Knuckling Under

Even Britain's Laborites and Tories, who rarely agree on anything these days, found themselves united last week in anger at the U.S. With strong British backing, most of the airlines flying the North Atlantic route had just raised economy round trip fares 5%--and the U.S. had refused to go along. When Minister of Aviation Julian Amery rose in Commons and castigated the U.S. for "inciting American companies to break our law," he won cheers from both sides of the House. "This situation is unacceptable," said Amery, "and cannot be allowed to continue."

The situation did not last long. Despite the Kennedy Administration's brave talk and the Civil Aeronautics Board's bold sloganeering that the hike was "not in the public interest," the U.S. ignominiously retreated from its stand. Knuckling under to the British, it ordered Pan American and TWA to begin putting the higher fares into effect. The increase means that Atlantic air travelers--70% of whom are Americans--will have to pay an additional $30 million this year* for air tickets.

Confusing Welter. The decision to back down came from the U.S. State Department, to which the worried CAB had turned for guidance. Both quickly drew the wrath of Washington Democrat Warren G. Magnuson and his Senate Commerce Committee, which summoned CAB Chairman Alan Boyd to account for the retreat. Boyd explained that though the CAB lacked the power to set international air fares, he had hoped to block the fare rise by winning away enough foreign lines to isolate the British. "In retrospect," he admitted, "you could say we were not smart."

The Senators agreed, but seemed in a mood to give quick approval to an Administration bill, sent to Congress last week, that would give the CAB specific authority to deal with international air fares. The American case was hampered by the fact that the two U.S. carriers (Pan Am and TWA) had not opposed the fare raise and that the CAB had not intervened until two weeks before it was to take effect. This is what brought on the charges of U.S. bad faith. Though clumsily handled, the U.S. case had merit in its main point that when many of the new jets are flying the Atlantic half empty, the way to attract more passengers is to lower fares.

Other airlines flying the North Atlantic, most of which are losing money, want simply to be able to collect more money from those who do fly. Actually, all the airlines make a play for the low fare trade, but do it through a confusing welter of promotional gimmicks such as special charter fares, discounts, 17-day excursions, family plans and group fares. More and more passengers take the cheaper way when they can, through such transparent devices as joining a "club" that does little more than qualify them for a bargain trip.

$25,000 for Talking. The U.S. lost its case for lower fares because it could not muster support enough in the International Air Transport Association, the international organization of 90 airlines that sets fares for practically all of the world's international air routes. Founded in 1945, IATA also sets international standards for everything from baggage checks to ticket forms. So secret are its debates that any participant who talks outside faces a maximum $25,000 fine. Yet lATA's director general and guiding influence, outspoken Sir William Hildred, 69, bristles at any suggestion that IATA is anything more than just a forum for debate. "IATA," he says, "has no power and wants no power."

Nonetheless, the criticism most often leveled at IATA is that it has what amounts to a cartel-like power that prevents its members from reducing fares. Since every fare decision must be unanimous--and many airlines swallow hard and vote with the majority in order to avoid chaos--IATA tends toward higher fares to protect inefficient carriers that might be forced out of business by lower fares set by more efficient lines. Pan Am and TWA could both charge lower fares and still turn a profit on the North Atlantic run.

Available Muscle. The British and its airline allies had the muscle to impose higher fares, but the U.S. case for the consumer still has to be reckoned with.

Even in backing away from a fight, the CAB gave Pan Am and TWA permission to raise fares only until September, and ordered them to push for lower fares at an IATA conference of North Atlantic carriers convened in Bermuda last week.

The world's airlines and governments (who must approve the fares) consider IATA necessary to avoid total chaos on the world's air routes, but the IATA system has no imperial exemption from the laws of economics. Those laws favor lower fares, not higher ones, if enough passengers are to be attracted to fill the planes of the 18 airlines that now fly the North Atlantic.

* $27 more on New York-London round trip fares.

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