirmishing as to procedure, the hearing got under way on the morning of Tuesday, February 17th, 1953, with the calling of CP.A. 's f i r s t witness, Mr. Gray, their Director of Engineering. Of the six exhibits f i l e d by Mr. Gray, only one is of basic import, Humber f , wherein CP.A. outlines the manner in which they derived their estimated potential air freight tra f f i c for the route requested. This potential had been stated, but not clarified as to source, in Appendix II, - 37 -Supplementary Particulars of Application," as follows: In the year 1950, the tonnage of goods transported hy air in the United States hy domestic air carriers, including a l l -cargo carriers, amounted to 252,880 tons, which was 15$ of the estimated total ton-nage carried hy r a i l express in that country. It is not unreasonable to assume that a similar percentage would be carried by air in Canada i f comparable services were available. This thus gives an estimated potential volume of air cargo t r a f f i c over the route applied for of 4,093 tons or 8,186,000 pounds. In support of the claim that the proposed run would meet the test of "public convenience and neces-sity," Mr. Cray outlined the manner in which the eight million pound potential was derived. F i r s t , his firm had established the fact that the Canadian Pacific Express Company handled 27 million pounds of shipments between Montreal and Vancouver in 1951. Assuming an equal quantity handled by the C.H.R.. , a total traffic of 54 million pounds was arrived at. Hence, on the basis of the above stated U.S. penetration, 15$ of the Canadian total yieBed the forecasted potential of 8 million pounds. On the basis of this potential, Mr. Gray submitted that the following route segment load factors could reasonably be achieved: Table &. (a) Tancwer to Edmonton 80$ Montreal to Toronto 40$ Edmonton to The Pas 35$ Toronto to Vancouver 80$ The Pas to Toronto 80$ Toronto to Montreal 35$ - 38 -A basic assumption of the evidence submitted by Mr. Gray was the concept that r a i l express business in Canada and the United States was essentially comparable as to rates, service and customer acceptance. Further, the load factors derived assumed a preponderance of manufactured goods westbound and of agricultural and other perishable products eastbound. For example, fruit and vegetables would be moved from B.C. eastward, with fish being the product moved out of The Pas. Based upon the given load fact 02s, Edmonton to The Pas of 35$ and The Pas to Toronto of 80$, then 45$ of the available space per trip would be made up of fish shipments out of The Pas. For a D06-A, such as the company contemplated using on the run with a 30,000 pound payload, this would represent a movement of 10,800 pound8 of fish eastbound out of The Pas per t r i p scheduled. The witness agreed, and his superior Mr. McConachie subsequently verified, that the Canadian Pacific Air lines sincerely believed that such movement would in fact take place. Board of Trade Testimony Following upon Mr. Gray's introductory evidence on Canadian Pacific's behalf, evidence was heard on Wednes-day, February 18th, from delegates sponsored by various Boards of Trade and Chambers of Commerce, as indicated in the l i s t of exhibits f i l e d set out on page 32 of this report. A l l spoke in favour of the application. Their - 29 -testimony can b e s t be summated by the i n c l u s i o n of the f o l l o w i n g excerpts from t h e i r statements. Mr. Rheaume of Sherbrooke: f l ) Due to the yastness of our country, any prob-lems concerning t r a n s p o r t a t i o n are of primary importance and any steps taken t o speed up and i n c r e a s e t r a n s p o r t a t i o n f a c i l i t i e s of goods r e c e i v e our f u l l support. Mr. Cox of The Pas: (2) Yes, we are j u s t waiting to enlarge our market f o r f r e s h f i s h u n t i l we ean get the proper t r a n s p o r t a t i o n f a c i l i t i e s . At present the f i s h i n g i n d u s t r y of the north i s p r e t t y w e l l t h r o t t l e d by the l a c k of money and proper t r a n s p o r t a t i o n f a c i l i t i e s Mr. Or range of Vancouver: (3) (Representing the Purchasing Agents A s s o c i a t i o n of Vancouver; no b r i e f f i l e d . ) Our i n d u s t r i a l development of the l a s t few years makes i t important f o r us t o be a b l e to move goods f a s t and s a f e l y . We b e l i e v e a i r f r e i g h t i s the answer to t h i s problem. Our c l i m a t e makes i t p o s s i b l e f o r us t o produce vegetables, f r u i t s and flowers ahead of the P r a i r i e Provinces and these products should move as f a s t as p o s s i b l e from t h e i r point of o r i g i n t o the consumer. We b e l i e v e a i r f r e i g h t i s the answer once again Aside from the a c t u a l appearance of witnesses, numerous other r e p r e s e n t a t i v e groups i n c l u d i n g the Vancouver Board of Trade, the- Toronto Board of Trade submitted supporting l e t t e r s , and the Montreal Board of Trade A The general tenor was simply that a l l were anxious to a v a i l themselves of the proposed s e r v i c e so long as no f i r m commit/ment (1) O f f i e i a l t r a n s c r i p t , A.T.B. A i r f r e i g h t Hearing, page 157. (£) I b i d . , page 172. (3) I b i d . , page 260. - 40 -a8 to tne extent of i t s use was involved. Most distinguished contributor of supporting letters or briefs was Premier Douglas Campbell of Manitoba. Premier Campbell wrote to the Air Transport Board on December 31st, 1952, urging that the proposed service be authorized. He said in part: As you w i l l appreciate, transpoitation is of fundamental importance to the economic l i f e of any region and this is particularly true for the northern portions of western Canada. For that reason I would like to take this opportunity of assuring your Board that the government of the Province of Manitoba is anxious to encourage the maximum and most economic development of the transportation f a c i l i t i e s of northern Manitoba. It would appear that the cargo service proposed by Canadian Pacific Airlines Limited would peculiarly meet the needs of the northern areas of this province by providing a faster and more regular form of transportation to eastern and western Canada than is presently available. It is f e l t that it would also aid in the further opening up and development of northern Manitoba, which is vital to the economy of this province and Canada as a whole. For these reasons i t is the hope of the prov-ince of Manitoba that the Air Transport Board will give very favourable consideration to the application which has been submitted by the Canadian Pacific Airlines Limited. (4) The recording of testimony presented by the Board of Trade representatives occupied the greater part of Wednesday, February 18th. Following completion of their testimony, Mr. Andrews, C.P.A. Director of Flight Dis-patch, appeared briefly to record the undisputable facts that a l l f a c i l i t i e s required for the service en route were both available and entirely adequate. (4) Ibid., pp. 1290-1291. - 41 -The Douglas A i r c r a f t Company's Survey on C.P.A.'s Behalf On Thursday, February 19th, 1953, Canadian P a c i f i c A i r Lines revealed two impressive documents i n which, their counsel assured the Board, their case for applica-tion approval was firmly established. These documents were f i l e d as Exhibits 18 and 18A. Together they repres-ented a survey of the a i r f r e i g h t potential over the pro-posed CP.A. route. 18A is made up of sixty detailed pages, containing f i f t e e n figures and forty tables. Exhibit 18 i s simply a pictorial summation of 18A, the two documents being so cross-referenced. Douglas A i r c r a f t had, i t was revealed i n testimony, been engaged, in this type of survey for the freight ran i n question since A p r i l of 1951 to do with the sales engineering services of the a i r c r a f t manufacturer. The original survey, as evidenced by Exhibit 48, planned on an operation via Winnipeg. This was subsequently changed to the f i n a l i z e d proposal via The Pas. To present the report to the Board and to substantiate the claims contained therein, Douglas A i r c r a f t had sent their Mr. William C r i l l y to Ottawa. Mr. C r i l l y i s Direc-tor of the Douglas Department of Market Research. He holds a B.Sc. degree from the University of North Dakota and a B.B.Ad. degree from Stanford University. Exhibit 18 is entit l e d "Airfreight i n an Expanding Economy," and the f i r s t seven of i t s twenty-six pages are - 42 -the devoted to a portrayal ofAdynamic manner in which the mineral and other resources of Canada have been revealed and developped in recent years. Following that comes an outline of the economies of time and of money that will he afforded by the proposed CP.A. service. On page ten i t is graphically portrayed how Canada had apparently slipped in i t s aircargo development, having carried 19$ of the world's estimated ton-miles hauled in 1957 to barely 1$ in 1951. It is further illustrated that where aircargo rates in Canada and the United States were equal at 60c7 per ton-mile in 1940, by 1951 the American rate average had fallen to 21/ per ton-mile against more than double that figure for Canada. It should be noted that the Canadian figure used in the substantiating tables set out in Exhibit 18A has a foot-note reference stating that i t covers revenue per ton-mile for "freight, express and excess baggage." (5) However, in justification, Mr. C r i l l y assured the Board that i t was the only figure available to his firm for comparison. A further page is devoted to the contention that airfreight growth is v i t a l to Canadian development. "A di f f i c u l t terrain requires a transportation system free of geographical barriers." (6) * In this regard a composite (5) Appendix 18A, page 16. (6) Appendix 18, page 15. - 43 -- 44 -r a i l and air mileage chart i s included for the route between Montreal and Vancouver via The Pas. Total r a i l mileage is shown to he 3504 miles, against only 2550 miles via a i r . Hence, r a i l mileage is shown to he 37$ greater than air mileage over the proposed route with consequent benefit to the air operator rate-wise competitively. A footnote indicates that the average r a i l mileage is only 17$ greater than that for air in the United States. The brochure, Exhibit 18, goes on to illustrate how 71$ of Canada's manufacturing centres in less than 1$ of i t s area. "This places a geographic handicap on the development of remote but important markets and increases the need for swift long range transportation. As noted in the Report of the Royal Commission on Trans-portation (states the Douglas Report) '. . , the great difference in fundamental conditions between Canada and the United States . . . (is that) . . . producers and consumers in the United States with its large population have the advantage of a great number of widely distributed market and supply centres. The long haul is less in evidence there than i n Canada. In this country, on the other hand, it is noticeable to what extent Central Canada, that is the eastern portion of Ontario and the western portion of Quebec, has become both the market centre and the supply centre for the rest of the country.'" (7) The narrowing of the time gap between supply source (7).Appendix III, Exhibit 18, p. 14; quote from page 46 of 1951 Royal Commission Report. - 45 -and market w i l l be best achieved by airfreight, i s the Douglas contention. The fact that Canadian shippers endeavour to do so more consistently than those of the demonstrated by United States is^oont onde-d through a comparison of per capita railway express shipments and transportation charges for the two countries. For Canada, i t is shown that per capita railway express shipments amount to 3.2 annually against only .5 in the United States. Per capita national income accruing to the transportation industry in Canada is shown at $103 against only $87 for the United States. Pour pages of Exhibit 18 and nine of Exhibit 18A are devoted to a portrayal of the tremendous traffic potential available through stimulation of trade with the Orient. Inasmuch as Canadian Pacific already operates services to the Par East, a through plane freight service between Tokyo and Montreal is envisionned. An elaborate process for the derivation of specific poten-t i a l traffie figures in this regard is appraised in the ninth chapter of this report. As to actual potential for the domestic route, Mr. Crilly's report was most specific. Prom the graph repro-duced on the following page, as taken from Figure 12, page 41 of Exhibit 18A, a price-demand relationship for Canadian airfreight was obtained. From this relation-* - 46 - DOU F I G U R E 12 A N A L Y S I S OF C A N A D I A N P A C I F I C F R E I G H T T R A F F I C J A N U A R Y TO J U N E 1 9 5 2 B I L L I O N S OF T O N - M I L E S R E V E N U E P E R T O N - M I L E - m -ship a series of steps lead mathematically to precise figures in tons and dollars as to loads to he expected f o r each of the route segments, employing present voikame for r a i l express as the data source for airfreight penetration. Mr. C r i l l y deleted reference to The Pas in his calculations, stating that Mr. McConachie and his company, the C P . Air Lines, had knowledge of the fish potential out of that point which had been acquired through close association with the area and which was not possible for Douglas Aircraft to appraise. Load factors for the route segments, as forecast by Mr. C r i l l y , and set out on page 22 of the Exhibit 18, are: Table 2(b). Vancouver to Edmonton to TordWo to Montreal' Tons/Year 1166 309 309 81 81 . 81 104 ±tt€r . 12 . IS Totals —-(1,556) . (506) . (93) Load . . Factors*—(43$) . (14$) . (3$) Montreal to Toronto to Edmonton to Vane ouver Tons/Year 33S . 33E 804 . 804 675 • . . ' 1672 (1130) Totals —-(1,136) *. (3483) Load Factors*--(31$) . (96$) * Annual load factor over route segment based on propos ed 5 day per week DC-6A service. It w i l l be noted that the C r i l l y report planned on five trips per week as opposed to the three per week outlined in the Canadian Pacific application. It would, of course, be 804 1672 425 (2901) (80$) - 48 -reasonable to assume that the service would be stepped up to five times weekly as rapidly as traffic would justify the increased flights. Just how these forecasted load figures are in any way a sound derivation from the relationship plotted on page 46 requires further consideration* . However, it would appear that the Canadian Pacific accepted the Douglas report at its face value and would have been gratified had the interveners seen f i t to do likewise. In this regard, Mr. Brais stated: I . . . refer the Board to Exhibit 18, page ££, which summarizes the data from the economic demand curve and applies i t to the various areas which are to be served. It bypasses The Pas com-pletely because he has nothing in his (Mr. Crilly's) information based upon studies of equivalent areas to allow him to take this £ish market into con-sideration. . . . so far as the demand curve is concerned it took me a long long time to understand i t . Tow-ards the end I was beginning to make something out of i t , but I am afraid that if I went into it in too much detail I would first confuse my-self and possibly in the process not confuse the Board but not help the Board. There is the method followed. It has been explained, in f u l l detail by Mr. Crilly. He has been examined at length on the basis of that method. He says that it proves itself. He has given the origin, his working papers. (8) More will be said to do with these working papers and origin of the method used in the chapters that follow.. However, at this point in fairness to the CP.A, case, the load factors will be assumed as being soundly derived. (8) Official transcript, A.T.B. Airfreight Hearing, February, 1953; page 1£9£. - 49 -From tae load factors, the actual revenues are easily arrived at for the route segments inasmuch as the rates per hundred pounds have already been given. Such a financial analysis for the route culminated Mr. O r i l l yTs appraisal. Eastbound, an annual revenue of #432,252 was determined, and #1,766,120 westbound. Direct operating costs based upon O.P.A. methods ex-plained on page 51 of Exhibit 18A were then applied as follows: (#1.13/mile x 5100 miles/round tri p x 260 round trips/year) This summation, appearing on psge 23 of Exhibit 18, yields a direct annual operating cost of #1,498,38 0. In round figures, the following net income is derived: Table 4. Posts & Revenues for Projected Service-Douglas Forecast Total Revenue #2,198,000 Direct Operating Costs 1,498,000 Annual operating profit # 700,000 As Mr. C r i l l y phrased i t , this, amount is the: . . . balance to cover indirect expense and provide a profit. . . (However) . . . valid comparisons of costs with American aircargo carriers is d i f f i c u l t because of Canadian Pacific Express participation in this pro-posed operation. (9) Mr. C r i l l y and his report were the subject matter for more pages of transcript than any other witness or document. Three days of the hearing were virtually en-tirely devoted to his evidence and examination. Detailed discussion of the methods and conclusions of Exhibit 18 and ISA is contained in the ninth chapter of this thesis. T9) Exhibit 18, page 23. - 50 -The Gruneau Research, Limited Survey 0ondueted for P.P.A. Mr. C r i l l y was followed on the stand by a Mr. Myles, an employee of Gruneau Research, Limited, Toronto. This firm conducts what might he termed economic Gallup.polls throughout Canada. In addition, they have the Canadian franchise for the handling of the American "Starch Sur-veys," an abbreviated method for attempting to determine the efficacy of a given advertising campaign. In this regard, of course, their services are more known to the large advertising agencies than to the general public. Mr., Myles, prior to coming with Gruneau Research, Limited in 1951, had acquired a B.A. and anM.Comm. degree from the University of Toronto. The eighty-two pages of figures and conclusions which comprised Mr. Myles' basic submission are to be found in Appendix H I , Exhibit £1 and £1A of this report. As were Exhibits 18 and I8A, these reports were intro-duced at the hearing without prior knowledge on the part of the interveners. Exhibit £1 i s entitled, "A Study of Attitudes and Opinions Concerning a Proposed Air Cargo Service." Exhibit 21A simply supplies the working papers for the results set out in its companion exhibit. Based upon firm names obtained by random sampling of the Canadian Pacific Express Company's way-bills for Septem-ber 19th, 195£, 1£50 contacts were attempted across the country by Gruneau fi e l d representatives. Prom these - 51 -contacts, 1,000 completed interviews resulted. In each case some member of management consented to work through the entire questionnaire, as set out in Exhibit SI A, resulting in the following summating appraisal being-made by Gruneau Research, limited: (page 13) 1. An Air Cargo service could help with de-livery problems in 68$ of the companies which are regularly engaged in the shipment of mer-chandise between Montreal, Toronto, Edmonton, Vancouver v i c i n i t i e s . £. The chief reasons why these companies think the proposed air cargo service could help are: (a) The time taken to transport mercha-dise between the vicinities would be re-duced, (mentioned by 60$ of the firms) (b) Air Cargo f a c i l i t i e s would allow a more rapid movement of emergency ship-ments, (mentioned by £ 3 $ of the firms) (c) Prompt deliveries would result from the air eargo service. (mentioned by 19$ of the companies.) 3. The location and character of the companies which would obtain the maximum benefit from the proposed air cargo service are: (a) Companies in Vancouver vicinity. (77$ stated an air cargo service could help) (b) Companies which reiail merchandise, and companies which wholesale merchandise. (7£$ and 71$, respectively,, stated an air cargo service could help.) (c) Companies which usually specify the shipping method and who have shipped by air. (79$ stated an air eargo service could help) (d) Companies handling optical and photo-graphic supplies, jewelry, etc. . 81$; and companies handling perishable products. .77$. 4. Companies which do hot think an air cargo service could help with their delivery problems. .3£$. - 52 -Interviewing had commenced December 28th, 1952 and had been completed on January 17th, 1953. Essentially, the interviews were general in nature. The executive concerned was shown a tabulation giving present air express and aircargo rates, present r a i l express rates, the and^proposed, substantially reduced aircargo rates. The executives were told that "a firm" was to apply for permission to operate at the proposed rates and were queried as to what interest such would hold for the interviewed firm in question. Canadian Pacific was not specifically referred to in any of the form questions asked. In this regard, Mr. Brais stated in his summation: With regard to Mr. Myles, we have his con-clusions on page 12 of Exhibit 21. I should like to draw the Board's attention to those conclusions. . . I . . . ask the Board to bear in mind that it was applied to a cold market, Nobody at the time had been apprised in any manner . . There was no advertising, no propaganda, and no communications to any of these people to t e l l them that a company such as Canadian Pacific Air lines, a subsidiary of the Can-adian Pacific Railway, well known in this country, was planning to develop an aircargo line. . . .This was a cold survey dealing with people who at the moment of the interview were told of an application for an aircargo line - - I do not think it was even an appli-cation, a proposal, that, is correct - - and they g&veotheir opinion. (10) In this statement, Mr. Brais was somewhat in error. However, appraisal of his views and those of Mr. Myles is deferred to the following chapters. (See Ch.YII, p.146 et seq.) (10) Off i c i a l transcript, Air Freight Hharing, page 1293. - 53 -The Evidence Submitted by President Grant McConachie, 0. P. Air lines. Douglas Aircraft Company and Gruneau Research, limited had each, in a diffeamt way, appraised the pc-posed Canadian Pacific Air lines Mont real-Vane ouver air freight service. It remained for Mr. MdConachie to summate their views together with his own in sup-port of his company's application to the Air Transport Board. Mr. McConachie was the final CP.A. witness, his testimony being completed on the morning of Thurs-day, February 26th, 1953. Note has already been made on pages 10 and 11 of this report of Mr. McConachie's close association over the years with Canadian avia-tion and with Canadian Pacific Air lines in particular since i t s formation in 1941. Mr. McConachie informed the Board that he had personally made a study of the air eargo operators in the United States, such as Slick and Plying Tigers. In this regard, he had travelled extensively surveying their operations and discussing relevant problems with their management personnel. As to potential load factors, Mr. McConachie noted that westbound he felt there would be no problem. Prom Yancouver to Edmonton, eastbound<, loads would also be adequate. However, he had been concerned over loads to be offered from Edmonton east. Hence, he contended, - 54 -the routing had been diverted from Winnipeg to The Pas. By so doing, i t was planned to tap the fish market in on arrival at destination the East with a quality product s t i l l classified Aas fresh. Mr. McConachie stated: With this in view we approached the fish com-panies. We approached our agents. We discussed i t with our district men to find out as to whether there would he a steady flow of this product from this area and we determined there would he. This flow of traffic from The Pas was heavier than any other point in Canada could generate for the east. (11) further, it was f e l t that fresh vegetables and fruits in season would flow from the coastal areas to The Pas. It should be noted that the population for The Pas and surrounding country is approximately 14,000. As to the possible harmful effect his proposed service would have on T.C.A., Mr. McConachie was most reassuring. He pointed out that the total air freight revenue for T.C.A. North American services represented less than 5.5$ of their total revenue. Hence, to get any business at a l l , the proposed service would have to create new business, not take it from Trans-Canada. The fact that air freight service must be an over-night service was pointed out, the proposed service giving overnight service between a l l terminal pairs. At this point, Mr. McConachie f i l e d Exhibit 25, providing an estimate of indirect costs for the pro-posed service, inasmuch as this had been neglected in (11) Official transcript. Air Freight Hearing, p. 644. - 55 -the Douglas Aircraft (Crilly) report. This exhibit illustrated the fact that U.S. airlines generally, have indirect costs approximately equal to 45$ of their total operating costs. CP.A. however, in i t s submission contended that their indirect costs for the proposed run would amount to only 25$, inasmuch as the existing f a c i l i t i e s of Canadian Pacific Ex-press would be so extensively employed. On this basis, the- C r i l l y operating profit for the year of $700,000 drops to 300,000, a net quite adequate inso-far as Mr. McConachie was concerned. In the matter of the agreement with Canadian Pacific Express, whereby these f a c i l i t i e s and services were to be made available, Mr. McConachie f i l e d Exhibit 24, "Memorandum of Agreement with CP* Express." This agreement provides that CP. Express shall "perform a l l solicitation of t r a f f i c , b i l l i n g , collection and cart-age frbm and to its terminal and between airports and shippers and consignees as required." For these ser-vices, the express company had set a charge of 35/ per hundred pounds, with a minimum charge of 60c7. As might be expected, Mr. McConachie pointed up the wartime uses of the DC-6A all-freight aircraft, for either equipment or l i t t e r movement. Again, i t was noted that the proposed stimulation of the Orient trade would be in Canada's general interest, aside from the benefits to CP.A. Considerable emphasis was laid, by Mr. McConachie on the contention that the D0-6A was specifically built for air cargo service as opposed to combined passenger, mail, express and cargo service. Consider-able reduction in per ton mile operating costs were forecast for the CP.A. operation relative to those experienced by U.S. operators employing converted passenger aircraft for freight haulage or by those trunk carriers who combined freight handling with pass-enger carriage. At this juncture, Canadian Pacific f i l e d Exhibit £5, "Statement of T.C.A. Air Cargo and Air Express." This statement, provided Mr. Brais by Mr. O'Donnell, and express shows the freight^poundage carried direct!onally and for individual route segments between Vancouver and Montreal for 1951 and 195E. The statement so f i l e d had provided the data for the CP.A. staff to work out a table, f i l e d as Exhibit E6. By route segments, this table determined an approximation of the total revenues received by Trans-Canada for haulage of freight and ex-press hetween the terminals and intervening stops. This arbitrary figure amounted to $£48,000 and was set against the 1951 CO.A, total revenue of #48,010,501 to yield the contention that only l/2% of T.C.A.'s income could be affected by the institution of the new service. Summating his views in the matter, Mr. McConachie stated: - 57 -In my opinion . . . the route is not designed to take away or i t i s not designed to encroach on some t r a f f i c that i s already there. We are going . . . to develop an enti r e l y new f i e l d because i t i s obvious that there is not s u f f i c i e n t revenue from what i s being carried at the present time to even support a service. . . . We would have what we would draw from other c a r r i e r s , such as the express company. . . , and we w i l l generate some business that i s not being carried on any form of transport at -Hiepresent time because of the remoteness of the areas that are being served. It also serves public convenience and necessity at the points along the route. There must be a necessity for this service or we would not have the results that we got from the Gruneau Research and the inquiries from the Boards of Trade . . . . (IE) (12) O f f i c i a l t r a n s c r i p t , A.T.B. A i r freight Hearing, 1953, page 684. Lockheed Super Constellation Depicted in Cargo Version. T.C.A. is currently taking delivery of eight Super Con-stellations for combination carriage of passengers, mail and freight. Constellation cargo pod currently used by Eastern and Trans-World Air Lines is shown in photo below. The Air Freight Case Part II The T.C.A. Evidence. As previously noted, Trans-Canada Air Lines had sub-mitted a 30 page statement of intervention, to do with the application of Canadian Pacific Air Lines, prior to the commencement of the hearing. This statement accompanies this report, being found in Appendix I I , Exhibit 30. The f i r s t nine pages of this exhibit cover Trans-Canada's views in the matter, with the remaining pages supplying substantiating data in tabular form. Briefly, Exhibit 30 advises that T.C.A. commenced eargo carriage in 1948, this being aside from prior and continuing carriage of air express. In 1948, 1,800,000 pounds of air cargo were moved; in 1952, 10,600,000 pounds. In 1948 700,000 ton-miles of air cargo were flown by T.C.A.; in 1952, 3,500,000. This last mentioned figure was in addition to 1,400,000 ton-miles of express moved in 1952. Ratewise, the levies assessed on air cargo progressively were dropped a total of 46$ during the five year period. A further drop, noted on page 29 of this wh ich report, was then before the Board for approval)/xwould bring the rates down an added 25$. These rate cuts were based on a long term policy which^had been outlined to the Board in a letter dated June 3, 1952 and f i l e d as Exhibit 33. In part this letter states: - 60 -The rapid growth in passenger t r a f f i c during the post-war years has brought about very sub-stantial increases in both the size of TCA equipment in use and in the flight frequency on practically a l l routes. Since a l l TOA pas-senger aircraft automatically provide a con-siderable payload capacity in excess of the passenger accommodation, the effect has naturally been that in meeting the passenger tr a f f i c demand, non-passenger payload capacity has been provided far in excess of the non-passenger tra f f i c requirements. This has been most apparent on the transcontinental route. Intense sales stimulation and advertising alone have failed to bring about the condition under which this capacity for the transportation of mail and goods was utilized to anything approach-ing a satisfactory degree. The only other stim-ulative action open to the company at this time is a rate reduction, which i s obviously desir-able both from the economic standpoint of the air l i n e , and public interest. The overall reductions proposed at this time are deliberately conservative, the intention being to by this means measure the sensitivity of the market to downward adjustments in aircargo rates. It is the intention to make a further overall rate reduction at a later date, and if necessary, to repeat this procedure to a point at which the additional traffic result-ing from rate deereases begins to adequately use the weight space available. (13) This letter had gone forward to the Board, as noted, on June 3rd, 1952, The application notice to do with Canadian Pacific's proposal had been f i r s t publicized on November 10, 1952. Hence, the rate reduction then before the Board, at the time of the hearing,, was in line with predetermined policy. The proposed rates equalled or undercut those proposed for the CP.A, freight service. (13) T.C.A. Director of Traffic Planning to Chief Traffic Officer, A.T.B., Exhibit 33. - 61 -Evidence of Mr. H.W. Seagrim, General Manager, Operations, for Trans-Panada Air Lines In an aviation career closely paralleling that of Mr. McPonaohie, Trans-Canada's General Manager had been successively, combined hush pilot and air engineer, airline captain, superintendent of flight operations, director of flight operations, fi n a l l y achieving his present status in 1950. Mr. MeConachie had been with CP.A. since i t s formation in 1941. Mr. Seagrim had been with T.C.A. since i t s formation in 1937. Mr. Seagrim outlined the makeup of the present T.C.A. operating f l e e t , noting the availability of space for cargo carriage in that regard. The f l e e t , at the time of the hearing, was-made up of 23 North Star a i r -craft and 27 DC-3 aircraft. One of the latter was fitted out as an all-cargo carrier. Space for cargo, mail and passenger baggage on the lorth Stars was stated as being capable of accommodating 6,692 pounds. With seats out, the North Star has a payload of 16,755 pounds. Such possible cabin conversion on short notice was evidenced by Mr. Seagrim with reference to the carriage of 500,000 pounds of Winnipeg flood r e l i e f supplies by T.C.A. in 1950 in a one week period without affecting normal sched-ules. The North Star main cargo compartment door was given as being 2 l / 2 x 5 feet and that of the DC-3 cargo-liner as 5 l/2 x 7 feet. The latter aircraft had had a variety of assignments including the carriage of a race-- 62 -horse between Montreal and Toronto and the movement of 4,620 pounds of household effects from Toronto to Winni-peg for a Toronto moving firm. (See Exhibit 36) Queried by Mr. Brais as to why this DO-3 cargo aircraft was not occupied more fully in cargo carriage, Mr. Seagrim replied that i t was "due to lack of demand, frankly." (14) It was Mr. Seagrim's contention that what cargo was offered was handled efficiently in combination with the passenger, mail and express t r a f f i c . By way of example, he noted that in 1951, from March to June, T.O.A. carried approximately 900,000 turkey poults and baby chicks between Toronto and Montreal to Winnipeg, plus a further considerable volume of the same nature from Yancouver to prairie points during the same period. The mortality rate amounted to l/3 of ifo, confirming that no undue delays were experienced inasmuch as poults and chicks must be delivered within 72 hours after hatching to sur-vive without en route feeding. Trans-Canada's long term plans had indicated that i t was the intention to convert certain of the North Star aircraft to f u l l cargo use as the demand arose. In this regard, Mr. Seagrim testified that such an aircraft so converted could carry a payload of 20,000 pounds. The cost of conversion would be $175,000. This amount would provide for the required additional stressing of the (14) Official transcript, Air Freight Hearing, A.T.B., 1953, page 797. - 63 -fuselage, provision of a cargo floor, and of a f u l l -size cargo door similar to that fitted to CP.A.'s newly acquired DO-6A aircraft. However, for the immediate Mr. Seagrim future f e l t that the three Bristol Freighters ordered by his firm in December 1952 would be more than adequate to handle outsize shipments offered, plus coverage for such bottlenecks as could conceivably develop with the progressive dropping of the air freight rates by Trans-Canada. The Bristols, carrying six tons of freight, would have access doers to their cargo compartments measuring 7 x 7 l/2 feet, enabling the routine carriage of two standard American automobiles per flight i f so required. As to the possibilities of releasing North Stars for cargo carriage, Mr. Seagrim noted that his firm was to take delivery of eight Lockheed Superl3onstellatlons and fifteen Tickers Viscount aircraft in 1954, at which time, depending upon the need, North Star aircraft would be converted to f u l l time cargo use. Evidence of Mr. Hugh Johnston Director T.C.A. Aircargo Dept. Needless to say, Mr. Johnston provided a prime tar-get towards which CP.A. counsel directed a barrage of searching questions. Mr.. Johnston headed the department with which the whole enquiry was concerned. Essentially, the CP.A. case rested on whether or not i t could be - 64 -established before the Board that Mr. Johnston's depart-ment had been derelict in i t s duty to the public, either through it s own or company policy. A series of requests were made of Mr. Johnston by Mr. Brais concerning the operations of the cargo department. These were dealt with by T.C.A. in the furnishing of Exhibits SI, 32, 33, and 39. Reference to page 34 of this report indicates the detail requested, set out under Exhibit 39. This data was requested on the afternoon of Friday, February 27th, for delivery to CP.A. counsel by Monday, the 