Hard Landing (38 page)

But on a flight to a fund-raising expedition in Boston, Lorenzo
broke the bad news to Bakes. “We’re
going to be announcing a new president and chief operating officer of Continental,” Lorenzo said, and the choice was not Bakes.

Bakes was devastated. Who could be more worthy? he wondered. The choice, Lorenzo said, was Steve Wolf, a senior vice president of Pan Am.

Steve Wolf? From a loser company like that? Bakes was unable to contain his anger. His face was ashen.

“You’re just not ready yet,” Lorenzo said.

Stephen Michael Wolf was considered a peculiar personality in airline circles—aloof, formal, even stiff—but he was also known as hyperattentive to the details of running an airline. Growing up in East Oakland in the 1940s, he displayed an uncommonly precocious compulsion for order: his
mother would later tell people that when she put food on the tray of his high chair, the toddler Stephen would instruct her precisely where he wanted each dish served. “Put it here!” he would command, jabbing his finger against the tray. “Put it here!”

Wolf played football as a kid, sprouting on his way to six foot six. But his career in athletics was cut short by a family trauma when he was 15. His
father walked out, leaving Stephen to provide for his mother and two younger sisters. An awesome sense of responsibility had struck him at a most vulnerable age. The boy was suddenly the man of the house.

He arranged a special school schedule of four hours a day so he could work full-time at Davidson & Licht, the jewelry store on Broadway in Oakland. He swept up, ran errands, wrapped gifts, and polished silver—working with, and around, tiny things.

Wolf moved on to much tougher, higher-paying jobs, which invariably had something to do with the transportation of things. He landed on a loading dock at United Parcel Service, soon becoming a supervisor even though he was a part-time employee, going to a city junior college and later to San Francisco State on the side. During the summer months he spent four hours a day in school, then six hours at UPS, and then another four hours working a second job: unloading railroad boxcars at a Fisher Body plant, packing trailers at a trucking firm, or handling cargo along the docks. Over the
course of a few summers Wolf worked as a member of the Teamsters, the Stevedores, and the Auto Workers’ unions.

A career in cargo might not have been the first choice for most graduates in the mid-1960s, but Wolf was thrilled to take a trainee position at American Airlines’ cargo operation in San Francisco. Expected to reach a supervisory position in 12 months, he made it in 12 weeks. From there he moved to Cleveland and then to New York, where in a hangar at JFK he
caught the attention of American’s newly appointed chairman, Al Casey, whose own background included working in railroad freight. At the time that Casey was propelling Bob Crandall along the fast track at American, he also took Wolf under his wing. Soon Wolf was working on the passenger side of the business, doing the same with people that he had been doing with boxes and crates.

A conspicuous individual to begin with because of his towering height, Wolf took great care in his personal appearance. He had a thick, immaculately trimmed mustache and wore bright red suspenders, which only exaggerated his height. When American produced a sensitivity training film for flight attendants in the late 1960s, Wolf was shown
walking down a New York City street wearing a trenchcoat, head and shoulders over the crowd, in a scene intended to depict the hustle and bustle of modern life. Years later
Wolf would take delight in recalling that the soundtrack music behind his appearance on the film was the romantic theme from the movie
Midnight Cowboy
.

Though intensely methodical and results-oriented, Wolf began to lose steam professionally at American, and his rapid ascent began to slow.
Some of his peers had moved ahead of him. He urgently
wanted a promotion and a raise but was turned down for both. Wolf left to go to work for Ed Acker at Pan Am, where he was stung by the bug that bit so many in aviation. He
wanted to run something.

An offer from Frank Lorenzo to become president of Continental Airlines was his opportunity, and Wolf leapt at it. A short time later, sitting down with a reporter from
Business Week
, Wolf boasted of what a brilliant team he and Lorenzo made. Lorenzo, said Wolf, “has very
profound financial strengths, and I’m a very good operating guy. I think we balance each other superbly.”

