made a recommendation to the Board, the issue of whether at least for the future period there should be a comparable rate for the two carriers. The position of the Board staff, as a matter of fact, is that any future rate ought to be a comparable rate for the two air carriers, but the Board has not yet taken that question under advisement. Senator KILGORE. So really, Pan American World Airways, Inc., has taken over the duties of the former holding company as a cohesive unit. Does it also own the various subsidiary units, such as interests in charter South American lines?

Mr. ROTH. Pan American World Airways owns whatever stock Pan American owns in these other companies in South America and other places.

Senator KILGORE. All right.

TESTIMONY BEFORE HOUSE COMMITTEE

Mr. GURNEY. Your next question is: Could the Chairman of the CAB furnish this committee with a copy of his testimony at the House Appropriations Committee on Monday, March 1, 1954?

The answer is, Senator, that we did not have prepared testimony to give the committee at that time. The House committee wanted to question us more thoroughly on our need for subsidy money and especially to get further information on any possible offsets because of the Supreme Court decision. So we just answered their questions as they were propounded. Therefore, there is no copy. The transcript has not been submitted to us, nor have we seen that the record has been printed. We do not have it.

Senator KILGORE. The reason I was asking that question was that I had not been able to find a printed record either.

Mr. GURNEY. I believe, Senator, that we have covered the points asked by the House committee in our testimony that I presented first to this committee last Thursday.

In other words, I believe we covered all of the questions that were asked, the general questions, at least, in my statement of last Thursday, or in other testimony and we feel that we have given the Senate committee every bit of information that we gave the House committee.

TOTAL PROTEST OF POSTMASTER GENERAL

Your next question, Senator was: Granted that you may feel that the Postmaster General has inflated some of his protests, nevertheless, his protest as noted in Senator Kennedy's statement on page 5, and Congressman Gary's statement in the Congressional Record of March 3, page 2496, give a total of protests amounting to $35,034,000, and the Postmaster General's latest protest of April 12 might project the sums being contested to a considerably still higher figure; is not that

correct?

The answer is, I do not believe it is correct. Mr. Roth will give you

details.

Mr. ROTH. I believe the figures quoted are not very accurate, and be quite misleading. Let me single out just a few of the figures. For United Air Lines, the figure quoted

may

Senator KILGORE. Wait a minute. Let me hold you up just a second. Might I at this point insert a copy of the protest in the record and then you go ahead and comment on it. I think that will be better.

Senator ELLENDER. Without objection that will be done. (The report referred to appears on p. 2211.)

HAWAIIAN OPERATIONS

Senator KILGORE. That is the Postmaster General's protest.

That was prepared by the Solicitor.
Mr. ROTH. Is that the Atlantic case?
Senator KILGORE. Trans-Atlantic.

Mr. ROTH. I am familiar with that.

Senator KILGORE. I have inserted it in the record and I think it will read more coherently.

Mr. ROTH. Congressman Gary, according to the statement in the Congressional Record, quotes the Postoffice Department as challenging $15,857,000 as the amount of money being involved in the case of United for the Hawaiian operations. The reason I think that figure is misleading, even though it might be a direct quotation from the Postmaster General's petition, is this:

United, for its Honolulu services for the period from the time they began operating in May 1947, until August 1952, when they were put on a system subsidy free rate of just 45 cents per ton-mile, United received total mail pay, service and subsidy combined, of $2,600,000. Of that $2,600,000 we estimate that at a 45-cent rate which I believe for a route to Honolulu would clearly be without any subsidy, the service pay would be $1,600,000. Therefore, there is a possible contention that United has received a million dollars of subsidy for that route.

Now, under this theory or under the decision of the Supreme Court that we must consider these other revenues before finalizing the subsidy payment for one operation, in my opinion the most we can deduct is the entire subsidy. But if the subsidy is only $1 million, we cannot deduct $16 million of alleged excess earnings. So even if the alleged $16 million of excess earnings exist, you can for this purpose deduct no more than $1 million. I think there are various errors of that type. We have had conferences in the Trans-Atlantic Mail Rate case in the last 2 weeks, with the air carriers and the Postmaster General to try to resolve the very complex, technical issues, in determining the impact of the Supreme Court decision. There is a lot more to it than just the figures contended by the Post office Depart

ment.

The carriers contend there is no excess earning whatsoever. We have not yet worked up the figures. They will be included in our brief to the Board at the end of next month.

Senator KILGORE. All right.

Do you have any more questions on your list?

