PAGENO="0001" I ~ ( (1 IMPACT OF INTERLINING ON COMMUTER AIRLINES (95-51) DEPOSITORY HEARING BEFORE THE SUBCOMMITTEE ON AVIATION OF THE COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION HOUSE OF REPRESENTATIVES NINETY-FIFTH CONGRESS SECOND SESSION MARCH 18, 1978; AT MIAMI, FLA. Printed for the use of the Committee on Public Works and Transportation r~' 0 U.S. GOVERNMENT PRINTING OFFICE ss-su 0 WASHINGTON : 1978 / RUTGEt~S LPW SCHOOL L~B~Pt~ I CAMDEN, N. J. 08102 GOVERNMENT D3CM~J~ PAGENO="0002" COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION HAROLD T. (BIZZ) JOHNSON, California, Chairman RAY ROBERTS, Texas JAMES J. HOWARD, New Jersey GLENN M. ANDERSON, California ROBERT A. ROE, New Jersey TENO RONCALIO, Wyoming MIKE McCORMACK, Washington JOHN B. BREAUX, Louisiana BO GINN, Georgia DALE MILFORD, Texas NORMAN Y. MINETA, California ELLIOTT H. LEVITAS, Georgia JAMES L. OBERSTAR, Minnesota JEROME A. AMBRO, New York HENRY J. NOWAK, New York ROBERT W. EDGAR, PennsylvanIa MARILYN LLOYD, Tennessee JOHN G. ~FARY, Illinois TED RISENHOOVER, Oklahoma W. G. (BILL) HEFNER, North Carolina DAVID L. CORNWELL, Indiana ROBERT A. YOUNG, Missouri DAVID E. BONIOR, Michigan ALLEN E. ERTEL, Pennsylvania BILLY LEE EVANS, Georgia RONNIE G. FLIPPO, Alabama NICK JOE RAHALL II, West Virginia BOB STUMP, Arizona DOUGLAS APPLEGATE, Ohio PRoFESSIONAL STAET RICHARD J. SULLIVAN, Chief Counsel LLoYD A. BIVARD, Chief Engineer LESTER EDELMAN, Counsel LARRY REIDA, Minority Counsel ROBERT K. DAWSON, Administrator Eanon L. TYLER, Associate Counsel DAVID A. HEYMSFELD, Assistant Counsel (Aviation) DAVID L. MAHAN, Assistant Coufl8el (Aviation) JOHN F. FRYER, Assistant Counsel (Transportation Regulation) CLYDE WOODLE, Transportation Engineer JAMES H. SCOTT, Staff Member (Budget) DARRELL NETHERTON, Assistant Counsel JOAN M. K0vALIC, Staff Member (Water Resources) GORDON E. WOOD, Assistant Minority Counsel JACK SCHENENDORF, Assistant Minority Counsel RICHARD A. ASHWORTH, Associate Minority Counsel DOUGLAS COPLEY, Minority Staff Member (Aviation) RICHARD C. BARNETT, Minority Economist CHARLES C. ZIEGLER, Assistant Minority Counsel JEFFREY O'NEILL, Minority Staff Member Smrr ASSISTANTS DOROTHY A. BEAM, Eo,ecutive Staff Assistant ERLA S. YOUMANS, Minority Ea,ecutive Staff Assistant JOSEPH A. ITALIANO, Editor CATHY EVANS, Calendar Clerk Cv ANDERSON, JR.; TRULY BURTON; STERLYN B. CARROLL; ANN CLINEBUEG; RUTH S. CoS- TELLo; LINDA Cox; MAR3ORIE D0wLING; MARVIN EVANS; ROGER FUREY; AGNES GANUN; CAROL GRANVILLE; JANET HOOBLER; MACHELE IRBY; ROBERT F. LOFTUS; WALTER MAZAN VIRGINIA MIDDLEDORF; SHIRLEY N0v0TNY; NICK ScHoLz; ROBERT F. SPENCE; T0BY STEIN; NELL TALBERT; DENISE VALENTINE; OLGA WYNNYK BARBARA BANNISTER; KAREN LARISON; Jo LOUGULIN; CHERYL MEYERS; ALISE PEYTON; C0LLEEN RAINEY; ANNADELE RASZICK; PAT STONE * WILLIAM H. HARSHA, Ohio JAMES C. CLEVELAND, New Hampshire DON H. CLAUSEN, California GENE SNYDER, Kentucky JOHN PAUL HAMMERSCHMIDT, Arkansas BUD SHUSTER, Pennsylvania WILLIAM F. WALSH, New York THAI) COCHRAN, Mississippi JAMES D. ABDNOR, South Dakota GENE TAYLOR, Missouri BARRY M. GOLDWATER, JR., California TOM HAGEDORN, Minnesota GARY A. MYERS, Pennsylvania ARLAN STANGELAND, Minnesota ROBERT L. (BOB) LIVINGSTON, Louisiana (II) PAGENO="0003" III SUBCOMMITTEE ON AVIATION GLENN M. ANDERSON; California, Chafrman TENO RONCALIO, Wyoming DALE MILFORD, Texas ELLIOTT H. LEVITAS, Georgia W. 0. (BILL) HEFNER, North Carolina ROBERT A. YOUNG, Missouri BOB STUMP, Arizona NORMAN Y. MINETA, California JEROME A. AMBRO, New York ROBERT W. EDGAR, Pennsylvania JOHN G. FARY, Illinois ALLEN E. ERTEL, Pennsylvania BILLY LEE EVANS, Georgia RONNIE G. FLIPPO, Alabama NICK JOE RAHALL II, West Virginia GENE SNYDER, Kentucky * JOHN PAUL HAMMERSCHMIDT, Arkansas THAD COCHRAN, Mississippi JAMES ABDNOR, South Dakota GENE TAYLOR, Missouri BARRY M. GOLDWATER, JR., California BUD SHUSTER, Pennsylvania WILLIAM F. WALSH, New York DARREL STEARNS, Profes8ionai staff Member HENRY PFLANZ, Minority Prof e88ional Staff Member PAGENO="0004" PAGENO="0005" CONTENTS TESTIMONY Páge Bervaldi, Frank V., president and chief executive officer of AAT Airlines, Inc. doing business as Air Sunshine; accompanied by Adrian Naranjo, executive vice president and general manager; Thomas A. Stevens, as- sistant vice president of public relations; Robert J. Paterno, counsel for the airline, and Emillo Dirube, vice president of traffic and sales 38 McMaster, Jim, southern regional manager of Florida Airlines 102 Marthaler, Larry, director of sales of Florida Airlines 102 Morgan, Ray, president of Panhandle Airlines 32 Timoner, Eli, president of Air Florida; accompanied by Richard T. Scully, senior vice president for operations; and C. R. Bergner, senior vice presi- dent for marketing 17 Van Arsdaie, John C., president of Naples Airlines 110 Weidner, Donald W., executive assistant to the chairman of the Florida Public Service Commission 2 MATERIAL RECEIVED FOR THE RECORD Bervaldi, Frank V., president and chief executive officer, Air Sunshine, news articles, charts, related exhibits. 59 Hardin, Doyle E., general manager, Marco Island Airways, Inc., statement 114 Systems Analysis and Research Corporation (SARO): Technical report "Florida Intrastate Aviation Study" 116 Timener, Eli, president, Air Florida, statement 6 (V) PAGENO="0006" PAGENO="0007" IMPACT OF INTERLINING ON COMMUTER AIRLINES SATURDAY, MARCH 18, 1978 HOUSE o~' REPRESENTATIVES, SUBCOMMITTEE ON AVIATION OF THE COMMITTEE ON PUBLIC WORKS AND TRANSPORTA"I'ION, Miami, Fla. The subcommittee met at 9:07 a.m., in the commission chambers Room 250, Dade County Courthouse, Hon. Glenn M. Anderson (chair~ man of the subcommittee) presiding. Present: Representatives Hammerschmidt, Shuster, and Fascell. Also present: Mr. David Heymsfeld, assistant counsel, Mr. Darrell Stearns, professional staff member, and Mr. John Stratton, minority professional staff member. Mr. ANDERSON. The meeting of the Aviation Subcommittee will come to order. At today's hearings of the Aviation Subcommittee of the Public Works Committee we are concerned with the commuter airlines in Florida and how these airlines are being affected by the authority which Congress granted to Air Florida last fall. On November 9, 1977, the President signed into law H.R. 6010. One of the provisions of this law allows intrastate airlines in Flori- da to enter into through-service and joint-fare agreements with inter- state air carriers. We needed legislation to allow this, because, under prior law, intra- state carriers were not allowed to offer through-ticketing and baggage services for passengers connecting with interstate carriers. For example, if a passenger wished to travel on Air Florida between Miami and Tampa, and then to connect with Delta Airlines, to fly to Atlanta, the passenger would have to purchase separate tickets from the two airlines, and then he would have to transfer his own baggage at Tampa. The law we passed allows Air Florida and an interstate carrier, such as Delta, to enter into an agreement which would permit a Miami- Atlanta passenger to purchase a single ticket at a joint fare. The agreement would also allow the two airlines to provide baggage transfer services. When we passed this law, Congressman Fascell, and other Florida Congressman expressed concern at allowing Air Florida to enter mto these joint-fare agreements, because this might give Air Florida an unfair competitive advantage over commuter airlines in Florida. In the debates on H.R. 6010, I promised that the Aviation Sub- committee would monitor the situation carefully and hold hearings on the problem in the early months of 1978. (1) PAGENO="0008" 2 This is the background of today's hearings, where we will receive testimony on competitive situations between Air Florida and the com- muter airlines. I am very happy to have with us today here other members of the subcommittee, ,John Paul Hammerschmjdt from Arkansas; and Bud Shuster from Pennsylvania. We are particularly pleased to have the great Congressman from this area, who is one of our great leaders in the House-Dante Fascell. Dante, would,you like to welcome us? Mr. FASCELL. I would. Mr. ANDERSON. Say whatever you would like. Mr. FASCELL. I am delighted to have you here. I also want to thank you and the members of the committee for taking the time to come here to hear these folks. It is a very important issue, and we are extremely grateful to you. Mr. ANDERSON. Thank you, Dante. John Paul, would you like to say something? Mr. HAMMERSCHMIDT. Only that I am delighted to be in Dante Fascell's territory. We know the keen interest that he and other members have in this interline matter. It is a pleasure to be here to listen to what the witnesses have to say. Mr. ANDERSON. Congressman Bud Shuster, of Pennsylvania-in ad- dition to being a member of the subcommittee-is also the Chairman of our National Transportation Policy Study Commission, whose job is-in about a year from now-to give us a full national transporta- tion policy study, along with recommendations. We will expect a good report from him at that time. Mr. SHUSTER. Mr. Chairman, thank you, and it is great to be here in Dante Fascell's congressional district. You certainly do have an outstanding leader in the Congress, rep- resenting you. You are right, Mr. Chairman; I am here wearing two hats-the second one being as the Chairman of the National Transportation Commission that you referred to, so I am very much interested in listening to this testimony today. Thank you very much. Mr. ANDERSON. We have a statement on behalf of Paula Hawkins, chairman of the Florida Public Service Commission, which will be given by Don Weidner, assistant to the director of the Florida Public Service Commission. Mr. Weidner. STATEMENT OF DONALD W. WEIDNER, EXECUTIVE ASSISTANT TO CHAIRMAN PAULA HAWKINS, FLORIDA PUBLIC SERVICE COMMISSION Mr. WEIDNER. Thank you, Mr. Chairman. Good morning, my name in Donald W. Weidner and I am executive assistant to Paula Hawkins, chairman of the-Florida Public Service PAGENO="0009" 3 Commission. Chairman Hawkins regrets that she is unable to be here this morning but she is out of the country on a brief vacation. Mrs. Hawkins asked that I appear here this morning to exj~ress her support for the provisions of H.R. 6010, which allows interlining by Florida's intrastate air carriers. The chairman supports that provision because of the tremendous benefits it provides for Florida's citizens and those who come to visit Florida. Essentially there are three benefits resulting from this section of H.R. 6010, which are of in~portance. First, under the interlining provisions, airline passengers in Florida may now obtain through ticketing even though a part of their trip will be on an intrastate airline. Prior to the advent of this bill we had received numerous complaints regarding the inconveniences en- countered when a passenger had to purchase separate tickets for por- tions of a trip. Even more common, were complaints about the inability to turn in unused tickets-particularly when the passenger was now in a city not served by the intrastate carrier. The second advantage is a companion to the first-the availability under H.R. 6010 to check baggage through to the final destination even though part of a trip is on an intrastate carrier. Prior to H.R. 6010 we had also received numerous complaints about the problems encountered when, for example, a passenger landed at Tampa Inter- national had to go into the main terminal all the way down to the baggage claim area, find his baggage, then back up to the ticket area, check the baggage, and then go all the way back out to a gate right next to one he had arrived at originally-and all in a limited period of time. Not only is this an inconvenience to the passenger, but it is also wasteful and, therefore, expensive for the airlines since more employees must spend more time with such customers. The last advantage which I wish to discuss deals with the size of aircraft utilized by the intrastate carrier. Prior to H.R. 6010, in order for an intrastate carrier to have the benefits of interlining, the carrier also had to be certificated or exempted by the CAB. Along with exemp- tion, however, were various restrictions on aircraft size. Generally, the intrastate carrier was limited to flying small (less than 31 seat) aircraft. Under H.R. 6010 our intrastate carriers need not obtain the CAB certification in order to interline, therefore the CAB restric- tions on aircraft size need no longer be applicable. I believe this will eventually work to the benefit of intrastate airline passengers since, hopefully, the airlines will begin upgrading to jet aircraft. There are many potential passengers in markets served only by an intrastate state airlines who have confied to me that they are simply afraid to fly on a small prop-driven airplane. Finally, a word should be said about objections to 6010~ Since the bill was first proposed, I have tried hard to find out what, if any, objections exist to it. In all honesty, I `have not learned of one single objection which applies directly to this provision of 6010. The only oh- jections I have heard relate to what might happen if deregulation occurs-or what might happen if one airline applies to the Florida PSO for extension of route authority and after a full review of the evidence presented, the FPSC votes to grant the application. With all PAGENO="0010" 4 due respect to those raising such arguments, I find them totally in- valid; 6010 is a great benefit to those traveling by air to and within Florida. It should be judged solely on its merits. The battle over deregulation should be fought over the bills which provide for deregulation just as `route a~ithority requests med with the Florida Public Service Commission will be judged solely on the evidence presented in hearings on the request. On behalf of Chairman Hawkins, I sincerely appreciate the op- portunity to appear before you and we appreciate your coming to the Sunshine S4ate for these hearings. Mr. ANDERSON. Thank you, Mr. Weidner. As I understand it, some commuters are concerned that the PSC might award Air Florida authority to serve markets that are now being served by commuters. If this occurred, the commuters believe that Air Florida's large air- * craft authority and its interlining authority from H.R.. 6010 would give it a great competitive advantage over commuters. Suppose that Air Florida applied to the PSC for authority to serve a commuter market. * In reaching its decision, would the P50 consider the impact on a commuter of an award to Air Florida ~ Mr. WEIDNER. I believe it would. The law mandates that we look into the necessity of the service that is going to be provided: Is there going to be a necessity for that service? Of course, we would have to look at whether the present carrier were serving the market well, and whether there would be a need for addi- tional service to that market. Mr. ANDERSON. In other words, you do consider the economic impact upon the commuters? Mr. WEIDNER. Yes, sir. Mr. ANDERSON. Do the certificates.which the PSO gives commuters limit the size of aircraft that they may use? In other words, could a commuter use the same aircraft as Air Florida? Mr. WEIDNER. I believe so. There may be-I am not certain whether they have to get permis- sion to upgrade, but, generally, that is just a perfunctory thing; as a matter of fact, we have a couple of applications coming up now, where carriers requested to go up to larger aircraft, and the staff recom- mended them favorably in record time. The commission has not acted upon them yet. Mr. ANDERSON. If Air Florida made application, about how long would it take the P50 to reach a decision? Mr. WEIDNER. That depends on a lot of different factors. The first factor is: Are there any protests to the route authorityj request? If Air Florida requested temporary authority, and there were no objections to the request, they could get that authority in a very short period of time-perhaps a month. If there were protests to the authority, then it would be up to the commission to decide whether to grant it on a temporary basis or PAGENO="0011" 5 whether to deny it on a temporary basis, pending the outcome of full hearings, and the full hearings could take several months. Mr. ANDERSON. Does the PSC regulate commuters operating under CAB exemptions? Mr. WEIDNER. We regulate any intrastate commuter. Mr. ANDERSON. Do you consider commuters in Florida intrastate? Mr. WEIDNER. If I understand your question: Yes. Mr. ANDERSON. To follow up on the previous question-Does the PSC regulate commuters operating under CAB exemptions? Are the PSC's regulations compatible with the CAB's regulations? Mr. WEIDNER. In what particular area, Congressman? Mr. ANDERSON. Are there any conflicts between your rulings and ours, or do they work together? Mr. WEIDNER. I am unware of any specific conflicts between them, and, if there are any, I am unaware of them. Mr. ANDERSON. We do not regulate the commuters at all. We do not regulate the fares or- Mr. WEIDNER. That is right. Mr. ANDERSON. You step in there and do it; is that correct? Mr. WEIDNER. That is correct. Mr. ANDERSON. Mr. Hammerschmidt? Mr. HAMMERSCHMIDT. Thank you, Mr. Chairman. I do not have any questions. I think that, from your questioning, Mr. Weidner has made their position on this matter and their activities very clear. I regret that Paula Hawkins is not here-not that you did not do a fine job-but because she is a personal friend. I hope that you will extend to her my best. Mr. WEIDNER. I surely will. Mr. HAMMERSCHMIDT. Thank you very much. Mr. ANDERSON. Mr. Shuster? Mr. SHUSTER. Thank you, Mr. Chairman. If my understanding is correct, a commuter here is defined as: less than 30 seats-30 or fewer seats. Mr. WEIDNER. Well- Mr. SHUSTER. If that is not correct, how do you define a commuter airline? Mr. WEIDNER. I do not know that we define a commuter airline, per Se. The intrastate airlines are the ones which we regulate, and those are just the ones that fly solely within Florida. We regulate all intrastate airlines. Mr. SHUSTER. In other words, you do not differentiate between a commuter and-~ Mr. WEIDNER. I do not think that, specifically, we do; no. Mr. SHUSTER. Thank you. Mr. ANDERSON. Mr. Fascell? Mr. FASCELL. Mr. Chairman, you asked the $64 questions; thank you. Mr. ANDERSON. Thank you, Mr. Fascell, and thank you, Mr. Weidner, for your testimony. Mr. WEIDNER. Thank you. PAGENO="0012" 6 Mr. ANrn~nsoN. The next witness will be Mr. Eli Timoner, presi- dent of Air Florida; accompanied by Mr. 0. Edward Acker, chair- man; Mr. Richard T. Scully, senior vice president for operations, and Mr. 0. R. Bergner, senior vice president for rnarketmg. Mr. Timoner, we do have your prepared statement, and it will be made a part of the record at this point. [Statement referred to follows:] STATEMENT OF Eu TIMONEB, PRESIDENT, AIR FLORIDA Congressman Anderson, Members of the Committee: We are grateful for the opportunity to give testimony today and put to rest concerns that some may have bad that legislation enabling Air Florida to interline passengers and bag- gage with CAB certificated air carriers represents a threat to the Commuters. Gentlemen, let me tell you that this is a paper tiger. Air Florida's routes have been awarded either as a result of grandfathering under the Florida Air Carrier Act of 1972 or by the hearing process in which public convenience and necessity were demonstrated before the Public Service Commission (PSC) of the State of Florida. It is not possible, therefore, for us to fly any new routes without Due Process. Consequently, Air Florida cannot "fly over" the routes of any Commuter just because it chooses to. * It is a matter of fact that subsequent to the passage of H.R. 6010, Air Florida withdrew the two route applications it had which could have put it in conflict with Commuter carriers, and instead has filed for and been awarded temporary authority to start service between Daytona Beach and West Palm Beach to all points on our system. Air Florida has brought service to two communities which were so poorly served previously that it was impossible for people in Palm Beach or Daytona Beach to do business at the State's capital and return in the same day. These are not large markets, they are not served by any Commuters and very poorly served by CAB certificated carriers. Air Florida's new service starting March 1 provides five services a day at Daytona Beach and three at West Palm Beach. To this date it has not been profitable. We are working on the marketing, and building prOgrams with carriers such as Braniff, Continental and others to de- velop and sell connections on Air Florida connecting to CAB carriers through Tampa and Miami to interline passengers who travel to the north and west. With access to the WHOLE market potential, we believe that we can make these routes economically feasible and, together with the stimulation and develop- ment of our low-cost intrastate service, increase the number of flights to these communities. We have to this date signed interline agreements with 13 domestic and international carriers. We have worked out a series of charts which graphi- cally demonstrate the number of connections available utilizing Air Florida's intrastate service with several of the carriers bring people to and from this State. As you can see, there are a myriad of fine connections~ all of which are designed to save residents and visitors of the State time and money. PAGENO="0013" 7 `q&~~J j j(~ JLs ~ *~) ~ :~ *.~ a\- ~ ~ ~-1 >~-t~~: ~ - ~- >K) `ii U w P ~ PAGENO="0014" ~) H ~? -1 E~' ~ - ~j ,:~ ~ < 9 j) j -3 ;~ `\ -ç ~i (-~ C~) -~ »=~ r ~ 4) - ~ < ~ ::~ 1~ 1~ V -1 m &~` ~ :~ z ~) ~ c~r~ ~ -j ~ -I r ~ i1v~ ~-3c~ ~ 7~ -~-1~ ~L1V'F~ ~ç PAGENO="0015" -1 II r -3 ~ ç'~ -~ r~ c3 - I, V -3 -~ ~ 0 ~ 1- P 1-P Q1~-~ PAGENO="0016" E `I' 2 10 J ¼ 2 ~ LL ~ c~. PAGENO="0017" 11 2 LJ~yvo~t~t 6 J `J J ~ t-1~> J ~ J ~ 0 P~ ~ z c~- p L-~ 28-911 0 - 78 - 2 PAGENO="0018" 12 ~ 0 -~ (_-:!: ~±~t -rnt - %) ~1 zrZ.~ ~j ~ ~ `-I) \- ç~ CL `2 ( 1- ~- PAGENO="0019" ~fr? At i M ~ T 13 4' 1 - M~L~ `;fr~ U KQ~~ ~1)j\~3 PAGENO="0020" 14 4th, ~ ~ D ~ o (c~C~~ PAGENO="0021" 15 jJ ~ ~~jc~2 ,~i `U ~) Ui ~ -: çjQ -J PAGENO="0022" 16 On February 10, 1978, we invited Florida Airlines, Naples Airlines, Marco Island Airways and Air Sunshine, Florida's principal Commuter airlines, to join Air Florida in interline ticketing and baggage agreements. As of this date no communication has been received accepting or rejecting this offer and it is unfortunate because the Florida traveling public and particularly residents of the State will be better served once these connections are made available. At a recent hearing before the Transportation Committee of the Senate of the State of Florida, discussing a bill to deregulate the intrastate system in Florida, we pointed out some important statistics which might be useful today. Air Florida is currently carrying at the rate of 500,000 passengers annually and we project passenger traffic at a rate of 1 million passengers per annum by the end of this calendar year. Our average yield is approximately $29.00. As best as we can determine, the yield at CAB rates is approximately $10.00 higher on a composite fare basis throughout the State. That means we are going to be saving our passengers, whether they be residents of this State or connecting passengers on interline, about $7 million this year. It also means we have some 700,000 passengers who work in and visit this State, who think our service and savings are pretty terrific. We were also able to illustrate to the Committee the results of market stimula- tion by both price and increased service in an analysis of the Miami-Gainesville market. In September 1977, we were awarded a route between Miami and Gaines- ville. By December 1977, airport statistics at Gainesville reveal that we were able to carry 4,066 passengers for the month of December in and out of that com- munity. During that month, Eastern Air Lines, the historic air carrier between Miami and Gainesville also reported about 4,000 passengers, the same as they did in December 1976, the prior ye-ar. Therefore Air Florida's December busi- ness in this market represents all new business and is clearly growth in the market by diversion from cars and other means of transportation and represents people who made a travel decision because of the improved service and low fares. We think it is important to address these subjects with consistency. A major effect of HR 6010 on the intrastate carriers in the State of Florida means that the Commuters in this State, which are also certificated by the Florida PSC, can continue to interline without seeking exemptions from the CAB in order to increase the size of equipment etc. Currently, Air Sunshine, which has histori- cally operated DC-~3's has filed for authority with the Florida PSC to change their service between Miami and Orlando, served at Kissimmee Airport, and Miami and Tampa to Convair 440's. Under the Florida Law, this is a Class II aircraft, 50 to 100 seats, versus a Class 111 aircraft, 1 to 49 seats, which they are certificated to use on this route. There is no questien that with improved aircraft and with greater frequencies, Air Sunshine will divert traffic from Air Florida~and we grandfathered these routes. We could object and delay the use of this superior equipment by this airline but we feel that it would not be in the interest of the traveling public for us to contest this change of equip- inent and force a costly and lengthy public hearing process. Again it is important that all parties say and do the same things in Tallahassee that they say and do in Washington. This then is the major single effect on a Commuter as a result of HR 6010. It has freed the Florida Commuters from dual regulation and will undoubtedly afford them greater opportunities for growth. There may be some concerns on the part of the other intrastate carriers in Florida that so-called automatic entry provisions being considered in the Regu- latory Reform Act of 1978 could be used by Air Florida to obtain intrastate authority without the requirement of the hearing process before the Florida P5G. Let me assure all of you that Air Florida would be happy to accept an intra- state exclusion should automatic entry become part of a new law which gave large scheduled intrastates the opportunity to expand their rocte system. It has been stated by some that the passage of HR 6010 allowed Air Florida to avoid the costly process of start up under Federal regulation. We operate, as you know, under F.A.R. Part 121. Until the quarter ended January 31. 1978, when we made our first profit after 5~ years, we had lost over $6 million in operations, we have at this point $15 million in jet equipment dedicated to our business. Certainly no one can claim that we have avoided the high cost of start-up, we have in fact put up the necessary risk capital to build this airline. There are two other items -that we think bear special attention in this discussion, From the point in time when HR 6020 became law until February 28, there have PAGENO="0023" 17 been 69 incidents in which scheduled CAB carriers have delayed or cancelled flights between points that we serve at times relatively close to our departures, due to weather and mechanical problems. During that period of time it is our estimate that more than 2,000 passengers were afforded the convenience of travel on Air Florida using their existing tickets. We were able to accept their baggage from another carrier to be checked through on to Air Florida and to turn over their baggage for an on-going destination, thereby eliminating all the inconveniences suffered by these passengers except for the cancellation of their original flight. Before this law went into effect, these passengers would have had to personally claim their baggage, carry it to our counter, purchase a ticket and return to the carrier that they had been ticketed on in order to obtain a credit or refund. The personnel at our ticket counter had to patiently explain to each of them that Federal law prevented us from accepting their ticket or arranging for the baggage transfer and the cancelled carrier had to do the same thing. The consumer, already late and angry, would have been further frustrated because Federal law prevented us from dealing with the airline at the very next counter. If you want to know the effect of interlining legislation on the commuter and the commuter is written with a small "c" meaning commuter or consumer, then the effect has been beneficial and long overdue and so persuasively in the public's interest as to be the most compelling argument in favor of this law. That concludes our presentation, and we would like to take this opportunity of extending an invitation to our Florida Congressman, the Committee, staff and guests here today to attend the premiere showing of Air Florida's new Multi Media Three Screen Presentation, "We're on our Way". It will be shown today for the first time to our staff at 3:00 P.M. at the Ramada Airport Inn, 3941 N.W. 22nd Street, and we will welcome all those present today who join us at that time. Mr. ANDERSON. Please proceed, Mr. Timoner. TESTIMONY OP ELI TIMONER, PRESIDENT OF AIR FLORIDA; ACCOM- PANIED BY RICHARD T. SCULLY, SENIOR VICE PRESIDENT FOR OPERATIONS, AND C. R. BERGNER, SENIOR VICE PRESIDENT FOR MARKETING- Mr. TIMONER. Thank you, Congressman, and thank you, members of the committee and staff, and Congressman Fascell. We appreciate the opportunity to express our views on this issue. If I may, for a moment, I think I could be helpful on the last ques- tion that was asked. In 1972, when the Air Carrier Act was passed, all carriers-or all airlines-operating within the State came under the jurisdiction of the Public Service Commission. If an airline had been a commuter before that date, then they had the advantage of interlining. If they happened to be operating large aircraft, they did not have the advantage of interlining. If the PSC does not have jurisdiction over the commuters in this State, they sure are wasting a lot of time in Tallahassee, so they do on everything that they do, and I do not think it is a conflict with the CAB; I think it is the contrary-that they probably have more lati- tude as a result of the changes of sizes of equipment. I think the concern that the passage of 6010 represents a threat to the commuters in the State of Florida is a paper tiger. Our routes were either grandfathered or awarded by the hearing process, when we demonstrated public convenience and necessity be- PAGENO="0024" 18 fore the P50, so it is not possible for us to fly over the routes of any commuter just because we choose to; as a matter of fact, subsequent to the passage of H.R. 0010, we withdrew two route applications which we had, and which would have put us in conflict with commuter car- riers, and, instead, we ified for-and were awarded-temporary au- thority to start service between Daytona Beach and West Palm Beach to all points on our system. We brought service to two communities that were previously so poorly serviced that it was impossible for people in Palm Beach or Daytona Beach to do business in Tallahassee and to return on the same day. These markets were not large markets. They were not served by any commuters, and they were very poorly served by the CAB certificated carriers. On March 1, our new service started with five flights a day in and out of Daytona Beach and three ffights a day in and out of West Palm Beach. To this date, these routes are not profitable. We have been working on the marketing of our product in the area, and we have been building programs with carriers such as Braniff, Continental, and others to develop and sell connections on Air Florida to CAB carriers in Tampa and Miami, interlining passengers who travel to the north and to the west. With access to this whole market potential, we believe that we can make these routes economically feasible, and, together with the stimu- lation of our low fare intrastate service, we can increase the number of flights into these communities. Without access to the interline market, there is little likelihood that we could continue to sustain service to these communities. We have, to this date, signed interline agreements with 13 domestic and international carriers. In my presentation, I have included a number of charts which demonstrate the number of connections available, utilizing Air Floi~ida's intrastate service with several of the carriers that bring people to and from this State. There are a great number of connections available, and the connec- tions that we have described in the next number of pages are actually viable and usea.ble connections, and they will soon be featured in the official airline guide and be available through the computer reservation system on these various carriers. What is particularly important to realize is: Most of these connec- tions afford possibilities for people totravel to and from Florida with- out passing through Atlanta and some of the other very high density, difficult points to make connections. The connections demonstrated on the next number of pages are all with carriers with whom we have signed interline agreements. We want to point out that, on February 10 of this year, we invited Florida Airlines, Naples Airlines, Marco Island Airways, and Air Sunshine-Florida's principal commuter airlines-to join Air Force in interline ticketing and baggage arrangements. No conimunication has been received accepting or rejecting this offer. PAGENO="0025" 19 We believe that this is very unfortunate, because the Florida travel- ing public-and particularly the residents of this State-would be better served once these connections were made available. Recently, we were in Tallahassee to discuss deregulation at the State level, before the Transportation Committee of the Senate of the State of Florida, and we were, at that point and at that time, able to point out some things that we thought might be interesting today. In Florida, the composite or average fare or yield works out to about $29 a ticket. As best we can determine, a composite fare on a similar route struc- ture on CAB carriers would cost about $10 more, so, at the current rate at which we are carrying passengers, we are saving the citizens of this State some $5 million a year, since we are carrying passengers at the rate of slightly over 500,000 a year. At the end of this year, we expect to be carrying passengers at about the rate of 1 million a year. We estimate an annual saving to the people using our services of some $7 million in calendar 1978. It also means that 700,000 people who have used this service have enjoyed the benefits of the savings and the frequency of the carrier. We would also like to illustrate to the committee what market stimu- lation of price and frequency has done, and we think that a model that might be used not only in this State, but elsewhere, might be a service between Miami and Gainesville. We were awarded the route in September 1977. By December, we carried 4,066 passengers in and out of `Gainesville- between Miami and Gainesville. Airport statistics reveal that Eastern Airlines, which has historically served the market between Miami and Gainesville, also carried 4,000 peorple in December, as they did in December 1976. It is clear that, in 3 months' time, we were able to generate an addi- tional 4,000 passengers in and out of that market by bringing in low cost and frequent service, which diverted people from the highways, buses, cars, or whatever means of transportation they used, or we created travel opportunities in the first place, which had not existed before, because of price and infrequency of service, and we feel that it is very important that the parties interested in today's discussion address these matters with consistency. There are great benefits to the ability of intrastate carriers, within the State, to be covered under H.R. 6010-particularly in the up- grading of equipment. Air Sunshine, whose primary route is between Miami and Key West, has filed with the Public Service Commission to use their Convair air- craft between Miami and Orlando and Tampa, and they serve Orlando at the Kissimmee Airport. This is a route that is competitive with Air Florida. While we do fly DC-9 equipment, and the Convair is not quite as attractive to the consumer, frequency and good marketing will take passengers away from us, but we do not-we believe that we have every right to get into the hearing process and cause a delay of what- ever that may be. PAGENO="0026" 20 That is not our purpose, and we have no objection to-nor will we voice any objection to-their upgradmg of their equipment; as a mat- ter of fact, we encourage it, because we believe that is the way a fine intrastate system in this State will be developed-as a result of the advantages that H.R. 6010 made available-so we think it is very un- portant that people say the same things in Tallahassee that they say in Washington. All legislation is a double-edged sword, with benefits and disad- vantages, but, by and large, the ability for Florida intrastate carriers to interline tickets and baggage gives such great benefits to the de- veloping intrastate system here that it seems difficult for us to under- stand what objections could be raised. There have been some concerns that-should an automatic entry pro- vision be provided in the regulatory format that is being considered, which provides for certain large intrastate carriers to enter new markets-Air Florida might use this tool as a method to obtain ad- ditional intrastate routes without the hearing process. We would like to publicly state that-should automatic entry in some form be made available to large intrastate carriers-~---we would be happy to accept an intrastate exclusion to automatic entry, if, in fact, we should qualify in the first place. Our interest in obtaining an expanded route structure through auto- matic entry would be to bring our innovative fare structuring and marketing program to an interstate market. We would not use it in an intrastate circumstance, and we would be :happy to be precluded from using it in that way, if tha.t ivould put the fears of some of the other intrastates to rest. We recently heard an argument that Air Florida had avoided the costly start-up, which is required under Federal regulations, so I would like to just describe to you what has been involved in the 5i/2 years of the development of Air Florida, to this date. We have succeeded in losing $61/2 million in operating losses as a result of the price that one pays to get known in the marketplace. We have got $15 million worth of equipment dedicated to this business, and it is all private-risk capital, and we certainly think that qualifies us as having paid the price to start a business, which I am happy to tell you-effective with the quarter ended January 31- turned into its first profit after ~~/2 years of plugging away. There is one other thing that I think graphically would describe what the benefits to the consumer are of interlining. From the period of the passage of H.R. 6010 to February 28, we have counted and can document 69 incidents in which CAB carriers have had delayed or canceled flights between points which we serve at times relatively close to our departures, due to weather and mechanical problems. During that period of time, it is our estimate that just over 2,000 passengers were afforded the convenience of traveling on Air Florida, using their existing tickets. We were able to accept their baggage from another carrier, to be checked through on Air Florida, and to turn over their baggage at an ongoing destination. We eliminated all of the inconveniences suffered by these passengers, except for the cancellation of their original flight. PAGENO="0027" 21 Before this law went into effect, these passengers had to personally claim their baggage and carry it to our counter, and then they had to purchase a ticket, and then they had to return to the carrier that they had been ticketed on in the first place to obtain a refund or a credit. The personnel at our counter had to patiently explain to very frus- trated people that Federal law prevented us from accepting their ticket or arranging for the baggage transfer, and the canceled car- rier had to do about the same thing. The consumer, already late and angry, was further frustrated be- cause the law prevented us from dealing with the airline which was very often at the very next counter. We think that-if this discussion is concerned with the effect of interlining legislation on the commuter, and one thinks of the com- muter as being the commuter or the consumer-the effect has been bene- ficial and long overdue and so persuasively in the public interest as to be a most compelling argument in favor of this law. That concludes my remarks. I did want to take a moment to invite all present today to-it is a comcidence, but we happen to be `having a presentation this afternoon, for the first time of a multimedia production of Air Florida, which is going to be shown to our staff, and we respectfully invite everyone here, if you have the time this afternoon. We think it is a very exciting production, and we would be delighted to have you as our guests. I would be happy to answer any quest~Qns, of course. Mr. ANDERSON. Thank you, Mr. Timoner. I want to get our semantics straightened out here. A moment ago, Mr. Weidner indicated that, in Florida, you do not distinguish between an intrastate carrier and the commuters; that in Tallahassee, they are all treated the same. Mr. TIMONER. Yes, sir. Mr. ANDERSON. In California, it is a little bit different. We have the intrastate carriers, such as Air `California and PSA, that are in one category, and then we have the commuters, such as Golden West. Golden West is considered interstate because, for the most part, everybody they bring to the airports gets on anotherline that is going out of California. Golden West and the other commuters in California are pretty well recognized as interstate carriers, whereas PSA and Air California are the only two intrastate carriers. Can you help me distinguish between how you do this here and how we do it in Califorinia? Mr. TIMONER. Well, we have never operated as a commuter. We started the airline with large aircraft and only qualified as an intrastate- Mr. ANDERSON. It is very similar to PSA? Mr. TIMONER. PSA or Air California, but it is my belief that, when the law went into effect, the State took jurisdiction on any carrier flying on their intrastate routes. In other words, if they fly between Naples and Tampa, that is an intrastate route, and the public service commission took jurisdiction over it, and, of course, at the same time, while they impose a certain PAGENO="0028" 22 amount of regulation, they also put the protective process in, as well, because another commuter cannot decide to fly competitively between Naples and Tampa without demonstrating to the public service com- mission that there is a need for that service, so the intrastate sys- tem-the development of the intrastate systeI~n was taken under the jurisdiction of the public service commission, with the view of build- ing a low-cost high-density intrastate airline system. - Mr. ANDERSON. Do I assume, then, that most commuters in Florida carry people just from two places within the State, and that the pas- sengers do not then get on an interstate carrier? Mr. TIMoNi~at I believe that a large portion of them get onto an interstate carriei', but I believe that they have maintained a dual authority. They have been regulated by the public service commission as to the rates and routes within the State, and they have had the advan- tages of the ability to interline passengers and baggage-to receive and deliver passengers and baggage from the scheduled interstate carriers. Mr. ANDERSON. `Since H.R. 6010 was enacted, have you entered into anyjoint-fare arrangements with any interstate carriers? If so, are the fares determined by the CAB formula? Is the division of revenues between the carriers determined by the CAB formula? Mr. TIMONER. As I have stated, we have entered into 13 arrange- ments to this date, with foreign and domestic carriers, and we have a number of additional ones pending, and I would like to ask Mr. Bergner to-he is our vice president for marketing. I would like to ask him to discuss the fare basis. Mr. ANDERSON. Mr. Bergner. Mr. BERGNER. No; we have not signed any agreements with the car- riers, as they relate to our fare structure. We are an add-on fare, which I believe is how the bill was written. There is nothing less than our existing intrastate fares. Mr. ANDERSON. The fares, then, are not determined by the CAB formula? Mr. BERONER. No; not at this point. We are not a member of Squires' Tariff, nor are we in any of the passenger rules at this point in time. It is a part of the negotiation that we have got to conduct. Mr. ANDERSON. The division of revenue between the carriers is not determined by the CAB formula; is it? Mr. Tmio~m~n. No; it is not on a pro rate basis, based upon the mile- age or-it is strictly an add-on fare. Mr. ANDERSON. I know that you have partially answered the next question. I gather, from your testimony, that you are familiar with the re- form legislation Congress is now considering. If this legislation is enacted, is Air Florida likely to try to obtain a CAB certificate or to participate in CAB automatic entry programs? Would you be deterred from taking a CAB certificate if this meant State regulation would be preempted and Air Florida would be regu- lated exclusively by the CAB? PAGENO="0029" 23 You are aware of the bill and how it is moving; are you not? Mr. TIMONER. Yes; I am. The first part had to do with: If there were automtic entry, would we be interested in participating? Yes; we would be, and we would accept jurisdiction of the CAB, you know, if it were imposed as a result of the fact that we had automatic entry in the first place. It was my understanding for some time that the determination was based upon where your business were derived from, and, if more were as a result of interstate activity-more than 50 percent-that would be where you would fall under `CAB jurisdiction. I have understood lately that it is as much as 1 percent. Mr. ANDERSON. Our original bill that was introduced was 50 percent. If the revenues went to as much as 50 percent interstate, then you were totally regulated by the CAB. That was then changed, and a sort of a concensus bill was put to- gether for markup, and we changed that to 25 percent. We went into markup the other day, and they struck out the per- centage entirely, and the provision that appears in the bill right now, that we are still in the process of marking up-if you decide to go interstate at all, or if you cross the state line, you then become a total interstate carrier, and all of your intrastate lines would be interstate. Mr. TIMONER. It is our feeling that we would accept the jurisdiction of CAB coverage if we moved into interstate commerce. Our main concern would be the protection of the low-fare marketing package that we have, which we feel was very beneficial to the people in this State, and, as long as the other provisions in the act provide the amount of latitude in pricing down, which I gather would also be included so that we would continue with the present fare structure and the rest of our marketing program, we would be happy to be covered under the CAB once we entered into interstate routes. Mr. ANDERSON. Does Air Florida now have any routes where it com- petes with commuters? Mr. TIM0NER. No. Mr. ANDERSON. Does Air Florida plan to file any applications with the PSC for routes now served by commuters? Mr. TIM0NER. At the present time, we `do not plan `any filing, but I must tell you that we are a growing company, with a growing demand for our services, and we regularly conduct market surveys on our aircraft and ask our customers what they like and what they do not like about what we are doing, and where they would like us to go next. We went to Daytona Beach and Palm Beach in the first place because those communities came to us and asked us to start service. Their chambers of commerce and their aviation committees and State legislators and State senators and representatives-there present- ly are two communities that asked us to start service, and they dis- cussed with us ways that they might help us financially, if we would be willing to put service into the communities. Now, sooner or later, there are going to be communities-communi- ties that are served by commuters-that are going to ask us to do that. If our determination is that there is a market that is not being properly served, and we think it is in the public interest to ifie for the PAGENO="0030" 24 route, we will try to demonstrate that we can bring in improved service and better transportation to the area. Mr. ANDERSON. Mr. Hammerschmidt. Mr. HAMMERSCHMIDT. Thank you, Mr. Chairman. In the major Federal involvement in your airline just the aircraft operating certificate that you get from the FAA? Mr. TIMONER. Yes; we are under part 129; that is correct. Mr. HAMMERSCHMIDT. Your carrier's certificate is by the public service commission? Mr. TIMONER. That is correct. Mr. HAMMERSCHM1DT. Where would the projected expansion that you mentioned in your testimony-500,000 passengers to 1 miffion passepgers-come from? What market would those passengers come from? Mr. TIMo~1ui. The eight cities that we serve right now. Mr. HAMMERSCHMIDT. You are presently serving those cities? Mr. TIMo~en. Yes. Mr. HAMMERSOHMIDT. That would be without extending into other markets? Mr. TIMoN]~. Not interstate markets. We have five DG-9 jets now, and we expect that, by the end of the year, we will have eight. The only service that we provide now, which we consider somewhat similar to the level that Congressman Anderson is familiar with in California is our Miami-Tampa and Miami-Jacksonville service, in which case we have seven services a day in each direction. We have a route to Orlando, which we serve twice a day, and to other communities that we serve less than that, so we would expect to build with more product in the markets we have and to perhaps ifie for othei'. markets which require service. Mr. HAMMERSOHMIDT. You do not fly outside of the State of Florida? Mr. TIMoi~n~R. No; we have no scheduled service outside of the State of Florida. Mr. HAMMERSCHMIDT. Do you do charter activity- Mr. TIMONER. Yes. Mr. HAMMERSCHMIDT [continuing]. Outside of the State of Florida Mr. TIMo~R. We do charter activity for the casino interests in Freeport, in which the passengers do not pay for any part of the transportation, but they are the guests of the casino. We do a certain amount of that, and we do a certain amount of intrastate charters for various groups, teams and so forth and so on, within the State. Mr. ANDERSON. Mr. Shuster. Mr. SIIus~rER. Thank you, Mr. Chairman. I have before me a map of Florida, showing various air routes of Air Florida and the various commuters, and one line shows Miami- Orlando for Air Florida. I think you mentioned just a minute ago that you serve Orlando to Miami. . . There is another line-a blue ime-which shows Air Sunshine fly- ing from Orlando to Miami. PAGENO="0031" 25: Perhaps I misunderstood you 5 minutes ago, or so, when you said that you were not competing with any commuters. Would this not be competition between Air Florida and Air Sunshine? Mr. TIMoi~u~R. Yes, Congressman Shuster; I was incorrect. Air Florida was grandfathered on that route between Miami and Orlando, and Air Sunshine filed to serve Orlando at the Kissimmee Airport, and the* public service commission granted them the route, so they fly over us. Mr. SHUSTER. If I am a passenger who is coming from Pennsylvania and flying across the State line into Florida to Orlando, and I want to get from Orlando to Miami, I have at least two choices, if not more. I see at least two. I can go Air Florida, or lean go Air Sunshine. Air Florida has an interlining capability. Does Air Sunshine? Mr. TIMONER. Air Sunshine always had interlining capability. Before the passage of 6010, they were a commuter, and they always had that. Mr. SHUSTER. What would the difference be to me, as a passenger who is flying into the State of Florida, to Orlando, in having to make a judgment to go on to Miami? Do I go Air Florida, or do I go Air Sunshine? Do I have to pick up my bags? You are telling me: No. In either case, would I have to? Mr. TIMONER. In that particular case, Congressman Shuster, the problem would be that Air Sunshine services into the Kissimmee Air- port, and, if you came in from an out-of-State location, you would have landed at McCoy, where most of the other carriers are, and you would have to take ground transportation to get to the other airport. That probably is not a fair question. At McCoy, you would have the choice of the Delta, National, Eastern, Southern, or Air Florida flights down to Miami. Mr. SHUSTER. What I am trying to get to and to understand is: Is there some unfair advantage that you have by your being able to interline? As I understand it, commuters can interline- Mr. TIMONER. That is correct. Mr. SIrn5TER [continuing]. And previously you could not. Mr. TIMONER. That is correct. Mr. SHUSTER. So, one could, in fact, turn the coin around and say that, until 6010, you were discriminated against. You did not have the ability to interline; is that correct? Mr. rIIIM0NER That is correct. Mr. SHUSTER. The commuters, however, did have the ability to interline, so, giving you that ability simply gave you the same thing that commuters already had; is that correct? Mr. TIM0NER. That is correct. Mr. SHUSTER. Educate me on this 30-seat differentiation. What happens if a commuter goes to 30 or more seats? Something happens here; does it not? PAGENO="0032" 28 Mr. TIMo~R. In the State of Florida, under the dual certification or dual regulation, they file to change from class 3 to class 2 aircraft, and they have over 50 seats, and, as the gentleman from the Public Service Commission said: "If the staff recommends it, it is pretty much an automatic process," so they could become a. jet airline. Mr. SHUSTER. The implications are simply that they can fly it, and- Mr. TIMONER. They can fly it, and they can continue to interline, because, once 6010 passed, and they had the ability to interline because they were a Florida interstate carrier, certificated by the public serv- ice commission of the State of Florida, they could move to better equipment without going through the CAB process, which would re- quire them pretty much to demonstrate that they need a CAB certificate, and that they are a certificated airline, which is a difficult process. Mr. Siius~IR. Are there capacity limits on Air Florida? Must you fly a certain sized plane? Mr. TIMONER. If we wish to change it, we have to go to the public service commission. We have to do that by the same process, and we have to ask for larger or smaller- Mr. SHUSTER. You could go below a 30-seat plane, if you wanted to get approval to do that. Mr. TIMONER. We have no interest in it. We have never had any interest in it. I presume that we could. Mr. SIm&rER. You have all DC-9's; do you not? Mr. Tmro~. Yes, sir. Mr. SHUSTER. Thank you very much. Mr. ANDERSON. Mr. Fascell. Mr. FASCELL. Thank you very much, Mr. Chairman. Eli, Air Florida certainly has impressive management. I congratulate you on that. You made a forthright statement on your willingness for exclusion on automatic intrastate service in the event that it is granted at the congressional level, but that then leaves the State to provide for auto- matic entry on intrastate routes. That is another political problem; is it not? Mr. TIMONER. The State bill? Mr. FASOELL. Could the State not then followup, let us say, with automatic entry intrastate? It could, as I understand it. Mr. TIM0NER. Well, the hearings that we referred to awhile ago- Mr. FASCELL. The Federal hearings? Mr. TIM0NER. No; the hearings at Tailahassce, before the senate committee, at which I think Air Sunshine testified, and we did. Mr. FASCELL. The State senate? Mr. TIMONER. Yes. Mr. FASCELL. That is what I was trying to get clear. Mr. TIMONER. It. was before Senator Kenneth Myers' committee. I think they decided to pass the bill. I do not think it is a viable prospect-that the State is considering deregulating internally. PAGENO="0033" 27 Mr. FASOELL. Fine; that is what I was interested in. Mr. TIMONER. The primary interest there was one or two-it was getting improved service to certain communities, and they wondered whether-if they deregulated-it would, in fact, improve~the service, and I think they have pretty well determined that it would eliminate the service-the service they had. Mr. FASOELL. I was interested, also, in the manner in which you see automatic entry as a challenge. Most people see it the other way around. It certainly is an interesting counterargument to all of the other arguments that I have heard from the certificated carriers, which is that the big ones will gobble up the little ones. Here you are, a growing and aggressive airline, and all you want is an opportunity to get in and take a chance. That is the way that. I understand what you are talking about, interstate. Mr. TIMONER. We think we might brmg some interesting fares and programs to the eastern half of the tTmted States and let PSA and the others worry with the western half, if the opportunity develops. Mr. FASCELL. I have one other question, Mr. Chairman. The way I understand it-correct me if I am wrong-the advantage that you had before interlining came into effect under H.R. 6010 was the fact that you could get larger equipment. Mr. TIMONER. Pardon? Mr. FA5CELL. The advantage that you had before H.R. 6010 and interlining-as against other commuter airlines-was that you were not classed as a commuter airline. You could go to bigger equipment. Mr. TIMONER. Congressman Fascell, the truth of the matter is that, if there had not been a law in 1972, in this State, we could not have started the airline, because, without a law, there was no way that we could get an FAA certificate to operate a 121 airplane without a certificate from the State saying that we had a route structure. Mr. FASCELL. What you are now saying is: Commuters may upgrade their equipment and improve their carrying capacity and such a request is almost automatically granted, so you really, in effect, have no hearing, so it now puts everybody on the same basis; is that not correct? Mr. SHusi~R. Would the gentleman yield? Mr. ANDERSON. Certainly. Mr. SHUSTER. I think I understand the point that he made, but let me just say it for the record, to be sure that I do understand. Any commuter airline may, indeed, upgrade its equipment so that there is virtually no difference between your firm and the commuter airline. You both have interlining, and you both have larger aircraft, and there is no difference. Mr. TIMONER. That certainly is possible; yes. It is possible for them to buy bigger equipment and to get it approved in the State easily. Mr. SHUSTER. When we think in terms of an intrastate line-as Air Florida-we think of a commuter as being something different. 