MIDCONTINENT PERSPECTIVES

MIDCONTINENT PERSPECTIVES
                                     Midwest Research Institute
                                      Kansas City, Missouri

                                           October 27, 1977

                                           C.E. Meyer, Jr.
                     President and Chief Airline Executive, Trans World Airlines, Inc.
                                          New York, New York

              The Domestic Airline Industry In The Year 2001
       It is very good to be here in Kansas City with so many friends in the community and
associates from TWA.
        Strangely enough, when I was asked to come here, TWA was in the midst of completing
a seven-year plan, what we call a long-range plan. We have since finished it. I’ve had a great
deal of difficulty living from month-to-month over the past four or five years, so I am glad to be
among friends to discuss the future.
        To set the stage for my thoughts about where the airline industry will be in the year 2001,
it might be useful to look back 25 years to see where the industry has been. Let us suppose that
back in 1952 I had been asked to attend a conference similar to this one. How would I have
flown here? By law, only TWA and United were authorized to serve this route. Twenty-five
years ago TWA was the only carrier offering single plane service in the New York/Kansas City
market. The best services offered at that time were one-stop flights over Chicago or St. Louis
with an elapsed trip time of five hours. The fare was $70 each way.
       The airplane would most probably have been one of the models from the highly regarded
Constellation series, capable of carrying 51 to 55 passengers, cruising at about 280 miles per
hour; and costing just under one million dollars.
       In contrast, my trip today was nonstop and took well under three hours. The coach airfare
was $110, and the route is typically served with Boeing 727-200 equipment capable of carrying
127 passengers and costing approximately $12 million each.
         These observations serve to underline some of the points I wish to touch on this afternoon
as I briefly sketch the history and current status of domestic commercial transportation and its
prospect for tomorrow.
         As recently as 1926, only some 50 years ago and well within the lifetime of most of us,
the airline industry was in its infancy. At that time there was nothing that could honestly be
called a United States airline. There were a few short-haul air express services and passenger
charter operators on the scene. But they were often plagued with the inefficiency and
unreliability of war surplus equipment. There was no traffic control, no body of safety
regulations, no aviation law.
        Fifty years ago in Europe, passenger traffic was growing rapidly and air mail was a small
factor, while here at home the reverse was true. Most of the United States air mail contractors

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flew small, open-cockpit airplanes, and when passengers were accommodated at all, they had to
wedge themselves in among – or on top of – the mail sacks. Passenger-oriented ground facilities
obviously did not exist.
         In that same year, 1926, the Air Commerce Act was enacted to foster the development of
commercial aviation in the United States. It gave the Department of Commerce full jurisdiction
over the licensing of equipment and personnel as well as the maintenance of safety in aircraft
operation. It also authorized the department to build and maintain airways and other navigation
facilities.
       In that year, the industry logged 1.3 million revenue passenger miles – or, as we refer to
them in the industry, RPMs – the basic product of our transportation industry.
       To put that in perspective, today a single 747 on a one-way trip – New York to Rome –
can generate that many RPMs in a single flight. A dozen years later, industry revenue passenger
miles had grown to 475 million RPMs. In that year, government involvement in civil aviation
deepened significantly with the enactment of the Civil Aeronautic Act of 1938.
       Aside from broadening the scope of safety regulation, it placed air carriers under the
same type of economic regulation normally imposed on public utilities. Permanent certificates
were granted to airlines operating routes satisfactorily serviced at the time the act was enacted.
Subsequently, a Certificate of Public Convenience and Necessity was required from the CAB
before a route could be operated by an airline. That, of course, had the effect of placing the Civil
Aeronautic Authority, now the CAB, in the position of controlling competition within the airline
industry.
        The regulatory body was given the power to control market entry and to establish prices,
but not levels of capacity for other service features. The regulatory framework has not materially
changed since then. The regulatory system guiding United States civil aviation has been central
in the development of the nation’s air transportation and is a critical issue in determining its
future. But it is only one of the factors which stimulates growth of the airline industry.
        Another factor in the triad of forces which spurred that growth and will affect it in the
future is technology. The Lockheed Constellation, on which I would have made my trip 25 years
ago, had a nonstop range of about 3400 miles. Today’s 747 has a nonstop range of 5000 statute
miles. Yesterday’s Constellation carried 55 passengers, while the typical 747 configuration can
accommodate over 360. The Constellation had a cargo capacity of 434 cubic feet, while today’s
wide-body Boeing 747 has a capacity over 12 times that, 5533 cubic feet.
       In 1952, I would have traveled here at 280 miles per hour, whereas the actual cruising
speed of a 747 is twice as fast. Finally, the aircraft of 1952 was powered by four engines of 2200
horse power each. Today’s aircraft generates 64,000 horse power or nearly 30 times as much.
        These and other improvements, including innovation in the ground handling of
passengers and cargo, have saved the public millions of dollars in reduced fares and untold flying
hours. Thus, the $70 fare of 1952 is $110, or 57 percent higher. Contrast that with the consumer
price index, which has risen 113 percent during the same period.
        Along with the regulatory environment and the level of available technology, the final
key determinant of airline growth, of course, has been, and will continue to be, the performance
of the United States economy.

