GOVERNMENT

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INTERNATIONAL AIR FARES 

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BEFORE THE

SUBCOMMITTEE ON TRANSPORTATION 

AND AERONAUTICS

OF THE

COMMITTEE ON

INTERS TAT E AND FOREIGN COMMERCE

A PR IL 28 AN D 29, 1965

Seria l No. 89-25

HOUSE OF REPRESENTATIV ES

£J 2G ftTY -N IN TH CONG RESS

F IR S T SE SS IO N

H.R. 465

A B IL L TO AM EN D T H E FED ER A L AVI ATI ON ACT O F 1958 TO 

PR O V ID E FO R T H E REG ULA TIO N OF RA TES AN D PR ACTIC ES 

O F A IR CARRIE RS AN D FO REIG N A IR C A R R IE RS IN FO REI GN 

A IR T RANSP ORTATIO N, AN D FO R O TH ER P U RPO SES

P ri n te d f o r th e us e of th e 

Com mittee on In te rsta te and For ei gn C om merce

56-562

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1965
^’,8 n l.

COM M IT TEE ON IN T E R S T A T E AND FO R EIG N CO MM ERCE, 

OR EN H A RRIS , Ark an sa s, C ha irm an ,

H A R L E Y O. ST A G G ERS, W es t V ir gin ia

W A L T E R RO GE RS , Te xa s

SA M U E L N. F R IE D E L, M ar yl an d

T O R B E R T H. MAC DON AL D, M as sa ch us et ts

JO H N JA RM AN , Ok lah om a

LE O W. O’ BRIE N , Ne w Yor k

JO H N E. MO SS, Cal if or nia

JO H N D. D IN G ELL, Michiga n

P A U L G. RO GE RS , Flo ri da

H O R A C E It. KO RN EGAY, Nor th Car ol in a

L IO N E L VAN DEEIt LI N , C ali fo rn ia

J. J. P IC K L E , Te xa s

F R E D B . RO ONE Y, Pen nsy lv an ia

JO H N M. M URPH Y, Ne w Yor k

D A V ID E. S A T T E R F IE L D II I, V ir gin ia

D A N IE L J. RO NA N, Il linois

J. O L IV A HUO T, Ne w Ham ps hire

JA M E S A. M ACKA Y, Geo rg ia

JO H N J. G IL LIG A N , Ohio

C H A R L E S P. F A R N SL E Y , K en tu ck y

JO H N B E L L W IL LIA M S, M is si ss ip pi

W IL LIA M L. SPR IN G E R , Illin oi s 

J. A R TH U R YO U N GER, Cal if or nia 

SAM U EL L. D E V IN E , Ohio 

A N CH ER N ELSEN , Minne so ta 

H A ST IN G S K E IT H , M as sa ch us etts 

W IL LA R D S. CU R TIN , Pe nnsy lv an ia 

GLE NN CU NNIN GH AM , Ne br aska 

JA M ES T. B R O Y H IL L , Nor th Ca ro lin a 

JA M ES H A R V E Y, M ichi ga n 

TI M L E E CA R TE R , Ken tu ck y 

H OW AR D II. C A L L A W A Y , Ge orgia

,1

W. B. W il lia m so n, C le rk

K e n n e t h J. P ain ter, A ss is ta n t C le rk

P r o fe ssio n a l S ta ff

A nd re w Stev en so n J am es M. Men ger, Jr.

K ur t B or ch ar dt W il lia m J. D ix on

Subcommittee on Transportation and Aeronautics

H A R L E Y O. S T A G G E R S, W est Vir gi nia , Ch airm an

SA M U E L N. FR IE D E L, M ar yl an d SA M U E L L. D E V IN E , Oh io

JO H N JA RM AN , Ok lah om a G LENN CU NNIN GH AM , Ne br aska

J. J. P IC K L E , Tex as H OW AR D H. C A L L A W A Y , Ge orgia

D A N IE L J. RO NA N, Illin oi s

JO H N B E L L W IL LIA M S, M issi ss ip pi

I I 1
C O N T E N T S

V

Hearings held on— Pa ge

April 28, 1965_________ 1

April 29, 1965_______________________________________________ 61

Tex t of H .R. 465________________________________________________ 2

Repor t of—

Bureau of the Bu dget________________________________________ 3

Civil Aeronautics Bo ard ______________________________________ 9

Comparison with existing law—Federal Aviation Act of 1958___ 11

Section-by-section analysis of the bill_______________________ 10

Stateme nt of purpose and need for the bill___________________ 9

Commerce, De partm ent of______________________________________ 7

Comptroller General of the United Sta tes_________________________ 6

Justice, Department of__________________________________________ 8

Post Office De pa rtm en t_______________________________________ 6

State, Departme nt of ___________________________________________ 4

Sta tem ent of—

Boyd, Hon. Alan S., Chairman, Civil Aeronautics Bo ard __________ 14

Ferguson, Allen IL, Coordinator for Inte rna tional Aviation, Dep artment of State______________________________________________48, 61

Haves, Ralph, Program Officer Air, Office of the Under Secretary for

Tran sportation, Depar tment of Commerce_____________________ 74

Landry, James E., director, international programs, Air Transport

Association of America_____________________________________ 82

Lowenfeld, Andreas, Acting Deputy Legal Adviser, Departm ent of

State_____________________________________________________ 48

Martin, Hon. Clarence D., Jr., Under Secretary for Transpo rtation,

Department of Com merce___________________________________ 74

Mendelsohn, Allan I., Office of Legal Adviser, Department of S ta te .. 61 

Philion, Norm an J., vice president, international, Air Transpo rt

Association of America ______________________________________ 82

Roth, Irving, Director, Bureau of Economic Regulation, Civil Aeronautics Board______________________________________________ 14

Styles, Michael II., Aviation Negotiations Division, Dep artm ent of

Sta te_____________ 48,61

Tipton, Stuart G., president, Air Transport Association of A me rica.. 82

Wanner, John, General Counsel, Civil Aeronautics Board__________ 14

Watson, Joseph C., Director, Bureau of Intern ational Affairs, Civil

Aeronautics Board__________________________________________ 14

Additional information sub mitted for the record by—

Air Transport Association of America:

Appendix A—Texts of United States Berm uda-type bilateral

agreement a lterna tive rate clauses________________________ 90

Appendix B—Outline of power of Civil Aeronautics Board to

deal with foreign carrier r ates ____________________________ 91

Appendix C—“ Trip Costs—Then and Now” (artic le from New

York Times, Jan . 31, 1965)______________________________ 94

Appendix D—T he United Kingdom’s Shipping Contracts and

Commercial Documents Act of 1964______________________ 96

Appendix E— Comparable rate provisions of some major bilateral

aviation agree ments currently in force_____________________ 97

Cham ber of Commerce of the United State s, let ter from Theron J.

Rice, general legislative manager_____________________________ 106

in

V
IV CONTENTS

Additional information submitted for the record by—Continued 

Civil Aeronautics Board:

Reply to questions su bm itted by Mr. Staggers by le tte r of May 4, p ag»

1965.________________________________________________ 36

Supplementary statem en t----------------------------------------------- - - 38

' Appendix A—Comparison of passenger yield and operating

costs of intern ational passenger/cargo carriers, 1946-64

(table)____________________________________________ 43

Appendix B—R ate power of foreign governmen ts---------- . . . 43

Appendix C— Comparison of AT A and board study of foreign

rate power of 13 countries where conclusions differ--------- 44

Appendix D—Power of the Civil Aeronautics Board to regulate rates in foreign air transp ortation-------------------------- 46

Rate of return on investm ent for transpacific services, year

ending December 31 (table)---------------- ------------------- - 39

Pan American Pilots, sta tem ent subm itted by Curtis M. Olsen, chairman, system ro ute com mittee______________________________■ 107 «

Seaboard World Airlines, Inc., letter from John H. Mahoney, senior

vice president_____________________________________________ 104

State Departm ent:

Foreign countries which threate ned to suspend operations of

U.S. air carriers during North Atlantic rate dispute of May »

1963____ _______________________ _____________________ 64

Reply to questions s ubmitted by Mr. Friedel by let ter of May 4,

1965------------------------------------ --------------------------------------- 66
INTERNATIONAL AIR FARES

W ED N E SD A Y , A P R IL 28 , 19 65

H ouse of Repr ese ntatives,

SUBCOMM ITTEE ON TRANSPORTATION AND AERONAUTICS 

of th e Com mit tee on I nter state and F oreign C omm erce,

* Washin gto n, D.G.

The subcommittee met at 10 a.m., pursuant to call, in room 2123, Rayburn House Office Building, lion. Harley O. Staggers (chairman 

of the subcommittee) presiding.

“ Mr. S taggers. The committee will come to order. Before we get into today’s hearings on international rate legisla­ tion, I would like to make a few comments on one of President Joh nson’s announcements of yesterday. We learned that Chairman Alan S. Boyd of the Civil Aeronautics Board has been appointed as Un der Secretary of Commerce for Trans­ portation. This news was received with mixed emotions because in the years since 1959, when Mr. Boyd first joined the Civil Aeronautics Board, I have been impressed with his industry, intelligence, and unquestioned integrity in fulfilling his difficult duties. I say mixed emotions because I feel tha t the Civil Aeronautics Board and the aviation indu stry and the users of air transportation have benefited greatly under his leadership. In the years since 1959, revenue ton-miles of air freigh t have increased from some 35 to 78 

million. Revenue passenger miles have increased from 28 million to over 41 million. We have seen the successful transition from piston equip­ ment to jet equipment, and an advance in available seat-miles from 

46 to 75 million. Mr. Bovd was first appointed by President Eisenhower, and in 1961 was appointed Chairman by President Kennedy. He has since been reappointed as Chairman a t the beginning of each year, and, of course, the most recent appointment was under President Johnson. He has made an enviable reputation for himself within the Civil Aeronautics Board, throu ghou t the aviation world, and here before 

us in his numerous appearances as a witness. I think tha t I and other members of the committee would deeply regret to see Mr. Boyd leave the Board and take on different duties in other branches of Government were it not for the fact that we can expect to have his presence at future hearings in his new role as I nder 

Secretary of Commerce. At this time I extend to you. Mr. Boyd, my heartiest congratulations 

and mv best wishes for vour future. 1
2 INTERN AT IONA L AIR FARES

Mr. I riedel. I echo the remarks of the chairman and say that I 

have been greatly impressed with Mr. Boyd the times he has appeared 

before the committee. You have been very, very fair and decent.

Mr. Boyd. I hank you very much, gentlemen. I am truly pleased 

and humbled by your statements. 1 should say for the record, Mr. 

( hairman, tha t I would like Congressman Friedel to be assured that 

there were not any differences as to Friendship Airpo rt th at drove me 

off the CAB.

I do very much look forward to continuing to work in the field of 

aviation, which is my first love and has been the only interest I have 

had since 1959. In connection with your very kind words about the 

development in the period since I have been with the Board, I would 

like to say tha t what progress we have made has been due, in my judgment, to a tremendous staff a t the Civil Aeronautics Board, the most 

competent group of people I have ever had the pleasure of being associated with in my life, and the very wonderful cooperation from the 

Congress in its efforts to wrestle with the problems which we have 

often unceremoniously dropped on your doorstep.

It has been a truly wonderful experience fo r me.

Mr. Staggers. Thank you.

Today the committee opens hearings on H.R. 465.

(H.R. 465 and agency reports thereon follow:)

[H .R . 465 , 8 9 th Cong., 1s t sess.]

A BIL L To am en d th e Fed er al A vi at io n A ct of 195 8 to pr ov id e fo r th e re gula ti on of ra te s 

an d pra ct ic es of a ir ca rr ie rs an d fo re ig n a ir carr ie rs in fo re ig n air tr an sp o rt ati o n , an d 

fo r oth er pur po se s

Be it en ac te d bp flic Se na te an d H ouse o f Rep re se nta tive s of th e U ni ted St ate s

of Am er ic a in Co ngres s as se mbled , T h a t subs ec tio n (a ) of se ct io n 404 of th e 

Fed er al A vi at io n Ac t of 1958 (49 U.S.C . 1 3 7 4 (a )) is am en de d by in se rt in g “ (1 )” 

im med iately a ft e r “ ( a ) ” an d addin g a t th e end th er eo f th e fo llo w in g new p ara ­

gr ap h :

“ (2) I t sh al l be th e dut y of ev er y a ir c a rr ie r an d fo re ig n a ir c a rr ie r to es ta blis h, ob se rv e an d en force ju st an d re aso nable in di vid ual an d jo in t ra te s, fa re s, 

an d ch ar ge s, an d ju st an d re as ona ble c lass ificat io ns , ru le s, re gula tions, an d pra ctice s re la ti ng to f or eign a ir tra n sp o rt ati o n ; an d, in ca se of such j o in t ra te s, fa re s, 

and ch ar ge s, to es ta bl ish ju st , re as on ab le , an d eq uitab le di vi sion s th ere of as 

be tw ee n a ir carr ie rs or foreign a ir c a rr ie rs part ic ip ati ng t here in w hi ch sh al l no t 

un du ly p re fe r or pr ej ud ice an y of su ch p art ic ip ati ng a ir carr ie rs o r fo re ig n air 

carr ie rs .”

Sec. 2. Se ction 801 of th e F edera l A vi at io n Ac t of 1958 (49 U.S .C. 1401) is 

am en de d by in se rtin g “ ( a ) ” im m ed ia te ly a ft e r ”801” an d by addin g a t th e end 

th er eo f t he fo llo wing new s ubse ction:

‘‘(b ) An y or der of the Boa rd p u rs u a n t to section 10 02 (f) re quir in g th a t an 

a ir ca rr ie r or fo re ig n a ir carr ie r dis co nt in ue de man di ng , ch ar gi ng , collecting , 

or re ce iv in g a ra te , fa re , or ch ar ge fo r fo re ig n a ir tr ansp ort ati on, or en fo rc ing 

an y clas sifica tion , ru le, re gu la tion , o r pra cti ce a ffec tin g su ch ra te , fa re , or ch arge , 

and a ny a ct io n of th e Boa rd p u rs u an t to se ct ion 10 02 (g) su sp en di ng th e op er at ion 

of a ta ri ff filed w ith th e B oa rd by an a ir carr ie r or fo re ig n a ir c a rr ie r st at in g 

a new in div id ual or jo in t ra te , fa re , o r ch ar ge fo r fo re ig n a ir tr ansp ort ati on, 

sh al l be su bje ct to th e ap pr ov al of th e P re sid e n t: Pr ov ided , T h a t an y ord er of 

th e B oar d dir ecti ng an air carr ie r or fo re ig n a ir carr ie r to a lt e r an y ra te , fa re , 

or ch ar ge , o r any cla ssifi ca tio n, ru le , re gu la tion , or pra cti ce af fe ct in g su ch ra te , 

fa re , or ch ar ge , to t he e xte nt nec es sa ry to co rr ec t an y dis cr im in at io n, pr ef eren ce , 

or pr ej ud ic e, a nd an y or de r th at th e a ir c arr ie r or fo re ig n a ir c a rr ie r sh al l discon ­

ti nue de m an di ng , ch ar gi ng , co lle ctin g, or rece iv ing an y su ch dis cr im in at ory , 

pre fe re nti al, o r pr ej udi ci al ra te , fa re , or ch ar ge , or e nf or ci ng a ny su ch d is cr im in ato ry . pre fe re nti al, or pre ju dic ia l cl as sifica tion , ru le, re gu la tion, or pra ct ic e, sh al l 

not be su bje ct to such ap pr ov al. Co pies of an y su ch prop os ed ord er s, an d of 

pr op os ed st ate m ents co nt ai ni ng re aso ns fo r susp en sio n, sh all be su bm itte d to 

th e P re si dent by th e Boa rd b efor e publi ca ti on.”
INTERNATIONAL AIR FARES 3

Sec. 3. Su bs ec tio n (d ) of se ct io n 1002 of th e Federa l Avi atio n Ac t of 1958 (49 U.S .C. 1482(d )) is am en de d by ch an gi ng th e colon follo wing th e word ‘'effe ct iv e” to a pe riod a nd str ik in g o ut t he following : "P ro vi de d, T hat as to ra te s, 

fa re s, an d c ha rg es fo r over se as a ir tr ansp ort ati on, th e B oar d sh al l det er m in e an d pre sc ribe only a ju s t and re as onab le max im um or min im um , or m ax im um an d 

m in im um r ate , f ar e, or c harg e.”

Sec. 4. Su bsec tio n (e ) of se ct io n 1002 of th e F edera l A vi at io n Ac t of 1958 (49 U.S.C. 14 8 2 (e )) is a m en ded by in se rtin g t he wor ds ‘‘and fo re ig n a ir ca rr ie rs ” a fte r th e wor ds “a ir c a rr ie rs ” w her e they appear in p ara g ra p h s (2) an d (3) of th e su bs ec tio n, an d by in sert in g th e wor ds “a nd fo re ig n a ir c a rr ie r” aft er th e 

w or ds “ a ir c arr ie r” w he re th ey a ppear in para gra ph (5 ).

Sec. 5. Su bs ec tio n (f ) of se ct io n 1002 of th e F edera l A vi at io n Act of 1958 

(49 U.S.C. 1 4 8 2 (f )) is am en de d to r ea d as fo llo ws :

“rates and pr ac tic es in fore ign air transpo rta tio n

“ (f ) W he ne ve r, a fte r not ic e an d he ar in g, up on co m pla in t or up on it s ow n in it ia ti ve, th e Boa rd s hal l be of th e opin ion th a t an y i ndiv id ual or j oin t ra te , fa re , or charg e de man de d, ch ar ged , co lle cte d, or rece ived by any a ir carr ie r or fo re ig n a ir c a rr ie r fo r fo re ig n a ir t ra n sp o rt ati o n , or a ny clas sifica tion , ru le, re gu la tion , or pra cti ce a ffec tin g such r ate , fa re , or c ha rge, or t he va lu e of th e s er vice ther eu nder , is or will be u n ju st or unre as onab le or unju st ly dis cr im in at ory , or un du ly p re f­ ere nti al, or un du ly pre ju dic ia l, th e Boa rd m ay a lt e r th e sa m e to th e exte nt ne ce s­ sary to co rr ec t such unju st ness , un re as on ab lene ss , dis cr im in at io n, pref er en ce , or pre ju dic e an d m ak e an o rd er th a t th e a ir carr ie r or fo re ig n a ir ca rr ie r sh al l dis ­ co nt in ue de man ding , ch ar gin g, co lle cti ng , or re ce iv ing an y su ch unju st , unre as on­ ab le, di sc rim in at ory , pre fe re nti al, or pre ju dic ia l ra te , fa re , or ch arge , or e nf or cing any suc h unju st , un re as onab le , di sc rim in at ory , pre fe re nti al, or pr ej udic ia l clas sifi­ ca tion , ru le, re gu la tion , or pra ct ic e. Th e B oa rd m ay in th e af ore sa id ord er se t fo rt h a nd p re sc ribe t he la w fu l ra te , fa re , or c har ge (o r th e max im um or m inim um or th e max im um an d m in im um th er eo f) th ere aft er to be de man de d, ch ar ge d, col­ le ct ed , or rec eiv ed, or th e la w fu l clas sifica tio n, ru le , re gu la tion , or pra ct ic e 

th e re a ft e r to be mad e e ffec tiv e.”

Sec. 6. Su bs ec tio n (g ) of se ct io n 1002 of th e F edera l A vi at io n Ac t of 1958 

(49 U.S.C. 148 2 (g )) is am en de d— (1) by st ri kin g out th e w or ds “ in te rs ta te o r ove rs ea s” ; (2 ) by am en di ng th e par en th eti cal phr as e fo llo wing th e wo rd “jo in t” to re ad as fo llow s: “ (b et w ee n a ir carr ie rs , be tw ee n fo re ig n a ir carr ie rs , or l>etween an a ir c a rr ie r o r carr ie rs an d a fo re ig n a ir ca rr ie r or c a rrie rs )” ; 

and(3 ) by in se rtin g th e w ord s “o r fo re ig n a ir c a rrie r” a fte r th e words “a ir 

c a rr ie r” w he re ve r th ey a p p ear th er ein.

Sec. 7. Su bs ec tio n (i ) o f se ction 1002 of th e F edera l A viatio n Ac t of 1958 (49 U.S.C. 1 4 8 2 (i )) is am en de d by ch an ging th e colon fo llo w in g th e word “o pe ra te d ” to a pe rio d an d str ik in g o ut th e follo wing : "P ro vi de d. T h at as to jo in t ra te s 

fa re s, an d ch ar ge s fo r ov er se a a ir tr an sp o rt ati o n th e B oar d sh al l det er m in e an d pre sc ri be on ly ju st and re as on ab le max im um or min im um or max im um an d 

m in im um join t ra te s, fa re s, or c ha rg es .”

Sec. 8. Th e am en dm en ts m ad e by th is Ac t sh al l become effecti ve th ir ty da ys 

a fte r t he d at e of enac tm en t o f th is Act.

E xecutiv e Off ic e of th e P re sid ent,

Bur eau of th e B udget, 

W as hi ng to n, D.C. A pri l 26,1965.

Ho n. Oren Har ris,

Cha irman , C om m itte e on In te rsta te an d For ei gn Co mm erce, Hou se o f Rep re ­

se nta tive s, W ash in gt on , D.C .

Dear Mr. Cha ir man : T h is is in re pl y to your re ques t fo r th e view s of th e B ure au of th e Bud ge t on H .R . 465, a bill to am en d th e F ed er al Aviatio n Ac t of 1958 to prov id e fo r th e re gula ti on of ra te s an d pra ct ic es of a ir carr ie rs an d fo r­ eign a ir carr ie rs in fo re ig n a ir tr ansp ort ati on, an d fo r o th er pu rposes. T he pu rp os e of H.R . 465 is to se cu re fo r th e U.S. G ov er nm en t a po sitio n of co nt ro l of in te rn ati onal a ir ra te s co m pa ra ble to th a t of m os t fo reign go ve rn ­ m en ts. At pr es en t, th e pow er of th e Ci vil A er ona utics B oar d ov er th e ra te s
4 INTERNATIO NAL AIR FARES

and practices of both U.S. carrier s engaged in foreign air trans portation and 

foreign air carrier s is limited to removing any discrimination found to exist 

afte r notice and hearing. H.R. 465 would give the CAB discretionary authority to prescribe rates and practices and to suspend tariffs of U.S. and foreign 

air carr iers in foreign a ir trans portatio n under the same ratem aking standards 

that apply to inters tate air trans portation . This authority would be subject 

to the approval of the President to assure consistency with the general foreign 

policy and security objectives of the U.S. Government.

Enactm ent of this bill would give the CAB necessary powers to protect U.S. 

travel ers and shippers and would c arry out a recommendation of the statement 

of intern ation al air transporta tion policy, approved by Presid ent Kennedy in 

April 1963, tha t “* * * Congress should adopt legislation which would give to 

the Civil Aeronautics Board autho rity, subject to approval of the President, to 

control rate s in international air tran sport to and from the United States.”

The Bureau of the Budget strongly recommends enactment of H.R. 465 and 

advises th at its enactment would be consistent with the administration’s 

objectives.

Sincerely yours,

Phillip S. Hughes,

Assistant Director for Legislative Reference.

Department of State,

Washington, D.C., April 27,1965.

Hon. Oren Harris,

Chairman, Committee on Inte rstate and Foreign Commerce,

U.S. House of Representatives.

Dear Mr. Chairman : In your letter of February 4, 1965, you requested the 

Department’s views on H.R. 465, a bill to amend the Federal Aviation Act of 

1958 to provide for the regulation of rate s and practices of air carriers and foreign air carrier s in foreign air transpor tation and for other purposes. The 

Department strongly supports enactment of this legislation.

H.R. 4 65 is identical to H.R. 6400 which you introduced in the 1st session of 

the 88th Congress and which was not reported out of your committee during 

the 88th Congress.

The Department first commented on this bill in a letter to you dated July 26,

1963. In th at letter, we anlayzed in detail the effect which the passage of H.R.

6400 would have on our scheme of bilateral air trans port services agreements 

and concluded by strongly supporting its prompt enactment. We renew this 

support now. We believe th at experience since the North Atlantic rate dispute 

of the spring of 1963 demonstrates anew the need for this legislation.

I should like at the outset to review briefly the various lette rs and certain aspects of the public testimony which the Department of State directed to your 

committee following our original comments of July 26,19 63. These le tters, along 

with testimony, amplified the reasons for and gave a more detailed clarification 

of the Department’s original position.

By lett er dated September 8, 1963, the Department replied to the questions 

posed in your letter of Aughst 8, 1963. In our letter, we discussed the problem, 

which we still believe to be an illusory one; namely, tha t H.R. 6400 would not 

protect the United States against destru ctive rate cutting practices by foreign 

airlines flying to and from the United States. We pointed out th at if any 

problem did exist with respect to destructive rate cutting practices, the Departme nt would seek to solve this problem by negotiating eithe r the Bermuda 

form rate article or the so-called new rate article, depending on whether the 

carrier s of the country with which we were negotiating had a h istory of destructive rate cutting practices. We concluded tha t enactment of H.R. 6400 would. w

if anything, strengthen our position in solving the real problem—how to prevent 

interna tional rates from rising.

On May 19. 1964. your committee opened public hearings regarding H.R. 6400.

The t hen Legal Adviser of the Depar tment of State presented a detailed statement supporting and urging prompt enactme nt and pointing out the differences 

between H.R. 6400 and the so-called ATA bill, H.R. 1716.

The statement outlined the advan tages inherent in H.R. 6400 and the defects 

of H.R. 1716, in terms of our position to be able to influence the internatio nal 

air fare stru ctur e in the direction of lower rates. The statement also discussed
INTERNATIONAL AIR FARES O

what we characterized as the “theoretical” problem of destructive rate Cutting, which seemed at that time to be a major although unwarranted objection to 

passage of the legislation. Further, the statement emphasized the important and singular difference be­ tween II.R. 6460 and the amendment to S. 1540 as it was reported out of the Senate committee on November 21, 1063. As you recall, the Senate amendment removed the requirement—present in the administration’s S. 1540—of review and approval by the President, pursuant to section 801 of the Federal Aviation Act, or any Board order issued under the proposed ratemaking and suspension authority. The Legal Adviser’s statement pointed out tha t this amendment was inconsistent with our aviation interests, with our overall foreign policy interests, and with our traditional governmental concepts of allocation of powers. Finally, the statement reemphasized our strong support for H.R. 6400, and indicated that its enactment would place our country, for the first time, on a par with the other major aviation countries of the world. The Department believes that enactment of H.R. 465 is even more urgent today than it was 2 years ago. Then, we had only one experience of an IATA failure to reach a fai r and just agreement. Since tha t time, however, there have been several IATA meetings, and the results of these have proven the inability of the member airlines to reach agreement on many of the complex rate problems relating to special economic and travel circumstances, differ­ entials in fare structures , and the all-important matter of the level of charges to be imposed on the users of the airline services. As a result, there have been in the past 2 years important instances when indecision in rate stan dards has been prejudicial to the public interest and has hampered efficient airline planning. There has been only a type of de facto IATA agreement in effect, which resulted after numerous IATA meetings had ended in a deadlock on several issues, and these had become a question of rath er intense governmental concern. The de facto agreement did bring about a better rate structure and certain reductions, but not nearly as many improve­ ments as the U.S. Government would have wished. At the present time, the members of IATA have had several additional sessions looking toward the establishment of rates for the 1965-66 season. After what appeared to be another deadlock, IATA nt the last moment did reach an agreement which provides for no rate changes and which would term inate TWA’s current pro­ gram of showing inflight motion pictures. The Board is presently considering all aspects of this agreement under its customary section 412 procedures. At all events, th ere have again been informal suggestions that a multilateral governmental conference be convened either to supplant IATA or to determine whether a better or more improved mechanism can be found. While we are hopeful tha t IATA will be able to succeed, we cannot ignore the difficulties which IATA has had in recent years in arriving at unanimous agreements. In the event th at there a re direct governmental negotiations, the U.S. Government would wish to be in the strongest possible negotiating position. This can only be achieved if the Board is given the power to fix rate s in international air 

tr ansp ort ati on. Furthermore, even if the current IATA agreement is approved by the Board, there are still several areas where the fare structures appear to be unreason­ able and where the Board is powerless to act on behalf of the public interest. For example, as Chairman Boyd has frequently pointed out. fares in the Pacific are at an unduly high level. There is little prospect that changes in these fares can be achieved solely through the existing IATA mechanism. We agree with Chairman Boyd’s view th at the public will not. at least in the near future, be given the benefit of lower rates in the Pacific unless the Board is given the power to fix fa ir and just rates in international air transportation. It is for these reasons tha t the Department once again strongly supports H.R. 465 and urgently recommends its prompt enactment. The Bureau of the Budget advises that there is no objection to the sub­ mission of this report and that enactment of H.R. 465 would be consistent with 

the program of the President.

Sincerely yours. Douot.as MacArt hu r TT.

Aftstiiant Secretary for Conyresttinnal Jtelationn (Fo r the Secretary of State).
6 INTERNATIONAL AIR FARES

Off ic e of th e P ost maste r Genera l.

W as hi ng to n, D .C., A pri l 27, 1965.

lio n . Oren H arris.

Ch airm an , Com m ittee on In te rs ta te an d Fo reign Comm erc e,

Hou se o f Rep re se nt at iv es , W as hi ng to n, D.C.

Dear Mr. Cha ir man : Thi s is in re ply to yo ur re ques t fo r our view s on 

H.R. 465, am en di ng th e 195S F edera l A vi at io n Act to pr ov id e fo r th e re gu la ­

tio n of ra te s an d pr ac tice s fo r a ir c a rr ie rs in fo re ig n a ir tr ansp ort ati on.

Th e pu rp ose of th is le gi slat io n is to st re ngt hen th e han d of th e United 

Sta te s in it s ne go tiat io ns w ith fo re ig n ai rl in es fo r ra te s on ov er se a fligh ts.

To en co ur ag e mor e i>eople to tr av el by air , th e U ni te d S ta te s has tr ad it io n ­

ally fa vo re d th e se tt in g of re la ti vely low fa re sche du les. On th e oth er ha nd , 

fo re ign carr ie rs , w ith hi gh er co sts, and in man y ca se s opera ti ng la rg ely as 

su bs idized pre st ig e line s fo r th e ir go ve rn m en ts, ha ve show n co nt in ue d pre fe rence fo r th e sche du lin g of hig her ra te s. The pre fe re nc e usu al ly be ca m e bin ding 

on th e U nited S ta te s an d on all p art ic ip ati n g fo reign co un tr ie s bec au se of ra te s 

lega lly auth ori zed an d fixed by th e In te rn ati o n al Air T ra n sp o rt As socia tio n, 

an in te rn ati onal or ga ni za tion co nsi st in g of com pa nies f ro m some 44 co un tries.

The po w er of our Civil A er onau tics B oar d to se t ra te s fo r tr av el in ei th er 

di re ct io n be tw ee n th e U ni ted S ta te s and fo re ig n co un tr ie s is un re as on ab ly 

re st ri cte d by th e Fed er al A viatio n A ct of 1958, an d by mor e th an 40 bilat er al 

a ir tr avel ag re em en ts pre se nt ly exis ti ng be tw ee n th e U ni te d S ta te s an d nation s w ith co mpa ni es be long ing to th e In te rn ati o n al A ir T ra n sp o rt As socia tion.

W hile th e U ni te d Sta te s m ay dis ap pro ve of a ra te sc he du le se t by th e org an iza tio n, it h as no po wer to blo ck th e ad op tion of th e org an iz at io n ra te , or to 

stop fo re ig n air li nes wh o us e th e ra te from flying to an d fr om th e Un ite d 

Sta te s. On th e oth er ha nd , fo re ig n gov er nm en ts ha ve th e po w er und er bi ­

la te ra l tr e a ti e s and th eir ow n la w s to re quir e bo th th eir ow n and th e U.S. 

ai rl in es to char ge th e org an iz at io n ra te , an d even to b ar U.S . air li n es fro m 

la nd in g if th ey re fu se to ch ar ge th e or ga niz at io n ra te . As a consequence, 

th es e fo re ig n go ve rn m en ts an d co mpa ni es , in effect, are dic ta ti ng hi gh org an iz atio n ra te s, an d comi»elling U.S. air li n es to f ollow the m.

H.R. 465 wou ld per m it th e Ci vil A er ona ut ic s B oar d by la w to comp el U.S. 

ai rl in es fly ing to ot her co un trie s to charg e ra te s w hi ch it fix es or ap prov es, 

re ga rd le ss o f th e In te rn ati onal A ir T ra n sp o rt A ss oc ia tio n’s reco m men da tio ns . 

It wo uld al so mak e bil at er al agre em ents more effecti ve by re quir in g foreign 

go ve rn m en ts to allow ou r air li n es to ope ra te to and from th eir co un trie s 

a t ra te s fix ed by our own Civil A ero nau ti cs Boa rd .

W hile th e m ea su re wo uld no t d ir ectl y af fe ct our D ep art m ent ra te s fo r the 

tr an sp o rt ati o n of ma il, we are in genera l ac co rd w ith th e pu rp os e of th e legislatio n, an d fa vor it s en ac tm en t.

Th e B ure au of th e Bud ge t has ad vis ed th a t fro m th e st andpoin t of th e adm in is tr ati on’s pr og ra m th er e is no obje ct to th e su bm ission of th is re port to 

th e co mmittee .

Sinc er ely yo urs,

J oh n R. Gro no us ki.

P ost m ast er Ge ner al.

Comptroller General of th e United Sta te s,

W as hing ton, D.C., F ebru ary 26, 1965.

Ho n. Oren H ar ris,

Ch airm an , Com m ittee on In te rs ta te and F or eign Comm erc e,

Hou se o f Rep re se nt at iv es .

Dear Mr. Cha irman : We re fe r to your le tt e r of F ebru ary 4. 1965. in wh ich 

yo u as k fo r our comm ents on H.R . 465 . A co mpa nion bill, S. 907, has been 

in trod uc ed in th e Se na te.

H.R. 465 is de sign ed to am en d th e F ed era l A vi atio n Ac t of 1958 ( 49 U.S.C . 

1301 et seq.) to giv e th e Civ il A er onau tics B oa rd more po wer an d co nt ro l th an 

it no w po ss es se s ov er foreign a ir tr an sp o rt ati o n . U nd er th e pre se nt law . the 

Civ il A er on au tics B oa rd has pra cti call y no dir ect au th o ri ty ov er th e ra te s an d 

pra ct ic es of eit her U.S. or foreign a ir carr ie rs en ga ge d in fo re ig n a ir tr a n sport ati on. A p art fro m its po wer to ap pro ve or di sa ppr ov e ag re em en ts am on g
INTERNATIONAL AIR FARES 7

a ir c a rr ie rs an d fo re ig n a ir c a rr ie rs fix ing ra te s and pra ct ic es in fo re ign air 

tr an sp o rt ati o n , whic h is lim ited to pa ss in g on w het her th e ag re em en ts ar e 

consi st en t w ith th e F edera l A via tion Act an d th e pu blic in te re st (49 U.S.C. 

1382 ), th e on ly po wer ov er ra te s and pra ct ic es in fo re ig n a ir tr ansp ort ati on 

now po ss es se d by th e B oar d is th a t of or der in g a c a rr ie r to remov e a dis ­

cri m in ati on in it s ra te str u c tu re if, a ft e r no tice an d hea ri ng, di sc rim in at io n 

is f oun d to e xis t (49 U.S.C. 1 4 8 2 (f)). H.R . 465, whi ch em bo dies a le gis la tive re co m m en da tion co nt ai ne d fo r th e 

p ast fe w years in th e annual re p o rt s of th e Civil A er ona utics Boa rd , wo uld 

ac co m pl ish th e ob jective of m or e le gi sl at iv e co nt ro l by am en di ng th e Fed er al 

A vi at io n Act of 1958 so a s to giv e th e B oa rd po wer to re gula te th e ra te s an d 

pra ct ic es of th e U.S .-flag c a rr ie rs and fo re ign a ir carr ie rs in fo re ig n a ir tr a n sport ati on si m il ar to th a t whi ch it n ow po ssesses ov er dom es tic carr ie rs .

A si m il ar bill. S. 1540, w as in tr od uce d in th e 88 th Con gress. A ft er he ar in gs , 

th e S en at e Com mittee on Com m erce re po rt ed fa vora bly on an am en dm en t in 

th e n a tu re of a su bst itute . T he am en dm en t ch an ge d S. 1540 in on ly one resp ec t. 

S. 1540, like II.R . 465, ori gin all y prov id ed th a t th e P re si dent wou ld ha ve the 

po w er to ap pr ov e or dis ap pro ve ac tion s of th e B oa rd in fix ing ra te s an d pra ctice s and su sp en ding ta ri ff s in fo re ig n air tr an sp o rt ati o n . U nd er th e am en dm en t to S. 1540 th e B oa rd w as re quir ed to re p o rt to th e P re sid en t it s de cis ions 

on in te rn ati onal ra te m att ers bef or e pu bl ic atio n, but th e am en de d bil l di d no t 

pr ov id e an y st atu to ry a u th o ri ty fo r mod ifi ca tio n o f B oar d de cision s by th e 

Pre si dent. The am en de d bill pas se d th e Sen at e on Nov em be r 26, 1963, an d was 

in tr oduce d in the Hou se of R ep re se nta tives w her e i t w as re fe rr ed to yo ur 

co mm itt ee .

W e no te th a t th e pr ovi si ons of H.R. 465 a re in ac co rd w it h a st ate m ent on 

in te ra ati o n al a ir tr an sp o rt po lic y, ap pr ov ed by P re si dent Ken ne dy in 1963 a fte r 

su bm ission to him by an in te ra gen cy st ee ring co mm itt ee , and th a t th e bill wou ld 

se rv e to i m plem en t c ert ain pro vi si on s of bil ate ra l a ir tr an sp o rt ati o n ag re em en ts , 

co mmon ly ca lle d B er m uda- ty pe ag re em en ts, be tw ee n th e U ni te d S ta te s and 

vari ous fo re ig n go ve rn m en ts.

If en ac ted, H.R. 465 wou ld no t affect th e fu ncti ons an d ac ti vit ie s of th e 

G en er al Acc ou nting Office. I ts pr ov isions gen er al ly se em to be in th e pu bl ic 

in te re st an d we a re n ot op po se d to its en ac tm en t.

Sinc erely yo urs,

J os ep h Cam pbell,

Comptroller General of the United States.

Gen er al C ounse l of th e Depar tm en t of Commerce,

Washington, D.C., April 28,1965.

Hon . Oren H arr is,

Chairman, Interstate and Foreign Commerce Committee, House of Representatives, Washington, D.C.

Dear Mr, Cha ir m an : T h is is in fu rth e r repl y to your re ques t fo r th e view s 

of th is D ep ar tm en t on H .R . 465. a bil l to am en d th e F edera l Avi atio n Ac t of 

1958 to pr ov id e fo r th e re gula ti on of ra te s an d pra cti ces of a ir carr ie rs an d 

fo re ig n a ir ca rr ie rs in fo re ig n a ir tr ansp ort ati on, and fo r oth er pu rpos es.

T his prop osed le gis la tion dea ls w ith ov er se as a ir tr an sp o rt ati o n (i.e., tr a n sport ati on fro m th e conti nenta l United S ta te s to U.S. te rr it o ri es an d po ssession s 

or be tw ee n U.S. te rri to ri e s and po ssession s) and fo re ig n a ir tr ansp ort ati on (i.e., 

tr an sp o rt ati o n be tw ee n th e U ni ted S ta te s and an y pla ce ou tsid e th er eo f bu t not 

in cl ud in g ov er se as tra n sp o rta ti o n ).

The prop osed le gis la tion wo uld (1 ) se t fo rt h th e duti es of th e a ir ca rr ie rs 

and foreign a ir c a rr ie rs in fo re ig n a ir tr an sp o rt ati o n in es ta blish in g ju s t and 

re as on ab le ra te s and p ra cti ces; (2 ) re quir e th a t ord ers of th e Civ il A er onau tics 

B oa rd di re ct in g an a ir c a rr ie r or fo re ig n a ir c a rr ie r to di sc on tinu e a ra te or 

pra ct ic e fo r fo re ig n a ir tr an sp o rt ati o n and ac tions of th e Boa rd su sp en din g 

ta ri ff s filed by su ch c a rr ie rs fo r such tr an sp o rt ati o n be su bj ec t to th e ap pro val 

of th e P re sid en t; (3 ) ex te nd th e B oard ’s au th o ri ty ov er th e ra te s of U.S. 

carr ie rs in ov er se as a ir tr an sp o rt ati o n from th e pre sen t ri ght to pr es cr ib e on ly 

max im um an d m in im um ra te s to th e ri g h t to pre sc ribe exact n it es (t h e B oar d
8 INTERNATIONAL AIR FARES

now has this authority in respect to rates for interstate transportation) ; (4) 

extend the public interest factors to be considered by the Board in acting on 

rates to cover foreign air carrie rs as well as U.S. air car riers; (5) continue 

existing authority of the Board to order an air carrier or a foreign air carrier 

to remove a discrimination, preference, or prejudice in its foreign a ir transportation rate structure, and authorize the Board to require discontinuance by the 

carrier of the unreasonable or discriminatory rate or practice, as well as provide new authority to prescribe the lawful rate or practice; and (6) authorize 

the Board to suspend rates and practices of air carriers in inte rstate and overseas air transportation pending hearing, so as to give the Board the same 

authority to suspend the rates and practices of an air carrier or foreign air 

carrier in foreign air tran sportation pending hearing as the Board now has 

in interstate and overseas air transportation.

For some tune, the Board has sought additional rate powers in foreign air 

transportation. At the present time, some foreign governments unilaterally 

control the rates of the U.S. air carriers, but the United States does not have 

the machinery to control the rates of foreign air carriers. It is in this area 

that the power to control rates and tariffs is desired.

This bill is in conformance with the statement of intern ational air transport 

policy approved by President Kennedy in 1963 which recommended tha t “* * * 

Congress should adopt legislation which would give to the Civil Aeronautics 

Board authority, subject to approval by the President, to control rates in international air transport to and from the United States.”

The proposed legislation, by giving the Board power to approve or disapprove 

the rate s of U.S. and foreign international air carriers similar to the power 

it now has with respect to domestic carriers, gives effect to the statement of 

international air transport policy.

Accordingly, the Department recommends enactment of H.R. 465.

We have been advised by the Bureau of the Budget tha t there would be no 

objection to submission of this report from the standpoint of the administration’s program.

Sincerely,

Robert E. Giles.

Department of J ust ice,

Office of th e Deputy Attorney General,

Washington, D.C., May IS, 1965.

Hon. Oren Harris,

Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C.

Dear Mr. C hair man : This is in response to your request for the views of the 

Department of Justice concerning H.R. 465, a bill to amend the Federal Aviation 

Act of 1958 to provide for the regulation of rates and practices of air carriers 

and foreign air carriers in foreign air transportation, and for other purposes.

The bill embodies recommendations of an interdepartm ental committee for 

the enactment of legislation to empower the Civil Aeronautics Board to control 

rates and practices of foreign air carrier s operating within U.S. territory. The 

controls provided for in the legislation are similar to those the Board now has 

with resj>ect to interstate operations of domestic air carriers. In general, the 

controls to be exercised by the Board under the measure would be subject to 

approval by the President.

The bill is similar to proposed legislation submitted to the 88th Congress 

by President Kennedy.

The Department of Justice believes this bill would protect the interests and 

needs of travelers and carriers, and would serve to improve the Government’s 

position in meeting foreign air tran spo rt competition; therefore, we recommend 

enactment of H.R. 465.

The Bureau of the Budget has advised that there is no objection to the submission of this report from the standpoint of the administration’s program. 

Sincerely,

Ramsey Ci.ark. 

Deputy Attor ney General.
INTERNATIONAL AIR FARES 9

Civ il Aer on au tic s Board, 

Washington, D.C., Fe brua ry 9 ,19 65.

Hon. Oren H arr is,

Chairman , Committee on I nte rs ta te and Fore ign Commerce, House of R epres entatives , Washingto n, D.C.

Dear Mr. Cha ir m an : Th is is in reply to you r le tte r of Fe bru ary 4, 1965, requ esting a report by the Bo ard on H.R. 465, a bill to amen d the Fed eral Avia ­ tion Act of 1958 to provi de fo r the regulation of rates and pract ices of ai r ca rri ers and foreig n ai r ca rrie rs in foreign ai r tra nsp ort ation , and for oth er 

purpose s. The provisions of H.R. 465 are ident ical to those of a dr af t bill subm itted by the B oard to Congress on Jan ua ry 8,1965. For the reasons set forth in the stat ement of purpose and need which accom­ panied the draft bill, a copy of which is enclosed, the Board urges th at prom pt and fa vorable c onsi dera tion to be given to H.R. 465.

Sincerely yours, R obert T. Mu rph y,

Vice Chair man.

Sta te m en t of P urp ose and N eed for t h e B il l

The dr af t bill would ame nd the Fed eral Aviation Act of 1958 so as to give the Boa rd discret ionary autho rity , subje ct to app roval by the Pres iden t, to pres cribe rat es and pra ctices and to suspe nd tar iff s of U.S. and foreig n ai r ca rri ers in foreig n ai r tra ns po rta tio n und er the sam e rate mak ing sta nd ard s th at are applicable to in te rs ta te air tra nsp ort ation. In addition, an affirm ative duty would be placed on the carriers to esta blis h ju st and reason able rat es and prac tices rel ati ng to foreign ai r tra nsp ort ation . Also, the existing powers of the Boar d over ra tes an d pract ices in overseas ai r tra nsp ort ation would be modified so as to corresp ond with those which it has wi th respe ct to in terstate ai r tran spo rtation, and which are proposed for foreign ai r tran spo rtat ion. The bill implem ents a recommenda tion in the sta tem ent on inte rna tional ai r tra ns po rt policy app roved by Pre sident K enned y on Apri l 24, 1963, th at Congress should adopt legisla tion giving the Boa rd autho rity , subj ect to approval by the Pres iden t, to reg ula te ra te s in foreign ai r tra nspo rta tio n because of the need “for more effective governm enta l influence on ra te s” to pro tect the needs of the trav ele r and t he s hipper . This recom mendation is consiste nt with the views of the Board, which ha s s oug ht legislat ion of th is na tu re since 1942. At the pre sen t time, the Boar d has no really effective method by which it can protect tra veler s an d shipp ers ag ain st forei gn ra tes which are too high, or prev ent the establ ish me nt of rates which are so low as to enda nger the finan cial hea lth of the carri ers. Although the Boa rd mu st approve or disapprove the rat es estab lishe d by the Int ern ational Air Tran sport Associatio n (IA TA ), th e basic mechanism for determ inin g rat es and far es in the firs t instan ce, its power to affect the level of the rat es—tha t is, wh eth er they are too high or too low1— 

is not only ind irec t bu t ineffective. In fact , the only direct autho rity whic h the Board has over rates charged by e ith er U.S. or foreign ai r car rie rs is the power to remove any discrim ina tion found to exist af te r notice and hearing. On the other han d, vir tua lly all oth er cou ntri es have auth orit y, deriv ed from decrees, regu lations, the con stitutio nal str uc tur e of the ir governments, and bi­ latera l agreements hav ing the effect of law, to susp end and fix th e rates of th ei r carrie rs as well as those of the Unite d States. As a result U.S.-flag ca rri ers, who are general ly th e low-cost car riers, have been unabl e to pu t lowe r ra tes into effect even whe n they desire d to do so. Thus , foreign governments hav e been able to tak e un ila teral action again st ca rri ers of the United States, while this Government ha s no t been able to do the same with respe ct to the irs. Making the new powers disc retionary, and subj ecti ng the ir exercise to the approval of the Pre sid ent , would give recognition to the foreign policy facto rs invloved in fore ign air transp ortatio n, as -well as ass ure th at s uch powers would be exerc ised in conform ity with our int ern ati on al obliga tions and wi th the overall policy inter ests of the Unite d State s. Moreover, such discretio n would provide the nec essary flexibility for continu ing the Int ern ationa l Air Tr an sp ort Association (IA TA ) as the basic mecha nism for esta blishing int erna tio na l ai r
10 INT ER NA TIO NA L AIR FARES

tr an sp o rt ra te s an d fa re s, as reco m m en de d in th e st at em en t on in te rn ati onal air 

tr a n sp o rt polic y.

