service only to be refused such service. This refusal comes from the CAB, another Federal agency which also spends money to provide public air service. There are also cases where local airline service has been certificated to a city and for some reason or another the airport has never been improved sufficiently to permit transport operations.

(c) A third important Federal policy problem has been revealed during our study. Time has not permitted specific recommendations. The Federal Government has made possible many innovations in passenger transport through equipment or operational research and development, much of it under military auspices. We have had no basic approach to the introduction of innovations. As transportation becomes more complex and public and private investments larger, the impact of innovations will be so great that specific planning, coordinating, and forethought must be provided. We act to regulate and promote each mode or device in transportation as though it were an entity alone and would continue an indefinite and unchanged existence. Both public and private investments should be based on long-range plans for easing and guiding the introduction of new and radically different devices. The Federal Aviation Agency is now preparing plans which will request at least $400 million over 10 years for development of a supersonic air passenger transport. Sound public policy would require that this investment first be weighed against the benefits that might flow from alternative investments in other phases of passenger transport. Secondly, when the decision is made, plans should early be laid to facilitate an orderly changeover of airline equipment. Hundreds of millions of dollars of private investment may be made obsolete well before present depreciation rates recover the cost, and radical changes in airways and airports may have to accompany these new vehicles. Many other passenger and freight innovations, each with a resounding impact on our complex and sensitive transport system, could be mentioned. The need for premeditated Federal policies aiding and controlling these introductions is clear.

Conduct of the railroad management responsibility

16. This chapter makes a further contribution to the already substantial literature on the railroad passenger service problem. Railroad management has now received much free consultation on this subject and we believe the next step is for the responsible railroad leaders to attempt an industrywide determination of the future of the passenger business. If that determination is to make no important changes, railroad managements will, and should, proceed with the presently scheduled train discontinuance programs moving toward the time of complete abolition of the service. We cannot avoid the conclusion that this reflects the views of the majority today.

If, however, the railroad industry can agree on a positive program, involving a willingness to make the important management and operating changes which will be necessary, it should be assured of the wholehearted cooperation of Government in providing those aids that are uniquely within the Federal province. The railroad passenger business is truly at the crossroads and management's minimum respon

sibility at this time is to give top-level industry attention to determining a course of action.

Conclusion for all interested parties

17. The railroad passenger business is not a mean national asset even at this time. Its present book investment is $3 to $5 billion of private capital. It still produces total annual revenues of over $1,200 million. It can still move 300 people in comfort and at a very high degree of safety at 80 miles an hour with only 3 or 4 men and only 1,500 horsepower. If this service goes to the museum with the stagecoach, it will not be for the same reasons. If a program to rationalize and revitalize rail passenger service cannot be carried out by existing managements because they cannot overcome the problems of equipment interchange, trackage rights, financial realinements, managerial realinements, and eliciting the reasonably unified cooperation of over 80 companies, a national railroad passenger service corporation should be considered.

Before we write this big business off, and it is big even by American standards, a very thorough economic and market analysis should be made with sufficient financing and a sufficient length of time to produce new empirical data from the car repair shop and the ticket counter on up. Operations analysis techniques should be employed in regard to scheduling, optimum consist, meshing with other railroad operations, etc. If the results of such a study indicate profitable operations based on conservative traffic and financial forecasts, a national passenger service corporation should be formed which would have complete control of marketing and producing the service. Such a corporation could move immediately to eliminate duplication, pool equipment and services, avoid circuitous routings planned to operate solely on owned tracks, centralize maintenance and install modern cost accounting and traffic reporting systems. Appendix A, immediately following, contains an outline suggesting the important_elements in the founding and operation of such a corporation. It is presented to stimulate thought and action.