Once at Continental headquarters in Los Angeles, Wolf scheduled
both the airline and himself to perfection. He conducted one-on-one meetings as he drove to the
dry cleaner. People on the operating side of the airline, where details particularly mattered, were deeply impressed with Wolf’s
mastery of intricacy. But to others Wolf seemed so compulsively attentive to detail that he could not begin to see the scope of Continental’s problems. With the financial crisis worsening, Lorenzo at one point rushed into Wolf’s office for an emergency consultation, only to find the president
sprawled on the floor studying upholstery samples. On another occasion a marketing executive looked on as Wolf tried to explain to someone else the exact shade of paper stock he desired for Continental’s timetables. “I want it to be this color,” Wolf barked, stabbing his finger against a beige telephone receiver.
“This
color, understand?”

The people around him thought Wolf was not above an occasional round of office politics.
One Sunday night Lorenzo, at home in Houston, called corporate headquarters in Los Angeles as Wolf and his aides were immersed in making budget cuts for the year. Lorenzo was unhappy to learn that Bakes, now a senior vice president, was absent from the meeting. Lorenzo tracked down Bakes at home. “Why aren’t you at the company?” he demanded. Bakes told Lorenzo that Wolf had not informed him of the meeting. It was a pure power play, Bakes thought. Wolf was cutting him out.

Wolf did not recognize that he slighted Bakes at some peril to himself. Though junior to Wolf on the organization chart, Bakes was a card-carrying member of Lorenzo’s inner circle, which Wolf was not. Lorenzo, in fact, was regularly conducting
end runs around Wolf, talking privately to Bakes about what was happening in the company. Because Wolf seemed to make a point of introducing himself as Stephen, Lorenzo made a point of
calling him Steve, with a whiff of sarcasm.

Wolf before long could not avoid sensing that things were not entirely right for him at Continental. The issue came into focus when Lorenzo announced that Continental was moving its headquarters, notwithstanding his promises. “Contrary to what has been speculated,” Lorenzo had said in a letter, “Texas International has
no plans to move the headquarters of Continental out of the state of California.” But months later he told executives in Los Angeles to start packing for Texas International’s hometown of Houston. Wolf,
preparing for the move, decided it would be wise to sign a
month-to-month lease on an apartment in Houston. He even rented furniture. Wolf could sense trouble ahead.

And indeed enemies old and new alike, sensing Lorenzo’s weaknesses, had begun to circle.

Sitting in his office overlooking Newark’s North Terminal, Don
Burr read aloud from
Business Week
to his companion and fellow People Express founder, Melrose Dawsey. Stephen Wolf was quoted as saying how well he and Lorenzo worked together. “That guy is gonna last a month,” Burr cackled. “Frank will kill this guy.”

The separate launchings of People Express and New York Air had only intensified Burr’s rivalry with Lorenzo. When a fleet of 20 secondhand 727s came on the market through the liquidation of Braniff, Burr expressed interest in acquiring them, but Lorenzo, it turned out, was
eagerly seeking the same planes, Burr was convinced that Lorenzo was making a play for the airplanes simply to be a spoiler, to drive up the price that People Express had to pay—“
one more of Frank’s deals to frustrate what we were doing,” he would later claim. But Burr moved quickly and nailed down the 727s, some of which, he decided, would be scheduled to fly from Newark to Houston, piercing the heart of Lorenzo’s new Continental hub.

Burr could not have chosen a more sensitive spot on which to inflict pain. Houston-New York was among the most vital routes in the Continental system and one that Lorenzo essentially had all to himself. Other airlines served the same pair of cities only with connecting service—Delta through Atlanta, for instance. The established airlines were lazily raking in as much as $320 for a one-way ticket.

In addition to the economic imperative for Burr to jump into Houston, there was also the emotional one. As Burr would say a decade later, “Maybe I thought it would be a wonderful
way to jab Frank.” He determined to
swamp Lorenzo with low prices—$69 one way—and massive service: 727s jammed with seats, initially three flights a day, then up to eight flights a day … 1,600 seats every day, swarming into Lorenzo country, each in a plane bearing the double facial profile of People Express.

The confrontation was all the more pleasurable for being played
out in the old headquarters town of Texas International, where Burr and Lorenzo had once been so fast. Many of the renegade Texas International employees now working at People Express still had connections to Houston. Melrose Dawsey, who had been Frank’s secretary back in the old Texas International days,
had a child who spent time in Houston with her ex-husband.

Delightedly Burr awarded Dawsey the privilege of traveling to Houston to conduct the press conference announcing the invasion. Lorenzo would learn from his former secretary, now with Burr in Newark, that People Express was attacking Continental.

