Hard Landing (77 page)

There was, moreover, a kind of double whammy hitting Crandall. The American fleet operated on such brilliantly efficient schedules that in order to operate any significant number of flights, American had to keep the entire system in operation; a selective shutdown, Crandall’s people determined, would only “
supercharge” the complexity of maintaining everything else. Thus American was enduring the punitive and improbable need to keep planes taking off and landing the world over with too few flight attendants, and therefore not a single paying passenger aboard. American was shut down by a strike but still had to pay to keep its operation going—and on top of that still had to service its debt.

To make matters worse, because American was able to board some flights with line crossers or management flight attendants, it continued urging passengers to maintain their travel plans; passengers were drawn to the airport only to watch planes take off without passengers. Even American’s
own labor negotiators had to fly back from their last bargaining session in New Orleans on Southwest. As angry passengers left the airport, they heard picketing flight attendants chant that management, not the strikers, were responsible for the inconvenience:

They lied to us
They lied to you
Now you know
What we go through
.

At one point Federico Peña, the transportation secretary, blasted American for issuing a press release claiming it had “operated a normal schedule”; Crandall had scratched out a more moderate characterization in a draft of the press release and had substituted those words himself.

Crandall’s strategists rationalized American as a victim of “a very angry group of people,” as one later described it, a group prone to
activism in part because of “the gay and lesbian component.” “You set up a scenario,” this executive said, “where you can get a lot of energy very quickly, and it can get out of control.”

Crandall again had become his own victim. His ferocious temper had blocked the flow of vital information. The size and unforgiving perfection of his schedules had cost him dearly.

Four days into the strike, with Thanksgiving at hand and with Crandall expressing fears to his aides of falling into an “abyss,” President Clinton personally intervened, asking whether both sides would submit the entire contract to arbitration. Crandall readily agreed. The full 11-day strike might well have killed American Airlines.

About the time of the flight attendants’ strike, the cover of
The New York Times Magazine
showed an American plane flying off the page, leaving behind a quote from Crandall: “Unless the world changes, we will never buy another plane. We won’t replace the airplanes that wear out.… The company simply won’t be here anymore.”

Some of Crandall’s aides cringed at his rhetoric, but they knew it was bluster, calculated to worry the unions into relenting to his proposals. Bluster was all Crandall had left if he wished to cut his labor costs. If the flight attendants could beat him, any employee group could. Ultimately the pilot contract too would go to arbitration, so fearful of another strike had Crandall become. “That
strike was a tragedy,” Crandall told employees. “We must never have another.”

The bluff in Crandall’s threat to liquidate the airline was evident only a few blocks from American headquarters, where at the height of the tension with his employee groups Crandall presided over the dedication of an architectural masterpiece called the American Airlines C. R. Smith Museum. If Crandall had any expectation that American would shrink into oblivion, it was not evident in this museum—a memorial not only to C. R. Smith, but to R. L. Crandall.

At the front entrance the company had lashed down an American Airlines DC-3, the Plane by which C. R. Smith had revolutionized the economics of air travel—a gleaming, silvery bird, with its endless wings and rounded deco features, meticulously restored by a group of retired American employees. “The most significant commercial airplane ever built,” a plaque read. Inside the building was a steeply
pitched theater, outfitted with leather airline seats and a towering Imax movie screen. The same film was shown hourly, every day of the week, with the employees of American Airlines presumed to be the people
most often watching it at any time. As the music swelled, the film showed American baggage handlers trading high fives alongside their belt loader, while a newly graduated flight attendant shuddered with a thrill as her wings were pinned to her lapel.

