3. That not all departures of smaller airplanes would have to originate at Marquette, but some could originate at intermediate points. Using these assumptions, such a cost comparison follows: Note again that the smaller planes are significantly more expensive as measured by actual operating costs. The additional $850 per 100 seats to Chicago is 46 percent more than it would cost Republic to do the same job with a DC-9! Who says smaller is cheaper? Or more efficient? Even more impressive is the result if you add in the revenue side of the equasion. Consider for the moment that mandatory joint fares will be continued by the CAB. The revenue share which a replacement carrier would be able to earn for two Convair 580 flights from Marquette and Escanaba to Green Bay (at 50 percent load factor) would be a total of $1,970. At the same time, the on-line net fare which the existing carrier (Republic) can earn from carrying the same passengers in a DC-9 is $4,220. (See substantiating attachment). In other words, the existing carrier can not only move passengers more cheaply, but can also earn $1,260 more in revenue. This is 163 percent of the revenue available to a replacement carrier using Convairs. This is because the existing carrier covers most of this cost from Green Bay to Chicago (or to other hubs) by the revenues earned from passengers enplaneing or deplaneing at Green Bay. In other words, a carrier that has a continuing system to other destinations is always in the better position to earn a better return-we used to call it trolley-car economics. But, before leaving this sugject let us be sure to recognize that a proposal has already been introduced in the CAB to eliminate mandatory joint fares. If this happens, a replacement carrier in the U.P. would get no part of the continuing passenger ticket revenue, so that all of the replacement carrier's expenses would have to be borne by U.P. segments, and ticket prices would have to soar. If we think ticket prices are high now, wait till these conditions prevail, and wait till the replacement carrier is the only carrier left without any competition! The prime point in all this is that replacement carriers in the Upper Michigan situation (with larger volumes and longer stage lengths than typical commuters) are by all analyses likely to cost both the federal government and the traveling public considerably more than continuation with the carrier we already have. Both subsidies and ticket prices are bound to escalate even more than if a solid, reasonable plan is adopted to continue existing services by the more efficient, regional carrier already in place. The proposal to slash airline subsidies in half, but at the same time to selectively retain 406 assistance at certain points (below 100 enplanements per day) is such a plan. Operation ACTION U.P. strongly endorses the proposal of Republic Airlines, and urges the Congress to enact Senate Bill 1376 as expeditiously as possible. We believe the provisions of this legislation will avoid serious harm to U.P. air service and at the same time will cost the government less. The Upper Peninsula is someplace special, particularly with regard to air service. Both the government and U.P. travelers will be greatly benefited by retaining much needed larger jet aircraft. What's more, if interruptions and service downgrading can be avoided, the inevitable shrinkage of traffic experienced at other locations where replacement carriers started (sometimes two and three replacements in a row) can also be avoided, and many of our U.P. towns will become self-sufficient in the not too distant future. Consider for example that already several U.P. cities have captured top positions for the longest average distance traveler on the entire Republic system. Consider the following table: 1 Average revenue passenger miles kept on line-Republic Airlines, February 1981 1 546 541 527 500 478 463 462 413 410 379 327 318 Ironwood Milwaukee Green Bay. Menominee Atlanta...... 1 Upper peninsula cities. With these kinds of long-distance records, the Upper Peninsula is contributing a larger share to Republic's profits than other places. In addition, passenger growth is expected at U.P. cities, and more than half the points should realistically attain self-sufficiency in the next few years. We in the Upper Peninsula have been building with Wisconsin Central, then North Central, and now Republic Airlines for more than thirty years-please do not snatch the crown when we are so close to successfully completing the race. More than $1 billion dollars in new plants and industrial expansions have been announced in the Upper Peninsula so far this year. More than 8,000 new jobs will be created. That is a 6-percent increase in the entire U.P. workforce, and Governor William Milliken has announced that Michigan's forests, mines and tourism in the Upper Peninsula