In the third quarter of 1937, the latest period for which the aggregates were available at the time of the hearing, the increase in the eastern district over the same period in 1936, the first full quarter of the reduced-fare basis, was 9.5 percent in coach passenger-miles other than commutation, 2.8 percent in sleeping and parlor car passengermiles, 11.4 percent in revenue from coach passengers other than commutation, 2 percent in revenue from sleeping and parlor car passengers, 3.2 percent in passenger revenue per coach-mile, and no change in the passenger revenue per passenger car-mile in sleeping and parlor cars; as compared with an increase in passenger train-miles other than suburban of 3.5 percent and in car-miles other than suburban of 6.1 percent for coaches and 2.4 percent for sleeping and parlor cars. During the same period the passenger revenue per passenger-mile increased from 1.79 to 1.82 cents from coach passengers other than commutation, and declined from 2.77 to 2.75 cents from passengers in sleeping and parlor cars.

Applicants' request for authority to increase their coach fares rests upon two principal contentions: First, their need for increased revenue having been established as detailed in Fifteen Percent Case, 1937–1938, supra, some of such increased revenue should and can be obtained from increased coach fares, and, second, the present spread of 1 cent per mile between the basic fares for coach and pullman service has diverted passengers from the pullman to the coach and is therefore too great.

Applicants seek to increase the coach fare and not the pullman fare, for the reasons that (1) since the great preponderance of the passenger traffic is in coaches, the additional passenger revenue which is needed must come largely, if not entirely, from coach travel, and (2) a number of passengers who formerly traveled in pullman cars are now satisfied to travel in coaches and, therefore, any increase in the pullman fare at this time would produce little if any additional revenue. The maximum increase in revenue estimated by applicants from the proposed coach fare is $29,961,000 per annum. This is merely a mathematical calculation made by multiplying the number of coach passenger-miles in eastern territory for the year 1936 by the proposed increase of 0.5 cent per mile. It is freely admitted by applicants that the proposed increase would divert passengers from the coach to other forms of transportation. In the opinion of most of the applicants, however, the net result would be an increase in passenger revnue, although not as great as the maximum amount above indicated. The president of one of the principal applicants expressed doubt that the proposed increase would result in much if any increased net revenue for his road, but stated he joined with the other eastern roads in this application because of the recent

increased costs of operation. Applicants propose the 2.5-cent fare as "experimental."

The claim that the present 1-cent spread should be narrowed rests upon the belief that it has diverted a substantial number of passengers from the parlor car to the coach, which applicants regard as undesirable. On the New Haven in the year ended May 31, 1937, the parlor-car earnings declined by about 4 percent, whereas the sleepingcar earnings increased by about 15 percent. For the country as a whole, in 1937 the number of pullman-seat passengers was about the same as in 1935, but less than in 1936 by about 311,185 or 6.04 percent. On the other hand, the number of berth passengers increased by about 21.4 percent over 1935 and by about 854,275 or 7.1 percent over 1936. Taken together, the pullman revenue passenger-miles in 1937 exceeded those in 1936 by about 10.8 percent and those in 1935 by about 29.5 percent. Thus, the decline in the number of seat passengers under the reduced fares has been much less than has the increase in the number of berth passengers, and, of course, the average total fare paid by berth passengers is substantially greater than that of seat passengers. No such segregation was made for the eastern district alone. However, in that district the passenger-miles in coaches for the year ended June 30, 1937, increased over the calendar year 1933 by about 46.4 percent, as compared with an increase in sleeping and parlor cars of 23.3 percent. In the same period the passenger revenue increased by 33.7 percent from coaches and 6.4 percent from sleeping and parlor cars. On the New York Central system, excluding commutation, the percentage of the total reflected by the number of coach passengers increased from 81.1 in May 1936, the month just preceding the effective date of the reduced fares, to 85.8 in May 1937, the pullman proportion declining correspondingly. At the same time the proportion of the total passenger revenue increased from 32.5 to 41.4 percent in coaches and declined from 67.5 to 58.6 percent in pullman cars. Some of the greater increase in coach traffic than in pullman traffic was probably occasioned by improved coach service and equipment, especially on the New Haven.