2nd of March. Unfortunately for CP.A., the requested data simply substantiated Mr. Johnston's contentions that his department was operating efficiently and aggressively insofar as stimulation of interest in air cargo shipments. For example, Exhibit 39 shows that £4,766 firms regularly receive T.C.A. air cargo promotional releases. Two thirds of these firms are in Canada, the remahder in the U.S.A. Further, no matter which formula was used, and several variants did appear, there was s t i l l much unused cargo space available on the regular passenger flights operated by Trans-Canada Air Lines. Evidence of Prof. ¥.J. Waines University of Manitoba The appearance of Professor Waines , from the stand-point of keeping the hearing in realistic perspective, was most beneficial. Professor Waines, Dean of the University - 65 of Manitoba's Faculty of Arts, had been actively associated on with the Royal Commission ^ -^9 with Transportation in Canada of 1951. Hence, his interest in the proposed CP.A. service lay in i t s broad implications in relation to the whole Canadian economy in the light of prior transport h i s t o r y in this country. Certain basic principles underlie the orderly development of transportation in Canada, asserted Professor Waines, one being that in this country the emphasis must be on cost rather than on speed. , . . Abundance of space is one of Canada's chief characteristics. While from certain points of view space may be an asset, from the standpoint of transportation i t is not. It underlines the necessity for efficient transportation merely to overcome the great distances which people and goods must be moved to effectively develop our resources and produce a high standard of l i v i n g . Add to the factor of space the facts that there are long distances which are relatively un-productive of t r a f f i e and that population is sparsely scattered over the country and that industrial concentrations are widely separated and it becomes apparent that dost is our v i t a l transportation concern. (IF) ' To obtain this cheap transportation, it follows that high utilization of equipment and f a c i l i t i e s is essential to obtain the lowest unit costs. The multiplication of services which have the effect of dividing t r a f f i c , rather than in-creasing i t , the diversion of more and more of our resources into the business of trans-portation when existing f a c i l i t i e s are adequate or nearly adequate to handle the traffic will raise costs, not lower them,* and wi l l have (15) O f f i c i a l Transcript, Air Freight Hearing, A.T.B. 1953, Prof. W.J. Waines, page 1003. - 66 -either or both of two further consequences: fl) It wi l l drive up transportation charges at the expense of shippers and to the detriment of the whole economy, or (2) i t w i l l create deficits which in the case of a publicly-owned transportation system w i l l f a l l on the public. In either case over-investment i n , or over-expansion of, the transportation . system w i l l impose financial burdens on the economy which w i l l hamper i t s development, particularly in a country where foreign trade is s t i l l of very substantial importance to the level of economic activity. (16) Professor Waines went on to illustrate from the history of Canadian railway development the i l l s accruing from competitive over-expansion as appraised by the 1931-1932 Duff Commission. Government policy had clearly been formulated relative to aviation to avoid duplication of these i l l s as evidenced by Mr. Howe's statements to parliament, as previously quoted in this report in the two i n i t i a l chapters. Mr. Waines noted: Competition is only useful for what i t achieves. If it achieves greater efficiency lower costs and charges and better service, i t is an admirable principle to insist upon; but i f i t achieves over-expansion of expen-sive f a c i l i t i e s with division of the market amongst competing carriers, i t w i l l lead to heavy burdens on carriers, shippers and tax-payers alike. (17) The foregoing- comprised the main submission made by Professor Waines. However, in summing up he added two relevant observations of a more particular nature. The (16) Official Transcript, A.T.B. Air Freight Hearing, 1955, page 1018. (17) Ibid., page 1020. f i r s t was a suggestion to the effect that certain of the T.C.A. services such as to Brandon, Swift Current, and Medicine Hat, together with the trans-Atlantic service i t s e l f , were operated in part at a loss hut in the national interest. Such services would he eliminated as of necessity should total revenues f a l l to a point inadequate to care for the non-paying routes. The other of the two points mentioned concerned the drawing of business from r a i l express and its cons-equent effect upon the income structure of the parent company, the C . P . R . It would involve simply adding to "other income" and subtracting from " r a i l income." By so doing the impact would f a l l upon the users of r a i l freight, inasmuch as the C.P.R. is the "yardstick" i s i l operation for the two prime^operators. More specifically, the burden would f a l l mainly on the prairie region and the Maritimes, a result which the Air Transport Board should seek to avoid. Evidence of Mr. T.H. Martin General Manager , Canadian National Express Company. Mr. Martin testified that he had been in the express business for 58 years, starting with the Dominion Express Company in 1915, then moving to the Canadian northern in 1917 which later became the Cans.dlan national. The witness noted at the outset that his firm was a department of the Canadian national rather than being a separate corporate entity as in the case of Canadian Pacific Express. - 68 -As for the Canadian Pacific, Mr. Martin testified that his firm makes a semi-annual twenty-four hour sample analysis of express business. Prom these analyses i t has been found that the average C.2T. shipment weighs 37 pounds and that for the C.P.R. , 48 pounds. The higher figure i s due to the carriage of freight as express by the C.P.R. in certain prairie areas to -compete with trucking firms. Further, 59$ of the C.H.R. shipments were found to. be 25 pounds or less in weight, with 13$ of the total weight in that grouping. For shipments over 100 pounds, numerical volume was 4$ of the total and 14$ of the weight. In the matter of comparison, Canadian versus U.S. express service, Mr. Martin asserted that the Canadian shipper receives faster delivery at lower rates in Canada. Mr. Martin further noted that only once in thirty years had the Canadian Express companies had to defend their application for a rate increase before the Board of Transport Commissioners. This was in 1951 to do with the transportation of f i s h . Evidence was brought in by shippers that the fish t r a f f i c could not afford to pay the proposed higher rates. Representation against the increase included protest from Booth Fisheries and Keystone Fisheries, the prime shippers of Manitoba lake f i s h . The Board approved the rate increase requested by the express companies despite the protesting shippers. In consequence, C.I. express shipments of fish from The Pas f e l l from 2,5000,000 pounds a year prior to the in-crease to 500,000 pounds a year thereafter. Considera-tion was not given to restoring the old rates as they had been definitely uneconomic to the railroads. It was suggested to the fishing companies that they ship direct from the source area, from The Pas to Toronto and Montreal. They were advised that this was not pos-sible inasmuch as the fish f i r s t proceeds to Winnipeg for distribution, that being where the captal investment in storage and distribution f a c i l i t i e s has been made. The Canadian National handles approximately 75 #111ion pounds of fish each year plus 4 million pounds of lobsters. These latter are, of course, transported live and are mainly moved from the Maritimes to Boston and vieinity. Attempts at air carriage of lobsters were rate unsuccessful due to the high mortality A against a r a i l mortaliiy^f'or the t r a f f i c of approximately ifo only. Mr. Martin f i l e d Exhibit 38 to substantiate his statement to the effect that r a i l express in this coun-try i s considerably cheaper than in the United States. This exhibit evidenced that for the average weight ship-ment of 37 pounds experienced by the Canadian National, i t would cost $7.40 to move i t New York to San Francisco, as opposed to only $5.18 for the same shipment, Montreal to Vancouver. * B r i s t o l 170 Freight er Air c r a f t as Operated hy Trans-Canada Air Lines . - 71 -Evidenoe of Mr. J. T. Dyment, T.C.A. Pireotor of Engineering. Mr. Dyment was called at the request of Canadian Pacific Air Lines to enlarge on Mr. Seagrim1 s contention that the engineering involved in converting a lorth. Star to a suitable air cargo aircraft was both economic and feasible. In this regard, Mr. Dyment outlined for the Board a series of major modifications carried out at minimum cost by Trans-Canada's own personnel in its own shops over a period of several years on Lockheed, Douglas and Canadair products. In particular, M-l 40 passenger ITorth Star air emit were converted to a basically cargo type for the E.G.A.P. in the Winnipeg plant of T.C.A. This job was completed within specified time limits at a cost of $36,000 per aircraft, an amount representing less than one-third of the cost estimated for the job by an outside contractor. As for the conversion of the present T.C.A. ITorth Stars to cargo use, a l l engineering problems had already at been evalued. Eeinforcing the fuselage would cost $10,000 installation of a pressurized cargo door, $25,000; removal of present equipment associated with passenger carriage, $20,000; $6,000 for installing a cargo type interior insullating blanket; $5,000 for the suess analysis work involved; $70,000 for replacement of the present floor structure with that of a cargo floor. A l l other items would be minor in nature and amount, making up the pre-viously stated total of $175,000 per aireraft. The air-- 72 -craft would have identical door size and floor loading restrictions as those for the DC-6A proposed for the Canadian Pacific transcontinental operation. Evidence of Dr. A.W. Currie University of Toronto Like that of Professor Waines, the evidence of Dr. Currie dealt s t r i c t l y with economic fundamentals, a refreshing recess being provided in each case from the commercial sparring of the two r i v a l corporations i n -volved in the dispute before the Board. Dr. Currie is presently an Associate Professor of Commerce, with special responsibility for transportation and business Binanee, on the staff of the University of Toronto. He acted as Trarsportation Economist for the Province of Saskatchewan in various freight cases in 1946-1948 and for the Royal Commission on Transportation, 1948-1950. He is author of "Canadian Economic Develop-ment, " and of "Economic Geography of Canada." In addition, his text, "Economics of Canadian Transportation" is currently in process of publication. The witness stated that he had read the testimony of Professor Waiie s and was In entire agreement with the thoughts expressed. Supplementing*© Prof. Waines1 remarks, Dr. Currie had prepared a submission of his own, which was f i l e d as Exhibit 4 4 . Exhibit 44 is divided into two parts; "A. The Pattern of C i v i l Aviation within Cam da, " and "B. Differences in - 73 -Economic Conditions in Canada and the United States." In the matter of government policy to the time of the hearing then in progress, Dr. Currie endorsed the overall plan to prevent duplication of transcontinental services, reasoning that: (1) Earnings should be maximized in order to provide the best possible equipment. Seasonable earnings would permit ample write-off of aircraft, thus reducing capi-tal requirements and allowing operators to have the most mddern equipment. (2) The non-duplication of services reduces the possibility of deficits which, in a publicly-owned company, must be borne by the public and in a privately-owned com-pany by investors. . . . (3) . . . i t is essential to realize that Canada is in a period of boom associated not rarely with the general cyclical rise but also with a tremendous investment in capital goods. Although everyone hopes a depression w i l l be avoided, i t is very essential that decisions regarding new air line services be not based on the assumption that high properity will con-tinue indefinitely. (18) Dr. Currie noted the following relevant differences in economic conditions in Canada and the United States: that (diffesaces making it impracticable to expect^the air carriers would draw the same relative percentage of traffic from r a i l express in Canada as they have done in the U.S.) (1) The per capita gross national product in .the United States in 1951 was $2,123 or about 47$ more than the" Canadian gross national product per capita. . . . More-over, the United States has a higher pro-d s ) I b i d . , page 1156. - 74 -portion of people in the high income brackets than is the case in Canada. The range of incomes is quite import-ant because air cargo for the most part is luxury t r a f f i c . , . . (2) The industrialized area in the United States is larger than in Canada and has longer distances between cities and because of these longer distances air cargo tr a f f i c moves within its borders. In Canada because the distances in the industrialized area are shorter, no comparable air cargo traffic can dev-elop. Further, over the heavily indus-trialized area of the lorth Eastern United States, r a i l express i s rela-tively slow. In contrast, r a i l express service within the boundaries of the industrialized areas of Canada is sufficiently fast to discourage air cargo, except in case of emergency. (19) As in the case of Professor Waines, the cross-examination of Doctor Currie was uneventful. It did, however, provide an opportunity •&>? the further empha-sizing of points already made. For example, when queried by Mr. Hamilton as to whether or not a time would not arrive when competition would be desirable, Dr. Currie repliedt . . . . that point was covered by Professor Waines, and 1 agree with him. Competition is to be judged by what i t accomplishes. If we get efficient transportation through non-duplication of services, I think there would be very many advantages because we would be enabled to maintain quality of equipment and quality of service. (20) (19) Ibid., pp. 1157-8. (20 Ibid., pp. 1164-5. T R A N S - C A N A D A A I R L I N E S A V E R A G E D A I L Y A I R C A R G O F L O W 1952 T R A N S - C O N T I N E N T A L R O U T E F R O M C O N N E C T I N G S E R V I C E S T H R U M O N T R E A L VANCOUVER VICTORIA S. S E A T T L E C A L G A R Y E D M O N T O N S A S K A T O O N F R O M O T H E R C O N N E C T I N G S E R V I C E S T H R U TORONTO WINNIPEG T O R O N T O M O N T R E A L TO O T H E R C O N N E C T I N G S E R V I C E S T H R U T O R O N T O TO C O N N E C T I N G S E R V I C E S - - c M O N T R E A L SCALE IN WIDTH EQUALS 1000 LBS A RCARGO T C A F E B 12 1953. - 76 -Evidenoe of Trans-Canada's President G.R. McGregor" The President of Trans-Canada Air Lines has been actively connected with aviation since 1932, acquiring a private pilot's licence in the year following. Mr. McGregor was a pre-war winner of the Annual Webster Memorial precision flying competition. Prom 1938 to 1945 he was engaged on active flying duties with the Boyal Canadian Air Force, f i r s t in the auxiliary and subsequently, with the outbreak of h o s t i l i t i e s , with the overseas, fighter forces. Prior to entering upon active military service, Mr. McGregor had been for fifteen years an executive of the Bell Telephone Company, having been district manager in Kingston and Montreal during the latter period of his c i v i l employ-ment . Mr. McGregor was appointed a special representative of Trans-Canada Air Lines on December 1st, 1945 and General Traffic Manager on February 1st, 1946. Sub-sequently, on February 1st, 1948, he was eleeted to the presidency of the firm. Mr. McGregor was appointed to the Executive Committee of the Air Transport Asso-ciation in 1950. In 1952 he became President-elect of that body. For the purpose of the record, T.C.A.'s counsel Mr. O'Donnell was primarily concerned with having Mr. McGregor adduce evidence as to his firm's attitude towards the air freight business and as to what positive steps had been taken at the planning level to foster i t . Insofar as attitude was concerned, Mr. McGregor assured the Board that his organization had been both interested and active in the develop-ment of transportation of goods by air since the inception of Trans-Canada's services in 1937. As to the adequacy of his firm's air cargo f a c i l i t i e s , Mr. McGregor pointed out that: T.C.A. has invariably required of the design of its passenger aircraft the provision of cargo capacity. That capacity as provided, in my opinion, has proved to be adequate. The reason that capacity has remained ade-quate during a period of some considerable growth in aircargo t r a f f i c has been the fact that passenger traffic has also grown at perhaps, an even faster rate . . . and the result has been.that the meeting of the de-mand for passenger t r a f f i c has automatically provided substantial annual increases in the capacity of the cargo space made available. It is furthermore the fact that from the f i g -ures we maintain, the utlization of that cargo capacity has appeared to us to be under no strain, (21) As to what positive steps management has taken to stimulate air cargo development since its 1948 T.C.A, (21) Offi c i a l transcript, A.T.B. Air Freight Hearing, 1953, page 1182. Included in Appendix IX. - 77 -commencement, Mr. McGregor touched on Trans-Canada's full-time aircargo sales staff, the successive pub-lic i t y campaigns and the several cargo rate reductions. In consequence, it was pointed out, that T.C.A.'s air cargo business was steadily increasing on an economic basis with both short and long term plans finalized to cope with the growth trend. For the short term, Mr, McGregor noted that transcontinental passenger flight frequency was to be stepped up 50$ in the present year, yielding a corresponding increase in freight forwarding facilities. This added cargo Space, plus that afforded by the three Bristol freighters dealt with by preceding witnesses, would more than cope with any conceivable aircargo carriage demand in the immediate future. long term planning called for conversion of such passenger-type aircraft as now operated by T.C.A. into freight carriers as they approached obsolescence from the standpoint of appeal to the travelling public. As the witness noted, this plan was identical to that previously instituted by American scheduled operators and which had proven so successful. In this regard, i t was entered in the record that by May of 1953, the North Star aircraft operated by T.C.A. would be depre-ciated to a residual value of #30,000 each. This, plus the relatively nominal conversion costs would yield a freight carrier with minimum depreciation costs, these , - 78 -normally being a major item of aircraft operation. The release of lorth Stars to freight operation as required was to have been made possible by the delivery of the eight Super Constellations and fifteen Tickers Tiscounts ordered by the company in 1951 and 1952. As evidenced by Exhibit 45, these aircraft are to become available for use during 1954. Their purchase involves an outlay of #32,000,000 and a doubling of T.C.A.'s four enginea fleet, from 23 to 46 aircraft. Unfortunately, contended Mr. McGregor, the Constellations were originally planned for delivery in 1953 for Atlantic and Caribbean use. Had they been so delivered, the Bristol freighters would not have been ordered. The Constellations would simply have displaced lorth Stars, with the latter thus becoming available for conversion to coach or freight. Strikes and the Korean war situation pushed back the Constellation delivery dates to a point that the T.C.A. traffic department foresaw a nine to twelve month gap in their equipment program whereby, for that period only, they would be unable to fully cope with air cargo traffic offered. Hence, in December 1952, the three Bristol Freighters were ordered for delivery in the f a l l of 1953. This data to do with the Bristols was, of course, being introduced into the evidence in an attempt to refute CP.A, suggestions that they had been purchased because of rather than in spite of the CP.A. airfreight application. - 79 -Queried as to the possible effect on Trans-Canada Air lines i f the lieence applied for by CP.A. were to be granted, Mr. McGregor replied: Well, Mr. Chairman, in spite of what has been said at this hearing, I with the greatest honesty feel that the possibility of the div-ision of revenue which would result from the granting of this application would have noth-ing but the most serious consequences with respect to T.C.A. . . . T.C.A., as I think is usual with air lines, operates on an exceedingly small margin of profit. The 195E figures indicate that T.C.A.'s gross revenue will be something con-siderably larger than #50,000,000; after taxes and other charges, the net operating surplus will be in the order of f800,000, or something like . . . one and a half per cent. It would obviously take a very small deletion from T. CA. aircargo revenue to create the unhappy situation in which T.C.A. would be operating in the red. It is perhaps unnecessary to note the fact that when T.C.A. operates in the red i t has no recourse but to the publie purse to make good that deficit. (2) Mr. McGregor went on to outline the extent of the Canadian government's outlay and current equity with relation to Trans-Canada Air Lines. The authorized capitalization, funded by the Canadian national, is $25,000,000. The last time monies were so drawn for capital account was five years previous. Since that time T.C.A. has been meeting capital ehages from depre-ciation accruals. In addition, an additional $6,000,000 fund has been built up in the form of reserve upon overhaul and insurance. In consequence, the Canadian people have a current equity of better than $31,000,000 in their (2) Transcript CP.A. Airfreight Hearing, p. 1198. - 80 -national airline. In concluding his testimony, the witness reiterated his contention that this large publie investment would be jeopardized i f the proposed duplication of services was permitted, the more so in view of the fact that #52,000,000 were presently being paid out in equipment purchases on a basis of reinvestment of accrued reserves, accrued and invested on behalf of the Canadian taxpayer. Examination by Mr. Brais. In his i n i t i a l questioning, Mr. Brais dwelt at length on the purchase of the Bristol freighters. He produced, at this juncture, a Bristol cost analysis with which T.C.A. was not apparently familiar, filing same as Exhibit 46. In the process of his examination he elicited the following data: 1. T.C.A. planned to operate its all-cargo Bristol aircraft between Montreal, Toronto and Winnipeg and on some of the heavier transborder routes. 2 . T.C.A. depreciated its war asset DC-3 aircraft on a four-year straight-line basis and the lorth Stars on a six-year basis. 5. At the time the lorth Stars were converted from 40 to 48 seats, provision was structurally pro-vided for ultimate conversion to 57 seats. Thus flexibility was provided to facilitate entry into the coach service field when deemed justifiable. - 81 -4. Mr. Brais insisted that T.C.A. could hare and C-54 obtained war surplus C-46Aaircraft from the U.S.A., such as used hy Slick and Flying Tigers, had they wished to enter the all-cargo carriage field at an earlier date. Mr. MeGregor assured the Board that T.C.A. considered the 0-46 out of the Tquestion from the standpoint of T.C.A. standards. Sueh surplus C-54sas were available had been priced out of economic use-fulness to T.C.A. Examination by Mr. Hamilton. Essentially, Mr. Hamilton dealt with but two pointst 1. When an aircraft is written down through revenue operations in passenger service, should not the benefits of early write-off but continued use b© passed on to the passenger traffic which made the early write-off possible? His suggestion, of course, was that the benefits of the early depre-ciation should not accrue to shippers of freight using the craft in its later years of service, but rather should be passed on to passengers in the form of reduced fares. 2. If the combination carriers in the U.S.A. were doing such a good job as regards joint carriage of airfreight and passengers, then "how do we explain the tremendous ton-mile increase of the - 82 -straight freight carriers in the United States? Where did they get their business?" (&) This query was answered by Mr. McGregor as follows; . . . a great deal of it is associated with the fact that it is a policy of the United States Government, as I understand i t , not to require its armed services to transport goods of a military character within the boundaries of the United States. A.T.S., for instance, the military transport service, confined its activities to beyond the shores of the United States. Such a policy . . . must tremendously increase the internal de-mand for air transportation of traffic of a military character. Contrary to that, in Canada, the B.C.A.IF. is required and does provide a quite substantial service beyond, transcontinental and otherwise. (4) Notes Mr. Wells did not examine Mr. McGregor, nor did the Counsel for the Air Transport Board, Mr. Younger. (3) Transcript C.P.A. Hearing, Mr. Hamilton, p. 1219. (4) Ibid., Mr. McGregor, p. 1220. - 83 -P.P.A, President Grant McConachie Recalled" With the completion of the examination of Trans-Canada Air lines President G.R. McGregor, i t was announced by Mr. O'Donnell that the T.C.A. case was complete, no further witnesses would be called. Mr. Brais responded to the effect that the CP.A. ease was also complete with the exception of one rebuttal witness, Mr. McConachie. Essentially, the recall was to enable CP.A. to complete the f i l i n g process of Exhibit 46, the Cost Analysis of the Bristol 170 freighter, previously referred to on page 80 and on the basis of which it would appear that operations of the Bristol would be unprofitable. Exhibit 47 was also f i l e d at this time at CP.A. 's request in order that the matter of freight carriage by their northern routes might be clarified in their favour. Countering the data contained in T.C.A. Exhibit 30, this new report compared freight ton-mile returns by districts for 1948 and 1951, evidencing gains of considerable pro-portions. These revisions were quite justified, inasmuch as they allowed for a number of "ceased operations" runs to be deleted from consideration. The fi n a l exhibit, number 48, was also fi l e d at Mr. O'Donnell's request, i t being a map of a proposed route for CP.A.'s freight run via Winnipeg, omitting The Pas, and drafted by the Douglas Company in April of 1951. - 85 -Air Transport Board were most favorable to the cause of Canadian Pacific Air Lines, in essence making an oblique recommendation that the application be granted. However, for reasons that will become apparent in the course of the succeeding chapters, the Cabinet did not aet in accordance with the Board's implied urging. The application of Canadian Pacific Air Lines to operate a Yancouver-Montreal air freight service was denied, for the reasons set out in P.O. 1953-1755 as appended. The Board report was divided into three parts: (1) The need for scheduled all-cargo services in Canada. (2) The evidence presented to the Board at a public hearing on February 17th f and following days) into the application to operate such a service, and (3) Board Comments. (1) The two pages that constitute Part (1) have the following statements as an introductory pieiLude: At the present time Canada, although i t is a country in which a great quantity of air cargo is being transported in non-scheduled services, is one of the few countries of importance in aviation which does not have any scheduled all-cargo services. A certain amount of cargo is carried by Trans-Canada Air Lines in its passenger services but this is carried on a "space available" basis after passengers, mall, baggage and air express have been served and there is therefore no guarantee of delivery at a specified time. (2j In its comments to do with, the need for scheduled all-cargo services in Canada, the Board leaned heavily (1) Air Transport Board's Report to the Cabinet to do with the CP.A. Application, page 1 . (2) Loc. cit. - 86 -upon the brochure produced by the Douglas Aircraft Company, Exhibit 18. lor example, paragraph 2, page 2 of the Board report sumraates pages 14 and 15 of Exhibit 18; paragraph 3 quotes the data set out on page 15 of Exhibit 18; while paragraph 4' paraphrases the subject matter set out on page 12 of Exhibit 18. These three examples of data source are dealt with more fully In the comparative illustrations that follow. In the first instance noted above, paragraph 2 of the Board report states that: 90$ of the production of high unit value mer-chandise is centred in Ontario and Quebec. This is the type of merchandise which would benefit by . . . scheduled all-cargo service. (3) The related source is to be found on pages 14-15 of Exhibit 18 where it is noted that: Concentrated production demands rapid distri* butlon. 71$ of Canada's manufacturing (is) centred in less than 1$ of its area. . . pro-duction of high unit value merchandise (is) even more concentrated. (4) A table then follows showing the percentage produc-tion of high unit value merchandise for Ontario and Que-bec combined, as related to the rest of the country, with upwards of 90$ constituting their basic share of production for the commodities listed. As regards the second example cited, the following excerpt from paragraph 3, page 2 of the Board report stat (3) Ibid., page 2. (4) Exhibit 18, Appendix III to this report, pp. 14-15. - 87 -Per capita railway express shipments in Can-ada are far higher than in the United States and amount to 3.2 percent in Canada as com-pared to 0,5 percent in the United States. Moreover the percentage of national income per capita accruing to the transportation in-dustry in Canada is substantially greater than in the United States. These facts are strong evidence of a substantial Canadian potential for the development of scheduled all-cargo air servioes . . . (5) The figures "3.2" and "0.5" should, of course, be followed by the words "per capita" rather than "percent." An error in transcription was apparently made in taking this data from page 15 of the Douglas Company's Exhibit 18. Illustrating their contentions with graphical pa-tray-als, the Douglas report goes on to state that. (These) comparisons of per capita railway express shipments and transportation charges between Canada and the United States is ample evidence that the Canadian merchant recog-nizes the advantages of swift transport. , .(6) The third example, as noted at tae outset, to do with paragraph 4, page 2 of the Board report states: In an expanding economy where there is a high demand for capital particularly for use in th© development of natural resources, flexibility and speed in transportation are of great im-portance. . . . air lines require less in the way of tied up capital as compared to other forms of transportation . . . (7) The paralleling source is to be found on page 12 of the Douglas broehure, Exhibit 18: An expanding economy demands a flexible trans-portation system. During periods of industrial expansion funds available for capital expendi-ture are in great demand . . , When much of the economy is based on the tapping of unknown (5) Board report, loc. c i t . (6) Exhibit 18, op.cit.,p.15. (7) Board report, loo. c i t . - 88 -quantities of resources . . . it is highly desirable to have a flexible transportation system. . . . In view of the above factors and the comparison of r a i l and air invest-ment in fixed facili t i e s , there is l i t t l e wonder that air transportation has played such an important role in Canada's develop-ment to date. (8) Passing oh to Part (Z) of the Board report, we come to the A.T.B.'s appraisal of the evidence presented at the hearing. Here again the Board appears to have placed high value on the Douglas survey contained in Exhibit 18 and 18A, the init i a l statement being: In order to arrive at an estimate of potential cargo available on the all-cargo air service applied for, a study was submitted on behalf of Canadian Pacific Air lines limited based upon a price-demand curve prepared from Can-adian railway data and application of this curve to less than carload r a i l express ship-ments between areas served by the proposed route. This study indicated sufficient vol-ume to support a five times weekly service with DC6A aircraft and gross revenues better than $2 millions annually. (9) the lo Board comment was included as to^economic or statistical soundness of the price-demand curve to which reference was thus made and upon which the presumed validity of the traffie and revenue appraisal rests. This matter will be dealt with further in the succeeding chapters. (In particular, see page 159 et sea..) The, Board report further dealt with the Douglas findings with relation to the stimulation of airborne cargo trade between Canada and the Orient through the inauguration of the proposed C.P.A.l. Montreal-Yancouver (8) Exhibit 18, op. oit., p. 12. (9) Board report, op. ci t . , p. 3. - 89 -air service. However, no Board comment was made as to the extent in probable ton-miles of the potential Orient traffic available to CP.A. in the foreseeable future. As in the Douglas report, Exhibit 18, only percentages were noted; no mention was made of the base figures em-ployed. This matter of potential Orient trade with respect to air cargo is dealt with further in a subse-quent chapter of this thesis. (See page 173 et seq.) The next matter dealt with by the Board in its report to the Cabinet had to do with the market research survey conducted by Gruneau Research, Limited, of Toronto and as summated on pages 50-52 of this thesis. The Air Transport Board accepted the methods and results of this survey at their face value, stating that: Established sampling techniques were used in selecting a cross-section of business organ-izations using express services in Montreal, Toronto, Edmonton and Vancouver areas . . . . This study . . . was designed to show that a substantial majority of these business organ-izations agreed that a scheduled all-cargo service as proposed by CP.A. was desirable and that it would result in speedier transpor-tation and deliveries of high unit value goods. (10) Canadian Pacific's appraisal of the fresh fish traffic potential out of The Pas was also put forth for the Cabinet's information without Board comment as to its validity. However, note was made that T.C.A. had queried this claim as to fish traffio, having contended that the possibility of generating fish or other traffic out of fhe Pas was fantastically remote. (10) Loc. c i t . - 90 -The eight page Board report was roughly divided into five pages dealing with C.P.A.'s arguments why they should have their application granted, two pages outlining T.C.A.'s opposition, and a final page of Board comment. As for the arguments in opposition by Trans-Canada Air lines, these were set out briefly and in most cases coupled with the CP.A. refutations put forth at the hearing. For example, where T.C.A. pointed out that they planned on converting North Star aircraft to freight carriage as required and as made available by acquisition of new airplanes now on order, CP.A. countered that depreciated fleet units should not be used to make poss-ible reduced freight haulage rates. T.C.A. had shown, as noted on page 77 of this report, that the H0rth Stars are currently carried on the books at their residual value of #30,000 each. This amount, plus $175,000 per aircraft conversion costs for freight use, yielded an airplane in virtually the same class as the CP.A. DCC-A's, purchased at a cost of $1,600,000 each. CP.A. contended, and the Board reported without comment, that the benefits derived from the continued use, of these fully depreciated craft should be passed on to the pass-engers, rather than to the freight shippers. Note was made of T.C.A.'s progressive stepping down of its cargo rates over the years. However, as for the most recently proposed drop, the Board commented that - 91 -"The evidence raised some doubt, however, as to whether or not these proposed T.C.A. rates would actually cover allocated costs of operation for its present type of service." (ll) The T.C.A. claim that its revenue position would he seriously affected hy the CP.A. service was alined with the applicant's rebuttal to the effect that the revenues affected would represent only a small part of T.C.A.'s domestic commodity revenues which in their entirety represented but 3.8$ of T.C.A.'s total income. As for Professor Waines and Br. Currie, the Board allotted one paragraph to their contributions, briefly noting Professor Waines' contentions relative to our need of economy rather than speed in transport in Canada plus high equipment utilization to keep down unit costs. With further reference to Professor Waines, the Board commented: "He expressed the opinion that because of these principles the application of CP.A. should not be granted but admitted that he had made no special study of air cargo in Canada and that his conclusions were based on information supplied to him by T.C.A." (12) The Board Comments then followed. The Board stated that it was "satisfied . . . that . . . a substantial potential for scheduled air cargo service exists in Can-ada; and that scheduled all-cargo services should be set up to develop this potential." (13) (ll) Op. cit. , p. 7. (12) loc. c i t . (13) Op. cit., - 92 -The Board admitted that "there will always he a large volume of air cargo which will continue to move in aircraft primarily used for the transportation of passengers ana mail . . . " (14) However, the Board felt there is both room and need for the operation of scheduled all-cargo flights in aircraft specifically designed for that purpose. In the estimation of the Board, "Canada has already fallen behind other countries in this field. In the United States sched-uled all-cargo transcontinental air services are already numerous and continue to grow." (15) As to the rather dubious success of the all-cargo operators in the United States, an entire chapter is reserved for discussion of the matter subsequently in this report. Ho mention was made in the Board report to the Cabinet of the succession of mergers and liquida-tions of U.S. air cargo firms, as will be dealt with in the above mentionned succeeding chapter. Efor was mention made of T.C.A. Ts plans for supplementary a l l -cargo service in the Board's concluding comments. As noted on page 85, the Board appeared to obliquely urge the Cabinet to grant the CP.A. application throughout its report, contending in final summation that: Although during the development stage such a service may result in an operational loss, it is considered that with proper promotional backing it should be self-sustaining within a reasonable time and eventually profitable. (16) (14) (15) (16) loc. cit. - 93 -The Cabinet Decision The Committee of the Privy Council did not come to its final decision with respect to the Canadian Pacific application with any great expedition. The hearing had "been concluded March 7th, 1953. The Board report was submitted to the Cabinet by June 1st, inasmuch as the Globe & Mail of Toronto editorially commented on June £Oth as follows: On June 11 i t was reported from Ottawa that among other business waiting the return of Ministers from the Coronation were two trans-port items: Consideration of the protest . . against the award of a 7$ increase in freight rates to the railways, and a decision upon a secret report sent to the Cabinet by the Air Transport Board concerning the Trans-Canada Airlines monopoly in its field. (17) The return of the Ministers did not bring the de-cision indicated, i t being announced subsequent to their return that the matter of the CP.A. application wcdLd not be finalized until after the federal election then set for the summer's end. lor was a decision rendered immediately following the Liberals' successful return to office. It would appear that the Cabinet itself was not at all of one opinion as to whether or not the licence should be granted CP.A. Hence, it was announced that a further submission would be required of the applicant and principal intervener, said submission to be made to the members of the Cabinet itself. This Cabinet hear-ing was set for Friday and Saturday, October 30thf;and 31st. As before the Board, CP.A. was represented by Mr. Brais (17) Globe & Mail, editorial entitled "transport Back in politics," June 20th, 1953. 