For these reasons, it seems to me that overseas commerce should be treated in the same category with foreign commerce, at least while Commission regulation is new. If more stringent regulation of overseas commerce should later appear to be desirable, it would be simple to expand the Commission's jurisdiction to the extent desired.

It seems obvious to me that whatever agency is chosen to regulate domestic air commerce must likewise be the agency to administer whatever regulations are imposed upon foreign air commerce, since the same airplane that is flying today within the borders of the United States may be flying tomorrow outside of those borders. Hence, if Congress determines that the Interstate Commerce Commission should have jurisdiction to regulate the domestic air lines, it would seem inevitable that jurisdiction to apply such regulations as are enacted with respect to air lines operating in foreign air commerce should be conferred upon the Commission rather than upon some other agency.

Returning to the subject of the domestic air lines, there is a further conclusion which follows, I believe, from the considerations I have outlined; namely, that the position of the smaller lines must be maintained, to a considerable degree, against the stronger and larger lines.

In reaching out into the regions of light-density traffic and developing smaller communities, the small lines have performed an incalculable service to the country. It must be assured, through certificates, that they may continue to perform such a service, and they must be given an opportunity to protect themselves against even the possibility of oppressive competition.

For the purpose of perfecting the provisions of H. R. 5234 with reference to this matter, I desire to submit, in behalf of certain of the smaller lines of our industry, the following two amendments, to which the remainder of our members offer no objection.

I recommend these for your earnest consideration:

1. On page 11 of H. R. 5234, immediately preceding the semicolon on line 13, insert the following: "and will not materially impair the earnings of any air carrier from any activity in which it is authorized to engage under a certificate then held by it pursuant to this section."

2. On page 17 of H. R. 5234, strike out all of lines 7 and 8 subsequent to the word "not" on line 7, and insert the following: "materially impair the earnings of any air carrier from any activity in which it is authorized to engage."

And now a word as to mail. The Post Office Department has, with determination and an enlightened view to the best interests of the Nation, launched this industry and determined its initial course. It was decided by the Congress, I believe upon recommendation by the Post Office Department, that mail should be carried upon planes that carried passengers and property, and that decision has been immeasurably justified by the event. For not only has the entire commerce in mail, passengers, and property developed together with astounding speed and success, but the linking of these classes of traffic has made it possible steadily to reduce the unit cost of mail transportation until today that cost is lower than ever before, and it promises to decrease indefinitely.

The objectives which have been sought by the Post Office Department in developing the Air Mail Service have been consonant with

the best interests of the public. The objectives should be preserved and the effort to attain them continued.

If it is decided to change the present type of air-line regulation, it is important that, in making the change, care should be exercised to retain and advance those objectives. Particularly, there should be safeguards against dissipating mail traffic among so many carriers that particular air lines, especially the smaller ones, may not be crippled and starved. There should be assurance that the compensation paid for carrying the mails will preserve the service necessary in the public interest.

Again I wish to repeat that the Air Transport Association is not here urging any particular type of regulation or the choice of a particular regulating agency. It recognizes that these matters involve questions of general principle and policy, and are for Congress to determine. We believe that our responsibility is limited to advising this committee whether a bill to carry out a particular form of regulation is so designed as to constitute a workable measure, and to permit the proper functioning and reasonable development of the air-transport industry. We find that H. R. 5234, with certain amendments which we have and will suggest, meets these tests.

I have no doubt that there are some provisions which, upon further detailed study, may be improved, and I trust that the committee, before making its report, will permit me to submit comments addressed to such points. However, at this time, I am content to state my belief that the bill sufficiently anticipates the practical requirements of air-line operation and the requirements which are likely to be involved, in making—if it is to be made the difficult transition from a system of operation under mail contracts to one of operation under certificates of convenience and necessity.

Yesterday I was asked certain questions about the Post Office Department and the duties of the Postmaster General. May I now take the liberty of answering each of those questions and of discussing this subject in a general way?