Mr. GURNEY. Those are all the questions you sent us, Senator. Senator KILGORE. I have just a few short questions I would like to ask. Before I ask them, would it be imposing upon you too much if I should write a few more questions and ask you to just submit answers in writing? I will check over what I have here to see that and send it down and insert it in the record, if the chairman has no objection.

I may want to write a few questions down and ask him to answer them in writing, and we will insert them in the record.

1

Senator ELLENDER. Senator, I understand that we expect to close the hearing on oral testimony, and if the questions and answers can be submitted, say within the next couple of days, we can insert them in the record.

Senator KILGORE. I will try to meet that and if not, we will put them into the committee files.

RECENT ISSUANCE OF CERTIFICATES

Mr. Gurney, since you have been on the CAB, have there been any carriers given certificates to fly passengers over any domestic trunk routes? I am talking about since you have been on the CAB.

Mr. GURNEY. Of course they did not need any additional certificates to fly over the routes that were in existence. What you are asking me is whether any routes have been given to the certificated carriers? Senator KILGORE. If you want to study that up, you can insert the answer into the record.

Mr. GURNEY. I would like to, in order to get it accurate. If there is anyone on our staff here that can answer that question, I would be glad to have them do so.

Senator KILGORE. Has any applicant ever received a certificate to perform such service since the founding of CAB in 1938? In other words, existing airlines, at the formation of the Civil Aeronautics Board in 1938, since that time what times have you certificated additional lines over existing trunklines at that time? Could you check the records and give us the answer on that?

Mr. GURNEY. Yes.

(The information referred to follows:)

The Board has not certificated any new air carrier for passenger services over domestic trunk routes since 1938. The Board has, however, expanded the routes of the smaller trunklines to strengthen the domestic trunk-route pattern, thus providing additional competition over major trunk-route segments. Also the Board has certificated some 30 new carriers. On an experimental basis, it has extended service to small communities by its local service program; provided for the authorization of several all-cargo carriers to engage in the transportation of property only over trunkline routes, and permitted irregular carriers to engage in large-scale passenger and cargo movements. It is believed that the following statement will clarify the Board's position on the general problem of entry into the air-carrier field.

ENTRY INTO THE DOMESTIC TRUNKLINE FIELD

It is an accepted principle of Government that certain business enterprises, called public utilities, affect the public interest to such a degree that it is necessary and desirable in the interest of the public to provide for governmental regulation of such enterprises and for limited entry into that particular field of business enterprise. Such enterprises as motor carriers, railroads, water and gas companies, communications companies, and similar enterprises are not permitted to begin operations whenever and wherever they choose, but are required to obtain a license, franchise, or similar authorization from the proper governmental authority.

By passage of the Civil Aeronautics Act of 1938, Congress determined that air transportation should likewise be classed and regulated in the same manner. Under the act no person can engage in air transportation unless and until it obtains authorization from the Board. In brief, the system of free enterprise in air transportation was abolished by the Congress in 1938, and was replaced by a system of limited entry administered by the Board pursuant to standards established by Congress in the Civil Aeronautics Act. The "right of entry" into the field of air transportation, therefore, is a right which can be gained under the law, only upon an affirmative showing of a public need for the service:

and a demonstration by the applicant that he can successfully meet and satisfy the statutory requirements of fitness, willingness, and ability to provide the required service.

The Board has found that in air transportation, as is true in the case of other industries, unit costs tend to decline with increases in volume. Thus the Board has approved a number of mergers among the carriers for the purpose of obtaining the benefits to the public of lower rates and less subsidy resulting from operations of carriers of larger, and thus more efficient, size. The development of our air carriers has required the investment of many millions of dollars in order to provide adequate and suitable air transportation needed by the public. Grant of unrestricted entry would jeopardize the very substantial investments in aircarrier services and would deter the development of stability in air-carrier operations required for their full development.

In practice, the Board has found that in the development of its route policies it has generally been necessary to facilitate freedom of entry into air-transportation markets by both new and existing carriers in order to assure competition to the extent necessary to meet the tremendous growth of the air-transportation needs of the Nation and at the same time encourage the development of new services.

In meeting the developing public need, the Board has opened the door to many new carriers to engage in broad experiments with new type services. Since the war, the Board has certificated some 30 new carriers. On an experimental basis, it has extended service to small communities by its local service program; provided for the authorization of several all-cargo carriers to engage in the transportation of property only; and finally, permitted the irregular carriers to engage in large-scale passenger and cargo movements under exemption rights extended by the Board.

