By authorizing the awarding of contracts to private operators for airmail carriage, the Kelly Act and its amendments provided the impetus for development of the airline industry in the United States.
From the inception of airmail service in the United States in 1918 until the Air Mail Act of 1925, all aspects of the service, including pilots, airplanes, and facilities, were solely the responsibility of the U.S. Post Office Department,
The success of the Post Office Department’s airmail operation created an environment that made it possible for Congress, responding to a strong recommendation from the Post Office Department, to consider the feasibility of relinquishing operational control of airmail service to private carriers. Congressman M. Clyde Kelly, a Republican from Pennsylvania, became convinced that contract service would provide advantages over continued Post Office Department operation. In late 1924, Kelly introduced legislation that called for private bidding for existing airmail routes then being operated by the department.
Kelly’s original legislation, the Air Mail Act of 1925, also known as the Kelly Act, authorized the postmaster general to contract with any individual, firm, or corporation for the carriage of airmail by aircraft between points designated by the postmaster general at a rate not to exceed four-fifths of the postage revenues derived. Kelly included this 80 percent provision as a compromise to offset resistance to what some members of Congress perceived as government subsidization.
Following the act’s passage, Paul Henderson, then second assistant U.S. postmaster general, indicated that funds would be made available on July 1, at the beginning of the new fiscal year. He added that only those routes that could be operated without loss to the contractors would be awarded.
Bids were advertised in mid-1925, and within three months seventeen bids from ten companies had been received for eight specified routes. Three of the original bidders were removed from consideration because of lack of proof of adequate financial resources. Only five routes were awarded immediately, but by early 1926 the number of awards had risen to twelve. All were feeder routes that linked with the Post Office Department’s own transcontinental route. Ford Air Transport,
During the first year of contract service, the basis for payment to carriers created recurring operational problems. Because the private operators were paid a percentage of the postal revenues that were derived from the mail they actually carried, the pieces of mail had to be counted individually at each mail bag’s point of origination so that the postage totals could be determined and the correct apportionment of funds made to the operators.
The Air Mail Act’s first amendment, made in June, 1926, eliminated this problem by revising the payment rate to a per-pound basis. Even more important, the amendment’s provisions ended the requirement to relate the carriers’ rates of payment to actual postage revenues from mail carried. In essence, Congress no longer required the Post Office Department to guarantee that the service operate on at least a break-even basis. As a result, compensation to private operators could legally exceed postage amounts, and the fledgling industry very quietly began to be subsidized by the government in much the same manner as railroads and steamship lines.
The second amendment, in June, 1928, permitted periodic renegotiation of each carrier’s right to operate over its prescribed routes for a period not to exceed ten years. More important, the amendment lowered the airmail postage rate from ten cents per half ounce to five cents per ounce. This rate reduction served to increase significantly not only the total volume of airmail but also the number of users of the service. The primary goal of the Post Office Department in seeking a lower rate was to increase the number of users. The critical first stage of development of commercial air transportation in the United States was now complete. The airline industry had been born and was ready to begin moving out of its infancy.
Although the Kelly Act and its two amendments created conditions that enabled commercial air transportation to take hold and develop, it was the Post Office Department that, in 1918, initially set in motion the original attempt at scheduled airmail service, using army pilots and airplanes to fly mail from and to New York City, Philadelphia, and Washington, D.C. Airmail service’s subsequent development was made possible by Post Office Department efforts and congressional support through continuing appropriations. Development of airmail service was in keeping with the department’s philosophy of providing assistance to new modes of transportation that could be expected to improve the nation’s mail service.
At a 1926 Senate subcommittee hearing on postal rate changes, Paul Henderson, who had resigned his position as second assistant postmaster general in 1925 to head the newly formed National Air Transport, one of the original group of Kelly Act contract recipients, suggested that as the government had encouraged railroad building and maintenance of the nation’s waterways, it should extend like assistance to aviation. Given this history, it was not surprising that the Post Office Department decided to pioneer the development of airmail service. Otto Praeger, second assistant postmaster general during Woodrow Wilson’s presidential administration, was the guiding force behind the development and growth of the Post Office Department’s airmail service. As airmail routes gradually were expanded under Praeger’s leadership, Congress became interested enough in the benefits and potential that airmail service offered to provide an annual appropriation to support the developing service. Two separate appropriation line items, to support both transcontinental airmail service and expanding night operations, were contained in the Post Office Department’s annual budget in the years 1921 to 1927, averaging a combined annual total of approximately $2.5 million.
Although surplus U.S. Army airplanes were made available to the Post Office Department for use in the airmail service, their use was restricted because of virtual obsolescence. Needs of the airmail service began to dictate that aircraft manufacturers, particularly after the Kelly Act’s first amendment, begin concentrating their efforts on developing airplanes that could carry a few passengers in addition to mail. This, too, was in keeping with the expressed view of Postmaster General Harry S. New that the contract carriers should begin emphasizing passenger service in order to improve their financial outlook.
Virtually overnight, the Kelly Act created a new industry, that of private airmail operators. Most of the carriers involved in the original twelve route awards, through mergers and acquisitions, eventually formed some of the larger airlines. Colonial Airlines, recipient of Contract Air Mail Route One (CAM 1, New York to Boston), merged with Robertson Aircraft to become the foundation of what would one day be American Airlines.