POWER OF THE POSTMASTER GENERAL OVER THE AIR-MAIL SERVICE

There are no provisions of the proposed bill which are of greater concern to the Government and other carriers than are the provisions relating to the mail service. In my opening remarks, I referred to the fact that the history of this industry is intimately bound up with the history of air mail. Only within the past few years has there been a marked development of transportation by air which may be described as independent of the development of air mail. In Commissioner Eastman's testimony and in his letter to the committee he has referred to the remarkable growth in air transportation during the last 2 or 3 years. Between June 1934 and June 1936, as he pointed out, the total business of the industry in all its phases nearly trebled. The most notable increase was the increase in express which jumped during that period by 275 percent. Despite this vast increase in the general business of the air carriers, and despite the certainty of continued growth which will be even more remarkable, particularly in the field of the carriage of property, we must nevertheless bear in mind that within the industry the development is somewhat uneven so that, although the proportion of total mail revenue to the

total revenue of all the carriers has dropped in on comparatively short time from about 60 or 70 percent to about 30 percent, mail, revenue still bears a very large relationship to total revenue in many particular cases, amounting to as high as 60 or 70 percent, even now, among many of the smaller lines. Indeed, so long as the mail revenue is as high as 30 percent of the total revenue of the entire industry, it must be said that even from the standpoint of the industry as a whole mail traffic remains a vitally important factor, and there is no prospect that in the near future its importance can be ignored. In other words, contrary to the condition in any other form of transportation, the Government of the United States is and for a long time will be overwhelmingly the largest single customer of the air carriers and, in particular cases, among the smaller lines, this patronage on the part of the Government will exceed the total patronage of all other customers. Thus it is evident that, in making a transition from a system of contracts for the carriage of mail to a system where mail will be carried by virtue of ordinary certificates of convenience and necessity, the provisions relating to the mail service become of primary importance to the smaller lines and of almost as great importance to the larger and stronger lines.

The subject of the Air Mail Service can be divided into three parts. In the first place, there is the question of which carriers shall carry the mail. In the second place, there is the question of the extent of the Postmaster General's power over the service rendered by those carriers. And, finally, there is the question of compensation for carriage of the mail. I shall deal with these subjects in the order named.

AUTHORIZED MAIL CARRIERS

If the contract system is to be abandoned, there are, I suppose, three possible alternatives for determining who shall be authorized to carry air mail.

The first alternative is that every carrier who receives a certificate for any purpose shall automatically be authorized likewise to carry the mail.

Incidentally, there is a bill in the Senate, which has that provision

in it.

The second alternative is that existing mail carriers shall receive authority to carry the mail by virtue of a "grandfather" clause, and that additional mail service shall be authorized only upon the initiative of the Postmaster General.

The third alternative is that existing mail carriers shall receive authorization to carry the mail under a "grandfather" clause, and that additional authority to carry the mail shall be granted by the Commission upon application of a carrier whenever the Commission deems it wise.

The second alternative seems to be that which has been adopted in the proposed bill. I gather from Commissioner Eastman's letter to this committee that he would be inclined to favor the third alternative.

In any event, it seems agreed that the first altrnative would be undesirable.

However, in order to make clear to the committee some of the problems involved in determining who shall render the mail service,

I should like briefly to consider the first of the three alternatives which I suggested; and, since I am of the impression that on occasion there has been some feeling that this would be the wisest course, and since it is the method adopted in the case of the railroads, I believe some examination of the wisdom of such a method as applied to air carriers is entirely in order. This course, as I say, would be that every carrier receiving a certificate for any purpose should automatically be authorized to carry the mail. In other words, although with respect to applications for certificates to operate a service between any particular places the Commission would be free to determine whether a certificate should be granted for passengers, or for express, or for freight, or for all of such classes of service, the Commission would not be free to grant a certificate which would exclude authority to carry mail; every certificate, no matter for what class of traffic, would carry with it the authorization to carry the mail whenever the Postmaster General desired to place mail upon the craft of that carrier between the points in question. This method of dealing with the problem is, as I have said, substantially the method adopted in the case of the railroads. That is, every railroad is under an obligation to carry the mail if the Postmaster General desires to place mail upon its trains.