In su m m ar y, giving th e B oa rd th e po wer to fix ra te s an d su sp en d ta ri ff s in 

fo re ig n a ir tr an sp ort ati on, as it m ay no w do w ith re se pc t to in te rs ta te a ir tr an sport at io n, wou ld no t only plac e it on an eq ua l ba sis w ith its counte rp art s in 

fo re ig n go ve rn m en ts, bu t wou ld als o en ab le it to ta ke effecti ve ac tion in the 

fo re ig n fie ld fo r pr ot ec tio n of th e tr av ele r an d th e sh ip pe r. M oreo ve r, ve stin g 

th e B oa rd w ith such au th ori ty w ou ld be co ns is te nt w ith th e obj ec tive of the 

a ir tr a n sp o rt pol icy of th e U ni te d S ta te s to prov ide a system of re as onab le ra te s 

th a t will ta k e in to ac co un t bo th th e in te re st s of th e carr ie rs and th e ne ed s of 

th e co ns um er .

Ther e is att ac hed a section-by -sec tio n an al ys is of th e d ra ft hill, and a com ­

pa riso n of it s prov isions w ith ex is ti ng la w .

Sec tion -by-S ec ti on A n a l y sis of t h e Bil l

Se ct io n 1

Am en ds su bs ec tio n (a ) of s ec tio n 401 of t he a ct, re qui ring a ir carr ie rs in in te r- •

st ate an d ov er se as a ir tr an sp o rt ati o n to pr ov ide th ro ug h ser vic e, ad eq uat e eq uipm en t and fa ci lities , an d es ta bl is h ju s t an d re as on ab le ra te s an d pr ac tice s, by 

ad din g pr ov isio ns mak in g it th e d u ty of a ir carr ie rs an d fo re ig n a ir carr ie rs to 

es ta blish ju s t an d re as on ab le ra te s and pra ct ic es re la ti ng to fo re ig n a ir t ra n sp o rt atio n. Si nc e th e Boa rd is be ing gi ve n th e po wer in se ction 5 of th e bill to pa ss 

up on th e ju st n ess an d re as on ab le ne ss of ra te s an d pr ac tice s of a ir carr ie rs an d 

fo re ig n a ir carr ie rs in fo re ign a ir tr an sp o rt ati o n , su ch carr ie rs sh ou ld ha ve th e 

dut y of est ab li sh in g ju st an d re as onab le ra te s an d pra ct ic es fo r suc h 

tr ansp ort ati on.

Se ct io n 2

Am en ds se ct io n 801 of th e ac t, su bje cti ng th e issu an ce , de ni al , etc ., of ce rti fica te s fo r ov er se as or fo re ign a ir tr an sp o rt ati o n an d pe rm its fo r th e la tt er to 

P re si denti al ap pr ov al , by ad di ng pro vi si on s re qu ir in g th a t ord er s of th e Bo ard, 

ot her th a n th ose re la ting to th e re m ov al of di sc rim in at io ns , dir ec ti ng an air carri er or fo re ig n carr ie r to dis co nt in ue a ra te or pra ct ic e fo r fo re ig n a ir tr an sport at io n, an d ac tion s of th e B oa rd su sp en di ng ta ri ff s filed by su ch carr ie rs fo r 

such tr an sp o rt ati o n , sh al l be su bje ct to th e ap pr ov al of th e Pre si dent. Copies 

of such ord ers an d of st ate m ents co nta in in g re as on s fo r su sp en sion s m us t be 

su bm itte d to th e Pre si de nt p ri o r to pub lica tion . O rd er s re la ti ng to th e rem ov al 

of dis cr im in at io ns ha ve been ex cl ude d from P re si den tial ap pro val sin ce th e 

Boa rd pre se ntly ha s au th o ri ty to is su e su ch ord er s w ithout su ch ap pr ov al.

Se ct io n 3

Am ends su bs ec tio n (d ) of se ct io n 1002 of th e ac t auth ori zi ng th e Boa rd to 

pr es cr ib e ra te s an d pr ac tice s of a ir carr ie rs in in te rs ta te an d ov erse as air 

tr an sp o rt ati o n , so as to remov e th e li m itat io n th at th e B oar d may pres cr ibe 

on ly a ‘•jus t an d reas on ab le m ax im um o r mi nimum , or m ax im um and mi nim um 

ra te , fa re , or ch ar ge " fo r o ve rs ea s tr an sp o rt ati o n . Th e am en dm en t is re qu ired in 

or de r to av oi d the an om aly of th e B oard ha vi ng les s au th o ri ty ove r ra te s an d 

pr ac tice s in ov erse as air tr an sp o rt ati o n th an it wo uld ha ve in fo re ig n air tr a n sport ati on u nder s ec tio n 5 o f the bill.

Se cti on A ~

*

Am ends su bs ec tio n (e) of se ct ion 1002 of th e ac t, se tt in g fo rt h cert ain cr it eri a 

fo r th e de te rm in at io n, am ong oth er th in gs, of th e ju st ness and re as on ab le ne ss of 

ra te s an d fa re s fo r th e tr an sp o rt ati o n by a ir of pe rs on s an d pro per ty , so as to 

mak e it s pr ov isio ns ap plicab le to fo re ig n a ir carr ie rs as we ll as to U.S.-flag carri er s. Si nc e se ct ion 5 of th e bill gi ve s th e B oa rd th e po wer to pas s up on th e »

ju st ness and reas on ab lene ss of fo re ig n a ir carr ie r ra te s, th e st an d ard s of su bse ction (e ) shou ld be ap plicab le to th e ra te s of su ch carr ie rs as w el l as to those 

of U.S.-fla g c arr ie rs .

Se ction 5

Am en ds su bs ec tio n (f ) of se ct io n 1002 of th e ac t. perm it ti ng th e Boa rd to 

ord er an a ir carr ie r or a fo re ig n a ir c a rr ie r to rem ov e a di sc rim in at io n, pre fe rence, or pre ju dic e in its fo re ign a ir tr an sp o rt ati o n ra te str u ctu re if, a ft e r no tic e 

and hea ri ng, su ch a di sc rim in at io n, pr ef er en ce , or pr ej ud ic e is fo und to ex ist , so 

as to g ive th e Boa rd di sc re tionar y a u th o ri ty to a lt e r a ra te or pra ct ic e in foreign 

a ir tr an sp o rt ati o n to th e ex te nt nec es sa ry to co rr ec t un re as onab le nes s or di scr im in at io n. Such au th ori ty may be ex er ci se d on ly w he re th e B oar d is of th e
INTERNATIONAL AIR FARES 11

opini on , .afte r no tic e an d he ar in g, th a t a ra te or pra ct ic e is unre as onab le or un­ ju stl y dis cri m in ato ry or un du ly pre fe re nti al. Th e Boa rd also wou ld he giv en dis cr eti onary au th o ri ty to re quir e dis co nt in uan ce by th e carr ie r of th e unr ea so n­ ab le or di sc ri m in ato ry ra te or pra ct ic e, as well as to jie scrib e th e la w fu l ra te or pr ac tice , or th e max im um a n d /o r m in im um of th e ra te . As st ate d in th e dis ­ cu ssion of se ct io n 2 of th e bill, ord ers of th e Boa rd und er th is su bs ec tio n, ex ce pt fo r th os e re la ti n g to th e remov al o f di sc rim in at io ns, are s ub je ct to th e a ppro val of 

th e P re si d en t u nder se ction 801 o f t h e a ct .

Section 6 Am en ds su bs ec tio n (g ) of s ec tio n 1002 of the ac t, au th ori zin g th e B oa rd to su s­ pe nd ra te s a nd pra ct ic es of a ir c a rr ie rs in in te rs ta te an d ov er se as a ir tr an sp o rt a­ tion pe nd in g he ar in gs , so as to giv e th e Boa rd th e same au th o ri ty to su sp en d the ra te s and pra ct ic es o f a n a ir c a rr ie r or fo re ig n a ir c a rr ie r in fo re ig n a ir tr ansp or­ ta ti o n { lending hea ri ng a s th e B oa rd no w h as in in te rs ta te a nd ov er se as a ir tr a n s­ port ati on. Deletion o f t he w or ds “ in te rs ta te an d ov er se as ’’ g ives the B oa rd a u th o r­ ity to su sp en d {lend ing hea ri ng th e oper at io n of an y ta ri ff file d by an a ir carr ie r, and th is w ou ld includ e t ari ff s to b e effe ctiv e in fo re ig n as we ll a s in in te rs ta te and ov er se as a ir tr ansp ort ati on. In sert io n of th e wor ds “o r fo re ig n a ir carr ie r" fo llo wing th e words “a ir c a rr ie r’’ w he re ve r th ey ap p ear in th e su bs ec tio n, giv es th e B oa rd au th o ri ty to su sp en d th e ra te s an d pr ac tice s of fo re ig n a ir carr ie rs in fo re ig n a ir tr ansp ort ati on pe nd in g he ar in g. How ev er, as sta te d in th e disc us ­

sio n of se ct io n 2 o f th e bill, ac ti ons of th e B oa rd su sp en di ng ta ri ff s tiled by a ir carr ie rs or fo re ig n a ir carr ie rs in fo re ig n a ir tr an sp o rt ati o n a re su bje ct to th e ap pro val o f th e Pre si den t u nder se ct io n 801 o f t he ac t.

Section 7 Amen ds su bs ec tio n (i ) of se ct io n 1002 of th e ac t, auth ori zin g th e Boa rd to pre sc ribe th ro ugh se rv ice s an d jo in t ra te s fo r in te rs ta te an d ov er se as a ir tr a n s­ port ati on, so as to rem ov e th e li m it ati o n th a t th e B oa rd m ay pre sc ribe on ly “ju st an d re as on ab le max im um or m in im um or max im um an d min im um jo in t ra te s, fa re s, or ch ar ge s” fo r ov er se as a ir tr an sp ort ati on. The am en dm en t is re qu ired in ord er to confo rm th e pro vis io ns of the subs ec tio n to th os e of s ub se ction (d ) as 

am en de d by secti on 3 of th e bil l.

Section 8 Pro vi de s th a t th e am en dm en ts m ad e by th e bi ll sh al l ta k e effect 30 da ys a ft e r 

th e d ate o f its en ac tm en t.

Comp arison Wit h E xis ti ng Law— F ederal Avia tio n Act of 1958 

* * * * * * * 

T IT LE IV—A IR C A R R IE R ECON OM IC REG ULA TIO N

* * * * * * *

R ates for C arriage of P ersons and P roperty

carrier’s duty to provide service, rates, and divisio ns

Sf.c. 404. ( a ) ( 1 ) * * *

(2 ) It shall be the duty of every carrier and foreign air carrier to establish, observe, and enforce just and reasonable individual and joint rates, fares, and charges, and jus t and reasonable classifications, rules, regulations, and practices relating to foreign a ir transportatio n; and, in ease of such joint rates, fares, and charges, to establish jus t, reasonable, and equitable divisions thereof as between air carriers or foreign air carriers participating therein which shall not unduly prefer or prejudice any o f such participating air carriers or foreign air carriers.

* * * * * * * 

TIT LE V II I— O TH E R A DM IN IS TRATIV E AGEN CIE S 

T H E PR ESID ENT OF T H E U N IT ED STA TE S

Sec. SOL (ff) * * * (b) Any order o f the Board pursu ant to section 1002(f) requiring that an air carrier or foreign air carrier discontinue demanding, charging, collecting, or receiving a rate, fare, or charge for foreign air tran sportation, or enforcing any
12 INTERNATIONAL AIR FARES

classification, rule, regulation, or practice affecting such rate, fare, or charge,

and any action of the Board purs uant to section 1002(g) suspending the operation

of a tariff filed with the Board by an air carrier or foreign air carrier stating a

new individual or joint rate, fare, or charge for foreign air transportation, shall

be subject to the approval of the President: Provided, That any order of the

Board directing an air carrier or foreig n air carrier to alter any rate, fare, or

charge, or any classification, rule, regulation, or practice affecting such rate, fare,

or charge, to the exte nt necessary to correct any discrimination, preference, or

prejudice, and any order tha t the air carrier or foreign air carrier shall discontin ue demanding, charging, collecting, or receiving any such discriminatory,

preferen tial, or prejudicial rate, fare, or charge or enforcing any such discriminatory, preferential, or prejudicia l classification, rule, regulation, or practice, sha ll not be subject to such approval. Copies of any such proposed orders, and

of proposed statements containing reasons for suspension, shall be submitted to

the Pre sident by the Board before publication.

♦ * * * ♦ ♦ ♦

* *

T IT L E X— PR OCED URE

* * * * *

C o m pla in ts to an d I n v e st ig a t io n s by t h e Ad m in is t r a t o r an d th e

B oa rd

F IL IN G O F CO M PLA IN TS A U TH O R IZ ED

Se c . 1002(a) * * *

PO W ER TO P R E S C R IB E R A T E S AN D PR A C T IC ES O F A IR C A R R IE R S

(d) Whenever, after notice an d hea ring, upo n comp lai nt, or upon its own 

initi ative, t he Board sh all be o f t he opinion th at any individu al or joint rate, fare, 

or charg e dem and ed, c har ged , collecte d or received by any air carri er for interstate 

or overseas air tra ns po rtat io n, or any clas sification, rule, regu lat ion , or pra ctice 

affect ing suc h rate, fare, or charge, or th e valu e of the servic e the reun der, is or 

will be un ju st or unrea son abl e, or un justly d isc rim ina tor y, or u nd uly preferent ial, 

or un du ly prejudicial, the Boa rd shall determine an d prescribe th e lawfu l rate, 

far e, or charge (or the ma xim um or minimu m, or th e ma xim um and min imu m 

thereo f) th erea fte r to be demande d, cha rged, collected, or rec eived, or the lawf ul 

clas sification, rule, regula tion, or practic e therea fte r to be ma de effectives Pro ■

vided- T hat as to ratesv fa re s, a n d ch arge s fo r ov erseas air t ra ns po rtat io n, th e 

Boa rd sh all d ete rmine an d pr es cr ibe on ly a jn at and re as on ab le max im um or

or ma xim u m an d mi ni mu m ra te , fare, or ch arg e.

R U L E O F R A TEM A K IN G

(e) In exercising and pe rfo rm ing its powers an d duties with res pect to the 

de term ination of rates for th e carriage of persons or pr op erty, th e Board sha ll 

ta ke into con sidera tion, am ong ot he r fac tors—

(1) The effect of suc h ra te s upo n the mo veme nt of traf fic;

(2) The need in th e public in te rest of ad eq ua te a nd efficient tra ns po rtatio n 

of persons an d prop erty by ai r car riers and foreign air carriers at th e lowest 

cos t con sis ten t with the furnishing of such servic e;

(3) Such sta nd ards respectin g th e ch aracter and qu ality of service to be 

ren dered by air car riers and foreig n air carriers as ma y be prescribed by or 

pu rs ua nt t o law;

(4) Th e inh ere nt ad va nt ag es of tra ns po rtatio n by airc ra ft; and

(5) Th e need of each a ir c arrie r and foreign air carrier fo r r eve nue sufficient 

to ena ble such air carrie r an d foreign air carrier, un der hon est, economical, 

an d efficient ma nag em ent , to pro vid e ad eq ua te and efficient air car rier and

foreig n air carrier service.

RE MOV Afa O F DIS CRIM IN ATIO N FN FO RE IG N AFR TR AN SP ORTATIO N

•(f)- W he ne ve r, a fter n a ti ee a n d he aring, u po n co m pl ai nt , a r upo n its aw n 

in itia tive, th e Bo ard sh all b e af t h e o pinion t h a t an y i nd iv id ua l a r joint- ra te, fa re, 

ar ch ar ge de man de d, ch arge d, coll ect ed, a r re ceive d b y a n y a ir ca rr ie r a r foreign 

air carr ie r fo r forcign ai r tr an sp o rt ati o n , a r any cla ssifica tio n, ru le , reg ulati on , ar

such rat e, fare, a r cha rge, a r t h e v alue a f t h e ser vice
INTERNATIONAL AIR FARES 13

is o r will fee nnj-n stl y di sc ri m in at ory , or unduly pre ferent ial; o f a n d o ly pr ej ud ic ia l, 

th e Boa rd m ay al te r th e oan ic to th e ex te n t ne ce ssary to co rr ec t ou ch di sc rim in ation ,1

 pr ef er en ce , or pr ej ud ic e and m al te an or de r th a t th e air ca rr ie r o r fo re ig n air 

ea rr ie r sh al l di sc on t inu e de m an di ng, elatrg ing; co lle ct in g; or re ce iv in g a n y ouc h 

di sc ri m inat ory , pr efe rent ial; or p re ju d ic ia l rat e; fa re; o r ch ar ge o r en fo rc in g an y 

pra cti ce:

R A T E S A N D P R A C T IC E S I N FO R E IG N A I R T R A N S P O R T A T IO N

(/) Whenever, after notice and hearing, upon complaint or upon its own initiative the Board shall be of the opin ion that any indiv idual or join t rate, fare , or charge demanded, charged, collected, or received by any air carrier or foreign air carrier for foreign air transportation, or a ny classification , rule, regulation, or practice affecting such rate, fare or charge or the value of the service thereunder, is or will be unju st or unreasonable or unj ustly di scrim inat ory, or unduly preferential, or und uly preju dicia l, the Board may alter the same to the extent necessary to correct such unjus tness, unreasonableness, discrimina tion, preference, or prejudice and make an order that the a ir carrier or foreign air carrier shall discontinue demanding, charging, collecting, or receiving any such unjus t, unreasona ble, discrim inatory, preferential, or prejudic ial rate, far e, or charge, or enforcing any such unju st, unreasonable, discriminat ory, preferential or preju dicia l, class ifica tion, rule, regulation, or practice. The Board may in the aforesaid order set forth and prescribe the lawful rate, fare, or charge (or the maximum or minimum or the maxim um and minimum thereof) thereafter to be demanded, charged, collected, or received, or the lawful classificat ion, rule, regulation

or practice thereafter to be made effective.

S U S P E N S IO N O F RA TES

(g) Whenever any air carrier or foreign air carrier shall file with the Board a 

tariff stating a new indi vidu al or join t (between air carriers, between fo reign air

carriers, or between an air carrier or carriers and a foreign air carrier or carriers')

rate, fare, or charge for in te rs t a te o r overse as air transp ortatio n or any classification, rule, regulation, or practice affecti ng such rate, fare, or charge, or the value of the service thereunder, the Board is empowered, upon complaint or upon its own initia tive, at once, an d, if it so orders, witho ut answer or other formal 

plea ding by the air carrier or foreign air carrier, but upon reasonable notice, 

to enter upon a hearing concerning the lawfulness of such rate, fare, or charge, or such classification, rule, regulation, or practice; and pendin g such hearing and the decision thereon, the Boa rd, by filing with such tariff, and delivering 

to the air carrier or fore ign air carrier, affected there by, a statem ent in writing 

of its reasons for such suspension, may suspend the operation of such tariff and defer the use of such rate, fare , or charge, or such classificatio n, rule, regulation, or pract ice, for a period of nin ety days, and, if the proceeding has not been con­ cluded and a final order made within such period, the Board may, from time to time , extend the period of suspension, but not for a longer period in the aggregate then one hundred and eig hty days beyond the time when su ch tariff would o ther­ wise go into e ffect ; a nd, afte r hearing, whether complet ed before or after the rate, fare, charge, classification, rule, regulation, or practice goes in to effect , the Board may make such order with reference thereto as would be proper in a proceeding instituted after such rate, fare, charge, classification , rule, regulation, or practice had become effec tive. If the proceeding has not been concluded and an order made within the period of suspension, the proposed ra te, fare, charge, classification, rule, regulation, or practice shall go into e ffect a t the end of such period-* Provide d,

Th at this subsection shall not apply to any initi al tari ff filed by any air carrier 

or foreign air carrier.

* * * * * * *

PO W ER TO E S T A B L IS H TH RO UG H A IR TR A N SPO R TA TIO N SER V IC E

(i) The Board shall, whenever required b y the p ublic convenience and necessity, after notice and hearin g, upon complaint or upon its own init iative, esta blish through service and joi nt rates, fares, or charges (or the maxima or minima, or the maxima and mimima thereof) for interstate or overseas air trans porta tion, or the classifications, rules, regulations, or practices affec ting such rates, fares, or charges, or the value of the service thereunder, and the terms and conditions 

under which such thro ugh service shall be opera ted:. P ro vi ded-; T h at a s to jo int 

ra tes,- fa res; an d eharge s f or ov erseas air tra nspo rt at io n the Bo ar d sh ah deter m in e 

and pres cribe on ly ju s t a n d rea sonable m axi m um op m in im um op m ax im um and 

minimum joint rates, fares, or charges.

56 -5 62 —Co-----2
14 INTERNATIONAL AIR FARES

Mr. Staggers. Perhaps it would be more accurate to say that we 

are resuming hearings which ran from May 19 to June 1 of last year 

on the same and related subjects. These hearings did not lead to a 

conclusion so far as legislation is concerned, and 1 understand that the 

proponents of the bill l>efore us, which would empower the Civil 

Aeronautics Board to regulate the fares, rates, and practices of our 

international air carriers and also those of foreign air carriers who 

operate to and from the United States, continue to seek legislative 

relief.

It is also understood tha t the substantial opposition which was 

brought forward a year ago is still present.

The committee is willing to continue to consider the pros and cons 

of this complex subject and to strive for an intelligent determination 

as to whether or not the CAB should have the legislation in this field 

which it has been seeking now for over 20 years.

Our first witness is the Honorable Alan S. Boyd of the Civil Aeronautics Board, and we are happy to welcome him to our new hearing 

room and to have his statement on today's subject.

STATEMENT OF HON. ALAN S. BOYD, CHAIRMAN OF THE CIVIL

AERONAUTICS BOARD; ACCOMPANIED BY JOHN WANNER, GENERAL COUNSEL, CIVIL AERONAUTICS BOARD; IRV ING ROTH,

DIRECTOR, BUREAU OF ECONOMIC REGULATION, CIVIL AERONAUTICS BOARD; AND JOSEPH C. WATSON, DIRECTOR, BUREAU

OF INTERNATIONAL AFF AIR S, CIVIL AERONAUTICS BOARD,

WASHINGTON, D.C.

Mr. Boyd. Thank you, Mr. Chairman.

I am accompanied today by Mr. John Wanner, General Counsel 

of the Civil Aeronautics Board, Mr. Irving Both, Director of the 

Bureau of Economic Regulation, and Mr. Joseph C. Watson, Director 

of the Bureau of International Affairs.

Mr. Chairman, and members of the committee, the Civil Aeronautics 

Board appreciates this opportunity to express its sup port of II.R. 465, 

which would give the Board power to regulate the rates and practices 

of U.S. and foreign air carriers engaged in foreign a ir transportation.

H.R. 465 is identical to d raft legislation transm itted by the Board 

to your chairman on December 31, 1961, and to draft legislation submitted by it to the Congress on Jan uary 8, 1965. The bill is also 

identical to II.R. 6400, 88th Congress, which implemented a recommendation in the statement on international air tra nsportation policy 

approved by President Kennedy on April 24, 1963, that legislation 

of this nature be adopted. As you will recall, the Board urged at 

hearings before your committee last summer tha t II.R. 6400 be 

enacted.

As was the case last summer, the prime need for rate control is the 

protection of the American public from high rates charged in foreign 

air transportation. Each new season and rate conference makes it 

more apparent that the public will not be given the benefit of lower 

rates unless the Board is given the power to regulate rates. In our 

judgment the need for the legislation is clear and basic, and should not
INTERNATIONAL AIR FARES 15

be subordinated to the carriers’ various fears and objections, which are 

largely based on their desire to be free of Government regulation of 

their rates.

Under H.R. 465, the Board would have discretionary authority to 

prescribe rates and practices and to suspend tariffs in foreign air transportation under the same conventional ratemaking standards that 

apply to interstate air transportation. I emphasize that the authority 

is discretionary, since this confers flexibility of action in this Government in view of the special considerations which exist in foreign air 

transportation. Similarly, orders of the Board directing an air carrier 

or foreign air carrier to discontinue a rate in foreign a ir transportation 

or suspending a tariff would be subject to the approval of the President.

However, orders relating to the removal of discrimination would not 

require the President’s approval, since the act, presently permitting 

such orders, does not impose such a requirement. In addition, the 

bill would place an affirmative duty upon the carriers to establish just 

and reasonable rates and practices relating to foreign air trans portation. Finally, the existing powers of the Board over rates and practices in overseas air transportation would be modified so as to correspond with those which it presently has with respect to interstate 

air transportation, and which are proposed for foreign air tran sportation.

Turning to the present procedures governing the establishment of 

fares in foreign air transporta tion, most of you know th at such fares 

are established by Interna tional Air Transport Association (IA TA ), 

an organization of international air carriers. The rates are recommended by the members of IAT A, and are approved or disapproved 

by IAT A at rate conferences which are held periodically. The approval must be unanimous, with any single member carrier being able 

to veto the proposed rate structure. The rates established must be 

approved by the governments of the countries represented by the carriers, including the United States.

Although the Board must approve or disapprove the TATA rates 

under section 412 of the Federal Aviation Act, its power to affect the 

level of the rates—that is, whether they are too high or too low—is 

indirect as well as ineffective. If the rates are satisfactory and the 

Board approves, all of the carriers who are parties to the agreement are 

relieved, through the application of section 414 of the act, from what 

would otherwise be an antitr ust violation of fixing rates by agreement. On the other hand, if the agreed rates are not satisfactory and 

the Board disapproves, the carriers are unable to act in concert without risking antitrust prosecution, but must all act individually in 

filing th eir rates. When they do so, however, the Board is powerless 

to prevent the carrier from filing any new rate it chooses or from 

continuing an existing unsatisfactory rate. Such rate may be wholly 

unacceptable from the standpoint of conventional rate-fixing criteria. 

Thus, it may be too high from the standpoint of the traveler or the 

shipper, or so low as to endanger the financial health of the carriers. 

In either event, the Board is powerless to deal with the matter.

Despite the Board’s limited influence over international fares, it has 

consistently urged U.S. carriers attending IA TA conferences to press 

for reasonable rates.
16 INTERNATIONAL AIR FARES

And I would like to interject at this stage, Mr. Chairman, that the 

Board feels very strongly the need of the requirement for all carriers 

to be efficiently operated to earn reasonable profits and maintain 

sound financial health. I would not want any implication to arise 

tha t we are in any way opposed to the profit motive. On the contrary, 

we have worked very hard to see tha t the carriers operated efficiently 

should earn reasonable profits and have good financial health.

In line with this policy, the B oard strongly urged U.S.-flag carriers 

attending the IA TA meetings in Athens for the purpose of negotiating 

worldwide fares for a 2-year period beginning April 1,1965, to propose 

a substantial reduction in transpacific economy-class fares. The 

U.S. transpacific carriers, however, made no effort whatsoever 

to achieve the objectives sought by the Board, and the conference adjourned without producing an agreement. Thus, in the Pacific area 

there has been an open rate situation since April 1, 1963, when the 

Board disapproved an IAT A agreement for increased fares. The 

carriers have refused to put into effect reductions in economy-class 

fares which the Board considers economically feasible fo r the carriers 

and required in the public interest. The proceedings of the IAT A conference confirm the Board’s belief tha t no carrier, U.S. or foreign, will 

voluntarily reduce rates for this area.

In the North Atlantic area the carriers, following the Athens Conference, agreed to continue the present fare structure for a 1-year 

period if agreements proscribing visual in-flight entertainment in 

all areas of the world, except within the United States, were approved by the governments concerned. The Board has fixed May 3, 

1965, as the deadline for the submission of comments on these agreements, and oral argument before the Board is scheduled for May 18. It 

is entirely possible that this situation may develop into a serious controversy similar to the Atlantic fare dispute of 2 years ago with European countries concerning the Chandler fares. If the United States 

or any other government should disapprove the agreement, or even 

decide tha t additional time is required in which to investigate thoroughly the problems raised by the ban on in-flight entertainment, an 

open rate situation would result. There are indications tha t this in 

turn might cause some governments to require the carriers of other 

countries to charge a prohibitively high extra charge for in-flight 

entertainment. We would then be in about the same position that 

we were 2 years ago, tha t is, we could take no rate action ourselves, 

and would either have to acquiesce and call for consultation and arbitration, or else risk the drastic and undesirable alternative of having 

flights grounded and operating righ ts canceled between the countries concerned. The Board would be unable to take similar retaliatory action without following the notice and hearing procedures 

of the Federal Aviation Act.

Thus it seems abundantly clear that the need for rate control legislation for protection of the traveling public has become greater, 

rath er than less, since the hearings of last year.

Mr. IT arris. Mr. Chairman, may I inte rrupt a moment while I 

am here?

Mr. Staggers. Mr. Harris, chairman of the committee.
INTERNATIONAL AIR FARES 17

Mr. Harris. I have to go to the Rules Committee on several bills tha t the committee has previously reported, and for that reason I ask 

your indulgence. Not too long ago there was an important meeting of the Aero Club of Washington. The distinguished Chairman of the Civil Aero­ nautics Board was present, the gentleman who is now testifying here, and he was introduced or presented to the audience as the next Under 

Secretary of Commerce in charge of transportation. I think it was somewhat embarrassing to Mr. Boyd at the time, 

and it caused a real murmur throughout the audience. Well, I do not know how they got the advance information, or whether there was a prophet, but yesterday we all know tha t the President announced the supposed promotion or change, whatever it might be, and I would like to take this opportunity to say to Mr. Boyd first tha t we compliment him for the courage tha t he has mani­ fested as the Chairman of the Civil Aeronautics Board, and for the 

service that he has rendered in tha t important post. I cannot say that I would agree with everything he has done, and as I said on another occasion, for some reason he does not agree with everything tha t I suggest. But I do have great admiration for him 

and for his ability and the services that he has rendered. As he goes to another post, which is more general, much broader in character, and I suppose from the standpoint of overall transportation policy a much greater responsibility, I want to join the many others 

in wishing him the very best in his new responsibility. But at the same time I would admonish you, Mr. Boyd, tha t you are not entirely free of the committee because your new duties are going to make their way here too. We will, therefore, look forward to the pleasure of having you back with us in the future striving toward the best transporta tion program, not only for our own people, but also 

for all the world. I am particularly pleased, if you are, that you are given this respon­ sibility, and I just wanted to say that I think a lot of your ability, and our committee will welcome your suggestions and views in the future 

as well as we have in the past.

Mr. Boyd. I want to tha nk you, Mr. Chairman, and tell you that one of the great pleasures about the change in duties is th at I will have the opportunity to continue to work with your committee, which, as I said earlier, has been a g rea t bulwark for me and for the Board since 

I have been here. I am particularly pleased because my experience with this commit­ tee has been tha t it is fair and warm and industrious and objective. And anybody who could ask for anything more than that, in my judgment, is overreaching. It has been a real pleasure for me to serve under the aegis of the Aviation Committee, and I certainly look forward to having the opportunity to discuss total transportation 

policy and programs with the full committee.

Mr. H arris. We thank you for your efforts in the past and we look forw ard to a continued association in the broader prospects or policies 

of the future.
18 INTERNATIONAL AIR FARES

If you will excuse me now, I am sorry I have to go, but I did want to 

make these comments perhaps durin g your last visit as Chairman of 

the Civil Aeronautics Board.

Mr. Boyd. Thank you, sir.

Mr. Staggers. Thank you, Mr. Chairman. We appreciate your 

comments.

You may proceed, Mr. Boyd.

Mr. Boyd. It is no exaggeration to say tha t at the present time the 

U.S. Government is at the mercy of the foreign carriers and foreign 

governments, and of our own carriers, with respect to the level of 

fares charged in foreign air transportation—now the principle mode 

of foreign travel and used by more citizens of the Un ited States than 

of any other country. We are unable to increase or decrease the rates 

of our own carriers or of the foreign carriers, or to prevent foreign 

countries from fixing the rates of our carriers as well as their own carriers. We have the choice of dancing to their tune—or of leaving the 

party.

As I pointed out last year, one very important factor in this problem is the system of bilateral agreements between the United States 

and other countries for air services. If H.K. 465 is enacted, the present bilateral agreements are well suited to our needs in implementing 

our rate powers. Practically all of these agreements contain rate 

articles relating to the rates to be effective in instances where IAT A 

is unable to agree on a rate, or where a rate agreed upon by IATA is 

disapproved by one or more of the governments concerned, or where 

the carrier concerned is not a member of IAT A. The rate article in 

the Bermuda-type agreement, which is in effect between the United 

States and 28 countries, provides essentially t hat disputes between 2 

countries with respect to proposed new rates shall, if possible, be settled by the governments before the rates go into effect. If the two 

governments cannot agree, then the article provides for arbitration of 

the dispute, and a commitment by each country to use its best efforts 

to implement the arbitration award. The status of a proposed rate 

during the period of time required for consultation and arbitration 

to reach settlement is dealt with in alternative provisions of the rate 

article, designated as paragraphs “(e )” and “ (f ).” Paragr aph (f) 

of the ra te article is in effect during the time th at the Board does not 

have power to suspend and fix rates in foreign air transportation, 

while paragraph (e) would go into effect if the Board did obtain such 

powers from the Congress. The differences between these two para ­

graphs are of great importance in deciding on the substance of any 

legislation Congress should enact in this field.

Paragraph (f), which is in effect at the present time since the Board 

does not have the power to suspend and fix rates in foreign air tran sportation, provides that where one country is not satisfied with the 

rate proposed by the carrier of the other country, the objecting country can attempt to resolve the difficulty by discussing the problem 

with the other country, but if those efforts fail then the objecting 

country—

may take such steps as it may consider necessary to prevent the inauguration 

or continuation of the service in question at the rate complained of.
INTERNATIONAL AIR FARES 19

Th us, foreig n governm ents would be free under pa ra gr ap h (f ), 

despite th e wishes of o ur G overn me nt and carr ier s, to s usp end reduced 

rates pro posed by our c arrie rs dur in g an open rate sit uatio n.

On the othe r hand, pa ra gr ap h (e), which would be app licabl e in 

the event of enactme nt of leg islation such as ILK. 465, pro vides th at 

where there is a d isp ute as to a prop osed rat e, th at rate goes into effect 

provisionally—that is, pe nd ing com pletion of ar bi trat io n—unless the 

co un try of the c arrie r prop osing the r ate sees fit to sus pen d it. Thus, 

enactme nt of ILK . 465 w ould ter mina te the pre sen t ri ght of a foreign 

co un try to suspend the rates of U.S . ca rri ers since such rat es would 

go into effect pro vision ally pe nd ing settlemen t o f th e d isp ute in ac cordance w ith the ar bitra tio n pro ced ures. Moreover, th e Bo ard w ould have 

the pow er, no tw ith sta nd ing o bjec tion s by a foreig n co un try , to suspend 

and fix new rates of U .S. ca rriers and to mo dify exist ing rat es of such 

ca rriers which it co nsid ers uneco nomic. Th e Bo ard wou ld, of course, 

lose th e righ t, which it theo retic all y now has u nd er pa ra gr ap h (f ), to 

sus pen d the ra tes of fo rei gn ai r c arr ier s since those rates would go into 

effect pro vis ion ally pend ing arb itr atio n. However, th is ri ght is clearly 

“th eo retic al” since the Bo ard now lacks sta tu tory powe r to suspend 

any rate s in foreig n ai r tran sp or tatio n. Fu rth ermor e, the power to 

sus pen d is of valu e pr im ar ily in instances where a foreign ca rri er 

pro poses a r ate w hich is uneconom ically low, because o ur ca rri ers m ust 

meet, it or suffer d iversio n. Th e occasion to use the suspension powe r 

would rarely arise, how eve r, fo r the reason th at cu t-r ate fares contin ue t o cause little o r no difficulty, and are not likely to in the future 

because our carrie rs a re the low-cost c arr ier .

In ad dit ion , it is im po rta nt to note th at rate cu ttin g has been confined pr im arily to a lim ite d numb er of no n- IA TA carriers, an d th at 

the gov ernme nts o f most of these ca rri ers either do no t h ave b ilateral 

agree me nts with the Uni te d Sta tes, or have agr eem ent s which do not 

co nta in pro visions sim ila r to those of pa ra gr ap h (e ). Since in these 

cases there is no par ag ra ph (e) pr oh ibiti ng suspens ions, the Board 

could suspend and fix th e rates of such ca rriers wh eth er they are too 

high or too low.

Th e Bo ard believes th at th is review of the c ur re nt situ ati on , a nd o f 

the effect of the bilateral pro visions, cle arly demo nstrates th at ILK . 

465 is u rgen tly needed, an d th at the advanta ges o f the bill greatly o utweigh th e alleged disadvantag es. The basic a nd ov erriding fac t is that 

if the public is to be giv en the benefit of lower rat es, the Board must 

have the pow er to req uir e U.S . ca rri ers to opera te at rat es establishe d 

by it. The U.S . ca rriers can not lie relied upon to pu t reduced rates 

into effect du rin g an open rate situation. Moreov er, even if they tri ed 

to do so, foreign governm ents could, and no dou bt wou ld, suspend the 

red uce d ra tes un der the prov isions of pa ra gr ap h ( f ).

Th e A ir T rans po rt Assoc iation testified at the h ea rin gs of las t y ear 

th at it objected on va rio us gro unds to the Bo ard being given rate 

contr ol au tho rity. One of their objections was th at oth er go vernments would claim the righ t to tak e sim ila r acti on. Th e short ans wer 

to th is is th at vi rtua lly all oth er countrie s do assert au thor ity to fix 

th e rat es of our ca rri ers, and will use th at powe r when the y deem it 

necessa ry, as was de mo nstra ted in the c ontroversy of 2 years ago with
20 INTERNATIO NAL AIR FARES

the British and other countries regarding the Chandler fares. This 

authority is derived from many sources other than direct statutory 

rate authority, such as decrees, regulations, direct power derived from 

the air sovereignty of the country according to the constitutional 

structure of that government, and provisions in bilateral agreements 

which have the effect of law’ without implementing legislation. It is 

no answer, as ATA asserts, to say they don’t have rate-fixing power 

comparable to H.B. 465.

The Board has some difficulty in understanding the objection of 

ATA tha t full implementation of the rate-fixing powers would be 

impossible because of obligations under international agreements between the United States and other countries. The Board recognizes 

tha t it would not be able unilaterally to establish rates and fares for 

services between the United State s and a foreign country over the 

objection of the foreign country. Although under paragraph (e) a 

rate fixed by the Board would go into effect provisionally, the foreign 

government would always have the right to demand consultation 

with the United States and ultimately could request arbitration of the 

matter. And where p aragraph (e) was not applicable, the foreign 

government might be able to prevent the rate from going into effect 

provisionally, pending consultation and arbitration. In either event, 

however, the significant fact is t ha t at the present time the Board has 

no power at all to direct U.S. carriers to file lower rates. By giving 

the Board such power, Congress as a minimum w’ould better enable 

the U.S. Government to negotiate lower rates with foreign governments, and to negotiate from strength rather than weakness. At the 

present time, in the absence of ratemaking powers, the issue of low’er 

rates can arise only if U.S.-flag carriers choose to propose such rates.

In this connection, the Board does not visualize any insurmountable 

difficulties in determining just and reasonable international rates under 

the legislation. In the case of proceedings involving the rates of the 

U.S. carriers, it is not anticipated tha t the problems -would differ in 

any material respect from those encountered in our day-by-day administration of the domestic fares. Moreover, in proceedings involving 

rates of foreign air carriers, th e obligation of such carriers to produce 

relevant evidence would not differ from the obligation of U.S. carriers 

to do so, and refusal to do so would make them subject to the same 

adverse inferences, sanctions, et cetera, which are available against 

U.S. carriers.

The Board does not believe tha t there is any sound basis fo r the contention that giving it rate control authority would stifle, if not destroy, 

the essential rate negotiating procedures of IATA. The Board believes t hat IATA , in spite of its drawbacks, should be m aintained as 

the basic mechanism for determining international rates and fares in 

the first instance. The Board has no intention, as it testified last year, 

of using its rate power in a manner inconsistent with this, or of interfering when IATA is able to produce fares consistent with the public 

interest. Moreover, the Board will continue, as in the past, to provide 

our carriers with guidelines concerning changes in the IAT A rate 

structure which will permit negotiating flexibility on their part.

At the same time, however, the Board does not believe that it should 

be forced to sit on its hands when the membership of IAT A spends its
INTERN AT IONA L AIR FARES 21

time in in-figh tin g wi thou t reac hing any conclusions. As I ind icated, 

the IA T A me eting at At he ns ad journe d wi thou t prod uc ing a far e 

agreem ent. Al thou gh an agreem ent was subsequently produced which would 

rev alidate the existing fa re stru ctur e in the Nor th Atla ntic, the effective ness of such ag reement is conditio ned upo n the b an ning of in-flight 

enterta inmen t. Thus, t he re is an open rate s itu ation in th e Pacific at 

the presen t time, and there could also be one in the Nor th At lantic 

if the pro posed ban on in-flight enter tai nm ent is not ma de effective. 

As I h ave sta ted , the ca rri ers are free in an open ra te sit ua tio n to file 

individu al r ates, an d the Bo ard is p owerless t o dea l wi th t he m atter— 

wh eth er the rates are too high fro m the s tand po int of t he tra veler , or 

so low as to endanger the financial healt h of the carriers. I cannot 

believe th at un de r such circum stance s th is Governm ent sho uld be 

depri ved of the tools, wh ich wo uld be given it by th is legisla tion, to 

tak e effective action . Obvio usly, the Bo ard wo uld no t propose, if giv en th is power, to 

plun ge in to numerous lar ge or sma ll scale pr oce edi ngs fo r the p urpose 

of determ ining wh eth er in tern ationa l rates and fares are ju st and 

reason able. No such ob lig ati on w ould be imp osed on the Bo ard under 

th e leg islation since the exercise of its ra te con trol pow ers would be 

discretio nary r at he r th an m an da tory. Moreover, alt ho ug h the Bo ard 

is empow ered un de r section 412 (b) to with draw its appro val of an 

agree me nt which it has pre vio usly app rov ed, it ha s never, to my kn owledge, w ith draw n its a pp rova l of a basic ra te s truc ture embo died in an 

IA T A a gree men t. Such actio n would defea t the na tu ra l exp ectatio ns 

of th e inter na tio na l av iat ion com munity an d the governm ent s concer ned th at rate sta bility wo uld be main tai ne d du ring the period of 

any agreem ent, once ap prov ed by the Board .

Ano th er obje ction of th e ATA was th at the Boa rd ha d sufficient 

au th or ity un de r section 402 of the act to exercise the necessary con ­

trol of inter na tio na l rat es. Th e Bo ard does no t belie ve th at it has 

th e powe r under section 402, req uirin g forei gn air ca rir ers to obt ain 

pe rm its from the B oa rd b efore eng aging in foreign air tran sp or tatio n 

to an d fro m the Uni ted State s, to regu late the level of the rat es of 

foreign ai r ca rri ers by co nd ition ing th ei r perm its. Th e Congres s h as 

delib era tel y withh eld suc h au thor ity fro m the Bo ard by lim iting it 

to the removal of disc rim inations in foreign a ir tran sp or tatio n. Mo reover, even if t he Bo ard ha d such power, it w ould no t be equ iva len t to 

the au thor ity which th e Bo ard is seeking un de r th is legisla tion to 

pre scrib e the rates and suspen d the tar iff s of bo th U.S . and foreig n 

ai r carriers . Fu rthe rm or e, it would be ad vanta geous to the Un ite d 

St ates fo r pa ra gr ap h (e) of the Be rm uda-t ype bilateral to be in ef ­

fect, and this can o nly b e b rou ght about by ad op tio n of H.R. 465.

Thi s ra th er b rie f review of the A TA objection s ind ica tes th at the y 

are lar gely in the na tu re of “re d he rri ng s,” des igned to obscure the 

rea l reason fo r o ppositio n on the p ar t of th e U .S. c arrier s to the B oard 

being given rate contr ol au thor ity . Th e ca rri ers object because the y 

wou ld pr efer to be fre e of Government reg ulati on in order to be able 

to contin ue to charg e u nd uly hig h far es to the d etr im en t of the tra ve lin g public.
22 INTERNATIONAL AIR FARES

The situations in both the Pacific and the North Atlantic are good 

examples of the reason for their opposition. In the Pacific, Northwest and Pan American realized rates of return on their operations 

for the calendar year 1964 of 28.8 and 19.9 percent, respectively. For 

the same period in the Atlantic, TWA and Pan American had rates 

of return of 20.4 and 10.6 percent, respectively.

In summary, more effective governmental influence on rates and 

fares in foreign air transportation is necessary for protection of the 

needs of the traveler and the shipper in view of the Board’s limited 

influence over such rates and fares through approval or disapproval 

of 1ATA agreements. All of the Board’s recent experience reaffirms 

its belief that the American public needs to be protected from high 

rates, and tha t there is l ittle or no need to protect the U.S. carriers 

from the low rates of foreign competitors. Assurance for obtaining 

fai r and reasonable rates for the public and the carriers can be 

provided only by giving the Board authority to require TT.S.-flag 

carriers to operate a t rates established by it, notwithstanding the objections of foreign countries.