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         Those have been what I consider the most significant factors which have catapulted the
airline industry to its place as the primary mode of intercity travel today. It now accounts for
over 80 percent of all intercity public carrier passenger miles. The 1.3 million RPMs of 1926,
and the 475 million of 1938, have grown today to 150 billion. Today the United States scheduled
airlines alone have total assets approaching $10 billion, and provide employment for over
300,000 people. They also operate over 2200 aircraft, averaging over 12,300 departures a day,
providing service to over 1000 U.S. cities.
        With those records of achievement behind it, what is the condition of the airline industry
today? Today there is uncertainty about the form of the regulatory framework which will set the
ground rules for the years ahead. A new regulatory system is presently being formulated in the
Congress which will alter many of the basic premises by which the airlines have operated for
nearly 40 years.
        Market entry provisions are likely to be more liberal, and some flexibility in price setting
will be permitted the airline. Today no new revolutionary technology exists which promises
productivity improvements equal to those of the past. Today environmental factors have cast
doubt upon the capability of many of the existing aircraft to operate efficiently and to satisfy
stringent community noise constraints. Finally, today there is an urgent need to demonstrate a
record of improved airline profitability in order to obtain investor confidence and attract much-
needed capital.
        Since 1968 the profit margins the airlines have obtained have been consistently below the
average for U.S. manufacturing – even lower, in fact than the railroads. In 1976 the trunk airline
return on investment – excluding extraordinary items -was 7.4 percent and the margin was 2.6
percent. To achieve the theoretical goal of 12 percent return on investment, set for the industry
by the Civil Aeronautics Board, the trunk airlines would need approximately a five percent profit
margin, or twice that achieved in 1976.
         The reasons for the current financial plight of the airlines are contained in the events of
the last decade, some of which affected all businesses, others peculiar to our industry.
         First, there were two economic recessions within a six-year period. While they affected
all industries, they were particularly hard on the airlines, because a substantial portion of air
travel is discretionary. Our industry is always one of the first to feel the impact of a recession and
one of the last to recover.
         Second, was the fact that those recession periods coincided with the airlines` acceptance
of substantial additional production capacity in the form of new wide-body aircraft. The contract
for those new aircraft had been signed in a period which had recently seen a phenomenal growth
in traffic, and there was no suspicion of what lay ahead. The burden of that new equipment,
which would have required a period of adjustment even in normal times, was overwhelming
when combined with decreasing traffic growth.
        Third, was the sharp increase in the price of oil in 1973. Jet fuel prices have risen nearly
threefold since 1973 and have become 20 percent of airline operating cost, this, even though the
airlines have substantially reduced the amount of fuel they consume. For example, in 1976, the
airline carried 21 million more passengers than they did in 1973, and used 800 million gallons, or
7.5 percent, less fuel to do it.

