To Crandall airline marketing was a planning exercise, a numbers game, a two-sided exercise in maximizing revenues while minimizing costs. He set out to attack both aspects relentlessly and in unconventional ways.
As Crandall saw it, 35 years of government-sponsored fare increases had created a spendthrift culture at American. He began weeklong sessions in New York in which individual managers were required to present their budgets. Line by line Crandall would demand to know precisely where every dollar was going and why the expense could not be eliminated or controlled. A security guard in St. Thomas? Why not a barking dog instead? Hell, why not a tape recording of a barking dog? From 7 A.M. until midnight, day after day, the sessions dragged on. Crandall was purposefully contentious, yelling, screaming, glowering. Managers who displayed ignorance of their costs were terminated within days or even hours of their presentations. Each of these meetings, each of these confrontations, was designed by Crandall to teach a lesson to the manager sitting on the other side of the table.
Costs, however, were only half the battle, and probably the less important half. Marketing also meant selling, which in the airline industry traditionally meant big advertising budgets, celebrity endorsements, golf tournaments, destination promotions, and the comforts and titillations provided by stewardesses. But to Crandall, sales hinged on the intricacies of timetables and schedules. With his computers grinding away, Crandall began to study the degree to which even subtleties could make a huge difference in selling one more seat.
Airline schedules were published in a book called the Official Airline Guide. The OAG listed flights by city pairs—including connecting or “through” flights, as in Philadelphia to Buffalo through New York. Flights with the shortest travel time between any two points were listed first. This was a valuable display position, as years of history proved that the first flight listed between any two cities received the greatest number of bookings by far. Here, Crandall recognized, was a marketing opportunity.
In one of his first presentations to the American board of directors, Crandall said he was establishing the tightest possible connections on through flights—not only as a way of getting people to their destinations sooner, but as a way of endowing more of American’s flights with listing bias in the OAG. Crandall even put limits on the move to save fuel by flying at slower speeds; the sale of additional seats attained through the preferred listing position in the OAG more than paid for the greater fuel consumption.
As valuable as Crandall found such studies, he knew that computers held the potential to perform much more valuable functions for American. Computers, as he had learned at Hallmark Cards, could sharpen to pinpoint precision a company’s actions in the marketplace. They could be used as offensive weapons.
But Crandall quickly learned how deeply Sabre had slipped during the Spater years. On his first visit to Sabre headquarters, which had been moved to Tulsa, he was led to a basement and shown 1,000 cathode ray tubes sitting in their packing crates. The video screens had been ordered, paid for, shipped—and never so much as taken out of the boxes. They had sat collecting dust, held hostage for more than a year in a petty bureaucratic battle in which no one would release the funds to have them installed on the reservationists’ desks. While the computer revolution was raging throughout American industry, reservationists at American Airlines were still absorbed in the machine-gun clatter of their IBM Selectric typewriters, used as terminals connected to the Sabre mainframe.
Staring at the sea of unopened boxes, Crandall could not believe his eyes. He immediately went to New York, pushed out American’s top data processing executive, and brought in an old friend from TWA.
Crandall resolved to restore Sabre to its lost glory. There was no time to waste. The onslaught of technology was about to thrust Crandall into history’s first computer war—with the industry leader, United Airlines.
From the time of the postal scandal in 1934, United had been the personal dominion of William A. Patterson, a short and cherubic man who had a marvelous touch with employees. To the extent that C. R. Smith had made American what it was, so too had Patterson built United. For most of his career Patterson unhappily watched American display its trophy as the nation’s largest airline, but in 1961, with the blessing of the Civil Aeronautics Board, Patterson catapulted United far ahead of American by purchasing Capital Airlines. Before long United adopted the “friendly skies” appellation not only as a jingle but as an operating philosophy. Under Patterson United had breeding and culture and class. People wanted to work for it, which, in an era of competition based on service rather than price, made people want to fly it as well.