The Board strongly urges, therefore, tha t favorable consideration 

be given to H.R. 465.

That concludes my statement, Mr. Chairman. Thank you, sir.

Mr. Staggers. Than k you, Mr. Boyd. I think it was a very comprehensive statement covering the subject very well.

Mr. Friedel, do you have any questions ?

Mr. Friedel. Mr. Boyd, what are the rates on first-class fare over 

the Atlantic and what are the rates over the Pacific ?

Mr. Boyd. Do you want it by the seat mile, the yield rate per mile ?

Mr. Friedel. Seat miles.

Mr. Boyd. All right, sir.

The New York-London fare, first-class, is 10.3 cents per mile. That 

is jet round trip fare, first-class.

The San Francisco-Tokyo fare, first-class jet round trip, is 11.5 cents 

per mile.

Mr. F riedel. It costs more over the Pacific than the Atlantic?

Mr. Boyd. Y es.

Mr. Friedel. What is the rate overland such as from New York or 

Friendship to Los Angeles first-class ?

Mr. Boyd. You are talking about the domestic fare ?

Mr. Friedel. Yes, sir.

Mr. Boyd. New York-Los Angeles, jet, first-class, is 6.5 cents per 

mile.

Mr. Friedel. Why does it cost so much more over the Atlantic and 

Pacific than it does goingover land ?

Mr. Boyd. Well, I am not sure tha t I can answer your question. 

There are certainly a number of problems associated with foreign air 

transporta tion which we do not have in the domestic operation.

But in our judgment there is not enough to provide a satisfactory explanation for an 11^ -ce nt fare across the Pacific as compared 

with a 6^-ce nt fare between the east and west coasts of the United 

States.

Mr. Friedel. I remember the incident about 2 years ago when some 

foreign country7 wanted to ground the American planes because the
INTERNATIONAL AIR FARES 23

American planes wanted to reduce the rates and the foreign countries 

said no, that they could not land if they did.

Can you give us a little background on that situation ?

Mr. Boyd. Well, that was a situation that, was brought about in the 

first instance like th is: As I said in my statement today, we provide 

guidelines to the U.S. carr iers prior to their atten ding an IATA 

trathe conference. We talk to the carriers. We do not just try to hand down an edict. We try to get their ideas 

of what they think will happen or should happen, and so forth. We 

did this prior to September of 1962. There was to be a traffic conference in Chandler, Ariz. That is why we talked about the Chandler 

fares. These fare agreements take on the name of the place where the 

agreements were reached. At that time we were advised by our carriers that in their judgment 

there would be no change in the existing rate structure, and we were 

prepared to go along with that even though we had some concern 

about the level of the fares.

But the facts were tha t we had just gone throu gh the jet transition 

period. The carriers had had a great deal of expense in their t ransition from piston aircra ft to jets, traffic had reached sort of a plateau 

in the domestic market and had fallen off somewhat, and the rate of 

increase had fallen oil’ in the overseas market for a little while.

So we thought that was a fairly reasonable approach, to maintain the 

status quo.

Well, the next thin g we knew the conference agreed to raise the 

fares by about 5 percent. And this was done throug h the maneuver of 

reducing the amount of the round trip discount which had previously 

been offered. That, of course, amounted to the same thing as a 

fare increase.

So we queried our own carriers about this and they said, “Well, we 

were against it, but if we were going to get a rate agreement, we had 

to go along with it,” which they did. There is the unanimity rule 

which I mentioned earlier.

So we then disapproved the agreement and at t ha t time some of our 

foreign friends said, in effect, “ You cannot do this.” We said, “We 

have, and we don't think there is any economic justification whatsoever for increasing the fares at this stage of the game.”

And we had some consultations with them which were very inte resting, but completely unsatisfactory. The net result was that a 

number of actions were taken, or threatened. As to the one about 

confiscation of the aircraft, my recollection is th at there was no official 

action of this kind taken, but that there was a statement by an official 

of one of the governments that this could or would be done.

The more serious situation was that a number of countries were imposing criminal charges, penal charges, against the representatives 

of the U.S. carriers in th eir countries who were attem pting to hold the 

line by not increasing the fares, although the various other countries 

had ordered their carriers, as well as U.S. carriers, to increase fares.

And our carriers, responsive to the Board's wishes and their own judgment tha t a fare increase was not necessary, were trying to hold 

the line. It became a rather critical situation and moved out of the
24 INTERNATIONAL AIR FARES

aviation sphere into the diplomatic sphere. And of course this is one 

of the things that was bound to create problems because when we were 

talking rates and fares in the aviation community of the governments, we were dealing p rimarily with an economic problem.

But then when it got into this penal action, and threats of shooting 

planes down from the La G uardia control tower, and things like that, 

the consideration became of a diplomatic nature, and of course they 

were altogether different.

There we were really dealing with relations between sovereign governments more than whether a fare was a good fare or a bad fare.

One of our hopes and beliefs is th at with this legislation, any fires 

tha t are started can be kept in our one little pot here tha t we call 

aviation.

Mr. F riedel. In other words, you feel that the passage of H.R. 465 

would correct that situation ?

Mr. Boyd. Yes, sir.

Mr. F riedel. Thank you, Mr. Chairman.

Mr. Staggers. Mr. Devine?

Mr. Devine. Thank you, Mr. Chairman.

Mr. Boyd, I would like to join with the chairman of our full committee in congratulating you on your new position. We regret losing 

you on the Board, but I am sure you will serve adequately in your new 

appointment.

In that connection I see a quote from your successor, Mr. Murphy, 

tha t 70 percent of the American transatlantic charter business this 

year is going to foreign-flag carriers. Is tha t accurate as f ar as you 

know?

Mr. Boyd. Yes, sir.

Mr. Devine. Typical of this is a $21/2 million contract under which 

El A1 will fly several thousand members to a Greek American Society Convention in Athens.

Mr. B oyd. Yes, sir.

Mr. Devine. Is t hat perhaps one of the reasons for need for legislation of this nature ?

Mr. Boyd. No; that is a different situation, Mr. Devine. Actually, 

I do not know tha t I can make an official statement for the Board. I 

think I can.

Wha t we find is tha t everybody wants to travel at the same time. 

Naturally enough, neither our carriers, nor a good many of the foreignflag scheduled carriers can invest in capital equipment necessary to 

handle the full peakload of the traffic on the scheduled services and, 

at the same time, have the equipment available for charters.

There are two different markets. We are completely satisfied about 

this. There are thousands of people flying charters who would not 

fly on the scheduled carriers because of the difference in rates. There 

has to be a difference because the scheduled carriers must have rates 

and fares established at a level which will permit them to maintain a 

viable operation based on an average load factor, which today is in 

about, the middle 50 percent, a 53-, 55-percent load factor, or average 

system load factor.

The charters are operated, on the other hand, at a 100-percent load 

factor, so there should logically be a price differential.
INTERNATIONAL AIR FARES 25

A number of foreign carriers, however, do have excess equipment over their requirements for scheduled services. I believe th at is due to the fact th at a number of them, as a matter of company policy, engage in charter services as a regular service, whereas the U.S.-flag carriers, historically, have not been interested in providing c harter services as a reg ular part of their service. Obviously, they are willing to charter an aircra ft if they have one available at the time the charter group 

wants it. Another very interesting feature of this is th at we have been trying for the past several years to help to move the supplemental carriers into the charter business. They have found tha t they can dig up a lot of business by pure selling and promotion, and the scheduled carriers 

are not going to be, in effect, dividing their efforts. They have to commit themselves pretty much to their main source of revenue, which is scheduled passenger traffic. So they have not, in this country, as a practice, devoted management time, advertising, sales, and promotion to developing charter services. But I really think tha t in this country we have completely underesti­ mated, grossly underestimated, the size of the potential charter 

market. I don’t know whether I have answered your question.

Mr. Devine. Yes; you have. Let us get to your statement now, Mr. Boyd. You say you want to activate a rate clause (e). Apparently rate clause (f) is inadequate 

or unsatisfactory or something.

Mr. Boyd. Yes, sir.

Mr. Devine. Do you feel that you have really tried clause (f) ?

Mr. Boyd. Yes, sir; clause (f) doesn’t give us any power, and there 

is really nothing to try in clause ( f). I would like to say as a historical aside, when the Bermuda agree­ ment was reached righ t af ter World W ar I I, the United Kingdom was very anxious for the Board to obtain the type of legislative authority we are seeking in order to prevent low-fare operations by U.S. car­ riers in order, I believe, to protect th eir own burgeoning, small growing industry.

Mr. Devine. Do you really expect sovereign governments to re­ main mute and help us if they feel strongly about the rate you are 

trying to establish ?

Mr. Boyd. Oh, no. But there are provisions in the bilaterals which would come into play. However, in the first instance the Board would be dealing, or the Government—I should not say the Board—would be dealing from a position of relative strength, whereas today we could only deal from a position of relative weakness. I want to make it very clear th at we have close and continuing con­ tacts with the aviation authorities of other governments, and we find them genuinely to be quite reasonable. Also I thin k they find us to be 

genuinely quite reasonable and responsible. We are not in this legislation seeking arms and armament to go to war with these people, but we would like to be able to sit a t the bar­ gaining table with them at the same level. Instead, as of now, they 

sit at the head of the table and we sit at the foot.

Mr. Devine. Well, assuming tha t you have had, in the last 20 years this power t hat you are seeking by virtue of this bill, how many op-
26 INTERNATIONAL AIR FARES

portunities in the last 20 years would there have been for you to 

exercise this power?

Mr. Boyd. Oh, 2 years ago, and I think we would have probably 

undertaken to exercise it in 1956.

Mr. Devine. Two occasions that you can think of ?

Mr. Boyd. Yes, sir.

Mr. Devine. How do you envisage that the Board would go about 

fixing the rates?

Mr. Boyd. Well, we have procedures and criteria today for the 

fixing of domestic rates, which we would utilize if we were to understand a fare investigation. It would be the same type of approach— 

where the carriers would present facts and figures to justify the proposal which they would seek to have approved by the Board.

But I want to make it clear tha t we do not expect that we would 

be using this on a day-in-day-out basis, Mr. Devine. We really think 

that it would come into play as a mechanical function rather rarely. 

But we think that the international air fares would be influenced considerably by the fact that the Board has this legislation.

Mr. D evine. Well, assuming that you would run into, Mr. Boyd, a 

contested proceeding with some interested parties on an international 

rate situation, would you anticipate how long it might take to resolve 

such a problem ?

Mr. Boyd. We would certainly attempt to resolve it within 6 months.

Mr. Devine. Six months?

Mr. Boyd. Yes, sir. I do not make that as a commitment. You see, 

we control only one side of these things.

Mr. Devine. I understand th at.

Mr. Boyd. We don’t control what the carriers do once a proceeding 

starts.

Mr. Devine. And under the provisions of this bill your decision, of 

course, would he subject to the approval of the President ?

Mr. Boyd. That is right.

Mr. Devine. So actually you would be rendering advisory opinions 

to the President ?

Mr. Boyd. Yes, sir.

Mr. Devine. Do you think it is desirable to involve international 

ratemaking and all the political considerations in tha t type of situation ?

Mr. Boyd. That was the recommendation of the Policy Committee 

in 1963, which was subsequently approved by the Board and has been 

reaffirmed by President Johnson.

Mr. Devine. In your statement of purpose you say you want to help 

the U.S. carriers to bring down their rates. Do they agree with this 

particu lar method, or can you speak for them ?

Mr. Boyd. I can speak for them. They disagree with everything 

I have said today, except for the earnings that they had last year. 

They do not emphasize them in discussions on this bill.

Mr. Devine. Do you think that they have ever made an effort to 

bring down the rates without assistance from your Board?

Mr. Boyd. No, sir; I am generalizing here.

Mr. Devine. Yes, sir.
INTERNATIONAL AIR FARES 27

Mr. Boyd. This could be an unfair statement. Certainly I want 

to make it very clear tha t in my judgment Pan American, particularly, has been historically a low-fare advocate on the Atlantic. 

However, as far as the Pacific is concerned, referring specifically to Pan American and Northwest who are our two carriers certificated 

to operate across the Pacific, we are firmly of the opinion tha t we 

got a real song and dance routine from these carriers in connection with what was involved in the Athens Conference last year Avhen 

we urged them strongly to try to bring about some reductions in the 

economy-class services across the Pacific.

Mr. Devine. Thank you. I have no further questions, Mr. Chairman.

Mr. Staggers. Mr. Pickle?

Mr. Pickle. Mr. Boyd, I am new on this subcommittee and I want 

to ask some questions of a general nature in line w ith what Mr. Friedel 

asked you. You said that rates from New’ York to London, as I understand it, were approximately 10 cents?

Mr. Boyd. Y es, sir.

Mr. Pickle. And from San Francisco to Tokyo, I believe, were 

approximately 11% cents.

Mr. Boyd. Yes, sir.

Mr. Pickle. What is the rate of a foreign transport coming to the 

United States?

Mr. Boyd. They are all identical. There is no price competition.

Mr. Pickle. So that our rates that our carriers charge are similar 

to the rates th at the British or French charge coming back this way?

Mr. Boat). Yes, sir.

Mr. Pickle. So I assume, then, tha t what you are saying is the 

rates of all foreign trave l are too high and should be reduced.

Mr. Boat). Not all foreign travel. I would not want you to have 

the impression that wTe th ink the rates across the North Atlantic are 

too high.

Mr. Pickle. Well, generally speaking the rates are too high or 

should be lowered. Is th at about what you said ?

Mr. Boata. In some areas of the w orld ; yes.

Mr. Pickle. I s the purpose of this bill to give the traveling public 

low’er rates ra ther than to keep the carriers from making money?

Mr. Boat). Absolutely. We want the carriers to eurn healthy profits, 

and Ave have spent as much time trying to accomplish that as we have 

trying to see that the traveler got a better break.

Mr. P ickle. If we pass the legislation as you recommend here, what 

guarantee would Ave have that Britain or France would pass similar 

legislation or would not?

Mr. Boat>. Well, the answer, Mr. Pickle, is tha t B ritain and France, 

and all the other countries, are certain that they have those powers 

today. It may not be by legislation. In some cases it is by decree.

Mr. Pickle. Are they as certain that they liaAre basically the same 

kind of powers as you have under 412, that you have got the power 

and don’t exercise that? You either approA’e or disapprove the rates 

th at IA TA establishes.

Mr. Boatd. That is right. They can, too.
28 INTERNATIONAL AIR FARES

Mr. P ickle. Then they have the same basic powers tha t we have at 

this point.

Mr. B oyd. They have greater powers than we have at this point.

Mr. P ickle. In what way ? By legislation ? Have they passed this 

kind of legislation ?

Mr. B oyd. No, sir.

Mr. Pickle. Then if our Government establishes this, how do we 

know that they would or would not do the same or take similar action ?

Mr. B oyd. Because they already have, Mr. Pickle. The ir power is 

ipse dixit power in this area. They say, “We have the power,” so they 

have it. Canada, I believe, has legislative power, and I think tha t 

there may be some other governments who have legislative power.

But the bulk of them have different forms of government completely. They all have different forms than we do, and they do not 

have the legislative processes tha t we go through related to our constitutional system of government.

For example, I have no concept of, in what form the rate power of 

the United Kingdom reposes. All I know is tha t the Minister of 

Aviation says we have this power, and he proceeds to exercise the rate 

power. And there is no way for us to say, “But we don’t think you 

have it.” They have already done this.

It is not something that we are surmising.

Mr. P ickle. Do you mean, then, tha t the United States is the only 

one of these nations who are members of the IAT A Conference who 

does not have this power ?

Mr. B oyd. Yes, sir; to our knowledge.

Mr. P ickle. We are the only one ?

Mr. Boyd. Yes, sir; to our knowledge.

Mr. Pickle. All the other nations do have the power to set and 

establish rates?

Mr. Boyd. They assert the power, and th at is it.

Mr. Pickle. I do not know t ha t I quite follow you. You say that 

they assert it. You are a little hazy there to me. \ ou say you cannot 

speak for them because they have a little bit different form of government than we have. I would like to see submitted to the committee just 

how they do have that authority. There seems to be a question here in 

our Government whether you do or do not have this authority.

What I am trying to establish in my mind is how can we take action 

and the others would not take similar, say, punitive action, if they 

wanted to. As you say, if they have already got it, then we are at a 

disadvantage.

Mr. Boyd. Absolutely. I may have used a bad word by saying th at 

they assert the power. Let me put it this way to clarify i t : In April 

of 1963, when we had our disagreements over whether or not the fares 

would be increased, they exercised rate powers vis-a-vis U.S. air 

carriers operating to and through their countries.

Mr. P ickle. Now, although they have th at power, still they operate 

on the same rates that we do. We are all in agreement ?

Mr. Boyd. That is right.

Mr. Pickle. One would think, then, that if they had tha t power, 

they would reduce rates and we would all come down and have a
INTERNATIONAL AIR FARES 29

lower rate, because you are arguing to me that the purpose of your bill 

is to pass this law so that you can reduce rates.

Eighty-five percent of the conference, you say, have got the authority, and yet the rates are not reduced. You say ‘‘let us pass this bill 

so we can reduce rates,” and yet it has not been done. Why could we 

do it ? Because we are the biggest carrier or bigger power, is that it ?

Mr. Boyd. Well, certainly when you are dealing in the international 

area, power is at the bottom of just about everything. Power comes 

from many sources, not the least of which is that the United States 

produces the greatest amount of traffic, the largest number of travelers. 

To respond specifically as to why rates have not been reduced when 

99 percent of these nations have this power, 1 can only tell you th at 

in the period of the 20 years since World War II all rate reductions, 

with one or two very rare exceptions, have come about as a result of 

the U.S. carriers. The European and other carriers, historically, have 

not favored lower fares.

Mr. Pickle. Well, it seems to me like you are working against yourself. If they have got that authority and yet they don't, put in for 

lower rates, why would we have these lower rates if we passed this 

law ?

Mr. Boyd. Because we will then be operating under paragraph (e) 

of our rate article in our bilateral agreement, which will require that 

the rates of our carriers go into effect pending consultation and arbitration. We would not require a lower fare unless we felt that it 

was reasonable and could be justified.

Mr. P ickle. Well, can Great Britain put in a new rate now provisionally ? Can they establish a lower rate conditionally upon arbitrat ion ? ( 'an they do that now ?

Mr. Boyd. Yes, sir.

Mr. Pickle. Do they do it ?

Mr. Boyu. N o, sir; they do not believe in lower rates. I may be 

wrong about Great Britain. I did not want to say they do not believe 

in lower rates.

Mr. Pickle. You think the only way to protect the traveling public 

is for the United States to establish lower rates and give you the clear 

power to regulate these rates.

Mr. Boyd. Yes, sir.

Mr. Pickle. I thought somewhere in your statement you made a 

statement that the United State s was a low-cost carrier now.

Mr. Boyd. That is right.

Mr. P ickle. On your inform ation we are the low-cost carriers.

Mr. Boyd. Yes, sir.

Mr. P ickle. And we still have got the same rates.

Mr. Boyd. That is right.

Mr. P ickle. You are talking about domestic rates then?

Mr. Boyd. No; I am talkin g about international rates.

Mr. P ickle. You mean you just like to classify us as a low-cost carrier by description rather than in fact.

Mr. Boyd. No; I am talking about how much does it cost Pan American and TWA, Northwest, P anagra, and Braniff, to operate their aircraft over their route system.

56-562 — 65-----3
30 INTERNATIONAL AIR FARES

Mr. Pick le. But the rates are the same. I jus t want to ask one or 

two more questions.

You said th at un de r section 412 of the Federal Av iatio n Act now 

your control is only ind irect, an d you said , as I recall it, th at if you 

appro ved the new ra te, th en all o f the c arrie rs would be reliev ed of any 

pos sibility o f a n a ntitr us t suit.

Mr. Boyd. Yes, sir.

Mr. Pick le. An d if you disapp roved, the n the y would have that 

ha ng ing over th eir head s in the form of an an titrus t su it unless they 

acted ind ivi du all y.

I don ’t th in k there is an yt hi ng wr ong with ac tin g individu all y, because th at is how domestic rates are generally set. Th ey are supposedly set ind ividually. Bu t I suppose the y could be. Ha ve there 

been a lot of an titrus t suits filed ag ain st these carriers ?

Mr. B oyd. No, sir.

Mr. P ick le. Th en this is not a very str on g arg um ent, if t here has 

never been one filed, a nd they ha ve been op erating all these y ea rs ; is it ?

Mr. Boyd. You see, what ha pp en s—and I did not know th at that 

was an argu men t bu t th ou gh t I was m aking a factual sta tem ent about 

the effect of 412.

Mr. Pick le. I do not inten d to arg ue with you as such, except to 

get inform ation .

Mr. Boyd. But I am not sure th at T follow you because what ha ppens in a ctua l practic e is thi s: A good 95 pe rcen t of the tim e, and coveri ng 90 perce nt of the geograp hic al areas of the world, the carriers 

are op erating un de r rate agree me nts reache d in TAT A which have 

been approv ed by the Bo ard . Th e bala nce of the time, where there 

are what we call open rate sit ua tio ns , they keep the fares th at they 

ha d before th e rat es became open. At that sta ge of the gam e, there 

is no conc erte d acti on because nobody does anyth ing.

Mr. Pick le. I believe you said th at you ha d never exp ected a fo reign ca rrier to reduce rat es vo luntarily .

Mr. Boyd. T hat is r ight.

Mr. Pick le. Ar e von say ing to me th at we have n eve r ha d a reduction in foreig n ai r traffic, there ha d been no reduct ions?

Mr. Boyd. Th ere have been man y reductions.

Mr. Pick le. Th at has been don e vo luntarily , h as it not ?

Mr. Boyd. Well, as I said ea rli er, it is my imp ression that, with one 

or two exceptions, all of these red uctio ns have come about as a result 

of acti ons by the U .S.-flag ca rrie rs —urged upon them by the Board. 

Bu t I do not wa nt to give th e impre ssion to you that we are alw ays in 

a sta te of conflict over f ares. T hat would not be a ccu rate, because we 

seldom are. Bu t when we are , it is a m ajor p rop osition. Tha t is the 

sum and substan ce of it.

Mr. Pick le. A more accurate sta tem ent would be th at it would be 

difficult to obt ain a. redu ctio n ra th er than say th at the y have never 

vo luntarily done it because if we ha d ha d reduct ion s, it has been 

th roug h the pres ent process, with a gre em ent of p roo f.

Mr. Boyd. Y es, sir.

Mr. Pick le. So I think the choice of words is wro ng.
INTERNATIONAL AIR FARES 31

Wh at do you mean, for my information, when you say “abandon inflight entertainment.” I am not familiar with this.

Mr. Boyd. All right, sir.

In 1962 TWA began providing movies on its flights for its passengers. These movies constitute what is called in-flight entertainment, 

or they did at tha t time. TWA had an exclusive contract with an 

organization, In-Flight Motion Pictures, Inc., who had developed a 

screen tha t could be used on an airplane, and a projector t hat was in 

a packaged sort of unit. This was serviced by In-Flight entertainment people.

When the airplane landed, they would take out one unit and put in 

another one with a new film in it.

The 3-year exclusive of TWA ran out recently. I don't know exactly when. In the meantime, a number of other carriers had been 

experimenting with various types of in-flight entertainment services 

which primarily involved movies. There are different systems.

Ampex has one which has different channels on it for the provision 

of classical music on one, pop ular music on another, and maybe poetry 

reading on another. Sony has another system.

In the IATA system of agreements, there is one resolution. No. 

050, which has to do with the elements of service. This resolution has 

such things in it as a seat pitch, and whether or not wine and whiskey 

and whatnot shall l>e served, and if so, whether the passenger will 

have to pay for it, and so forth.

After the Athens Conference last fall, an effort was made to amend 

Resolution 050 to provide t hat there would be a ban against—to proscribe, prohibit—in-flight entertainment. TWA voted against tha t 

because TWA is quite ha ppy with its own experience in the provision 

of movies, and TWA feels tha t the movies have helped its business 

and helped its passengers.

Mr. Pickle. If I can interrupt you, was TWA charging more for 

the movie?

Mr. Boyd. TWA was charging its economy passengers a dollar. 

They have earphones that plug into a jack in the seat, and TWA, in 

effect, was leasing the earphones for a dollar to the economy passengers.

The first-class passengers paid nothing.

Mr. Pickle. Do any of the foreign air transports have movies, inflight, and earphones?

Mr. Boyd. At the moment none of the North Atlantic carriers do. 

Philippine Airlines provides movies between Manila and the United 

States. Pakistan Internationa l Airlines provides movies, I believe, 

between London, Karachi, and wherever else it goes. Pan American 

is in the process of gearing up for movies, and we don't know what 

the foreign carriers are doing.

But this is the type of situation which can throw the whole fare 

structure into a mess.

Mr. Pickle. Well, I have prolonged the questions and I apologize 

to the committee. I do not quite understand yet why, if we pass this, 

we automatically would have lower rates.

Mr. Boyd. I did not mean to give tha t impression.
32 INTERNATIONAL AIR FARES

Mr. P ickle. You do have machinery to establish lower rates, then.

Mr. Boyd. Yes, sir; only where they are reasonable. We are not in 

favor of lower rates just to have lower rates. We are in favor of 

lower rates where the carrier can earn healthy profits in the process. 

We want them to earn healthy profits, but not exorbitant profits.

Mr. P ickle. Would you say profits such as the ones you have listed 

are exorbitant ?

Mr. Boyd. Not 10 percent, but Pan American-----

Mr. P ickle. Twenty percent?

Mr. Boyd. I would say tha t the 20 percent TWA earned, and the 

29 percent that Northwest earned, were certainly in the upper range 

of good health for a regulated business.

Mr. Pickle. In most business—and this is not in defense of it hut 

just an observation—you make more in one type of your business 

operation than you will in another. It is sort of give and take. You 

have got to make a pretty good sale one day to offset several losses 

another day.

That is not unusual in any given business, and I assume it would 

not he unusual in this business. That in itself is not a conclusive argument to me, although 1 think you have got a good point.

Thank you, Mr. Chairm an.

Mr. Boyd. If I may say one more thing, Mr. Chairman, we look at 

the system earnings of the carriers. We are not trying to hold any 

carrier's feet to the fire because it earns 20 percent on one route if it 

is only earning 3 or 4 on another.

What we are interested in is the total system earnings of the carrier. 

I do want to say, however, tha t we believe, as a result of the fracas 

tha t we got into in 1963 which resulted finally in reductions of up 

to a maximum of 20 percent—with an average overall of about 13 

percent on the North Atlantic—that many of the carriei’s felt th at they 

were going to the poorhouse by reducing these fares. In fact, they all 

had the best year they had ever had, both United States and foreign, 

and many of them have just never grasped the very elementary economic concepts of volume selling.

They can lower their fares and still earn more money, which is what 

happened. I am no intellectual, but these are facts.

Mr. P ickle. I would imagine that if there are representatives of 

the ATA here, they will testify on that later and they may disagree 

with you that they don't know anything about volume selling.

Mr. Boyd. I am not talking about the ATA. I am talking about 

the carriers.

M r. Staggers. Mr. Cal la way ?

Mr. Callaway. Thank you, Mr. Chairman.

Mr. Boyd, I want to thank you for enlightening me about a lot of 

things about this complex problem. I was partic ularly interested in 

your comments on the cost per mile across the Atlantic and the Pacific 

and this country. These were first-class rates.

M ould the cheaper rates, economy and tourist, be comparable, or 

would the Pacific rates still be much higher ?

Mr. Boyd. We have two different rates between New ork and 

London.
INTERNATIONAL AIR FARES 33

Mr. Callaway. I am interested in the cheapest way to go, because that is the one to compare. Other than the charter, the cheapest scheduled way to go.

Mr. B oyd. That is 5.8 cents per mile. New York-London. That is the off peak economy fare. Fo r San Francisco-Tokyo, the economy fare is 7.2 cents per mile. And between New York and Los Angeles 

it is 5.86.

Mr. Callaway. So on the offpeak fares at least we have the North 

Atla ntic and the cross-country comparable.

Mr. Boyd. Yes, sir.

Mr. Callaway. Why is the Pacific rate higher? I would assume it would be more economical on the longer runs. Ts it because of a lower volume th at this ra te is higher ? Is there any particular reason 

why it should be higher ?

Mr. Boyd. The only reason we can find is that obviously there is a smaller market on the Pacific. But the operation has to be related to the unit of the aircraft. We have had very good load factors, and they are just making very healthy profits. And I am being critical only in the sense that the Board is con­ cerned with the public interest. We are glad they are. making money. If it were in Northwest or TAYA, I would be fighting awfully hard to keep those fares up as long as the passengers kept coming. But there is no sound economic reason for those fares to be so high.

Mr. Callaway. I was particularly interested in your statement about Pan American in volume selling, because my feeling has been that Pan American has always taken the position of “let us get the fare low, let us do away with frills, and do whatever is necessary to get a low price. We will get more people traveling and we will all 

make more money.”

Mr. Boyd. I think that is quite true. As I said earlier, it has 

historically been a low fare advocate.

Mr. Callaway. If they wanted to get a low fare now across the Atlantic or the Pacific, would this be very difficult unless this bill is 

passed ? If one carrier, let us say Pan American, wanted to lower a rate voluntarily, would this bill in any way help them to do that?

Mr. B oyd. Yes, definitely.

Mr. Callaway. The rate to Hawaii, is this entirely a domestic rate?

Mr. Boyd. Yes, sir.

Mr. Callaway. They seem to have reduced that rate substantially. 

But this is entirely domestic ?

Mr. Boyd. That is rig ht.

Mr. Callaway. A number of the administration leaders have re­ quested our citizens not to spend money abroad because of the balance of payments situation. If you should through this bill get a much lower rate, would you take into consideration the balance of payments so fa r as your ratem aking is concerned, or would you say tha t this is entirely out of your prerogative and tha t you are only interested in 

getting a lower fare ?

Mr. Boyd. Tha t is a very good point, Mr. Callaway. And one of the things that has resulted from the lower fares is that the ratio of
34 INTERNATIONAL AIR FARES

foreign travel to the United States has increased at a rathe r substantial rate. This is a two- way street.

We have, happily, the highest standard of living in the world in 

the United States. The Euro pean countries, partic ularly, have moved 

very strongly into a matu re stage of industrial development. The 

standard of living of the people over there is increasing, and they have 

more disposable income.

But they are still not in a position to pay the fares in large numbers 

to come to the United States, which many of tlrein would like to do. 

And this is our idea o f how we can really help the balance of payments, because certainly each time fares are changed it is going to 

aflect some Americans, but not to the extent that it will affect 

Europeans.

Air. Callaway. Tha t is interesting. I certainly agree with your 

two-way-street, argument. But do you consider it a part of your 

purview ? The Pacific situation may not be the same. Perhaps there 

may not be as many Japa nese coming here as Americans we would 

send there.

Would this be something tha t you would take into consideration, 

or do you see that your job is only to take into consideration the ratemaking insofar as it affects a fai r return to the company and a fair 

price to the consumer ?

Air. Boyd. We are basically involved in economic regulation, and 

I will finesse your question, if I may, by saying th at this bill provides 

for approval by the President. T am sure tha t he would take various 

factors into consideration in acting.

Mr. Caliaway. This was, T think, Mr. Devine’s same question. 

Y on would act on an economic basis, and if the President wanted to act 

on the basis of the balance of payments, that would be his prerogative.

Mr. Boyd. We are not t ryi ng to usurp the prerogatives of any other 

arm or agency of Government.

Mr. Caliaway. Thank you, Mr. Chairman.

Mr. Staggers. Air. Ronan ?

Air. Ronan. I have no questions.

Ah’. Staggers. Air. Boyd, we certainly appreciate your coming and 

gi ving us the benefit of your views. I think you have helped the committee in its thinking.

Air. Boyd. Thank you.

Air. Staggers. I would like to ask perhaps one or two questions.

Do you have the necessary statutory powers now to meet with our 

carriers and discuss affairs prior to their conferences?

Air. Boyd. Yes, sir.

Air. Staggers. Have you done this in the pa st at your organization ?

Air. Boyd. It has been a regu lar practice.

Air. Staggers. Have you been able to come to some agreement before 

these IATA meetings and conferences?

Air. Boyd. Quite often we have.

Air. Staggers. I mean an understanding.

Air. Boyd. Yes. sir, quite often.

Air. Staggers. Do you think that the Board should be empowered 

to require that our carriers stay within a maximum and minimum rate 

when they are bargaining with IATA ?
INTERNATIONAL AIR FARES 35

Mr. Boyd. No. And we have very religiously stayed away from putting our carriers in any brackets, because the IATA Traffic Conference is a negotiating process.

Mr. Staggers. I wanted to ask you this: We have a Maritime Com­ mission. Do they have this authority that you are asking for ?

Mr. Boyd. I am not sure. They have some legislation which has caused them a lot of trouble, and that may be ratemaking legislation, Mr. Chairman. I am not fa miliar with the name of the bill, or of the law, but it seems to me tha t they do have some power to deal with the 

shipping conferences.

They have legislative power. Now, that is an altogether different situation, and I would plead with you not to consider us as being involved in a parallel activity, 

because we are not, in any sense of the word.

Mr. Staggers. We know tha t. I was just asking for the informa­ tion. I do not believe they have this authority in their conferences. 

They might have. You mentioned this ipse dixit authority or power.

Mr. B oyd. Yes, sir.

Mr. Staggers. Of the foreign governments. Could you not possibly use this authority yourself ?

Mr. Boyd. No, si r; we are creatures of statute.

Mr. Staggers. I know we are.

Mr. B oyd. Everybody is able to read the statutes and, of course, the courts are available to interpret the extent of our powers.

Mr. Staggers. That is true : I know that. But I am talking on the 

basis of our total Government power.

Mr. Boyd. Well, I would think that the power is lodged in the Gov­ ernment. My impression is t hat this power is lodged in the Govern­ ment, in the Congress of the United States throu gh the commerce 

clause of the Constitution.

Mr. Staggers. That is true: we know that. But T was just trying to find out if it could not be possible that with the backing of the-----

Mr. Boyd. Let me say this to you, Mr. Staggers: Despite the fact tha t we have our differences with foreign countries from time to time, we also have many areas of great agreement. And I believe it is fai r to say that the rest of th e world looks on the Board as being a pretty 

responsible organization. T would fear very much an arbitrary attempt, on our part to exer­ cise some power which we really did not have because of its lasting effect on our relations with other countries.

Mr. Staggers. I am sure of the fact th at your Board would not tr y to do it unless they had the complete backing of the administration.

Mr. Boyd. No, sir.

Mr. Staggers. Because ultimately the power would lie, as you say, 

with the Congress and the administration. Now. under this clause (e) it says that you do have the statutory auth oritv or power to regulate affairs within the country’.

Mr. Boyd. Tt contemplates the Board having powers internation­ ally similar to, or comparable is the word, T believe, to its interstate 

rate-making powers.
36 INTERNATIONAL AIR FARES

Mr. Staggers. Yes. I notice here in clause (e) :

The Civil Aeronautics Board at present is empowered to act with respect to 

such rates for transfer of persons and property by air within the United 

States-----

Mr. Boyd. Yes, sir.

Mr. Staggers (continuing).

Each of the contracting parties shall thereafter exercise its authority in such 

manner as to prevent any rate or rates proposed by one of its carriers for services 

from a territory of one contracting party to a point or points in the territory 

of the other contracting party from being affected.

Mr. Boyd. Yes, sir.

Mr. Staggers. What you are trying to do by this bill, then, is to get 

the authority tha t you have actually tha t was under this agreement 

here.

Mr. Boyd. Yes; th at is correct.

Mr. Staggers. Transfer the power of (f) to (e) ?

Mr. Boyd. Tha t is right. And there has been a great deal of talk 

about foreign countries seeking to renegotiate that clause if we get 

the power. But one thing 1 would like the committee to bear in mind 

is that the foreign governments agreed to tha t paragraph. It is not 

tha t we aiv attempting to impose something new on them because they 

•agreed to the provision of that paragraph. In fact, my understanding is that the British insisted on it.

Mr. P ickle. Will the chairman yield?

Mr. Staggers. Yes.

Mr. Pickle. The British insisted on section (e) ?

Mr. B oyd. Yes, sir.

Mr. P ickle. Thank you, Mr. Chairman.

Mr. Staggers. Well, as staled earlier though, tha t was when Great 

Britain was tryin g to rebuild its power or get into civil aeronautics.

Mr. Boyd. Tha t is righ t. However, I do w ant to say, apropos of 

Great Britain and the United Kingdom, the Government, shares our 

views generally about the necessity for the lowest reasonable fares. 

'Phis is part of the public policy of the United Kingdom, as we understand it today.

Mr. Staggers. Well, I have a lot more questions I would like to ask, 

but I believe in deference to our next witness we will leave them for 

later.

I want to thank you and wish you best wishes as you go into your 

new job.

Mr. Boyd. Thank you, Mr. Chairman. We will be available at your 

call to answer any further questions.

(Following is the reply to questions subsequently submitted to CAB 

by Mr. Staggers, and a supplementary statement of CAB primarily 

concerning testimony of Mr. Stuart Tipton (see p. 82) :)

Civ il Aeronau tic s B oard. 

Washington, D.C., May 1}, 1965. Hon. Harley O. Staggers,

Chairman, Subcommittee on Transportation and Aeronautics, Committee on

Inter state and Foreign Commerce, House of Representatives, Washington,

D.C.

Dear Mr. Staggers : Enclosed is a supplementary statement to the subcommittee on H.R. 465, the administration’s bill to empower the Board to regulate 

rate s in foreign air transportation. The statement is primarily in answer to
INTERNATIONAL AIR FARES 37

th e te stim on y of M r. S tu art G. Tip to n, pre si den t of t he A ir T ra n sp o rt Assoc iatio n 

tio n of America. Th e B oar d has also co ns id er ed your le tt er of May 4, 1965, in whi ch yo u ra is e fo ur qu es tion s co nc er ni ng th e le gi sl at io n. Th e qu es tio ns are set fo rt h below to ­

get her w ith o ur resp on ses. Que sti on . Do es th e CAB ha ve th e nec es sa ry sta tu to ry po wer to m ee t w ith ou r carr ie rs and di sc us s pr os pe ct iv e fa re s pri or to our c a rr ie rs ’ att endance a t IATA 

co nf er en ce s? Answe r. Yes. Th e Boa rd f re quentl y h as me t w ith th e c arr ie rs f or th is p urpo se, 

an d ex pec ts to follo w th is p ra cti ce w hen ev er ap pro pri at e. Que stion. Wou ld you fa vor a re quir em ent th a t our c arr ie rs st ay w ithin an ag re ed m ax im um an d minim um ra te whe n barg ai nin g a t IA TA co nf er en ce s? Ans wer. In th e pa st, th e B oar d has ge ne ra lly ex pre ss ed it s view s in ad va nc e on th e m ajo r issu es to be neg oti ate d a t IA TA traffic co nf er en ce s. W hile th e B oa rd has mad e it cl ea r to th e c a rr ie rs th at it ex pe ct s th em to us e th eir be st ef fo rts to ob ta in ag re em en ts co nsi st ent w ith th e B oar d’s ex pr es se d vie ws , th e B oa rd has no ev iden ce th a t th e c a rr ie rs wi ll in fa ct ad van ce any B oa rd po sitio ns which do no t coincide w ith th e ir own. A re quir em en t th a t th e carr ie rs st ay w ithi n an ag re ed max im um and minim um ra te whe n bar gain in g a t IATA co n­ fe re nc es m ay be of som e ass is ta n ce in th is re gar d, but we que st io n w het her th e ca rr ie rs ca n be mad e to barg ain effecti ve ly if th ey do not ch oo se to do so. Mo re­ ov er. w he re th e ex isting ra te s a re excessive, th e su gg es ted re quir em en t wou ld be inef fe ctive to re du ce ra te s if th e carr ie rs fa il to ag re e on a ne w lev el of ra te s. Que stio n. As to th e to ta l po w er s ov er ra te m ak in g which exis t in th is co un try vis-a-vis any ot he r co un try, w h a t are you r view s on in cr ea si ng th e po wers of th e C hi ef Exe cu tiv e ra th er th an th e CAB inas muc h as th e C hie f Exe cu tiv e wo uld 

ne ce ss ar ily h av e th e ult im ate a u th o ri ty u nde r H.R. 465? Ans wer. Th e pri m ar y fu ncti on to be pe rfor m ed is an econ om ic re gula to ry one an d is th er ef ore w ithin th e a re a of th e B oar d’s ex pe rt is e. P art ic ip ati on by th e C hi ef Exe cu tive is in te nde d to in su re t h a t th e B oard ’s econ om ic ac ti vit ie s do not co nflic t w ith ov er ri di ng in te rn ati o n al policy. Acc ording ly, th e B oa rd be lie ve s th a t it is log ica l to ve st th e ult im ate auth ori ty in th e Civil A er on au tics B oar d 

su bje ct to Pre si denti al ap pro val . Que sti on . In th e te st im ony la st we ek I w as u na ble to pin down which co un tr ie s hav e w hat p art ic u la r po w er s. I unders ta nd th a t th e Eur ope an Civil A vi at io n Con fe re nc e iden tif ied some of th e va ry in g po w er s countr y by co un try an d de­ sc ribe d th e po wers of th e U ni te d Ki ng do m as “no cle ar po sition .” Do es th is m ea n th a t th e U ni ted K in gd om 's re ac tion to th e C han dle r dis pu te may hav e be en pr ed ic at ed on no fi rm er st atu to ry gro un d th an pre se ntly ex is ts in th is 

co untr y? Answe r. The U.S . E m bas sy in Lo nd on , ba se d on in fo rm at io n rec eive d by th e B ri ti sh M in istry of A vi at io n, ad vise s th a t ra te co nd itio ns may be att ached to a fo re ig n a ir carr ie r perm it , in ac co rd an ce w ith a rt ic le 68 of th e A ir N av ig at io n O rd er of 1960. I t w as p u rs u an t to th is po wer th a t th e per m its of Pan Amer ican W or ld Airw ay s, Inc., and T ra n s W orld A irl ines . In c., w er e am en de d in th e co ur se of th e 1963 IA TA ra te dis pute , to re quir e th e im po sition of th e hig her C han dle r fa re s. It is th e B oard ’s v iew th a t si m il ar ac tion co uld not be ta ken un der se ct ion 402 of th e F edera l A via tion Act, be ca us e su ch ac tion wou ld const itute th e fix ing of ra te s of f or eign a ir carr ie rs , a po wer Con gr es s h as in th e p ast specifica lly and 

co ns is te nt ly den ied to t h e B oa rd. In ad ditio n, th e ra te pr ov isions in bil ate ra l agre em en ts betw’een th e U ni te d King do m an d oth er fo re ig n co un trie s pr ov id e a d ir ect so ur ce of go ver nm en ta l po wer ov er fo re ig n c a rrie r ra te s, w ithout im pl em en ting le gi slatio n. W hi le th e Bermud a ag re em en t ra te clau se, under para g ra p h (f ) pre se ntly in eff ect, g ra n ts eit her part y th e ri g h t to disa pp ro ve and su sp en d prop os ed new ra te s filed by a ca rr ie r, th e B oa rd li as no po wer under th e F edera l Avi atio n Ac t to su sp en d any 

ra te filed by B ri ti sh c arr ie rs . Th us, it is cle ar fr om th e ab ov e th a t th e U ni te d Kingd om ’s re ac ti on to th e C ha nd le r di sp ut e w as pr ed ic at ed on ve ry de finite po wers, which th e B oar d la ck s, 

to fix a nd d et er m in e th e rate s ch ar ge d by fo re ig n ai rl in es. Th e B oa rd appre cia te s th is oppor tu ni ty to su pp le m en t and cla ri fy th e re co rd 

on th is im port ant le gi sl at io n.

Si nc erely yo ur s,

Alan S. Boyd,

Chairman.
3 8 INTERNATIONAL AIR FARES

Supplemental State men t of the Civil Aeronautics Board

On April 29, 1965, Mr. Stuart G. Tipton, president of the Air Transport Association of America, appeared before the Transportation and Aeronautics Subcommittee in opposition to H.R. 465, the administration's bill to empower the 

Board to regulate rates in foreign air transportation. Mr. T ipton’s attempt to 

justify the present level of international rates and fares omitted significant facts 

and stated fundamental ratemaking policies incorrectly. He also gave the subcommittee an inaccurate picture of the purpose and effect of the bill as well as of 

the Board’s existing powers. Further, his claim that only four foreign governments are vested with powers sim ilar to those sought in H.R. 465 is not in accordance with facts available to the Board. Under the circumstances, we believe th at 

the record requires considerable clarification. In addition, we wish to call to the 

subcommittee’s attention the effect of failure of passage of H.R. 465 upon the 

economic well-being of the supplemental air carrier industry.

1. International fare levels and carrier earnings

A large portion of Mr. Tipton’s testimony is devoted to the theme that the 

international carriers have voluntarily reduced their passenger fares substantially over the years notw ithstanding increased costs of operation. The intended 

inference evidently is that the traveler’s interest in just and reasonable fares 

has been adequately looked aft er by the carriers and that no additional regulatory powers need be given to the Board.

However, Mr. Tipton’s data with respect to declining international passenger 

fares do not present an entirely accurate picture. The figures he cites do not 

relate to any particular fare a t any given time but represent in fact the average 

fare paid, reduced to cents per passenger-mile flown, by a hypothetical average 

passenger. But the decline in the average fare paid in the postwar period is 

due almost entirely to the introduction and increasing use of lower cost and 

lower fare services.

No passenger pays the average far e: and it is only by using a lower class of 

service, tha t is, economy rather than first class, t hat a passenger can travel at 

less total cost today. For example, in the summer of 1947, the round-trip, firstclass fare (the only service available) between New York and London was 

$586.70. Today, the first-class far e is .$712.50. In 1952 a second class of service 

was made available at a fare of $486. And in 1958 a third or economy 

class was introduced at a fa re of $453.60. However, the New York-London economy fare during the peak travel period this summer, when most people want to 

or must travel, will be $484.50. This is ju st $1.50 less than the fare for tourist 

service when first introduced in 1952. It is also $30.90 more than the economy 

fare when first established in 1958.

We are fully aware tha t the cur rent t ransatlantic fare stru cture also contains 

much lower fares for passengers who are willing and able to travel oft season, 

or in groups, or with important limitations on the duration of th eir trip. While 

these fare s serve a useful purpose and are used by many passengers, the point 

is tha t the most significant fare reductions have been accompanied by severe 

restrictions which limit their availability to the general public.

Furthermore, we must point out tha t the fare reductions reflected in the current trans atlantic structure were fa r from voluntary. Two years ago the carriers voted to raise fares, not to cut them. It was only in the face of CAB 

disapproval of that action together with the strongest pressure from Congress, 

the press, the public, and other governments that the carriers subsequently agreed 

to the fare sructure today in effect.