In the museum’s main hall was the exhibit on C. R. Smith’s life (no mention of the Watergate checks, of course). One of the famous Wurlitzer organs, retrieved from a jumbo jet lounge, was placed under glass. Nearby a series of video screens told the story of how Al Casey had been brought into American 20 years earlier at a low point in the company’s history—and how Casey had quickly come to anoint a new president:

His eye fell on Robert Crandall.… Crandall proved to be the ideal choice to lead American in the unpredictable, rough-and-tumble airline industry of the 1980s.… Most observers credit him for American’s successful passage through the post-deregulation years … Among his accomplishments [were] negotiation of innovative collective bargaining agreements … automation of travel agencies … creation of new hubs … expansion into key international markets …

The curators’ script did not comment on Crandall’s skill at exploiting the leverage of the airline business. But in late 1994, with the recession finally well past, with American’s labor costs moderated if not reduced, with the battle against the upstarts largely played out for the time being, something extraordinary occurred. American Airlines reported the highest quarterly profit figure in its history—the highest, indeed, of any airline in the history of the airline business. And the surge continued into 1995. American, it appeared, was not so badly broken after all.

For Crandall the only disappointment was in thinking how much bigger the score would have been, if only his employees had done it his way.

One morning in June 1994 passengers began gathering in a gate area bathed in the first sunlight of the day, waiting to board the early
American Airlines flight from Dallas to LaGuardia. Twenty minutes before departure a nondescript white-haired man in a sports shirt ambled into the gate area with a Styrofoam coffee cup, a hanging bag, and a briefcase. He began chatting with the strangers seated and standing nearby. He could have been anybody, but he was Herb.

Buckling into a first-class seat, Kelleher noted that Crandall had packed another airplane. Kelleher himself was flying on American because his own airline did not serve New York. A 20-minute turnaround, much less one half as long, was an impossible dream in New York.

On this particular morning Southwest happened to be in the news, and as a consequence once again people were questioning whether the company could forever survive. For years Southwest had refused to pay fees for any bookings through the major computer reservations systems, other than certain slight fees to American’s Sabre. The two other leading systems, Apollo and System One, finally announced that they were kicking Southwest out. Kelleher said fine. Any lost sales, he estimated, would be trifling in comparison to the tens of millions of dollars that the networks wanted to charge to preserve his visibility in the travel agency computers. The fact was, passengers didn’t particularly need travel agents (and travel agents didn’t particularly want clients) for $19 flights. The computers were part of the full-service airline industry—the equivalent of cable television. Kelleher only needed rabbit ears.

One unwelcome effect of the computer fracas was a plunge in the price of Southwest stock, which hurt the company’s employees and none among them more than Kelleher, whose holdings had ballooned to well over a million shares. Over the course of several months the price would tumble from $40 to $20, causing
Kelleher’s net worth to deflate by better than $40 million, and the price would soon plunge even further, as the bloody California price battle raged with Shuttle by United. Not to worry, Kelleher sighed. “Being a millionaire ain’t what it was in the 1890s.”

Kelleher asked a flight attendant for a glass of milk to go with his macadamia nut cookie. “I’m coating my stomach for this evening,” he explained.

Kelleher was flying to New York for an industry conference, but he had arranged another piece of business while he was there. People
had been telling him for years that he should meet Richard Branson of Virgin Atlantic Airways. Kelleher spent a few minutes of the flight memorizing the lyrics of the Sex Pistols’ “God Save the Queen” so he could impress Branson.

A pilot emerged from the cockpit with a message transmitted from American’s operations center in Dallas and printed out by the onboard computer. It read, “Smooth ride whole way. Tell Herb we said hi.”

Kelleher opened his briefcase and spent a few minutes reviewing traffic figures from the company’s flights at Baltimore-Washington, opened a year earlier. “There was some expressed dubiety as to whether our coming to the East Coast would be successful,” he said. The figures showed that in the fourth quarter of 1993 traffic to Chicago totaled 150,480, an increase of 1,052 percent. “Just a preliminary indication,” he noted. As he stowed away the paperwork, his latest reading material slipped out, betraying Kelleher’s plans for new service in Salt Lake City. It was a history of the Mormons.

