Hard Landing (27 page)

Finally, it was evident that
a third party was now planning to make the scene at DFW: Delta Air Lines. Gravely for American, Delta was threatening to make DFW its next proving ground for the hub concept it was applying so successfully against Eastern in Atlanta. There was no way Bob Crandall was going to let Delta get the jump on American at DFW. Crandall ordered the airline to plan for peaking DFW beginning with its summer schedule in June 1981.

But which new cities should American serve from Dallas? Crandall began reviewing a list of destinations that could be added to the flight schedules; as it happened, he chose cities that the weakened Braniff already served—Austin, Amarillo, Corpus Christi, Midland, Lubbock, and others.

The big day was barely four months away, and the local managers at DFW were beside themselves with anxiety.
It can’t be done.… That’s too many flights! … We need more belt loaders! But Crandall would tolerate no such treason. Hearing of any obstacle to the hub plan, he immediately blew it away.

While gearing up for the big hub buildup, Crandall’s people were also putting the finishing touches on a secret project that had been years in the making—a device they recognized would have even
greater value as a way of addicting passengers to American’s big new hub.

The project dated to Crandall’s years as the marketing chief. When policy makers began using the word “deregulation,” Crandall began asking how American could maintain the loyalty of its long-standing customers, to say nothing of preventing new competitors from grabbing any first-time travelers. Crandall wanted some way of building brand loyalty for airline seats, which were essentially commodity products.

Meanwhile the endless computer studies at American had turned up another fascinating fact. Although American carried 25 million passengers a year, something like
40 percent of its business came from about 5 percent of its customers. There were that many repeat customers—“frequent fliers,” one might call them. Any incremental customer was welcome, of course, but every incremental
frequent
flier was, on average, nearly 10 times more valuable.

The idea of targeting repeat customers was an old one in the airline business, and as with so many marketing innovations it began at American under C. R. Smith. About the time he was introducing the DC-3 in 1936, Smith was made an
honorary Texas Ranger. Couldn’t American, he asked, issue membership plaques in a club for good customers? Marketing its DC-3S as “Flagships,” American expanded on the nautical theme by naming this new organization the Admirals Club.

More than 40 years later Crandall’s people were looking for ways to reawaken such brand loyalty. “
Do we even know who our frequent customers are?” they asked. The answer was not really. Before the great travel agent onslaught of the 1970s, back when businesspeople (and their secretaries) made most of the airline reservations, Sabre was programmed to search for multiple appearances of the same telephone number and periodically compile a list of the names associated with those numbers. (Surnames were too common and misspelled too frequently to be of much value in searching electronically.) The telephone area code located the individual in a particular state; American then searched driver’s license records for addresses. Through this laborious and expensive process American was able to maintain a mailing list of repeat customers totaling
about 150,000.

But in the early 1980s the same phone numbers were showing up over and over, by the hundreds and thousands—the phone numbers of travel agencies making reservations on behalf of their clients. American no longer had a reliable way of identifying repeat passengers. Travel agents were standing in the way of American’s contact with its customers. The wizards of Sabre were ordered to find a way of assigning a number to every frequent passenger, whether the reservation came through a travel agent or not.

Tom Plaskett had been supervising the brand loyalty project that Crandall had started but failed to complete as head of marketing. Plaskett at one point was reminded of the original brand loyalty scheme in the retailing trade S & H Green Stamps. Plaskett recalled his boyhood experience of licking the stamps that had accumulated in a kitchen drawer and fastening them in redemption books when the family needed a new toaster or some such, a ritual repeated in millions of postwar households across the country.

Plaskett’s Green Stamps reverie triggered a more recent memory. In a round of sales calls on major travel agencies and corporate accounts, Plaskett had been surprised to observe an old Admirals Club plaque hanging on a customer’s wall.

“
What is that?” Plaskett asked.

The Admirals Club had long ago been discontinued in a cost-cutting move. The CAB also helped to push it out of existence by forcing airlines to open their airport lounges to anyone willing to pay an annual fee, eliminating the invitation-only exclusivity that gave the clubs cachet. Yet years later, Plaskett noted, here was this man still proudly displaying his Admirals Club membership. And on that plaque were affixed little gold stars that had been provided by American Airlines, one for every 100,000 miles the man had flown.