Mr. Tipton points to a reduction in the average fare paid per passenger-mile 

from 8.31 cents in 1946 to 5.44 in 1964. notwithstanding he says, the impact of 

increases in operating costs during the same period. What Mr. Tipton neglects 

to mention is that the wage and price increases have been more than offset by 

cost savings arising from the use of increasingly efficient aircra ft as well as 

increased traffic. Indeed, carrier costs per seat-mile and per passenger mile have 

actually declined more than the average fare, as detailed in appendix A.

In the last analysis, of course, the carriers’ record in effecting or not effecting 

fare reductions in the past has little bearing on the question whether current 

international fare levels are too high or too low. So far as tran satlantic fares 

are concerned the Board has approved the current structure for another year,
INTERNATIONAL AIR FARES 39

although we believe improv ement can and should ulti ma tely be made. In the 

Pacific, however, the situ atio n is entirely different and we ar e convinced th at 

sub sta ntial redu ctio ns can and m ust be made and, in fact , are long overdue. The 

U.S. ca rri ers ope rating those routes hav e earn ed extre mely high levels o f profits 

over t he la st 9 ye ars. In 1964, P an Am eric an’s ret urn on inve stm ent on its Pacific 

routes was 19.9 percent, Nor thw est’s w as 28.8 percent. The follow ing table gives 

the figures fo r earlie r years :

Ra te of ret ur n on investme nt fo r transpac ific services , year ending Dec. 31

Year Pa n Americ an Northwes t

1956___________ ___________ _____ _____________ 6.1 10.8

1 9 5 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... . . . . . . . 9.1 23.1

1958...................................................... . .. 10.7 19.1

1959______________________ ____ __________ ________ ____________ 5.8 13.1

1960______ _____ _ . .................... 10.4 4.5

19 61 ..___ _______ ________ _ ______ _ 10.8 13.0

1962.................... ................................................ 15. 7 15.0

1963_______________________________ 21.5 17.8

1964................................................. . ........... 19.9 28.8

Source: Han dboo k of Airline Statist ics , 1963 edition, interim qua rte rly financial rep ort , year ending 

Dec. 31,1964.

Mr. Tipton suggests th at the Boa rd would presuma bly allow the carri ers to 

earn a greater ret urn on inv estm ent in int ern ationa l than in domestic service, 

lor which a 10.25-perce nt sta nd ar d has been fixed for the lar ge r car rier s. Apart 

from the fac t th at the re is no bas is for such a conclusion, surely it canno t seriously be contended th at the int ern ati on al rate of ret urn should be in the 20- to 

30-p erce nt range.

Mr. Tipton also testified th at the Board could not make a judg men t as to the 

level of fares by looking at th e Pacific segment alone, but th at it was necess ary 

(o exam ine the earnin gs of each car rier's entire system, att rib uting this principle to the Board and the cou rts. This statem ent is inco rrect. In approaching 

the question of levels for passe ner fares, pro perty rates, and service mail rate s, 

the Boar d has invaria ble follow ed the tra dit ion al concepts of geographical ra te ­

making entities. Fo r example, the domestic ai r tra nspo rta tio n system has been 

consi dered a s one si ngle en tit y for rate mak ing purpose s. New Y ork-Puerto Rico 

has been regarded as an oth er enti ty. Tr an satla nti c o per atio ns have been t rea ted 

separately , as have transp acific services. The Board has never considered th at 

it would be pro per to look at domestic earn ings or tra ns alan tic ea rnings in evaluati ng transp acific fa re levels. The only cases in which a system approach has 

been considered pro per by eit her the Board or the Courts are subsidy proceedings und er the special prov isio ns of section 406 of the act, which requ ire th at 

subsi dy n ot exceed the need of th e carr ier as a whole.

In sum, the Boa rd has n eve r proposed th at any ca rrier should operate a t a loss. 

On th e con trar y, Chairm an Boyd has testif ied to the effect that the public int ere st 

in a sound ai r t ra ns po rt system can only be met i f c arrie rs can recover their costs 

of opera tion and rea lize a reaso nable profit. It is ap pa ren t th at the transpac ific 

fare s could be reduced sub sta ntially and stil l produce a handsom e profit. It is 

equally appar ent th at th e car rie rs will not make such reduction s volu ntarily.

2. The purpose and effect of H.R. 465

The ma jor att ac k by Mr. Tipton aga ins t the legislation is th at t he bill is “bottomed on the notion th at one government, in thi s case t he United States, can set 

rat es for the whole wor ld.” The arg um ent is attri bu ted to the prop onen ts 

th at t he legislation “w ill have the effect of giving the Un ited Stat es the u nil ateral 

l»ower to fix in ter na tio na l ai r rat es for the world.” By use of such language. Mr. 

Tipton app arently ha s sought to convey the impression th at impleme ntati on of 

the legislation propo sed by the Board would res ult in inte rna tional chaos. I t is 

notew orthy th at ATA’s fea rs are not sha red by any responsible Governm ent 

agency.

The conception th at the purpose of the legislation is to empower the Boa rd 

to fix rat es for the world is, of course, wit hou t foundatio n. Cha irm an Boy d’s
40 INTERN ATION AL AIR FARES

testim on y cl ea rl y a nd un eq uivo ca lly sta te d th e B oar d's c on viction th a t “it wo uld 

no t be able unil ate ra ll y to est abli sh ra te s an d fa re s fo r se rv ic es be tw ee n the 

United S ta te s an d a foreign countr y.” Ob vio usl y, w her e th ere is a di sa gr ee ­

m en t be tw ee n go ve rn m en ts a s to th e lev el of a ra te or fa re , an ac co mmod ation 

m us t ult im ate ly be re ac he d eit h er by ne go tiat io n or arb it ra ti o n . But , as the 

C ha irm an testifi ed , und er th e pre sen t law th e U ni te d S ta te s cannot even ra is e 

an issu e w it h a fo re ign gov er nm en t as to lower fa re s if th e U.S.- flag carr ie rs 

a re unw illing to file such fa re s. T he prim e pu rp os e of th e le gis la tion is to 

en ab le th e B oar d to re quir e th e U.S.-fl ag carr ie rs to re du ce th e ir ra te s a nd fa re s 

whe n th e B oar d fin ds them to be ex ce ss ively h ig h ; and in th e ev en t th a t a 

fo re ig n go ve rn m en t ob jects to such fa re redu ct io n, th e B oa rd will a t le as t be in a 

po sitio n of be ing ab le to ne got ia te th e issu e w ith a fo re ig n go ve rn m en t. Und er 

th e pre se nt circ um stan ce , th e A m er ic an pu blic is entire ly a t th e mercy of th e 

U.S .-flag carr ie rs , wh o under st an dab ly act in th eir own se lf-inte re st .

An il lu str ati o n m ay se rv e to poin t up th is ba sic co nc ep t. In 1962, th e IATA 

c arr ie rs att em pte d to in cr ea se tr an sp ac if ic pa ss en ge r fa re s. The Boa rd di sa ppr ov ed th is ag re em en t, ex pr es sing th e vie w th a t no t only w as no fa re in cr ea se 

ju st if ie d b u t th e ex is ting fa re s, in fa c t, w er e ex ce ssive and sh ou ld be low ere d. 

Sinc e 1963, th ere h as been no agre em en t co ve rin g tran sp ac ific fa re s, an d th e 

pre ex is ting IA TA fa re s ha ve re m ai ned in effect de sp ite th e B oar d’s ur gi ng s th at 

th ey be re du ce d. A t th e pr es en t tim e, th e B oa rd is po werles s to ta k e an y ac tio n 

to redu ce th e lev el of thes e fa re s. T he U.S .-flag carr ie rs are fr ee to file redu ce d 

fa re s but hav e no t do ne so, and th ere is no leg al mea ns by which th e Boa rd 

ca n re quir e th em to do so, n o tw it hst andin g th e fa ct th a t th e c a rr ie r ea rn in gs 

on th e tr an sp ac if ic ope ra tions are fa r ab ov e a re as ona ble lev el, as we ha ve 

pr ev io us ly show n. On th e oth er han d, if H.R . 465 w er e en ac te d, th e Boa rd 

wo uld be in a po sitio n to in sti tu te a pr oc ee di ng fo r th e pu rp os e o f de te rm in in g 

th e la w fu ln es s of th e ex is ting fa re s. If th e B oa rd fo un d th e fa re s un lawfu l, 

it co ul d th e n di re ct th e U.S.-flag c a rr ie rs to file ne w ta ri ff s se tt in g fo rt h lower 

fa re s. The se ta ri ff s wou ld of co ur se be file d no t on ly in th is co uhtr y but with 

fo re ign govern m ents ; an d if a fo re ig n go ve rn m en t ob jected it wou ld ha ve a 

righ t, under an y ex is ting b il ate ra l, to neg otiat e th e m att er w ith th e Bo ard. 

W he re th e sta n d ard B er m ud a- ty pe b il ate ra l go ve rns, it is th e B oard s’ be lie f 

th a t para g ra p h (e ) wou ld be ap pl ic ab le , and du ri ng th e co ur se o f an y ne go tiatio n or arb it ra ti o n th e lower fa re s pr op os ed by th e U.S. ca rr ie rs wou ld go into 

effect on an in te rim ba sis . But , w hate v er the bil ate ra l si tu ati on may be. the 

cr uc ia l fa ct is th a t II .It. 465 wo uld enab le th e B oa rd to influ en ce th e indi vi du al 

ra te fili ngs of IT.S.-flag carr ie rs in a m anner so as to pro te ct th e pu bi lc in te re st , 

whic h th us f a r it h as been u na bl e to do.

Mr . Tip to n pro te st s th a t th e AT A’s po si tion is ba se d not up on an y se lf-int er es t 

in pr es er vin g high ra te lev els but ra th e r on th e gr ou nd th a t gi vi ng th e Boa rd 

po wer ov er U.S.-flag carr ie r ra te s w ould re su lt in a ch ao tic in te rn ati o n al ra te s 

si tu at io n. A t th e same tim e. Mr. T ip to n and the ATA ha ve ta ken th e po sit ion 

th a t th e B oar d ha s all th e po wers th a t it ne ed s to re gula te th e ra te s of foreign 

carr ie rs and th a t such ra te s sh ou ld be u n il ate ra ll y re gula te d by t h e Boa rd . Th e 

ATA has ne ve r, so fa r as we are aw are , ex pl ai ne d w hy in te rn ati o n al ch ao s 

will re su lt if th e Boa rd ha s po wer ove r U.S.-flag c a rr ie r ra te s, but th a t th e ex ­

er ci se of su ch po wers ov er fo re ig n c a rr ie rs is de sira ble. W e wou ld hav e th ou gh t 

th at, i f anyt hi ng , t h e op po site wou ld be t ru e.

In our ju dgm en t, th e inco ns ist en cy in th e AT A’s po sitio n w ith re g ard to U.S.- 

flag an d fo re ig n a ir carr ie rs is expla in ab le on ly on th e gr ou nd th a t th e U.S.- 

flag c arr ie rs w ish to ha ve th eir ca ke an d eat it : On th e one han d th ey w ish to b e 

pr ot ec te d by th e fu ll po wers of th e U.S . G ov er nm en t w he n th re ate n ed by an 

oc ca sion al c u tr a te co mpe titor, but th e y des ire to be fr ee th em se lv es to ch ar ge 

w ha te ver ra te s th ey choose.

S. Ra te con tr ot au th orit y of fo re ig n go ve rn m en ts

C hai rm an Boy d’s testim on y re fe rr ed to th e fa ct th a t pra cti call y al l foreign 

go ve rn m en ts pr es en tly ha ve th e au th o ri ty to ex er ci se co nt ro l ov er th e ra te s of 

fo re ig n carr ie rs . Mr. Tipton ch alle ng ed th is st at em en t, cla im ing, on th e ba sis of 

a st udy of fo re ig n laws ma de by ATA, th a t only fo ur co un trie s, C an ad a, Sa ud i 

Ara bia. Fo rm os a, an d th e Phi lipp in es , ha ve ra te po w er s equ iv al en t to H.R. 465. 

Th e st udy re fe rr ed to was pri nte d in th e 1963 Sen at e hea ri ngs on S. 1539 an d
INT ERNA TIO NA L AIR FAR ES 41

S. 1540, a t pa ge s 152 -153.1 2 I t co ns ists of AT A’s own in te rp re ta ti o n of th e laws of 29 co unt ri es (c onst it uti ng less th an on e- ha lf of th e countr ie s w ith whom the U ni ted S ta te s has av ia tion re la ti ons) w hi ch are se t fo rt h, o r p art ia ll y se t fo rth, in th e vo lume “A ir La ws an d T re ati es of th e W or ld .” ’ We ca nnot co nc ur in the co nc lusion s Mr . Tip to n dra w s fr om th is st ud y, in vie w of th e lim ited scoi>e of th e st ud y an d th e im po ssib ili ty of in te rp re ta ti o n of f or ei gn laws by oth er th an an expert in th e la w s of a p art ic u la r co untr y. F urt her m ore , as st ate d by Cha irm an Bo yd, th e po w er s of fo re ig n go ver nm en ts t o co ntro l an d fix ra te s a re d er iv ed fro m m an y so ur ce s oth er th an dir ect sta tu to ry au th ori ty , su ch as de cr ee s, re gu la tion s, dir ec t i>ower de rive d from th e a ir so ve re ig nt y of th e co un try ac co rd in g to the co nst it uti onal str u ctu re of th a t go ve rn m en t, an d pr ov isio ns in b il ate ra l ag re e­ m en ts w hi ch ha ve th e eff ect of law w ithout im pl em en ting le gi sl at io n. Thi s is dem onst ra te d by th e fa ct th a t in th e 1903 IA TA ra te dis pu te , out of som e 17 co untr ie s w hi ch ob jected to th e U.S. ca rr ie rs ’ no nc on fo rm ity to th e “C han dle r” ra te s, some 12 Eur op ea n go ve rn m en ts took d ir ec t ac tion to im po se t he “C ha nd le r” ra te s up on th e U.S. ca rr ie rs . T he se co unt ri es wer e D en m ar k, Fra nce , German y, Ir ela nd, It aly , N et he rlan ds , N or way , Port ugal , Spa in, Sw eden, Sw itze rl an d, an d th e U ni te d Ki ngdom, none of w hi ch w as co ns id er ed to ha ve ra te -fix in g po wer in 

th e AT A stud y. Th e B oard ’s staf f has ex am in ed ev iden ce av ai la ble as to th e ra te auth ori ty of some 58 fo re ign co un trie s, in o rd er to de te rm in e th e ex te n t of ra te co ntro l clai m ed or ex er ci se d by th es e go ve rn m en ts. Th e pri m ary so ur ce of th e in fo rm a­ tio n obta in ed w as re sp on se s to cir cu la rs se nt by th e D epar tm en t of S ta te to Am er ic an em ba ss ies in th e vari ous fo re ig n co un trie s, re ques ting in fo rm at io n as to th e ra te co ntro l au th o ri ty cl ai m ed or ex er cise d by su ch go ve rn m en ts. Th e resixm se s relie d, fo r th e m os t p a rt , up on in fo rm at io n fu rn is hed dir ec tly by th e avia ti on auth ori ti es or o th er gov er nm en t officials o f th e countr ie s invo lved. From th is st udy it ap pe ar s th a t some 34 of the 58 co unt ri es fo r whi ch in fo rm at io n was avai la ble claim or ha ve ex er ci se d po wer to fix an d de te rm in e th e ra te s of fo re ig n a ir carr ie rs . A no th er 11 countr ie s claim th e po wer to ap pr ov e or su sp en d the ra te s of fo re ig n carr ie rs , but do not at te m pt to de te rm in e ra te s in itia lly. Ou t of th e re m ai ni ng 13 co un trie s, 4 ass ert th e ri ght to ex er ci se an y ra te auth ori ty gra nte d in a bil ate ra l ag re em en t, an d only 9 out of th e 58 did not cla im auth ori ty to co nt ro l th e ra te s of fo re ig n a ir carr ie rs . Atta ch ed as ap jte nd ix B is a list of th es e co un trie s ca te go rize d in ac co rd an ce w ith th eir clai m ed or ex ercise d ra te po wer. Th us , C ha irm an Boy d’s st ate m ent th at vitual ly al l fo re ig n go ve rn m en ts ha ve ra te co ntro l po wer ov er fo re ig n carr ie rs is su bst anti all y co rrec t. The B oa rd 's st ud y dem onst ra te s, in re sp ec t to th e 29 countr ie s inc lude d in th e AT A st ud y, th at, in addit io n to th e 4 co unt ri es adm it te d by ATA to ha ve fu ll ra te co ntro l po wer, an o th er 13 co untr ie s on th e AT A li st have, ac co rd ­ in g to th e B oar d’s in fo rm at io n, claimed or ex er ci se d fu ll po w er to fix an d dete r­ min e th e ra te s of fo re ig n a ir carr ie rs . In ord er to m or e fu lly ad vi se th is com­ m it te e of th e so ur ce of fo re ig n ra te co nt ro l po we r, an d to de m on stat e th e in ­ val id it y of th e ATA st ud y, th ere is att ac hed as ap pe nd ix C a co mpa riso n of th e AT A commen ts in re fe re nce to thos e 13 c o u n ti e s, w hi ch AT A conc lude d did not ha ve fu ll ra te -fix in g po w er , w ith th e B oard ’s in fo rm ati on in di ca ting th a t 

su ch po wer d oes ex ist. In ad di tion , in view of th e re la tion of fo re ig n go ver nm en ts to th eir a ir ca r­ ri ers , th e su gg es tio n th a t on ly fo ur countr ie s po ss es s i>ower to re gula te th e ra te s an d fa re s of th e ir ow n carr ie rs seem s enti re ly unre al is ti c. The su b­ co m m itte e is we ll aw are o f th e fa ct th at, un like U.S.-flag carr ie rs , fo re ig n a ir ­ lines are to a la rg e e x te n t ow ne d an d co nt ro lled by th e ir nati onal go ve rn m en ts, and th ey m us t nec es sa rily carr y out go ve rn m en ta l po lic ies, w het her o r not an y sjtecific sta tu te so re quir es . The fo re ig n carr ie r, in eff ect, is an ar m of it s gov­ er nm en t an d may not a c t contr ary to th e go ve rn m en t’s in st ru cti ons as to th e ra te s it c an ag re e to a t IA TA co nferen ce s. U.S.-fl ag carr ie rs , on th e oth er ha nd , are no t ow ned or co nt ro lled by th e Gov ernm en t, and th e ir m an ag em en t de cision s a re su bj ec t to th e co ntr ol of no G ov er nm en t ag en cy , so long as th ey do no t ru n

1

 H ea ring s be fore th e Com m ittee on Co mm erce, U.S . Se na te . 88 th Cong.. 1s t ses s., on in te rn ational air tr a n sp o rt a ti o n ra te s an d S. 1539 an d S. 154 0. Ma y 15. 16, 20. 1963.

2

 “ Air La ws an d T re ati es of th e W or ld,” an annota te d co m pi la tion pr ep ar ed fo r th e Com mitt ee on Scien ce an d A st ro na utics , Hou se of R ep re se nta tive s, S7 th Cong., 1st sess., 

Ma y 11. 1961.
42 INTERNATIONAL AIR FARES

af oul of a specific st atu to ry pro hib itio n. T h at th e U. S.-fl ag carr ie rs may an d 

do ig no re th e B oa rd ’s ra te pol ic ie s an d view s a t IATA co nf er en ce s w ith com ­

pl et e im pu ni ty is dem on st ra te d by th e tran s- Pac iflc fa re si tu ati o n ex isting toda y.

4. E xis ti n g st atu to ry po we rs o f CAB

Mr. Tip to n co nten ds th a t an y cl ai m s th a t th e GAB is po w er less to inf lue nce 

in te rn ati onal ra te s “w on ’t st an d anal ysi s, ” an d he su bm itte d an ou tlin e of th e 

B oard ’s po wers to de al w ith fo re ig n carr ie r ra te s, no ting th at, w ith th e ex ce ptio n of section 402 whi ch deals w ith fo re ign a ir ca rr ie r per m its, ea ch of th e 

sta tu to ry po wers re fe rr ed to appli ed to U.S .-flag as we ll a s fo reign-fla g ca rr ie rs . 

A care fu l re ad in g of th e AT A m em or an du m will disc lose th a t (1) th e m aj or 

au th o ri ty re lied upon is se ct io n 402, which is in ap pl ic ab le to U.S.-flag carr ie rs , 

and (2 ) none of th e sta tu te s cited in th e mem or an du m w ou ld perm it th e Boa rd 

to re du ce ex ce ssive ra te s. T hu s, th e B oa rd m ig ht ta ke acti on under se ction 402 

to pre ven t a fo reign a ir c a rr ie r from ch ar gi ng ra te s th a t th re ate ned th e economi c we ll-be ing of U.S . a ir carr ie rs , or und er se ction 411 w he re a cu t ra te 

am ou nt ed to unfa ir co m pe tit ion. B ut no whe re in th e m em or an du m is an y co nte nti on mad e by th e ATA th a t th e B oa rd co uld pro te ct th e pu blic again st ex ­

ce ss ive ch ar ge s em bo die d in ta ri ff s. Althou gh th e Boa rd m ay we ll ha ve som e 

po wer s to de al w ith fo re ign- flag c a rr ie r ra te s, p art ic u la rl y under se ctions 402 

an d 411. su ch po wers wo uld be muc h narr ow er th an th e norm al ra te m ak in g 

auth ori ty . Mo reo ver , an y att em p t by th e B oa rd to ex er ci se su ch powe rs, an d 

p art ic u la rl y to s us pe nd f or ei gn c a rrie r ra te s w ithout hea ring, wou ld u nd ou bted ly 

pr ov ok e co urt litiga tion . A po int-by -p oi nt an al ysi s of th e AT A mem or an du m is 

att ached to ap pe nd ix D.

5. R egu la tion of ra te s fo r M A T S op er at ions by su pp le m en ta l an d ot he r ca rrier s

Fin al ly , we wish to ca ll to y our att enti on a fa ct or th a t we ha ve pr ev io us ly no t

ra is ed w ith th e su bc om mitt ee but which we re gar d as a m a tt e r of gra ves t conce rn. It wi ll be re ca lled th a t in th e ye ar s pr ec ed in g I960 a se riou s si tu at io n 

de ve lope d in th e ca se of co m pe titive bidd in g fo r fo re ig n and ov er se as co ntr ac ts 

w ith th e M ilitar y Air T ra n sp o rt Se rvice. Ov er a pe riod of se ver al ye ars, th e 

carr ie rs , in a n effo rt to i nc re as e th e ir p ar ticip ati on in MA TS b us in es s, dra st ic ally 

drov e do wn th e level of ra te s to a po in t which w as we ll Inflow a com i>ensatory 

leve l. As a re su lt of th es e pra cti ces, th e fina nc ial well-b eing of a nu m be r of 

the su pp le m en ta l carr ie rs w as se ri ou sl y un de rm in ed an d, in some ca ses, ban kru ptc ie s oc cu rred .

Beg inning in th e la tt e r p a rt of I960, th e Boa rd unde rtoo k to re gula te th es e 

ra te s by mea ns of att achin g conditio ns to th e ex em pt ion au th o ri ty gra nte d to 

va ri ous carr ie rs to en ga ge in MAT S op er at io ns . Sub se qu en tly , th e Boa rd ha s 

per io di ca lly rev iewe d th es e ra te s, an d it is our bel ie f th a t th e minim um ra te 

re gul at io n wh ich th e B oa rd h as ex er ci se d has be en ess ential to th e hea lth of 

th e su pp le m en ta l a ir carr ie rs an d a t th e sa m e tim e has pr ov id ed su bst anti al 

a ir li ft ca pac ity an d em erge nc y ex pa ns io n ca pab ility to th e D ep art m ent of Defens e a t re as on ab le ra te s.

Up to th e pr es en t tim e, th e B o ard ’s po wer to re gula te th e minim um ra te s fo r 

MA TS fo re ig n op er at ions has not been se riou sly qu es tio ne d, sinc e it ha s been 

em ploy ed as an incide nt to th e g ra n t of an ex em pt ion and in te ri m auth ori ty . 

How ev er, th ere is now pe nd ing be fo re th e B oa rd th e que st io n of th e ce rtification of su pp lemen tal a ir c a rr ie rs under section 4 0 1 (d )(3 ) of th e ac t. Once 

th e su pp le m en ta l carr ie rs po ss es s ce rtific at es of pu blic co nv en ienc e an d necessi ty . th ere is gr av e do ub t as to w heth er th e B oar d's po w er to re gula te th es e 

ra te s will su rv ive. Und er H.R . 465 , th e B oa rd wo uld ha ve am pl e po wer to re gu ­

la te ra te s an d fa re s fo r fo re ig n a ir tr an sp o rt ati o n se rv ices per fo rm ed fo r MATS 

by all carr ie rs . In the ab senc e of H.R. 465, th e B oar d’s hands m ay we ll be tie d 

an d th e in dust ry may re ver t to th e n ear dis ast ro us co nd itio ns th a t pr ev ailed 

pri or to 1960.
INTERNATIONAL AIR FARES 43

Appendix A

Comparison of passenger yield and operating costs of internation al passenger/ cargo carriers, 19^6-6 ft

Y ea r

1946,

1947. 

1948

1949.

1950.

1951.

1952.

1953

1954

1955.

1956.

1957.

1958

1959 

1960. 

1961

1962.

1963. 

1964

R ed u cti o n ! ro m 1946 to 1964

Pa ss en ge r yi el d T o ta l oper at in g e xp en ses

P er re ve nu e 

pa ssen ge rmile

P er

pa ss en ge rto n- m ile

P er re ven ue 

to n-m ile

P er av ail ­

ab le to nm ile

Cents Cents Cents Cents

8.31 89.2 5 102.42 i 64.81

7.77 76.38 85.9 4 49.0 8

8.01 77.91 86.15 48.97

7.72 74.93 84.29 46.82

7.28 70.51 76.49 44.83

7.10 69.18 70.69 45.69

7.01 68.06 70.44 43.14

6.84 66.86 67.34 41.20

6.76 66.60 61.92 38. 22

6.66 66.22 56. 55 36.16

6.68 66.62 55.57 35. 59

6.55 65.39 54.54 34.49

6. 46 64.51 55.16 33.9 4

6.29 62.92 52.11 34.07

6.35 63.48 52.48 31.36

6.0 8 60.79 51.28 28.30

5.8 7 58.5 2 44.71 24.75

5.82 58.3 6 43.08 22. 92

5.45 54.3 9 44.16 22.99

Percent Percent Percent Percent

34.42 39.06 56.88 64.53

i A va ilab le to n- m ile s in n onsc hedule d se rv ic es not r ep ort ed ; esti m ate d on b asis o f re la ti onsh ip to sc hed ule d 

se rv ic es av ailab le t on -m ile s in 1947.

So ur ce - 1962 an d 1963 edit io ns of H an d b o o k of A irline S ta ti sti cs w it h d a ta from 1963 ed it io n w here in consi st en ci es ap pea r; 1963 a n d 1964 d a ta pro vid ed by B ure au of A cc ounts a n d S ta ti st ic s, C A B .

Appendix B

Rate P ower of F oreign Governments

Power to fix and determ ine rates of foreign carriers claimed or exercised

Argentina Germany Parag uay

Australia Greece Peru

Brazil Honduras Philippines

Cana da Ireland Por tugal

< 'e.vlon Isr ael South Africa

Chile Iran Spain

Colombia Ita ly Sweden

Costa Rica Japan Switzerland

Denmark Korea Taiwan

I tominican Republic Netherlan ds United Kingdom

Ecuad or Norway

France Panama
44 INTERNATIONAL AIR FARES

Power to approve or su spend rates of foreign carriers, hit no claim of power to

determine rates initia lly

Austria El Salvador Nicarag ua

Belgium Guatemala Uruguay

Bolivia Mexico Venezuela

Congo New Zealand

Power to control rates of foreign carriers to extent provided in a bilateral

agreement

Iceland Pak istan

Ind ia Thailand

Burma 

Finland 

Hong Kong

-Vo claim of power to control rates of foreig n carriers

Indonesia Nigeria

Lebanon United Arab Republic

Liberia Vietnam

Appendix C

Comparison of ATA and Board Study of Foreign Rate P ower of 13 Countries

Where Conclusions Differ

ARG EN TI NA

AT A comment.—No ra te power.

Hoard information.—Prior approval of rates required pu rsu ant to D.A. Commercial Disposition No. 1194, March 6, 1957, and articles 7 and 8 of Decree-Law 

1256, Feb ruary 1, 1937. Reg ulations require applicants for i>ermits to furnish 

tar iff data. The Government publishes an approved rate schedule and carrie rs 

are requ ired to conform to that schedule. The rat es gen erally conform to IATA, 

but widespread discounts are practic ed by travel agents, and enforcement is lax.

AUST RALI A

AT A comment.—No rate power, bu t broad powers in articl e 12(1) (p. 171) 

and articl e 26 (p. 178)?

Hoard inform ation.—Pu rsua nt to section 106(A) of the Air Navigation Regulations, the Director General of Civil Aviation may in connection with issuance 

of a license approve, reject, modify, or lix a fair and reaso nable tariff, and in 

add itio n when he considers t hat t he circumstanc es so w arr ant, he may withdraw 

such approval and dire ct adoptio n of a fair and reasonable rate .

BR AZ IL

AT A comment.—Power to approve rate s, but only under taking to observe them, 

article 37(e) (p. 272). Not a rate-fixing power. (Also see, art. 68, sole paragrap h at p. 276.)

Hoard information.— Pu rsua nt to Decree No. 381, December 19, 1961 (Dia rio 

Official, Dec. 20, 1961) power to approve, suspend, or fix rates filed by air 

carriers . It is not clear whether thi s power permits modification of previously 

approved rate s. In prac tice Government influence of rates exercised through 

Government-owned airline at IATA.

FR AN CE

AT A comment.—Power to approve rates, a rticle 129 (p. 42S).

Hoard, information.—Fren ch law provides specifically for regulation of passenger rates, but the laws and regulations are not precise. In May 1963. the 

French Directo r of Civil Aviation inform ed PAA and TWA th at the Chandler 

rat es mu st be applied, and th at in the event of application of the previously

1

 P ag e re fe re nc es ar e to “A ir Law s an d T re at ie s of th e W or ld,” an annota te d co mpilatio n pre par ed fo r th e Co mmitt ee on Sc ien ce an d A st ro na ut ic s, U.S . Hou se of Rep re se nt ativ es , 87th Cong,, 1st sess.. Ma y 11, 19 61.
INTERN AT IONA L AIR FAR ES 45

ap pr ov ed pr e- Cha nd le r ra te s a ft e r M ay 12, he wo uld “t ake al l m ea su re s imposed 

by ci rc um st an ce s. ”

GERMANY

A T A co m men t.— A uth or iz at io n fo r sc he du led serv ice “e xte nds to flight ra te s” 

art ic le 21 (p . 45 8).

(N ote.—B ut German G ov er nm en t, as we ll as L uft hansa , de ni ed th at art . 

21 had s uc h scope, in co nn ec tion w it h pt. 213 pr oc ee ding .)

Boa rd in fo rm at io n.— G en er al ra te po w er in ac co rd an ce w ith art ic le 21 of air 

tr a n sp o rt law, but bil ate ra l pro vi si on s ha ve eff ect of law and m ay lim it th is 

po wer. In th e co urse of th e IA TA ra te dis pute U.S. c a rr ie rs w er e advis ed 

by le tt e r fr om th e German F ed era l M in istry of T ra nsp ort , date d May 17, 1963, 

to im m ed ia te ly app ly t he C han dle r ra te s.

IRAN

A T A co mmen t.— Po wer to appro ve ra te s, art ic le 6 (c ) (p. 71 8).

Boa rd in fo rm at io n. — For ei gn office clai m s po wer to det erm in e “t he reas on ab le 

ra te s of a ir tr ansp ort ati on of carg o an d tr avele rs .”

IRELAND

A T A co mmen t.— No ra te po wer.

Boa rd in fo rm at io n. — W hi le no sta tu te or re gu la tion sp ec ifi ca lly prov ides fo r 

G ov er nm en t ra te co ntro l, su ch ra te p ow er is ex er ci se d th ro ugh in here nt so ve reign 

po wer. On Ma y 21, 1963, TW A an d PAA were in fo rm ed th a t th e Ir is h M in iste r 

fo r T ra n sp o rt a nd P ow er h ad “t oday b een em po wered by t h e G ov er nm en t to mak e 

an ord er pr ov id ing fo r th e co ntr ol of a ir fa re s fo r th e tr a n sp o rt of pa ss en ge rs 

or go od s to an d from Ir e la n d .” Th e carr ie rs w er e dir ecte d to in sti tu te th e 

C han dle r f are s w ithin 48 ho ur s.

ISRAEL

A T A c om men t.— No r a te p ow er.

Board in fo rm at io n. — P u rs u a n t to para gra ph 3 (b )(6 ) of th e Air Nav ig atio n 

Act of 1927, as am en de d, th e M in iste r of Avi atio n lia s po w er to fix all co nd iti ons of ca rr ia ge , in cl ud in g do m es tic an d fo re ig n ra te s.

JAP AN

A T A c om men t.— Pow er t o ap pr ov e ra te s, a rt ic le 12 9( 2) (p. 902 ) po wer t o ord er 

alt eri n g of ra te s, a rt ic le 1 29 (4 ) (2 ) (p. 90 2).

(N ote.—U nd er art . 129 (5 ) (p. 902) perm it may be su sp en de d or canc eled 

fo r vi ol at in g pr ov is io ns s uc h as 129 (2) an d 12 9(4) (2 )).

Boa rd in fo rm ation. — A pp ro va l of f are s re quir ed by M in is te r of T ra nsp ort , an d 

M in is te r also h as po wer t o d ir ect th a t pr ev io us ly ap pr ov ed fa re s be al te re d. The 

po w er ha s bee n in te rp re te d as per m itting th e M in is te r to re quir e th e air li ne to 

file an al te re d ta ri ff , but not to spec ify th e p a rt ic u la r fa re . In pr ac tice th e 

ac ce pt ab le alt ern ati v e ra te is de te rm in ed by in fo rm al disc us sion in ad va nc e of 

filing, an d on a t le ast tw o oc ca sion s th e M in is te r has us ed hi s inf lue nce to re quir e 

th a t spec ific fa re s be filed.

NETHERLANDS

A T A Com men t.— No ra te powe r. Ther e is som e va gu e, br oa d po wer in art ic le 

76 (p. 982).

Boa rd in fo rm at io n. — W hile th er e is n o spe cific le gis la tion or re gula tion s which 

specifically au th ori ze th e Gov ernm en t to ex er ci se ra te co nt ro l po we r, in th e 

co ur es of th e IA TA ra te dis put e th e N eth erl ands G ov er nm en t in fo rm ed I’AA 

th a t they m us t char ge th e Cha nd le r ra te s and took ac tion to en fo rce th eir or der . 

SOU TH AFRICA (UN ION OF SOUT H AFRICA)

A TA co mmen t.— Pow er to fix ra te s in a co nd itio n to a lic ense, art ic le 11 (3 ) (c ) 

(p. 1176), but lice ns e not re qu ired whe n se rv ic e co ve re d by bil at er al , a rt ic le 

2 (2 ) (p .1 17 0) .

Bo ard in fo rm ation. — W hile st atu to ry ra te -fix in g po w er is no t ap pl ic ab le w her e 

th e tr ansp ort ati on is co ve red by a bil ate ra l, th e bil ate ra ls ha ve ra te cl au se s 

w ith pr oc ed ur es fo r de te rm in at io n of th e ap p ro p ri ate ta riffs. C on fo rm ity to 

such ta ri ff s is en fo rc ed in ac co rd an ce w ith th e pr ov isio ns of th e p a rt ic u la r 

56 -5 62 — 65 ------ 4
46 INTERNATIONAL AIR FARES

bi lateral. In pra cti ce the Go ver nm ent exe rcises th e control of internationa l 

ra te s t hrou gh its n ationa l ai rlin e at IATA.

SWIT ZERL AND

.4 TA com men t.— Power to ap prov e rates , a rticle 30 (p. 1083).

Bo ard inf orm ation.— Swiss Fe de ra l Air Office cla ims power to accept, reject , 

fix o r suspen d n ationa l or foreign ca rr ie r rates . In a dd ition to t he specific st atu ­

tory au thority , the pow ers are exe rcised un der th e ge ne ral co ns titutiona l and 

sovereign powers of the Go ver nm ent. In th e IAT A ra te dis pute, TWA's perm it 

wa s am end ed to requ ire conformity to the Ch an dle r ra te s un de r th re at of the 

st at ut or y pen alties.

UN ITE D KING DOM (GREAT BRITA IN)

A TA com ment.—Air ser vic e license eith er specifies tar iff , or ma nner in which 

ta riff is to he determ ine d, ar ticl e 2 ( 5 ) (b) (p. 619 ), bu t lice nsi ng only app lies 

to air cra ft of such countries as th e Mini ster of Aviation pre scr ibe d, artic le 1(4 ) 

(b) (p. 618). In th e par t 213 proc eeding. BOAC witne sse s tes tified under oat h 

th at licens ing did not apply to U.S. ca rriers, because the Mini ste r ha d not “prescrib ed” th e U nite d Sta tes .

Board info rmation.—Ge neral ra te control pu rs ua nt to ar ticle 68 of ai r naviga ­

tion or de r of 1960, pe rm itt in g th e at tach men t of conditio ns to airli ne operaing permission . In the IAT A ra te dis pute the perm its of PAA and TWA were 

amend ed to allow impos ition of th e Ch andle r fare s on the U.S. ca rri ers.

Appendix D

POWER OF TH E CIV IL AERONA UTICS BOARD TO REGULATE RAT ES IN FOREIGN AIR 

TRAN SPORTATION

Set fo rth below is an an alys is of a memorandum en tit led “Outline of Power 

of Civil Aeron autics B oard To De al With Foreig n Carrier Ka tes ,” which was sub ­

mitted as appendix B to the st at em en t of Mr. Stu ar t G. Tipto n, president, Air 

Tra ns po rt Associa tion of Am erica, before the Tra ns po rtat io n and Aeron autics 

Sub com mittee of the House In te rs ta te and Fo reign Commerc e Com mittee, on 

ILK. 465. The pa ragrap h nu mbe rs employed correspond to tho se in the ATA 

outline.

I. CAB’S POWERS TO CONTROL FOREIGN CARRIER RATE PRACTIC ES 

A. Se cti on Foreign ca rrier p er mits

Section 402 empowers th e Bo ard to issue perm its to for eig n air ca rrie rs au ­

tho riz ing the m to engage in air tran sp or ta tio n betw een th e Un ited State s and 

foreign points. Section 402 (e) au thor izes the Bo ard to “a ttac h to such perm it 

such rea sonable term s, con dition s, or lim ita tio ns as, in its jud gm en t, the public 

interest may req uire.” ATA ta ke s th e position th at the Bo ard ma y pro per ly consid er the rea son ablene ss of ra te s as a factor in dec idin g whe ther to issu e or renew a for eig n ai r ca rrie r perm it, an d th at the Board may at ta ch ra te conditions 

to t he pe rm it.

Th e Bo ard does not dis pute th a t it ha s some pow er to de al with fore ign ai r 

ca rr ie r ra te s by attac hing cond ition s to for eig n air ca rr ie r perm its . However, 

such pow ers ar e by no means eq uiva lent to ratemak ing pow ers. Moreover, section 402 is not applicable to U.S.-flag ca rrie rs and , the refore, sec tion 402 could 

not be uti liz ed in any ma nn er to re gu la te U.S. ca rr ie r rates.

Th e sche me of the ac t an d its leg isl ative history clea rly indica te an intention 

not to bes tow powers with resp ec t to the justne ss and rea sonable ness of ra te s 

in for eig n ai r tra ns po rta tio n. Th e presen t stat ut or y pro vis ion s da te from 

the Civil Aeron autics Act of 1938. In th at act , Con gres s gave th e Board general regu latory pow ers to in ve stig ate in te rs ta te an d overs eas ra te s and to 

estab lis h new rates in the eve nt th at th e ex ist ing or proposed ra te s were foun d 

to be un ju st or unr eas ona ble , or un ju stly discrim ina tor y. Moreove r, section 

49 4(a) of the act specifically imp ose d th e du ty on the ca rr ie rs to maintain ju st 

and reason able ra te s in in te rs ta te an d ove rse as tran sp or ta tio n. Howev er, with 

respect to foreig n ai r tran sp or ta tio n, th e Bo ard’s pow ers to inv estig ate were
INTERN AT IONA L AIR FARES 47

confi ned solely to ca se s of dis cri m in ati on unde r se ction 1002(f ), and under 

th e te rm s of se ction 404 of th e a c t neit her a ir carr ie rs no r fo re ig n a ir carr ie rs 

were under an y duty to es ta bli sh ju s t an d re as on ab le ra te s fo r fo re ig n air 

tr an sp o rt ati o n . Th e le gi sl at iv e his to ry of th e 1938 act cl earl y in dic at es th a t 

Con gress w as co nc erne d as to th e co m pl ex iti es of ra te re gula tion in th e in te rnational sp he re an d w as u n cert ain as to th e pr ec ise n atu re of th e ra te m ak in g 

au th o ri ty to be give n to th e B oard in th is are a. In de ed , se ct io n 40 4( c) of th e 

1938 act di re ct ed th e B oa rd to in vest ig ate an d re port “t o w h at ex te nt, if an y, 

th e F edera l Gov er nm en t sh ou ld fu rth e r re gul at e th e ra te s, fa re s, an d ch ar ge s 

of a ir c a rr ie rs e ng ag ed in fo re ig n a ir tr ansp ort ati on.”

It is do ub tful , in vie w of th e de liber at e w ithho ld in g by Con gress of th e 

po w er s to re gula te ra te s an d pra cti ces in fo re ig n a ir tr an sp o rt ati o n , th a t th e 

B oa rd co uld co nf er up on it self th e same po w er s by co nd itio ni ng fo re ign a ir 

c a rr ie r pe rm its. On th e o th er han d, th e po wer to co nd itio n perm it s doe s, in 

th e B oard ’s ju dg m en t, give th e B oar d po wer to pr ec lu de ope ra tions of fo re ign 

a ir ca rr ie rs a t ra te s in im ic al to th e in te re st of th e U nite d S ta te s. For ex am ple, 

if opera ti ons were be ing co nd uc te d by a fo re ig n c a rr ie r a t ra te lev els so low 

as to const it ute dest ru ct iv e co m pe tition an d im pe ril th e U.S . tr ansp ort ati on sy stem . th e B oa rd belie ves it co ul d im po se c on di tion s to cu re su ch a si tu at io n. Th e 

B oa rd , in such a case, wou ld no t be re gula ting th e ra te s as su ch but ra th e r 

wou ld be us in g it s lic en sing pow er to pro hib it oper at io ns whi ch are no t in th e 

pu blic i nt er es t.

It is clea r, ho we ve r, th a t th e B oar d could no t uti li ze it s lim ited po wers under 

se ct ion 402 to ca us e a re ducti on in ra te s. T hi s fo llo ws be ca us e it wou ld 

no t be po ssible to m ak e a find in g th a t a fo re ig n fla g c a rrie r’s ope ra tion s a t a 

high ra te were in im ic al to th e pu blic in te re st if th e U.S.-flag carr ie rs were 

char gin g th es e same high ra te s. To put it diffe re nt ly , th e pu blic in te re st wo uld 

no t be vi nd ic ated by re vo kin g th e fo re ig n a ir ca rr ie r p erm it to oper at e a t th e 

high ra te if th e re m ai nin g se rv ic es co nd uc ted by U.S.-flag carr ie rs (w ho se certifica te s could not be re vo ke d on th is gro und ) wo uld be co nd uc ted a t th e high 

ra te.

T he ou tlin e cite s vari ous “p re ce den ts ” in su pport of it s po sitio n th a t th e 

B oa rd has br oa d po w er s ov er fo reign ca rr ie r ra te s. No ne of th e ca se s ci te d 

be ar s up on th e is su e of w heth er th e B oa rd has po w er to de al w ith ex ce ss ive 

ra te s an d ch ar ge s in fore ig n a ir t ra nsp ort ati on.

B . Se ct io n 403. Obs er va nc e of ta ri ff fa re

The ATA ou tlin e poin ts out th a t fo re ig n a ir ca rr ie rs a re re qu ired to file an d 

ob se rv e ta ri ff s an d may n o t colle ct a le ss er fa re th an th a t se t fo rt h in th e ta ri ff . 

How ev er, section 403 co nfe rs no po wer on th e B oa rd to co nt ro l th e ra te s which 

th e fo re ign carr ie r ch oo se s to file in its ta ri ff an d it s th ere fo re of no ass is ta nce 

in de alin g w ith u n ju st o r un re as onab le r at es .

C. Se ction 404. D is cri m in ato ry ra te s

Th e ou tlin e sta te s th a t fo re ig n carr ie rs are fo rb id de n to en ga ge in u n ju st 

dis cr im in at io n or unr ea so nab le pr ef er en ce s. The sa m e is tr u e of U.S. a ir 

carr ie rs . How ev er, th ese pr ov isions re la te to th e ch ar gi ng of on e pe rs on or 

cl as s of traffic a h ig h er or lower ra te th an anoth er. The y do not perm it th e 

Boa rd to re gula te the g en er al ra te le ve ls of th e c arr ie rs .

D. Se ct io n 411. U nfa ir pr ac tic es an d u nfa ir m et ho ds o f co mpe tit ion

Secti on 411 au th ori zes th e Boa rd to issu e ce as e and desi st ord er s again st fo reig n a ir carr ie rs fo r u n fa ir pr ac tice s an d u n fa ir m et ho ds of co mpe tit ion. P a ra ­

gra ph D I. of th e outl in e ci te s ord er E-12791 fo r th e pr op os iti on th a t fo re ig n 

carr ie r fa re s in vi ola tion of an IA TA ag re em en t wou ld “a ppear” to lie an u n fa ir 

me thod of co m pe tition . The ca se do es not st an d fo r th a t pr op os iti on . In vo lv ed 

in th at pr oc ee di ng w as th e su rr epti ti ous pa ym en t by an IA TA carr ie r of a co mmi ssion in ex ce ss of th e level ag re ed up on in IA TA . The B oa rd has nev er hel d 

th at th e m er e bre ac h of an IA TA ag re em en t wou ld const it ute a vi ol at io n o f sectio n 411.