There are several vital differences between the situation of the air carriers and the situation of the railroads. One of the most notable differences is one which we are only beginning to appreciate and that is that between particular points it may be entirely in order for an air carrier to be authorized to transport only freight or only express. In other words, between two given points it may be that one air carrier is already engaged in the transportation of mail and passengers and, to some extent, property, and that another air carrier might well undertake to transport property exclusively. The fact is that, even today, in certain parts of Canada the transportation of property far outweighs in importance the transportation of passengers between particular points; and there is every possibility that in certain regions in this country the same condition may obtain in the future, and that a considerable share of the air-carrier industry may be devoted exclusively to the transportation of a single class of traffic. This possibility makes it of some importance that in looking forward to a scheme of certificates of convenience and necessity we must realize that each particular class of traffic should be dealt with as a particular problem, and that authorization to engage in the business should be granted only upon a consideration of the economic problems which each class of traffic presents.

Again, among the various classes of traffic, mail itself is a highly important item. As I have said, it may well amount even now to 60 or 70 percent of the total revenue of certain of the smaller lines; and between particular points, or in particular systems, the mail traffic of a carrier may be a much greater proportion of other traffic than in the air-line industry as a whole. In other words, quite contrary to the condition obtaining among the railroads, the mail traffic itself may be the chief prop which sustains an air carrier.

Furthermore, the mail traffic available to air carriers is not as yet comparable in amount to the mail traffic which is available to the railroads. That is, the railroads can carry all mail; even, on occa

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sion, some air mail. The air carrier, however, can carry only air mail prepaid at a special rate, the volume of which is infinitely less than the volume available for railroad transportation.

It is true that in some parts of the world governments have determined to place upon air carriers all types of mail whenever delivery will be speeded thereby, and we have begun to hear discussions of the wisdom of such a measure in our own country.

Because of the comparatively great distances in this country, and because of the extraordinary development of our air-carrier industry, the advantages of adopting such a measure here are patent, and we may well look forward to the accomplishment of that end some day in the future.

However, there seems to be no immediate likelihood that any such course will be taken, and we must face the problem of mail transportation on the assumption that, for a considerable time, at least, the air-mail traffic will continue to be comparatively limited in amount. These conditions make it vital that the mail traffic should not be spread over so many carriers that there will be an insufficient amount left for particular carriers to enable them to continue in business.

When a prospective carrier is required to get a certificate of convenience and necessity prior to its inauguration of a passenger service, it must show, first, that it is able to meet the obligations of such a service, and second, that there is a need for an additional service of the kind it proposes; and the same thing is true of a prospective carrier who desires to carry express or freight.

Obviously, if the interests of the Postal Service are to be protected-by authorizing persons to carry mail only when they are able to furnish adequate service, and if the interests of the industry and the public are to be protected by authorizing persons to carry mail only when there is sufficient mail traffic to justify an additional service, a most unfortunate situation would arise were every carrier who receives a certificate for any purpose to be automatically authorized to carry the mail.

For this would mean that no certificate could ever be issued unless the carrier showed that it had the facilities and equipment necessary to a mail service, and also that the mail traffic was such as to justify another mail carrier entering the field.

In other words, to apply to the air carriers the same principle applicable to the railroads would mean that the entire future development of the transportation of passengers and property would be geared to and limited by the development of mail traffic.

As I have said, the method adopted in the case of the railroads is perfectly appropriate because of the relatively minor part that the mail traffic plays. Every railroad, if it is able to enter business at all, is able to carry the mail, and, if there is enough traffic generally to justify a new service, the presumption is that another railroad mail carrier will not seriously affect the position of other mail carriers.

Among air carriers, however, this situation does not obtain.

An example will serve to sharpen the point suggested. As Commissioner Eastman stated at the outset of his testimony, there are today several interests proposing to enter the business of transportation of passengers and property by air, and those interests propose to enter that business without mail contracts.