now pave the way for the state's economic recovery. What it really means is that the Upper Peninsula and its abundant natural resources (including its beauty) are coming alive, and growth in air travel is inevitable, unless the federal government pulls out the props-or I mean the jets! Operation ACTION U.P. forecasts continuing economic expansion, and can report to you today that six additional large to medium industries are considering locating in the U.P. if air travel conditions are not deteriorated. Furthermore, we believe the Upper Peninsula has done the hard homework to be ready for these enterprises. For example, over the last ten years U.P. communities along with federal and state help have invested more than $25 million in re-building its airports in order to receive modern jet aircraft. That's an amount equal to $72 for each man, woman and child in the region. It would be fiscally imprudent not to utilize these facilities unless abolutely prevented. What's more, the average U.P. community subsidizes the operation and maintenance of these airports out of their general tax funds in the amount of $5-10 for every passenger that boards. I feel sure this is a boast which no large city or hub can make, since fees paid by user airlines basically underwrite all their costs. You see, we care about our air service in the Upper Peninsula, and are willing to do our share to keep it. But, a prime concern of U.P. airport operators is the drastic loss of revenue to the airports should ending of the 406 program compel the loss of the heavier jets. Their question is "who will sustain the U.P. airports if Republic is forced out?" Landing fees and terminal rentals now paid by Republic for their heavier aircraft far exceed the potential revenues which could be generated from commuters. Sudden loss of these fees will cause severe curtailment of operations, limited snowplowing, and reduced safety maintenance. The eventual economic and security impacts could be drastically adverse. The bottom line in any subsidy proposal is cost. But the CAB has not calculated the substantial cost to the Upper Peninsula of Michigan if the 406 subsidy program is abruptly terminated. Moreover, we believe the figures in Republic Airlines' proposal are correct and that the 419 program will actually cost more than retaining a modified version of 406. Then the question is "why switch?" Why go back 30 years? Why take the chance of losing our exsiting efficient and soon-to-be selfsufficient air service? Operation ACTION U.P. and its more than 100 major industrial and business employers throughout the upper half of Michigan are a recognized and important social influence. We regularly hold public meetings in which state and federal leaders participate, and we publish research and position papers which receive wide public attention. After careful consideration we are persuaded that the abrupt ending of 406 subsidies will directly threaten the continuation of full jet air service in the Upper Peninsula, and we are convinced that the culpability for that retrogressive consequence will rest in congressional and federal hands. Let no one say that Republic Airlines is the one trying to pull out-Republic is the only regional carrier which is spending thousands of dollars to draw up a more sensible proposal and trying their best to remain in the 406 cities. We highly commend Republic Airlines for these actions, for the excellence of its proposal, and for the high professional standard used in its promulgation. We commend also the efforts of the new administration and Congress to cut unnecessary federal spending, and wholeheartedly endorse cutting subsidies to airlines in half. But the modified 406 program promises to cost even less, while the switch to smaller airplanes mandated by "essential air service" at all 406 points, particularly in Michigan's Upper Peninsula, will be disasterously counter-productive. Operation ACTION U.P. believes that precipituous changeover to the 419 program is dead wrong. If you do not believe our testimony, we ask your experts to prove us incorrect. We hold the deep conviction borne of our own experience and study that for the economic well-being of the Upper Peninsula, to switch may be suicide, and better service for less price is obviously the better option. Thank you sincerely for allowing Operation ACTION U.P. to speak this morning in behalf of the Upper Peninsula-someplace special. COST COMPARISON FOR COMBINING POINTS WITH DC-9 CAPACITY VERSUS SERVING THE POINTS INDIVIDUALLY ? It is anticipated that labor cost for replacement carrier would be substantially below those of Republic, but the cost of fuel, which is now the major item, would probably be greater Depreciation on the CV-580 would probably also be greater. COST COMPARISON FOR COMBINING POINTS WITH DC-9 CAPACITY VERSUS SERVING THE POINTS INDIVIDUALLY |