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        Fourth, since 1967, overall unit costs in the airline industry have increased 111 percent.
Unit labor costs are up 134 percent. Landing fees are up 169 percent. The burden of this
inflationary increase has not been completely offset by increased prices.
        A fifth factor that has adversely affected airline profitability is the growth of charter
operators. Faced with CAB liberalization of charter operations and the more favorable
economics of charter service, the scheduled airlines have had to compete with sharply reduced
air fares of their own to remain competitive in the sizeable price-conscious market. The lack of
adequate earnings produced by these factors has placed a serious obstacle in the airlines’ path to
obtaining the capital needed to purchase new equipment in the future – a necessary step, if we
are to maintain the outstanding air service to which the public has been accustomed and which is
so vital to our economic well-being.
       New capital is seriously needed because today’s current fleet is aging and significant
numbers of new aircraft will be needed for replacement. Additionally, current aircraft were
designed for performance and productivity at a time when fuel efficiency was not a critical
design parameter. With the large increases in fuel prices since 1973, today’s fleets are in effect,
not only aging, but also somewhat obsolete technologically.
        Between now and 1990, U.S. scheduled airlines will need to replace more than 75 percent
of their current fleet of over 2200 aircraft, not to mention the additional aircraft they will need to
handle anticipated traffic growth.
        Considering these historical problems – the results of economic conditions, inopportune
additions in capacity, rising prices, charter-induced low fares, and regulatory constraints – what
are the prospects for the industry during the next quarter-century?
        Let’s begin with a forecast of the domestic demands for air travel. Assuming the absence
of wars, economic depressions, or major resource shortages, the consensus of knowledgeable
opinion points to an anticipated average annual growth of five percent through the year 2000.
This compares with a 13 percent growth rate in the period from 1960 to 1970. This decline in the
rate of growth is the result of a more mature travel market, and is thus a very natural
phenomenon.
       Nevertheless, that five percent anticipated yearly growth will result in a doubling of
domestic airline revenue passenger miles by 1991, and a threefold increase by the year 2000.
That means that the annual growth in 2001 alone will exceed the total industry revenue
passenger mile output for the entire year of 1952.
       The vital and central role of the airline as the primary mode of intercity travel will remain
unchallenged in the next quarter-century. Those very-high-speed transit vehicles shooting
through tunnels deep underground will still be on the drawing board. Even more modest high-
speed rail transportation systems are not likely to present a threat to air transportation.
        The key question is: How will the airline industry overcome its current problem and serve
that nearly threefold increase in its passenger traffic by the turn of the century? In answer, I turn
once more to those forces which were crucial to the development of the industry – the regulatory,
technological and economic environment.
       The traffic forecast to which I have referred assumes stability in continued growth in our
economy. The biggest question mark in this area, of course, is the energy situation with all of its
ramifications. There are those, including President Carter, who believe that although the recent

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energy crisis may appear to have been relieved, serious and perhaps crippling fuel shortages
almost certainly lie ahead, with a consequent impact on economic growth, unless we take major
corrective measures now. Even if the change to alternate sources of fuel is accomplished with
much less pain than is projected by the gloomier observers of the energy field, this remains an
area of more than passing interest to the airline industry.
        Possibly no other segment of modern industry depends so heavily on petroleum fuel.
Airlines account for less than four percent of the petroleum fuel consumed nationally, but they
have no alternative source of fuel. It appears that the practical alternative uses of fuel other than
fossil-derived hydrocarbons lies far in the future, and most probably beyond our 25-year horizon.
        I am confident, however, that the world will find ways to avert the catastrophic energy
crunch envisioned by some, and that the jet fuel issue will be resolved, given the great
importance of commercial aviation to our national defense and to our commerce. If the economy
continues to grow and jet fuel supplies are assured, allowing for price increases but still
reasonable rates, I believe we will realize the anticipated traffic growth I have already
mentioned. That increased traffic growth will steadily absorb the existing excess capacity of our
busier airways and airports.
       Even today, some of our busier airports are strained during peak periods of flight activity.
With new airport construction generally opposed by most interested parties, the real challenge to
government and industry lies in the improvement of existing facilities. There are several
elements involved.
        First, airport passenger ticketing and check-in will be at a premium. This will lead to the
continued movement of this activity to off-airport areas. More ticketing will be done in the city
with the use of mail service, an attractive option, time permitting. Issuance of boarding passes at
off-airport locations by travel agents, commercial accounts, and at city ticket offices will free
space at the airport ticketing and check-in counters and turn the airport terminal into primarily a
transfer facility between ground and air transportation.
        Second, access to airports will have to be improved. Each airport and the community it
serves has different requirements and constraints. The proper mix of roadway and rail access will
have to be carefully considered and will differ in each case.
        Third – the terminal area. The airport runways and surrounding air space will also need
increased capacity. But here I believe we can expect technology to lend a helping hand. Digital
computer systems, which have found applications in nearly all industries, can go a long way
toward increasing air space and runway utilization. Automated navigation and traffic control
systems applied to our entire air transportation system, along with the expected elimination of
the wake vortices that limit plane separation, will help the capacity of runways and air space to
keep pace with demand through the end of this century. In spite of increased airport, terminal
area and air space capacity in the years ahead, there might be an opportunity to use peak/off-peak
pricing as a mechanism to redistribute peak period demand by economically altering the
passengers’ time-of-day travel preference.
         But will traffic growth alone result in improved airline profitability? How can expenses
be kept from rising more than revenues, while still keeping airline fares from rising faster than
other goods and services? The answer will lie partially in aircraft technology. The transition to
jet, largely accomplished in the 1960s, brought major increases in the average speed and size of

