Double Trouble

Capital Airlines, laden with its full share of financial troubles, flew headlong into a downdraft. In Washington last week, experts for the Civil Aeronautics Board withdrew a recommendation that Capital get a long-range route from the Great Lakes to Florida's rich vacation market, instead advised the CAB that Capital was not equipped to fly the run. CAB's reason: the original recommendation was based on the proposition that Capital would have new planes to fly the route. Since then, Capital's financial position has deteriorated so badly that it had to postpone plane deliveries indefinitely. Without the planes Capital may not get the route, but without the route it cannot earn the money to buy the planes.

Capital also faced another turndown by CAB, this time on its petition for a $21.4 million subsidy for 1957 and 1958. Though Capital got off subsidy six years ago, it now wants Government help again, says it cannot stay aloft without a renewed dole. But CAB is not sympathetic.

Bad Strain. Hoping to steal a march on the rest of the U.S. airline industry, Capital flew bravely into the jet-age dawn by buying 60 British Viscount turboprops three years ago, agreed to pay $67.5 million within five years of delivery plus interest to London bankers who financed the deal. As of 1956, Capital managed to pay $12.4 million of the debt, and badly strained itself in the process. Though revenues soared from $48 million in 1954 to $63.7 million last year, costs went up so fast that net income tumbled from $1.7 million in 1954 to a net deficit of $1,257,000 last year, another $1,248,861 deficit for the first nine months of 1957.

Capital likes the Viscount as an aircraft, and its estimates of operating costs proved out almost to the penny. The trouble is its size. The Viscount's 44-seat capacity puts it at a disadvantage against 60-to 90-passenger Douglas DC-7s and Lockheed Super Constellations on highly traveled routes. Moreover, when Capital switched to Viscounts, it was unable to sell its aging fleet of DC-4s and early-model Constellations. Capital still flies the old planes, estimates that its inability to sell them cost about $1,000,000 last year, just about the extent of its deficit.

Biggest Problem. Capital's biggest problem is its route system. Serving 51 cities from New York west to Minneapolis and south to New Orleans, it competes for 80% of its traffic with giants of the airline business--American Airlines and Eastern Air Lines. Against such rugged competition, profits are lower; yet the other lines have choice long hops to balance their route structure. By contrast, Capital shuttles back and forth between cities as close as 50 miles apart, acting almost as a businessman's commuter line with all the extra expenses of many stops.

To ride out the storm last week. Capital President David H. Baker and Chairman J. H. ("Slim") Carmichael flew to London, hoping to stretch out payments on their Viscount fleet. In addition. Capital is economizing everywhere, may trim its 8,000-man payroll by 10%. Yet its main hope rests with CAB. Barring subsidy, it wants a healthy fare increase. Without it, Capital may eventually be forced to shut down or merge, possibly with Northwest Airlines.

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