Hard Landing

by Thomas Petzinger, Jr.

  Crandall finally decided that if Robson and the CAB would not crush the charterers—all of them—he would do the job himself.

  Crandall had a kind of informal brain trust that gathered most mornings by 6 A.M., often long before sunrise in Manhattan, to talk through the major marketing issues facing the airline. On one such occasion, when the executives were discussing American’s own in-house charter operation, someone had doodled an airplane on a chalkboard. Crandall stared at the drawing. Why, he asked out loud, should American fly a separate charter airline when its regular flights were half empty? He went on: “Why don’t we pretend the empty part of our plane is a charter?”

  Someone walked up to the blackboard (it might have been Crandall, but no one would recall for sure) and drew a line through the airplane. Part of the airplane could be reserved for regular airline service, with traditional, last-minute reservations and the usual high fares. The rest of the airplane could be treated as a charter plane. American could estimate how many seats would be flying empty on any regularly scheduled flight and sell those seats at cheap charter rates—better still, sell them below charter rates, squeezing the other charterers out of business.

  The idea of charging two prices on the same flight wasn’t by itself original. As early as the 1940s, with CAB approval, airlines began offering a few seats (at the front of the cabin, initially) at discounted “coach” prices; the remainder of the passengers flew first-class. Over the years the price spread widened, with the result that coach seats overwhelmed the cabin, squeezing first class into a small section at the front of the fuselage. By the time that most people were flying coach, there was no pretense that they were doing so at a discount; coach had become the standard fare, and a prohibitively expensive one at that. First class, at one time the standard product, had become a premium brand instead.

  Crandall was not proposing to segment the plane into additional classes of service, but to discount—severely discount—a share of seats throughout the airplane. The great challenge, of course, was finding a way to sell the cheap seats only to discretionary, price-sensitive travelers—people who wouldn’t otherwise be flying—while holding as many full-price seats as possible in reserve for people who traveled no matter what. How, in other words, could the company enable the middle-class John Q. Public to fly on a low fare, while assuring that business travelers still paid the full freight?

  Crandall’s group studied the problem and began coming up with answers. Vacationers, as the charterers had proved, usually made their plans weeks in advance; businesspeople didn’t. Moreover, vacationers (in those days) usually remained a week or longer at a destination; business travelers almost never did. American could require people traveling on discount tickets to buy their tickets weeks in advance and to remain a week or longer at their destinations, just as the charterers did.

  Crandall turned his attention to an even more vexing question: How should the company decide how many discount seats to sell in advance? If it sold too many, it would risk shutting out full-fare business passengers making plans at the last minute. Yet if the airline cut off discount sales too early, planes would still be departing with empty seats—spoiled grapefruits. There were some obvious guidelines. On weekdays, in the early morning and late in the afternoon, it made sense to hold back a greater number of full-fare seats for the business traveler. But even this was pure guesswork; the mix of passengers was unique for every flight. The patterns were shaped by trade shows and industry conventions, by Super Bowls and weather aberrations. Perfecting the estimations could add millions to American’s bottom line, but it would require data processing power on an almost unimaginable scale. While Crandall worked on the refinements, rudimentary guesses would have to suffice.

  Crandall’s plan to offer charter discounts on regular airline flights was every bit as heretical as peanuts fares. At any other time in its history the CAB would have sent Crandall packing. But the CAB, after all, had started the whole thing by loosening the charter rules. How could it now deny Crandall the right to formulate his own competitive response?

  In March 1977, under the reform-minded John Robson, the CAB gave Crandall the go-ahead. The name given by Crandall to the advance purchase discount was “super savers.” Suddenly it was possible to fly on a regularly scheduled American flight from coast to coast for $227 instead of $412—not quite the 50 percent discount that Frank Lorenzo was offering at Texas International but an unheard-of price cut for such a major player as American. The scheme had the drawback of putting discount travelers in the same section of the aircraft as full-fare passengers, but that was a long-term problem. For the time being, Crandall’s super savers were spreading throughout the airline industry and accomplishing their intended purpose. Within months the charterers were dead. Bob Crandall had killed them off.

