Competition and International Commercial Transportation

MR. POTTS:

Those of you who have studied the mythologies and religions of the world will be aware of the fact that flight has always been one of the chief aspirations of man. In those mythologies and religions the supreme being was given his home in the vast region above us and he had the power to move at will through the atmosphere and therefore flight has been an attribute of godliness and to the ancients one of the chief distinctions between a deity and a human. The religious people thought in the olden times that if a man attempted to fly he was indulging in sorcery. They took the stand that if God had intended man to fly he would have endowed him with wings. Angels had wings and could fly and the devil had wings and could fly. If a man succeeded in flying he must have been inspired by the devil and therefore ought to be proscribed. Particularly in the Middle Ages, and even earlier, man's attempts to fly were frustrated for religious reasons. The ancient philosophers and scientists noticed that there were two things that had the power to move through the air. One was a bird and from that we get our heavier-than-air craft; the other was smoke and vapor and from that we have the development of the lighterthan-air craft. Those two schools of aeronautic thought have developed down through the ages. As early as the time of Our Lord, immediately after to be exact, there was a man by the name of Simon, a scientist who said there was nothing marvelous in the Ascension of Christ that he could project himself into the sky and disappear. He gave his flying exhibition in the Forum at Rome before the Emperor Nero. The Apostle Peter was there and other Christians; they prayed that he might not be successful because they thought he was indulging in sacrilege. Before this vast assembly he did project himself in a balloon with hot air in ithigh enough to be killed by the subsequent fall.

Some of you will have had the privilege of visiting the Alexander Graham Bell museum in Baddeck, Nova Scotia. Most of us remember him only as being the inventor of the telephone. A visit to that museum reveals the tremendous contribution he made to the development of aviation.

Prof. Bell spoke to The Empire Club in 1917 when he said:

"It might be interesting if I told you a little of an almost unwritten chapter of history--the development of aerial locomotion. As far back as I can remember I have always been interested in impossible things-and one of the most impossible in all the world was that of flying. It is only a few years ago when one would say to express the height of impossibility--'Why, I could no more do this than I could fly!' Yet here you have men flying in Toronto all the time. "

Later in the same address he described the events leading up to the first appearance of a flying machine in the British Empire, the flight in 1909 of the "Silver Dart" piloted by John McCurdy of Toronto over the Bras d'Or Lake of Nova Scotia.

In describing the attempt by a Prof. Langley to make a mancarrying flying machine Alexander Bell said:

"In 1903 two attempts were made, but the machine caught in the launching ways and was precipitated into the Potomac River and never got into the air. Mr. Manley, the would-be aviator, also appeared in the river.

"But it was only a few days after the accident to the Langley machine that the Wright brothers, down at Kiddihauk, put a motor on their gliding machine with which they had made many glides and flew. They were the first men actually to get into the air and fly but very little was said about them; they did not want to take the public into their confidence. A few notices appeared of their flying at Kiddihauk but they took their apparatus away to Dayton, Ohio, and there for two years they continued flying in secret, flying for half an hour and even an hour at a time; but they were very careful not to let the news of their flights get to the public. Occasionally short articles would appear giving great accounts of the flights of the Wright brothers at Dayton, but hardly any person believed them. You see, America is a country of inventors; and the greatest of the inventors are the newspaper men. The majority of the people who read those glowing accounts attributed them to the newspapers. I did not; I felt sure, even if they had not flown, that it was possible to fly; and it occurred to me that it would be a great thing, too, if I could put a motor on one of my gigantic kites and propel it through the air as a flying machine."

When we consider the current controversy between chartered and scheduled flights we tend to overlook the earlier controversy between the lighter-than-air and heavier-than-air machines which is revealed in the annals of The Empire Club. In August of .1930 Major Scott, an officer on the Airship R-100 which had just crossed the Atlantic on probably one of the earliest charter flights, albeit chartered by the British Government, addressed the Club and said:

"There is nothing very wonderful about the flight; it was a perfectly normal flight. It is called a wonderful thing but we did what everybody will be doing some day. There is no danger in the flight at all."

But just two months later, in October of the same year, Col. (later Air Marshall) Billy Bishop addressed the Club on the topic "British Aviation in War and Peace" and said:

"This is not the right time to go into the pros and cons of the controversy between the lighter-than-air and the heavier-than-air machines. In view of the terrible tragedy of the R-101--in which I lost several close friends--I will only say that it has always been my opinion that the future of the air lies entirely with the heavier-than-air machines."

