April/May, 1973
PIEDMONITOR
page three
Report To
Our Stockholders
EDITOR'S NOTE: At the annual stockholders 7neeting April 18, a complete transcript
was made of the proceedings. Since the meeting included a number of outstanding
reports and interesting information, it occured to us that our employees who were not
able to attend 7uight like to read an actual account of the proceedings. Here it is, only
slightly edited for greater clarity:
T. H. Davis: Thank you for coming today.
For our Proxy Committee, to tally our
proxies, I’ll ask Bob Sherrill of Ernst &
Ernst and Audree Long, Controller of the
Company, if you would serve as members
of the Proxy Committee and tally those
and bring us a report as soon as you can.
All of you have received, I hope anyway,
your annual report and I hope you were
pleased with its contents and appearance.
On the assumption that you did receive it
and did read it, I won’t go into too much
detail and take up your time today to give
you a long, complete report on the results
of 1972 other than just to point out a few
highlights. Of course the leading one is the
fact that 1972 was the most successful year
in the history of your Company. Of course,
all of us realize that we must have a rea
sonable earnings in order to continue to do
the job that we’ve set out to do and to
make the accomplishments we expect to
make. We are indeed pleased with the
financial results. As you know, our earn
ings were the highest in any one calendar
year in the history of the Company. For
the first time in a good while we are get
ting up into an area where we regard it
as a reasonable return on your investment
in the Company. But in addition to that,
and somewhat, I think, in many respects
of equal significance, is the fact that we had
some other developments or achievements
that made it a successful year. Not the
least of which, of course, is providing gain
ful employment, and we hope, happy em
ployment for about 3,500 people. We had
a reasonable volume of growth both in
terms of service rendered and in terms
of earnings, as I have already mentioned.
In so far as growth is concerned, I
think probably one of the most significant
factors is our continued growth in service
in terms of number of passengers served
and number of people served in all of
the various Divisions of the Company
which enjoyed substantial progress in 1972.
Last year I mentioned to you that the Civil
Aeronautics Board had recently set up
what they call a Department of Consumer
Affairs. One of the major functions of that
department is to tally the number of com
plaints that are sent in to the CAB by
passengers of all the airlines. These com
plaints are tallied on the basis of the num
ber of complaints per 100,000 passengers
carried so that all the airlines, whether
large or small, are pretty much on an even
footing and there is no distortion in the
figures. The complaints are tallied and they
include every complaint, regardless of how
legitimate the complaint may be, and re
gardless of what aspect of the service that
is being rendered is being discussed. It
could be freight service, passenger hand
ling, telephone handling or any aspect of
the services that we provide. And, as I re-
“ orted to you last year. Piedmont had
achieved during the previous January the
lowest number of complaints of any air
line in the United States, despite the fact
that it was during the winter months. I’m
extremely pleased to be able to report to
you again this year that Piedmont re
mains in that low position. Now it sounds
a little strange to say you’re happy to be
on the bottom or in the low position, but
this is one case where we’re proud to,
and hope you’ll understand that we boast
a little bit about the fact that we are the
low man on the totem pole, in so far as
complaints to the CAB are concerned. Dur
ing the last 18 or 20 months that the CAB
has been doing this. Piedmont has been the
low man on the totem pole six times, three
or four times within the past calendar year.
And, in the months when we were not the
lowest, we were only maybe number 2 or
number 3 or something like that. When you
consider the fact that such a large volume
of our business is interline, that is con
necting with other carriers, where you have
an opportunity for mis-connects and other
things that would irritate a passenger it
is especially gratifying. It is our responsi
bility to provide service to the smaller com
munities, but it means that we do have a
number of, a large number of, intermediate
stops on many of our flights. We’re trying
to provide both the multi-stop and the non
stop service as best we can, but in this type
of operation, as you will understand, there
are many opportunities for us to stump
our toes and unintentionally create some
inconvenience for passengers. All those
things being considered, I think you will
agree with me that we have an extremely
able and dedicated group of employees
throughout the whole organization. It does
n’t fall in the lap of any one group of
people, it’s across the board. Even if, in
the accounting office, for example, billings
and collections are not handled properly on
charges, credit card transactions and things
of that sort, if the passenger writes to the
CAB complaining about that, it’s recorded
just as quickly as any other type of com
plaint might be recorded. So, every de
partment in the Company has had a part
in achieving this record. As I said our
business is to provide a good service to
the public, to realize respectable earnings
and to provide gainful employment for a
lot of people. We hope the results of 1972
indicate that we are making progress in
these areas.
