In a major decision affecting domestic airlines, the Civil Aeronautics Board yesterday laid down rules to make it easier for carriers to drop unprofitable routes and to be replaced by designated "backup" airlines.
In an opinion affecting six route cases, the board:
Said it will begin granting airlines "permissive" authority to enter new routes. If the carrier finds the route doesn't have enough passengers to make the service profitable, it will be free to discontinue the service on 60 days' notice without going back to the board for permission.
Said it would see to designate "backup" carriers for route awards, allowing a backup airline to move into the market without further board action if the first carrier designated by the board abandons it.
Established a new category of subsidy-ineligible route awards designed to eliminate what it called "subsidy leakage" in its current system.
Although new routes have been awarded to regional, federally-regulated airlines on a subsidy-ineligible basis in the past, the board said the taxpayers still subsidize the service indirectly. That's because revenues lost on that route are offset against profits on other routes in determining the level of excess revenues available for profit sharing with the federal treasury. (The subsidized airlines split fifty-fifty with the government any profits in excess of the 12.35 percent rate of return on investment the board allows them.)
"The new subsidy-leakage condition protects the taxpayer, the permissive character of our route awards protects the carrier, and the provision of backup authority protects the traveling public," the board said yesterday in summarizing its new policies.
The decision itself award Hughes Airwest new, nonstop permissive routes between Phoenix on the one hand and Des Moines and Milwaukee on the other. It also tentatively found that Ozark Airlines should be granted automatic backup authority between those cities if Airwest terminates its service. If Airwest dropped out and Ozark went in, Airwest could decide to go back in later in competition with Ozark.
The board also granted Frontier Airlines new permissive nonstop authority between Sacramento and Denver, and gave Southern Airways new nonstop authority between New York and Washington on the one hand and Greenville and Spartanburg, S.C. on the other.
The board noted that granting new authority on an explicitly permissive basis is not a radical break with the past since, over the years, it has let airlines drop unprofitable service.