It is tr u e th a t un d er se ction 411 some ty pe of ra te -c utt in g pr ac tice s m ig ht 

be he ld to be an u n fa ir metho d of co m pe tit ion, as , fo r ex am ple, th e charg in g of 

ra te s which are be low co st fo r th e pu rp os e of dri vin g ou t oth er co m pe tition an d 

mo no po liz ing a m ark et. Such a lim ited po wer is c le arly no t co m pa ra bl e to p ow er 

to re gu la te ju stn ess an d re as on ab lene ss an d wou ld in no ev en t j>ermit th e B oar d 

to de al w ith ex ce ss iv e ch arge s.
48 INTERN AT IONA L AIR FAR ES

E. Se ct io n j/ 2 . App ro va l an d dis ap pr ov al of ag reed ra te s

The AT A ou tlin e poin ts out th a t un de r se ction 412 an ag re em en t betw ee n 

fo re ig n carr ie rs an d U.S. c a rr ie rs as to ra te s or ra te pra ct ic es m ust be filed with 

th e B oa rd fo r ap pr ov al or dis ap pr ov al , an d th a t th e B oar d m ay disa pp ro ve as 

“a dver se to th e publi c in te re st ” an IA TA ag re em en t ba se d ui>on a ra te wh ich it 

re gar ds as un re as on ab le. H ow ev er , th is po wer is en tire ly dep en de nt ui>on th e 

em bo di men t of ra te s in an ag re em en t. Tar iffs se ttin g fo rt h ra te s whic h ar e not 

th e su bj ec t of an ag re em en t cannot be touc he d under se ct ion 412. Mo reo ver, 

contr ary to th e im plicatio n in p ara g ra p h E4. th e dis ap pro val of an ag re em en t as 

to ra te s does no t am ou nt to a dis ap pro val of th e ra te itse lf, an d th e carr ie rs are 

fr ee to co nt in ue to ch ar ge th e dis ap pr ov ed ra te so long as th ey do no t violate 

th e a n ti tr u st law s.

F. Enfo rc em en t proc edures

T hi s para gra ph me rely list s m et ho ds of en fo rc in g vi ola tions of the Fe de ral 

A vi at io n Ac t o f 1958, as am en de d.

i i . boar d’s re med ies a ga in st unr ea so nable ra te s of fo rei gn ca rrier s

T hi s se ct io n of th e out line dea ls solel y w ith fo re ign a ir c a rrie rs ; an d th e proce du re s ou tli ne d, which are ba se d up on pr ov isions in bil ate ra l ag re em en ts with 

fo re ig n go ve rn m en ts and in fo re ig n a ir carr ie r pe rm its, co ul d cl ea rly no t be 

utilize d to re gu la te U .S.-flag c a rr ie r ra te s.

Mr. S taggers. Our next witness will be Mr. Allen Ferguson of the 

Department of State.

Will you come forward, Mr. Ferguson, and state your name and those 

with you for the record ?

STATEMENT OF ALLEN R. FERGUSON. COORDINATOR FOR INTERNATIONAL AVIATION, DEPARTMENT OF STATE; ACCOMPANIED

BY ANDREAS LOWENFELD, ACTING DEPUTY LEGAL ADVISER,

DEPARTMENT OF STATE; AND MICHAEL H. STYLES, AVIATION

NEGOTIATIONS DIVISION, DEPARTMENT OF STATE, WASHINGTON, D.C.

Mr. F erguson. Mr. Chairman, and gentlemen of the committee, I 

am Allen Ferguson, Coordinator fo r International Aviation, Department of State, and I am accompanied this morning by Mr. Andreas 

Lowenfeld, who is the Acting Deputy Legal Adviser in the Department, and by Mr. Michael II. Styles, who is a member of my office.

Mr. Staggers. You may proceed.

Mr. F erguson. Fir st let me say the Department of State appreciates 

the opportunity to app ear before this subcommittee in support of the 

administration ’s bill introduced as II.R. 465. Last year before the 

full committee the Department of State gave its unqualified support 

to II.R. 6400. II.R. 6400 is identical with H.R. 465. This year, the 

Department wishes again to testify in support of this proposed measure 

and again to urge that it be enacted as soon as possible.

We should like at the outset to emphasize again that the primary 

purpose of the administration’s rate bill is to enable the U.S. Government to take a far more effective and constructive role in the area of 

international air fares than is possible at present.

The Department of State supports H.R. 465. First, because such 

legislation is needed to give the Civil Aeronautics Board substantial 

power to work in partnership with U.S. international carriers to protect American interests and thus to permit the Civil Aeronautics
INTERNATIONAL AIR FARES 49

Board significantly to influence the routine ratemaking procedures of 

the Internationa l Air Transport. Association (IA TA ) ; second, ILK. 4(55 would strengthen the position of the U.S. Government in bargain­ ing with foreign governments whenever the routine processes of IATA fail to produce agreed rates consistent with U.S. interests. Mr. Boyd has already analyzed the effects of II.K. 465 on the juris­ diction of the Civil Aeronautics Board and the Board's relation to IAT A and the U.S.-flag carriers. I shall restrict my comments pri ­ marily to those aspects of the proposed legislation which touch upon 

intergovernmental relations. When the State Department witness testified bust year, he discussed in some detail the facts and circumstances surround ing the North At- lant ic international air fare dispute which developed durin g the spring of 1963. In that dispute, as you recall, a coalition of European governments threatened to close their airports to U.S. carriers unless our carriers raised the ir rates in accordance with the so-called Chandler IATA Agreement. As you remember, we found it neces­ sary to authorize our carriers to raise their rates if this proved to be the only way to continue flying. That did prove to he the case and the rates were raised to the Chandler levels despite the Civil Aeronautics Board's belief tha t those rates were excessive, and despite the Board's statement in advance of the Chandler meeting that no increases would he acceptable. We were in this position then because the Civil Aero­ nautics Board did not have power to fix international rates for either 

foreign or American carriers. We are. still in the same position. As Mr. Boyd said, prior to the IATA meeting in Athens, the CAB advised the U.S. carriers this past fall that certain reductions in the level of rates and the fare structure were desirable. No such changes were made. The most recent IATA agreement coming out of that meeting provides that a fter certain dates no IATA member is to show in-flight movies on the international seg­ ments of its operations. In the case of TWA, its in-flight movies must stop as of August 31 of this year. The IATA agreement was sub­ mitted for approval to the Civil Aeronautics Board only 3 weeks ago 

and the Board now has it. under active consideration. We appreciate t ha t this poses difficult questions and we do not wish at this time to favo r one outcome over another. But if the Board should decide to disapprove the IATA agreement and to protect TW A’s right to continue in-flight movies, the I ’.S. Government might well find itself in the same vulnerable position vis-a-vis other governments as it was in 1963. Western European governments might again join to­ gether—this time to deny landing rights to carriers offering in-flight entertainment. Instead of this somewhat extreme action, they might simply decide to impose a surcharge on airlines which show movies. But whatever approach they take, and no ma tter how large any such surcharge might be, the U.S. Government could again he powerless to defend our interests or to act on behalf of TWA. Enacting II.K. 465 would enable, the U.S. Government properly to defend positions and decisions which are found to be in the best interests of the United 

States. There is one additional aspect of the present IAT A agreement which I would also like to discuss. This concerns the IAT A fare agreement submitted to the Board with the in-flight movie agreement
50 INTERNATIONAL AIR FARES

and which provides that the existing fares of last year are to remain 

in effect for an additional year.

Both the Board and the Department would have preferred a fare 

structure more closely attuned to public needs. However, to take 

the first step now to accomplish such adjustments, the Board would 

have to disapprove the IATA fare agreement. But if the Board 

disapproves the agreement, we would then probably find ourselves in 

the same position as we were in during the 1963 dispute; namely, 

being forced, in the end, to capitulate. Furthermore, if the Board 

disapproves the agreement, it might well encourage the foreign governments to take immediate action, along the lines which I mentioned 

earlier, against TWA ’s movies.

If H.R. 465 were in effect, the Government would be enabled to 

base its decisions fa r more on what best serves American interests and 

much less on the potential reactions of foreign governments.

Mr. Staggers. May I interrupt right there ?

I notice a couple of questions. You have mentioned that in the 

dispute in 1963 several governments of Europe had joined together. 

I thought t hat was mainly a British dispute with the United States. 

Could you name some of these other people or other governments tha t 

had joined in with them ?

Mr. F erguson. This, I think, would be wrong to characterize as a 

solely British dispute. The European governments in general were 

opposed to our actions.

Mr. Staggers. Did they threaten at that time to deny our access?

Mr. F erguson. As Mr. Boyd said a moment a<ro, there was no official threat to do an ything as drastic as take physical possession of the 

aircraft, but there were specific actions threatened against the agents 

and employees of the airlines.

Mr. Staggers. Can you name me any other governments besides 

Great Britain t hat were involved ?

Mr. F erguson. Yes. The French were involved in that. We submitted in response to a question of Mr. Ha rris a year ago a detailed 

statement on this. And if you will give me a moment, I will see if I 

can find it.

Mr. Staggers. I would like it. I notice you have mentioned it two 

or three times, and it had not been brought out that any other nation 

besides Great Britain had been involved in this dispute.

Mr. Ferguson. In addition to the United Kingdom, France, on 

May 16,1963, advised the U.S. airlines that operations at pre-Chandler 

fares; that is, operations not at the fare which IATA had agreed to at 

Chandler, would be subject to sanctions.

The German Federal Ministry of Transport, in letters to the 

U.S. airlines, dated May 7, 1963, referred to article 11(f) of the bilateral air agreement and certain sections of German law. I shall 

not read this all, but the Germans, in other words, threatened that 

unless the Chandler rates were agreed to, there would be legal consequences.

Italy, Switzerland, Sweden, Spain, Irela nd, Norway, and Portugal 

also disputed the pre-Chandler fares.

Mr. Staggers. They all notified our Government? Is that the 

channel they took ?
INTERNATIONAL AIR FARES 51

Mr. Ferguson. They notified the airlines or the Government, and 

I can read you in detail if you would like, or we can submit it to you 

for the record.

Mr. Staggers. No. I should mention here tha t the great dispute, 

as I understand it, coming to the public eye, was with Great Britain, but these other governments then were involved, or is this a separate 

thing?

Mr. Ferguson. No, this is the same thing.

There were two meetings, one in Washington, in which the British initially participated, and then one in London in which a number of 

countries participated.

Air. Staggers. It was worked out, though, so there was a reduction 

in fares?

Mr. Ferguson. No, sir; not the Chandler case, not the case in 1963. 

In 1963 the United States was forced, in effect, to capitulate.

Mr. Staggers. But didn’t the fares ultimately go down, though?

Mr. Ferguson. In 1964 they went down after a full year, and after 

relatively high rates; that is, increased rates in 1963 over 1962.

Mr. Staggers. As I remember. Chairman Boyd just made the statement tha t they were reduced on the average of 13 percent.

Mr. Ferguson. In 1964.

Mr. Staggers. In 1964. And I thought I gathered from his testimony th at it was a result of the discussions between governments and between these conferences, and so forth, and not the Chandler agreements or the IATA.

Mr. Ferguson. If I could take a moment-----

Mr. Staggers. I would like to verify this.

Mr. F erguson. We a re talking about two different periods and two 

different IAT A meetings. The Chandler meeting, which took place in the fall of 1962 at Chan­ dler, Ariz., was one in which, in spite of a letter from the CAB saying tha t no increases would be acceptable, rates were increased modestly, 

about 5 percent on the North Atlantic. The Civil Aeronautics Board, after notifying the carriers of a decision to disapprove the rates, finally did disapprove the rates. 

There was a series of international meetings, and a series of postponements of the effective date of those rates. To be very brief, in the course of those international meetings, the inadequacies of the present powers of the Board became abundantly clear, and it was necessary for the United States to capitulate and to permit our carriers to charge the new highe r Chandler fares.

Those rates went into effect in the summer of 1963. Following tha t, in the fall of 1963, there was a series of meetings of IATA, beginning at Salzburg. Prior to tha t meeting there was 

some considerable interest on the part of both of the North Atlantic carriers that fly the American flag. Pan American and TWA , to reduce rates, and the Board and the Department were both in favor 

of such reductions. There was then a series of meetings, very small meetings, in the 

fall of 1963, between Mr. Boyd, Mr. R obert Murphy, the Vice C hai r­ man of the Civil Aeronautics Board, and I, plus Mr. Stout, a member of the Board staff, and the Directors General of Civil Aviation, or
52 INTERNATIONAL AIR FARES

their equivalents, in 10 European countries. We explained why the 

U.S. Government felt that, reductions in rates were desirable, and 

why we felt that they were not only desirable in the public interest, 

but also were not disadvantageous to either the American or the foreign 

carriers on the North A tlantic.

After that round of talks, and after some additional meetings by 

IAT A, there was a new agreement which is sometimes referred to 

as the Salzburg agreement, which set rates for the summer of 1964, 

and indeed for a full year beginning in April of 1964.

Those were the rates which resulted in the average reduction of 

about 13 percent in the North Atlantic.

Mr. Staggers. That is what I was trying to get out. I just wanted 

to find out because we had been talking about these disputes with Great 

Britain, and the fact is that you were finally able to work them out, 

which shows that it could be done. I hope that we then can continue.

I hope to get through with your statement this morning.

Mr. F erguson. I am sorry it took me so long.

Mr. Staggers. That is all right. I wanted to find out which governments they were.

Mr. Ferguson. I had just mentioned the desirability of II.R. 465 

in terms of the Government’s, the Civil Aeronautics Board's, relations with the carriers and the routine IAT A proceedings.

If the international carriers are able to achieve agreement on rates 

which are acceptable to all affected governments, there is little need for 

direct Government involvement. However, in the event of a failure 

of the carriers to achieve acceptable agreements, the problem inevitably does go to the Government level. As Mr. Boyd says, we do 

not expect that this kind of thing will happen very frequently.

Our ability to deal with the international rate matters, especially in 

the event, of intergovernmental disagreements, depends both on the 

statutory powers of the Civil Aeronautics Board and on the rate 

articles in our air transpo rt agreements with other countries. Ideally, 

we would like to be in a position either to suspend any rates which 

were determined to be destructively low, or to set rates—even rates 

opposed by foreign airlines and governments. However, because of 

the nature of our bilateral agreements, it is usually impossible to have 

both powers at once, tha t is, the powers of suspension and of rate 

setting.

At present, the United States has one of two types of rate articles in 

most of its air transport agreements. The first is the so-called Bermuda type and the second is what I shall call the suspension type, 

'fhe Bermuda-type article is, in substance, composed of two alternative 

provisions, in paragraphs (e) and (f) .

The critical factor in determining which provision is in effect is 

whether the Civil Aeronautics Board has, by law, power to control 

international rates comparable to its powers to control domestic rates.

If, as is the situation today, the Board does not have such power, 

the first, alternative is in effect—that of para graph (f ). It provides 

tha t either country may, i f it objects to a proposed rate of a foreign 

carrier, suspend such rates, or, in the words of the bilateral, may “take 

such steps as it may consider necessary to prevent the inauguration or 

continuation of the service in question at the rate complained of.” As
INTERNATIONAL AIR FARES 53

1 have said, this para graph is in effect only when the Board does not 

have the power to fix and to suspend rates. Thus, the present effect 

of the Bermuda rate article is to confer the power to suspend rates 

only on the foreign government. Our sole recourse is to consult or 

arbitrate in the hope that we can make our position prevail. Pending 

the resolution of the issue, only rates acceptable to the foreign government would remain in force.

The second, alternative, provision in the Bermuda-type rate article—parag raph (e)—comes into effect if and when the Civil Aeronautics Board does have power both to fix and to suspend international 

rates. It provides that once such power is available, a rate ordered by 

the Civil Aeronautics Board shall go into effect even over foreign objections. Tha t rate will remain in effect pending settlement of the 

dispute throu gh consultation or arbitration. Thus, for example, in 

the 1963 rate dispute it would have been our rate tha t would have been 

in effect pending the resolution of the controversy. Under the agreement it would have been up to the foreign governments to invoke consultation and try to argue us out of our position. This is the situation 

that will prevail if H.R. 465 is enacted.

The second general type of rate article, as T mentioned earlier, is the 

suspension type. It has been negotiated with only three countries, 

New Zealand, Mexico, and the United Arab Republic. It provides that 

either of the contracting parties may suspend a rate which it finds objectionable. But like the first alternative in the Bermuda-type article, 

this provision at present confers a power in fact only on the foreign 

country, since the Civil Aeronautics Board does not now have the 

necessary statutory ratemaking powers. The effect of H.R. 465 would 

be to give the U.S. Government powers of suspension equal to (hose 

enjoyed by the foreign governments with whom the suspension-type 

of rate article is now in force.

As we have pointed out, both in our letters and in earlier testimony 

before the full committee and the Senate Commerce Committee, the 

ideal situation from the United States point of view would be for 

U.S. carriers with Government approval, or for the U.S. Government, 

to be able to decide upon a rate and put it into effect without the possibility of its being suspended by a foreign government. The passage 

of H.R. 465 would put us into a position to do just that.

Fundamentally, the interests of the United States are served bv the 

lowest international rates which yield a reasonable rate of return to 

our airlines. U.S. citizens traveling abroad are entitled to reap the 

full benefits of the great economies of modern air technology. The 

American aircraft indu stry stands to gain from rates which are low’ 

enough to develop to a maximum the potential demand for transport 

aircraft. Our overall policy objectives of achieving a prosperous, 

peaceful, and free world are served by international air rates which 

encourage a maximum of travel. Finally, the great competitive advantage of U.S. airlines, which are the world’s most efficient, can only 

be fully exploited if it is possible to set rates which reflect that efficiency.

Further, U.S. carriers, as evidenced particularly by their conduct 

during the rate dispute of 1963, generally supp ort lower rates for international air transportation. On the other hand, many foreign
54 INTERNATIONAL AIR FARES

carriers have supported higher rates on their services to the United 

States. If, with the Civil Aeronautics Board support, the United 

States carriers were to propose lower rates, those rates would go into 

effect provisionally, and we would be in a position to avoid any repetition of the results o f the 1963 dispute. For i f a lower rate goes into 

effect, the competition would compel all carriers to meet the lower 

rates. And this is precisely what would happen with the enactment 

of H.R. 465. In short, in any future rate dispute, it would be our 

lower rates, not the higher rates proposed by foreign carriers, which 

would prevail.

I should now like to contrast this result with the result which would 

obtain if legislation similar to last years so-called Air T ransport Association bill were enacted. To the best of my knowledge, no such bill 

has been introduced in this session. Such a bill would have given the 

Civil Aeronautics B oard only suspension powers, not the power to fix 

rates.

Since it would not give the Board powers comparable to its domestic rate authority , the provisions of the Bermuda-type bilateral 

which is presently in effect would remain in effect—that is, paragraph 

(f). Eith er country would be permitted to suspend the rates of the 

other country's carriers. This would mean that if the foreign carriers 

wished to introduce a higher rate than that proposed by our carriers, 

we could suspend that rate. But by the same token, foreign governments could, as in 1963, prevent our lower rates from going into effect. 

Thus, the best we could expect would be a deadlock. We would not 

really be much better off than we were in 1963. AVe would be able 

when necessary to demonstrate affirmative U.S. leadership, on the 

other hand, with H.R. 465.

During the State Department's testimony last year, the Chairman 

raised the problem of what would happen if a foreign carrier proposed 

a rate lower than fhat proposed by the U.S. carriers.

This is an interesting question, but as we view it, the problem is 

significant only if a destructively lower rate is proposed, and is insisted 

upon by a foreign government. Only in that event would we face a 

serious problem, for if such rates were to go into effect oyer our objection, they would make the affected services uneconomic for our 

carriers. Since our carriers are among the most efficient in the world, 

they should be able to meet any foreign rate which is not of a destructive nature.

We believe this “low-rate'' problem to be a theoretical, not a real, 

objection to H.R. 465. First, as Chairman Boyd has said this morning, the basic problem for the foreseeable future is not the danger of 

excessively low rates but of unjustifiably high rates. The unanimity 

rule of IATA tends to protect relatively high-cost carriers and certainly to prevent destructively low rates. All the foreign carriers 

which fl y into the United States under Bermuda-type agreements are 

members of the International Air Transport Association. Since any 

destructive rate cutting could be expected primarily from non-IAT A 

carriers, and since, under H.R. 465 the Civil Aeronautics Board could 

suspend the rates of any carrier not operating under a Bermuda-tvpe 

agreement, there appears to be no genuine threat.
INTERNATIONAL AIR FARES 55

Hence, if H.R. 465 were enacted, the Civil Aeronautics Board would 

then, and for the first time, be in a position to suspend permanently any 

destructive rate which might be introduced by carriers not operating 

under a Bermuda-type rate article.

We have looked at this legislation not only from the standpoint of 

what our bilaterals are today but in the light of possible future developments. Once this legislation is enacted, the I nited States will have 

maximum flexibility to determine which particular rate article, the 

Bermuda-type or the suspension type, would best serve the interests 

of the United States in each case. In negotiations with major aviation countries, whose c arriers are members of the Internatio nal Air 

Transport Association, it would probably l>e most advantageous to 

continue the principle of the Bermuda rate article, whereby rates 

would go into effect provisionally pending settlement. In the case of 

negotiations with any country whose carrier or carriers have a history 

of destructive rate cutting, it might be better to negotiate an article 

along lines of the suspension type, which, with H.R. 465, would permit the United States as well as the other country to suspend any rate 

which it finds objectionable.

But both alternatives are essential if the United State s is to be able 

to respond with a flexible and forceful approach to the rapidly changing world of aviation affairs. We cannot have this required flexibility 

unless H.R. 465 is enacted.

I should like also to comment upon the requirement of review and 

approval by the President, pursuant to section 801 of the Federal 

Aviation Act, of any Board order issued under the proposed ratemaking and suspension authority. This requirement is presently 

incorporated in section 2 of II.R. 465. A Senate amendment to last 

year's administration bill would have substituted simply a requirement 

that the Board report such order to the President prior to its 

publication.

Last year, the Department of State and the Civil Aeronautics Board 

opposed that amendment, and we take this occasion to renew our opposition to any such change in IT.R. 465.

As President Kennedy wrote in his letter to the Secretary of State 

dated June 22, 1963, “international aviation policies necessarily affect 

our overall relations with other nations,” and are “a vital area of foreign policy."' The auth ority to make or suspend international rates 

is clearly an important aspect of our international aviation policy.

Virtually all foreign air carriers operating to the United States are 

considered by their governments to be instruments of national policy. 

Many foreign airlines are owned in whole or in part by their governments. Many others receive direct financial support. Hence, their 

financial vitality is of direct concern to their governments. Actions 

which influence airline revenues are subject to direct high-level governmental involvement. Consequently, any substantial controversy 

over air fares inevitably rises to the diplomatic level and spills over 

into areas of broad international political concern, which are the constitutional responsibility of the President.

While in some respects, as the Senate Committee on Commerce 

stated in its report (S. Rept. 473, pt. 2; 88th Cong., 1st sess.) rate-
56 INTERNATIONAL AIR FARES

mak ing is esse ntia lly technical in na ture, the histo ry of the 1963 dis ­

pu te and subsequent In tern atio na l A ir Tr an sp or t Assoc iation actions 

show how quickly “te chnical” question s exp and into broa de r political 

and economic aspe cts of foreign policy. Th e foreign minis trie s of 

several cou ntries have rec ently been invo lved with the U.S . Gover nment in aviation problems wh ere economic effects are fa r less than 

th at of even a minor change in rates. Th is being the case, we can 

expect th at foreig n governm ents will react at the po litica l and diplo ­

matic level in any serious disp ute con cer ning ratemak ing acti on taken 

by the Civil Aeron autics Bo ard. One of the m ajo r purpo ses o f ILK . 

465 is to equip the U.S. Go vernme nt with effective tools f or influencing 

the outco me of gov ern me nt-to-gover nm ent consultation s over a ir p ro blems. Any ac tion by a U.S . G overn me nt agen cy or de pa rtm en t which 

can lead to inter natio na l po litica l rea ctio n must be su bje ct to the overall policy dire ctio n of the Pr esiden t. I should add th at in makin g 

policy de cisio ns r elating to in tern ationa l ai r ra tes , the P reside nt would, 

of course, have ava ilab le the full technical and ad minist rativ e resourc es of the U.S . Go ver nm ent .

The Senate Commerce Co mm itte e in su pp ortin g the amendm ent 

sta ted th at it “in no way inten de d to affect the co nstitution al powers 

of the Presi dent in matter s aff ectin g the con duct of forei gn affa irs.” 

How ever, despite th at in tent, we believe th at the am endm ent would 

seriously an d adverse ly affect these Pre sid entia l powers. The am end ­

ment wou ld certa inl y impin ge on the Pr esiden t’s freedom to cond uct 

foreig n policy. Fo r exa mple. Mr. Boyd men tioned th is mo rning the 

importance of Preside nti al inv olvement on item s such as the balance 

of pay me nts. Such an am endm ent would lie inc onsisten t with the 

allo cation of powe rs between the reg ulato ry agency and the executive 

branch th at has been tr ad iti on al in th is Held.

Puttin g aside the con stitut ion al issues which th is am endm ent raises, 

we believe it inap prop ria te to r equire an ind ependent regu latory ag ency, not un de r the control of the executive branch, to tak e full respon ­

sib ility fo r decisions which po tentially hav e impac t fa r beyond its 

area of competence and juris diction. Sig nifica ntly, Mr. Boyd, in his 

testim ony, disclaimed any des ire on the par t of the Civil Aeron autics 

Board to assume such res ponsibility .

Fi na lly we believe th at the kno wledge th at intern ationa l rates are 

ins ula ted from the ov erall policym aking of th e U nited St ates an d th at 

Civil Aeron aut ics Board orde rs lack exp licit approv al of the Pr esiden t wou ld weaken the pow er and influence of the Uni te d State s in 

internationa l neg otiations e ith er by U.S . ca rri ers in the In tern ationa l 

Air Tra ns po rt Association or at the g ove rnm ental level.

In s ho rt, P res ide nti al review is essential to ou r aviat ion i nte rests, to 

our ove rall foreig n policy int ere sts , and it is consistent wi th our tr aditio na l concep ts of allocati on of powers.

I should like also to discuss two problems which arose in connectio n with our tes timony las t year.

Th e fir st concerns wh eth er H.K. 465 wou ld req uir e the Board in 

every case to set internationa l rates. As we un de rstand , H.R. 465 

imposes no statutor y obligation on the Bo ard to open a rate proceeding. Th e Bo ard , for exa mple, may find its elf genera lly satisfied with 

the ra te s set by IA TA and, sho uld th is lie the case, we would not
INTERNATIONAL AIR FARES 57

expect the Board to open a rate proceeding. Thus, so long as IAT A 

functions in a manner not inconsistent with the public interest, the Board is neither required to exercise the powers available to it under H.R. 465, nor would it be likely to wish to do so. But if. as in 1963, the proposed rates are inconsistent with American public interest, the Board may then—although still under no statutory obligation—open a hearing. And if, after the hearing, the Board concluded that the prevailing rates were, in the words of section 5 of H.R. 465, “unjust or unreasonable or unjustly discriminatory or unduly preferential or unduly prejudicial,” then and only then would it be required to take 

action. In short, the decision to open hearings and to take testimony and the decision as to whether a rate is just and reasonable all lie within the Board's administrative discretion. The only requirement placed on the Board is tha t it take corrective action should it find, after hear­ ings, th at the prevailing or proposed rates are unjust, unreasonable, or discriminatory and the exercise of this authority would be subject 

to Presidential review. An illustration of how the Board could act under H.R. 465 relates to transpacific fares. On April 1, 1963, the Board disapproved an IATA agreement to raise transpacific fares. That disapproval pro­ duced an open rate situation which has persisted and which may con­ tinue to persist for many years to come. Despite the open rates, trans­ pacific fares have not been reduced and, as Mr. Boyd has shown, they remain extremely high. Furthermore, unlike the transatlantic fares, there are no promotional seasonal or excursion fares. While the Board has consistently encouraged U.S. carrier's to seek these rate reductions, encouragement alone has not and probably will not produce t he desired results. If II.R. 465 were enacted, the Board would have necessary author­ ity to hold hearings to determine what constituted a just and reason­ able rate, and to set tha t rate. And I should like to emphasize that this would be done without any impairment of the present functioning 

of IATA. The second problem which arose last year was whether, if the Board were acting under II.R . 465, it could set rates for both U.S. and for­ eign air carriers or whether H.R. 465 would pe rmit setting rates only 

for U.S. air carriers. The short answer to this question is tha t proposed H.R. 465 applies to both foreign and American air carriers operating to and from the United States. However, in the case of a foreign air carrier operat­ ing under a Bermuda-type bilateral, the Board could not enforce its order against that carrier. But if the Board set the rate, we would ex­ pect that its level would be a reflection, for the most part, of the greater efficiencies of the U.S. international carriers. Thus, the rate set by the Board would probably be lower than the rate desired by the for­ eign carrier. And although Bermuda-type rate articles would pre­ vent our enforcing such an order against particu lar foreign carriers, the force of competition, rather than the Board’s directive, would ult imately compel the foreign carrier to fly at the lower rate. Let me add t ha t the long history of responsible and judicious exer­ cise of authority by the Civil Aeronautics Board gives us and should
58 INTERNATIONAL AIR FARES

give foreig n governments com plete confidence th at the Bo ard wou ld 

ne ith er act. in an ar bi tra ry manne r no r disre ga rd the leg itima te concerns of forei gn governments or th e economic requirem ent s of their 

carrie rs.

Up to this po in t my discussion ha s made no reference to the presen t 

deep concern over the balance-of-pa ym ents prob lem. Fur th er , I empha sized the need to prote ct the Am eri can tra ve lin g public fro m uneconomically high rates and the conse quent need fo r effective po wer to 

control such rates. In view of the belie f in some qu arters th at lowered internationa l fares may have adverse balance-of-pa ym ents effects, a word o f cla rification may be ap pr op riate.

Fi rs t, ne ith er the sh ortru n no r lo ng ru n effects upon the balan ce of 

paym ent s o f a reasona ble decrease in the level of a ir fare s is ap pa rent. 

Low er rat es no t only encourage more tra ve l by Am erican s bu t also 

more travel by fo reigners to th e U ni te d S tate s.

Fur th er , ad ditio na l tra vel tends to expand th e m arke t fo r t ra ns po rt 

ai rc ra ft and no manufacturers in th e wo rld can bu ild efficient tran spo rts as well as U.S . man ufacturers. Thus, it is by no means clear 

th at a gen eral ra te reduction would adv ersely affect the bala nce-ofpay ments position of th e United Stat es.

Second, wh ate ver the possible effect of an overall red uction in air 

fares mi gh t be, there are specific changes in the str uc ture o f far es and 

reduction in par ticu la r fares which could be advantag eous in balanceof-pay me nts term s. Ju st a week ago, Ch arles Ti lling ha st, preside nt 

of Tr an s W orld Airlin es, pro posed to IA TA a dif fer ential or directional fare which would be lower fo r tran sa tla nt ic pa ssenge rs visit ing 

the United St ates than fo r passe ngers visit ing Eu rope. Th is plan 

was designe d, at leas t in pa rt, to have a fav orable im pact on the 

U.S. balance of payments. W itho ut pr ejud gi ng th is plan, were we, 

the U.S . G ove rnm ent , to f av or such a chang e in in ter natio na l air fares, 

we would be in a bette r position to see it adopted if I I.R . 465 were in 

effect.

Consequently , the enactment of II .R . 465 would in no sense be contrar y to the Governm ent’s balan ce-of -pa ym ents policies.

We believe th at thi s bill give s th e Civil Ae ron autics Bo ard dis ­

cretion construct ive ly to use a powe r when the use of this po we r would 

be in the best intere sts of th e p ublic; th at is, th e i nte rest of th e Un ited 

Sta tes.

We believe fu rthe r th at this bil l dea ls ade quately and effectively 

with both th e lon g-run and sh or t-ru n problems of intern ationa l air 

fares. Pa ssage of th is bill will pu t the U.S . G overn me nt on a par for 

the first tim e with the oth er major av iat ion cou ntries—all of whom 

ap pe ar to h ave sim ila r r ate ma king a nd su spen sion pow ers u nd er the ir 

dom estic laws.

It will also strength en th e ba rg ai ni ng position, not only o f t he U.S . 

ca rri ers in IA T A meetings, bu t also of the U.S . Go vernm ent in any 

fu tu re in tern ationa l air fare co ntroversy.

The re cu rrin g crises th at hav e ch ara cte riz ed ou r intern ationa l avi ­

ation relatio ns leave no dou bt th at adequ ate and tim ely action by the 

Con gress, as prop osed in II.R . 465, is essentia l to the successful achieveme nt of the ad minist ratio n’s objectives.
INTERNATIONAL AIR FARES 59

Mr. P ickle (presid ing). Mr. Ferguson, we thank you for your testimony. I am sure it will be helpful to the committee. I am wondering 

if you can be here in the morning at 10 o’clock.

Mr. F erguson. Yes, sir.

Mr. P ickle. The committee will meet again on this same legislation, 

and I am sure that the members of the committee will want to ask you some questions, and possibly later ask Mr. Boyd, the Chairman, additional questions. Could you be with us then ?

Mr. F erguson. Yes, si r; I will be here at 10 in the morning.

Mr. P ickle. Thank you. Then the committee will adjourn until 10 

o’clock in the morning. (Whereupon, at 12:30 p.m., the subcommittee was recessed to be 

reconvened at 10 a.m. Thursday, April £9,1965.)

INTERNATIONAL AIR FARES

TH U R SD A Y , A P R IL 29 , 19 65

House of Representatives,

Subcommittee on Transportationand Aeronautics

of the Committee on I nterstate and F oreign Commerce,

W askmgton, D.G.

The subcommittee met at 10 a.m., pursuant to recess, in room 2123, Rayburn House Office Building, Hon. Samuel N. Friedel presiding.

Mr. Friedel. The committee will come to order. Today we will 

continue our hearings on foreign air transp ortation in HR. 465. Yesterday, when we adjourned, Mr. Ferguson, Coordinator for 

Internatio nal Aviation of the Bureau of Economic Affairs, Depart­ ment of State, had just finished presenting his prepared testimony. We will resume with Mr. Ferguson this morning and after that we will hear from Mr. Clarence D. Martin, Under Secretary of Commerce for Transportation, and Mr. Stuart G. Tipton, president of the Air 

Tran sport Association of America.

STATEMENT OF ALLEN R. FERGUSON, COORDINATOR FOR INTE RNATIONAL AVIATION, BUREAU OF ECONOMIC AFFAIRS, DEPARTMENT OF STATE; ACCOMPANIED BY ALLAN I. MENDELSOHN,

OFFICE OF LEGAL ADV ISER ; AND M ICHAE L H. STYLES, AVIATION

NEGOTIATION DIVISION , DEPARTMENT OF STATE

Mr. Friedel. Mr. Ferguson, do you have any comments or statements to add to the testimony which we received yesterday ?

Mr. F erguson. Yes, sir. If I might make minor corrections in my 

testimony of yesterday, I would like to pu t them on the record. In my original testimony I made a statement tha t the Civil Aeronautics Board had approved the recent IATA fare agreement. I was misinformed. They had not. I am informed now that they are likely 

to do so in the very near fu ture; in fact, today. I would also like to mention, Mr. Friedel, that I have with me this 

morning Allan Mendelsohn, of the Legal Adviser’s office. Mr. Lowenfeld, who was here yesterday, is not with me.

Mr. Friedel. Mr. Ferguson, on page 1 of your testimony you describe the primary purpose of II.R. 465 as enabling the U.S. Govern­ ment to take a far more effective and constructive role in the area of 

international air fares.

My question is th is : Wha t agencies or departments of the Government do you have in mind here, and are you relating this comment to 

ratemaking or to international negotiation ?

61

56- 56 2— 65-------5
62 INTERNATIONAL AIR FARES

Mr. F erguson. To answer the first p art of the question, this is primarily and in the first instance the Civil Aeronautics Board but, in its 

processes, I am sure t hat the Board would take full account of any 

information or advice that othe r agencies of the Government offered to 

it; and, further , with the Presidentia l review, there would be specific 

opportunity for any of the interested agencies to advise the President 

on what the appropriate action should be.

Now, with regard to the question of whether this pertains to ratemaking or to negotiations, it in a sense applies to both. Have I paraphrased your question correctly, sir ?

Mr. F riedel. Yes.

Nfr. F erguson. In a sense, it applies to both because there may very 

well be negotiations, certainly consultations, relating to rates and 

fares, but it would apply only, as I see it, to any negotiations that 

might arise out of a fare controversy or a rate controversy.

Mr. F riedel. I just want to get this for the record. To what governments are you referring when you say that a coalition threatened 

to close their airports, and can you describe the nature and extent of 

these various threats ?

Mr. Ferguson. Well, I can do pa rt of that, Mr. Friedel. I can 

indicate to you the governments tha t were involved. The governments did threaten to take legal action against the individuals representing the U.S. airlines in several of the foreign countries.

The countries tha t were involved in this and tha t composed what 

is referred to as a coalition were the United Kingdom, France, Germany, Italy, Switzerland, Sweden, Spain, Ireland, Norway and 

Portugal.

I can give you some detail now on what these countries did and I 

can give you, if you wish, a more detailed statement for the record.

Mr. Friedel. I think we will tak e your statement now and save further detail for the record.

Mr. F erguson. Let me give you what I can a t the moment then.

With regard to the United Kingdom, on May 8, 1963, the British 

Ministry of Aviation initiated action to amend TWA’s and Pan Am’s 

operating authority so as to require them to operate at the Chandler 

fares; tha t is, the fares opposed by the U.S. Government.

Pan Am and TWA received telegrams from the Ministry of Aviation on the 12th of May, stating that failure to comply with your 

operating permit will render “aircraft liable to detention.”

Mr. Friedel. Liable to what ?

Mr. Ferguson. Detention. So that, this was a threat to seize the 

airc raft : not precisely to close t heir airports to our airc raft, but to 

seize the aircraft.

France: On May 16, 1963, the French Foreign Office advised the 

U.S. airlines—that would again be Pan Am and TWA—that operations at pre-Chandler fares would be subject to sanctions.

With respect to Germany, in letters to the U.S. airlines, dated May 

17,1963, the German Federal M inistry of Transport referred to article 

11(F ) of the United States-Germaii bilateral air agreement and to 

certain sections of German civil aviation law, and stated that, in view 

of the analogous legal situation with tha t of the United Kingdom and 

Switzerland, the U.S. carriers were instructed to apply immediately
INTERNATIONAL AIR FARES 63

the Chandler rates in order to avoid legal consequences which might 

arise out of the nonobservance of these legal provisions.

Ita ly: On. May 17, Civilavia Inspector General Caruso requested 

Pan Am to apply the Chandler fares as quickly as possible, otherwise 

“Civilavia would have to take measures it would not like to take.” 

Civilavia is the civil aviation auth ority in the Italian Government.

Switzerland: Effective May 1, 1963, the Swiss Federal Air Office 

amended TW A’s permit so as to require operations at the Chandler 

fares. TWA was told strictly to observe the instructions and tariffs as 

they had been established by IA TA at the Chandler Conference. The 

Swiss advised TWA that, should TWA not apply such tariffs, the procedures in the penal code of the Swiss law of aviation would be executed.

Mr. Friedel. Let me ask you this question: Wouldn’t the United 

States have some means for retaliatory action against these foreign 

airlines?

Mr. F erouson. No, sir; not under the existing bilateral agreements 

and not with the present state of the law. This was carefully examined, as I am sure you know, at the time, and it was decided that 

there was no effective action that the U.S. Government could take, 

tha t was within an aviation context in any event.

Mr. Friedel. You may proceed.

Mr. F erguson. Sweden: On May 17, Mr. Soderberg, Swedish CAB 

official, advised the U.S. Embassy in Stockholm that Pan Am had until 

May 20, when its flight from New York arrived in Sweden, to comply with the Swedish instructions to operate at the Chandler rates. 

If at that time Pan Am still violated these instructions, serious action 

would be taken.

Spa in: On May 24, the Span ish Under Secretary of Foreign Af ­

fairs Cortina advised the U.S. Embassy in Madrid that both U.S. carriers had been informed by note th at passengers would be barred from 

embarking or disembarking, effective noon, May 27, unless they could 

prove that they had charged the Chandler fares.

Irelan d: On May 21, the Irish Minister for T ranspo rt and Power 

advised Pan Am and TWA that he had been empowered by the Government of Ireland to make an order providing for the control of air 

fares for the transport of passengers or goods to and from Ireland. He 

fur the r advised that he proposed to use this power, if necessary, to insure tha t the Chandler fares were put into effect and that the penalty 

for failure to comply is set o ut in sections 13 and 16 of the Iris h Air 

Navigation and Trans portation Act of 1016. Section 13 provides for 

penalties, and section 16 provides for detention of a ircraft.

Norway: On May 20, the Norwegian Civil Aviation Inspector informed Pa n Am that if Pan Am did not charge the Chandler fares immediately its operating concession would be suspended in Norway.

Po rtu ga l: On May 10, the Portuguese Director General of Civil 

Aviation advised TWA by letter that if American companies were not 

in a position to apply the Chandler tariffs, the Portuguese Government would be forced to suspend the arriv als and departures of passengers whose tickets were not in accordance with the Chandler fare 

resolution.
64 INTERNATIONAL AIR FARES

These are the highlights at least of the actions by 10 European governments.

(The following additional information was submitted for the 

record:)

Sta te m e n t of t h e D epa r t m e n t of Sta te Ou t l in in g t h e Spe c if ic F or eig n

Co un tr ie s W h ic h T h r ea te n ed T o S u sp en d t h e Ope ra ti o n s of U.S . A ir

C ar ri er s D u rin g t h e N o rth A tl an ti c R a te D is p u t e of May 1963

u n it ed ki ng do m

The British Ministry of Aviation, on May 8, i nitiat ed action to amend TWA’s 

and PAA.’s operating auth ority so as to require them to operate at the Chandler 

fares. PAA and TWA received telegrams from the Ministry of Aviation, dated 

May 12, stating tha t failure to comply with your operating permit will render 

“air cra ft liable to detention.”

The British Government handed the U.S. Government an aide memoire on 

May 11. It stated tha t the Ministry of Aviation was shocked by the actions 

of the U.S. airlines; and th at if diplomatic representations were unsuccessful, 

drastic action would be required.

FRANCE

On May 16, 1963, the French Foreign Office advised the U.S. airlines tha t 

operations at pre-Chandler fare s would be subject to sanctions. The French 

were unable or unwilling to explain to our civil air atta ch^ during a conversation on May 17 what specific sanctions were intended. A French aviation official during a late r conversation advised t hat he objected to the use of the term 

“sanction.” He stated th at he had no power to punish U.S. airlines, but that 

operations contrary to French regulations would not be permitted.

GERMANY

In letters to U.S. airline s, dated May 17, 1963, the German Federal Ministry 

of Transp ort referred to arti cle 11 (F ) of the United States-German bilateral 

air agreement and to cer tain sections of German civil aviation law. The 

lette rs stated tha t in view of an analogous legal situa tion with tha t of the 

United Kingdom and Switzerland, the U.S. carriers were instructed to apply immediately the Chandler rate s in order to avoid legal consequences which 

might arise out of nonobservance of these legal provisions.

ITA LY

Civilavia Inspector General Caruso, on May 17, requested PAA to apply 

Chandler fares as quickly as possible, otherwise “Civilavia would have to take 

measures it would ra the r not take.” The specific measures were not clarified. 

Caruso informed PAA, on May 18, that if Chandler rate s were not put into effect, 

Civilavia would be compelled to prevent PAA flights from departing Rome.

The U.S. Embassy in Rome received a note verbale from the Itali an Foreign 

Office on May 22. advising t ha t effective May 23, TWA an d PAA, were requested 

to operate at the Chandler rate s and tha t in case of noncompliance, “consequent measures” would be taken.

The U.S. Embassy subsequently advised the Depar tment of State tha t the 

Ital ians had made a decision to “ground” U.S. carriers as of May 25 unless the 

Chandler fares were applied.

SWIT ZERL AND

Effective May 1. 1963, the Swiss Federal Air Office amended TWA’s permit 

so as to require operations at the Chandler fares. TWA was told to strictly observe the instructions and tariffs as they had been established by IATA at the 

Chandler Conference. The Swiss advised TWA that should TWA not apply such 

tariffs, the procedures in the penal code of the Swiss Law of Aviation would 

be executed.
INTERN AT IONA L AIR FAR ES 65

SW ED EN

On May 17, Mr. So derberg, Sw ed ish CA B official, ad vi se d th e U. S. Em ba ss y in Stoc kh olm th a t PA A had unti l May 20, wh en it s fligh t from New York arr iv ed in Sw eden, to comp ly w ith Sw ed ish in st ru cti ons to o r»erate a t th e C han dle r ra te s. If a t th a t ti m e PA A st il l vi ol at ed th ese in st ru ct io ns , se riou s act io n wo uld be 

1 ake n.

SP A IN

On May 24, Sp an ish Und er Se cr et ar y’ of Fo re ig n A ffai rs C ortin a ad vi se d th e U.S. Em ba ss y in M ad rid th a t bo th U.S. carr ie rs had been in fo rm ed by no te th a t pa ss en ge rs wou ld be barr ed fr om em bar kin g or de bar ki ng effectiv e noon Ma y 27 un less th ey co uld prov e th a t th ey h ad ch ar ge d th e C han dle r fa re s. C or tina con­ clud ed th a t th e Gov ernm en t of S pai n w as c on vin ced th a t it had ev er y leg al ri ght to ex ac t th e ne w fa re s in Sp ain, ju s t as th e U.S. Gov er nm en t had th e ri g h t to 

re gula te f are s in th e United Sta te s.

IRE LAND

On May 21, th e Ir is h M in is te r fo r T ra nsp ort an d Pow er ad vi se d PAA an d TW A th a t he ha d been em po w er ed by th e Gov er nm en t of Ir ela n d to mak e an ord er pr ov id in g fo r th e co nt ro l of a ir fa re s fo r th e tr a n sp o rt of pa ss en ge rs or goods to an d from Ir el an d. H e fu rth e r ad vi se d th a t he pr op os ed to us e th is po we r, if ne ce ss ary, to in su re th a t th e C ha nd le r fa re s w er e p u t in to eff ect an d th a t th e pe nal ty fo r fa il u re to co m pl y is se t ou t in se ct io ns 13 and 16 of t he Ir is h 

A ir N av ig at io n an d T ra n sp o rt ati o n Act of 1946. (S ec tion 13 prov id es fo r penalt ie s, an d section 16 pr ovid es fo r de te nt io n of 

a ir c ra ft.)

