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Authors: Thomas Petzinger Jr.

Tags: #Business & Money, #Biography & History, #Company Profiles, #Economics, #Macroeconomics, #Engineering & Transportation, #Transportation, #Aviation, #Company Histories, #Professional & Technical

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BOOK: Hard Landing
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And it began to dawn on the executives of aviation that so long as all those mammoth aluminum vessels were being hoisted into the air with empty seats, it might pay—they just might be money ahead—if they offered a few of those empty scats at … a discount. They were as keenly aware of the First Rule as Trippe was when he installed wicker chairs in his early mail planes to Cuba: Every additional paying passenger puts more money on the bottom line.

To the extent the CAB permitted, which was not much, the airlines experimented with special discounts, mostly on a standby basis to assure that they would be used only by discretionary, last-minute passengers—customers who otherwise wouldn’t be flying. “Youth fares” came into vogue, although they caused a backlash from middle-aged passengers who presumed the youthful passengers to be draft dodgers and drug abusers; for a time, in 1969, United opposed youth fares because it had a policy of providing transportation only to people who “look, act, and
smell normal.” “Family fares” were introduced, although in an early display of political correctness such programs were usually judged by the CAB to be “discriminatory.”
Most such discounts succeeded in filling a few empty seats, which made them worthwhile, but still the jumbo jets flew half empty. Financially 1970 was the worst year in the history of the airline industry, with losses totaling $150 million.

The airlines might have eased their financial plight by flying their planes on additional routes, but the CAB denied them this opportunity as well. Additional routes, the CAB reasoned, would only cause the airlines to order still more planes, which would only worsen the capacity surplus. No, the agency decreed, it was better to let the airlines increase fares to cover their losses. This solution, of course, only drove more potential passengers away. Perversely, it further worsened the capacity excess by enabling the airlines to buy even more new airplanes—which, in turn, required even more fare increases.

The glut worsening, their fares scrupulously identical, the airlines began competing on service and amenities to a level unseen before or since. American installed a 64-key Wurlitzer piano in its jumbo jet lounges, with Frank Sinatra, Jr., at the keyboard on the inaugural flight. United staged “happenings” in its 747 lounges, featuring caricaturists, guitarists, and wine tastings. Taking product segmentation to the extreme, Continental’s Hawaii flights featured the Diamond Head Lounge in first class, the Polynesia Pub in coach, and the Ponape Lounge in economy. Intent on enlivening the lounges even further, Continental scheduled appearances of a “folk-rock-pop” band called the Pineapple Splits.

The lounge wars gave way to the food wars, which in turn led to the booze wars. Northeast Air proclaimed itself “
the all-steak airline to Florida.” Delta introduced steak with a champagne accompaniment. National Airlines came back with free drinks of any kind. Eastern, though it had initially attacked free liquor flights as “unconscionable,” immediately matched the policy. Continental began serving free Chivas Regal in coach, supplementing its famous “Dagwood” sandwich cart. American wound up pouring so many Bloody Marys that it made millionaires of the people who bottled Mr & Mrs T
Bloody Mary mix. American’s aircraft mechanics noticed that in some jumbo jets the bulkhead wall in the back of the plane was freshly gouged every day; it turned out that the flight attendants were required to get the liquor cart out at such an early stage in the ascent
of the flight that they could stop the carts rolling backward only by
ramming them into the wall.

Each new gimmick also added a layer of regulatory absurdity in Washington. The price of every drink, the rental cost of every movie headset, the number of seats installed abreast, the square footage of the lounges—every last detail required the approval of the CAB.

The CAB reached its low point when President Nixon appointed a new chairman,
Robert D. Timm, a wheat farmer and GOP stalwart from the state of Washington. Timm abandoned even the pretense of trying to balance the airlines’ interests against those of everyone else. He vowed to increase fares even more, to double the industry’s rate of return, to crack down anew on the charter operators. He permitted the carriers to meet among themselves to decide which routes to cut back—a reduced-scale replay of the spoils conference 40 years earlier.