28-911 0 - 78 - 3 PAGENO="0034" 28 That difference really does not necessarily exist. Mr. TIMONER. We still cannot, as an intrastate, fly outside of the State with the size equipment that is approved, and they can, but we understand that. Mr. FASCELL. I have just one ftnal question, Mr. Chairman. If I understood Eli's testimony about going interstate, it is this: If the pattern follows with intrastate airlines, which has followed with respect to other matters, the decision will be made, I predict, that whatever is done is interstate. Because with interlining, and inov- ing people and baggage, it is all interstate, thus everyone comes under CAB jurisdiction. That has been the normal trend. I assume you are willing to accept certification nnder that basis? Mr. TI3roN1~ Yes. Mr. FASCELL. That is what I thought. Mr. ANDERSON. Mr. Hannnerschmidt. Mr. HAMMERSOHMIDT. I have a question for the record. How many routes and passenger miles does Air Florida fly per year? Mr. TIMoi~mt. Available seat miles? Mr. HAMMERSCHMIDT. Yes. Mr. TIMONER. The available seat miles at the current-in the last month, we made available a little over 15 million, which would-at the current rate, we are operating, let us say, about 150 million available seat miles. Mr. HAMMERSOIIMDYT. Per year? Mr. TIMoN~a. Yes. For the year ended December 31, I think we were over 100 million, but our-we are getting more equipment all the time, and, so, we are adding available seat miles. Mr. HAMMERSCHMIDT. You would pick up most of those extra pas- sengers in added flights, or more seats? Mr. TIMONER. Density. Mr. HAMMERSCHMIDT. Density? Mr. TIMoi~R. Yes. I think both are happening in our company. Our load factors are moving up, and we are adding ffights, and, without deterioration in our load factor, which means that we are generating additional business through both means-primarily, I think that the largest input is in another unit. With only five units in operation, if we add another one, it is a 20- percent increase in the potential product. Mr. HAMMERSCHMIDT. I believe that is all the questions I have. Mr. ANDERSON. A moment ago, Mr. Timoner, you mentioned that commuters could go out of the State, but, on this map that we have in front of us here-which we appreciate Mr. Stratton's drawing up- it does not show any of the commuters going Qut of the State. Do they all stay within the State? Mr. TIMONER. I am afraid that I am not qualified to answer that. It seems to me thatr-well, I know that Florida Airlines has a sister company, which is in Georgia-Air South-and, whether they actually fly back and forth over the State line or not, I do not know, but it is my understanding that a commuter can operate across State lines, historically, and, if they do have routes, I guess they would not be shown in an intrastate system, anyway. PAGENO="0035" 29 Mr. SHUSTER. Would the gentleman yield on that point? Suppose the commuter upgrades to a larger aircraft. Can it still go across State lines? Mr. TIM0NER. It would seem to me that it would clearly become a CAB matter, because they might upgrade based upon State law, but that would only be allowed on a specific intrastate route. Mr. SHUSTER. Would counsel care to comment on that? Mr. HEYMSFELD. Under existing law and CAB regulations, a com- muter cannot operate aircraft of over 30-seat capacity without a spe- cial exemption. . Under the regulatory reform legislation being marked up, it would be 56 seats, but, beyond that, they cannot cross State lines. Mr. Siiusi~iui. Thank you. Mr. ANDERSON. Mr. Timoner, is it difficult for airlines, such as com- muters and yourself, to get permission in Florida? Mr. TIMONER. No; I do not think so. I think that the public service commission has been very respon- sive in developing an intrastate system here, and, really, has encour- aged development. Mr. ANDERSON. It looks like it on the map that we have here. How about the airports? I know that one of the problems that we have in California is not so much getting the permission to operate as it is getting the permis- sion to land. You cannot get landing rights at most of the airports that you would want to land in out in California. Is that same situation true here? Mr. TIMONER. It depends upon the area. Our greatest problem has been finding equal facilities within the terminal, and gate space, and, you know, it is sort of that the club has basically remained closed-the historic carriers. It has been a battle. The best example, I think, might be Tallahassee. Here we are, carrying certainly our fair share of people in and out of Tallahassee, and-I do not know comparatively, but, within the State, probably more than anyone, and we still ticket our people with our backs against the plate glass window, which is the front of the airport, in a little key house there, and you drop your baggage on the curb, outside, and we have a hand truck and take it around to the airplane. You know, if we had a horse and buggy to take you to Miami, it would be perfectly appropriate to match it with the way that we take your baggage on the outside, but we are now going to be able to share part of a facility with National, but it has only been after a number of years of trying, and finally we have broken through, and I think H.R. 6010, was instrumental because, in fact, we started doing business with these carriers, and the airlines are their own best customers, and, in the end result, you know, it was more reasonable and more realistic to sign a document and sublease some space and make it possible for us to take care of our people equally to the CAB carriers. Mr. ANDERSON. One of my concerns-particularly with the bill that we are now working on, which is the regulatory reform bill-is that it would allow a concern like yours to go interstate, and to have your PAGENO="0036" 30 entire operation go interstate, and we are afraid-particularly in (Jali- fornia-that this is going to cost the traveler a whole lot more money. Now, the PUG-that is the California Public Service Commission, which is similar to your PSC-is very much opposed to what we are doing. They are saying that, if PSA goes interstate, and the whole system goes interstate automatically, there will be a low of $68 million and a high of 200 million dollars' worth of additional cost to travelers in California as a result of the higher CAB rate structure, Now, there are arguments against that, but the PUG says that: "If we do that, we are going to cost the travelers in California $68 to $200 million each year more travel." My question was: if PSA goes interstate and raises their rates, then could some other concern not come in and give the competition of low prices that PSA now gives and be solely intrastate? They say: "That is great, except that they cannot land at the air- port," because you cannot get even a little corner like you say that you have in Tallahassee. You cannot get in at LAX and some of the other airports. Long Beach will not let you in. Burbank will not let you in. At most of them, you cannot get in at all. This is a concern that we have to face in California. How do you relate to that same situation here in Florida? Mr. TIMo~R. I think you have a range of different circumstances in California, Texas, and Florida. In California, it is my understanding that the PUG has set the rates for intrastate route fares for all carriers, no matter what their juris- diction is. Mr. ANDERSON. Some of the interstates had to come down to them. Mr. TIMONER. In this State, the legislature provides for-legislation provided for a high-density, low-cost air transportation. I am not aware of any other carrier that has attempted to deliver low-cost transportation but Air Florida, and we have experimented -~i-~ discount on our daytime fare, and a very heavy discount on our night~ie and evening fares-our pleasure fares-and we have had to move these fares about and try to explain to the Public Service Com- missiOn that we were seeking a realistic point of traffic-RPM's versus ASM's-and break even, so we have established a fare, and, in the daytime, it is a discount from the CAB carriers, and, in the evening, it is a very much deeper disáount. Recently, there are some new fares that are being introduced- souped up supersavers, or whatever the new names are-and it was in the ad yesterday. Those fares, in one case, would be even lower than our fares. Our concern is the opposite of what the PUC's in California seems to be. Our concern is that, if we did get into automatic entry, and if we did go under the CAB, would we be able to maintain our marketing strategy, which is to provide really low-cost transportation in evening and weekend times, and a price benefit during the day? PAGENO="0037" 31 You know, would the CAB come in and mandate and say: "Wipe out all of these fares, and everybody is going to charge the same thing"? If they did, it would be a disservice to the people of this State, and we would not go into any automatic entry, if we were precluded from keeping this low-cost transportation system going. Mr. ANDERSON. Are there any questions? Mr. FASOELL. Mr. Chairman, I just could not help but remark on that. If price structure went along with automatic entry, why would the certified carrier not keep you gentlemen from skimming the cream just by dropping their prices below yours until you ran out of capital? They are going to fight until the last breath, as I see it, and not allow somebody to come into their paying routes and undercut them forever, while they are stuck with one rate structure. You are going to have to meet the same rate structure. I do not see how you can get both ends of the stick. Mr. TIMONER. I am not saying that we would offer these lower fares in Florida. Mr. FASOELL. I am just expressing my concern, as I see it. There are the certificated carriers, in the first place, and I am just trying to relate it to you gentlemen who want a chance to expand. Mr. TIMONER. I would like to say this, Congressman Fascell-Dante, if I may. Mr. FASOELL. Absolutely. Mr. TIMONER. The expression: "Skimming the cream" really gets me hot. I have heard that a lot. That is an interesting expression that one hears. The only American trunk carrier that does not fly between Tampa and Miami is American Airlines. Everyone else with a U.S. certificate-called a trunk-flies between those cities, and, if Air Florida, with its big five airplanes-and finally turning the corner last month-is skimming the cream against that kind of DC-1O and 747 competition, I would like to know what it is. We are providing service every other hour on the hour, free drinks, a smile, real concern, and a fight for the business. Mr. FASCELL. I think one thing that you say that is valid is: You are providing service to those who otherwise would not be on the air- plane, and I just wonder what the picture is-Mr. Chairman, you have been very gracious in permitting me to inquire, and I appreciate that. Take Tallahassee, as an example. How do you compare with the certificated carriers from Miami to Tallahassee with buses, railroads, and all of that? As a layman who just has an outside look on it, it looks to me asif Air Florida is really providing a service there that did not exist before. Mr. TIMONER. We think so. Our fare is about 12 percent less than the CAB carriers' fares during the day, and it is 49 percent less in the evening and on the weekends, and how it compares with the bus transportation-I think it is about $5 more than the bus, but the bus is an 11-hour ride. Mr. FASCELL. There is no train service? PAGENO="0038" 32 Mr. TIMONER. There is no train service, so a large part of the market that we have developed is really new business that was frustrated and did not travel. Let us take our new route from Palm Beach to Tallahassee and back, or from Daytona Beach. There was no way to make the connection and go back and forth in the same day on any of the other airlines or combinations of airlines before this service came in. Mr. FASOELL. Thank you. Mr. ANDERSON. Mr. Hammerschitiidt. Mr. HAMMERSCHMIDT. Mr. Chairman, I would like to ask one more question. These commuter airlines in Florida also fly interstate. Most of them have interstate routes; do they not? Mr. TIMONER. I am not certain that they do. Mr. HAMMERSCHMIDT. If they do, that is what would keep them from becoming an intrastate airline, I assume, because they have to register with the CAB under part 298 to be commuter airlines. Mr. TIMONER. I believe they are commuters, and, to the extent that they have intrastate routes, they are intrastate carriers, as far as the State of Florida and the public service commission are concerned, and they are regulated in that manner and protected in that manner, too. Mr~ HAMMER5CHMIDT. If they tried to compete with your airline in interlining, they would have to become an intrastate airline, per se? Mr. TIMONER. They have historically been able to interline, and they have always been able to interline, and they do it now. They do it by both methods-by the fact that they are a commuter and by the fact that 6010 allows them to do it as an intrastate carrier, so, no matter what designation they call themselves by, they can interline. Mr. ANDERSON. Are there any other questions? [No response.] Mr. ANDERSON. Thank you, Mr. Timoner. Our next speaker is Mr. Doyle E. Hardin, general manager of Marco Island Airways. Apparently he is not here. We have his prepared statement, anyway, and we will hold it until later. If he comes in, we will hear from him; if not, we will make the pre- pared statement a tart of the record. Mr. Ray Morgan, president of Panhandle Airlines. Mr. Morgan, we understand that you have a statement, but that it has not been prepared. TESTIMONY OP RAY MORGAN, PRESIDENT, PANHANDLE AIRLINES Mr. MORGAN. Mr. Chairman, members of the subcommittee, ladies and gentlemen, thank you for letting me appear before this hearing. I have no prepared statement, but I have taken several notes durmg Mr. Timoner's testimony. There are a few things that I would like to bring to the attention of the committee. PAGENO="0039" 33 No. 1, Mr. Timoner mentioned that they have no interlining agree- ments at this time, in effect. Well, I have an interline agreement in effect with Air Florida. Back in July, a year ago, Air Florida and myself entered into an interline agreement, and we went to the public service commission, and we had joint fares and everything approved at that time. We began our interline agreements, and the FAA, at that point, came along and said that we were illegal to interline,, and my conten- tion was: Why should we be illegal, as long as a passenger boards an aircraft within the State of Florida, and he connects with another aircraft within the State of Florida, and his final destination is within the State of Florida? There is no violation of interline, so, at this point, I personally made a trip to Washington. I visited the CAB, and I brought this information forth. At that time, they requested that I submit, in writing, this informa- tion, which I did, and it was submitted, and it came back that no vio- lations were being committed for the fact that none of us crossed a State line. Now; their contention was that Panhandle Airlines is an interstate carrier, and not an intrastate carrier, because we have the CAB exemption. Well, as I said: As long as it was done within the State, what was the violation? It was approved, so Air Florida and myself could have continued on the interline agreements within the state, with baggage agreements as to where my bags could be checked-a passenger's bag on my carrier could be checked through Tallahassee to Miami, without the passenger having to pick his bags up, so, as far as intrastate interlining is con- cerned, there is no problem. Now, the only problem that we have, as far as interlining within the State of Florida, is Florida's Airlines' schedules. They seem to change quite frequently. Without anyone's knowledge, they are changed. I, as having an interlining agreement with them, never received any communique as to changes in schedules. Their ticket agents, most of whom were not even aware that we could interline-their fares were not published with their ticket agents, so, consequently. there was quite a bit of chaos. At this point,. again, I am forced to open a new route between Pensacola and Tampa, because I cannot make any connections whatso- ever for the traveling businessman, which leaves Pensacola for Miami, Jacksonville, Tampa, Orlando or whatever to make a connection with Air Florida, so, consequently, I have to apply for a route to Tampa so that I can make connecting flights with other commuters in the State, which is a costly, needless route for me to have to go into, whereas, if Air Florida wanted to participate and wanted to do the coimmunity service bit-if their schedules would get in line with early morning businessmen out of Tallahassee to Jacksonville, or wherever, we could make this a terminal area. This would cut back my cost of having to buy additional aircraft, additional booth space and additional insurance-which is consider- able-just to get into Tampa. PAGENO="0040" 34 One of the other things that was brought up is the equipment. They say that the jet is more eye appealing and better for the traveling public; they are more willing to get on the jet. This is not a fact. The fact is that I ran the same route that National Airlines flew- between Pensacola and Tallahassee-for over 1½ years, using the same fare structure, and I have 56 percent of the traffic. No. 1, it is frequencies of time. I get the people who have to be at hearings, and so forth, to Tallahas- see in the early morning, and I get them back in the early afternoon, which is a convenience, and it is not because of equipment. National is running 727's between the two. The way I look at a commuter air service, that is exactly what we are. We commute a businessman to and from an area in the morning. I am not worried about the traffic that is going from here to Los Angeles, or from here to New York. My whole operation is set for the traveling businessman. Now, again, it was brought up that passengers are afraid of flying little aircraft. If this were true, Southern would not have just pur- chased a great number of small aircraft to put in the commuter serv- ice, because they have found that these aircraft of the jet type-the DC-9 type-cannot serve the smaller communities and show a profit, so they are bringing in smaller commuter aircraft. and running more frequent flights, and they are giving the public what they want. Having one jet flight into Pensacola and out in a day-as opposed to three round trips of a small commuter-is more convenient to any industiy. Now, for the vacationer, they can take National, Eastern, United, Delta or whatever. One of the other things that I would like to mention is that Air Florida mentioned that they were not worried about overlapping any of our routes. Mr. Timoner did mention- and I will bring it up-that he is initiating, or was an instrument to initiating, the abolition of the Public Service Commission regulating intrastate regulations. Well, by having this abolished, they can go anywhere that they want to go, so, consequently, again, they can come in and they can run over our routes, which we have patiently, over the years-as Air Sunshine, Marco Island, Florida Airlines, and a few others-worked to build. We have worked to build these routes. They had applied for the same routes that I had-from Talla- hassee to Pensacola and from Tampa to Pensacola and Panama City- and they withdrew on the basis of 6010. In this way, they are not trying to overlap any of my routes, but, for years, they have been in operation-5 years-and, again, no one, at this point, attempted to take on the Pensacola-Panama City market. I am building a market, and now, all of a sudden, other carriers are interested in my market again. Now, if the deregulation comes along, I am sure that it will put me out of business, but I have tried to develop this market for the com- munity that I live in and for the needs of the community of which I am a resident. PAGENO="0041" 35 With this type of a situation, where they would be instrumental in deregulating, you are going to find that numerous of the commuters are going to be as they were some years back, when there was no regulation. One commuter would go in and build it up, and someone else, with a little more capital, would come in and knock it down. There are several cases on file where this has happened. I believe that Shawnee had built up a nice run, and then Eastern decided to move in and pick up their routes that they had approved from years before, so these are examples of the things that we, as commuters, have to look forward to. As far as my statement, that is about-that about concludes my viewpoints on the commuter operation and the H.R. 6010. Mr. ANDERSON. Thank you, Mr. Morgan, for your statement. A couple of times I had the feeling that, when you were saying: "Florida Airlines," you meant to say: Air Florida; is that correct? Mr. MORGAN. Right; Air Florida. Mr. ANDERSON. I think you said that Florida Airlines was changing schedules, and you meant Air Florida; is that correct? Mr. MORGAN. Air Florida; yes, sir. Mr. ANDERSON. Under existing law, aren't CAB commuters free to enter your market if they carry only interstate traffic? Mr. MORGAN. Would you repeat that, sir? Mr. ANDERSON. Under existing law, are CAB commuters not free to enter your market if they carry only interstate traffic? Mr. MORGAN. If they carry only interstate traffic; yes, sir. For instance, if a commuter comes in from Birmingham, or if one comes in from New Orleans, they, at this point, can come in, but this would not affect my market, but, if a commuter comes in and stops within two points within the State, he must have approval from the public service commission. In other words, if a commuter wanted to come in from New Or- leans, to Pensacola and Tallahassee, he would have to get the route from Pensacola to Tallahassee approved by the public service commission. Mr. ANDERSON. Why, then, are you concerned about deregulation? Mr. MORGAN. Deregulation of intrastate carriers. If the public service commission is abolished at this point, anyone can run over anyone's routes. For instance, if the public service commission is abolished, tomor- row I can start a Pensacola-Panama City, Tampa-Miami run, or I can start a Pensacola-Panama City, Jacksonville-Maimi run, but, with the public service commission regulating the intrastate carriers, then they have to have approval from the public service commission. Mr. ANDERSON. Do you think it is likely that Air Florida will try to enter markets served by Panhandle Airlines? Mr. MORGAN. I would take this as an indication that, if they want to help to get the State authority deregulated, they would; yes. I think that is a very good indication that this is what is facing us. Mr. ANDERSON. Are we talking about two different deregulations? Mr. MORGAN. Two `different deregulations; yes, sir. * Mr. ANDERSON. When you are talking about deregulation, you are not talking about- PAGENO="0042" 36 Mr. MORGAN. Not Federal deregulation; no, sir. I am talking about the State. Mr. ANDERSON. You are talking about a similar state deregulation? Mr. MORGAN. Right. Mr. ANDERSON. Does Panhandle Airlines have any joint fares with any interstate carriers? Mr. MORGAN. Yes, sir; I have joint fares with ~ ational, Eastern and Southern. Mr. ANDERSON. Are those joint fares set by the CAB formula? Mr. MORGAN. Yes, sir. Mr. ANDERSON. Is the division of revenues also set by the CAB for- mula, or do you have to negotiate each one? Mr. MORGAN. We negotiate that; yes, sir. We try to stay within what has already been set, and then it is just how we are going to break it down as to what percentage who gets. Mr. ANDERSON. Does the Florida PSC regulate your rates, and, if so, please describe how your rates are regulated. Mr. MORGAN. Yes, sir; they are regulated by the State. Any intrastate fare is regulated by the State. You submit your initial fare-of which most of us are within rea- son-and this is approved by the Public Service Commission, and then, if we intend to raise the fare, we have to show a good reason and cause as to why our fare is going to increase, with documentation. Mr. ANDERSON. Are your interstate passenger and your intrastate passengers on the same route charged the same fare? Mr. MORGAN. It would depend upon the area that the interstate pas- senger were coming from. If he were coming from Atlanta-let us say to Tallahassee, through Pensacola-the *fare would be taken from Eastern's DOAG-, for instance. That would be the fare from Atlanta to Tallahassee. The connections are better coming through Pensacola. I would take a portion of that, but that would be less than my normal fare-from Pensacola toTallahassee-because we have the one set fare, and it is up to the carriers to negotiate that price. Mr. ANDERSON. Mr. Hammerschmidt. Mr. HAMMERSc,HMIDT. Let me pursue that in a little different way. Did you say that you have one route that coincides with that of National Airlines? Mr. MORGAN. Yes, sir. Mr. HAMMERSCHMIDT. What route is that? Mr. MORGAN. The Pensacola-Tallahassee route, which National is going to be applying to drop. Mr. HAMMERSCHMIDT. How many flights a day do they run? Mr. MORGAN. They were running one flight a day, sir. Mr. HAMMERSOHMIDT. How many do you run? Mr. MORGAN. Two. Mr. HAMMERSOHMIDT. Are your fares the same on that route? Mr. MORGL~N. Mine is $2 lower now, because they raised theirs. Mr. HAMMERSCHMrDT. What is the fare? Mr. MORGAN. $31, sir. Mr. HAMMERscHMIDT. That is yours? PAGENO="0043" 37 Mr. MORGAN. Yes, sir, and that includes tax. Mr. HAMMERSOHMTDT. I have no further questions. Mr. ANDERSON. If someone gets off another airline and gets on yours, is he governed by their ticket price-the $2 higher? In other words, are there different levels on the same plane? Mr. MORGAN. If an individual-say, for instance, that he flew to Tallahassee on National, and that; he had a return trip. Mr. ANDERSON. Suppose that he is going to Tallahassee, from Atlanta, but that he wants to get off at Pensacola. We will assume that he bought a through ticket, but that he is using the second part of the ticket on your plane. Would he be paying $2 more than the person who is sitting next to him, and who got on at Pensacola and is going to Tallahassee? Mr. MORGAN. No, sir, that would be reimbursed to him at the counter. Mr. ANDERSON. Mr. Shuster. Mr. SHTJSTER. If I understood you correctly, Panhandle has 56 percent of the Pensacola-Tallahassee market. Mr. MORGAN. Yes, sir. Mr. SHUSTER. Does that mean that National has the balance-44 percent? Mr. MORGAN. Yes, sir. Mr. SHUSTER. If National has 44 percent, and if National has one flight a day, and you have 56 percent, and you have two fights, a day, all else being equal, you should really have 662/s percent. Might one not, therefore, infer that the argument that people prefer the bigger planes is, perhaps, true? Mr. MORGAN. No, sir, you will find, again, that it is convenience. Let me say, for instance, that you had a 2 or 3 o'clock hearing. Our flight leaves at 6:30. Mr. SHUSTER. You have less than the share of the market that you should have, based upon the number of flights that you have flying. You have two flights a day, and National has one flight a day, so there is a total of three flights. If the market were distributed evenly, across those three flights, each flight would have 33 percent of the market. That being the case, you should have 66% percent of the market. Mr. MORGAN. That would be right if everybody were going at the same time, but let me ask you this: If you had a hearing at 1 o'clock in the afternoon, would you get on the 6:30 flight, or would you take National's 10 o'clock flight? Mr. SHUSTER. My point is that, actually, your two flights have less than the share of the market that one would expect them to have, even though- Mr. MORGAN. If we were running at the same time, I would, yes, sir. If I were running at the exact same time, I would have less; yes, sir. Again, as I say, we do not run at the same time. We are a complimentary to the major carrier, to get these people there and back, and- Mr. SHUSTER. I have to say that I do understand that the distribu- tion of the market is not a straight line over 24 hours. PAGENO="0044" 38 Mr. MORGAN. Also, YOU have to realize that, when we say: "56 per- cent," or: "44 percent," we have to figure that a 727 carriers quite a few seats, as opposed to mine. Now, I am probably, in reality, running a much higher percentage, because they might take on four passengers. Mr. SHUSTER. Are you flying a DC-3? Mr. MORGAN. I have one D(2-3 and two smaller aircraft; yes, sir. Mr. SHtTSTER. Which do you use? Mr. MORGAN. I am using the 10-passenger aircraft to Tallahassee, because that is the approximate number of people that travel-ap- proximately 25 to 30 people-to and from Tallahassee in a day. Mr. SHUSTER. Does National use the 727? Mr. MORGAN.~ Yes, sir. Mr. SHUSTER. Thai~k you very much. Mr. ANDERsON. Mr. Fascell. Mr. FASGELL. I have one question. You heard Mr. Timoner say that, on the Federal bill, they would support an exclusion for intrastate carriers. What, if anything, does that mean to you? Mr. MORGAN. I have not really gotten into this, sir. I am sure that one of the other commuters, that has been operating a little longer than I have, can probably explain that in a little more detail. Mr. FASCELL. Thank you. Mr. ANDERSON. Are there any further questions? [No response.] Mr. ANDERSON. If there are not, again, we thank you, Mr. Morgan. Our next witness is Mr. Frank V. Bervaldi, president and chief executive officer of Air Sunshine. TESTIMONY OP PRANK V. BERVALDI, PRESIDENT AND CHIEF EX- ECUTIVE OFFICER OP AAT AIRLINES, INC. d/b/9. AIR SUNSHINE; ACCOMPANIED BY ADRIAN NARANJO, EXECUTIVE VICE PRESI- DENT AND GENERAL MANAGER; THOMAS A. STEVENS, ASSISTANT VICE PRESIDENT OP PUBLIC RELATIONS; ROBERT ~. PATERNO, COUNSEL FOR THE AIRLINE, AND EMILIO DIRUBE, VICE PRESI- DENT OP TRAFFIC AND SALES Mr. BFAWALDI. Chairman Anderson, I would like to read the entire statement. I do not think that we need to go into any of the exhibits; they are for the record. We have studied this very extensively, and I think that all of the material which we have here is very important. With me today are Adrian Naranjo, our executive vice president and general manager; Thomas A. Stevens, our vice president of public affairs; Robert J. Paterno, our counsel; and Emilio Dirube, who is our vice president in traffic and sales. We are a scheduled commuter airline, servicing Key West, Mara- thon, Miami, Kissimmee, and Tampa, Fla.. We are a 135.2 taxi operator, servicing the Miami-Key West. market as a CAB-approved substitute carrier for ~ai.ional Airlines. PAGENO="0045" 39 We also operate our Florida routes pursuant to a certificate of public convenience and necessity issued by the Florida Public Service Commission, which regulates our intrastate operations. Air Sunshine's intrastate air operations have certain characteristics which are typical of all Florida State-certificated commuter carriers. First, our traffic is highly seasonal, peaking in the winter months and falling off very, very dramatically in the summer months. Bear in mind that all of Florida is a Sun destination. Second, the majority of Air Sunshine's traffic is interline passenger traffic. The vast majority of this interline traffic is interstate. It is this second peculiarity which has created grave concern about the interlining provision of House bill 6010, as it affects our airline, and, of course, all of the other part 298 commuter air carriers who engage in intrastate air transportation pursuant to Florida certificates of public convenience and necessity issued by the Florida Public Serv- ice Commission pursuant to the laws of the State of Florida. Significantly, with the exception of Air Florida, all State-certificated commuter carriers are part 298 carriers. Historically, to the present date, these carriers have been limited to the utilization of aircraft having 30 seats or less, unless they obtain a special waiver for larger aircraft from the CAB, which is a very timely, very difficult, and, most importantly, a very costly process. Air Sunshine has an exemption to operate aircraft with up to 55 seats. Air Florida operates exclusively under its State certificate of public convenience and necessity, and it is authorized to operate aircraft in excess of 99 seats. House bill 6010 allowed intrastate carriers in Florida and in Cali- fornia to interline with both certificated and noncertificated carriers. The effect on Air Sunshine is that in excess of one-half of Air Sunshine's traffic base is exposed to serious diversion in any market that would be subjected to this very unfair and devastating competition. An excellent example of this recently occurred. No sooner had House bill 6010 commenced moving through the con- gressional process than Air Florida filed an application with the Florida Public Service Commission to (provide DC-9 jet service be- tween Fort Lauderdale and Key West, Fla. The Miami-Fort Lauderdale airports are coterminals; that is to say, they serve the very same market. The application was filed on August 13, 1977, but it was withdrawn by Air Florida in December of 1977, thereby enabling them to refile this application at any subsequent date. Since that time, Air Florida has, on numerous occasions, indicated its intent to continue to seek authority to provide service over Air Sunshine's primary Miami-Key West market. We have exhibits in the package that really point this thing out. Quoting Air Florida's president, Eli Timoner, in a February 17, 1978, Miami Herald news article: "I am going to project that we are going to be servicing the Key West market by the end of the year." [See attachment 1, p. 59.] PAGENO="0046" 40 The advent of House bill 6010 now make,s it possible for Air Florida to attempt to reach into our primary market, including the interline portion of that market, which constitutes in excess of 50 percent of all of our traffic. Keep in mind, gentlemen, that Air Sunshine provides DC-3 and Convair 440 service on a very high frequency basis. We would be faced with competing against D~-9 jet aircraft op- erating on a two-trip-a-day basis during the peak periods of daily traffic. The effect would be to divert enough revenues so that Air Sunshine would have to cut its frequency of service on this market and very possibly even have to leave the market entirely. It is particularly important that, under the present draft preemp- tion sections of House bill 11145 and Senate bill 2493, the Florida Public Service Commission would have no jurisdiction to regulate any carrier-for example, Air Florida, Air Sunshine, or any other taxi operator in the State, of which there are approximately 3,000 in the United States of America, and of which over 250 operate on a sched- uled basis-except where the existing State-certificated carrier has less than 50 percent of its revenues derived from interstate passengers. In this regard, it should be noted that Air Florida-as well as Air Sunshine-either presently have or within the next 12 months will have, in excess of 50 percent of their revenues classified as coming from an interstate source. In Air Sunshine's principal market-Miami-Key West-interstate traffic accounted for about 50 percent of the passenger volume and 55 percent of the passenger revenue during the year ending March 31: 1978. During the peak season, the proration of interstate passengers was even higher. In December of 1977 and in January of 1978, interstate traffic was, respectively, 58 percent and 55 percent of the total. Similarly, in the second summer peak-August, for example-over 53 percent of the traffic total moved to and from out-of-State points; however, even if the offpeak months~ interstate traffic does not drop below about 48 percent of the total traffic. Air Sunshine, throughout the year, is, therefore, heavily dependent upon interstate traffic that is subject to diversion to an intrastate carrier that is given authority to operate on Air Sunshine's routes. All of Air Sunshine's markets are heavily dependent upon inter- state traffic. In the year ended January 31, 1978, about 52 percent of the total Air Sunshine traffic was comprised of interstate passengers, who con- tributed 53 percent of Air Sunshine's revenues. Miami-Key West traffic contributes about three-fourths of Air Sunshine's total passenger count, which means that heavy diversion in this market would have very serious consequences for Air Sunshine. If another carrier, such as Air Florida, became eligible to partici- pate in the interstate traffic carried by Air Sunshine and ended up sharing in 50 percent of the Miami-Key West market, the result would be a devastating 40 percent decrease in Air Sunshine's total traffic and a 41-percent decline in passenger revenue. [See attachment 2, p. 63.] PAGENO="0047" 41 In effect, House bill 6010 has placed the proverbial big stick in the hands of a highly aggressive and exclusively State-certificated air carrier-to wit: Air Florida-which can be utilized by them to at- tempt to reach into and raid every part 298 State-certificated Florida commuter carrier, particularly to the extent that such carrier's mar- kets consist primarily, or substantially, of interstate traffic. That description, frankly, fits every part 298 certificated commuter carrier in the State of Florida, such as, for example: Naples, Marco Island, Florida Airlines, and, of course, Air Sunshine. By their actions over the past several months, since the advent of House bill 6010, Air Florida has made known its intention to become the only intrastate airline in the State of Florida. Another example is the one that Mr. Morgan just gave about their applying for his route. It is respectfully suggested to this committee that the immediate short-term history of the effect of House bill 6010-and more specifi- cally the inclusion of Florida within its provisions-has had, and will continue to have, a potential for injury, abuse and, very possibly, a monopoly in the Florida intrastate air transportation system. Whatever may have been the unique or special circumstances which may have justified the inclusion of California, those circumstances are not necessarily manifest or appropriate in the State of Florida. We would strongly urge and suggest that Florida be withdrawn from the provisions of House bill 6010 at the very, very earliest prac- tical date. The impact of House bill 6010 is not isolated. Its impact upon Air Sunshine and every other part 298 State-certi- ficated commuter carrier in the State of Florida is ever broadening and expanding, as demonstrated by an analysis and evaluation of the proposed airline deregulation package contained in the drafts of House bill 11145 and Senate bill 2493. House bill 6010 is intrinsically related to and magnifies the scope and impact of the proposed airline deregulation package before the Congress. The House and Senate dereglulation package seeks to amend the FAA Act of 1958 in certain specific areas which have critical impact upon Air Sunshine and every other State-certificated commuter car- rier servicing the State of Florida, as well as the entire course and development of the future or nonfuture of the Florida intrastate air transportation system. There are several positive provisions. First, in increasing the size of aircraft, air taxi operators may utilize from the current level of 30 seats to either 36 or 55. Second, there are the provisions which prescribe a uniform method of joint fare and the division thereof between air carriers holding certificates and commuter air carriers. Such parity is long overdue and will eliminate fundamental unfair- ness to the commuters and their passengers, who now must depend upon voluntary hit-or-miss joint fares and division agreements deter- mined at the will of the major carriers. Third, there is the inclusion of commuters in the government guaran- tee of equipment loans. PAGENO="0048" 42 Fourth, there is the eligibility of commuter airlines for direct sub- sidy, when necessary to provide and maintain service to small and isolated communities. On the other hand, there are provisions in the deregulation package which, if not modified, could jeopardize the future growth and devel- opment of the commuter airline system in the State of Florida, as well as in the other States which have developed, through the years. a stable intrastate air transportation system through sound State regulation. The primary areas of concern which I would like to address my re- marks to are the Federal preemption provisions of the deregulation package. The thrust of the House deregulation package is aimed at eliminat- ing all State regulation of intrastate air transportation, except in Alaska, and except that any State which has authorized an air carrier to provide intrastate air transportation in that State may continue to regulate such intrastate operations for as long as not less than 50 per- cent of the revenues of such carrier are derived from such intrastate operations. The Senate deregulation package effectively eliminates State regu- lation of intrastate air transportation, except in Alaska, and except that any State which has authorized an air carrier to provide intra- state air transportation in that State may continue to regulate such intrastate operations for as long as not less than 50 percent of the reve- nues of such carrier are derived from such intrastate operations. The Senate methodology is different. First, it creates a new class of certificated carrier under section 420. Under this section, every current air taxi operator in the United States would qualify and could secure a local air transportation cer- tificate authorizing the use of aircraft having up to a 36-seat passenger capacity anywhere in the United States, except in Alaska. In the State of Alaska, that carrier must also obtain the authority from the State of Alaska. As pointed out, the Senate and House bills would ostensibly author- ize continued State regulation of existing State-certificated intrastate commuters in Florida, Texas, and California as long as the carrier's revenue from the interline traffic did not exceed 50 percent of their operating revenue. I should mention that Air Sunshine-as does practically every other major commuter in the State of Florida-now derives more than 50 percent of their operating revenues from interstate interline sources. Incidentally, because of House bill 6010, Air Florida will surely fall outside of the sphere of State regulations, and, because of its route structure and use of large aircraft, it will fall within the automatic entry provisions of the deregulation package. The saving language of section 423 (a) (1) or 105 (a) (1) is simply not realistically substantive. . The Federal preemption language in the deregulation package is obviously aimed at eliminatmg the possible interference by a ~tate regulatory body with the operations of 401 certificated carriers to the extent that part of their operations fall within a single State. We certainly do agree with this principle. . . The Federal preemption language is also aimed at eliminating the possible interference by a State regulatory body~with the operations of PAGENO="0049" 43 an air taxi operator, engaging in truly interstate operations, where the points of origination and destination are in two separate States. We agree with this principle. We do not, however, agree that, in order to accomplish those two principles, the proper and important role of States to regulate intra- state commuter airline operations should be eliminated or effectively gutted. Unfortunately, without careful modification, the deregulation pack- age will do precisely and exactly this very undesirable thing. Air Sunshine, along with the Florida Public Service Commission, feels very strongly that Florida should be treated like Alaska was treated, as it related to the Alaska exemption on authority over com- muters that would be certificated by the CAB as a result of the new 420 language in Senate bill 2493, as it related to exempting Alaska from the preemption provisions of House bill 11145, section 105 (a) (3). [See attachments 3 and 4, pps. 68 and 72.] The National Association of Regulatory Utility Commissions also supports State regulation of intrastate air transportation. [See attach- meiits 5 and 6, pps. 81 and 87.] Furthermore, knowing the State of California to have such a fine public service commission that has provided such good direction as far as the intrastate air transportation system in the State of Cali- fornia is concerned, I would imagine that the State would want to re- tain certification over newly certificated commuters that would com- pete against California commuters. Air Sunshine feels the same way. The Florida PSC feels the same way. Florida should be treated the same as Alaska. We respectfully suggest, Mr. Chairman, that the State of Florida- and perhaps California or even Texas-should be included in the ex- emption provision contained in House bill 11145, section 105 (a) (3), or alternatively, that these States should be included in the exemption provision contained in Senate bill 2493, section 420(g). Why should Florida be exempted? As the president and chief executive officer of a commuter airline that has had to fight for its very survival since its inception, I cannot conceive of how the deregulation of intrastate airlines by the public service commission would create a better intrastate system of air trans- portation in Florida. Florida is unique geographically; it is a long peninsular, with its most populace areas being located hundreds of miles from the nearest bordering State. . There are no scheduled air taxi operations providing interstate air transportation to or from Florida, and I think that this question has come up several times here. There are none going outside of the State's boundaries at this time. Mr. ANDERSON. None of these airlines that you have mentioned- like Florida Airlines, Air Sunshine, Marco Island, Naples and Pan- handle-go outside of the State? Mr. BERvALDI. That is correct; they are all on intrastate routes. The reason is that they are not practical or necessary? 28-911 0 - 78 - 4 PAGENO="0050" 44 Indeed, to our knowledge, there has never been an air taxi operator providing scheduled interstate air transportation between a city in Florida and some other city in another State. Furthermore, the State of Florida is literally surrounded by wateI~ Most of the air routes between cities in the State of Florida require, by necessity or practice, flight over international water. In order to insure State regulation of such flights, which are truly intrastate in nature, Air Sunshine is most pleased with the proposed language that is set forth in Senate bill 2493, section 423(5), which clarifies that such flights are intrastate in character. This language should be incorporated in any deregulation package. Air Sunshine, the Florida Public Service Commission, and the other commuter carriers in the State of Florida strongly support that provision. The Florida intrastate markets are not only isolated. but are also limited in size. The markets generally connect small communities with other small communities or with major gateways such as Tampa and Miami. Traffic between such route segments usually is well under 200,000 passengers a year. Additionally, all of the Florida markets, without exception, are seasonal in nature; that is to say that, during the 7-month winter period, there is a high traffic demand, which falls off dramatically during the 5-summer month season. The history of Florida's intrastate air transportation system-be- fore and after State regulation-is a landmark example of the critical importance of maintaining State regulation of intrastate air trans- portation in the State of Florida. The Florida Department of Transportation has released a study- the study was completed in April of 1976-which shows that airline competition in Florida's intrastate markets invariably results in heavy financial losses for both competing airlines. This is the most extensive study of intrastate air service to be under- taken by any State. The study was prepared for the Florida Department of Transporta- tion's Division of Planning a.nd Programing by the Systems Analysis and Research Corp. of Washington. D.C.. which is generally con- sidered one of the Nation's most prestigious think tanks. The study is unequivocal in its findings that competition on Florida's intrastate air routes, far from resulting in more efficient service, re- sults wholly-and in every case that they studied-in financial disaster for both competing airlines. The SARC study states: Proof is available in the long history of airline failures in Florida. Without exception, every intrastate carrier who has ever operated in Florida has either failed, been sold to refinance, or is currently in tenuous financial condition. Also, without exception, they have attempted to compete with the interstate carriers or other intrastate carriers, often as strong as themselves. The theory that the stronger will survive in an economic struggle does not produce lasting air service. It more easily results in the death of both competitors. Should one survive, he does not necessarily reap the rewards of the victor to recover from the drain of battle, for he may be immediately confronted with a fresh entrepreneur who has not yet lost his backing. PAGENO="0051" 45 Summarizing its findings, the study group states: Competition, as observed in Florida, has not produced stable, adequate intra- state service and has caused well-intentioned Floridians to lose large sums of money in efforts to provide intrastate air service. In contrast, given all the local traffic, and a share of the connecting traffic, a single carrier who provides mini- mum standard service will earn a profit. Dividing that traffic with any compe- tition assures that both operators will incur losses, reduce service and, in all probability, fail. In the 1960's, two major air taxi operators-Shawnee and Execu- tive Airlines-operated on numerous parallel Florida routes without regulation by the CAB or the State of Florida. The result was catastrophic. Within a brief period of time, the two airlines lost literally millions of dollars, and both airlines went out of business. The result was that the Florida routes previously being served then had no services whatsoever. Again, in the Miami-Key West market, multiple airlines servicing the Miami-Key West market either went out of business or withdrew entirely from the market. [See attachment 7, p. 97.] The frequency and dependability of service in this market suffered as a result of this unstable atmosphere. After State regulation-and with one carrier servicing this limited, isolated market during the past 2 years-Air Sunshine has been ex- periencing modest profits, and it has been providing the best fre- quency of service-almost hourly service at this point in time. This is the best quality of service that this route has ever experi- enced in its entire history. Furthermore, prior to State regulation in Florida, it was not un- usual for fly-by-night air taxi operators to provide service during the specific peak 3, 4, or 5-month periods of the year, while opting to with- draw from the market, or, alternatively, to provide no real service to the market during the off-peak seasons of the year. Since the early 1970's, with the advent of State regulation of intra- state air transportation in Florida, there has been a rapid growth and expansion of intrastate commuter air transportation. Route protection has been an essential ingredient in this growth, development, and expansion of the intrastate air transportation system in Florida, and it bears out and supports the conclusions of the SARC study relating to the State of Florida and its unique characteristics. It is, in our judgment, unnecessary, harmful, and inappropriate to destroy or substantially gut, by limitation, the scope of State regula- tion of intrastate air transportation, particularly in Florida, as well as perhaps California and Texas. Significantly, we believe that House bill 11145 and Senate bill 2493-in their present format, without appropriate modification- will do precisely that. . For example, Senate bill 2493 provides that existing State-certifi-, cated carriers would continue to be regulated by the State until 50 percent or more of that carrier's revenue is interline, but it allows air tax operators, which are under section 420 of the local air transporta- tion certificates, to fly anywhere and at any time in the State of Flor- ida without economic or route regulation from either the CAB or the State of Florida's Public Service Commission. PAGENO="0052" 46 Indeed, it would provide a situation where existing State- certificated carriers in Florida would be regulated by the State com- mission for a limited period of time, where their rates and continuity of service are regulated to meet State transportation needs, while, a't the very same time, it would allow any of the thousands of air taxi operators to operate at any time and anywhere in the State of Florida without any regulation whatsoever from the CAB or the State regula- tory body. It would literally gut and destroy any market protection now avail- able on the isolated and limited Florida intrastate markets. We would be reverting back to the pre-State regulatory period of the sixties, and to the chaotic conditions in Florida which led to the dissipation and elimination of intrastate air transportation capable of meeting the public needs for such Florida intrastate air transportation. We strongly urge that the State of Florida be exempted from the Federal preemption language contained in both House bill 11145, sec- tion 105(a) (1), and the provisions of Senate bill 2493, section 423 (a) (1), and section 420-the latter by including Florida in section 420(g). One final observation: The automatic entry' provisions of the de- regulation package could have devastating potential effect on State- certificated intrastate commuter airlines. Air Florida's operations-because it uses large DG-9 aircraft~ with 85-seat configuration-will surely meet the requirements of flying in excess of 125 million available seat miles. No other Florida commuter could-or would-reasonably expect to meet such a requirement. Couple this aspect of the deregulation package with the prohibition of State regulation over existing State-certificated carriers having more than 50 percent of their operating revenues derived from inter- state interline operations. Stir it together, and Air Florida will be the only intrastate com- ~muter in Florida who will be available to automatically enter any Florida market presently served by another State-certificated Florida commuter. Air Florida could simply reach into and literally destroy Air Sun- shine, or Marco Island Airlines, or Naples Airlines, or any other Flor- ida airline, and, the State regulatory body would be powerless to stop it,' irrespective of what damage such automatic entry might have upon the Florida intrastate air transportation system. This big stick could be-and should be-eliminated from the dereg- ulati'on package by, No. 1, exempting Florida from the preemption provisions of the deregulation package, or, No.2, by exempting Florida from the provisions of section 420 of Senate bill 2493 by mcludmg Florida in section 420-there is a. mistake there, and that should le 420(g), rather than (a)~-and either, No. 3. modifying the automatic entry provisions to interstate markets originating or terminatmg be- tween two or more States, or, No. 4, by modifying the. automatic entry provisions to markets having a demonstrated annual passenger traffic count in excess of 1 million passengers per year, or even perhaps 5 hundred thousand passengers per year. Mr. Chairman, and members o~ the committee, I would like to take this opportunity to express our appreciation for the committee's in- PAGENO="0053" 47 terest and concern in affording Florida commuter airlines an oppor- tunity to express our views and concerns relative to House bill 6010 and the pending airline deregulation package. I have a couple of questions that I would like to ask, if that is appropriate. There are some things that, up to this point in time, we have had some questions about, and we are still not sure about them. Mr. ANDERSON. You may ask the questions, but we may or may not be able to answer them. Mr. BERVALDI. One is on the dormant market theory or question. Air Sunshine is presently serving the Miami-Key West market as a CAB-approved substitute carrier for National Airlines. Under such circumstances, would the Miami-Key West market fall within the dormant market classification, or would it not be included in it? Mr. ANDERSON. It might be wise to discuss that after the meeting. Mr. BERVALDI. That will be all right. Mr. ANDERSON. We have had markup, and Congressman Ertel, of Pennsylvania, put in an amendment that changed the whole structure around, and we are in the middle of marking it up, and it is changing a little bit. Mr. BERVALDI. We would appreciate that very much. Mr. ANDERSON. What are your other questions? Mr. BERVALDI. Another question is: We need an interpretation of interstate revenue-whether this revenue is from having to fly across the State line, or whether this revenue can be classified as interstate revenue even if it is derived from an intrastate route on interlining. Mr. ANDERSON. That is something that I was going to mention to you. You mentioned that you were concerned with: Except that any state which has authorized an air carrier to provide intra- state transportation in that state may continue to regulate such intrastate opera- tions for as long as not less than fifty percent of the revenues of such carrier are derived from such intrastate operations. Mr. BERVALDI. Yes, sir. Mr. ANDERSON. That is no longer going to be in there. Originally, I had the 50-percent provision in my initial bill, and then we compromised on that, and, as a result, we changed that to 25 percent. In the markup the other day, it was stricken out entirely so that any airline that is no intrastate and goes outside of the State-even across the line-would become interstate in its entirety. Mr. BERVALDI. Is this right? My understanding of your answer was that, as long as we would fly strictly between two points within the same state, any revenue derived would be considered intrastate. Mr. ANDERSON. No, no, then there are the people who are bound for someplace outside of your State? Mr. BERVALDI. Yes, sir. Mr. ANDERSON. In other words, if they go between two cities and then transfer to another airline, outside of your State, that is con- sidered interstate revenue. Mr. FASCELL. Yes, sir. PAGENO="0054" 48 Mr. BERVALDI. So, then, almost at this point in time. there is no carrier within the State of Florida that would be regulated by the Public Service Commission. Mr. ANDERSON. Your percentages are different, I think, than those of most other States that we have had reference to. Mr. SHUSTER. If the gentleman will yield, did the amendment not say that it is not a question as far as CAB regulation-as to how many passengers get off and get onto another airplane, and go out of the State, but, as long as his airline flies only within the State, it is not subject to CAB? Mr. HEYMSFELD. Tinder the revised bill, a commuter operates under the CAB commuter exemption, which a commuter has to do to carry interstate passengers between points in the same State. If there is preemption of the State's regulation over that commuter's operation, regardless of the percentage of its operation that is inter- state, as long as there is operation under Federal authority, such as commuter exemption- Mr. ANDERSON. Is that not also true under the present law? Mr. HEYMSPELD. The present law permits dual regulation. The CAB regulates the interstate passengers that they carry, such as connecting passengers whom they are carrying between points in the State, but the State can regulate purely intrastate passengers. Under the bill, there would be preemption if the commuter were operating under the CAB exemption. Mr. BERVALDI. By the Federal regulation? Mr. HEYMSFELD. Yes. Mr. BERVALDI. In other words, it would be the public service com- mission, and the State of Florida would then not have authority over the present intrastates or commuter part 298 carriers; is that correct? Mr. HEYMSFELD. Yes; that is correct. Mr. BERVALDI. There would be-actually, they would be totally wiped out. Mr. HEYMSFELD. The State regulation would be totally wiped out. Mr. HAMMERSOHMThT. Your apprehensions-as you have given them to us in your statement-are valid. Mr. BERVALDI. Yes; that is what I was afraid of. The other item that I had-just to bring these points up, and we can discuss them afterwards, which I would like very much-is : What, exactly, is an exempt carrier? A part 298 carrier, like we are now, is an exempt carrier; is that correct? . Mr. HEYMSFELD. Are you looking at a particular section of the bill? That is generally correct. If you are looking at a particular section of the bill, I would not want to- Mr. BERVALDL It is section 423 of the Senate bill. If I could just read this first part to you-section 423 (a) (1)-that I have referred to many times: No State shall enact any law or establish any standard determining routes, schedules, rates or fares, or changes in tariffs, or otherwise promulgate economic regulations for any air carrier certificated or exempted `by the board under the provisions of this title, except that any State which on or before January 1, 19 ~9, had authorized that carrier to do this. PAGENO="0055" .49. But then it gets down further into the 50 percent of the revenues, so, whichever way you turn, the State will not have any more authority, and I think we will be in a mess, and I think the only saving grace is the situation such as Alaska is going into, and I think that, because of the uniqueness of our State, it may be very applicable here, where these carriers would be regulated by the CAB, but they would have to have certificates issued by the State of Alaska or the State of Florida. This is one of the points that we were bringing up. Mr. ANDERSON. We tried to get California exempted, but we could not do it, and we have several members on the committee. Mr. BERVALDI. I would think that we would try to stir the interest of the Florida delegation in this and try to do whatever we can with it. The history of this market is very evident. it has been a history of fresh starts, and direct competition for the few isolated markets, and it is entirely different from the California situation, because everybody gets wiped out, and then they go back to no service again, and it has only been since we have had State regula- tion that we have had a good intrastate network of air transportation in the State. The public service commission is fighting to retain this. I think all of the part 298 commuter carriers in this State are going to fight to retain this. We think it is very important. Without this, we could have one carrier servicing the whole State. There would be one or two frequencies a day. Without a great frequency of service, which we have found is the important thing in the Florida market-both the purely intrastate traffic need frequency of service and the interstate traffic. They need the hourly type of service on these markets. They demand that, and you cannot do it with large jet aircraft. The proposals of Air Florida, when they applied for the Key West route, were two frequencies a day. Do you know what this does? We are flying eight round trips a day between Miami and Key West, and, if the demand is there, there are extra sections on those flights. We do not leave anybody behind. If a carrier comes in twice a day with large aircraft, to meet the peak demands of the connecting interline flights, this gets into that very nasty situation where the cream is skimmed off the top, and it leaves the present carrier, who is trying to provide the numerous frequen- cies, in the hole again. Pretty soon, this carrier is driven out of the market, and the public is left with inadequate service. This is our concern, Mr. Chairman. Mr. ANDERSON. Thank you, Mr. Bervaldi. In your testimony, you state the situation of your company, and I am not exactly sure of what you consider your company. I cannot tell whether you consider it interstate or intrastate. For example, you say: "Second, a majority of Air Sunshine's traf- fic is interline passenger traffic. The vast majority of this interline traffic is interstate." Mr. BERVALDI. We- PAGENO="0056" 50 Mr. ANDERSON. You continue: "It is this second peculiarity which has created grave concern about the interlining provision of House bill 6010, as it affects our airline, and, of course, all of the other part 298 commuter carriers who engage in intrastate air transporta- tion pursuant to Florida certificates of public convenience and neces- sity," and so on. In the same breath, you are basically identifying yourself as inter- state and intrastate. It appears that you are doing both at the same time. How do you really define yourself? Mr. BERVALDI. We feel that we are truly an intrastate commuter carrier, being exempted from the Federal regulation under part 298. The Public Service Commission of the State of Florida feels this way. They have regulated us totally as to fare structure, route structure, and everything else, and, until we got deep into the discussion of the deregulation package, we never thought of ourselves in any other way, and we still do not. We just thought that we had the ability to interline through this exemption, which required us to fly an airplane of a certain size, and we still do, right now, consider ourselves strictly intrastate. Mr. ANDERSON. Even though the greatest majority of your business is interstate, in that it goes on beyond the State boundary- Mr. BERVALDI. That is due to the fact that Florida has become more and more popular, and we have more and more of a tourist flow into the area, and now over 50 percent of our traffic is from this interline source. We feel that it is intrastate traffic, because we are carrying it be- tween two points within the same State, as far as operational- Mr. ANDERSON. Are you familiar with Golden West, of my area? Mr. BERVALDI. Not totally; no, sir. Mr. ANDERSON. They are, I think, one of the larger commuters. They consider themselves totally interstate, and they never talk about themselves as being intrastate. Their commuters bring most of them to the airports, and then they get on other planes. How would you distinguish between your company and their company? Mr. BERVALDI. Is Golden West a part 298 commuter? Mr. ANDERSON. Yes, sir. Mr. BERVALDI. Just like us? Mr. ANDERSON. It is only that they are operating in California- basically in the southern part of the State: the Orange County-Los Angeles area. Mr. BERVALDI. Have they been totally regulated by the Califorma Public Utilities Commission, like we have been? Mr. ANIERSON. I think they have some regulation; yes. They identify themselves as interstate, really. When you talk to them, they interline, and everything, and they consider themselves interstate. Mr. HAMMERSCHMIDT. Does Golden West fly out of the State of California? PAGENO="0057" 51 Mr. ANDERSON. No. Mr. BERVALDI. Several years ago-before this period of time-the majority of our traffic was intrastate, and we have continued to be totally regulated by the State. We think the State has been fair in this regulation. There has been enough route protection, it seems to me, and enough approval of new routes, and this has developed quite a nice network in this State. We would, very frankly, like to continue to be regulated by the State. I guess the differences in the characteristics of the route system in your State and ours is such that we are happy with State regulation and Golden West is not. Mr. ANDERSON. I would not say that they are not happy. They have had some complaints. Tinder your Florida certificate, could Air Sunshine operate the same aircraft as Air Florida? Mr. BERVALDI. No, sir; not at this point in time. Mr. ANDERSON. Do you feel that House bill 6010 favors Air Florida over carriers such as Air Sunshine? Is Air Sunshine subject to dual regulation by the CAB for inter- state passengers and by the Florida Public Service Commission for intrastate passengers? Mr. BERVALDI. We do not feel that we are, and we have not been, as long as we have continued to fly less than 30-seat aircraft and do not cross the State line. Mr. ANDERSON. Does Air Sunshine have joint fares with interstate carriers? Mr. BERVALDI. We have joint fares with almost all of the major carriers in the United States, and we have had them for a number of years; yes, sir. Mr. ANDERSON. Is the CAB formula used in such fares? Mr. BERVALDI. I think the fares are set by a negotiation between the commuter carrier and the CAB certificated carrier. It is not on a specific formula. It is CAB approved, but they are negotiated. Mr. ANDERSON. Does the division of revenues go the same way, or does the CAB- Mr. BERVALDI. It is the division of revenues that is negotiated. Mr. ANDERSON. It is negotiated? Mr. BERVALDI. Yes, sir. Mr. ANDERSON. Is that also approved by the CAB? Mr. BERVALDI. No, no. Mr. ANDERSON. If Air Florida applied for a Miami-Key West route, do you think that the public service commission would consider the impact of the Air Florida's service on Air Sunshine? Mr. BERVALDI. If the public service commission of this State were allowed to continue to regulate the air routes and the fares charged in this State, I think that they would consider that, and this is the one thing that we are very, very concerned about here-that the deregula- tion package is going to completely cut their effectiveness, and they will not have any control over it, no matter what they want to do. PAGENO="0058" 52 Mr. ANDERSON. Mr. Hammerschmidt? Mr. HAMMERSCHMIDT. Thank you, Mr. Chairman. On this discussion about interstate and intrastate revenues, I thmk that what determines an interstate airline is whether they go outside of the State or not with their service. If you have revenues from interhnmg, I thmk that has nothing to do with making you an interstate airline. You would still be an intrastate commuter. Mr. BERVALDI. I would hope very much that this is completely ac- curate. Mr. HAMMERSCHMIDT. Could counsel comment on that? Mr. HEYMSFELD. As I understand the law, Mr. Hamnierschmidt, carrying interstate passengers-even though you only operate between points in a single State-puts you under the jurisdiction of the CAB, and you need CAB authority to do that. If you are a commuter, you may not realize that you need CA]3 authority, because, if the CAB exempts you, all you have to do is ifie your schedule, but this jurisdiction of the CAB is what kept Air Florida and PSA from interlining. The CAB would not let them do it, and. that is why we needed legislation to let them do it. Mr. IIAMMER5CHMIDT. I am sure that counsel's interpretation is correct. I wanted to get it into the record. Mr. BERVALDI. Yes, sir; I am glad that it has been clarified, too. This is the exact thing that we brought up in this presentation- the thing that we were very concerned about. This is what we feel will destroy the network of the intrastate air transportation system within the State of Florida. We feel, as I have said here, that we have a unique situation that is different from that of any of the other States that have other States at every border. We have hundreds and hundreds of miles of our borders that do not contact or connect with another State. Almost all of the routes are strictly connecting small communities or small communities with larger communities within the State, and there is no need to have an entire State market where we fly outside of the State. We feel, for that reason, that we should be exempt within the State of Florida, like Alaska has been exempt. We feel that this would solve our problems. Mr. HAMMERSCHMIDT. Mr. Chairman. I know that it is elementary to point this out, but you know that the~ bottom fine of our reason for being here and our activity-and I am sure that it is also true of the Public Service Commission of the State of Florida-is to insure what is in the best interest of the traveling public, and not necessarily to protect airline capital. As I said, we all know that without me saying it, but~ Mr. Bervaldi, you are suggesting to us that, if you were deregulated, the best interest of the consumer-the traveling public-would not be served. Mr. BERvALDI. The traveling public definitely would not be pro- tected in this case. PAGENO="0059" 53 Mr. HAMMERSCHMIDT. Thank you, Mr. Chairman. Mr. ANDERSON. Mr. Shuster. Mr. SHIISTER. If I understood you correctly, you said that you could not go above 30 seats in a plane; is `that correct? Mr. BERVALDI. Not without a special waiver from the CAB. Mr. SHnSTER. I would ask this of counsel: Would this waiver be pretty much automatic? Mr. HEYMSFELD. It would not be automatic from the CAB-not for the carrier of interstate traffic. There would also be the question of whether-for the intrastate traffic, it would be automatic, or virtually automatic, from the Florida Public Service Commission. Mr. SHUSTER. When you say "interstate traffic," even though `he is flying the plane only intrastste, since a large percentage of the passen- gers are coming from other States, it is, indeed, interstate; is it not? Mr. HEYMSFELD. Yes, sir. Mr. SHUSTER. Therefore, you are saying that it is not a simple automatic matter for the commuters to go above 30 seats; is that correct? Mr. HEmrsrm~n. It gets complicated, because I think that, under 6010, if they could get authority from the State to go above 30 seats for intrastate traffice, 6010 would, I believe, give them authority to interline. Mr. SHUSTER. But most of them are really in interstate. Mr. HEYMSFELD. Yes, but 6010 says that, if you have State authority to operate aircraft of over 30 seats, you may interline. Mr. SHUSTER. For interstate passengers, as well? Mr. HEYMSFELD. Yes, sir. Mr. SHUSTER. As a practical matter, commuters can go above 30 seats; is that not correct? 