In the name of blocking “destructive competition,” the CAB simply prevented competition. Charter operators were whacked down. Regional airlines, known as “local service operators,” were allowed to serve small locales in carefully circumscribed regions, all in the interest of delivering “feeder” traffic from outlying cities to connecting flights on the major airlines. Price competition vanished; any fare change required a tedious administrative and judicial review—a process derived from the principles framing the Interstate Commerce Act of 1887, which itself had been largely cribbed from the British Railway Act of 1845. The bureaucratic compulsion for consensus caused CAB proceedings to drag on endlessly and yield random results. The role of presidential appointment in filling the five-member board heaped political pressures on top of whimsy and laboriousness.
At one point Louis J. Hector, a young lawyer from Florida, arrived at the CAB as a newly appointed board member and was immediately engulfed in a case involving the selection of a few small Midwestern towns for new air service. When the hearing examiner assembled the documents over which the board would deliberate, they stood nine feet tall. The reports were ordered condensed, after which the material spanned a mere 658 pages. Hearings were held, at which 38 members of Congress and 68 mayors and local boosters spoke. When they were over, the individual commissioners threw out the staff reports and gathered in a room with a map and some colored pencils to settle the matter. Purely to see what would happen, Hector insisted that the commission order air service to his father’s home town of Clarinda, Iowa—a town that had not been mentioned anywhere in those nine feet of documents, whose mayor had not testified, and whose citizenry had not requested air service.
No problem, the other board members said. Clarinda was immediately added. (Hector had the gumption to explain that he was joking.)
As one would expect of strong-willed American business executives, the airline chieftains began to complain about bureaucratic delays and decisions that went against them individually, but they found the system to be addictingly comfortable. Though denying the airlines significant profits, regulation at least protected them against loss, regardless of economic conditions. Airline shareholders never had to fret over bankruptcy; failure was impossible. The system freed the airlines from worrying about the cost of doing business. The airlines, creating vast internal bureaucracies of their own, told the CAB how much money they required to run their businesses, while the CAB, using the airlines’ numbers, merrily calculated the fares necessary to cover those costs, plus a modest profit.
With so little incentive to control costs, fares, predictably, remained beyond the reach of anyone but the expense account traveler or the well-to-do vacationer. International fares, regulated not only by the CAB but by a monstrous apparatus of foreign regulation, were likewise prohibitive. For the would-be passengers of the middle class, Pan Am introduced a marketing program called “Fly Now, Pay Later,” in which the Household Finance Corporation provided an installment loan contract. Flying, in short, was like purchasing a car.
Even amid a tremendous postwar passenger boom, the airlines were still carrying just a million passengers a year, barely 1 percent of the population of the United States. As a group of Cabinet agencies dryly concluded in a 1947 report to President Truman, “Present rates remain a limiting factor on the growth of traffic.”
But why should the airlines have cared? They could continue to grow simply by stimulating the huge, untapped market of people who had the means to fly and had not yet done so. Advances in aviation technology brought these people out in droves. The speed of the four-engine aircraft introduced after World War II-the Lockheed Constellation and the McDonnell Douglas DC-7—cut in half the time spent crossing the continent and the ocean. People abandoned ocean liners in droves to fly on Pan Am, and trains in even greater numbers to fly on American and other domestic airlines. The innovation of pressurized cabins enabled planes to fly over most inclement weather, encouraging more among the faint of heart to board. (Pressurized planes also made it possible to cook meat onboard without the fat oozing to the surface, widening airline menus.) These postwar planes were big 60 seats, as against the 21 in the DC-3 but there were still only a few hundred airplanes aloft in the entire country, all of them nearly full of men in suits and women in hats and white gloves.
The system of cost-based pricing had another salutary effect for the airline chieftains. Relieved of the worldly miseries that consumed executives in other industries, they could devote their energies to the infinitely more exciting pursuits of further improving passenger comforts, lobbying for more and bigger airports, hobnobbing with political and entertainment celebrities who flew in great numbers, and above all the activity they cherished most—designing and buying even bigger, faster, and more exciting airplanes.
Thus in 1959 did the jet age come to the airlines. Travel times were cut in half yet again. C. R. Smith, introducing the Boeing 707, made the cover of Time. C.R. told Forbes, “We’re going to make the best impression on the traveling public, and we’re going to make a pile of extra dough just from being first.” Internationally the first jets went into service for Juan Trippe at Pan Am. “This is the most important aviation development since Lindbergh’s flight,” Trippe declared. “In one fell swoop, we have shrunken the earth.”