From the foregoing it is evident that under the reduced fares the traffic in both kinds of service has increased substantially, the larger increase naturally being in the lower-priced service, in which the fare reduction was the greatest, competition the most severe, and the travel market the largest. Whether that is an undesirable result from the standpoint of applicants, as most of them seem to contend, will now be considered.

In the report in Passenger Fares and Surcharges, supra, we pointed out that, based upon our formula for segregating freight

and passenger service expenses, including taxes and rentals, prior to about 1926 rail passenger traffic was in general quite profitable. Following that year deficits in increasing amounts occurred, until in 1931, 1932, and 1933 for the country as a whole they exceeded $200,000,000 annually. In 1933 that deficit in the eastern district was approximately $67,375,000. In 1936, the latest year for which the facts appear on this record, that deficit increased by $7,132,000 or 10.6 percent to $74,507,000, equal to 6.22 cents per passenger-train car-mile. Of that 1936 deficit $52,991,000 or about 71 percent is chargeable to mail, express, and baggage-car traffic, commonly called head-end service, which is an increase over the 1933 deficit from that service of $13,497,000 or 34.2 percent. About $21,516,000 of the 1936 deficit or 29 percent came from passenger-car service. This amount is less by $6,365,000 or about 7 percent than the deficit from this service in 1933.

Prior to June 1, 1936, when the reduced fares became effective, no segregation between coach and pullman revenues was made by applicants, and an accurate assignment of the passenger-car deficit in the eastern district for 1936 as between the coach and the pullman service cannot, therefore, be made. However, the record permits a fair approximation by comparing the segregated coach and pullman revenues per passenger car-mile in that district for the year ended June 30, 1937, with the corresponding expenses for those services in 1936, based upon our formula above referred to. Thus the car-mile revenue from coaches, including one-half the combination passenger car-miles, for the year ended June 30, 1937, was 35.5 cents, whereas the car-mile expense assigned and apportioned to coach traffic for 1936 was 34.66 cents. While the passenger train-miles and coachmiles in the year ended June 30, 1937, were somewhat greater than in 1936 it is not believed that the added expense was sufficient to overcome the difference between the coach revenue and expense of slightly less than 1 cent per coach-mile. From sleeping and parlor cars the car-mile revenue for the year ended June 30, 1937, was 26 cents, and from all reserved cars, including parlor, sleeping, club, lounge, dining, and observation cars, 21.2 cents, compared with an average car-mile expense for all reserved cars in 1936 of 29.56 cents. Even considering the increased operating costs to the applicants since 1936, these figures, while approximations, point strongly to the conclusion that whatever the exact passenger-car deficit may be today, it is chargeable largely to the pullman and not to the coach service. An accounting officer of the Pennsylvania criticized the formula thus used in segregating freight and passenger expenses, chiefly on he ground that it results in apportioning to coach traffic a smaller oportion of the passenger-train expense than in his estimation is

proper. It is enough to point out that, while in all probability the formula employed is capable of improvement with experience, it appears to be the best, and therefore designed to come the nearest to a fair and accurate segregation of expense, that has thus far been evolved.

The better showing made by the coach than by the pullman service is largely attributable to the greater increase in average car occupancy in the coach than in the sleeping and parlor cars. Thus in the eastern district the average passenger-miles per car-mile in coaches increased from 18.1 in 1933 and 18.8 in 1934 to 22.7 in the year ended June 30, 1937; in sleeping and parlor cars the average increased only from 8 in 1933 and 8.4 in 1934 to 9.2 in the year ended June 30, 1937. The difference in the cost of operating the average train when filled and when empty or partly filled is negligible.