1\fr. HEYMSFELD. In Florida and California. Mr. SHUSTER. In Florida and California; yes. Mr. HEYMSFELD. I cannot comment upon what the State of Florida's PSC law is on this. We heard testimony earlier that it is fairly easy to get that kind of waiver or authority from the Florida PSO. Mr. SHUSTER. Do you agree with that? Mr. BERVALDI. Let me say this: We have currently pending before the CAB an application to fly larger than 30-seat aircraft on a couple of our other routes, and, of course, we are required to do exhaustive and very costly environmental impact studies and a lot of legal drafts, and then there is the very long time wait before this is authorized, and it is-we feel that 6010 may have clarified this, hut I am still not totally sure of it. Mr. SHUSTER. Thank you. Mr. ANDERSON. Mr. F~scell. Mr. FASCELL. Thank you, Mr. Chairman. The point is that, under the proposed law which is pending, you would make every carrier-and certainly your carrier-interstate and subject to deregulation for automatic entry purposes because you gen- erate a single dollar of revenue from interstate passengers; is that not correct? PAGENO="0060" 54 Mr. BERVALDI. That is correct, sir. Mr. FASOELL. Therefore, that would leave the PSC the job of regulat- ing solely intrastate carriers, who had not one single dollar generated from interstate passengers, and- Mr. BERVALDL There are none of those. Mr. FASOELL. I understand that, but that is all they would have left to regulate, so the definition under the law is one think that raises a question, since it is going to change the entire concept of what is an interstate carrier. Now, anybody who generates a single dollar under that proposed law would be classified as an "interstate carrier." That is basically what it boils down to, subject to the CAB, or, rather, subject to the deregulation package, which means automatic entry, so you are right back to square 1. That is what you are talking about; is that not correët? Mr. BERVALDI. Yes, sir. Mr. ANDERSON. Counsel, would you comment on that, please, sir? Mr. HEYMSFELD. I think that the conclusions that you reach, Con- gressman, are generally correct. I think that the definition of "interstate" has rot been changed by the pending regulatory reforiri bills, but, when a carrier is interstate, the State can no longer regulate it. Mr. ANDERSON. It is the same difference? Mr. HEYMSEELD. You end up in the same place. There is now no autmatic entry in the pending deregulation bifi. That was stricken out in markup. Mr. ANDERSON. If they go outside of the State of California, and if they go to Las Vegas, for instance, they become interstate-the im- plication being that, if they did not take the route outside of the State, they would still be intrastate. Do you want to give me a different story on that? Can PSA retain its intrastate character if it decides not to go outside of the State of California? Mr. HEYMSPELD. This will depend upon how the bill that comes out * of markup is finally drafted. Mr. ANDERSON. As it is right now- Mr. HEYMSFELD. As it is right now, there is a question about that. The way that it was originally drafted, you only became interstate for purposes of preemption if you had a CAB certificate or were operating as a commuter. * Congressman Millford's bill says that, if you have any authority from the CAB-the interlining is not, at this point, authority from the CAB, but PSA does have some over-the-water exemptions. That needs clarification. Mr. ANDERSON. Let us go back to Texas. The problem is Southwest, which is solely within the State of Texas. It does not cross water or anything, but, obviously, some of the passengers must be interstate. At least some of the passengers must be interstate. Are you telling me that Southwest will not still be an intrastate carrier? Mr. HEYMSFELD. I think that would be all right, because the pre- emption amendment says that you have got to have authority under the Federal Aviation Act. PAGENO="0061" 55 Mr. ANDERSON. For what-to go outside of the State? Mr. HEYMSFELD. Any authority is sufficient. Mr. FASOELL. Mr. Chairman, I have not read it yet, but I am guess- ing that what is happening is: By changing the definition of inter- state, by indirection, if you consider simply crossing a State line, and operating in two States, that is a classic definition of interstate, but, when you add to it the generation of revenue as a classification for interstate, you have added another dimension to it, and this is the same thing that happens with electricity and gas, and it happens with everything else in interstate commerce, and that is what is being con- sidered under the new bill. If you generate a single dollar of revenue, notwithstanding the fact that you do not cross a State line-if a single dollar of your revenue is from a passenger whose origination is outside of the State of your operation-you are then subject to the Federal law. Mr. HAMMERSCHMIDT. We have 40 or 50 amendments, and some of them have been adopted, and some of them are pending, and that leads to all of this ambiguity. Mr. FASOELL. I understand that. As an outsider, I get this impression of what is going on, and I do not know whether it is true or not, and that is the reason that I pref- aced my remarks by saying that I had not read the amendments, and, therefore, that I am not confident about what I am saying. That is the way that it appears that we are heading; therefore, I think that the objections or concerns expressed by Mr. Bervaldi are very real, and I wanted to get to the other point. As I underst'and Air Florida's statement, they support a Florida exemption. Did I understand you correctly, Mr. Timoner? In the Federal bill that is now pending, Air Florida would support an exemption, or did I misunderstand you? Mr. TIMONER. Specifically to the automatic entry provision? Mr. FASCELL. Yes. Mr. SHUSTER. Preemption is what you are talking about; is it not? Mr. FASOELL. We are talking about two different things, as I under- stand it, and I was not clear, myself. Mr. TIMONER. In my remarks, I said that, if by some provision of the new act, we were allowed automatic entry, we would accept an intrastate exclusion so that we could not use that entry as a means of getting another intrastate route. Mr. BERVALDI. I think that maybe what you are- Mr. FASCELL. I just want to know- Mr. BERVALDI. Excuse me. Mr. FASCELL. I just waift to know whether you are or are not to- gether, or whether there is a difference of opinion. That is the main reason why I asked the question. Mr. BERVALDI. If I may tr~ to answer that: We are not considering going interstate at all. . Mr. FASCELL. When you say that you do not want to consider going interstate, do you mean that ~n the sense that you do not want to cross the State boundaries? Mr. BERVALDI. Crossing the State boundaries; yes. Whether we get automatic entry or not, we are not concerned about that. PAGENO="0062" 56 We want to continue to service the Florida routes that we have to the best of our ability. Mr. FASCELL. I know that, but does the position that 1~fr. Timoner just expressed coincide with your position? That is what I am trying to find out so that, if some amendment or consideration is given by the committee to changing the proposal law- Mr. ANDERSON. Let us suppose that the law were changed so that it were just the going out of the State that made you interstate. That could be done; could it not? Mr. HEYMSFELD. For preemption purposes? Mr. ANDERSON. For preemption purposes; yes. Mr. HEYMSPELD. Yes, sir. Mr. ANDERSON. How would that affect you? Mr. BERvALDI. That would be very, very important to us. That way, the carriers in this State would be regulated by the State, and that is what the carriers in this State want. - Mr. ANDERSON. Their revenue would still be under the CAB, but, for purposes of preemption- Mr. FASCELL. As far as Air Florida is concerned, I understand that they would welcome deregulation on an interstate basis with the defini- tion of crossing a State line. They want to expand and get into that market, but they are not particularly concerned about automatic entry intrastate. Am I correct, Mr. Timoner? Mr. TIMONER. That is correct, and part of the question was also: Do we think that the regulatory process in the State has helped to develop the system as far as it is? I tried to make that clear. We do, and we have no difference of opinion with Air Sunshine. The.re was no atmosphere here for the creation of an intrastate system until State regulation put order into the development of an air transportation system. I do not know what the effect would be if it were totally removed. Mr. FASCELL. Let me add my comment to that, as a layman who has lived in this State for a long time. Everything that these gentlemen have said about intrastate service before order was brought into the market by the Public Service Com- mission is absolutely true. It was a disaster. Mr. HEYMSFELD. I would like to ask a question for clarification. Under the existing law, as I interpret it and as the CAB interprets it, when a commuter-carrier operating between two cities in a single State and carries connecting passengers, such service is under Federal CAB regulations, and the State cannot regulate it. The way that the CAB regulates it is: There is free entry and freedom to charge what- ever fares you want in carrying that interstate traffic. My question is: Is it your position that the existing law should be changed, and that there should be a cutback in the CAB's jurisdic- tion under the existing law, and that this type of service should also be under State regulation? PAGENO="0063" 57 Mr. BERVALDI. It has been my understanding that this, practically speaking, is not the way that it has been handled, and it never has been handled that way. It would be handled this way if aircraft under the 30-seat con- figuration flew in from a point in another State to a point within the State of Florida; then it would come under CAB regulation. Practically speaking, it has never been handled this way. If that is the intent, it has not been followed. It was never followed. Mr. CURA5I. I would have to disagree about what the existing law is. Mr. Chairman, I- The REPORTER. Excuse me, but please give me your name. Mr. Ctnt~si. I am Jim Curasi. Mr. ANDERSON. Excuse me 1 minute, please, Mr. Curasi. Please continue, Mr. Bervaldi. Mr. BERVALDI. I was saying that, although this might have been the intent of the law, to my knowledge, it has never been applied in the past. Mr. HEYMSFELD. Are you aware of a recent CAB order applying to California, saying that a carrier needed no special State authorization to start up an operation within the State of California under the CAB's commuter exemption? Mr. BERVALDI. No, sir; I am not. Mr. Ctrm&si. Mr. Chairman, if I may- Mr. ANDERSON. Please identify yourself for the record. Mr. Cuit&si. Yes, sir; I am Jim Curasi, C-u-r-a-s-i, and I am counsel for Air Florida. With respect to your counsel's question as to the regulatory scheme in the State of Florida, the definition of air carrier for purposes of Florida law, as contained in section 330.4(8), states that: Any carrier who operates between two points in the State, and not possessing a certificate pursuant to section 401 of the Federal act, is an air carrier for the purposes of Florida law, and, therefore, `must obtain a certificate from the Florida commission. Now, because of the definition contained in section 330.4(8), you have two types of carriers in Florida. You have your part 298 exempt carriers and the commission has taken the position that they still have to get a certificate from the commission. You have carriers such as Air Florida, who has no part 298 exemp- tion. Now, your point about that order that just came out from the CAB raises a very interesting question about the validity of the Florida statute defining it, so I think that kind of clarifies it. That has not been interpreted, but, in light of the order that you are referring to, it does bring into question the validity of the Florida law. Mr. HEYMSFELD. Would you agree with my interpretation of what the CAB thinks of the existing laws? Mr. CtmAsI. As of right now, I would; yes, sir. Mr. PATERNO. I might just- Mr. ANDERSON. Identify yourself-, please, sir. PAGENO="0064" 58 Mr. PATERNO. Robert Paterno, counsel for Air Sunshine. I might point out that the practical effect of the interpretation which is being suggested-and which may well be the CAB's interpretation in a specific case-as a practical matter has not been enforced on an ongoing basis by the CAB, and they have taken a kind of a: "I am not going to look" attitude, and they are not going to do anything. unless somebody forces them to make that kind of a decision. That, in effect, would be that 330.4(8)-the Florida statute would. literally, be invalid forthwith. Air Florida, is not a part 298, or a 401 certificated carrier. It, literally, would have absolutely no authority whatsoever to fly anywhere with any kind of equipment. The only way that they are flying today is under a valid Florida statute. If that statute is knocked out, they are gone. I suggest that we have got a horribly confused situation, and, frankly, I think that this committee could benefit everybody by ad- dressing this problem and maybe looking at the existing law, as it is interpreted by the CAB, and seeing whether some appropriate modi- fication or clarification would not help States like Florida and Alaska that need State regulation by the PSC of intrastate routes. Mr. ANDERSON. Mr. Hammerschmidt? Mr. HAMMERSCHMIDT. No; I have no further questions. Mr. ANDERSON. Mr. Shuster ~ Mr. SHtTSTER. I have no more questions. Mr. ANDERSON. Mr. Fascell? Mr. FASCELJJ. No, thank you, Mr. Chairman. Mr. ANDERSON. Thank you very much, Mr. Bervaldi, for an excellent presentation. Mr. BERVALDI. Thank you, sir. [Attachments 1-7 previously referred to in Mr. Bervaldi's testimony follow:] PAGENO="0065" -. Cl) ~J~be ~iamiHeratb L~D~ llc~yi~ SECTiON C t I PAGENO="0066" L~\o0c~ YAY1~ * SECTION D Sunday, February 12, 1978 U CLASSIFIED - 12D ~r. !~Q~I ~fl (ID CD~ :-~~ s~ C C o ~ (F (F PAGENO="0067" ha c) ~ I1D~ go S At the Poet Chica station, Ensign Deborah Hartowe. a pubbc affairs officer, said Thursday. "The onty thing we know and can truthfulty say (about the airport) is to quote from a fetter by the commanding officer from April 1976. `There is no change in current status at the present time.' Bob Putman, a civilian with the Naval Facitities Engineering Corn' mand in Washington. said Thurs- day. "I have spoken to no one with Air Florida." Air Florida Board Chairman C. Edward Acker said Tuesday his company has had "some prebmi' nary talks with" the Navy about the airport. "but it's not far enough atong to determine whether the Navy will say yes or no." ACKER CHANGED that Thurs- day. saying "We have made inqut- rico through one of our Florida sen- ators' offices and asked them to help its dcs'elop a dialogue with the Nas'v" "All I knosv is we started the ball rolling." said Acker Tuesday. But it was apparently Lawrence Gornez who "started the ball roll- The Key West mon said, "We need a new market down here and the best way to get it is to use that big Navy base lying fallow. We can get a couple hundred-thousand more people down here if they fly from Fort Lauderdale." Key Wesl.based Air Sunshine, the only airline currently using Key West International Airport, does not fly to Fort Lauderdale. But Miaml'based Air Florida , whose jets may be too big for the Key West airport, did apply for a route between Fort Lauddrdale.Hotfy- wood International Airport and Key West last year. THEY WITHDREW that applica- tion after the runway at Key West had been repaved and narrowed from 150 to 100 feet. Gomez wrote Chiles last Decem- ber, and then passed along Chiles' response, including the admiral's memo, to Air Florida. `Mr. Gomez called me and sent us copies of the letter. I did not have direct communication with the senators office," Air Florida Presi- dent Eli Timoner said Thursday. "Under the circumstances, I thought it best to wait until the Navy made its decision known," Ti- 61 Open Airport Considered Navy Denies Negotiating With Airline By BRAD SWANSON Navy officials denied Thursday negotiating with Air Florida about opening up the Boca Chico Naval Air Station to commercial use. But a Navy admiral, in a memo last December to U.S. Sen. Lawton Chiles (D., Fla.), said that allowing commercial airlines use' the naval airport "is being thoroughly investigated." The memo - from Rear Admiral D. C. McCormick in the Washington Office of Chief of Naval Operations - informed Chiles: "You may expect a reply from this office by Jan. 27, 1978." CHILES, WHO could qot be reached for comment, sent a copy of the memo to Lawrence Gomez, a Key West man who had wrE- ten the senator about the air station. PAGENO="0068" By BRAI) SWANSON Six weeks after withdrawing Its up- ptication to fly into Key West Interna- tional Airport, Air Ftsrida is negotiating with the Navy to open the Naval Air- port for commercial use. "I don't hetieve in starting an opera- lion into what we heilevc' is a tuarginat airport," Air Florida board chairman C, Edward Acker said Tuesday of Key West International. "We concluded that tsr rtsoway to too short and too narrow. So we've concen- trated on efforts to detrrnsine whether the Navy airport soul se available far commercial flights. Wevc' had some preliminary toiks, hut l's not far enough along to deternsiue whether the Navy will say yes or no." NAVY OFFICIALS would not con- fIrm Tuesday whether negotiations were In progress with Air Florida about the future of the Navy airport. AIr FlorIda had sought to get permls- stun to fly the route hetweeo Fort Lau- derdate-Ftottysvood International Air- port and Key West, hut withdrew after the runway at Key West was repaved and narrowed from 150 feet to 100 feet, The Miami-based airline said at that time the runway might be too narrow for its 85-passenger L)C9 jets, the only planes Air Florida files. But "decrease of runway width has not decreased the usage of lIce airport," Manuel Rodriguez, planning ectgineer with the Federal Aviation Administra- tion, said Tuesday. I-fe said Key West aIrport had "an ex- cess of runway svidth" before the modI- fications and that the rssosvay had been narrowed to save maintenance and cc- pavlag costs, "LENGTH OF a runway Is the con- trolling factor, not widtls," Rodriyuez said. The 480ti'lecl te.uglis of the Key West runway, he said, would enable a DC9 to take off or lund euiy if it were "very cottstrained whit regard to weight - and that reticctt upua pan. senger capacity." But a IDC9 did toad once at Key West airport last sumttu'r, said airport man- agOr George ttoagland. "II was sort of like Air Florida's inaugural flight here," he said. "It had `It people ass board." The flight was not repeated. Itoagland saId the aIrport could allow DC9s to fund, but added the airlines may have more utrlegettt restrictIons. One aviatiun source who did not want his name mentIoned estlmoted that DC9s could safely use a runway as short as Key West's on a regular hasls with half-capacity loads. The Air FLorida jet hod no difficulty landing or taking off, sold Itoaglond, hut, "we wIlt never have a real jetport here," he saId. "REALLY, WE'RE locked In here. If we try to extend the runway to the west, we'll have to tower the approach zone, which means the airplanes wttl be flying a tot lower over the high school. "Aad If we try to extend to the cost," "Plus, we've got envIronmental prob- lems you wouldn't believe. All site per- mits we'd have to get ovlsea we started filling in those ponds . - Bat Acker says there sverss plans to lengthen the runway In 1976, iselure Hoagland became macsager. "It would take some sort of eoiight- coed citizenry" to hove the ruoway lengthened now, he said. "I duu't see too much push for It. It vvoulsf scent lhey're not really interested in lospruvlng their airport." ~Ijc !Thaint 1~cratb [ £~c~j~ L~o~c~ `E~ffi~~ SECTION C Wednesday, February 1, 1978 * Key ~Vest Airport Called `Marginal' Air Florida Is Seeking To Use Navy Airfield he cnnttnued, "they'll save to lake the power lines down off Roosevelt Bottle' yard and deepen the ruadw.'y or luonel It or samething - It would cost mit' liens. PAGENO="0069" f),SiiZtP~u1~O?J OF PS6~. R'~~~~Uo - ~ M~ç~( - ~ End~d i/3,171 63 ~73 -- .- ~,/2 SV/U~//(~E -. ~ OF rFr!-,q~~,vM[o( i~ M9J EiuZ~cr~ ~ PAGENO="0070" -î !=~-<--ti\ - - - -- /~ ~ / ~ i~ T7'~' N~/ -:-~ ~: li__ .~-- - -- - ~ecg~ ~ fiv7eQST/~ -e PI2~SE& * IfrjujL-t ur j~j~ HE 41144 64 F~_Z. ~`eQs 4ccw,yi `~ia UjE~ I. /r/Jr~'5~~F,~i} FF/C Ih~~Ji) REUT~JOET~ I-Key I~ST 41I~KET ,~Ii2 SUi4IA~,E . .: I #~1~'~'~' ~ ,)7si7~ir3oro~'/~T.w E/Jo//~//2a-~ /4IF~1 -KEY LUE~7~ P/~S6,JcEQ«= * * * ~r~rr~ F-T~ Pg~C. `H 1A,T12, ST/fl: PAGENO="0071" -~---~ -~- ._*t~ ~ \ \ ~J. ;#~ F \\\ \ \~\\\\\\~~~ \\\\\ ,.\\\\\\\\ \\\\\\\\N _______ __________p C.)1 (~Il rs \\ \--\ \V\_\ ~ V ~~VV .\\\\.\~\\\\~\\ \\\\\~\\(~:~V - __ - li - I - - PAGENO="0072" 66 TA~- £ I7~ IS 19 2C 21 22 2: 2: -~ - T?fFflC~~ Pqi~~T~ ~---- -~ = 2~ =3= . ~ i~,s~o~e T~f2J e'f ~a1 :/~:~;:L~~. I 0411 iipIIiiui'r~~m'I ~I ~ Fee, - ~ k&i-'~'- k~O7$_J ~ ~ /4e~~ ~ ~ -~ Mps- ~ ~ LL~~ -~ `~~~t!~-- k~:c"-- ~ -- ~d~L ~ .-.- I I ~ ~ ~ ~Jwi ~ cI~ . k~llL"~ 5k! 4') L4 I*iL~'~k ll~ ~ -~ ~~-:i;- ~ ~)9 i~iE~' ll-t~ ~~ep_ - j1ii~ ~ q~ ?~ .}~TL~ 11 L4~ - - --~-~ Oc~~ ~ `(*~-- ~ - !`JrrJ ~ ~ £~ 4~tO,L~LIg~~ - . 7)I?c~ ilL ~ l,L,t~.;!, ~ :2~1~Ii /:7;~ ~ ~ ~di . ~i~ij. ~/~J~i ~Z~L ~ Th7~C~ J1~Y4 t~~3! ~ ~ ~:`*~~ - /o~S ~ ~ - c&~;*~2';~~ ~ ~ `2.~~- - - ~ ~ LI - - - H I ~- .Lj~1i -*- ~-i - - -~ /C~t?z7 ~Qh - ~ - - - ~ j ~ ~ III~~Ei th~iH~L- ~ m*JLk~W~LLzd;~__±L_ih_-~ 7~,c_ L b~i_iLiL~L_~ik~_ ~«=-:;:LL_ ~ 3- I :~ - -- -- I-- I- - ~ ti L_ ---- - - - - - - ~%~t - - I- I . I! PAGENO="0073" 67 ::::::::: ~ ~ -r~-8L~~ g~ 1. ~ 1: us IS ~_u Iu2~ j2 2; 2. A/~2 ~JII~- ~J5 Tsu~Pc1/~rr ,~ (is'. ~ - ~ ~ 7pp ~ ii) " - -~----.--.---.-~ -~----- ~JL(fCLLS I'~--~-~ ~TH~ i~i~ii ~ F). ~ ), I ~ ~ I~2 L___ AittfY~d~_ i~i~r JffI~I ~ I~. 1~~1 JI,I I - ~_/q'77 Ee~b_~ ~~~H!~'_ ~I(~~' ~ sfrJ( ~ *~ --- ~ 44~- ~ ~c~_ - -. - `~ps:~~ ~F~P - - ( - - 9 ~I~* - - + ~ - - ~-1~~ - ~ - ~ - - I ~ ~ ,~ ~ ~ 1-,»= - - --1-- - J115i ~ ~ ~ ~ - - ~ - - i~fr~ --L-- *j~IA! [t2~1~~ (~ ~ ~ cM?~~ ~t'~ - - - ~ - - ~1~;P~s1_ - cicAj ~ ~ ~ ~J - - P `~ ~ - - - ~____________&~_P___ ~ `-T~L - ~ ~ 2~ S ~/ ~ s p ~ - - ~ - ~9h ~t~i ~ ~ ~ - I ~ ~ --~ ~ ~ - ~ U3~k ~ ~ - - . ~)(,c~ ~ I/~;~ ~ ~ ~ ~ - ~F ~ - - - ~~`~?`?~ Jeyu 1J1~k ~ ~1- 9g ~ ~ I~ ~ ~ .4 ~ -~ - 15" ` ~S H -, --Lj PAGENO="0074" 68 FLORIDA PUBLIC SERVICE CO~-iNISSION PROPOSED ANENDRENT TO SECTION 17 OF S. 2493, PAGE 39 MARCH 8, 1978 FEDERAL PREEMPTION Sec. 17. Title IV of the Federal Aviation Act of 1958, as amended by this act, is further amended by adding at the end thereof the following new section: "FEDERAL PREEMPTION "Sec. 423. (a) (1) No State shall enact any law, establish any stanclarddeterrnining routes, schedules, or rates, fares, or charges in tariffs of, or otherwise proi~iulgate economic regulations for, any air carrier certificated er-exeiepte~, by the Board under the provisions of this title, except that any State whichr-em-er-~eese-~eneasy-~r 19~-had-attthes~sed authorizes an air carrier to provide intrastate air transportation in that State, may continue to regulate such intrastate operations of- such air carrier notwithstanding the fact that such air carri er7-a~tes-~a~easy-~7- ~ t~me~ holds a certificate under this title, for so long as not less than 50 percent of the revenues of such air carrier is derived, during the most recent period for which data is available, from such intrastate operations. For the next year following such a period during which such air carrier derived mere than 50 percent of its paosengor revenues directly from ~mterst&te operations conducted with its aircraft in scheduled interstate air transportation7-en~-~er-eaeh-year-theseaftery the enti~e air tränspurtation operations of such air carrier shall be subject to PAGENO="0075" 69 Page Two subject to regulation by the Board under this title7 provided, however, that should such air carrier's passenger revenues derived from scheduled interstate operations fall below 50% and remain so for any period of six consecutive months, the Board and the State regulatory authority shall consult and determine jointly whether regulation of the air carrier shall continue by the Board or revert to the State. 4/ The Board shall provide just and reasonable 5/ regulations for allocating revenues of air carriers specified in the first and second sentences of this paragraph between intrastate and interstate air transportation operationsT, after consultation with the State regulatory authority. 5/ `(2) When any air carrier which is specified in the first sentence of paragrapa (1) becomes totally regulated by the Board, any authority received from the State to provide air transportation shall be considered to be part of its authority to provide air transportation received from the Board under this title, until modified, suspended, revoked, amended, or terminated as provided under this title. "(3) Except with respect to air transportation authorized by the Board under a certificate issued under section 401 or, air transportation for which compensation may be paid under section 419, the provisions of paragraph (1) shall not apply to the air transportation of persons, pioperty, or mail conducted wholly within the State of Alaska. "(4) Any air carrier certificated by the Board under this title, and who enters into an agreement with an intrastate air carrier for the through handling of baggage or passengers, shall not, by reason PAGENO="0076" 70 Page Three of that agreement, be subject to regulation by any State. Neither shall such intrastate air carrier become subject to regulation by the Board by reason of entering into such an agreement. Nothing in this paragraph shall be construed, however, as affecting in any manner the Board's authority, otherwise conferred, over air trans- portation transactions covered by an agreement between air carriers, including agreements between interstate and intrastate air carriers for the through handling of baggage or passengers. "(5) Any aircraft being used in flights (except flights between points in the State of Hawaii) in air transportation between points in the same State which, in the course of such flights, crosses a boundary between two States, or between the United States and any other country, or between a State and the beginning of the territorial waters of the United States shall not, by reason of crossing such boundary, be considered to be operating in interstate or overseas air transportation. ~,State may exercise economic regulatory aut~~4~y over transportation by aircraft between plddes in the same Stats, or across the boundaries defined in the preceding sentence, * when such transportation includes: (a) the carriage of mail; or (b) the carriage of passengers or property who moved by air or ground transportation in interstate commerce either before or after the "DEFINITION `(b) For the purposes of this section, the term `State' includes the several States of the United States, the Commonwealth of Puerto PAGENO="0077" 71 Page Four Rico, the Virgin Islands, Guam, the District of Columbia, the territories and possessions of the United States, any political subdivision of any State, and any agency or entity of two or more States.". PAGENO="0078" 72 .FLI1BhIJA~~ PUBLIC SERVICE COMMISS'IIJN 7CR SCRJTH AD*.MS STREET PAL LA HAWKINS, CHAIRMAN TMLETASSEY 32CR~ WILUAM T. MAYO THE NEED FOR STATE REGULATION OF INTRASTATE AIR TRANSPORTATION IN FLORIDA ~ ~ 9 PAGENO="0079" 73 The goal of state regulation by this Commission, in it~ exercise of authority under Sections 330.45-330.53, Florida Statutes, is to provide for the air transportation needs of small and large communities, statewide, by insuring: 1. Dependable Service `- certain knowledge that published schedules are In fact timely and representative of services truly available. Reasonable assurance that flights will operate on time so that passengers can make business appointments, connecting flights, etc. 2. Frequency of Service - a reasonable number of flights that will allow the development of a. market to its fullest potential, which will generate the number of passengers to make service ecorotni~-.~l and nrofitable. 3. Adequate Aircraft - aircr*~ft desigfled with the passenger and his safety as prime considerat"ions. Roomier aircraft with passenger comforts and convenieflces heretofore u~:vail~b1e in "third level air carrier" fleets will in turn attract additional passenger revenue. PAGENO="0080" 74 In most Florida markets, traffic volumes are insufficient *for competitive forces to work, therefore, State regulation is required to foster the intra-Flori4a ai~r carrier netvork. If orderly, efficient, economical and healthy service to the public is to prevail, the State must have jurisdictional control, through economic regulation, over carriers contributing to that service. Sections 330.45 through 330.53, FS provide that control. PAGENO="0081" 75 Without state regulation the following factors will prevail: 1. No Rate Control, either passengers or ,~roperty. 2. No Liability for Property (baggage or freight). 3. No Effective Control for Insurance Requirements. 4. 1o Financial Responsibility Control. 5. No Control over Cut-Throat Competition. 6. No Entry - Exit Control in Any Markets. 7. No Control over Minimum Levels of Service in any Markets. Go - ro go strictly at the whim of the carrie~. 8. No Denied Boarding Rights for Passenger, the customer is at ti.a mercy (?) of the carrier. 9. No Interface with Federal Officials, wherein the state provides effective field surveillance and investigation of operators, and more effective enforcement due to limitations in FAA manning (i.e.: their non-scheduled operations workload, involving licensing and airworthi- ness, etc.) 10. No Control over Aeronaut3cal and Business Experience of Operators. 11. No Control over Aircraft Type and Ownership or iinanci~i status for same. 12. No Requirements for Identity of officers, directors, share holders, so that responsibility may be fixed. 13. No Basis for a Healthy Competitive Structure of the industry, nor for regulated monopoly - where appropriate. 14. No Protection for Investors Against Unscrupulous Promoters. 28-911 0 - 78 - 6 PAGENO="0082" 76 In the scramble for intrastate business, commuter airlijies appear and disappear all too frequently - the victims of under funding, over expansion and seasonal traffic. Without route protection, without schedule requirements and with unregulated fares, the small airlines cut each others' throats and crash financially in the process. PAGENO="0083" 77 8 COMPETITION AND ADEQUATE SERVICE A review of alternatives for obtaining service must consider competitive authority as a possibility. One theory of regulation holds that the problems of inadequate service and excessive fares can be solved by authorizing an additional carrier in the market. Another current theory holds that abolition of all, or at least most, regulation to pcrmit "freedom of entry and exit" and `freedom of fare experimantation" will promptly achieve abundant service and low fares. Like many sophisticated theories of economics, either of these theories might be eminently sound in a specific market at a specific time, but as a generality they brush aside or ignore some very important facts. In Florida, the presence of competitive authority has not assured adequate air service. On the seventeen routes being considered by the State, there are 75 city pairs where service is inadequate. Seven have two carriers authorized and the remaining 30 city pairs are authorized to three or more (up to seven in one case) C.A.B. - certificated carriers with.full uninhibited permission to compete. Still the service is inadequate. The operators of intrastate air service in Florida ar~ undoubtedly reasonably intelligent and clever and have a desire and need to prosper. Their reluctance to join in competitive struggle in these markets is precisely because the markets are not large enough to support two or more competitors. The profit estimates of route sections show that revenue to be earned from these routes cannot be divided between two or more operators and either of them remain viable. PAGENO="0084" 78 Even the most profitable routes must be viewed realistically-. If a competitor enters these markets, his revenue comes first from the incumbent carrier's profits and then is reflected in both of their losses. A few of the routes may later be found capable of supporting competition but initially it will be fatal to both carriers. Proof of the above reasoning is available in the long history of airline failures in florida. The theory that the stronger will survive in an economic struggle does not produce lasting air service; it more easily results in the death of both competitors. Should one survive, he does not necessarily reap the reward of the victor to recover from the drain of battle, for he may be immediately confronted with a fresh entrepreneur who has not yet lost his backing. A classic demonstration of this type of competition occurred in Florida in recent years. Two well-financed carriers, Shawnee and Executive, entered the State with extensive route systems, using identical aircraft. Their -. route systems were unregulated and overlapped in critical areas. Each had it~ own management philosophy but both were agressive and built aconsiderable following with the public. Over about a four-year period, it is reported that one lest $3.5 million and the other about $5.0 million. At about the * mid-point of this period, it was apparent that so much had been lost that the survivor on the routes, if lert alone, could not~ recoup his losses through profits. The final result was the demise of both carriers with the public losing ~j.i the service and the backers a significant sum, along with PAGENO="0085" 79 10 their desire to perform a worthwhile public service. It Is a simple fact that competition--or the multiple designation of carriers between points--has failed to produce service. Further, there is no reason to expect that it will produce in the future. The Official Airline Guide shows that the eight trunklines and one local service carrier in Florida offer only ten entirely intrastate schedules providing four markets with nonstop roundtrip service, five markets with one stop roundtrip service, two markets with two stop roundtrip, and eight markets with one-way nonstop service. It follows that in order for Florida to be able to assure adequate air service within the State, smaller types of aircraft must be introduced. Since it is probably unreasonable to expect the long-haul carrier to purchase aircraft to be used only in Florida intrastate service, the State will have to look to the intrastate operators to provide the bulk of the intrastate service. PAGENO="0086" 80 I II BENEFITS OF STATE REGULATORY CONTROL The major advantage of regulation by the State of its air transjortation system is the element of control which the State is able to exercise. Theoretically, the power could be absolute--over the entry and exit of air carriers, fares, rates and schedules. The State can establish, and then enforcc, standards and thus insure that appropriate service, responsive to the State~s needs, will be provided. Should a carrier's economic life depend entirely upon intrastate traffic, the advantage of State regulation would be greatest because the power which could be exerted over the carrier would indeed be real. The experience in California and Texas seems to reflect additional advantages--to the traveling public--in the form of improved service and lower fares, compared with that which was available when service was provided exclusively by C.A.B.-certificated airlines. Active state participation in regulating air transportation between its cities will -- encourage purely intrastate services in Florida which will be beneficial to Florida air passengers. In summary, competition, as observed in Florida, ha~ nc~ produced stable, adequate intrastate service, and has caused well-intentioned Floridians to lose large sums of money in efforts to provide intrastate air service. PAGENO="0087" 81 March 1, 1978 To Each Member of the House Subcommittee on Aviation Re: H.R. 11145, a bill proposing - the Air Service Improvement Act of 1978 Dear Congressman: The National Association of Regulatory Utility Commissioners (NARUC) re- spectfully urges the Subcommittee on Aviation to adopt the enclosed NARUC ~proposed amendments to Section 4(a) of the above bill. In essence, these proposed amendments reflect the form of Section 17 of S. 2493, a bill proposing the Air Transportation Regulatory Reform Act of 1978, with NARUC amendments engrafted thereon as indicated. The purpose of these amendments is to confirm and clarify the role of the States in the economic regulation of intrastate air transportation without interfering with national regulatory reforns. The Federal Aviation Act of 1958, as ainen~dcd, leaves such local regulation to the States. The usefulness and importance of State regulation is perhaps be:;t exemplified by the existence of, and services provided by, Air California and Pacific Southwest Airlines in California and Southwest Airlines in Texas. We believe that the success stories of those airlines are a great credit to a policy of federalism which has allowed the States to encourage and ex- periment with the development of intrastate air service that is both ecanomical and responsive to local needs. State regulation has proven to be highly beneficial not only to the citizens of such Stat-es as California and Texas, but also to the Nation for serving as yardsticks against which Federally-authorized rates and services could be compared. As you know, some of the impetus and rationale for the reforms contained in the pending legislation stem from comparisons which have. been made between State-regulated and CAB-regulated carriage - PAGENO="0088" 82 March 1, l97S Pa~,e 2 Accordingly, the NARUC respectfully urges that Section 4(a) be amended as indicated to permit State regulation of the intrastate operations of a GAB certificated carrier engaged primarily in intrastate air transportation. thder the liberalized entry provisions of the legislation, itis anticipated that virtually all carriers of any significance will receive CAB certifica- tion. Therefore, we do not believe that it is in the public interest for carriers engaged primarily in intrastate air transportation to escape State regulation of such transportation by obtaining CAB certification. In addition, we respectfully urge the addition of the ne~ sentence at the end of Section 4(a) as indicated in the enclosure to provide that State regulation of intrastate air transportation will not be thwarted by the carriage of mail or by the carriage of passengers or property who moved by ground transportation in interstate commerce either before or after the intrastate flight. We congratulate you and your colleagues for your energy and imagination in seeking to fashion a better air transportation system for .4merica. The comparisons drawn from State regulation have strengthened your desire to re- form Federal air regulation. We only hope that, when the Congress works its will on this legislation, the role of the States will be clarified and con- firmed so that future Congresses will also have the ability to corrare. Accordingly, your support of these amendments will be deeply appreciated. With warm personal regards and best wishes, I an Paul Rodgers Administrative Director PR/mr Enclosure cc: Mr. David Mahan, Counsel Mr. David Heynsfeld, Counsel Mr. Henry. Pflanz, Counsel. Subconiiittee on Aviation PAGENO="0089" 83 NARUC Prupo~;ed ,\mentbl'.nt to Sec. 4 (a) of H .R. 11145 , page 4, lines 15-23,_p~ge 5, lines 1-21 1 FEDERAL Pr~EEMPTION 4(a) I 2 SEC,-177-Title4V-Of the Federal Aviation Act of lOSS, as amended by this Act, is further amended by adding at the ~ end thereof the following new section: - 5 "Federal Preemption 105 6 "SEc.-42~ (a) (1) No State shall enact any law, estab- ~ lish any standard determining routes, schedules~ or rates, s fares, or charges in tariffs of, or otherwise pron~ii1gate ceo- 9 nomic regulations for, any air earlier certificated or exempted 10 by the Board under the prOvisiOnS of this title, except that ~1 any State which,-~ ~ au- S 12 thorize~ an air carrier to provide intrastate air transportation 13 in that State, may continue to regulate such intrastate opera- 14 tions of such air carrier notwithstanding the fact that. such air holds 15 carrier~ .aft~&i~ Ja-14uaFy-1~ -1-9.'~Q~. 4s-i~sHed~ -f@i~-th~ -fwst4ime,- a 16 certificate under this title, far so long as not less than 50 per- 17 eent of the revenues of such air carrier is derived, during the 18 most recent period for which data is available, from such 19 intrastate operations. For the next year following such a 20 period during which such an air carrier derived more than 50 21 percent of its revenues from interstate operations,--and-für 22 Qa~h-yc~r-the-r-a&f~o~,- the entire air transportation operations 23 of such air carrier shall be subject to regulation by the Board PAGENO="0090" 84 -2- just and reasonable ~. under this title. The Board shall provide/regulations for al- 2 locating revenues of air carriers specified in the first sentence ,3 of this paragraph between intrastate and interstate air trans- 4 portation operations, after consultation with the State regulatoiy authority. 5 "(2) When any air carrier which is specified in the 6 first sentence of paragraph (1) becomes totally regulated 7 by the Board, any authority received from the State to 8 provide air transportation shall be considered to be part of 9 its authority to provide air transportation received from the 10 Board under this title, until modified, suspended, revoked, ~u amended, or terminated as provided under this title. 12 " (3) Except with respect to air transportation an- 13 thorized by the Board under a certificate issued under sec- 14 tion 401 or, air transportation for which compensation may 15 be paid under section 419, the provisions of paragraph (1) 16 shall not apply to the air transportation of persons, pi~operty, 17 or mail conducted wholly within the State of Alaska. iS "(4) Any air carrier certificated by the Board under 19 this title, and who enters into an agreement with an intra~ 20 state air carrier for the through handling of l)aggage or pas- 21 sengers, shall not, by reason of that agreement, be subject 22 to regulation by any State. Ndither shall such intrastate 23 air carrier become subject to regulation by the Board by 24 reason of entering into such an agreement. Nothing in this 25 paragraph shall be construed, however, as aiiect.ing in any PAGENO="0091" 85 ~ manner the Board's authority, otherwise confcried, over air 2 transportation transactions covered by an agreement between ~ air carriers, including agreements between interstate and ~ intrastate air carriers for the through handling of baggage or passengers. 6 "(5) Any aircraft being used in flights (except flights r~ between points in t.he State of Hawaii) in air transportation 8 between. points in the same Stste which, in the course of ~ such flights, crosses a boundary between two States, or be- 10 tween the United States and any other country, or between a State and the beginning of the territorial waters of the 12 United States shall not, by reason. of crossing such boundary, 13 be considered to be operating in inter3tate or overseas air ~4 transportation. A State may exercise economic re~ulatorv authority over transportation by aircraft between places in the same State, or across the boundaries defined in the ~oceeding sentence, when such transoortat ion in- cludes: (a) the carriage of mail; or (b) the carriage of passe gers or property who moved by ground transportation in interstate coiirnerce either before or after the flight. PAGENO="0092" 86 UNITED STATES HOUSE OF PEPRESHNTATIVES CO~I'IITTEE ON PUBLIC ORKS AND TRANSPCNTATION NINEJY-FIFOf CONGRESS February 3, 1973 Democrats Harold Johnson, (Calif.) Qiairoan Ray Roberts, (Texas) James J. Howard, (N.J.) Glenn N. Anderson, (Calif.) 1/ Robert Roe, (N.J.) Teno Roncalio, (Wyo.) 1/ Mike McConnack, (Wash.T John Breaux, (La.) Bo 0mm, (Ga.) Dale Milford, (Texas) 1/ Norman Mineta, (Calif.TlI Elliott Levitas, (Ga.) TI James Oberstar, (Minn.) Jerome Ambro, (N.Y.) 1/ Henry Nowak, (N.Y.). - Robert Edgar, (Pa.) 1/ Marilyn Lloyd, (Tenn) John Fary, (Ill.) 1/ Ted Risenhoover, (Okla.) W. G. Heftier, (N.C.) 11 David Coruwell, (Ind.~ Robert Young, (No.) 11 David Bonior, (Mich.J Allen Ertel, (Pa.) 1/ Billy Lee Evans, (Ga.) 11 Ronnie Flippo, (Ala.) 17 Nick Joe Rahall, II, (R~.Va.) 1/ Bob Stump, (Aria.) 11 Douglas Applegate, tOhio) Republicans William Harsha, (Ohio) James Cleveland, (N.H.) Don Clausen, (Calif.) Gene Snyder, (Ky.) 1/ John P. Harmerschmidt, (Ark.) 1/ Bud Shuster, (Pa.) 1/ William Walsh, (N.Y.) Thad Cochran, (Miss.) 11 James Abdnor, (S.D.) ~T Gene Taylor, (Mo.) 11 Barry Goldwater, Jr., (Calif.) 11 Tom Hagedorn, (Ninn.) Gary Myers, (Pa.) Arlan Stangeland, (Ninn.) RobertL. Livingston, (La.) Suggestea Address: Honorable ___________________, M.C. U.S. House of Representatives Washington, D.C. 20515 Capitol Switchboard Telephone i~inaber: (202) 224-3121 iT Member, Subcoranjttee on Aviation (Anderson, Chairman). PAGENO="0093" 87 rrt r'~ ~ g ,.~ p. Lo~J Lu.eJ ~ ~ ~t~'--~ W15'~'Ifl UnrOll -------------------------- ~e~'iris FCJ C.~T 001333 ~&bnTlorida Public Service Co~iiss~on Honorable Glenn 11. Anderson larch 7, 1978 United States Representative Washington, D. C. 20515 The florida Public Service Co~aiiission urges you to support State position on air transportation regulatory reform legislation as stated by I1ARUC letter to you of Marcn 1, 1978. It is imperative to preserve the States abilities to respond to and support local air travellers needs. David 1. Swafford Executive Director FLORIDA PUBLIC SERVICE CO:sIISSION SENDING BLANK' $.,U to. ~ `~..ug.. &,bj*cf to I.,,.. oob.cke.,.of ohkO .`* hv.by .g..O It PLEASE TYPE OR WRITE PLAINLY WITHIN BORDER-DO NOT FOLD WU 200 (59/60) western union ~~ns FCJ CAT 001888 ~ Florida Public Service Conrsissio Honorab~e Don Fuqua * March 7, 1978 United States Representative Washington, D. C. 20515 The Florida Public Service Ccmission urges you to support State position on air transportatien regulatory reform legislation as stated by NARUC letter to you of March 1, 1978. It is imperative to preserve the States' abilities to respond to and support local air travellers needs. David L. Swafford Executive Director FLORIDA PUBLIC SERVICE COMMISSION SENDING BLANK S.od IC* o~ot.uag..wb/.ct to tt,rna oo b*ct h*,tot. ,hIoM 0/ by0gto~dIt PLEASE TYPE OR WRITE PLAINLY WITHIN BORDER-DO NOT FOLD wu oea(Ra/eo) ~c~J] i~c~ western union ~ FCJ CAT 0)1888 CHARs/florida Publ ic Service Commf~T3n Honorable Gene Snyder March 7, 1978 United States Representative Washington, D. C. 20515 The Florida Public Service Commission urges you to support State position on air transportation regulatory reform legislation as stated by lIARUC letter to you cf Marc'~ 1, 1978. It is imperative to preserve the Statc~' abilities to respond to and support local air travellers needs. David L. Swafford Executive Director FLORIDA PUBLIC SERVICE .C0;DIISSION SENDING BLANK FOLD PAGENO="0094" 88 t...!L~i ~ wu~t~rn union L ..- ~ ~~9FCJ CAT_001838 ~ Florida Public Service Cornn~ission Honorable Lawton ti. Chiles March 7, 1978 United States Senator Washington, B. C. 20510 The Florida Public Service Commission urges you to support State position on air transportation regulatory reform legislation as stated by NARUC letter to you of March 1, 1978. It is imperative to preserve the States' abilities to respond to end support local air travellers needs. David L. Swafford Executive Director FLORIDA PUBLIC SERVICE COlIMISSION SENDING BLANK Send the ~ove message, subject to terms ott back hereof, which are hereby spread to PLEASE TYPE OR WRITE PLAINLY WITHIN BORDER-DO NOT FOLD WU 269 CR9189) western ~jnion ERS FCJ CAT 001888 ~~~~lorida Public Service Commission Honorable Richard (Dick). Stone March 7, 1978 Un'i ted States Senator Washington, D. C. 20510 The Florida Public Service Commission urges you to support State position on air transportation regulatory reform legislation as stated by NARUC letter to you of March 1, 1978. It is imperative to preserve the States' abilities to respond to and support local air travellers needs. David L. Swafford Executive Director FLORIDA PUBLIC SERVICE C0M~4ISSI0N SENDING BLANK Send he above niessage, sub/oct to terms on back hereof, which are horsby aprsod 10 PLEASE TYPE OR WRITE PLAINLY WITHIN BORDER-DO NOT FOLD wu 289 CR9169) PAGENO="0095" 89 National Association of Regulatory Utility Commissioners 1102 I~l~'st'~* C~~~,r04 ~ U~iId~4 To .plo~. 202.6207325 20044 \ \ \ ~r~rrr~ 4I~1i;p~ ~ ... ~ \ ~ March 1, 1978 Request for Action by Tuesday, March 7, 1978 To Each State Cormeissioner Engaged in Carrier Regulation * Re: H.R. 11145, a bill proposing the - Air Service Improvement Act of 1978 Dear Commissioner: The Subconirnittee on Aviation of the House Committee on Public Works and Transportation will begin the mark-up on the above bill at 10:00 a.rn. on Wednesday, March 8, 1978, in Room 2167 of the Rayburn House Office Building. A copy of this bill is enclosed with the copy of this letter to the ~hainnan of your Commission. The State interest is.adversely affected by Section 4(a) of H.R. 11145 which would add a new Section l05~a) to the Federal Aviation Act to hereafter prohibit the State regulation of the intrastate operations of any CAB certifi- cated or exempted air carrier, except any carrier which was State regulated on August 1, 1977, but only for as long as not "more than 25 per centum of its revenues for the preceding calendar year are derived freon interstate air tro~nsDortation." A copy of Section 4(a) is enclosed. In the Senat~, S. 2493, a bill proposing the Air Transportation Regulatory Reform Act of 1978, was favorably reported on February ó, 1978, by the Senate Committee on Commerce, Science, and Transportation (S. Rept. No. 95-631). It is anticipated that S. 2493 will receive Senate floor consideration upon the conclusion of the debate on the Panama Canal Treaty. The comnarable State provision in S. 2493 is Section 17, pages 77-79 (copy enclosed), which would add a new Section 423 ~o the Federal Aviation Act to~ (a) Prohibit the State regulation of the intrastate dperations of any CAB certificated or exempted air carrier, except any carrier which was State regulated on January 1, 1979, but only "for so long as not less than 50 percent of the revenues of such air carrier is derived.. . from such intrastate operations"; PAGENO="0096" 90 - ~ i~ J.~llQ Page 2 (b) Permit interlining of passengers and baggage between C~B certificated carriers and intrastate air carriers; and (c) ~clare that any aircraft operating between points in the same State shall not be deemed in interstate transportation if it crosses State or internirional boundaries (except flights between points in the State of Hawaii). Obviously, the Senate provision is more favorable to State regulation than the House provision. Accordingly, the N.~.P.UC is urging the House Subcormittee on Aviation to revise Section 4(a) of H.R. 11145 by substituting the Senate pro- visions as amended to remove the State regulatory `freeze" date of January 1, 1979, to provide that interstate ground transportation shall not be connected to intrastate flights to turn-them into interstate flights, and to provide that the carriage of mail on intrastate flights will not defeat State jurisdiction. Enclosed is a copy of the NARUC letter of today to the members of the Subcorrmittee on Aviation.* It is quite likely that air transportation regulatory reform legislation will be enacted in sorts form by this Congress. Therefore, it is necessary that the States exert every effort to see that the State role over local air regulation is clarified and confirmed. I recognize that many State corrmissions are not engaged in the regulation of air carriers. However, as local air transportation continues to grow, your State may subsequently develop an interest in entering this field of regulation. Fof this reason, it behooves all of us to see that the State role is not fore- closed. Accordingly, it is very important for your Corrrnission to promptly support the NARUC effort to amend the legislation to prote~t the State regulatory role. Therefore, I respectfully urge you and your colleagues to telephone or send * telegrams by .Tuesda~, March 7, 1978, or as soon thereafter as practicable, supporting our position to each~ryour members on the Subcorrtnittee. A draft of a proposed telegram is respectfully submitted as follcws: Corrtnission urges you to support State positf&i~TFT~iisportation regulatory reform legislation as stated by NARUC letter to you of March 1, 1978. It is imperative that Congress not impair the ability of the States to. protect the interest of local air travellers. Please let me know how you voted. Enclosed is a copy of themembership list of the Subcormnittee. - The Capitol switchboard telephone nunber is (202) 224-3121. ~`the text~öfthe ~`L~.RUC testimony on air regulator~z reform legislation in the Senate is reported in NARUC Bulletin No. 18-1977, pp. 19-26, 3-5. Similar testimony was .presented in the House. on October 5, 1977, by Cotarissioner- Richard 0. Gravelle of the California Public Utilities Corrrtrission. The earlier - NARUC action request letters on this subject are dated June 28 and August 26, 1977. PAGENO="0097" 91 Narch 1, 1978 Page 3 Also, whether or not you have representation on the Subcommittee, please send similar telegrams supp&ting our position to the following Representatives: Glenn M. Anderson, California, Chairman Gene Snyder, Kentucky, Ranking Minority Member Such telegrams are especially effective since they provide an in~ortant indication of national concern. In order to prevent the receipt of identical telegrams by these members of Congress front many States, please vary the text of your telegram to reflect local needs. -- Please furnish me with a copy of your communication. Your active support at this time is crucial to our success. With warn personal i~egards and best wishes, I General Counsel PRjmr Enclosures 28-911 0 - 78 - 7 PAGENO="0098" 92 ?.larth 1, ~ Section 4 of H.R. 11145, a Bill Proposing the Air Service ImDroverncnt ACt of 1978 - ~e4 15 FEDERAL PREEMPTION 16 SEc. 4. (a) Title I of the Federal Aviation Act of 1958 17 (49 U.S.C. 1301 et seq.) is amended by adding at the end 18 thereof the following new section: 19 "FEDERAL PREEMPTION 20 "PREEMPTION 21 "SEc. 105. (a) No State or political subdivision thereof 22 and no interstate agency or other political agency of two or 23 more States shall enact or enforce any law, rule, regulation, ~ standard, or other provision having the force and effect of 2 law relating to rates, routes, or services of any air carrier- 3 "(1) holding a valid certificate issued by the Board under section 401 of this Act; * "(2) granted an exemption to provide interstate 6 air transportation or overseas air transportation under 7 section4l6(b) (3) of this Act; or 8 "(3) holding a valid certificate issued by the~Boa.rd 9 ander section 418 of this Act. 10 Any air carrier which on August 1, 1977, was operating 11 prunanly ifl intrastate air traiisportatioii and which after such 12 date and before the date of enactment of this section was 13 issued, or which on or after the date of enactment of this 14 section is issi~ed, a certificate under section 401, granted an PAGENO="0099" 93 15 exemption under section 41G (b) (3), or issued a certificate 16 under section 418, shall, notwithstanding this section, con- 17 tinue to be subject to regulation as to its intrastate rates, 18 routes, and services by the State in which it is operating 19 until more than 25 per centum of its revenues for the pre- 20 ceding calendar year are derived from interstate air trans- 21 portation; 22 "PROPRIETARY POWERS AND RIGHTS 23 "(b) Nothing in subsection (a)* of this section shall be 24 construed to limit the authority of any State as the owner or 1 operator of an airport served by any air carrier certificated 2 by the Board to exercise its proprietary powers and rights. 3 "DEFINITION 4 "(c) For purposes of this section, the term `State' means 5 any State, the District of Columbia, the Commonwealth of 6 Puerto Rico, the Commonwealth of the Northerii Mariana 7 Islands, Guam, the Virgin Islands, and any territory or 8 possession of the United States.". (b) That portion of the table of contents contained in 10 the first section of such Act which appears under the center 1~ heading . "TiTLE I-GExEIt~L PRovisIoNs 12 is amended by adding at the end thereof "Sec. 105. Federal preemption. "(a) Preemption. `(b) Proprietary powers and rights. "(c) Definition.". PAGENO="0100" 94 Section 17 of S. 249.~, a Bill Proposing the Air Transportation Regulatoiy .Refoi-n Act of 1973 77 1 FEDERAL PREEMPTION SEC. 17. Title IV of the Federal Aviation Act of 1958, as amended by this Act, is further amended by adding at the ~ end thereof the following new sec~on: 5 "Federal Preemption c "SEC. 423. (a) (1) No State shall enact any law, estab~ ~ lish any standard determining routes, schedules, or rates, s fares, or charges in tariffs of, or otherwise promulgate ceo- ~ nomic regulations for, any air carrier certificated or exempted 10 by the Board under the provisions of this title, except that ~ any State which, on or before January 1, 1979,' had au- 12 thorized an air carrier to provide intrastate air transportation 13 in that State, may continue to regulate such intrastate opera- 14 tions of such air carrier notwithstanding the fact that such air 15 carrier, after January 1, 1979, is issued, for the first time, a 16 certificate under this title, for so long as not less than 50 per- 17 cent. of the revenues of such air carrier is derived, during the 18 most recent period for which data is available, from such 19 intrastate operations. For the next year following such a 20 period during which such an air carrier derived more than 50 21 percent of its revenues from interstate operations, and for 22 each year thereafter, the entire air transportation operations 23 of such air carrier shall be subject to regulation by the Board PAGENO="0101" 95 78 i under this title. The Board shall provide regulations for al~ 2 locating revenues of air carriers specified in the first sentence 3 of this paragraph between intrastate and interstate air trans~ 4 portation operations. 5 "(2) When any air carrier which is specified in the 6 first sentence of paragraph (1) becomes totally~ regulated 7 by the Board, any authority received from the State to 8 provide air transportation shall be considered to be part of 9 its authority to provide air transportation received from the 10 Board under this title, until modified, suspended, revoked, U amended, or terminated as provided under this title. 12 "(3) Except with respect to air transportation au~ 13 thorized by the Board under a certificate issued under see- 14 t.ion 401 or, air transportation for which compensation may 15 *be paid under section 419, the provisions of paragraph (1) 16 shall not apply to the air transportation of persons, ~ropcrty, 17 or mail conducted wholly within the State of Alaska. 18 "(4) Any air carrier certificated by the Board under 19 this title, and who enters into an agreement with an intra- 20 state air carrier for the through handling of baggage or pas- 21 sengers, shall not, by reason of that agreement, be subject 22 to regulation by any State. Neither shall such intrastate 2~ air carrier become subject to regulation by the Board by 24 reason of entering into such an agreement. Nothing in this 25 paragraph shall be construed, however, as affecting in any PAGENO="0102" 96 79 ~ manner the Board's authority, other~vi~e conferred, over air 2 transportation transactions covered by an agreement between ~ air carriers, including agreements between interstate and ~ intrastate air carriers for the through handling of baggage or passengers. 6 "(5) Any aircraft being used in flights (except flights ~ between points in the State of Hawaii) in air transportation s between points in the same State which, in the course of ~ such flights, crosses a boundary between two States, or be~ 10 tween the United States and any other country, or between a State and the beginning of the territorial waters of the 12 United States shall not, by reason of crossing such boundary, 13 be considered to be operating in interstate or overseas air 14 transportation. is "Definition 16 "(b) For the purposes of this section, the term `State' 17 includes the several States of the LTnited States, the Common- is wealth of Puerto Rico, the Virgin Islands, Guam, the District 19 of Columbia, the territories and possessions of the United 20 States, any political subdivision of any State, and any agency 21 or entity of ~TØ or more States.". PAGENO="0103" 0 97 CHART ~1O, 12 `5OOTHT~~AS1 I*~~iO /~SZGONJP'~UT MIAMI - Rp~TH0~J/KE.'1 V~JESr rRAFPIC t9&c ,~jo ,~ ?aenc~e~s -. 3000 * 2000 / (000 Source: Table No, PAGENO="0104" 98 CHART NO. 13 - K~? .AJE~r -r~FFcC ,13~' cA~RR~tR %4 - ~hQUc~Y~c~( Q2s5en3E(S ,J~iIOtJF~L * 4o * . S~UT~4~A~7 2°- go 19G4 I vf~o/~::7 ~ Y~o +(~{4 cr_ ~(`L~D (~Qc!, -cb~- ~o~UZ~ Source: Exhibit SL-138, ~ocket 18610 PAGENO="0105" ChART NO. 14 99 5oOTH~~4ST Pr~O MR SU~JSP~I~ P~cTf~~~ 5(3A-~S ~J~L ~~~Ml- ~c~WT/ R~rTt+ot~) rn~tPIC, * -* .- - -.-.-* c~uA(2~~ I91~.- t~iS~ .. ~... ..... . - oC m~Y~e~ 76o7o Source: Exhibit No. PAGENO="0106" 100 CHART NO, 10. ~ou'VWE/'~7 A~Jt Ai~. 5Ut)~I4tP3~ PHO~I1$ Ap.~) LOSSES FRO~A SCUET)ULED OPEI~TIOr.3S BY I~T~ tCil3. icic Ls~r~d doI~ys / + 00 J t 50 R So~.j1tiE~~S7 A~ 5u4St+I'~E 60 -I C.) ~ S Source: Exhibit No. 14 PAGENO="0107" I 5ou~eS~- ~ r5u~'shn~ Coynbined O~e~ebIonS'. ?~`oc~t 2n~ Loss F~'orn Scheduiea Ope~EonS : C)1~~ 1915 - --.