Section 406(b) of the Civil Aeronautics Act, as amended,
requires the Civil Aeronautics Board, in fixing mail-pay subsidy
for air carriers, to
"take into consideration . . . the need of each such air carrier
for compensation . . . sufficient . . . together with all other
revenue of the air carrier, to enable such air carrier . . . to
maintain and continue the development"
of a national air transportation system.
Held: in fixing the mail-pay subsidy for the foreign
operations of the carrier here involved during a past period, the
Board erred in refusing to offset against the carrier's need for
foreign operations excess earnings during the same period on its
domestic operations. Pp.
347 U. S.
75-80.
(a) An air mail subsidy may not exceed the carrier's "need,"
which is to be measured by the entirety of the carrier's
operations, not by the losses of one division or department, even
when a rate is fixed for a class of service, as authorized by §
406(b). Pp.
347 U. S.
78-79.
(b) Arguments of policy against this conclusion are for
Congress, not the courts. Pp.
347 U. S.
79-80.
92 U.S.App.D.C. 256, 207 F.2d 207, affirmed.
The Civil Aeronautics Board issued an order fixing mail-pay
subsidy for an air carrier. 14 C.A.B. 681. On the Postmaster
General's petition for review, the Court of Appeals reversed. 92
U.S.App.D.C. 256, 207 F.2d 207. This Court granted certiorari. 346
U.S. 811.
Affirmed, p.
347 U. S.
80.
Page 347 U. S. 75
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
Delta Air Lines, petitioner in No. 223, is the successor by
merger to Chicago and Southern Air Lines (C & S). C & § was
an air carrier which conducted both domestic and foreign operations
prior to the merger. The present case involves subsidy mail pay for
its foreign operations from 1946 through 1950.
In 1948, the Board, on applications made by C & § in 1944
and 1945, fixed a prospective annual subsidy for its domestic
operations beginning January 1, 1948, which the Board estimated
would yield a net return after taxes of 7.4 percent on that part of
its investment allocable to those operations. 9 C.A.B. 786. The
following three years -- 1948, 1949, and 1950 -- the rates in
operation produced a subsidy of more than $654,000 in excess of a
7.4 percent return.
In 1946, C & § applied for subsidy mail pay on its Latin
American routes. On October 18, 1951, the Board issued its opinion
and order. Rates were fixed retroactively from November 1, 1946, to
December 15, 1950, and prospectively from December 16, 1950. The
subsidy awarded was designed to give the carrier a 7 percent
return,
Page 347 U. S. 76
on the property allocable to foreign operations, after taxes for
the past period, and 10 percent for the future. 14 C.A.B. 681.
In fixing the subsidy for the past period, the Board refused to
offset against the carrier's need for foreign operations the excess
earnings on its domestic flights. It gave two "considerations of
economic policy" for that position. [
Footnote 1] First, the Board said it would put
Page 347 U. S. 77
an "unjustifiable strain" on domestic operations if the latter
were required to carry the international operations. Second, it
concluded that regulatory ends would be better served by
maintaining "the comparative status between those domestic
operators which have foreign routes as against those which do not
have foreign routes."
On the Postmaster General's petition for review, the Court of
Appeals reversed the Board. 92 U.S.App.D.C. 256, 207 F.2d 207. The
cases are here on certiorari, and were argued with Nos. 224 and
225, decided this day,
ante, p.
347 U. S. 67.
As we have already noted in the companion cases, § 406(a) of the
Civil Aeronautics Act, 52 Stat. 998, 49 U.S.C. § 486(a), directs
the Board to fix "fair and reasonable rates of compensation for the
transportation of mail by aircraft." Section 406(b) provides that
the Board, in determining those rates,
"shall take into consideration, among other factors, . . . the
need of each such air carrier for compensation for the
transportation of mail sufficient to insure the performance of such
service, and, together with all other revenue of the air carrier,
to enable such air carrier under honest, economical, and efficient
management, to maintain and continue the development
Page 347 U. S. 78
of air transportation to the extent and of the character and
quality required for the commerce of the United States, the Postal
Service, and the national defense."
The mandate is that the Board "shall take into consideration"
what "the need" of the carrier is. The Act thus poses as the
initial question for the Board whether the financial condition of
the carrier is such that it needs a subsidy or has no need for one.
The Board did not find that Delta had a "need" for an additional
$654,000. It merely concluded that those excess domestic profits
should not, "as a matter of economic policy," be taken into account
in computing a subsidy for international operations. In that
posture, the decision of the Board seems not in conformity with the
law.
The Board answers to the effect that, under § 406(b), it "may
fix different rates for different air carriers or classes of air
carriers, and different classes of service." It may therefore fix a
rate for international service. Since it may do that, it may,
consistently with ratemaking decisions (
see, e.g., American
Toll Bridge Co. v. Railroad Commission, 307 U.
S. 486,
307 U. S. 494)
fix the rate at a level which will sustain the particular unit.
Therefore, the Board need do no more under § 406(b) when it fixes a
rate for international service than offset revenue attributable to
the class of service for which the rate is made. That is the
argument.
There are aspects of traditional ratemaking that are carried
over into the Act. Thus, we held in
Transcontinental &
Western Air v. Civil Aeronautics Board, 336 U.
S. 601, that rates under the Act are made retroactive
only to the date of the application. We also noted in that case
that the "need" clause in § 406(b) is not wholly at war with
traditional ratemaking functions.
Id., p.
