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Mr. SIBAL. No matter how it affects the American carrier.
Mr. Boyd. Well, now that is a hard question to answer. I think I could say in a broad way, yes, no matter how it affects the American carrier, because in the time that I have been in Washington, the State Department has never made any recommendations or asked anything of us which would be detrimental to the American carriers, and just as we are the economic agency, and State is the political agency
, I am perfectly confident that the State Department is concerned about the economic welfare of the carriers, as we are concerned about the po litical posture of the United States.
Mr. SIBAL. Thank you. Thank you, Mr. Chairman.
Mr. Moss. Mr. Chairman, what you are actually seeking here is ad ditional authority which was clearly contemplated at the time of the 1946 agreement ?
Mr. Boyd. Yes, sir.
Mr. Moss. And the difficulty of last year with the Government of Great Britain occurred under that agreement and was completely in consonance with the agreement?
Mr. Boyd. Absolutely, yes, sir.
Mr. Moss. We had agreed in advance that where disapproval was voiced by our Government, that the other government, under section (f) could then take whatever steps, in its judgment might be required, and we didn't limit the steps it could take.
Mr. Boyn. That is exactly right, Mr. Moss. What steps they could take depended on what authority their domestic law gave them.
Mr. Moss. So, we are not going here into the basic rights of a sorereign nation but rather the rights which are clearly agreed upon in advance in the Bermuda agreement, and you want to have the additional powers which were contemplated in the section (e) of the agree. ment so that this Government can deal more effectively without its hands tied as was the case last year, where there are disagreements?
Mr. Boyd. That is right, sir. Tó put us on a par with the other parties to the agreement.
Mr. Moss. I think you made a very excellent statement. Those are all the questions I have, Mr. Chairman.
The CHAIRMAN, Mr. Brotzman?
Mr. BROTZMAN. Just to follow up on that point. Had this law been in effect, Mr. Chairman, last vear, at the time of the crisis what could the Board have done to correct the situation?
Mr. Boyd. Well, first of all, Mr. Brotzman, there would have been no crisis. Had this legislation been in effect last year, when on March 18, we issued our order disapproving the IATA agreement which had the effect of raising the fares by reducing the roundtrip discount from 10 to 5 percent, our carriers would have operated legally, lawfully within the terms of the bilateral agreement at the old rate, and the United Kingdom and Italy and Spain and all these other countries would have, I am certain, said, “That is all right. We want to go to arbitration. But you have every right to operate at the old fare."
So, there would have been no crisis.
As a matter of fact, this is exactly what happened, Mr. Brotzman, in the case of the Canadian carriers, because Canada does have legislation, while their bilateral is not in identical terms with ours, their bilateral form, it is practically the same, and the Canadian carriers con
die tinued operating at the old rate, and they operated without any
So, I don't think there is any question there would have been no Te crisis had we had that legislation.
Mr. BROTZMAN. Now to sum up two key statements, I think you * made on pages 3 and 4, your present authority, as I understand it, is to remove discrimination after notice and hearing.
Mr. Boyd. Yes, sir.
Br. BROTZMAN. Now this: When you use the word “discrimination," is this discrimination between two competing airlines or what does this mean?
Mr. Boyd. No, sir; this is discrimination in terms of the traveling public.
Mr. BROTZMAN. I see. This has nothing to do with rates.
Mr. Boyd. Yes; it does. It does but it means discrimination or nondiscrimination; let me put it this way: Nondiscrimination means if you and I get on an airplane, take the same trip, we pay the same fare and the fact you wear glasses and I don't doesn't have anything to do with it.
But often-I shouldn't say often, but sometimes a situation will develop where carrier will say, “Everybody who wears horn-rimmed spectacles can fly at a 20-percent discount."
Well that is not a legitimate distinction, and that is discrimination. I am being discriminated against; you are getting the preference.
Mr. BROTZMAN. Thank you. That is all, Mr. Chairman.
The CHAIRMAN. Mr. Boyd, you mentioned in your statement the authority of the Board on disapproval under section 412 of the present act, agreements relating to the rates and that the carriers must then act individually when filing rates as required by section 414. I believe that is page 4 of your statement.
