Hard Landing (26 page)

At the height of the expansion Crandall sat
under the bright lights of a recording studio to tape an orientation message for the legions of new employees streaming through the front gates. He rendered a stirring account of American’s origins on the mail routes that Charles Lindbergh flew. He gave a pep talk on the competitiveness of the post-deregulation world of aviation—“the nearest thing to legalized warfare” he told his new employees. As for American’s split workforce, he said,

After you go to work, you will become aware of the fact that people hired some years ago, during the years of regulation, are paid what we call the “existing employee” pay scales, while you and most of your coworkers are paid at “market rate” scales. Some people have suggested that our new employees may feel some resentment towards those with more seniority. That’s very unrealistic, and I hope you won’t let it happen to you. Keep in mind that the more senior employees worked for the company during the years of regulation. They helped build American into the great company it is. In effect, they built the legacy that promises a good future for all of us.

Alas for Crandall, the historical precedent wasn’t entirely encouraging. In
the year 217 A.D. the expansion-minded Roman Emperor Caracalla introduced history’s first known two-tier pay system, with lower rates of pay for some soldiers. Although it was not the only morale problem that the emperor faced, it most certainly fueled the plot by which eventually he was assassinated by his own troops.

While conceiving of the b-scale plan and tweaking its computer network against the upstart airlines, American was conducting a third major post-deregulation move. It was quitting Manhattan.

In addition to cutting costs, the move, as Chairman Al Casey reckoned it, meant laying to rest
the regulated past. American had been reducing flights in the Northeast and moving its planes westward. American, he declared, would make its new home in the grassy prairies along the edge of Dallas-Fort Worth International Airport.

Though American had been a major operator in Dallas since the days of the 1930 spoils conference, it was always viewed as an out-of-town corporation. Even little Southwest Airlines readily established a more visible corporate presence in Dallas than American ever had. But among them all the most powerful airline in Dallas was Braniff Airways, not only a beloved local institution but the biggest airline by far at DFW.

If American Airlines was to become the king of the hill in its newly adopted operating center, then Bob Crandall would first have to dislodge Braniff—a company going through some puzzling and extraordinary changes just as American was moving to town.

For much of its history, Braniff had been notorious for poor operations and indifferent service. Then, in 1964, a 35-year-old financial analyst in Dallas named C. Edward Acker persuaded the directors of a local insurance company to buy a controlling interest in Braniff and put him in charge of shaking things up.

Eddie
Acker stood out in two respects: he was basketball tall (well over six feet) and demonstrably intelligent (he had skipped two grades, second and eighth, on his way to Southern Methodist University). With a soft chin, a bemused smirk, and spectacles that made him a ringer for the network anchor John Chancellor, Acker also had a bearing that reassured older, more established men, such as the insurance company directors who entrusted Braniff to his care.

Acker hired the advertising agency Jack Tinker & Partners, fresh from the triumph of a breakthrough for Alka-Seltzer (“No matter what shape your stomach’s in …”). Mary Wells, the account executive, had Braniff’s planes painted in seven different jelly-bean colors. She brought in Emilio Pucci from Milan to design the exotic flight attendant uniforms used in the “air strip.” Meanwhile, Acker had recruited the tempestuous Harding Lawrence to help whip Braniff’s operations into shape. Mary Wells and Harding Lawrence proceeded to conduct America’s most celebrated interoffice romance.

Under Acker and Lawrence, Braniff reorganized its route structure
around the infrequently used system called hubbing. Braniff’s hub was born of necessity when Braniff took the lone 747 in its fleet (painted orange, it became known as the Great Pumpkin) and scheduled it between Dallas and Honolulu. The naysayers of the industry said that no airline could ever collect enough passengers to fill a jumbo jet to Hawaii except on the West Coast or East Coast, or perhaps in Chicago. But because Braniff had resisted the pell-mell rush to buy whole fleets of 747s, the company could afford to buy a great number of smaller “feeder” jets, such as 727s. Thus DFW was fairly teeming with Braniff’s jelly-bean planes, all zipping in and out from as far east as New York and as far west as California, and from dozens of smaller cities in Texas and up and down the Tornado Alley that ran through Oklahoma and Kansas. These small planes, in turn, were feeding passengers not only into the Great Pumpkin but into each other. The 727s were both arriving and departing full of passengers. When Braniff failed to snuff out Southwest Airlines in the courts, it added still more small planes to compete against Southwest.