NORWAY

On M ay 20, th e Norweg ian Civil A viatio n In sp ec to r in fo rm ed PAA th a t if PAA di d not ch ar ge th e C ha ndle r fa re s im m ed ia tely it s oper at in g co nc essio n wo uld be su sp en de d in No rw ay . A N or w eg ia n Fo re ig n Office official to ld our Em ba ss y in Oslo th a t Norway th us fa r h ad be en pati ent b u t th a t it had w at ch ed oth er co un ­ tr ie s which ha d ta ken h ard a tt it u d e s an d ha d obt ai ne d th e de sire d re su lts. li e w as un ab le or un w ill in g to gi ve o u r Em ba ssy ass ura nces that. Norway wo uld not 

si m il arl y ac t ag ai nst PAA .

PORTUGAL

On Ma y 10. th e P ort ugues e D irec to r G en eral of Ci vil A vi at io n ad vised TW A by le tt e r th a t if Amer ican co m pa ni es were no t in a po si tion to ap pl y th e C han dle r ta ri ff s, th e Por tu gu es e G ov er nm en t wo uld be fo rc ed to su sp en d th e arr iv als an d d ep art u re s of p as se ng er s w ho se tick et s were not in ac co rd an ce w ith th e C han dle r 

fa re re so lutio ns . On Ma y 13, TW A’s W as hin gto n office rece ived a mes sa ge from its Lis bon office ad vis in g th a t if A m er ic an c a rr ie rs did no t comp ly w ith th e C ha nd le r fa re s w ith in 24 to 48 ho urs, th e pas se nger s ab oa rd th es e a ir c ra ft wou ld not be all ow ed to em ­

b ark o r di se m ba rk a t P ort uguese ai rp orts.

Mr. Friedel. On page 4, can you tell us more about the fare structure which both the CAB and the State Department would have preferred and how was that preference determined ?

Mr. F erguson. Yes, sir. Mr. Boyd testified yesterday that the Civil 

Aeronautics Board had strongly urged the carriers to introduce a sub­ stantial reduction in the Pacific fares and the Department concurred 

with that. With regard to North Atlantic fares, and if you would excuse me for a moment, I will see if I can find it precisely, there were a number of minor, more or less, changes in the North Atlantic fares that the Board suggested; first of all, the extension of the 14- to 21-day ex­ cursion fares through the summer months without interruption, other
66 INTERNATIONAL AIR FARES

than on weekends. As you know, the excursion fares do not now 

operate ; they are not available throughout the summer months.

The second adjustment suggested by the Board was that the normal 

peak economy fares should be applicable in a shorte r period, a period 

of 6 to 7 weeks at most.

The economy fares as applicable in the North Atlantic last year 

and applicable this year under the proposed fare agreement are at 

two levels. There is an off-season level and an on-season level.

The on-season level applies for 10 weeks and is, if I remember correctly, about $50 hig her for a New York to London ticket. So that, 

during the 10 weeks of peak travel from the United States to Europe, 

the traveler pays, as I say, about $50 more than in the off-peak season 

and, during the peak 10 weeks of travel from Euro pe to the United 

States, there is similarly a $50 premium.

It was the Board’s position, in which we concurred, that the 10-week 

period was longer than necessary, so tha t this period of application 

of the higher rate should be reduced to 6 or 7 weeks.

Those are the major things, Mr. Chairman. There is also a suggestion that the excursion fares should be applied during the winter 

months. I think those three were the major structural adjustments.

Mr. Friedel. I have questions th at I will submit to you in w riting 

for the record.

Mr. F erguson. All right.

(The questions referred to, and answers thereto, follow:)

House of Representatives, 

Washington, D.C., May 4, 1965.

Mr. Allen R. Ferguson,

C oordinator for International Aviation,

Department of State,

Washington, D.C.

Dear Mr. Ferguson : La st week when you appeare d befo re the Subcommittee 

on Tra nsp ortatio n and Aeronauti cs I indic ated th at I would tra ns mi t addi tion al 

ques tions which I have conc erning your pre pared testimon y on inte rna tional 

ai r fare s. Those quest ions follow :

(1 ) On page 3, you rai se th e poss ibilit y of Europe an govern ments joini ng 

tog ether to den y lan ding righ ts to ca rri ers offering in-fligh t ent erta inm ent. Wh at 

indi cati ons or comm unication s have been receive d by any rep rese ntat ive of the 

U.S. Government to thi s effect?

(2 ) Also on page 3: When you speak of possible sur cha rge s you sta te th at 

the U.S. Government could aga in be powerless to defend our inte rest s. Do you 

mean the Government including the Chief Executi ve, the St ate Department, or 

the CAB, or ju st wh at segm ent of the U.S. Gover nment do you have in mind ?

(3 ) It is understood th at the CAB denies th at it has effective power under 

its pre sen t statute . Does th e Sta te Departme nt also deny th at it is with out 

effective power to meet problem s such as arose af ter the Cha ndle r agreeme nt, 

and wh at is your position as to the Chief Executiv e on th is sub jec t?

(4 ) On page 8 of you r testimony, as I read it, you seem to have more confidence in the supp ort offered by U.S. ca rri ers for lower ra te s tha n Mr. Boyd 

has. Have our ca rri ers been actively engaged in seeking lowe r rates eith er in 

tra ns atlant ic or tran spac ific services, and if they are general ly intereste d in 

lowe r rates, why is it th at you can not gain their sup por t fo r legislation which 

the St ate Departm ent and th e CAB espouse as provi ding the necessary tools 

to effect lower rat es?

(5 ) In your discussion of a suspe nsion bill, on page 9 of you r testimony, do 

I under stand that this would be some improvement s ince you say th at we would 

not be much bet ter off tha n we were in 19G3. and since you also s ay th at a dead ­

lock would be possible whereas I understood Mr. Boyd, th e U.S. position was 

somet hing sh ort of a pa rti cipa nt in a deadlock?
INTERN AT IONA L AIR FARES 67

(6 ) You describe Presidential review as essential to our aviatio n interests (on p. 14) as well as our overall foreign policy interests, and stat e tha t such review is consistent with our trad itional concept of allocation of powers. I assume th at you are speaking only of interna tional aviatio n and, furthe r, if I assume th at your statem ent is correct, doesn’t this set intern ation al aviation completely a pa rt from domestic aviation interests, and, theref ore even if com­ parable ratemaking words are chosen, would the CAB or the U.S. Government 

have comparable powers? (7 ) In the domestic field, isn’t the ultimate review in the courts ? Under H.R. 465, wouldn’t the ultim ate review be in the Executive? If so, is this 

comparability? (8 ) On page 15, it appears th at you construe the Board’s powers under H.R. 465 as discretionary whether or not proposed rate s are inconsistent with Amer­ ican public interest. If deemed inconsistent with the public interest by the Board, would not the Board have a d uty to step in? (9 ) With reference to your testimony on page 17, at the top of the page, you sta te tha t H.R. 465 applies to both foreign and American carri ers insofar as rate setting is concerned. It appears tha t in this instan ce you are claiming more power for the Board tha n it is claiming for itself in th at Mr. Boyd has specifically disavowed any uni late ral power over foreign air carrier under H.R. 465. Furt her on th at page, you discuss the Bermuda-type bilateral. Would you tell us the original purpose behind the Bermuda agreement? Was tha t purpose related to establis hing a floor so t ha t participating carriers would 

not undercu t each other with uneconomic rate s? (10) Both last year and in the testimony this year ther e has been consider­ able discussion of powers which other countries have paramou nt to powers which the United States has. Mr. Boyd stated tha t the United Kingdom had at least ipse dixit powers. Ear lier I had the understandin g tha t the United Kingdom and the other natio ns with whom we had difficulties over the Chandler agreement had specific powers which we lack. Can you clarify this subjec t? Your prompt response to the foregoing questions will be appreciated. 

Sincerely yours,

Samu el N. Friedel, 

Member of Congress.

Depar tment of State, 

Wash ington, May 21, 1965.

Hon . Samuel N. F riedel,

House of Representatives.

Dear Congressman Friedel: This is in reply to your lette r of May 4, 1965, addressed to Mr. Allen R. Ferguson, in which you posed several questions r elat­ ing to H.R. 465. We ap preciate this opportunity to reply to your questions and I should like to frame our replies in the same numerical order in which you 

posed your questions. (1 ) You asked whether any representative of t he U.S. Government has thus fa r received any communications from foreign governments indicating tha t they might deny landing righ ts to U.S. carriers offering in-flight entertain ment. Unlike the situat ion in 1963, which Mr. Ferguson discussed in some detail during his recen t testimony, no foreign government has as yet officially or formally notified any representative of the U.S. Government tha t it was intending to take such action. Of course, such a threat or indica­ tion at this time would be anticipatory and untimely, partic ularly considering, first, t ha t the CAB has not yet even commenced its formal consideration of the in-flight entertainme nt issue, and, second, tha t under the agreement TWA is permitted, in any case, to continue in-flight entertainme nt until August 31. In Mr. Ferguson’s testimo ny on page 3, he stated simply tha t certain foreign govern­ ments “might” once agai n take this action. He also posed alternative less- drastic courses of action which those governments might take. These possibil­ ities were based, to a large extent, on reports made informally to both the Department of State and the CAB by the U.S. car rier representatives, follow­ ing several recent IATA meetings. We understand tha t these reports were based not only upon the experience of the 1963 dispute but also on the con­ versations and discussions which the U.S. carrier representatives had with the representatives of several foreign carrie rs during those meetings.
68 INTERNATIONAL AIR FARES

In its brief to the Board on the in-flight entertainme nt issue, TWA state d that 

“even if the IATA resolutions banning in-flight visual entertainmen t were not 

approved by the Board, there are strong indications tha t certain governments 

would take action individually to ban or to cripple in-flight entertainment.” 

TWA also stated tha t “in variou s ways it has been made clear to TWA that it 

is the firm intention of cert ain of the foreign governments to impose limitations such as mandatory heavy far e surcharges or outrig ht prohibition of movie 

flights with the result tha t even if the Board does not approve the agreements 

banning movies, it is unlikely tha t such entertainment w’ould, as a practical 

matte r, continue to be feasible.”

Both the Department of Sta te and the CAB continue to believe that foreign 

governments might and could implement one or more of these possible courses 

of action and that, absent enactment of H.R. 465, the U.S. Government could 

again, as it was in 1963, be powerless to defend U.S. intere sts or to act effectively 

on behalf of the U.S. carriers.

(2 ) In connection with possible surcharges, you asked which, if any, segments 

of the U.S. Government would be powerless to defend U.S. interests. The sh ort 

answer is that in a case of thi s natur e no segment of the U.S. Government 

would be empowered to act in any way other than to request consultations 

followed perhaps by arbit ratio n. Neither the CAB nor the Department of 

Stat e nor the President would have the effective authority under present Federal 

law, either to reta liate against foreign c arrier s or to compel foreign governments 

to continue permitting TWA simply to land or to continue permitting it to land 

withou t surcharges. This is exactly the legal situation which the U.S. Government was in during the 1963 dispute. The CAB and the Department of State 

concluded then, and continue to believe today, tha t as a matter of law there is 

no statu tory authority in an instance of this type eithe r for the CAB or for the 

Presid ent to suspend effectively and immediately the operations of foreign 

carriers as a form of retaliation or to compel foreign governments to accept TWA 

under our conditions. It is precisely for this reason tha t the administr ation has 

urgently requested prompt enactment of H.R. 465. Only with this legislation 

could the CAB and the executive branch be empowered properly and adequately 

to defend U.S. interests and the interests of U.S. carriers.

(3 ) I think I have answered this question in my reply to youi' previous question. While it might seem odd tha t the President would have no special executive powers in a case of this type, such an absence of power is not only contemplated in the U.S. Constitution, but it is expressly provided. As the Supreme 

Court stated in Youngstown Sheet <£ Tube Co. v. Sawyer (343 U.S. 579, 5 87-58 8) 

when decided that the Executive lacked power to take possession of steel mills 

even in order to avoid what President Truman considered to be a situation 

jeopardizing the national defe nse:

“Nor can the seizure o rder be sustained because of the several constitutional 

provisions that grant executive power to the President. In the framework of 

our Constitution, the Presid ent’s power to see that the laws are faithfully executed refutes the idea tha t he is to be a lawmaker. The Constitution limits his 

functions in the lawmaking process to the recommending of laws he thinks wise 

and the vetoing of laws he think s bad. And the Constitution is neither silent 

nor equivocal about who shall make laws which the Presid ent is to execute. 

The first section of the first artic le says tha t ‘All legislative powers herein 

granted shall be vested in a Congress of the United States * * After gran ting many powers to the Congress, article I goes on to provide tha t Congress may 

‘make all laws which shall be necessary and proper for carrying into execution 

the foregoing powers, and all other powers vested by this Constitution in the 

Government of the United S tates, or in any Department or Officer there of.”

While it is clear that certain circumstances, for example, war, permit and 

wa rrant greater exercises of Executive authority, such is not the case with the 

problems to which H.R. 465 is directed. These problems ar e more closely analogous to those in the Youngstown Sheet situatio n where the President had no 

legislative authorization for his actions.

(4 ) I believe that Mr. Boyd and Mr. Ferguson share an almost identical 

opinion with respect to their confidence in the U.S. carriers. As Mr. Boyd stated 

in his testimony, and as we agree, Pan American has on many occasions sought 

to reduce rates on the North Atlantic. But neither Pan American nor Northwest has, in our view, made a sufficient effort to reduce rate s across the Pacific. 

And as both Mr. Boyd and Mr. Ferguson testified, the curre nt rates across the
INTERNATIONAL AIR FARES 69

Pacific are extrem ely high. In addit ion, the U.S. car riers, even if they fav or lower rate s, are freq uen tly una ble to succeed in put ting thes e rat es into effect, first, because of the unani mity rule of IATA and, second, because the foreig n ca rri ers know th at the U.S. Government can only approve or disapprove an IATA agre eme nt but cannot set rat es. The foreign carri ers can, there fore, defeat or serio usly wa ter down U.S. ca rr ie r proposals almo st with complete impunity . As for your question why the U.S. carrier s, assuming the y fav or lower rate s, do not fav or and sup port the legisla tion, it is our view th at the carrier s, like most other ind ustries faced with possible regulation, would pre fer to be un ­ regu late d. As Cha irman Boyd said in his testim ony, the ca rri ers’ fea rs and objections “are larg ely based on the ir desire to be fre e of Governm ent reg ula ­ tion of the ir rat es.” The re are, of course, situ ations like th at in the Pacific today , wher e the Gove rnment does not believe th at U.S. ca rri ers are seriou sly seeking to reduce rates. In such a situation , the ca rri ers’ reaction t o the legisla­ tion is more readily und erstandab le. Bu t in those instanc es where our carri ers have seriously sought to redu ce rate s, we believe th at enac tmen t of H.R. 465 will place them in a fa r more effective positio n wit hin IATA to obtain these reduc tions . Furthe rmore , if o ur carrie rs should still be unabl e t o succeed w ithin IATA, then H.R. 4 65 would p erm its the U.S. Govern ment, in cooperation with our car riers, to take st eps to a ssu re tha t th e lowe r ra tes ar e p ut into effect. (5 ) You asked wh eth er enac tme nt of the so-called suspension bill, which was introd uced by the Air Tr an sp ort Association last year , would represent some improvement over the pre sen t situatio n. A suspension bill would empower the U.S. Government to suspend the rat es and possibly even the operatio ns of foreig n carri ers th at c ontinued to operate at disapproved rate s. As such, it does repr esen t an improvem ent in a sense. However, mu tua l or reciprocal susp en­ sions between the United Sta tes and foreig n governments would produce only a diplomatic deadloc k wi tho ut any assura nce th at resolutio ns of the deadlo ck would necessarily resu lt in any improvements in the far es much less the precise 

adju stm ents desir ed by t he U.S. Government or car riers. (6 ) In describ ing Pre sid ential review of int ern ati on al avia tion ma tters as esse ntia l to our aviation intere sts as well as our foreig n policy interests, Mr. Ferguson was in fac t ref err ing expre ssly to the well-established congressional manda te on precisely this point. In section SOI of the Federal Aviation Act. Con­ gress decided, as ear ly as the origin al Civil Aer onau tics Act of 1938, th at ques­ tions involving the ope rations of foreign ai r ca rri ers to, from, and through th e United States, as well as the operatio ns of U.S. ai r ca rri ers in overs eas and foreign ai r tra nsj ior tation , should be subjec t to P res ide nti al review and approval. Congress legislate d in thi s mann er because it recognized th at the field of in te r­ national ai r tra ns po rta tio n necess arily invloves det erm ina tions of both a quasi- legislative and exec utive cha ract er. As the Supre me Court said in Chicago <f 

Southern Airline v. Wa term an Steam ship Co. (3 33 U.S. 103, 11 0), “Le gisl ativ e 

and Execu tive powe rs are pooled obviously to the end th at co mmercial str ate gic and diplom atic inter ests of the coun try may be coo rdin ated an d advanced wi tho ut collision or deadlock between agencie s.” As was shown dra ma tica lly in the 1963 tra ns atl an tic ra te dispute , intern ational ra te questions have the pot ent ial of rising very quic kly to majo r diplom atic and political issues. They should according ly be subje ct to section SOI Pre sid entia l review, ju st as are oth er ma tter s affecting int ern ation al ai r transp ort ation. With respe ct to th at pa rt of your question rel ati ng to comp arability, I shou ld 

like to tre at this s epa rately in the nex t reply. (7 ) While it is tru e th at the requiremen t of Presi denti al review applies only to Board decisions which have an intern ati on al effect, it does not follow th at the Civil Aero naut ics Boa rd would not have “comparable ” powers und er H.R. 465 for purposes o f conversion to claus e (e ) of the typi cal Berm uda-t ype agre ement. 

Clause (e ) prov ides in pertine nt pa rt th a t: “In the event th at power is c onferred by law upon the aerona utic al au tho rities of the United St ate s to fix fair and economic ra tes for the tra ns po rt of persons and prop erty by ai r on intern atio nal services and to suspend proposed ra te s in a mann er com para ble to th at in which the Civil Aeron autics Board at pre sen t is empowered to ac t with respect to such ra tes for the tra nspo rt of pers ons and prop erty by ai r wit hin the United Sta tes * * * etc.” This clause, by not requ iring iden tica l bu t only “compa rable” powers, clea rly implies th at some differences between domestic and inte rna tional i>owers are 

to be e xpected.
70 INTERNATIONAL AIR FARES

In the view of the Department of State, H.R. 465 would confer on the Board 

ratemaking and suspension powers entirely comparable, within the meaning of 

the bilaterals, to the powers which the Board presently has with respect to 

domestic air transportation. While admittedly there would be some differences 

in the execution of the powers, for example, in the scope and method of review, 

the parties that would appear before the Board, and even the ultim ate enforceability of the order, these differences do not, in our view, render the powers 

uncomparable. In a Department letter of July 26, 1963, to Chairman Harris, 

we analyzed in detail precisely why the powers are comparable. We concluded 

in that lette r tha t the powers conferred by H.R. 6400 (now H.R. 465) met the 

comparability criterion “in every relevant respect.” We reach the identical 

conclusion today.

Of course, the interpretation of our international commitments is, in t he first 

instance, the function of the Department of State; and we would be prepared 

to advise all countries with which we have Bermuda-type agreements that we 

considered, as of the enactment of H.R. 465, tha t clause (e) was in effect.

(8) You asked whether the Board would be required to act under H.R. 465 if 

they deemed ce rtain rates or proposed rate s to be inconsistent with the public 

interest. The answer to this question is “Yes.” However, the Board could only 

reach this conclusion after a full hearing on the particular rate or rates. In other 

words, as Mr. Ferguson testified on pages 15 and 16, the Board is under no 

obligation to open a hearing under H.R. 465; nor is it under any obligation to 

conclude th at a particular rate or proposed rate is unreasonable o r unjust. But 

once it does conclude that a particular rate or rates is unreasonable or unjust, 

then, as you point out, it would be under an obligation to take corrective action. 

Even at th is point, however, the Board’s decision would still be subject to Presidential review for purposes of judging the decision in the light of broader national interest considerations.

(9) You asked whether Mr. Ferguson, in his testimony, claimed more power 

for the Board in applying H.R. 465 to foreign air carriers than Chairman Boyd 

claimed in his testimony. Since receiving your letter we have again discussed 

this question with the Board, and we find th at our views are identical. Any rate 

hearing under H.R. 465 would be open to both foreign and domestic carriers, 

and both would be equally able to participa te and submit evidence and testimony in accordance with appropriate administrative procedure. Once a rate 

order is issued, however, it could not, as Mr. Ferguson testified on page 17, be 

enforced against foreign air carriers operating pursuant to agreements containing Bermuda-type rate articles. Of course, we could consult about the rate, 

and we could even demand arb itration in the event consultations failed to achieve 

acceptance of our rate. If we succeeded in the arbitratio n and if the countries 

had agreed in advance t hat the results of the arbitratio n would be binding, we 

could enforce the rate by this means. But pending final settlement through the 

consultation or the arbitration, it would be the force of competition, rather than 

the Board’s order, which would compel the foreign carriers to charge the lower 

rates ordered by the Board. We would, of course, expect th at these rates would 

be in the interests of the U.S. carriers and travelers. With respect to foreign 

carriers not operating pursuant to agreements containing the Bermuda-type rate 

article, the Board and the Department are both in agreement that a Board order 

under H.R. 465 would apply equally and be equally enforcible upon foreign and 

U.S. carriers operating on the route to which the Board’s new rate was applicable.

You also asked about the original purpose behind the Bermuda-type bilateral 

agreement. It dates back to January 1946 when delegations from the United 

States and the United Kingdom met a t Bermuda in order to negotiate a postwar 

air transport agreement. The agreement which finally emerged represented a 

compromise between the divergent views of the United States and the United 

Kingdom on both the questions of rates and predetermination of passenger capacity. The compromise came to be known as the Bermuda formula.

With regard to the question of predetermination, the British Government 

agreed, for the most part, with the U.S. view th at it would be for individual carrier managements to determine, in the first instance, the frequency of schedules, 

type of equipment, and type of service to be provided, subject only to ex post facto 

governmental review in the light of experience. With regard to the question of 

rates, the United States agreed, for the most part, with the British view that 

until such time as the CAB had power to fix rates, either Government could suspend the rate s of the carriers of the other Government. The British position at
INTERNATIONAL AIR FARES 71

th at time was based on its fear th at absen t U.S. Government control, the U.S. carriers, which were at that time alr eady actively engaged in worldwide inter­ national operation s, could charge un fairly low rates, thu s making it uneconomic for th e ca rriers of the other countries to initiate and ope rate competing services. The British Government, accordingly, insisted on suspension powers until such time as the U.S. Government could exercise control over U.S. ca rrier rates . Being confident th at the U.S. Government would prevent un fair price cutting in accordance w ith our long established regulatory policies, the B ritish Government obtained the agreement of the U.S. Government, first, th at the U.S. Government would “use its best efforts to secure legislation ” empowering the Board to fix and suspend rates in international ai r transi>ortation (ann ex to Bermuda Agreement, art. II (j) ), and second, th at when the Board did have these powers, the rates charged by the carriers of each cou ntry would go into effect provisionally even over the objectio n of the other country (annex, ar t. 11 (e)). In a direct sense, therefore, ena ctm ent of H.R. 465 would fulfill the agreement which the U.S. Government made with the B ritis h Government 20 years ago. It would also, as we have said on several occasions, pave the way for more reason­ able rates in internatio nal air transporta tio n and for the avoidance of acrimo­ nious diplomatic disputes and dead locks such as occurred during the 1963 North 

Atlantic rate dispute. (10) In your final question, you asked which countries have powers greater tha n the powers which the U.S. Governm ent has today. This question is app ar­ ently prompted by Mr. Tipton’s alleg atio n that only four other countries (Canada, Saudi Arabia, Formosa, and the Philippines) have powers comparable to those 

in H.R. 465. On May 14, 1965, the Board addressed a let ter to Cha irman Staggers which included a lengthy analysis of the rate mak ing a nd suspension powers of foreign governments. Afte r exam ining the laws of some 58 countries, the Board con­ cluded th at 49 have i>owers in excess of those exis ting in the U.S. Government today. Only 9 of the 58 cou ntries examined are in the same position as the United State s, and no one of these 9 countries (Burma, Finland . Hong Kong, Indonesia, Lebanon, Liberia, Nigeria, United Arab Republic, Vietnam) ojier- ates tra nsatlantic or tran spacific services. Of course, with different con stitutional systems and differen t means of sta tu­ tory and common law interp retation, foreign countries may well not require the specific and detailed type of sta tutory authorization such as is requ ired by an agency of the U.S. Government if it is to exercise rate makin g and suspension powers in internatio nal ai r transp ortation. Per hap s this is what Mr. Tipton means when he suggests th at there are only four other countries having com­ parable legislation. Wh at he failed to say. however, is t ha t every major aviation nation, and many mino r ones as well, claims to have these powers. And a s the 1963 r ate dispute showed, virtu ally every European country was prepared to use sanctions, including crim inal penalties, to enforce operations by U.S. carriers at 

rates acceptable to th ese countries. Last year, in concluding o ur testimony, we requested enactm ent of this legisla­ tion in order to “put us on a pa r with the oth er major aviatio n countries all of which app ear to have sim ilar rate mak ing and suspension autho rity , and permit us to defend U.S. aviatio n intere sts in our discussions and negotiations with 

them.” We renew tha t request w ith equal urgency today.

Sincerely yours, Douglas MacArthur II, 

Assistant Secretary fo r Congressional Relations.

Mr. Friedel. Mr. Callaway?

Mr. Callaway. Thank you, Mr. Chairman. Mr. Ferguson, I understand that last year there was testimony on this subject that, if this bill or a similar bill were passed, the OAB would have mandatory jurisdiction over these rates, and I understand tha t now you feel that this would only be discretio nary; is that correct ?

Mr. Ferguson. The latter is correct. I believe we held this view 

last year too, Mr. Callaway.
72 INTERNATIONAL AIR FARES

Mr. Callaway. I heard otherwise, but you definitely feel now tha t 

it would be discretionary with the CAB ?

Mr. F ERGUSON. Yes.

Mr. Callaway. And you feel, as Mr. Boyd did, that IAT A would 

still operate in the great majority of eases and only where the I ATA 

rates were not deemed satisfactory to the CAB would the CAB step in ?

Mr. Ferguson. That is right. The first part is right, we would 

expect IAT A to operate normally in most cases, and the Board would 

step in if IATA -agreed rates were not satisfactory.

Also the Board or the U.S. Government might very well step in in 

the event that IA TA had reached no agreement.

Mr. Callaway. Do we find ourselves in about the same situation 

that the U.S. carriers found themselves in? What happens if the 

IATA rates are not considered satisfactory to the CAB? Does the 

CAB then issue some kind of ruling and some kind of ratemaking un ­

der its authority under this hill which would apply to all domestic 

and foreign carrie rs landing in the airports of this country, and then 

we find the situation where, if they do not abide by our rules, we are 

detaining their aircra ft and getting into the same kind of situation 

again ?

Mr. Ferguson. Well, we didn’t detain th eir aircraft last time, in the 

1963 dispute.

Mr. Callaway. Excuse me. You say we did not last time?

Mr. F erguson. We did not detain any foreign aircraft or threaten 

to detain any foreign aircraft.

Mr. Callaway. The last time this detention would have been in 

retaliation for something they were doing to our aircraft.

Mr. F erguson. If there were any, yes.

Mr. Callaway. This time I am speaking of a rule put down by the 

CAB having to do with rates, where the foreign governments might 

take the position that they were not going to abide by it. They would 

actually then he landing aircraft at our fields in defiance of our ratemaking Board, in which case it is a little different from retaliation.

Mr. F erguson. Yes, sir; but what methods the Board would use to 

enforce this I am not really qualified to say.

Mr. Callaway. But you feel that they would use some method, 

whether it would be not allowing the passengers to disembark or any 

of these methods you heard about ?

Mr. F erguson. Certainly they would have the power to enforce the 

rule. The foreign carriers would be operating illegally both in terms 

of our law and unde r our intergovernmental agreements.

Mr. Callaway. After all, this has worked pretty well in the past. 

There may have been one or two major problems hut, basically, IATA 

has worked well and smoothly. Do you anticipate that, if this were 

done and the CAB were requiring these rates, we would have a lot of 

problems along this line ?

Mr. Ferguson. Well, I think that, if the CAB were to act on this 

unreasonably, certainly we would, but the B oard has a very good history of careful and responsible actions and I would not expect any 

sequence, any series of serious problems as a consequence of any unreasonable actions by the Board.
INTERNATIONAL AIR FARES 73

Mr. Callaway. I think most of us felt that the CAB was acting 

very reasonably last time in trying to get lower rates and we had a 

pretty good flareup. So it certainly can happen.

Mr. F erguson. It can happen, certainly, and, if it does happen, of 

course, two things are to be said. One is that, if it happens under the new law th at is proposed here, our Board has real authority to set rates and, as a consequence of that, our Government has a much stronger 

negotiatory position. Furthermore, if the Board sets rates for the U.S. carriers or for all 

carriers it clearly has ample power with regard to the U.S. carriers, and it would be the lower rates, the presumably lower rates, set by the Civil Aeronautics Board and used bv American carriers which would 

prevail simply as a consequence of the forces of competition.

It would almost certainly not be necessary to go into any legal enforcement procedures. The economic enforcement would be quite adequate, I suspect.

Mr. Callaway. Thank you. In your testimony, you seem to have 

more faith in the U.S. carriers to want to get lower rates than Mr. Boyd did. lie did not seem quite as convinced of this. Believing this, 

tha t the U.S. carriers want lower rates, why do you suppose it is that 

you are not able to win them over to support this bill ?

Mr. Ferguson. Well, I can’t very well speculate about what the 

reasons for their opposition are. I think Mr. Boyd emphasized that they are opposed to having any additional Government regulation, 

and there is some concern about whether they are always interested in 

rate reductions th at would be deemed by the Board to be in the public 

interest.

Mr. Callaway. Yes. We have not heard much on this, but I would 

suspect that there are many people who feel very strongly that, through the competitive system, you can arrive at rates a whole lot better than 

you can through a control system, and this might be one of the ir reasons even if they did want to get the rates lowered.

Mr. F erguson. Of course, there is not any real price competition in 

the North Atlantic or anywhere else. The rates are not set competitively. They are set by negotiation among the carriers in the IAT A conferences and, certainly, we have had a number of cases in which 

those rates set tha t way have not at all been what were felt to be in the U.S. interest and, in some cases, not in the interests of the U.S. 

carriers’ announced position.

Mr. Callaway. Tha nk you, Mr. Chairman.

Mr. Friedel. Mr. Devine?

Mr. Devine. Mr. Ferguson, in your prepared statement and testimony you seemed to, from time to time, equate the powers of the CAB with various foreign governments. Now, I think that is probably not an accurate premise because I think there are other divisions of the 

U.S. Government tha t may have something to say in this general area, 

such as the Department of State. I think the CAB is not the only authority involved here, is th at n ot 

correct?

Mr. Ferguson. The CAB is not the only authority. It would be the 

authority in the first instance but it would, I am sure, take full account
74 INTERNATIO NAL AIR FARES

of representations made by other agencies, such as the Department of 

State, and then, in the process of the Presidential review, there would 

be a full opportunity for other executive agencies and departments to 

advise the President.

Mr. Devine. Yes. I just felt the record should be made clear on 

this, tha t the CAB is only one portion or one division of the U.S. 

Government as compared with the others tha t you referred to as a 

unit in foreign governments.

Mr. F erguson. Yes, sir. That is correct. The aviation authorities 

and offices in the foreign governments would be likely to get involved 

in many of these problems too.

Mr. Devine. I have no furth er questions, Mr. Chairman.

Kir. F riedel. Thank you, Mr. Ferguson. As I stated earlier, we 

will submit some questions to you in writing and, w’hen you answer 

them, they will be included in the record.

Mr. F erguson. Fine. Tha nk you very much.

Mr. Friedel. Mr. Clarence I). Martin, Jr., Under Secretary for 

Transportation, Department of Commerce.

STATEMENT OF HON. CLARENCE D. MARTIN, JR., UNDER SECRETARY FOR TRANSPORTATION, DEPARTMENT OF COMMERCE;

ACCOMPANIED BY RALPH HAYES, PROGRAM OFFICER AIR,

OFFICE OF THE UNDER SECRETARY FOR TRANSPORTATION,

DEPARTMENT OF COMMERCE

Mr. F riedel. Mr. Martin, we have been reading in the papers about 

you. We are sorry to see you leave. We know you w ant to get back 

to private life.

Mr. Martin. Thank you, Mr. Chairman.

Mr. Chairman, I have Mr. Ralph Hayes of our Aviation Staff of the 

Department with me. He can answer any questions that I can’t 

wrestle w ith.

The technical questions, I think, have been pretty well handled by 

Mr. Boyd of the Board, and Mr. Ferguson of the State Department. 

I will proceed to read this statement.

Mr. Friedel. Do you have copies ?

Mr. Martin. Yes, sir. We have copies that have been distributed.

Mr. Chairman and members of the committee, my name is Clarence 

D. Martin, Jr., and I am under Secretary of Commerce for Transportation.

I appreciate the opportunity to appear before this committee and 

to speak on H.R. 465, a bill which would amend the Federal Aviation 

Act of 1958 to provide for the regulation of rates and practices of U.S. 

international air carriers and foreign air carriers in foreign air 

transportation.

These ratemaking powers would be parallel to those now applicable 

to domestic air transportation and similar to the control now exercised 

by some foreign countries.

The Department of Commerce has broad responsibilities in the area 

of international commerce. It anticipates tha t this legislation will 

contribute to the growth of the U.S. international a ir carriers and the 

expansion of our international commerce.
INTERNATIONAL AIR FARES 75

In general, foreign governments exercise their power to control rates and practices in air transportation to and from t hei r individual countries. This is accomplished directly or through control of their 

respective air carriers. Consequently, American-flag carriers are at a disadvantage in negotiating fares at IAT A conferences since this Government has not provided itself with a means of exercising its power in this area. Historically, the United States through the Civil Aeronautics Board has pressed for lower fares over the North Atlantic. These attempts have met with opposition from other countries and international air 

carriers. You will recall th at in 1963 the United States was powerless 

under its regulatory machinery to establish lower rates, and our car­ riers were threatened with having their equipment impounds if they insisted on placing into effect the lower rates supported by the Civil 

Aeronautics Board.

Since 1963 the profits of the U.S. international carriers have steadily increased and have presently reached levels that call for reduced fares to the traveling public. The United States has been placed in a posi­ tion that it supports competition a t home to protect the public interest yet it is unable to protect the traveling public in the international 

market. Since this Government restricts entry into the international air transporta tion industry, it should, just as it does in the domestic indus­ try, regulate the fares and practices of the franchised carriers in order to protect the public from unreasonable fares and unfair practices 

which usually result from an oligopoly. Despite the fact th at the U.S. carriers are the most efficient and the United States provides most of the traffic, the U.S. carriers have but one voice each in the regulation of rates and practices, which are lost among the total voices of the 90 IAT A members, the majority of which are high cost operators, are subsidized in varying degrees, and are sponsored by countries which generate relatively few international 

passengers. The benefits accruing to the traveling public as a result of the effi­ cient operations of U.S. carriers should not be curtailed because of any inefficient foreign carriers or by the governments attempting to p rotect such carriers. The U.S. internatio nal carriers have conceded in their public p ro­ nouncements that they have been thwarted in their attempts to reduce fares. This has been borne out by the high retu rn on investment which the U.S. carriers are presently receiving in both the Atlantic and 

Pacific markets. I recognize th at there is a school th at thinks the market should be manipulated in such a way as to make the large st profit from the smallest volume. The United States has achieved its greatness by free competition with profits geared to the greatest demand. It is only good business that we press for the same policy in international 

commerce. I do not subscribe to the objections tha t the carriers and the Air Transport Association p ut forth in opposition to this legislation. As 1 have just mentioned, the high level of profits can no longer be de­ fended, and the United States should press for reduced fares.
76 INTERNATIONAL AIR FARES

I t is inconsistent th at the Uni te d State s should est ablish a U.S. 

tra ve l service with the aim of in cre asing foreign to uri sm to th e Un ited 

State s while on the o the r ha nd n ot h av ing th e au thor ity to reduce the 

far es th at could do much to m ake the prog ram a success.

To da te the fore ign countrie s h ave ex erte d influence a nd co ntr ol ov er 

the rates and practic es of fo reign an d U.S . intern ationa l ai r carriers 

op erating to th e Un ite d State s with ou t ha vin g to give serious considera tio n t o the interests of th is co un try .

To co un ter act thi s sit ua tio n, 1 believe th at the Bo ard sho uld have 

the discret ion ary authority ou tline d in this legisla tion . I realize that 

this will no t give the C ivil Ae rona utics Board un ila teral au thor ity in 

this field, bu t it will give th e bo ard au thor itv it does not pre sently 

hav e an d will pro vide a means whe reby the Un ite d St ates can par ­

tic ipate on an equal footi ng with othe r nations in the reg ulati on of 

rates.

A t the presen t time the U .S. tra ve ler and t he U .S. Gover nment are 

at the mercy of the internationa l ca rriers because we do no t have the 

pow er to reg ulate the rat es an d pra ctices of U.S . an d forei gn air 

carriers .

The contr ol th at IA TA enjoys in inter natio na l av iat ion has now 

been exten ded into anoth er field. Rec ently IA TA has ruled again st 

the sho wing of in-flig ht movies an d the reb y has dicta ted the typ e of 

service th at the carriers can offer, thus pla cin g fu rthe r re stra in ts on 

com petition.

Suc h a role places the U.S . ca rriers in a pre poste rou s pos itio n and 

penalizes them f or ma kin g an inno vatio n which does benefit the tra ve ling pub lic.

Th e U.S. carriers mu st be su pp orted by th eir Government if their 

position in internationa l av iat ion is no t to be weakened. A t the pre sent time the au thor ity fo r such su pp or t is no t ava ilable.

Since the U.S. inter na tio na l airli ne s are privately owned, it is very 

im po rtan t th at the Civil Ae rona utics Bo ard be give n the au thor ity 

to maintain a level of far es which offe rs economical c arrie rs an op po rtu nity to ea rn a reasonable pro fit, a t the same tim e maintaining a fare 

level th at is con sisten t with U.S . objectives of increased tra ve l to the 

Un ite d Sta tes .

Th e need fo r t his legislation will become even more p res sin g as compe tition increases within the ne xt few years with the intro du cti on of 

the ad ditio na l jet airc ra ft whi ch a re pre sently on ord er.

Th e Pr es iden t in 1963 iss ued a s tatemen t on internationa l ai r tran spo rt policy. Th is statem ent recogniz ed the multilateral mechanism 

fo r ar rivi ng at inter natio na l ai r tr an sp ort rates by IA TA as being 

the most pr ac tic al at the present.

Th is s tat em ent we nt on to say t h a t:

We cannot, however, abdicate our responsibility to protect the traveler and the 

ship per; we will continue to press for rates we consider reasonable.

To provide for more effective governmental influence on rates, Congress should 

adopt legislation which would give to the Civil Aeronautics Board authority, 

subject to approval by the President, to control rates in international air tran sport to and from the United States.

Th is administ ratio n has n ot altered the pos itio n tak en in the in te rna tio na l air tran sp or t policy sta temen t. I t was felt the au thor ity 

sought here was considered im po rtan t then, and its importance has
INTERNATIONAL AIR FARES 77

been diminished in no way with the passage of time. Accordingly, 

the Department of Commerce recommends enactment of II .R. 465. 

Thank you, Mr. Chairman.

Mr. Fiuedel. We want to thank you, Mr. Secretary, for your very 

fine statement.

Mr. Pickle?

Mr. Pickle. Mr. Secretary, apparently you feel tha t the profits of 

the air carriers have been exorbitan t or too excessive; is this correct?

Mr. Martin. I would not want to use the term exorbitant, Congressman, but I think that the Chairman of the Board, Mr. Boyd, referred 

in his statement at the end to the rate of return tha t the carriers were 

currently enjoying on the North Atlantic.

We feel that there could be substantial reduction in those fares and it, 

in our judgment, would not have a detrimental effect on their rate of 

return.

Mr. P ickle. You use the phrase they charge unreasonable fares and 

you refer to unfair practices.

Mr. Martin. We think those fares are too high. There is no question about it.

Mr. Pickle. I presume the reason you want to reduce the fares is 

tha t you are tryin g to protect the public. You are not trying to take 

profit away from the airlines?

Mr. Martin. That is correct.

Mr. Pickle. What 1 want to ask you is this. There are 90 other 

members of IATA ?

Mr. Martin. Tha t is correct, sir.

Mr. 1 ’ickle. Yesterday Mr. Boyd testified tha t these 90 countries, 

in the general .sense, had the legal authority which was either constitutionally or statutorily given to them by their Government to au tomatically change rates as they saw fit; in other words, th at they had 

the kind of power that you are now asking under this II.R. 465.

Mr. Martin. Right.

Mr. Pickle. Now, if this is so, w hat would happen if they would 

reduce their rates, any one or several of the air transport carriers would 

reduce the ir rates?

Would we automatically fall in line with that?

Mr. Martin. If they unilaterally would reduce the rates or they 

would not subscribe to the IAT A agreement, then I would suspect it 

would come under the classification where it would not be a prescribed 

rate by IATA, but it would be an open rate, and you would have a 

rate war.

This can be both good and bad, actually. It is a two-edged sword.

Mr. Pickle. I assume that you are asking for II.R. 465, because, 

with that authority, the CAB then could recommend lower rates and, 

at least provisionally, while it is being arbitrated, the lower rates 

would prevail until it is settled.

That is why you are asking for II.R. 465 ?

Mr. Martin. I think, under II.R. 465, we would have a more effective voice in prescribing rates.

Mr. Pickle. These other 90 countries have this authority and yet 

they have not exercised it in their ratemaking. Wha t makes you think 

that, if this one remaining government, our Government, is given the 

authority, our rates would be lowered ?

56 -5 62— 65----- 6
78 INTERNATIONAL AIR FARES

Mr. Martin. I s ubm it, Mr. Congres sman, that we a re the leaders in 

th is field an d I would th ink we ar e much lower cost op erators tha n 

those foreign ope rators. Th ey ar e very inefficient by ou r sta ndard s. 

While our companies have made a profit, ma ny of the foreign opera tors 

have su ffered losses.

I would no t pr esume to say why.

Mr. Pick le. You just th in k th at it would come abo ut?

Mr. Martin. I do n’t follo w yo u th ere .

Mr. Pick le. I say, if we ha d t his law , H .R. 465, t hat the r ates would 

be red uce d on an in ter natio na l basis?

Mr. Martin. Yes; I th in k it wo uld be a very effective too l in our 

arsena l of enforcement and protec tio n to give t he B oard au th or ity to 

press fu rt her fo r a red uction in ra te s to levels th at the y th ou gh t were 

reasonable. I t would not be d one arb itra rily .

I don’t th in g there is an yt hi ng in the record of the Boa rd ’s op era ­

tions th at would sug gest this. I t could only be done with the expressed ap pr ov al o f th e Pr es id en t because o f the de licate interna tio na l 

relations th at a re at s take.

Mr. Pickl e. I do not th in k ou r coun try ou gh t to be put at a disadv antag e. I f 90 oth er countries have a law, I do no t t hi nk we o ught 

to be sing led out a nd say th at our Go vernm ent is no t g oin g to give you 

th at au thor ity .

I have ye t to be shown why thes e o th er governme nts have th e a ut ho rity. It seems to me t ha t, if we set u p such a reg ula tio n here, why is it 

th at B rita in does no t do the same, or F ranc e o r H olland or a ny oi these 

othe r m embers of IA TA . Then, th er e is one gover nm ent vying again st 

anoth er governm ent, ra th er th an th ro ug h a series of conferences.

I am tr yin g to mak e u p my mind wh at would be the bes t course on 

this thing . You say you wa nt to ge t a red uction of rates. Yet, in 

yo ur A tlan tic proble m with res pect to th e ban on flight e ntertainmen t, 

it wou ld seem to me that, if you ha d H. R. 465, you are tr yin g to up ­

hold t he ir r ig ht to char ge a hig he r r at e ra th er th an ha ving a reduct ion 

of rates, is th is correct ?

Mr. Martin. Not nece ssarily. Th e effo rts thro ug h H.R . 465, the 

pow ers th at H.R. 465 would g ive, would go towa rd a reason able rate. 

I mean the Bo ard is very con cerned with t he economic he alth of o ur 

carriers, as well as the public in ter est.

Mr. Pick le. Well, let me ph rase my question again . I t is no t the 

largest pro ble m involved here , with res pect to th e in-flight en te rtai nment. I f ou r Gov ernment ha d th e au th or ity to say they cou ld make 

these c harge s fo r t his i nnova tion o f e ntertai nm en t, in you r w ords, thi s 

wou ld mean a high er rate.

So th at , you are ask ing fo r the permission fo r the Go vernm ent to 

either low er or raise rates , no t ju st to reduce rates.

Mr. Martin . You mean th at , by t he use o f the in- flight m otion pic ­

tur es, it would n ecessarily cause a rise i n rate in th at the Bo ard would 

have to a llow thi s a nd to a llow th at service th ey would ha ve to increase 

the rate s to cover it ?

Mr. Pick le. As I und erstoo d th e testim ony yeste rday, th e reason 

fo r the in-flight entertai nm ent w as th ey were actually g oin g to cha rge 

more because it was special service and innovatio n.
INTERNATIONAL AIR FARES 79

Mr. Martin. Tha t remains to be seen. I think there is a grea t difference there. I have difficulty in following that argument. It is a 

competitive thing. It certainly has met with some success domestically. The carrier wants to provide better service. He puts this in.

If it is going to cost him more, and it does cost something clearly, 

he perhaps feels tha t, by providing this service, he gets a substantial 

increase in traffic which more than compensates for it. It is just 

another facet of the ar t of doing business.

Mr. Pickle. Now, Mr. Martin, I agree with you. I say that is 

correct. I say though tha t, under the provisions of the legislation 

you a re asking for, the net effect of it would be th at the Government 

would be either able to allow a carrier to make higher charges for their 

fares rather than lower, but I say again I do not think tha t is the 

most significant par t of thi s measure.

Mr. Chairman, I w ill stop my questioning at this point.

Mr. F riedel. Mr. Devine.

Mr. Devine. Thank you, Mr. Chairman.

Air. Martin, we all wish you well in your future endeavors.

Mr. Martin. Thank you, sir.

Mr. Devine. Do you feel, Air. Alartin, tha t transatlantic business 

has suffered because of the present rates ?

Air. AIartin. Well, I do not think it has suffered, the business as 

you have referred to, Air. Devine, to the carriers. AVe thin k there is 

substantially more business there than is being developed today with 

those fares.