-------~---- - - So~)T'~o~~ST As~ SL)pJ5t4LNe - ~ 7~ 913 `374- 975 101 CHART NO. 11 pROF 1 * +400 +2o0 eeKeyen. - ~oo * LOSS - Go~ I. I Source: Exhibit No. 1/i PAGENO="0108" 102 Mr. Aimi~soN. Our next witness is Mr. Larry Marthaler. Mr. Marthaler is the director of sale,s of Florida Airlines, and he is accompanied by Mr. Jim McMaster, the southern regional manager. TESTIMONY OP LARRY MARTHALER, DIRECTOR OP SALES, FLORIDA AIRLINES; ACCOMPANIED BY JIM MeMASTER, SOUTHERN REGIONAL MANAGER, FLORIDA AIRLINES Mr. MARTHALER. Mr. Chairman, members of the subcommittee, ladies and gentlemen: Thank you for the opportunity to come before you today. I am here on behalf of Florida Airlines, a commuter airline, which serves the citizens of Florida and those persons who travel to Florida each year to take advantage of our usual good weather. Florida Airlines has provided reliable air service since 1962, and it hopes to continue far into the future. House bill 6010, however, poses a serious threat to those hopes. When we operated our first flight on April 29, 1962, very few com- muter airlines existed anywhere in the country. There were no so-called intrastate airlines in Florida. The concept of the commuter airline-as an integral part of the national transportation system-has become accepted during these in- tervening years. Our role, as a commuter airline, is to provide efficient and conven- ient air transportation from small communities to hub cities, where connections are available to points throughout the United States and the world. In order to fulfill this role, we have worked closely with the certifi- cated airlines in such areas as schedules, joint fares, advertising, and- from the computer standpoint-expensive computerized reservations systems. The key ingredient to making this program a success has been our ability to provide the public with the convenience of complete travel planning, interline ticketing from point of origin to destination, and, similarly, the through interlining of baggage. This program has succeeded, and it is common today for a person to call a commuter airline for complete travel plans, to purchase a ticket, and to check their luggage through to final destination anywhere in the world-all in one transaction. Commuter airlines were allowed to offer this type of full service by registering with the Civil Aeronautics Board in Washington, D.C., under part 298 of the Board's economic regulations, and by acceptmg the limitations contained therein. Specifically, this meant a prohibition on the operation of large aircraft in scheduled service. In realistic terms, this equated to small, usually non-air-conditioned and nonpressurized equipment. . In an age of all jet fleets in the certificated airlines industry~ the limitation on the size of the aircraft that commuter airlines could operate served to preclude the imposition of a commuter airlme on top of a certificated carrier. The logic of this was obvious. PAGENO="0109" 103 The place of the commuter airline in the overall transportation system was assured, without threatening the place of the certificated carrier in the same system. The public convenience and necessity is well served. In the development of this type of national transportation sys- tem, commuter airlines have made tremendous investments in equip- ment, hired many employees and have served millions of passengers- all without the benefit of either State or Federal financial aid. Commuter airlines are the only portion of the national air trans- portation system which has been developed solely from private capital. Totally unrelated to the foregoing is the intrastate airline. I say "the intrastate airline," because there is only one-Air Florida. Inasmuch as it has already been demonstrated, I will not go into any further details as to the confusion that the name causes. Air Florida came into existence during 1972, with the publicly stated purpose of serving those persons requiring air travel between two large metropolitan areas within the State of Florida, mainly Miami and St. Petersburg. Over the past few years, they have expanded to various other metro- politan areas, and they seem to be providing a needed service. At no time, however, was there any public indication that they wished to be part of a nationwide transportation system. Because they had as their objective service only within the State, they did not deem it necessary to become a computer airline with the inherent privileges of interlining. Also, because they were not engaging in interstate commerce, the Civil Aeronautics Board claimed no jurisdiction over their routes, rate,s or the size of the aircraft that they operated. This enabled them to compete on the intrastate routes with the certificated air carriers. For whatever reason, someone decided that Air Florida might like to try to become a part of the national air transportation system. Perhaps Air Florida made a mistake when they originally elected to become an intrastate airline instead of a commuter airline. Perhaps they were unsuccessful in trying to serve only the local passengers. Only they know the answers to these questions. The rules of the game did not allow them to become a part of the national air transportation system unless they registered with the CAB under part 298, gave up their rights to operate large aircraft and became a commuter airline. They evidently did not wish to do these things. Changing the rules would be more advantageous to their self- interest. Enter H.E. 6010. Because of H.R. 6010, Air Florida now has the best of both worlds. They are free to operate any type of aircraft that they desire, and they are free to cater to that portion of the air travel market that is traveling to points outside of the State of Florida. We, at Florida Airlines, feel that this situation is unjust to those of us who made our plans and invested our money in commuter airlines based upon the rules of the game as they were originally written. PAGENO="0110" 104 More important than this, however, is the threat that this type of loophole creates to the national air transportation system. We do not wish to indicate that we have all of the answers to the current debate on deregulation of the air transportation system, but we do feel, however, that the type of piecemeal deregulation that is contained in H.R. 6010 may result in the destructiçn of a coordinated system within the area with which we are most familiar. It has been suggested by some that we-Florida Airlines-react to the passage of }LR. 6010 by withdrawing our registration with the CAB, under part 298, and becoming an intrastate carrier. Unfortunately, this is not possible, since we do have operations out- side of the State of Florida, in addition to our intrastate routes. Another commuter airline-which operates within the State of Florida-had a similar situation, and it could not avail itself of such a remedy. We believe that the enactment of the interlining provisions of H.R. 6010 will enable Air Florida to become predatory on established commuter airlines within Florida. While the Florida Public Service Commission-which regulates in- trastate operations in the State of Florida-has acted judiciously to date, to avoid this eventuality, future decisions by the commission could be affected by circumstances made possible by H.R. 6010. Consider, if you will, a specific case. Florida Airlines serves the Fort Myers-Tampa market with four flights a day in each direction during peak winter months. Our customers are visitors to Florida from northern cities and Canada. We are able to offer our customers the same convenience as National and Eastern for we have interline ticketing and baggage agreements and joint fares with most certificated carriers serving Tampa. To date, Air Florida has not made a serious effort to enter this mar- ket because of their inability to interline. Under the provisions of H.R. 6010, this is no longer true. If Air Florida were to apply for this route, offering DC-9 equip- ment, the commission would experience considerable pressure from certain parties in the Fort Myers area to approve jet service. Reaction to such pressure would cause the demise of Florida Airlines. In conclusion, we cannot emphasize enough the adverse effects that H.R. 6010 will have on the commuter carriers within the State of Florida, particularly Florida Airlines. The provisions of H.R. 6010, relative to interlining, should be re- scinded, and Air Florida should be left to serve the needs of the major cities within the State, while the commuter airlines serve Florida and the Nation. Thank you very much. Mr. ANDERSON. Thank you, Mr. Marthaler. I have just a little clarification. A moment ago, we were told that none of the Florida airiines on this map have, connections outside of the State of Florida. Apparently you do. You did say: "We have operations outside of the State of Florida," did you not ~ PAGENO="0111" 105 Mr. MARTHALER. Yes, sir; we have a sister company that is called Air South. It is operated by Florida Airlines. Air South presently flies from Atlanta to-I thrnk someone is there this weekend-Saint Simons Island. We `will also be commencing service from Atlanta to Hilton Head, S.C., under the name of Air South. Mr. ANDERSON. None of your airplanes-Florida Airlines' air- planes-cross the State line? Mr. MARTHALER. Not at the present time. Up until about a year ago, we did offer service from Sarasota and Tampa to Jacksonville and Saint Simons Island. This was more or less of a necessity to interchange aircraft from our main `maintenance base in Sarastota to the route up in Georgia. Mr. ANDERSON. When you say another commuter airline in Florida has had a similar situation, is that one that has an association with a subsidiary airline, or something like yours, or do they actually cross the State line? Mr. MARTHALER. No; this is the Naples-Provincetown Airlines, which operates in Massachusetts and Florida. Mr. ANDERSON. Do you think it likely that Air Florida will try to enter markets served by Florida Airlines? Mr. MARTHALER. I think there are certain markets that we serve that Air Florida would be interested in; yes. Mr. ANDERSON. If they do file with the public service commission an application to enter your markets, do you think that the public serv- ice commission will take account of your concerns-the economic effects and so forth on your company-before they approve the application? Mr. MARTHALER. I think they would give very serious consideration to our situation; however, going by past experience and some other issues that have gone before the commission-local community pres- sure can get extremely heavy on the commission, particularly when you are considering a DC-9 versus a DC-3, and a non-air-conditioned and nonpressurized aircraft-unfortunately, down here in the summer, they get a little bit warm. Mr. ANDERSON. Mr. Hammerschmidt. Mr. HAMMERSGHMIDT. Thank you, Mr. Chairman. Mr. Marthaler, you know that one of the projected end results of the House deregulation bill that we now have before us-that we are marking up-would be to create a relatively large third-level carrier system, with the assumption being that the currently operating com- muter lines would make the most significant contribution to that concept. I realize, from what was said here earlier-and which we already know-that the State of Florida is somewhat unique because of its boundaries and lack of connections with interstate lines. It appears-from what I have heard from the commuters her9- that this might not occur at all, and, in fact, that we might be doing great damage to commuter airlines with the deregulation bill. Not only while it is the subject of these hearings, but while we have the commuter operators hei~e, I think this is a pertinent question, because H.R. 6010 went somewhat in that direction. PAGENO="0112" 106 Would you comment on my original question about the deregulation bill? Mr. MARTHALER. Congressman, if I may, I would like to ask my associate, Mr. McMaster, to come up and comment on some of these things. My affiliation in the commuter field has been relatively limited. Mr. McMaster has considerably more experience than I do. Mr. ANDERSON. For the reèord, Mr. Jim McMaster is the southern regional manager of Florida Airlines. Mr. MARTHALER. Yes. Mr. MOMASTER. The situation on deregulation that you brought up just now-we are kind of caught in the middle of the situation here. The problem that brings the whole thing into focus-why we are here today, really-you had a situation in Florida where you had a commuter airline system. You had several commuter airlines operating, and the State came up with regulation, which was needed, back in 1972. - Everybody was putting everybody else out of business. This enabled a company named Air Florida to come into existence, operating like a PSA. Our problem is-with 6010, specifically, and, also, it carries forward to what you are talking about there-that Air Florida is really get- ting in the back door, and we are not against it just because they are getting something that we are not. They are getting something that we have. We made sacrifices, and we made a decision back in 1972 that we did not want to operate big airplanes. We did not want to carry people from Tampa to Miami. We wanted to carry people from Fort Myers to New York by working with other airlines. We were tied up, and we could~ not fly any airplanes. At that time, we could not fly any airplanes that weighed over 12,500 pounds, as a matter of i~act, which typically meant that we could carry about 10 or 15 passengers. Now, Air Florida gets into business, alleging that they are going to carry people between Tampa and Miami, and between Orlando and Tallahassee, and so forth and so on, and they carve out a niche in the market, and they do-to hear them talk-a credible job. They say they make money, so they must be doing the right thing, but then they want to come in and take what is our market-what we are allowed to do-away from us. They do not want to go through the expensive certification before the CAB, as it is called for under the current Aviation Act~ They do not want to spend the money to become a carrier under part 401. *They do not want to make the sacrifice of flying small airplanes. They want to fly bigger planes, and they want to be a big airline, and they want to make connections, and they want to have nobody regulating them, whatsoever, except maybe the State, which you are now telling me will be wiped out, or, from what I have heard today, it will be wiped out, potentially. Mr. HAMMERSCHMIDT. I thank you for your response. PAGENO="0113" 107 Mr. ANDERSON. Before YOU sit down, Mr. McMaster, we have a prob.. lem, too, in that the commuter association-whatever it is, and it is kind of fragmented, but it is pretty vocal-has endorsed our bill, and many things in our bill were presented to us by the commuter associa- tion, including the 56 seats, the possible subsidy in place of some of the local joint fares and loan guarantees. These were all put in at the request of your association. Could you enlarge a little bit upon thai? Mr. MCMASTER. If all you had was the bill that you are talking about there, we would certainly be 100 percent behind it. It is just like Air Sunshine said today. Those are things that we support. We agree with those, but you crank into that the effects of 6010, and it really has a deleterious effect upon us, ultimately. Now, we are potentially-the things that we have to give up in order to get that bill-we have to give up State regulation. In order to get that bill, we lose State regulation. Mr. ANDERSON. Which bill is this? Mr. MOMASTER. You are talking about the Federal loan guarantees, and everything else, and I believe that is the same bill, or it is in the same discussion of this that precludes State regulation, if you have interstate travel. Am I not correct that it is basically the same bill? Mr. ANDERSON. The regulatory reform bill; yes. Mr. MCMASTER. We lose that State route proteOtion, which we do not mind if we are competing with other airlines on the same basis. In other words, they are restricted to 56 seats, but we do not have that. We have Air Florida, who can interline and who can fly on our routes, but they can fly a 150 or 200 seats, if they want to, because of 6010. The tie-in is what we are afraid of. Mr. HAMMERSOHMIDT. Let me ask you this: Do you agree with the previous witness? Do you have the same apprehensions that he does: That if the Fed- eral Government preempted the State of California's regulations, would this- Mr. MCMASTER. The State of Florida's regulations. Mr. HAMMERSCHMIDT. Yes; if it eliminated them. Mr. MCMASTER. It is awfully hard to say on something like that. Yes; I would say that it would create a problem under the present circumstances, with 6010 in effect. Mr. ANDERSON. Should the States, such as the State of Florida, be allowed to regulate service which operates mainly to carry passengers at the beginning or end of an interstate trip? Is the regulation of this service not a matter of legitimate Federal concern? Mr. MOMASTER. Well, we at Florida Airlines have always considered that it was. . . It is our contention that we are an interstate air carrier. We have always felt that we were, and even to the point that it has always been our opinion that, if we wanted to excluded carrying intrastate passengers, we really would not even need the public service commission's permission. 28-911 0 - 78 - 8 PAGENO="0114" los We have never decided to challenge that, because we liked carrying the local passengers, also. Mr. ANDERSON. Why are you opposed to the preemption? Mr. MOMASTER. Because you have now let them-well, I am not ex- pressing myself very well, but you have let Air Florida out without regulation. The CAB is not going to regulate Air Florida. The public service commission is not going to regulate Air Florida. Air Florida has no restrictions on them. We have restrictions on us: 56 seats. That is our restriction. We have restrictions, but they do not. They can fly where we can fly. We can fly where they can fly, but they can use a bigger airplane. Mr. ANDERSON. Air Florida would have the same restrictions that you would have. Mr. MCMASTER. Do you mean the 56 seats? Mr. ANDERSON. Under the preemption-the one that we are talking about, as it is written now-apparently any airline that crosses a line, and even this further interpretation that any airline that carries any passenger who is going to eventually be an interstate passenger- Mr. HEYMSFELD. That is inadvertent. Mr. ANDERSON. You think that is inadvertent? Mr. HEYMSFELD. Yes. Mr. ANDERSON. All right. If they get a CAB certificate and go outside of the State, they are going to be interstate. Mr. MCMAS~ER. Are you telling me that Air Florida will not be able to fly DC-9's? Is that correct? If that is correct, we have no objection. If they are going to be limited to 56 seat&- Mr. ANDERSON. They would have to get a CAB certificate to use D~J-9's. Is that not right? Mr. HEYMSFELD. I think the intent of the preemption provision that is now pending is that, if Air Florida continues doing what it is doing today, there is no preemption. If Air Florida gets its certificate for an out-of-State route from the CAB, then there is preemption, and, once they get that certificate for the out-of-State route, all of their State routes get added to their CAB certificate, and then they will be regulated by the CAB. Mr. MOMASTER. If they carry interline passengers-interstate passengers, but on an intrastate route, only-are they not still pre- empted by State- Mr. HEYMSFELD. No; I do not think that was the intent of the pro- vision that is now pending. Mr. FASCELL. Excuse me, but may I inquire at this point? Mr. ANDERSON. Mr. Fascell. Mr. FASOELL. Do I understand you to say that what the proposed legislation intends is that the 298 exemption will still apply? Mr. IiE~rsr~rn. The treatment of the commuters is different. PAGENO="0115" 109 For a commuter, there is immediate preemption, if they are carrying interstate traffic. They are already operating under the CAB commuter exemption Mr. FASCELL. A 298 exemption that generates $1 of revenue from an interstate passenger would not be an exempt carrier. He would be deregulated. Mr. HEYM5FELD. They are deregulated under part 298. Part 298 would govern all of `their services. There would be preemption of further State regulation. Under 298, the CAB treats commuters as basically unregulated carriers. They may charge what rates they want. The preemption section says that the commuters who are taking advantage of that, and carrying interstate passengers-the States could not adopt an inconsistent regulatory scheme, but, for an airline op- erating large aircraft, such as Air Florida, which does not qualify under the CAB commuter exemption, there would be no preemption until they got a CAB certificate for an out-of-State routing. Mr. FASCELL. What would be the regulatory requirement, if any, with respect to operations intrastate? That is the point that I want to get to. What would be the regulatory requirement of that same airline? Mr. HEYMSFELD. Once there was preemption in their State routes, under the preemption section, that would be put into the CAB cer- tificate, and they would be federally regulated by the CAB. Mr. FA5CELL. You would have federally regulated airlines against the 298's, which are unregulated. Is that not correct? Mr. HEYMSFELD. By Federal policy. Mr. FA5CELL. By Federal policy? Mr. HEYMSFELD. Yes. Mr. FASCELL. Under the law, the 298's would come in under regula- tion because they generated a dollar of interstate traffic, and, therefore, you know, you have open entry. That is the whole point. You would have open entry for all airlines, whether they are 298 exempt or not. Mr. HEYMSFELD. Well, I think that the- Mr. FASCELL. The limitations on the 298's would still exist. That is the way I understand it, but I'm not sure I am right. Mr. HEYMSFELD. I would like to take one more crack at it. If Air Florida got a Federal certificate, and it were preempted, I think the situation would be that Air Florida would be regulated as a large aircraft operator. That is how it would be regulated by the CAB for all of its routes, and how much regulation or deregulation there were would depend upon the rest of the regulatory reform bill. Mr. FASCELL. Let us assume for the moment that there is no dereg- ulation providing automatic entry. In this case, we will just use Air Florida because it happens to be handy. . . Let us say that they are certificated; all right? PAGENO="0116" 110 Mr. HEYMSFELD. Yes, sir. Mr. FASOELL. You have now the situation of an unregulated carrier that is exempted under 298, and then you have the case of a regulated carrier who is going to the CAB, and that regulated carrier wants to expand its intrastate routes. The exempt carrier is then forced to go to the CAB to compete. Mr. HEYMSFELD. I think that the exempt carrier would have author- ity under part 298 to operate in the markets where he wants to. Mr. FASCELL. Except that he is operating with smaller aircraft~ be- cause of the limitations, and, whether that is an advantage or a dis- advantage would be anybody's guess. I have seen people with the bigger airplanes who have had to get out of the market because they could~not serve the market. The only point that I am making is: You are saying that they are both federally regulated carriers, and, therefore, their fight has to be at the CAB level. That is the only point that I am making. I am not saying that it is good or that it is bad. I am just saying that this is where it would go. Mr. ANDERSON. That is under the present law, as it exists right now. Is that not correct? Mr. HEYMSFELD. For interstate carriers. The commuters have free entry, and the certificated carriers do not. On the other hand, the commuters are limited to the smaller aircraft. Mr. ANDERSON. Mr. Hammerschmidt. Mr. HAMMERSCHMIDT. I have no more questions. Mr. ANDERSON. Mr. Fascell. Mr. FASCELL. Thank you, Mr. Chairman. I have nothing further. Mr. ANDERSON. Our final witness is Mr. John C. Van Arsdale, presi- dent of Naples Airlines. TESTIMONY OP JOHN C. VAN ARSDALE, PRESIDENT, NAPLES AIRLINES Mr. VAN ARSDALE. I would like to read my statement, sir, because I have covered some points that have been raised as questions here today. First, I would like to thank you for holding this hearing, as you promised on the floors of Congress to Representative Sikes and to the Congressman from my home area, which is Massachusetts, Gerry Studds. I certainly appreciate the consideration that you are giving to this matter. I am John C. Van Arsdale, president of Provincetown-Boston, Air- line, Inc. It is a Massachusetts corporation that is doing business as Province- town-Boston Airline, Inc., in Massachusetts, and as Naples Airlines in Florida. I personally started the business on November 30, 1949, in Massa- chusetts, and PBA is the oldest commuter airline in the United States. On January 1, 1960, we started Naples Airlines in Naples, Fla:, as an operating division, to compliment the highly seasonal operations in Massachusetts. We hold Florida Public Service Commission Certificate of Public Convenience and Necessity No. 1, granting us scheduled aircraft an- PAGENO="0117" 111 thority, with aircraft of 49 seats or less, between Naples and Miami, Naples and Tampa, Naples and Punta Gorda-Port Charlotte, and Punta Gorda-Port Charlotte and Tampa, and, finally, Punta Gorda- Port Charlotte and Miami. We carried 170,000 passengers in Florida in 1970, of which over 90 percent were interline connections with the large certificated carriers at Tampa or Miami. We have joint fare agreements with Braniff, Continental, Delta, Eastern, National, Northwest, TWA, United, and Western. The original Civil Aeronautics Act of 1938-later amended by the Federal Aviation Act of 1958 and subsequent changes-among other things, defines interstate commerce as the transportation of passengers originating in one State and terminating in another. It further establishes the Civil Aeronautics Board as the economic regulatory agent for the enforcement of the act. In 1951, while licensed by the Massachusetts Aeronautics Commis- sion to fly between Provincetown and Boston, PBA-my company-- was issued a cease and desist order by the Civil Aeronautics Board for engaging in interstate commerce, in violation of the act. I was forced to apply for-and later obtained-a `CAB exemption order to operate this service. In Florida, we were first issued a CAB order granting an exemp- tion to operate 32-passenger DC-3 aircraft in 1968, for a period of 2 years. We have regularly-and at a great legal expense-applied for re- newal orders, requiring proof of economic need and public benefit of the requested exemption. Later, this exemption was increased to 50 seats, to permit Martin 404 operation, and this authority is currently in effect under CAB jurisdiction. We are restricted to propeller-driven aircraft of 50 seats or less. Outside of Federal jurisdiction, and under States rights authority, it has always been possible for any air carrier to commence operations wholly within a State, as an intrastate commercial operator. The car- rier is issued only an aircraft operating certificate by the Federal Aviation Administration. Some States establish economic regulation of intrastate carriers; some do not. These intrastate carriers are not recognized by the Civil Aeronautics Board, as they could not engage in federally legislated interstate commerce. I guess we have the same type of situation in the trucking industry. In 1972, after a chaotic period of economic failures by Florida car- riers, the Florida legislature passed a law regulating carriers within the State of Florida and assigned supervision to the Florida Public Service Commission. This body has certificated Air Florida among others; however, Air Florida-aS relatively newcomer to the Florida scene, and with a very poor economic track record-is the only carrier operating under the Florida Public Service Commission's economic control, while, at the same time, it is not recognized or regulated by the Civil Aeronautics Board. Air Florida operates pure jet DC-9 aircraft-an operational au- thority that has consistently been denied by CAB exemption orders. PAGENO="0118" 112 When Congress passed House Bill 6010 last fall, after inserting the words: "And the State of Florida," it effectively bypassed for one carrier alone-Air Florida-long established CAB regulatory policies and procedures. Air Florida ceased being an intraState carrier, as respects interline privileges, and through congressional action, acquired a backdoor CAB exemption to operate DC-9 aircraft in interstate commerce. The track record of Congress, in writing specific technical regula- tions, such as the inserting of emergency locator transmitters into the Federal aviation regulations, following the loss of a fellow Congress- man in Alaska, has been less than successful. We feel that the same is true in the interline provisions of House Bill 6010. In a few words, Congress writes a whole new set of rules for an established industry. It would be like Congress passing a law that baseball rules will, henceforth, require four strikes before you are out. Long established comthuter air carriers within the State of Florida-who have pioneered and developed routes, such as~ Naples Airlines-are sitting ducks for predatory and destructive competition from a large, pure jet air carrier. Before the interline provisions of House bill 6010, these commuters had some feeling of security, as they well recognized that Florida is primarily an interline market. Our only salvation now lies with the regulatory wisdom of the Florida Public Service Commission, but this body is more susceptible to the whims and pressures of local State politics. The future is even more clouded by the current introduction in the Florida legislature of Senate Bill 187, by Senator Tom Gallant of Sarasota, to abolish the State law regulating carriers within the State of Florida. If this bill is passed, we question the effectiveness of House Bill 6010, which refers to authority within the State of Florida, granted by the Florida Public Service Commission of such State. Naples Airlines believes that House Bill 6010 is special-interest legislation, solely for Air Florida, and that it is extremely unfair, as it authorizes the big guy to come in on top of the little guy who has pioneered and developed commuter airline service. The end result may well be no service at all, and small airline history in the State of Florida clearly bears this out. The Florida interline provisions should be repealed from House Bill 6010. Thank you. Mr. ANDERSON. Thank you very much, Mr. Van Arsdale. What has your experience been in arranging joint fares with CAB- certificated airlines? Mr. VAN ARSDALE. We have found them to be very willing to do so * in competitive situations, and this has been our case in Naples and also in Punta Gorda. Mr. ANDERSON. Do you think it likely that Air Florida will try to enter the Florida markets which Naples serves? Mr. VAN~ ARSDALE. I do not know the internal workings of Air PAGENO="0119" 113 I certainly think it is a possibility, and I think that the forum for this would be the Florida Public Service Commission. The thing that I feel is unfair about this is: If they enter this market, they are basically becoming an interstate carrier with author- ity that would normally be granted by a Federal regulatory board, but, instead, Congress is passing this authority back to the Florida Public Service Commission, and that-to answer your question, I do not know whether they would come into our market or not. I certainly think that it would merely he a question of an applica- tion to the Florida Public Service Commission and a question of whether they granted it or not. I do not want to go back to these chaotic days of the middle 1960's, which Congressman Fascell has so clearly indicated were very poor and not in the public interest. Destructive competition in airline history in Florida has not proven to be in the long-range best. public interest. Mr. ANDERSON. Do you favor the CAB system of free entry and no regulation of commuters, or do you favor the Florida system of re- stricted entry and route protection of Florida commuters? Mr. VAN ARSDALE. I prefer the Florida system. I think-I just feel that you can encourage destructive competition, as we have seen it. We saw the case of Executive Airlines and Shawnee in the State of Florida, where they rode all over each other, and then Executive disappeared in the middle of the night and Shawnee went down the tube a little while later. You have to-you do not allow two telephone companies, and you do not allow two electric light companies. You try to-they should be more regulated in the form of utility, and not in the form of a wide open-an airplane is something that you cannot run a half of. When you start getting destructive competition, you wind up with no service at all. I have some serious concern over this. Mr. ANDERSON. Mr. Hammerschmidt. Mr. HAMMERSOHMIDT. I do not believe that I have any questions, Mr. Chairman. I do know, Mr. Van Arsdale, that Garry Studds has given us your position quite clearly on the House floor, and, in fact, has inserted a letter from you to him into the record, so we knew, before we got here, what your position was I appreciate your testimony. Mr. VAN ARSDALE. I appreciate your taking the time to listen to it. Mr. HAMMERSCHMIDT. Thank you. Mr. ANDERSON. Mr. Fascell. Mr. FASCELL. I have no questions, Mr. Chairman. Mr. ANDERSON. Mr. Van Arsdale, thank you very much for a very fine presentation. Mr. VAN Aii5DALE. Thank you, sir. Mr. ANDERSON. 1 still have the statement that was given to us ear- lier by Mr. Doyle E. Hardin, general manager of Marco Island Airways. PAGENO="0120" 114 He has not come in. If there is no objection, his statement will be made a matter of the record. [No response.] Mr. ANDERSON. There being no objection, it is so ordered. [Statement referred to follows:] STATEMENT OF DOYLE E. HABDIN, GENERAL MANAGER, MARCO ISLAND AIRWAYS, INC. EFFECTS OF INTERLINING BETWEEN COMMUTER AND MAJOR AIR CARRIERS Passenger convenience Marco Island Airways, Inc. derives approximately 75 percent of its total pas- senger volume from interline exchange with the major air carriers. Without interline agreements which permit through ticketing and baggage, passengers would be required to check themselves through only to the connecting points we serve and would then be required to purchase continuing tickets and re-check their luggage. Needless to say, the inconvenience to the passenger would be very great and would cause the commuter industry many problems with not only their operations but place a tremendous obstacle before their marketing efforts. Passenger revenues Marco Island Airways, Inc. has joint fare agreements with 10 major airlines in the United States. These joint fares allows passengers traveling between 73 U.S. cities and Marco Island to enjoy a sizeable fare reduction compared to point to point fares between their origin or destination and Marco Island, Florida. Marco Island Airways, Inc. derives about 60 percent of its passenger revenues from its overall passenger yield from these joint fares. The offering of these joint fares is without doubt, the best marketing feature we have to maintain our pres- ent market and continue a reasonable rate of increase. Interline exchange of passengers between commuters and major carriers is not only absolutely necessary but economically vital to preserve the National Air Transportation System. Mr. ANDERSON. Is there anyone else who wishes to be heard before we close this meeting? Is there anyone who would like to say something? Mr. FASCELL. Mr. Chairman, let me just express my appreciation to you, the members of the subcommittee, and the staff for taking the time to listen to the people here in Florida. This is a matter that is obviously of great concern to all of them. We wish you well in your deliberations, and we urge your very prayerful consideration of this important matter. Mr. HAMMERSCHMIDT. Mr. Chairman, I do not think that I said it earlier, or, if I did, I did not elaborate upon it, but I want all of these gentlemen to know what a great job Dante Fascell does in Washingtom As you all know, he is very highly respected, and we listen to him. I am delighted to have been here. Mr. BERVALDI. Mr. Chairman, may I say something now? Mr. ANDERSON. Yes, sir. Mr. BERVALDI. I would like to ask you to put this SARC study mto the record. Mr. ANDERSON. Is there any objection? [No response.] Mr. ANDERSON. There being no objection, that study will be made a part of the record. ISee p. 116.] Mr. BERVALDI. The other thing that I would like to say is that the Commuter Association of America has endorsed this open entry pro- PAGENO="0121" 115 vision, and they have done so because, in many States of the country, that may be required. I hope that our point that the State of Florida has unique charac- teristics and needs the regulation of the State authoriy-its markets are different and its boundaries are different, and it is not surrounded by other States. I hope that we have made this point, and I hope that the State of Florida will be given special consideration. Mr. ANDERSON. Thank you very much. Mr. VAN ARSDALE. Mr. Chairman, if I may make one further state- ment and answer a question which you addressed to some of the other speakers, but not to me, with respect to prorates under the joint-fare agreements that we have: We settle with seven carriers in three differ- ent manners, and none of them are by the CAB formula. Mr. ANDERSON. They are all negotiated? Mr. VAN ARSDALE. They are either negotiated or imposed. Mr. ANDERSON. Do they have to have CAB approval? Mr. VAN ARSDALE. No, sir; there is no approval on the prorate. The prorate is strictly between the two carriers. The most notorious rival that I have is United. With Eastern, Delta, Northwest, and National we have an agreed prorate that is what we consider reasonable. It is less than our local, but it is more than the straight-rate prorate. We have an average prorate with Braniff. We have a straight-rate prorate with United, and it does not con- sider the costs that are involved to the short-haul carrier. Mr. ANDERSON. Are your joint fares also negotiated, or those CAB approved? Mr. VAN ARSDALE. They are all competitive, sir. We have a common rate with Naples, Fort Myers, and Punta Gorda. The passengers have the choice of going to any one of those three cities. The fare from Fort Myers to New York equals the fare from Naples to Ne.w York, and it equals the fare from Punta Gorda to New York, but the prorates are the problem. Mr. HAMMERSCHMIDT. Mr. van Arsdale, I might remark that I rec- ognized your astuteness before I heard you speak, and that is for an- other reason. Mr. VAN ARSDALE. What is that? Mr. HAMMERSCHMrDT. Anyone who could figure out how to be in Martha's Vineyard on business in the summer and in Naples on busi- ness in the winter is a very astute businessman. Mr. VAN ARSDALE. It took a bit of doing, and I am pleased to say that we contribute substantially to the Internal Revenue Service, March 15 of each year. Mr. ANDERSON. If there is nothing further, on that note, the meeting is adjourned. [Whereupon, at 12:25 p.m. the committee adjourned.] PAGENO="0122" 116 t"ni)n; !3VSTEMS ANAL.YSIS AND flESE~RCI? cor~Po5aarIoN. :~ d/llI~/7 * April 15, 1976 Mr. Torn Webb Secretary Departrent of Transportation State of Florida Hayden Burns Building 605 Suwannee Street Ta11ahas~ee, Florida 32304 Dear Mr. Webb: We are pleased to subn~t our Technical Report of the Florida Intrastate Aviation Study. This is a study of needs for scheduled air service within the State of Florida and a plan for how those needs may be met. This is the most uxtensiwe study Oq intrastate air service to be undertaken by any state. Florida's need for gocd intrastate air service is ~.n many ways almost obvious but the means of obtaining adequate servic~ can he very illusive. both the regulatory acd econernic probleas as identif ted ar~~ dcscribsd in the study are complex and not a~anable to simple solutiens. This study has beer very challengis; and s'~ have enjoyed the cooperation and assistance many people in the Depsrtnent of Transportatton, the PiaL~ic Serv:ce Cerreinsics and in the reasy cities of the State. A ~p~r~ia! ward of eppr.*~ciation is extended to each person for the time and effort contributed. Sinfarel; yccfs, ~ 1i:.r.ry L Sweezy * Vicc~ President PAGENO="0123" 117 FLORIDA INTRASTATE AVIATION STUDY Job Number 99000-1560 Prepared For The Florida Department Of Transportation Division Of Planning And Programming By Systems Aiial~sis and Research Corporation 1801 1< Street, NW. - Suite 801 ~Zashington, D.C. 20006 (202) 223-5830 April, 1976 PAGENO="0124" 118 TABLE OF CONTENTS - FLORiDA INTRASTATE AVIATION STUDY PAGE NUMBER BACKGROUND - AN INTRODUCTION I FINDINGS AND CONCLUSIONS viii CHAPTER 1 - STANDARDS OF ADEQUATE AIR SERVICE FOR `FLORIDA'S INTRASTATE AIR SERVICE MARKETS 1-1 Proposed Air Service Standards For Florida 1-2 Federal And State Regulation Of Adequacy Of Service 1-4 Concept And Design Of Uniform Air Service Standards For Florida 1-10 Benefits To The Public 1-10 Problems And Limitations 1-10 Minimum Requirements For Air Service Between Florida Cities 1-13 The Limitations Imposed By Intercity * `Distance 1-13 The Minimum Effective Level Of Air Service 1-15 The Minimum Traffic Demand To Require And Support Air Services 1-17 Additional `Scheduling Requirements 1-18 Bibliography Appendix D CHAPTER 2 -. REGULATORY ALTERNATIVES FOR OWIAINING SERVICE 2-1 Statement Of The Problem ` 2-1 Possible Alternatives For A Florida System 2-2 Dependence Solely On CAB Regulatory Actions 2-3 Background 2-3 Problems Involved In Depending On CAB Regulation Exclusively 2-5 PAGENO="0125" 119 TABLE OF CONTENTS (Continuedj PAGE NUMBER CHAPTER 2 (Continued) Beneflt5 To Fe Derived From CAB Regulation Dependence Exclusively On State Regulatory F owe r s Experience Of Other States Problems Pith Exclusive Regulation By The States Benefits Of State Regulatory Control The Integration Ot Federal And State Regulation Complications Of Dual State-Federal Regulations The Realities In Florida Competition And Adequate Service AIRCRAFT SELECTION The Current Ser~iice Environment Aircraft Currently Serving Florida Intrastate Routes Use Of Turbo-Fan (Pure Jet) Aircraft Ai~rcraft Selection Criteria Aircraft Seating Capacity Block Speed Curves Take-Off Performance Performance Competition Price Conpetition Aircraft Used Fon Analysis Type 2 Type 3 Type 4 CHAPTER 3 - 2-6 2-7 2-8 2-10 2-10 2-li 2-11 2-14 2-15 3-1 3-1 3-1 3-2 3-4 3-4 3-7 3-10 3-10 3-11 3-12 3-12 3-l2~ 3-13 PAGENO="0126" 120 TABLE OP CONTENTS (pont in~~j PAGE NUMBER CHAPTER 4 - COSTING OF AIR SERVICE 4-1 Aircraft Direct Operating costs 4-2 Relationship Of Aircraft Size To Direct Operating Cost 4-6 Relationships Of Commuter Airline DCC And Certificated Carrier DOC 4-7 Crew Cost 4-S Fuel And Oil Costs 4-10 Maintenance Costs 4-10 Depreciation And Lease Costs 4-13 Other Costs 4-15 Summary Of Direct Operating Cost Considerations 4-17 CHAPTER 5 - FLORIDA INTRASTATE AIR FARES 5-1 Federal And State Guidelines 5-1 Joint Fares 5-3 Discount And Promo~iona1 Fares 5-9 Fare Assumptions Of This Study 5-10 CHAPTE.R 6 - A FLORIDA INTRASTATE AIR ROUTE SYSTEM 6-1 Development Of Route System 6-2 Algorithm Constrnints 6-4 Judgmental Modifications Of Route Structure 6-5 Route Segments Excluded From Meute Analysis 6-7 Assumptions And Comnents On Route Analyses 6-7 Sensitivity Of Costs To Mix Of Aircraft Types PAGENO="0127" 121 TABLE OF CONTENTS LCc~Jy~1 PAGE NUMBER CHAPTER 7 - A PROPOSE1) PLAN FOR FLORIDA INTRASTATE AIR SERVICE 7-1 The Federally (CAB) Certificated Carriers The Commuter Carriers The Intrastate Carriers Action Tasks Of Proposed Plan Coordination With The Civil Aeronautics Board SUBSIDY - NEEDS AND PRACTICES Federal Subsidy Payments The Basis For Federal Subsidy How The Federal Subsidy Program Operates Flow-Through Subsidy Subsidy And Florida's Intrastate Routes CHAPTER 8 - 7-1 7-1 7-2 7-3 7-6 8-1 8-1 8-2 8-2 8-3 8-4 PAGENO="0128" 122 LIST OF APPENDICES PAGE NUMBER APPENDIX A - AIR SERVICE AUTHORIZATION IN FLORIDA A-i Civil Aeronautics Board Certificates A-i Florida Pub~ic Service Commission Certificates A6 APPENDIX B - AUTHORITY, SERVICE AND SCHEDULE ANALYSIS B-i APPENDIX C - PASSENGER FORECASTS C-i APPENDIX D - BIBLIOGRAPHY OF CHAPTER 1 * D-i PAGENO="0129" 123 LIST OF TABLES TABLE PAGE NUMBER NUMBER 1-1 LOCAL AIR TRAFFIC IN FLORiDA'S SHORTEST CITY-PAIR MARKETS 1-16 1-2 FLORIDA'S TWENTY-SIX MOST ELIGIBLE CITIES FOR INTRASTATE AIR TRANSPORTATION DERVICES 1-21 3-1 AIRCRAFT USEI) IN FLORIDA INTRASTATE SERVICE 3-2 3-2 CHARACTERISTICS OF REPRESENTATIVE AIRCRAFT 3-5 3-3 AIRCRAFT CHARACTERISTICS 3-6 3-4 AIRCRAFT BLOCK SPEED ANI) AVERAGE STAGE LENGTH 3-8 3-S BLOCK SPEED OF AIRCRAFT NOT USED BY CAB CARRIERS 3-9 3-6 BLOCK SPEEI) FUNCTIONS 3-9 4-1 ESTIMATED 1975 BLOCK HOUR COSTS FOR CO~1UTER CARRIERS 4-3,4,5 4-2 BLOCK HOUR MAINTENANCE COST COMPARISON (1973) 4-11 4-3 BLOCK HOUR CREW COST COMPARISON (1973) 4-11 4-4 ANALYSIS OF DEPRECIATION COSTS PER AIRCRAFT MILE 4-14 4-5 COST OF OJIPP.ECIATION INCURRED IN CHANGE FROM DC-3 TO DASH 7 OR CONVAIR 580 4-16 4-6 ESTIMATED 1975 COMPOSITE UNIT COSTS OF CERTIFICATED LOCAL SERVICE CARRIERS 4-17 4-7 ESTIMATED 1975 COMPOSITE UNIT COSTS OF COI~D4UTER CARRIERS IN FLORIDA 4-18 6-1 MARKETS ADEQUATELY SERVED - SERVICE AND SCHEDULES 6-8, 9 6-2 ANALYSIS OF COST SENSiTIVITY OF MIX OF AIRCRAFT TYPES 6-24, 25 28-911 0 - 78 - 9 PAGENO="0130" 124 LIST OF TABLES (Continued) TABLE PAGE NUMBER NUNBER B-i CARRIER AUTHORITY, SERVICE AND SCHEDULES BY CITY-PAIRS OF PROPOSED ROUTES B-i C-i COMBINED FORECAST OF FLORIDA INTRASTATE TRAFFIC (1975) C-i C-2 COMBINED FORECAST OF FLORIDA INTRASTATE TRAFFIC (1980) C-4 C-3 COMBINED FORECAST OF FLORIDA INTRASTATE TRAFFIC (1985) C-6 C-4 SU?~II~ARY. FORECAST OF INTRASTATE PASSENGERS ENPLANED BY CITY C-8 PAGENO="0131" 125 LIST OF CHARTS CHART PAGE NUMBER NUMBER 1-1 SURFACE TRANSPORTA1'ION VLRSUS SURFACE-PLUS -AIR TRANSPORTATION: A ~OMPARJSON 01: DOOR-TO- DOOR ELAPSEI) TIME 1-14 5-1 COMPARISON OF CAB CARRIERS AND COM:'1UTER CARRIERS' DAYCOACII AIR FARES IN INTRASTATE FLORIDA MARKETS 5-4 5-2 SELECTED SERIES OF COMMUTER CARRIERS AND INTRASTATE AIR FARES 5-S 6-1 INI)EX TO ROUTE CHARTS 6-13 PAGENO="0132" 126 BACKGROUND - TiLE NEED FOR INTRASTATE AIR TRANSPORTATIOK IN FLORIDA Geographic dimensions, location and other features make the State cf Florida unique in its needs for intrastate air service. It is a long, narrow peninsula at one extremity of the United States; it exchanges large numbers of passengers with many communities throughout the United States; its major traffic centers are located linearly along the length of the peninsula. As a result cf these characteristics the great proportion of its air trans- * portation service (and needs) is interstate in nature, with the result that schedules, predominantly, are so arranged that they operate along the peninsula and service the large traffic centers. however, there are many other communities which are far enough apart that driving or other surface transportation is time- consuming or tedious. These communities are substantial in size and commercial activity and have significant interrelated interests to justify serious attention to their intercity air transport needs. Carriers certificated by the Civil Aeronautics Board provide much air service to cities in Florida, including numerous flights which permit intrastate transportation. Unfortunately this service is not sufficient to meet Florida's total intrastate needs. In recent years gaps in air transportation service vithin the State have made it increasingly aFparent that Florida s needs are not being satisfied under existing regulatory arrangements. This situation has developed because a subetuntial part of Florida's intrastate air transport service is authorized and nerved, or authorized but not adequately served, by airlines whose basic interest is in interstate, rather than intrastate, traffic. The concern of the State has led it to embark upon a program which gives it a more positive role in assuring that Florida citizens have dependable and convenient air service between points in the Stato. The program agrees with the goal, as stated by the Dopart- raent of Transportation, to `optimaze movEment of people and goods within the State of Flomiua. To assist in fommi4sting and implementing its plans for air :ransportation, the Department of Transportation authorized "Florida Intrastate Air Transportation Study.' This project has as its broad objectives: PAGENO="0133" 127 1. The determination of Florida's needs for intrastate air transportation. 2. The development of an economically feasible air route system to meet these needs. 3. The most logical regulatory arrangement for implementing the system plan. The results of tho. study are presented in this report. The report is comprehensive, and in some respects unique. It includes the usual economic analysis of intrastate needs and service in Florida. However, in addition it providos guide- lines for establishing snd enforcing service standards, a detailed review of regulatory background and alternatives, a broad evaluation of aircraft types -- including their costs and operating characteristics, a model intrastate route system and a discussion of fares. In short, the report provides the State with a plan and supporting reference f or its decisions in almost any area of regulatory jurisdiction. In conducting the study the first effort was to determine the need for intrastate air service. Florida's intrastate traffic is comprised of three separate categories; local origin and destination, interstate connecting and international connecting. The local O&D passengers are those who began and terminated their journeys within Florida. Interstate connecting passengers fly between two Florida cities for the purpose of taking a connecting flight to a destination in some other state. International connecting passengers, after a flight between two points in Florida, proceed to an international destination. Phase I - Forecasts The report on Phase I of this project, that of estimating the traffic potential of those city-pairs which warrant consideration for air service, has been transmitted to the Department of Transportation. That document deals with alternative methods of estimating traffic, selection of the markets, and a discussion of forecast elements. The work of developing the estimates of city-pair traffic, for 1975 with projections to 1980 and 1985, was extensive. It re- quired detailed analyses of city-pair traffic behavior, the accumulation and examination of much data on city and city-pair characteristics which might have a bearing on air traffic generation, comparative evaluation, method testing, and adjusting for level of service if service was inadequate. PAGENO="0134" 128 The essential objective of the study, to determine those combinations of cities between which intrastate air service might be economically successful and to devise a p-lan so that such service might be assured by the State, has not been changed or affected by those events associated with the passage of time. For these reasons t:he substance of the study remains valid, while we acknowledge that in a particular detail change may have occurred. The study should be used as a guide for the State and for intrastate operators. It provides a great amount of valuable background data, analytical methods and policy guidance. The final decision as to service needed in the public interest at a particular time rests with the State. In a free enterprise system the~ final decision as to the expected viability of an operation ultimately rests with the operator who must in"est his assets. Public Service And The StatusQ~~ The conclusions of the study will be controversial and, since full implementation of them will require legislative action, they can he easily brushed aside as impractical or unacceptable. The controversial conclusions relate to the proposed restraints on CAB-certificated air carriers as a last resort in efforts to obtain needed service between Florida cities. Even as a last resort the finding is not made lightly or without concern that it has inherent objectionable qualities. The research and findings support no other conclusions if the objectives of public service are to be achieved. The first and overriding criteria or standard throughout the study was service. A brief summary statement of explanation is appropriate in this introduction. I~ir service between over ?O pairs of cities in thestate is inadequate. The Federal Government (CAB) does not have power to authorize or require that any airline provide adequate service; only the State can exercise that authority. Under Florida's current statute the P~iblic Service Commission lacks the power to require a CAB-certificated carrier to provide any service. The long history of intrastate service by the CAB carrier shows conclusively that those carriers, with on'y very minor exceptions, schedule for interstate opportunities with little regard to intra- Florida. needs. The study finds that the operation of their inadequate services in many m~rkets is such that an intrastate carrier cannot establish itself and survive as a head-to-head competitor or by trying to "fill out' an adequate service pattern in these markets. It also finds thatFloricia markets are not large enough to permit an intrastate carrier to establish itself es a competitor by the "high frequency-low fare' technique used in Texas and California. 111 PAGENO="0135" 129 As a result of the analytical work described above a total of ninety-three markets merit consideration for air service. These markets serve as the basis for determining, among other things, the route patterns to be developed, the types of aircraft to be considered, the types of carriers to perform the service, and regulatory actions required to implement the route system. Estinates developed in the Phase I report may be summarized as follows: Florida Intrastate Passengers 1975 1980 1985 Intrastate Origin and Destination 1,519,780 2,715,080 4,321,730 Interstate Connecting 981,960 1,614,270 2,422,730 International Connecting 258,310 370,890 532,500 Total 2,76,0,050 .4,700,240 7,276,960 The figures show clearly the importance of interstate and inter- national traffic, which makes up more than 40% of the total intrastate passengers. The projections reflect an expectation that the number of intrastate air passengers will increase,~ pro- vided adequate flights are available. Increases on a statewide basis are expected to be about 11% annually until 1980 and 9% annually until 1985. By city and city-pair the rates of growth of local traffic are related to forecast growth of personal in- come for the cities. These rates of growth for local passengers vary from .7% to 14% per year through 1985. Traffic estimates for the individual city-pairs as reported in Phase I are given in Appendix C. Standards Of Service It was recognized that u~iless standards were dstablished and adhered to, service offered in effect could be nonresponsive to the need'. Standards for service to the communities and standards of service by the airline were therefore developed. With the markets and levels of traffic determined, a survey was made of aircraft types which could logical~y be used to provide the necessary service. Because of the wide variance in levels of passenger traffic, numerous types -- ranging from f our- engined jet to single reciprocating engine types -- were con- sidered. Operating characteristics were studied, along with the cost of operating the various types in Florida markets, and representative, usable aircraft selected. A review of fare levels and fare structures was then made with suggestions of the probable best approach for Florida, recognizing traffic demand and aircraft characteristics. - iv PAGENO="0136" 130 ?rom the foregoing analyses a route structure for Florida intrastate air traffic has been delineated, and a determination ::~ade of whether the routes can be operated on an economically feasible basis. The route structure is described and evaluated in this report. Finally, a program for implementing the route structure was developed, the regulatory options available to the ;tate are reviewed, and realistic actions are recommended. The research developed during the course of the project, as oresented in this report, outlines intrastate air transportation requirements for Florida. It also provides a reasonable blueprint for the State to follow in its efforts to achieve air service commensurate with its requirements. Effect Of Time Lag This study has been prepared over a period of two years. Numerous changes have occurred subsequent to preparation of the various parts of the report. Wherever, the reader encounters reference to - facts which he knows have subsequently changed the question na- turally arises as to the validity of the conclusions relying upon those facts. Airline schedules and fares have been in an almost constant state of flux and it is in this area where the most significant changes might occur. However, change in schedules and fares has always been frequent in Florida and data compiled at any point in time ~ould be "out of date" a month later. Such changes do not effect the findings of need for service or available total traffic. For example, a major change in CAB-certificated carrier operation occurred recently when Southern Airways began operating between Tallahassee-Orlando and Ft. Lauderdale. This study finds a need for service between Ft. Lauderdale and Tallahassee as part of the recommended Route 5. Service between Ft. Lauderdale and Orlando was found to be adequate in 1975 and Southern's service is also adequate. The fact that these services are nov provided by an interstate rather than an intrastate carrier does not affect the findings of this study. :~he forecasts and estimates are all made on a total mcrl:et rather than a share of ezarhet basis so that changu in a particular service pattern does not have an effect upon the forecast. There is one exception to this which should be noted. Eastern Air Lines has been granted an interstate route between Ft. Flyers and Atlanta, -3eorgia which will now handle a large volume of the traffic which oreviously was required to change planes at either Tampa or Miami. This traffic thus disappears from the intrastate Florida traffic volume to and front Ft. Myers and reduces the frequency of flights previously required between Ft. Myers and Tamma and to a lesser degree between Ft. Myers ard Miami. It does not however remove the need for a route between Tampa and Miami via Ft. Myers. PAGENO="0137" 131 The study concludes that adequate service can be obtained in all of the 76 identified markets through a combination of CAB- certificated carriers and intrastate carriers without subsidy. The plan requires several action steps controlled by the State Government. 1. Improved coordination with CAB on route awards affecting Florida. 2. Legislative authority to certificate and control the intra-Florida operation of interstate carriers. 3. Adopt minimum standards of service. 4. Issue certificates to existing airlines in all markets they now serve, provided they agree to provide at least the minimum standard of service. These carriers are given a clear "right of first refusal", but in markets they choose not to serve they will not be required to serve or permitted to carry intrastate passengers. 1/ 5. Award all other markets to intrastate carriers. There are other recommendations about ticketing and baggage authority and Federal/State jurisdictional issues to be resolved, but these have little use if the above route authority recornmenda- tions are not implemented. The mechanisms to implement the recommendations were nota part of this study. It is clear however that legislative authority is needed to take even the first steps involving the interstate carriers. It can be expected that opposition will arise to any restraint on any operating carrier. The opposition will be from the carriers and from some of the public: the carriers -- because they will be forced to provide adequate service or give up the privilege to do so; the public -- because there may be an intra- state flight operating between two points in Florida on which an intrastate traveller would be refused. The premise of the study is that adequate seryice is desired by the public and that a carrier willing to provide adequate service will be allowed to do so at a profit. Carriers unwilling or un- able to provide adequate service will not be allowed, by erratic scheduling, to make the service of the willing carrier unprof it- able. Under the plan the major markets of the State (Miami-Tampa, Miami-Orlando, Miami-Tallahassee and Orlando-Tallahassee) are to be authorized to any carrier meeting minimum standards of service. 1/ They would carry connecting and stopover passengers who have - an out-of-state origin or destination on their ticket. vi PAGENO="0138" 132 The other, and much lesser, markets will be restricted initially to a single carrier required to meet the standards. The content of the study is persuasive in justifying its position that the status quo will not produce adequate service and viable intrastate carriers, and that the plan presented can achieve this objective. The Standards of Service are fo~nd in Chapter 1 and the Plan for Intrastate Air Service is given in Chapter 7. vii PAGENO="0139" FINDINGS AND CONCLUSIONS cp~l-StandardsoL~ry4~ The establishment of standards is essential as a means to assure fairness and equity in providing for access to air transportation. Communities will know what services they should have, and carriers will know what, as a minimum, is expected of them. In practice, the administration of standards is sore art than science, but, without the basic points of reference, any semblance of objecti- vity is lost. Find~~__ 1. and Conclusions Service standards for intrastate air transportation are necessary, to make certain that the service will be adequate, and to fix the responsibility for maintenance of adequate service. 2. Standards for service to a community should be related to the density of traffic and availability of alterna- tive air transportation at proximate locations. 3. Standards of service should provide for minimum frequencies, proper departure times and minimum intermediate stops. 4. Service standards have not been established by the Civil Aeronautics Board or any of the States although the Board has recognized on numerous occasions that service in certain markets was inadequate. 5. The route analyses demonstrate that the routes can be operated profitably under the recompended service standards. 133 viii PAGENO="0140" 134 FINDINGS AND CONCLUSIONS (Continued) ~ Regulatory Alternatives For Obtaining Service primary markets in Florida are served by airlines certificated ~y the CAB. These carriers are not responsive to specific ~ntrastate requirements, because of transcending opportunities in interstate transportation. Yet these same intrastate services are beyond the reach of the CAB (which regulates interstate transportation only) and, in Florida are exempt from PSC regula- tion. Thus the Florida regulators are frustrated in any attempt to have these carriers furnish service which meets the State's standards of adequacy. On the other hand, if supplementary service is authorized by state regulation to insure service adequacy, the CAB-certificated carriers are a competitive fact of life with the end result that the supplemental service can expect to be uneconomic because of competitive pressures. Findings and Conclusions 1. A plan which utilizes the positive features of Federally-regulated services, with supplemental service authorized by the State, presents the most useful regulatory alternative available to the State for insuring adequate intrastate service. 2. The Civil Aeronautics Board appears to lack authority to regulate service between cities within a single state. 3. Florida's statutes appear to exempt carriers holding CAB certificates from State regulation to the extent that those carriers cannot be re- quired to provide adequate service. 4. In many intrastate markets an intrastate carrier will need a share of interstate connecting traffic to financially support adequate operations. 5. Several route segments betwean F~orida cities lie ovor the high seas and appear to he interstate routes under the definitions of the Federal Aviation Act. A chanqe in the Federal 3ev may be needed to put these routes under Sdct.e regulation. 6. Because of the unique geography of Florida the intrastate regulatory experience of California and Texas is not transferable. ix PAGENO="0141" 135 Findings and Conclusions (Continued) .7. Unrestrained competition has resulted in failure of carriers and poor service in the past and will not assure adequate service in the foreseeable future. 8. Intrastate carriers nay use any aircraft; those using aircraft. with 30 or less seats have dual identity as interstate carriers and are permitted to carry interstate traffic. 9. Special exemption authority from the CAB is needed for en intrastate carrier to use an aircraft with more than 30 seats and carry interstate traffic. 10. Interstate carriers are not dependent on local intrastate traffic for their economic life, thus they are unlikely to be responsive to intrastate traffic needs. x PAGENO="0142" 136 FINDINGS AND CONCLUSIONS (CONTINUED) 3 - Aircraft Selection yjorida's intrastate markets are currently being served by a wide variety of aircraft ranging from single reciprocating engine types to four-engine jet wide bodies. The vast majority of the jet service within the State is provided as a result of intermediate stops on interstate service. The type of aircraft in these markets is dictated by the density of the long-haul market and the equipment operated by the interstate carrier rather than by any consideration of the intrastate traffic demand or route characteristics. These operators primarily require aircraft of a type which cannot be economically operated at the stage lengths and frequencies required to provide adequate intrastate service. Findings atid Conclusions 1. Aircraft to serve Florida's intrastate needs are limited to four general categories of size, depending upon the route requirements of traffic and distance, as follows: Type 1 80 seats 2 48 seats 3 28 seats 4 16 seats 2. In growth markets in which a jet can achieve breakeven load factors the profit potential of the jet exceeds that of a comparable sized piston engine or turbo-prop aircraft due to the jet's high seat-mile productivity, relative low, cost maintenance and passer~ger appeal. 3. The primary drawback to recommending jet aircraft for service on Florida's intrastate routes not now being served by CAB-certificated carriers is the acquisition cost of jet aircraft as well as the high cost per aircraft mile. 4. Most of Florida's intrastate markets cannot provide the absolute nucher of passengers requirad to make the potential economics of jet operation a reality to an operator. . 5. Routes vhich COUld suDport Tyre 1 aircraft are currently adequately served by at least one inter- state carrier using Type 1 or larger aircraft. 6. Availability of new, modern Type 3 aircraft is speculative because of production cost and sales prices. PAGENO="0143" 137 Findings and Conclus ions (Continued) 7. The DC-3 may continue, in the short term, to be the first choice of Florida intrastate operators. 8. Type 2 aircraft, especially Convair 580 and Fairchild F-27, ~iil be increasingly sought for intrastate routes because of availability and relative price. 9. Aircraft of Types 2, 3 and 4 viii be turbo-prop powered. 10. Operating costs of intrastate carriers can be substantially less than the costs of the CAB- certificated carriers. 11. No routes are discovered or recommended that will require the unique flight characteristics, and higher costs, of STOL aircraft. xii PAGENO="0144" 138 FINDINGS AND CONCLUSIONS (CONTINUED) c~~p~r 4 - Cost of Air Service The cost of scheduled air service is usually stated in direct and indirect expenses. Findings and Conclusions 1. Operating costs of intrastate carriers can be substantially less than the costs of the CAB- certificated carriers. 2. For purposes of cost estimates the Convair 580, Mohawk 298 (Nord 262) and the Beechcraft 99A were selected as representative of Type 2, Type 3 and Type 4 aircraft, respectively. 3. The costs used in this study are all of the cost incurred and assigned to a route. These are fully allocated costs" and are appropriate to this anelvsis. 