As the plane turned into its final approach, one of the flight attendants leaned over to Kelleher with an extra macadamia nut cookie wrapped in a napkin. He lunged for the cookie but stopped short. “I’m not taking this from
you
, am I?” he asked her. When she said no, Kelleher practically inhaled the dessert.

He left the plane and entered the gate area at LaGuardia fantasizing about his first cigarette in four hours. At the end of a long, uphill concourse, Kelleher approached a small throng of limousine drivers holding signs with the names of arriving passengers. Huffing and puffing like any four-pack-a-day man bearing a suitcase and briefcase, Kelleher angled past the limo drivers and walked outdoors to light up and stand in line for a cab into the city.

POSTSCRIPT: MAGIC ACT

T
he history of marketing and technology is the history of ourselves. While marketing reveals what we want as a society, technology determines what we are capable of fulfilling.

What do we want from our airlines? We want them to take us wherever we choose anytime we like, and we want them to do so at a low price. With their superb use of information technology, the airlines go a long way toward fulfilling these wants, but with an important limitation: they cannot satisfy both demands simultaneously. The passenger must sacrifice cost for flexibility, flexibility for cost.

It is for this reason that flying has remained—and doubtless will remain for years—an industry of two components, one serving those motivated by convenience and comfort, another serving those motivated by price. By the mid-1990s, when the settling-in process was well along, aviation was bifurcated as cleanly as the restaurant industry, in which the customer could choose an establishment with a full menu, a bar, and meals prepared to order, or a fast-food restaurant at a high-volume traffic intersection. Or like the television industry, which gave consumers the choice of uniformly consistent reception on dozens of channels for a fee or uneven access to a few channels through a set of inexpensive rabbit ears.

Certainly, there remained occasions when the two separate components
of commercial aviation crashed together. Among the major “network” airlines, many of the most strategic hub cities had at last come under the dominion of a single airline: American in Miami, Delta in Atlanta, USAir in Pittsburgh, Northwest in Minneapolis, and United in Denver, among others. As points of connection, these hubs competed vigorously with one another; whenever passengers had the choice of hubs through which to reach their destination, fares remained moderate. The story was different for people who started or ended their journeys in a hub city. These hapless passengers were forced to pay monopoly prices—until a low-cost airline such as Southwest was finally drawn into the market. Then a battle ensued, and fares were quickly brought under control.

Fares had become purely market-driven, as sensitive to supply and demand as a Middle Eastern bazaar. Airline prices no longer bore the slightest relation to the cost of providing the service, which was why a 300-mile trip beginning and ending at a hub airport might cost three times that of a 1,000-mile trip
through
a hub airport. Instead, airline pricing depended almost entirely on what the market in any place and at any moment would bear. The major “network” airlines could only hope that when they had added together their $59 fares, their $1,200 fares, and everything in between, the sum exceeded the cost of having provided the service. For Southwest and other point-to-point carriers the exercise was no different, except that the fares—and their costs—were so much lower to begin with.

As the network airlines and the point-to-point carriers were settling into their respective roles, a new worry emerged for them all. In the first half of the 20th century the airlines had put trains and ocean liners out of business. In the second half they had made intercity auto and bus travel all but anachronistic. As the century drew to a close, it was the airlines who faced a terrifying new competitor: fiberoptic cable.

Notwithstanding that one transmits voices, images, and data and the other whole human beings, telecommunication bears an
uncanny resemblance to flight. The telephone system, like the air transport system, was developed as a regulated public utility. Both began by offering products that were remote and prohibitively priced. (Charles Lindbergh devoted two pages of
The Spirit of St. Louis
to the cost
and marvel of long-distance telephony.) Both industries were deregulated at a time when new entrants—Southwest and MCI—were demonstrating the marketing virtue of low prices. In both industries the upstarts emerged only after succeeding in protracted legal battles against entrenched competitors. Both industries were swept up in deregulation drives. To create brand loyalty in a newly competitive world, the airlines introduced frequent-flier programs, and when the long-distance phone companies created their own repeat-usage programs, they too began awarding frequent-flier miles.