Air. Devine. Do you feel tha t the lowering of rates would a ttract 

more people to the transa tlan tic flights ?

Air. Martin. Substantially, sir. Fo r instance, the other day I had 

the privilege of being in London and inspecting our travel office in 

London, which is one of the more active operations we have in the 

U.S. Travel Service. They estimate that they currently get from the United Kingdom 

some 150,000 visitors a year to the United States. The comment was 

made that, if an approxim ate 20-percent reduction of rates was made, 

and the figure was approximate, they felt t ha t they could over double 

the foreign visitors’ business, to the United States.

Air. Devine. Th at is speculation.

Air. AIartin. It has to be, and it has to be speculation as to the 

amount of the rate decrease. It might be more or it might be less.

Air. Devine. You are stating here, I presume, the official position of 

the Department of Commerce in connection with this legislation.

Air. Martin. Yes, sir ; as it refers to this bill.

Air. Devine. Are you in a position to answer this question. Our 

regular carriers had some years up until about 3 years ago when they 

were hard pressed to even break even. AVhat I am trying to get to is 

th is: Is the mere fa ct th at our carriers are now showing a profit what 

has led you to the decision that now is the time to lower fares?

Air. AIartin. No, sir. I would not want to imply that at all. We 

all know’ that they have had lean and very tough years, and they are 

certainly entitled to make a profit and a good profit.

Air. Devine. A reasonable profit.
80 INTERNATIONAL AIR FARES

Mr. Mart in. A reasonable pr ofit on th eir i nve stm ent, a nd we would 

hop e th at the y would, and th eir investm ent is inc rea sing all the time 

in terms o f th ei r equipment, and we would hope that th ey wou ld make 

a g reater profit.

There is no thing th at this Go vernm ent should do, in my opinion, 

other th an to stimu late a stro ng and healt hy a ir tr an sp or t indu str y.

Mr. Devine. I think you sug gested in earlier testim ony th at the 

U.S . ca rriers a re more ec onom ically op era ted tha n the gene ral foreig n 

carrier?

Mr. Mart in. The y a re more efficient; yes, sir.

Mr. Devi ne. If we w ould ge t ourselves in a positio n where lowering 

the rat es cre ate d a situatio n where pe rhaps the U.S . ca rriers alone 

could opera te, an d th at at small m ar gi n of pro fit, an d th e ot he r ca rrie rs, no t being so economically op erated , would be price d ou t of t he 

marke t-----

Mr. Martin. I did not follow this, sir. Wh o wou ld price whom 

ou t of the marke t ?

Mr. Devi ne. I f we g et into a situ atio n where there wou ld be a reduc tion of rat es, and, follow ing y ou r premise th at U .S. c arrie rs o perate more efficiency and more econom ical ly, we could ge t this thing 

down to a proposition where you h ave c arrie rs w ith a very, very small 

marg in of profit could operate, yo ur foreign op era tors th at are not 

as efficient and no t economically as sou nd wo uld g et into a rea l Do nnybroo k here, would they not?

Mr. Mart in. Well, I think you have ha d good evidence of th at in 

wh at has gon e on in the pas t. I wi ll agree wi th th at in pa rt.

Mr. D evin e. We ll, I think you h ave sta ted very cle arly th e position 

of the D epart ment.

Mr. Martin. Th an k you, sir.

Mr. F riedel. Mr. C alla way?

Mr. Callaway. I have no questions.

Mr. F riedel. Mr. Pickle.

Mr. Pickle. I would like to ask th is question. I am sure we all 

agree th at we ou gh t to have the most reason able rates we can , both 

domestic and inter na tio na l, f or the trav el in g public. Nob ody di sag ree s 

with that.

I f we are ha ving unreasona ble charg es, they ou gh t to be br ou gh t 

in line. Th e th in g I have no t gott en into my m ind ye t is ju st how this 

H.R . 465 is going to aut om atical ly so lve thi s problem.

I t seems to me th at you are sayin g, an d Comm issio ner Boyd and 

Mr. Ferguson have been saying, th at, if we ha d th is law, then we 

could ju st go thro ug h the fo rm ality of ha ving a CA B he aring, pu t 

the new rates into effect, an d then these would be the new rat es, and 

th at wo uld be settled.

I do not view it as bein g that sim ple. You do pu t in new rates now. 

Th e CA B cou ld eit he r appro ve or disa pp ro ve it un de r yo ur prese nt 

au thority . Ju st how would you use H.R . 465 to br in g about these 

rat es ?

How w ould it be so simple as tha t?

Mr. Mart in. We ll, it is no t going to be simple. I t is going to be 

a com plic ated arr angeme nt, as you wo uld ind icate. I would assum e
INTERNATIONAL AIR FARES 81

that, if we had the power to suspend the rate or we had the power to lift a certificate of a foreign carrier tha t came in here and refused and arb itra rily would not pay any attention to the rate level, that the Board thought was correct, th at tha t in itself would be of some in­ fluence on the considerations that the IATA would make in setting 

the rate. It is where we have no pistols or any ammunition for the pistols that I think we are in trouble. The IATA people seem to disregard what the wishes or thoughts of the U.S. Government are in this regard. 

They disregard it. I spoke earlier of the fact that it would lie a power or authority or tool in the arsenal of governmental action that could be taken, and 

then only with the approval of the President.

W e would not be emptyhanded, in other words.

Mr. Pickle. You did get a reduction in your Xorth Atlantic rate 

eventually, about a year later. IAT A has acted. You have gotten 

some lower rates.

Mr. Martin. They were very nominal. I thin k you are referring 

to the Bermuda meeting that was after the Chandler.

Mr. Pickle. I do not have the figures before me, but there was a 

reduction. It did take some time as these tariff things normally would. I would thin k you would still have the same problem. I do not see how this is going to affect the problem much more than what you have now with the authority that the CAB has and does exercise. You admit tha t it is a complicated affair and I guess you said it would be questionable whether these rate reductions could come about.

Mr. Martin. 1 do not think that the CAB would acknowledge th at they have the authority now to establish a rate. They can prohibit an American carrier from joining in concert with the IATA group in setting a rate but, by doing that, they would ju st throw the whole thing wide open and everybody would set his own rate, which would 

not be a good thing.

It would not be an ordinary regulatory proceeding.

Mr. Pickle. Tha t is all the questions I have, Mr. Friedel.

Mr. Friedel. Mr. Secretary, as I see it, if we pass II.R. 465, it would 

place us in a better position to work with the IATA and the foreign 

governments.

Mr. Martin. That is correct, sir. It would make our voice more 

effective.

Mr. F riedel. One of your statements here impressed me very much. 

That is tha t we encourage people to visit the United States from for­ eign countries and in the last few years we have increased our foreign travel to the United States and you feel tha t, if we pass this bill, we 

will increase it even more.

Mr. Martin. I thin k this would be helpful, Mr. Chairman, in the 

direction of a policy th at would set reasonable rates and, to the extent that we would get lower rates, I think it is clear that we would get 

greater foreign travel participation to the United States.

Mr. F riedel. Here is one point from your statemen t:

* * * ninety IATA members the ma jority of which are high-cost operators, are subsidized in var yin g degrees, and are si>onsored by coun tries which gen era te 

relatively few inter natio nal passengers.
82 INTERNATIO NAL AIR FARES

How does th at w ork with IA T A ? Ou t of th e 90, ho w ma ny would 

have i nterna tio na l fligh ts ?

Mr. Martin. I susp ect th ey all do.

Mr. F riedel. They all do ?

Mr. Mart in. Yes, sir.

Mr. F riedel. You said, “R ela tiv ely few in tern ationa l” fligh ts.

Mr. Martin. We are ta lk in g ab ou t th e traffic on t he N or th Atla nti c.

Mr. F riedel. I see. W ha t is req uir ed as a major ity fo r the IA TA 

agreem ent ? If 90 mem bers are pre sen t, does it req uir e 46 to pass an 

agree me nt ?

Mr. Martin. I th in k it tak es a com plete agreem ent by everybody. 

It is an absolu te agree men t.

Mr. F riedel. I would like to know how t hat is done, by th e m ajo rity 

or tw o-thi rds or unanim ous ly ?

Mr. M artin. I think it is u nanim ous.

Mr. F riedel. So that , one c ould hold it up ?

Mr. M art in. One could hold it up.

Mr. F riedel. I wa nt to th an k you, Mr. Secre tary, fo r yo ur sta tements.

Mr. Mart in. Tha nk y ou, Mr. Ch air man.

Mr. F riedel. Now we hav e th e pleasu re of he aring fro m Mr. S. G. 

Tipton , presiden t of the A ir T ra nsp ort A ssociat ion o f Am eric a.

STATEMENT OF STUART G. TIPTON, PRESIDENT, AIR TRANSPORT

ASSOCIATION OF AME RICA ; ACCOMPANIED BY NORMAN J.

PHIL ION. VICE PRESIDENT, INT ERN ATIOIN AL: AND JAMES

E. LANDRY, DIRECTOR, INTERNATIONAL PROGRAMS, AIR

TRANSPORT ASSOCIATION OF AMERICA

Mr. T ipt on. Mr. Ch air ma n a nd members of th e committee,, my name 

is Stu ar t G. Tipto n. I am pr esiden t o f t he A ir Tra ns po rt A ssociation 

of America .

Be fore star ting my sta tem ent, I wou ld like to intr od uce to th e committee Mr. Norman J. Ph ilion , vice preside nt of the asso ciation in 

in tern ationa l matters, and his assis tan t, Mr. James E. La nd ry .

The asso ciation repres ents vi rtua lly all of th e cer tifi cated scheduled 

air lin es of th e Un ited States. In ad dit ion to the 19 airli ne s which 

con duc t internationa l opera tions, ou r mem bership includ es trun k and 

local serv ice airlines , Al askan an d Ha waiian air lin es, helico pter 

op era tors and a n all-ca rgo airline.

To ge ther they form a tran sp ort system of treme ndous significance 

to the na tio na l int ere st and pl ay a vit al role in the adv anc em ent of 

U.S . forei gn commerce objectives. These airline s have a dire ct intere st 

in the leg islation now un der co nside ration and we, t here fore, apprec iate 

th is op po rtun ity to ap pe ar befor e the subcom mittee to set fo rth the 

views of our industry.

Before com mentin g on the m erits of H.R. 465, t he bill which you are 

conside ring, I think it would he lp plac e the deb ate in pr op er focus 

if I make one basic fac t ab solute ly cle ar.

That is, th at the airline s, the Bo ard , the St ate Dep artm en t, all the 

opponents an d pro ponen ts of H .R . 465 have one common objective— 

Io enc ourag e mass tra ns po rta tio n by ai r at fares vast nuinb eis of
INTERNATIONAL AIR FARES 83

people can afford. The question is: would the legislative grant of 

international rate-fixing power to the Civil Aeronautics Board and the 

U.S. Government mean that the job could be done bette r ? When I appeared before the committee last year, I presented a great 

volume of statistical data and supplementary material describing rate 

trends. I understand the record of th at hearing has now been printed, 

so I won’t repeat all that information now. But, I do want to remind you that the average yield per passenger 

mile for U.S.-flag carriers in international and territorial operations 

dropped some 35 percent from 1945 to 1964. And the fact th at more 

and more people are finding international air travel within their means 

is amply demonstrated by the average annual growth rate of 15 percent in the traffic we have carried in those operations over the past 10 

years. But, the real crux of the question before you is whether passage of 

H.R. 465 could result in our realizing our common objective more 

quickly, more fully, or more easily than we have to date.

To that, I say the answer is a most emphatic “No.” This legislation 

is bottomed on the notion that one government, in this case the United 

States, can set rates for the world. If H.R. 465 is passed, it will be regarded bv some as a license to 

engage in commercial war. The result will not be to ease our task, but 

rather to involve us in periodic, violent intergovernmental clashes 

which will seriously impair our ability to continue the steady downward trend in international rates. Once th at happens, the common 

U.S. rate objective will become an international political football.

To pu t it simply, interna tional air transp ortation rates are and must 

be multilateral in nature. Consequently, international ratemaking 

must be accomplished on a multilateral basis. I think a capsule history of some of our interna tional a ir agreements may help you appreciate the inviolability of this maxim. The fundamental tenet of international aviation law is th at every 

nation has complete and exclusive sovereignty over its own airspace. 

This was a principle of international law as long as 50 years ago, and 

it has consistently been a cornerstone provision of appropriate treaties 

and national statutes ever since. In our case, the Chicago Convention 

of 1944 to which we are a party, and the Federal Aviation Act of 1958 

both spell it out. Obviously, if nations rigidly maintained tha t exclusive sovereignty 

by preserving their airspace solely for their own use, there could be 

no international air transport; each nation would be an island unto 

itself. So, nations have wisely chosen to exercise their sovereignty by bargaining across the negotiating table to establish a framework for the 

growth and development of international air trans port.

In 1944, the nations of the free world gathered at the Chicago Conference and a m ultilateral treaty was drawn up covering those areas, 

largely technical, in which multigovernmental agreement proved 

possible. The Conference also spent a great deal of time searching for multilateral agreement on economic matters, specifically looking to the multilateral regulation of routes and rates. The search proved unavailing,
84 INTERNATIO NAL AIR FARES

for agreement would have raised too many unanswerable problems 

involving individual sovereignty.

The nations then wisely turned to a bilateral approach to the economic aspects of international air transport. A host of bilateral 

agreements arose, providing for the exchange of routes and dealing 

with the critical matter of ra te control.

The best known of these, and the model for nearly all such agreements with major countries to which this Nation is a party, is the socalled Bermuda agreement, signed by the United States and the United 

Kingdom in 1946.

With regard to rates, the two nations recognized that the initial 

resolution of an international rate structure is multilateral in nature. 

The two nations therefore agreed tha t the basic machinery for inte rnational ratemaking should be a conference of carriers which works 

out the detailed rate schedules for submission by each member carrier 

to its respective government for approval. I refer, of course, to the 

International Air T ranspo rt Association.

It may well be th at a mere recitation of the decision of many governments, including ours, many years ago, that ratemaking is a multilateral task, does not dispose of the question for your purposes.

Perhaps a concrete illustration would demonstrate the fact more 

conclusively. Let us consider an international air traveler from New 

York to Home. He can, and very often will, stop at Shannon, London, Paris, Brussels, Amsterdam, Fra nkf urt, Geneva, Copenhagen, 

Lisbon, Madrid, and/o r a number of other major points en route.

The fare he is charged affects, and is affected by, the fare between 

New York and every single one of those intermediate points, as well 

as the local fares fo r all the international segments involving pairs of 

those points along the way.

Moreover, the fare he is charged must affect the fares of his fellow 

passengers traveling to any of the host of possible destinations beyond 

Rome.

That means th at his fare is of proper concern to all those sovereign 

governments involved en route to and beyond Rome. Further, it 

means that the fare he is charged is of vital concern to each and even’ 

national flag c arrier operating between any of the pairs of points 

described, because those carriers’ economic well-being hinges on the 

level of the affected fares.

In short, every nation star ts out with the basic sovereign right to 

control fares and otherwise establish the terms under which its airspace may be used, and its territory sen’ed. Further, every other 

nation has an interest at least equal to that of others in doing so. But, 

if every nation exercised tha t right or pursued tha t self-interest, there 

would be no international air transport.

Cooperation and accommodation, resulting in agreement among the 

airlines and concurrence by the governments, is more than a convenience: it is a necessity. Conversely, it is a complete impossibility for 

any one nation to determine rates or rate policy unilaterally.

The proponents can argue all day long that this legislation will have 

the effect of giving the United States the unila teral power to fix international air rates for the world, but it won’t do it.
INTERNATIONAL AIR FARES 85

Relying upon an intricate legal argument as to the relationship 

between alternate rate clauses e ancl f of our Bermuda-type rate agreements (app. A) and their legislative proposal, they can take the 

position tha t this would permit us to impose our rate philosophy on 

other sovereign governments and their designated airlines all over the 

world—but the United States can’t do it.

The sovereign rights of governments just don't dissolve th at easily. 

Such an effort would result in a blazing international dispute, no 

longer limited to rate questions, but now involving issues of national 

policy and prestige, quickly escalating to the highest political level.

It might be convenient if our Government could deal with and solve 

international problems by unilateral determination. But no amount 

of domestic legislation, alone, can bring this to pass. The plain, unalterable fact is that when a matter touches on the sovereign rights of 

more than one nation, there must be agreement among all the affected 

sovereignties.

Whether the subject m atter is the exchange of goods and services, 

the use of natu ral resources within the territorial jurisdiction of another, military missions, the exchange of diplomatic righ ts and privileges, experimental communications satellite testing, mutual defense 

assistance programs, or the protection and preservation of migratory 

birds, negotiation and agreement is essential. In none of those areas, 

all the way down to the flight of ducks, can we impose our will on 

others.

I urge this subcommittee to consider II.R. 465 in that light, and to 

conclude with us, as you have in the past, that this is useless and harmful legislation.

Before closing, I do w ant to point out several fallacies in connection 

with this specific bill. In doing so, I do not mean to imply that any 

amount of surgery can repair the congenital weakness of the underlying concept of unila teral international price fixing. But I do want 

to make certain tha t fac t is finally separated from the great fund of 

fancy which has developed in these hearings over the past 2 years.

Since you now have the printed record of the hearing last year, it 

will be particularly important that you not proceed on any misapprehensions which may have arisen then.

Let me list some of the most important ones for you quickly, and I ’ll 

be happy to elaborate on any of them, of course, if you have questions.

1. The proponents would have you believe tha t the CAB is now’ 

virtually powerless to influence international rates. This claim won’t 

stand analysis, as demonstrated by the outline of the CAB’s powers to 

deal with foreign carrier rates, which I now* submit for the record, Mr. 

Chairman (app. B ). Each of the statutory powers referred to in that 

outline, except for section 402, applies to U.S.- as well as foreign-flag 

carriers.

The United States is not powerless to deal w ith this problem. They 

were not powerless at the time of the Chandler discussions. They are 

not powerless now.

2. The proponents contend we need to provide U.S. travelers and 

shippers with further protection against high rates. The great volume of data I submitted last year refuted that contention then. And
86 INTERNATIONAL AIR FARES

there was a further drop of 7 percent in our international carriers’ 

revenue passenger-mile yield from 1963 to 1964. In an era of soaring 

travel costs, meal and hotel accommodation costs, and entertainment 

costs, the record for international air travel is remarkable. (See 

app. C.)

3. The proponents claim tha t passage of II.R. 465 would automatically and indisputably activate alternate rate clause (e) of our 

Bermuda-type agreements. In order to activate (e), CAB inte rnational and domestic r ate powers must be comparable.

The record of last year’s hearing demonstrates tha t they are not 

comparable. They actually differ considerably. Witness afte r witness last year, including the proponents, pointed out why, under our 

form of government, international rate-fixing powers have to differ 

from domestic rate-fixing powers.

The former must be discretionary, the latter can be and are mandatory. Moreover, the proponents contend th at the Board’s rate-fixing 

decisions must be subject to the approval of the Preside nt in view of his 

responsibility for intern ation al affairs. This aspect, alone, makes it 

impossible for the two powers to be comparable.

4. The proponents flatly assert th at the trigg erin g of (e), if it could 

be achieved, would be desirable. We disagree. It would leave the 

Board powerless to deal with rates of foreign carriers, which might 

well turn to destructive rate cutting in the future as some have in the 

past.

5. The proponents scoff at the notion th at unilateral rate fixing by 

the United States would stifle or cripple the airline conference approach to ratemaking. Yet, governmental rate fixing here will beget 

more governmental rate fixing elsewhere.

And, the widespread adoption of governmental rate fixing would 

mean tha t each carrier would come to the conference with its rate 

frozen by governmental order. There would be little point in having 

a conference meeting, when participants could not provide the essential accommodation fo r the problems, objectives and desires of their 

colleagues in other countries.

And assurances from Board members of today t ha t they would exercise restraint, and “give IATA a chance to do the job” in every instance offer small comfort to those thinking about the actions of a 

Board 10 years from now.

6. The proponents contend tha t the powers conferred in the inte rnational field by II.R. 465 can actually be exercised. They can’t be, not 

really. The domestic rate case contemplated by the act requires a 

determination that the rate in question is just and reasonable.

This in turn contemplates a CAB proceeding and the accordance of 

due process and, eventually, findings based on facts provided by the 

affected parties.

The complexity of international rate issues, the range and extent 

of diversified political and economic interests, and the potential number of parties to the proceeding make timely and effective Board 

action highly unlikely.

When you combine these considerations with the inaccessibility of 

foreign carrier data (e.g., see app. D), and the inappropriateness 

of CAB evaluation of the honesty, economy, and efficiency of the
INTERNATIONAL AIR FARES 87

management of foreign carriers—both of which are essential to the 

required findings under the act, implementation of H.R. 465 becomes 

virtually impossible. 7. Lastly, the proponents have vociferously contended tha t Canada, 

bv d int of its rate-fixing power, found itself in a far more favorable 

position than the United State s during the rate controversy 2 years 

ago.

They allege that foreign governments were helpless to act against 

the Canadian carriers. Last yea r’s record and Senate Report 473, 

88th Congress, on similar legislation are, unfortunately, full of this 

assertion. A look at the facts shows th at this assertion just doesn't 

hold water. Canada does indeed have, along with Formosa, Saudi 

Arabia, and the Philippines, according to our findings, specific power 

(o fix international rates.

But the rate provisions of Canada’s bilaterals (as reflected in 

app. E ) mean that any rate fixed by Canada can’t go into effect unless 

the other government approves. In other words, Canada cannot fix 

an international rate unilaterally, notwithstanding its rate-fixing 

power.

In conclusion, the subcommittee is being asked to make a highly 

important decision here. It is being asked to turn its back on the 

occasionally frustrating, but demonstrably successful, essential concept of multilateral mutuality in international ratemaking.

It is being asked to legislate unilateral rate-fixing power for our 

Government, although all of human experience dictates tha t this approach will not work in international matters. If it is attempted 

here, it will inveitably lead to an international crisis of great magnitude in the field of aviation, with the U.S. carriers caught between 

the clashing governments here and abroad.

Under the approach of multilateral mutuality, we find ourselves 

today with U.S.-flag carriers the acknowledged leaders in international air transport. We urge you not to change the ground rules.

Mr. Chairman, in view of some of the testimony yesterday, I really 

must supplement my statement for just a few moments, if I may. The 

statement I particularly refer to is the statement by Chairman Bovd 

in which he said tha t the real reason, and this is a paraphrase, the 

real reason the U.S. c arriers oppose this legislation is tha t they want 

to be free of Government regulation in order to be able to continue 

to charge high fares to the detriment of the traveling public.

Tha t statement surprised and somewhat shocked us because the 

record of U.S. carr iers in both the domestic and the international 

field is just not that.

Our international efforts since international air transportation 

began righ t after World War II have been to get, both throu gh the 

increase of carrier efficiency and development of traffic, our rates to 

the point where we can have a constantly expanding mass market for 

air transportation. Internatio nal a ir tran spo rt operators in the United 

States are not a bit different than the businessmen who have helped 

build this country.

The growth of this country has been based upon developing mass 

markets and selling a lot of products. That is what our airlines have 

been trying to do, and they have been extremely successful at it.
88 INTERNATIONAL AIR FARES

Let us look at the record of achievement here. Even facing the problems of the necessity of getting the agreements of foreign governments tha t also have control over their rates, they have made good 

progress.

In our international and territorial operations under the American 

flag, the yields have gone down from 8.31 per passenger-mile in 1946 

to 5.44 in 1964. Tha t is what the passenger paid per mile in 1946 to 

be transported, on the average, 8.31 cents.

In 1955, it was down to 6.66. In 1964, it was down to 5.44. I regard 

that as a really great achievement when you consider the fact that our 

costs for supplies, materials, labor, everything else, were going up 

just like everybody else’s costs were going up.

Now, as a matter of fact, those international and territorial yields 

are slightly less than those prevailing in the domestic operation. A M

large p art of the traffic covered by these international and territorial

operations is, of course, international traffic in which the Board has not 

had the power to fix rates.

Consequently, those reductions were not made under threat of Gov- .

eminent. They were made because the carriers wanted to do it and 

were willing to try hard to get it done, and they did have to try hard 

to get it done because in many instances they were opposed very vigorously by foreign-flag carriers and by their governments.

Nevertheless, they did get it done. Let us apply that a little bit more 

specifically because we are talking about these majo r international 

routes in the Atlantic and the Pacific. The yields in the Atlantic 

dropped from 7 cents per passenger-mile to 5.8 in the past 4 years.

That is a good reduction. That is a good, fair rate. These are 

economy fares. San Francisco-Tokyo is down from 8.4 to 7.1.

Mr. Friedel. You are speaking of the yields, not the costs ?

Mr. Tipton. That is the yield, not the individual ticket price. The 

only way that you can have a fai r comparison of charges is to take 

the overall yield because the fares differ by segments.

You have joint rates in some instances that tend to cut down the 

amount of money you actually get. A whole variety of complicated 

factors enter into the rate, so that the only fair wav to get an average and a judgment here is to compare them in terms of yield.

So th at, the U.S. carriers have done a job of which I would think, 

and I would hope, our Government would be proud. They are indeed successful carriers, and they run a good service, and they have 

been successful in getting the ir rates down.

Now, there was lots of discussion yesterday by Mr. Boyd about the *

high rates of return the carriers were getting. There were two 

things wrong with his statement with respect to rates of return.

First, he was dealing with 1 year, and it was a successful year and 

a good year. But you cannot judge the economy of the carriers •

and their prospects for success on the basis of 1 year.

In addition, he was discussing this rate of retu rn on the basis of 

the Pacific segments only. No one can make a judgment, again, of 

the economy of a carrier by taking a segment here and a segment 

there.

You have to look at the carrier as a whole and you have to look at 

that carrier over a reasonable period of years in order to make a 

judgm ent as to the rate of retu rn and its propriety.
INTERNATIONAL AIR FARES 89

Now, this is not just me speaking. These are solid, tradition al statements by the Civil Aeronautics Board, both of them, that you cannot deal with rates of return on the basis of 1 year. In their most outstanding case on rate policy and rate philosophy, tha t was one of the statements they made, and made it very clearly, tha t you cannot judge a rate of return on a short term, but must judge it on the basis, and I am quoting now, “of an extended period 

of time.” Now, in addition to that, they have said many times—and of course rightly—and they are backed by many court decisions, th at you must judge a ca rrie r on the basis of its system as a whole and not pick out 

pieces of it to comment upon. The rates of return in the case of our carriers are runn ing 8 to 10 percent over a 4-year period. Those are certainly in no respect ex­ orbitant. Actually, the Board has said tha t a proper rate of return over this extended period of time for domestic service is 10.25 percent 

on investment. Undoubtedly, they would reach a conclusion tha t it would be ap­ prop riate in the international field, with its higher risks, to have a higher rate of return than that . So that, in terms of c arrier rates of return, there is nothing to be concerned about; nor is there anything 

to be concerned about in terms of the carriers’ yield. Now, I don't want to leave the impression tha t the U.S. carriers are not doing well. They are doing well, and I thin k everyone in the industry and in Government is pleased tha t they are doing well, 

and hope tha t this can be continued. We as carriers are particularly anxious that it be continued be­ cause we have had a lot of years in which we earned no profits or very little ones. We had a lot of years in which we were subsidized by the Government, and you do not have to look back many years, as the members of this committee know, to find t ha t; and so we are delighted tha t we are maintaining profit levels even at the level tha t they are now, but we are pa rticularly glad to do that because we have lots to do, and I want to take a couple of minutes to say what we 

have to do. Of course, when we make a profit, the first thing we do is give half of it to the Government, as business generally does. Most of the rest, in the case of air transport, goes to equipment and service improvement and debt repayment. One thing we have to remember is that this industry has had the fastest buildup of investment of about any I know of. We had an investment of one and a quarter billion dollars in 1954. We have $5 billion now, 10 years late r—a one and a quarter billion dollar to $5 

billion increase in investment. In view of the fact that, when this period started, the airlines were not very profitable and their investment was low, tha t was financed by debt. We wound up with about 60 percent of our capital in debt. Now, th at is pretty high and it has as its main difficulty, of 

course, the high fixed charges tha t go with it. One of our objectives has to be, through the maintenance of good 

profit levels, to get that debt load down, and we have to get it down because we are now involved in another investment program where we have on order $2.1 billion in new aircraft. Tha t is right now.
90 INTERNATIO NAL AIR FARES

Those airplanes have been committed for and they are obviously for 

the improvement and expansion of our service, both domestically and 

internationally, and, while this is a little remote, we cannot forget the 

fact tha t we will be buying supersonic planes in 7 or 8 years and they 

will come at from $25 to $40 million per copy.

Wh at I am trying to emphasize here in far too much length is tha t 

the Government should not be concerned tha t we are conducting a 

successful operation, or feel impelled by that reason to hasten to get 

legislation or hasten to take action of any kind to see to it that somehow our profits are brought down.

Ju st one brief statement in conclusion: Even if there was reason to 

change the rates of the carriers in the Pacific or in the Atlantic or 

in Latin America or any place else, this bill would not help, and for 

two very good reasons: One—and I have talked about this a little 

already—the rate case which would have to be conducted under this 

legislation is one tha t would last a long time.

It would be a very complex one, in which both American-flag carriers and foreign-flag carriers would participate. The Board would 

have to find at the end not that our rates manifested poor business 

judgment but tha t they were illegal. The rates would have to be 

illegal. Tha t is what they would have to find in order to change 

those rates.

Most o f the talk you have heard from Mr. Martin and Mr. Boyd 

and Mr. Ferguson has been not th at our rates are illegal, but that our 

marketing judgment is poor and that we should get rates down further 

than they are now in order to expand the market.

Well, in many areas the carriers agree to that. In some areas 

they probably don’t, but the poin t I am making here is that in order 

to change the rate under this legislation, the rate must be found 

illegal.

So that, you would have difficulty reaching a point where a rate 

was determined under this legislation and then, of course, you would 

still not be anyplace because the rate might w’ell be objected to in the 

Pacific by the Japanese, by the British, by the Australians, by the 

Filipinos, by all those countries into which these operations go.

So that, after the great effort of passing the legislation, and acting 

under the legislation, you would wind up right where you are now.

I am sorry to have taken so long, Mr. Chairman.

Mr. Friedel. Would you like to have appendixes A, B, C, D, and 

E included in the record ?

Mr. Tipton. They are attached to the statement and we would like 

to have them in the record.

Mr. Friedel. With no objection, so ordered.

(The appendixes referred to follow:)

Appendix A

Texts of U.S. Bermuda-Type Bilateral Agreement Alternative

Rate Clauses

* * * * * * *

“ (e) In the event that power is conferred by law upon the aeronautical authorities of the United States to fix fair and economic rates for the transport of persons 

and property by air on international services and to suspend proposed rates in a 

manner comparable to tha t in which the Civil Aeronautics Board at present is
INTERNATIONAL AIR FARES 91

empowered to act with respect to such ra tes for the tra nspo rt of persons and 

prop erty by ai r with in the United Sta tes, each of the contrac ting par ties shall 

the reafter exercise its autho rity in such man ner as to prevent any rate or rates 

proposed by one of i ts car riers for services from the t erritory of one contracting 

party to a point or points in the territo ry of the other contrac ting party from 

becoming effective, if, in the judgment of the ae ronautical a uth orities of the contra cti ng pa rty whose air carri er or ca rriers is or are proposing such rate , that 

rate is u nfair or uneconomic. If one of the contracting par ties on receipt of the 

notification referred to in par agrap h (c) above is dissatisfied with the new rate 

proposed by the air carrier or ca rriers of the other con trac ting party , it shall 

so notify the other contrac ting pa rty prior to the expiry of the first 15 of 

the 30 (lays referred to, and the contracting partie s shall endeavo r to reach 

agreement on the app ropriate rat e. In the event that such agreeme nt is reached 

each con tracting party will exercise its sta tutory powers to give effect to such 

agreement. If agreement has not been reach ed at the end of the 30-day period 

referred to in paragraph (c) above, the proposed rate may, unless the aero nautical autho rities of the country of the air carrier concerned see fit to suspend 

its operation, go into effect prov isionally pending the settlement of any dispute

in accordance with the procedure outlined in paragraph (g) below.” [Emphasis 

supplied.]

“ (f) Pr ior to the time when such power may be conferred by law upon the 

aeron autical authoritie s of the United States, if one of the con tractin g parties 

is dissatisfied with any new ra te proposed by the ai r ca rri er or ca rri ers of e ither 

con tractin g party for services from the territor y of one con tracting par ty to 

a point or points in the territo ry of the other con trac ting party, it shall so 

notify the other prior to the exp iry of the first 15 of the 30-day period referred 

to in parag rap h (c) above, and the contracting par ties sha ll endeavo r to reach 

agreeme nt on the app ropriate rate. In the event th at such agre eme nt is reached 

each con trac ting party will use its best efforts to cause such agre ed rate to be put 

into effect by its air carri er or carriers . It is recognized th at if no such agreement can be reached prior to the expiry of such 30 days, the contracting par ty 

raisin g the objection to th e rate may take such steps as it may consider necessary

to prevent the inauguration or c ontinuation of the service in question at the rate

complained o f.” [Emphasis supplied.]

Appen dix B

Outli ne of P ower of Civ il Aeronautic s Board to Deal W it h F oreign Carrier

R ates

i . th e cab ha s am ple po we r und er th e fede ral av iat ion act to control

fo reign carrier rate pra ctices

A. Section 402. Foreign ca rrie r perm its

1. CAB may properly conside r reasonableness of rates as a factor in deciding 

whether to issue or renew such perm it under section 402(b ).

The CAB has held th at an intervenor may show th at a foreig n air carrie r is unfit to hold a p ermit by virtue of its r ate policies and practices (CAB 

Order No. E-17912, Jan . 8,1962, a t p. 7.)

See 1955 Transatlan tic Charter Policy, 20 CAB 782, 784-85 (1955) (“reasonableness of the ra te will be a factor” in dete rmining whether to grant 

au tho rity).

And see CAB Policy Statement, 14 CFR 399, 36: “In passing upon applica tions” for exem ption autho rity to conduct MATS' cha rters, CAB “will 

give gre at weight” to whether the ra te is “fair and reasonable.”

2. CAB may attach conditions and lim itations “as the public intere st may require” to the foreign ca rrie r perm it (sec. 40 2(e)). Au existing permit may be 

amended for th is purpose (sec. 4 02 (f)).

(a) Section 402 (e) is a “broad gr an t of au thority ” to attach to foreign 

carrier perm its such conditions as the Board finds in the public intere st. 

Congress did not intend to limit the Board ’s regulatory powers over fo reign a ir carriers exce pt to th e extent th at accommodation with inte rna tional, 

political or defense considera tions is provided by section SOI (Pres ide ntial
92 INTERNATIONAL AIR FARES

review of permit issuance and conditions) and section 1102 (consistency 

with intern ational agreements) (CAB Order No. E-17235, Jul y 27. 1961, 

pp. 4, 7-8 ; affirmed on reco nsideration, Order No. E-17537, Oct. 4, 1961).

(b) CAB has conditioned au thority to engage in foreign ai r tra nspo rta ­

tion und er MATS contracts on observance of specified minimum rate s.

See CAB Economic Regulations, section 208.30, 14 CER 208.30 (condition on authority under § 7, Public Law 87-528).

And see CAB Economic Regulations, section 288.7, 14 CFR 288.7 

(condition on exemption au th or ity) .

(c) CAB has recognized th at it ha s power to “call a ha lt” to “und esirable rate prac tice s” of supp leme ntal ai r car riers by attach ing conditions to 

exemp tions to engage in foreign ai r transp ortation. Large Irregu lar Air

Carrier Investigation, 22 CAB 838, 845, n. 14 (1955).

(d) Imposition of a r ate cond ition on certain foreign a ir ca rriers was proposed in a series of section 402 permit proceedings in 1962. While the CAB 

did not find th at th e record in the particu lar cases warra nte d imposing such

a condition, it clearly implied th at it had the power to tak e such action «

when the public inte rest so required in an app ropriate case. (See Orders 

Nos. E-17912, Jan. 8, 1962; K-17952, Jan . 24, 1962; E-17981, Feb. 5, 1962.)

(e) Where there is no bilat eral agreem ent, CAB autho rity is plenary.

(/ ) Where there is a bilateral, permits are alre ady conditioned upon the

foreign ca rrier’s complying with the term s of the bila tera l. *

Sta ndard bila tera l provides for United States objecting to foreign 

ca rrier’s proposed rates and preventin g service at such rate by “such

steps as necessary.” (See II. A. 1., below.)

Also, permits have sta nd ard provision that CAB may provide further limitation s, as required by public interest.

Only restr ain t is th at CAB n ot attach a condition or impose a limitation which would defe at the basic purpose of the bilate ral (sec. 1102).

B. Section 1/03. Observance of tariff fare

Foreign ai r car riers are requ ired to file and observe tariffs. It is unlawful 

for them to collect a lesser far e by refund s, reba tes or special privileges outside 

the tariff.

C. Section I/OJ/. Discriminatory rates unlaw ful

Foreign ca rriers’ rates are forbidden to be either unduly or unreasonably 

discriminatory or unduly or unreasona bly prefere ntia l. The CAB may issue 

cease-and-desist orde r for viola tions (sec. 10 02 (f) ).

D. Section 1/11. Unfair practices and un fair method of competition

CAB may issue cease-and-desist order against foreign ca rri ers for unfair 

practices and unfai r methods of com petition in the ir rate practices.

1. Foreign carrier fares in violation of IATA agreement would appe ar 

to be unfair method of competition. In The Matter of Pan American World

Airways, Inc., Order No. E-12791 (July 15, 1958).

2. Where foreign carrier is non-IATA, rate cutting might still be held 

un fair method of competition un der facts of a given case.

E. Section J/12. Approval/disapproval of agreed rates

Any agreement between foreign ca rri ers and U.S. carriers as to rat es or rate 

practices (e.g., IATA rate reso lution) mu st be filed with CAB for approval or 

disapproval. If contrary to public intere st, or if it violates the Aviation Act,

CAB m ust disapprove.

1. An agreed rate violating section 402 (permit, and any conditions

the reo f including bila terals inco rporate d by reference) ; sectio n 403 (extra- a

tar iff charges, rebates, etc.) ; section 404 (discrim inatory or prefere ntial 

rate) ; section 411 (unfair pra ctice or method of com petition) ; can and 

must be disapproved by the CAB.

2. An agreed rate violating an applicable bil ate ral would clearly seem 

to be con trary to public intere st, as well as a viola tion of the Act (i.e., one 

or more of the foregoing sections and sec. 1102).

3. The CAB can—and has—disapproved as ‘'adverse to the public interes t” an IATA agreement upon a rate which it regards as unreasonable.

4. If CAB disapproves the agreed rate, the foreign ca rrier could not 

use the rate , since it has a du ty to observe any CAB ord er “affecting” it 

(sec. 1005( e)).
INTERNATIONAL AIR FARES 93

5. In approving a section 412 agreem ent (e.g., an IATA ra te ), the CAB 

may impose conditions subsequent to continuing approval (McManus v. 

Civil Aeronautics Board, U.S. Ct. App. 2d Cir., Feb. 6, 1961 (docket Nos. 

25802-3)).

6. Where CAB approves a section 412 agreement (e.g., an IATA ra te ), 

it has “retained jurisdiction ” to con tinu e to police it, In the Matter of the

ATC Agency Resolution Investigation. Order No. E-16977 (Nov. 1, 1960).

F. Enforcement procedures

If foreign c ar rier violated perm it condition or CAB order, und er A throug h E 

above, CAB could tak e app ropriate action dire ctly a gains t the ca rrier for violation of the a c t:

Enforce ment proceeding to order compliance with the permit and the 

act, section 1002 (c ).

Jud icial enforcement, as app rop riate, section 1007.

Civil pena lties, section 9 01(a).

Crim inal penalties, section 9 02 (a ).

Revocation o r suspension proceeding under section 402(f ).

II. THE CAB’S REMEDIES AGAINST UNREASO NABLE RATES OF FOREIGN CARRIERS CAN BE

ADEQUATELY IMPLEMENTE D INTERNATIONALLY

A. Bilateral situations

1. Under parag rap h (f) of the prese nt standard form rate article, CAB has 

power to prevent the ina ugura tion or continuation of an objec tionable new 

rate proposed by a foreign ai r ca rr ie r for use between the United States and 

the cou ntry of the foreign carr ier, in accordance with the following pro ced ures:

(a) Within 15 days, notify foreign ca rrier’s government of U.S. dissatisfaction w ith proposed rate.

Normally through d iplomatic channels.

(&) During 30-day period U.S. and foreig n government att em pt to agree

on appr opriate rate.

(c) If no agreement, at end of 30 days United Sta tes may take “such 

steps as necessary” to prev ent service at the r ate objected to.

It is quite possible th at no formal show-cause proceeding or hearing 

would be required, bu t CAB could simply notify foreign carri er th at 

its rate was unsatisfac tor y under the rate arti cle, and the carrier 

should cease providing service a t the objectionable rat e.

Theory would be no show-cause, hea ring or specific legal process 

requ ired since the two governments had agreed to reservation of complete national jxjwer as “such steps as necessary.”

As ma tte r of comity, CAB migh t allow reasonable period to achieve 

compliance.

In any event, CAB could proceed und er section 402 (f) to suspend or 

revoke foreign ca rrie r permit.

Or enter cease-and-desist order, and the n take enforcement action. 

(See I. F above.)

2. The above power to pre ven t inaugu ration or con tinuation of an objectionable foreign carri er rate app lies only so long as the CAB does not have st at utory authority to fix rates in foreign a ir tran spo rtation.

3. If the CAB were to receive such power t o fix in ternatio nal rates, parag rap h 

(e) of the standard form ra te a rtic le would come into effect. Under par agrap h 

(e), the natio ns involved are obligated, in successive steps, to consult, to seek 

a third-par ty advisory opinion, and bo use th ei r best efforts to put such thirdparty advisory opinion into effect. Thus, the disputed rate could rem ain in 

effect indefinitely.

4. Under the most recently revised ra te article, the power to prev ent continuation of an unreasonable foreign a ir carrie r rate would not be limited to proposed 

rates—as in present par agrap h (f)—but would extend to objections lodged 

“upon review of an existing rate .”

B. Aonbilateral situ ations

1. Nonbilateral per mits usually contain a cond ition th at CAB may challenge 

a foreign ca rrier pra ctice “inimical to sound economic conditions.” (see, e.g. 

Aerolineas Argen tinas Permit, 30 CAB 153, 155 (1959)).

(a) This would app ear to extend to unre ason able rate practices. 

56 -5 62— 65-------7
94 INTERNATIONAL AIR FARES

(6 ) The foreign c arr ier itself must confer with CAB to modify its permit to co rrect the practice. It is not a diplomatic matt er between governments. (c ) CAB could revoke, suspend or amend the perm it under section 

40 2(f ). 2. Nonbilateral permits also provide (as in bilateral situ atio ns) for future imposition of limitations in the public interest. Accordingly, CAB could attach to such permits a furth er express condition as to rate practices pursu ant to appropriate proceedings under section 4 02 (f) to modify th e permit.

Appendix C

(From the New York Times, Jan. 31, 1965]

Trip Costs—Then and Now—Compared to Postwar Era, Prices Have Fluctuated Widely, But So Have Tourists’ Goals and How They Travel

(By Phyllis Meras)

Long-memoried readers may recall, as this department did the other day, tha t every special travel section since 1948 has carrie d a “What the Trip Will Cost” column. This is a compilation of sample holiday excursions at home and abroad, listing the prices of hotel accommodations, transportation , meals, tips, 

taxes, and the other ingredients of pleasure travel. One long-memoried and highly cost-conscious reader -tourist did recall, and raised the direct question, “How do prices in the ‘What the Trip Will Cost’ column today compare with those listed in the earlj' years of this feature ?” There is no simple, direct answ er to this question. Some trave l costs have gone up. Some have gone down. Some have multiplied manifold. Some have 

remained fairly close to their immediate postwar levels.

ALL FOR $5 54

For example, when the trave l section institu ted the “Wha t the Trip Will Cost” column, a touris t could take a 34-day steamer tr ip from London to Norway, tour Scandinavia by motorcoach, stay in first-class hotels and eat three meals 

a day. all for $554. If the same trip were offered today, it would cost $300 more. But it would also cost $145 less to fiy from New York to London to join the tour and return, 

and the one-way flight time is 9 hours shorter. In 1948. i t was the adventurous and extrav agant traveler, indeed, who toured the Pacific. It took 28 hours to fly from New York to Honolulu, and this involved a change of planes. There was only one price for the trip in 1948— $317.85. Today's to urist can be in Hawa ii in 12 hours from New York, and the 

fare is $243.70. Such popular tourist stops as Tah iti and Samoa were virtu ally unknown in 1948. In th at year, fewer than 2,000 Americans visited Australia. Last year, 

more than 8.000 did. Americans who went abroad in 1948 spent most of their time in Western Europe—France, England, Switzerland, Belgium, and the Netherlands. Italy had not yet recovered sufficiently from the war to be a popular tourist spot, 

and Greece was in the throes of a civil war.

FOND OF LAUR ENTIANS

Tourists who stayed in this hemisphere were fond of the Laurentians and of cross-country train trips to the Grand Canyon and the national parks. Few visited Mexico (326,000 in 1950, agains t 910,000 in 196 3), and the Caribbean was 

jus t coming into its own. But in the places tha t Americans did go in 1948, this is the way that costs 

compare with those of today. In 1948. a double room in a top Par is hotel was listed at $8.75. The same room today is $20. A simila r room in Geneva was $10 then; today, it is $20. The tran satlanti c ship travel er who landed in Cherbourg could get to Paris by first-class boat-train for $6; today, he pays $13. A first-class meal in Zurich 

cost $1.85 in 1948. Now it is $3.70.
INTERNATIONAL AIR FARES 95

The 1963 travel er to Euro pe an d the Middle E as t is estimated by th e Euro pean 

Tra vel Commissi on to hav e sta yed 45 days overs eas on each tr ip (h e is likely to have made more than one a y ear) , and to have spe nt $826, exclus ive of land tra nsp ort ation. In 1955, when the commission made a compara ble study , the ave rag e tra veler ’s exp end itur es were $44 more, bu t he stayed a week longer.