7hm Ccsalt-tee «f th* ^Jyy B w i n s i l «tft not <wr* to l t » final &mi®tm sith r « r « # t to t>* Ocnediaen aoifte «^pll».5itt«D wttti «By greet eacpeAltion. Tn# turo? top h^ A l»«oa cor.«ltal«r« ;s«ma& 7*b+ 1W^, fhm 3© a * r«f«art wan imiaslttoA to tb« cabinet by Jane 1s t . inaentieH ar- the Slofc* & k a i l of ?or mt© «0lt tar t a l l y ct-zmmteA <;ta ,7*m® Mm 11 It reperte-;:. fror.- - ta«ra t.V.t er?er.g cf^er ^ aosneae m i l l e t refetrn of 'llnistara fran t*» aerostation «asr« two trs»fc~ port itmmz C^n&tft«retlon ol th» protect . * r«*t«€* t o tHr? r a t i wage* *# * f#$lsS0R upca"* ewrrt rewwt e«et to t * » ca»J**t hf the Air A l r l i r * © :«>"<Rxrty In i t s f l@lS» 117) Th« **t«r of t f » nnist<ar* 658 not fertrvy th© S@* •teloit M i M t i d , i t swocotwod mhmmmt to tfttf? T©tam that th# r - i t l * of tha C . m pltervtlm trtna not fc« fi»«aijt0& tastil « f t « ' *h» i'«fl'-r«3 oloctlon t&ui #tfc ftw tb» mmmm*e e a i . Ear ws» a AaeMeft r«NMr«i o f f l e * . It veolft «3Sf*ar t2»t th* SaMsnt Itself ^a* not * t a l l of ca* <^ >tttl<H5 m to t.-f-atJw or not the liees-«* etoulft b« graft tofi C.?.A. H«e*, i t wan «i§s«imi45& tf&t * Sterthor OTtatl»*ltt» woolA be ?&<gulr«ft of th» sp^tisaef «M t:rtr<<rtj>al latarvanar, @ai8 enib&lc f?io» to b» tsaft* % ttm a^feti* ef th» er.lMt 5ts«lf. fhJe Calinot h*sr-tssg mm s*t fey rrtffcp *t£ f aturdsg-. "et: bar ir-th rod am** to toft** th* 'feoxA, 5*:.*A. «M Ti?3gt««mi## tsy Ix-ai* llfl Clfl*» S mil* oastc*!*! « t t ! t l « « "Transport Back in -olitlos'; June 20th, 195S. - 94 -and T.C.A. by Mr. O'Donnell. On the night of October 28th, two days before the Cabinet hearing, Prime Minister St. L-aurent spoke at length on the subject of the CP.A. application in an address before the Air Industries and Transport Associa-tion in Ottawa. Mr. St. lanrent was quoted in the Montreal Herald of October 29th, 1953 as follows: When Trans-Canada Air Lines was established in 1937 it was conceived as a mainline opera-tor on an east-west basis. On the other hand, private operators working on a north-south basis were considered feeder lines. Well, development has been so great that the concept is no longer adequate. Many of the lines operated by private concerns are now so active that they too must be regarded as main lines. And conversely, some of the lines operated by T.C.A. have become in fact, feeder lines. Thus, the original idea of retaining the main-line type for T.C.A. only and the feeder-line type for private operators only has to be re-considered. . . . If we are oonvineed that both the industry and the nation would be better served by granting another license now, then of cotese we will make that recommendation. Let me assure you that whichever way the de-cision goes now it will not in the long run be a decision in favor of the perpetuation of mon-opoly conditions. I have stated many times that the government to which I belong believes as a general rule the public can be best served under competitive conditions . , . (18) The foregoing wrlteup was captioned, "T.C.A. Air Monopoly Believed lear End," The address was similarly interpreted by the Toronto Star and by the Toronto Globe (18) Frank Swanson, Herald Resident Correspondent, Ottawa, reporting in Montreal Herald, October 29th, 1953. - 95 -and Mail. The former captioned its report on Mr, St. Laurent's remarks with the statement, "Airline Monopoly to End," and the latter with, "St. Laurent Promises Ottawa Won't Keep Monopoly on Airlines." (19) The Cabinet hearing was, of course, a very restricted affair insofar as attendance of interested parties was concerned. As noted in the Globe and Mail of November 2nd, 1953, "It has been known that there have been two points of view on the question among ministers. Mr. St. Laurent said he expects that eventually the cabinet will reach unanimity." In this regard, even the oral plead-ings of the applicant and intervener were apparently not conclusive in their effect upon the ministers' conclusions. It was decided that the Cabinet would receive written memoranda to supplement the oral presentations they had heard. These written memoranda were to be in the hands of the cabinet ministers during the week following the hearing itself. Neither the Prime Minister nor the spokes-men for the competing airlines made public details of the presentation to the Cabinet. However, as noted on page 85, the Cabinet made public its decision and reasons for same on November 10th, 1953. The application of CP.A. was denied. News-paper comment is best summated by the following editorial and news story headings taken from papers across the land: (19) Toronto Star and Toronto Globe and Mail for October 29th, 1953. - 96 -(1) "Cabinet Repudiates Air Transport Board" Vaneouver Sun Newspaper November 17th, 1952. Editorial, (2) "Government Confirms T.C.A. freight Monopoly" Toronto Telegram Newspaper November 12th, 1953. News story - Norman Campbell. (3) "Enterprise in Chains" Toronto Telegram Newspaper November 18th, 1953. Editorial. (4) "Socialism Label Applied by Drew to Government" Globe and Mail Newspaper. November 17th, 1953. New story - Harvey Hiekey. (5) "Ottawa Continues Spoon-fed Air Monopoly" Vancouver Daily Province November 13th, 1953, Editorial. The Cabinet had continued the T.C.A. monopoly in the face of quite positive opposition from both the Liberal and Conservative press and despite the urging of its own Air Transport Board to do otherwise. The popular eoncept of the situation involved is best portrayed by the Norris cartoon appearing on the following page, which had been published in the Vancouver Sun for November 6th, 1953. Essentially, the Air Transport Board had sought to obtain competition in the transcontinental field of air traffic, employing the arguments set out in the Douglas Aircraft Company's report to support their case before the Cabinet. The Cabinet, on the other hand, listened with apparent - 97 -conviction to the refutation of the data contained in the Douglas report, as made by Mr. O'Donnell, the T.C.A. counsel. They listened with similar conviction to the statements of Mr. McGregor as to the activities of his orown corporation to date and to his plans for its future. As opposed to the Air Transport Board, they, the cabinet ministers gave heed to the warnings of Prof. Waines and Dr. Currie as to the desirability of avoiding the pitfalls of past railway experience, as by them outlined^in the A.T.B. hearing transcript and as recap-itulated at the cabinet hearing by Mr. O'Donnell. The immediately following chapters of this report constitute an expansion upon the evidence upon which, presumably, Chapter Tl Air Cargo Development in the U.S.A. The commercial development of air cargo traffic, as distinct from the carriage of mail and express, was strictly a post World Wc II phenomenon, insofar as its transfer between metropolitan terminalspairs was con-cerned. The military air l i f t s of World War II had pointed up the feasibility of freight carriage in plane-load lots, and had enabled large scale under-when takings in this regard at a time_*ksrt unit costs were a minor consideration. This chapter is divided three sections: 1. Covering development of air freight carriage up to the time of the C.A.B. Air Freight Decision, decided July 29th, 1949. (010 et al.) 2. Covering U.S. air freight experience up to the end of the A.T.B. Hearing in Ottawa, March 7th, 1953. 3. Covering developments in the air freight industry in the U.S. between March 7th, 1953 and November 10th, 1953, the date of the Cabinet decision, hence encompassing such data as would have presumably been available to the ministers prior to reaching their decision. U.S. Air Freight Experience - 1945-1949. As noted in the i n i t i a l paragraph above, the war provided the proving grounds for air cargo development. For example, in June of 1942, American Airlines provided 12 aircraft to haul coal, TNT, nails, lumber and other materials between Edmonton and Alaska. The same firm conducted 9,440 Atlantic crossings with army freight. Commercial application of the experience thus acquired - 99 -was facilitated at the war's end by the availability of surplus transport aircraft and trained orews. The former were available from the military at prices representing but a fraction of their original oost, while the latter sought, in considerable numbers, to remain actively engaged in the field of aviation no matter what the obstaeles. In consequence, a steady succession of air cargo carriers were incorporated following the cessation of hostilities, including the Hying Tiger Line whioh commenced operations in 1945 and Slick Airways, which started haulage in 1946. naturally, considerable opposi-tion was raised by the certificated scheduled carriers. In consequence, th© Civil Aeronautics Board prepared to bring the matter of this new competition to a hearing. To provide for interim operations prior to the hearing, Section 292.5 of the Board's Economic Regulations was promulgated to give tempxary exemption from certification. The Air Freight Case (Docket 810 et al. E-3085) actually got under way late in 1946, but did not reach a final conclusion until July 29th, 1949. This initial air freight ease involved 14 applications seeking certi-ficates and amendments of certificates of public conven-ience and necessity under section 401 of the Civil Aero-nautics Act of 1938, as amended,. The proposals were limited to carriage of property between points within continental United States. - 100 -In the docket, "freight" is distinguished as property moved in equipment devoted primarily to property; "Express" to property transported in equipment scheduled primarily for passenger transportation. Of the multitude of prospective operators in 1945, the number of continuing all-cargo carriers had dwindled to 14 by the time of the hearing's commencement. By the f a l l of 1948 five of these had become bankrupt, and a further three had ceased operations voluntarily. By the time of the Board's decision in 1949 only four were solvent, and these only technically so. By a three to two decision, however, the C i v i l Aeronautics Board granted five-year temporary certificates to these remaining firms. These certificates provided for the following services: The flying Tiger Line, Inc, - granted blanket area, rather than point to point, coverage of that portion of the U.S.A. served by United Air Line- s and Northwest Air Lines. Slick Airways, Inc. - granted similar area coverage of that portion of the U.S.A. served by Trans-World Airlines and American Air Lines, Inc. U.S . Airlines, Inc. - granted similar area coverage of that portion of the U.S.A. served by Eastern Air Lines, National Air Lines, Braniff, etc., hence a north-south operation as opposed to the basically east-west make up of the two foregoing carriers. Airnews. Inc. - granted rights to " > continue its experimental operation using combined truck-air services in the short haul f i e l d . Limited to San Antonio-Brownsville area. (1) fl) Air Freight Case, C.A.B. Reports, Yol. 10, Economic Cases, Jan.-Nov. 1949, page 572 . - 101 -s m a l l e s t Airnews, Incorporated was the ^ minority operator. The wholly owned subsidiary of a newspaper, i t conducted i t s experiments for a period, then voluntarily ceased operations, U,S. Airlines, Incorporated, was the third smallest in i t s proposed scope of operations* However, it managed to incur total expenses of approximately 80$^  per ton mile for every ton mile of freight carried, with a gross revenue per ton mile of approximately 20^* During i t s i n i t i a l two and one half years of operation, U.S. Airlines exhausted 5/6 of i t s entire original capi-talization of over three million dollars. The total loss for this period was $2,557,938. (2) U.S. Airlines has been through three receivership and reorganization proceddings. Its creditors are currently in process of fin a l l y winding up i t s affaire. Slick Airways, during the two and three quarter years preceding the GAB Air Freight Case deoisioh, exhausted e/7ths of i t s capitalization, a total loss of $1,931,242. Flying Tigers, during three and one half years of exempted operation, exhausted l/2 of i t s capital-ization, for a total loss of $1,350,000. During the process of registering these losses, the all-cargo operators had accomplished l i t t l e more than diverting t r a f f i c from the existing, certificated scheduled opera-tors. Forecasted new t r a f f i c sources^such as in the (2) loss figures on this page from E. Smythe Gambrell, 'Position of the Certificated Air Carriers in the CAB Freight Proceedings," law and Contemporary Problems, Duke University, Yol. 15, No. 1, p. 11. - 102 -fields of fresh fruit, vegetables and sea foods, had simply not materialized up to the time the CAB- made its decision in 1949 to grant five year temporary certificates to the four aforementioned carriers. Uor were the certificated passenger carriers dormant in their approach to air freight up to the time of the 1949 decision. American Airlines had filed its first air freight tariff on October 1st, 1944, with an average yield of 40^ per ton mile against then current 70$/ per ton mile air express rates. T.W.A. and United followed suit in 1945. American Airlines, and its predecessor companies, Robinson Aircraft, Colonial Air Transport and Embry-Riddle, had pioneered each step in the air freight field, commencing with their Initial efforts in 1927. A continuing research program on American's part culminated in the formation of Aire ar go, Incorporated in 1941, initially a planning group composed of the "big four" U.S. trunk line operators, having as its objective the co-ordinating of the orderly development of air freight haulage by its member operators. With the outbreak of war all firms became contract carriers of air freight and passengers for the military, deferring commercial air freight development within the United States until the war's end. The war over, equipment and crew availa-bility enabled a general reduction of air express rates in 1946 to 59$z/ per ton mile, together with a cut in the air freight rates by U.A.I., T.W.A. and American to a - 103 -scaled rate structure, varying from 15 to 26.5</ per ton mile. As noted on page 99, Slick Airways commenced "busi-ness in 1946, f i l i n g rates based on an 18/ per ton mile return. By July of 1947, by a series of rate cuts, a l l caniers were receiving approximately 13$/ per ton mile. In September of that year, A.A.L., P.O.A., T.W.A. and TJ.A.I. f i l e d specific commodity t a r i f f s yielding a basic 13$/ per ton mile. The non-certificated all-cargo carriers f i l e d for suspension of these t a r i f f s . Their petition was denied, but a general rate investigation was ordered by the CAB. This general investigation was to be spread over the next three years and involve three distinct hearings, the f i r s t to do with specific commodity rates, the second to do with directional rates and the third to do with accumulation, assembly and distribution rules. These comprise Docket 1705 et a l . The latter two are included with the report in hand as Appendix YI. The need for the investigation is best illustrated by the following figures, bearing in mind that the rate of return had sunk to 13c7 per ton mile. Table 5(a). Aircraft op. Other op. Total* expense expenses qper Slick - 1948 9.28$zf 7.66c/ 16.94^ Plying Tiger - 1948 1^ .52$/ 7.05c/ 20.57?7 (*Per ton-mile.) / r 7 S (3 J (3) C.A.B. Eeports, Yol. 11, Uo. 21, Air Freight Rate Investigation, Directional Rates, p. 235. - 104 -Hence, Slick and flying Tigers were s t i l l losing money on their cargo eperations at an alarming rate, further, the government subsidized lines comprising the nation's 16 trunk line operators were also losing money. All save one reported a loss for 1948. Only in the United States could such a prolonged dissipation of capital, in the process of a rate war, continue for so long a period. As Adam Smith stated, "In public, as well as in private expenses, great wealth may, perhaps, frequently he admitted as an apology for great folly."(4) However, the 0.A.B. finally issued its freight Rate Decision (Order E-1639) placing a floor beneath the general rate structure. The minimumcharge per ton mile i was set at 16/, with a drop to 13/ permitted for hauls over 1000 miles in length. By 1949, the average return for Slick and flying Tigers had risen to approximately 17/ per ton mile, and that for the principal scheduled carriers to 19/. Directional imbalance in traffic flow brought about the second phase of Docket 1705 et al., concerning dir-ectional flow rates. Principally to foster back hauls from the west coast of agricultural produce, the Board authorized directional rates of not less than 60$ of the minimums set in Order E-1639 above. Aside from the profits or lesses involved, these developments stimulated air cargo carriage. U.S. domesti (4) Adam Smith, The Wealth of Nations. 1776, J.M. Dent & Sons, London, Book IV, Vol. 2, p.22 - 105 -a i r f r e i g h t c a r r i a g e amounted to only 22 m i l l i o n ton-miles i n 1945. I t jumped to 83 m i l l i o n ton-miles i n 1946; 128 m i l l i o n ton-miles i n 1947. The Korean war brought f u r t h e r demands f o r r a p i d cargo shipments, y i e l d i n g a t o t a l domestic movement i n 1951 of 246 m i l l i o n t o n -miles. (4) During the exempted p e r i o d of all-.cargo o p e r a t i o n s , the A i r F r e i g h t Case and the A i r F r e i g h t Rate Case had gone slowly forward c o n c u r r e n t l y . No c a r r i e r was sure o f i t s u l t i m a t e s t a t u s . However, with the granting of f i v e year temporary c e r t i f i c a t e s to the four remaining a l l - c a r g o firms i n 1949, i t was presumed that the i n d u s t r y would f i n a l l y become stabHized. U.S. A i r F r e i g h t Experience -- 1949 - March, 1955. An anomaly of the U.S. a i r f r e i g h t s i t u a t i o n i s , of course, the f a c t that the trunk l i n e , scheduled c a r r i e r s are s u b s i d i z e d by the C.A.B. to maintain reasonable s o l -vency with the payments b e i n g made through the Post O f f i c e , while the a l l - c a r g o c a r r i e r s as c e r t i f i c a t e d In 1949 get no subsidy whatsoever. Losses on the part of the l a t t e r are d i r e c t from the shareholders pocket; l o s s e s on the p a r t of the former come from the taxpayer. However, i t would not be c o r r e c t to corclude that the scheduled, (4) S t a f f Study, Domestic A i r Cargo F o r e c a s t , C.A.A., U.S. Dept. o f Commerce, Washington, October 1952. page 7. - 106 - (a) passenger ca r r y i n g operators had been l o s i n g money to the extent experienced by the a l l - c a r g o firms during the process o f the f r e i g h t war. Admittedly, on a f u l l freight cost basis, Arevenues were l e s s than expenditures. For example, United A i r l i n e s l o s t two m i l l i o n d o l l a r s on a i r cargo i n 1949 on an a l l o c a t e d cost b a s i s although the c a r r i e r picked up $200,000 based on s t r a i g h t out-of-pocket c o s t . (5) Since the scheduled a i r l i n e s are p r i -m a r i l y passenger c a r r i e r s , much of t h e i r eargo volume i s hauled i n space that would otherwise be empty. Hence, during the development period at l e a s t , i t i s not nec-essary f o r them to recover t o t a l c o s t s . However, as the volume in c r e a s e s , i t becomes necessary f o r the a i r l i n e s to place a d d i t i o n a l a l l - c a r g o f l i g h t s i n operation. By so doing, ton-mile costs w i l l increase u n t i l the f r e i g h t s e r v i c e i s absorbing i t s f u l l share of the t o t a l common co s t s . As f o r subsidy support of scheduled c a r r i e r s , i t c e r t a i n l y provided a basis f o r complaint on the part of the unsubsidized a l l - c a r g o operators. However, said basis i s s u p e r f i c i a l and unsound i n a c t u a l i t y . The current U.S. budget f o r a i r l i n e subsidy (1954) amounts to 80 m i l l i o n d o l l a r s . The mainline operators, such as American, receive only a m i l l i o n d o l l a r s each approximately ton of t h i s sum, over and above their 45/ per^mile m a i l pay. (5) U.S. lews and World Report, Interview with W.A. Patterson, issue f o r October 6, 1950, page 16. - 106 - (b.) This 45^ per ton-mile mail pay is considered compensatory Only for services rendered, not as subsidy. Shv.», ^four million dollars in subsidy go to the nbig four" scheduled operators, the remaining 76 million being divided, 50 million to the overseas, international operations and 26 Therefo re, million to the local-service domestic lines, Thac^the all-cargo operator's contention that his paralleling competitor was undercutting his services through subsidy advantage is not justified inasmuch as the all-cargo firms operate primarily into metropolitan centres, offering virtually no local service f a c i l i t i e s to off-line points insofar as common carriage is concerned. The all-cargo carriers continued to lose money on their domestic freight operations despite the supposed stability imparted by the granting of temporary c e r t i f i -cates in July of 1949. The Korean war, however, enabled the two prime operators, Slick and Plying Tigers to partially recoup their domestic common carriage losses with a landslide of military revenue. For example, in 1951, Flying Tigers, for the year ending June 2Oth, reported a net overall profit of one million dollars. Revenues had totalled 15.5 million dollars, composed of 3.5 million from common carriage of freight, 4.5 from rentals,, charters and service sales, and 7.5 million - 107 -dollars from Pacific a i r l i f t for the military. Domestic freight was s t i l l being hauled at less than cost, but operations other than common carriage of freight were making up the deficiency. (7) Slick Airways also made money in 1950 and 1951 as a direct consequence of the Korean war. A tabulation from their 1951 Annual Report is reproduced as follows: (8) Table 5(b) Profit lose loss Balance 1946 1947 1948 1949 1950 1951 #506,608 352.979 #861,259 444,475 144,019 343,352 | 861,259 1,305,754 1,449,753 1,793,105 1,286,497 933,518 The 1951 Slick Report noted that six DC-6A aircraft for cargo carriage had been provided for, at an outlay of over seven million dollars. Three had been delivered, with the remaining three scheduled for acceptance in 1953. The company had carried 67,890,612 ton-miles of domestic air freight in the year covered by the above noted report, equalling one-fourth of the total domestic freight hauled by all carriers combined. A copy of this 1951 Slick Airway Annual Seport accompanies the library copies of this thesis as Appendix 711. Copies of the 1952 reports for Slick and Plying Tigers are included as Appendix T i l l and Appendix 12. For 1952, despite revenues from transportation ser-vices of 11 million dollars, Slick lost #3,749 operationally. (7) Plying Tigers Annual Report, Year ended June 30, 1951, Statement of Income and Expense, page 24. (8) Slick Annual Report for 1951, Appendix VII, p.15. - 108 -During that year Slick had transported goods to a domestic total of 67.7 million ton-miles. However, a l l of Its D06 aircraft were devoted to overseas work, not assigned to domestic haulage where rates continued to bring returns below cost of service rendered. In April, 1952, the O.A.B. had authorized a 10$ Increase in freight rates in the domeistio field, the f i r s t upward movement since the beginning of the rate war. Further, application was made in that year to the C.A.B. for authorization to carry mail and express, indicative of the trend towards the combination carriage principles of the established, passenger carrying operators. Fortunately for Slick and Flying Tigers, the Korean war had placed a premium upon the sale of used aircraft or aircraft ordered but not yet delivered. In conseouencS, Slick profitably disposed of one C-46 aircraft and one D0-6A during the year. Quoting from their report: For the year 1952 the Company earned $454,328 after taxes, equivalent to $1.03 per common share. These earning were derived solely from the sale of one C-46 aircraft and the proto-type DC-6A aireraft. A loss of #3,749 was incaured from the operations of the Company. In addition to selling the aireraft mentioned above, the Company contracted to sell another DC-6A early in 1953 for a profit of approxi-mately $650,000 before taxes. In deciding to sell these aircraft your management realized that the fleet capacity would be reduced and the profit from operations thereby reduced. However, the advantages of a capital gains tax as compared to ordinary income taxes clearly indicated the advantage of these sales . , . - 109 -The operating lose in 1952 is not, in the opinion of your management, indicative of any "basic trends nor of the profit potential of the Company. It does, however, point to the necessity of obtaining a more favorable relationship between air freight rates and costs . . . . During 1952, your Company operated close to the limits of practical capacity. As a result, cost increases f e l l directly on profit-ability . . . . (9) In assessing the merits of the CP.A. application, it is to be presumed that the Air Transport Board had these various Annual Reports available for review. In this regard, the Annual Report for the Plying Tiger line for the year ended June 30th, 1952, must have been the subject of some contemplation. Canadian Pacific Air Lines had contended in its testimony that the a l l -cargo operators were prospering in oonseqtsiee of their domestic freight operations alone. CP.A. proposed to offer a similar common carriage of freight-only traffic between Montreal and Vancouver, and seriously contended that the venture would be profitable and would stand alone. The 1952 Plying Tiger Report referred to above indicates that only 20$ of the firm's revenues could be accounted for by the common carriage of freight for the year under review. As for Slick, a l l four-engined equipment was assigned for overseas service, primarily connected with the military. To do with the Pacific a i r l i f t alone, the company carried 20,400 passengers (9) Annual Report, Slick Airways, Appendix VIII, (1952), page 2. - 110 and 7 , 6 0 0 , 0 0 0 pounds of material across the ocean to the Orient or return. Quoting from the 1952 report: In the coming year the Company is under-taking a contract with the lavy to pro-vide a daily transcontinental trip for lavy cargo to parallel the Company's Route 1 0 0 . The lavy has found that suoh trans-portation provides i t with fast service at rates competitive with surface carriage because of the volume movement entailed. It is expected that this operation will increase the domestic airfreight volume carried by the Company by approximately 60$. In addition the authority requested for carriage of air mail and air parcel post, if granted will add materially to volume. Today the Company is one of the largest, if not the largest, single civilian con-tributor of a i r l i f t to the Armed forces. It is looking forward to being able to report that i t is also the largest air-freight carrier. (10) During the year flying Tigers had made a profit before taxes of $ 1 , 4 4 6 , 6 5 5 on their combined military and civilian operations. In addition, they had made a profit before taxes of $ 1 , 2 0 4 , 0 4 0 on the sale of equipment and from miscellaneous income such as derived from overhaul contracts obtained from the army and navy. The instability of dependence upon war profits is recognized in the following quotation from the report: The Company's net income in the fiscal year ended June 30th, 1952 was $ 1 , 5 5 6 , 9 6 8 . While this amount exceeds that of any other year in the history of the Company, i t must be remem-bered that we are operating in a "war economy" (10) Annual Report, flying Tigers, 1952, Appendix IX, pages 2 and 3. - I l l -and we must prepare for adjustments in the future as the country is able to return to a peace economy. Intensive development of civilian airfreight and contract operations is necessary to replace the military work as it may phase out. (11) C-46 Flying Tiger Freighter U.S. Air Freight Developments Subsequent to the A.T.'B. Hearing but Prior to the Cabinet Decision. As indicated in the paragraph above, the military work was commencing to phase out. C.P.A. had had its best year financially in 1951, with a net of $1,100,000. Results for 1952 showed a net of #364,000. (See page 16) These profits were, of course, a direct result of the Korean war and the C.P.A. Pacific military a i r l i f t . Such bonus operations commenced to disappear in the latter part of 1952 and completely departed from the aviation scene in 1953. (11) Ibid., page 15. - 112 -Reviewing the Annual Report for the flying Tiger line for the year ended June 30th, 1953, as issued in October of that year, the following points are noted. Transportation revenues amounted to 25 million dollars, covering both domestic and overseas military and civilian transportation without specific breakdown. On this revenue, a net op/er ating income of $700,000 was realized. The operating revenues included approxi-mately three million dollars from the Havy contraot noted on page 110. This transcontinental freight oper-ation had been taken from Slick through an undercut bid of 73.9$/ per 0-46 aircraft mile. As forecast in the quotation on page 110, this contract had increased flying Tigers* air freight business by nearly 60$ in total volume. However, it is noted in AY1ATI0I WEEK that the firm's domestic freight on a non-military basis actually f e l l off appreciably during the year under review. (12) Maintenance and rental services showed up as an increasing revenue source, one Air force contract alone for maintenance of 100 0-46 aircraft amounting to more than $2,500,000 gross. (13) Long term lease of four D0-6A aircraft to northwest Airlines for seven years, with option of a further three year extension, was announced. (14) This seven year (12) Aviation Week, McGraw-Hill, ETewTork, March 2nd, 1953, page 32. (13) flying Tigers* Annual Report, 1953, Appendix IX. (14) Ibid., p. 18. - 113 -period represents a gross to Flying Tigers of nearly nine million dollars. During the year most profitable operations -wore c one e rne d •engagod in to de^wi4;hKthe sale of equipment. The following resume is quoted from the Statement of Income Profit on sale of operating aircraft #192,871 Profit on sale of purchase contract rights for 2 DC-61 aircraft to C.Itoh & Co. for use hy Japan Air lines on their proposed trans-Pacific service $1,100,000 A further #286,651 was acquired as non-operating profit, representing the excess of insurance proceeds over hook value of an aircraft destroyed in a crash. Despite these profits, the Annual Report indicates was at several points that the management^ ie- most ooncerned about £o de, with^the future, for example, the President's report states: With the cessation of hostilities in Korea we are moving out of a "war economy." We can anticipate a phase out of the air support we have been supplying to the fighting forces. . . The transition may well not be smooth and the Company must be preapred for costly readjustments.. . . The future poses many important and vital problems. Most immediately is the necessity for an increase in airfreight tariffs. . . To compel non-discriminatory airfreight competition, Slick Airways, Inc., and the Plying Tigers have since the elose of the fiscal year petitioned the Civil Aeronautics Board to amend its Minimum Rate Order to increase minimum rates 25$, Of major importance, the Temporary Certifi-cates of Public Convenience and Necessity held by both the Plying Tigers and Slick will expire by their terms on August 12, 1954.