4. Depreciation and interest (capital costs) are the greatest single obstacle to aircraft up- grading in intrastate air services. - xiii PAGENO="0145" 139 FINDINGS AND CONCLUSIONS (CONTINUED) ~ Revenue for intrastate airline operations come primarily from passenger fares. Fares and charges are a major concern of the State under its regulatory authority. F inding and Co ens 1. Fare policies which will clearly serve the public interest and strengthen the intrastate air transpor- tation system should he eatablishe~ by the State. They should be as simple as possible with one standard class of service and limited discounted or promotional fares. 2. Intra-Florida traffic is primarily business oriented and will not be greatly stimulated by reduced or low" fares. 3. Commuter airline fares in Florida compare favorably with those in markets of similar size in other areas. C) 4. Joint fares involving trunklines and commuters are established in selected markets at the initiative and discretion of the carriers concerned. 5. The prorate of joint fare revenues between the carriers is privately contracted and of little interest to the passengers or to Federal regulators. 6. Revenue in this study is based on the fare formula by the CAB and used by the interst~te carriers. The fares yield revenue below that now charged on many routes by ~ntrastate carriers in Florida. 7. On most routes revenue other than from passengers will be minor. xiv 28-911 0 - 78 - 10 PAGENO="0146" 140 FINDINGS AND CONCLUSIONS (CONTINUED) 6 - Routes and Service The intrastate system propdsed here is made up of 17 routes. Findings and Conclusions 1. Many intrastate air markets in Florida have not received the quality of service needed for their full development. 2. Most air service in Florida is provided by airlines certificated by the Civil Aeronautics Board for inter- state routes, consequently the carriers' interest basically is in the longer haul, interstate markets. A substantial number of intrastate markets are, however, receiving adequateservice from interstate and intra- state carriers. 3. These city--pairs are receiving adequate service (March 1975) and are not included in the route plans. Miami-Ft. Walton Beach Miami -Tampa Miami-Jacksonville Orlando-Ft. Lauderdale Miami-Key West Orlando-Ft. Walton Beach Miami-Marathon Orlando-Panama City Miami-Marco Island Orlando-Tallahassee Miami-Naples Tampa -Ft. Myers Miami-Orlando Tampa -Gainesville Miami-Panama City Tampa -Jacksonville Miami-Tallahassee Thmpa -Tallahassee 4. Seventeen air service routes, under the assumptions of this study, can operate profitably. 5. The recommended plan for obtaining the proposed intra- state air service should be adopted and implemented. 6. The route system recommended complies with or exceeds the minimum Standards of ~ervico, is operationally feasible and ~;ill provide ade~uat~ air service between each of the city-parrs on each of the routes. 7. As compared to current interstate carrier costs and revenues, profitmble operations on those routes result from: (a) Lower costs, - (b) Equal fares, and, (C) Higher load factors. * assured by exclusive right to local traffic and a share utterline connecting ref fic W xv PAGENO="0147" 141 FINDINGS AND CONCLUSIONS (CONTINUED) Chapter 7 - A Plan For Florida Intrastate Air Service Implementation of adequate air service for Florida requires both legislative and regulatory actions to, 1. Bring all routes and carriers under State control, and, 2. Assure economic viability of the intrastate carriers. This project has evolved a plan which uses the available resources to the maximum extent while providing adequate service in all essential markets. It will be necessary that the following legislative and regulatory actions be taken by the Florida authori- ties, in order to implement the planned route structure. 1. Amend Florida legislation titled, An Act Re1att~ To The Air Carriers Of Florida to make the interstate ~árriers operating between points within the State subject to State regulation inthe same manner as intrastate carriers now certificated by the Public Service Commission. The amsnding legislation should provide a date on which the present privilege -of carrying intrastate traffic will terminate if not specifically authorized by the State before that date. * This action will permit the carriage of intrastate traffic by only those carriers authorized by the State and will not affect interstate operations or the c~arriage of interstate traffic. 2. Adopt Standards of Minimum Service applicable to all carriers serving intrastate passengers. * This action will bring the intrastate traffic of the interstate carriers under State control. 3. Award intrastate certificates to all interstate carriers operating in the following markets and meeting Standards of Minimum Service: * Miami-Tampa o Miami-Tallahassee * Miami-Orlando o Orlando-Tallahassee * These major market's (except Or1ando-Tal]~ahassee) are each receiving more than adequate service xvi PAGENO="0148" 142 Finding.s and Conclusions (Continued) from two interstate carriers. The history of service and route structure of the carriers indicate that service will continue at this level indefinitely. 4. Award intrastate certificates to interstate carriers in any market not listed in (3) above, in which the carrier requests certification. o It is understood that such a request is `agreement to operate in compliance with the Standards and failure to do so will result in termination of the authority in the market. Further, failure to re- quest authorization results in forfeiture of all rights to any intrastate traffic in the market. This action will permit the interstate carriers to determine the routes over which they do not intend to provide adequate service. 5. Award limited certificates to interstate carriers in markei~s where their CAB authority relies primarily on intrastate traffic but where they do not meet the Standards of Minimum Service. * Such awards should be made only where it is demonstrated that an intrastate carrier can expect to profitably supply the remainder of the standard service. * The certificate will limit the interstate carrier to the service performed at the time of certification. Abandonment of that service will result in permanent loss of authdrity in the market. o Gainesville-Miami is an illustration ot such a route. 6. Award remaining routes to intrastate carriers. o The State should announce the routes available to be awarded and receive applications for those routes. Action on applications filed at random nay result in failure to provide for some essential services on routes expected to be economically viable as planned. xvii PAGENO="0149" 143 Findings and Conclusions (Cant inue~ 7. Request from the CAB appropriate exemptions for carriers holding Florida intrastate certificates to enter into interline ticketing and baggage agreements with inter- state and international carriers. o Intrastate carriers who also qualify as co~rntuter airlines under Part 298 of the CAB Economic Regulations now enjoy this privilege which would be lost if they acquire larger than 30 passenger aircraft. * The probability is that new aircraft, even under 30 passengers, will not otherwise be used in many markets because they will be (1) not available; (2) too expensive; or (3) not large enough. Under these circum- stances use of Convair 580 or Fairchild F-27/227 throughout the State can be expected and this exemption needed. 8. Undertake collaboration with the CAB to develop means of making all cities in Florida equal in the applica- tion of State as well as Federal regulations. o The definitions of `interstate commerce" and "interstate transportation" as stated in the Federal Aviation Act make air routes between many Florida cities interstate rather than intrastate because the routes lie over the high seas. Thus, the unique geography of Florida and the wording of the Act appear to impose unequal treatment or benefits on certain cities. o This overwater operations problem can frustrate effective State regulation intended to obtain better air service throughout the State. * This problem appears to be complex and its solution nay require amendment of the Federal Aviation Act. xviii PAGENO="0150" 144 FINDINGS AND CONCLUSIONS (CONTINUED) cj~p~r 8 - Sub~4y~ The establishment by any unit of Government of~air service which cannot support itself and thus requires a subsidy, is primarily a political or social rather than an economic decision. While such services are usually established to `develop a market to the level where it will not require support, it is very difficult to demonstrate with specific cities or city-pairs where this has actually occurred with modern aircraft. ~n4~ns and Conclusions 1. The Federal Government subsidy program is the only on-going subsidy program for air service in theU.S. 2. No Federal subsidy has been paid for air service in Florida since 1950. 3. The route system designed in this study, established as recommended, requires no subsidy. 4. Subsidy payment may take many forms. Subsidy is public funds used to obtain services from private individuals or companies. Each need can present a different solution. There is no universally applicable system of subsidy administration. 5. A system of subsidy for services not proposed by this study would have to be designed to fit the service desired and money available. xix PAGENO="0151" 145 CHAPTER 1 STANDARDS OF A~EQUATE AIR SERVICE FOR FLORIDA'S INTRASTATE AIR SERVICE MARKETS i~ is appropriate for the State of Florida to develop a set of ~iidelines for adequate air services. These guidelines can serve a measure of how well the various air carriers are meeting the cDnvenience and necessity of intra-Florida travellers. They can jidicate markets where new or additional services are required. Sich standards are an invaluable tool in the planning process and a necessary ingredient for the rational development of a state- wide network of air service. Air service standards for Florida, as developed in this study, appear on the following pages. Thereafter, federal and state regulation in this area are reviewed, the concept and design of standards for Florida are presented and finally, the development of each component of the proposed standards is discussed in some detail. * 1-1 PAGENO="0152" 146 Proposed Air Service Standirds for Ilori.da The following standards have been developed with due consider- ation of the basic economic characteristics of short and medium haul air transportation. 1. Local air transportation is not required between cities located less than 100 higi~way miles apart, provided that the expected driving tine does not exceed two hours. 2. Where local and connecting traffic meets or exceeds 10 passengers daily in each direction, the market requires and can support air service. 3. In any given market,!" the minimum level of effective air service is two daily round trips. 4. The two flights should he timed to include a departure between 7:00 a.m. and 11:00 a.m. and a departure between 3:00 p.m. and 8:00 p.m. Six hours should be the minimum time between departures. 5. In these cases where a carrier adds a third frequency, it should depart in the .11:00 a.m.-3:00 p.m. time frame. The minimum time between departures should be three hours. 6. Average monthly load factors should not exceed 65%. If larger equipment is not available for needed capacity, the carrier will add another flight to make sufficient seats available. 7. More than two intermediate stops are unacceptable on flights required to mee.t the standards in Florida's short and medium haul markets. Adoption of the first two standards will greatly reduce the task of regulating intrastate air services by limiting the number of markets to be aegulated. By counting all possible combinations of the 26 air traffic points under consideration, Florida's potential intrastate air markets number 325.V The first minimum guideline on intercity highway distance indicates that 76 city-pairs are so accessible by surface means as not to 1/ The term "market' as used herein refers to a pair of cities or the traffic moving in such a city pair. 2/ See Table 1-2 (page 1-21) for a listing of the 26 Florida cities being considered for air service. 1-2 PAGENO="0153" 147 require air services. The minimum requirement of 10 daily air travellers eliminates many of the 325 markets. Remaining are those intra~tate markets which need ahd can support air services zud which warrant the State of Florida's regulatory concern. Following this quantitative identification of Flo~ida's eligible iir markets, the five remaining standards outline the essential ingredients of the required services. These guidelines are nased on the practical needs of the local air traveller, and they ensure that the same quality of service will be available in all markets of similar size. Fairness and equity require that air transportation services be evenly distributed to the travelling public, and these five standards point the way toward that proper and legitimate regulatory goal. Dverall, these standards will provide the State with an organ- ized, planned, and consistent approach to the provision of adequate intrastate air services. The particular circumstances of each market will always have to be considered on an individual oasis, but these guidelines are essential for an objective administration of a statewide air transportation network. A careful review has been made for any history of similar standards. This research determined that no other state has formally adopted service standards. The following section reviews the record of the federal effort in regulating service adequacy which is the responsibility of the Civil Aeronautics Coard (CAB). -- 1-3 PAGENO="0154" 148 Federal and State Regulation of Adequacy of Service As one of its regulatcry objectives since 1938, the CAB is required to ensure that every certificated air carrier provide adequate services in meeting the public convenience and necessity. Section 404(a) of the Federal Aviation Act reads: * It shaZZ. be the dutp of evorp air carrier to provide. . . adequate c~rvice, equipr.er.t, cud faciii~ies in connection with [air) transpor- tation,..." The CAB's understanding and application of this statute is the basis of this section. From its early days, the Board has been confronted with the question of adequacy. It has recognized its responsibility to define and administer adequate air service, but it has also argued thdt fixed, unchanging concepts are not workable. A thorough review of CAB regulation indicates that the Board has always considered adequacy in terms of changing contemporary standards. At Senate hearings in.l965, then CAB Chairman Murphy testified that the Board developed its criteria for measuring adequacy of service on a case-by-case method. In 1969, CAB Chairman Crooker gave a similar testimony in hearings before the House. ". . . The adequate service standard is not fired and rigid, ~ut depends on the facts and circumstances in a given case." In interviews taken by SARC for this study, senior CAB staff members indicated that ~he Board continues to view service adequacy or inadequacy only within the context of each particular case. It is clear, then, that the State of Florida canr.ot turn to the CAB for a precise definition of. adequate air service. Such hard and fast standards do not exist. At best, a historical overview of CAB regulation will reveal the general criteria which tradi- tionally. have been considered. Over the years, some basic guidelines have emerged and these will be explored as a basis for establishing standards of air service within Florida. The specific issue of air service adequacy has been the subject of only four regulatory proceedings. In the late 1950's, the Board decided four separate cases in response to demands by civic groups for improved air service. The cities involved were Ft. Worth, Texas, Toledo, Ohio, Baltimore, Maryland, and Flint and Grand Rapids, Michigan. For all of the cities except - Ft. Worth, the CAB ordered new and improved air services. These 1-4 PAGENO="0155" 149 fourcases were the first and only time that the CAB has directly enforced secti6n 404(a) of the Act. 1/ All of the major ingredients of adequate air service were dealt with in these proceedings. * Through-plane service to communities of interest. * Number of daily schedules. * Timing of schedules. o Load factors and available seats. * Type of aircraft. * Number of intermediate stops on through-plane service. Although the question of service standards were under explicit consideration, the Board declined to assign specific weights to any of these factors. "Expressions `adequate service' and `minimum standard of service' are flexible terms and are not susceptible to precise definition." Flint decision 30 CAB 1121. The preferred approach was to analyze each market at issue and rhcn apply reasonable administrative judgment. Zn the Flint case, the Board ruled that Capital Airlines had not :*en providing a sufficient level of service in several Flint and rand Rapids markets. The Board decision called for a minimum of: o 3 Daily Round Trips between Grand Rapids-New York. * 2 Daily Round Trips between Flint-New York and Grand Rapids-Minneapolis. o 1 Daily Round Trip between Grand Rapids-Washington. * :~ard also ruled that, `Morning and late afternoon or early rc~ departures found necessary to provide adequate service." ~.ZS 1120. Capital was prohibited from scheduling more than *~cps on the recuired flights. The Board felt that in these -~O mile markets, more than two enroute stops would result in :~sive delay in reaching the fina] point of destination. Another ~r. the case involved Capital's USC of unpressurized DC-3 and - ~rcraft in first class sorvice at first class fares. The page 1-4. 1-5 PAGENO="0156" 150 Board decided that, siven the industry'~ stage of development, unpressurized aircraft such as these could not ho used in ffrot- class servico. Thus the Board did not soccify the ecuipnent to be used but the class of service (and the fare) that could be operated with specific equipment.!! The Baltimore investigation was based prirsarilv on the fact that the carriers claimed to be seiving Baltinare' s rarkets through the Washington National Airport. The City of Baltimore contended that it was a major air traffic center in its own rfqht and that it was unreasonable to ask Baltimore travellers to use a more distant airport lo~ated in another city. In that case, the Board found that Baltimore's air service was inadequate in a total of 31 markets. Ruling in Baltimore's favor, the CAB ordered that markets which had 10 or more daily passengers should have single-plane service, if other factors were favorable.2! The Board also found fault with the timing of the schedules at Baltimore and asked the carriers to correct these deficiencies. For examole, the Board objected to the lack of southbound service from Boston between 7:30 a.m. and 5:00 p.m. On equipment, the CAB ruled again that trunklino service at first-class rates in the unpressurized DC-4's was inadequate. The Toledo case involved Capital's failure to provide schedules in several markets which were already receiving some flights by United. It was a situation in which the Board said that Capital was not living up to its certificate obligations, more so than there being a gross lack of service in the particular markets. The intention of the Board, however, was to improve the total availability of air transportation with the addition of Capital's flights. The results of the Board's intrusion into the carriers' scheduling process was not impressive. The acquisition of Capital by United Air Lines in a 1961 merger negated the Board's order for improved competitive services at Toledo. The replacement of Capital by United at Flint and Grand Rapids was undoubtedly an improvement for those cities, but it cancelled that brief experience with direct enforcement of adequate air service. Baltimore did see some improvement, but the long-range effect of the Board's de- cisiom in that case is very difficult to gauge. The congestion 1/ The Federal Aviatioh Act prohibits the Board from determining equipment to be used. 2! This standard of 10 passengers a day was related strictly to the record of facts developed in the Baltimore investigation. It has net been used in any other proceedings before or since. 1-6 PAGENO="0157" 151 and restrictions on Washington National Airport, as well as the completion of Dulles International Airport have been extenuating circumstances for the levels of air services at Baltimore's air- port. In June, 1961, the Senate Commerce Committee issued a report, National Transportation Polic~, which concluded that the public would be better served by expanded air carrier competition than by enforcement proceedings. In the same year, the Task Force on National Aviation Goals called for a policy of minimizing regulatory controls so that business incentives and competition could play a more influential role in the regulation of service. The Board apparently had come to similar conclusions, mostly due to the poor results of their initial experience with direct intervention. The CAB turned away from adequacy-of-service in- vestigations and directed their attention to new route awards. The Board concluded that service deficiencies were better resolved by introducing new competition than by requiring the grudging services of an unwilling carrier. Civic groups embraced this doctrine also. In presenting their needs for additional services, the communities called for certification of new carriers rather than enforcement of the incumbent carriers' obligations to pro- vide adequate service. The Board processed scores of route certification applications in the decade of the `60's. In those instances where new competitive authority was at stake, the incumbent carriers usually attempted to show that the markets were being adequately served. Applicants, however, would cite evidence of short-comThgs as an argument favoring their entry into the markets. The criteria of adequate service, as evidenced in the decisions of many cases, were the same as in the earlier enforcement pro- ceedings. Heavier weight was given to the question of load factorsand available seats. In one major case; the Southern ~ier_Invest4~9aticn, the CAB authorized new competition in several rarkebs and cited historic load factors of over 70~ as one of several factors requiring new authority. The load factor which the Board would accept as reasonable was never precisely identified, but in case after case the Board found that load factors exceeding t.he 65~-700 range were evidence of less than adequate service. 1/ Other criteria were also applied in those cases, but they did not aeon to be of decisional importance in deciding on the need for competitive authorization. In fact, the Board made it clear ./ Gulf States-Midwest Points Service Investiqation, Docket 17726; Dallas/Ft. Worth-Phoenix Nonstom Service Case, Docket 18579; Central Route 81 Case, Docket 16196. 1-7 PAGENO="0158" 152 that a finding of adequate service by an incumbent was not sufficient in itself to disapprove the application of an as- piring competitor. As a result, there is no cldar, unambiguous policy on service standards that emorgoo from this series of decisions. One other regulatory activity should he mentioned as. an e~:ample of the Board's position on minimum standards of sarvice. This activity was concerned with the problem of prov Id in~ scheduled air services at cities that produced very little air traffic. In this area the questions that have been asked are, "At what minimum level of traffic should air service be provided?" and "What is the minimum level of service?" As early as 1946 in the Texas-Oklahoma case, the Board ruled that two round trip flights are the basic minimum schedule pattern for a small city. The local service carriers, whose prirt~e responsibility was the smaller cities, were ramuired to serve each station on each of their routes with at least two daily flights. As subsidy programs to the locals have developed through the years, the element of two daily services has been retained as a guideline to the amount of federal support that should go to small air traffic points. In practice, there have been exceptions to this generalrule, but it still stands as a measure of the Board's position on minimal service where subsidy is involved. The traffic levels which require and can support a minimum schedule pa~tern depend on several variable factors. The very lowest that the CAB was ever prepared to go was to require that a station en- plane at least 5 passengers per day to justify continuation of service. Even at the cost levels prevalent in the local carrier industry in 1958-1962, this represented a situation where opera- ting losses were inevitable. The CAB held that federal subsidy should not be paid to a carrier to support operations at a city which could not meet this bare minimum. As the local carriers have gradually phased out the smallest aircraft in their fleets, the cost of serving very small points has risen proportionately. A minimum of 5 passengers a day would no longer meet the CAB's policy of a reasonable balance between the desire of a city for air service -- and the desire of the Congress to limit federal subsidy payments. Overall, the CAB recognizes this relationship and seeks to come to a balance on the basis of contemporary air carrier economics. The Board has not established any fixed minimum traffic levels to replace the 5 passenger per day criteria which is nc longer applied as a - "use it or lose it" staddard. A complete review of the history of CAB regulation fails to dis- close any absolute standard for measuring adequate air service. - Rapid changes in technology have outdated the Board's efforts to set any quantitative guidelines. It is clear that a pattern of 1-8 PAGENO="0159" 153 morning and evening service is desirable in any air market, but even adherence to this minimum has not been strictly enforced. At the state level, regulation of air transport has been practi- cally non-existent except in Texas, California, Alaska, and Hawaii. Here, as at the Federal level, issues have been resolved on a case-by-case approach, and there are no clear, well-defined standards that can be applied to Florida's particular needs. As this report turns next to a consideration of air service standards for the State of Florida, it is well to bear in mind that clear, consistent, precise standards have not been developed in over 35 years of Federal regulation. The reliance of the states and the CAB on ad hoc regulation should serve as a caution, suggesting either a political or a practical nedessity of avoiding mechanical formulas in the economic regulation of commercial air transport. The failure of others to achieve or adopt workable standards does not preclude or even argue successfully against Florida's need for such regulation. Geographically, Florida is unique and the intrastate travel needs of its people are unique. 1-9 PAGENO="0160" 154 Concept and Design of Uniform Air Service _______ Standards for Florida Benefits to the Public Although the State of Florida contains many substantial local air transportation markets, uncontrolled and extraneous factors often result in less than adequate air services. Air services in Florida's intrastate markets vary with the trunklines' scheduling decisions on interstate flights and with the economic health and ambitions of various commuter carriers. By adopting a set of - standards or guidelines, the State of Florida will have a regelatory tool for ccping with these obstacles to consistent, reliable, and convenient service. A key effect of the enforcement of air service standards will be the equalizing of the opportunity of public access to this node of transportation. For the first tine, markets of similar size will have the same basic level of air transport available to them. Other factors may give some markets an excess cf service, but every deserving city will be able to count on regular, con- venient service to its primary communities of interest. From the regulatory viewpoint, the establishment of standards is essential as a means to preserve fairness and equity in providing for access to air transportation. Communities will know what services they should have, and the carriers will know what, as a minimum,, is expected of then. In practice, the administration of standards is more art than science, but, without the basic points of reference, any semblance of objectivity is lost. Problems and Limitations As the research indicates, the CAB has avoided the very difficult political and practical task of setting national air service standards. For many of the same reasons, it is not any easier to strike upon such standards for intra-Florida air markets. Several obstacles to a simple, consistent, statewide standard are apparent: - 3. The Wide range in market size. * Variance in traffic compos~tion from one market to the next, La. business, personal, tourism, inter- state and intrastate, etc. * Intercity distances ranging from 20 up to 663 miles. * The unique characteristics of individual cities and * of city-pair markets. V. 1-10 PAGENO="0161" 155 * Two distinct levels of air carriers. * Possible conflicts in regulatory jurisdiction. These variables affect the intra-Florida markets as well as the interstate markets which the CAB regulates, and they will be reviewed in turn to illustrate their complexities. The size of any given market is a primary factor in determining how much air service should be provided. In Florida, markets range from Tampa-Miami with 800+ daily passengers in 1973 to scores of smaller markets with less than 5 passengers per day. :t is illogical to propose a standard to be used for city-pair markets at both extremes. The disparity in intercity distances is another troublesome consideration. These mileages range from 19 miles (Tampa-St. Petersburg) to 663 miles (Miami-Pensacola). With the competition of the passenger car to be considered, distance, as it converts to time and cost, must be a primary factor in any determination of standards of air service. The subject of traffic composition present questions which go to the nature of this study itself. By definition, this report is concerned with the needs and problems of intrastate travellers. rn many cases, however, a local true intrastate market would not qualify for air service if it was not supported by the connecting interstate flow of traffic. Complicating this question is the fact that the proportions of local and connecting traffic vary fiom market to market. The individual characteristics of each city and each market must also be considerod. Gainesville is a university-city, Eglin/ Ft. Walton Beach is a military market desiring to develop as a resort market, Tallahassee is an educational center and the State Capitol, and so on. Some cities are affected by the proximity of larger points with better air service, such as -St. Petersburg (Tampa), Ft. Lauderdale (Miami), TI-CO (Melbourne and Orlando), Sarasota (Tampa), and Lake land (Tampa and Orlando). It is clear that each market is unique and that generalized recommendations may require exceptions in application. Finally, the implementation of standards is complicated by the existing levels of service by-various types of air carriers. The trunk carriers operate schedules in Florida primarily for the needs of long-haul interstate markets. They operate large jets with plenty of available intrastate seats, but generally they completely ignore the timing of their services for the intra-Florida traveller. Only in the largest Miami and Tampa markets does the sheer fre- quency of tervice ccmpensate for the lack of planning for local needs. It is important to note that, whether or not they actually provide the schedules, the trunkline carriers and Southern have - 1--Il 28-911 0 - 78 - 11 PAGENO="0162" 156 CAB authority to serve most of the significant markets in the State. In many of these markets, there era at least two inter- state carriers with operating authority. Further down on the scale are the commuter carriers currently operating in the State. Their equipment is sized for smaller markets and they do not generally attempt to compete head-on with the CAB carriers. However, at the short distances characteristic of most Florida markets, the ecuicment operated by third level carriers is adapted to the task. The overall speed advantage of the large trun}zline jets is not significant in these short up-and-down hops. When a trunkline vacates a market or leaves large gaps in the times of service, a third level carrier can operate efficiently and successfully. With these factors in mind, it seems most useful to outline the - - simplest set of guidelines possible, with the expectation that some administrative judgment may be required in the day-to-day regulatory process. 1-12 PAGENO="0163" 157 Minimum Requirements For Air Service Between Florida Cities From a.logical point of view; it is not difficult to arrive at the simplest standard of air service -- either a market has a scheduled air service or it doesn't. Beyond this absolute minimum, the reasons for setting any particular level of service as a standard are a matter of reasoned judgment. The essential criteria to be considered include length of trip, traffic levels, frequency of service, timing of service, availability of seats, and type of aircraft. In the following analysis of these factors, every effort has been made to recognize the particular characteristics of the intra- Florida markets. Each standard has been reviewed for its applicability to the actual markets in question. The overall goal has been to derive a set of uniform guidelines which can be applied to-any given market in the state. :rhe Limitations Imposed by Intercity Distance The relative geographic location of Florida's population centers and the excellent highway system which links them constitute a very basic limitation on scheduled air services. Of the 325 city-pair combinations being reviewed, 76 are separated by less than 120 miles of highway driving. Many of these roads are four-lane and some are limited access expressways. None of the cities are separated by mountainous terrain or other obstacles to normal highway driving. At this level of accessibility, the requirement for air transport may well be questioned. A review of the relationship between airline schedules and driving timesreveals the advantage of the passenger car for short trips within Florida. As evident from Chart 1-1, savings in door-to-door elapsed times cannot be achieved by using air services at intercity distances of less than 70. miles. In the 70 to 120 mile range, tho advantage of air is questionable in most circumstances. As mileages increase beyond 120 miles, intercity driving times climb proportionately, and the overall efficiency of air versus surface transport comes *into play. Even at those greater distances where the intorcity speed of the air vehicle exceeds the door-to-door performance of the passenger car, the overall advantage may still go to the car, due to its lo~-:er cost and its versatility for local travel at the destination. ~ctual experience in Flor.idi's short-haul markets bears out the conclusion that air transport is not competitive with the passenger car. In Table 1-1, markets which had air services in 1972 are ranked in ascending order by intercity highway mileage. Traffic experience in these markets is not entirely the result of the intercity distance, hut it is significant to note that the 1-13 PAGENO="0164" 158 -~ - ~ _I_~ __1~ ~3 ~~LJ_E1 I ~ _i __________ ~ ~ ~ __ ___ I ~T -~ ___ ~ ~ ..;~.~:L;~JI~:L: :i~ * -- ~ .H:.:..t ~ ; Tj ~ -~ ~ - ~ - I~L~_±L~_LLI ~t~~J: ::j: :;:~::i4 ~ -~ - -~ it t 4 ~ ~ -.- `--.-+ -I.- -~ - ~ - t j~ I -~ - ~ ~ ~ ~T; ~ - .. . -. ::-:-L~ L. ~ :_::t~~..'::..1_:::t: 1 :.::~i:i -~ .-L::~-l ~ 4-i_~.L *-~., ._~4_ ~ ~ ~ ~ ~::~~i- ~ 4jL%LJLLi4Tm~%J: - ~% j~-14~f- `- H H~*--i H-'~1~ H H~~tTH ~L~__ ~ F ~ ~ -~: EE~E~r~ ~ ~ OF--' ~~-- ~: z~ ~ri~ ~ ~ ~ ` H ~ ~ ~= T~ -`-- :~± r- ~ -~ ~L ± ~ ~. i~ ~ -- k~ ~ -.--. ~ ~ .:~ ~ ~ LIIQ 0 0 0 0 z CH~\RT 1-1 U) z z 0 0 (I) z H U) U) 0 U) U) U) U) 0 0 U) U) 0 U) 1-14 PAGENO="0165" 159 first substantial local market is Tampa-Ft. Myers, with 14,168 local travellers moving over a 123 mile segment. Of the 76 city-pairs less than 120 miles apart, only 8 generated 1,000 or more local passengers in 1972. By way of contrast, the five Largest intra-Florida air markets have an average intercity distance of 308 miles. Before reaching a conclusion based on this evidence, one special circumstance should be mentioned. For some individuals, par- ticularly those retired citizens who cannot or do not wish to drive, an air service might be a convenience, even if no real -:ime savings were realized. This may account for some of the traffic which turns up between the first three city-pairs on Table 1-1: Tampa-Sarasota, Miami-West Palm Beach and Tampa- Orlando. In these, as well as most other short-haul markets, there are convenient and less expensive alternatives to air service. With the possibilities of bus, intercity limousine, or passenger train services, it doeC not seem reasonable to assign great weight to the provision of air service in markets that are easily and economically accessible by surface means. Although there is no magic in the particular number, 100 inter- city highway miles can be used as a basic minimum standard, be- low which the state need not be actively concerned with local air transportation. Few travellers would find any advantage in air versus surface transport at intercity distances below this minimum. Assuming an average door-to-door driving time of 45 mph, a 100-mile trip would take 2 hours and 12 minutes. With good highways over generally level terrain, a local trip of this length is not sufficiently burdensome to require the alternative of air service. The Minimum Effective Level of Air Service In selecting a standard of minimum air services, it is desirable to go beyond the physical minimum to the more widely pccepted practical standard of two well-timed daily round trios. If a market is qualified to receive scheduled air service at all, it is necessary to provide at least two schedules. While better than nothing, one flight a day does not.create and has never developed a market for air transportation where alternative means of travel are available. The point may best be made clear by wee of an illustration. ii, for example, a market of 240 miles receives only a 9:00 a.m. flight, those travellers whose preferred departure time is be- tween 7 and 11 a.in. may be able to adjust their affairs to use the 9:00 a.m. departure. For passengers with any other preferred departure time, the alternatives are to use other means of transport or to wait until tho next day to use the 9:00 a.m. flight. The frustration is heightened since the desired dest~na- ties is so close by air but a 5-6 hour drive by car. The single 1-15 PAGENO="0166" 160 TABLE 1-1 LOCAL AIR TRAFFIC IN FLORIDA'S SHORTEST CITY PAIR MAPKETS Calendar Year 1972 Market Tampa-Sarasota Miami-N. Palm Beach Tampa-Orlando Jacksonville-Oca la Miami-Marco Island Orlando-Gainesvi us Miami-Naples Niami-Marathon Intercity Iijt~:~,ev -1i1eace~ 51 84 99 105 109 110 112 Local Air ?ossenoersY * 4,972 6,479 - 7,252 1,000 2,045 1,340 * 2,945 2,585 Tampa-Ft. Myers Tampa-Gainesville Tampa-Melbourne Pensacola-Daytona Beach Jacksonville-Orlando Miami-Vero Beach Tampa-Daytona Beach Miami-Ft. iiyers Tallahassee-Ft. Walton Beach Orlando-Ft. Myers Miami-Key West Tampa-Naples Jacksonville-Tallahassee Miami-Melbourne Tampa- Jacksonvi lie Tampa-N. Palm Beach Tallahassee-Pensacola 14,168 1,310 3,120 950 7,475 980 1,941 11,066 1,630 2,244 18,000 1,298 8,516 8,335 35,076 19,924 3,483 123 130 132 133 133 137 138 146 151 154 158 160 168 171 196 199 199 NOTE: Includes only those markets which generated at least 1,000 local passengers in 1972 and which were separated by less than 200 highway miles. 1/ SOURCE: Official Florida Highway Map, 1973. 2/ Passengers whose origin and destination are the cities shown. In many cases there are very significant numbers of passengers- who connect to interstate flights at the major terminal of these city pairs. 1-16 PAGENO="0167" 161 9:00 a.m. flight may meet the needs of some but it can hardly be said that the communities are being fully served. The addition of a second daily flight demonstrates the utility of air service by greatly reducing the compromise in travel plans. With only one daily flight, the compromise required between a preferred departure tine and the actual schedule may go as high as 12 hours. With two flights well-spaced during the 7 a.m. to 8 p.m. day, few travellers would be required to make more than 4-5 hour adjustment. To the people and the communities involved, this quantum leap in convenience and time- saving is the difference between being knitted together by a pattern of air service and being strung out on an under-utilized air route. The importance of a minimum standard of two daily round trips can be measured by the CAB's long-standing position that any- thing less is not a true test of a market's ability to require cr support the continuation of services. In cases where suspension or deletion of air service is at issue, civic parties argue convincingly that the potential of their city has not been adequately tested if less than two daily round trips have been operated. On their part, the air carriers seldom propose less than two daily round trips in markets for which they are seeking certification. The CAB, civic and aviation interests, and the carriers themselves are in agreement on this minimum criteria of air service. There is no reason to believe that Florida's markets deserve to have anything less or require more as a minimum. The Minimum Traffic Demand to Require and Support Air Services The minimum level of traffic required to support economically ~riable air services depends largely on the type of equipment and thus the carrier that will provide the service. Standards developed for the commuter carriers may be inappropriate for the trunklinea.. Since commuters operate on a smaller comxner- cial scale, minimums for commuters are the levels of traffic below which scheduled air service cannot ho economically supported. At the current level of commuter-type airline economics in ~lorida, a market that enplanes less than 5 passengers per flight will rarely be economical to servo. In a recent report, the CAB staff found that omerat.ions by third-level carriers at less than 5 passengers per flight would seldom meet breakeven needs. The report also concluded that payment of federal subsidy was not justifiable at lower traffic levels, 1-17 PAGENO="0168" 162 even if a city was geographically isolated):" By the Board's criteria, no significant point in Florida could be considered as isolated from alternative air services. Five, passengers per flight translates into 3,650 passengers annually per round trip. Since 2 round trips have been established as a minimum standard, the level of annual traffic to support those flights would be 7,300. Looked at another way, an annual traffic flow of 10 passengers per day in each direction requires and can support two daily round trip services. The question arises as to the consideration of interstate or international connecting traffic in addition to local O~D travellers. Since the economics of the service do not require such a distinction, it follows that the 7,300 annual traffic standard should be based on the total amount of available traffic. In many intrastate markets, this connecting traffic will support third-level services that would not otherwise be provimed. Such traffic should be included in the test for a minimum standard. Additions 1 Schedu i~ Regu irements Having established the basic air service standards, it will be useful to specify some additional conditions concerning the provision of these services. These considerations involve the timing of the schedules, the availability of seats, and the type of equipment used. Another point to be resolved concerns the permissible number of enroute stops. The purpose of establishing a standard as to schedule timing is to prevent schedules from being bunched together, a practice which can leave long periods of the day without any service. Well-timed air schedules are generally defined as morning, mid-day, end evening departures in both directions. This allows for one-day travel between the two cities, a particularly-useful - feature for business travellers. For intrastate purposes, the active traveling day can be broken down as follows: 1/ Service to Small CommunitieS, CAB, March, 1972. In this.report, the Bureau of Operating Rights at the Board traced the CAB's recent history of suspensions and deletions of air service at the nation's smallest communities. To be considered gee- - graphically isolated, a city would have to be at least 1 1/2 hours drivinq time from the nearest air service point. If the nearest point receives a large volume of schedules, th? maximum allowable driving time rises to 2 hours and 20 minutes. 1-18 PAGENO="0169" 163 Morning 7 a.m. to 11 a.m. Mid-day 11 a.m. to 3 pT.m. Evening 3 p.m. to 8 p.m. tf a market can support the minimum level of 2 daily flights, these should fall in the morning and evening categories, with at least a hour separation. When a third flight can be justified, a mid-day departure rounds out the pattern. If the three flights are spaced at a minimum interval of 3 hours, the market is clearly receiving a well rounded pattern of service. As mentioned earlier, such a pattern of service ~iill minimize the compromise between preferred and actual departure times. Some judgment must be used when applying these guidelines to the carrier's schedules. Since any efficient operator must use his aircraft throughout the day, a pattern of service which will opti- mize the utilization of these expensive vehicles may require some deviation from the timing standard. For example, the departure time from the city of origin could be within the morning time frame, but the departure time from an intermediate stop could fall into the mid-day zone. Depending on circumstances, this might not be an unacceptable variation from the stated standard of morning and evening services. It is preferable to use departure times in a scheduling guideline since arrival times can vary with the routing flown and with the equipment used. Departure times indicate the moment of embarkation, a factor which traditionally has been of more interest to air travellers than the time of arrival. At the relatively short distances of most Florida markets, the `time of departure can act as a surrogate for arrival times, in terms of the `time slot being served. It is difficult to set forth objective guidelines as to when a third, fourth or fifth service may be required. With this in mind, it may be sufficient to require that schedule frequencies be a function of enpianed load factors. If a market receiving the minimum service pattern of two daily round trips consistently exceeds a 655 load factor, the operator should be required to improve service, either by using larger equiprent with more seats, or by adding a flight to relieve the oreasure. At load factors above 65% there will be inadequat.e capacity in the market to handle traffic demands in peak periods. An alternative to requiring additional service by an incumbent carrier is to authorize a new competitor over the route. As mentioned earlier, this has been the CAB's method of dealing with' excessively high load factors. 1/ 1/ This is not to he taken as a recoirmendation of this study. The subject of route competition is to be treated fully in a later section of this study. 1-19 PAGENO="0170" 164 Other phases of this study will e~:plore the question of aircraft types in greater detail. As a standard, however, it is not neces- sary tospecify particular types of equipment. The aircraft flown * by the CAB carriers is certainly adequate. Comnuter aircraft likely to be used will run the qanut from the DC-3 to the modern turbo-prop planes soecially desiqncci for third-level omerations. All of those aircraft will have to meet rimid F.A.A. safety requirements. Whatever they may lack in the way of smeed and comfort is coonensated fo~ by tho relatively short flvinq distances of most intra-Florjda markets. Wv using older and less exoensive aircraft, coanuters can provide basic short-haul air transoortation at the lowest cost levels possible. For this reason, they should be allowed substantial latitude in their choice of equioment. As a final point, the actual onerating itinerary of intra-Florida services warrants two particular commen~Es. In these relatively short-haul markets, a routing should not include more than two intermediate points. This kind of stop-and-go operation dissipates much of the speed advantage of the airplane. The only exceotions could be on potential routings between South Florida and the panhandle area, where the distances involved do not make as many as three intermediate stops an ove~helminq problem. Also, services which require a change of o'lanes enroute are not included in the proposed standards.. Although some few local travellers may use intrastate connectinq services, this alternative is of little interest in any market that qualifies to receive two daily single-plane flights. NOTE: For bibliography of research for this chapter see Appendix D. 1-20 PAGENO="0171" 165 TABLE 1-2 FLORIDA'S TWENTY-SIX MOST ELIGIBLE CITIES FOR INTRASTATE AIR TRANSPORTATION SERVICES City 1. Miami 2. Ft. Lauderdale 3. St. Petersburg/Clearwater/New Port Richey 4. . Orlando/Leesburg/Eustis 5. Jacksonville 6. Tampa 7. West Palm Beach 8. MelBourne 9. Titusville-Cocoa) 10. Pensacola 11. Sarasota/Bradenton 12. Daytona Beach 13. Tallahassee 14. Lakeland 15. Gainesville 16. Ft. Myers/Cape Coral 17. Panama City 18. Ocala 19. Ft. Walton Beach/Eglin AFB 20. Vero Beach/Ft. Pierce 21. Bartow/Winter Haven/Auburndale 22. Key West 23. Marathon 24. Marco Island 25. Naples 26. Punta Gorda * Not Available. Proj ected 1990 Population 1,815,000 1,015,000 939,000 869,000 758,000 701,000 668,000 298,000 257,000 254,000 190,000 164,000 148,000 127,000 125,000 80,000 65,000 65,000 57,000 55,000 50,000 N.A. * N.A. * N.A. * N.A. * SOURCE: Florida's Statewide Transportation Plan and Program. ~E~te of Florida, Dopartuont of Transportation. March, 1973. Table 3-1. 1- 21 PAGENO="0172" 166 CHAPTER 2 REGULATORY ALTERNATIVES FOR OBTAINING SERVICE Any master design for air service must be concerned with the authorizations which may be necessary from the governmental agencies responsible for the regulation of air transportation. appropriate authority for the operation, given to qualified carriers, together with the application of accepted standards, will provide the state regulators with a logical framework for achieving the desired public service. - At present air service in Florida is performed by ~ combination of carriers, some regulated by the Civil Aeronautics Board (CAB), others by the Florida Public Service Commission (PSC). Under Florida law, the only jurisdiction which the PSC can assert over CAB-certificated carriers is the right to disapprove fares, rates or schedule changes between Florida points, if such changes would impose an undue economic burden on State-certificated carriers operating between the same points. This jurisdiction has not been invoked since the legislation was enacted. In designing Florida's air transportation system the State properly is concerned with th~ type of regulatory authority which should apply. It is evident from past experience that the pro- vision of an adequate system for Florida's total air service needs must be, primarily, the responsibility of the State. The federal agency has provided some assistance to the states in meeting intrastate traffic needs in addition to interstate authorizations. The CAB's local service airline program, and the exemption permitting air taxis and commuter carrie~s to operate with practically complete freedom from federal economic regu- lation are examples. However, the CAB has rot asserted regu- latory authority over purely intrastate movements -- and such mavements are basic for a Florida air transportation system. Statement of the_Problem Tie State of Florida, in implementing service in the markets ~iich form its air transuort.at~on system, must determine the s'aurces of the service to be provided. Primlary markets in Florida are served by airlines certi.frceted by the CAB. These carriers are not responsive to specific intrastate requirements, b~mcause of transcending opportunities in interstate transpor- tation. Yet these same intrastate services arc beyond the reach of the CAB (which regulates rnterstato transportation only) and, in Florida are exempt from PSC regulation. Thus the Florida ragulators are frustrated in cay attempt to have these carriers furnish service which meets the State's standards of adequacy. On the other hand, if supplemeutary service is authorized by 2-2 PAGENO="0173" 167 State regulation to ensuro service adequacy, the CAB-certificated carriers are a competitive fact of life with the end result that the supplemental service con expect to ho uneconomic because of competitive pressures. The jurisdictional conflict between federal and state regulators illustrates the difficulty in achieving a proper regulatory re- lationship to assure the desired service result. This is the basic problem which the State of Florida must meet. Possible Alternatives For A Florida System It is necessary that each city-pair earket be judged individually as to the optimum regulatory arrangement. However, before this process is undertaken it is useful to identify alternatives which may be available, and to discuss generally the constraints and contributions inherent in each. Options available for service authorizations in the various Florida markets may be summarized as follows: 1'. Service presently authorized and performed by interstate CAB-certificated airlines may be continued without any change. - 2. Service not performed and not authorized, but deemed necessary, may be sought by application to the CAB for interstate carrier authorization. 3. Service presently authorized and performed by intra- state carriers, under certificates from the Florida Public Service Commission, may be continued without change. 4. Service not performed and not authorized, but deemed necessary, may be authorized by additional certifi- cation to intrastate carriers. Essentially, the foregoing possibilities for service authori-- zation embrace three basic regulatory philosophies: 1. Dependence on the Federal Government (the CAB) to pro- vide the air service required for Florida by using (1) interstate carriers, (2) commuter carriers, and (3) air taxi operators. 2. Dependence on Florida PSC to provide exclusively intra- state operations. * 3. The integration of federal and state regulation to meet Florida's needs. 2-2 PAGENO="0174" 168 iach of these three approaches offers some advantage for imple- menting air service plans. As a group they are adaptable to a broad range of service needs -- differing densities of traffic, varying interrcity distances, etc. For particular sithiations, however, each also has some disadvantages. Dqpg~ndence Solely On CAB Regulatory Action Ba ckgr'ou nd It is important to recognize ~that the primary interest of the CAB is to provide a national system of air transportation. Con- sequently, any intrastate services provided by carriers under CAB authority are incidental to the broader interstate system. The responsibilities of the Civil Aeronautics Board arise from the legislation which governs that agency's operation -- the Federal Aviation Act of 1958. In the Declaration of Policy, Section 102, the Act states that the Board, in the performance of its pawers and duties, shall consider the following: 102(a) The encouragement and develooment of an air trans- portation system properly adapted to the~present and future needs of the foreign and domestic com- merce of the United States, of the Postal Service, and of the national defense; 102 (b) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of, assure the highest degree of safety in, and foster sound economic conditions in, such transpor- tation, and to improve the relations between, and coordinate transportation by air carriers; 102(c) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without unjust discriminations, undue preferences or advantages, ox unfair or destructive policies; 102(d) Competition to the extent necessary to assure the sound development of an air transportation system properly adapted to the needs of the foreign and domestic commerce of the United States, of the Postal * Service, and of the national defense. T~e following definitions contained in Section 101 of the Act arc epplicable to the foregoing: * "Air Carrier" - "any citizen of the United States who undertakes. . . to engage in air tranaportation. .." 2-3 PAGENO="0175" 169 * "Air Commerce' - "interstate, overseas, or foreign air commerce or the transportation of mail by aircraft... which directly affects, or which may endanger safety in interstate, overseas or foreign air commerce." * `Air Transportation" - "interstate, overseas, or foreign air transportation or the transportation of mail by air- craft." o "Interstate Air Commerce",. ..n.iean(s) the carriage by air- craft of persons or property for compensation or hire, or the carriage of mail by aircraft, or the operation or navigation of aircraft in the conduct or furtherance of a business or vocation, in commerce between, - a place in any State of the United States,...and a place in any other State of the United States ~or between places in the same State of the United States through the air- space over any place outside thereof;... * "Interstate air transportation",.. .mean(s) the carriage by aircraft of persons or property as a common carrier for compensation or hire or the carriage of mail by air- craft, in commerce between, - a place in any State of the United States,...and a place in any other State of the United States or between places in the same State of the United States through the airspace over any place outside thereof,... The intent of Congress, as specified in the Fed~ral Aviation Act, was to limit the authority of the CAB to interstate, overseas and foreign air services. Thus, by apparent intent the Act eliminates the Board as a ~significant factor in satisfying wholly intrastate air service requirements. This.policy is consistent with the original legislation -- The Civil Aeronautics Act of 1938 -- in which the Congress did not extend economic regulatory provisions of that Act to intrastate air traffic. it did, however, assert full control over intrastate and interstate flying with regard to safety regulation.~/ The definitions above delineate a problem which must be considered further in later sections of this report. Several routes between two points in Florida go outside the three-mile limit and "through airspace over any place outside thereof." All flights between 1/ Regulation of Air Transport, State, Federal, Local, industry Taxation, Stuart G. Tipton - The Chicago Association of Commerce, 1945. 2-4 PAGENO="0176" 170 the following pairs of points are interstate flights under these definitions:1/ 1. Pensacola, Ft. Walton Beach and PànamaCity on the one hand and all oth~r points in Florida, except Tallahassee and Jacksonville, on the other. 2. Key West and Marathon on the one hand and all other points in Florida on the other. 3. Tallahassee on the one hand and Tampa or St. Petersburg and all points on the west coast of Florida south there- of on the other. Prob2errzs Involved Tn DeAending On CAB Regulation Eaclusivelu The primary constraint inherent in looking to the CAB for action, as. far as Florida is concerned, is simply that the Board's author- ity is not sufficiently broad for Florida's total needs. CAB certifications for air service in Florida were determined not by Florida's internal requirements, but by the more extensive national demands. Thus, Florida's needs, not structurally integrated with interstate commerce, were not considered and are not provided for. Other limitations which flow from this basic constraint involve qLestions of carrier entry, adequacy of service and rates. The CAB has demonstrated from its past actions that the possibility of new carriers being certificated is remote indeed. Therefore, any new services which Florida may desire would more than likely be entrusted to one or more of the existing carriers, which are primarily interstate in character. The adequacy of air transport service between Florida cities is beyond the reach of the CAB. The agency lacks authority to re- quire air carriers to provide adequate service for purely local intrastate traffic. Only if schedules between two Florida points on an interstate route appear to be insufficient to meet interstate demands can the CAB properly examine the matter. Similarly, air fares arid rates are established by the CAB for interstate system operations and are coi~itioned by interstate traffic. An additional problem exists in the CAB's ccr.ulea procedure which is necessary before relief can be obtained. This procedure, in 1/ See ~AB Order 25483, Docket 18713,. 18759 (August 7, 1967); CAB Order 24895, Docket 17528 (March 24, 1967), where PSA was given authority to go beyond the three-mile limit off the California coast. 2-5 PAGENO="0177" 171 effect, precludes prompt response to any need for improved or additional air service. Because the CAB is concerned primarily with interstate matters, and because as a federal regulator it must conduct its proceedings in accordance with the Administrative Procedures Act, the route, service and ra~o proceedings of the Board tend to be cumbersome. To illustrate, if an application affecting intrastate service were to be submitted by a carrier or the State, it would be assigned a docket number and await its turn to be processed, if in fact it is procesued at all.l/ De- pending upon the urgency of the case, from the CAB's point of view, months could elapse before it was set for he~rir~g. Prior to hearing, all applications for service between the pairs of cities named, including portions of applications which may con- template the intrastate service only as part of an interstate route, would be consolidated into the proceeding, to be certain that all parties concerned would be heard. Additionally, again because the Board's concern is with inter- state routes, it is possible that the proceeding could be ex- panded, and become a regional interstate proceeding. In such an.- event the original application, basically for a limited intra- state purpose, could be completely subordinated. S The time required. for such proceedings varies, but a period of two years from date of filing to a CAB decision is not uncommon. The ability to respond promptly to a state's need is limited at best. Benefits To Be Derived From CAB Regi~lation On the other hand there are advantages in having CAB-authorized airlines provide intrastate services. Companies which meet rigid CAB tests of fitness and ability generally are much larger and usually are financially stable. Operations by such companies are for the most part conducted with the most modern and corn- fortable equipment. The companies are well-known and have wide acceptance with the public. These, of course, are not trivial considerations in choosing the source for any scheduled service. These carriers are formidable competition for any intrastate carrier. - In addition to certificated carrier operations the Federal Govern- ment has made available, as additional resources for a state air transportation system, commuter airlines and air taxi operators. These carriers operate pursuant to Part 298 of the CABs Economic 1/ If the application was for exclusively intrastate authority - it should be rejected by the CAB and not docketed. 2-6 28-911 e - 78 - 12 PAGENO="0178" 172 Regulations)' These carriers are also int~rstate carriers and as such may enter into interline ticketing agreements and file joint tariffs with the CAB certificated carriers. In many Florida markets the interstate traffic is absolutely essential ~o the continued existence of the intrastate service. Thus in many instances the existence of the carrier is more dependent upon the permissive nature of the CAB regulations than upon the authorization of the PSC. This dual identity for these carriers seems to have just happened in the course of events and is not the product of legislative or CAB planning. It has a greater impact on air service in Florida than in any other state. Dependence Exclusively On State Regulatory Powers State authority as an alternative for ensuring that a state service plan is implemented is restrained because the State has authority only over local, intrastate traffic. This excludes traffic which may have as its ultimate destination a location in. another state, a U.S. territory or a foreign country, whether or not the total journey may include an intrastate trip, or segment. Notwithstanding this limitation the regulation of air services has been undertaken in several states. The number of such states has been limited by the unusual factors which lend themselves to intrastate air transport: * geographical dimensions of the state; * the existence of multiple high-density traffic centers; * large concentrations of population; and * the location of airports so that flight outside the state can be avoided. The primary example, in terms of its iniial involvement in this activity and its volume of intrastate operations is, of course, California. Others such as Illinois and Texas are also active. Other large states, such as New York and Pennsylvania, are possible future areas for increased state regulation. Because of its geographical dimensions and demographic characteristics, expanded State regulation by Florida is a logical alternative to consider in obtaining better service. 1/ Except Air Florida which uses aircraft larger than permitted under Part 298. 