Based in part upon the results from the passenger traffic survey for 1933 made by the Federal Coordinator of Transportation, it appears that the ratio of revenues to expenses in the eastern district has improved in the coach service, but not in the pullman service. Thus, in 1933 the expense per coach-mile was 33.84 cents and the coachmile revenue 29.9 cents, or a deficit of 3.94 cents. In 1936, as stated, that deficit was changed to a net profit of a little less than 1 cent per coach-mile. The expense per reserved-car car-mile in 1933 was 25.62 cents. The revenue per car-mile for all reserved cars in that year does not appear, but for sleeping and parlor cars it was 26.2 cents, and if we deduct from that figure the difference of 4.8 cents between the car-mile revenue for sleeping and parlor cars and for all reserved cars in the year ended June 30, 1937, the approximate car-mile revenue for all reserved cars in 1933 becomes 21.4 cents, or a car-mile deficit of 4.22 cents, as compared with 8.36 cents for the year ended June 30, 1937.

It thus appears, insofar as a determination can be reached upon this record, that the revenue difficulties in the passenger-car service which the applicants are experiencing lie not so much in the coach service but in the reserved-car service; that the 2-cent coach fare has resulted, apparently for the first time in many years, in eliminating or in coming close to eliminating any deficit from that service; but that the pullman service is today being operated at a substantial deficit which is probably greater than in 1933. Under these circumstances it would seem to be of doubtful wisdom, from a revenue standpoint, to now experiment further by disturbing the only basic fare of the applicants which holds promise of returning a profit and in which there is the greatest opportunity for profit in the future, instead of experimenting with the pullman fare and service, if as most

of applicants seem to believe further experimentation in passenger fares is desirable. Since it now appears that in general the coach service of the eastern carriers is being operated at close to a profit, and the pullman service is not, it would seem that any readjustment in the present fare basis which would result in diverting a substantial number of passengers from the coach to the pullman would be detrimental to applicants' revenues. It is evident, of course, that the present spread between the basic fares can be narrowed just as readily and perhaps with greater profit to the applicants by a reduction in the first-class basic fare, or by a reduced first-class round-trip fare such as is in effect in the South and in the West, as by an increase in the coach fare.

Moreover, the spread between the average fare per mile in pullmans and in coaches which is being paid today is substantially less than it was prior to the fare reduction. In Passenger Fares and Surcharges, page 216, it appears that the average per passenger-mile paid in 1934, excluding commutation, was 1.847 cents in coaches and 3.218 cents in pullman cars or a difference of 1.371 cents on the New York Central, 2.335 and 3.421 cents, respectively, or a difference of 1.086 cents on the Pennsylvania, and 2.504 and 3.675 cents or a difference of 1.171 cents on the New Haven. On this record, for the year ended June 30, 1937, the corresponding average fares are shown as 1.91 cents or slightly higher than in 1934 in coaches and 2.82 cents in pullman cars or a difference of 0.91 cent on the New York Central, and 1.854 cents in coaches and 2.804 cents in sleeping and parlor cars or a difference of 0.95 cent in the eastern district, the spread in each instance being substantially less than in 1934. In the third quarter of 1937, the latest of record, the spread in the eastern district was only 0.93 cent. If we include commutation the passenger revenue per passenger-mile was greater from sleeping and parlor cars than from coaches in 1933 by 1.62 cents, in 1934 by 1.56 cents, and in the year ended June 30, 1937, by only 1.26 cents. Even in May 1936, just prior to the fare reduction when many so-called excursion fares had been eliminated, the average coach passenger-mile revenue, excluding commutation, on the New York Central was 3.32 cents in pullman cars and 2.36 cents in coaches, or a spread of 0.96 cent, which was slightly greater than the spread of 0.94 cent under the reduced basis in May 1937. It is important, also, that in Passenger Fares and Surcharges, pages 239-240, the results from each of the three cost studies there referred to indicate that the difference in the cost of operating the coach and the pullman service is greater than 1 cent per passengermile.

The proposed increase in the coach fare was opposed, among others, by a witness who for the last 15 years has been a close student