Hard Landing (76 page)

“Simplicity itself,” Crandall declared at his press conference, broadcast by satellite worldwide.

American had simply adopted the retailing strategy dignified as “EDLP”—everyday low prices, the same strategy that had made Wal-Mart magnate Sam Walton in his time the wealthiest man in America. It was also, purely and simply, little more than a duplication of the
pricing at Southwest. An advertising budget of
$20 million was set for the first two weeks, believed to be an industry record.

Crandall not only hoped but insisted that the rest of the industry follow his lead. Should anyone undercut American’s fares, he declared, American would match, and its entire new fare structure would be proportionally reduced. There would be no more selective matching of special fare promotions. Airlines seeking to undermine American’s new system, Crandall warned, would be stomped on by the world’s biggest airline with the full weight of its fare structure.

There was absolutely no disputing that value pricing, however imbued with hype, held out tremendous appeals for the airline industry. And for a few days, it stuck. United rushed out new television spots so quickly that it had to recruit a substitute announcer until the company’s usual narrator, Gene Hackman, could be
scheduled into the studio. In the next few days reservations volume at American and elsewhere surged, although it was unclear whether this was a onetime gain triggered by publicity or the beginning of a permanent change in travel patterns.

Then while Crandall was running
on his treadmill at home watching the early morning news, he saw the announcement of a 50 percent price cut by Northwest, couched as an “adults fly free” promotion. “Son of a bitch!” he cried. Northwest was spitting in the face of value pricing. It was precisely the kind of gimmicky, confusing, half-baked promotion that Crandall was trying to wipe out.

Crandall was now like Truman, contemplating whether to allow the long, bloody war to drag on or to drop the atomic bomb. He could simply copy the Northwest promotion by allowing American passengers to travel with a child for free, but that would require American to institute a new fare category, which he had vowed never to do. Or Crandall could lower the boom on Northwest. He could
announce a 50 percent price cut on every leisure seat on every plane flying every route.

Crandall’s people recognized that the company was on the cusp of a monumental decision. Someone might have spoken up to counsel against Armageddon. That speech might have come from Barbara Amster, Crandall’s longtime pricing chief and one of his most trusted aides, but
Amster was in Europe. No one apparently gave Bob Crandall that speech. No one appealed for peace, or if someone did, the performance was not convincing.

The bombs-away order went out, and suddenly it was possible to fly coast to coast for $100 on a full-service airline. The old “ninety-niner” was back, even after a decade of galloping inflation.

In the summer of ’92 there was an electronic passenger riot in America—the telecommunications equivalent of shoppers tearing through soft goods in a sales bin. There had never been anything close to it. The long-distance telephone system of the United States literally locked up on calls to the airlines. On the peak day of the frenzy AT&T alone
handled a record 177.4 million calls—1.6 billion over an 11-day period. American’s Sabre system in one day created 1.2 million new reservations. People who couldn’t get through by phone simply
drove to the airport to buy tickets, often two, three, and four tickets. Within several days the airlines’ inventory for the summer was sold out—virtually every seat filled. And a few weeks later, when those flights began taking off, there was another riot, an orgy of travel. Hotels were brimming. Rental car lots were cleaned out.

By autumn, when the kids at last were laying out their back-to-school clothes and the last of the sale seats had been flown, someone calculated that 11 percent of the households in the United States had at least one member who flew in those few weeks. And the airlines—most of them, anyway—went deeper into the red.

In the summer of 1993 Herb Kelleher finally announced that he would take Southwest, for the first time, to the East Coast. It was a juicy place to be because the low-fare revolution had long ago been put down in the East. His target was Baltimore-Washington International Airport, a center of high fares. Some of the established airlines at Baltimore-Washington were charging more than $300 for a
one-way ticket; Southwest announced service to some of the same markets for as little as one tenth the full fare.