(15) (15) Ibid., page 3. - 114 -Tile requested 25$ freight rate increase was authorized by the Board on November 20th, 1953. Inasmuch as many of the carriers* rates were above the old minimums anyway, i t was calculated that this increase would average out to about 12$. The rate rise was made to save the all-cargo carriers from insolvency and made in spite of the protests of the largest combination carrier, American Airlines. This firm contended that: Airfreight is in a critical developmental stage with a critical need for volume growth, that volume was developed to a lesser extent than anticipated at the time of themimimum rate order, that American is adding substan-tially to its all cargo fleet and that the increase in minimum rates proposed by Sliok would not be consistent with the objective of developing the airfreight volume required by the new capacity. (16) American's mixed cargo-passenger operations yieldy' lower costs and higher revenues. This enables the carrier to hold rates at the lowest possible level, simultaneously boosting volume to f i l l excess plane capacity. This was the plan T.O.A. was methodically pursuing by paqgressively dropping its rates over time as capacity became available. Such an operation as that proposed by O.P.A. would provide the same service but at higher cost i f the following statement of the Oivil Aeronautics Board is accepted: (16) American Aviation, American Blocks Airfreight Tariff Boost, McGraw-Hill, lew York, October 5th, 1953, page 79. - 115 -The Board's show-cause order and tentative opinion in its previous minimum rate order 'determined that the proper development of air freight required that minimum rates be based on attainable costs in all-cargo planes, . . This decision obviously must have been among the important considerations in certificating several all-cargo carriers . . . for without such a rate basis there would be serious doubt that all-cargo carriers could survive in com-petition with carriers handling a l l or part of their freight in combination planes . . . . The financial reports of the two major a l l -cargo carriers indicate that Flying Tigers are barely breaking even on their scheduled freight operations, while Slick is suffering substantial losses. In the case of Slick, at least, It appears that the need for prompt rate relief is urgent.' (17) The Canadian Air Transport Board had reported to the Cabinet that "In the United States scheduled a l l -cargo transcontinental air services are already numerous and continue to grow." (See page 92 of this dissertation) Such was very definitely not the case. Admittedly, the volume of U.S. air freight traffic was steadily increasing. However, through bankruptcies, mergers and voluntary suspensions of service, the number of all-cargo firms was steadily dwindling. By 1952, only two of the original fourteen U.S. a l l -cargo firms remained. In that year, as a result of continuing financial d i f f i c u l t i e s , these two remaining firms finalized plans for their amalgamation. The proposed merger was approved by the share-(17) Loc. c i t . - 116 -AMERICAN AIRLINES DgRING THE WASHINGTON'S BIRTHDAY WEEKEND CERTAIN FLIGHTS WILL NOT OPERATE; Consult American Airlines For Details. C A R G O S E R V I C E Zn addition, all American Airlines flights shown in other tables carry cargo EAST - MIDWEST Boston - Hartford - Bridgeport - New York - Philadelphia - Baltimore - Buffalo - Cleveland - Cincinnati - Detroit - Indianapolis - Chicago - St. Louis 8 0 3 , Ex Su 3.55 |ExSu ;&Mo AM 1.30 I Y 6.201 3.55 Y 2 0 3 ExSu &Mo| AM Y 2 451 ! Ex Sa| &Su PM 1 0 - 3 0 12.05 • 8 5 5 Ex Sa| &Su PM 10 - 301 12.01 2.00 4.25 5.42 AM 3.41 4.521 AM 8 0 1 , Ex Sa &Su PH 3 - 3 0 Y 12 00! 1 2 9 1.30 li-ooj 1-OOgH.45 PM A 2 4 1 ExSa t . 0 0 Y 1 0 . 2 5 1 PM -7-001 11.00 Y 1 2 5 ! 1 5 3 ~AT 9.35 11.05 1 2 . 3 5 2 . 2 5 PM ALL FLIGHTS DAILY Unless Otherwise Indicated Westbound Eastbound Read Down Read Up Lv BOSTON (EST) An Lv HARTFORD " An Lv BRIDGEPORT " An Lv NEW YORK(LaGuardla) " An > PHILADELPHIA " An iLv BALTIMORE " An AR BUFFALO '.. " Lv An CLEVELAND " Lv An CINCINNATI " Lv An DETROIT (EST)Lv An INDIANAPOLIS (CST)Lv An CHICAGO " Lv An ST. LOUIS (CST)Lv Ex Sa| &Su PM o I10.35I 7.55| AM 1 2 . 4 5 9.00 AM 1 . 4 5 10.001 AM 8 5 6 ExSa &Su PH 9 . 0 1 q 8 3 0 Ex Sal PM 6 . 0 0 PM Ex Sa| &Su 6.00| 4. 3.191 1.05 1 0 . 4 5 PM 8 0 2 , ExSa &Su AM 1.45| t 9 OOllo'oOl PM • 8 5 2 ExSa &Su AM 7.40 6.251 4.25 2.251 | 1 1 . 0 0 PM A 1 9 0 ExSa &Su AM 3.50 t ; 2.30 1 1 . 0 0 ; PM A 1 9 2 Ex Su &Mo AM 5.35 3.30 12.45 AM TRANSCONTINENTAL Boston - New York - Philadelphia - Washington - Buffalo - Cleveland - Detroit - Nashville T Memphis - Chicago - St Louis - Tulaa - Oklahoma City Dallas - Ft. Worth - El Paso - Tucson - Phoenix - San Diego - Los Angeles - San Francisco A223 A A A A* A A A903 1 1 7 1 4 1 2 0 7 8 7 4 3 2 3 1 PM PM AM AM AM "AM" AM 11.45 7.30 b 2 . 0 0 1 . 4 5 - 10.35 -- - L910 8.00 -- - - 11.30 - - -- 3 - 2 5 - 1 2 . 3 5 _ - -9:50 - - 2 . 4 5 - - - -11.30 - 5 . 2 5 - 6 . 5 5 - 3 . 2 0 - - -4 . 5 0 _ - - 1020 1 2 . 1 5 _ 4 . 1 0 _ : : 9 2 0 9 - 1 0 _ 1 . 4 0 _ _ r 8 . 2 6 - 6 - 1 0 - -1 0 . 5 0 - - - - -- 8 - 4 0 - - 5 - 2 5 - - 9 - 3 5 - - 6 . 2 0 1.05 _ 1 0 . 2 5 - _ -2.00 9 . 3 0 1 1 . 2 0 - 2 . 3 5 7 - 2 5 5 . 0 0 AM PM PM PM PM PM PM 8 4 1 , ExSu &Mo 8.05 1 0 5 4 . 1 5 PM 8 0 1 , |ExSa| &Su 9 3 0 |12.45 2I0O 8.20| AM PM 9 : 1 0 I 1 0 . 5 0 PM 8 . 1 5 | 9 - 1 0 1 0 1 5 r3.05 2 4 9 1 1 - 5 0 2.55 4.00 7.10| AM 6 - 5 5 ALL FLIGHTS DAILY Unless.Otherwise Indicated Westbound Read Down Eastbound Read Up (EST) (CST) uv BOSTON. Lv NEW YORK (LaGuardla) Lv NEW YORK (N. Y. Int'l.) Lv PHILADELPHIA Lv WASHINGTON Lv BUFFALO Lv CLEVELAND Lv DETROIT Lv NASHVILLE Lv MEMPHIS Lv CHICAGO An ST. LOUIS Lv TULSA " AR Lv OKLAHOMA CITY " An Lv DALLAS " An Lv FT. WORTH (CST) An An EL PASO (MST) Lv An TUCSON " Lv An PHOENIX (MST) Lv An SAN DIEGO (PST) Lv An LOS ANGELES " Lv AR SAN FRANCISCO (PST) Lv (EST) An | An " V An' An! AR; AR' AR; AR As An Lv 7 . 2 5 4-AM 12.41 1 1 . 4 5 1 0 . 3 5 6 - 2 0 4 : 0 0 1 2 : 5 0 11.00 8.05 AM PM 1 0 . 4 0 SV.40 7 1 0 4 3 0 PH 1 0 - 5 0 5 05 I.45I 1 0 . 3 5 4 0 f f l 9..15I AM 8 0 0 , Ex Sa &Su 1 2 4 0 | 10.05 I 6.45 |10 3 5 | PM • , 8 4 2 Ex Fr Sa& Sun PM 3 1 5 | 11.15 10.00 7.55 1 1 . 4 5 S.35 PM • 8 4 2 Fri. only AM 11.15 10.00 7,55 1 1 . 4 5 8 3 5 PM • 8 4 2 Sun Only AM 1.55 . 1 0 4 5 AM 1.551 12.151 6.30 2.20 1.20 1 0 2 5 | PM 6.30 1 1 . 5 5 1 PM 2 4 8 IS - , 3-41 2 . 1-10.05 7.40) 6.40 (12.05 AM EQUIPMENT: «—DC-4 Airfreighter. +—Convair Airfreighter. B—DC-6 or DMA Airfreighter. A—DC-6 or DC-6B Flagship. A—DC-7 Flagship. b—Eff. 2/28 departs 3.00 p.m. from N.Y. Infl/Airport EXPLANATION OF REFERENCE MARKS q—Departure time, r—Arrival time. (CST)—Central Standard Time. (EST)—Eastern Standard Time. (MST)—Mountain Standard Time. (PST)—Pacific Standard Time. Light figures (10.40) indicates AM times; Dark figures ( 1 0 . 4 0 ) Indicale PM limes. Times shown In italics (10.40. 10.40) i connecting flights. SAMPLE AIRFREIGHT RATES (PER 100 POUNDS) Phila- San delphia SL Louis Francisco $11.20 127.00 23.00 S 7.10 18.80 13.95 7.10 5.90 20.95 23.95 16.55 8.75 aire 8.15 25.25 .18.45 25\25 18.45 24:45 I 20 TO: FROM Boston.: Buffalo Chicago. Dallas/Ft Worth . Detroit Los Angeles New York Philadelphia -.. SL Louis San Francisco Washington Boston $ 8.70 6.45 26.00 11.20 27.00 Buffalo $22.0 Chicago 70 8 95 17 75 7 50 7 10 18 80 6 00 Dallas/ FL Worth $ 9.50 '6.'20 6 70 12.40 8.40 8.00 5.60 17.51 7.20 Detroit $ 6.45 20.00 • 5.90 5.90 Los Angeles S26.00 22.00 17.75 20.00 24.55 23.95 16.55 23:66 New York $ 7.50 14.03 5.90 24.55 8.75 25.75 Washington £—Applicable on certain commodities. Sample rates shown are subject to a minimum weight of 100 lbs. Consult your nearest American Airlines office for full information. Bates are for information only and are subject to change without not-iee. Prom American Airlines, Inc. Time Table, effective feb. 14, 1954. lote preponderance of combination flights with supplementary all-cargo services, long term plans of T.C.A. contemplate this type integra-ted service. - 117 -holders prior to the rendering of the Cabinet decision, to do with the CP.A. applioation. It was further finalized by the granting of C.A.3. approval in January of 1954 and is presently in the process of taking place. Under the merged operations, this last remaining a l l -cargo company estimates its 1954 gross at 45 million dollars. The merged firm will have assets of 25 million dollars. Annual traffic should exceed 100 million ton-miles, or approximately one half of the nation's total* Whether or not this last survival will be profitable remains to be seen. However, the reasons for merger, as outlined in the Proxy Statement sent to a l l share-holders of the two firms to do with the merger plans stated: It has been found that in the development of airfreight traffic both Hying Tigers and Slick have developed the bulk of their vol-umes at points where they largely duplicate eaoh other. The elimination of presently duplicated functions at points now commonly served by both companies . . . should result in substantial savings * . .The consolidation of the administration activities of the two carriers should quickly result in substantial savings. Further savings will be effected by the elimination of uneconomic and unnecessary duplication of flight schedules between many of these important traffic centres without in any way reducing essential service between these points. The total volume of airfreight which will be generated at various important traffic centers by the merged companies will justify the use or large new equipment and in every instance the quality in character and quality in service will be greatly improved. - 118 -The gross revenues of the consolidated system should he materially greater than the com-bined gross revenues of the two companies as separate units, lew and improved ser-vice to the public with integration of the route structures of the two carriers ser-viced by the new equipment which both carriers have or are acquiring will enable the merged company to generate more traffic and provide better service to the public by.improved scheduling. Increased utilization of equipment, facilities and personnel and elimination of duplicate functions, services, capital outlays and invent oris should ultimately result in sub-stantial savings and lower unit costs. (18) The foregoing is quoted in detail inasmuch as i t amounts to a recapitulation of T.C.A.'s entire case before the Air Transport Board. It summates the con-tentions of Prof. Waines, Dr. Currie and Mr. McGregor, a T.C.A. !s President. Air cargo carriage on basis such as that ^ K • ^proposed by C.P.A. had proven a oostly exper lament in the U.S.A. Investment in the all-cargo carrying field could be likened to John Stuart Mill's appraisal of the Canadian lumber trade of 1848, constituting: . . . an employment of capital partaking so much the nature of a lottery . . . that taking the adventures in the aggregate, there is more money lost by the trade than gained by it . . . the average rate of profit is less than nothing. (19) Mill would doubtless have concurred with C.A.B. member Josh lee's dissenting comments to do with the (18) Proxy Statement, Slick-Plying Tiger Merger, June 15, 1953, page 5. (Statement and other data obtained through purchase of a share in each firm) (19) John Stuart Mill , Principles of Political Economy, 1848, Ashley ed. 19£6, Longmans Green, London, page 415. - 119 -Air freight decision which initially created the situation in the United States that the Canadian Cabinet has seen f i t not to condone Ato repetition in this country. Mr. lee stated in part: The fact that a substantial volume of traffic has been moved by the non-scheduled carriers is not impressive since it was moved at so great a loss. (SO) The majority opinion in the 3-2 Civil Aeronautics Board 1949 Air freight Decision had insisted that new business would be created by the all-cargo carriers, this having been one of their main arguments for the certification of the original four all-cargo firms on a five year experimental basis. lo such new business was generated. Aside from losing many millions of dollars in the process, the a l l -cargo carriers simply drew from the identical pool as their combination competitors, i.e. from r a i l express, no true penetration was made of any other surface type traffic such as r a i l and highway freight. Any appre-ciable quantity of fresh food, fish and the like was being carried by the combination carriers alone, and then In only negligible quantities in relation to the forecasted potential. The nation's domestic trunk lines, which as has been noted are virtually free from subsidization, were carrying increasing quantities of air cargo, picked up and delivered in an orderly fashion by their eomaon agent, Airoargo, Incorporated. What (20) C.A.B. Reports, Volume 10, Economic Cases, Air freight Case, 810 et a l . , page 611. (1949) - 120 -was more important, these trunk lines were making money. For example, in 195E these trunk operators made a total profit before taxes of 95 million dollars, and in 1953 of 9£ million dollars. (El) Both United and American Airlines paid 4 l/E million dollars in dividends in 1952. For that year United had total revenues of 153 million dollars; American, 187 million dollars. (22) An indication of the amount of cargo handled by these trunk line operators in conjunction with their passenger services is indicated in the tables that follow. Within the same tables will be found confirmation as to the common pool of traffic drawn upon by all carriers, both more all-cargo and combination. Further^, tables are included to show the make-up of Trans-Canada Air lines' cargo traffic, indicating that the development In Canada has followed the same source pattern but without the wastage of capital resources through duplication of services. It was also considered an appropriate place to Insert tables to do with U.S. trunk line operating and profit results in order that the industry be set in proper perspective in relation to the data contained in the Annual Reports for Slick and Flying Tigers, as appended. (El) Aviation Week, U.S. Airline Profits, quoting Air Transport Association data, McGraw-Hill, lew York, January 4, 1954, page 68. (22) Aviation Week, Report on U.S. Scheduled Transport Industry, March 2nd, 1953, page 211 - 121 -Table 6 Ten Top Commodities Carried by Air Freight in the U.S.A. 1. Metal products, including auto parts, aircraft parts and machinery and parts . 2. Wearing apparel, dry goods and textiles. 3. Electric and electronic equipment and parts. 4. Cut flowers, plants, etc. 5. Advertising, printed matter, paper products. 6. Drugs and biologicals 7. luggage and personal effects 8. Livestock, chicks, fish 9. Fresh food 10. Cameras, film, photo equipment. All other - Uo single item of which comprising more than 2$ of the total for either Com-bination Carriers or Slick Slick Airways 195D. 26.2 16.9 14.2 9.1 3.6 6.2 23.8 100.01 Major Airlines 1951. 28.8 12.1 14.3 9.3 9.2 4.9 3.5 3.4 3.1 2.9 8.5 100.0$ From Staff Study, Domestic Air Cargo Forecast, U.S. Civil Aeronautics Authority, W&Bhington, 1952. Their source: U.S. Civil Aernnautics Soard, Docket 1705 et a l . Slick Airways, Incorporated, Annual Report, 1950. Preliminary Survey on Air Cargo Volume, Air Cargo Task Committee-Subcommittee Ho. 4, national Secur-ity Industrial Association. - 122 -Table 7 Top Ten Commodities Carried in T.C.I. Aircargo Korth American Division Percent. During 1952 lbs. of total. 1. Textiles 1,802,147 17.3 2. Flowers and plants 1,549,717 14.9 3. newspapers and magazines 631,434 6.0 4. Wearing apparel 536,790 5.2 5. Industiial and manufacturing machinery and parts. 532,763 5.1 6. Aircraft parts 469,333 4.5 7. Surface vehicles and parts, including motor cars, trucks, bicycles, baby carriages, etc. 452,302 4.4 8. Furs, raw, unmanufactured. 440,443 4.2 9. Electrical equipement/parts 359,893 3.5 10. Hardware 328,257 3.2 Total 7,103,059 68.3$ lote: Total lorth American poundage for 1952: 10,394,178 lbs. Source: Trans-Canada Air Dines Air Cargo Department. - 123 Table 8 The Average Return Per freight Ton Mile for T.C.A. and U.S. Domestic lines Carrier Average Return (1) T.C.A. (12 months ended 30/12/52) 32.6/ (2) American Airlines 21.07/ (3) United Airlines 20.44/ (4) T.W.A. 20.75/ (5) Eastern 19.48/ (6) lorthwest 29 .98/ (7) Colonial 36.30/ (8) Slick 15.14/ (9) Plying Tigers 16.14/ lote: U.S. data for 12 months ended Si/9/52. Source: U.S. Data from C.A.B. Recurrent Reports. (10) T.C.A. (planned yield for new rates) 19.8/ (applied for December, 1952;) to (finally approved by A.T.B .) 20.8/ (following Cabinet decision ) (re CP.A. in lovember ,1953.) These rates were derived from a base of 24/ per ton-mile for 100 mile distances, decreasing to 19.4/ at 2500 miles, then horizontal to 3100 miles. At that point a ceiling charge of #29.50 was established, yielding a possible minimum return of 14.9/ per ton-mile for cargo hauled. Source: T.C.A. Rates and Tariffs Department. (11) CP.A. - average returns not obtainable, but the following point-to-point rates from their tariffs show the company approach to air cargo. HP consistent structure is evidence!, rates varying from 26/ to #1.33 per ton-mile at the 100 pound level. CP.A. has, of course, a monopoly on most of its routes. Calgary-Cranbrook 57.8/(per ton-mile atlhe) Penticton 52.9/ (100 pound level .) Yancouver-Eamloops 43.1/ Port Hardy 47.7/ Edmonton-Peace River 65.2/ Hay River 52.3/ Yellowknife 4?.2/ Montreal-Quebec 48.3/ Seven Islands 48.4/ Souree: Above rates from tariffs in effect 4th December, 1952, as furnished by Camdian Pacific. - 124 -Table 9 Comparison of Cargo Ton-Miles as Performed by U.S. Carrier Croups (12 months ended June 50th, 1952) Trunk lines Local service carriers All-cargo carriers Total Souroe: Cargo Ton Miles 104,507,000 1,010,000 86,325,000 191,842,000 Per Cent, of Total 100$ C.A.B. Recurrent report of mileage and traffic data. Table 10. Relative Use of Composite and All-Cargo Aircraft by the Domestic U.S. Sched-uled Airlines in Cargo Work. (1) (2) (3) U) (5) American T.W.A. U.A.L. B.A.L. . I.W.A. Source: Per Cent, of Total* Ton Miles Performed 37$ 13$ 23$ 6$ 3$ Per Cent. Performed by Composite Aircraft. 70$ 58$ 100$ 98$ Air Transport Association of America; Comparative Statement of Flight and Traffic Statistics for 9 months ending September 30th, 1952, thus presumably the latest data available to the Board. *The percentages in this column relate to the total miles performed by the scheduled passenger carriers only . - 125 -Table 11. Year 1947 1948 1949 1950 1951 1952 1954 Year 1947 1948 1949 1950 1951 1952 T.C.A.Ts Average Return Per Air Cargo Ton-Mile Airoargo Toa-Miles A lie ar go Revenue Return per 55,879 701,387 1,049,784 2,083,998 2,377,260 3,519,370 26,695.28 221,537.90 352,090.78 • 730,393.82 811,140.81 1,135,322.98 Ton#Mile 47.8/ 31.6/ 33.5/ 35.0/ 34.1/ 32.3/ lew rates as finally approved by tbe Board fallowing Cabinet decision re O.P.A. application planned to yield between 19.8 and 20.8/per ton-mile average . TQO.A . 'S Average Return Per Express Ton-Mile Express Ton-Miles Express Revenue Return per Ton rn p< 543,307 708,151 884,112 998,479 1,1749096 1,398,508 420,948.39 537,755.97 648,982.11 738,397.97 869,997.77 1,048,876.00 77.5/ 75.9/ 73.4/ 73.9/ 74.1/ 75.0/ Source? T.C.A. Statistics for lorth American Services, 1947 to 1952. Table 12. Equipment Data. Aircraft Type C-46 DG-4 DC-6A 1049B Payload-(Tons) 6.25 10,50 14.20 19.3 Block Speed 180'MPH 200 MPH 285 MPH 305 MPH Ton-Miles Per Day * 9,000 16,800 32,376 47,096 lo. Required to Equal One 1049B 5.23 2.80 1.45 1.00 *Ton«miles per day of 8 hours utilization. (-M DC-61 is type of aircraft purchased by C.P.A. for use on its proposed Montreal-Vancouver cargo run. (2) IiOckheed 1049B is type of aireraft now being delivered to T.C.A. (8 units) for passenger use with ultimate employment as cargo carrier thus illustrated. (3) Source: Lockheed Aircraft Corp., Air Cargo Trends, ; issued September, 1952. - 126 -Table 12/a) TJ.S. Airline Revenue Data (12 months ending September 30th, 1953) (1) American Airlines: Revenues f204,9 88,000 Operating Profit 29,078,000 MT PROFIT 13,739,000 (2) United Airlines: Revenues - 166,933,000 Operating Profit 21,065,000 BET PROFIT 10,445,000 (3) Trans World Airlines: Revenues 185,076,000 Operating Profit 16,158,000 EST PROFIT 7,144,000 (4) Eastern Airlines: Revenues 141,481,000 Operating Profit 20,733,000 SET PROFIT 9,820,000 (5) Sorthwest Airlines: Revenues 61,736,000 Operating Profit 4,473,000 SET PROFIT 2,681,000 (6) Pan American Airlines: Revenues 206 ,475,000 Operating Profit 17,950,000 SET PROFIT 10,816,000 Source: Carriers' Form 41 reported to C.A.B. as quoted in AYIATIOS WEEK, December 28th, 1953, McGraw-Hill, lew York.-p. 53 Table l£Tb) 1952 Passenger Revenues Ten leading Airlines and Railroads (1) AMERICAS AIRII1BS $158,000,000 (2) Pennsylvania Railroad 156,000,000 (3) tniTED AIR IIHES 126,000,000 (4) Hew York Central 124,000,000 (5) EASTER! AIR HIES 105,000,000 (6) TRASS YfORLD AIR1ISES ' 100,000,000 (7) S&nta Fe Railroad 58,000,000 (8) Southern Pacific Railroad 53,000,000 (9) Sew Haven Railroad 52,000,000 (10) Long Island Railroad 37,000,000 Source: Robert H. Wood, editorial, Dollars Take to the Air, AVIATION WEEK, July 20,1953 page 90. Chapter 711 Railway Express in Canada and the TJ.S,A. It will he recalled that the submissions of C.P.A.L. and of the Douglas Company, and the final submission of the Air Transport Board to the Cabinet, al l assumed without question that railway express statistics for the United States and Canada were strictly comparable. The applicant, Canadian Pacific, as noted on page 37 of this thesis, derived a forecasted potential for the proposed Montreal-Vancouver service by first establishing that current TJ.S. aire ar go tonnage amounted to a total equal to 15$ of the annual U.S. ra i l express tonnage. Then, by simply taking 15$ of the known annual Canadian r a i l express tanage, an estimated yearly tonnage for their air service of 4,093 tons was derived. At page 15 of Exhibit 18, the Douglas Company set out a comparison of Canadian and U.S. r a i l express ship-ments, showing that Canadians^avail themselves of such service on an average of 3.2 times per capita annually, against only 0.5 per capita usage in the U.S. "Comparison of per capita railway express shipments and transportation charges between Canada and the United States is ample evidence that Canadian merchants already recognize the advantages of swift transport in shrinking long supply lines. . . . " (l) As noted on page 87 of this thesis, fl) Exhibit 18, Appendix III, page 15. - 128 -the Board ^accepted this concept without comment, reporting the figures and argument to the Cabinet in f u l l detail. The evidence presented at the hearing hy Mr. Martin, General Manager of Canadian national Express, rized as summa*e4Aon pages 68 and 69 of this report, con-stitutes a preamble to the contentions set out in this chapter. As with Mr. Martin's evidence, the subject matter naturally divides into two phases. The first is to do with r a i l express service generally in the two countries; the second, to do with the movement of particular commodities such as fish and other food products. Space is devoted to the latter commodity movements inasmuch as C.P.A. placed such emphasis on this type traffic during the course of its submission to the Board, Hail Express in Canada and the United States Railway express in the United States ia handled by a single agency, independently incorporated, but with its shares wholly owned on a Joint basis by al l U.S. railroads. This express firm, Eailway Express Agency, Inc. was formed in 1919 through the amalgamation of the remaining four of an original multitude of operators the who had entered the field sineeAtraffie type's conception in 1839. Eailway express in Canada is handled by the two transcontinental railway systems independently, the one from the other. With the Canadian lational, an express - 129 -department incurs expenses and receives revenues in the name of the parent company, yielding a profit or loss evidenced in the revenue statement for oper-ations of the railway. With the Canadian Pacific, a separately incorporated subsidiary wholly owned hy the parent corporation, carries on the express busi-ness. This Canadian Pacific Spress Company: .....owns over 23,000 shares of the common stock of its parent. It receives dividend^ on these holdings like any other shareholder. It gets rent from the tenants of the build-ings which it owns. It even collects rent from the Canadian Pacific when its parent occupies space in a building owned by the Express Company and it does this notwith-standing that it is not charged rent on the space used by Express in railway-owned build-ings. (2) With neither the CIT. nor the CP. is provision made for true allocation of costs relative to the handling of express traffic. It is generally con-ceded that, as for passenger haulage, the express business is a necessary, but non-paying, phase of Canadian railway service. The same can be said for the operations of the Eailway ipress Agency in the United States, as evidenced by the following comment: That there is a railway passenger deficit is unquestioned; the difference of opinion relates to its size. Application of the I.C.C formula^for determination of direct and fully allocated costs for railway pass-enger operations in 1951 yields a deficit (2) Dr. A.W. Currie, Canadian Transportation, currently in process of publication, quote from page 2 of Express Chapter. - 130 -of 681 million dollars. This deficit is largely accumulated from head end business and unprofitable local and branch lines. (3) In round figures, the data substantiating the foregoing statement are set out below. It should be noted that no allowance has been made for investment chages. Had this been done, an I.0.0. footnote states that the 1951 loss would have exceeded one b i l l i o n dollars on the basis of their computations. (4) Table 13. 19*51 Distribution of Passenger Deficit Among Types of Passenger Train Traffic Based on Total Operating Expenses and Taxes. Passenger Revenues, (millions) Passenger Operating Expenses. Passen-ger Deficit Distribu-t i on of Deficit Head end traf f i c Mall EXPRESS Baggage* #335 84 12 $339 232 ~7T # 4 148 ~62~ .6$ 21. 8% 9.1$ $ 431 # 645 #214 31.5$ Passenger Carriage » $1018 $1484 #466 68.5$ #1449 *Baggage includes milk. #2129 #680 100.0$ By their own calculations, the TJ.S. railroads estimated their 1950 loss on express business at 96 million dollars, without allowance for return on investment in operating f a c i l i t i e s . Even allowing for the substantial rate i n -creases granted in 1951, these railways contend that the future express deficits w i l l range from 13 to 30 millions (4) I.E. Sill&ox, address, Wheels or Wings, presented at Salzberg Transport Conference, Syracuse Univer-sity, April 29, 1953; page 25. ((5) loc. c i t . - 131-annually.(6) *e*Mr. Martin, General Manager of Canadian national Express, contended in Ms testimony at the air freight hearing, (page 68) , Canadian shippers receive faster service at lower rates in this country than do their counterparts in the United States. Canadian express "business is in a healthy and growing state; American express business is relatively decadent and steadily declining in volume handled. The basic reasons for this variance l i e in the respective policies involved. In the United States, express rates cannot be less than without I.C.C. approval, twice the first class r a i l rates, ^  In Canada, many express rates are less than actual r a i l freight rates. In Canada it is a matter of government authorized policy for the rails to use r a i l express in their competition with truck carriage and parcel post services. United States law precludes such competitive rate cutting. The comparative figures to do with r a i l express quoted by Douglas, C.P.A. and the Board to the Cabinet are thus inflated insofar as Canada is concerned by the carriage of what amounts to freight at freight rates, but under the classification of express. there is Further, in the Canadian westtfKextensive haulage of l . c . l . freight in passenger trains where traffic does not justify operation of way freight trains. For the C.P.R. this traffic is called express, for the C J . L , (6) loc. cit. - 132 -freight. The decline in express volume handled in the U.S. is clearly evldenoed hy the following table: (7) Table 14. Eailway Express Agency Efficiency and Oost Statistics. Year. 1951 1950 1949 1948 1947 1946 1945 1944 1943 1942 1941 1940 1939 no. of Ho. of Shipment s Shipments. Hrs. Worked per man (Millions) (Millions) hour. 82.0 91.0 .91 91.4 99.3 .92 109.7 119.5 .92 145.8 148.7 .98 193.1 168.4 1.15 234.7 185.9 1.26 209.2 175.7 1.19 200.3 161.6 1.24 179.2 140.5 1.28 165.0 114.3 1.44 172.6 109.6 1.57 160.8 104.0 1.55 148.9 99.3 1.50 Shipments handled have thus dropped from 161 mil-lion in 1940 to 82 million in 1951, aside from the war time peaks in excess of the 1940 figure. During the same period, the number of shipments handled per man hour have fallen from 1.5 to less than 1, with the average labour cost per shipment having risen from 52/ to $1.99. Where in Canada, r a i l express is a dynamic part of the transportation industry, in the U.S. it is steadily being relegated towards ultimate disuse. The U.S. roads freight have steadily improved their^services to the point (7) Ibid. , page 20. - 133 -where express service is virtually duplicated. As opposed to the CaraLian plan, the Americans have used l . c . l . as their competitive weapon in dealing with the highway carriers. In Canada, as previously noted, we have what are specifically termed, "truck competi-tive" express rates. Either plan achieves the same objective. However, in so doing the Canadian express volume figures are obviously inflated, rendering the Air Transport Board's submission to the Cabinet in somewhat this regard £otally^misleading. As to the comparative speed of service rendered in the r a i l express businesses of Canada and the United States, the following table is set out: Table 15. Comparison Canada-United States Rail Express Service for Selected Distances. Miles Canada* U.S.A.e 250 1st mrning 1st morning 500 1st afternoon 2nd morning 1000 2nd morning 2nd or 3rd morn. 1500 2nd afternoon 3rd or 4th " 2000 3rd morning 4th or 5th " 3000 4th morning 6th or 7th " *Railway schedules plus attestation of management personnel. •From Air Cargo Trends, 1951, Lockheed Aircraft Corp. and C.A.A. Domestic Air Cargo Forecastl952; see Bibliography. The shipper of rail express in Canada thus gets much faster delivery for the longer hauls, plus considerably lower per mile charges as evidenced by the table set out on the following page. - 134 -Table 16. Comparison 1st Class Bail Express Rates at 100 lb. Level - United States and Canada. Miles Canada United A B C States 250 #2.15 2.50 2.85 4.12 500 3.50 4.20 4.85 5.69 1000 6.20 7.55 8.90 8.11 1500 7.85 9.90 11.90 10,53 2000 8.90 11.60 14.00 12.95 2500 - - 14.00 15.37 BPte: The U.S. t a r i f f maximizes at $20.45 for 3900 miles. Zone A - East of Windsor, Sudbury],: Hornepayne. Zone B - West of Sudbury, Hornepayne to Canmore, Edson, and between A and B. Zone C - West of Canmore, Edson and between A or B and C. ($14.00 is Canadian maximum.) Source: U.S. and Canadian Railway Express Tariffs. Thus, in the United States, r a i l express i s both slower and more expensive than comparable service in Canada. The taolt ^ facing Air cargo penetration of r a i l express t r a f f i c in Canada ao oppoood to tho Unitod Otatos i s , therefore, just that much more d i f f i c u l t to accomplish 4e-v Air cargo rates in the U.S. are closer to parity with r a i l express levies; are actually lower in some instances. Assuming a 20/ per ton mile rate for air cargo for both countries, the following tabulation results: Table 17 Rate/100 lbs. Rail Ex. Air Cargo Rate Montreal to Winnipeg $2.70 $13.30 Edmonton 12.30 20.93 Vancouver 14.00 25.64 lew York to Washington 4.12 2.15 Chicago 7.63 7.24 Dallas 11.50 13,78 Los Angeles 17.36 24.60 Hote: See next page for notes and source. - 155 -The air rates quoted on the previous pege in Table 17 are for airport to airport, and are based upon mileages contained in T.C.A, Official Distance Table A.T.B. Ho. 9 and C.A.B. Mileage Book Ho. 1. Pick-up and delivery at each end averages 40/ per hundred pounds, with a minimum charge of 85/ per shipment. Admittedly, the Canadian r a i l expess business has suffered from truck competition, but only to a fraction of the extent trucks have diverted r a i l ex-press tra f f i c in the U.S. The number of Class I interstate highway truck organizations in the United States stood at 2,361 in 1953, representing those with more than #200,000 gross operating revenues annually. (8) These carriers reported average revenues for 1952 of 5.572 cents per ton-mile, against 1.43 cents per ton-mile for the Glass I railxads. However, the latter figure is for freight while the former amounts to a traffic comparable to express. (9) Por Oanada, no such drain to independent truck carriers has taken plaee, The Zone A truck competitive rates have made possible continued successful r a i l express haulage in the Windsor-Toronto-Montreal section. In the western provinces, considerable trucking is either owned or controlled by the railways. In consequence, a co-ordinated rail-highway program is facilitated in a (8) Competitive Transportation Review, December 1953, page 10. (9) Ibid, page 6. - 136 -manner not possible in the united States. For example, O.K. Freight lines operating between Van-couver and Penticton over the Hope-Princeton high-way is the Trolly owned subsidiary of the C.P.P,., as is Dench of Canada, whose common carriage truck network covers the Province of Alberta. As the Douglas Exhibit 18 stated, per capita railway express shipments for Canada amount to 3.2 annually, against 0.5 for the United States. The Air Transport Board, as quoted on page 87 of this report, advised the Cabinet that this fact was "strong evidence of a substantial Canadian potential for the development of scheduled all-cargo air services . . . " (10) However, as outlined in the preceding pages, the variation in per capita ship-ments is readily understandable. Aside from more intensive penetration by highway carriers, the U.S. r a i l express business is both slower and more expen-sive from the standpoint of the shipping public than is the case in Canada. Douglas, C.P.A. and the Air Transport Board simply were not comparing like with like. Hature of Expected Diversion from Rail Express to Air Cargo As noted on page 135, goods are carried by U.S. ton interstate trucks at 5.6/ per^mile and by rail freight (10) Board Report to the Cabinet, page 2, see App.III. - 137 -at 1,4/ per ton-mile. At 20/ per ton-mile, the basic T.C.A. air cargo rate at the present time and approxi-mately that proposed by the C.P.A. application, the industry offers no competitive threat to r a i l , highway or water traffic. The prime field for penetration lies in r a i l express traffic, and then in only the 100 pounds and over level for goods shipments originat-ing in clffiee proximity to the air terminal. In this regard T.C.A. experience has been that only 8$ of air express shipments come from off airline points, and only 4$ are destined to off airline points, (11) Yet rail the Douglas survey includes allAexpress originating air within a one hundred mile radius of each terminal as IS pdbentlal air cargo. As to the extent of traffic moving at the 100 pound level and above via r a i l express, the following table is included: Table 18 Extracts from Analysis of Canadian national Express less Than Carload Rail Express Traffic, Sample for May 16,193. % of $ of Average Average Average Total Total Wt. per Revenue Revenue (lbs) I.C.L. I.C.L. Shipment per per 100 Weight Shipments Weight (lbs) Shipment pounds 1 -SB* Wo 0 $ -TJi # 753 #11.25 1-25 23$ 9.0$ 14.5 .83 5.75 25-100 14$ 18.0$ 47.0$ 1.80 3.82 100 plus 4.3$ 14.0$ 118.16 4.59 3.88 *Pareel post competitive rates for r a i l express. All other rates for first class r a i l express. (12) (11) O.B. Tompkins, Plight Operations Planning Dept., T.C, (12) Canadian national Express Dept., B&is May 16, 1951. - 138 -from the foregoing table i t will he seen that Canadian r a i l express is essentially package t r a f f i c that moves hut short distances. With the average revenue per shipment less than $2.00 for a l l save the 100 pounds and over category, no large volume diversion can he expected to air cargo in other than that top weight level, The actual volume now moving by r a i l express in that weight level is indicated by the following tabulation: Table 19. C.N.P.. Point to Point f i r s t Class L.C.I. Traffic: Oct.16,1952. Over 100 lbs. Montreal to Edmonton 2110 Montreal to Vancouver 2196 Toronto to Edmonton 3696 Toronto to Vancouver 1847 9849 Sour Of?: Canadian National -Railways : Express Dept. A l l concerned concede that westbound loads w i l l be the heaviest as evidenced by U.S. air cargo experience and Canadian transportation experience generally. Thus, assuming equal t r a f f i c on the part of the Canadian Pacific Railway, a daily potential is available for possible diversion to air of 20,000 pounds at the most, a 66 2/3$ load for a DC-6A. Yet Canadian Pacific Air Lines seriously contended they would carry 80$ loads between Toronto and Vancouver. Of course, CP.A, con-tended they would also develop new business other than - 139 -that now moving by r a i l express. However, had they managed to do so their achievement would have been unique on this continent, inasmuch as no appreciable quantity of air cargo has been generated in the U.S. other than what has been diverted from f i r s t class r a i l express. This fact has already been enlarged upon in Chapter VI, dealing with Air Cargo Develop-ment in the U.S.A. Movement of