The mood changed almost overnight in 1966 when Patterson was succeeded by George Keck, an engineer. Although skilled at managing United’s complex flight operations, Keck was alternately remote and confrontational as a manager. Stewardesses complained that he would plunk down in an airline seat without addressing them. He came to loggerheads with United’s pilots over their demand to have a third man-a nonflying flight engineer, someone who looked at maps and instruments in the cockpit of the newly introduced 737 jet. Keck, spurning his board of directors, agreed to have the matter submitted to arbitration, a proceeding that United lost. United would be saddled with three men in the cockpit for years, a decision that cost the company hundreds of millions of dollars in needless labor costs. The United board was furious. United’s relations with the CAB grew uncharacteristically contentious. The onslaught of the jumbo jets worsened the company’s financial performance. By 1970 United was deeply in the red.
Keck’s standing sank even lower when United ran aground in the race to automate its reservations. The company was absorbed in a $56 million project with Sperry Rand’s Univac division to create the world’s most powerful airline computer system, intended to exceed even American’s Sabre. The software package alone was consuming the full-time attention of 200 technicians. A $5 million computer building had been erected in the most visible possible location: adjacent to United corporate headquarters in Elk Grove Village, near O’Hare Airport in suburban Chicago. Keck assured the board that he was personally supervising the program, that the system was almost ready. But when a team of independent consultants came in to make an evaluation, they pronounced the system a nonstarter. United, they said, should cut its losses and start from scratch.
By December 1970, the directors of United were unanimous: Keck had to go. He was fired at a board meeting the next day.
United was in trouble. Some of the directors actually worried that the company might be going down the drain. To some it bordered on a national security issue. United needed a savior, but who?
Charles Luce, the chairman of Consolidated Edison Company in New York, was still a newcomer to the United Airlines board of directors when Keck was fired, but he sensed a hidden agenda at work. Thomas Gleed, a prominent Seattle banker, had led the board against Keck. At about the same time Gleed had successfully championed United’s purchase of the Western International hotel chain, headquartered in Seattle. Western’s chairman, Edward E. Carlson, had been one of Gleed’s close friends for more than 30 years.
And now, Luce noted, Gleed was suggesting that a new chairman to replace Keck was right in their midst: Eddie Carlson. It appeared that Gleed had pushed the purchase of Western partly as a kind of executive-recruiting maneuver.
But Luce could see that Carlson was fresh blood, a proven manager who was wonderful with people, someone who could begin patching things up with United’s disaffected employee groups. In addition, weren’t hotels the first cousins to airlines? A hotel room was every bit the ripe grapefruit that an airline seat was; left unfilled, it spoiled the instant that the front desk checked in the last guest of the evening. An airline, when one cut through the romance and the technical vagaries of flight, was nothing more than a marketing company, selling its product to a customer base nearly identical to that of a hotel chain.
Moving into the chairman’s suite, Eddie Carlson had no particul
ar loyalty to United Airlines. So with the company choking on its jumbo jets and with three men crammed into the cockpits of the smaller jets, Carlson promptly canceled flights left and right. He got rid of 5,000 of United’s 52,000 employees. Other costs were cut, and United’s financial performance quickly improved.
But some expenditures were sacrosanct. A lifelong golfer and self-described hero-worshiper, Carlson found himself unable to fire the golfer Arnold Palmer from his $50,000-a-year endorsement contract with United. Nor could he discontinue the company’s sponsorship of the Hawaiian Open; the association of United with a daylong television broadcast featuring waving palms, island girls in grass skirts, and lush golf greens, all displayed on the rapidly spreading color television sets of America and broadcast during the depths of winter back on the mainland, was the kind of marketing, it was thought, that wrested business from the competition at a time when Washington was denying the airlines the opportunity to do so on price.
Moreover, Carlson began putting the image back into United’s product, even where it cost some money. The subdued hues of the airplane cabins, anachronistic now that the public fear of flying had largely abated, were replaced with bright cabin upholsteries, some in Thai silk. He bedecked the fleet in a new paint job, adding a touch of orange to the company’s traditional red and blue and a contemporary-looking U to the tail. Even the company name was administered a small face-lifting, changed from United Air Lines to the sleeker United Airlines. (Delta and Eastern would cling to the quaint “Air Lines” appellation, however.)