That was it. American could have its customers accumulate mileage instead of Green Stamps, earning free travel instead of household appliances.

The concept was not unheard-of among the airlines. Southwest Airlines already had a program in which secretaries got free travel after booking so many trips for their bosses. Lorenzo had been
passing out scrip in $10 denominations to passengers at DFW—coupons good for future travel on Texas International. On the hotly competitive Los Angeles-to-San Francisco run, Western Airlines distributed
punch cards to passengers good for a $50 discount after five validations, following a promotion long in use by West Coast car washes.

Still, the notion was controversial when broached inside American. This would be a frequent-flier program on a scale unseen in the airline industry. Some of the American people warned that it might be seen as a breach of a long-standing taboo against corporate discounting. Because frequent fliers tended to be business travelers on expense accounts, corporations could legitimately claim the free travel awards as their property. In that case American would be seen as rebating to major corporations, which could touch off a scramble by other airlines to begin cutting prices outright for their major corporate customers. The idea
filled some of Crandall’s people with dread.

Plaskett and his supporters countered that individual customers would never allow their employers to take away their free travel awards. Although conducted in the open, this program in every respect would be nothing more than a kickback—the payment of something valuable to an individual in order to influence his decision in spending somebody else’s money. “It’s based
on individual greed,” Plaskett would later comment.

While also gearing up for the big expansion at DFW, Crandall, Plaskett, and their underlings began putting the frequent-flier program in place. The element of surprise was critical. Other major airlines would have no choice but to match the program, but it would take them months to catch up, months in which American would have the entire field to itself. By having all the necessary Sabre programming written and debugged in advance, American would allow passengers to start accumulating mileage on the very day that it announced the program.

Everyone assigned to the project signed an oath of secrecy. One of Crandall’s top salespeople, Michael W. Gunn, was reminded of growing up near the Rose Bowl in Pasadena. Whenever Michigan came to play, giant screens went up around the sidelines to keep stadium visitors from watching the team practice that year’s Secret Play. This frequent-flier thing—it was just
like the Secret Play, Gunn thought.

• • •

On June 11, 1981, at DFW, American Airlines conducted the biggest overnight expansion in airline history. The evening sky hanging over Dallas and Fort Worth suddenly resembled a suburban backyard teeming with fireflies. There were airplanes everywhere.

The noise, however, was less benign. DFW had been built with two parallel landing strips running north and south. Jets landed and took off over the pastures, lakes, and ghettos of light industry lying between Dallas and Fort Worth. But American’s mammoth expansion required the airport to make use of a third runway—an alternate, diagonal ribbon of concrete known as
Runway 13L, intended mainly for use during heavy crosswinds. At the end of the diagonal runway lay the drywall subdivisions of Irving, population 105,000.

The roar of an old 727 accelerating on takeoff could crack the sky and split the ears, often approaching the threshold of pain at upwards of a mile away. Beyond Runway 13L, in the middle of an area that local boosters called the Metroplex, the jet din was radiating repeatedly, on a schedule like Chinese water torture for the eardrums. Tom Plaskett, who had been intimately involved in planning the flight expansion, happened to live 2.3 miles from the end of the runway. “My God,” he said, “
what have I done?”

The ensuing community uproar was almost as loud. Overnight, pressure mounted on the FAA, the airport authority, and American itself to cut way back.
Crandall thrust himself into battle mode. The whole Dallas expansion was suddenly in jeopardy. Crandall bought local TV time and recruited employees as lobbyists, telling them their jobs were in jeopardy. American wasn’t to blame for the noise problem at DFW, Crandall said. The culprit, he said, was Southwest Airlines.