  Gathered with his top marketing aides at American headquarters on Third Avenue, Bob Crandall glared through a window at the TWA offices, where only a few years earlier he had been derailed in his rise to the top. Crandall listened as one of his people described a competitive move by TWA. As the discussion wore on, Crandall continued to stare outside, while slowly wrapping the cord from the open Venetian blind around his hand.

  Then suddenly he exploded, blurting out invective and jerking his arm away from the window. The blinds came crashing down. The marketing staffers looked on in horror as blood ran down the forehead of their enraged boss.

  “Bob! Your head!”

  “The hell with my head!” he shouted back. “What are we going to do about these sons of bitches?”

  Crandall wanted a way to punish TWA. All of TWA’s flights, as well as nearly every commercial flight in the United States, were visible in the Sabre terminals now being installed in travel agencies across the country. Crandall ordered one of his people to design a set of computer instructions enabling American, if it ever chose, to eradicate all traces of TWA from the listings in Sabre. Crandall wanted a single “transaction” designed, something that could punish TWA instantly, with a few keystrokes.

  The program was duly created. It would prove of great value, although not against the enemy that Crandall had intended.

  CHAPTER 4

  “IN THE PUBLIC INTEREST”

  Airline deregulation is encrusted with myth and misconception. One widely repeated account holds that a group of academic theorists, led by Prof. Alfred Kahn of Cornell University, romanced a naive political establishment with the promise of low airfares if only Washington would force the airlines to compete. The airlines, by this account, were dragged kicking and screaming into the coliseum of competition, where, like clumsy gladiators, they aimlessly slugged each other senseless. Only when it was too late did Congress grasp its folly.

  Except for the part about the airlines slugging each other senseless, nothing could be further from the truth.

  Few realized it at the time, but “deregulation” was well under way before anyone had even uttered the word. As Herb Kelleher and Lamar Muse were demonstrating with girls in hot pants, as Frank Lorenzo showed with peanuts fares, as Bob Crandall and Dick Ferris were proving in the computer wars, the men who ran the airlines competed no differently from managers in any American industry. Nearly forty years of federal regulation had stifled competition but not dulled the impulse to compete. Regulation had only forced airline executives to engage in mutated forms of competition. As a feat of legislation, deregulation only legitimized behavior that was already taking place.

  To call deregulation a mistake—as many people would, for at least the dozen years to follow—was a waste of breath. Whether wise or misguided as a piece of public policy, deregulation had to happen. Government protection had its place in helping to establish the modern airline industry; certainly this protection fostered the technical development of the industry, particularly the birth of the jet age. But by the 1970s, if not sooner, airline regulation was as unnatural and anachronistic as Prohibition had been in the 1920s and poll taxes in the 1960s: each resisted the ons
laught of common sense only through the political wiles of an entrenched constituency, and each crumbled only when the constituency was overwhelmed with political force. What distinguishes deregulation is that it triumphed even though it was opposed most strenuously by those who in practice had already embraced it—except one, as it would turn out.

  Though historically and economically inevitable, deregulation became law at the moment it did as much by accident as by necessity. For while the airlines themselves were in the throes of change, a few unlikely individuals were crossing paths in Washington. One was a Harvard law professor eager to become a U.S. Supreme Court justice. Another was a U.S. senator who wanted to become president. A third critically important player was a partially reconstructed hippie intent on conducting his own rendezvous with history.

  Among the paths guiding them into the affairs of the airlines was Watergate.

  Phil Bakes would never forget packing for Washington. It was a brilliant day in Chicago, late in the spring, and he was barefoot in a pair of cutoff shorts. Straddling a Suzuki 500 along the curb in front of his parents’ house, he rolled his right wrist forward and throttled the motorcycle up a ramp into the back of a U-Haul van destined for Washington.

  At that moment a black sedan pulled up. A man in a dark suit stepped from the car and turned to the house.