APPENDIX A

PROPOSAL FOR NATIONAL RAILROAD PASSENGER SERVICE CORPORATION

1. Formation

There are three possibilities for a suitable and financially competent corporate structure. The first would be to use an existing corporation, such as the Pullman Co. Additional capital could be supplied by the railroads who are already stockholders, or by other private investors. A Federal loan might also be used. The second possibility would be to form a new joint public-private corporation with controlling interest in private hands and Federal interest in the form of a loan or purchase of preferred stock, or other senior and marketable instrument. A third possibility would be to form a public (Federal) corporation in which the Federal Government would have control and full operating responsibility. It might be advantageous to have some private capital, possibly nonvoting stock. The Federal investment should be through purchase of equities or marketable issuances that would ease a future transition to private ownership. Until the recom

mended study is made the interest in the corporation on the part of railroads and private investors cannot be estimated. The possibility of either of the first two plans, therefore, cannot be judged. One of the advantages of a Federal corporation will be its strong position in relation to State and local taxation, State commission regulation of train service, and State full-crew laws. It is also possible that a strongly managed public corporation might have a greater initial success in working out new labor contracts.

2. Acquisition of property

Of course such a large-scale venture should not attempt to take over the rail passenger business in all parts of the United States at once. Preferably it should start with the eastern district and move successively to other areas. The corporation should acquire all cars and, perhaps, locomotives presently used in passenger train service, all station and terminal property used exclusively for passenger service and all repair shops and storage yards used for such service. (Commuter property would not be acquired. Commuter service should be operated by the railroad, or by a local public authority.) This would relieve the railroads of all solely related passenger property now on the books. The purchase price should be present book value or some other reasonable and clear standard which could be agreed upon. Payment should be in cash or cash and securities. If a Federal corporation is formed the securities should be nonvoting.

3. Property program

The corporation would in the early stages determine, aided by the preceding survey, the properties which would be used in the near future and dispose of the remainder. This would, of course, be the older rolling stock and surplus yards and buildings. A car rebuilding program using existing frames and trucks should be immediately undertaken to provide modern utilitarian equipment at the lowest feasible cost. Such equipment should be depreciated on a 7 to 10 year basis. Duplicating and obsolete terminal properties should be consolidated and redesigned in a continuing and orderly program. The corporation should acquire all passenger properties in a district— not just the least profitable holdings the companies wish to unload. A joint manufacturer-carrier equipment development program should be initiated with adequate time and financing.

4. Operating program

The corporation should have complete control over operations including passenger train service employees and the contracting or execution of maintenance. Trains should be scheduled and routed flexibly with the specific purposes of testing public desires and developing optimum combinations of route, schedule, and consist. Routes should maximize revenues in selecting cities and be as direct as possible. The corporation should have operating rights over any trackage in the United States, through eminent domain, if necessary. Its trains would be under the dispatch control of the track-owning railroad at all times. Owning railroad should be compensated through the usual types of railroad joint-operating agreements. The rates for track use should be fully compensatory including provision for additional maintenance costs due to passenger service if thorough cost accounting

demonstrated such a differential. The corporation should have complete freedom to serve or not to serve routes, subject to 30-day public notices of suspension, and should have ratemaking freedom within maximum rate limitations set by the ICC. The entire design should be to produce a pattern of economically sound routes and services and to continually adjust fares, routes, and services according to demands and costs. Needless to say a complete modern marketing and merchandising program should be undertaken. Passenger transport is a highly competitive and rapidly changing business and the carriers must have freedom to maneuver. The entire program would be most heavily concentrated in the areas with the best potential for rail service, which have already been discussed.

5. Final disposition

Since the original premise is not to initiate a national railroad passenger service corporation unless conservative forecasts indicate a very good possibility of profit it would be most likely that the corporation could become a profitable venture and, therefore, a good investment. If it were private there would be no disposition problem except repayment of Federal loans or repurchase of federally held securities. If the Federal corporation were used, acquisition by private investors should be a natural step at the completion of the major capital expansion and development programs and the establishment of stable profitable service. This would be some time after the most experimental portions of the marketing program.