In other instances the Board has met the public need through expansion of existing certificated air carriers. Such expansion has contributed to the economic health of these carriers and resulted in direct benefits to the airline passengers through the provision of low fares and improved services. For example, the Board certificated National Airlines, a small southeastern carrier, over the trunk route between New York, Washington, and Miami, thus assuring not only aggressive competition with the existing trunk carrier in these markets, but also resulting in economic improvement for National with attendant benefits to the cities served by it. Similarly, Northwest Airlines was granted entry into New York and Washington, thus creating a transcontinental routing for that carrier. Western Airlines, a regional carrier, was extended from San Francisco north to Seattle and Portland. Delta and Capital Airlines were similarly extended into competitive markets, the former furnishing competitive service between Chicago and Miami and the latter furnishing service from northeastern cities to Atlanta and New Orleans. These are only examples of the many route grants which have been made for the purpose of strengthening the domestic trunk route pattern and which are responsible in large part for the relatively low fare levels which prevail today.

There is another aspect of this matter of "entry into the field," consideration of which is particularly appropriate in light of the emphasis being placed by the administration and the Congress on reduction of subsidy and the Board's own efforts in that direction.

As recently as 1951 the domestic trunkline carriers received, according to the Board's estimate, approximately $19 million in subsidy. For 1955 the estimate is $3,566,000, a reduction of more than $15 million. Obviously this is a notable achievement and supports the view that ultimately this segment of the industry may be entirely subsidy free. Nevertheless, certain of the domestic trunkline carriers still require assistance in the form of subsidy in spite of the fact, as those who raise the issue are quick to point out, the number of trunkline carriers is actually less than in prior years-13 at the present time, for example, compared with 16 in 1951.

Of the points which the certificated carriers are required to serve some are "profit" points; others are "loss" points. Fundamental questions, therefore, which arise in connection with any application for a new certificate are:

(a) What subsidy, if any, would the new carrier require?

(b) What effect, if any, would the certification of a new carrier have on the subsidy requirements of carriers presently certificated?

It is usually the claim of those seeking to enter the field, and their proponents, that no subsidy would be involved, and it is true that certain points could be selected where the traffic potential would be sufficiently great that service to those points alone would show a profit. If, on the other hand, a new carrier were

accorded no more favorable treatment than those already certificated, and hence required to serve both "profit" and "loss" points, it is entirely possible that such carrier would not only require subsidy assistance itself, but would increase the subsidy requirements of carriers presently certificated.

The number of domestic trunkline carriers which the existing demand for, and volume of, air transportation will support without assistance from the Federal Government is, of course, a matter of economic judgment. Viewed from the standpoint of subsidy, and the fact that, despite the tremendous progress made toward self-sufficiency, certain existing carriers still require Federal aid, it can be as logically argued that there should be a further decrease in the number of domestic trunkline carriers as that additional carriers should be permitted to compete in that field.

Senator KILGORE. All right. And one other thing: Are there fewer certificated carriers serving the trunk routes now than a few years ago? Mr. GURNEY. There have been some mergers.

RIGHT OF NEW ENTERPRISES

Senator KILGORE. Some mergers?

Mr. GURNEY. That is right. So there are fewer in number.
Senator KILGORE. Fewer in number of lines?

Mr. GURNEY. Right.

Senator KILGORE. In what way has the CAB sought to comply with the statutory responsibilities to preserve and protect the right for new entry of enterprise into aviation? What has been the CAB attitude on that point?

Mr. GURNEY. Well, there is still open the avenue of any one seeking a certificate. They have to justify the public need for the line. That has been the necessity ever since the act was started. I would say it is open as much as it ever has been.

Senator KILGORE. You still get back to the old grandfather clause in that in which you grant these longtime certificates, these unending certificates that have been granted, which requires a showing by an applicant that the present service is inadequate and they must have additional service; is that right?

Mr. GURNEY. That is right. And the grandfather certificate they received gives them no greater right than any line receiving a certificate for a segment since then.

In other words, a permanent certificate granted is just the same as the grandfather certificate granted in the original act.

Senator KILGORE. They amount to grandfather certificates if it is a new route, of course, when you grant a certificate it amounts to a grandfather certificate. The first line that gets in and gets the certificate has the grandfather rights; isn't that right?

Mr. GURNEY. I would say so; yes.

NEED FOR MORE AUDITING

Senator KILGORE. Now, 2 or 3 more questions on policy. I am asking you, from your experience whether or not-and may I say we asked the same question yesterday of another very distinguished official-you do not need more auditing in order to save money on the question of these mail-pay rates?

Mr. GURNEY. We would like to have additional auditors. I could not say at the moment how many we could use to good advantage and in order to save money.