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aircraft. The introduction of wide-body aircraft, though not adding substantially to average
airline air speed, increased capacity dramatically and reduced seat-per-mile operating cost. The
wide-body aircraft also brought technological advances in aircraft systems and avionics
capability, in addition to significant reduction in aircraft noise and emissions.
         Although the jet age may appear to have reached maturity, many opportunities still exist
for major performance, costs, and fuel conservation improvement. Neither the supersonic
transport nor the 1000-passenger airplane is likely to make an appearance, much less become a
major factor in domestic air transportation, in the closing years of this century. Nevertheless, a
significant package of unused, or only partially used, technology has grown up during the past
eight years, a period of time which has seen no new U.S. commercial airplane design. This fact is
itself overshadowed when we realize that most of our airlines’ aircraft were built to designs
formulated closer to 18 years ago than just eight.
        In the past, domestic airlines have exhibited a cyclic buying behavior as a result of
governmental, technological, and marketing factors. If we use those historic airline buying
patterns as a guideline, we can estimate that between now and the end of the century, there will
occur approximately three opportunities for infusing the airline with new technology. With each
infusion of new technology there will undoubtedly be reductions in the costs per aircraft seat
mile. However, those modest gains will have to be complemented by higher seating densities and
higher aircraft utilization to offset the higher acquisition cost of the new aircraft.
        The introduction of each new airplane and engine design will also bring continued
progress in noise reduction. However, both from a practical and economic standpoint, a point
will be reached beyond which additional improvements in the airport noise environment will
require regulation of land use in addition to regulation of aircraft.
        I have already stated that substantial increases in productivity are not likely to come from
increased seating capacity or speed. Although the average size of aircraft will continue to rise
with time, the rise will be gradual. Although technically feasible, it is not certain that a
substantially larger aircraft – say a 1000-passenger transport – will be compatible with air
transportation needs until close to, or after, the year 2000.
       As for a faster aircraft – an American SST – it is likely that development cost, as well as
environmental objections, will prevent its introduction during this time period.
        In summary, the airlines can expect technology to continue to provide productivity
improvements, but this improvement will be gradual, and will likely take the full period of our
25-year horizon to effect a new balance among a new set of critical design parameters. The
airlines will thus be assured of an increasing demand for their services.
        Evolutionary but significant improvements promised by technology already conceived
will aid them in the battle to increase efficiency. But how will the airlines improve their
earnings’ performance sufficiently to attract the new capital they will need so urgently? The
airlines, as a whole, appear to have turned the corner on profitability. Nevertheless, they still
must make significant progress before achieving a 12 percent return on investment, which was
established as the norm by the Civil Aeronautics Board for the industry in 1971. Airline
regulatory “reform” as it was described by its advocates when first proposed in 1975, was
supposed to return the industry to financial health and improve service to the public. That the
latter objective was misguided is well documented by the most recent U.S. News and World