2-7 PAGENO="0179" 173 Experience Of Other States The results of rather extensive reqblation by state authorities in California and Texas, which have been well-documented, appear tobe positive from the standpoint of the public. From a small beginning in 1946, California intrastate operations have grown steadily and substantially until today the State is regulating the activity of two large-aircraft intrastate carriers and at least 11 commuter airlines which together serve more than 100 intrastate city pairs. The effect of intrastate carrier entry into intrastate markets, under the aegis of California rather than the Federal Government, was studied by the CASh in 1965. It examined service, traffic and fare ~deve1opments in the Los Angeles-San Francisco market, for the period 1957-1964. This interval covered the transition from piston to turbo-prop to pure jet aircraft. The study com- pares Pacific Southwest Airways with United, TWA and Western, the CAB-ce~tificated airlines. The study found that the Los Angeles-San Francisco market expanded faster than the national average, service was improved, and the average fare decreased. The financial record of PSA was impressive. In 1959, it was operating DC-4 equipment and by 1964 had converted to Lockheed Electra turbo-props. At the beginning of 1959 stockholder equity was less than $1 million; by 1964 it had grown to more than $10 million. In 1964 the return on total investment was 25%.2/ This success story was accomplished with fare yields about one-half of a cent per mile less than the CAB-certificated carriers. An admonition must be entered that PSA's experience in California cannot necessarily be duplicated in Florida. The Los Angeles- San Francisco market is probably the largest air market in the world. The two metropolitan areas have a combined population twenty-five percent greater than the popu'ation of the entire State of Florida. The routes of the interstate carriers are basically at right angles to the intrastate route so that very few interstate flights serve both cities as they leave the state. In Florida interstate flights commonly serve Miami and another 1/ Traffic, Fares and Comoetition, Los Angeles-San Francisco Air Corridor, Bureau of.Accounts and Statistics, Civil Aeronauti~s Board, August 1965. 2/ No subsequent studies of PSA have been published and the CAB study is 10 years old. Current (1975) reports indicate that PSA is experiencing losses, has grounded part of its jet fleet and is again requesting fare increases. 2-8 PAGENO="0180" 174 city as the flights leave the state and provide strong cornoetition ~o any intrastate flights in the markets. Other differences are auparent between California and Florida air service but these serve to amplify the admonition. In Texas the results of the state-authorized services also were posi- tive. Southwest Airlines began operating as a large aircraft intrastate Carrier in June, 1971, under authority granted by the Texas Aeronautics Commission. Operations are carried on in the - Dallas-Houston, Dallas-San Antonio and Houston-San Antonio markets. Recently Harlingen was added to both Houston and Dallas. As in California, traffic expanded greatly in the markets served by SouthwestA/ and participation by Southwest progressed almost geometrically. The situation in Texas is, of course, different from that in - California. For example, in Texas the markets are limited in number while in California many markets are served. Also in Texas the intrastate airline uses different airports than the CAB carriers and thus are closer to downtown areas. Southwest was well-financed and managed, began its service with modern aircraft and funded a strong sales and public identity program. It was strongly supported by the State Commission. It is interesting that Southwest did not always originate reduced fares -- so did Braniff. The competitive efforts to capture the markets were strong and varied. Several lawsuits kept Southwest's name before the public and divided operations at two airports in Dallas and Houston caused large problems for the competing carriers. Fares have been both reduced and raised and are now on a two level basis with a rather low fare off-peak and on weekends. The inter- state carriers met the intrastate fares for a long period but are now charging their normal fares, thus giving the fare-conscious portion of the market to Southwest. The financial effect on Southwest has been good, notwithstanding the low revenue yield. For the 12 months ended September 30, 1974 the carrier reported net earninc~o of nearly $2 million on revenues of $10 million.2/ 1/ -For a complete statistical analysis see Recormnended Report of Examiner Joan Holloway, Texac Aeronautics Commission Appli- cation of Southwest Airlines Company for a Texas Air Carrier Certificate of Public Convenience and Necessity for service to the Pie Grande Valley. 2/ Currently (1975) Southwest reports earnings are continuing - but at a reduced rate. 2-9 PAGENO="0181" 175 Prob less With ire lusi ~ The obvious disadvantage in depending solely on State regulation is the lack of leverage which the State may have over the CAB~- certificated airlines. This lack of leverage occurs because CAB carriers are never dependent upon purely local intrastate traffic for their economic life. This is particularly true in Florida where, compared to the total movements of air traffic which in- clude massive volumes to and from numerous out-of-State points, the amount of purely local Florida travel is not significant. The economic livelihood of CAB carriers is tied to interstate routes, and interstate traffic; their participation in local intrastate Florida traffic is an incidental economic benefit and not a necessity. Given this situation the State should expect to have little real influence over these airlines. The most extreme action which a state may take is to restrict participation in local traffic. It cannot otherwise interfere with the rights of carriers.selected by the Federal Government to perform interstate operations, as part of a national transport system. Other difficulties with exclusive state regulation of air service are in fact related to the inability to effectively control CAB- authorized carriers. Should the CAB carriers not be involved in intrastate markets, because of their unwillingness to abide by state regulation, the state would be forced to rely on small companies which would lack the financial stability enjoyed by CAB carriers. The types of aircraft would probably be less modern and public acceptance, initially at least, might be sub- stantially less. ~j~jitsOf State Re~rulatory Control Paradoxically, the single major advantage of exclusive regulation by the State of its air transportation system is the element of control which the State is able to exercise. Theoretically, the power could be absolute -- over the entry and exit of air carriers, fares, rates and schedules. The State can establish, and then enforce, standards and thus insure that appropriate service, re- sponsive to the State's needs, will be provided. Should a carrier's economic life depend entirely upon intrastate traffic, the ad- vantage of State regulation would be greatest because the powgr which could be exerted over the carrier would indeed be real. The experience in California and Texas seems to reflect additional advantages -- to the travelling public -- in th.e form of improved service and lower fares, compared with that which was available 1/ when service was provided exclusively by CAB-certificated airlines.- 1/ Applicable only in the few major intrastate markets in these states. In lesser markets the fares may be quite high. 2-10 PAGENO="0182" 176 The characteristics of intrastate markets in Florida differ great- ly from those of California and Texas. Nevertheless, active state participation in regulating air transportation between its cities is likely to encourage purely~intrastate services in Florida which will be beneficial to Florida air ~ssengers. The Integration Of Federal And State Regulation It is evident from the foregoing discussion that if the State of Florida is to achieve an air transportation system which adequate- ly serves the State's needs, it must rely ~5artially on the CAB and partially on its own regulatory initiatives. The task con- fronting the State, then, is to integrate the regulatory actions of the CAB with its own in such a manner as to achieve optimum re- ~ults. ~`ornplications Qf Dual State-Federal Regulations It has been pointed out earlier that, by implication, the CAB's jurisdiction is limited to interstate air traffic and does not encompass intrastate operations. However, the fact is that much of the traffic which now moves between intrastate points is in teality interstate in character, because passengers continue their journey on connecting flights across state lines. Consequently, the regulation of intrastate air operations is complicated be- cause of the overlapping which exists on the jurisdictional issue. A conflict has existed for most of the period during which federal economic regulation of air transport has existed. Probably the first major jurisdictional question occurred in California, with the introduction of large aircraft, scheduled service by intra- state carriers in 1949. In an article appearing in the California Law Review~/ the need for Congressional review of the inter- relation of federal and state economic jurisdiction over air carriers was emphasized. The author commented that the complexity of regulation arising out of dual jurisdiction, and the attendant confusion, had an important adverse effect on the development of an air transportation system which will meet all needs -- national, regional and local -- adequately. D~spite this and other pleas for clarification, the jurisdiction issue remains unresolved. Robert F. Naris, writing for the 1/ Economic Regulation of Intrastate Air Carriers in California, Marvel £4. Taylor, California Law Review, Fall 1953, Volume 43, No. 3, page 454. 2-11 PAGENO="0183" 177 1/ Journal of Air Law and Commerce in 1973- comments that the language of the Federal Aviation Act of 1958 clearly gives the Federal Aviation Administration power in intrastate aviation with respect to safety matters, but is not so specific on the question of economic regulation.2/ He cites a court decision3! in which the court endorsed the language in the Federal Aviation Act as being a deliberate act on the part of Coneress to differentiate between safety and economic jurisdiction by the Federal Govern- ment. The court reasoned that it was not the intent of Conoress to extend federal jurisdiction in economic regulation, and that there is room for state regulation as well. There are limits, of course, which Mans discusses. He mentioned the case of CAB vs. Fniedkin .~~eronautics, inc.4/ where the carrier had in effect con- cluded interline arrangements with CAB-certificated carriers to carry passengers entering and leaving California. The court held that the transport of these interstate passengers changed the character of the airline's services from intrastate to interstate. Mans pointed out that current Supreme Court interpretation of the "interstate commerce" clause of the Federal Aviation Act would permit Congress to create exclusive federal regulation in all phases of aviation -- economics as well as safety, intrastate as well as interstate. It is Marie' opinion that federal authorIty could be made adequate to handle local as well as national problems, and is needed to assure that a national air transport system will be regulated uniformly. He recommends that Congress amend the Federal Aviation Act to give the Federal Government equal power in both the safety and economic fields. In several of its decisions the CAB has said that the states may regulate "purely intrastate" air operations and that only a "de minimis" amount of interstate traffic would be tolerated. What constitutes a "de minirsis" volume has not been defined, nor has a mechanism for actually identifying and mea~uring such traffic been developed. Nevertheless, the CAB on occasion has exercised jurisdiction, and has been upheld in the courts, if and when it felt that an airline operating wholly within a state is in fact carrying interstate traffic.5/ The CAB has given some guidance 1/ State vs. Federal Regulation of Commercial Aeronautics, Robert F. Hans, Journal of Air Law and Commerce, Autumn 1973. See also Tiptom. Footnote 1, page 2-4. 3/ Texas International Airlines vs. Civil Aeronautics Board, 473 F.2d 1150 (D.C. Cir. 1972). 4/ 246 F.2d 173 (9th Cir. 1957) . 5/ Civil Aeronautics Board vs. Canadian Colonial Airways, Inc., - 41 F Supp. 1006 S.D. N.Y. (1940). 2-12 PAGENO="0184" 178 as to what it expects as a `purely intrastate" operation. In its decision on the application of Southeast Airlines, Inc. in connection with a Florida intrastate operation~ the Board stated: "We note that Southeast represents that the proposed flights will be confined wholly to the airspace over the State of Florida; that the proposed operations will be conducted without any arrangements with interstate carriers for joint, through-plane service; that the service will not be advertised in out-of-state media; and that even if some out-of-state visitors are carried there will be a break in the journey of these passengers, between the flight from another state to Florida and the flight on Southeast. If Southeast's operations are in fact con- ducted in the foregoing manner, carrying no more than a de minig~~p volume of interstate traffic. . . the flights will not constitute air transportation subject to the Board's jurisdiction. "1/2/ The question of state vs. federal regulation of air transoorta- tion is still receiving much official attention, along with the rather basic question of whether regulatory powers of the CAB ~and the Interstate Commerce Commission) should be drastically curtailed (not, however, in favor of state control). A CAB member recently raised the issue of extensive state regulation of interstate carriers which also are engaged in intrastate commerce. In a speech before the Association of Local Transport Airlines, CAB Acting Chairman Richard J. O'Helia exoressed concern that a number of state governments are authorizing large aircraft intra- state operations, usually at fare levels below those found reasonable by the Board for similar interstate operations. He stated that the Board in the past has scrupulously respected the limits of its jurisdiction in the light of its present statutory provisions and urged state governments to present regulatory natters involving intrastate air service to the. CAB for adjudica- tion if a jurisdictional problem arises. If this is not done, OMelia said that "it may be necessary to appeal to the lawmaker to amend the law." Fignificaetlv, Acting Chairman O'Melia pointed out that the crrowth of large aircraft onerations by intrastate carriers in part resulted from decisions by the interstate carriers to abandon cr limit their services in intrastate markets. This left un- tended market opportunities offering substantial economic rewards to the intrastate carriers. 3/ Order 70-7-57, Docket 21864. 2/ It appears here that the Board has applied `dc nininis volume" as a condition rather than as a finding or as satisfaction of a criteria. 2-13 PAGENO="0185" 179 The state-federal jurisdictional conflict appears to have deepened as a result of Mr. O'Melia'S remarks. In a recommendation to the Texas Aeronautics Commission relating to intrastate route awards1! the hearing examiner took the unusual action of attaching a "pro posed Statement of Policy which in part constituted a response to O'Melia. That Statement if adopted, would announce that Texas intends to encourage and develop an independent system, over which it may exercise control, in order to meet the needs of the travel- ing public in Texas. Given the determination of the states to seek.means of assuring adequate air services, for their local traffic, and the existing conflicts in interpretation as to jurisdiction, it appears that full resolution of the dual regulation dilemma is not imminent. The Realities In Florida Notwithstanding any confusion which exists in some areas where joint federal-state regulation is attempted, the realities of the situation in Florida are that combined control offers the best solution if a state air transportation plan is to be implemented, and adequate service provided at reasonable cost. First of all, about half of the Florida markets included in this study are currently receiving service from interstate carriers which meets the standards for adequate service developed in this report. Thus, a substantial base of intrastate operations, which meet Florida's intrastate needs, already exists as provided by interstate carriers. The schedules meet the criteria for service and require no regulatory action or financial support by the State. Secondly, the total number and percentage of interstate passengers estimated to be moving in the markets studied here, is high. Of 4.7 million intrastate passengers, only 2.7 million are local Florida passengers. This means that 2 million, or about 42% of the total passengers moving between Florida points, originate or terminate their journeys outside the State of Florida. Clearly the volume of interstate movements in these markets exceeds de minirsis level by any definition. Thirdly, several routes between pairs of Florida cities are, by virtue of the State's geography and the language of the Federal Aviation Act, actually interstate routes since they use the air- space outside the three-nile limit. While a commuter carrier may operate between such points~/ it would do so under Part 298 1/ See Holloway, footnote 1, page 2-9. 2/ See page 2-5 for list of city-pairs. 2-14 PAGENO="0186" 180 of the CAB regulations and not as an intrastate carrier under contrólof the State. An intrastate carrier using large air- craft could not be regulated by the State between these Florida cities. Finally, even if its legislation is revised to cover all intra- state services, the State of Florida would have little leverage cri CAB-certificated airlines to compel them to respond to demands for adequate service. The intrastate traffic utilizing these carriers is not imoortant enough econonically to persuade the carriers to respond favorably, particularly if the response en- tailed a change which would have an adverse inpact on their interstate services. For example, in 1973 the interstate air- lines carried 26,293 million revenue passenger miles into, out of and within Florida. Of the total, 158 nillion were generated by passengers traveling intrastate -- or about six tenths of one percent. Their revenue earned from intrastate passengers is estimated to be about 1.3 percent of total revenue fron all do- mastic passengers boarding flights in Florida. It is apparent from these facts that dependence solely uoon posi- tive State regulation would not be a realistic alternative in Florida. Consequently, a plan which utilizes the positive features of Federally regulated services, with supplemental services au- thorized by the State, seems to represent the most useful regulatory vehicle. competition And Adequate Service A review of alternatives for obtaining service must consider com- petitive authority as a possibility. One theory of regulation holds that the problems of inadequate service and excessive fares can be solved by authorizing an additional carrier in the market. Another current theory holds that abolition of allr or at least most, regulation to mermit "freedom of entry and exit" and "freedom of fare experimentation" will mromntly achieve abundant service and low fares. Like most sophisticated theories of economics either of these theories might be eminently sound in a specific market at a specific time but as a generality they brush aside or ignore some very important facts. In Florida neither the oresence or absence of competitive authority has assured adequate air service. On the 17 routes recommended by this study there are 75 city pairs where service is inadequate. Seven have no air service, 26 have one carrier authorized, 12 have two carriers authorized and the remaining 30 city pairs are authorized to three or more (uo to seven in one case) carriers with full uninhibited permiasion to compete. Still the service is inadequate and only one carrier ir~ the State has attempted comuetition in rates. That carrier is in financial difficulty. 2-15 PAGENO="0187" 181 The operators of the air service in Florida are undoubtedly reasonably intelligent and clever and have a desire and need to prosper. Their reluctance to join in competitive strugqle in these markets is precisely because the markets ate not large enough to support two or more competitors. The forecasts of this study indicate that very few markets will show dramatic growth as a result of installing adequate service. The profit estimates of the route section show that revenue to be earned from these routes cannot he divided between two or more operators and either of them remain viable. Even the most orofit- able routes must be viewed realistically -- if a competitor enters these markets, his reven:~e comes first from the incumbent carriers' profits and then is reflected in both of their losses. A few of the routes may later be found canable o~ supporting competition but initially it will be fatal to both carriers. Proof of the above reasoning is available in the long history of airline failures in Florida. Without exception every intrastate carrier who has ever operated in Florida has (1) failed, (2) been sold to refinance or (3) is currently in tenuous financial con- dition. Also without exception, they have attempted to connate with the interstate carriers or other intrastate carriers as strong as themselves. The theory that the stronger will survive in an economic struggle does not produce lasting air service; it more easily results in the death of both competitors. Should one survive he doab not necessarily reap the rewards of the victor to recover from the drain of battle, for he may be immediately confronted with a fresh entrepreneur who has not yet lost his backing. A classic demonstration of this type of competition occurred in Florida in recent years. Two well-financed carriers, Shawnee and Executive, entered the State with extensive route systems, using identical aircraft. Their route systems were unregulated and overlapped in critical areas. Each had its own management philosophy but both were aggressive and built considerable following with the public. Over about a four-year period it is reported that one lost $3.5 million and the other up to ~5.O million. At about the mid-point of this period it was apoarent that so much had been lost that the survivor on the routes, if left alone, could not recoup his losses through profits. The final result was the demise of both carriers with the public losing all the service and the backers a significant sum along with their desire to perform a worthwhile public service. The recommendation of this study will reduce competition except in the major city pair markets. This is necessary to resolve the long standing dile~nma of how to obtain adequate service in the lesser markets of the State. It is a simple fact that competition -- or the multiple designation of carriers between 2-16 PAGENO="0188" 182 points -- has failed to produce service. Further, there is no reason to expect that it will produce in the future. The analysis of the plan developed herein shows that a single carrier on any of the 17 routes who provides a minimum of two well-timed daily roundtrips over the route will earn a profit, provided he (1) is free of competition for the local traffic and (2) gets a reasonable share of the connecting and stopover traffic. On every route it appears that splitting the traffic between two or more carriers, w~ether intrastate or CAB-interstate, will result in csrtain losses for the carriers. The impact of the proposed limitations on the interstate carriers is varied but not critical. In fact they can be granted exclusive rights in many markets if they request it. First of all, no re- straint is proposed on any carrier currently meeting the Minimum Standards of Service if the carrier requests the privilege to con- tLnue. Secondly, authority will be given to any present carrier who agrees to meet the Standards and that carrier will have ex- clusive authority. Finally, new carrier authority will be used o;~Zy on those routes where existinq carriers are unwilling to provide the service and on new routes. Thus, the interstate carriers can only lose intrastate traffic in m~rkets whore they are unwilling to provide minimum standard service. Their interstate revenue is not affected in any way ex- ccpt that an intrastate carrier can comoete for connecting and S :opover passengers. In summary, competition as observed in Florida has not produced s:able, adequate intrastate service and has caused well-intentioned Floridians to lose large suns of money in efforts to provide intrastate air service. In contrast, given all of the local traffic and a share of connec- t:~ng traffic on any of the 17 proposed routes, a single carrier who' provides minimum standard service will earn a profit. Divifing that troffic with competitor assures that both operators will' incur losses, reduce service and probably fail. 2-17 PAGENO="0189" 183 CHAPTER 3 AIRCRAFT SELECTION The Current Service Environment Florida's intrastate markets are currently being served by a wide variety of aircraft ranging from single reciprocating engine types to four-engine jet wide bodies. The vast majority of the jet service within the State is provided as a result of intermediate stops on interstate service. The type of aircraft in these markets is dictated by the density of the long-haul market and the equipment operated by the interstate carrier rather than by any consideration of the intrastate traffic demand or route characteristics. These operators primarily require aircraft of a type which cannot be economically operated at the stage lengths and frequencies required to provide adequate intrastate service. The March 15, 1075 Official Airline Guide shows that the eight trunklines and one local service carrier in Florida offered ènly ten entirely intrastate schedules providing four markets with nonstcp roundtrfp service, five markets with one-stop roundtrip service, two markets with two-stop roundtrip, and eight markets with one-way nonstop service. It follows that in. order for Florida to be able to assure adequate air service within the State, smaller types of aircraft must be introduced. Since it is probably unreasonable to expect the long-haul carrier to purchase aircraft to be used only in Florida intrastate service, the State will have to look to the intrastate operators to provide the bulk of the intrastate service. Aircraft Currently Serving lorida Intras Rou The CAB-certificated carriers operate jet aircraft exclusively in Florida markets. The intrastate carriers operate aircraft iangi.ng from small twin-engined aircraft to turbine-powered Lockheed Electras. Table 3-3. indicates the type of aircraft being operated by each of the carriers offering scheauled intra- state service as of March 15, 1975. 3-1 PAGENO="0190" 184 TABLE 3-1 Al RCRAFT USED IN FLORIDA INTRASTATE SERVICE CAB Certificated Carriers Braniff International 13-727, DC-S Delta 13-727, DC-8 Eastern DC-9, 13-727, L-lOll National DC-lO, 13-727, 13-747 Northwest DC-lO - Southern DC-9 Trans World B-727 United DC-lO Commuter Lines and Intrastate Air Florida Lockheed Electra Air Sunshine DC-3 Florida Airlines DC-3 Nonmouth Airlines (Ceased Operation) Southeast Airlines M-404 Marco Island Airway.5 13-404 Sun Airline B-30 Naples Airlines DC-3 Use Of Turbo-Fan (Pure Jet) Aircraft All of the certificated trunklines (with the exception of Eastern Air Lines back-up service on the Air Shuttle) have now converted to jet aircraft and local service carriers are converting to this type of aircraft as quickly as possible, although several have many routes for which the available jets are not suited. In markets which can support a jet the profit potential of the jet exceeds that of other comparable sized aircraft due to the jet's high seat-mile productivity, relative low cost maintenance and passenger appeal. The primary drawbacks to use of jet aircraft on Florida's intra- state routes are the acquisition cost of jet aircraft and the high cost per aircraft mile. Most of Florida's intrastate~ markets cannot provide the number of passengers required to make jet operation economically practical. For example, for an average stage length of 150 miles,. the. 80-passenger DC-9-lO requires 40 passengers just to breakeven on costs. This translates to 58,240 annual passengers in a market receiving minimum service of two roundtrips per day. Only the followir.g markets are forecast~tO exceed this traffic volume (1975): 3-2 PAGENO="0191" 185 Ft. Lauderdale-Tampa Miami-Tallahassee Ft. Myers-Tampa Miami-Tampa Jacksonville-Miami Sarasota-Tampa Jacksonville-Tampa Tallahassee-Tampa Key West-Miami Tampa-P. Palm Beach Miami-Orlando All of the above except Sarasota-Tampa and Tampa-P. Palm Beach are currently adequately served. Sarasota-Tampa is only 41 miles and, therefore, cannot be considered a true jet market. It is unrealistic to expect that an intrastate carrier could compete with the carriers serving the other jet markets. By 1985 traffic is forecasted to exceed the 60,000 level in the following additional markets: Daytona Beach-Miami 88,740 Ft. Lauderdale-Jacksonville 66,790 Ft. Lauderdale-Orlando 174,160 Ft. Lauderdale-Tallahassee 62,400 Ft. Myers-Miami 89,880 Gainesville-Miami 99,080 Jacksonville-Orlando 108,150 Jacksonville--p. Palm Beach 89,650 Marco Island-Miami 101,540 Melbourne-Miami 76,760 Melbourne-Tampa 64,230 Miami-Naples 100,680 Miami-Pensacola 65,440 Miami-Sarasota 124,960 Miami-W. Palm Beach 86,300 Orlando-Tallahassee 107,200 Orlando-Tampa 90,260 Orlando-P. Palm Beach 61,170 Pensacola-Tampa 73,720 Six of the above markets currently have adequate service - predominantly by jet aircraft. All but ~wo have some air service, again, predominantly by jets. This means that an intrastate opera- tor contemplating use of jet aircraft would have to become the dominant carrier in each of the above markets in order to pay for ~ dtrect operating costs. This conclusion presupposes that the a~arketswill require nonstop service which would preclude markets as segments of routes. Of the above markets, ~cola-Tampa are now receiving sor~ie nonstop service - et aircraft. 3-3 PAGENO="0192" 186 Aircraft SeZection Criteria The following aircraft characteristics were used in the routing analysis to select aircraft types: 1. Seating capacity; 2. Block speed; 3. Range; 4. Performance; and, 5. Price. These characteristics were studied to determine a reasonable economic and performance profile of the types of aircraft avail- able to provide air service in Florida. Selection of a "best" aircraft in terms of manufacturer and model, is not intended in this analysis. As discussed previously aircraft types have been selected by reference to traffic volume, service level, and aircraft capacity. Aircraft Seating Carag~~y Competition between manufactureps has resulted in a number of similar-sized aircraft being available at fairly discrete levels of capacity. Rather than debate the exact merits of one aircraft over a very similar one built by a different manufacturer this study uses categories or types of aircraft having approximately the same seating capacity: Type 1 80 seats 2 48 3 28 4 16 Tables 3-2 and 3-3 give operating data and other information on representative aircraft of each type. Only limited data is in- cluded on Type 1 aircraft since they are considered tco large for potential new markets in Florida. 3-4 PAGENO="0193" TABLE 3-2 CHARACTERISTICS OF REPRESENTATIVE AIRCRAFT Hex. Fuel Fuel/ Range Country of MFR Max. Take- Seating Cruise Block Block Con- Avg. (SMJa/ Type of Air- Aircraft Tjrpe ~ Capacit~y1 ~gg~ Tise ~ ~ ~ Power Lo~s. ~o&~o~ (Lbs.) (MPH) (9 150 Miles) (Lbs.) (Lbs.) TYPE 2 Convair 580 57,000 50 325 228 :39 1,408 28.2 895 1.010 Turbo-prop U.S.A. U.S.A. Deflavllland Dash 7 43,500 45 294 224 :40 1.110 24.7 958 1,073 Turbo-prop U.S.A. `England Fairchild-Miller F-227 43,000 50 276 215 :42 1,385 27.7 565 680 Turbo-prop Canada Canada TYPE 3 Douglas DC-3 25,200 28 165 133 1:05 503 18.0 90 205 Piston U.S.A. U.S.A. Mohawk 298 23,810 26 246 192 :47 568 21.8 380 432 Turbo-prop France Canada Short SD 3-30 21,100 30 228 182 :49 605 20.2 133 248 Turbo-prop England Canada TYPE 6 Beech 5-99A 10,725 15 227 211 :43 389 25.9 247 362 Turbo-prop U.S.A. Canada Britten-bream Trislander 9,350 11 175 137 1:05 226 20.5 138 254 Piston England U.S.A. Dellaviliand DILC-6 12,500 19 192 157 :57 529 27.8 224 339 Turbo-prop Canada Canada Swearingen Metro II 12,500 19 294 222 :40 426 22.4 127 242 Turbo-prop U.S.A. U.S.A. 1/ These are common configurations. Other confi~gurations with either higher or lower density are possible. 2/ Range calculationswere mmdc on a direct comparative basis with equal loads assigned to aircraft in each type of equipment. Type 2 - 45 seats Type 3 - 26 seats Type 4 - 15 seats IFR ranges assume a distance to alternate of 115 SM at maximum cruise speed and :45 hold. VFR assumes :45 reserves. PAGENO="0194" 7~ircraft Type Type l-8OSeat DoucTias DC-9-lO, Bceing 737 Lockheed 188 (Electra) Fokker F-28 Type 2 - 48 Seat Fairchild Miller F-27 Fairchild Miller F-227 Convair 580 DeHavilland Dash 7* FN Fokker 614* MS 748 Martin 404 Prop-jet Pron-jet Prop-jet Prop-jet Turbo-fan Prop-jet Reciprocating The above list includes aircraft which are either currently available or programmed to be available within 24 months. The future aircraft are indicated with an asterisk. 1/ Typical seating density for airline operations. 2/ ERR - Signifies that there is no range restriction on stage lengths which will be flown in Florida intrastate service. 3/ 115 statute miles to alternate; :45 hold. 188 TABLE 3-3 AT RCRAFTCIIARACTERISTtCS Max. Payload 11 Range Seats- W/IFP. Reser~7es~ (Statute ~ilesT Power Turbo-fan Prom-jet Turbo- fan UNR~ UNR UNR ERR ERR ERR ERR UNR ERR ERR 80 87 75 48 52 52 50 44 40 40 30 26 32 26 15 15 19 11 ~pe 3 - 28 Seat Short SD 3_30* Nord-262 (M_298)* YAX4O Douglas DC-3 ~ 4 - 16 Seat Beech B-99A DeHavilland DHC-6 Swearingen Metro II Britten-Norman Trislander 133 Prop-jet 380 Prop-jet ERR Turbo-fan 90 Reciprocating 247 Prop-jet 224 Prop-jet 127 Prop-jet 138 Reciprocating 3-6 PAGENO="0195" 189 3loc~' Speed Curves The speed of.an aircraft over its assigned route (block speed) is a primary determinant of the economics of that route. Block time is the time elapsing between departure from the gate (blocks) at one airport and arrival at the parking position (blocks) at another. Block speed is the average speed of the aircraft during thia time. Block speed is not solely an aircraft capability - it is controlled by many factors, including airport congestion, availability of navigational aides, and the mix of aircraft using an airport. Other significant characteristics of the flight itself are flight altitude, desired speed versus fuel economy trade-off, aircraft loading, pilot training and technique, and weather. Any or all ~of the above considerations bear to some degree on variations in block time (speed) over a given flight segment. For this reason, an empirical speed curve approach rather than a flight stage time approach was used in this study to relate block speed ~to stage length. The data used to develop the curve included reports by the certificated carriers to the Civil Aeronautics Board, manufacturer's data, carriers' route opera- tions analysis and personal interviews with carrier operating personnel. Table 3-4 shows the block speeds, by aircraft type, reported to the CAB for the year ended December 31, 1973. Table 3-5 gives data on aircraft not used by CAB carriers and is derived from manufacturers and commuter operator sources for block speeds at 150 mile stage length. These speeds differ from the speed in Table 3-2 because of different taxiing times used by SARC and the manufacturers. 3-7 PAGENO="0196" 190 TABLE 3-4 AIRCRAFT BLOCK SPEED ~ND AVERA(E STAGE LENGTH Average Block Stage Aircraft Speed ~g~gth (SI~Y Convair 580 Allegheny 198 147 Frontier 206 124 North Central 181 100 Convair 600 Texas International 184 131 DHC-6 (Twin Otter) Frontier 140 90 Ozark (1972) 148 175 F-27/227 Airwest 148 175 Mohawk (1972) 168 128 Ozark * 160 102 Piedmont 173 110 Martin 404 Southern 147 100 Word 262 Allegheny (1970) 153 96 Do~g1as DC-3 Central (1966) 133 94 Frontier (1966) 133 87 North Central (1966) 128 90 Ozark (1966) 118 88 Southern (1966) 119 83 Trans-Texas (1966) 140 111 West Coast (1966) 120 82 SOURCE: Aircraft Operating Cost and-Performance Report, Civil Aeronautics Board, June, 1974. 3-8 PAGENO="0197" Aircraft Type TABLE 3-5 Beech B-99 Swearingen Metro II DeHavilland DHC-6 DeHavilland Dash 7 Britten-Norman Trislander TABLE 3-6 Block Speed (mph) 219 208 1/ 138 230 135 2/ Fairchild F-227 DeHavilland Dash 7 Convair 580 Short SD-3-30 Mohawk 298 (Nord 262) Douglas DC-3 Beech B-99A DeHavilland DHC-6 Britten-Norman Trislander Swearingen Metro II -52 + 127 log x -50 + 122 log x -55 + 130 log x -55 + 109 log x -56 + 114 log x -80 + 100 log x -54 + 122 log x -17+ 8Ologx -20 + 72 log x -50 + 125 log x 191 BLOCK SPEED OF AIRCRAFT NOT USED BY CAB CARRIERS A review of the available empirical and published information led to the adoption of the block speed fundtions shown in Table 3-6. BLOCK SPEED FUNCTIONS (x = stage length in statute miles) NOTE: These functions are to be applied only in a range of stage lengths from 50 through 350 statute miles. 1/ Composite of carrier data for actual operation including into LaGuardia in New York City and O'Hare in Chicago. Operation into high density areas will result in lower block speeds than would ordinarily he expected. 2/ At 100 mile stage length (from operator experience). 3-9 PAGENO="0198" 192 Take-Off Pformonce All cities considered for scheduled service within the scope.of this study have airports capable of handling aircraft un to, but not necessarily including, the Lockheed Electra without im~osing any fuel and/or payload restrictions on the aircraft's operation under density altitude conditions likely to be encountered in the State. The Electra and DC-9 type aircraft reauire a minimum of 5,400 ft. and 6,000 ft. of runway, respectively, to avoid weicht restrictions at 90~F. AirDorts, included in this study which cannot presently meet this criteria are: Ft. Walton Beach 3,400 ft. Key West 4,800 ft. Marathon 5,000 ft. Naples 5,000 ft. Ocala 5,000 ft. Punta Gorda 5,000 ft. DC-9 service at Ft. Walton Beach is provided by Southern at Eglin AFB through special arrangement with the US1~Y. Destin Airoort does not have sufficient runway length for either Tyne one or Type two aircraft with the exception of the DHC-7 under STOL performance regulations. Performance Coop e tition Engineering state-of-the-art and cost considerations also tend to minimize performance differentials between competitive types of aircraft. Each manufacturer has access to comparable construction skills and design talent and pays essentially the same for its raw materials. There is even a remarkable degree of commonality in power plants. Competition also requires thataircr~ft comoeting in a certain type of market (i.e. short-haul, low density) pro- vide basically similar performance. Variations can be expected in the emphasis of trade-of fs between standard seating capacity and fuel capacity or speed vs. short-field performance. There is really only one major performance difference between similar sized aircraft in the relatively low density short-haul market. This occurs between the short take-off/landing (STOL) designed aircraft and more conventional designs. Perhaps the best example of this difference is the four-engined DeMavilland DEC-7 which is currently undergoing flight tests and has been ordered by a number of small airlines. This aircraft is designed to lift 50 passengers out of a 2,000 ft. semi-prepared strip. This type of capability will cost about 30% more than a conventionally perform- ing aircraft that may require twice the runway length to lift a comparable load. Clearly, there are operational environments in 3-10 PAGENO="0199" 193 which such a capability would justify a premium price. However, in Florida's current air service pattern, there is no need for this type of performance. In the future, some situations nay arise .in which city-center to city-center air service nay become feasible but this will be deferred at least until a number of feasibility projects currently underway have been evaluated and proper airborne and ground-based navigation equipment is cornmer- cially available. Price Competition Froina practical standpoint, the major factor in aircraft selection, from the operator's viewpoint, is price. Because of the stringent airworthiness regulations of the FAA aircraft which have been used in airline service and have a current air- worthiness certificate are perfectly feasible choices for service. The -class&c example of this is the DC-3 which has seen almost 40 years of service and is still the only currently available air- craft in the 21-40 seat category. A DC-3 with a current air carrier license costs in the neighborhood of $lOO,000-$l25,000 ($4,100 per seat). Its two turbine-powered competitors the Nord 262 (Mohawk 298) and the Short Sb3-30 will be priced at over $1.5 million ($50,000-$57,000 per seat). While it is true that the DC-3 can't go on forever, a price differential factor of 10 makes the operator think about hanging on a bit longer, particularly when the direct operating costs of the DC-3 are still lower than the competition. As aircraft increase in size, the dollar difference between used and new aircraft gets even greater in the Type 2 category (48 seats). The 50 seat DHC-7 will be priced at approximately $3.0 million ($60,000 per~ seat). A Convair 580, licensed for airline service currently sells for approximately $700,000 ($14,000 per seat). Both of these aircraft are turbine-powered with roughly the same speed and carrying capacity. It must be noted that an operator can buy a 50 seat Convair for less tha one-half the price of a new 28 seat aircraft. Further, the used Convair 580 can be acquired for approximately the same price as a new 15-19 place turbine-powered aircraft. At the small end of the aircraft size scale, there is much less price difference to choose between in modern turbine-powered aircraft. These prices range from something over $600,000 for the 15 passenger Beech B-99 ($40,OdO per seat) and the 19-place DHC-6 (Twin Otter) ($32,000 per seat) to over $850,000 for the 19-place Swearingen Metro ($45,000 per seat). The only piston- powered modern aircraft in a similar capacity category is the 16-place Britten-Norman Trislander, a three engine aircraft manufactured in England, certificated by the FAA, and currently used by several airlines world wide. This aircraft is priced at approximately $325,000 ($20,000 per seat). 3-11 PAGENO="0200" 194 Aircraft Used For Anslysis For purposes of evaluating the financial results of the e'xamole route systems, it was necessary to select a reoresentative aircraft type for each size category. The Convair 580, Mohawk 298 and the Beech 99A were selected as representative of Type 2, Type 3 and Type 4 aircraft, respectively. The following sections relate these aircraft to others in their class. TApe 2 Specific operating environments racy require aircraft of non-standard operating characteristics. However, there are no such circumstances foreseen in providing an adequate level of intrastate air service in Florida. The Convair 580 and the Fairchild F-227 have similar operating characteristics and seating. There is no implication in the use of the Convair 580 as an example in this study that an operator should not consider use of an F-227 as an alternative, particularly if the acquisition cost was advantageous. It should be noted that both of these aircraft have had considerable service and require continuous inspection and structural upgrading such as a program currently unde~.iay on the CV-580 aircraft owned by Allegheny Airlines. It must also be pointed out that CV-580 burns a relatively large amount of fuel per mile and therefore will be more subject to increases in direct operating costs as fuel prices escalate. The DeHavilland DHC-7 (Dash 7) is scheduled for introduction into airline service early in 1977. This four-engine, turbine-powered aircraft has been designed to carry 50 passengers and to operate out of a 2,000 ft. air strip at gross loads. It uses 5-bladed props which significantly reduce noise levels bothinside and outside the aircraft. However, the high cost of the~aircraft, in excess of $3.5 million, will probably make it unattractive in a market where turbine-powered aircraft of similar capacity and slightly higher speed are available for approximately 25% of the cost, and where STOL capability is not essential. Type3 Since both the Short SC3-30 and the Mohawk 2981" are foreign built and have yet to be put into service in the U.S., a meaningful comparison of their operational characteristics is impossible. 1/ The Mohawk 298 is the Nord 262 fitted with an American engine. 3-12 PAGENO="0201" 195 At this writing, Allegheny Airlines has announced an intention to go ahead with integration of the Mohawk 298 into its service pattern to serve small cities. Commercial availability to other buyers in the near future is not yet certain. If it is put into ppodüction with sales and support effort undertaken by a U.S. firm it may have a competitive sales edge. This advantage might be offset by the Short's slightly greater capacity which gives it a similar seat-mile production capability. ` The Nord 262 is also a foreign airframe, which has been re-engined to use the same PT6A-45 engine used on' the Short SD3-30. If the Mohawk is pro- duced the Nord will probably not be marketed in the U.S. Thus the comparison ends up being primarily between the Mohawk and the Short and as a practical matter it is difficult to identify a quantitative difference between the two aircraft. From a strictly present operating cost standpoint, the obvious choice for the Type 3 aircraft is the DC-3. In addition to low acquisition cost, it provides greater passenger comfort than the smaller turbine-powered aircraft of similar seating capacity. The increased speed of the turbine-powered aircraft makes it possible for them to achieve approximately the same cost/available seat-mile as the DC-3. However, on relatively low-density routes where there are many empty seats, the relatively low hourly direct operating cast of the DC-3 is very attractive. In spite of the present economic advantages of the DC-3, it is felt that commitment to that aircraft as a standard of service on a majority of Florida's intrastate routes would be unacceptable to the majority of the traveling public, would not contribute to a modern and progressive image of the service, and would, eventually, become the least economic alternative. From a practical standpoint, it should be noted that the DC-3 is on an annual waiver status with the FAA where the use of the aircraft commercially is subject to annual review and revocation. Z'spg 4 The various aircraft in the Type 4 category also offer their own advantages~ The I3eech 99A has been used, with varying degrees of success, by many commuters and several of the local service carriers. The 5-99 is an outarowth of aircraft desiqrted for business use and, initially, was subject to difficulties in systems which were not dusigned for the continuous use to which they were subjected in airline use. Effective manufacturer support was also a problem at the outset. Most of these problems seem to have been worked out. The aircraft i,s fast. Os stage lengths of over 100 miles, this speed advantage is significant. The load carrying capacity of the aircraft is rDlatively limited and, at best, cannot exceed 15 passengers. A full load of passengers limits the aircraft's IFR range to less than 250 miles. 3-13 PAGENO="0202" 196 The DHC-6 (Twin Otter) has often been considered as the alternative to the Beech 99A. The choice of the DHC-6 is generally based on its greater load carrying capability (19 passengers with IFRrange of tess than 100 miles). The aircraft also has a considerably greater short-field capability than any other aircraft in its class. This capability is, however, of negligible value in the subject service. The Twin Otter is significantly.slower than other turbine-powered aircraft in its class. This results in a higher cost per available seat mile and a lower number of plane miles per unit of time (i.e. more aircraft would be required to produce the same amount of capacity per unit of. time). Another aircraft which is finding considerable acceptance among commuter operators is the turbine-powered 19 passenger Swearingen Metro II. This aircraft is somewhat faster than other aircraft in the class and therefore, is able to achieve high seat mile productivity. A major deterrent to acquiring the aircraft is the purchase price which is well over $800,000. However, an operator contemplating upgrading a fleet of 9-13 place aircraft might well prefer to pay the extra $200,000 (over a Beech 99A or Twin Otter) for the increase in speed and capacity instead of having to pay over $1.5 million to get 7-11 more seats and less speed in the 11-298 and the Short SD3-30 respectively. Passenger accornnlodations in the Metro are roughly comparable to those in the Beech 99A and Twin Otter but are not as comfortable as those in the Type 3 aircraft. The foregoing comparative descriptions are intended to present a non-technical analysis of some of the pertinent characteristics of representative aircraft which are candidates to be operated over Florida's intrastate routes. Specific technical comparative evaluations can only be made by operating personnel of airlines in specific operating environments. 3-14 PAGENO="0203" 197 CHAPTER 4 COSTING OF AIR SERVICE The cost of scheduled air service is usually stated as direct and indirect expenses. Direct costs are those attributable to the operation of the aircraft, including such items as crew costs, fuel', maintenance and depreciation. Most of these costs are developed and quoted in terms of either flight hour or block hour.l/ Some direct costs -- such as depreciation and insurance -- tend Eo be fixed on an annual basis and, therefore, when stated as a block hour unit will vary with the annual utilization of the aircraft. Indirect expenses are those related to the handling of aircraft and traffic on the ground as well as in the air. In addition, general overhead expense such as accounting and administration are considered indirect expenses. These costs are not directly attributable to the operation of an aircraft. While all costs are usually broken down by individual function, indirect costs are often expressed, particularly by commuter carriers, as a percentage of direct costs. Experience indicates that a sig- nificant correlation exists between direct and indirect costs. The level of operating costs for similar aircraft can vary considerably between carriers depending on the characteristics of the service provided, particularly the average length of hop be~~aen stops and the rate of utilization of the aircraft in the fleet. Traffic density on the system can be another factor contributing to the type of operation required and resulting costs of providing service. Expenses also vary between classes of carrier, i.e.,'certificated local service and trunkline carriers have experienced higher cost levels than commuter air- lines or intrastate carriers. The costs used in this study for intrastate operations are all of the costs incurred and assignable to a route. These are `fully allocated costs" and are appropriate to this analysis. Any discussion of the cost of air service becomes involved with the priilosophy of costing and about the applicability of "fully allocated" or "added costs." Such a discussion is appropriate to certain operations in Florida. 1/ Block hour - the time interval from departure from the gate (blocks) at one airport to the parked position (blocks) at the next airport of landing. * Flight time - the time interval from the start of the take- off roll at one airport to the touchdown of the wheels on the runway at the ne~:t airport of landing. 4-1 PAGENO="0204" 198 While this study adheres to a full cost philosophy, it would be acceptable to apply the added costs theory to a great deal of the present services of the interstate carriers in Florida. The latter has been described by one airline economist as the "anyhow theory" of costing, i.e., `Since the flight would go there anyhow it doesn't cost anything." Fcr example, Eastern's service Miami- Gainesville-Atlanta is operated solely to serve Gainesville (there are many nonstop flights between Miami and Atlanta) so it is obvious that the full cost of the flight is assignable to Gainesville. On the other hand, a groat many flights are flown between several Florida-cities and Miami in order to return - flight crews to their base at Miami and to get aircraft in and out of the maintenance bases at Miami -- the airplane would go "anyhow" -- so any service it performs on the way is at very little cost. By the same token, it should be acceptable to hold that most of the intrastate flight legs of interstate flights are not flown for the local intrastate traffic they carry and would continue to fly exactly the same routing if denied that intrastate traffic. Therefore the intrastate revenue can be viewed as a bonus since little cost can be allocated against it. For example, Braniff's flight Ft. Lauderdale-Tampa-Dallas would not be terminated if it were denied intrastate revenue between the Florida cities. The cost of flying the flight between Ft. Lauderdale and Tampa must properly be related to the revenue received at Ft. Lauderdale -- most of which is Ft. Lauderdale-Dallas revenue. - The costs shown in Table 4-1 have been developed for this study as representative of costs for operating type 2, 3 and 4 aircraft in intrastate service. These are estimates prepared for this study and do not represent any particular carrier's operation. For the purposes used here the relative values of one aircraft to the others nay be more important than the le~iel of the costs. Aircraft Direct Operating Costs A basic task in choosing an aircraft for a proposed service. -is to select the lowest cost alternative from among those aircraft offering sufficient capacity to accommodate the available traffic. In othe~ words the aircraft which requires the smallest number of passengers to cover operating costs. It is a truism that small aircraft have lower operating cost per mile than large aircraft. It is also true that large air- craft generally have lower seat-mile costs than small aircraft. However, when traffic is relatively low, the significant measure of unit costs is the cost per aircraft-nile since on a large aircraft most of the seats will be empty but the cost of moving - the aircraft will not be greatly affected. - 4-2 PAGENO="0205" TAStE 4-1 ESTIMATED 1975 SLOCK TOUR COSTS FOR Type- 2 2 2 3 3 3 4 4 Nord 262/ Short Aircraft - F-27 CV-580 Dash 7 M-298 DC-3 SD3-30 B-99 Metro Direct Operating Costa (DCC) Crew $ 31 $ 31 $ 31 $ 28 $ 28 $ 28 $ 25 $ 25 reel 96 122 107 37 41 37 33 33 Insurance 10 11 48 24 1 24 10 14 Flying $137' $164 $186 $ 89 $ 70 S 89 $ 68 5 72 Isintonance 60 75 65 45 40 40 25 30 B~rdcn 24 30 26 18 16 16 10 12 Flying & Maintenance $221 $269 $277 $152 $128 $145 $103 $114 Deprcciaticn 49 17 166 58 11 58 25 33 Total DOC $270 $326 $393 $210 $137 $203 $128 $147 Indirect Operating Costs 99 121 125 68 57 65 46 51 Total Operating Coats (TOO). $369 $447 $518 $278 $194 $269 $174 $199 Miles Per Block Hour 224 228 215 192 138 182 211 222 S Per Tile - DCC $1.21 $1.43 $1.83 $1.09 $ .99 $1.12 $.6l $.66 - TOC 1.65 1.96 2.41 1.45 1.41 1.47 .82 .89 Available Passenger Se~ts 40 50 50 26 28 30 15 19 TOC Per Available Seat Mile 4.1$ 3.9$ 4.8$ 5.66 5.06 4.96 5.56 4.76 Cost ($000)/Life In Years! $600/S/ $70015! $3000/10! $l500/1O/ $75/3/ $1500/10/ $650/10/ $850/1O/ Residual Value (5) 10 10 15 15 0 15 15 15 Breakeven 9 156 Yield Passengers 10.98 13.0 16.0 9.65 9.37 9.8 5.5 5.9 Load Factor 27.5 32.7 32.1 37.1 33.5 32.7 36.7 31.3 1/ See basis of cost by account on following page of this table. PAGENO="0206" 200 TABLE 4-1. (Continued) OPEFJ~TING COST ASSU~1PTIOES Direct Cost Crew - 2 man crew on all aircraft. 800 hours annual utilisation. Typo 2 - $25,000 par crewannually - $31 per block hour. S rype 3 - $22., 500 nec crew annually - $28 per block hour. Type 4 - $20,000 per crew annually - $25 per block hour. S Fuel - experienced consumption levels at 37~/gal. 1 for turbine fuel and 60~/ga1. for gasoline.- Insurance - 3.5% of aircraft cost. Maintenance - experience of commuter operators where available on aircraft currently being flown. Additional input of local service cost levels for similar equipment. From the more abun- dant data for Type 4 equipment utilized by commuter carriers, allowance was made for the more complicated systems and increased work required on the larger, heavier aircraft S in Types 2 and 3. Maintenance Burden - 40% of direct maintenance. Based on commuter experience combined with local carrier results for like aircraft. Depreciation - estimated cost of aircraft in the present market spread ovar a realistic useable life with allowance for some residual value if deemed appropriate. Assumed Life- Residual Type Purchase Years _________ S 2 Used 5 10 3 New 10 15 3 Used 3 0 4 New 10 15 1/ Cost of jet fuel to this class of carrier in Miami was reported - in May 1975 to be about 32 cents per gallon. 4-4 PAGENO="0207" 201 TPBLE 4-1 (Continued) Indirect Costs Calculated at 45% of direct costs excluding depreciation. Based on commuters experience adjusted for increased fuel prices. ()perstiflgj~CtOr5 Utilization - 2200 hours annually, based on about 7 hours daily assuming a 6 day per week operation, or 6 hours per day on a 7 day operation. Block Speeds - derived from operating data for each aircraft over a 150 mile stage length. 4-5 PAGENO="0208" 202 1/ The CAB has expressed this cost relationship well:- "In the vast every new transvcrt aircraft has been larger than one it rev laced and in rest instances it has been faster. These two facts are associated with the expression of airline econcry in terns of cost per seat nile or per ton nile. By building larger end faster aircraft it has always been possible to reduce tite cost of producing a seat mile or a ton rile of capacity, and it seers that higher speed has permitted larger sise without economic penai~ in su~conic aircraft. However, in decline with the short- haul, low traffic routes we have a situation where high speed cannot he realized because of the short distance flown at cruising speed and where larger size is not desirable because the capacity is seldom used. Indeed, where only one or two daily round trip flights are operated, the public will usually be better served with added flights rather than added size of aircraft when more capacity is needed. Far these reasons we are more interested in the cost per plane mile than in the cost per available seat mile or ton mile." The type of operating entity is also an influence on operating costs. In general, commuter carriers have experienced lower direct and indirect operating costs than have local service carriers operating the sane equipment over similar routes. Similarly, local service carriers have experienced proportionally lower indirect costs operating smaller equipment than when operating large equipment. Relationship Of Aircraft Size To Direct Operating Cost Comparability in cost data is difficult to establish since commuter and intrastate carriers are under no obligation to report financial data in a manner comparable to that required of CAB-certificated carriers. Nevertheless a detailed search of CAB Forts 41 reports, formal pleadings before the Board, projections by aircraft manu- facturers, proprietary information supplied to SARC by several carriers and the trade press have provided an adequate data base from which to draw reasonable cost estimates and conclusions. It is obvious that smaller aircraft such as the Beech 99 and the DeHavillandDHC-6 (Twin Otter) can be operated at significantly lQwer direct aircraft-mile costs than can the larger turbo-prop and turbo-fan equipment used by the certificated carriers. 2/ 1/ Report to the President on the Airline Subsidy Reduôtion Program, June 30, 1963. - 2/ See Table 4-1 for characteristics of these aircraft. 4-6 PAGENO="0209" 203 Typically (based on 1973 reported data), the cost,of operating Convair 580 and Fairchild-Hiller F227 equipment over an average* stage length of 120 miles was $1.60 per aircraft mile (exclusive of depreciation) while the cost of operating a Beech 99 over thern same stage length (with comparable utilization) could be expected to be approximately $0.50 (again, exclusive of depreciation). Most of the reasons for the lesser direct cost of the small aircraft are apparent. Maintenance is less complex and fuel consumption is approximately one-third as much. Speed and weight of the aircraft can be shown to directly affect the crew cost. Wage rates of airline crew members have historically been related to these two aircraft characteristics. This difference in crew cost within a single airline can amount to as much as 40% between crew cost for the large turbo-prop and the smaller aircraft. The extent to which this is a factor in direct cost is, of course, a function of the type of employment contract an operator has with his employees. - Depreciation is a very important element of direct cost. The capital required for aircraft is a paramount factor in most cônimuter and intrastate airlines as it is with all airlines. The new cost of the large turbo-prop aircraft being operated by the local service carrier ranged from close to $1 million to well over $1.5 million. ~On today's market a used zero time Convair 580 can be purchased - for approximately $700,000 and F-227's for as little as $400,000. Similarly, low time (licensed for airline operation) DC-3's, while relatively scarce, can be puchased for less than $100,000. New Beech 99's and DHC-6's cost in the neighborhood of $600,000. New generation medium-sized turbo-prop aircraft as exemplified by the DeHavilland DHC-7 (48 seats), Short 3-30. (30 seats) and Nord 262/M298 (27 seats) are expected to cost $3 million, $1.5 million and $1.5 million respectively. It is clear that depreciation expense (i.e. initial investment) becomes a major consideration in sele~tion of aircraft. For this reason Table 4-1 is presented displaying direct operating costs net of depreciation along with the incremental cost of depreciation at current aircraft acquisition costs.1/ Relationships Of Cormuter Air2ine DCC and Certificated Carrier DOC Experience has shown that the commuter carriers are able to operate smaller aircraft at lower cost than are the certificated carriers. There are only lir~ited examples available for the comparison of operating costs between commuter type carriers and certificated 1,' When aircraft are leased rather than owned this cost will appear as lease expense. 4-7 28-911 0 - 78 - 14 PAGENO="0210" 204 carriers using the same equipment. The most recent example is that of the DHC-6 Twin Otter. In their 1973 report to the CAB, Frontier reported a DOC of $1.21 per aircraft mile. Although the 1974 figures are not yet published, it is likely that this cost will have increased. Pilgrim Airlines, in the trade press, indi- cates that their total hourly direct cost for 1974 was $89.42. This translates to a cost per aircraft mile of $.64. The CAB in its~1972 study, "Service to Small Communities" has the following to say on the subject of variations in cost levels between commuter operation and certificated carriers. - "Apart from the Allegheny Commuter arperience, all other sources report direct orerating costs for ccmm~ter carriers usina 3-99 equi~menv in the narrow rance of 74-87 cents per aircraft mile... In conrrarison with the cast rsroes of 45 cents to 65 cents par aircraft mileS which would appear to include the mc~Jority of the commuter carriers3 the certificated carriers could be expected to experience costs ranging from 25% to 100% greater. Crew Cost The greatest variance in costs between local service carriers and commuter carriers is in the area of crew costs. In general, crew costs account for roughly 25% to 30% of total direct aircraft operating cost. In 1973, the last full year available for which certificated carrier costs have been published, crew cost for the certificated carriers on turbo-prop aircraft averaged approximately 30% of total direct cost. The comparable figure for turbo-fan equipment was approximately 25%. If depreciation is taken out of DOC these percentages become approximately 36% for both turbo-fan and turbo-prop. Trunkline carriers' block hour crew costs tend to run about 20% higher than for local service carriers. In the case of the Boeing 737 the cost is more than 50% higher. (See Table 4-3). As a percent of DOC (ex depreciation) the trunks' crew costs tend to run 6% to 7% higher than do local service carriers' crew costs. Interviews with several commuter carriers indicate that their crew costs tended to run between 20% and 22% of total DOC (less depreciation)1/ and are less than one-half the crew costs of the local service carriers operating similar equipment. The primary reason f or the difference in crew cost between the certificated carriers and the commuter carriers is the fact that 1/ The ratios used here are based on costs before the advent of the fuel price increases now in effect. As seen in Table .4-6 - the percent crew cost is of total has been greatly reduced by the increase in fuel cost. Crew costs have not declined. 