Perishables by Air Cargo Canadian Pacific Air Lines contended that mueh of their traffic would comprise fresh fruit and vege-tables from B.C. to the north and east, plus quantities of lakefish from The Pas to Toronto and Montreal. The Board passed these contentions along to the Cabinet without c r i t i c a l comment, apparently accepting their validity. At page 1319 of the o f f i c i a l transcript, Mr. Brais, the C.P.A. counsel stated: Any loss through not going through Winnipeg is fully made up by the fish eastbound. This fish business, Mr. Chairman, laughed at at the inception, has been fully and amply proven beyond a l l my own expectations • » • » The demam for fresh fish products is insatiable. fresh f i s h from The Pas has practically unlimited possibilities. The projection would indicate 3,200,000 pounds every year . . . . Yet a l l evidence pointed to the total unsoundness of the proposition. Mr. O'Donnell had queried the C.P.A. contention in his summation with the following quotation: - 140 -The transport of fishery products by air is not of great commercial significance and is not likely to become so for some time, numerous parcels of fishery prod-ucts' of a specialty nature such as live lobsters have been and are being carried by air but they do not coiefcitute an important portion of the volume shipped and therefore are regarded as experiments. It is probably needless to observe that cost is the main inhibiting factor to great expansion of air cargo tra f f i c . . . airborne f i s h cannot compete on a price basis with that hauled by surface carriers. (13) During the four years preceding the O.P.A. Air freight Application, T.C.A. had gone to great pains to develop f i s h and lobster t r a f f i c , without permanent avail. At one time T.C.A. carried 20 to 25,000 lbs. per month of fishery products between Yarmouth and Boston. This movement dried up because of lower cost trucking services. Stenuous efforts were made to develop fish t r a f f i c - salmon and halibut - from the Pacific Coast, Prioe resistance precluded sxiccesss in spite of the fact that air cargo rates based on 22/ per-ton mile were f i l e d . The Department of fisheries at Ottawa further advises that: . . . fresh lake f i s h is eaten by an in-come group in Toronto and Montreal which could not absorb air oosts. . . this holds for most groups consuming fish of either sea or lake origin . . , fish is consumed primarily by certain ethnic groups of con-sumers, primarily those of•Jewish origin although there are a large number of con-sumers among the Chinese, Italians and other Europeans. . . (14) (13) A.T.B. Air freight Transcript, 1953, p. 1449. (14) J.jr.lewis, Chief Markets Branch, letter to author, feb. 15, 1954. - 141 -set Inasmuch as C.P.A. haoed^so great a store on fish traffio out The Pas, the following extracts from a Transport Commissioners of Canada judgment make illuminating reading. The judgment concerned was handed down on June 15, 1951 and was to do with the protests raised hy the fishing Interests in the prairie provinces over the proposed rate rise for the r a i l express companies. The Companies contended that: (1) . . . in the early history of the Domin-ion Express Company the express tra f f i c was almost entirely westbound, and in order to provide some traf f i c for what otherwise would he returning empty ears . . . the Company established very low rates on fish from Vancouver, lake Winnipeg, lake of the Woods and lake Superior to Eastern Canada, and with the exception of the general increase of 20$ for the year 1921, the rates were s t i l l in effect in Western Canada. (2 ) . . . the cost of providing service had Increased to a very considerable degree and a study of the entire tr a f f i c structure as relating to the movement of f i s h under present day conditions . . . clearly indicated the need for an almost complete revision of the rates . . . . (15) In addition to the protests of the fishery com-panies, there was also read into the record a submission from the Government of Saskatchewan in which i t was contended that fis h from that province was meeting great difficulty in competing in the lew York, Chicago and Delrolt markets. It was further contended that no rate increase could be absorbed; subsidization would be the only recourse i f the industry were to be maintained. (15) B.T.C. Judgment, 15 June 1951, Pile 45757, p.115. - 142 -The Board of Transport Commissioners agreed with the stand taken hy the railways and ruled that the proposed increase in rates should stand. They thus concurred with the railway contention that fish, being a highly perishable product, requires special treatment, involving careful and expeditious handling as compared with the handling of other goods shipped by express, necessitating such extra costs as clean-ing express cars and premises plus allocating special cars to the traffic. Yet C.P.A. proposed to haul fresh fish in quantity from The Pas to Toronto and Montreal at rates of $14.75 per 100 pounds to the former, and $15.20 to the latter. In view of the fact that I.C.I, rate on r a i l express is $5.25 per 100 pounds to the one and $5.50 to the other for refrigerated fish carriage, it is difficult to comprehend C.P.A.1 s contentions as being serious. The carload express rate to Toronto via r a i l express is f3.75 per 100 pounds from Winnipeg, and to Montreal, $4.00. The C.P.A. fish would be admittedly more fresh. However, ^he Department of Fisheries states that those in the fresh fish market in Toronto and Montreal cannot absorb the added air costs. They state this without qualifi-cation. Yet the Air Transport Board advised the Cabinet of C.P.A.'s fish haulage plans without critical comment on the part of the Board membership. - 143 -As for the diversion of fresh fruits and vegetables from r a i l express t r a f f i c , hope of -a oh^oA^o^|1^ofb the load forecasted by CPsA. G.P.A. contentionaAis equally remote as for fish haulage. What small amount of such tr a f f i c as exists in the U.S. coisbitutes the handling of produce peculiar to a given region.x for example, oranges are flown from California or Florida to lew York and Chicago. It is unrealistic to suggest that similar t r a f f i c potential exists in Canada. Inasmuch as Ontario and Quebec pro-duce a l l of the fruit and vegetable items suggested by C.P.A. for transfer by air from B.C., such t r a f f i c as does move w i l l be s t r i c t l y of the "beat the market" variety. In this regard, the Department of Agriculture advises that: . , . caution as to the development of agricultural east-west air freight beyond daffodils and such would appear warranted. B.C. produce for distribution east comes mainly from the Okanagan and to some extent from the Fraser Valley. Early products from the latter are potatoes and berries . . . Inasmuch as the margin of earliness over Ontario might be a week at most, the scope Mr air freight is very limited. . . Okanagan produce actually moves to Ontario and Quebee. Crops are mainly apples, pears and cherries, which are not much earlier in B.C. than Ontario. B.C. early apples are anything but showy, and the main crop which does flow east is well handled in r a i l ser-vice. The C.P.A. submission in the air freight case a year ago was that they really intended to s e l l their service, and that they expected - 144 -to show that the kinds of commodities already moving might he an inadequate guide to the true potential. While i t is always possible that such optimism might be borne out, i t s t i l l most be remembered that r a i l freight delivers most produce transcontinentally in good condition and distinctly more cheaply than would air service. (16) The following table is included to further i l l u s -trate the independence of the various sections of our having it s country, each^ tfc-efcr own fruit and vegete,ble resources. Table 20 Table Showing Comparative Ontario-Quebec vs. B.O. Output . i960. A l l of Canada Ontario-Quebec B.C. (1) Vegetables 22.0 17.0 2.5 (millions of) (dollars. ) (2) Apples 5.5 3.0 1.25 (millions of) (trees. ) (3) Small fruits ^ 11.0 7.0 3.33 (millions of) (dollars. ) (4) Strawberries 16.0 9.75 4.0 (thousands ) (of acres. ) Source: Precise figures set out on pages land 2 of Agriculture Bulletin 6-6, D.B.S., 17-12-52. The most extensive studies in relation to the a i r movement of fresh fruits and vegetables have been con-ducted by the Wayne University School of Business Admin-istration. In perusing these published studies, how-ever i t is noted that rates of 5 to 6/ per ton-mile are assumed prior to any extensive penetration of r a i l ex-(16) B.P. Eeid, Principal Economist, Dept. of Agri-culture, Ottawa, letter to author,"22 Jan. 1954. - 144(a) -Douglas DC-6A All-Cargo Aircraft Further Illustrating Loading Problems Yielded by Cabin Floor 100 inches or more above ground level. , - 145 traffic in these commodities. Such rates are well "below the direct operating costs per ton-mile for either the lorth Star of the D0-6A and hence negate the possibility of such traffic being generated in the immediate future. Such traffic must await the arrival of a truly freight aircraft. Despite C.P.A.'s contentions regarding its Douglas freighters, the following statement i s totally true: . . . these aircraft are not cargo air-craft but converted passenger planes. . . . the DC-6A is merely a DC-6 with a few concessions made to cargo, but s t i l l retains the round hull and s t i l l poses a considerable problem by having the cargo doors 100 or more inches from the ground. (17) Despite a l l the efforts made, with reduced back-haulauge rates and surveys and promotion campaigns, no appreciable t r a f f i c in perishables of an edible nature has been generated in the United States. With an available express service from the C.l.R. and C.P.R. far superior to that existing in the U.S. i t is con-sidered that the likelihood of stimulating such business for air cargo in Canada is even more remote. (17) R.P. Reese, Regional Cargo Sales Manager, Phillipine Air lines, letter to author, 19/l/54. Chapter VIII The Gruneau Research. Limited larvey conducted f o r O.P.iL On pages 50 to 52 inclusive of this thesis the Gruneau Survey has been summarizes, as i t was presented in evidence, with appraisal deferred for treatment in this present chapter. The f u l l suvey report as pre-pared by the Gruneau firm is to be found in Appendix III, Exhibits 21 and 21A, comprising 82 pages of data and conclusions. The study was intended to evaluate the attitudes of regular shippers and receivers in each of the centres on the proposed C.P.A. route, excluding The Pas. Inasmuch as express shippers constitute the basic pool of potential air cargo users, it was decided to restrict the survey to express-using firms The Canadian Pacific Express Company made available to the Gruneau firm its waybill analysis for May 16th 1951, yielding firm names, origins and destinations for the express shipments involved. The May 16th data we© used to plan the survey, while the actual sample used was drawn at random from the September 19th, 1952 waybill analysis. The f i e l d work was con-ducted by trained and experienced f i e l d representa-tives of Gruneau Research Limited under the personal direction of the analyst in charge of the study. - 147 -One thousand two hundred and thirty contacts were attempted, with one thousand completed personal interviews resulting. The questionnaire employed was composed of ten multiple choice queries, a general fi n a l request for suggestions as to the usage of the proposed service, with a statement of schedule and rates supplied for review hy the executive questioned. The rates section included a comparative "breakdown for each route segment such as illustrated below: (1) Table 21 Between: TOROHTO and BPMOITOIT YMCOTJYER Over "Under Over Under IOO 100 100 100 lbs. lbs. lbs. lbs. 100 lbs. lb. 100 lbs. lb. $20.35 23/ #25.05 30/ 23.80 27 30.10 34 11.90 *12.5 14.00 *15 72.00 °72 92.00 °92 •Proposed Air Cargo (City centre to City centre) Present Air Cargo (Airport to airport) Rail Express Air Express (TCA) *Rate per pound - 50 pound shipments. °Rate per pound - for shipments over 25 lbs, and under 100. It will be noted that the only rates specifically credited to Trans-Canada Air lines are those for the r e l -atively expensive air express. Ho mention is made, of course, of the revised rate structure f i l e d by T.C.A. prior (1) Exhibit 21A, Appendix III, page 67. - 148 -to the commencement of the survey interviewing, and which offered rates further reduced to those proposed by C.P.A. In this regard Mr. O'Donnell commented in summation: Who would not say in the light of that kind of submission that he would not like some-thing cheaper? . . . i f the T.C.A. rates had been put to the people who answered this way for Gruneau, they would have answered much more quiekly that they preferred the lower rates which T.C.A. proposed. (2) The ten multiple choice questions were most general in nature, the central theme being embodied in question (8): "Would suoh an Air Cargo Service help you in any way with delivery problems in your partic-ular business?" (3) Ho firm commitments as to usage of the proposed service were requested. In essence, those interviewed were being asked i f they had any objections to C.P.A. inaugurating i t s Montreal to Vancouver air freight service. As Mr. Wells summated: I am unable to accept the Gruneau report as having any validity. . . . We would a l l like to have limousines, yachts and a butler, but the question comes up, do we need them, and i f we do, can we afford them? . . . To my mind I find i t d i f f i c u l t to understand that, with as complete and extensive and care-f u l a review as this one was, and with the time and money that there was put and spent into the Gruneau report, at no point did they ever say to these people finally: If you have an air cargo service at these rates, how many pounds are you going-to put aboard? (4) Under the circumstances, i t is surprising that only 68$ answered Question 8 in the affirmative. Even that (2) H. O'Donnell, A.T.B. Transcript, page 1438. (3) Exhibit 21A, Appendix III, page 67. (4) J.E. Wells, A.T.B. Transcript, page 1347 - 149 -68$ is based upon an adjusted base. As noted at the outset, 1000 interviews were completed after 1230 t r i e s . At various points in the survey this i n i t i a l base of 1000 is altered to suit the question involved. In the case of question 8, only those firms shipping via r a i l express once per month or ofterher were included, yielding a base total of only 779. A total of nine different such bases were used in the report summation, ranging from the i n i t i a l 1,000 down to a low of 473, the latter including only those now shipping by air. At one point, 79 respondents are delated from consider-ation inasmuch as they could not make up their minds on a given point. As regards Question 8, only 53$ of the total number actually interviewed said the service would help. Aside from departing from valid s t a t i s t i c -al practice, the continual changing of the base yields a report lacking in clarity. As to whether or not the sample was random is open to question inasmuch as interviews were confined to C.P.E. customers, with one third of the interviews being conducted in the Vancouver area, home of C.P.A. In reply to a query in this regard, Mr. Gruneau states Your categorical statement that respondents in Vancouver were prejudiced in favor of C. P.A. because their head office is in Van-couver is entirely unfounded and represents only your personal opinion without reference to the data in the report. The results show greater 'in favor' percentages for the Van-couver area. However, they also show that ** - 150 -respondents in the Vancouver are already treat er users of air transportation in erms of hoth number and frequency of shipments than respondents in other areas, they show that shippers of perishable prod-uots, r e t a i l , agency and wholesale opera-tions and small firms are more 'in favor" of air-express.,.f5) Granted, they are in favour of such a servioe, but whether or not they would supply adequate loads to justify i t s operation is the basic question. If the survey indicated that Vancouver shippers provide the major volume of air cargo and a i r express ship-ments in Canada, either out or inbound, then it is quite i n error as evidenced by the flow chart included in Chapter IV, Part I I , of this report. As for potential, there i s not sufficient r a i l express in the f i r s t class, 100 lbs. and over category, moving in either direction between Vancouver and Edmonton to even approximate the forecasted daily DC-6A load factors Set out by C.P.A. in i t s submission, even assum-ing that every pound was diverted to a i r transfer, a totally unlikely possibility in view of the rate differ-ential involved. As to the suggestion that the questions and inter-viewing methods were slanted in C.P.A.'s favour, Mr. Gruneau stated: Whether or not the results of the study would be favorable to C.P.A. was not a factor In determining either the sampling or the tabu-lation methods. Our directions from Canadian (5) V.C. Gruneau, Gruneau Research Ltd., letter to author, (5 pages), 20 Jan. 1954, page 3. - 151 -Pacific Airlines specified that the work was to be done in an unbiased manner. Had they been otherwise, we would not have accepted the assignment. (6) Further in this regard, Mr. Brais made the state-ments, subsequently somewhat modified when challenged; I . . . ask the Board to bear in mind that i t (the survey) was applied to a cold market. Hobody at the time had been apprised in any manner . . . !Fhere was no advertising, no propaganda, and no communications to any of these people to t e l l them that a company such as Canadian Pacific Air Lines . . . was planning to develop an air cargo l i n e . (7) It should be noted, of course, that the Canadian Pacific Air Freight Application had been prominently in the news since its announcement on November 10th, 195E. The interviewing for the Gruneau survey com-menced December S8th, 1952 and was completed January 17th, 1953. In addition, the Boards of Trade had been invited by the Board and by C.P.A. to make representa-tions to do with the proposed service at the hsaring. Further, as evidenced by page 65 of Exhibit 21A, the rate and schedule sheet handed to each correspondent by the Gruneau f i e l d workers was headed with the cap-tion: "CANADIAN PACIFIC AIELIHES, LIMITED. PROPOSED AIR CARGO SERVICE." It could hardly have been correctly termed a "cold market." In essence, whether intention-ally or not, the Gruneau report,constituted a product of promotional market research whose findings simply (6) Ibid., page 1. (7) Refer to page 52 of this report for further details and source. - 152 -aided in the f i l l i n g out of a sales package under the guise of economics. As Mr. O'Donnell concluded: Gruneau was given a set of questions, according to the instructions, and they were to discuss them . . . I submit that it is not a reliable guide. It is not valid at a l l . The questions were slanted. It is a l l hearsay. (8) However, the Air Transport Board saw f i t to advise the Cabinet that, insofar as the Gruneau report was con-cerned: (see also page 89 of this thesis) Established sampling techniques were used in selecting a cross-section of business organizations using express services . . . This study . . . was designed to show that a substantial majority of these business organizations agreed that a scheduled a l l -cargo service as proposed by C.P.A. was desirable. (9) The Air Transport Board's report did not advise the Cabinet of the objections raised by the inter-veners as to the questionable methodology involved in the Gruneau survey, lor was the Cabinet apprised of just what was implied by the words "substantial majority" as used in the foregoing quotation. As noted on page 149 of this thesis, only 53$ of those firms interviewed stated that the proposed service would be "desirable." This admittedly constituted a majority, but hardly one to be labelled by the Board as being substantial. (8) A.T.B. Transcript, Air Prt. Hearing, page 1438. (9) Board Eeport to the Cabinet, page 3, App. 17. Chapter IS T h R Txmo-Tas Aircraft Company'n Survey of C P , A. '« Vrn-PJiaeJ^&jr, Jj'reight Route to do with Potentials " The sixty pages that constitute Exhibit 18 and 18A, as drafted hy the Douglas Company, provided the basic C.P.A. presentation at the hearing. Without attempt at appraisal, these exhibits have already been summated on pages 41 to 49 inclusive of this report. The Air Transport Board's apparent unquestioned acceptance of the Douglas findings, as evidenced by its report to the Cabinet, has been dealt with in Chapter T, page 84 to 92 inclusive. The intent of the present chapter is to evaluate the Douglas report in the light of Mr. O'Donnell's summa-tion, and with regard to correspondence and relevant reading by the writer since the hearing's conclusion. Three phases of the Douglas survey are to be covered: (1) The apparent bias introduced into the treatment of the subject matter by those responsible for the drafting of the exhibits concerned. (2) The fallacies involved in the Price-Demand Relationship, derived from the curve depicted on page 46 of this thesis, and on which the basic conclusions of the Douglas Report are determined. (3) The non-existence of a consequential source of air freight potential between Canada and the Orient, despite the contentions to the contrary in the Douglas report. Apparent Bias It is not intended to give a f u l l coverage in this matter, inasmuch as several examples will suffice to - 154 -substantiate the contention. a a. At page 10, Exhibit 18,^striking graph is set out showing Canada's percentage of world total air cargo traffic falling from 19$ in 1937 to 1$ in 1951. This graph is followed by the statement: "This condition is a result of lack of adequate airfreight capacity." To use 1937 as the base and to include a l l phases of air freight operations is misleading, inasmuch as pre-war Canada saw large scale north-south bush operations in air freight carriage to do with mining development beyond - in r a i l head. Air freight of the type'involved^the C.P.A. Air Freight Application involved transport between metropolitan terminal pairs in competition with existing surface carriers, both r a i l and road. Employing the same data, but using the year 1948 as a base, the follow-ing results: (T.C.A. commenced air freight service in that year) Table 22 Relative Progress - TT.S. and Canadian Aircargo g a n a d a U.S.A. 1948 100$ 100$ 1949 110 110 1950 151 151 1951 196 168 These figures are just as misleading as those cited by Douglas, showing percentages rather than total volume, no and hence in themselves of^real' significance. iLi. On page 11, Exhibit 18 a further graph is included contending that "although equal in 1940, Canad-- 155 -ian air cargo rates are now more than twice than those of the United States." Rates are shown as6.0^  per ton-mile for both countries in 1940, as opposed to 21^ for the U.S. and 44^ for Canada in 1951. In the detail of Exhibit 18A, the supporting document, it is found that these figures are based upon composite revenue per ton-mile for the U.S. of both air freight and air express, and for Canada of T.C.A. trans-continental air freight, express and excess baggage. Had strictly air freight rates been compared, and a comparable U.S. carrier such been as American AirlinesAused for illustration the gap would have been reduced considerably, with approximately 33^ for T.C.A. and 22^ for American per ton-mile. Ho mention is made of C.P.A, air cargo rates for present routes, on which it has monopoly rights, yielding 50$ and more per ton-mile, nor was mention made of the general rate increase of 25$ then being sought by U.S. all-cargo lines nor of T.C.A.'s application pending for a drop to the U.S. rate level. c. On page 13 of Exhibit 18 a thumbnail sketch of Canadian r a i l and air routes between Montreal, Toronto and Vancouver is depicted. Total r a i l mileage is given as 3504; total air mileage, 2550. This illustration is summated: "Rail mileage is 37$ greater than air mileage over the proposed route. This means that a 37$ higher airfreight ton-mile rate will result in no greater cost to the shipper. In the United States the average ra i l - 156 -mileage is 17$ greater than air mileage." fl) The impression is thus given that the Canadian air freight operator gets a head start in relit ion to his American counterpart in his efforts to divert traffic from r a i l haulage. On inspection, however, i t is realized that the Douglas routing of a freight or r a i l express ship-ment from Montreal goes first to Toronto, then to Canora, then to The Pas, then hack to Canora, then on to Vancouver. Such r a i l shipment would, of course, in reality he moved across the direct route across northern more Ontario, not via Toronto, further, The Pas would not come into the picture at a l l . Adjusting for the redundant mileage thus involved, Montreal-Vancouver yields a 2930 rai l mileage as opposed to the 3504 figure cited. This amounts to 15$ greater than the proposed air routing, and hence of no consequent disparity from the TJ.S. air-ra i l mileage relationship. d. On page 14 of the Exhibit 18 is a quotation from the Report of the TRoyal Commission on Transportation: . . . the great difference In fundamental con-ditions between Canada and the United Stales. . (is that). . . producers and consumers in the United States with its large population have the advantage of a great number of widely dis-tributed market and supply centres. The long haul is less in evidence there than in Canada . . This quotation is from page 46 of the 1951 Royal Commission report and Involves an error in that report as pointed out to the writer by Dr. A.W. Currie of the University of Tor-(1) Exhibit 18, Appendix III, page 13. - 157 -onto. In actuality, the long haul is more in evidence in the United States. In this regard, Mr. R.A. Brown, the late head of the D.B.S. Railway Statistics Depart-ment, supplied the writer with the following figures taken from U.S. Railroad Transportation (Statistical Record - page 31 - 1951) and from D.B.S. Statistics of Steam Railroads for 1951: Average haul for U.S. Railways 420 miles Average haul for Canadian Railways 339 miles Hence no significant difference exists. On the same page the foregoing "length of haul" comparison is summated: "This places a geographic handicap on the development of remote hut important markets and in-creases the need for swift long range transportation." Of course, as Prof. Waines pointed out in his testimony, this i s not so. The longer the haul, the more important the freight t o l l becomes to the supplier or purchaser. The primary need of distant markets is for economical transport; swiftness is distinctly secondary. e. The most glaring evidence of biased treatment of subject matter involved the comparison of Canadian and U.S. per capita railway express shipments, as set out on page 15 of Exhibit 18. This treatment, apparently accepted at its face value by the Air Transport Board and passed on to the Cabinet in substantiation of C.P.A. Ts ease, has already been made the abject of a complete discussion within Chapter YII of this thesis, entitled Rail Express in Canada and the U.S.A. - 159 -Fallacies InvMfred in -age Douglas Price-Demand Relationship As noted on page 45 of this thesis, the potential for the O.P.A. route was assessed in a most specific manner within the Douglas Report, Exhibits 18 and 18A. As evidenced by the charted relationship set out on page 46 of the report in hand, the Douglas people plotted on loga-rithmic paper time demand for train freight services against revenue per ton mile for the same services. Prom this relationship a series of steps were then taken which yielded precise figures in tons and dollars as to the loads to be expected for each of the C.P.A. route segments, employing present volume of r a i l express as the data source for airfreight penetetion. Inasmuch as a copy of Exhibit 18A accompanies each copy of this thesis, i t is proposed to facilitate the discussion of the price-demand curve in question by f i r s t tracing through the prooess- steps involved prior to assessing same. Turning then to page 39 of Exhibit 18A, the under-lying assumptions made by Douglas are to be found. In part these are as follows: Studies of United States freight movement have shown that the relationship between rate and volume is consistent for the various freight classifications. Therefore, i t is possible to use Canadian Railway carload freight data, the only classification for which adequate stat-istics are available, to estimate airfreight demand at various rate levels. The ton-miles for each major commodity group have been plotted against their average ton-mile rate in Figure 12. The high degree of correlation is apparent. - 160 -• • * • • By assuming a rate, ana hence i t s correspond-ing volume, i t is possible to determine the percentage decrease in volume that can he ex-pected for any increase in the rates . . . It is this percentage relationship that has been assumed applicable to other freight classifications, namely the distribution of high value freight between airfreight and r a i l express. (1) Page 40 of Exhibit 18A sets out the revenues and ton-miles Involved in Canadian Pacific Railway freight Traffic, January to July 1952, with a four segment breakdown only; namely, Products of Agriculture, Prod-ucts of Mines, Products of Forests and Animal Products. The straight line correlation depicted on page 41 of Exhibit 18A, and included at page 46 of the report in hand, simply plots revenue against ton-miles for the data supplied on page 40. Page 42 of Exhibit 18A sets out a table consisting of data read off from the aforementioned straight line correlation. The f i r s t two columns of this table comprise data so directly read off, whilst the second two columns constitute a reduction of the preceding readings to a common base, set of hence yieliding a^ratios. Thus an air freight rate equal to the minimum r a i l freight would, in accord-ance with the Douglas contentions, make possible a total diversion of traffic from r a i l to a i r . A rate three times that of the basic r a i l rate would yield a diversion to air of only 7$. A total of eleven (1) Douglas Eeport, Exhibit 18A, page 39. - 161 -such d i v e r s i o n r a t i o s are l i s t e d i n t h i s page 42 t a b l e , am p l o t t e d on page 43 with the c a p t i o n , "Price-Demand Relsfenshlp f o r Canadian F r e i g h t . " The ordinate i s used to designate the percentage of volume moving' by a i r , with t h e a b s c i s s a showing the r a t i o s of a i r r a t e to r a i l r a t e . The next step takes d i r e c t account of current r a i l w a y express volume and t a r i f f data, comprising the t a b l e d computations set out on page 44. I t c o n s t i t u t e s a "Determination of A i r f r e i g h t P o t e n t i a l s f o r Proposed S e r v i c e , " and i s "Based on Railway Express Volumes O r i g i n a t i n g and Terminating w i t h i n 100 miles of each s t a t i o n f o r 1951." The comparative a i r and r a i l ex-press r a t e s are f i r s t set out f o r the v a r i o u s route s e e t o r s , with a column f o r r a t i o , a i r to r a i l , f o l l o w -i n g . These r a t i o s are then used to determine from the Price-Demand curve set out on the preceding page the percentage p e r o r a t i o n to be expected by C.P.A.'s proposed s e r v i c e into e x i s t i n g r a i l w a y express t r a f f i c . E x i s t i n g express -baffle f o r 1951 i s set out on page 36 of E x h i b i t 18A, C.P.I, data only being shown, with a t o t a l f o r the route segments being determined by simply doubling the C.P.R. data to allow f o r C.1T.R. t r a f f i c . A t y p i c a l route segment, Toronto-Vancouver, has by the w r i t e r been underlined^on page 44 to f u r t h e r a i d c l a r i f i c a t i o n of the process i n v o l v e d . I t w i l l be seen that the - 162 -air rate, door to door, is given at $26.25, with a corresponding r a i l rate of $14.00. The ratio, air to r a i l , is then recorded as 1:1.88. Referring then to the Price-Demand curve on page 43, this ratio is marked in to show how the penetration of 22$ was determined. This percentage penetration is then applied to the approximation of existing r a i l express volume to give an air freight potential figure for the Toronto-eastbound Vancouver segment of 309 tons annually, Rwith a figure of 1,672 tons annually forecasted for the segment westbound, as noted in the appropriate columns of the table on page 44. Pages 45, 46 and 47 simply take the forecasted potential tonnages determined on page 44 and reduce to them^route segment revenue data, yielding a total gross for the route of #2,198,352, as f i n a l l y derived on page 47. This potential gross was apparently appraised by the Board as r e a l i s t i c and based on sound premises inasmuch as i t was reported to the Cabinet without accompanying c r i t i c a l comment. The Board stated on page 3 of their report: In order to arrive at an estimate of poten-t i a l cargo availabe on the all-cargo air service applied f o r , a study was submitted on behalf of Canadian Pacific Air lines limited based upon a price-demand curve prepared from Canadian rail-my data and application of this curve to less than car-load r a i l express shipments between areas served by the proposed route. This study - 163 -in d i c a t e d s u f f i c i e n t volume to support a f i v e times weekly service with. DC6A a i r -c r a f t and gross revenues h o t t e r than $2 m i l l i o n s annually. (2) This d e r i v a t i o n of gross revenue p o t e n t i a l , together w i t h the associated tonnage data, comprised the most f o r c e f u l , as w e l l as the most el a b o r a t e l y prepared, p o r t i o n of the C.P.A. case. In essence, C.P.A. had pointed to what wonderful things the U.S. a l l - c a r g o operators had done i n that country; then C.P.A. contrasted American remits with the apparent i n a c t i o n and alleged d i s i n t e r e s t of T.C.A. i n the f i n a l l y a i r cargo f i e l d ; Aemploying the Douglas submission to summarize t h e i r contentions that the business was there and a v a i l a b l e to anyone prepared t o go a f t e r i t . The whole case rested e s s e n t i a l l y on the v a l i d i t y of the Douglas computations. As Mr. Wells, of Maritime Central Airways s t a t e d : " I t did appear to me that the main case f o r the ap p l i c a * rested on the evidence and e x h i b i t s produced by Mr. C r i l l y , " the Douglas A i r c r a f t Company's witness. (3) However, i t was anomalous that comisel f o r a l l concerned gave the priee-demand r e l a t i o n s h i p a very wide b e r t h . In t h i s regard, Mr. Hamilton, counsel f o r Associated Airways of Edmonton, made the follbwing summating comments: Mr. C r l i l y ' s graphs are found i n E x h i b i t 18 and 18A. We might say that he was not (2) A i r Transport Board report So the Cabinet, p.3. (3) A i r f r e i g h t Case T r a n s c r i p t , page 1347. - 164 -questioned too thoroughly on the basis of the graphs, but I am quite sure that my learned friend, counsel for T.C.A. had the necessary s l i d e rule talent available so that, i f i t were^necessary part of t h e i r ease i f they f e l t i t necessary to break down this evidence, they could have e a s i l y made use of that talent and possibly have given us some enlightening information i n connection with this basis. (4) Even the C.P.A. counsel was" admittedly confused by the workings of the Douglas computations as to route potential. Mr. Brais stated that: as . . . so far^the demand curve is concerned i t took me a long long time to understand i t . Towards the end I was beginning to make some-thing out of i t , but I am af r a i d that i f I went into i t i n too much d e t a i l I would f i r s t confuse myself and possibly i n the process not confuse the Board but not help the Boad. (5) However, Mr. Brais was quite prepared to accept the findings of the Douglas report as sound and to present them to the Boshd as his c l i e n t ' s appraisal of the route potential. As f o r Mr. O'Donnell, he chose to leave i t to the Board's economist, Mr. Jaworski, and to the Board members themselves to determine as to whether the survey findings were sound. In this regard, Mr. O'Donnell stated: . . . my advisers t e l l me that Mr. C r i l l y ' s approach is based on unsound assumptions. I r e a l i z e that the Board has access to the very best technical advice, the very best of statisticians and forecasters, and they can easily have that v e r i f i e d to their satisfaction. (6) (4) Ibid., page 1326. (5) Ibid,, page 1292. (6) Ibid. , -page 1434. - 165 -In addition