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Report survey of the public’s reception of the value offered by this industry. The airline industry
continues to lead the list in terms of the value received by the customer.
         As for the other objective of the proposed legislation, it can be said that, yes, changes in
airline regulation are necessary to return the industry to financial health. But the transportation
system with its complexities has evolved over a very long period of time. It is a good system,
operating essentially without direct subsidy, unlike most air transportation systems of the world.
Making radical changes in such a system could result in an undermining of the high service
standards we have come to expect.
        Improvements can and must be made, but they must be accomplished slowly and
deliberately so as to achieve the basic objective of creating a stronger system of air carriers over
the years ahead. What path regulatory reform will follow must be quickly resolved so as to lift
the cloud of uncertainty which now shrouds the airlines and deters airline investors. I mention
this because the fate and exact final form of the proposed legislation will substantially affect and
shape the industry for many years ahead.
       The administration of the regulatory system will, in any case, be instrumental in ushering
in a new period of vigorous competition in the domestic market, while at the same time,
negotiated agreements will continue to replace competition in the international system.
        Long before the year 2000, the airline industry will surely have assimilated the changes
brought about by the competitive avenues opened under a new regulatory environment. Having
done so, how will the industry compare with the one we know today? If the history of other
American industries, including our own before and after the Civil Aeronautics Act of 1938 are
any indication, we will see in 2001 fewer United States airlines than there are today. Each will be
larger in size, and together they will continue to be an important segment of American private
industry.
        There will be no distinction between scheduled airlines and charters. The distinction is
already becoming blurred and will disappear when the scheduled carriers are permitted to fill
their otherwise empty seats with charter traffic.
        The need for fuel conservation and operating economics will result in increased seating
densities and higher average load factors, which in itself is a positive indicator of airline
profitability.
       In conclusion, I think that the next 25 years of commercial transportation will tax the
resources of management and manufacturers alike. The environment will not be without its
challenges, but I hope I have succeeded in convincing you that opportunity exists for a return to
healthy earnings and continued growth for the airline industry.

                           QUESTIONS AND ANSWERS
       QUESTION: How long do you think it will be before our airport in Kansas City has
reached its capacity and we will have to start expanding?
        ANSWER: I would just have to make a top-of-the-head guess at that. I think that you
have enough capacity to last at least for the next 10 years. I don’t think you will have a
significant problem during that period.

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        In completing our recent look through 1985, it is our intention, and I think it would be
quite natural, to look upon Kansas City as a place where we do intend to expand service at a
more rapid rate than we would tend to do elsewhere on the rest of the system, and at a
substantially higher rate.
         QUESTION: You mentioned the need for more modernized airport terminal facilities and
access to them through the year 2000. We are told that the cost of our facilities, if replaced in
Kansas City today, would be something like three times the cost of when it was built. You have
also indicated that one reason the SST would not be developed is because of very high
development costs. I wonder who is going to pay for these new terminal buildings and access
facilities to airports in cities other than Kansas City?
        ANSWER: Actually, you are quite right. The cost of building new terminal facilities and
airports is astronomical. But I don’t really think that is the major deterrent that has prevented
new airports from being built. It is primarily the reluctance and hostility of local communities to
permit the building of costly new airports. I think the Kansas City International Airport, as well
as the one in Dallas, Texas, are the last two major large city airports that have been constructed
in the U.S. I don’t know of any others that are on the drawing board today. That is not only
because of a lack of capital. It is because of environmental problems and reluctance of
communities to accept those facilities. That is why, again, we are going to have to use more
efficiently the existing facilities.
       I might also say that as the airports do become more crowded, and there are no more
coming into being, you may find in later years that Kansas City will directly benefit from having
available facilities.
       QUESTION: How can you redistribute the interfacing of airlines so that places like
O’Hare don’t become a bigger problem? We have a lot of capacity at KCI, but it is not being
used for that kind of exchange possibility.
        ANSWER: We can’t change the travel patterns overnight. It can only be done gradually.
Chicago was a major rail transportation center. It naturally turned into a major air transportation
center. It is becoming quite saturated.
        One of the first things that is forcing traffic over other Midwest gateways is the
inconvenience and saturation of O’Hare. It will take quite a bit of time to really change those
travel patterns. We hope we will have a role to play in changing some of those travel patterns
over Kansas City and over St. Louis where there will be less strain and trouble transiting.
        QUESTION: Are there any serious or major resources of alternative fuels or petroleum
for aircraft that you know of?
       ANSWER: None that I know of.
       QUESTION: Do you think that there can be or should be?
       ANSWER: I don’t think so in the next 25 years.
        QUESTION: What do you see as the outcome of hijacking? Will it die off? Can we
control it?
        ANSWER: It certainly is not going to die off. We have substantial security that we pay
for as an airline and many foreign locations have continued their security because of the