Mr. Ward, when I introduced the Prime Minister of Canada at our opening meeting last September, I told him that we were indeed honoured by his presence, particularly in view of the fact that he had taken time out to do so in the midst of a busy election campaign. We are equally honoured by your presence, particularly in view of the fact that you have taken time out to do so in the midst of a somewhat different type of campaign.

Our guest was born and educated in Edmonton, Alberta, and served as a Flying Officer in the Royal Canadian Air Force from 1940 to 1945. Upon discharge he joined an aviation company called "Northern Flights Limited" flying from Peace River to Yellowknife. In 1952 he formed Wardair Limited, having obtained a Domestic Charter Commercial Air Service licence to operate from Yellowknife. In 1961 the company name was changed to Wardair Canada Limited which obtained an international non-scheduled charter licence.

It was 11 years ago that our guest diverted a plane from his company's service in Canada's North and carried 88 passengers on a charter flight to Copenhagen.

The propeller-driven Douglas DC-6 took 18 hours and 55 minutes on the trip from Edmonton, plus an hour to refuel in Greenland, and the passengers were probably too exhausted to realize they were helping to make a small part of aviation history.

Exactly what place in that history his first international charter deserves depends largely on your viewpoint. Wardair Canada Limited now accounts for more than 20 percent of Canada's mushrooming charter business, and its president seems to be involved in a high proportion of the verbal battles between the establishment of the aviation world-represented by the International Air Transport Association-and the nonscheduled charter operators.

To tens of thousands of Canadians, Wardair and inexpensive flying are synonymous.

Ladies and gentlemen, I am delighted to be able to present to you Mr. Maxwell Ward, President, Wardair Canada Limited, who will address us on the subject "Competition and International Commercial Transportation".

MR. MAXWELL WARD:

Mr. Potts did such a wonderful job of summing up the aviation industry; I've never quite been able to put a title on what I was doing but "sorcery" seems to be the appropriate one. I'll remember that.

I would like to tell a little bit of a story to divert from my text if I may for a couple of minutes. Mr. Potts had done such a wonderful job of summing up some of my history but a number of years ago, in 1952, I was trying to get an aircraft from the DeHavilland Aircraft with no money as usual and having my troubles. However, I found that there was one party that sort of rather believed in northern transportation and he was running a mine in the north and he gave me, without any attachments, sufficient funds to launch that first aircraft. The name of the person I am speaking of here, sitting at the table, his name is Mr. J. C. Burn. He was then President of Consolidated Discovery Mines and I am just very pleased for this opportunity to be able to say I haven't forgotten Gerry and thank you very much.

From our experience operating in the International Market Place, it is evident that no matter what the political policy of a country with reference to its domestic affairs and regardless of the attitude in the approach that country makes with reference extending that domestic policy into international commerce, international commerce is basically a competitive matter and will always be so.

Although competition in international air transportation has not been evident to the layman, rivalry for prestige and particularly for national prestige has been very evident--and I could suggest has been very expensive for the taxpayers, too. The Concorde I am afraid is an example of that. I didn't anticipate when I was writing this speech who I would be sitting next to at the head table. It is not so very long ago since the British Government wrote off one-half billion dollars on behalf of their national airline--and judging by the national airlines policy of pricing on the North Atlantic this summer--I think they are accruing for the next write-off. All of which is a part of national prestige.

The attempt of the world's airlines to fix prices and restrict international competition through their organization, The International Air Transportation Association, has been undermined firstly, as a result of growth and development within the industry, and finally it has been completely destroyed, I should suggest, by the devastating effect of challenge that has come from outside in the form of the charter air lines. The success of international price fixing today is dependent upon intercarrier agreement and the support that these carriers are going to receive from their governments to enforce this intercarrier agreement which is going to be a very delicate matter.

It is interesting that governments found it convenient in the past to look the other way at various activities but recently a U.S. Government Civil Aeronautics Board investigation of the IATA Carrier policies in marketing evidenced that the odd discrepancy was taking place. On one occasion an 82 year old lady was travelling on a youth fare.

It is irony, or justice, depending on whether you are selling or buying, that a competitive airline concept created by IATA, should in fact be the concept that destroyed IATA and that it has finally scattered the various IATA carriers and chased them scurrying to their respective governments for protection. Now we are concerned about that protection, it has been very evident to this point and if that government protection be shelter from charter flights-then that which has been created by competition in the airline industry and the ten years of hard work and development in the concept of charter flights will have been lost.