Kelleher had another reason to choose Baltimore-Washington. Southwest was now by any reckoning a huge airline, if still a niche player. But outside the cities it served, practically no one had heard of it. Moreover, the name Southwest carried little clout in Washington. Adding a destination 30 miles north of the nation’s capital, Kelleher reckoned, would
help Washington understand what Southwest was all about.

Kelleher was right. When the Clinton administration established a commission to investigate the problems of the airline industry, Kelleher was the only high-ranking airline executive appointed. Southwest’s arrival on the East Coast caused many of the national media to discover Southwest, as if it had only recently come into being. Kelleher starred in a commercial for the American Express card. Before long Kelleher was on the cover of
Fortune
under a headline asking, “America’s Best CEO?”

By the end of 1993 Southwest was the eighth largest airline in the United States (behind United, American, Delta, Northwest, Continental, USAir, and what was left of TWA). But among the 100 largest airline markets in the country—the
100 city pairs traveled most frequently by the most passengers—Southwest was number one.

Southwest’s success had by 1994 spawned a generation of imitators, companies established from the remains of Eastern, Pan Am, and other failures. Many went into business serving the New York-Florida market, where a low price was all that mattered, companies with names like Carnival Air Lines and UltraAir. A group of unemployed Eastern and Pan Am people, their companies killed in part by high labor costs, formed an airline they called Kiwi International, in honor of the bird that could not fly. Kiwi’s pilots gladly went to work for lower wage levels than Ed Acker or even Frank Lorenzo had ever had the nerve to impose. The transformation of the passenger markets was especially evident in the name chosen by the most successful of the new entrants, based in Atlanta: ValuJet Airlines.

While some forgot (or were too young to know) that the upstarts constituted a second generation of Southwest imitators, there was
no doubt that the new upstarts were benefiting from the errors of the earlier generation. Texas International, People Express, the post-bankruptcy Continental, and others had copied elements of the Southwest formula but had then strayed, lusting for the trappings of the established airlines: widebody airplanes, hubs, computers. The first generation of upstarts had tried to acquire for themselves the kind of presence that the major airlines had been awarded in the spoils conference of 1934. The second generation knew better than to overextend. The notion of critical mass had been discredited.

The second upstart revolution caused many to question whether Bob Crandall really knew what he was doing after all. The pilots’ union at American hired a consulting firm that accused Crandall of overmanaging American Airlines. “The
normal profit motive,” the consultants’ report said, “gave way to the notions that if two hubs are good then six must be better, and if ‘bigger is better’ then ‘biggest must be best.’ ” Hubs, the consultants said, forced flight crews to sit and wait for airplanes. Hubs required the company to maintain a massive infrastructure. Southwest by contrast had no hubs and no reservation network. Southwest simply flew from one city to another and back again, over and over. American’s problem wasn’t high wages or restrictive work rules, the report concluded, but “structural problems within management’s control.”

Crandall bitterly resented his pilots’ joining the “tulip craze” around Southwest. “You
never see me on the line trying to fly
your
leg,” he scowled at a meeting of captains. “You never hear me telling you how to fly airplanes! … We trust you with very expensive machines. We trust you every day with our lives.”

Even his admirers began to doubt Crandall. Had he lost his touch? He and his team had always come up with the silver bullet for whatever problem plagued the company, whether charter operators or Braniff or People Express, whether the need to establish a computer reservation network or to institute b-scales or to break into the international markets. Had Crandall lost his creative spark? Had his organization atrophied? Or after 15 years of deregulation had all the original ideas at last been used up?

As if to comfort his doubters, Crandall in the fall of 1993 finally joined the battle he had been avoiding for so long: he attacked his profitability problems on the cost side, with labor as his target and Southwest as his new bogeyman. While waiting for the pilots’ contract
to expire, he resolved to make an example of the flight attendants. If he had to take a strike—his first strike ever—then so be it. Despite his unforgiving debt levels, he would take a chance that he could fly through a strike. Flight attendants, after all, were easy to replace. Nobody respected their picket lines. Flight attendants couldn’t begin to shut down an airline.