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problems and experiences we have had in the past. I think it is very likely that until the world
governments can come to grips with terrorism, security facilities are only going to increase.
      QUESTION: What average annual growth increase do you anticipate for air cargo, both
domestically and internationally?
       ANSWER: I would say probably around six to seven percent in both areas.
        QUESTION: You mentioned eliminating wake vortices as a problem in air traffic,
increasing air traffic density. Were you referring to wake vortices protection systems, or is it
possible through aerodynamics design to actually lessen the problem itself?
        ANSWER: I think primarily through detection systems, so that you can actually move the
aircraft with closer separation.
        QUESTION: Would you want to comment on the incremental impact on an airline P&L
by virtue of a cent change in price of fuel or one more seat sold per flight?
        ANSWER: In TWA terms, one penny of increase or decrease in the price of fuel is worth
$14 million to us. We use 14 billion gallons per year. One more passenger on each aircraft, I
think at the last count, was worth on the pre-tax line about $27 or $28 million to us. This is a
very substantial leverage, as we say.
       QUESTION: There has been considerable propaganda that deregulation of service, to
which you referred, would result in reduction in fares and allowing carriers who have the ability
to compete to do it on a better basis. Could you comment on your reaction more than you did in
your remarks?
       ANSWER: That argument is really predicated on full-planeload economics. Obviously, if
we could guarantee that each airplane that took off was going to have every seat filled, then we
could reduce the price of the passenger charge. But the domestic airline industry has averaged
50-55 percent load factors over the years it has been in operation. That basically is because we
provide scheduled transportation – regular flights out, daily, weekly, through every season.
        This industry has a tendency to peak the traffic at various times of the day, various days
of the week, various seasons of the year. All of these things contribute to a 50-55 percent load
factor. I don’t think there is a way to have regularly scheduled air transportation and load factors
of say 80 percent on an annual average basis. You can only have high load factors if you will fly
the planes just when people want to fly. You can’t have your cake and eat it too. You can’t have
a low price and have the seat available whenever you want it.
        The charter operators have come into being – the Skytrains of the world – offering very
low-cost transportation, but they only want to offer it when there are enough passengers to fill
the airplane. Charter services really don’t want to fly in February when they can only put 40 to
50 people on the plane. They would lose as much money as we would doing that.
       QUESTION: Is there anything that Kansas City can be doing today to take care of the
year 2001 in our airport that we are not doing – increasing land holdings, etc.?
        ANSWER: I am not really qualified to answer that question. It would be better to get an
answer from somebody who looks into that on a regular basis. Just off the top of my head, I can’t
think of any projects that you need to undertake. I think you have a marvelous facility. As you