336 U. S. 604.
But the application of the "need" clause which the Board has made
in this case is at war with the language of § 406(b). The
standard
Page 347 U. S. 79
is "the need of each such air carrier." The "need" of the
carrier is measured by the entirety of its operations, not by the
losses of one division or department. The measure of "the need" is
an amount of compensation necessary to carry the mail and "together
with all other revenue of the air carrier" adequate for maintenance
and development. And the Act defines "air carrier" as "any citizen
of the United States who undertakes . . . to engage in air
transportation. . . ." § 1(2). Thus, the wording of the Act
precludes measuring "the need" of the carrier by any other unit
than the carrier as an entity.
As we read the Act, Congress has established a special formula
for the fixing of a subsidy rate. While the rate may be for a class
of service, the return in form of a subsidy must be computed with
reference to the entire operations of the carrier. The requirement
is that the Board offset all of a carrier's revenues in determining
the subsidy; there is no discretion in the Board to disregard any
portion of the revenue because of economic or other policy
considerations. In other words, an air carrier's subsidy need is an
amount which, "together with all other revenue" of the carrier,
will enable it to meet and maintain the objectives of the Act. The
carrier's "need" is therefore a limiting factor in the sense that
the subsidy may not exceed it. Since the Board did not construe and
apply the Act in that manner, the Court of Appeals was correct in
reversing the rate order.
The Board makes an extended argument of policy against that
position in elaboration of the reasons it advanced for not
offsetting the excess earnings from domestic operations against the
international subsidy rate. [
Footnote 2] It maintains that maximum operating efficiency
on the part of air carriers and the development of air
transportation
Page 347 U. S. 80
-- prominent objectives of the Act [
Footnote 3] -- will be better served by setting subsidy
rates on a divisional, rather than on a system, basis. This may be
so. But that is a matter of policy for Congress to decide. As we
read § 406(b), Congress adopted in the present Act a rate formula
based on "the need" of the carrier as measured by its entire
operations, even when a rate was being fixed for a class of
service.
Affirmed.
* Together with No. 222,
Civil Aeronautics Board v.
Summerfield, Postmaster General, et al., also on certiorari to
the same court.
[
Footnote 1]
The Board said:
"If an offset policy were adopted, the almost invariable result
would be that, as in the instant case, the profits from a carrier's
domestic operation would be used to sustain any international
operations it might have. Recognizing this likelihood, we hesitate
to burden the more robust segment of the industry with the
obligations of the economically weaker part. For if the domestic
air transport system can be kept financially sound, the public must
ultimately benefit, putting aside any consideration of the obvious
advantage of reduced rates of mail compensation. Thus, we
anticipate that if the carriers' earning position continues strong,
reductions in the domestic fare level will be possible, thereby
giving impetus to the further development of the industry. In
addition, with improved earnings, the domestic operators should be
able to benefit the public and themselves with more modern
aircraft, and with improved methods affording safer and more
efficient operations. We cannot escape the thought that, if we
allow international operations to be carried on the back of
domestic operations, we shall be subjecting the latter to an
unjustifiable strain. Many of the domestic operators are well along
the road to self-sufficiency. It is our duty to speed them on their
way, not thwart them."
"It also appears desirable to maintain the comparative status
between those domestic operators which have foreign routes as
against those which do not have foreign routes. Since carriers fall
into fairly well defined classes, the Board is enabled to fix
uniform domestic mail rates for groups of carriers, provided, of
course, that their comparative status is preserved by excluding
consideration of any international operations. A carrier operating
under a class rate has every incentive to operate efficiently,
because it may retain any profits it earns in excess of the
estimated return to be afforded by the uniform rate. It is also
administratively desirable to preserve a comparative status between
carriers, because the Board has been able to analyze the operations
of each carrier within a class in the light of the results achieved
by others within the same class. The comparison technique of
ratemaking has proved to be the most satisfactory and practicable
available to the Board. If we were required to fix rates for both
domestic and international operations at the same time, it would be
difficult, if not impossible, to find a suitable basis for a
comparison technique of analysis."
"In view of the foregoing, we find that the earnings from C
& S' domestic routes should not be used to offset the 'need'
resulting from the carrier's international routes. This conclusion
stems from considerations of economic policy; we are not deciding
the question of our legal power to make such an offset."
14 C.A.B. 683.
[
Footnote 2]
See note 1
supra.
[
Footnote 3]
Section 2 of the Act provides:
"In the exercise and performance of its powers and duties under
this Act, the Board shall consider the following, among other
things, as being in the public interest, and in accordance with the
public convenience and necessity --"
"(a) The encouragement and development of an air transportation
system properly adapted to the present and future needs of the
foreign and domestic commerce of the United States, of the Postal
Service, and of the national defense;"
"(b) The regulation of air transportation in such manner as to
recognize and preserve the inherent advantages of, assure the
highest degree of safety in, and foster sound economic conditions
in, such transportation, and to improve the relations between, and
coordinate transportation by, air carriers;"
"(c) The promotion of adequate, economical, and efficient
service by air carriers at reasonable charges, without unjust
discriminations, undue preferences or advantages, or unfair or
destructive competitive practices;"
"(d) Competition to the extent necessary to assure the sound
development of an air transportation system properly adapted to the
needs of the foreign and domestic commerce of the United States, of
the Postal Service, and of the national defense;"
"(e) The regulation of air commerce in such manner as to best
promote its development and safety; and"
"(f) The encouragement and development of civil
aeronautics."