The need for larger and more reliable airplanes stimulated the manufacturing segment of the industry, and it was during this time that first Boeing and later Douglas began to take the lead in aircraft design and manufacture. Within two years after the Kelly Act took effect, a few contract operators were using airplanes capable of carrying two passengers in addition to mail. One year later, three aircraft manufacturers, responding to the increased demand for passenger capacity, were producing trimotor transports capable of carrying eight to ten passengers. The Post Office Department encouraged passenger service growth, the rationale being that more passenger revenue would translate into less subsidization.
Compensation for the contract carrier began to increase markedly as more routes were relinquished by the Post Office Department. For fiscal year 1926-1927, Congress appropriated $2 million for the transport of airmail by contract carriers. For the following year, during which there was major divestment of routes by the Post Office Department, the appropriation jumped to $13.3 million, attributable directly to the provision in the Kelly Act’s first amendment that changed the basis of payment to weight rather than number of items and eliminated the requirement of relating compensation payments to actual postage revenues. Annual payments to air carriers continued to increase over the next few years as the public’s use of airmail became more commonplace. This increased use resulted directly from the lower postage rate approved by Congress as part of the Kelly Act’s second amendment in 1928.
Together, the two amendments accelerated the developmental pace of the new industry. The Kelly Act’s first amendment provided that airmail compensation payments be set at a rate not to exceed three dollars per pound of airmail for the first one thousand miles and thirty cents per pound for each one hundred miles beyond the first thousand. Given that the weight of mail carried was now the basis for payment, it followed that the private operators would seek larger aircraft in which to carry the anticipated heavier mail loads. The other important provision of the first amendment eliminated the relationship between compensation and postage, allowing subsidization of the new industry. This ultimately made possible the financing of larger aircraft, which in turn hastened the growth of passenger service. It was during this period that aircraft design and performance technology caught up with the new airlines’ needs, with each seeming to spur the other’s rapid development.
Both Congress and the Post Office Department believed that further action, including a reduction in the airmail postage rate, could be expected to increase airmail volume even more rapidly, thereby improving the new industry’s overall financial outlook. Calvin Coolidge’s postmaster general, Harry S. New, already was on record as advocating increased emphasis on passenger service so that marginal operators could become profitable, but this added dimension would require a heavy financial outlay by the private carriers for a new generation of aircraft.
The amendment’s changing of payments to a weight basis led to some enterprising activities by some of the carriers. For example, equipment and spare parts, normally shipped by carriers on their own aircraft when space was available and airplanes could take the extra weight, now were mailed to their destinations. The airlines were being paid to carry their own freight. The second amendment did not change the basis for payment, but it did allow for periodic renegotiation of contracted rates and the extension of route authorities for up to ten years.
Neither of these provisions was as important to the air carriers as the airmail postage rate reduction. Airmail had become a bargain, and public use of the service grew rapidly, so much so that some carriers were forced to curtail passenger service temporarily to accommodate burgeoning airmail loads. In the first month of operation under the lower rate, airmail volume increased 95 percent.
Through 1926 and 1927, the Post Office Department continued the orderly and gradual process of relinquishing its remaining airmail routes, the last of which was flown by the department on September 9, 1927. The purpose of the Kelly Act had been fulfilled.
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Christy, J., and L. R. Cook. American Aviation: An Illustrated History. 2d ed. Blue Ridge Summit, Pa.: TAB Books, 1994. Offers a panoramic view of the evolution of American aviation. Focuses primarily on the military but contains some interesting material on early airmail service and the beginnings of the airline system. Includes many photographs. -
Johnson, Robert E. Airway One. Chicago: Lakeside Press, 1974. Interesting corporate narrative authored by a member of top management at United Airlines (1929-1972). Includes a fascinating look at United’s developmental years, together with its predecessors that began operating after passage of the Kelly Act. -
Kane, Robert M. Air Transportation. 14th ed. Dubuque, Iowa: Kendall/Hunt, 2002. Undergraduate textbook provides a section on history that includes excellent coverage of the early airmail days and the Kelly Act’s ramifications. Material on subsequent aviation legislation nicely supplements earlier coverage. -
Loening, Grover. Takeoff into Greatness. New York: G. P. Putnam’s Sons, 1968. Fascinating autobiography by one of the Wright brothers’ pupils, who established himself as one of the leaders in aircraft design and manufacture during the 1920’s. Includes interesting recollections of early airmail operations, with details, some technical, on the first group of private airmail carriers. -
Wells, Alexander T., and John G. Wensveen. Air Transportation: A Management Perspective. 5th ed. Monterey, Calif.: Brooks/Cole, 2003. Textbook aimed at undergraduates includes a brief but thorough discussion of contract airmail service and the original twelve contract airmail routes. Presents interesting information on the competition in the early 1930’s between Douglas, with its DC-2, and Boeing, with its B-247.
Wright Brothers’ First Flight
First Airplane Flight Across the English Channel
U.S. Post Office Begins Transcontinental Airmail Delivery
Formation of Qantas Airlines
Air Commerce Act Creates a Federal Airways System
The DC-3 Opens a New Era of Air Travel
Congress Centralizes Regulation of U.S. Commercial Air Traffic