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have indicated, it certainly is not saturated. I think, as our pilots would attest, the landing systems
and the runways are extremely fine. I can’t think offhand of any projects to undertake.
         QUESTION: The average time in which an average jet flies on commercial airlines today
is less than 10 hours a day. Do you foresee that having to go up appreciably so that the airline
doesn’t shut down? Do you foresee stretching out the day or more red-eye specials?
        ANSWER: I do. One of the real constraints that we are going to face in the years ahead is
the constraint of airport facilities – limiting aircraft movements. For that reason, we are going to
be forced to larger aircraft. We are going to be forced to use them on a higher utilization basis
into the late afternoon and evening. That is also going to be required because of the capital
constraints on the industry.
         I think we will earn enough money to buy airplanes, but we are still going to have to
husband our resources and use them more efficiently for longer hours each day. That
convergence of factors is going to produce higher utilization of aircraft in all the commercial
airline fleets over the next 25 years.
         QUESTION: What type of growth do you project in Kansas City in terms of people and
facilities in the next 25 years for TWA, based on your projections in the industry?
         ANSWER: Let me answer that question in terms of airplanes. We right now operate
about 210 airplanes of various sizes and shapes in passenger transportation. We estimate that
during the time period between now and 1985 we will be required to add to our fleet
approximately 20-25 aircraft. That is net additions. It will actually be more than twice that
number because of retirements. The net addition will be probably 25 units, all of which will be
capable of carrying more than 200 people. That probably would cause us to need to expand
facilities related to that growth, perhaps on the order of 10-15 percent.
      QUESTION: When, if ever, do you think Kansas City will get nonstop service to
England or Europe?
         ANSWER: As soon as there is enough traffic to justify it. I really can’t give any other
answer than that. Our marketing people do look at it from time to time, and I don’t know what
the current traffic experience is between Kansas City and London. But I doubt that on a daily
basis, it comes very close to 100 people each way, which is certainly what you would require for
nonstop 707 service.
         QUESTION: Taking into account the trends you have described and traffic pattern
trends, do you see any difference 25 years ahead in the long haul/short haul contrast of, air traffic
in this country that would have some bearing on the role of Kansas City’s airport, O’Hare,
Dallas, Fort Worth in contrast to the smaller airports around the country? Is there a changing
pattern there?
       ANSWER: I think that you are going to see a continued increase in short haul
transportation. When I say short haul transportation, I would say 250-750 miles, that would
probably parallel the growth in longer haul transportation over that period of time. I think that
most of the commercial airports that exist today will be growing at about the same rate.
        I can’t see any shifting of patterns. The primary thing you are looking at is greater
saturation of your major hub airports which are becoming saturated and are quite saturated today
– Chicago, LaGuardia, Washington National, Kennedy, and Los Angeles. At one time or another

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over the past several years, these airports have been restricted as to access. And there will be
other airports joining that list as time goes by.
       Really, the crunch is going to come on your larger airports rather than the airports that
would be serving the shorter haul markets, but I would certainly see those increasing in use.
       QUESTION: By a lot of transfer traffic then, between the long and the short haul at these
major airports?
        ANSWER: A fair degree of it. You are going to definitely see an attempt by the regional
carriers to expand their services to longer segments. In other words, instead of going from
Pittsburgh via Kansas City to Dallas, they will probably be trying to fly it on a nonstop basis.
What they are going to run into is the saturation of those major metropolitan areas, and then I
think the priorities that will be listed will take the longer-haul points. They will have to restrict
the nonstop service from shorter haul points. It’s going to be a real problem in this country.
         QUESTION: I was thinking about the tremendous problem of getting to LaGuardia by
automobile or bus, particularly in the rush hours. Do you foresee a need for a high-speed rail
transit system, somewhat like Cleveland, for Kansas City?
        ANSWER: In the case of New York, or the case of Los Angeles, they are far behind. The
boat has already left. There should have been something built, certainly in New York, 15 or 20
years ago. Eventually that is going to have to be tackled, and it is going to be very costly, but it is
essential. It is absolutely necessary.
       In a city like Kansas City I don’t think I see a need for it right now, but I may be
underestimating the growth of traffic here. I think you are going to have some serious problems
elsewhere in this country, and it is going to divert traffic to existing airports. It is going to help
build Kansas City into a hub faster than might otherwise have happened.
        QUESTION: Will there continue to be two classes of service?
        ANSWER: We are definitely going to see an increased growth in low fare, low-cost
service. No question about it.
         We are presently giving consideration to a businessman’s class of service, if we can bring
it off. What is happening already is that you have quite a divergence in the price charged the
businessman on the normal fare, and the guy that may be sitting along side of him. This has
become very dramatic in the international area. Now with Super Savers, Super Coach, et al, it is
becoming very obvious in the domestic area. So there will be a movement toward lower cost
transportation – the no-frills or less frills service – taking up more of the airplane cabin.
        At the same time, I think you are going to see an effort by the airlines over the next three
to four years to provide the businessman with a service that justifies a higher fare than that
available to the discount traveler.
        What you may see is an attempt to introduce three classes of service – an effort which has
failed in the past. Gradually over the 25-year period, I think the low fare, low frill, less frill,
service is going to dominate the other services.
        QUESTION: Do you want to speak of any problems you see for U.S. airlines in the
international fields?