Now, just a word about what 1973 looks
like. We all like to look out into the future
and see what we can expect. Frankly, at the
moment, about the only real unknown and
somewhat major factor in what the results
may be for 1973 is what we may be able
to achieve in so far as control of costs,
and particularly payroll costs. As you
know, the recent airline industry depres
sion during ’69, ’70 and ’71 was in large
measure the result of uncontrollable infla
tion in costs in practically all areas but pri
marily in personnel. Just as an example,
here at Piedmont we have a payroll of
about $40 million a year. A 10% increase
on a $40 million payroll is $4 million that
we have to come up with, in addition to
what we had last year, just to break even,
so to speak. So, we cannot continue to an
ticipate and experience that kind of an
increase, in my judgment, without two or
three things happening. One is unreasonable
fare increases which tend to drive pas
sengers away from us, particularly in the
short-haul business, back to their auto
mobiles. This then feeds on itself and
creates a necessity of cutting back on
service which in turn, necessitates cutting
back on the number of people, causing
furloughs and lay-offs and things of that
sort. So we’ve got to do everything we
possibly can to see that some reason is
maintained in this area as well as of course
in all other cost areas. So as I say, in all
other respects from what we see, 1973 looks
like a real good year. I’m sure all of you
are as clairvoyant as we are if not con
siderably more so in seeing what the gen
eral economy and the overall outlook for
progress and growth in this country is,
and we feel real confident about what we
may expect. As far as the first quarter is
concerned, you know that it is traditionally
the worst quarter in the year for us and
most of the other airlines. Historically,
with some few exceptions, we lose money
in the first quarter and try to make it
back in the other three. This year the loss
is going to be aggravated to some degree
because of the very substantial cost in
creases we have been experiencing in order
to take care of the security precautions nec
essary in connection with the anti hi-jacking
program. We’ve had to add a large number
of additional people to our stafl!’, particular
ly in stations, to handle the additional pas
senger screening that’s necessary to elimi
nate this menace. In addition, of course,
we’ve added other security people on our
stafl" at various locations to see to it that
we do the very best job that we can within
reason, to see that our Company and our
passengers are not subjected to anything
other than good service. In other words see
ing that our passengers go where they want
to go, instead of some other place that a
hi-jacker may select. The CAB and all gov
ernment agencies recognize the substantial
expense increases involved and have indi
cated all along that they are perfectly will
ing for us to have fare increases to take
care of it. However, it took them a while.
Not until April the 1st were we able to get
approval of the fare increase, by we, I mean
the entire airline industry, to help take care
of this additional expense. Therefore, in the
first quarter of this year, we had all of this
additional unexpected expense loaded on to
our operation with no comensurate increase
in fares to offset it. So you can understand
that in all likelihood the results of the first
quarter will be not as good as they were in
the first quarter of 1972. Nevertheless, with
the fare increase which Mr. Brown may
have some comments on a little later, plus
the very encouraging 12% increase in
traffic that we have experienced in the first
three months we believe that the balance of
the year should be very encouraging and
we are going to bend every effort to see
to it that it’s one that will be satisfactory
from your standpoint.
At this point, and without delving into
the areas that some of the reports may in
clude by our other senior officers. I’ll ask
Mr. Brown to bring us up to date on the
developments in so far as routes and other
traffic matters are concerned.
C. G. Brown: Thank you, Tom. Good
morning. Actually, there’s not a great deal
new that I’m able to report to you this
morning that has not been set forth in the
annual report or other sources available
to you. I can perhaps give you a progress
report on at least one or two of the pro
ceedings before the Civil Aeronautics Board
which are currently under way. The first,
of course, is the Richmond-New York non
stop proceeding in which Piedmont and one
other carrier are applicants. Another car
rier, National Airlines, is asking to have its
authority in this market cancelled. There
is one other party to the proceeding. East
ern Air Lines, which has taken the position,
understandably, that National should be
permitted to withdraw from the market but
no one else should be authorized to serve
it. I understand from my associates who
participated in the hearing week before
last in Washington before the examiner
that our case went exceptionally well and
they feel quite confident that our position
versus our competitor applicant is quite
good. It’s our general feeling that perhaps
the greatest possibility for failure will lie
in the area of the Board’s present thinking
of which I’m sure all of you are aware. That
is that they have got to keep the authoriza
tion of additional competitive services to an
absolute minimum. I think all of us recog
nize that some years back, in addition to the
labor costs and other elements that were in
volved in those disastrous three years of
losses for the industry that, though labor
costs may have been the principal feature,
I think perhaps excessive competition also
contributed. But in any event, that if this
additional authority is awarded that Pied
mont will be the recipient of that award.