Braniff’s powerful hub vividly demonstrated another inviolate rule of the airline business: Whoever has the most flights from a city gets a disproportionate share of the passengers. Frequency enhanced convenience—the convenience of flying the day of your meeting, not the night before; the convenience of arriving just an hour before your business was scheduled to begin. Frequency also preserved valuable flexibility: a business traveler could catch a later flight if his meeting ran over, or surprise the family by grabbing an early flight home. The marketing benefit of frequent service was so ironclad that it was expressed in its own mathematical representation, called the S-curve, a graph that showed that by maintaining 60 percent of the flights from a city, for instance, an airline invariably drew much more than 60 percent of the passengers.

Though Braniff’s was among the earliest and most brilliant demonstrations of hub power, the company’s glory days were not to last. The beginning of the end, improbably enough, had begun with the Watergate scandal.

With their gaily painted airplanes and smartly robed flight attendants, Acker and Lawrence in the early 1970s eagerly wanted more destinations to serve, but the government was making none available,
except overseas, as part of the slow dissolution of Pan Am’s monopoly. The White House played a prominent role in these foreign route awards. Just as American had, Braniff felt the hot breath of the Committee to Reelect the President. Before long Acker and Lawrence went to Washington to deliver personally an envelope bearing
$40,000 in hundred-dollar bills to the Nixon people.

After the illegal contribution was made known, the Securities and Exchange Commission launched an investigation of the internal money-laundering maneuvers conducted to generate the cash off the books. A story began to circulate in the industry that Braniff was being pressured to offer up a human sacrifice, just as American had ousted George Spater. Acker, meanwhile, had also been
called before a grand jury investigating whether Braniff used illegal dirty tricks in its effort to block Southwest from going into business.

In the midst of all these controversies Acker announced he was quitting Braniff. Acker told people he
yearned to escape from the shadow of Harding Lawrence, who had become the more visible figure in Braniff’s success. Throughout the airline industry, however, people were convinced that Acker had another motive in leaving: to
protect Lawrence, and Braniff itself, from the long arm of the law.

With Acker departed, Braniff was
without its ballast. Previously a Spartan, cost-conscious operation, Braniff soon opened a massive new headquarters campus at DFW, with a pair of
olive trees flown in from Greece for the courtyard. (They died the following winter.) Having already hired Alexander Calder to paint the exteriors of some of the company’s airplanes in garish designs, Lawrence now commissioned Calder to produce dozens of works for the walls of corporate offices. Lawrence installed his 32-year-old son in a high-visibility vice president’s job. The company chose an advertising slogan that reflected the image of the chairman as much as the image of the airline: “When you’ve got it, flaunt it!”

Lawrence was convinced that deregulation would be a disaster and that Congress would quickly reverse it. Not one to waste an expansion opportunity, Lawrence in the hours before deregulation became law instructed his man in line outside the CAB to apply for every new route he could lay his hands on. Lawrence got his wish, winning dozens of routes. But under the government’s use-it-or-lose-it policy, Braniff had to begin flying the new routes almost immediately.
Lawrence dispersed many of the planes from his hub in Dallas to such far-flung destinations as Albany, Birmingham, and Cleveland. He borrowed massively in a crash campaign to bring in still more planes. On one day alone at the peak of the expansion Braniff commenced service to 16 additional cities, a feat that no airline had ever come close to achieving. Lawrence had also added service to London and other cities overseas. As the expansion ran amok, Braniff’s newly hired
flight attendants literally lost track of where they were landing as they announced the arrival of their flights. From 1975, when Acker had left, to 1980, when American was moving to town, Braniff nearly doubled in size, from the tenth largest U.S. airline to the eighth.