COSTS COMPARED

Tod ay’s ship traveler, inciden tally, spends more on land, as well as on crossing the Atla ntic, tha n the ai r tra ve ler does. In summ er today , the seagoer’s lan d costs ar e likely to total $1,121 , aga ins t the $762 the ai r tra ve ler spends. Int ern ati on al ai r far es have gone down since the 1940 ’s, but ship fares have gone up. In 1949, a one-way, tourist-cla ss berth, New York to Southam pton, cost $165. Today, the minim um high season (midsum me r) ra te in tou ris t class is 

$234. In 1949, however, the re we re no reduction s for rou nd- trip ship trav el, while toda y, the re is a 5-per cent discou nt. The re ar e also 25-percent reductions on 30-day excursions—the y ar e not offered in high season —and 15-perce nt redu c­ tions th at extend 2 weeks int o the high season. None of thes e reduced rat es 

existed in the l ate 1940 ’s. Fore ign rail tra vel is one form of tra nsp ort ati on in which prices have risen sharply . Scan dinavian ra il far es have incre ased abo ut 40 perce nt since the 1940 ’s ; Ita lia n fares, 65 to 75 pe rc en t; Swiss fares, 25 perc ent, and Fren ch fares, 

about 33 percent. Offsetting these increases was the introdu ctio n of specia l tick ets like the Eur ailp ass, estab lishe d in 1959. The Eu rai lpa ss allows a month of unli mite d first-class rail tra vel in 13 Euro pean cou ntri es for $130, 2 months for $175 and 3 months for $205, prov ided the “pass ” is bought in the United States. In addition, Europe an trai ns have improved cons iderably in number, design, decor, comfort, and speed. For example, the re are now double the number of tra in s runn ing betwee n Milan and Flore nce as the re were in the late 1940 ’s. Ther e a re also dome c ars for b ette r sightseeing an d more express tra in s thr ou gh ­

out W estern Europe. In 1957, tran s-E uro pea n express es were introduc ed. These are first- class tra ins connecting the majo r cities of Western Euro pe, and making a minim um of stops. Fo r example, the Zurich-Pari s TE E stops only at Basel and mak es the run in 5 hours . Th is is in con trast to the 7 or 8 hours an ord ina ry exp ress 

takes, and th e eight or mo re stops it makes. The tra vel er who spe nt his vaca tions in thi s cou ntr y in the late 1940’s also paid consid erably less fo r his r ail tra vel than he does now. In 1949, the ave rag e passen ger paid 2.452 cen ts a mile. In 1963, he was paying 3.178 cents a mile on domestic railro ads . Bu t the re are more excursi on far es now. A 2-week, all-inclu sive rail tri p from New York to the Gran d Canyon cos t 

$454.96 in 1949. Toda y, t he same trip costs $741.11. In 1948, the New York-Miami rou nd- trip bus fa re was $36.85. Today, it is $72.75. A 13-day motor coach tou r to Quebec and the Gaspe Pen insu la was 1 isted at $255 in 19 48; the com parable tr ip tod ay is $335. But the average per son al income in the United Sta tes today is double wha t it was 17 year s ago, according to the De par tme nt of Commerce, and the ove rall 

cost of living ha s r ise n 2 4 percent. While inter na tio na l ai r far es hav e decreased in the last 17 years, domestic far es have risen. In 1948, the propeller p lane f ar e from New York to Miami was $68.90 in the only availabl e class, which was first. Today, the one-way, first-clas s jet far e is $94.40. The je t coach fa re is $71.90. There was, however, no nig ht coach a vail able t hen . The price of a nigh t coach flight to Miami today is $56.55. But the trip in 1948 took abou t 5 hours , in co ntrast to toda y’s 2% hours by 

jet.The Fed eral ta x on domestic ai r travel in 1948 was 15 percent; it is now 5 percent. Bu t there were gre ate r family plan savings in 1948. On a New York- San Fran cisco tri p, the family plan disco unt was 50 percen t; today it is only 25 percent, althou gh it is now ava ilab le Monday to Frid ay. In 1948, it was 

avai lable only 3 d ays a week. A 1 948 survey of 400 hotels across the cou ntry disclosed th at the ave rag e ra te for a single room was $5.98. In 1963, a sim ila r survey put the price a t $11.27. Hotel officials emphasize, however, th at accomm odations have gre atly impro ved 

throu gh the year s.
96 INTERNATIONAL AIR FARES

A comparison of specific trip s—then and now—follows.

EIG HT DAYS TO THE MARDI GRAS IX 1849 

New Y»rk to New Orleans, round tri p by rail (lower

be rth ). Transportatio n, hotels (no mea ls), a 

motor-c oach trip to Biloxi and admissio ns ar ?

included in the over-all minimum price ...................$257.57

EIG HT DAYS TO TH E MA RDI GRAS IN 1965

New York to New Orleans, rou nd trip by rai l (re ­

clin ing se at one wa y an d a roo me tte the 

othe r). Tra nspo rta tio n, hotels, a motor-coach 

tr ip to Biloxi, two mea ls, sights eeing and ad ­

missions ar e included in th e ove r-all minimum 

pric e ........................................................................... $326.27

FOURTEEN DAYS TO MEXICO IN 1948

New York to Mexico City, rou nd trip by a ir .......... $302.11

This tour continues to Acapulco by ai r and re tu rn s 

to Mexico City by motor-coach. Tra ns po rtation, hotels, meals, sigh tseeing and adm issions

ar e included in the over-all pr ic e......................... $237.75

To tal ................................................................................. $539.88

TWENTY-SIX DAYS TO EU ROPE IN 1948

New York to London, round trip by ai r (on ly one 

cla ss). This tour continues, by rail, motor-coach 

an d steam er, to the Sha kespeare cou ntry , Austri a, Ma rken and Volendam (th e Nethe rla nd s), 

Bru ssels, Luxembourg, Switzerlan d and Par is. 

Tra nspo rta tio n, hotels, all mea ls except in Par is 

an d London (whe re only br eakfast is served ), 

sights eeing and admissions are included in the 

ove r-all price ................................ ........................... $1,148.00

THIRTY -SEVEN DAYS TO EU ROPE IN 1,948

Ne w Yo rk to Cherbourg by lux ury liner, to urist 

cla ss. Return from Sou thampton. By ship, 

trai n and motor-coach, this to ur con tinues to 

Normandy, Britta ny, Paris, Bern. La usanne, 

Inter lak en, Lucerne, Basel, Luxembourg, Bru ssels, Ant wer p and London. Tr an sportat ion, 

hotel s withbut bath, all mea ls exc ept in Par ts 

and London (where only br eakf ast is inc lud ed), 

sights eei ng and admissions are included in th e 

ove r-all p r ic e ............................................................$1,190.00

TWE NTY-ONE DAYS TO WE ST IN DI ES IN 1949

New York ta St. Tham as, round trip by a ir ............. $223.56

Five days a t hotel in Charlotte Amalie, $1 2-a da y

(w ith meals) ............................................................ 60 00

St. Thomas t o St. Croix, round tri p by a ir ........ ... ... .. 11.00

Fiv e days a t hotel on St, Croix, $10 a da y (w ith

me als) .......................... ............................................ 50.00

Steamer frem St. Thom as to SL John , r ound tr ip ... 5.00

Stop-ov er a t Puert o Rico, five days a t hotel (w ith

mea ls) ...................................................................... 75.00

Sig htseeing tour throug h San Juan, tw o an d oneha lf h o u rs ............... ........... ...................................... 3.50

Ha lf-day mo tor trip in Puerto Ric o................ 6 00

FI FT EE N DAYS TO MEXICO IN 1965 

New Yor k to Mexico City , roun d tr ip economy j e t . . $254.00 

This tour con tinues by mo tor-co ach to Toluca, San 

Jose Purua , Ixtap an , Tax co, Acapulco, Cuern ­

ava ca, Fortin , Tehuacan and Pue bla . Land 

tra ns po rta tio n, hotels, som e meals, sightseeing 

and adm issions are included in the over-all

pric e ........................................................................... $324.00

Total ................................... ............................................... $578.00

TWENTY-TWO DAYS TO EUROPE IN 1965 

New York to London, ro un d tr ip by je t, 21-day 

excursion rate . This to ur continues by irtotorcoach to Bru ssels, Luxem bou rg, alo ng the 

Rhine, Switzerland, Venice, Flo ren ce and Rome, 

the hill towns of Ita ly , Nice and Paris. Tr ansportation, hotels, most mea ls, sights eei ng and 

admissio ns ar e Included in the over-all price .. $599.00

FORTY-T WO DAYS TO EUROPE IN 1985 

New Yor k to Le Hav re, ro un d tr ip by luxury liner, 

to ur ist class. By air . ra il an d motor-c oach, this 

to ur con tinues to Pa ris , th e Riv iera, Rome,

Naples, Sor rento. C apr i, Flo rence, Venice, Inns ­

bruck, Vienna, Lucam e, Wiesbaden, Cologne,

Bru ssels, Am sterda m an d London. Tran sportation , hotels, breakfasts, dinners , some luncheons, sights eeing and admissio ns ar e included in 

the over-all pr ice......................................................$1,846.00

TWENTY-ONE DAYS TO WE ST IND IES IN 1965

New Yor k to St. Thom as, rou nd tr ip by a ir .............. $139.50

Five days a t hotel in Ch arlotte Amalie, $39 a day

(tw o me als) ............................................................. 150.00

SL T hom as to St. Croix, rou nd trip by a ir ................ 12.00

Fiv e days a t hotel on St. Croix, $24 a da y (two

mea ls) ........................................................................ 120.00

Ste am er from SL Thomas to St . John, round tr ip .. 10.00 

Stop-over a t Pu er to Rico, fiv e da ys a t hotel (two

mea ls) ............................................................................ 100.00

Sig htseeing to ur thr ou gh Sa n Ju an , two an d onehalf h o u rs .................................................................. 4 00

Half-day motor tri p in Pu er to Rico............................ 7.50

T o ta l................................................................................... $434.06 T o ta l.................................................................................... $543.00

ELE VEN DAYS TO SWITZERLAND IN 1949

New Yor k to Zurich, round trip by a ir ....................... $533.70

Zurich to St. Moritz, round tri p by t ra in ..................... 15.00

St. Moritz accommodations, wit h m eals, fo r five da ys 50.00 

Zur ich to St. Anton, Austria, rou nd trip by tra in ... 10.00

St. An ton accommodations, with meals, for four day s 20.00

T o ta l........................................................ . ........................ $628.70

ELEV EN DAYS TO SW ITZERLAN D IN 1965

New Yo rk to Zurich, rou nd tr ip by ai r (economy,

off season) ................................................................ • $478 80

Zurich to SL Moritz, round tr ip by t rain, month-long

holiday t ic k e t............................................................ 15.45

SL Moritz accommodations, wi th mea ls, for five days 75 00 

Zurich to S t. Anton, round tr ip by tra in, first class 13 60 

St. A nton a ccom mod ations, w ith meals, for fou r days 34 00

Total ................................................................................. $616.85

Appendix D

The United Kingdom’s Ship pi ng Contracts and Commercial Documents

Act of 1964

* * * * * * *

“2.— (1) If it appears to any Minister of the Crown autho rised to act under 

thi s section—

(a ) th at any person in the United Kingdom has been or may be required 

to produce or furnish to any court, trib unal or authority of a foreign country any commercial document which is not within the territo ria l jurisdiction of that country, or any commercial info rmation to be compiled from 

documents not within th at ju risd ictio n; and

(b) th at the requirement con stitutes or would con stitute an infringement 

of the jurisdictio n which, under intern ational law, belongs to the United 

Kingdom,

th at M inister may give dire ctions to th at person prohibiting him from complying 

with the requirem ent in question, or from complying with th at requirement except
INTERNATIONAL AIR FARES 97

to such extent or subject to such conditions as may be specified in the directions. (2) The following Ministers are hereby authorized to act under this section, tha t is to say a Secretary of State, the President of the Board of Trade, the Minister of Aviation, the Minister of Power and the Minister of Transport. (3) For the purposes of this section any request or demand for the supply of a document or information which, pursuant to the requirement of any court, tribunal or authority of a foreign country, is addressed to a person in the United Kingdom shall be treated as a requirement to produce or furnish that document or information to that court, tribunal or authority, and directions under this section may be given acordingly for prohibiting compliance therewith. (4) In this section “commercial document” and “commercial information” mean respectively a document or information relating to a business of any de­ scription and “document” includes any record or device by means of which 

material is “recorded or stored.” “3.— (1) Any person who wilfully fails to comply with section 1(2) (a) of this Act or contravenes any directions under this Act shall be liable on conviction on indictment to a fine which, in the case of an individual, shall not exceed £1,000.”

App en dix E

Comparable R ate P ro visio ns of Some Majo r Bila teral Aviation

Agr eeme nt s Current ly in F orce

Canada-France (signed at Ottawa 1 August 50)

Article VI, paragraph 8: * * * * * • *

“ (8) If agreement has not been reached at the end of the thirty (30) day period referred to in paragraph (4) above, a disputed toll on the agreed services, shall remain in suspension until the dispute shall have been settled.”

Canada-Mexico (signed at Mexico City 21 December 61)

Article XI, paragraph 7: • • • • • « •

“a) If under the circumstances set forth in paragraph 4 no agreement can be reached prior to the date that such tariff would otherwise become effective, 

or“b) If under the circumstances set forth in paragraph 5 no agreement can be reached prior to the expiry of sixty (60) days from the date of notification: then the Contracting Party raisin g the objection to the tariff may take such steps as it may consider necessary to prevent the inauguration or the contin­ uation of the service in question at the tariff complained of, but the Con­ tracting Party raising the objection to an existing tariff shall so notify the other Contracting Party thirty (30) days before the effective date of the action it intends to take to prevent the continuation of the service in question. The Contracting Party raising the objection shall not require th e charging of a tariff higher than the lowest ta riff charged by its own airline or airlines for comparable services between the same pair of points. “It is understood that the procedure provided for in paragraphs 4, 5 and this paragraph shall be applicable only in case of extreme conflict between the desig­ nated airline and the aeronautical authorities concerned. Normal cases in which approval of tariffs is withheld due to failu re to comply with certain re­ quirements on the part of the designated airlin e seeking the approval, or due to certain modifications in the rules which apply domestically, can always be solved directly between the designated airline and the aeronautical authorities concerned.”

Canada-United Kingdom (signed at Ottaioa on 19 August J)9)

Article VII, paragraph 8 : « « • • « • •

“ (8) Each Contracting Party shall, within the limits of its legal powers, en­ sure tha t no tariff filed under paragraph (4) of this article shall come into effect as long as the aeronautical authorities of either Contracting Party are 

dissatisfied with it.”
98 INTERNATIONAL AIR FARES

Japan-United, Kingdom (signed at Tok yo 29 December 52)

Article 11, par agraph 5 : * * * * * * *

“ (5) No new tariff shall come into effect if the aerona utical authorities of 

eith er Contracting P arty are diss atisfied with it except u nde r the term s of paragraph 8 of Artic le 14 of the pre sen t agreem ent. Pending dete rmination of the 

tari ffs in accordance with the provisions of the present Article, the tar iffs alre ady 

in force shall prevail.” 1

(Su mm ary of Canada's Situation in the “Chandler Crisis."— Senate Report 

473, 88th Congress, and the entire reco rd of the hearing before the House Committee in 1964 are replete with references to the more favora ble situatio n in 

which Can ada found itse lf in the “Chandler crisis.” Canadia n sta tutes do offer 

rate-fixing power. But, Canadian bilate rals provide only tor suspension of a 

disputed rate. See above provision s of Canada’s bilate rals with France and the 

United Kingdom. The French and the British were not helpless at the hands 

of the Cana dians. They could hav e suspended a ra te disputed by Canada dur- «

ing the crisis if th at was where the battle was in 1963. But, it wasn’t where 

the b att le was—the battle was with the United States, and the U nited States won 

it in the only way possible—through neg otiation.)

Mr. Friedel. Mr. Pickle. B

Mr. P ickle. Mr. Tipton, I want to ask your opinion with respect to 

the powers of the other countries who are members of IATA . Do 

they, in your opinion, have the power to lower rates, change rates 

now?

Mr. Tipton. We made a study of this question, Mr. Pickle, as best 

we could, based on the examination of foreign laws. We found that 

there are four countries that have the power that the Civil Aeronautics Board is asking for here.

I read them in my main statement. It is Canada, Saudi Arabia, Formosa, and the Philippines. Those four countries have this power, and 

tha t is all.

Now, in further answer to your question, the power that the countries exercised in dealing with this Chandler crisis about which Mr.

Ferguson talked, the power those governments were exercising was a 

power they have to grant or deny the right of a carrier to come to their 

country.

Our Government has precisely the same power. Section 402 of the 

Civil Aeronautics Act provides that no foreign carrier can come to 

the United States without a permit issued by our Government.

Now, that particular legal provision is almost universal in its application. So the governments, for example, the United Kingdom, 

said to our carriers at the time of the Chandler crisis, so-called, “We 

will cancel your permit unless you change your rates.” w Well, our Government has that power also because they have the 

power under section 402 of the Civil Aeronautics Act to deny the 

entry of foreign carriers to th e United States without a permit.

They have the power there to attach conditions to those permits. •

So, fa r from being helpless, the United States has the power to deny 

a carrier the richest air transport market in the world.

Mr. Pickle. These four countries you mentioned, does their power 

stem primarily from the fac t tha t they can either deny or grant 

entry, rather than with respect to rates ?

1

 P ara g ra p h 3 of A rtic le 14 re fe rr ed to he re in is a su bsta nti all y sta n d ard arb it ra ti on pro vi sion fo r an unde rt ak in g by th e C ontr ac ti ng P art ie s to co mply w it h an y decis ion 

re nd er ed by th e arb it ra l tr ib unal pr ov id ed fo r in A rt ic le 14, para g ra p h 2.
INTERNATIONAL AIR FARES 99

Mr. Tipton. In the case of the four countries tha t I referred to, their powers are direct statutory enactments giving them the power 

to fix rates.

Mr. P ickle. As well as the entry ?

Mr. Tipton. As well as the entry.

Mr. Pickle. Yesterday Mr. Boyd testified that Great Britain had auth ority and, in effect, said that every one of these countries had 

tha t authority.

Mr. Tipton. Our search indicates that the auth ority of the kind tha t the Board is asking for here is possessed by these four coun­ tries, and tha t is all. Now, I don’t want to stake my professional reputation on th at because researching in foreign laws is hard. We found only four. I think what Air. Boyd was referring to again was 

this power to deny entry.

Mr. Pickle. lie might have been just thinking in terms tha t they asserted tha t they had tha t power. Well, now you are saying to me, in effect, tha t even if we were to pass this legislation, we still must go throu gh the process of other countries agreeing to the rates, tha t it must still be a multilateral agreement or negotiation, and tha t no formal hearing on our part by the CAB could just automatically put 

this into operation.

Mr. Tipton. That is my position. I am convinced of that.

Mr. Pickle. You are saying that each government, is sovereign 

in itself, in its own self, but, if each government were to set rates, then we would be involved in a series of strong and perhaps even violent disputes on rates, and that one government would then be 

vying with another.

Mr. Tipton. Exactly.

Air. Pickle. And, in your opinion, the present system is better 

than to pass new legislation?

Air. Tipton. I am convinced of that.

Air. Pickle. I have one other question. With respect to reduction in rates, can you tell me or recall how many cases of reduction in rates or increases in rates have occurred over a period of 10 years? 

Has there been any material reductions?

Air. Tipton. There have been material reductions in rates over a 

10-vear period.

Air. Pickle. Is the trend gradually a downward trend in fares?

Air. Tipton. The trend is a gradual downward trend. This gradual downward trend has been the reason for the great, expansion in air transportation, and the U.S. carriers would expect that that 

gradual downward trend would continue. In the record of last year’s hearings, I gave an indication in precise terms of how this gradual downward trend had taken place in the transatlantic, which, of course, is the largest air transp ort 

market in the world. Between the period 1946 to 1951, the lowest one-way fare New York-London at peak summer season, the most prevalent rate, was 

$350. From 1952 to 1957, the range was $270 to $290. The most preva­ lent was $290. I cannot work percentages tha t fast, but that is almost down 20 percent during tha t period. From 1958 to 1964,
100 INTERNATIONAL AIR FARES

the range has been from $240 to $255; so that, avc have had a constant 

downward trend during that period. And we have an excursion 

fare now which is available for specific periods, of $300 round trip 

as compared with the range I just mentioned of $250 one way.

So tha t, those rates are coming down in a variety of different ways.

The reason I presented these figures in this way instead of giving 

you exact figures month by month is that the Atla ntic is marked as 

are other routes, with a variety of fares put into effect in an effort 

to meet the marketing problem.

Off season, fares go down some. One of the objectives of the 

carriers, and all of them, would lie to eliminate this peaking on the 

translantic. For example, if they could persuade people through 

fare reductions in offpeak seasons to go during offpeak seasons, they 

will level out that peaking problem. <

It is quite clear tha t fares are coming down. We see no reason 

why tha t trend should not continue. Those fares have come down, 

of course, when the Board had no rate fixing authority at all in the 

international field. *

Mr. F riedel. Mr. Devine.

Mr. Devine. Thank you, Mr. Chairman.

I thin k that, Mr. Tipton, is also demonstrated by your appendix C 

which is attached to your statement, the New York Times article 

of Jan uary of this year, which points out that, in one instance on a 

flight from New York to Honolulu, it took up 28 hours in 1948 but, 

as of Jan uar y this year, it takes 12 hours, and the price is down 

about $175.

I think people understand that more than the figures per passenger-mile. It demonstrates that this can be done and is being done 

without giving all of this additional power and authority to the 

Board.

I think, Mr. Tipton, tha t this is an outstanding statement. It is 

concise and objective and adds immeasurably to the record.

Mr. Tipton. Thank you, sir.

Air. F riedel. Mr. Ronan.

Air. R onan. Air. Tipton, what is your position on the phase of the 

bill that, requires the Presiden t’s approval in the event tha t the CAB 

recommends a change? I do not believe th at this was in the Senate 

version of the bill.

Air. T ipton. No, it was not in the Senate version of the bill in those 

terms. The present bill requires the Board’s action in fixing a rate 

to be subject to the President’s approval. Court decisions dealing with *

similar provisions of the Civil Aeronautics Act have held that, under 

those circumstances, the Civil Aeronautics Board actually becomes an 

adviser to the President.

So that a rate order in this instance would be advice to the President. ’

I find tha t question a difficult one because I am pulled in two directions. First, it always bothers me to have a regulatory agency subject 

to Executive direction, but, in this instance, it is so clear t hat the exercise of this power would provoke such an international ruckus th at it 

would be hard to argue th at the President should not have the power 

to exert some supervision here.

Since he constitutionally is the country’s representative in foreign 

affairs, it would really be hard to argue against having tha t subjected to his supervision.
INTERNATIONAL AIR FARES 101

Mr. Ronan. Also would that not eliminate a lot of time in court 

actions ?

Mr. Tipton. As far as the court decisions are concerned, that is even harder to answer because, while the cases have held tha t the courts will not review these presidential decisions, and tha t is what the 

Waterman case held, it has never been completely clear what the courts would do with procedural questions under th at; so that I cannot answer your question flatly.

Mr. Ronan. Thank you.

Mr. Tipton. I should add, Mr. Chairman, tha t the fa ct that the bill provides for presidential approval of these rate orders makes it, in my opinion, quite clear tha t the domestic power to fix rates and this proposed international power are not comparable. They are obviously n ot comparable. They are two quite distinct powers. That being the case, it would be most unlikely tha t the enactment of this legislation would actuate parag raph (e) of the B ermuda Agreement.

Mr. Friedel. Mr. Callaway.

Mr. Callaway. Tha nk you, Mr. Chairman. Mr. Martin testified a few minutes ago that actions under the IA TA agreement had to be unanimous. If tha t is the case, why would TWA agree to the abandoning of in-flight entertainment and things like that ?

Mr. Tipton. I am not exactly sure what all the considerations were.

Mr. Callaway. There might have been some pull and take in that, 

but TWA did in the final run have to agree to this ban. Mr. TirTON. They did agree to the ban, as I understand it.

Mr. Callaway. I am particularly interested in getting back to what might happen if this bill is passed. You have indicated that four nations definitely have the legislative authority sought in the bill. Do you know of any case where any of these four nations has exercised this auth ority on a unilateral basis?

Air. Tipton. No. I know of no case and, actually, I do not thin k they could, because all of them have entered into bilateral agreements with other countries in which they have said that, in the event there is a dispute, the disputed rate will lie held in suspense while the dispute is going on. Consequently, whatever power they might have had under tha t statute, they have recognized cannot be exercised in the absence of agreements by the foreign country concerned with the ir 

action, whatever it is.

Mr. Callaway. Well, this is the point I am tr ying to get at. It is my impression from Mr. Boyd’s testimony tha t what he has in mind is this : If the CAB determines tha t in the Pacific today the rate is too high, they will issue a rate determination re quiring lower rates in this particular area, and that will then be binding on the U.S.-flag carriers and foreign-flag carriers on that p articular route; and, as I understood it from the way he talked, this would probably be done unilaterally and would be binding on everyone on tha t route.

Is th at your feeling from the testimony.

Mr. Tipton. Th at is what I gathered from the testimony too. and I think he was vastly oversimplifying what the results of action under 

this legislation in the Pacific would be.

Air. Callaway. This is my question. If this were done, and I th ink we might get back to the Atlantic because the principle is the same, and tha t is where we have had the trouble, if this were done in the
102 INTERNATIO NAL AIR FARES

Atlantic, if we required tha t all carriers coming into Idlewild, say, 

had to abide by this rate, would it not be just as sensible for London 

and Paris and everyone else to set up their rates, and you would have 

people coming one way with one rate and another way with another, 

and in the middle of the ocean you would have to change rates?

Mr. Tipton. Your comment goes right to the heart of this legislation because, if the United States has the power, other governments 

have the power too; and, as far as the carriers are concerned, we would 

be caught between them in an impasse.

Mr. Callaway. Could not we require of every plane landing in 

Idlewild to have a certain rate and could not the United Kingdom 

require every plane landing in London to have a different rate, and 

we say no plane landing in Idlewild could land without this rate, and 

they say no plane landing in London could land without t ha t rate and, 

in effect, it could not be arb itrated?

Mr. Tipton. Tha t is exactly righ t.

Mr. P ickle. Would the gentleman yield?

Mr. Callaway. I yield.

Mr. Pickle. How would the members of I AT A feel about this proposed legislation ? Do the other 90 members favor or not favor this 

legislation, or are they familiar w ith it?

Mr. Tipton. I cannot report, obviously, from discussion with them, 

but I think it would be reasonably clear tha t they would feel that 

the legislation was unsound because it, in effect, tends to or purports 

to relegate to the United States the power to determine th eir rates notwithstanding their judgments as to what their rates are to be.

Mr. P ickle. I s Great Britain the largest carrier member of IATA 

outside of the United States ? It is one of the largest, is it no t ?

Mr. Tipton. BOAC is one of the largest, I am sure.

Mr. Pickle. Mr. Boyd testified yesterday that Great Britain insisted to us tha t section (e) be passed, tha t they favored this legislation. Are you in possession of facts sufficient to make a statement on 

that?

Mr. T ipton. Yes. I think on th at point tha t Chairman Boyd was 

referring to the negotiations at Bermuda in 1946 where the two Governments met and developed the Bermuda agreement.

Mr. P ickle. I see, and not w ith respect to the present legislation?

Mr. Tipton. I am sure it was not with respect to the present legislation.

Mr. Pickle. Thank you.

Mr. Tipton. Actually, I have to go a little further with tha t or I 

will leave the wrong impression. Even at Bermuda the British 

were n ot insistent upon (e). The United States was the one that 

pressed (e). There is a long history to that.

Mr. Callaway. Mr. Tipton, I believe you said tha t you represent 

19 foreign service airlines. Is you r testimony unanimously the opinion of these 19 carriers?

Mr. Tipton. It is.

Mr. Callaway. I have no furth er questions except to say tha t I 

am tremendously impressed with the objectivity of your testimony 

and I th ink it has refuted the statements th at the only reason the airlines were objecting was because they wanted to maintain unduly 

high profit levels.
INTERNATIONAL AIR FARES 103

I think it has refuted these very objectively, and I hope we will have a chance to hear from Mr. Boyd, either by letter or in person, in answer to some of the specifics that you brought out in your testimony. (See p. 36 for Mr. Boyd's reply and additional statement.)

Mr. Tipton. I appreciate very much your saying that because I was awfully anxious to refute, as clearly and as fully as I could, that

Mr. Fribdel. Mr. Tipton, I want to commend you on your very 

fine statement.

Mr. Tipton. Thank you.

Mr. Friedel. There is one th ing th at puzzles me. When you have the President of the United States, the head of the CAB, Mr. Ferguson from the Bureau of Economic Affairs of the Department of State, and Mr. Martin, the Under Secretary of the Department of Commerce all in favor of this bill, and you also mentioned that four countries do have this type of legislation, and you have failed to mention the companies that are owned by their governments so th at evidently they have this type of legislation since they are owned and operated, sub­ sidized by their governments, why should we be at a disadvantage from these other countries t ha t do have this privilege?

Mr. T ipton. The short answer to tha t is that we are not at a dis­ advantage. The United States is in a very powerful position as far as the rate problems are concerned. They have the power, under section 402, to condition the pe rmits of foreign-flag carriers to meet the rate objectives of the U.S. Government in the same way tha t other govern­ ments have the righ t to tak e similar action with respect to our permits. Now, if there is any doubt whether the Board does have that power under section 402, and I do not think there is although they doubt it, then, if there is a doubt, I would suggest tha t the committee, being the determiner of policy here, recommend legislation to clarify 402. But they have that power and there is no stronger power than that one because, in a negotiation with a foreign country if the United States gives any evidence whatsoever th at they would be prepared to deny to a foreign-flag c arrier the tremendous U.S. travel market, tha t would be regarded as putting the United State s in a very strong 

bargaining position. I just disagree heartily with the contentions which have been made by these gentlemen from the Government that they are or were power­ less. The very fact that they are not powerless is indicated by the fact that, while it took them a little while, they ultimately in the Chandler 

exchange won the argument.

Mr. Friedel. I asked that same question specifically to Mr. F erg u­ son. I asked him what recourse we had when this incident happened in 1963, and he said we were powerless, or words to th at effect.

Mr. Tipton. In the record of last year’s hearings, I argued this question far more fully, with CAB opinions attached, and the like. 

We are clear on it.

Mr. Friedel. You were here this morning when Mr. Martin, the Secretary, made this statement, “In general, foreign governments exercise their power to control rates and practices in air tran sport a­ tion to and from their individual countries.” Then he went on furth er to say, “Consequently, American-flag carriers are at a disadvantage in negotiating fares at IATA conferences since this Government has not provided itself with a means of exercising its power in this area.”
104 INTERNATIO NAL AIR FARES

He made th at statement here this morning in speaking in support 

of H.R. 465.

Mr. Tipton. On that, I would just have to disagree because in IATA 

the U.S. carriers are not at a disadvantage in negotiating with the 

carriers of other governments. They are in an equal position with 

them, and the fact tha t the United States does not have this specific 

power to fix rates is of no importance in this barga ining balance 

because, as I pointed out, the specific power to fix rates for the foreign 

carriers is a fairly limited power.

Our Government, as fa r as governmental power is concerned, has 

the same and as effective a power to deal with foreign-flag carriers as 

the foreign governments have to deal with us.

Mr. Friedel. I want to tha nk you, Mr. Tipton.

Mr. Tipton. Thank you very much for your attention. <

Mr. F riedel. The record will be kept open for 5 days for any additional statements.

The meeting is now adjourned.

(The following material was submitted for the rec ord :) >

Seaboard World Airlines, I nc.,

Jamaica, N.Y., May 6,1965.

In re H.R. 465, a bill to give the CAB power to regulate the rates and practices of

U.S. and foreign air carriers engaged in foreign air transportation.

Hon. Harley 0. Staggers,

Chairman of the Subcommittee on Tran sportation and Aeronautics of the

Comm ittee on Inter sta te and Foreign Commerce, House of Representatives,

Washing ton, D.C.

Dear Mr. Chairman : I am writing to you on behalf of Seaboard World Airlines, Inc.

Seaboard World Airlines is a U.S.-flag scheduled all-cargo airline, certificated 

by the CAB between points in the United States and Europe. The company is one 

of the three U.S.-scheduled transa tlan tic airlines. We are members of IATA, 

but resigned several years ago from ATA. In our role as a U.S. international 

carrier, we operate in accord w ith the bilateral agreements negotiated between 

the United States and foreign governments, and consequently have a very direct 

interest in the proposed legislation.

We appreciate very much the opportunity to submit our written comments for 

the record in support of H.R. 465, and would have presented these comments in 

direct testimony except for the fac t tha t we did not realize hearings were taking 

place in this matter until it was too late to present direct testimony.

Seaboard World Airlines supports completely and in every respect the administration and the Civil Aeronautics Board in urging adoption of H.R. 465 which 

would give the CAB power to regulate the rates and practices of the United 

States and foreign air carriers engaged in foreign air transportation.

We have read the statement of Alan S. Boyd, Chairman of the Civil Aeronautics Board, before your committee, and we fully endorse this CAB statement. t

The CAB’s statement makes i t abundantly clear tha t the CAB has caught on 

to the game tha t has been played by the U.S.-flag passenger airlines on the transatlan tic and transpacific routes, to the detriment of administration policies for 

lowering prices and expanding business generally. These passenger airlines 

have used IATA as a front to hide from the CAB and the traveling public gener- •

ally the fact that they are keeping fare s at unjustifiably high levels, without giving the traveling public the benefit of the efficiencies and economies t hat have 

come about as a result of the introduction of the greatly improved jet aircraft.

Chairman Boyd says, on behalf of the CAB. “The carriers object because they 

would prefer to be free of Government regulation in order to be able to continue 

to charge unduly high fares to the detriment of the traveling public.” We agree 

with this statement, from the point of view of an airline tha t sees IATA from 

the inside.

At another point the CAB statement says, “At the present time, in the absence 

of ratemaking powers, the issue of lower rates can arise only if U.S.-flag carriers
INTERNATIONAL AIR FARES 105

choose to propose such rates .” From our poin t of view, we know th at this, also, is true. In the tra ns at la nt ic cargo business, Seaboard World Airlines, even though it is a small ca rri er wi tho ut very much bar gainin g power in IATA, has been able to reduce airfre ig ht ra te s considera bly. The airfr eigh t ra te of ret urn has decline d by about 50 per cen t in the pa st 10 years, and about 33 perce nt in the pa st 4 years. Meanwhile, there has been very little chan ge over the y ears in 

the passenger fa res pa id f or equ al accommodations. We would say th at even where ther e is a small aggress ive U.S.-flag air line intere ste d in bringing down the rates and fare s, it sti ll is desirable for the CAB to have the rat em aki ng power it is requ esting in H.R. 405, because if the U.S.-flag car rie r cann ot get agreement on the far es and rat es desired a t a pa rti cu lar conference mee ting of IATA, the re may resu lt an “open ra te” sit ua ­ tion. In thi s case it is ess ential for the U.S. Gover nment to have some measure of control over the ra te a nd fa re str uctur e in the absence of an IATA agreem ent. When the IATA rat es ar e “open ” every oth er gove rnment is able to take action, bu t in the absence of H.R. 465 no one agency of the U.S. Government feels empower ed to tak e si milar action. We agree with the CAB th at in the absence of the ratemaking powers, the issu e of lower rat es can ar ise only if U.S.-flag ca rri ers choose to propose such rat es. We would add only th at if the United Sta tes should get a U.S.-flag car rie r on thes e rou tes which is wil ling to propose the prop er rates in the public inte rest , it w ould be good for the CAB to have the rate ma kin g power, also, so as to back 

up its car rier . We have also h ad the oppor tun ity of re adin g the stat em en t of St ua rt G. Tipto n, president of the A ir T rans po rt Association of America, before the committee. The ATA comments were ma de by someone who has nev er been to an IATA con­ ferenc e, and we agr ee wi th the cha rac teri zat ion of Cha irman Boyd th at they ar e largely in the na tu re of “red her rin gs” designe d to obscure the fact th at the e ntrenc hed U.S. i nte rnati on al passenge r airlines prefe r to be f ree of Govern­ ment regul ation in order to be able to continue to cha rge undul y high far es to the detrim ent of the tra ve lin g public. One of the reas ons Seaboard World Air ­ lines decided to resig n fro m the ATA was its unwillingnes s to be a party to thi s 

type of mislea ding G over nme nt r elations progr am. Mr. Tipton, in his prepar ed stateme nt, ref ers to the sta tis tic al da ta he pres ented to the subc omm ittee during its 1964 hea rings in which he pointed out th at the ave rage yield per passenger mile for U.S.-flag car rie rs in in te r­ nat ion al and te rr itor ia l oper ation s dropped some 35 perc ent from 1945 to 1964. This is a fals e and misleading sta tis tic for two reasons. Fi rs t of all, it in ­ cluded terri toria l figures. “Territorial ” is not defined in the Fed eral Avia tion Act. We mus t assume Mr. Tipton refers to “ove rsea s” rates which are und er control of the CAB, an d which influence the tot al downward considerably. The questio n involved in H.R. 465 is foreign ai r tra nsp ort ati on , not terri toria l (ove r­ seas) ai r tra ns po rta tio n Secondly, dur ing the peri od refe rred to by Mr. Tipt on several new lower clas ses of service have been Introd uced. The far es for the se lower class servic es ar e lower tha n the orig inal one-class far e th at was in ex ist ­ ence in 1945. Howe ver, the lower fare has been obtai ned by squeezing the passe nger into a fra ction of the s pace allocate d to him previously, by re duci ng his baggage allowance, and by taking awa y from him a number of the amenities 

th at previo usly wer e provided. To draw a paral lel, it is as though a man offers to sell us a Cadillac in 1945, and then offers to sell a Rambler in 1964. He the n proclaims th at the pric es of automobiles are goin g down because the Ram bler costs less in 1964 th an the Cadillac in 1945, an d because more people ar e riding Ram blers in 1964 tha n did in 1945. Both autom obiles have improve d in the interven ing year s, and so have airp lane s. Howe ver, the new air pla ne ope rates at a lower passe nger-m ile 

cost. The basic fa ct of the ma tter is th at per poun d of passe ngers car ried , or per uni t of c apacity of spa ce allocated to passengers , the inte rna tional far es in 1964 are ju st abou t the sam e as they were in 1945. There has been no change. The intern atio nal tra ve lin g public has been given no benefit of the trem end ous economies th at have come from the intr odu ctio n of efficient new je t airc ra ft. This is in co ntrast to the rate redu ction th at has occur red in the tra ns at la nt ic air fre igh t field, w her e Seaboard World Airl ines is a comp etitor and has spurr ed the IATA air lin es to a lower ra te stru ctu re, and has spurred the oth er U.S.-flag airli nes to prov ide sufficient capacity so th at the sh are of the tra ns at la nt ic air-
106 INTERNATIONAL AIR FARES

fre igh t ma rke t carried by U.S.-flag air lin es is much high er th an the share of 

the pass enger ma rke t carried by U.S.-flag airlines.

In conclusion, we believe the proposed legisla tion is not only justified but required. Also requ ired is an aggr essive economy-minded a irli ne such as Seaboard 

World Airlines in the tra ns atlant ic pass enge r mark et, to help meet the public 

int ere st and the national inte rest . Working toge ther—the air lin e and the rat e 

legis lation—the fares could be lowere d, the U.S. sha re of the ma rke t increased, 

more airpla nes mark eted by the U.S. ai rc ra ft indu stry , more foreig n tou rists 

attra cted to the United State s, more jobs crea ted for air line and ai rc ra ft personnel, and a rea l increas e shown in th e growth of thi s ind ust ry so vit al to the 

general U.S. economic p icture.

Thank you once again for affo rdin g us this opop rtunity of sub mit ting for the 

record our comments in supp ort of H.R. 465.

Yours sincerely,

John H. Mahoney,

Senior Vice President.

Chamber of Commerce of the United States,

Washington, D.C., Slay 7, 1963.

lion . Harley O. Staggers,

Chairman, Subcommittee on Tra nsporta tion and Aeronautics, Inter sta te and

Foreign Commerce Committee, House of Representatives, Washington, D.C.

Dear Chairman Staggers : The Cham ber of Commerce of the United States 

opposes the enac tmen t of H.R. 465. This hill would auth oriz e the Civil Aeronau tics B oard to fix rate s in fo reign air tra nsp ort ation.

The development of commercial a ir service between countrie s is predicated on 

sever al impor tan t milestones. Pe rhap s the most significant of the se is the Chicago convention of 1944 which res ult ed in the establis hme nt of a mu ltil ateral 

agreemen t covering vari ous asp ects of commercial ai r oper ation s between countries. One of the most important points laid down in thi s agr eem ent was the 

recognition th at each natio n a t all times has complete contro l over the immediate airspa ce above its terri toria l lim its and th at no othe r cou ntry can use this 

airs pace fo r commercial purpos es witho ut the conse nt of the respe ctive government. Althou gh many othe r wo rthwh ile princ iples were agree d to by the signatorie s to this convention, they w*ere una ble to agree on the broa d economic m atters per tainin g to routes and rates.

Because of this, the nations involved turned to the bil ate ral agreement approac h in the establishm ent of ai r serv ice between countries. Most of these are 

modeled af te r the so-called Berm uda agr eem ent ente red into by the United States 

and the United Kingdom in 1946. Even thoug h each agre ement con tain s broad 

provision s concern ing the appr oval or disap proval of rates in such service, the 

specific d eta ils for setting the rat es to be c harge d have been l eft to the machinery 

of the Inter na tio na l A ir T ran spo rt Assoc iation which is a nongo vernm ental organiza tion whose membership consists of ai r ca rri er manag ement. Although the 

IATA membership has had problems on occasion in arr iving at an acceptable 

solution to cer tain rate problems, it is gen erall y conceded to be th e best organization for settlin g matters of thi s kind. If rates cann ot be agre ed to und er the 

IATA mac hine ry then the respective bil ate ral agreements provide the necessary 

means fo r governm ents to settl e the issue.

In view of these developments, the n, the imp orta nt question is not so much 

whe ther or not the CAB does or does not now h ave the p ower to fix inte rna tional 

ai r rate s, but more precisely, wh eth er or not by being given such power, with the 

passag e of H.R. 465, it will materially improve the overa ll rate situ atio n. It is 

our cont entio n th at it will not. In ste ad it could resu lt in more seriou s rat e 

problems over the long run. This is so not only because of the man y political sens itivities involved—which 

are provided for in the various agr eem ents alre ady mentioned—but also because 

of the economic reali ties competin g ca rriers face in the ir forei gn operatio ns. 

Needless to say, the setting of ai r ca rr ie r rat es stri kes at the very he art of the 

ent ire competitiv e situ atio n and each nation will go to gre at pains to protec t 

the int ere st of its car riers and citiz ens trav elin g to oth er countrie s. And while 

an agency of o ur government may not a gre e with the ra te philosophy espoused by 

cer tain foreign carr iers, it would be unr eal isti c to expec t such an agency to 

force these car rie rs to realine their thi nking withou t the risk of counter pressure s from th e governments of the c ar rie rs involved. In other words, the formula-
INTERNATIONAL AIR FARES 107

tion of int ern ati on al ai r rat es is, in the final analysis, a ca rrier management problem whic h can only be achiev ed thro ugh an orga niza tion whic h is outside 

the shado w o f dir ect government pre ssur es. Ins ofa r as prot ectin g the int ere sts of the American public is concerned, we are satisfied th at the Civil Aer ona utic s Board has sufficient power to do so as set forth in the Federal Avia tion Act. Also, we believe th at the continu ous downward tre nd in the cost of tra velin g to foreign countrie s by commercial air ca rri er supports the conte ntion—p art icu lar ly in the ligh t of ris ing costs gener­ ally—tha t the economic i nte res ts of the travel er have not been overlooked. The natio nal chamber urges you r subcom mittee to rej ect H.R. 465 o r any othe r proi>osal th at would g ran t the CAB t he power to fix foreign ai r ca rr ie r rates . We would app rec iate your makin g thi s let ter a pa rt of the record of the cur ren t 

heari ngs.

Sin cerely, Theron J . Rice, 

General L egislative Manager.

Statement of the Pan American Pilots Submitted by Curtis M. Olsen, 

Chairman, System Route Committee

The pilo ts of Pirn American World Airways, thro ugh their system route committee, wish to submit their views to the House Commerce Committee on H.R. 465. Directed, controlled, and financed by the Pan Am pilo ts’ mas ter ex­ ecutive council, the rout e committee speaks for the Pan Am pilots alone. As pilo ts of this Natioil’s pion eer intern atio nal airl ine we are immedia tely and dire ctly affected by any chan ge in flag ai r carriag e. Becau se our fut ure s are inex tricably linked with Pa n Am’s fortune s we sup por t an orde rly expan­ sion of inte rna tional ai r services as the best guara nte e of employm ent oppor­ tun ity and stability. We ^comprehend th at lower int ern ati on al far es and tariffs broa den the base of this* ma rke t and thus fulfill both this Na tion’s demand for development of commerce and th e need for expandin g employm ent oppo rtunity . We recognize th at the aim of thi s bill is to ass ist the Boa rd in its sta tut ory oblig ation to encourage the pro per development of ai r commerce while protectin g the ai r tra ve ler and ship per from unjustifiab ly high rat es an d/ or disc riminato ry 

practices . The aims are laud able but th e method questionable; nothin g in the proposal dem ons trat es th at the CAB will be able to overcome the circu mscr iptions of the Bermud a Rat e Articles. The autom atic reversion from clau se F to E, prese nt in mos t of our bilate ral ai r agre ements, will place the m atter of rat e determ ina­ tions in the inter gov ernmen tal level instea d of the worki ng processes of IATA. Moving the ma tte r of ra te and tariff dete rminati on to the govern mental level will obviously int erf ere wi th and delay the process th at has steadily reduce d int ern ati on al ai r fare s. Rathe r tha n achiev ing the eve r pre sen t CAB goal of low er fare s, this amend men t could produce inte rmina ble inter gove rnmental dis put es while the bypass ed mac hine ry of IATA stood idly b y ; denying a realiza­ tion of the CAB’s goals thr ou gh its own action s. Thi s inter position could in­ te rrup t ai r commerce and seriousl y affect the car eer s and livelihoods of tho u­ san ds of U.S. flag air lin e employees, as well as tra ve l plans of thou sand s of 

passe ngers . Fa res have decreased du rin g the post war gen erat ion and show steady signs of contin uing the ir dow nward march. Can the same be said for the thou sands of anc illary services th at ar e requ ired for the ai r tra ve l market. (J u st look at the tax i m eter on you r next tri p to the a irpo rt.) This Govern ment’s po wers of moral suasion have worked well in the past and, in view of the cong ressional rejec tion of sim ilar ra te fixing bills in the past, should certainl y work again in the event of ano the r Chand ler fare-type dispu te. We th eref ore r espectf ully submit to thi s comm ittee th at passage of H.R. 465 is 

not in the public intere st.

(Whereupon, at 12:10 p.m., the hearing adjourned.)

o
rJAN 21 6 6