Crandall’s allegation involved at least a small leap of logic. It had been 10 years virtually to the day that Southwest had been in business, during which time Southwest had never once landed a flight at DFW. Southwest still made its home at the old Love Field, a few minutes from downtown Dallas. Moreover, even after a decade in business, Southwest counted barely 30 small airplanes to its name. It was less than one tenth the size of American. Crandall argued that the noise could be abated by letting American’s planes make a hard left turn after leaving Runway 13L, but they could not do so, he said, without intruding upon the airspace around Love Field, where Southwest operated all by itself.

Crandall was outraged that Southwest was permitted to keep the close-in Love Field open at all. “DFW, not Love Field, is the region’s gateway,” Crandall said. “It is DFW that gives residents of the Metroplex access to the nation and the world, and it is DFW which has provided the economic impetus for the development of the Metroplex, including Irving.” The solution to the noise problem was not to curb American’s expansion, he said, but to cut back on South-west’s “unbridled growth.”

To Herb Kelleher, Crandall’s rantings were just one more attack from another self-interested competitor who wanted to put his little company out of business.

In the decade since Southwest had gotten its financial footing, the company had never stopped making money. Southwest didn’t have a hub and didn’t want one. It didn’t want to add new cities except slowly and deliberately. It mainly wanted to fly full airplanes from point A to point B at a low cost with as many flights as possible per day—preferably by the hour. Its success was evident in its growing number of imitators, principally People Express, New York Air, and a company called Air Florida, which had recently burst on the scene.

Deregulation, it appeared, had finally opened the boundaries confining Southwest to the four corners of Texas.
Kelleher—the spiritual leader of the company, though still not a company manager—hosted a meeting to urge the company’s managers to prepare to break out of the state. Southwest, he said, had run its course in Texas. On top of the original three cities of the Texas triangle it had added Harlingen, Corpus Christi, Lubbock, Midland, Amarillo, El Paso, and Austin, lacing the Lone Star State with dozens of flights a day—each one bringing new, first-time fliers into the market as well as stealing business from the sputtering Braniff and in some cases from American. Southwest’s frequent, low-fare service had altered the character of Texas itself;
among the 10 largest cities in the state, no two were more than 55 minutes and about $25 apart on Southwest. El Paso, for one, separated from the rest of Texas by hundreds of miles of tumble-weed and sand, became more fully absorbed in the state’s affairs. Children torn between parents in the prosperous divorce capitals of Dallas and Houston became regular commuters aboard Southwest flights. Long-distance romances and marriages survived thanks to
Southwest, including Kelleher’s own; his family home and his law practice remained in San Antonio while his business affairs were increasingly conducted in Dallas. When deregulation hit, Southwest was at last approaching membership on the airline industry’s Top 20 list. It was time, Kelleher told the company’s executives, to reach outside Texas as well.

Some of Southwest’s leaders, panicked with aviation agoraphobia, resisted Kelleher’s urgings, but he soon prevailed. Southwest announced that it would offer service out of Texas, beginning with New Orleans.

Between Houston and New Orleans lay the principal oil route of the era, as the federal waters off the Texas and Louisiana coasts were opening to a new wave of offshore drilling for natural gas. New Orleans was also an exceedingly popular tourist destination among Texans, just within a day’s drive from Houston; with Southwest’s fares there would no longer be any reason to drive. For Southwest the new route would be a gusher.

Southwest’s enemies quickly went on the counterattack, led by House Majority Leader Jim Wright of Fort Worth (later Speaker of the House). Wright had been among the greatest champions of DFW and had therefore opposed allowing Southwest to drain off passengers to Love Field. Now, in addition to defending Braniff’s operations at DFW, Jim Wright had the interests of a new corporate constituent, American Airlines, to protect as well. Wright
demanded hearings on whether “automatic entry,” as used in the Deregulation Act, was meant literally. Did Southwest automatically have the right to begin service to a new city, or did the government have the standing to make it defend its wish to do so, to hamstring it with more hearings and pleadings? Kelleher, still handling the legal chores for Southwest, organized a massive signature drive and hired Mayflower movers to deliver scores of petition-laden boxes to Washington. Southwest won; regulators determined that “automatic” indeed meant automatic. Southwest had the right to fly to New Orleans.