Business: The Troubled Air

To American Airlines' 62,000 stockholders last week went a grim warning from President C. R. Smith: so sharp is the profit slide for the U.S. airlines that they will either "return to Government subsidy or else they will go bankrupt." In 1961's first quarter, American, second biggest U.S. carrier, was deep in the red. In 1960, despite record revenues of nearly $2 billion, the nation's twelve domestic carriers together showed a profit of only $1,000,000. Back in 1949, when airlines were only doing one-fourth of the business they do now, they earned ten times their 1960 profit.

Smith laid the major blame for the airlines' straits on the Civil Aeronautics Board for its "lavishness" in awarding new routes to "needy" trunk airlines. This policy, said Smith, hurts the bigger airlines while seldom helping the feeders. Smith recommends instead more mergers to benefit the public, such as the merger that joined Capital and United Airlines. But CAB last week announced that it has decided to go slow on approving future mergers. Main reason for allowing Capital to merge with United, said CAB, was that there was no other way to keep Capital operating.