I think probably the chances are reasonably
good that before this year is out, this case
will be decided.
We do have one other proceeding under
way which is a little difficult to explain.
It’s called the route realignment proceeding.
As most of you may know, our present
route system is made up of quite a number
of individual segments. A segment is, well,
for example, segment one is from Wilming
ton to Cinciimati via a number of inter
mediate points in North Carolina, Tennes
see and Kentucky. At the present time, to
go from a point on one segment to a point
on another segment you must have a point
of intersection between the two. I’ve tried
to think of how to explain this without
drawing on the wall which they probably
wouldn’t want me to do. I think if you
would just visualize an “X”. Make the first
mark blue and the second mark red and
we’ll call the point where they intersect
zero. In order to operate a schedule today,
from any point on the blue to any point on
the red you’re got to go by point zero. Now
what this route realignment amounts to in
essence is taking the red mark and the blue
mark and making one line out of it so you
can operate between any pair of points on
the red or the blue. This would be subject
to restrictions against certain types of op
erations that might involve inherent dam
age to another existing air carrier. Now,
I don’t mean to suggest that this is going
to be the cure-all to all problems of our
company but I do think that it will be of
assistance to us. I think it will give us an
opportunity to take advantage of some addi
tional markets that now exist without serv
ice. I think it perhaps will help us to effect
certain economies in that, quite honestly,
during the early morning hours and some
times the late evening hours we are re
quired to route aircraft for non-traffic pur
poses. By that I mean, you have to get
into a maintenance and crew base and
sometimes we have to make these so-called
stops at point zero, the segment intersec
tion, in order to get the airplane into a
base where, from a cost standpoint, if we
could take it in more directly without an
unnecessary stop simply for certificate pur
pose, I think it would save us quite a bit
of money. My associates inform me that
their opinion is that we will have a show-
cause order from the CAB very, very short
ly, perhaps within weeks, maybe sooner.
We anticipate that the Board would issue
the show-cause order to allow other par
ties to demonstrate why they should not
approve this revision or realignment of our
certificate. The restrictions have been pretty
well worked out through discussions and
agreements with the other carriers. As far
as what lies ahead, I think most of us who
are involved in this aspect of the Company’s
operation still feel that the atmosphere at
the Civil Aeronautics Board is first one of
few or any routes being added that involve
subsidy. Secondly, I don’t think there are
any routes in existence that I know of that
are really capable of subsidy-free profitable
operation unless it’s those that are competi
tive. In other words, some other carrier is
already in the market. I think in the present
atmosphere that it’s highly unlikely that
the Board is going to offer us much if any
additional competitive service within the
foreseeable future. I think our greatest op
portunity lies in actions simi'ar to that
which took place in the West Virginia route
case. There Eastern transferred to us their
route between Louisville and Washington
via Huntington and Charleston, West Vir
ginia. I am not in a position to comment
specifically, but I am of the opinion that in
the months and years ahead there will be
several of these developments, probably in
the area that we serve, involving various
trunk carriers and ourselves. I think this
type of transaction will offer opportunities
for the benefit of both parties concerned.
Tom, that’s pretty much it in that area.
Davis: All right, I should have mentioned
earlier that if any of you do have any
questions if you’ll just jot them down or
remember them until we complete all these
reports and then everyone will have an
opportunity to not only ask questions but
also to come forward with any comments
that you may have.
Question from stockholder Glenn Ander
son: Would Gordon comment on the Nader
charges about service to a number of cities
on Piedmont’s segments?
Brown: Without being facetious, I re
gard it as more or less McCarthyism under
the disguise of consumerism. We are in the
process of answering it now. Seriously,
Glenn, I think it’s one of those situations
which is fairly typical of this group where
they try to achieve whatever they intend
(Conliniicd on I’aKe Four)