In 1968, approaching age 70, Juan Trippe stood before the annual meeting of Pan Am shareholders and announced his retirement. The lines of the Pan Am route map now reached to some 60 countries—a living network that would convey more people among more lands than anything in history. Just one Pan Am route, from San Juan to New York, accounted for the vast majority of the five million Puerto Ricans who moved to the United States in the postwar years, roughly equaling, by way of comparison, the number of African Americans who migrated from the southern United States to the North in the same period. Second only to Coca-Cola in worldwide recognition, the Pan Am trademark had become a fixture of popular culture, symbolizing the exotic. James Bond flew on Pan Am in From Russia with Love. A spaceship bore the Pan Am trademark in 2001: A Space Odyssey. When the Beatles first landed on American soil, they held a press conference with the Pan Am logo conspicuously hanging behind them. Pan Am built the largest commercial office building in the world, a hulking structure defiantly set perpendicular to every other building in midtown Manhattan; Yves Montand, his arms stretched wide, serenaded midtown Manhattan from the roof of that familiar landmark in On a Clear Day You Can See Forever.
In the same year that Trippe announced his retirement C. R. Smith, also approaching 70, left American Airlines to become Lyndon Johnson’s secretary of commerce. Smith retired at a time when his company no longer had bragging rights as the biggest airline in the free world. That distinction had passed to United Airlines, which was building itself into a colossus on the strength of acquisitions and the most successful marketing jingle in transportation history: “Fly the friendly skies.”
Smith and Trippe did not know it at the time of their retirements in 1968, but after coming so far in only 30 years, their great companies were now on the edge of an abyss. The lockstep march of technology and economic progress was about to break formation. And the regulatory system they had created to guide this march would now suffocate the airlines instead.
On January 15, 1970, First Lady Patricia Nixon stepped on the frozen, windswept tarmac at Dulles International Airport near Washington and peered up. “My goodness!” she exclaimed. “Look how high it is!” Towering before her stood a bulb-headed 747 jumbo jet, trimmed in the trademark sky blue of Pan American World Airways—“the ark,” as the dignitaries on hand pronounced it. “The potential impact of the 747 upon the future of mankind is so great,” said a CAB official, “that it is difficult to identify another incident with which it may be compared in the entire history of transportation.”
Climbing the dedication platform in a belted blue coat and white leather gloves, Mrs. Nixon came nose to nose with the leviathan jet. Because a sophisticated radar syst
em was tucked into the tip of the plane, there was no way she could be permitted to heave a magnum of Dom Perignon against it. So instead Mrs. Nixon pulled a lever intended to release a spray of red, white, and blue water against the jet. The lever, unfortunately, got stuck, and the intended spangle did not materialize.
A few days later in New York, with the plane fueled and ready for its first commercial flight, a small clutch of picketers thronged the terminal at Kennedy Airport. “No more dirty planes!” “Clean air now!” “You can’t get to heaven on a 747!” Tourists and gawkers further crowded the gate area. The delicate operation of ticketing and boarding several hundred people broke down in the pandemonium. Just as bad, mechanics could not shut the rear door of the plane. The maiden voyage of Clipper Young America was already hopelessly late.
Finally, as the London-bound 747 pulled away from the gate, Capt. Robert Weeks watched a cockpit thermometer cross the red line at 1,000 degrees. Engine number four was overheating. Back to the gate the aircraft rolled and ingloriously disgorged all the passengers and baggage loaded into her with such difficulty. “It’s marvelous,” the wife of TV producer David Susskind, one of the unlucky passengers, muttered sarcastically. “A dozen bathrooms and no engines.” By the time an alternate 747 had been loaded, the orchids pinned to the flight attendants were dead.
The Boeing 747—and to a lesser degree its brethren widebodies, the McDonnell Douglas DC-10 and the Lockheed L-1011—would devastate the airline industry, bringing it as close to disaster as the government had ever permitted. The planes were simply too big. Although there had been airplane gluts in the past, each generation of new and bigger planes was always ultimately filled with newly converted passengers coaxed into the air by the latest breakthrough in speed or comfort. This time it was different. Most everyone who had the means to fly was already doing so. A threefold increase in airplane size was too much airplane by a factor of at least two.
The financial stakes too had increased by orders of magnitude. Pan Am’s $550 million order of 747s in 1965 ranked as the largest single commercial purchase ever conducted by a private corporation; other airlines’ orders for 747s and other jumbos were nearly as large. It might not have been quite so bad except that the first 747s were delivered smack in the face of the deepest recession to hit the United States since World War II. Soon the Arab oil embargo made the gas-guzzling jumbo jets all the more uneconomical. National Airlines got rid of its first two 747s within a year. At least one airline parked a 747 and rented it out for business meetings, on the ground. Pan Am tried to borrow money from the Shah of Iran.
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 f
acing 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.
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