Eastern operates two of the aircraft assumed by the GAO and did operate the DC-8-61. In addition, Eastern's L-1011 has essentially the same dimensions as the DC-10. Eastern's seating configurations, as shown below, results in substantially less capacity than the GAO has assumed. Eastern's basic standards are: 37 inch seat pitch (one row every 37 inches) in First Class. 34 inch pitch in Coach. Following is an analysis of the reduction in comfort level required to achieve the assumed GAO seating: Remove two of three galleys. No meal service capability. DC-9-30 Beverage service capability is questionable. Remove coat closets. Reduce seat pitch in both First Class and Coach to 31 inches. The dimensions of a First Class seat are 28 inches from the front of the seat cushion to the top of the seat back. Comparable dimensions of a Coach seat are 25 inches. Reduce seat pitch to: 34-35 inches in First Class. 31 inches in Coach. B-727-200 DC-8-61 Two alternatives have been identified. The first eliminates meal service capability. Remove six of seven galleys and all but one coatroom. Reduce seat pitch to 31 inches in both First Class and Coach. With the galleys retained, only 229 seats can be installed, 31 First Class and 198 Coach. This requires seat pitch reductions to: 31 inches in First Class. 28 inches in Coach. It is almost certain that the latter configuration would not meet FAA emergency evacuation requirements. L-1011 Reduce seat pitch on 28 of 42 First Class seats to 34 inches. Install ten-abreast Coach seating. The seat width would be 161⁄4 inches, one and one-fourth inches less than the B-727 Coach seat. Reduce seat pitch on 254 of 309 Coach seats to 30 inches. Remove the main deck cart parking positions which have been installed in our nine-abreast L-1011s to provide adequate meal service to 289 passengers. SUMMARY Of the $1.6 billion average annual potential savings to actual passengers estimated by the GAO, $700 million, or 43 percent, is a result of its seating assumptions. To achieve those savings requires: Reducing comfort levels to a level at or below those used by the supplemental carriers. In the case of the DC-8-61, the assumed configuration could not be implemented. Eliminating meal service on all two-engine jet aircraft and seriously impeding the carriers' ability to provide satisfactory meal service on DC-10 or L-1011 aircraft. APPENDIX C EFFECT OF CAB RATEMAKING ADJUSTMENTS The CAB theoretically establishes fares within the contiguous 48 states to provide the industry with a 12 percent return on investment if it achieves a 55 percent load factor. For the 12 months ended September 31, 1976, the trunk carriers: Achieved a 56 percent load factor. Earned only a 4.4 percent return on investment. To earn a 12 percent return, the industry would have had to operate at a 61.6 percent load factor (See Table 1.) This is required to offset the effect of ratemaking adjustments imposed by the Board. Utilization.-To the extent that aircraft utilization is below the level achieved in 1972, the industry's investment base is reduced and related expenses-depreciation, insurance and interest-disallowed. Seating configuration.—Investment and operating expenses are reduced to reflect the effect of seating standards imposed by the Board, including tenabreast coach seating in B-747s and nine-abreast in DC-10s and L-1011s. Discount fares.-The invesment base and expenses are reduced to reflect the removal of estimated traffic generation and the related capacity. In Eastern's view, the Board's load factor and seating configuration adjustments are based on realistic standards of industry efficiency for ratemaking purposes. However: The utilization adjustment penalizes the carriers for exercising constraint to achieve a better balance between traffic and capacity. The discount fare adjustment discourages innovative pricing. Even if a discount fare generates sufficient new business to cover out-of-pocket costs, the CAB treatment of this traffic in establishing basic fare levels generally results in a reduction in the industry's total revenue. TABLE 1.