14 April 2010

How a Small Airline First Cracked Pan American's Monopoly

Prior to the Second World War, international airline services from the United States were dominated by Pan American World Airways and its politically influential chairman, Juan Trippe. With implicit backing from the US State Department, Trippe forged Pan American into a "Chosen Instrument" of overseas American commerce with his extensive air network of services covering the Pacific, Latin America, and across the Atlantic. However, the demands of the Second World War resulted in most of the US airlines expanding their operations into overseas flying for the military to support the war effort. As a result, many airlines that had traditionally not flown outside US borders gained valuable experience in overseas operations.

As a result, many of those airlines began to look at what the postwar commercial aviation market might look like and airlines like American (via its subsidiary American Overseas Airlines), Trans World Airlines, and even smaller airlines like Northeast began to prepare applications to the Civil Aeronautics Board for international route authorities.

In March 1944, Senator Patrick McCarran of Nevada proposed a bill in Congress that would create what he called the "All-American Flag Line", a single international airline that would be jointly-0wned and operated by existing US airlines with an operating certificate dating prior to the 1938 passage of the Civil Aeronautics Act. McCarran's airline would be prohibited from domestic services and US airlines would be prohibited from international services outside of their participation in the "All-American Flag Line". Senator McCarran wanted to a single prestigious American international airline that all the other US airlines funneled traffic into from domestic gateways.

The "All-American Flag Line" would be a federally-chartered private airline starting with $200 million of federal capital and each participating US airline could purchase up to $50 million in stock of the airline. As Pan American had developed most of the international routes before the Second World War, Juan Trippe would hold ownership of 25% of the proposed airline.

This arrangement, of course, did not sit well with the smaller US airlines. While the US majors like TWA, United, American, and Eastern saw the McCarran bill as a way to gain entry into the international arena without the capital expenditure of expanding overseas on their own (since this seed money would be provided by the federal government), smaller airlines balked at the price of investment and being consigned to having a small voice compared to that of Juan Trippe, much less that of the larger airlines as well.

One of the most eloquent and vocal critics of the McCarran bill was Carleton Putnam of Chicago & Southern Airlines. In June 1933 as a young law student, Carleton Putnam started Pacific Seaboard Airlines operating Bellanca Pacemakers between San Francisco and Los Angeles. When President Roosevelt canceled the air mail contracts in 1934 during the infamous Air Mail Scandal, Pacific Seaboard Airlines lost its primary revenue stream. After the US Army Air Corps tried in vain to carry air mail, the contracts were once again put up for bid and Putnam in desperation to save his small airline bid on an air mail route in the Mississippi Valley that connected Chicago to New Orleans. To the surprise of many, Putnam won the contract and in 1934 he moved his entire operation to Memphis, Tennessee and on 17 July 1935 he launched passenger services as Chicago & Southern Airlines.

During the Second World War, Chicago & Southern operated a vital contract flying troops and cargo throughout Alaska during the Aleutian campaign to oust the Japanese from the area. Putnam even applied for postwar international route authorities to fly to Singapore and Batavia (modern day Jakarta) from Chicago via Alaska in what may very well be the first proposal to use a Great Circle Route that is now a primary routing for air traffic between North America and Asia.

Trippe of course was supportive of the McCarran bill and he certainly didn't expect such tenacious opposition from someone like Chicago & Southern and Carleton Putnam. Putnam rallied the other smaller airlines, pointing out that it should be the free market and competition that should determine who was most suitable for international services rather than have the government virtually enshrine Pan American as the default international airline.

To go against someone as powerful in Congress as Senator McCarran who was highly influential in aviation affairs and to simultaneously take on Juan Trippe of Pan American, probably the most influential airline head of the day? That's quite a set of brass ones and Putnam managed to pull it off and have the McCarran bill killed off. While Chicago & Southern Airlines didn't get its Great Circle route to Asia, it was handsomely rewarded by the CAB with route authorities into Pan Am's traditional Caribbean stronghold with services to Cuba, Jamaica, Haiti and the Dominican Republic, Puerto Rico and all the way to Caracas, Venezuela from New Orleans.

Carleton Putnam won the admiration of many in the industry for his stand against McCarran and Trippe, most importantly with C.E. Woolman, founder and head of Delta Air Lines. Woolman saw in Putnam and Chicago & Southern a kindred spirit that shared his own business ethics and ideals. Having grown weary of trying to expand services to New York but failing thanks to the maneuverings of Eastern Air Lines and its acerbic president, Eddie Rickenbacker, Woolman embarked on expanding Delta westward through a merger with Chicago & Southern that was finalized in 1953.

And perhaps more importantly, the stage was set for overseas services by any US airline that could show to the CAB that it had the wherewithal to operate internationally, cracking Pan Am's long dominance of international services.

Source: Delta: The History of the Airline by W. David Lewis and Wesley Phillips Newton. University of Georgia Press, 1979, p200-201.

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