4-8 PAGENO="0211" 205 commuter airline crews are relatively free from unionization. The strength of the uniont s influence on crew costs is attributable to a number of characteristics of certificated carriers which are not generally found in commuter-type carriers. The most obvious of these is the fact that the unions have had much longer to organize the flight crews on certificated carriers. Other important in- fluences include the CAB certificate which assures the permanency of the company which in turn supports a greater conpany career- orientation in the certificated carriers; relative freedom from the threat of job loss from company failure (such a failure has happened seldom and labor protective contract provisions have been imposed in the resultant merger or acquisition); and the impossible taskof obtaining substitute or replacement qualified pilots with which to combat a work stoppage. Union strength in the certificated carriers and its influences on operating cost in two areas in particular have caused abandonment of at least two experiments by local service carriers to operate small aircraft on low density routes. It has also been a direct influence on the decision by other companies not to experiment with small aircraft at all. Several of the local carriers' labor contracts have so called "scope Clauses" which guarantee to the pilots that their jobs will not be jeopardized by management trans- ferring some of a carrier's routes to another operator. ~nother major influence of a union pilot contract is the requirement for certain minimum salaries for captains regardless of aircraft type. In practice, this provision means that a crew on a Beech 99 will have to be paid at rates considerably higher jn proportion to available revenue seat miles than is the crew for larger aircraft. On the other hand, the commuter carriers, in general, do not hold a certificate and they can be and have been put out of business by the lack of sufficient business or by more efficient (lower cost) competition (land or air). Therefore, the smaller operator cannot economically tolerate the institutionalizing that is possible in a more permanent, mature regulated environment. However, for the very reasons stated above, as a carrier (or industry) natures and achieves route protection and, to a lesser degree, rate protection, it is likely that wages and other costs will rise correspondingly. The commuter carriers jr Florida have enjoyed a situation which night be envied by operators in some other states. A great many of the senior crew members in Florida commuters airlines are retired Air Force or Navy pilots who, because of age or their own disposition, are not employable by the certificated carriers. They want to live in Florida, own homes in Florida, are often part of the community and -- they want to fly. Employment by a commuter airline at a "reasonable" wage in addition to service related retirement benefits provides a very acceptable income where they want to live. The arrangement is good for both the employer and the employee. 4-9 PAGENO="0212" 206 A. similar situation has provided maintenance personnel in some communities in Florida while they are scarce in others. Fuel And Oi?~ Costs Through the early part of 1973 fuel costs represented approximately 30%, 13%, 17% and 10% respectively of IYOC (less depreciation) for 2-~engine turbo-fan, large turbo-prop, 2-engine piston and small turbo-prop aircraft. Since that time, howeverr fuel costs have risen dramatically. During the 19-month period from July 1973 through February 1975 fuel costs for the trunklines increased more than 115%. These carriers paid an average of 12.291 cents per gallon in July 1973 compared to 26.431 cents in February 1975. The comparative increase for local service carriers was approxi- mately l05%.1/ In terms of aircraft operating cost this increase translates to approximately $120, $46, $40, and $14 per hour each for 2-engine turbo-fan, 2-engine large turbo-prop, 2-engine large piston and 2-engine small turbo-prop respectively. In spite of the great increases, across the board, in.fuel prices,. the fact remains that the large carrier, being able to provide the promise of large volume purchases, is able to negotiate more ad- vantageous prices. For instance, the Allegheny Commuter system which operates in an otherwise high cost environment, is able to enjoy a comparatively low fuel cost because of being able to take advantage of cooperative buying with the affiliated airline. According to commuter carrier reports in Hay, 1975 the cost of jet fuel in Florida was approximately 32~/gallon. Maintenance Costs Historically aircraft maintenance costs represent roughly the sane proportion of total direct operating costs as have crew costs. Table 4-2 displays the reported maintenance costs of certificated carriers using some of the types of aircraft appropriate for service on Florida's intrastate pattern. About the only relatively firm conclusion that can be drawn from the data in Table 4-2 is that maintenance costs for turbo-fan equipment represent .a significantly lower proportion of total DOC than do maintenance costs on turbo-prop or piston-engine equipment. 1/ A few of these carriers were on long tern contracts which assured a lower fuel price. These contracts have now expired and new contracts carry escalation clauses to pass on price increases. 4-10 PAGENO="0213" 207 TABLE 4-2 BLOCK HOUR MAINTENANCE COST COMPARISON (1973) * Type of Maintenance Aircraft Trunk Local Burden Trunk Local 85.23 63.58 57.83 84.06 72.99 69.21 99.02 94.59 98.05 87.40 83.86 77.55 104.13 81.93 38.09 34.00 42.27 39.25 65.44 40.61 44.92 46.75 42.73 15.52 DC-9-l0 DC-9-30 Boeing .737 CV- 580 F- 27 F-227 CV- 600 M-~ 404 DHC-6 DC-9-10 DC-9-30 Boeing 737 CV- 580 CV- 600 F- 27 F-227 N- 404 DHC-6 Total Trunk Local 169.29 133.02 136.57 136.86 127.03 137.30 - 152.84 - 124.47 - 122.47 - 150.88 - . 124.66 - 53.91 - Ratio 1.19 1.14 1.57 TABLE 4-3 SLOCK HOUR CREW COST COMPARISON (1973) Trunk' 153.07 160. 69 209.24 Local 128.26 141.41 132.82 111.05 88.51 110.29 89.74 67.67 64.69 Source: Aircraft Operating Cost and Performance Report, Civil Aeronautics Board, June 1974. 4-11 PAGENO="0214" 208 It is difficult, on the basis of sparse available data, to draw a firm quantitative conclusion as to the relative economy of certificated carrier maintenance costs and those incurred by commuter carriers. However, it can be concluded reasonably that the costs of a commuter carriet are lower to some degree.1/ This conclusion is based on recognition of the following: 1. The certificated carriers, under Part 121 of the Federal Air Regulations, (FAR) are subject to more stringunt F~ rcc~uiations with regard to maintenance than are those commuters under FAR Part 135. 2. ~Thewage levels are generally higher for the certificated carriers due primarily to unionization. 3. Maintenance burden - that cost category which includes costs of hangar space, parts inventory and the maintenance department overhead directly attributable to aircraft maintenance - is likely to be higher for the facilities and complicated specialized equipment of the certificated carriers than for commuter operations. 4. There is relatively lower efficiency, in terms of productivity, of maintenance of small air- craft by a certificated carrier whose primary profit incentive requires concentration on `~"th~intenance of larger equipment operated over longer-haul higher-density routes. An example of this type of problem is the following quote from a shop supervisor report on the costly operation of Beech 99 aircraft by Texas International. " Because of our relatively large size when ccrpared with a conmuter airline and the fact that we c~erate a number of larger equipnent, the DC-9 and Convair 600, cur maintenance personnel do not hove the close supervision required for the maintenance of the Beech 99 aircraft. In other words, our personneldo not specialize in the repair of the Beech 99 cc do the conmuter airlines dae to the small number of Beech 99 aircraft as compared to our Convair 600 and DC-9 equipment... 1/ Considerable variations can be expected in different parts of - the U.S. The local labor supply, local wage levels and al-~ ternative employment are big factors in this cost. 4-12 PAGENO="0215" 209 "Beech 99 operation from a maintenance standpoint has been one of many frustrations to this depar~nent. The aircraft and its systems are definitely not com- plex compared to our DC-9 and CV-600 equipment. They are, however, different in design and regarding quick maintainability, for instance, instruments in the DC-9 and the CV-600 that can be replaced in ten minutes require from one hour to one and one-half hours on the Beech aircraft because of design accessability. This is many oases causes lengthy delays... "Our maintenance problems in the past have been due in part to limited experience with the repairs in the Beech 99 by our mechanics and due to the fact that the Beech 99 receives less attention or a lower priority when main- tenance on other types of equipment is needed. Our mechanics never seem to become specialized in the repair of the Beech 99 simply for reason that they repair a Beech 99 on a given day and may not repair another Beech 99 for two or three weeks. In this manner, they never become completely fcuniliar with the repair of the Beech 99 and certainly cannot be expected to repair the aircraft with the least amount of effort and time." Depreciation and Lease Costs The cost comparison used in this section has, for the most part, excluded depreciation. Depreciation varies considerably from ooerator to operator. The table below indicates the amount and share of direct operating costs per aircraft mile represented by depreciation and lease costs (1973) for the certificated carriers operating DC-9 equipment. Depreciation As Percent Of DC- 9-10 Direct Costs Delta 0* Eastern * 24.6 Trans World 22.6 Hughes Airwest 17.3 Sout~hern 19.3 Texas International 19.3 * Fully depreciated 4-13 PAGENO="0216" 210 Depreciation costs varied from zero to as much as 25% of direct operating costs. A number of factors enter into this variation. Aircraft are depreciated over time, usually 3 to 15 years. For rate-making purposes depreciable life is prescribed by the CAB for the certificated carriers and is, therefore a constant between carriers for a particular type of equipment. However, depreciation period~. and residual values vary between types of equipment. The primary determinent of depreciation or lease cost is the - acquisition price of the aircraft. Table 4-4 displays a range of estimated current acquisition costs for a representative list of aircraft which could serve Florida's intrastate air routes. The table also shows the extremely varied effect of depreciation on cost per aircraft mile and per revenue passenger mile - a basic reason why new aircraft will be slow in coning to the commuter airlines. The table is useful to see the different amounts of revenue each aircraft must earn just to pay for itself (ex interest expense). The DC-3, for example, requires about 7~ per mile or half the revenue from one passenger (at l5~ per RPM) while the Dash 7 will require the revenue from 2.6 passengers. While the table compares the aircraft equally at 2,500 hours annual utilization that is not a comparison that can be applied to a practical small - carrier operation. Table 4-5 shows more accurately what could be expected in Florida. TABLE 4-4 ANALYSIS OF DEPRECIATION COSTS PER AIRCRAFT MILE D~preciation Cost Per Acquisition Aircraft Source Price Mile 1/ RPM 2/ Douglas DC-3 used $75,000 $.074 $.004 Douglas DC-9-lO used $2.8 million .300 .007 Mohawk 298 new $1.5 million .265 .019 Short SD3-30 new $1.5 million .265 .016 Fairchild F27/227 used $600,000 .193 .009 Convair 580 used $700,000 .221 .008 Lockheed Electra used $600,000 Beech 99 Airliner new $650,000 .105 .013 DeHavilland Dash 7 new $3.0 million .395 .014 DeHavilland DHC-6 new $600,000 .130 .012 Pokker F28 new $5.0 million Swearingeh Metro II new $850,000 .130 .012 1/ Based on 2,500 hours/year, ISO mile stage length. Depreciation rates for each type of aircraft are shown on Table 4-1. 2/ Cost per revenue passenger mile with assumed 55% load factor. 4-14 PAGENO="0217" 211 Table 4-5 shows the depreciation cost to be considered by a DC-3 operator who might upgrade to a new Dash 7 or a used Convair 580. The assumptions are that the same number of schedules will be flown over the same routes with each aircraft and that the passen- gers carried will be the same for each aircraft. Also shown is t:he effect of assuming that the load factor would be the same on the large plane as on the DC-3.1/ Under these assumptions the annual aircraft miles flown remains constant and the annual hours flown (utilization) decreases because of the higher speed of the two aircraft. The depreciation cost per revenue passenger mile for the Dash 7 is 10 times that of the DC-3 and the Convair is one-half the Dash 7. Cost per aircraft mile is the same ratio as per RPM. The average passenger load at a 55 percent load factor is 15.4 on the 28 seat DC-3 and 27.5 on the two 50 seat aircraft. On the other hand, the 55 percent load e~p the DC-3 will be 31 percent on the larger aircraft. It will require a fare increase of 4.3 cent per mile or $7.64 per average passenger to pay for the Dash 7 and 2.4 cents or $3.56 to pay for a Convair 580 on a base fare of $26.50. These values should be 4oubled to include interest on the capital and increased at least 25 percent to pay for increased insurance cost. Finally, to pay for just the increase in depreciation to change from a DC-3 to a Dash 7 will require a fare increase of 29.5 percent or an increase of 4.44 passengers per mile or a combination of these. The full cost of the aircraft change, not including any increased operating cost or facilities will be about 2.25 times these figures to cover interest and insurance. The above illustration is a worst case study. It gam be improved if utilization can be increased or load factor can be increased. However,, on any minimum service route or combination of routes where the present loads are being accommodated, i.e. more seats are not needed, these factors are not readily sUbject to much change and these estimates will be valid. Ozher Costs T.~ie only other direct cost under normal airline accounting procedures is hull and property damage insurance. Larger carriers can be expected to negotiate somewhat lower rates than can the small operator. However, insurance normally accounts for under 5-6 cents per aircraft mile and is not a controlling factor in 1/. This is an illogical assumption in this application but one that is often made in aircraft analysis, especially in manufacturers' presentations. 4-15 PAGENO="0218" 212 TABLE 4-5 COST OF DEPRECIATION INCURRED IN CHANGE FROM DC-S TO DASH 7 OR CONVAIR 580 DeprecIation Per Year Annual Miles Annual Hours RPM's @ 55% Load Factor (000) Cost Per RPM @ DC-3 RPM Level Cost Per Aircraft Mile - Equal Miles Greater Than DC-3 Revenue Passengers Per Mile 8 55% Load Factor Load Factor DC-3 Load (15.4) Increased Revenue Per RPM Required To Meet Added Cost Fare Increase Required 8 150 Miles Percent Increase In Fare Passengers Required To Offset Added Cost Per Mile @ .15 Yield Percent Increase in Passengers Passenger Increase Required to Provide 559a Load Factor Percent Increase in Passengers $25,000 $255,000 $126,000 345,000 345,000 345,000 2,500 1,605 1,513 5,313 9,487 9,487 0.47~ 4.80'~ 2.37~ 7.25~ 73.91~ 36.52~ - 66.65'~ 29.25~ 15.4 27.5 27.5 - 4.33'~ - $7.64 - 29.5% - 4.44 - 28.8% - . 12.1 - 78% 2.37~ $3.56 13.7% 1.95 12.7% 12.1 78% 4-16 PAGENO="0219" 213 ccmparing cost levels. A typical rate being paid by commuter carriers is approximately $2.25/l,000 revenue passenger miles for liability and $9.0O/l,000 of value for hull insurance. These rates could vary as much as 25 percent depending on experience and type of operation. Summary Of Direct Operating Cost ConsideratiO~ This section has discussed the five major elements of aircraft direct operating cost. 1. Crew salary and Expense; 2. Fuel; 3. Maintenance and Maintenance Burden; 4. Depreciation and Lease Costs; and, 5. Hull and Property Damage Insurance. It shows that these costs not only vary by aircraft type but also considerably from operator to operator. With the exception of possible advantages in the overall area of bargaining power, the larger carriers can be expected to experience higher costs in operating small aircraft on comparatively low density short-haul routes than will small operators. Table 4-6 indicates estimated hourly direct aircraft operating costs for type classifications (exclusive of depreciation which is more meaningfully handled as an indirect cost in this type of comparative study) as of year end 1975. TABLE 4-6 ESTIMATED 1975 COMPOSITE UNIT COSTS OF CERTIFICATED LOCAL SERVICE cARRIERS Total Crew % of Mainte- % of Fuel % of Other % of DOC (ex Cost DOC r~ance DOC &Oil DOC Direct DOC ~yr.) DC-9 $148.78 27 $154.30 28 $236.12 43 $12.00 2 $551.20 CV-580 128.82 32 177.29 43. 98.82 24 4.00 1 408.93. F-227 104.10 32 142.07 44 76.08 23 4.00 1 326.25 M-404 78.50 26 144.61 48 77.88 25 2.00 1 302.99 4-17 PAGENO="0220" 214 Table 4-7 indicates DOC estimates of commuter carrier costs for aircraft operatod in the present certificated local service en- vironment. Since there is no available recorted commuter operator information, it is necessary to make certain assumptions, based on the foregoing. disc~ission of relative cost characteristics as to their cost levels. TABLE 4-7 ESTIMATED 1975 COMPOSITE UNIT COSTS OF COMMUTER CARRIERS IN FLORIDA . - Total Fuel Other DOC (ex ______ &Oil Direct depr.) Crew Mainte- Cost nance DC-9 N/A N/A N/A N/A N/A CV-580 $31.00 $105.00 . $122.00 $11.00 $269.00 F-227 31.00 84.00 96.00 10.00 221.00 M-404 31.00 96.00 83.00 10.00 220.00 4-18 PAGENO="0221" 215 CHAPTER 5 FLORIDA INTRASTATE AIR FARES It is customary to consider air fares from two viewpoints -- fare levels and fare structure. The level of air fares is self- explanatory, referring to the actual prices of tickets. Fare structure involves the more detailed considerations of such factors as class of service, joint fares, discount fares and the inter- relationship of fares for trips of different lengths. Both the level and structure of air fares are appropriate topics for review insofar as they are applicable to the intra-Florida air transport system. The public interest requires that air fares in Florida be maintained at the lowest reasonable levels consistent with the provision of adequate, economical service. Low fares will bring the speed and conveniende advantages of air transportation to the greatest number of travellers, relieving the state's highways of some congestion and enhancing overall economic development. As provided by privately owned non-subsidized carriers, however, air services must be priced at levels which will produce sufficient revenues to cover all costs plus an adequate return on investment. The structure of fares charged for intra-Floridà air transportation should be kept as simple as possible. With regard to class of service, a proliferation of distinctions based on in-flight cabin service, seating configuration, or type of aircraft has no place in relatively short-haiil intrastate schedules. One standard class of service will do. Joint fares for interstate or international travel will be necessary, although these are largely in the domain of the individual carrier managements, the CAB, and I.A.T.A.1/ and not within the jurisdiction of the State. Discounted or promotional fares should be restricted, at least initially, to specific categories of travelers that have well-established claims for such special treatment. The relationship of fares to mileage flown is also a matter of CAB jurisdiction, as discussed inunediately below. Federal And State Guidelines In 1974, the Civil Aeronautics Board completed a massive 4-year investigation of domestic air fares. The Board reviewed the basic issues of fare structure, fare levels, joint fares, discount fares, and load factors. Altnough this was a nationwide investigation 1/ The International Air Transport Association functions as an - international rate-making authority. 5- 1 PAGENO="0222" 216 concerning the trurikline and local service carriers, the Board's. findings can be used as a benchmark in considering Florida's intrastate air fares. One leading policy that guided the Board's eventual decision was that air fares should be closely related to the actual cost of providing the service. hhat emerged from the proceeding was a fare formula based on a fiked terminal charge plus a variable charge per mile. 1/ Line-Haul Charge- -~ Mile~9f. Cents Per Mile $13.85 0 - 500 7.79~ 501 - 1500 5.94~ 1501 and Over 5.71'~ This formula is used to determine the normal daycoach fare in all domestic markets. All other fare categories are then derived from the basic local daycoach fare.~ - In explaining its conclusions, the Board conceded that no one fare formula could hope to compute fares that would exactly meet each carrier's revenue needs in every market. It was also recognized that, in the very shortest markets, there was a practical upper limit to the level of air fares. Although the shortest trips cost the most per mile for the carriers to operate, there are usually alternative means of surface transportation which the public can use if air fares are set too high. The CAB's response to these difficulties was to allow the overall level of fares to be high enough to compensate for the differences between the individual trunkline carriers, while acknowledging that fares in the shortest markets would still tend to be below costs.~/ There are no apparent circumstances under which the local intrastate air fares in Florida should exceed the CAB formula. The type.of flying operations envisioned in this study are not expected to 1/ These charges are cumulative above 500 miles, i.e. a 550 mile trip is $13.85 plus $41.92 (500 x .0779 + 50 x .0594) ~r $55.80 total. 2/ These categories include first class, nightcoach and the various discount fares. 3/ Local service carriers were allowed to charge up to 110% of - the basic formula in recognition of their role as short-haul specialists. 5-2 PAGENO="0223" 217 equal the higher cost characteristics of the trunkline operations on which the CAB formula is based. Chart 5-1 compares the curre~ local Florida fares of both commuter operators and CAB carriers, It is clear that the imposition of the CAB formula ceiling would not do great violence to most of these commuter fares, particularl', if the slightly lower fares were accompanied by some form of rout~ protection in these markets to assure maintenance of higher load factors. The lowest attainable level of air fares in Florida can be estimated by comparison with analogous situations in Texas and California. Chart 5-2 indicates that the intrastate carriers in those states charge substantially less than the CAB formula. In both cases, the intrastate carriers are providing good service with contemporary jet aircraft. Commuter type operations in California are also less expensive than CAB formula fares. Texas commuters charge, on the average, slightly higher than the CAB formula, but the intrastate Texas carrier, Southwest Airlines, prices its services well below its CAB-regulated competitors. Joint Fares Up to this point, fares have been discussed only from the point of view of passengers making local intra-Florida trips. It is a fact, however, that in several intra-Florida city-pair markets, substantial numbers of air travelers are moving only as part of a longer journey, either interstate domestically or internationally. Ft. Myers-Tampa is an example of an intra-Florida market with a high percentage of travelers making interstate connections. Orlando-Miami is an example of a market with many travelers making connections to Bahamas, Caribbean, and South American destinations. These connections may be either to another flight of the same (on-line) or a different (interline) carrier. When air travel calls for routings that involve more than one carrier, it is often the case that a joint fare will be offered between the actual point of origin and the final destination. Otherwise, the traveler must pay local fares for each stage of his journey. The nature of these joint fares is to be lower than the sum of the individual local fares. It is less costly for the carriers involved to carry one interline traveler over a connecting routing than it is for each carrier to carry two different loccl travelers, on each of their respective segments. In competing for this interline traffic, the interested carriers will make agree- ments among themselves to offer connecting transportation at pr1C~ which reflect, to some degree, these inherent savings in operat~~ costs. In the past, joint fares were established at the initiative and - discretion of the trunklines arid local air carriers. Typically two carriers weuld get together to offer connecting service via 5-3 PAGENO="0224" 218 - ~ iii:~ _ F--- + - - -- - -- -~ -~ ~- ~ ~ -~--~ _______-- - - ------- - -~ ______ ~ E-~---~ .~J: a c~ ~ -____ - ~ - -. : ~ ~- ~ C -- 1---- - ______ ~+----_.--- ~ --- 1______ -- - : - - .::;:-~-- W'4-~::. C~ - - -;- :--- ~:~1------- ::-r--~-. --~-~--~-~ ~ U) -- -. .:-. -: -. -- - r:-U~-:- ~- ~ --- ~iF~.T~f.;::.j:;:f.-;::-f:.;..: :-::,~-::~--~-~-- ~ ~4:;... ~ *(~~ :;~±~ -------:~--:---~-----. ~-~`---- - ~-l - U)~-1. - ~ ~ 0:::::: .::-:: ~ ~: ~:EL~L~ ::~4:~ ~1H~ _____ rF ~ PAGENO="0225" ---TT--rTT---l-T--* - -~ - - --~_- - - - - ~ r___ ______- LITIIF i-~ ~ ~ : L_ L-~ii±i-~~ii L~ ~- \ _____ \tTTT~ . . ----~----r--~r- .~ *_L.~L \\\\~ :~ 219 J~.L. `..:.~.L. 0 0 0 0 0 0~ 0 `C \\..: V* I. 1_i 5-s 28-911 0 - 78 - 15 PAGENO="0226" 220 some well-located intermediate point on a route that was served directly by another carrier. To be competitive with the direct carrier, the joint connecting services would be offered at the same fare as the direct carrier's fare. In markets where the competitive spur was not quite. as sharp or where no other service was available at all, joint fares would be established at somewhat higher levels but lower tham the sum of the two individual fares. In many smaller markets, no joint fares wore available at all, and travellers were obliged to pay the sum of each individual fare for each segment flown. Custom, tradition, and public pressure also played a part in the availability and level of joint air fares. In fact, some of the carriers' joint fare pricing policies were carry-overs from rate- making practices of the railroads. Civic and business groups were often quite active in making their views kiiown to the carriers and to the CAB. Since much of their air service required connections at large hubs, cities and town off the main routes hada special interest in joint fares. In all, the domestic joint fare situation prior to 1974 could be described as highly diversified, if not indeterminant. In the recently completed Domestic Passenger Fare Investigation (1974), the CAB ruled that joint fares must be published on a üiiiform basis for nearly all domestic air travel markets. The maximum level of such fares was to be the sum of the local fares over the shortest possible routing, less $13.89 for each interline connection. This formula is an attempt to bring a nondiscrimi- natory, systematic approach to the pricing of interline air transportation. Although the Board's decision establishes the maximum level of joint fares, in many cases the participating carriers will publish joint fares at lover levels, particularly in competition situations. The CAB's joint fare ruling applies only to domestic markets served by a combination of the trunklines or the local service carriers. It does not establish joint fares for services involving commuter carriers, suchas Naples Airlines between Naples and Miami or Tampa. In that instance, the commuter carrier and the trunklines serving Miami and Tampa have evolved joint fares at their.own discretion. Nor does the CAB's ruling apply to markets which involve international service. Joint fares in the Orlando-Jamaica market, for example, are established by the carriers who desire to participate in this traffic via connections at Miami. As mentioned, joint fares between commuter airlines and the CAB- regulated carriers are within the Board's jurisdiction but not the subject of active concern. In a recent decision involving a joint faredispute between Naples Airlines and National Airlines, the Board declined involvement with the following statement: 5-6 PAGENO="0227" 221 "While the Board has encouraged joint fares beti,een cormzuter/certificated air carriers, any such arrangements have been on a voluntary basis. ~r decision in Phase 4 of the Domestic Passenger Fare Investigation (Docket 22866-4) prescribing maximum joint fares for certificated carriers has no appli- cation to third-level carriers." 1/ This is just another manifestation of the Boards reluctance to undertake economic regulation of the third-level or commuter-sized carriers. In Florida, however, there are a sizeable number of just such arrangements. Ft. Myers-Tampa was mentioned as one market where joint fares were available to travellers using cornmuter/ certificated carrier connections. The same situation exists in Key West-Miami, Naples-Miami, Marco Island-Miami, Naples-Tampa, and in other markets. Indeed, the very existence of a commuter operation i~ often based on serving interstate connecting passen- gers, as opposed to those who are merely travelling from an outlying point to a larger hub city. From the commuter carriers standpoint the joint fare is a sales tool as well as a pricing device. Far more interline connecting sales are made by airline and travel agencies outside Florida than are made by the commute.r airline itself. A major problem for the commuter is to get his services included in the sale in prefer- ence to a rental car or other alternate means. Joint fares help fulfill this need. In publication at this writing and soon to be distributed is a tariff which will contain all of the agreed joint fares between the interstate carriers and the commuter airlines. Prior to now there has been no common source of information about these fares. The tariff will be published by Airline Tariff Publishers, Inc. The availability of commuter/certificated carrier joint fares depends on the motives and initiative of the participating carriers. For example, Naples Airlines maintains joint fares with Braniff, Delta, Eastern, Northwest, and United tot connecting passengers at Tampa cr Miami. These fares are available between Naples and 75 other U.S. cities which are served by the trunklino carriers mentioned. On the other hand, there are no joint fares between Naples Airlines and Continental, National, or TWA although all of those carriers have routes to both Tampa and Miami. These joint fares are bared on the mutual agreement of both the commuter and the trunkline and either carrier may contact the 1/ Civil Aeronautics Board Order No. 74-2-127, page 2. .5 5-7 PAGENO="0228" 222 other to suggest that a joint fare be established in any particular market. Joint fares are important to commuters for reasons mentioned previously. Trunklines compote with each other for this connecting traffic and it is also to their advantage to be able to offer attractive fares. Eastern and Delta, for ex~rnple, have joint fares with Naples Airlines between Naples and New York over Miami and Tampa but National does not. Because of this, National is not in as favorable a position to -carry Naples-New York traffic. Due to the voluntary and independent mothod of creating joint fares, it is very difficult to discern any general pattern of availability, either in terms of markets or carriers. Northwest has joint fares with Naples Airlines from Minneapolis, Milwaukee, and Chicago but. not from Madison or Fargo, which are also on Northwest's route to Miami/Tampa. Eastern and Delta have Birmingham-Miami/Tampa route authority but only Delta has a joint fare. Other cities, such as Salt Lake City, Albany or Peoria have no possibility of joint fares to Naples because they have no direct routes to Miami! Tampa. - Where joint fares do exist, however, they offer the traveller a savings compared to the sun of both the trunkline and commuters' separate fares. The joint Naples-Boston coach fare is $115 as compared to $131 for separate Naples-l-liami ($21.00) and Miami- Boston ($110.00) tickets, a savings of $16. In the Naples-St. Louis market, ~he saving is a full $21. In this instance, the Naples-St. Louis joint fare via Miami is the same as the local Miami-St. Louis fare. Again, there is no discernable pattern in terms of the levels of the joint fares. It goes back to the fact -that each market situation is dealt with on an individual basis by the carriers concerned. One additional feature of commuter/certificated carrier joint fares should be mentioned. It involves the division of joint fare re- venues between the two carriers. The division of revenues is also negotiated by the carriers when they sit down to establish joint fares. Various systems are used. In some cases, the commuter gets a fixed dollar amount for each passenger. Another method is to give the commuter his full local fare less some fixed amount. One system of long-standing use is for the revenue to be pro-rated, based on the percentage of each - carrier's local fare to the total. Whatever the method, the - certificated carrier generally absorbs much of the dilution in revenues de~ived from joint fares. In the Naples-St. Louis exaxn~le above, the total joint fare is equal to the Miami-St. Louis fare, and the division of that joint fare necessarily leaves the trunk- -lines with only $80, using the local fare pro-rate system. Although the resulting joint fares are of course public information, the negotiation of fare levels and the pro-rate of revenues is confidential between the carriers. SARC has been able to obtain - 5-8 PAGENO="0229" 223 general information which confirms that previous experience by SARC employees in handling such agreements, as described above, is still valid. In summary, the CA.B directly regulates the applicability, *the level, and the pro-rate of joint fares between certificated air carriers. The Board also retains inactive control over commuter! certificated carriers' joint fares to the extent that interstate transportation is involved. The State of Florida, however, has its own interest in commuter/certificated carrier joint fares in that they have a direct bearing on the provision of service as well as the level of local intrastate fares, particularly in markets where interstate connecting traffic is dominant. Discount And Promotional Fares In any general discussion of air fares, the promotional or discount fares must also be considered. These are special reduced-rate fares which are intended to make air transport affordable to specifically identified categories of travellers. These are people who supposedly are price-conscious and time-f lex~ble, and who either wbuld use surface transportation or would not travel at all, if not for the discount. Some of the more familiar reduced-rate fares are the children's discount, the military discount, nightcoach fares, and group travel rates. Over the years, a very wide variety of other reduced-rate fares have been offered by the trunklines and local service carriers. In their abundance and diversity, these fares defy brief descrip- tion. They cone tumbling out of the carriers' marketing departments in a never ending attempt to capture certain discrete elements of the overall air travel market. Many are influenced by highly transitory competitive circumstances and have a very brief life span. From a calmer viewpoint, the State of Florida can eschew most of these schemes and concentrate on pricing policies which will clearly serve the public interest and strengthen the intrastate a~r trandportation system. If intrastate fares are established or carefully considered economic evidence, there will be little reason to allow exceot ions to the rule. As mentioned previously, normal fares should he provided at the lowest level possible, censistent wibh the provision of reliable service. Such long-standing public interest fixtures as the children's discount and the military discount should probably be bsilt into the structure of intra-Florida air fares. These categories are composed of potential air travellers with some discernable limitations on their ability to pay. Otherwise, for simplicity, efficiency, and administrative control, discount and promotional fares for intra-Flerida markets should be subject to very rigid analysis prier to approval. 5-9 PAGENO="0230" 224 Fare Assumptions Of This St~4y For purposes of estimating revenue in this study fares are assumed to be at the level of the CAB rate order for interstate carriers. 1/ The fare for each city-pair was computed arid used in each estimate.- On this formula the fare for a 150 mile trip is $25.53 or l7~ per passenger mile. The yield, with dilution of 15 percent,~ is about l5~ per mile. The CAB formula was also used for the intrastate portion of inter- line revenue. It is impossible to attempt to fix exactly the prorate of joint fares. As reported above it is difficult to determine what prorates have been agreed to by the carriers. Tests were made using the CAB prorating formula for this purpose. It appears that the short-haul portion of these divisions will frequently exceed the local fare in the short-haul market. Since the intrastate carriers are not under this CAB rate order, it is more conservative to assume that, at most, the trunks will agree to prorate giving the intrastate the equivalent of his published local fare. ~ 1/ See Page 5-2. 5-10 PAGENO="0231" 225 CHAPTER 6 A FLORIDA INTRASTATE AIR ROUTE SYSTEM This chapter provides a description of the manner in which the proposed routes are structured and aircraft selected for each route. The evaluation and analysis of aircraft considered for possible intrastate operation are given in full in Chapter 3. The development of operating costs and comparison of costs; of the types of carriers is provided in Chapter 4. An explanation of the types and levels of air fares (revenue) is found in Chapter 5. The intrastate system proposed here is made up of 17 routes. This chapter describes the method used to structure the routes, determine the aircraft to be used and estimate the economic result of operating the routes. The system is operationally feasible and will provide adequate air service between each of the city-pairs on each route. The system complies with or exceeds the ~Iinimuin Service Standards (Standards) in every case in that a maximum of one intermediate stop is used whenever feasible rather than two as accepted by the Standards. No specific effort was made to make the route configuration consistent with the existing routes of the intrastate carriers. One or more CAB-certificated carriers and/or intrastate carrier are currently operating over many of the segments. However, much of this service is not within the Standards. The system is not an `optimized' solution. It is a network which can provide adequate service to those points currently under- served. It has been constructed by applying normal routing considerations including: * Available types of aircraft; ~ Peak segmcnt and route load factors; * Maximization of frequency ~`hen consistent with the mix of the available traffic (local or connecting); * Overflight service when warranted by traffic imbalances on a route; and * Minimizing enroute stops and circuity. 6-1 PAGENO="0232" 226 Obviously other route systems could be designed to provide adequate service to these points. Several other patterns were developed which were inferior. To be an economic "imoroverrtent" on the solution presented here, another solution would have to result in higher achievable route load factors and higher utili- zation of aircraft without reducing the quality of service in terms of enroute stoms and frequency. The solution oresented here achieves a satisfactor" balance between standards of service and economic feasibility and can therefore be considered an economic benchmark' to estimate what adequate service to these markets would cost. The coraDuted financial results of operating the systen are presented on each of the route charts. Development Of Route System The approach taken to this task involved the classification of the included intrastate markets into two groups; those markets justifying air service, which are currently beinq adequately served; and those that are not being adequately served. The Standards were applied to air service in each market as of March 15, 1975 to establish the list of adequately served markets.l/ A number of markets satisfied one or more of the criteria. However, unless all criteria for Minimum Standards of Service were met, the market was considered to be served inade- quately. Markets in which service was determined to be inadequate were then assessed individually as to the type (in terms of capacity)~/ of aircraft which could most economically provide minimum adequate single-plane, nonstop air service in that market. The algorithm inputs included: * Number of local passengers; * Number of connecting pass~nqers; * Percent of local passengers moving on prime-time flights; * Percent of connecting passengers moving on prime- time flights; * Maximum average annual acceptable segment load factor on prime-time flights; 1/ This schedule was used as it was at the annual peak period and was timely to the work. 2/ Characterized as Type 1 (80 seats); Type 2 (48 seats); Tyoe 3 (28 seats); Type 4 (16 seats). See Chapter 3. 6-2 PAGENO="0233" 227 * al seat generating capacity of the ilest aircraft being considered for ~rvice; and, ":r.imum load factor required to require *.i~re-time service. * explanation of the algorithm logic is provided in diagram. compute Prime-Time Load Factor For Selected Type Of Aircraft :~:t" !~ber I Subtract Passengers Travelin~ ~tr-~ricie- On Prime-Time Flights From ~1ssengers Total Passengers And compute Load Factor For Off-Prime-Time Flights * :~le of this algorithm was that the same type of aircraft * - msed for both the prime-time and off-prime-time service. ~ation is based on the probability that, in most intra- ~::~cts, the traffic will not justify conpeting carriers and :tkeiy that a relatively small intrastate carrier would * ~ronomical to operate more than one type of aircraft in - above analysis had been completed for each of the forecast * all those which produced a load factor of less than 25% on * ast (Type 4) aircraft were deemed to have too low a traffic justify scheduled service of a type described by the * *: ~:andards of Service. The remaining markets were aggregated of aircraft (Type 1, 2, 3 or 4) selected to serve the with the Type 4 markets, the markets were combined into * :~- routes which incorporated a circuity restriction (20 * any market) and an additional restriction of not more ~~mber Yes i~::~rI1igher ~a~-No~ F~Sele~ted~rcraftTJ1 6-3 PAGENO="0234" 228 than one enroute stop (two are acceptable in the Standards). This aggregation resulted in some route segments over which the load factor rose beyond an acceptable standard. When this occurred, the equipment was upgraded to the size which produced an acceptable load factor both for the route and for the peak segment. The effect of this approach to aggregating markets at the low end of the traffic spectrum, tended to ueqrade the typo of equipment at the expense of tending to restrict the number of frequencies to two round trips per day. The same process was applied to the markets in the Type 3, 2 and 1 categories. An analysis of the routes which could be economi- cally served by Type 1 aircraft showed that the majority would produce marginal load factors at minimum frequencies. Therefore, it was decided to opt for higher frequency service in these somewhat higher density intrastate markets and limit the aircraft sizes to Type 2 (48 seat) and smaller. In some cases, the route aggregation process resulted in loads, between either intermediate or terminal points, high enough to justify nonstop service. In these cases the routing analysis includes these overflight operations on some flights. Algorithm Constraints There were two basic areas in which assumptions had to be made on the basis of experienced judgment of a limited sample of actual data. These were (1) the estimates of the percentage of local and connecting passengers who could be expected to prefer to travel on flights scheduled in prime times and (2) the maximum segment load factor. which could be sustained without necessitating the addition of a frequency or using a larger aircraft over the route. To our knowledge, there are no specific non~proprietary studies on either of these subjects. Nonetheless, recognition must be given to the fact that there is a high sensitivity of traffic flow to schedule timing based on different mixes of local and connecting traffic. It is logical to assume that there is a difference between the inclinations of local short-haul and connecting long-haul passen- gers with regard to traveling on morning and evening flights as opposed to mid-day flights. The local passenger is more likely traveling on business and wants to get to his destination in time for a morning appointment and to return home with a minimum of delay in the evening. On the other hand, the connecting passenger wants to arrive at his first destination in time to make his connection. Since the vast majority of Florida's connecting passengers are connecting with interstate flights, it is less likely that a round trip will be made that day or that the day will be used for other than travel. Thus, there is less compulsion to leave early in the morning or arrive with "rush hours" in~ the 6-4 PAGENO="0235" 229 evening. Conversations with several airline industry traffic people indicated that figures of approximately 75% of the local traffic and 40% of the connecting traffic would not be unreason- able as to the share of the traffic which might be expected to prefer to travel on morning and evening prime hour schedules, if other frequencies, making connections, were available. To attempt to verify these opinions, which we shared, the interstate schedule patterns at Tampa, Orlando and Jacksonville were analyzed. This evaluation found that one-third of the interstate flights departing these cities leave between 11:00 a.m. and 5:00 p.m. and one-half of the arriving interstate flights are scheduled in these hours. This indicates that connecting schedules are available to permit a high volume of travel during the off-peak period thus supporting the opinion of the operators that actual travel occurs in significant volume. The matter of maximum segment density is another area in which there is little, if anything, in the way of formal empirical analysis. This type of work is ordinarily done on a relatively informal basis by the individual operator with variable standards applying, depending on specific circumstances. Previous SARC scheduling studies and work with scheduling departments of client airlines indicates that when an intermediate segment load factor begins to corsistently approach 80%, consideration is given to increasing capacity by changing frequencies or equipment. This decision is influenced by the length of the segment and its location on the routing. A similar judgmental approach is used in designing, Florida routes. Judgmental_Modifications Of Route Structure Subsequent to the quantitative structuring of the route system, it was apparent that for some of the lower density markets, particularly those in which connecting passengers represent a majority of the traffic, arbitrary division of schedules betwe~en prime time and off-prime time periods was impractical from both an analytical and operating standpoint. In these cases, the total traffic was used as the determinant of the level of service and the determina- tion of the timing of the schedules left optional depending on smecific market requirements. While this modification represents a theoretical violation of the timing requircsients of the Standards, it represents a practical reflection of the differing scheduling requirements of markets which are primarily connecting in nature and those which are mainly composed of local traffic. The most cost-effective route pattern for intrastate air service in Florida is an in-line system, as contrasted with a hub-and- spoke structure. Therefore, the economic feasibility of many of the route segments is largely dependent on through traffic (e.g. that traffic which is either on-board prior to arriving at point ~ 6-5 PAGENO="0236" 230 of segment B-C or which gets on at 13 destined for a point beyond C). This means that the value of a segment to on operator is dependent on whether or not ho has immediate access to all the traffic forecasted to flow over the segment (e.g. B-C). The routes are designed with no inter-route traffic flow. If, as regards the benchmark route complex, each of the routes indi- cated was allocated to a single carricr, that carrier could expect to achieve the benchmark results to the extent he provided the service indicated as recuired. However, if the service over the individual route is provided by a number of carriers, each having access to a different set of connecting segments, it is clear that the results will differ considerably from carrier to carrier. - It is unrealistic to expect an operator to enter a relatively low-density market which already receives service from another - carrier -- with the sole expectation of making a profit from providing an add-on service. Approximately half of the 31 intrastate markets now receiving inadequate service receive an adequate number of frequencies (for the most part by CAB- certificated carriers with a strong local and national image) in both directions and are underserved only with respect to the timing of these frequencies and/er the number of intermediate stops. It is unlikely that any intrastate cperator would be successful in these markets unless he had some substantial protection against competition, an assurance of tenure on the route and a protected route structure to give him appropriate access to beyond traffic in both directions. Routes developed as a result of the analysis undertaken in this project are as follows: Pensacola-Tampa-Orlando-West Palm Beach Pensacola-St. Petersburg-Miami - Tallahassee-Gainesville-Daytona Beach-Miami Tampa-Ft. Lauderdale Tallahassee-West Palm Beach-Ft. Lauderdale Tallahassee-Sarasota-Ft. Myers-Miami - Jacksonville-Daytona Beach-Ft. Lauderdale Jacksonville-West Palm Beach Ft. Walton Beach-Panama City-Tallahassee-JacksOnVilleMelbOUrne Tampa-Melbourne-Vero Beach-Miami Pensacola-Tallahas see-Jacksonville Lakeland-West Palm Beach-Miami Key West-Naples-Tampa-Orlando-Daytona Beach Ft. Walton Beach-Panatna City-Tampa Jacksonville-Orlando-LakelandSaraSota Ft. Myers-Orlando-Jacksonville - Gainesville-West Palm Beach-Ft. Lauderdale 6~6 PAGENO="0237" 231 This benchmark route structure incorporated individual routes, any one or combination which, if awarded to a qualified operator, should provide the traffic base for an economical operation if operated as indicated. Route Segments Excluded From Roti Analysis Table 6-1 gives the schedule analysis of city-pairs which have adequate service where a single carrier meets the Standards. These markets are excluded from the route analysis because it is expected that they will continue to have adequate service from one or more of the incumbent carriers. Specific provision for intrastate authority to assure continued adequate service in these markets is made in the recommended plan for obtaining service. Thus routes such as Miami-Tampa and Orlando-Ft. Walton beach are not "priced out" and it is assumed that the incumbent carrier(s) are satisfied with their results on the route. ~~~tionS' And Comments On Route Ana~y~f~ The economic results indicated in the analysis of each of the 17 routes are surprising if viewed as conventional analysis of routes under commonly used assumptions. In fact, the finding that 17 routes within Florida can possibly be profitable without large subsidies appears contrary to the commonly held wisdom about short-haul air transportation. There are however very significant differences in the underlying assumptions created by the recommendations of this study. The following ~omments highlight the assumptiOnS and the effect they have on the outcome of the analysis. Each of these items is further amplified in the appropriate appendix or elsewhere in the text of this study. 1. Fares - The current CAB formula. o The overall revenue yield produced is 13.9 cents per revenue passenger mile, ranging from 11 to * 18 cents on various routes. * The fares used arc less than the reported yields of intrastate carriers in Florida at present and equal to the fares of the CI~E-certifiCated carriers. 2. Cargo, t~'~Ai And "Otkeeyc~fl~f.. * None has been applied. Based on experience mail - revenue will be negligible. Cargo revenue can be significant in a few markets (Key West primarily) t;-7 PAGENO="0238" TANLE 6-1 MAR1~ETS ADEQUATELY SERVED - SER~CE AND SCHEDULES Mares 15, 1975 Miami -Tampa Miami -Orlando DL,EA,NA, Qtl SO Miami -Tallahassee EA,SO QH Tampa -Jacksonville `-3 Tampa -Tallahassee EA Orlando-Tsllahacsee EA,SO Otiando-Ft. Lawierdalo DL.,EA,NA, ES SO M~ami -Fey West Tampa -Ft. Myers Tampa -Gainesville Miami -Marathon Miami -Haplem Miami -Marco Inland - Miami -Ft. Walton Deach SO - SO Miami -Panama City SO - SO Orlando-Ft. Walton Beach SO - So Orlando-Panama City SO - so DL,EA, NA,QH, EA,NA, Lh,Q~, DL,LA, C~,S3 21 20 NA,QR, SO SO SO :;;~, so so DL,8A, NA DL,HA CL, NA a ii NA LE 4/ LS L; NE NE IS - EQ EO~" SO SO-I SO 50 - SO SO 50 50 SO 30 - SQ SO~" SO EC~-" ~0 SO - SO~~' SO 5Q2' so 1/ 5/ 5/ T~tal Carriers_Authorized Service- Ton -- Frcn~ - CAD PEC CAN I'SC 1 2 `3~~ 3 To F:~;s RN,DL,LA, QH(A) ,FE DL,EA,NA, QH,rE DL,EA, Dr,i:a, DL,NA, DL,1\. ~;L,rA, NL,NA 23 23 NA,NW,TW, NW,TW NA,WW, Nf,QIf 43 LA Miami -Jacksonville DL,EA,NA, QI1(X) DL,EA,NA None VA DL,EA,NA, OH SO DL,EA,NA, FE VA EA,SO OH EA,SO EA,SO QU,S0 EA,SO ~ 8 NA FE FE,NA FE,NA FE,NA Fl. NI:;, F:,:L\ 8 8 OH (7,) ,YX EA EA ON (A) 0\ FA 411 (A) 3 3 -, SO SO SO DO 50 50 4 4 SS DL,SS - 555 - 5 4 QH(A),YX EA - SO DL,EA 55 - AG,SL - AG,LI AG,SL AC,Si, AG,~L AC,St, AS ;/3,S:, 7 NA F1 NA FE FE FE,NA FE,NA lN,NA r :,HA YE,5\ 12 13 EA FE None FE FE FE FE ii. ~. iL 5 4 - AG(A),SL - AG(7),SL AG(A), EL EL SI, ;C(A), EL 4 4 EL DL - PT - PT PT PT I'S ~`T IT ST S~ 4 7 6 3 3 2 ,2 3 3 2 2 PAGENO="0239" TABLE 61 (Continued) MARKETS ADEQUATELY SERVED - SERVOCE AND SCHEDULES Airline cod'n were a reviated as follows: AG - Air Sunehine, ON - Braniff International, DL - Delta Air Lines, Inc., - Eastern Air Lie.'; Inc., FE - Florida Airlines, LS - MarCo Island Airways, NA - National Airlines, Inc., - :Psrthwcat Airii:ea, inc., IT - Maples Airlirca, Qil - Al: Florida, SE - Southeast Airlines, SS - Shawnee Airlines, .tnc., - Tr~r; World iir~iree, Icc., WA - Urit~d Air Lines, ~nd "X - Sun Airlines, Inc. (A) Public Lervice Ca:na;csion 00 mile ruling authorize-i servi:e. (X) Guupcnd~d. 1/ At. lea3t eric' tli'~. .bat. netS mjnis.iisl standard of service. March 15, 1975 schedules. 2J `To' and "Pros" - Direct;onal flight movencnts. For Miami-Tiepa read: M;.::.i "iC' Tin-a under "To" and Ti-as "Frcnr" ti-tiSt under "Fro~ri". Two I -t:tcr codes s)iow the carrier - eh iligecs in the tine periods. 1 7:00am - 2 2: 00ni - 8:OOp:r. 3 - 11:00am - 3:0(rm Toils ` all flights in and out of :;tandards. A carrier under 1 and 2 ii. Leth "To" and "Free:" has adgua.e service. Codes idc-r.tify carrier with at least one flight en time peniod. 3/ `.1,;urcet error in 1ublesi.ecj cch.dule whech in not directionally balanced. ~/ Service to rivatr- airport - sonvice accepted as adequate. 5/ One stop mar' then standard. 6/ Plight departs Kia.ni 7:40pm accepted as meeting standards throughout route. 7/ Flight one hour early on Easterr T~no but accepted as necting standards. 8/ All flights are dedicated `to intra-Florida service. Assumed will be adjusted to meet standards rathern than accept replace- ment carrier. PAGENO="0240" 234 but overall probably less than 5 percent of total. Charter revenue can be significant but has not been evaluated in this study. 3. Share Of Market. * The action steps recommended horein will assure the carrier on each route of all the local intrastate 0&D traffic. This is a key action and assumption. Absence of this assurance has resulted in repeated failure of operators in the past and in poor service on the route segments. * The intrastate operator is allocated a share of the interstate connecting traffic in each city- pair. This varies from 10 percent to 100 percent recognizing the presence of other carriers, amount of such traffic and historical traffic flows. An action is recommended to assure this revenue to all intrastate operators. 4. Aircraft Selection. * The method used has fitted the right" aircraft to each route. This is unusual since ordinarily aircraft must be selected for a sue tern of ro.ttes which requires more compromise. This advantage should be protected in the awarding of routes to carriers to prevent undue mixing of equipment, which is costly. 5. Flight Frequencies. * The method assures minimum standard frequencies and favors frequency increases ov~r larger air- craft on denser routes. The bias is in favor of public service as a tradeoff for profitability in this respect. 6. Load Factors. * The method used assures that load factors tend to be relatively high. This contributes toward * profitability. * The load factors are average annual factors. It is expected that the routes having very high connecting traffic will operate less frequency in the off season periods and lease added air- craft in the peak season to provide for available traffic. In all seasons at least minimum standard- frequencies will be operated. 6-10 PAGENO="0241" 235 7. Direct Costs. * The estimated costs recognize the proven ability of commuter and intrastate carriers to operate at lower cost levels than the CAB-certificated carriers, at least in the short term. In the long term, with assurance of a profitable opera- tion, these costs will be higher. 8. Indirect Costs. * A standard ratio to direct cost is used which is in agreement with the historical pattern of costs. Changes in equipment type or management philosophy will result in different resulting ratios. Costs used here are judged to apply to "start up" and continuing opera- tions. 9. Depreciation And Interest. - * Assumed depreciation policy is similar to that used by the CAB for ratemaking. Actual time and residual levels are different for each aircraft and related to expected useful life of the aircraft. * Interest is at a rate of 11 percent per year on a schedule of equal annual payments over the depreciable time period. This rate is advised by persons active in financing of aircraft and is applicable to any method of purchase or leasing. - `rho analysis ~f each route is given on a separate chart with a map of the route. Each line on the map represents a round trip flight as included in the analysis. 6-il - 28-911 0 - - 16 PAGENO="0242" 236 A summary total of the 17 routes is not appropriate as each is designed to stand alone and in combinations into carrier systems. It is not intended that a single carrier should oserate all as a system. Also, the sum of these routes is not the total of all intra-Florida service or traffic - 17 major city-pairs with adequate service are not included. However, the sums of-the e~timated revenue, expanse and potential profits of the combined routes serving the city-pairs which now have inadequate service are interesting: Revenue $29,257,000 Expense 18,653,000 Profit (before taxes) S 9,604,000 The service would require at least 9 Type 2, 11 Type 3 and 3 Type 4 aircraft. 6-12 PAGENO="0243" Ft. I.oodtFdAIo Ft. Ft. (0.11cc CAitciOl iSA J,lckloctilio icicoil 1,:1b0oorcA Fic,1Ni City Ftjtiocclio Sarc~otA Ct. Pctcriol-otg Ittrx 7(0 (((7137: CIIAI~1S Fy-.PA( 1 So, th `tot' Chc~t Isdioctod I(usbcr At It tec~cc tioc Of Ilorizootiol Aisi Vortical totries A) City-Pairs 106th Ado~uctc ((croico fly At Lcoist Onc Carficir Which 00 F.cpcctcd To Ccntinuc. (Oct Ioc]odcd In This flootco Itsign. .~ ~ .2. . ..i~ 21. - - ...1 ~fl fl. - - - - 17 ~7 7 A Ic 4 16 6 16 6 6 Ii - - - .1 A ~A. - - - .21 - - 3 Ii 07 15 9 17 j 3 7 071 9 1 15 .~_ 9 10 16 9 11 15 - 11 A 8 . 70 13 13 13 (6 - - 9 9 6 (6 3. c - - - - 15 16 (6 16 - 22. - - - 2. 6 15 A ~ ~ 13 4. Iilo ((ado PAGENO="0244" 238 072077c!.-2$ . 7 c~::,:~o-a! ~r 0.7171 3757$ 5 (ac:: Lure, la.pr:ser.t.; Ccc ...:1~ C ..outr:; I :.;fut $`rusc-0 1;: .oys Pcr hiori 019CRIFT Type 2 0TdCKA~ UT ..17' .4.72 Iced 17 15. 0 Dci 1,' 1. it !:o.r4 $4,356 Dercet Or~tue~ Ccc.. 21,257 lr,dur:et Duets $ ~ Tctal 72,226 ProCet loss) 2,131 $::S5t,.eule `R-FF:C ~.2S22~ ~PP.0~1501a Peacol.c,a 17,362 LICO Ie~cacola-uriado 06,110,, 3,090 Tuo/a-Orlccdo 6,321~. $2,470 ,Drlando-.eet Pc.o Sod: 14320 7,995 Tanpa-dest Palo $,acn 43,713 20632 Total 97,181 47,670 LOAD FACTORS Co-Soard Load 7c~,.ccet ~$ct.:crS Factor _______ Tanpa-lest Fain leach 42,048 60% 274 Pecuacola-Taspa 39,048 571 330 Tac~a-Oriaodo 61,305 16% 81 Orlandu-$eet Palo bad 44.8CR 64% $42 59% 1/ Seventy percent of Tac:~a-Oriundc forecast. See also Pocuto 13. P$.:1ACC:J.-S7. :ETLOSIUP.$-$111:1 tacO tune Represents One Daily Roundtr: p FlIght Operated Se':ne loys Per Week AIRCRAFT Type 2 AIRCRIFT OTILIZ1ITICS 4,186 Annual Flight buys 11.0 Daily Flight lOOtS FINANCIAL RESULTS 000) Revenue $3,663 Direct Operating Costs 01.126 Depreciation ar,d interest $ 306 Indirect Coats $ 563 Total 91.995 Profit (Loss) PASSENGER TeIAFFIC Local Conncctiou Pensacola-St. Petersburg 7,4401' 1.096 Pensacola-Sliaej 20,207 , 6,440 St. Petersburg-Oiaoi 34,914o' 25,276 Total 62,554 35,812 Iu.IAD FACT$P.S * OrcIloord 2,ond Pas~n:.rs F..ctor ___ Pensacola-St. Petersburg 35,176 550 St. Petersbdrg-Z:iani 00,630 (.4% 58% 1,' Thirty percect of Per.sacola-Tanpn Corerant. 2/ Fifteco percent of Tanpa-Moaecu forecast. 0 20. 64) $9,422 18, 791 22,355 64.612 149.556 :44 1:13 :25 :38 Total 0,536 26,640 63190 96,390 $egFcst Srlcduied 330 1,13 204 :50 6-14 PAGENO="0245" AI8C),C Tyye 2 FT. 1.LLR 1:-TAli: 4 Each Lire .5c.;r~i-ss.u 3cc La, 1; cccc.~t.rip F',.;ct )..ccat"C Si:. is's `cc .ccs AIRCR..FT cTSLI::.TrD:. 2,526 Ar.ui.al Fli,;ht Houru 8.1 Doil~ FIccJht hcUr FI6ATCICL ccc LTS 106) Direct Sycru c. Cauts S84O leyreCSeSiOh aid I~tcre'ut 0184 Isdc:ees. Cucts 3340 Total Pro6ut ~t. Ii erSale-Tccya FE. Laoder.Oals-Ta.'c,a $2,287 01,224 ~cLa~t C:.:'t~a3 66.393 12,128 70,318 cr-ici cd Zc,d Scy'.ect ScL ic a ri a air US 73,318 128 137 239 `cc 3 c.rcscts os. 3.s:l~ Rcordtr:: 1i1~ .:`r~' .1 5.5 Dcc. Par ~IaCi'.AFT Type 3 ;,IHC$J.FT LTILOATIOU 3,930 ,\ncual Fls5ht Hours 19.5 Daily Fii~5t Hours NCIALSFSTLTSjQ~~ Revasue $2,304 Direct Operatus; Consa $902 Depreciation aid Istorest $540 Indirect Costs $431 Total $1,893 $ 416 Profit Loss) PP,SSENGER TRAFFIC TailalSasSee.Ccinesviile Gas ness's lIe-Ticcu. Daytona Beacis:iia,sL Total LOAD FACTO$S Gaonezvo Ile-Tioci Tallalsassec-Sui500Vi lie Gainesvi llu-Daysor.a Scach Daytoua Ic )C5ciii15i. ~11Ed~ ç~y~yctin.~ 5,210 210 36,460 3,860 25,330 2,700 61,000 6,773 5,420 34,320 28,030 67,770 Os-board 26,024 1,420 10,296 41,326 Load 60% 16% 38% 59' 52% Segocflt 295 134 84 238 Sc)ealc led 1 69 :43 .30 1 07 6-15 PAGENO="0246" ;.1SCRAP-F Type 3 :11.2.; 3 1C7) Derct Oyerutctg Cc.:to 57:1 Dt'prCSc.tfOfl ccci Iters-ss 5425 Indirect Costs $356 Pro~~Loso) Tallahzesscc- jest Palo Beach Tcllacattcc Ft. L.celerdale Total 1050 IACTOSS AIi4CPJiFT Type 3 511050151. IES7T$ (ICC) Excesses Direct Operet Costs $701 Depreciatios ard Interest $420 Icolicoct Costs $350 Total Profit (Loss) PASSOISGEP 7RAFFIC Tcllahxroer-SxrHsOta Tallahassee-Ft. i~C5S Sarasota-f t. flyers larasota-,cati Ft. ?iyers-flcari LOAD FACTORS Cosg~ctlre 220 4.25$ 6,940 6,125 18,451 240 :A:.i3.ft~Al2-6:-.S7 F7.2.IC $sA1H-F7. c.-u:rs:~:.:: e. ::t Cccl Lure cocronctIs One La. ..~.s..tr:$. a 1. c~:rute2 b~x Lays 5cr fireS ASC10FT U7'ILSZATICN 4,~75 Actual Flight Hoses 11.0 ).:cly Fisc$ct louis $1,176 $1,492 $ 84 T$.'FFIC 1c25261 ~gy~i~~g 15,640 71$ 16,390 10,970 (.11 19,070 34,610 1.65$ 36,260 Ic ilehas see- first Lalas Beach Lest Palo Beach- Ft. Lauderdale Cs-i~ard Load Sogrrert Scheduled Pac~erccrs Factsr c Ic's Store 36,260 02% 364 1:32 19,870 299 43 :20 49% T2.L10HASSEC-1310t0T5-FT. N: 5:002.2.71 F)UTC 6 lao): Line leprescots Ore Locly Resect rcp 0 lcgot e~ crated Soc lays Per Week 1.5511051 UTLIZATIOI 4,612 Arcual Floght flours 14.8.Cacly Flight floors $2,220 $1,472 $ 557 6.21$ 4. OCI 5,150 33.340 24.155 76,355 Local 7,640 4,660 1,270 26.400 17,731 07,903 Oo-Ssccrd 22 .024 12,910 22,726 36,871 Sarasota-tic ccc Tallahassee- Saraseta Sarasota-Ft. Myers at. flyers-fluxes Load Srgoer.t Scheduled Factor Miles Slock Tire 604 179 :53 27% 233 1:31 618 70 :27 53% 112 :38 54% 6-16 PAGENO="0247" AIRCRAFT Type 2 AIRCRAFT UTILIZATION 1,704 Annual Fliht (iou:s 5.5 Daily Flight (l3urs FINA1CIAL RESULTS (000) Profit (Loss) PPSSEIIGEO TRAFFIC Jacksonville-Daytona Beach 1,330 Jacksonville-Ft. Lauderdale 21,310 Daytona Beach-Ft. Lauderdale 4,013 Total 27,450 WhO FACTORS Jacksonville-DaytOna Beach Daytona Beack-Ft. Lauderdale Type 2 $ 370 AIdCNAFT `JTILTZATION 1,328 Acrid Floylt Soars 4.3 Daily Fin~0t Hears FINANCIAL RESULTS (000) Esee ONeS Direct O~cratiflg Coats $357 DrprecaatiOcafld1CtCrd~t $97 Indirect Cauts $170 Segnent Ii los 98 221 241 J,sCY500VILLE-DA5 7015 81571-FT.__LVJDE510LE ROUTE 7 Each Line Reyresents One Daily Roundirip Flight Operated Six Days Per Week Direct Operating Costa $458 Depreciation and Intereot $124 Indirect Costs $229 Total $1,189 $ 811 ~I9$9I Conne~$fl5 3,440 2. 776 520 6,736 Total 4,770 24,006 U , 330 34,186 On-Scard 28,856 29,416 Load Factor 48% 49% 48% Scleduled Slock Ts;c' :48 1:28 JS7USILVILLE-WEST 5111 BF.ACH ICITU H Each Lose Rc$'rCaet.O One Daily Roundtrij~ Fls~ht C:'era:d Sic Dayc Per Week $1,263 S 632 0 631 Total Crofot r i. ~23L~l~ 31,n73 3.795 3,421 I Soetor 35,475 59% Sal 104 6-17 PAGENO="0248" Profit (Lcsa) ?ASSINGF.R TRAFFIC ft. Walton Beach- Tallahassee Ft. Walton Brad- Jacksonville Panama CRty-2acscoa lie Tailahassen-Mrlbooroe 2aeksonvi1ic-.dllo~rne laliahans ee-.Iacasca'.ele Total LOAD FACTORS Ft. Walton Beach- Panama City Panama City-Tallahassee Tallahassee-,3aci~nonvi lie Jarksonville-Ralboarne 10,350 29% 45 18.9CR 54% 82 28.426 54* 159 15,600 !