Commercial air transportation with its multi-million dollar equipment, its expensive airline ground facilities, very expensive airport facilities to support, and if you will pardon the expression, very high operating costs, is far too expensive a product to attract the leisure travel market when sold in the original and operating the historic airline schedule concept and it is only attractive today due to the mass marketing of the charter operators. Charter in airline operations, of course, represents "change". It is a simple concept of coupling mass markets with the scheduling of both the passenger and the aircraft to achieve high load factors and minimum flight frequency.

Charter airline operations is the epitome of discipline in long term corporate planning and exchanges the incentive of low air fares for the discipline of short term planning by the consumer. A minimum charter flight pre-flight booking period of 30-45 days would best serve the requirements of the charter airlines. It would handle the economic factors and the market factors very well, whereas the 90-day minimum pre-charter flight booking period that is now required by government, and I am speaking of not only the Canadian Government but foreign governments, is established to restrict the competition of the charter carrier in favour of the schedule carrier. A different purpose entirely from that of achieving low cost transportation.

Charter travel with its low air fares creates and develops the potential of a route and as such is an essential service. The economic advantages of charter services over schedule services induce governments to restrict the charter travel whereas it really is in the public interest for them to expand charter travel. They have lived together in Europe for many years and they can do so in the North Atlantic. One of our big problems is that the moment a politician accepts the portfolio of transport minister then state-owned industry becomes his railroad and his airline, and a conflict of public interest ensues.

In 1971 Air Canada's international and domestic scheduled services operated on an average per revenue passenger mile yield of 6.39 cents and, in short, produced a profit of 1.66 million on a gross revenue in excess of one-half billion . . . these financial results are not significant to Air Canada. They are very common in the industry.

Pan Am has stated they could be profitable had they been able to achieve the 1971 U. S. domestic airline yield of 6.1 cents per revenue passenger mile. In fact, Pan Am lost 123 million dollars up to the end of '71 and an additional 28.88 million in 1972 but Pan Am was operating on an average passenger mile yield of 5 cents. But, of course, Pan Am is one of the few major carriers that does not have a domestic operation to crosssubsidize their international operation which, of course, raises the problem, is the cross-subsidization in fact in the public interest?

Despite limited operating authority and a history of harassment from government particularly in the areas of marketing and planning, charter airlines can profitably produce a revenue passenger seat mile for 2 1/2 cents.

The political justification for protection of scheduled services does not lie with ownership alone. The scheduled airline industry is a tool to support the ambitions of federal -provincial-and municipal politicians so that they can build large transportation edifices and prove to their constituents their political prowess or in some cases where they can inject area economics into the government planning. I don't know what's so wonderful about airports and how they contribute so broadly to the social development of our country but it seems that where there is some money to be spent in various districts, airports are the object of the construction.

I have been clearly informed by government that airport facilities must be economically self sufficient. The average domestic airfare across Canada is certainly due for a boost when the costs of sustaining a one billion dollar airport at Montreal comes on line.

Government controls of commercial air transportation as an obligation to "public interest" have long since been replaced by political considerations and political convenience, and political convenience is always construed as "public interest". The politician is concerned with feeding the political machine and I am afraid a lot less concerned with the consumer cost of air l transportation.

If a Canadian scheduled air carrier loses money on international routes because there is competition, and he does, he can effectively increase airfares on domestic routes and compensate for that loss.

In conclusion, let me assure you, ladies and gentlemen, if the Canadian Government policy of directly or indirectly permitting the cross-subsidization of international non-protected routes is permitted to continue and if the air transport industry is burdened with costly operations of airport edifices being built for political purposes, the airline industry will lose both its incentive and its capability to compete internationally and all it will be doing is following the route of the international marine transportation.

Thank you, gentlemen.

Mr. Ward was thanked on behalf of The Empire Club by Mr. R. Bredin Stapells, a Past President of the Club.

MR. STAPELLS:

You know when you talk in terms of competition I always figure that one way of describing it is that the buyer is betting on somebody, which reminds me of the story of the U.S. draftee who, for some reason or other, kept appearing down before the Medical Board and was never accepted by the Medical Board and when asked about that he said he just couldn't understand it because he was a big strapping lad and in very good shape. He said, "As a matter of fact, every time I go down there I am so sure that I am going to pass that I bet the doctor $300 that I am going to be accepted."

As far as I am concerned what we have heard from Mr. Ward today indicates that many thousands of Canadian passengers have bet on Mr. Ward and his organization and that they are going to continue to do so and, notwithstanding the political influences we've heard about, even Air Canada to a small little bet has decided to bet on Mr. Ward as well.

On behalf of all of you I would like to extend our thanks to Mr. Ward for coming to us in these trying times for him.

Thank you very much.