The first sign of commercial interest came on April 3, 1925, when the automaker Henry Ford opened a private air freight service between Detroit and Chicago. Soon after, when bids were solicited for the first contract routes, there was no shortage of interested companies submitting bids stating how much they would charge the government.

Eighty percent of the stamp money received by the Post Office was to be paid to the airmail carriers. The quantity of stamps needed depended on the weight of the mail and also on how many of the three zones the mail had to cross. (The country had been divided into three air zones on July 1, 1924.) Companies saw that they would make more money if they carried smaller but heavier pieces of mail. Also, since they would receive the same amount of money no matter how many miles they flew within a zone, they preferred to fly shorter distances within a single zone and save some operating costs.

Harry S. New, postmaster general under President Calvin Coolidge, wanted the airmail carriers to expand their routes and to buy larger airplanes to carry more passengers. He awarded contracts only to the largest companies that bought the largest aircraft, which could accommodate more passengers as well as the mail. New realized that if the airlines sold more passenger tickets, which then numbered only a few hundred each year, they could carry less mail and still make a profit. The companies would receive their income from passengers rather than from the Post Office as payment for carrying the mail. New awarded eight airmail routes to seven airmail carriers, beginning in October 1925. One carrier, Ford Air Transport, won two of the routes and was the first to fly airmail under contract, starting on February 15, 1926.

The postmaster general noticed that airmail operators continued to fly only the shortest routes within their zone, since they would receive no more stamp money for flying longer distances within that zone. To remedy this, on June 3, 1926, the Kelly Act was amended to instead pay $3.00 per pound of mail (454 grams) for the first 1,000 miles (1,600 kilometers) and 30 cents per pound for each additional 100 miles (160 kilometers). 

In May 1926, Congress passed the Air Commerce Act, which gave the government responsibility for fostering air commerce, establishing airways and aids to air navigation, and making and enforcing safety rules. Under this act, the government supplied money for air navigation facilities so that the routes would become safer to fly, day and night. Management of the route system moved to the new Aeronautics Branch of the Department of Commerce, which was established in August under the leadership of William MacCracken.

By the early part of 1926, contract airmail carriers flew most of the airmail, but government airmail pilots in government airplanes still flew the transcontinental route connecting San Francisco, Omaha, Chicago and New York. This transcontinental line was divided into two segments in 1927. Boeing began contract service on the western sector, between Chicago and San Francisco, on July 1, 1927. National Air Transport took over the eastern sector, between New York and Chicago, on September 1, 1927. Now, all airmail operations had shifted to private companies flying with their own pilots and aircraft.

Other changes were made too. Most of the airfields on the route system had been paid for and managed by the Federal Government through the Post Office Department. They were now handed over to the local government near each airfield to pay for and manage, except for the important mail centers of Omaha and San Francisco and possibly Chicago. In July 1927, the Department of Commerce took over the construction and maintenance of the still-incomplete transcontinental lighted airway. In addition to hundreds of light beacons, the airway's facilities included 95 emergency landing fields and 17 radio stations that had been built since 1921 to provide pilots with weather information.

Improved aircraft technology helped increase the volume of mail and freight that could be carried. Some airplanes could carry passengers, baggage, and airmail. Air-cooled engines replaced water-cooled engines. Some of the new engines generated more than 450 horsepower (336 kilowatts) and helped airlines improve on the average speed of 110 miles per hour (176 kilometers per hour).

In 1928, the Post Office gave operators that had been in business at least two years a 10-year contract that excluded any competitors. The mail carriers still favored the shorter routes within their zones but to meet government requirements, airlines began to merge and create longer routes to more cities.

Pilot groups were founded as well as airline companies. In 1928, the National Air Pilots Association (NAPA) was formed, and by 1931, the Air Line Pilots Association (ALPA). By the spring of 1929, there were 61 U.S. passenger lines, and 47 airmail lines. Airmail volume in 1926 had been 810,555 pounds (402, 525 kilograms); by 1929, airmail volume had grown to 7,772,014 pounds (3,532,733 kilograms).

Though the aviation industry made money, the Post Office supported growth of the system and lost more money each year. In 1929, airmail subsidies reached $11,618,000, but airmail revenues were only $5,273,000. To keep airmail stamps affordable, the Post Office limited the stamp price to five cents per ounce and made up the difference with tax money.

Airmail carriers learned to use the subsidies to make money regardless of the true public demand for airmail. They sometimes sent postcards to themselves using registered mail, which required a heavy, secure lock. The lock added weight and, therefore, the government had to pay more. Despite such abuses, the postal subsidies encouraged aircraft designers to design aircraft that were more reliable, could fly longer distances, and were less expensive to fly.

Herbert Hoover was elected President in 1928. He would appoint a new postmaster general, Walter Folger Brown, a man who wanted to create a stable and efficient air transport system that served both passengers and the mail. Brown began work on March 6, 1929 and rapidly began to shake up the industry.

Sources:

Bilstein, Roger E. Flight in America From the Wrights to the Astronauts. Revised Edition. Baltimore and London: The Johns Hopkins University Press, 1994.

Bruns, James H. Mail on the Move. Polo, Ill.: Transportation Trails, 1992.

Christy, Joe, Wells, Alexander T. American Aviation--An Illustrated History. Blue Ridge Summit, Pa.: Tab Books Inc., 1987.

Ethell, Jeffrey L. Smithsonian Frontiers of Flight. Washington, D.C.: Smithsonian Books, New York: Orion Books, 1992.

Komons, Nick A. Bonfires to Beacons. Washington, D.C.: Smithsonian Institution Press, 1989.

Leary, William M. Aerial Pioneers – The U.S. Air Mail Service, 1918-1927. Washington, D.C.: Smithsonian Institution Press, 1985.

Smith, Henry Ladd. Airways: The History of Commercial Aviation in the United States. New York: Russell & Russell, Inc. 1965.

“The Airmail Act of 1925.” http://avstop.com/History/NeedRegulations/Act1925.htm

“FAA Historical Chronology, 1926-1996.” http://www.faa.gov/apa/history/ChronIntro.htm

Further Reading:

Boughner, Fred. Airmail Antics. Sidney, Ohio: Amos Press Inc., 1988.

Heppenheimer, T.A. Turbulent Skies; The History of Commercial Aviation. New York: John Wiley & Sons, 1995.

Holmes, Donald B. Airmail, An illustrated History 1793-1981. New York: Clarkson N. Potter Inc., 1981.

Jackson, Donald Dale. Flying the Mail. Alexandria, Va.: Time-Life Books, 1982.

Lipsner, Benjamin B. The Airmail Jennies to Jets. As told to Leonard Finley Hiltsd. Chicago: Ill.: Wilcox and Follett Company, 1951.

Shamburger, Page. Tracks Across the Sky. New York: J.B. Lippincott Company, 1964.