Most important, Carlson was listening to employees. After boarding a United flight, he would change into a cardigan sweater and then work the cabin of an airplane, asking pilots and flight attendants whether they were happy and what the airline could be doing better. Hearing any criticism or suggestion, he reached into his pocket for an index card and passed a note to an aide traveling with him. The card was delivered to the desk of the appropriate department head, who was required to take action and report back to the chairman. Eddie Carlson’s index cards “Ready Eddies,” people called them—became a symbol of management’s willingness to listen. In 1971 alone Carlson logged 186,366 miles on United, half of them in coach.
This was, after all, a service business, so Carlson considered the views and attitudes of stewardesses of particular importance. United had an official limit of two drinks per passenger, but Carlson told them it was all right if they selectively broke the rule. Just use good judgment, he said. When they told him they didn’t think it was right to charge a dollar for a beer, Carlson readily rolled back the price to 50¢. When he told a group of stewardesses that the company would put them up at the Waldorf instead of the St. Moritz, he drew a room full of gasps, followed by an entire minute of applause.
While cutting back operations and improving service, Carlson also looked for new ways to make money, and his background caused him to look at United’s flight kitchens. Hotels’ kitchens made money, didn’t they? Why couldn’t an airline’s? For this task he needed Richard J. Ferris, a rising young star in the hotel business.
Dick Ferris displayed all the caveman aggression that gripped Bob Crandall—the impatience for victory, the compulsion for control, the desire to dominate. But there were two important differences. For one, technology held no thrill for Ferris. And as one would expect of someone who had spent his career working in first-class hotels, Ferris had a touch of refinement.
Richard J. Ferris was born with verve and personality. He was a cheerleader at Berkeley High School in Berkeley, California, where he also played the lead in the spring play, The Man Who Came to Dinner. He was handsome in a fraternity house way, with a square jaw, dark hair, bright eyes, and a chiseled physique. He had a sly smile and a sideward glance. He was a relentless flirt. When school let out, he always found his way to Lake Tahoe for a summer of water-skiing and whatever job he could find to support himself. One summer he was a grocery-store stock clerk. Another summer he worked in construction. And in his first job waiting on people, he worked as a houseboy at the Ojibwa Resort at Tahoe.
He was not, however, an academic standout. Although his father had scraped for his boys to attend college, Dick Ferris’s mediocre grades ruled out that possibility in his case. So he had enlisted in the army, in Japan, working as a lifeguard. Being good at relationships, Ferris hit it off with the son of a colonel in the First Cavalry Division. Through him Ferris in 1957 landed an assignment as the manager of a club in Tokyo for noncommissioned officers—not just any NCO club but the Rocker Four Club, one of the biggest in the world, with two great ballrooms, slot machines, a mammoth kitchen, wall-to-wall bars, and space enough for a 16-piece orchestra—filled with American servicemen escaping from Korea for R&R in Japan. Corporal Ferris suddenly had 150 people working under him, including enlisted men with more stripes than he. He was 20 years old.
A few years later Ferris was at the Cornell University School of Hotel Management, the most famous school of its kind in the country, applying himself as he hadn’t in high school and performing at the top of his class. He worked as a sommelier, and spent a glorious summer as a transatlantic cabin steward for Pan Am. (“What a job,” he would later say. “Me and six flight attendants.”) In 1962, as the chairman of a senior honors project, Ferris used the occasion to write a letter to the hotelier he most admired in the world—the legendary Dan London of San Francisco’s St. Francis Hotel, where President Eisenhower had stayed, where MacArthur had stayed when returning from the Far East—“Mr. San Francisco,” as he was locally known. Ferris asked London to serve as the toastmaster for the banquet held in conjunction with the honors project and seized the chance to make a job pitch for himself.