Mr. Boyd. Yes, sir.
The CHAIRMAN. And you stated when they do so the Board is powerless to prevent carriers from filing any rate it chooses. It may be wholly unacceptable from the standpoint of conventional rate-fixing criteria.
Mr. Boyd. Yes, sir; it may be wholly unacceptable.
The CHAIRMAN. Yes. By that do you mean that when you do approve a rate agreement under section 412 you have approved the rate from the standpoint of conventional rate-fixing criteria?
Mr. Boyd. To the extent that it is possible, Mr. Chairman.
Now on international rates and fares the only information we have available to us is the information relative to the U.S.-flag carriers.
So, we use them as a measuring stick, but the fact of the matter is that we do not know what the economic situation is of the foreign
flag carriers. We assume that our carriers are models for this exercise and, if the fares proposed in the agreement makes sense related to the U.S. carrier figures, then we approve them.
So, in that sense, it is based on economic criteria.
The CHAIRMAN. All right. By that do you actually determine the just and—apply the just and reasonable criteria to our own carriers!
Mr. Boyn. Yes, sir; yes, sir.
The CHAIRMAN. Do you have the usual type hearings and investigation, and require information to be filed, and so forth, to arrive at that determination?
Mr. Boyd. Oh, no; but I don't want to leave any inference here we normally have any hearings in connection with tariff approvals, Mr. Chairman. We normally do not.
The CHAIRMAN. How do you arrive at the just and reasonable decision ?
Mr. Boyd. Well, very simply because we have a number of recurrent reports which are filed by our carriers, which are available to the Board for ascertaining what the earnings of the carriers are, and wr start, of course, from--we don't set any of these fares in a vacuum. We have a history going back to 1939 or 1940, and we relate fare changes to a considerable extent to what the fares have been in the past. We have no formula, Mr. Chairman, to say that a fare of x dollars is just and reasonable and a fare of x plus $5 is unjust and unreasonable.
There is a broad area of discretion, and there has to be. We cannot predict any more than the carriers can precisely how much traffic they are going to generate on any given fare.
Everybody makes projections, but it is guesswork, and as often not the guess is pretty far off. So you have to use discretion and we do uso it.
The CHAIRMAN. Of course, that is always a problem in the theory of ratemaking.
Mr. Boyd. That is correct, sir.
The CHAIRMAN. Whether it is by your Board or by the Interstate Commerce Commission. But do you apply the same rule-ratemaking criteria--on arriving at international rates that you do, at arriring at domestic rates?
Mr. Boyd. I would have to-I would like to ask Mr. Roth about this. My impression is that we do not, in either international or domestic, require the carriers to file supporting material but that always in the domestic filings they do file supporting material and whether they do in international I do not know.
Would you address yourself to that, Mr. Roth?
Mr. Rotii. Yes, sir. I would say, Mr. Chairman, that generally speaking we apply fairly similar criteria internationally as we do domestically but not identically--not identical criteria.
This in part is related to the difference in procedures that are involved and the very lack of suspension power in the hands of the Board in the case of international transportation.
The tariffs are filed with the Board for either domestic or international fares at least 30 days in advance. In the case of the domestic tariff's the air carriers are required by our tariff regulations to make a prima facie case with whatever economic data they wish to submit as their statement in support of the particular air tariff.
This, together with all other data available in the Board's files, would be utilized by the staff in analyzing the tariff and in accordance with established criteria and principles which, generally speak
ing, are generally similar to ICC principles for surface transportaA tion ratemaking, the board reaches a determination whether to exerit cise its domestic suspension power.
In the case of an international rate, the Board's only jurisdiction is begynte related to the review of the agreement among the air carriers.
I think there, by virtue of the very nature of the process of unanimous agreements among a series of air carriers, the relatively more
limited information we have with respect to the various air carriers, mit extremely limited information as to the foreign air carries, the Board
tends, in general, to give a greater degree of discretion to the international air carriers.
But on the other hand, in situations where earnings appear to be adequate, the Board, I believe, would follow similar criteria either domestically or internationally in passing upon the question of a general fare increase, for example.