Before long the barons of the industry, grateful for Timm’s sensitivity to their interests, invited him along for an exclusive
golf junket in Bermuda. The press caught wind of the junket, and Timm was soon ousted as chairman.

In a burst of reform he was replaced by John E. Robson, a career Washington bureaucrat unknown to the airline industry. Robson was a short and small-boned man with a deep, loud voice and a cocksure manner. He was not the typical patronage appointment: Robson was a Harvard lawyer with an undergraduate degree from Yale. He had been around the Beltway a few times, working as a staffer in Lyndon Johnson’s White House and as a Transportation Department undersecretary in the Nixon administration. Robson did not particularly care about the GOP. He did not, in fact, harbor any passions about the airline industry, much less about airline regulation. Robson came to work every day hoping to have some fun.

Robson was shocked at how deep the agency had sunk. Staff morale was shot. The other four commissioners were so consumed with consensus building and political back-scratching that each new decision seemed to have no effect except to ratify the previous one. It reminded him of something out of
The Last Hurrah
. As if to reflect its more dubious status, the CAB had been moved out of the grand old building facing the Washington Monument into an eyesore of an
office building on a rise along Connecticut Avenue, just above the hangouts and hookers of Dupont Circle.

Robson brought in another career political bureaucrat, Howard Cohen, a former White House personnel officer.
During the evening the two of them sat in Robson’s corner office, with its panoramic view of the rush hour commuter traffic clogging Dupont Circle, and wondered aloud how it had come to this. An industry managed by intelligent, seemingly capable executives—why did they so freely delegate their affairs to an agency of government? Those executives—they were the ones with the jobs and the capital at risk; why didn’t they make their own decisions about how best to nurture them? What did a couple of Beltway careerists know about the airline industry anyway?

Robson resolved to shake things up, if only for the entertainment value. He encouraged the staffers who were questioning the agency’s role to bring their misgivings to the forefront of the agency’s deliberations. He brought in consultants to examine the foundations of CAB policy. Robson also began publicly posting his daily appointment calendar, a list that the trade press often published. Suddenly, the airline chieftains who had always formed a line outside the office of the CAB chairman were nowhere in evidence on Connecticut Avenue.

Robson was intent on learning the basics of the industry. If the executives would not come to him, he would visit them, to find out how the airline industry really worked. Where his investigations would lead, Robson had
absolutely no idea.

Robson scheduled a
fact-finding trip to Texas; some interesting things were happening there, he was told.

CHAPTER 2

CHEAP THRILLS, LOW FARES

T
his was why Herb Kelleher had left New Jersey.

Kelleher was a lawyer in San Antonio. He had moved there in 1961, at the age of 30, because he could not stand the idea of spending another slushy winter in Newark—and because he was desperate to fìnd a little excitement in the practice of the law. He had been an appellate lawyer, as worthy a specialty as existed in the bar but entirely derivative. It was nothing but hand-me-down cases. There was no action, and to Kelleher that was as bad as sidewalk slush. Kelleher was a card, a party boy, a drinker, a smoker. He liked a good time and he loved politics. All these traits had drawn him to Texas, where his in-laws resided.

Now, five years later, Kelleher knew he had made the right move.

He was shooting the breeze
over cocktails with his friend Rollin King, a client in whom Kelleher had a special interest. King was a pilot, and Kelleher had been infatuated with flying ever since he had hitchhiked his way to Newark Airport as a college student and climbed aboard a DC-3. But in addition to his pilot’s license Rollin King had an M.B.A. from Harvard. He had turned his love of flying into a business: ferrying hunting parties and business executives around Texas by air. King called his little charter company Air Southwest.