  “May I help you?” Bakes called out.

  “FBI,” he answered. He was calling on the family home, he explained, as part of a background check on Phil Bakes himself.

  Bakes loved this. At age 27, with hair dangling on his shoulders, he was about to become part of the establishment, part of the solution, bound for the kind of good-government career one dreamed about after spending one’s formative years in the late sixties. Bakes was about to join the most visible law enforcement organization in the nation: the Watergate Special Prosecution Force, which his old law professor Archibald Cox was putting together. The FBI was knocking on his parents’ door and it wasn’t a bust!

  Bakes grew up a hellion. He liked to play hooky, especially to watch the Cubs play at Wrigley Field—heresy for a kid from White Sox country on Chicago’s South Side. While a student at the all-male Brother Rice High School, he got into a fistfight over a girl and was discovered to have been drinking. Bakes refused to give the names of anyone else who had been drinking. His principal, Brother Rowan, in turn expelled him, permanently. Even worse, the school withdrew its sponsorship of his application to Notre Dame, the only college he had ever wanted to attend. Bakes was as ruined as any high school senior could be.

  The humiliation brought out a greater rage than the young pugilist had yet experienced, a rage he secretly directed toward Brother Rowan. He enrolled in the local public school and studied relentlessly, bringing home nothing but A’s. He got the lead role (as the boxer) in the school production of Heaven Can Wait. His stellar grades continued after he entered Loyola University (despite his dormitory expulsion for drinking there too). In 1968 he landed at Harvard Law School.

  It was at the pinnacle of the antiwar movement, and Harvard was one of the great battlegrounds. Always happy for an audience, Bakes went on the lecture circuit, addressing community groups against the war. When he graduated in 1971 Bakes bought a 1959 Chevy school bus, painted the body red and the roof silver (the latter to reflect the sun), stocked it with head music, and took to the road with several pals; they spent a year of peace, love, and bodysurfing near Acapulco, on a fellowship courtesy of Harvard.

  When Bakes finally settled down in a small Chicago law firm, he found himself bored stiff, but he bolted upright coming home on the train one afternoon when he read that Archibald Cox was leaving Harvard to become special prosecutor in the Watergate affair. After a few phone calls to Washington, Bakes was thrust into some of the most exciting and politically significant prosecutions in American legal history, presenting the case against Nixon aide John Erlichman to a federal grand jury, for instance, and winning his indictment.

  At one point while serving on Cox’s staff, Bakes was joined by a close friend who served on the faculty at Harvard Law. He was Stephen Breyer, a brilliant young professor who had worked with Bakes on the Harvard Law Review and recruited him to antiwar speaking engagements. Breyer had a yearning for the judiciary and a strong interest in politics, so he made a point of scheduling frequent sabbaticals in Washington, including one on the Watergate Special Prosecution Force.

  Breyer, whose academic interests resided in the commercial side of the law, delved into the corporate aspect of Watergate. Among the dozen U.S. corporations drawn into the affair, the case of American Airlines drew Breyer’s attention. Breyer wondered what would cause George Spater, an executive of seemingly unimpeachable integrity, to so flagrantly breach the nation’s campaign laws. Investigating further, Breyer saw the answer clearly: the government had vested life-or-death authority over the airlines in the Civil Aeronautics Board. Though credited with nurturing the world’s greatest air transportation system, the CAB had obviously lost its way. It was coddling the industry it was supposed to regulate, thereby pushing airfares so high that only a select class could travel.

  The following year Breyer was back in Washington on another sabbatical, this one working on the staff of Sen. Edward Kennedy of Massachusetts. Kennedy was well acquainted with many faculty members at Harvard, and he and Breyer had both crusaded against the war in Vietnam. Kennedy wanted to run for president as soon as 1976, then just two years away, but the unwinding of the war was taking away the one issue on which Kennedy succeeded in appearing substantive. Without Vietnam Kennedy had little left but his name.