Crandall, however, had not counted on two things. After years at the bottom of the industry’s heap, the flight attendant profession was ready to extract revenge. In addition, Crandall was unprepared for Denise Hedges. In her 23 years as an American flight attendant, Hedges, age 46, had had three children, each born under a different company maternity policy. The shifting rules stirred her interest in union affairs. As American grew in the 1980s, flight attendants became numbers in complex scheduling formulas built on higher mathematics, making their work schedules dizzyingly unpredictable.

Crandall wanted even more control over scheduling—to eliminate hard-fought union staffing rules that promoted flight attendant hiring but compromised the perfect deployment of personnel. Crandall also wanted to block the union’s attempt to erode further what remained of the b-scale provisions in the contract. And in keeping with the need to manage such great numbers efficiently, American insisted on their maintaining uniform weight standards, which failed to take account of the changing demographics of a flight attendant corps that included more mothers and older women all the time.

Hedges vowed to resist. She brought in labor consultants who had perfected telephone trees and other mass communication techniques. Rank-and-file flight attendants were indoctrinated in the evils—and dangers—of crossing any picket lines once a strike began, just as the United pilots had been in the great strike of ’85. “You will be marked as a scab for life,” the flight attendants’ strike handbook said. “Strikers will know who you are.… You will not be forgiven.”

The lapsing of the 30-day clock freed American to impose its own terms on the flight attendants in November 1993. But Hedges did not call a strike immediately, waiting instead until just before the long Thanksgiving weekend, the busiest travel period of the year. The strike, Hedges furthermore determined, would last only 11 days, her estimate of the time it would take American to train replacement workers. As Thanksgiving approached, the flight attendants also moved to curry public support—not easily done, since a holiday
strike would terribly inconvenience passengers. Flight attendants distributed pamphlets pointing out that they earned a median salary of $23,007, “
less than a mail carrier, or a roofer, or a security guard.” They called attention to in-flight sexual harassment. And through a mixture of hyperbole and honesty, they called the public’s attention to themselves as victims in other ways:

We lift, push, pull, bend, and stoop in confined work areas. We are often required to work 14 hours on domestic flights, more on foreign trips. We are subject to constant changes in cabin temperature and humidity, vibration, turbulence, and time-zone changes that disrupt our work-sleep patterns.… And we pay for it all with back problems, foot, knee, and leg aches, eye, ear, nose, and throat maladies, headaches, high rates of colds and infections, hearing problems, skin irritations, menstrual and reproductive problems, varicose veins, fatigue, and depression.

This outpouring of grievances had an effect as well on the attitude of the flight attendants themselves. At one point someone distributed an essay comparing the company’s behavior to that of an
abusive husband.

If any managers sensed a groundswell of bitterness against the company, they were not reporting it to the people at headquarters, or if they were, no one there had the nerve to tell Bob Crandall. “They were
regularly polled,” Crandall would later say of the supervisors, “and they regularly expressed the opinion that flight attendants would come to work.” As Thanksgiving approached, American blitzed its markets with messages that any strike would present only a slight, temporary disruption; there was no reason for anyone to change his or her travel plans.

On the night of the negotiating deadline, November 17, 1993, Crandall flew into Dallas from a meeting in New York and went to the office. His bargainers, meeting with the union’s negotiators at a site in New Orleans, were still pressing his demands. About midnight, a time when American’s operations had largely rolled to a stop for the day, the strike officially began.

About 4
A.M.
Bob Baker, the airline’s operating chief, traipsed to American’s operating center, a gymnasium-size room filled with dispatchers, schedulers, mainframes, and video workstations. A computer
was programmed to flash warnings when crews had not signed in for their flights on the electronic punch-in clocks scattered throughout the airline’s realm. With daylight approaching, the system all but started smoking. Almost none of the flight attendants were coming to work. And the company had not trained replacements.