-DOMESTIC TRUNK INDUSTRY 48-STATE SCHEDULED PASSENGER SERVICE 12 MOS. ENDING SEPT. 30 APPENDIX D PAGE 1 AND 4 EFFECT OF GAO ASSUMPTIONS ON SERVICE LEVELS The GAO findings on the efficiency improvements and resulting fare reductions which would have characterized a less regulated industry are based on three major assumptions: During the 1969-1974 period the stretched versions of the DC-9, B-727 and DC-8 would have been operated in lieu of older, less efficient jet aircraft and non-jet aircraft. (See Appendix A) The carriers would have installed high-density seating on these aircraft, as well as the DC-10, L-1011 and B-747. (See Appendix B) The industry would have operated at a 60 percent load factor. As shown in Table 1, the effect of the aircraft and seating assumptions is an increase in capacity ranging from 40.2 percent in 1974 to 56.9 percent in 1969. During that period, actual load factors ranged between 48.3 percent (in 1971) and 55.7 percent (in 1974). Achievement of a 60 percent load factor under the GAO's aircraft and seating assumptions would have required dramatic increases in traffic, as follows, unless aircraft miles were reduced: The extent to which additional traffic could have been generated is a function of the magnitude of the fare reductions and price-elasticity of demand. The GAO assumes a -1.3 price elasticity. The basis of this assumption (pg. 12 of study) is certain CAB staff studies. The CAB, after considering these studies, adopted a -0.7 elasticity factor in the Domestic Passenger Fare Investigation. This is consistent with Eastern's internal findings. Table 2 shows the effect of the GAO's estimated fare reductions on industry traffic, and capacity required for a 60 percent load factor: Under GAO price elasticity assumptions (see page 14 of study). Based on the CAB findings. As shown in Table 3, the cumulative effect of the GAO assumptions is a substantial reduction in aircraft miles flown, i.e., the degree of schedule convenience available to the traveling public, as follows: In 1974, of course, the reduction shown is from an actual level which was constrained by a mandatory fuel allocation program, imposed as a result of the 1973 oil embargo. Actual 1974 miles flown already were 8.5 percent below 1973 levels. In interpreting these findings, it should be noted that no attempt has been made here to quantify the impact of reduced service levels on traffic volumes. There is a substantial body of evidence, which has been adopted by the CAB in route proceedings, that the amount of traffic carried is a function, to some degree, of the quantity and quality of service offered. AIRCRAFT ACQUISITION/RETIREMENT IMPLICATIONS The findings summarized in Table 3 also reinforce Eastern's contention that the GAO has not simulated realtiy. The GAO, in essence, has assumed that, with less regulation, the carriers would operate exclusively with the most efficient equipment available and would predict the busines cycle with sufficient accuracy that it could achieve a 60 percent load factor while maintaining maximum fleet utilization. Based on the GAOS own assumptions, to achieve this level of efficiency in 1970 would have required: A 13.9 percent reduction in aircraft miles flown. A comparable reduction in the size of the carriers' fleets. In effect, the GAO has assumed a major reequipment program in 1967 and 1968 (Appendix A) and then retirement of approximately 165 of the aircraft delivered in 1967 and 1968 at the end of 1969. EFFECT OF HIGHER LOAD FACTORS In addition to the passenger inconvenience created by a reduction in schedule frequency, load factors assumed by the GAO also would reduce the convenience of air travel. Chart 1, based on Easterns actual data for January, 1977, shows the effect of load factor on the percentage of our capacity consisting of flights which are fully booked and, therefore, closed at sale. Data for the Air-Shuttle, an on-demand, no-reservations service are excluded. For this purpose, when any segment of a flight is fully booked, the entire flight is considered closed to sale. The lack of space on one segment effectively creates a bottleneck for through and connecting passengers. These data are consistent with the results for other periods. As the chart indicates, each additional five points of load factor increases the proportion of fullybooked flights by 10 percentage points. At a 60 percent load factor, 40 percent of our flights would be closed to sale. At a 65 percent load factor, half our flights would be closed to sale. It would be extremely difficult to obtain a seat during a peak travel season, on a peak day or at a desirable departure time. SUMMARY As the GAO has stated, "the probability of not obtaining seats on desired flights may increase for some passengers. Passengers might also experience some inconvenience in that higher load factors could mean flights at less frequent intervals than are presently available on some routes." TABLE 1.-DOMESTIC TRUNK INDUSTRY EFFECT OF GAO AIRCRAFT AND SEATING ASSUMPTIONS ON CAPACITY, 1969-74 1 Data by aircraft type available only on a 48-State basis. Mainland-Hawaii/Alaska aircraft miles assumed to be 4 engine. |