Bob Crandall was practically
rubbing his hands together as he watched Harding Lawrence disassemble Braniff’s beautiful hub at DFW. Just then the perfect plan popped out of the Crandall idea factory.

Tom Plaskett, Crandall’s successor in the marketing department, had been brooding sternly over ways to cut costs. In the delicate dance of planes, employees, and passengers at DFW, American, it appeared, was inefficiently matching ground crews with flight schedules. As it switched more planes into Dallas, American was clustering arrivals and departures around peak times of day, helping passengers to make connections without forcing them to idle away hours in the molded plastic chairs of the airport. (Frozen yogurt was not yet a commonplace diversion.) But while it convenienced passengers to bunch arrivals and departures, the practice also created long stretches in which baggage handlers and other members of the ground crew had little to do. By spacing flights more evenly, it would seem, American could avoid scheduling work crews at the level dictated by the peak of operations.

Nothing might have pleased Plaskett more than to race to Crandall with his plan to cut manpower costs at DFW, but Plaskett had to do his homework first. The
issue was delicate because American’s head scheduler was close to Crandall and resisted reporting to Plaskett. So Plaskett went to Melvin E. Olsen, a more junior executive in the scheduling department. Mel Olsen had started out
as a baggage handler for Western Airlines, chasing laboratory mice around the
cargo hold whenever a box bound for the University of California at San Diego broke open. Olsen had been displaying computer expertise long before he had so much as touched one. After becoming a schedule analyst at Western in the 1960s he had kept track of the fleet by running an ice pick through a series of hand-punched cards in which the holes matched up according to aircraft types.

“Should we
de-peak DFW?” Plaskett asked Olsen.

Instinctively Olsen knew the answer was no; if anything, he thought, American should move in the opposite direction. It was all a question of elementary mathematics.

Every single airline market involved an origin and destination—a city pair. Airlines traditionally served these markets by flying “point to point” with convenient, nonstop service. But by requiring passengers to change planes at a hub airport, an airline could vastly increase the number of city pairs it served. In its effort to ensnare passengers from Eastern in the southeastern United States, Delta, for instance, had long followed this practice in Atlanta, giving rise to the often-repeated Dixie complaint that whether flying to heaven or hell, you had to change planes in Atlanta. Braniff, and later American itself, was conducting the same sort of schedules in and out of Dallas.

Olsen realized that in a mathematically perfect world the number of markets an airline could serve from a hub increased exponentially as the number of cities from the hub increased arithmetically. This presupposed, however, that every passenger on every arriving flight had the opportunity to get aboard any one of the departing flights, all of which required the airline to schedule the arrivals as closely together as possible, and the departures as well. Olsen knew that to gain the full geometrical advantages of a hub, flights would have to be precisely timed to arrive and depart in “complexes” or “banks.”

The beauty of complexing appeared even greater when Olsen ran computer simulations on the costs involved. As the number of cities was increased around a hub, the number of passengers flying through it increased exponentially, but the number of people on the ground required to service the flights rose only arithmetically. Using American’s cost and travel-pattern data at DFW, he found that each city added to an existing bank of flights brought in 73 new passengers a day, at an average fare of $180—a
total of $13,140 in additional
revenue. But the incremental cost of servicing those additional passengers totaled only $560. American shouldn’t be de-peaking DFW, Olsen realized. American should be adding as many flights as possible and scheduling them in bunches as tight as possible.

Olsen presented the results to Plaskett, who immediately grasped their significance. “Mel,” Plaskett said, “I want to
show this to Mr. Crandall.”

Crandall had several good reasons to latch on to Olsen’s findings. For one, this was leverage you had to love—a program that would increase costs, yes, but would increase revenues by a much greater factor. For another, Crandall knew that deregulation, reduced to its essence, meant grabbing and keeping airline passengers—controlling them for their entire journey. Olsen’s plan would help American avoid handing off connecting passengers to competing airlines. Third, the expansion would also help American seize more of the business in Dallas from which Braniff now appeared to be walking away.