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Chapter II
STANDARDS FOR MULTIPLE DESIGNATION

We turn in this chapter to the difficult question of what standards should govern the multiple designation of U.S. carriers, given the basic international aviation objectives set forth in Chapter I. Because one of the primary objectives is the creation of situations in which U.S.air carriers will be able to conduct profitable operations, it is appropriate to examine briefly the economic conditions, internal to a carrier, which make such operations possible. 

If the level and intensity of competition have any effect upon the profitability of an air carrier, then presumably there should be some traceable effect of competition on revenues or costs, or both. Assuming for the moment that at any one time there is a more or less fixed pool of traffic along a route or series of routes, the splitting of this available traffic between two or more carriers has the tendency to reduce schedule frequencies or load factors. Such reductions not only reduce total revenues of any one carrier but also tend to have an adverse effect upon its unit costs. This is true to the extent that some airline costs are fixed or do not vary proportionately with traffic. Stated another way, there are certain minimum costs of conducting an airline operation of a given type or at any particular location irrespective of the volume of operations conducted. 

Internal Airline Cost Patterns

In the chart of accounts prescribed by the CAB, airline expenses are divided into several broad categories. 1/ A number of these - flying operations, direct maintenance, maintenance burden, and aircraft and engine depreciation and amortization - relate essentially to the actual operation of aircraft in flight, although many of these expenses are incurred in essentially ground functions (e.e., maintenance). 

1/ The present chart of accounts became effective in 1957. Prior to that time, a somewhat different arrangement of accounts was in effect. 

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