to the foregoing summating statement, Mr. O'Donnell had previously read into the transcript a brief statement covering the alleged weaknesses of the Douglas approach. This statement summed up the appraisal, made at the request of the writer of this -thesis, of the Douglas price-demand relationship by Mr. T.G. Donnelly, Assistant Dominion Research Statis-tician, of the Dominion Bureau of Statistics, Ottawa. Mr. Donnelly contended that* (See Transcript page 1455) 1. Ho economist would think i t valid to plot a demand curve based on four points only. 2. The Douglas demand curve assumes consist-ency between the elasticity of the demand schedules for air ana r a i l freight. This is not the case. 3. The same curve assumes that a purely monetary rate consideration governs the volume of goods shipped. Such i s not the case. 4. Pour separate and distinct groups of demand curves are involved rather than the single composite curve depicted on page 41. (thesis page 46) As noted above, Mr. O'Donnell read these four shortcomings of the process involved into the transcript without further comment other than to say tha-t he was content to leave final appraisal of the matter to the Board's advisers. As also noted previously, the Board made no c r i t i c a l comment of the process, when report-ing the available potential so derived to the Cabinet in support of C.P.A.'s application approval. In this regard, the writer has been fortunate to obtain a copy of the relevant section of the Air Transport Board Economists report to his superiors to do with - 166 -the price-demand relationship put forward by the Douglas Company. This report, together with other related data, was forwarded to the writer under cover of a letter dated February 22, 1954 by Dr. A. Jaworski, Board economist. In his letter, i t i s of interest that Dr. Jaworski stated: . . . I was greatly disappointed by the fact that Professor Currie and Professor Yfaines did not c r i t i c i z e Mr. C r i l l y!s demand curve, restricting themselves only to general state-ments which are known to every student of transportation economics. In fairness to the two professors i t should be noted that i t was part of Mr. O'Donnell's strategy that their statements were so restricted. Their t e s t i -mony was kept aloof from the immediate battlefield; their statements were restricted to their particular f i e l d s , covering the shortcomings of duplication of transit f a c i l i t i e s in a general, rather than in a particular manner.. It should be further noted that Dr. Jaworski appended a note to the effect that he was expressing his personal views in his statements, not those of the Board. The report of Dr. Jaworski to the Board i s quoted in part as follows: * • • It is commonly recognized that the relation between volume of t r a f f i c and rates is of a very complicated nature and it is not probaBLe that even in the future i t would be possible to describe this relationship by a simple - 167 -mathematical formula or to present i t hy a smooth curve. There is a tendency among economists with a mathematical background to assume that the economic events are moving continuously, and therefore, i t s relationship could be presented by a curve. However, there are many instances in transportation where, to the several changes in rates there is no apparent response in changes of volume. And suddenly a drastic change in volume may occur, thus indicating that the previous changes in rates without a significat ehange in volume, are carrying an unnotice-able, for the time being, cumulative effect. For example, last May, a 10 percent increase in American air cargo commodity rates took place, 33 Hew York department stores switched sudden/ly. their transcontinental shipments of ready-to-wear apparel, from air to r a i l , that represented over 500 tons of freight. Douglas Report (Exhibit 18A, page 39) by considering implicitly Exhibit £0, concludes: ""Therefore, i t is possible to use Canadian railway car-load freight data, the only classification for which adequate statistics are available, to estimate air freight demand at various rate levels." The air cargo is competing with the railway express, which in turn competes with the 1CL movement and fi n a l l y , we get the railway car-load t r a f f i c . Therefore, i t is not understood why Douglas Report jumps to the Canadian ear-load freight data when the waybill analysis of the Canad-ian LOL movement"in 1949 is availableT The pertinent extract from the LCI surveyis sub-mitted as Exhibit D. (by Dr. Jaworski to the Board) By considering only significant vol-umes of tr a f f i c and the corresponding rates we may notice (in Exhibit D) that on an average revenue of §»8 cents per ton-mile, the corresponding volume in ton-miles was 9.75 percent of the total-volume, where on a higher average revenue of 4.3 cents, the corresponding volume of t r a f f i c was much higher too, namely 19.6 percent of the volume, and again, on a 4.5 cent rate, the volume is 15.5 percent, and f i n a l l y on 5.2 cents rate, - 168 -the eor responding volume is as high as 24.076 percent of the total volume. Therefore, we must conclude that the survey of the Canadian ICI movement does not support the basic assump-tion of Douglas study; a simple mathematical relationship between traffic" rates and volume. {low rates with high volumes and vice-versa.) Considering the graph onpage 41, Exhibit 18A, we must assume that the commodity specification of the points i s not essential and only the volume data with the corresponding rates are important for establishing the demand curve. Such an assumption is fully justified, because the graph on page 43 that has. been computed from the previous gisph does not carry any specification of the commodities whatsoever. During the cross-examination of Mr. C r i l l y by Mr. Younger (page 363 of the Transcript) from Mr. C r i l l yTs answer at the bottom of the page, i t may be concluded that a l l the points on the presented graph (on page 41, Exhibit 18A) must be primarily unfinished products, because manufacturing products wi l l be on a differ ergot but parallel line (shifted to the right) and therefore with exactly the same stope. If this is so, a l l unfinished products which are mov-ing on the same rates should have their volume combined together, and therefore, the product of mine, and product of forest that are moving practically on the same rate, should have their volume combined, and by doing this, the point w i l l be raised consider-ably. The highest point on the graph is rep-resented by the product of agriculture, show-ing a traffic volume of approximately 7.2 b i l l i o n ton-miles. It is a known fact that the largest single commodity among the agric-ultural products on the CPR system is wheat. The rate for wheat in Western Canada is un-changed since 1922, and the changes may be introduced only by an Act of Parliament. Despite the fact of an unchanged rate, the changes in volume of wheat traffic . . . between some years are as high as 5 b i l l i o n ton-miles, and therefore, the top point on the Douglas graph of 7.2 b i l l i o n ton-miles might move upwards or the amount of 5* b i l l i o n ton-miles, depending which year is con-sidered. - 169 -A l l Douglas calculations are "based on Figure 13, (page 43, of Exhibit 18A) which i n turn was drawn from Figure 12 (Page 41), therefore, the whole Douglas Report stands and f a l l s with Figure 12. (7) From the foregoing quotations from Dr. JawoEki's report to the Board i t would appear that he i s i n complete agreement with Mr. Donnelly, the D.B.S, Research S t a t i s t i c i a n as to the fact that the Douglas price-demand relationship was based upon unsound premises, yielding i n consequaace t o t a l l y unreliable forecasted route potential data. It should be noted that the under l i n i n g s above were added by the writer. Another avenue of enquiry followed by the writer of this thesis to do w i t h the Douglas price-demand relationship involved an endeavour to query those responsible for the Wayne University Studies, on the basis of which studies Mr. C r i l l y , the Douglas witness, had stated his work was based. The three published studies were purchased from the Wayne University Press and read i n r e l a t i o n to the Douglas report. These publications are: "Air Cargo Potential i n Fresh Frui t s and Vegetables" by Prof. Spencer A. larsen, 1944. "Air Cargo Potential i n Drugs and Pharma-ceuticals" by Prof, larsen and Prof. William Reitz, 1948. "A Study of Markets f o r Airborne Seafoods" by Prof. Larsen and Prof. William Reitz, 1946. In only the 1944 study i s any reference made to (7) Dr. A. Jaworski, Report to A.T.B. re C.P.A. Application, pages 3 to 5 inclusive. - 1 7 0 -analysis of the type employed In the Douglas survey. On page 61 of the 1944 Wayne University study to do with air oargo there is depicted a curve essentially similar to that set out on page 43 of the Douglas Ex-hibit 18A. Hence, i t represents the second step in the process. The f i r s t step, correlating freight rates and t r a f f i c movements on logarithmic paper to obtain the ratios for application to air cargo move-ments is not included. Presumably, the straight line curve captioned "Wayne University Studies" in Exhibit 20, as f i l e d with $he Board by Douglas, was the source from which the above mentioned curve on page 61 of the 1944 of the 1944 Wayne study was derived. In an effort to confirm this presumption, the writer enquired of Professor larsen, with whom he had conducted previous correspondence, on January 27th, 1954, as follows: . . . I have purchased a copy of your "Air Cargo Potential in Fresh Fruits and Vege-tables" whieh gives me further data along the lines suggested i n your reply of 22nd January 1954. Is there another book in the series or another publication such as one containing an article by yourself to which 1 could refer, giving the manner of deriva-tion of the Demand Schedule for Air Cargo, Figure 1, page 61 of the book I have purch-ased? (8) In reply, Processor larsen suggested that I obtain the other two volumes in the Wayne air cargo series, as noted on page 169 of this thesis. Subsequently these two texts were obtained and studied. Ko reference to (8)Better from writer to Prof. Spencer A. larsen, Director, Materials Management Center, Wayne University, Detroit, Michigan, 27 Jan. 1954. - 172 -the type of forecasting in the original 1944 surrey appears at any point. In consequence, Dr. William Reitz, Professor of Education, Wayne university, and statistician for a l l three volumes and the co-author of the last two, was contacted hy letter on the 20th of February 1954. The results of this contact were most f r u i t f u l , inasmuch as Professor Reitz invited the author to meet with him and to discuss the matter at length. In the course of this meeting, the follow-ing points were established: (1) Dr. Reitz agrees with the contentions of Mr. T.Gr. Donnelly, Dominion Bureau of Statistics, as to the contended shortcomings of the Price-Demand Analysis as set out on page 165 of this dissertation. (2) Exhibit 20 does contain the basic source of the demand curve on page 61 of the 1944 YsTayne study. However, as Professor larsen stated in his earlier letter, "The general principle that i s being used (by Douglas) to estimate air freight volume in the materials you sent me seems to me to be somewhat oversimplified . . . " (9) Dr. Reitz pointed out that consumer and shipping company panels, vitamin loss over time, and many other factors were used to smooth in their curves. Strict assumptions to do with volume variation with rate were not made as has been done by Douglas. (3) The method of analysis i n question represen-ted but a fraction of the e orient of the 1944 study, representing an independent fragment of same. Douglas, on the other hand, used the method exclusively to form the essential basis of i t s entire potential forecast for Canadian Pacific Air lines. (4) The method of analysis in question has been dropped by Dr. Reitz and Professor larsen. Their i n i t i a l survey was in large measure exploratory, being the f i r s t of i t s type in the f i e l d . The panel testing phase of their - 173 -I n i t i a l survey has been retained. How-ever, more precise and statistically sound forecast techniques have been adapted, some for the f i r s t time in air cargo pre-diction. These methods include the e s t i -mation of national traffie (e.g. of drugs) by means of Invariant relationships derived from sample t r a f f i c data* the u t i -lization of weighted eentres of production and sales; the combination of separate factor ratings into an air propensity index and the estimation of t r a f f i c potentials by means of the relationship between existing t r a f f i c charges and vol-umes of t r a f f i c , but on a particular commodity basis , , only. (5) Douglas Aireraft Company is quite wrong in the opinion of Dr. Eeitz, in referring to the methods used by Mr. C r i l l y as the "Wayne method". Douglas i s simply employ-ing a small part of a complex method i n i t i a l l y used by Wayne University back in 1944, but long since dropped in favour of the more precise tools of analysis referred to in (4) above. Hathan Zeyfitz, Dominion Research Statistician and his assi&ant Mr. T.G. Donnelly, considered the Price-Demand relationship, on which Douglas based its C.P.A. forecast, as being quite unsound. Prof. Waines and Dr. Currie concurred. Dr. Jaworski also concurred in an most emphatic manner in his report to the Board. Dr. Eeitz states that i t is not the "Wayne University method"; states that Douglas has oversimplified a method long since dropped by himself and his associates, nevertheless, the Air Transport Board reported the method and the results to the Cabinet without c r i t i c a l comment, putting that phase of the C.P.A. submission forward as further evidence to support their contention that the licence application for the Montreal-Vancouver all-cargo service should be granted. - 173 -Data to do with Japan-Canada Air Cargo Potential As previously noted at page 45 of this report, four pages of Exhibit 18 and nine of Exhibit 18A were devoted to a portrayal of the tremendous t r a f f i c potential available through stimulation of trade with the Orient, particularly Japan. A through freight plane service is dealt with coupling C.P.A. 's present trans-Pacific services to the proposed Vancouver -Montreal all-cargo service. The Air Transport Board reported to the Cabinet that such Oriental tr a f f i c would bolster eastbound C.P.A. domestic all-cargo f l i g h t s , hence indicating that an obvious deficiency in the potential load factor picture would be thus compensated. Commencing on page 52 of Exhibit 18A, there is set out an elaborate breakdown of Canadian and TJ.S. trade figures to do with Japanese imports and exports. Again a purely weight-value basis is employed. In part the assumptions, as set out on page 52, are as follow: A logical approach to measuring the Orient air cargo potential is based on: fl) the breakdown of Orient trade by variation of value per pound with volume (2) the estimated effect of rate reduction on the penetration of this volume The export-import statistics between Canada and the United States and Japan were analyzed by individual account, using the value of each com-modity and i t s weight to arrive at the value per pound. . . - 174 -The volumes for each value per pound category were cumulated . . . and appear graphically in Figures 14 and 15. The degree of penetration into these curves by air cargo depends largely on the prevail-ing route structure. . . Since the actual volume of Orient air cargo is not known, i t was necessary to assume an approx-imate value per pound figure to mark the present degree of penetration. A study of trans-Atlantic air cargo volume by I.A.T.A. members indicated that their trans-Atlantic air freight volume in 1951 was the equivalent of a l l trans-Atlantic trade valued at or over $8.20 per pound. As non-I.A.T.A. members carry significant portions of this t r a f f i c , $8.20 is^considered unduly conservative. Henee a value of $8.00 was used in this analysis. To determine the increased penetration as rates are reduced, i t was assumed that the equivalent value per pound moving by air will decrease directly with the rate. With a 10$ rate reduction, the present degree of pene-tration by air cargo, estimated at $8.00 per pound, will drop to $7.20 per pound, with a resultant increase in potential as noted in Table XXZvTI. (10) At the time of the actual A.T.B. hearing, there simply was not time to f u l l y check the various phases minut e of such last ^ submissions as the Douglas and Gruneau reports, despite their importance relative to the case. Hence, as regards the alleged Orient potential, Mr. O'Donnell simply stated: One other thing I should like to mention, that is Mr. Crilly's reference to the Japanese trade. As far as I am concerned i t is quite irrelevant. I suppose as this study has been put before the Board we should give i t some attention inasmuch as considerable ink and paper has been expended in printing i t in booklet form. (11) (10) Exhibit 18A, page 52. (11) Air Freight Hearing Transcript, page 1454. - 175 -Mr. O'Donnell restricted his comments to the supposedly summating graph to do with the Orient trade which appears at page 16 of Exhibit 18. This graph is headed with the statement: "Trade with the Orient requires rapid trans-continental service. The Orient market i s growing . . . The proposed service wi l l stimulate the flow of Canada's trade . . . " (12) The abscissa covers the years 1948 to 1951, with the ordinate marked off in percentages, ranging from zero to 1000$. Canada's exports to the United Kingdom, the United States, Brazil and Japan are depicted over the years as percentages of 1948 data. In consequence, f l a t , apparently stagnated lines are shown for the U.S. and Britain, with Japanese trade yielding a near vertical climb to over 800$ of the 1948 figures. Of course, as Mr. O'Donnell pointed out, such percentage increase figures do not mean anything when no statement of totals involved is included. To start from nothing makes multiple increases readily obtainable. In this regard Mr. O'Donnell further noted that, with reference to data set out in the Dominion Bureau of Statistics publication "Trade of Canada, Exports to Bach Country," calendar year 1951, pages 109-111, an actual decline category which in exports to Japan for 1950 and 1951 of goods of that^ could conceivably come into air cargo transfers, took place. "Thus," staged Mr. O'Donnell, "insofar as air (12) Exhibit 18, page 16. - 176 -cargo potential i s concerned, I considerfcthe charted relationship on page 16 of Exhibit 18 to be quite misleading." (13) further to the data source referred to by Mr. O'Donnell It is of interest to note that f o r the years mentioned, 1950 and 1951, there would not have been one f u l l DC-6A a i r e r a f t load available for carriage i n either direction across the P a c i f i c of merchandise which could conceivably be considered as a i r cargo potential at present-day rates i n terms of s t r i c t l y Japan-Oanada commerce. Subsequent to the hearing, the writer attempted to further appraise the P a c i f i c p o t e n t i a l . P i r s t , an eff o r t was made to obtain the I.A.T.A. trans-Atlantic survey referred to on page 174. Enquiry at the head of f i c e of that organization i n Montreal was to no a v a i l . Mr. Harold E. Shenton, I.A.T.A. Economics and S t a t i s t i c s O f f i c e r , was,unable to find any trace of such a study i n his f i l e s . However, upon writing to Mr. William M. C r i l l y , the Douglas witness, i t was determined that the study referred to was another of Douglas's presentations. Mr. C r i l l y stated: The ief erence on page 5E of the Canadian P a c i f i c A i r Lines Appendix Report, SM 14662A, is not van I.A.T.A. study,, but to a study of trans-Atlantic a i r f r e i g h t by I.A.T.A. members which was conducted by Douglas. (14) Prom the supporting data supplied by Mr. C r i l l y i t would appear that this Atlantic study was carried (13) Transcript, p. 1454. 114) setter dated, Jan. 20, - 177 -out by Douglas for Swissair on a promotional basis in relation to aircraft sales as was the survey conducted for Canadian Pacific Air Lines. As for the general outlook of Orient trade with relation to airborne commerce, aseries of texts were consulted. The outlook for air eargo across the Pacific would appear to be most dubious despite the Douglas contentions to the contrary. As Ellsworth Huntington summatea in his Principles of Economic Geography at pege 638, "The greatest trade of a l l is between countries that are most alike." Canada and the Orient could not be more unlike in every respect. In this regard Mr. Walter A. J^&ius, In his TJ.S. Shipping in Transpacific Trade, states at page 6: The countries of the Hew World are spacious, richly endowed with raw materials and fe r t i l e aggricultural lands, and Inhabited by an independent, progressive population with a high standard of living. The Par East is crowded, deficient in resources, bound by p o l i t i c a l and economic ties to Western nations and by cultural bonds to an age old civilization . . . The purchasing power of the great masses of the Orient is too low to permit them to buy on a large scale the manufactured products of the TJ.S. They must trade agfgricultural and mineral products primarily for the essential basic foodstuffs and raw materials they lack—wheat, lumber,- scrap iron, wood pulp, cotton. The U.S. looks to the Orient for many raw materials: rubber, t i n , copra, s i l k , coconut and other vegetable o i l s . Trans-Pacific trade is thus predominately an exchange of raw materials between two two continents whose geographic resources are - 1 7 8 -quite widely divergent and whose economies are at a different stage of development. Irans-Pacifio trade faces two great handicaps, one, the distances involved, and two, the wide disparity between the standards of living of the peoples of the eastern and western shores. (15) Mr. Radius had written his test in 1944 under the sponsorship of the American Council of the Institute of Pacific Relations. His data covered the period 1922-1938, hence restricting himself to the relatively normal, pre-war period of Pacific commerce. To check his concepts with current thought in the light of air cargo possibilities, the writer corresponded with a number of authorities, receiving detailed replies from: Clarence M. Young Executive Vice President Pan American World Airways System (in charge of .Pacific-Alaska Division of that firm) R.P. Reese Cargo Sales Manager U.S. Regional Offices Phillipine Air lines Paul H. McClelland U.S. Army Sea Transport Control Seattle, Washington (pre-war Paeific Coast U.S. Manager for 1I.Y.K.) Mr. McClelland, whose entire l i f e has been devoted to stimulation of trans-Pacific trade is most cautious as to his expectations regarding air penetration, stating in part: With regard to the Trans-Paific air potential, i t seems to me that in normal times there are two main considerations that w i l l make for air l i f t preference, viz., seasonal demand, and ) U.S. Shipping in Trans-Pacific Trade, pages 6-7. - 179 -saving of interest charges to balance the difference i n transportation cost. Fnere time i s not too essential, the tendency w i l l he to larel off i n favor of the cheaper mode. The Orient has considerable buying power but on a narrow margin of p r o f i t and the merchant cannot afford to put too much of his cost into speed. Over the years I believe the standard of l i v i n g of the Orient w i l l gradually approach that of the West, so that the two areas w i l l become increasingly interdependent for the higher class commodi-t i e s which w i l l stand the higher a i r rates, but that i s going to be slow. (16| I t w i l l have been noted that the Douglas appraisal of Orient potential was based on the assumption that the value of merchandise per pound was the basic c r i t e r i o n for establishing the p o s s i b i l i t i e s of diver-sion to a i r carriage. In this regard, Mr. Young states: We do not believe the value of the goods i s too serious a bar, as a i r transport lends i t s e l f to the carriage of certain commodities when the a i r cargo charges themselves exceed the f.o.b. value. An example, which occurs to us, i s baby chicks. The value f.o.b. P a c i f i c Coast might be $18.00 for a 12 pound carton of 100 chicks, yet they move fre e l y at rates of $3.11 per pound. This commodity i s t y p i c a l of several where a i r transportation i s the only meihod which can be used at a l l . (17) As for distances, a survey that purportedly pro-duced reasonable results on the Atlant i c could hardly be d i r e c t l y applicable to the P a c i f i c on a straight percentage rate reduction basis. In this regard, Mr. Young notes that the lew York-Paris distance i s 3638 miles against 8501 from San Francisco to Hong Kong (16) P . H . McClelland, l e t t e r to w r i t e r , 28/l/54 (17) C.M. Young, l e t t e r to writer, 9/2/54. - 180 -by the mid-Pacific routing, as flown by Pan American. Mr. Young further states in this regard: If we accept as axiomatic that rates must roughly correspond, to distance, you are quite right, and this is borne out by a comparison of ton mile rates in the Atlantic and Pacific. The cargo rates on the Atlantic for general cargo are broken down into three weight classes: under 100 pounds, 100 to 440 pounds, and a new break of over 440 pounds.. Using the lew York Paris mileage given, these work out to approximately 64/, 48/ and 45/ per ton mile respectively. Pacific rates are equalized between the Pacific Coast terminals and the Orient terminals, Tokyo/Hong Kong/Manila. Using the mileage given for San Francisco/ Hong Kong, the three rates work out to 58/, 44$z and 41/ respectively. In the reverse direction there are lower rates from the Orient brought about by an attempt to equal-ize the flow of cargo, which is normally out of balance, as so much more goods move from the U.S. Ton mile rates work out to 52/, 39/ and 36/ respectively. (18) Hence, Pacific rates per ton-mile are well in line with those on the Atlantic, being actually less heavy on this basis. However, in view of the mileages involved, i t is roughly twice as costly to ship goods across the Pacific as opposed to the Atlantic. This, in addition to the fact that Pacific trade is "not in a hurry" by virtue of the raw material nature of most of the goods involved. As Mr. Reese of Phillipine Air lines notes: Present general commodity rates for cargo are approximately 100 times greater than surface rates, and we can therefore hope to attract only a very t r i f l i n g percentage of the volume of freight moving from the lorth American continent to the Orient and Asia. The. air carriers operating asross the Pacific are doing (18) Ibid., page 2. - 181 -what they can to stimulate the use of air cargo by introducing specific commodity rates substantially below the general commodity rates. Even the lowest of these rates are based on 36$/ a ton mile, which when compared to the ocean ton mile rate, is s t i l l fantast-i c a l l y high. lo radical reduction in these rates can be made until aircraft better suited to the carriage of cargo (and by that I mean a much more economical operating cost) can be made available to the air carriers. At the present time none of the airlines operating across the Pacific use a l l cargo aircraft, which as you know, is so common cn the lorth Atlantic. One of the big reasons why a l l -cargo aircraft cannot be successfully used on the Pacific is that these aircraft are not cargo aircraft but converted passenger planes. This is true even of the DC-6A which i s merely a DC-6 with a few concessions made to cargo, but s t i l l retains the round hull and s t i l l poses a considerable problem by having the cargo doors 100 or more inches from the ground. (19) Along the same lines, Mr. Young remarks: Your point with reference to present day a i r -craft appears substantially correct. They are excellent for the carriage of passengers, but since a premium is placed on speed, this must be paid for. The concept of cargo carriage is to schedule aircraft, as you have indicated, with an eye to passenger t r a f f i c , and to uti l i z e residual space for cargo. This pro-vides an excellent service for cargo but per-haps the f u l l potential cannot be realized unless, and u n t i l , an aircraft designed for eargo alone is economically possible. A closer approach has been made in the Atlantic by using stripped down DC-4 and DC-6 aircraft. Here the community of interest between the two sides of the Atlantic is strongly in evidence and heavy volumes reasonably well balanced directionally, make possible a f u l l cargo operation. (20) . But not so on the Pacific. The facts appraised and the authorities consulted a l l bear out Mr, O'Donnell's (19) P.P. Reese, letter to writer, 19/l/54. (24) G.M. Young, letter to writer, 9/2/54. - 182. -content ion that the inclusion of the Orient potential data in the Douglas submission for O.P.A. was both misleading and irrelevant. For t h e immediate f u t u r e , hence w i t h relation to the C.P.A. application for a Montreal-Vancouver air freight run, trans-Pacific air freight t r a f f i c would appear to be non-existent insofar as significant volumes a re concerned. Lockheed Constellation Cargo Pod Chapter X Australian Air Transport Providing a Contemporary and Parallel Case History for ^Canadian guidance. Insofar as this dissertation is concerned, the pre-ceding chapter completes the treatment of the evidence brought forth hy the applicant and interveners in the Canadian Pacific Air Freight Case. The eleventh, and fi n a l chapter summates the topic as a whole and offers such conclusions and recommendations as the observations of the writer would appear to justify. The present chapter to do with Australian Air Transport is essentially an insert. However, Australia has seen f i t to do what Canada has not done and the consequences provide an illustrative case history for Canadian contemplation. In Australia today there are two airlines operating parallel routes an a transcon-tinental basis. One is owned by the government; the other by the shipping^ corporations. Together these two airlines account for 85$ of a l l transport in the domestic air f i e l d . The privately owned line has been carrying on with great d i f f i c u l t y , with claims of considerable financial loss. The publicly owned line has progressed dynamically since its inception. The privately owned line is Australian National Air-ways Proprietary limited which came into existence in 1936. The publicly owned firm is Trans-Australian Air-lines which, was conceived by the labour Government in - 184 -1944. Henoe, the relative progress of the two firms during the past decade. The Labourites fostered their national air line to the detriment of the private cor-poration, restricting the carriage of mail and person-nel on government business to their own operator. C i v i l air transport in Australia, as in Canada, was pioneered in the 1920's, with emphasis on the remote northern and western areas. In 1932 the f i r s t trunk route between capital cities was developed. By 1936 a l l major metropolitan pairs were linked by interstate air services. In 1939 the regular internal air transport firms were flying approximately 45 million passenger miles annually. In the 1944-45 fis c a l year, 130 million passenger mjQes were flown. For the year ended June 30th, 1952, the total was 756 million passenger miles. This constituted 50% more passenger miles per capita population than flown by the domestic services of the U.S.A. for the same period. (1) Until the advent of the Labour Party to national leadership in 1944, the principal air operator had been Australian national Airways Proprietary Limited. This firm, a proprietary company incorporated in Victoria, is the wholly owned subsidiary of what is known in Australia as the "shipping combine." This fl) P.M.C. Hasluck, Minister for Territories, Hansard, Australia, Commons, 24 Oct. 52, p. 3737; supplied by Hon. Hasluck to writer following letter from him dated 19 Hov. 53. - 185 -group is made up of five corporations: (2) 1. Huddart Parker Limited, 2. Holyman Brothers Proprietary Limited, 3. Union Steam Ship Company of lew Zealand, Ltd., 4. Adelaide Steamship Company Limited, 5. Peninsular and Oriental Steam navigation Co.Ltd. Each firm holds 1,119,000 shares in the air firm. The total shares outstanding is given as 6 million, one other shipping firm having a minority interest. The par value of the shares is 5s. each. The paid up capi-t a l i s only 1.5 million pounds. As noted, up to 1944 this private firm, Australian national Airways, was the virtual counterpart of Trans-Canada Air Lines from the standpoints of scope of oper-ations and control over competition. Ownership, of course, was as the case for C.P.A. A.H.A. was the nation's prime trunk operator of air services, vested with a monopoly in effect similar to that of T.C.A. On november 22, 1944, the A.IT.A. monopoly ceased to exist. On that date, in the Federal Parliament, the Acting Prime Minister, Mr. Porde, announced the Labour Government's intention of forming "a wholly Soijernment-owned statutory authority to take over, operate and maintain a l l interstate airlines." (3) The relevant act was introduced on July 4, 1945 and proclaimed August 16th, being- entitled The Australian national Airlines Act 1945, The act provided for the establishment and operation (2) Ibid., Dr. Evatt, Opp. Leader, p. 3875. (3) R. Williams, Dir.Gen. of CivJL Aviation, with letter to writer dated £4/12/53. - 186 -by the Commonwealth, of national airline services and for the setting up of the Australian National Airlines Commission, consisting of five commissioners, to establish and operate such services. The Act included the following provisions: (4) (for services) 1. between any place in a State and any place in another State; 2. between any place in any "Territory of the Commonwealth and any place in Australia outside the Territory; 3. between any place in any Territory of the Commonwealth and any other place in that Territory; and 4. with the approval of the Minister, between any place in Australia and any place out-side Australia. As might be expected, the private firms objected, strenuously to the whole uni ertaking. Australian National Airways, together with Guinea Airv;ays l t d . and MacEobertson-Miller Aviation Company, took the matter to Australia's High Court. This body ruled that the proposed commission could not operate intBa-state services, but that provision for interstate operations were legally based, together with the provisions for the taking over of existing operators. A.N.A. challenged the High Court decision and asked for an appeal to Privy Council. The Australian High Court disallowed this application for appeal on the 17th of A p r i l , 1946. Further, the Aet was subsequently amended in a legal manner to permit intrastate flights. The Australian National Airlines Commission was (4) Australian National Airlines Act, 1945-52, page 8. - 187 -established on February 12, 1946 with A.W. Coles as chairman, W.C. Taylor as vice-chairman, and E.G. Johnston (Assistant Director General of C i v i l Aviation) I.E. Fanning (Postmaster General's Dept.) and G.P.1T. Watt (Treasury) as the other three members. Present chairman i s G.P.P. Watt, Mr. Coles having resigned following the liberals return to power inasmuch as he had actively supported the labour government in its p o l i t i c a l programme. Mr. Johnston, who is s t i l l the Assistant Director General of GivilaAviation and who supplied the writer with considerable data, is no longer a member, his term of office expiring 11th February 1952. Trans-Australia Airlines was set up by the Commis-sion to operate the air services contemplated by the Act. Interim daily service between Melbourne and Sydney commenced on the 9th of September 1946 with converted Douglas C-47's. Since the.t time operations have expanded to provide a network linking 100 towns and centres throughout Australia, involving a route mileage of 25,441. The Act had contemplated the tak-ing over of existing air services such as those furn-ished by Australian national Airways limited. legal obstacles, however, resulted in the growth of a pair of str i c t l y duplicated route structures. For the year ending June 30th, 1953, Australian - 188 -National (private) carried 567,889 passengers; Trans-Australian, 646,226. The private firm hauled 55,041 long tons of freight during the same period; the pub-(5) l i e firm, 16,256. Inasmuch as the private firm i s the subsidiary of the shipping firms, air freight i s naturally most readily diverted to i t . Profit or loss information for Australian National is not directly available inasmuch as that airline is a "proprietary company and in accordance with the relevant legislation in Australia is not required to publish i t s balance sheets and accounts." (6) However, the results of a libe r a l government enquiry into the operations of the two firms, made in 1952, gives the following data as tabled in Hansard: (.7) Table 25 Trans-Australian Australian National (public) (private) 1949- 1950 (to June 30th) ,$336,000 Profit £216,682 loss 1950- 1951 do. 341,000 Profit 10,221 loss June 50-December 51, 1951 (not given) 201,775 loss Of course, this is no prenf in i t s e l f of superior operation by the public concern. It i s , however, an indication of the extent that air transport leans f i n -ancially on government support through mail pay, whether in excess of charge for service rendered or not. The private firm, in 1951, was receiving 50,000 pounds per annum mail pay as opposed to 500,000 pounds for the public operator. In this regard i t is of interest to the statement made by recall Athe Canadian Air Transport Board's Chairman in (5) Aviation Week, 2/ll/53, page 23. (6) P. Williams, letter to writer ,. 