The national passenger service corporation is not presented as a recommendation of this study. It cannot be, pending completion of the necessary study and analysis. The above outline does indicate the direction in which rail passenger service may well have to move if it is to avoid certain extinction. Information at hand indicates this direction should be profitable.

APPENDIX B

COMMENTS ON RAILROAD OPERATIONS

The following comments on railroad operations are reproduced as indicative of the thinking of individuals closely associated with the problems of the industry.

1. From within the railroad industry

From "Passenger Traffic" Study of the Railroad Committee for the Study of Transportation, prepared during 1944-45, published March 1946:

(a) Railroads always have had an inherent ability to produce considerably more transportation than they were able to sell, at least until the last 2 or 3 years, but in spite of that the emphasis has remained on production and has shifted only slightly to sales. The suspension of the usual forms of sales activity during the war and the pressure placed upon the operating departments to produce more transportation than ever before probably have served to interrupt progress toward an already belated recognition of the importance of sales and public relations.

Throughout this study, one can hardly fail to be impressed by the increasing competition which the railroads have faced from year to year, nor the prac ticality-no matter how revolutionary it may seem to some of giving the traffic department an equal voice in those activities which affect its ability to secure

and retain traffic. It is this liaison on equal terms between sales and production which has characterized the success of many other industries. Certainly the need is no less real in our business, where the most effective sales approach and contact by the passenger traffic department can be nullified quickly if any feature of a passenger's trip from start to finish fails to live up to expectations. While transportation sales organizations and practices generally are quite similar, those of railroads often have certain shortcomings which are easily recognizable and are of sufficient importance to necessitate considerable improvement. It is recommended, then, that each railroad passenger traffic department undertake a study of the following subjects and determine what, if anything, might be done to improve them:

Selection of personnel.

Sales training.

sales control systems and incentives.
Sale of tickets.

Timetables.

Advertising (pp. 250-251).

(b) The passenger traffic division is keenly aware of the importance of mail revenue and has no desire to stand in the way of providing the best mail service possible, but it is convinced that mail should be handled in such a way that it will not cause delays to passengers. We cannot afford again, as we did particularly in the depression of the 1930's, to redistribute cars from discontinued mail and express trains among important passenger carrying trains. Station stops for the primary purpose of handling other than passenger traffic, and stops at the more important stations longer than necessary to discharge and load passengers, have no place in our plans for the future. Few service lapses make a worse impression on the passenger than frequent and long station stops (pp. 330-331).

(c) Railroads spend insignificant sums for advertising in comparison with the amount of business done, and in 1940 one prominent manufacturer of soap, vegetable oils, and related products spent nearly as much for radio advertising alone as the railroads collectively spent for all advertising * * *. As an indication of the importance of radio advertising, it has been reported that those advertisers who spent $1 million or more in 1939 on advertising (56 in all) put more money in radio network advertising than all other media combined.

*** Stated in percentage of revenue, advertising expenditures of railroads are considerably less than those of competitors. This is illustrated by the following record of expenditures in 1943 stated in cents per each $100 of revenue:

Of course, the major portion of railroad advertising is undertaken in the interest of increasing passenger travel. In 1943, using the same method as above, the advertising expenditures were equivalent to 76.1 cents for each $100 of passenger revenue *** (pp. 232-233).

(d) *** Although branch lines usually were considered to be valuable as feeders before highway competition became so important, there has been a progressive deterioration of branch line traffic for many years. Revenue from freight traffic generally is the most influential factor in deciding whether a branch line will be continued or whether permission will be sought to abondon it. Revenue from passenger traffic on many branches is so slight that it is exceeded by revenue from mail and express.

Each branch line operation is in large measure a problem in itself, and for that reason it has been necessary to consider the situation in a general way. This conclusion was reached when information received in response to a questionnaire sent to members of the passenger traffic division indicated that an attempt to reach conclusions based upon a compilation of data from many individual sources would be impracticable (p. 322).