  One thing Kennedy did have was a Senate chairmanship that gave him license to roam just about anywhere he wished; he headed a sub-unit of the Judiciary Committee with a distinctly ambiguous name: the Subcommittee on Administrative Practice and Procedure. If he picked his shots carefully, Kennedy could use the subcommittee to assert jurisdiction over almost anything inside the Beltway. But over what, precisely? Kennedy needed an issue.

  Breyer told Kennedy that the subcommittee could resurrect the Watergate scandal, perhaps by holding hearings on the creation of a permanent special prosecutor’s office. Or, Breyer said, the subcommittee could conduct hearings on one isolated corner of the Watergate case that had previously piqued Breyer’s attention: the Civil Aeronautics Board.

  It was a time of galloping, 12 percent inflation, which polls identified as the nation’s most vexing problem. Gerald Ford, having just succeeded President Nixon, was on a campaign to “Whip Inflation Now.” Yet at the very same time the CAB was merrily letting the airline industry gouge the traveling public with higher and higher fares. In the days prior to the arrival of John Robson, the CAB wasn’t just the handmaiden of the airline industry, it was its concubine. This, Breyer told Kennedy, was a chance to take a vague and overbroad committee assignment and focus it like a laser beam on an easy target.

  For an officeholder of Kennedy’s aspirations, the political logic was overwhelming. An attack on the CAB would have a wonderful populist ring, while exposing the labyrinth of federal airline regulation would give Kennedy at least a narrow conservative stripe; he could be seen as a champion of the growing movement to curb the size of big government. And even if CAB wasn’t a household acronym like EPA or USDA, Kennedy’s subcommittee could get credit for taking on a complex, serious issue—“a nonglamorous, detailed, intricate, ‘good government’ job,” as Breyer would later describe it.

  Taking on an entrenched federal agency would set off a fierce, inside-the-Beltway political brawl, and Breyer needed help. He needed a troublemaker, a bomb thrower. He needed youthful idealism and enthusiasm. Breyer placed a call to his friend Phil Bakes.

  For the restless Bakes, even the Watergate prosecution had, after two years, begun to lose its excitement. The special prosecutor’s office was down to such second-rate intrigues as the financial entanglements of Nixon’s personal friend Bebe Rebozo. As far as Bakes was concerned, he had hit the bottom of the
Watergate barrel; he was ripe for a change.

  “Phil,” Breyer said, “let’s get rid of the CAB.”

  The Civil Aeronautics Board—Bakes had barely even heard of it. But putting a federal agency out of business? Turning an entire industry upside down? Now that, he thought, sounded like fun.

  There was one small problem, Breyer and Bakes discovered. Airline issues fell on the turf of Sen. Howard Cannon, a senior Nevada Democrat who was chairman of the Subcommittee on Aviation. Cannon was vitally interested in airline issues; airlines were as essential to the development of Las Vegas as air conditioning and dice. Cannon was doing everything he could to protect Vegas-bound charter operators from getting walloped by the CAB. If Kennedy provoked a turf war, there was little doubt that Cannon could lay claim to jurisdiction ahead of Kennedy’s subcommittee. Cannon, in fact, could settle the matter single-handedly if he chose because he was also chairman of the Rules Committee, which, in addition to settling turf disputes, controlled the budgets of all Senate subcommittees, including Kennedy’s.

  As a consequence, Kennedy began to bow and scrape before Cannon. Kennedy invited Cannon’s staff members to work alongside Bakes and Breyer, and he notified Cannon in advance before making any public pronouncements about the CAB. Kennedy went out of his way to praise Cannon’s leadership in aviation issues—and conspicuously understated at each step the assault that he and his young staffers were planning.

  Even if Cannon were neutralized, Bakes, for one, knew that the campaign against the CAB was doomed as long as the airline industry itself remained a monolith of opposition. The airlines had some of the most powerful Washington lobbyists on retainer. They had operations in all 50 states and in hundreds of congressional districts. And the airlines could count on the support of big labor in fighting anything that threatened high fares because high fares meant high wages.