London could not have avoided recognizing Ferris as a stunningly turned out and ambitious young man, more mature and worldly than the average college senior. But London had a better idea for Ferris than working at the St. Francis, only one hotel in a big chain operated by Western International. Western maintained its corporate headquarters on the top floor of the Olympic Hotel, in Seattle.
“Go to work at the Olympic Hotel,” London told Ferris. “If you do well, they’ll notice you.”
Ferris followed the advice, writing a disarmingly brash letter to Eddie Carlson, then still the chairman of Western Hotels. “I believe that the financial structure of the industry is becoming more complex each year,” wrote the graduating senior. “There seems to be a special need for men who know the hotel business from the bottom up, and who are also expertly trained in finance and taxation.” Carlson was so startled by Ferris’s presumptuousness that Ferris soon had a job.
Ferris began work as a manager of the Olympic Grille, studying food and wine and wage levels, all the while going to graduate school and falling in love with and marrying a staff member. And precisely as London had predicted, Eddie Carlson soon took notice.
Ferris found himself on the fast track, transferred in higher positions to bigger and more important hotels year by year. Over a decade he would serve Western in six cities—Seattle, New York, Anchorage, Chicago, Johannesburg, Seattle again, Kansas City, and Chicago again. The high point was rising to manager of the massive and prestigious Continental Plaza, operated by Western along North Michigan Avenue in Chicago, next to the site where the towering John Hancock Center was under construction.
Hotels were everything to Dick Ferris. “In a way it’s show business,” he once explained, an image business, bright and exciting and important, yet small enough that a hotel manager could have complete profit-and-loss responsibility: his own people, his own budget, his own little corporation. Hotels gave an ambitious young executive the chance to run something at an unusually early stage in his business career, and Ferris left little doubt about his eagerness to be in charge. He was cocksure, always ready with an order, convinced that management consisted of leadership and that he had it. “Boy, was I full of myself,” he later remarked.
Ferris, in any case, had paid his dues. With each move he had
uprooted his wife and three children, reckoning that each new assignment was another step following the footsteps of Eddie Carlson himself, perhaps even to the top.
Then suddenly in late 1970 Ferris and other executives were summoned to an urgent meeting with Carlson. Western Hotels, the chairman told them, was being sold to United Airlines. Ferris was sick to his stomach.
A few weeks later Ferris was further crestfallen when Carlson took him aside at a company Christmas party to share the news that he, Carlson, was leaving his Western post to become the chairman of United itself. Before long, Carlson asked him to take charge of the food service operation at United.
As unsettling as it was, the offer was undeniably attractive. United’s food operation was a fabled enterprise, launched in 1937—the first “flight kitchen” in the industry, pioneering the use of standardized trays aboard the newly introduced DC-3S and serving up French pastries, finger sandwiches, and fried chicken, all in furtherance of its market-share battle against American. By the summer of 1971 United’s food service operation was nearly large enough to qualify in its own right for membership in the Fortune 500, cooking up something like $200 million in meals a year-enough food to feed the city of Saratoga Springs, New York, three meals a day. The kitchens provided meals not only for United but under contract for other airlines as well. Ferris would have full profit-and-loss responsibility at the food service operation, just as he did at the Crown Center in Kansas City or any other hotel he might manage, only the food kitchens at United constituted a business many times bigger than even a large hotel. Ferris, confident and brash and hugely ambitious, agreed to take the job.
He annoyed and outraged people all over the system, jabbing his finger at the chest of anyone who didn’t get the message that he was in charge, and he performed brilliantly. He cut costs by reducing the use of steak and chicken, but passengers didn’t particularly miss it when he replaced them with something novel in the way of airline food—Chinese, for instance, and pasta, which were uncustomary offerings in the meat-and-potatoes era. Fish was affordable; he concocted ways to make it seem elegant, such as sole bonne femme and sweet-and-sour halibut and cioppino. To cultivate sales to other airlines he went on the road, making elaborate and successful—sales presentations. Before long, Ferris was promoted to the top marketing job for the entire airline.
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