The Civil Aeronautics Board has issued what amounts to an open invitation to Pan American Airways to create a domestic route system - without a merger.
In its formal order granting Pan Am limited authority to carry domestic passengers on flights between Houston and three major U.S. cities - Miami, Los Angeles and San Francisco - the board appeared to be sympathetic to the airline's desire to establish a network of domestic routes.
Pan Am is currently trying to acquire such a domestic network through its proposed merger with National Airlines. The CAB did not mention the proposed merger in its order.
"We believe that the rapidly changing competitive structure in international air transportation brought about largely through the efforts of the United States . . . has a unique impact on Pan American - the only U.S. flag carrier with virtually no domestic system," the board said. "We believe this situation plainly establishes an unusual circumstance causing an undue burden . . ."
In the past, the board said, U.S. carriers such as Pan Am could afford to fly "half-empty planes" across the country and still make a profit on international service. Now, however, because increased international competition has reduced fares, Pan Am can no longer afford the luxury of half-empty planes and needs to fill the empty seats with domestic customers to help pay its costs, the board indicated.
"If Pan American has an overall plan for its system which includes widescale use of domestic authority, it should file an application for a system realignment, which the board is now prepared to entertain." the CAB said.
The board's order allows Pan Am to carry domestic passengers between Houston and the three cities on flights that are tied to Pan Am's international schedules. The airline had applied for the Houston routes in February along with four others - New York-Los Angeles, New York-San Francisco, New York-Houston, and Miami-Los Angeles. It promised lower fares for travelers if the route were granted.
When it filed its application, Pan Am also asked the board to use its "exemption" power to allow the airline to fly the routes while its formal application would through the administrative process.
In July, the board voted 2-2 on the exemption request and so it failed, but Chairman Alfred E. Kahn decided to vote for it after further reflection in light of a written statement prepared by CAB member Elizabeth E. Bailey who supported it. His vote made it a 3-1 decision, with G. Joseph Minetti, whose term expired yesterday, the lone dissenter.
Although Pan Am can start operating the new Houston routes now, the board also instituted a proceeding in which it will determine Houston's air service needs on a more permanent basis.
The board did. however, turn down Pan Am's request for exemption authority to operate between New York and San Fransico and Los Angeles.
"It is not our intention to use the exemption vehicle for considering widescale domestic authority for Pan American," the board said, citing "special circumstances" that justify using exemption power to grant "improved Houston authority."
It is widely believed that the board will grant Pan Am the authority to fly between New York and the two West Coast cities when it reviews an administrative law judge's initial decision in a proceeding assessing the possibility for low-fare transcontinental service. That decision is expected in November.
In the last year, Pan Am has won approval to carry local passengers on more than a half-dozen domestic segments of its international routes and currently operates flights between Washington and New York, San Francisco and Los Angeles, Seattle and Portland, Detroit and Washington, and Houston and New York.
In another development, Pan Am told the board it has made formal arrangements to put the National Airlines stock it is acquiring in a trust at the First Women's Bank in New YorK.
Both Pan Am and Texas International Airlines, which is also seeking to take over National, were given temporary authority to acquire up to 25 percent each of National's stock as long as it was put in a trust that would not allow either firm to exercise control over National.
Meanwhile, the Justice Department filed petitions to intervene in the three merger cases pending before the board. According to John H. Shenefield, assistant attorney general in charge of the Antitrust Division, the department is concerned about the possible anticompetitive effects of the current airline merger movement. He noted, however, that the department has not yet completd its evaluation of the implications of the particular mergers and has not yet reached any conclusion on the merits of any of the proposals.