On
this particular day, as the drinks flowed, King was bubbling with enthusiasm. A friend of his, a banker, had just returned from California. During his trip there, the banker had flown on an outfit called Pacific Southwest Airlines. PSA was strictly a California airline, plying the dense corridor between Los Angeles and San Francisco with old, inexpensive airplanes at the unheard-of low price of about $10 a ticket. Because it did not fly over state lines, PSA could fly on any schedule it chose, with whatever airplanes it desired, charging any price it wished. The federal government had no jurisdiction over it.

If California could support an airline within its borders, King told Kelleher, then Texas certainly could. Like California, Texas had big cities separated by long distances. Reaching for a cocktail napkin, King scratched three dots, representing Dallas, Houston, and San Antonio. Connecting the dots, he formed a nearly perfect triangle. On such a route structure, Air Southwest, King said, could be turned from a little charter service into a real commercial airline.

King recognized that two airlines, Braniff and Trans-Texas Airways, were deeply entrenched in the region, but their schedules were inadequate and their service poor. And so long as Air Southwest never stepped outside Texas, it could get a foot in the door by undercutting the established airlines, setting a fare below the official price established by the czars in Washington. A new airline could afford to do this, moreover, by flying inexpensive
turboprop airplanes where the established airlines flew jets. A jet was a waste on a 200-mile flight.

Kelleher was delirious with excitement. He had been waiting and hoping for precisely this—the chance to combine his law practice with a plunge into the business world, and best of all in aviation. It wouldn’t be easy, of course. People simply didn’t start airlines in the 1960s. But the challenge only excited Kelleher further.

“Rollin, you’re crazy,” he said. “Let’s do it.”

King and Kelleher launched the new Air Southwest Company without the slightest idea of the horrors awaiting them. Had it been almost anyone else at the controls, Air Southwest would have never gotten off the napkin, much less off the ground.

Herbert David Kelleher, born on March 12, 1931, was an accidental baby. His mother became pregnant at age 38, a rarity for the time,
particularly for a woman who already had a house full of schoolkids. Kelleher’s father urged her to consider an abortion. Her pregnancy was difficult, confining her to the hospital for six weeks, and the labor was traumatic. Herb learned his humility early in life. “She would look at me and say, ‘I wonder whether you were worth it,’ ” Kelleher would recall. One assumes she was joking.

As Depression families went, the Kellehers lived comfortably in the Philadelphia suburb of Haddon Heights, New Jersey; Herb’s father worked for Campbell Soup, one of the few businesses flourishing in the era of the soup kitchen. But the Kelleher household was striking in other, less conventional ways. Herb’s mother was Irish Catholic and his father was Irish Protestant, and they insisted that their children make their own choices about religion. The four Kelleher kids split evenly, Herb choosing on the basis of the basketball court at a nearby Protestant church.

While still a kid Herb watched World War II consume his entire family in one way or another, except for himself and his mother. His brother was killed in a U-boat attack at the war’s outbreak. His sister moved away to a wartime production job at RCA while his other brother was in the navy. His father soon died of a heart attack, when Herb was 12. Herb and his mother, left at home with a radio and a war raging in Europe, would sit up half the night discussing religion, business, morality, and ethics.

His mother had drilled so much humility into her youngest son that when he had scored 29 points for the Haddon Heights Garnets and was on the threshold of breaking the basketball scoring record, he
refused to take the shot lest he draw too much attention to himself from the team. The crowd cheered, his teammates egged him on, but still Kelleher kept passing the ball away. The coach finally called a time-out. “Dammit, would you shoot the ball?” he yelled, and with that encouragement Herb finally took his record-breaking shot.

He headed for Wesleyan University in Middletown, Connecticut. He was voted the outstanding athlete. He was student body president. He was a frat rat. He wrote the yearbook and published a humor column in the Wesleyan
Cardinal
. Tall and wiry, he excelled at the shot put, an event that demanded speed more than strength. He was invited to try out with the Philadelphia Eagles of the National Football League but instead went to New York University Law School on a scholarship, ultimately landing a two-year clerkship
with the New Jersey Supreme Court and, finally, a position at a prominent New Jersey law firm. Along the way he got married.

BOOK: Hard Landing
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