© MRI, 2000                         C.E. Meyer, Jr., October 27, 1977                          Page 12

        ANSWER: I anticipate a significant expansion of international competition triggered by
the U.S. government’s insistence on lower fares and open market entry. Unfortunately, the
ability of U.S. flag carriers to compete with foreign flags is limited. The chairman of the Civil
Aeronautics Board understands this, but at the same time, the federal government and the
regulatory reform movement are moving in the direction of generating greater competition
between the airlines.
        But when a foreign flag comes along with a 25 percent across the board reduction of fares
next year, which would cost us $65-70 million in revenue with no concurrent reduction in costs,
they are able to do so because of a variety of support from their government. We are being
supported by our stockholders. We can’t win that kind of game.
        I think that the federal government will recognize this, will act appropriately, and if they
do, then I think we have a very fine future in international aviation. The foreign airlines of the
world have decided that it is really more economical for the passenger and for them to regulate
capacity and match capacity against the revenue passenger mile growth that is occurring. Under
those circumstances, profitability has a good chance of surviving.
      The outlook internationally certainly is better over the next 10 years for us than the
domestic outlook.
           QUESTION: What do you see as the impact of the Concorde on the North Atlantic
traffic?
       ANSWER: About two years ago when they were talking about the Concorde coming into
New York and Washington, we estimated that, at least for TWA, it would mean a diversion of
some $15-20 million of revenue. Right now, using the Washington experience, we have not
experienced that drain of revenues which we had anticipated.
       When Air France flies the Concorde from Paris to Washington they have substituted the
Concorde for a subsonic service. We, therefore, have picked up some of the coach traffic while
they have gained some first-class traffic. We actually have gained revenue.

© MRI, 2000                        C.E. Meyer, Jr., October 27, 1977                         Page 13

       C.E. MEYER, JR. was named President and Chief Airline Executive for Trans World
Airlines on January 6, 1976.
        He joined TWA in August, 1968 as Assistant Treasurer, a
position he held until his appointment in 1970 as Vice President and
Controller. He was elected Senior Vice President-Finance and a
member of the Board of Directors of TWA in 1971. Mr. Meyer is
also on the Boards of Canteen Corporation, Hilton International
Co. , and Medical Testing Systems, Inc. He has been a trustee of
Midwest Research Institute since 1976.
        Mr. Meyer served as Manager of Audit for Harris, Kerr,
Forster & Co. of New York from 1953 to 1965. He was Assistant
Treasurer for Eastern Air Lines from 1965 until he joined TWA.
       He received his B. A. degree from Amherst College in
1950, and his Master of Business Administration degree from
New York University in 1955.
        Mr. Meyer is a Certified Public Accountant and a member
of the American Institute of Certified Public Accountants and its
New York Chapter.

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       MIDCONTINENT PERSPECTIVES was a lecture series sponsored by the
Midwest Research Institute as a public service to the midcontinent region. Its purpose was to
present new viewpoints on economic, political, social, and scientific issues that affect the
Midwest and the nation.
        Midcontinent Perspectives was financed by the Kimball Fund, named for Charles N.
Kimball, President of MRI from 1950 to 1975, Chairman of its Board of Trustees from 1975 to
1979, and President Emeritus until his death in 1994. Initiated in 1970, the Fund has been
supported by annual contributions from individuals, corporations, and foundations. Today it is
the primary source of endowment income for MRI. It provides “front-end” money to start high-
quality projects that might generate future research contracts of importance. It also funds public-
interest projects focusing on civic or regional matters of interest.
         Initiated in 1974 and continuing until 1994, the sessions of the Midcontinent Perspectives
were arranged and convened by Dr. Kimball at four- to six-week intervals. Attendance was by
invitation, and the audience consisted of leaders in the Kansas City metropolitan area. The
lectures, in monograph form, were later distributed to several thousand individuals and
institutions throughout the country who were interested in MRI and in the topics addressed.
       The Western Historical Manuscript Collection-Kansas City, in cooperation with MRI, has
reissued the Midcontinent Perspectives Lectures in electronic format in order to make the
valuable information which they contain newly accessible and to honor the creator of the series,
Dr. Charles N. Kimball.