~!. 175 49% 1/ Thirty peracot of Tallshassce-JarRsda' aSic fcrecast. Ste alva, Rcatc Ii. ~!E~! Type 2 PISANC1AL RES311S (COO) Revenue Eampesses Direct Operating Costs $419 Depreciation cad lr.trrost $125 Indirect Coats 1230 Total Profit (Loss) PASSEIGER TRAFFIC Local 5,300 5,060 18,7s0 6,407 39,010 $ 814 $ 49 7.011 6,293 5,345 1,770 20. 419 242 AORCP'.F Ty~ 3 ç_--~---\~ ~ AIRCRAFT TJTILIIETI3N 3,699 lanual Fl~qht (curs ~ Fr 21.5 lady liaght louts FlitAt.2IJL SESC1Ja `0200 Revenue 31,223 DlrectC~oeata:l 21.56 1502 Dcprec:ut:ar Iotrreut $337 Indirect Ccntr $242 Totel 01.141 _________ $ 02 L~Co, Corccna~$ 3,160 1.290 4.443 Total 5.640 7.700 7.710 6,407 4.434Y 35,C44 271 5.910 050 0.510 1.373 9.080 120 6.523 452 4,806 4.342 39,386 On-Board bed Orgoert Scheduled Pasaeooers Factor I:: Irs Block Tare :31 :49 :53 I:.0l1-OIELSEOFSE-VFRO 961CR- A0 ;57F Il Each Lce Aeprcnaats Oce Sully Rousitcap OlgEt lyrattO So lays Per ccci AICCàSAFT OTILIZ.5TiON 1,707 Aenual Flight Houra 5.5 Daily Flight Roars $1,462 Tampa-Melbourne Taupa-Vero Beach. lelbourne-Fliani Veto Beach-Miami Total tOAD FACTORS 15.344 11,550 24, f 90 8, l7C 59,459 On-Igard Par5r~acr5 Load Factcr Tarya-Melbourne Mnlbourne-Vero Beach Vera Beach-Haani 27,164 35,940 32, 261 45% 608 a~ . 51% Or;mant Scheduled cc slack T:ve 117 :23 34 :14 128 635 6-18 PAGENO="0249" T Typa 2 01000AFT 0JTILlZ~~O0 1,757 Annual Flight Hours 5.6 Daily Flight Hours FINASCIAL RESCL~S (000) PASSENGEk TOAFFIC LOAD FACTOIS ~2~$A Connect~ 6,700 S02 1.3,580 2,235 1il~.l41~°' .,,i.,~.i6 30,626 1,793 AIRCIOAFT Type 2 LA0~ I h~C-kEhT PALM BE.AC-i10?.i1 PPE 12 Each Line ke..rese,tS C:.c Daily Rcandtr~p Flight Cy~tated Six Says Per hoer. Ai.cpfT.~ILI:~:o5 1,465 Annual Plight Soars 4.7 Daily Flignt P.cars 81 i.1NCIAI 0151120 (030) Direct Operating Ccsts $394 Deproc,atnor. and Intiocet $107 Indirect Casts 5107 Total Profit (loin 0 618 Liral Ch..ntStSnl 9,429 44,CA 9,429 On- P arc Load 3, ItO 502 47,441 ~! 56% 243 Each Line Represents0 One Daily RoundtrnpFhight Operatcd dix Days Per Week Direct Operating Coatu $473 Depreciation end Interest $128 Indirect Costs $236 Total Profit (Loss) $1,117 $ 837 $ 280 Pass aro la-Ta Ilakoos one Pensacnl.9-JaS'isSnV_lle Ta1lahsssce-JaSk4Cfl~fl.lte Total 7,202 11,815 15,422 34,419 Pensaco la-Tel Lainno ace TaO lahansae-JsCksooVil to On-Board 23,017 27,217 Load Seghent Factor $1, len 38% 169 159 42% ScI-iSooled Elocn To :41 j.' Seventy percent of Tollahassee",jaCkuOnvLtlC forerasn. Sea also Route 9. $1,316 $ 698 lion-i y., li L.n-.. o:..o-P. s-i. Lakr.icn.:-..oit PaLo beach La~elar.J'4.a... 5,990 201,1020 12, 49 143 62 Sch- Ii SOon I .rc 6-19 PAGENO="0250" (is STST-1.iLEO- r~M?.;-OP ,M'~ 351.33 RLSC4 P~L'E 13 Cat L~:~c I rnuer.ts One Dasy :Ro dt.r:; Fl: ;~.`. erat.d :;,.n Days (or Uoeh AITCR8F Type AlRCR.~FT tTILIZATOCA 5,144 Annual Flight tourS 14.1 Daily Flight (icurs S'TOAICIAL HE.) `J.li (005) Rrvesne $1,275 ~es Direct 1,'ratnn; C.,n'. 0530 Deprcciat~nr. ar.u 1~tnr~st $206 mOored Custs 0265 Total $1,001 Profit (Loss) $274 ?AOSENO1R TRAFFIC ~odi Cornrcti~ ia~s~ 7,610 - 7,610 3,760 - 3.760 2,370. 21,570 23,940 2,709~.' 0,344 6,053 5.63$ 875 6.505 22,079 27,759 49,866 #IRIRAFT Type.3 AIRCRAFT UTILIZATION 1,687 Annual F1(ght flours 6.0 Daily Flight flours FINMICIAL RESULTS (000) Resence $904 Expenses Direct Opcrating Costs $287 Depreciation and Interest $372 Irdirect Costs $144 Total $603 Profit (Loss) $331 PASSENGER TiAFFOC LOAD FACTORS On-toard Load Passcr.rrs Factor 244 C- Key West-Tc.rpa Key West-Orlando Saples-Tarpa Tampa-Orlando Tampa-Daytona Reach Total LOAD FACTORS On-Snard Load Segrert Scheduled Pansensers Factor :iiles Blocr. T.'ne Key Nest-Naples 11,370 49% 112 :34 Naples-Tampa 35,310 51% 134 :39 Tampa-Orlando 18,318 53% 81 :27 Oraando-Doytosa Brad 6,505 26% . $0 :20 49% 1/ Thirty percent of Tape-Orlando forecast. Lee also Route 1. FT. (IALTON SE3c:)-PAon.~ts CITY-CANtO 14 Each Lane Represents One Daily Roundtrsp Fl:ght C~nrated Six 1ays Per Wen~ West City Ft. Walton Beach-Tampa Panama Cit~-Tarpa Total Local Connrctin~ Total 10,245 170 10,410 4,050 1.338 11,304 24,290 1,508 25,798 Ft. Walton Brach- Panama City Panama City-Tampa 10,410 30% 49 21,799 74% 251 62% S~rcnt Scheduled :4oles filets Tire :27 1:09 6-20 PAGENO="0251" 245 AIRCRAFT Type 3- FINANCIAL RESULTS (000) Revenue Exper.sc Direct Operatis4 Couts $352 Deprecoatior. and Ioterc5l $217 Indirect Coats $161 Total Profit (Loss) PASSEOGER TRAFFIC LOAD FACTORS .Oackeosviile-3r1-ssdo Urlando-I-akeiand Lakeland-Sarasotu 5,840 1,362 6,9.0 - 7,215!' 4;609 6.220 2,872 26,210 9,043 1/ Fifty percent of Jacksoeviile-Crlanoo Is recast. See also Scute 16. AIP.TRAFT Type 3 Fr. 3; ~.U~-3;:~s: :. ILLS 801)1 06 Each lose huprc:or.su 3r.:- .; ly R3st3tr;p Fl; sOt 01'srated S.c lays Per Week AIRCRAFT L'TLIZATIO() 1,847 Soossi Fiogot Sours 5.9 Daily FlugIt hours FINANCIOL RESULTS (000) Rovesee Portal Op crator.7 C::;; $ I Dsp recoatic:. asi Ir.o»=:c;t I Ir.dnract C:~tu Pro±:t (los:) 635SEt3~ 1.33)01' It. Rter~t~'0 1 lIe 1.05$ FA1'T1-IS I. ~ ... .-10F.SS ro yr) OS taco Lone SopreSe One Us; Op Scuosir op Florso uperstod So lays Per (deco AIRCRAFT ITILIZSTION 2,382 innoal FloçhI Hours 7,6 taily Flu hours $913 $760 $153 .Tacksonvi lie-Sarasota .Iacksonvi$ 1e-Lakelacd Jacksonville-Orlando Orlando-Sarasooa Total 6.222 6,737 12,114 3;, 258 Oc-Scard Load __________ 6 actor ~6.166 50% 23,244 664 16.294 j~ 52% Seo.r.ent 4; len 144 57 53 Scheduled B).ck Toce o46 :24 :23 -.3 3. lb. 21'. 0:.-: III Ft. Mysru-Orlasdo Oclando-Ja:isonV0l 13 rot lOt :4) 4; 1/ Fifty pcrcnst of j.,r'.:-.0~ .l~': I: .3 - fr- .aat. rC In.; heute 11. 6-21 PAGENO="0252" i;v.1t-~t1~ `7L( ii;C$-F~. ~171~L 17 Each 1,~c o'~t.s lr~c ~at1~ Four.)trap ~~ght o~'ra~'~ Per Seek 610C(AFT Type 4 nIRCR\FT It) ZATI0N FI11'~C1AL LLSLITS (020) Dsrcct Oerotar~ Cc.t. 1257 Drecsatice se~1 lot.::sl 1110 Indirct Ccsts ~ota1 Profit (Loo~( P5010110? T1?hC Gai scan lie- West PAIJI (rack Ft. Lsuderdale Total Gainesville- West Palo Beach West Pa]a Beech- Ft. Lauderdale 246 8.0 laity fli5kt (cars 214 0129 $466 0 61 101-al C.,c. ct On-Oserd lead Sc~,~c'ot Icteduled Passeencrs Factor ((:lcs Block 6,710 8, 800 15,510 LOAD h1'CTIi.S 200 6,911 101 8,905 305 15, 115 15,815 53% 246 1:02 8,905 30% 43 :18 50% G-22 PAGENO="0253" 247 SENSITIVITY OF COSTS TO MIX OF AIRCRAFT TYPES Two alternative assignments of aircraft to the routes are analyzed in Table 6-2. The table compares aircraft hours and operating costs under three assumptions. 1. The aircraft assignments generated by the model and used in the separate route analyses (i.e., free choice among Types 2, 3 or 4). 2. Using the flight frequencies of 1. above, Type * 2 aircraft are substituted for Type 3 aircraft. The result is a `maximum cost" presentation of the routes. 3. The routes are evaluated using the model route structure, but aircraft choice is restricted to * Type 2 and 4. The result is less frequencies on some Type 3 routes but in no case do the routes go below Minimum Standard Service. The table shows that a straight flight-for-flight substitution of Type 2 for Type 3 aircraft will cost about $2 million more than planned' or about a 10 percent increase statewide. In the third case, total direct cost changes vary little from that planned because frequencies are allowed to decrease to the minimum. Total flight hours decreased about 18 percent, partially because of the higher speed of the Type 2 aircraft, and partially because of reduced frequencies. The comparison shows that on several routes the model selected public service, as expressed in frequency of flights, over profitability which may be favored by the method of the third case. 6-23 PAGENO="0254" Case 1 Cas- 2 Caic 3 Type 3 Frequencies A~;st1rne3 Ocly Type ~ Proposed Route System- Wj~j~Tre 2 Aircreft Aol Type 4 Avai1ai~o Annual Total Arru~il Total itouual Totai Aircraft Block Operating Aircraft Clock Oper~ttinq Aircraft Olock Oporating Type Flours Cost Type Hour. (o~;t _~yj~ hours Co:;t 2 4,672 $ 2,226 2 4,672 2,220 2 4,672 $ 2,226 2 4,186 1,995 2 4,186 1,9a5 2 4,296 1,995 3 5,935 1,893 2 5,015 2,389 2 3,246 1,452 2 2,526 1,204 2 2,526 1,20.1 2 2,526 1,204 3 4,675 1,492 2 3,9~1 1,083 2 1.75 941 3 4,612 1,471 2 3,353 1,693 2 3,223 1,536 2 1,704 811 2 1,704 811 2 1,704 811 2 1,328 632 2 1,328 632 2 1,326 632 elbournn 3 3,699 1,141. 2 3,110 1,402 2 2,6110 1,277 TABLE 6-2 PNALYSIS OF COST SENSITTVITY OF MiX OF AIRCRAFT TYPES Route ~;o. 1 Pensaco1e~~~pa-Or1ando-West Palm Beach 2 Pensacola-St. Petersburg-Miami 3 Taliahassee-Caineiville-Daytona Beach-Miami `7, a. 4 Ft. Lauderdalc-Tampa 5 Tallahassee-West Palm Beach-Ft. Lauderdale 6 Tallahis;ce-Sarasota/flratlenton-Ft. Mycrs-Miaei 7 Jacksonville-Daytona Reach-Ft. Lauderdale 0 Jacksonville-West Palm Reach 9 Ft. Walton Beach-Panama Clty-Tallahessee-Jacksonville PAGENO="0255" Ruc 10 ~ 11 Pen icc1a-T311h~.e-.~c)flJ~'J'i 12 Lakeland-Wo~,t P315 1~Oich-Mi3mi 13 ~ 14 Ft. ~31ton Beach-Par~s..~ C:ty~~r~ 15 ~`acksowx lie-Or !an0o-~~1--Orisota/Sraderiton 16 Ft. Myer~-Or1.ando-Jack~:onvtU~ 17 Gaincsv111e-~ect Pnle Peach-Ft. Lauclericle TA}31E 6-2 (Continued) JiNJ\LYSIS OF COST SEIISITIVITY OF MIX OP AIRCRAFT TYPES Case 1 Case 2 Case 3 1/ Type 3 Frequencies Assumes Only Type 2 Projosecl Route System- With Type 2 Aircraft Axsd Ty1e4Availahle Annuni Total Annual Total Annual Total Aircraft Block Operating Aircraft Block operating Airccaf I Block Operating _______ Hours Cost Type flours Cost ~ Hours Cost 2 1,707 $ 814 2 1,707 $ 814 2 1,707 $ 814 2 1,747 837 2 1,747 837 2 1,747 837 2 1,465 698 2 1,465 698 2 1,465 698 4 5,144 1,001 4 5,144 1,001 4 5,144 1,001 3 1,887 603 2 1,590 758 2 1,590 758 3 2,382 760 2 1,997 951 2 1,598 762 3 1,847 589 2 1,556 741 2 1,556 74) 4 2,491 485 4 2,491 485 4 2,491 485 52.007 $18,652 47,552 $20,600 42,648 $18,170 TOTAL 1/ Aircraft assigned by model. PAGENO="0256" 250 * CHAPTER 7 A PROPOSED PLAN FOR FLORIDA INTRASTATE AIR SERVICE This plan uses three types of carriers as the tools for obtaining service. 1. CAB-certificated interstate carriers, 2. Communter airlines, and 3. Intrastate carriers. The Federally (CAB) Certificated Carriers The services of the CAB-certificated carriers are considered as basic in the State plan. Nine interstate carriers are currently authorized and providing service in 55 of the 76 markets included in the plan. The quality of their service ranges from being totally inadequate to excessive. Service by these carriers offers several advantages: the companies are large and stable financially; they have a high degree of public acceptance; and the types of aircraft which they operate are modern and comfortable. Given the high technical quality of their opera- tion, and their substantial contribution to the total State plan, *~j~ is essential to consider the services of interstate carriers as the basic system. While these carriers are a great asset in the plan they are also a liability where their services are not adequate. The plan proposes that where their service is not adequate and they are unwilling to make it comply with standards, restraints will be applied to these carriers to assure a willing commuter or intrastate carrier suff i- cient revenue to support his service. The Commuter Carriers Commuter carriers have a dual identity as both intrastate and interstate carriers. They are required to use aircraft with not more than 30 seats or they lose the privilege of carrying inter- state connecting traffic.. This traffic is vital to much of their operation. The State is receiving significant intrastate service from commuter carriers and the proposed plan relies more heavily on them and provides revenue protection for them in markets where they cannot effectively compete with interstate carriers. 7-1 PAGENO="0257" 251 The Intrastate Carriers These carriers are different from conirnuter carriers in that they use aircraft with more than 30.seats and therefore are not allowed to carry any interstate traffic. These two restraints effectively limit them to the few largest markets of the State where the strictly local, intrastate traffic may be great enough to support their large aircraft. At present Air Florida is the only carrier in this class. Intrastate carriers can expect to confront formidable, if not insurmountable, competition from interstate carriers in these larger markets. 7-2 28-911 0 - 78 - 17 PAGENO="0258" 252 Action Tasks of Proposed Plan It will be necessary that the following legislative and regulatory actions be taken by Florida authorities, in order to implement the planned route structure. 1. Amend Florida legislation titled An Act Relating To The Air Carriers of Florida to make the interstate, carriers d~irating between points within the State subject to State regulation in the same manner as intrastate carriers now certificated by the Public Service Commission. The amending legislation should provide a date on which the present privilege of carrying intrastate traffic will terminate if not specifically authorized by the State before that date. * This action will permit the carriage of intrastate traffic by only those carriers authorized by the State and will not affect interstate operations or the carriage of interstate traffic. 2. Adopt Standards of Minimum Service applicable to aZ,~ carriers serving intrastate passengers. * This action will bring the intrastate traffic of the interstate carriers under State control. 3. Award intrastate certificates to all interstate carriers operating in the following markets and meeting Standards of Minimum Service: Miami-Tampa Miami-Tallahassee Miami-Orlando Orlando-Tallahassee * These major markets (except Orlando-Tallahassee) are each receiving more than adequate service from two interstate carriers. The history of service and the route structure of the carriers indicate that the services will continue at this level indefinitely. 4. 7~.ward intrastate certificates to interstate carriers in any market not listed in 3. above, in which the carrier requests certification. * It is understood that such a request constitutes * agreement to operate in compliance with the Stan- dards and `failure to do so will result in termination of the authority in the matket. Further, failure to request authorization results in forfeiture of all rights to any ~ntraetate traffic in the market. 7-3 PAGENO="0259" 253 * This action will permit the interstate carriers to determine the routes over which they do not intend to provide adequate service. 5. Award lirnited certificates to interstate carriers in markets where their CAB authority relies primarily on intrastate traffic but where they do not meet the Standards of Minimum Service. * Such awards should be made only where it is demonstrated that an intrastate carrier can expect to supply profitably the remainder of the standard service. * The certificate will limit the interstate carrier to the service performed at the time of certification. Abandonment of that service will result in permanent loss of authority in the market. * Gainesville~Miami is an illustration of such a route. 6. Award remaining routes to intrastate carriers. * The State should announce the routes available to be awarded and receive applications for those routes. Action on applications filed at random may result in failure to provide for some essen- tial services on routes expected to be economically viable as presented in the plan. 7. Request from the CAB appropriate exemptions for carriers holding Florida intrastate certificates to enter into interline ticketing baggage agreements with interstate and international carriers. o Intrastate carriers who also qualify as commuter airlines under Part 298 of the CAB Economic Regulations now enjoy this privilege, which would be lost if they acquire larger than 30 passenger aircraft. o The probability is that new aircraft, even under 30 passengers, will not otherwise be used in many markets because they will be (1) not available; (2) too expensive; or (3) not large enough. Under these circumstances use of Convair 580 or Fairchild F-27/227 through- out the State can be expected and this exemption needed. 7-4 PAGENO="0260" 254 8. Undertake collaboration with the CAB to develop means of making all cities in Florida equal in the application of State as well as Federal regulations. * The definitions of "interstate commerce" and "interstate transportation" as stated in the Federal Aviation Act make air routes between many Florida cities interstate rather than intrastate because the routes lie over the high seas. Thus, the unique geography of Florida and the wording of the Act appear to * impose unequal treatment or benefits on certain * cities. * This overwater operations problem can frustrate effective State regulation intended to obtain better air service throughout the State. * This problem appears to be complex and its solution may require amendment of the Federal Aviation Act. 7-5 PAGENO="0261" 255 Coordination With The Civil :\erOfl:iut i Cs Board The primary goal of obtaining adequate air service in the essential markets of the State will require cooperation between the State and the Federal Civil Aeronautics Board. The discussion that has preceded the steps of this proposed plan for service show that the State and the CAB each have certain re- sponsibilities and prohibitions. Where some of these conflict they can be contested, argugd and even litigated, but most can probably be resolved within available processes. Coordination with the CAB will take two forms and if successfully executed should prevent or certainly reduce the possibility of confrontation. First, the State will need the pernission of the CAB for some new authority related to interstate carriers and for exemptions for ticketing and baggage agreements. Second, some of the proposed actions by the State will be restrictive of the inter- state carriers and an advice and consent relationship with the CAB should be helpful in obtaining support for or acquiescence to these actions. As soon as a Florida plan is approve4 within the State, a request should be made to the CAB for a meeting with the Board at which the full plan will be presented. It will demonstrate that the specific requests to be made subsequently are needed to fulfill a well-conceived intrastate plan which will be adversely affected without the assistance of the Board in each instance. Also, it will assure the assistance of the Board's staff in framing the actions, or inactions, to be sought both formally and informally. PAGENO="0262" 256 CHAPTER 8 SUBSIDY - NEEDS AND PRACTICES One element for consideration in this study is the degree of public support, or subsidy, which may be required for the necessary services, and the neans of providing such support. The study finds that no subsidy will be required i-f the recommended actions -- to protect the intrastate carriers from competition and assure them of ample traffic -- are implemented. Nevertheless, this chapter reviews generally the subsidy policy and practices of the Federal government and offers some suggestions foL Florida. Federal Subsidy Payments Historically, the matter of subsidy has been closely related to air transportation. Subsidy was first used to assist in the development of air traffic by underwriting a portion of carrier costs, which in turn permitted fares reasonable enough to stimulate traffic. More recently, subsidy has been used to insure a-prof it for those carriers serving low-traffic, isolated communities, with less emphasis on "pump-priming". Airlines certificated by the Civil Aeronautics - Board have received substantial subsidies over the years, beginning prior to the enactment of the Civil Aeronautics Act of 1938. At the present tine only two groups of carriers receive subsidy payments, primarily for services to small or isolated communities -- the local service car~iers, and carriers performing service within Alaska. In recent years the CAB has authorized many routes, now a major part of the local service systems, designated as ineligible for subsidy. The amount of subsidy now covers only those operations not specifically designated by the CAB as subsidy-ineligible. The trunklines (with the exception of Northeast Airlines~1) became free of direct subsidy support in 1952, and since 1957 international operations have been unsubsidired. Originally, subsidy was not separately identified, but was part of the compensation for the carriage of mail. However, in 1954 subsidy was administratively separated frcm service mail payments. The amount of direct subsidy support reported natiorn%ide since 1954 ~as fluctuated rather widely. The iowezt amount was $39.7 million, paid in 1955. Subsidy was greatest in 1963, when $82.7 millionwas paid. Current subsidy is under $70.0 million annually. No subsidy has been paid for air service within Florida since 1950. 1/- Subsidy for Northeast was ended in 1967. The carrier merged with Delta Airlines in 1972. 8-1 PAGENO="0263" 257 The Basis for Federa lSubsid3. The provision of subsidy for interstate air transportation is contained in Section 406 of the Federal Aviation Act of 1958 (and the predecessor Civil Aeronautics Act of 1933). Under that Act the CAB is directed to administer subsidy for service ". . .under honest economical and efficient management, [needed) to maintain and continua the development of air tranaportation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense." Thus the determination of both the justifications and level of subsidies was delegated to the Civil Aeronautics Board. The Act also provides (Section 406(a) that the Board shall fix fair and reasonable rates for the transportation of mail by aircraft, and (Section 406(c) that compensation f or this service shall be paid by the Postmaster General in accordance with such rates (unrelated to the need for subsidy). Neither the Act nor the Board guarantees that each carrier will earn a profit at the prescribed-subsidy rate, but rates are established so as to provide reasonable opportunity to do so under conditions or honest, economical and efficient management. In other words, the Board has adhered to a public utility rate theory under which losses, incurred by carriers in past years while on closed rates, cannot be made up with subsidy in fixing future rates; and at the same time, rates once established remain final and closed until reopened. - How The Federal Subs idp Program Op_ç~ates In implementing the subsidy provisions of the Qrigin~l legislation in 1938, a system of individual ratemaking was established which in effect amounted to negotiations between each carrier and the Board (known in 1938 as the "Authority") as to the amount of subsidy to be paid. The carrier representatives and Board's staff adjudicated the subsidy to be paid, after comprehensive and detailed examination of carrier expenditures and revenues. The results were expressed in an involved formula which produced a rate acceptable to both parties. This case-by-case approach continued until 1961. During that tine subsidy ratemaking became increasingly cumbersome. It also became more and more difficult to reach agreement. Route systems were changing rather often, and so were the subsidy requirements. Thus, the airlines were frequently in an "open" or undetermined rate -situation rather than on a definite final or "closed" rate. In this situation the single carrier subsidy determination process did not create good climate for long-range carrier planning nor maximum incentive for efficient operations. In 1961 the Board found that-the then 13 local service carriers, despite various 8-2 PAGENO="0264" 258 difference~, represented a homogeneous group which could be encompassed by a. single rate, and established a class rate system for all 13 carriers. The class rate was based on the carrier's operating results for the year ended June 30, 1960, adjusted to exclude costs not recognizable under established Board policy. In the computation of the subsidy need the average costs of the group were used, placing a premium on efficient operations. The class rate system has been operating ever since with periodic adjustments. Regardless of the system used, the subsidy rates are determined pursuant to the Act only after notice and opportunity for hearing, and are subject to judicial review. Most subsidy cases are pro- cessed by informal conference procedures between representatives of the carriers and the Board, although cases may be tried for- mally before the Board and its Administrative Law Judges. The conference procedure, which is detailed in the Board's published Rules of Practice, has proven to be an efficient method of narrowing areas of conflict and expediting the necessary Board determinations. Under formal or informal procedures, no subsidy rate is finalized without opportunity for objection by interested parties, including the Postmaster General, and the observance oF all statutory, pro- cedural and substantive requirements. Once a subsidy rate is established the Board maintains a continuing review. Pursuant to its power under the Act, the Board has on its own initiative reopened numerous rates for reduction. ~ Subridg ifl an unusual recent development, the CAB attempted to provide subsidy support to a commuter airline which, because it is not a certificated airline, cannot receive subsidy payments directly. in 1968 and 1970 Frontier Airlines recuested permission to suspend o::~ratjons at three cities in Kansas (one in 1968, two in 1970). CAB approved the suspensions on condition that substitute ~rvice be provided by Air Midwest, a commuter airline. Frontier's ~i5zidy was adjusted downward to reflect this suspension of sub- :iljzed service. Midwest sustained losses in the operation and in 1973 applied ~ the CAB for subsidy support. The Board approved the subsidy, 1/ since AirMidwest was not eligible for direct subsidy payment~, - yes arranged that the funds be paid initially to Frontier, which ~; the entity responsible for keeping the service in operation. Order 74-4-77, dated April 12, 1974 made final the tentative ding of the Board, issued on January 14, 1974. 8-3 PAGENO="0265" 259 Under this arrangement, termed a `flow-through" subsidy, the money was passed on by Frontier to Air Midwest. The "flow-through' concept was challenged in the courts, and the Board's action was found to be illegal 1/ because it lacks the power to pay subsidy to a carrier which does not hold a certificate. yhis was the single instance in which the Board attempted to use the flow-through" method. Only one other commuter filed for a similar arrangement but the application was not processed, possibly because the court decision was imminent. Subsidy and Florida's Intrast~_e Routes Under the recommendations of this report, especially that which guarantees intrastate protection from excess competition, the question of subsidy for purposes of this study is largely academic. All routes are estimated to be operated at a profit. Given this situation it would be difficult indeed to establish a program for subsidy, without any knowledge of specific needs which may evolve. In developing the intrastate route system, the objective was to make certain that service provided would meet prescribed standards and criteria; no consideration was given to the subsidy requirement which might result. As it turned out, the routes will be profitable and subsidy will not be required if the plan is implemented as recommended. It is recognized that in all projections there is some degree of error. However, f or the routes as developed, the margin for error seems sufficiently adequate to sustain the finding that operations can be profitable. The establishment by any unit of Government of air service which cannot support itself is primarily a political or social rather than an economic decision. While such services have usually been established to "develop" a market to the level where it will not require support, it is very difficult to actually demonstrate with specific markets where this has really occurred with modern aircraft. Subsidy reduction, where it has occurred, has usually resulted from adding profitable routes to a subsidized carrier's system, providing a form of internal subsidy. Such an approach must be very limited within a single State because the highly profitable routes are probably interstate routes. Subsidy for intrastate services in Florida may be required if service is extended to markets which, under minimum traffic and geographic requirements established for this study, do not qualify. If the 1/ U.S. DC Circuit Court of Appeals. Decided July 11, 1975. 8-4 PAGENO="0266" 260 State provides service at these levels the need for financial support is practically certain. Subsidy payments may also be required if the State does not provide the protection from com- petition, and the traffic participation needed by the carrier to meet the standards of service which have been specified. The history of commuter service in Florida, as highlighted in this report, makes it clear that without guarantees of this nature the service can only be provided with large losses which can be offset by substantial subsidy support. Aside from the Federal Government's activity, there is no con- sistent history of subsidy programs for air service. There have been community projects to support airlines, and methods of subsidy considered but not tried. The State may wish to consider one or more of these, depending on the amount involved and the degree of support which the State is willing to furnish. Community projects to support an operation considered essential can take the form of tax preferences, guarantees of a minimum number of tickets, or guarantees of loans. The tax preferences represent an indirect subsidy, which may or may not be adequate to provide the full subsidy which a municipality (or state) may deem to be required. The waiver of airport landing fees might be considered as a tax preference. The purchase of a guaranteed number of tickets by a municipality is one method of direct subsidy which generally has been considered to be unsatisfactory because of administrative problems in dis- posing of the tickets in an acceptable manner. Loan guarantees are a form of subsidy utilized rather widely in a number of fields. It is an indirect subsidy which is generally applicable to the purchase of capital items.. In Florida's case, the use of small and relatively inexpensive aircraft is recommended. Thus the loan guarantee possibly would not be adequate for the State's purpose. A subsidy tool considered by Federal authorities, but not used, is the purchase of aircraft by the Government unit to perform the desired service. A significant factor in the favorable showing exhibited in the route financial results is the type of e*-~uioment which is assumed. For the CAB-certificated carriers, one of the large elements of cost -- and of subsidy -- is tho depreciation of large and very expensive jet aircraft. For intrastate services such aircraft are -iot necessary to meet the standards nor desirable from a fiscal ?oint of view. Subsidy oaid by the CAB is determined by recognition of all costs incurred under honest, economical and efficient management plus a profit (return on investment olus taxes) . A large part of this subsidy represents the costs attributable to the ownership of aircraft. 8-5 PAGENO="0267" 261 A possible method for providing subsidy and reducing the amount required, would be for the State to purchase aircraft which would then be leased to an operator at an appropriate lease rate. The lease rate would determine the desired subsidy level. The re- sidual value of the aircraft could remain with the State, and it could be substantial, or the lease could provide for ownership to go to the operator after several years. Either way the State would own the equipment, and could recover and transfer it to other operators if necessary to assure continued service on a route. Safety maintenance of the aircraft is controlled by the FAA and adequate care of non-safety maintenance can be provided by bond, an escrow fund or similar addendum to the lease contract. Leasing and supervision of the contracts could be handled by an appropriate agency of the State or a State owned corporation established for the purpose. Frequently the CAB and the States are urged by a community and their elected representatives to provide first air service to the community or air service over an additional route to the community. More often than not the service will require subsidy either directly from the government or as a loss operation added to an otherwise profitable airline. Can this happen in Florida? It can, but when all recommended services are provided the community will be one less than 100 miles from an airline airport or less than 50,000 population by 1990 -- the criteria for selecting cities to be served. If it is nevertheless desired to test service at the city the foregoing approach is one possibility, with aircraft being pro- vided to the city instead of the operator with the agreement that the city provide for its scheduling and operation, within the Standards of Service, for service to and from not more than two other cities where connecting interstate service is available. The State would retain ownership `of the aircraft, with all other costs borne by the city it served and the operator hired or selected by the city. The foregoing discussion describes a number of the options which may be available should the State decide upon a subsidy program. It should be emphasized, as was stated earlier, that it is not logical to attempt to establish a program for subsidy without knowledge of specific needs. It is believed that the approach recommended in this report will provide the State of Florida with the intrastate service which it needs, without the payment of any subsidy. A subsidy program should not be considered by the State unless for some reason not yet apparent the proposed services will not be forthcoming. 8-6 PAGENO="0268" 262 APPENDIX A AIR SERVICE AUTHORIZATION IN FLORIDA The tables and naps appearing herein detail the authority currently held by all air carriers serving intrastate markets in Florida. Civil Aeronautics Board Certificates The charts show the routes held by each interstate carrier as authorized by the Civil Aeronautics Board. The explanatory notes indicate any restrictions on the authority. Eight carriers can serve various city-pairs in Florida but by far the most extensive authority is held by Eastern and National with 11 and 14 points respectively. The authority of Eastern is virtually without restriction. National's certificates have some restrictions which apply mostly to Ft. Lauderdale service. A great many city-pairs can be served by National only through an intermediate point usually a route segment junction point. Delta and United have extensive restric- tions against intrastate flights. The restrictions on Delta require that many markets can be served only on flights which originate or terminate out of the State of Florida. United's restrictions prohibit "turnaround" flights in several markets which is virtually the same as the Delta restrictions. Southern's certificate has no restriction. Braniff, Northwest and TNA have very little intra-Florida authority and no restrictions. None of the restricted carriers have asked for removal of the restrictions and it is doubtful that removal of the restraints would result in any added or improved service. A-i PAGENO="0269" 263 CURRENT AIR SERVICE AUTHORIZATIONS_IN FLORIDA Explanatory Notes LI Unrestricted nonstop. Nonstop authority - turnaround service prohibited. Single plane service prohibited. Best possible routing is too roundabout*. etc. Nuither of intermediate stops required. Closed door restriction - no local traffic. Nonstop authority with long-haul requirement - flight must originate or terminate out-of-state. L~I1 Service suspended. * In the 0 - 750 mile range, 20% is used as the maximum allowable circu ity. A-2 28.911 0 - 78 - 18 PAGENO="0270" lISA;: I 1' r i N'1114:1A'r! ONAL I UTRA-FIOIU DA I1OLJTC IWTIIOR1TY OF CIVJ I A1:I6ONAU'rlcs BOARD B? CM1RIER EASTERN AIR LINES, INC. ,,` :4.,, `i -i 1' ~ . *`,)" :. C:. 4 .1 () Ii I (I C ~f. .1 ,., 0' s-' .o~ ci 0 ~~j4~i ~ (C)84.5 t~ B C) 4J)) 4 5).-) C). `.,44 C) .4.8 ~), C) Ii C) C) ~ 6' 6 g *g 4) 44 i 10 C) `, `4 (4 44 -44 0 0 C) C) ,`) (U .`4 84 C) (44 4 (0 (4 ,-.4 0 0 44 `44 C) C) C) C) ci .a 4) Ii 0. 0 4) C) ` 4~ 44 .4 0 ci LI (4 .-i `4 C) 4~ "4 V `-8 `-4 `4 "4 .4 .,4 C) ~ 0 84 C) C) ,~ 4: 4) `44 44 4') (5 4) .;4 `0 4.4 C) `C V .44 .a . .4.8 1.4. Daytona Beach i a Ft. Laud erclale 0 JacksonvIlle 0 0 Melbourne 0 Orlando 0 0 00 `ra liahamsee Miami/Ft. Laudcrdaic-'rampa/St. Petershurg/C1earwater~~' L)fll,'i'A AIR LIIJEU, RIIC. I, Gainesville a Miami 0 On a (1)1(4 I'1m:1.7st . Ia't''r sburg/1 Cl'.,uw,tl'r 1/ ,_J 14 / 1)1 44' r~'&'d t)U'44.44411 `/(iu~~5 1; . `eternI)urg or bOtil Tim' carrier IL4:; 04 lI4:t I. ictId o~c'ratiny authority be tween each ci ty-)ai r cooL i 1:11100 except Lor the coded rc'ct:rietionn (41414:)) `41.0 cx,.(la) )~4:)) 0)8 48444: 14-2. Sarasoi'i/Bradcn ton ru(n((a/ i . i'1tersDlLryJ Clearwator 0/ PAGENO="0271" NATIONAL AIRLINES. iNC. INTRA-FLORIDI1 ROUTE AUTHORITY OF CIVIl AERONAUTICS BOARD BY CANDIED Day toma leach 1 -~ 1 1 0 ;~: 0 S - Ft. lauderdale I 5 1 X I - I C 0 0 S I 1]. 0 Ja~k~onvi1le S S S L:ikclamd * I *~ Miami 1 l'anama City 1 Sarasota/dradenton Tollahassee 1 1 TarVa/SL.PeterSl?i)rY/ - * Served throuqh Tampa International. 1/ lay be served throu.jh Tampa or St. Petersburg or both. RaCe: The carrier hax unrestricted ojserating authority between each c1ty-pair combination except for the coded restrictions uhich are explained on page A-2. Ft. Myers EOilTl!WE1T AcHIlLES, TIC. Ft. Lauderdale-Miami L~I] Ft. Lauderdale-Tampa/St. Petersbur~/C1carwatcr~" LII Miami-Tampa/St. Pctersburg/C1earwater~" [III SOUThERN AIRWAYS, INC. icy last I SI lbournm S S S Orlando 1 0 Pensacola 11 Hi Eglin (Ft.iialtoshheachh - - Jacksonesile - - -- - --- - -~ .~ l~_ Miami/Ft. Lauderdale Orlando Panama City PAGENO="0272" 266 INTRA-FLORIDA ROUTE AUTHORITY OF CIVIL AERONAUTICS BOARD BY CARRiER TRANS WORLD AIRLINES, INC. Ft. Lauderdale~~'-Miami Ft. Lauderdale~"-Tampa/St. Petersburg/Clearwater~" Miami-Tampa/St. Petersburg/Clearwater~1 UNITED AIR LINES, INC. .c C) 5 S m ~4u* C)C) ~).iJ 00 a~p C) C) .-4 ~-, . B ~ S 0~ .~ 4)0 CI)'-4 *~~SO c C~ 5 cC *~4 ~ S 0 n .)4 0 Cl --~ B 0 `~ 4~ tn C) F E-~ Z Ft. Lauderdale X C Jacksonville NT NT NT Miami Tampa/St. Petersburg/ Clearwater 21 NT NT NT 1/ Service not inaugurated. 2/ May be served through Tampa or St. Petersburg or both. Note: The carrier has, unrestricted operating authority between each city-pair corC)bination except for the coded restrjctjons which are explained on page A-2. PAGENO="0273" 267 FLORIDA PUBLIC SERVICE CO~IISSION CERTIFICATES Authority held by each intrastate carrier is shown on route maps. With each map is a table identifying the PSC dockets and orders in which each route is recorded. Two observations result from the review of these certificates. 1. It is not clear whether Florida carriers have authority to overfly or skip intermediate points on some of their schedules. In some instances, - such as Shawnee, specific permission to operate nonstop is written in the authority. In others, such as Florida Airlines' Tampa-Ocala--Gainesville- Jacksonville route, the carrier operates nonstop between Tampa and Jacksonville although such authority is not mentioned. 2. The interpretation of Sun Airlines' authority in PSC Order 11366 has set a precedent for any carrier to serve any city within a 50 nile radius of a named city. There are enough possible pairings of such cities within the State to cause undesirable predatory scheduling if this precedent is expanded. It should be determined if such a liberal reading of the Florida atatute is justified on a statewide basis. These maps were first prepared for service as authorized on April 1, 1975. *They have been subsequently revised to show actual service performed as of February 17, 1976. There is a great deal of change in this 10 1/2 month period. Several certificates were never activated. Southeast. Airlines has ceased to operate, as it was the loser in the competitive struggle between `Miami and Key West; Florida Airlines has expanded and operates unbalanced schedules on many routes in its efforts to avoid direct competition w~ith CAB carriers. Shawnee is also expanded and entered a contractual relationship with F1or~da Airlines. Current service is shown with solid lines on all maps. A-6 PAGENO="0274" Docket 73134 - ACC Order 11237 February 14, 1974 Cert. No. 9 (Extended)s.°' Docket 74550 - ACC Order 11909 February 5, 1975 TallanaSSee - Orlando deleted - was flown twice weekly in Apral 1974 Docket 74293 - ACC (AP) Order 11964 February 20, 1975 Route Extended Start-Up Date 45 Days 268 MAP A-i AIR FLORIDA TallahasocO Jacksonville Docket 72684 -` ACC Order 10795 June 20, 1973 Certificate No. 9 - ACC Grandfather Class 9 Aircraft Operated February 17, 1976 ~5~4i~a A-7 PAGENO="0275" 269 IIAP A-2 AIR SUNSHINE (AAT Airlines, Inc.) Docket 73788 - ACC Order 11480 June 5, 1974 Extended Certificate w~'~' Pisaco1~i - Jac~:sonvi1le St. Docket 73010 - ACC Order l0~94 June 20, 1973 Certificate No. 7 - ACC Grandfather i.uusm Class 3 Aircraft Operated February 17, 1976 ~ Kay Marathon West A-S PAGENO="0276" 270 MAP A-3 ATLANTIC SOUTHEAST AIRLINES, INC. Class 2 Aircraft at. Expired if not activated I'eterskurg! 90 days Order 11237 - A Sept. 12, 1974 Amended to make ASA a class 3 carrier Order 11421 May 10, 1974 Start-Up Date Extending 90 Days Tallahassee Jacksonville Docket 73201 - ACC Order 11237 February 14, 1974 Certificate Ho. 11.- ACC Punta Ourda Ft. Certificate lapsed by Order 11965 March 3, 1975 after hearing Island Z~arathon A-9 PAGENO="0277" Certificate No. 6 - ACC Grandfather Class 3 Aircraft 271 MAP A-4 F.I.T. AVIATION Ta 1 lahas see Jacksonvi 1 le Docket 73013 - ACC Order 10700 May 8, 1973 Punta Gorda Ft. Authority LapsCd island A-b PAGENO="0278" 272 MAP A-5 FLORIDA AIRLINES Docket 73737 - ACC Order 11431 May 14, 1974 Rotite Extended ~ Docket 750029 -~ ACC CAB) Order 11929 February 13, 1975 Tallahassee - Jacksonville Tallahassee - Gainesville Suspended For 6 Months Tallahassee Jacksonville Docket 73005 - ACC Order 10688 May 7, 1973 Certificate No. 3 - ACC Grandfather muuim.r Class 3 Aircraft Veto Punta Gorda Ft. Operated February 17, 1976 ~ Key Marathon Nest ~ A-il PAGENO="0279" 273 NAP A-6 JET FLORIDA AIRLINES Jacksonville St. Punta Gorda Ft. Docket 73130 - ACC Order 11237 February 14, 1974 Certificate No. 10 - ACC Class 2 Aircraft Expired if not activated 180 days Marathon A-12 PAGENO="0280" * Docket 73608 - ACC Order 11431 May 14, 1974 Route Exter~ded ~ Start-Up Date 90 Days Authority Lapsed 274 MAP A-7 MARCO ISLAND AIRWAYS Tallahassee .Jacksonv ille ~;t. Docket 72705 - ACC Order 10698 May 8, 1973 Certificate No. 4 - ACC Grandfather Class 3 Aircraft Sarasota~ Gorda t. Operated February 17, 1976 ~ Niani A-13 PAGENO="0281" 275 lAP A-B NAPLES AIRLINES (Provincetown-Boston Airline, Inc.) Docket 73002 - ACC Order 10647 April 19, 1973 Certificate No. 1 ACC Grandfather Class 3 Aircraft Op~ra\ted February 17, 1976 Ta 1 laha S see Jacksonville St. Sarasota Pasta Gorda Ft. A-14 PAGENO="0282" 276 MAP A-9 SHAWNEE AIRLINES, INC. Docket 73585 - ACC Order 11494 June 14, 1974 Certificate No. 12 - ACC Class 3 Aircraft May operate non-stop between any city-pair on route. (ORL-PBI-FLL operated since April 1, 1973 as part of international route to Freeport and Nassau.) `."~saco13 Tallahasscc Jacksonville St. Sarasota~ Punts Cords Ft. Islond Operated February 17, 1976 I1~ Miani PAGENO="0283" 277 HAP A-b SOUTHEAST AIRLINES Tal1ah~~sce Tacksonvi 1 1~ Punta Garde - Docket 73003 - ACC Order 10648 April 20, 1973 C6rtificate No. 2 - ACC Grandfather Class 3 Aircraft Ceased Operation January 1976 Miami Key West A-16 PAGENO="0284" Order 11325 Amended To Delete Routes Marked ~ Authority Lapsed Docket 74221 - ACC Order 11366 Found that Sarasota is within 50 "Area" of Ta~~a and is included in certificate. 278 ZIAP A-il SUN AIRLINES, INC. Tallahassee Jackson',rilIe Docket 73006 - ACC Order 10829 July 3, 1973 Certificate No. 8 - ACC Grandfather Class 3 Aircraft Operated February 17, 1976 ~ A- 17 PAGENO="0285" 279 ~1AP A-12 VERa I1O~OUTH AIRLINES Ceased operation May , 1975 J*Lcksorivj lie Fetersbur~~ Docket 73009 - ACC Order 10701 Nay 8, 1973 Certificate No. 5 - ACC Grandfather Class 3 Aircraft Gorda Ft. Island A-i 8 28-911 0 - 70 - 19 PAGENO="0286" March 15, 1975 Carriers Authorized Actual Service CALl I'SC CAB PSC NA NA IJN,DL, NA, NA NW,TW, BA ____________ 13N,D1, NA, SB NW, TM, UA 5. Tallahasse-W. l'~lri Bench-Ft._Lauderdale * Tallahassee -N. Palm l3e~ch E1\ ~Ft. Lauthrdnle NA * B. Palm Beach -FL. Lnuderdnle NA Schedule AnalysisY To From Totals 1 2 3 1 2 3 To From Route TABLE B-i CAR~<1CR MJTUOIYTTY, SERVICE AND SC!IEDULCS BY CITY PAIRS OF PROPOSED ROUTCS 1. Lensacoln-Tam~-Orlndo~w.pam~ea~ Pensacola NA -Oridedo NA -N. ni-n Leach NA -Or 1 endo DL, NA, lA -N. Palm Beach DL,EA,NA, Orlando -N. Palm Beach 2. Pensacola -st. leLcrubur~j -~1mar.mi St. Petersburrj -~jj~~ - NA - None - None QU(A), NA,NA, SS QII(A),SS SB DL,EA,DA NA BA 1 2 SB DL, DL NA, BA, I * * DL, NA DL,EA,NA SS DL,BA SS SB SS, DL SS, DL DL NA FE(A) None Bone None 3. Tallahascce-Gainvill~-~y~aDeac~Miami Ta 1 lahascee Gainesville Daytona Bench -Ca~nesv~1le -Daytona -~inr.~ Beach NA EA,NA NA,SO * FE(X) - Qil None None EA,SO -Daytona -Iliomi !meaeh NA NA - FYI None NA -Miami None None On FE 4. ra~a-Ft. Laudnrmlnln 0/3 7 6 .5 `mm ml -4 S 4~ w 1 0 7 1 1 3 3 6 6 NA, NA, 50 EA, NA, SO SO SO SO SO NA NA NA NA NA BN,DL,EA SB * Cl, ON, SS SS NA * NA, NA NA YIN - None QIl(A) None 55 NA None SB PAGENO="0287" Schcdulc»= Ana1ysis~' To From ________ ____ 1 2 3 1 2 3 6. fa11ahassee-SarasOta-F~j,~rS-Miami Tallahassee -Sarasota -Ft. Myers -Miami Sarasota -Ft. Myers -Miami Ft. Myers -Miami - EA,NA - DL - None _______________ DL,EA,NA, - DL,NA - * * * * * * * * - SO SO. SO SO 2 2 - * * * * * * * * - NA NA 1 1 - NA 1 None NA NA NA NA 2 2 - BA BA 1 1 Routu No. TABLE B-i (Continued) CARRIER AUTUORITY, SERVICE AND SChEDULES BY CITY PAIRS OF. PROPOSED ROUTES March 15, 1975 Carriers Authorized Actual Service- - CAB PSC CAD PSC_ BA YX None XY EA,SO QI! EA,SO QH NA FE NA, FE EA,NA FE EA,NA FE NA 7. Jacksonvi1ieDa~Og~i Beach-~ Lauderda~ Jacksonville -Daytona Beach EA,NA -Ft. Lauderdale DL,EA,UA Daytona Beach -Ft. Lauderdale EA,NA BA, BA, B~) SO SO FE FE, F~ NA FE NA FE FE FE, NA To to 1 s_ To From 7 6 6 7 5 6 8. ~ Palm Beach BA, So BA, NA NA EA, SO SO FE, FE NA FE, FE NA DL 9. Ft. Walton Beach-Panama City-Taliahassee-JacksonVil1eMelbOurn~ DL 2 2 NA NA DL 1 3 Ft. Walton Beach-Panama City SO SO -Tallahassee SO - -Jacksonville SO - None Panama City T~illahassee -Tallahassee -Jacksonville -Melbourne -Jacksonville -Melbourne NA,SO NA,SO NA NA,SO EA BA - - - FE(X) - - NA,SO NA,SO NA NA None BA Jacksonville -Melbourne PAGENO="0288" TJWLE 13-1 (Continued) CARRIER AUTIIORITY, sr:nvicri AND SChEDULES DY CITY PAIRS OF PROPOSED ROUTES March 15, 1975 Route Mo. 11. Iensacola-Tallahl;e-Jacksonvjlle Pensacola -Tallahassee -J ocksonville Tallahassee -Jacksonville 12. Lakeland-W.__Pa irs Beach-Miami. Lakeland -N. PuMa Beach -Miariri K. Palm Beach -Miami 13. ~ Key West -Naples - -TOmps - -Orlando - Naples -Ttmpa - -Orlando - Tampa -Or lando DL, CA, NA -Daytona [leach EA,NA 14. Ft. Walton Beach-Panamrçj~-Tama Ft. Walton Beach-Panama City SO -Tampa - Panama City -Tampa NA Carriers Authorized Actual Service CAB PSC CAll PSC - - None - None SS(A) DL,EA,NA None Schedule Ana1ysisa~' To From Tota is 1 2 3 1 2 3 To From NA EA,NA 2 4 NA See Route 6 NA WA 1 1 NA NA NA NA 2 2 DL, ElI, NA NA 0 13 NA DL, NA PT PT . PT PT 3 3 A A A A A A A A NA NA NA * 2 1 A A * A A * ** A 10. Tampa-l.iolhourne-Vcre beach-lhiami Tampa -Melbourne -Vero leach Melbourne -Vero Beach -Mi smi Vero leach -Mrami. EA,NA - EA,NA EA,NA - EA,NA - See Route 6 - NA FE(X) NA None CA EA EA,NA 2 5 NA NA NA NA NA NA DL, EA,NA, UA AG PT QIL (A), 511 EA,NA NA AG PT Qh1(A) ,SS See Route 9 NA PAGENO="0289" TABLE ~ (Contirtued) CARRIER AUTHORITY, SERVICE AND S~BEDtJLES BY CITY PAIRS OF March 15, 1975 Carriers Schedule Ana1ysis~ Route Authorized Actual Service~" To - -- From Totals CAB PSC CAB PSC 1 2~1 1 2 1 ~o F~W5I 15. Jacksonville-OrlandO-LakelandSarasOta Jacksonville -Orlando DL,EA,NA - DL,NA - DL, NA DL, NA NA 5 NA NA -Lakeland NA - None - -Sarasota EA,NA FE EA None LA IA - 2 Orlando -Lakeland NA - None - -Sarasota EA,NA - EA,NA - IA NA 1 2 Lakeland -Sarasota NA YX None YX 16. Ft. Myers-Orlando-Jacksonville Ft. Myers -Orlando NA - NA - NA NA NA 2 -Jacksonville NA FE NA None Orlando -Jacksonville DL,EA,NA - See Route 15 See Route 15 17. Gainesville-N. Palm Beach-Ft. Lauderdale Gainesville -51. Palia Bear!: IA - None - -Ft. Lauderdale EA FE(A) None None N. Palm Beach -Ft. Lauderdale EA 05 EA SS S S Airline codes were abbreviated as follows: AG - Air Sunshine, SN - Sraniff International, DL - Delta Air Lines, Inc IA - Eastern Air Lines, Inc. , FE - Florida Airlines, LS - Marco Island Airways, NA - National Airlines, Inc., NW - Northwest Airlines, Inc., PT - Naples Airlines, QN - Air Florida, SL - Southeast Airlines, SS - Shawnee Anrlinca, Inc., TN - Trans World Airlines, Inc., UA - United Air Lines, and TX - Sun Airlines, Inc. (A) PSC 50 mile ruling authorizes service.. (X) Suspended. Less than minimum standard miles between cities. 1/ At least one daily flight in either direction. Service and schedules March 15, 1975. 2/ "To" and "From" - Directional flight movements. For Route 1 read: Pensacola "To" Tampa under "To" and Pensacola "Frou" Tampa under "From". Two letter codes show what carrier schedules flights in time periods. 7:00 - 11:00am 2 3:00 - 8:00pm 3 "11:00am - 3:00pm Totals = all flights in and out of Standard-s. 1. `-erri'-r on,l'~r 1 and 2 in both "To" a,,d "From" his adei~u.,te aervice. PAGENO="0290" 284 ~ The three forecast 1975, 1930 and 1985 which appear as separate tu1ac~. forecasts are of three types of passengers who will travel ~:etween points within the State of Florida. * Local Oricin and rentination (O&D) - Those passengers ~ entire trip is between the cities as sho~m. * Connecting - Paasenrers who change flights at a point in Fiori~a for either of two out-of-state destinations: ** Interstate - To or fron a point in - another state, or, *. International - To or fron a point - outside the United States. All forecasts are of passengers in both directions between the points. City-pairs are listed under the city which cones first alphabetically. The forecasts f~r four ccrtnunities are prepared and used differently than the others. Ft. Pierce, Lakeland, Punta Gorda and St. Petersburg have forr:casts only of local passengers and are not included in the state totals. These points have no history of air service ani th~ forecast research determined that service at local airports ~c)J1d pririarily capture passengers who would otherwise use air rr?ice through other airports. Therefore, studies concera~t~; tt~iSC i~oir.ts will reduce traffic from the nearby airports in r~co~n2t1on of this assumption. It is assumed that all in:-rstato and international passengers for the points are incli~i~~ ~n t~.e forecasts of other points. The full de:e1c~..:tt of these forecasts was reported as Phase I c-I t:~ ~.tu~v transmitted to the Florida Department of Transportat~Cn,!n October, l97~. C-i PAGENO="0291" 285 TAIILE C-i COMI3INED_FORECAST OF FLORIr)7~ ITITRASTATE TRAFFIC Daytona Beach -Ft. Lauderdale -J-scksonville -m cmi -Pensacola -Tampa Ft. Lauderdale -Gair.osville -Jacksonville -Orlando -Tallahassee -Tampa Ft. Myers -Jacksonville -Miami -Orlando -Pensacola -Sarasota -Tallahassee -Tampa Ft. Pierce -Jacksonville -Miami -Orlando -Tampa Ft. Walton Beach-Jacksonville -Miami -Orlando -Tallahassee -Tampa Gainesville -Miami -Orlando -Tallahassee -Tampa -W. Palm Beach Jacksonville -Key West -Lakoland -Melbourne -Miami -Ocala -Orlando -Panama City -Pensacola -Punta Gorda -Sara sota -St. Petersburg -Tallahassee -Tampa -W. Palm Beach Key West -Miami -Orlando -Tampa Lakeland -Iiia.ni -Tel lahassee -W. Palm Beach 1ntur~tate In'arnataoral Total 520 - 5,330 22,c~3O - 24,260 5,060 3,940 34,330 700 - 2,490 5,610 220 11,470 210 - 9,010 3,470 - 24,780 19,870 - 50,390 900 - 19,870 32,510 1,560 100,360 3,450 - 6,430 9,810 3,840 31,380 4,250 - 8,810 - - 1,430 4,280 - 5,550 200 - 4,860 106,690 2,630 126,890 270 - 5,910 2,360 1,080 11,360 3,910 - 10,680 1,280 - 4,440 170 - 10,410 1,520 2,340 34.320 290 - 4,530 210 5,420 810 150 13,620 200 - 6,910 - - 3,530 120 - 6,520 25,740 23,540 163,290 2,660 - * 4,070 32,060 - 46,470 1,700 - 9,400 4,470 - 18,050 4,540 - 10,380 3,770 - 18,550 29,000 550 92,6&O 5,060 - 36,690 32,790 270 111,410 - - 3;76o - - 7,610 1975 Local oco 4,810 1 ,330 25,330 1,790 5,640 8,800 21, 310 30,520 18,970 66,290 2,980 17,730 4,560 1,430 1,270 4,660 17,570 1,130* 4,860* 2,100* 2,490* 5,640 8,420 6,770 3,160 10,240 30,460 4,240 5,210 12,660 6,710 3,530 6, 950* 6,400 114,010 1,410 14,410 7,700 13,580 730* 5,840 18,940* 14,780 63,130 31.630 28,350 3,760 7,610 27,460* 6, 590* 5, 980* C-' PAGENO="0292" 286 TABLE C-i (Continued) coOBINED FORECAST OF FLORIDA I0~PJ~ST?~TE TPAFFIC 1975 Local Connecting O&D Interstate International Total Marathon -Miami 5,230 12,910 140 10,2R0 Marco Island -Miami 4,860 38,440 150 43,450 -Tampa 2,930 160 - 3,090 ~Me1bourne -Miami 18,750 6,270 4,420 29,440 -Pensacola 2,880 280 - 3,160 -Tallahassee .7,710 1,370 - 9,080 -Tampa 8,300 17,200 410 25,910 Miami -Naples 4,860 37,730 50 42,640 -Orlando 150,990 135,620 90,000 376,610 - -Panama City 11,500 1,400 1,140 14,040 -Pensacola 20,200 6,000 2,050 28,250 -Punta Corda 3,090* - - - -Sarasota 26,400 6,300 7,580 40,280 -St. Petersburg 69,830* - . - - -Tallahassee 78,930 3,950 5,490 88,370 -Tampa 232,760 55,970 85,410 374,140 -Tico 4,410 100 250 4,760 -Vero Beach 6,400 1,500 270 8,170 -N. Palm Beach 8,920. 23,390 10,740 43,050 Naples -Tampa 2,370 21,360 210 23,940 Orlando -Panama City 9,170 810 - 9,960 -Penc~cola 16,110 3,093 - 19,200 -Punta G~rd.~ 1,350' - - - -Saratota 6,220 3,590 - 9,810 37,030 2,163 - 39,193 -Tampa 9,033 32,693 2,940 44,660 -W. Palm E~ach 14,310 10,660 - 24,970 Panama City -Ta~pa 14.050 2,140 90 16,290 percacoic -Sar~.sOt3 1,400 210 - 1,610 -Tel) ~ £700 670 - 7,370 21500 5,400 03 30,250 Punta Gorcia ~ a - i,~~o' - - -N. 1.1:. 730' - - - Saracota -T.~ .:. .: 7,~4) 210 - 8,C53 65,-70 1,910 93,703 St. Peter;r.Urg -. .: . - - Ta1leh:,OtC~ -: .~ ~ 3,310 110 60,36) 2,110 80) - 2,950 0 11,tlO 710 - 16,390 Tampa ..V& 1. -~ , ¶63 6,240 50 11,853 1.-. .1: _.._~_L~~! 30,1.9 4.7J0 76,50) 1.119,7)0 991,910 21o,)10 2,760,050 Not inclu.~0_l in . 9-. C- 3 PAGENO="0293" Daytona Boach -Ft. Lauderdale -Jacl.icnvlllC -Pen~.acola -Gainesville -Jic}eonville -Orlando -Tallahassee -Tampa Ft. Myers -Jacksonville -Miami -Orlando -Pen sacola -Sarasota -Tallahassee -Tampa Ft. Pierce -Jacksonville -Miami -Orlando -Tampa Ft. Walton Beach-Jacksonville -Miami -Orlando -Tallahassee -Tampa Gainesville -Miami -Orlando -Tallahassee -Tampa -W. Palm Beach Jacksonville -Key West -Lakel and -Melbourne -Miami -Ocala -Orlando -Panama City -Pensacola -Punta Gorda -Sarasota -St. Petersburg -Tallahassee -Tampa -W. Palm Beach Key West -Miami -Orlando -Tampa Lakeland -Miami -Tallahassee -W. Palm Beach Inter nate Internet inn I 940 - 29,270 - 7,260 5,050 1,000 - 9,030 320 470 - 5,590 - 44,500 - 2,000 - 65,390 2,250 4,950 - 15,800 5,500 8,550 - 8,610 - 390 - 192,250 3,780 340 - 3,390 1,550 7,050 - 2,310 - 270 - 2,740 3,360 650 - 470 - 1,630 2213 390 - 150 - 32,850 33,790 3,390 - 51,630 - 2,440 - 5,700 - 7,310 - 6,070 - 41,630 790 7,260 - 118,850 390 287 TABLE C-2 COMrtim2D FOREC,\ST OF FLORIDA IflTPJ~ST1tTK TRAFFIC Ft. Lauderdale 1980 Lecal 01.0 13,850 2,170 46,330 2,760 10,330 16,280 36,910 52,220 35,170 128,070 5,340 35, 300 8,050 2,400 2,690 8,920 35,030 1,440* 8, 550* 3, 280* 4, 390* 9,830 14,820 10,570 5,350 18,050 56,050 6,920 9,210 23,330 11,880 5,590 11,460* 10,620 196,780 2,230 22,060 12,190 19,750 1,120* 10,720 32, 750* 24,520 109,150 52,570 49,900 5,870 13,420 50,350* 11,430* 10,550* Total 9,790 31,460 59,240 3,760 19,6130 16,750 42,500 96,720 37,170 195,710 10,290 56,600 16,600 2,400 11,300 9,310 231,060 10,170 19,760 17,620 7,660 18,320 62,150 7,570 9,680 25,180 12,270 5,590 10,770 263,420 5.620 73,690 14,630 25,450 18,030 30,590 151. 570 59,830 -. 169,140 5,870 13,420 C-4 PAGENO="0294" 288 TABLE C-2 (Continued) COMBINED FORECAST OF FLORIDA INTRASTATE TRAFFIC Connecting Marathon -Miami Marco Island -Miami -Tampa Melbourne -Miami -Penaacola -Tallahassee -Tampa Miami -Naples -Orlando -Panama City -Pensacola -Punta Gorda -Sarasota -St. Petersburg -Tallahassee -Tampa -Tico -Vero Beach -N. Palm Beach Naples -Tampa Orlando -Panama City -Pensacola -Purita Gorda -Sar~sota -Tallahassee -Tampa -W. Palm Beach Panama City -Tampa Pensacola -Sarasota -Tallahassee -Tampa Punta Gatda -T~m~a -N. Palm Beach Sarasota -Tallahasaec -Tampa St. Pctershurg -T~~lla:~assee -P. Pairs Peach Tallahassee -T~api -Thea -P. Pairs Beach 1980 Local 080 9,200 8,550 5,170 34,580 4,470 13,660 15,330 8,550 256,980 20,240 32,640 5,430* 53,880 134,140' 145,360 447,130 8,130 11,260 16,480 4,180 14,330 23,100 2,110* 11,260 60,580 15,400 23,450 24,770 2,410 10,410 40,150 1, 240* 15,380 12,280 31,550' 24, 300' 105,170 3,810 27,700 InterstaSe International Total 18,530 200 ~27;TlT~ 61,910 200 220 - 70,680 5,370 9,000 400 2,470 27,700 6,350 - - 590 49,930 4,870 16,130 43,620 60,760 244,190 2,250 8,610 70 129,200 1,640 2,940 69,380 630,570 24,130 44,190 11,350 10,880 76,110 7,120 90,140 130 2,150 29,850 7,880 122,650 360 400 15,420 * 160,360 659,920 8,620 13,810 61,750 * 34,400 300 38,880 1,460 5,570 - - - 15,790 28,670 8,040 4,840 46,930 17,170 - - 4,220 - 19,300 65,420 66,550 40,620 3,860 130 28,760 380 1,210 8,700 - - 120 2,790 11,620 48,970 2,400* 470 138,293 6,660 1,150 1,510 - 15,850 2,740 153,310 160 111,993 - 4,960 - 29,200 Tampa -Vero Beach -P. Palm Beach 9,800 80,990 10,050 54,100 70 6,750 19,920 141,840 TOTALS 2,715,080 1,614,270 370,890 4,700,240 * Not jncledcd ln t~tuls. PAGENO="0295" 289 TABLE C-3 FORECAST OF FLORIDA INTRASTATE TRAFFIC 1985 Local Connct i eq OsD Irtst:ate Jnternjt1~nal Total Daytona Beach -Ft.. Lauderdale 13,830 1,510 - 15,340 -Jacksonville 3,260 37,360 - 40,620 -?-jiami 71,350 9,270 8,120 89,740 -Pensacola 4,030 1,280 - 5,310 -Tampa 15,720 14,540 460 30,720 Ft. Lauderdale -Gainesville 26,480 950 - 27,430 -Jacksonville 58,760 8,030 - 66,790 -Orlando 84,650 89,510 - 174,160 -Tallahassee 58,350 4,050 - 62,400 -Tampa 208,500 117,830 3,230 329,560 Ft. Myers -Jacksonville 8,670 6,320 - 14,990 -Miami 59,300 22,680 7,900 89,860 -Orlando 13,310 15,410 - 28,720 P-Pensacola . 3,820 - - 3,820 -Sarasota 4,700 15,820 - 20,220 -Tallahassee 14,090 700 - 14,790 -Tampa 58,150 309,630 5,430 373,200 Ft. Pierce -Jacksonville 2,710* - - - -Miami 13,350* - - - -Orlando 5,030* - - -Tampa 6,780* - - - Ft. Walton Beach-JacksonVille 14,830 430 - 15,260 -Miami 23,150 4,330 2,230 29,710 -Orlando 16,250 11,350 - 27,600 -TallahasSee 8,420 3,720 - 12,140 -Tampa 27,950 390 - 28,340 Gainesville -Miami 89,850 4,410 4,820 99,080 -Orlando 10,910 1,310 - 12,220 -Tallahassee 14,870 950 - 15,820 -Tampa 36,950 2,940 310 40,200 -W. Palm Beach 18,560 700 - 19,260 Jacksonville -Key West 8,440 - - 8,440 -Lakelafld 17,370* -. - - -Melbourne 16,660 190 - 16,850 -Miami 308,550 41,930 48,520 399,000 -Ocala 3,370 4,330 - 7,700 -Orlando 34,050 ~l4,lOO - 108,150 -Panama City 18,390 3,110 - 21,500 -pensacola 29,370 7,270 - 36,640 -Punta Gorda 1,690* - - -Sarasota 17,510 10,490 - 28,000 -st. Petersburg 50,750* - - -TallahaSsee 38,740 8,710 - 47,450 -Tampa 169,180 53,130 1,130 223,440 - -W. Palm Beach 80,380 9,270 - 89,650 Key West -Miami 77,940 151,690 560 230,190 -Orlando 9,020 - - 9,020 -Tampa 20,710 - - 20,7)0 Lakelend -Miami 7tt,950* - - - -Tallahass"e 18,050!- - - - -W. Palm Beach l6,l3O~ - - - C-6 PAGENO="0296" 290 TABLE C-3 (Continued) COMBINED FORCC~ST OF FLORIDA INTR%STATE TP,'~FIC 1985 Local - ¼.~ O&D Intcrstat e Intarnatlor.zl Total Marathon -Miami 14,370 23,660 290 38,320 Marco Island -Miami 12,350 08,880 310 101,540 -Tampa 7,980 260 - 8,240 Melbourne -Miami 56,160 11,490 9,110 76,760 -Pensacola 6,880 510 - 7,300 -Tallahassee 22,330 3,970 - 26,300 -Tampa 23,610 39,770 850 64,230 Miami -Naples - 13,350 87,230 100 100,680 -Orlando 410,349 39~,590 185,500 989,430 -Panama City 31,620 3,230 2,350 37,200 -Pensacola 50,230 10,990 4,220 65,440 -Punta Gorda 8,480* - - -Sarasota 91,060 18,280 15,620 124,910 -St. Petersburg 215,160* - . - -Tallahassee 237,660 11,470 11,310. 260,440 -Tampa 717,200 129,410 176,120 1,022,739 -Tico 13,209 170 520 13,890 -Vero Beach 17,580 2,740 560 20,830 -W. Palm Beach 26,070 38,100 22,130 86,300 Niples -Tampa 6,450 49,390 430 56,270 Orlando -Panama City 22,030 2,350 - 24,380 -Pensacola 34,990 8,970 - 43,960 -Punta Garde 3,250* - - -Sarasota 18,730 16,170 - 34,900 -Tallahassee 07,470 9,730 - 107,200 -Tampa 24,300 59,900 6,060 90,260 -B. Palm Beach 36,520 24,650 - 61,170 Panama City -Tampa 38, 220 6,220 190 44,630 Pens~cola -Sarasota 3,660 610 - 4,470 -Tallahassee 16,140 1,950 - 18,090 -Tampa 61,070 12,400 160 73,720 Punta Gorda -Tampa - 3,060* - -W. Pain Beach 1,990* - - - Sarasota -Tallahassee 26,353 950 - 27.130 -~~c~a 20,510 139,530 3,940 222,960 St. Petersburg -Tal]nlassee 50,9b0* - - - -B. loin Beach 38,000* - - - Taliahassee -Tampa 119,050 12,000 . 230 182,180 -Tico 6,230 1,4(0 - 7,690 -B. Pain beach 44,280 2,720 - 47,000 Tampa -Vcro Peach 15,120 14,430 100 29,650 -B. Palm Beach 126(70 87.130 9,193 223,48(1 TOT\LS 4,321,733 2,422,730 532,523 7,276,900 * Not included in totals. C-7 PAGENO="0297" 291 TABLE C-4 SUMMARY FORECAST OF H~TPJ\STATE 1~~\SSENGERE ET1'LA~ED BY CITY l9~3O 1935 Daytofi~ Beach 38,940 61,965 90,365 Ft. Lauderdale 104,870 199,320 337,840 * Ft. Myers 02,675 163,780 272,810 Ft. Pierce 5,290* 8,830* 13,935* Ft. Walton Beach 21,650 36,765 56,525 Gainesville 36,905 66,800 107,005 Jacksonville 235,505 376,805 * 562,240 Key West 63,155 97,010 134,180 Lakeland 23,500* 41,895* 65,250* Marathon 9,140 13,965 19,160 Marco Island 23,270 38,025 54,890 Melbourne 37,055 62,660 95,765 Miami 749,035 1,263,845 l,937;585 Naples 33,290 54,130 78,475 Ocala 2,035 2,310 3,850 Orlando 324,530 542,495 855,585 Panama city 24,850 41,655 63,855 Pensacola 55,920 86,360 , 129,420 Punta Gorda 3,825* 6,150* 9,185* Sarasota 84,735 148,345 231,330 St. Petersburg 59,490* 11,370* 177,445* Tallahassee 142,450 255,015 414,315 Tampa 562,920 987,035 1,532,270 Tico 3,855 6,790 10,790 Vero Beach 10,010 16,865 25,265 .W. Palm Beach 103,255 - 172,800 263,430 TOTAL 2,760,050 4,700,240 7,276,960 * Not included in tot:als. c-.8 PAGENO="0298" 292 APPENDIX D BIBLIOGRAPHY OF RESEARCH ON THE CIVIL AERONAUTICS BOARD'S REGULATIONS OF AIR SERVICE STANDARDS BOOKS Air Transport and Its Regulators, Richard E. Caves, Harvard University Press, 1962. Regulation and ComDetition in Air Transportation, Samuel B. Richmond, Columbia University Press, 1961. REPORTS AND STUDIES Annual Report to Congress, Civil Aeronautics Board, FY 1965-1972. National Transportation Policy, Special Study Group on Trans- portation Policies in the United States, Committee on Commerce, United States Senate, June 26, 1961. Report of the Task Force om National Aviation Goals, "Project Horizon~, Federal Aviation Agency, September, 1961. Service to Small Communities, Bureau of Operating Rights, ~~Bureau of Operating Rights, Civil Aeronautics Board, March, 1972. HEARINGS "Adequacy of Air Service," Hearing before the Subcommittee of the Committee on Interstate and Foreign Commerce, House of Representatives. March 5, 1969. "Adequacy of Trunkline Air Service to Medium-Sized Intermediate Cities," Hearings bofore the Aviation Subcommittee of the Committee on Commerce, United States Senate. July 6, 7, 8, and 9, 1965. "Review of the Local Air Carrier Industry," Hearings before the Aviation Subcommittee of the Committee on Commerce, United States Senate. February 28, March 1, 3, and 4, 196~. D-i PAGENO="0299" 293 BIBLIOGRAPHY OF RESEARCH ON THE CIVIL AERONAUTICS BOARD'S REGULATION OF AIR SERVICE STANDARDS ARTICLES "Adequacy of Domestic Airline Service: The Community"s Role in a Changing Industry," Yale Law Journal, Volume 68, 1959. "Airline Service Abandonment and Csclidation ~\ C~tc~ in the 3~tt~e A~ainst Subsidi:aticn," Ronald D. Dockser, Journal of Air Law and Commerce, Volume 3~, No. 4, .nutum~ 1966. Page 496. "CAB Moves on Adequacy Problems," Aviation Daily, May 22, 1961. Page 141. "Certificated Air Service at Smaller Communities: The Need for Service as a Determinant of Regulatory Policy," Craig Mathews, Journal of Air Law and Commerce, Volume 34, No. 1, Winter, 1968. Page 27. "The Civil Aeronautics Board Policy Favoring $ubsidy Reduction to Local Service Corners: Its Role and Implementation in the Decisional Process," Barre Hall, Journal of Air Law and Commerce, Volume 34, No. 4, Autumn, 1968. Page 566. C.A.B. DOCKETS Texas-Oklahoma Case, Docket 337 et al. Decided: November 14, l946~ -- Ft. Worth Investigation, Docket 7382. Decided: September 23, 1958. Seven States Area Investigation, Docket 7454 et al. Decided: December 8, 1958. Toledo Adequacy-of-Service Investigation, Docket 8851. Decided: November 10, 1959. Flint-Gra~~pids Adequacy-of-Service Investigation, Docket * 9177. Decide~ April 29, 1960. Washington-Baltimore Adequacy-of-Service Investigation, Docket - 8148. Decided: April29, 1960. Gulf States-Midwest Points Service Investigation, Docket 17726. Decided: ~ay 7, 1969. Central Route 81 Case, Docket 16196 et al. Decided: May 8, 1969. Southern Tier Competitive Nonstop Investigation, Docket 18257. - Decided: July 24, 1969. D-2 PAGENO="0300" 294 BIBLIOGP~PH~' OF RESEARCH ON THE CIVIL AERONAUTICS BOARDS REGULATION OF AIR SERVICE STANDARDS OTHER "Conference on Air Service to Smaller Communities,'1 Aviation Advisory Commission, Transcript of Proceedings, January 5, 6, and 7, 1972. Federal Aviation Act of 1958. 0 D-3