In Dallas Bob Crandall’s people were taking “screen science” to a new level of sophistication. And with Frank Lorenzo—Mr. Peanuts Fares himself—taking control of Continental, they had a new target in their sights.

This much was apparent to Dick Murray of the Sabre staff one day when he took a phone call from Continental. Lorenzo’s new airline had just posted discount fares in a number of cities. But the discounts on 49 particular routes were not showing up on Sabre terminals in travel agencies across America.

That didn’t seem possible to Murray. “There’s been
a screwup somewhere,” he told Continental. But when he investigated, Murray learned that the discounts had been deliberately withheld from the Sabre network on routes where American competed. Murray later saw an internal memo that cited “
suppression of all Continental fares” at the discount level between the 49 city pairs.

Later a Sabre staffer
sheepishly approached Murray and laid a file on his desk. She said she had been directed to work on a program that would automatically suppress any discount fares loaded into the Sabre mainframes. The program would withhold the data from travel agents long enough to give American time to study whether it wished to match the fare cuts, thus blocking the competition from stealing a march on American. “She had been
sworn to secrecy,” Murray would later recall.

When he was denied a promotion and assigned to report to one of his rivals, Murray decided it was time to leave American. He scheduled a
meeting with Bob Crandall and informed him that he had an offer from Lorenzo to join Continental. “Jesus Christ! Don’t go to
Continental,” Crandall said. “We’re going to
put them out of business!”

Lorenzo had hired Murray to try to make something of Continental’s modest in-house computer reservation system. Lorenzo understood as well as anyone the power of massive computer reservations systems in the airline industry. With Dick Murray joining his team, Lorenzo could at least begin to investigate the potential of expanding the Continental system into a more meaningful force—a counterweight, perhaps, to the passenger-gathering power of Sabre and Apollo (and to a much lesser extent the networks that TWA and Eastern were also installing in travel agencies). Above all Lorenzo
wanted to join in the practice of collecting fees from other airlines for electronically processing reservations made in their behalf; he bitterly resented having to pay the tax that Bob Crandall and Dick Ferris collected for every reservation that their networks handled for his airlines.

After Murray had joined Continental, a subpoena arrived in connection with a federal investigation of computer reservations systems. Murray came forward, regaling Lorenzo with
tales of tweaking and bias and fare suppression and stolen data at Bob Crandall’s American—some of the tricks having been directed against Lorenzo’s airlines. Lorenzo suddenly thought he had a
smoking gun with Bob Crandall’s fingerprints all over it.

The next thing he knew, Murray was in a room full of Justice Department lawyers, with a stenographer taking down every word.

While Dick Murray toiled over computer problems and Steve Wolf moved to consolidate the hub operations in Houston and Denver, Frank Lorenzo was busy trying to keep Continental’s finances from collapsing. Continental by 1983 was losing money faster than ever. Though the recession had lifted and fuel prices were beginning to abate, a new fare war had erupted, much bigger than anything yet to hit the airline industry, triggered by Ed Acker’s “ninety-niner” at Pan Am. Matching the Pan Am fares creamed Continental. Thankfully for Continental, Lorenzo had not lost his
touch on Wall Street; he funded the losses with underwritings. In addition a major insurance company in Houston, American General Corporation, invested $40 million in options on Continental stock, declaring that it believed the
company, and the industry, to be strong turnaround bets. “Frank
laid on all the charm he knew how to lay on,” Phil Bakes would recall.

But even Lorenzo could not continue funding Continental’s losses forever. The only way to reverse the tide of red ink was to attack the single largest controllable area of costs: labor. That was now Phil Bakes’s department.

Though still resentful that Wolf had been given the presidency, Bakes was delighted that Lorenzo gave him the responsibility for attacking Continental’s labor costs. That, Bakes was sure, was where the company’s future would be decided. Indeed, in a series of meetings after the July 4th weekend in 1983, Continental’s bankers agreed to relax further the terms of the company’s debt, but only if the company cut back severely on its labor rates. Flying in for those meetings on a clear night over New York City, Bakes had a breathtaking view of all the Independence Day pyrotechnics below—a
fitting metaphor, he thought, for the fireworks doubtless to come.