24/12/53._ (?) Australia, Commons .Hansard, 24/ ICy 52 ,p. t739. - 189 -the Air Freight Case: (8) Mr. Wells, Maritime Central Airways, had queried Mr. McConachie as follows: Q. Is i t your opinion that the all-cargo carrier in Canada ought to he licenced to carry air mail and parcel post? A. If they should he asked to carryit. I HE CBAIEMAP: I am sorry, hut I do not believe that that is a proper question to introduce since the carriage of air mail is a matter that is det-ermined by the Post Office Department and is one over which this Board does not exercise jurisdiction. Such mail pay as was received by Trans-Australian, the Commission's carrier, does not, however, seem to be greatly out of line as is evidenced by the following breakdown of the company's revenue dollar for 1951-52: Table 24 (9) Revenue Source" Percentage Passenger fares and baggage 77%" Freight 15% Mail 7$ Other 5% As noted on the preceding page, the private firm's losses were steadily mounting. The return of the lib e r -als to power made possible the reversal of this trend. In 1952 four companion acts were brought before the Commons and Senate; becoming law In that year. The pivotal document concerned comprises a six page act to approve an agreement made between the Commonwealth and Australian national Airways Proprietary, limited, the short t i t l e being " C i v i l Aviation Agreement Act 1952." (8) Air Transport Board, Air Freight Case Transcript, page 688. (9) Trans-Australian Airlines, 7th Annual Report 1951-1952, page 19. - 1 9 0 -In introducing this C i v i l Aviation Agreement Act, Hon. P.M.C. Hasluck said in part: . . . despite the fine service i t was provid-ing, Australian National Airways Proprietary limited had been running at a loss on i t s internal services for some years. At the same time, Trans-Australian Airways was showing a profit, due entirely to the monopoly of air mail revenue which i t enjoyed. . . The directors of Australian National Airways Proprietary Limited, therefore, approached the Government (that would have been the Chifley Labour Government in 1949-writer's note) and proposed the amalgamation of Australian National and Trans-Australian. They said i t was not possible for the two airlines to compete on a profitable basis and the single entity was the only possible way of conduct-ing c i v i l a i r services within Australia. . . . When the company renewed this proposal to the present Government, we rejected i t . We are opposed in principle to monopoly and and we w i l l seek to avoid it wherever we can . . ( 1 0 ) Rather than consolidation or amalgamation, a policy of rationalization such as put forward by the Puff Commission for Canadian railways was adopted. Mr. Hasluck noted that competition between the two opera-tors had been intense, resulting in many cases of overlapping and provision of services in excess of public requirements. In consequence, a provision of the Agreement Act stipulated that time tables and services were to be integrated, a l l wasteful dupli-cation to be dispensed wi tik. Further* 1 . Bach operator was to be given an equal share of air mail t r a f f i c . 2. Government business was to be freely ( 1 0 ) P.M.C. Hasluck, Hansard, page 3 7 3 8 , 2 4 / 1 C ) / 5 2 . - 191 -available to both, airlines. 5. Each operator to be assisted financially to acquire heavy flying equipment. 4. The level of air route charges to be reduced. 5. Rationalization to be subject of mutual agreement between the two operators with a retired judge appointed by the govern-ment to settle deadlocks. (11) The financial assistance in point (3) above involved a government guarantee to the Commonwealth Bank for loans up to four million pounds to be made to the private firm for purchase of aircraft. A further provision of this same section provided that to the reqiiirements of any aircraft becoming surplus British Commonwealth Pacific Airlines or ©uantas Overseas Airlines, both of which are jointly owned by Australia, Pew Zealand and Britain, then they shall be evenly divided between A.IT.A. and T.A.A., with the rationalization judge to decide which firm is to get the odd remain-ing aircraft, i f any! The reference to route charges i s to do with user fees for airway maintenance as currently contem-plated by the C.A.A. in the United States and as put in effect in 1947 by the Chifley labour Government. Australian national had refrained from paying these assessments, contesting their legality. To the time of the Agreement Act, A.IT.A. was thus one million pounds in arrears. Trans-Australian had regularly paid the charges levied. The Act provided for a 50% reduction In these fees for the future plus a retro-{11) C i v i l Aviation Agreement Act, pages 2,3,4. - 192 -aetive provision to settle with Australian National for 337 thousand pounds in lieu of hack payments due, together with a comparable refund to Trans-Australian in presumption of overpayment. This refund has been used by the writer to correct the profit data shown on page 188 of this report. The agreement was stipulated as to be in effect for 15 years from date of passage. The intention, of course, was to lend stability to the private firm's operations and expansion plans and to attempt to preclude a reversal of policy by a succeeding government. Such planning has also gone into the concept of Trans-Canada Air lines without a specific monopoly period being specified. A government change in Canada would doubtless bring an end to T.C.A.'s monopoly privileges, assuming the Conservatives were returned to power. In this regard, the leader of the Opposition, Dr. Evatt, summated rather pointedy: I say, on behalf of the labour party, that we shall take every available step to oppose the b i l l . I f , notwithstanding that, the b i l l be passed, a future labour government wi l l frankly t e l l the people that the new parliament will not be bound by its prede-cessor. We shall take every lawful step to set aside this agreement. As a party, we shall undertake to restore the status and activities of Trans-Australian Airlines to the position that they occupied before this measure was introduced. (12) (12) Dr. Evatt, Australia, Hansard, Commons, 29 October 1952, page 3883. - 198 -Just who was right, Labour or Liberal, depends on the outlook of whosoever hazards the opinion. The crux of the matter would appear to have been that duplication was yielding losses where a single operator .public or private, would have sufficed. Adam Smith dealt with the topic in his discussion of the London Post Office system in lis "Wealth of labions." Taussig brought the subject up to date with respect to railroads and the economies of scale in Chapters 62 to 64 inclusive of his"Principles of Economics." G-.D.H. Coles' further clarified the matter for the writer with respect to the Canadian Pacific Air freight Case, as evidenced by the follow-ing quotation from his letter: In the early days of the Independent Labour Movement in this country - I man. in the 1890's, there was a man called Major Eustace Edwa#Tds, who was both a Socialist and a strong advocate of competition. He proposed that, instead of nationalising the railways, the State should build a public railway alongside each privately operated l i n e , in order to ensure competitive conditions. He stood for Parliament with this as his main plank, calling the system 'Industrial Bustatics,* after his own name. Heedless to say, his proposal was not adopted. This I think i s the reductio ad absurdum of the case which you say the Canadian news-papers are putting up. Clearly i t would be an immense waste of money to run a competi-tive airline at high cost, where even a single airline needs a subsidy. The remedy against possible inefficiency leading to overcharges in snch as case is surely effective - 194 -supervision, rather than the starting of a competitive air l i n e . I presume such a line could operate only hy creaming off the tra f f i c and leaving the existing airline in a worse position than ever, so as to need a s t i l l higher subsidy, and that the net cost of the service would he a great deal increased. (13) Current reports on the Australian aviation scene do not indicate that the private firm has prospered since the enactment of the Aviation Agreement h i l l . Aviation Week for March 23, 1955 reports that "A.N.A. Ready to Quit flying." The article asserts that the government-sponsored plan to alleviate domestic competition between AIT. A. and I .A. A. has failed in its purpose. A.l.A. is reported as request-ing a complete split-up of routes with no paralleling operations whatsoever. The private carrier has can-celled i t s order for Tickers Yiscount aircraft, despite the 7 million dollar loan made available to i t by the government for that purpose. The f i n a l paragraph, of course, explains the true sittuation: Another factor is the strong upsurge of labor Party power. The party, i f returned to power, might abrogate the present ANA-TAA operations setup and nationalize the country's entire airline business. (14) A furtner a r t i c l e , appearing in the October 19th, 1953 of Aviation Week indicates that another temporary truce has been arrived at, stating in part: (13 Prof. G.D.H. Cole, letter to writer, 14/12/53 (14) Aviation Week, McGraw-Hill, Hew York, 23/3/55 page 18. ' - 195 -Differences between privately owned AHA and the government owned TAA have been resolved after three months of talks that place the carriers on a 'fair competitive footing.' Each operator is reviewing existing ser-vices to avoid over-scheduling and to reduce wasteful operation. Duplication of services w i l l be eliminated on two feeder routes, now flown by both operators at a loss . . . . . (15) But time is running out for the private operator. Trans-Australian, the government's firm, takes deliver of its Yickers Viscount aircraft during 1954. These vibration free turbo-propeller aircraft have proven an outstanding success in Europe, where British Euro-pean Airways have cornered the European inter-city air transport market by widespread use of these Tickers ships. Trans-Australian is taking delivery of six such aircraft; Australian Hational has nothing more modern than converted wartime DG-4's. Further, public opinion, regardless of political creed, i s on the public firm's side. For one thing, the "shipping combine" is not, apparently, a popular one. For another, the private firm has been plagued with fatal accidents since the inception of its publicly spon-sored competitor. Trans-Australian has yet to have a fatal accident. Australian-national, quoting from Hansard, has: (15) Ibid., 19/10/53, page 99. - 196 -. . . in the space of a comparatively few months had five major crashes. When the relatives attempted to sue the company, it was wise enough^ to s*tle their claims out of court. If those crashes had happened to Trans-Australian they would have been invoked hy this Government as a reason for disposing of the company. . . nobody in this chamber can be satisfied with the record of Australian national Airways Proprfetary limited during the last few years. It is one of the worst records of any airline operating anywhere in the world, including the American eomnanies . . . (16) It should of course be borne in mind that i t i s a member of the opposition who is speaking. Neverthe-less, the Speaker made no protest thus indicating that the facts are substantially as stated. When a f i e l d is divided between two competitors, neither of whom haso achieved maximum returns through f u l l utilization of available capital equipment, sooner or later one of two events will tenspire. The one firm wil l simply eliminate the other; or they w i l l agree to divide the f i e l d and carry on, each wary of possible encroachment by the other. Politics can influence the process, but over time, it cannot prevent i t . The word "competition" i s meaningless in such situations insofar as it is normally considered beneficial to the interests of the community. As Professor Waines and Doctor Our rie stated at the Air Freight Hearing in Ottawa, "Competition is only useful for what i t achieves." (17) Joan Robinson further clarified the (16) K . B . Beazley, Australia, Hansard, Commons, 29/10/52, page 5897. (17) see page 66 of this report. - 197 -matter In her text "Economies of Imperfect Competition." In some industries, of which railways and the distributors of gas and electricity are familiar examples, the smallest practicable plant has a very large capacity output, and i f the market is not sufficiently large to use such plant up to capacity, there is no possibility of competition. If by chance two firms were to be engaged in such an industry, they would either, compete against each other so that neither was able to gather it s costs, and the one with the least endur-ance would disappear, or they would form a combine. There is no possiblity of long period competitive equilibrium when the average costs of an individual firm f a l l with increases of output. (16) Air transport is inherently expensive. The r a i l -way need only propel i t s loads over its tracks. The airline must both totally support as well as move i t s loads. The power of several locomotives must be expended by a DC-6A to move what amounts to less load than can be moved in the smallest railway boxcar. The cost of aviation fuel is a multiple of that employed in railway service. Complex and costly airway and airplane navigational f a c i l i t i e s must be provided no matter how sparse the t r a f f i c . Presuming that airway transport services are needed or desired, only govern-ments can muster the funds to provide same. If the task is assigned to private enterprise then government funds must, of necessity, be forthcoming in subsidy. Competition simply heightens the ultimate cost to the taxpayer. Australia is in the process of making just such a costly experiment, subsidizing a private firm (16) Joan Robinson, Economics of Imperfect Compe-t i i t i o n , 1946, Macmillan, 1st ed. 1933, p.166. - 198 -to maintain services paralleling those already offered hy an airline owned hy i t s e l f . Government credit to an equivalent to •*ke- extent -e#Aseven million dollars has been extended to the private firm, despite said firm's continuous loss record. One half of the government's airmail business has been turned over to the private firm, complete with the inherent subsidy involved. The government has agreed that i t s publicly owned airline will start no new service, wi l l purchase no new equip-ment, w i l l take no action of any kind, without the approval, no matter how long delayed, of the private firm. Neither firm, i f it had the f i e l d entirely to i t s e l f , would have presently approached minimum unit cost levels through f u l l utilization of i t s f a c i l i t i e s . Operating together on a parallel basis the possiHLity of attaining such an optimum state becomes more than doubly remote. Whether socialist or capitalist, one cannot help but f e e l , in the light of Australian experience, that the Canadian Cabinet's positive decision in the Air freight Case was right and that the Air Transport Board's oblique recommendations were wrong. Chapter XI. The Canadian Pacific Air Freight Case. Summation and Conclusions The C.P.A. Evidence and the Cabinet Decision In support of its application for authority to operate an all-freight air service between Montreal and Vancouver, Canadian Pacific Air lines produced no conclusive evidence to substantiate the existence of adequate tra f f i c potential to justify the service. The Douglas Report, the applicant's key submission, was substantially comprised of data and findings which, upon examination, even the Air Transport Board's economist, Dr. Jaworski, found to be inaccurate and based upon unsound premises. In essence, the appli-cation involved a request for permission to enter the Canadian transcontinental air transport f i e l d . The proposed carriage of air freight was incidental to the request, in the light of the consistent and most substantial financial losses suffered by the all-cargo carriers in the U.S.A. Canadian Pacific, presuming i t desired an ultimate profit from its operations in the proposed domestic f i e l d , sought the all-cargo licence simply as a f i r s t step in a process. As has been done by the all-cargo carriers in the U.S.A., the next step would have been to apply for mail and parcel post rights and ultimately for a duplicating passenger fran-chise. By its decision to deny the C.P.A. application, the -Cabinet - 200 -s^aw f i t to forestall the touching off of this chain reaction which would hare ultimately led to a total duplication of Canadian trunk line air services. T.C.A. and the Air Freight Case Upon review of the operating data brought forward during the hearing to do with the- services of T.C.A. and C.P.A. i t would not appear that the latter firm is in any way more efficient or economic in i t s operations, insofar as a point by point comparison with T.C.A. is concerned. The evidence as to the airfreight losses incurred in the U.S. despite that country's relatively slow and costly r a i l express f a c i l i t i e s would adequately justify T.C.A. 's slow approach to reduced rate air freight haulage in this country. Unfortunately, moreover the application, the hearing and the resultant publicity would appear to have pressured T.C.A. into a position presently where it must establish ^uneconomic air freight services rather than further jeapardize i t s monopoly position. The Air Transport Board and the Air Freight Case It would be presumptuous for the writer to set out criticisms of a judicial board. However, as brought out in this thesis, the evidence would appear to have totally confirmed the Cabinet's decision to give heed to the recommendations of Prof. Waines, Dr. Currie and Mr. McGregor and to thus negate the Board's contentions. However, one point of procedure was felt to have placed •S31* • ANCOUVER S E A T T L E A C O M A I P O R - ^ A N D • ^ •••I J O S E FRESNO ^ . O S A N G E L ! "")SAN BERNARDINO ^ 5 I S A L T L A K E CITY D E N V E R l PHOENIX T C A FEB 12.1953 — r -M I N N E A P O L I S ^ A L B A N Y ^ BUFFALO HARTFC BRI ,0 S C R A N T O N ^ W I L K E S - B A R R E ^ ALLENTOWN OMAHA K A N S A S C l T Y l d^P- y ALLENTC I N D I A N A P O L I S ^ CINCINNATI S T L O U I S ' ' L O U I S V I L L E O K L A H O M A C I " Y ( N A S H V I L L E M E M P H I S I k K N O X V I L L E A T L A N T A FORT WORTH D A L L A S B I R M I N G H A M S A N ANTONIO PROVIDENCE NEW HAVEN NEW YORK L A D E L P H I A 'Cfy NORFOLK J A C K S O N V I L L E P O P U L A T I O N O F S T A N D A R D M E T R O P O L I T A N A R E A S C A N A D A A N D U N I T E D S T A T E S SHOWING A R E A S OF OVER 2 5 0 , 0 0 0 L A S T C E N S U S M I A M I 10,000,000 5,000,000 3,000.000 1.000,000 750,000 500,000 250,000 - 201 -the interveners in a deleterious position with respect to the preparation of their cases and in the matter of their treatment by the press. This procedural point permitted involved theAlast-minute introduction of such volumin-ous submissions as the Douglas and Gruneau reports, yielding a quite superficial appraisal of same by the interveners with consequent one-sided press coverage aside from quite inadequate submissions in rebuttal to the Board. In this regard the writer contacted the Board of Transport Commissioners in Canada and the C i v i l Aeronautics Board in the United States to seek to determine their attitude towards this element of surprise in supposedly fact-finding enquiries. Mr. C. W. Rump, Acting Secretary of the B.T.C. replied in . . . the Board has given specific directions in a number of important cases, for example, applications for general rate increases, re-quiring parties to give an outline of their evidence to the other parties and to the Board in advance of hearing. The purpose is to expedite the hearing, facilitate dealing with the evidence and avoid surprise. In general, the parties have complied with such directions by giving f u l l outlines of the evidence of their witnesses and the ex-hibi t f s , charts, studies etc. that they in-tend to adduce. In a number of cases where the evidence and exhibits were lengthy and- complex the Board has also granted adjournments of days and sometimes weeks to enable opposite parties to consult experts before proceeding with cross examination or their own evidence. (1) O.W. Rump, Acting Secretary, Board of Trans-port Commissioners, letter to writer, 26/11/55. - 202 -In addition, Mr, Rump enclosed a copy of the Board's Rules of Practice which substantiates the contentions set out in his letter whereby the Trans-port Commissioners appear to have obviated the nec-essity of time consuming examinations for discovery in their fact finding enquiries. As regards the C i v i l Aeronautics Board, Mr. Josh lee, Member, dealt with the matter in question thusly: It is a matter of standard Board practice to require that i n i t i a l exhibits prepared by applicants be exchanged prior to the hearing in order to permit interveners and other parties an opportunity to study these data prior to the hearing. It is by this means that the actual hearing is shortened substan-t i a l l y and the Board is afforded an opportunity to have a f u l l exploration of a l l relevant facts. The element of surprise in our admin-istrative proceedings has to a very large extent been eliminated. It has been our experience that this results in a proceeding in which the aoeuracy of economic data in issue can be tested in a much more satisfac-tory manner than in the usual legal proceeding. (2) These B.T.C. and C.A.B. letters were then forwarded to Mr. John Baldwin, Chairman of the Canadian Air Trans-port Board, together with a respectful request for comment. In reply, Mr. Baldwin stated in part: Since September 18th, 1953, a l l notices of Hearings published on behalf of the Air Trans-port Board have contained a paragraph the sole objective of which has been to eliminate the surprise element occasioned at Board Hearings by the introduction of documentary evidence the nature of ?^hich an interested party could not be expected to refute with-(2) Josh lee, Member C.A.B., Washington, i> o letter to writer, 1st December 1953. - 203 -out considerable technical preparation. . . (3) It w i l l be noted that this step was taken on September 18th, 1953. The Air Transport Board had operated without benefit of this provision for nine years. The Canadian Pacific Air Freight Case had come to a close more than six months prior to ife adoption. In the light of the contentions of Mr. lee and Mr. Pump, said adoption would appear to be a belated but definitely forward step. Mr. Baldwin further commented: Unlike most administrative tribunals the Board does not regard its hearings as a t r i a l be-tween opposing interests the outcome of which shall be conclusive, but merely as one phase in the process by which the Board determines what is required by the present and future public convenience and necessity or public interest, as the case may be. . . . the Aeronautics Act E.S.C. 1952 confers on the Board the power 'to make rules for the regulation of its proceedings' which the Board could make at any time should the need arise, however the Board believes that Canadian pub-l i c interest is better served by adhering to a procedure which w i l l permit the introduction of evidence by any interested party which may shed light on what is required in that interest and which the adoption of a code of standard rules of practice might tend to frustrate i f not eliminate. (3) It would thus appear that the Air Transport Board and the other two above mentioned tribunals differ in the matter of aims and procedural concepts. It i s , of course, beyond the scope of this thesis to hazard an opinion as to which is the more sound and correct. (3) J.R. Baldwin, Chairman, Air Transport Board, Ottawa, letter to writer, 21st January 1954. - 204 -T.C.A. and the Immediate Future Trans-Canada Air lines lost considerable public support through the adverse press coverage given i t s side of the Canadian Pacific Air Freight Case argument. Typical newspaper reaction to the Cabinet decision has Additional been noted onpage 96 of this thesis. Further^such editorial and news story captions are set oat below: (1) "Wide-Awake Airline Would Expose TCA" Vancouver Sun newspaper November 7th, 1953. (editorial) (2) "Government Action Mystifying in Restrain-ing Competition." Victoria Times reprinted in Vancouver Sun newspaper IT ov ember 18th, 1953. lew story. (3) "TCA Coddling Balks northern Progress" Vancouver Sun newspaper ITovember 18th, 1953. Editorial. (4) "Competition Best Guarantee of Good Service" Vancouver Daily Province lovember 6th, 1953. Editorial. (5) "Monopoly Has Shackled Industry" Toronto Telegram March 12th, 1953. Editorial. (6) "CPA Urged to Try Again" Telegram (Toronto) December 12 th, 1953. Editorial. Canadian Pacific Air lines lost the decision but made significant gains in public support for it s e l f to - 205 -say nothing of the gain in prestige for the Conserva-tive party through that p o l i t i c a l group's championing of the Canadian Pacific cause. In the light of the evidence contained within this would appear dissertation i t ^ i o readily apparent that the action taken hy the Cabinet to deny the C.P.A. application was right. However, i t definitely was not papular. It was not popular for three reasons, two of which are within the power of T.C.A. management to rectify for the future. (1) C.P.A. was the under dog in the public eye and as such Immediately the more popular contestant. T.C.A. represented a monopoly operator, traditionally unpopular in concept. Over these facts, T.C.A. had no control. The thought that they were requesting an ultimate switch to private monopoly, or at least towards a greatly increased drain on the public purse, did not enter the public mind. The odds were very definitely against T.C.A., but far more so than necessary for the following two rectifiable reasons. (2) During T.C.A.'s f i r s t decade of existence, i t was a most popular venture in the public mind. Its safety record, i t s dynamic expansion and financial record were continually accorded favourable press reviews. However, with continued growth T.C.A. lost its former personal touch and coincidentally, its popular appeal. With such rapid rise from such small beginnings, - 206 -employees at a l l levels f e l t that T.C.A. had achieved greatness, becoming robots in consequence, mechanically mass producing transportation rather than remaining the friendly servants of the travelling public. T.C.A. i s , in actuality, a relatively small air l i n e . On a basis of scheduled revenue passenger miles i t represents but a fourth the stature of American, or Trans World or United Air Lines. T.C.A. is but a third the operation relative to Eastern Air Lines. In actuality, T.C.A. i s directly comparable to the systems of Capital and north-west Airlines on this basis of scheduled revenue passen-ger miles flown annually. Rather than presume upon greatness, T.C.A, should c a p i t a l i z e upon i t s smallness until such time as subsequent growth brings a natural accrual of public respect. The problem is doubly ally important inasmuch as T.C.A. is government^ owned. In such organizations there is an ever present tendencjr towards a c i v i l service approach. With management, this takes the form normally of "empire building" with-out regard to proper departmental needs. Hon. Herbert Morrison has advised the writer that his forthcoming text w i l l cover phases of this problem. He stated in part: I have . . . written a book which will be pub-lished in April by Oxford university Press, the t i t l e of which is 'Government and Parlia-ment; a survey from the inside.' Among other things i t deals with public accountability of publicly owned industries . . . (4) (4) Hon. Herbert Morrison, M.P., letter to writer, 25th January 1954. - 207 -As for employees at the public contact level, they must he imbued with the concept that the T.C.A. franchise is not beyond the bounds of revocation. They must s e l l more than, just tickets; they must s e l l T.C.A. With the proper employee approach, whether i t be ticket clerk, stewardess or ramp handler and no matter what the slge of the aircraft, the passengers cease to become simply bewildered bearers of boarding passes; they become guests of the ai r l i n e . If a campaign of this nature is consistently pursued, as is currently the case for Capital Air lines, then such pleas^ as T.C.A. shall make before future Air Transport Board hearings w i l l be faced with a more friendly press and public. (3) The other matter over which T.C.A. has con-t r o l relative to i t s more enthusiastic acceptance with parliament and the public is to do with the measuring of i t s own achievements. Tery wisely, concentration has in the past been centred by top T.C.A. management upon building a safety eonscious, efficient and economic air transport organization. However, i t would appear that insufficient effort has been devoted to tel l i n g the taxpayers and the Commons' members of the methods used and of the results so achieved in the light of the comparable activities of Canadian Pacific Air lines in this country and paralleling operators in the United States. - 208 -The original 193? Trans-Canada Air lines Aet specifically provided that the evaluating yardstick for the government's airline should he based upon the operations of comparable carriers in the United States,of America. In 1 George YI, Ch. 43, that section relating to the Trans-Canada Contract states: Tariffs - for the transport of passengers and goods by the Corporation at t a r i f f charges on a competitive basis with other similar trans-portation services in North America. , . . Provided, however, that when the revenues of the Corporation in the opinion of the Minister will permit, charges may be imposed for land-ing, lighting, and weather reports such as are charged for similar competing eoast-to-coast services in North America. For the public, for parliament, or for any fact finding tribunal i t is f e l t that T.C.A. should be in readily a position to readily report^on every phase of i t s operations relative to i t s American counterparts. The C i v i l Aeronautics Board is continually appraising the operations of the various U.S. carriers with a view to subsidy payment or withdrawal. In the recently decided Pan American la t i n Imerica case, ten million dollars were lopped off allowable costs by the C.A.B. in view of alleged over-capacity and too high selling expenses on the part of the a i r l i n e . lavish national advertising and other projects of a promotional nature had raised selling costs out of line. The airline had assumed that government subsidy would make up the defi c i t s . The C.A.B. thought otherwise, dis-- 209 -allowing a l l selling costs over a total representing 19$ of commercial revenues. In this regard Mr. J.H. FitzGerald, Director, Bureau of Air Operations, C i v i l Aeronautics Board states: . . . the Board's mail rate policies are-evolved under the criteria of 'honest, econ-omical and efficient management' set forth under Section 406 of the C i v i l Aeronautics Act of 1958, as amended, in light of the developmental objectives of the Act, fhe policies, which are developed on a case-to-case basis, are not static but are applied in the light of the circumstances peculiar to each case. Thus, the standard of a ratio of 19$ adopted for the l a t i n American Div-ision of Pan American World Airways, Inc., for the period April 5 , 1948 through Decem-ber 31, 1951, is not necessarily applicable to domestic trunlclines nor to local service carriers. . . . (5) They may not be static, but the yardsticks do exist and are being used to evaluate one airline in terms of another. In the ease of Pan American the Beard noted: "to the extent controllable management policies were responsible for the losses, the govern-ment would not underwrite these losses with mail pay." As previously noted in this report in hand, the C.A.B currently allots approximately 80 million dollars each year in straight airline subsidy payments. Formerly this was paid through the Post Office in adjusted mail pay rates. How it is paid directly through the C.A.B. and subject to annual review by the nation's legislators. The writer advocates a similar plan for Canada. The taxpayer should know what he is obliged to pay to maintain air transport. If he did (6) Joseph H. FitzGerald, letter to writer, 4 / 2 / - £10 -he would not "be so quick to subscribe to policies that would result in further increases, "for the 1952 Annual Report for T.C.A., as would hare been available to the Cabinet at the time i t was deliber-ating i t s Air Freight Case Seciston, a total is shown of 4,843,052 ton miles of mail flown. The mail pay per ton mile is shown as fl.39. (?) The basic figure for a comparable trunk operator in..the United States i s 45/ per ton mile for airmail with a considerable reduction being temporarily in effect on the experimental all-up mail programme now under way. Hence, of T.C.A. 