The CHAIRMAN. If you were required by law to use the just and reasonable rule, could our carriers have charged the same fares in the transatlantic case ?
Mr. Rotu. Do you want me to answer that, Mr. Boyd ?
As a matter of fact, we can furnish the committee with a record of homines
earnings for Pan American and TWA for their transatlantic operabra tions for the 12 months ended March 31, 1964, and I believe that Pan
American's rate of earnings was between 11 and 12 percent, and TWA
in part because they had virtually no income tax liability due to loss et carry forwards from prior years, earned well above 20 percent on in
The exact figures are the Atlantic division of Pan American reported a rate of protit after taxes of 11.9 percent on the total investment devoted to their Atlantic division, and TWA's rate of profit after taxes in this 12-month period was 25.9 percent.
This is the precise 12-month period in which the Chandler agreement vetoed by the Board was to take effect, and it is the period during which a part of the rate increase of the Chandler agreement was effective.
I think certainly viewed by the results in that year, the two U.S. carriers clearly did not need the fare increase that was involved.
In other words, I think there would have been just and reasonable rates without the increased fares that were involved in that period.
The CHAIRMAN. Well, of course, under the rule of ratemaking a carrier must charge a tariff, and the agency involved is required under the law to approve the tariff that is just and reasonable.
In other words, a return that would be considered reasonable on their investment. When that gets to be too high then it is part of the duty, it is the duty of the Board, for example, to reduce it, isn't it?
Mr. Roth. Yes, sir.
The CHAIRMAN. If TWA as you have just mentioned as an example, makes 25 percent, isn't that a little beyond the just and reasonable rule?
Mr. Boyd. Let me answer that, if I may.
Certainly it is, but there are a couple of factors that enter in her. Mr. Chairman.
One is that the fares have got to be competitive. We can't require that TWA lower its fares because the result of that would be if there were some way to require TWA to lower its fares and the others to hold their fares up because they are not making a reasonable retur. TWI would get so much business it wouldn't know what to do.
The CHAIRMAX. That is precisely the reason, Mr. Boyd, that ? raise this question.
Mr. Boyn. Yes, sir.
The CHAIRMAN. You cannot apply from a practical standpoint the usual rule of ratemaking on just and reasonable in the internation ratemaking of our own carriers where you do not have the authority to do something about the rates charged by other carriers.
Mr. Boyd. Well, I just have to disagree with you, Mr. Chairman. I shouldn't say I disagree with you but the fact of the matter is me can't do it in the domestic area. We have got carriers in the domestie area who are making a potful of money, and we have one making 15 percent for 12 months ended March, 15.4 percent after taxes ; 163 percent after taxes.
But these carriers are competitive with other carriers and they are not the major carriers in the market.
I mean they are not the major domestic carriers.
Well now, we can't force their rates down regardless of just and reasonable because we would just put the others in a bucket if we do that.
So there has got to be—I mean you can't have a situation where everybody earns the same thing; they have different wage contracts.
The CHAIRMAN. I know but if you have a given route in this country on the domestic carriers, you take the entire across-the-board situation and arrive at a rate. That is the way you do what is
just and reasonable.
Mr. Boyd. And some make more money than others on it.
The CHAIRMAN. Now, in arriving at an international rate, do you take into consideration what other or foreign carriers charge?
Mr. Boyd. Well, what they charge, yes. That is what we are dealing with, but what they are earning we don't know.
The CHAIRMAN. No, you can't take that into account.
Mr. Boys. But they all charge the same. There is no such thing as a fare situation that is out of kilter where one carrier charges one thing and another carrier charges something else, because it has got to seek its own level.
The CHAIRMAN. Where you have an agreement, as you have erplained here, in an international situation that is entirely different
, then you cannot apply the same rigid rules that you can in the field of domestic operations.
Mr. Boyd. Well, that is certainly true because we don't have all the information and we don't have the jurisdiction and that is why we asked for discretionary power, because we are not looking for trouble. Mr. Chairman.
The CHAIRMAN. Or asking for it. The final question is then, it is your contention that you would not in any way penalize our carriers