's pay, at least one dollar for every ton-mile must be properly considered as sub-sidy, yielding a five million dollar annual subsidy payment to the firm. Airways f a c i l i t i e s furnished at a fraction of cost comprise another hidden sub-sidy payment. In this regard: . . . In the period immediately following World War II the capital expenditures for c i v i l aviation were very heavy, rising to |103,329,510 in 1946-1947. Up to March 31, If50, the total expenditures of the Canadian Government on c i v i l aviation since the beginning amounted to approximately #360,000,000, not including mail payments and the cost of acquisition of certain war-time f a c i l i t i e s from the United States (about #90,000,000) while receipts totalled only approximately #27,000,000. Provinces and municipalities have also contributed to the cost of ground f a c i l i t i e s . T.C.A. has been one of the principal benefieiaasies, though by no means the only one. . , (8) (7) 1952 Annual Report, T.C.A., page 9. (8) Oliver J. l i s s i t z y n , Journal of Air Law, Winter 1952, Public Aid to foreign Airlines, p - 211 -The same author, in his text "International Air Transport and national Policy" states that: . . . the fact that most governments must pay heavy subsidies to keep their air transport companies alive has been an important factor in the trend towards concentration. It is obvious that i f the amount of t r a f f i c which is inadequate to support even one company is divided with a second, the total amount of subsidy would have to be increased. (9) It should be noted that i f i t be considered that T.C.A. is heavily subsidized on a ton-mile mail pay basis, then C.P.A, is doubly so. Mr. W.J. Turnbull, Deputy Postmaster General advises that: . . , the overall ton-mile rate paid Canad-ian Pacific Airlines for air mail service on a l l "their domestic routes as a whole was $2.81 per ton-mile for the f i s c a l year April 1, 1952 - Mareh 31, 1953. (10) In this matter of comparative accounting as sugges-ted above, the mere comparison of Forms 41, the C.A.B. reporting document which a l l north American carriers regularly f i l e including T.C.A., is not enough* inasmuch as the C.A.B.'s form 41 Manual i s not uniformly followed by a l l carriers. The Board has the authority to order such uniform accounting under section 407(a) of the Act. However, i t permits carriers to employ any system of accounts desired in their own operations providing expenses are uniformly dealt with. Hence, in numerous mail rate decisions the C.A.B.'s staff makes "adjustments" in carrier figures to make data comparable. Direct co-operation with the Bureau of (9) O.J. l i s s i t z y n , see bib., page 256. (10) W.J. Turnbull, letter to writer, 28/l/54. - 212 -Air Operations, C i v i l Aeronautics Board would be mandatory for the successful maintenance of running measures of T.C.A. efficiency in relation to i t s paralleling competitors across the border. The con-tention i s that any government sponsored monopoly, such as T.C.A., should in i t s best interests, for the defense of i t s operations in the press and in parliament, separate subsidy from service charge and align i t s statistics as suggested above. Admit-tedly, the Cabinet is apparently satisfied that the T.C.A. management has done and is doing an efficient job. The point at issue, however, is that period-ic a l l y they are going to be called upon to publicly and should at a l l times be prepared to do so prove this clalmoin an effective and clear-cut manner. T.C.A. and the Ultimate Future The Air Freight Case provided an indicator of things to come. Unfortunately, from the standpoint of long term sta b i l i t y , C.P.A. is the protege of the Conservatives; T.C.A. of the liberals. The advent of the Conservatives to power would lead either to the duplication of T.C.A, services with C.P.A. f a c i l i t i e s or the total supplanting ofTEOa. by the private firm. If either course has to be taken, the latter one is preferable from the standpoint of straight economics. - 212 -"It is a wasteful process merely to duplicate a r a i l -way line . . . "(11) And so it is also with an air transport operation as Australia has proven at con-siderable cost to her taxpayers. Of course, one further alternative would be available to the Con-servative party, that being to leave T.C.A. continue as a government owned monopoly in i t s present state as was done with the great British Overseas Airways Corporation upon the return to power of the Churchill government. It is indeed anomalous that i t should be the Canadian Pacific Railway Company that is back of this move towards duplication of air f a c i l i t i e s . This i s , of course, in view of the fact that Sir Edward Beatty, the then C.P.R. president, fought so hard during the latter part of his lifetime to unify the operations of the Canadian national and the Canadian Pacific. Prom one end of the country to the other, he continually- spoke out repeatedly in favour of unification. As to his estimate of possible savings he stated:: In addition to savings resulting from u n i f i -cation of actual operations, there are other advantages. Account must be taken also of the saving in future capital expenditures. In providing for the normal growth of t r a f f i c and changes in i t s character, the extension of one plant would obviously cost less than the extension of two. (12) (11) P.W. Taussig, Principles of Economics, Volume II, page 220. (12) B.W. Beatty, Before Senate of Canada, Special Committee, Railways, 1935, page 7. - 214- -Sir Edward Beatty thus joins in mutual sentiment with Adam Smith, John Stuart M i l l , F.W. Taussig, Joan Robinson and a l l the rest who have been quoted on the same topic in the same way at various points throughout this report. To those who would say this applied to the depression and not to today, Sir Edward had this to say; . . . 'It is human both to err and to forget.' Sometimes I fear that . . . we shall speedily forget both the harm and the lessons of the depression. After a fullneal a man forgets previous hunger; with money in their pockets or in the bank most humans forget poverty. We feel we can waste i f we can afford i t . Canada cannot afford waste even i f , for the moment, i t can meet its b i l l s or pay i t s losses. What a depression does is to expose our econ-omic waste and our unsound policies. What prosperity does is to cover up both. It is like water over a reef—when the water recedes the reef is in f u l l view to a l l and a warning; when th© water rises, the reef is s t i l l there but concealed, and even i f concealed, capable of causing a wreck. Economic waste may con-tinue even i f i t is concealed by our revenues. If, for example, the Canadian national were earning and paying a l l i t s legitimate charges, and the Canadian Pacific were earning and paying 10$ on i t s Common Stock, the operations of the two companies in competition would s t i l l represent an economic loss of from 50 to 75 million dollars per year. That i s the waste represented by duplication of effort, f a c i l i t i e s and services. We must not in this country of natural wealth and great promise forget the lessons of our depression, or dis-miss policies which will safeguard our future and expedite our development, because they are sane and wise and not solely the result of the application of that most popular of a l l laws—the law of p o l i t i c a l expediency. (13) (13) Sir E.W. Beatty, address, Canadian Industrial Traffic league, Hamilton, 26/l/39, page 17. - 2 1 5 -As for the question of long term consistency on the part of the Conservative Party in Canada, the following quotation from R.B.Bennett's comments on the Trans-Canada Air Lines Act, at the time of i t s consideration in the Commons, makes for interesting reading: I submit that in the light of the experience we have had in this country, i f . we are going into this airline business we should own i t from the start . . . . . . . i t is one of the principles of this measure to pay the corporation's dividends; we might as well start in and say we are going to direct the policy from the begin-ning. One of the di f f i c u l t i e s today about the railroads is that we had nothing to do with laying them out. They were laid for contractors and not for the public. They were laid out for the mileage and the sub-sidy and not otherwise. Here is a franchise which is going to be very valuable . . . . Shall we hand i t over to private enterprise or not? . . . . It may be said that government ownership is always inefficient and that it always has been. I am not prepared to say that it need be, but even i f there is inefficiency we can devise methods by which efficiency can be secured and the property retained in the people . . . . (14) Sir Edward Beatty died in 1945; Tiscount Bennett, In 1947. Apparently, their concepts and convictions were buried with them. However, despite the protestations of their present-day counterparts, Mr. Mather and Mr. Drew, the Can-adian Cabinet has seen f i t to reaffirm the T.C.A. franchise (14) R.B. Bennett, Debates, Commons, March 25th, 1937, Volume III, page 2211. - 216 -by i t s denial of the Canadian Pacific Air Freight Application. The economic stability of the nation's airline has been maintained free from deliberate exposure to jeopardy, at least for the time being. As Bennett urged, "the property has been retained in the people." Lockheed Supcrconstellation Aircraft, eight of which have been purchased for delivery i i 1954. They represent a portion of a thirty, two million dollar aircraft Purchase order placed b'y T.C.A-.- in 1951 and^l952, based on long .term planning for balanced expansion. BIBLIOGRAPHY In the various sections of the Bibliography that follows the libraries where the various texts and periodicals were consulted are indicated in the maimer noted below. The reference source is indicated (w) where said source has been obtained for permanent retention by the writer. I.O.A.O. International C i v i l Aviation Organization library International Aviation Building Montreal, P.Q. C. N.R. Canadian National Railways law Department library 360 MeGill Street Montreal, P.Q. D. B.S. Dominion Bureau of Statistics library D.B.S. Building Tunney's Pasture Ottawa, Ontario T.C.A. Trans-Canada Air lines lihary International Aviation Building Montreal, P.Q. Toronto Eef. Toronto Reference library College Street Toronto, Ontario, Toronto Circ. Toronto public library Runneymede 3ranch Toronto, Ontario. TJ. of T. University of Toronto library, including Documents and publications obtained through Dr. A.W. Currie, University of Toronto. AIR TRANSPORTATION TEXTS (1) Baker, Prof. George P., James J. H i l l Prof, of Trans-portation, Harvard University, Air Transportation, Harvard University Press, 1938. (U.ofT.) (2) Goodman, Gilbert, Assistant Prof, of Economies, Wayne University, Government Policy Toward Commercial Aviation, New York, Zing's Crown Press, 1944. (I.C.A.O.) - 217 -(3) Lissitzyn, Oliver James, International Air Trans-port ana. lational Policy, Hew York, Council of foreign Halations, Inc., 1942. (Tor.Ref.) (4) Malkin, Richard, Boxcars in the Sky, Hew York, Import Publications, Inc., 1951. (T.C.A.) (5) Longhurst, John, editor of the British journal, "Aeroplane," The C i v i l Aviation Experiment, london, Temple Press limited, I960. (I.C.A.0.) (6) Hieholson, Joseph I., lecturer Temple University, Air Transportation Management, Hew York, J. Wiley & Sons, Ltd., 19 51. (I.C.A.0.) (7) Puffer, Claude E., Air Transportation, Philadelphia, The Blakiston Co., 1941. " (Tor.Ref.) (8) Sorrell, Lewis C,, Prof, of Transportation, Univer-sity of Chicago, Prospects and Problems in Aviation, Chicago, Chicago Association of Commerce, 1945. (Lincoln Printtag Co.) (I.C.A.O.) (9) Sillcox, L.K., Wheels or Wings, Syracuse, Syracuse University Press, 1953. (T.C.A.) Air Transport (10) Wilson, G.' Lloyd ahd B$an, Leslie A., Professors of Economics,AUniversity of I l l i n o i s , Hew York, Prentice-Hall Inc., 1949. (T.C.A.) (11) Wolfe, Thomas, former V.P. Pan-American Airways, Air Transportation, Traffic and Management, Hew York, McGraw-Hill, 1950. (T.C.A.) (12) Zacharoff, Lucien, Vital Problems of Air Commerce, Hew York, Duell, Sloan & Pearce, Inc., ' 1946. (T.C.A.) PUBLICATIONS TO DO WITH AIR PREIGHT POTENTIAL (1) Civil;: Aeronautics Authority Staff Study, Domestic '""Air Cargo Forecast, U . S . Department" of Com-merce, washing-con, IVDZ. ± (c.h.R.) (2) Douglas DC-6A Airfreight Study, Douglas Aircraft Oom-Dany, inc., santa Monica, California, 1952. * (w) (3) Hielsen, Johannes, Chairman, Interim Report of the north Atlantic Cargo Meeting, International Air Transport Association, Hew York, 1953.(w) (4) Fletcher, R.V., Chairman Railway Committee for the Study of Transportation, American Association - 218 -of Railroads, Report of Subcommittee on Air on Air Transport, Washington, 1947. (I.C.A.O.) (5) Earst, Harry E., Air Oargo Consultant, Problems Affecting Air Cargo Development in~California, prepared by the California Aeronautics Commis-sion, Sacramento, California, 1950. (w) (6) Larsen, Spencer A., Air Caggo Potential in fresh fruits and Vegetables, Wayne University Studies in Air Transport Io. 1, Detroit, Wayne Univer-sity Press, 1944. • (w) (7) Larsen Spencer A. and William Reitz, Air Car^o Potential in Drugs and Pharmaceutical2» for (6) above, 1945: ~ j^) (8) Larsen, Spencer A. and William Reitz, Markets for Airborne Seafodds, as for (6) above, 1948.(w) (9) Port of Hew York Authority, Domestic Air freight Origin-Destination Survey,1950, published December, 1952. : fw) (10) Rausch, C.J. and L.R. Hadney, Air Cargo Trends, Lockheed Air Cago Progress Report, Lockheed Aircraft Corporation, Burbank, California, September, 1952. (w) (11) Rentzel, D.W., Domestic Air Cargo, U.S. Depart-ment of Commerce, C i v i l Aeronautics Admini-stration, December 1948, Washington, (w) (12) Tressler, Donald K., Scientific Director, Quarter-master food and Container Institute of the Armed forces, Marine Products of Commerce, Chapter to do with air transport of seafood products (VI), Cornell University Press, 1951. (fisheries Dept. Library - Ottawa) GOVERNMENT DOCUMENTS AND JOURNALS - Canada (1) Air freight Case - before Air Transport Board, 1953. a. Offi c i a l Transcript, as prepared by E.L. featherston, O f f i c i a l Reporter, Rockliffe, Ottawa, transcript of hearing available at both Air Transport Board Library, #3 Build-ing, Ottawa and in C.N.R. Law Dept. Library. b. Jaworski, A., staff economist, Report to Air Transport Board on Evidence Presented,(w) - 219 -c. Baldwin, John H., Chairman, Air Transport Board Report to the Cabinet, as appended. d. P.C. 1953-1755, Minute of the Committee of the Edvy Council, setting out the Cabinet decision and reasons therefor, as appended. (2) Chevrier, Honourable Lionel, Minister of Transport, an Address to do with Canadian Aviation, given at the Annual Meeting of the Air Industries and Transport Association, Seigniory Club, Montebello, P.Q., November 10, 1952. (w) (3) Judgment, Board of Transport Commissioners, 15 June 1951, Pile 45757, Rail Express Rates for Fishery Products , Eing's Printer, Ottawa. ("0". of T.) (4) Judgment, Board of Transport Commissioners, 30 March 1948, in re Application of Railway Association of Canada . . . for authority to make a general increase in tolls and freight rates, Eing's Printer, Ottawa. (w) (5) Parliament, Commons, Debates. (Tor.Ref.) Parliament, Senate, Debates. (Tor.Ref.) (6) Report of the Royal Commission to Enquire into Railways and Transportation in Canada, 1931-32. (Duff Report), Kings Printer, Ottawa, 1932. (Tor.Ref.) (7) Report of the Royal Commission to do with Canadian Transportation, King's Printer, Ottawa, 19 51. (Innis, Angus, Turgeon) (Tor.Ref.) (8) Rules, Air Transport Board, governing f i l i n g of tariff s and service schedules and relevant procedural provisions, Oct. 1, 1952, issued by John R. Belcher, Secretary, Ottawa. (w) (9) Rujes of Practice, Board of Transport Commissioners, General Order Ho. 729, June, 1949, King's Printer, Ottawa. (w) (10) Statistical Data - a l l Dominion Bureau of Statistics publications, King's Printer, Ottawa. (DBS & w) (or Queen's Printer as applicable due date) a. C i v i l Aviation - Summary of Monthly Reports, D.B.S., Public Finance and Trans-portation Division. - Annual Report of the Department of Transport - Public Accounts of Canada. - 220 -h. Agriculture - Ninth Census, Bulletin; 6-6 Volume YI, Vegetables, Fruits, etc., 1952.fw) e. Express Statistics - D.B.S. Annual. d* Fisheries - Prime Statistics of Canada's Fisheries,_1932-1951, Canadian Fisheries Annual, 1953, Fisheries Statistics of Canada 1949 and 1950. e. Labour Force - Bulletin 5-1; Volume V, Ninth Census, 1952. - Bulletin 5-3; Volume Y, Ninth Census, 1953. f . Manufactures, Preliminary Statement of, Survey of Production(all phases)1938-50 General Review of Manufacturing Industries of Canada - 1949. w w g. Population - Census Metropolitan Areas, Ninth Census, Bulletin 1-8, 1952. (w Motor Carriers - Freight and Passenger, D.B.S. Annual Publication. (DBS) Railways of Canada - Monthly Traffic Reports of, (DBS) j . Trade of Canada - Articles Exported to Each Country and Articles Imported from Each Country, calendar year 1952. (w) k. Canada Year Book - DBS Annual (Tor.Ref.) GOVERNMENT PUBLICATIONS - U.S.A. Air Freight Cases: a. C i v i l Aeronautics Board Air Freight Decision, decided July 29th, 1949 (Docket 810 et al.) #E-3085-Vol. 10, Economic Cases. (C.N.R.) b, Air Freight Rate Investigation, C.A.B., adopted 21st July 1952 (Docket 1705 et al.) #E-6119, as appended. (w) c. Air Freight Rate Investigation, C.A.B., decided April 21st, 1948 (Docket 1705 et al.) #E-1639, Vol. 9, No. 23, as appended (w) - 221 -d. Air freight Rate Investigation - Directional Rates, adopted April 10th, 1950. (1705 et al.) #84048, Yol. 11, Ho. 21, as appended. (w) e. Investigation of Accumulation, Assembly and Distribution Rules, decided Sept. 14th, 1950. (1705 et al.) #14606, #E-4984, as appended.(w) f. Miscellaneous relevant C.A.B. Economic Decisions such as the Air freight Forwarders Case of 1948 and such airline efficiency appraisal cases as the 1953 Pan-American Airways Latin American Division ease. (C.H.R.,T.C.A. & w) Form 41 Manual, C.A.B. Uniform System of Accounts for Air Carriers, Budget Bureau Bo. 39-ROM. (w) Ini t i a l l y effective January 1, 1947. Recurrent Reports of mileage and t r a f f i c data for a l l certified air cargo carriers, C.A.B., Bureau of Air Operations, Accounting and Statistics Division. (T.C.A.) Statistical Handbook of Aviation, C.A.A., 1953, Dept. of Commerce, Supt. of Docs., Washington, (w) Transportation Statistics, Monthly Comment on, Bureau of Transport Economics and Statistics, Interstate Commerce Commission, Washington.(U.ofT.) GOVBRHMEHT AID OTHER PUBLICATIOHS TO DO WITH AUSTRALIA Parliament, First Parliamentary Debates, (Hansard) Twentieth Session, 1952,"Representatives and Senate, covering passage of C i v i l Aviation Agreement Act, Canberra. (w) C i v i l Aviation Agreement Act, Ho. 100 of 1952, Commonwealth Govt. Printer, Canberra. (w) Australian national Airlines Act, 1945-1952, An Act to provide for the establishment . . . of national Airline services by the Commonwealth . . Commonwealth Govt.- printer, Canberra. (w) Journal of the Parliaments of the Commonwealth, Issued under the authority of the General Council of the Commonwealth Parliamentary Association, Houses of Parliament, London.(Tor.Ref.) Trans-Australia Airlines, Annual Reports for f i r s t seven years of operation to June 30, 1952. (w) - 222 -SOTJPB OP QUOTATIONS USED FROM TEXTS ON ECONOMICS GENERALLY (1) T a u s s i g , p.!., P r i n c i p l e s of Economics, MacMillan Company, London, 1923, see t h e s i s page 213. (Tor.Ref.) Chapters reviewed: 62 - Railways 63 - Railway Problems 64 - P u b l i c Ownership and P u b l i c C o n t r o l . (2) M i l l , John S t u a r t , P r i n c i p l e s of P o l i t i c a l Economy with some of t h e i r a p p l i c a t i o n s ' to S o c i a l Philosophy, 1848 r e v i s e d to 1870, Longmans Green 8c Co., London, 1926. See t h e s i s page 118. (Tor.Pub.) (3) Robinson, Joan, Economics of Imperfect Competition, f i r s t e d i t i o n 1933, MacMillan & Co., New York, 1950. Book IY only reviewed to do with The (Tor.) Comparison of Monopoly and Competitive Output. (Ref.) (4) Smith, Adam, The Wealth of Nations, 1776, J.M. Dent and Sons, L i m i t e d , 1940. See t h e s i s page 104. (Tor.Pub.) IISCBL1ANE0US DATA SOURCES (1) Trans-Canada A i r L i n e s and Canadian P a c i f i c A i r L i n e s Commodity T a r i f f s and Distance Tables.(T.C.A.) (2) American A i r l i n e s Inc., Intervener, Testimony on Be h a l f of, Before the C.A.B., Docket 810 et a l . Submission dated January 15, 1947. (C.N.R.) (3) Beatty, S i r Edward, Set of 15 addresses d e l i v e r e d between 1935 and 1939 t o the various Canadian Boards of Trade, T r a n s p o r t a t i o n Clubs and the Senate Committee to do with the r a i l w a y prob-lem, loaned to the w r i t e r by Dr. A.W. C u r r i e . (4) C o r p o r a t i o n Annual Reports: T.C.A. (T.C.A. C.P.R. ( l i b r a r y has to 1887) (Tor. Ref. P l y i n g T i g e r s , Inc. (1950-1-2-3) (w S l i c k Airways, Inc. (1950-1-2-3) (w American A i r L i n e s , Inc. (1953) (w T r a n s - A u s t r a l i a A i r Lines(1946-7-8-9) (w (1950-1-2 ) (w (5) Lewis, John H., A v i a t i o n - B u l l e t i n , Review of A i r Cargo Industry and Seaboard and Western A i r -l i n e s Inc., J.H. Lewis & Co., Member, New York Stock Exchange, Sept. 30, 1952. (w ) - 225 -McRae, R.W. , Trans-Panada A i r l i n e s , 1957-1940, a graduating report prepared "by w r i t e r iiTpartial f u l f i l l m e n t of the requirements leading t o the B.Comm. degree, U n i v e r s i t y of B r i t i s h Columbia, 1939-1940 s e s s i o n . fw) E a d i u s , Walter A., U.S. Shipping i n T r a n s - P a c i f i c Trade, Issued i n Cooperation with the American C o u n c i l , I n s t i t u t e of P a c i f i c R e l a t i o n s , •Stanford U n i v e r s i t y P r e s s , 1944. (I.C.A.O.) S l i c k Airways, Incorporated: a. Proxy Statement (55 "pages) r e l a t i n g to the proposed merger of S l i c k Airways and The P l y i n g Tiger l i n e . Inc. Issued June 15, 1955 hy J.P. Grant, Tice-President and Secretary. (w ) 1. A p p l i c a t i o n of S l i c k Airways "before the C.A.B. to do w i t h Motion f o r Temporary Au t h o r i z a t i o n f o r Carriage of A i r Express. Issued i n support of a p p l i c a t i o n on February 16, 1955 by Thomas Grace, S l i c k Airways I n c . P r e s i d e n t . (w) PERIODICALS A v i a t i o n Week, McGraw-Hill P u b l i s h i n g Co., N.Y. (w) Aero D i g e s t , Aeronautical P u b l i s h i n g Co., monthly, Washington, D.C. (Tor.Ref.) Aeroplane, Temple P r e s s , nonthly, London, England. (Tor. Ref. & w. 5 Competitive Transportation Review, monthly, Asso-c i a t i o n of American R a i l r o a d s , Washing t o n , D.C. (w) F i n a n c i a l Post, F i n a n c i a l Post Corp., Toronto. (Tor.Ref. & w.) Law and Contemporary Problems, School of Law, Duke U n i v e r s i t y , Durham, H.C., A i r Cargo Eeview conta,ining 7 articles g i v i n g various aspects of the i n d u s t r y , issued Winter 19 50, T o l , 15. (I.C.A.O.) Transport and Communications Review, Dept. of Econ-omic A f f a i r s , United Nations, issued every two months, New York. (U.ofT.) Wall Street Journal, Wall Street Journal P u b l i s h i n g Company, New York, e d i t o r i a l , " F l y i n g Freighters i n a F i s c a l Fog," Jan. 21st, 1955. (D.B.S.) CQRRESROUDEHCE Adaitive correspondence received from the following: (1) E.H, Atkey, B r i s t o l Aeroplane Engines (Western) Limited, International Airport, Yancauver, B.C. B r i s t o l a i r c r a f t data and photographs. (2) Baldwin, J.R. Chairman, Air Transport Board, Wellington Street, Ottawa, Ontario. . . . . . querying surprise element i n Board pro-ceedings and requesting comment on l e t t e r s received from Mr. Lee of the C.A.B. and Mr. Rump of the B.T.C. (5) Bur wash, M.E. Assistant Director, Bureau of Transportation Economics Wellington Street, Ottawa, Ontario. querying government consideration of user charges for Canadian airways and requesting data to do with investment of public funds' i n airways, and their related f a c i l i t i e s . (4) Clarkson, Chistopher Sunn, John U.S. Representative, Tickers Limited, Tickers-Armstrongs Ltd., Tickers House, 542 Madison Avenue, Bsadway, Westminster, Hew York 17, H.Y. London, S.W.I. Tickers Tiscount data and photographs. (5) Black, Donald Manager, Public Relations, Douglas A i r c r a f t Company, Inc., Santa Monica, C a l i f o r n i a . Air Cargo forecasts, DC-6A,B & C brochures, additional copies of C.P.A. submission, photographs. (6) Cole, S.D.H. Preeland, 74 Holders H i l l Road, Hendon, II.W. 4, England. submitted statement to Prof. Cole giving the contentions of C.P.A. and T.C.A. rel a t i v e to the A i r f r e i g h t Application, requesting his comments. (7) Q r i l l y , William M. Douglas witness at the Air freight Hearing. Director, Economic Research, Douglas A i r c r a f t Company, Inc. , Santa Monica, C a l i f o r n i a . . . . . . queried source and basis for forecast to do with P a c i f i c Air freight Potential i n C.P.A. report, - ££5 -(8) Fitzgerald, Joseph H. Director, Bureau of A i r Operdions, C i v i l Aeronautics Board, Washington, D.C. to do -with a i r l i n e appraisals for subsidy allowance. (9) Grace, Thomas, President, S l i c k Airways, Inc., Burbank, C a l i f o r n i a , to do with proposed amalgamation, annual reports, photographs, (10) Hasluck, The Hon. P.H.C. Minister for T e r r i t o r i e s , Commonwealth of Australia, Canberra, A.C.T. . . . . . requesting data regarding Trans-Austral!a and Australian national Airways. (11) Gruneau, 7.C. President, Gruneau Research limited, Marketing Research, £0 BlQor Street West, Toronto, Ontario. submitted criticisms of the survey report submitted by Gruneau Research at the hearing, request-ing Mr. Gruneau's comments regarding same. (IE) Jaworksfci, Dr. A. Research Economist, A i r Transport Board, Wellington Street, Ottawa, Ontario. requesting his views on the data submitted to the Board by Douglas on the behalf of C.P.A. Furnished writer's criticisms of same and requested his comments. (15) Kimball, Leonard S. Director of Public Relations, Plying Tiger Line, Inc. , Lockheed A i r Terminal, Burbank, C a l i f o r n i a . to do with proposed amalgamation, annual reports and photographs. (14) Lee, Josh Member, C i v i l Aeronautics Board, Washington E5, D.C, . . . . . to do with the A i r Freight Case (810 et al.) in f i r s t exchange of correspondence and with the element of surprise i n C.A.B. hearing proceedings i n the second exchange. - 226 -(15) Larsen, Prof. Spencer A. Director, Materials Management Center, School of Business Administration, Wayne University, Detroit 1, Michigan. to do with the Wayne University Air Cargo Studies (16) Levin, Samuel M. Professor of Economics, Wayne University, Detroit 1, Michigan. . . . . . to do with the Wayne Cargo Studies, (17) Lewis, J.H. Chief, Markets Branch, Department of f i s h e r i e s , Ottawa, Ontario. requesting data to do with airborne f i s h t r a f f i c potential and f i s h e r i e s generally. (18) Lewis, John H. Tohn H. Lewis & Co., Members lew York Stock Exchange, 63 Wall Street, lew York City, to do with U.S. A i r freight Industry. (19) B i l l , A.M. Assistant Clerk of the P r i v y Council, East Block, Parliament Buildings, Ottawa, Ontario. to do with A i r Transport Board report to the Cabinet and Cabinet decision release. (20) McSIelland, Paul H. Sea Transport Control, (Pre-war Paci f i c Coast) U.S. Army 9, (I.Y.K. t r a f f i c maager) Seattle, Washington. to do with forecasted P a c i f i c potential. (21) Morrison, Hon. Herbert House of Commons, London, S.W. 1. to do with alleged tendency of govern-ment controlled undertakings to become i n e f f i c i e n t . (22) Murphy, William General Assignments, Dominion Bureau of S t a t i s t i c s , Ottawa, Ontario. D.B.S. data plus Douglas forecast methods. - 227 -(23) Reedy, Robert B. Manager , Sales Engineering, Lockheed A i r c r a f t Corporation, Burbank, C a l i f o r n i a . A i r Freight Surveys, photographs. (24) Reese, R.B. Cargo Sales Manager, U.S. Regional Offices, P h i l l i p i n e A i r l i n e s , 212 Stockton Street, San Francisco, C a l i f o r n i a . . . . . . to do with P a c i f i c potential, present day air cargo a i r c r a f t , general air f r e i g h t future. (25) Reid, E.P. P r i n c i p a l Economist, Department of Agriculture, Ottawa, Ontario. to do with air freighting of perishables. (26) Rump, C.W, Acting Seeretary, Board of Transport Commissioners, Ottawa, Ontario, to do with B.T.C. procedural concepts. (27) Say en, Clarence IT. President, Air Line P i l o t s Association, 55th and Cicero, Chicago 38, I l l i n o i s . . . . . . to do with A.I.P.A. intervention i n the Sl i c k - F l y i n g Tigers merger proceedings before the C.A.B. (28) Reitz, Dr. William A. Associate Professor of Education, Wayne University, Detroit Board of Education, Detroit 1, Michigan. . . . . . to do with Wayne University A i r Cargo Studies. Met with as well as corresponded with Dr. Reitz. (29) Stern. Ben Director, Office of Aviation Information, Department of Commerce, C i v i l Aeronautics Administration, Washington 25, D.C. C.A.A. publications. (30) Superintendent of Documents, Government Printing Office, Washington, D.C. other C.A.B. eases.and transport publications. - 228 -(31) Sweetnam, Alan G. B3f our Guthrie Limited, West Hastings Street, Vaneouver, B.C.! to do with forecasted P a c i f i c potential. (32) Taylor, S.W; Registrar of Companies, Parliament Buildings, Y i c t o r i a , B.C. . . . . . search data to do with Capilano Airways, Limited (a component predecessor of C.P.A.), P a c i f i c Western Airways, Limited (applicant for air coach p r i v i l e g e s across Canada) and Queen Charlotte A i r l i n e s , limited. (33) Tompkins, John B. Editor and Manager, "Motor Carrier," 207 f e s t Hastings Street, Yanc ouver, B.C. . . . . . data to do with highway transport of freight. (34) Turribull, W.J. Deputy Postmaster General Ottawa 4, Ontario. . . . . . data to do with C.P.A. ton-mile mail rates. (35) Wilson, L.G. Okanagan Investments Limited, Kelowna, B.C. to do with history of a i r l i n e consolidations i n B r i t i s h Columbia. (36) Young, CM. Yice-President, Pan American World Airways, Inc., Hew York City. . . . . . to do with combination carriage of freight and passengers hy Pan-Am plus P a c i f i c f r e i g h t data. (37) Williams, R. Director-General of C i v i l Aviation, Commonwealth of Australia, 499 l i t t l e C o l l i n s Street, Melbourne, C . l . Australia. . . . . . to do with Trans-Australia and Australian National Airways together with parliamentary and statutory data. onsiderable correspondence was non-productive and, hence, i s not included i n the above summation. Alaska & The Orient To Prince Rupert To Prince George To Alaska & The Orient To Flin Flon CPA Mi U-OYDMlNSTBl »°*TH BATTLEFORo >THE PAS , p R'NCE ALBERT °0P& Lake Winnipeg R0F, OA Lake ^ASKATOOH Quill Lakes YORKTON Lake Winnipegos\s Lake Dauphib Coo'en, 'AM DAUPHIN CPA C*ANBRI 00K LFTHBR IDGF MEDICI^ TCA TCA S W , F T C U R R M o TCA I f . \''''/ v/o ' W C A 1/V£ Lake St. Joseph )RED LAKE TCA NWA SHELBY g£nC0FUR D . / AfV ly i t VVCA KALISPEI GREAT FALLS) MOTOWN BAKER 0/V0 C/Ty stf/A BUTTE •EG PICKLE LAKE SIOUX LOOKOUT Lake Nipigon 7 AIRLINE MAP OF THE U N I T E D STATES 1953 Compiled by OFFICIAL AIRLINE GUIDE 139 N. Clark St., Chicago 2, Illinois, U.S.A. 0 * E^ KAPUSKASING< P0RQVJ« GRAND FORKS .Red Lafte Rainy Lake FT. WILLIAW1-PT. ARTHUR SCALE 1: 5,400,000 1 INCH = 85.5 STATUTE MILES 1 CENTIMETER = 54 KILOMETERS STATUTE MILES 50 0 50 KILOMETERS 100 150 50 50 100 150 200 Routes and Cities served, corrected up to Dec. 1, 1952 Copyri0h» by AMERICAN AVIATION PUBLICATIONS, Inc. NWA BOZEIVIAH NWA MILES CITY BISMARCK-IV1ANDAN NWA NWA -.FARGO BEMIDJI \ Leech Lake N >DAH0 -EXANDRIA Jfot ]AGG \AH ,'ACKSON (SEASONAL) ,N POWELU %°DY~L0VELL >GREYBVLL BORLAND BRAINERD I A* HIBBING-CHISHOLM DULUTH-SUPERIOR/ Mille Lace £ 0 -Lake clve° c HANCOCK-HOUGHTON ,SAULT STE. MAR* O )^ 0RTtt HR0NW00D RHINELANDER *0N MOUNTAIN )ESCANABA fl\A' t A O C A / NOR SHERIDAN ABERDEEN WATERTOWN MINNEAPOLIS-ST. PAUL HARBOR SPRINGS VAUSAU TRAVERSE CITY (SPEARFISH NOR EAU CLAIRE W A L RAPID CITY (HOT SPRINGS PIERRE WAL HUROr BROOKINGS •— STEVENS POINT- Z WISCONSIN RAPIDSO O MANKATO MITCHELL1 ^SPER s 'LOGAN UAL UAJ-. 0GD> FAL MWLINs SCOTTSBLUFF ALLIANCE -VTAL SIOUX MASON CI ROCHESTER, AUSTIN< 4 /INONA '^^ v LA CROSl s^ Vr NOR, iREEN Laftc O^SHKOSH I'/nncbogO ;SAGIN^ -BAY CITY-N O R .NIILWMJ MUSI; C A P NWA , CAP NHD^ND N l SIOUX CITY. BNF BNF DUBUQUE SPRf NORFOLK :RLOO CED7 VPIDS MADISON^  -$>\ BEL0IT-< JANESVILLE^  R C C K E ^ ^ - - ^ , e&lS/uAiC\\\a JACKSON, ~AA1T £_TWA-UAL_3: m ALLS. 0 ® 0 ^ BCPA-PA, PR-UAL • FTL-r//o/?/vf Lake SLl seuier J-ARAMIE DES IES UAL IOWA CITY NORTH PLATTE GRAND ISLAND J2*L_ LINCOLN AHA -FTL-OTTUMWA. INE-JROGH' FTL' \0 . p i " 1 - ' 'BURLIN£TOls KEOKtJK-. MADISON, |"§LAND-ENPOrTT ///I AH GRAND SLl CEDAR CITY ^AL. MONTROSE pAS0, sAty LUls OBlspJ SANT. SA/Vj \\ A B**BA ^Affo. •lake GRAND CANYON CORTEZ SLl COLORADO SPRII GUNNISON ALAMOSA-MONTE VISTA (QUINCY \N?-S0UT^ , \X<REND \* \ NR.-UAL, ll _CAP-UAL 5? )K0N10> 1 0 U A L o/ A A L A U A L //Ay 0^ ^ S L ' ; T1VA 0 ^ Us*. NI^RION1 ST. JOSEPH / PAIGN: DECATUR SP/lJ)lt3FIELD / LAFAYETTE, NV1LLE IN C A L COLUMBIA , BNF-CALZ •OZA-TWA, -SLl • S^ASONA[} °URANG0 \BMlNGT0N FAL SLl TRINIDAD RATON ELAGSTA FF GALM ?/0 5& ALBUf DIE] T»UAN1 BLYTHE / SA/yV\ FL/ C A L . LA>-— ' R I V / L TUCUMCARTQ DODGE CITY GREAT _BEN-D-HUTCHINSON WICHITA' CHANU7E 0 /ST. TERRE HAUTE BL(|OMINGTO; JO SLl • Lake of the Ozcfrks / R i c y o ^ ~TWA ONCINNA" DAVTON ^ 7 -"gAL P A ' P A I / EVANSVILLE a t / / *>/ 1*- <y \ p C L A U / AAL.7 \ J / « / VI 7 / JODWARD PONCA CITY, 'uo. ENID TULSA' JFFEYVILLE ESVILLE fZ&/'s/r MIAMI A A L - - 2 ^ V-JOPLIN JP^I^GFIEl CAPE GIRARDEAU L0WENSBORO «5 BOWLING^  GREEN CAIRO ~PADUCAH Norr is Res. / / AAL BORGER / JONESBOF PAMPA AMARILLO BNF ,SHAWNE? CENTRQ W A A L '4C YUMA \CUFTON CO Passenger, mail, express and cargo roules. Routes of all-cargo operators. AJO AAA . . . . Allegheny Airlines * A A L American Airlines System * AERONAVES Aeronaves De Mexico * AF Air France * A G Aerovias Guest, S. A. AR Aerolineas Argentinas AREA. , . . Aerovias Equartorianas, S. A. ASA Alaska Airlines ATSA . . . Aero Transportes, S.A. AVIANCA . . Aerovias Nacionales De Colombia, S.A, * BAL . . . . Bonanza Airlines * BCPA . . . . British Commonwealth Pacific BNF . . . , Branlff International Airways * B O A C . . . . British Overseas Airways CAI . . . . Colonial Airlines * C A L Continental Air Lines * CAP Capital Airlines * C D Cla. Dominicana de Aviaclon * CEN . . . . CIA . . . . Central Airlines * Caribbean International Airways CMA . . . . Mexlcana De Aviacion, S.A. * CNA Central Northern Airways CPA . . . . Canadian Pacific Air Lines C&S Chicago and Southern Air Lines CUBANA . . Cia. Cubana de Aviaclon, S.A. * DAL Delta Air Lines * E A L . . . . Eastern Air Lines * EB Brazilian International Airlines EL AL El Al, Israel Airlines EWA . . . . Wiggins Airways F A L Frontier Airlines + F T L Flying Tiger Lines * KLM Royal Dutch Airlines * LACS/4 . , , Llneas Areas Coslarricenses, S. A. * LAI Linee Aeree Italiane LAMSA , . . Lineas Asociadas Mexicanas * L A V Linea Aeropostal Venezolana L C A , , . . Lake Central Airlines MOH Mohawk Airlines * NAL . . . . National Airlines * NEA Northeast Ait lines * NOR . , . , North Central Airlines * NWA Northwest Airlines * OZA . . . . Ozark Air Lines PAA Pan American Airways System * PAI Piedmont Airlines P A L Pioneer Air Lines * PNA , , , . Pacific Northern Airlines PR Philippine Air Lines * QUSA . , , , "Q" Airways OCA Queen Charlotte Airlines REF Aerovias Reforma, S. A. * RID Riddle Aviation SABENA , . Belgian Air Lines SAS Scandinavian Airlines System SLl Slick Airways * SOU Southern Airlines >k SWA . . . . Southwest Airways SWISSAIR . . Swiss Air Lines TACA . . . . Taca International Airlines * TAN Transportes Aereos Nacionales, S.A, TCA Trans-Canada Air Lines * TMC Trans Mar de Cortes TTA . . . . Trans-Texas Airways * TWA Trans-World Airlines * UAL . . , , United Air Lines * USA U. S. Airlines * WAL Western Air Lines * WCA West Coast Airlines SOCORRo Butte Mes, J RUTH ?NCES SILVER CITY. HURLEY CLOWS. ROSWELL LUBBOCK! LAWTON-FT. SILL 'LAINVIEW ARDMORE C A L (WICHITA FALLS OKMULGE, J)EN1|IIM 1USK0GEE Kentucky Res. A A L FT. SMITH CAP / McAllEST/R HOT SPRINGS Q^CB^/ >DURAN>f H i J^| E CLARKSDALE, BLUFF PARIS, NOGALES CANANEA PAL '-AS CRUCES FAL. CARLSBAD C A L 10BBS Bit 'SPRING ; A > SWEETWATER P A J - P / I O MINERAL WELL" P A F A A L ABILENE Wilson Lake TUPELO 1 junteraviUf Res. GADSDEN F A L ^ N t f E R S % ATHENS WIN CApTp^7| LYNCH; kt^jTWA, 30$ EAL/-^CAP PAI PAI ^#0 HO GREENVILLE GREENWOOD COLUMBUS DAL N U f V 0 CASA!> GRAND^f -HERWOS/L LO AAL MIDLAND-ODESSA )PEC0S TYLER T T A iKTON McCAMEY SAN ANGELO 3WNW00D VACO MARFA-ALPINE~" DEL RI0~ BRYAN A^NA ^ A L . [ONGVIEW-KILGORE 5LADEWATEB JACC >EL DORADO TUSCALOOS BIRNllNGHAj LA GRANGE ( DAL j t / p A l . .WE.* 8 * u\ray a1 0 R ENCt W\EW\H DAL IREVEPORT N ALEXANDRIA" • O SELMA COLUMBUW 7 MONROE D A L MERIDIAN, ~DA~L p A l -)NTG0MERY JACKS 'NATCHEZ HATTIESBURG JOTHAN LOUSTO J ^ L A K E CHARLES , 7BEAUM0NT-^PORT ARTHUR 0 > LAFAYETTE-NEW IBERIA row ROUGE MOBILE, MAR1ANNA; N A L i VTRIE WA>( L^DOSTA CiAL SOU" N A L GAINESVILLE Hi BEACH N O N - S T O P D O M E S T I C R O U T E S EAST —WEST New York — Chicago— Los Angeles: AAL, TWA, UAL New York—Chicago — San Francisco: TWA, UAL lew York — Washington — Dallas — San Francisco: A> New York — St. Louis — Los Angeles: TWA New York — Twin Cities — Seattle: NWA Chicago — Denver — Portland — Seattle: UAL Chicago — Seattle: NWA Washington — Tulsa — ") Oklahoma City — San Francisco: j Washington — Denver — San Francisco: UAL Washington — Chicago: AAL, CAP, TWA, UAL Atlanta — New Orleans — Dallas: DAL NORTH — SOUTH New York — Miami: EAL, NAL Washington — Miami: EAL, NAL New York — Birmingham — New Orleans: CAP New York — Houston: EAL Chicago — Miami: DAL, EAL Chicago —Dallas: AAL, BNF Chicago — St. Louis — Houston: C&S San Francisco—Portland — Seattle: UAL, WAL • Please refer to OFFICIAL AIRLINE GUIDE or airline timetables for details of services avai lable. / CHIHUAHUA UVALDE 5ALVEST0N ROSAL -AGLE PASS PUERTO CORTES ClUDAD O> PARRAL NUEVO LA/EDO LAREDO ALICE TTA :ORPUS CHRIJ LORETt LOS MOCHis MASAVE" MISSION J McALLEN/ EDINBURf HARLINGEN TORREON LAMSA GULIACAN TEXACO AVIATION PRODUCTS ARE USED ON AIRLINES MARKED WITH (*) STAR To MexicbSQity ATSA 5R0WNSVILLE/ 'MATAMOROS iNS N A J ^ ST PETERSBUJ CLEARWAT/* ARflSOTA-dRACtNTON LAKELAND \ ^ A FOR OVER 15 YEARS MORE REVENUE AIRLINE MILES IN THE U. S. HAVE BEEN FLOWN WITH TEXACO AIRCRAFT ENGINE OIL THAN WITH ANY OTHER BRAND LST FT. MYERS TEXACO Lubricants and Fuels F O R T H E A V I A T I O N I N D U S T R Y BEACV 'PAA HASSAH KEY VJEST^ To luani fibbean To Gu To La Paz To Guatemala To Mazatldn To Mexico City To Mexico City To Mexico City To Tampico To Mexico City To Central & S. America To Mexico City To Havana & S. America To Grand Cayman To S. America To Havana & S. America To Caracas To San Juan To Jamaica To San Juan & S. America 


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