Burr’s people genuflected at his every command—except for the president of People Express. Gerry Gitner was soon chafing badly under Burr. Gitner began to fear the company was growing too fast. He thought that fares were too low. The two men fought, “for hours, days, and weeks,” as Burr later described it.
Gitner’s discomfort was evident when Burr attempted to establish rules for the unorthodoxy ruling People Express. Burr wanted to record a simple list of powerful rules—guidelines against which every employee of People Express would be required to judge his or her decisions. These were to be called the Precepts. They would, Burr declared, become the gospel of People Express. People Express would create a better world. People Express would bring happiness to passengers—correction, make that customers. It was devoted to profit making, yes, but only as a consequence of doing good works. So far as Burr cared, the pilots could fly the planes upside down, so long as they followed the Precepts.
Surrounded by his top executives, Burr excitedly scrawled out the Precepts on big sheets of paper, which he taped to the walls.
One: Service—Commitment to the growth and development of our people.
Two: To be the best provider of air transportation.
Three: To provide the highest quality of leadership.
Four: To serve as a role model for others.
Five: Simplicity.
Six: Maximization of profits.
The Precepts, in and of themselves, all made perfect sense. But it was the way in which Burr compiled them, the way he handed them down, that so irritated Gitner. It was almost as if he were chiseling into stone tablets, almost as if he were handing down commandments, except that his numbered six rather than ten. Gitner watched incredulously as the day wore on, Burr becoming more animated, gesturing widely. Within weeks, Gitner had quit.
Anxiety hung heavily over the resignation of the founding president, but Burr assured his flock that they should not read anything untoward in Gitner’s departure. “Gerry loves planning,” Burr explained, “and that’s already done at People Express.”
In times of regulation and not, there have always been three ways to expand an airline.
The most direct means is acquisition, as Frank Lorenzo had attempted, unsuccessfully, with National, Continental, and TWA. Because they arc built on unique economic foundations and strong internal cultures, however, any two airlines may mix poorly. Pan Am, the victor in the National takeover drama, quickly found it had committed one of history’s most disastrous mergers. Pan Am employees looked down their noses at the National people; the National people thought the Pan Am veterans were conceited. In the back-office accounting operation, Pan Am people simply threw National ticket stubs on the floor, to be swept up at the end of the day. National people resented wearing Pan Am uniforms. Both groups spent so much time scowling at each other that they forgot to smile for their passengers. On-time performance plunged. In the interests of equality, Pan Am had to increase pay and benefits for the former National workers, making the acquisition more costly than ever. On top of everything else, National’s north-south routes were running in the wrong direction to give Pan Am the passenger feed it needed to Asia and Europe.
The second avenue of expansion involves creating altogether new markets. Texas International, Southwest, and American with its super saver fares had each succeeded in using low prices to stimulate new business and to do so profitably, though only on a few routes, or only within a single state, or only on a selected number of seats per airplane. People Express was now putting the concept to its fullest test, although it too was beginning from a small base. As successful as these experiments were, they were vastly overwhelmed by the intractable recession of the early 1980s. In 1980, the year that the upstarts came into being, the airlines of the United States carried 297 million people—a decline from 317 million the year before. In 1981 the total fell even further, to 286 million.
The shrinking national airline market added value to the third method of expanding an airline: taking territory by force. Here too, as New York Air was proving against the Eastern shuttle, the means involved price. Though that battle was raging in only a single market (between New York and Washington) the moral was clear: the entrenched carriers of commercial aviation, even the Big Four, were not immune to the upstarts.
New York Air and People Express, fraternal twins, were the first progeny of deregulation. They were thriving, but it was still early. There would be deaths as well.
CHAPTER 6
THE EMPIRE STRIKES BACK
Deciding where airplanes should fly, and at what hours of the day, requires four-dimensional thinking, an affinity for solving puzzles in which the pieces are continually moving. The scheduler analyzes passenger traffic patterns, economic trends, maintenance timetables, fueling requirements, flight times, loading and unloading intervals, noise rules, slot availability, airport curfews, labor costs, fuel prices, and fare levels, among a few dozen other factors, at every location where the airline conducts business. From these variables the scheduler produces a flight plan, from which the airline in turn establishes its financing, staffing, food and beverage requirements, sales strategy, and a series of contingency plans for bad weather, mechanical failure, and every other misery that can befall an airline. The permutations increase arithmetically according to the number of aircraft and geometrically according to the number of aircraft types in any given fleet—another of the reverse economies of scale that plague airlines as they grow.
Even in the era of regulation, when these decisions were made with the unwavering oversight of the federal government, scheduling was an arduous planning exercise. In the deregulated era, it involved the additional complexity of anticipating how one’s competitors were conducting the same calculations.
In the early days of deregulation, as now, only one person in any major airline had a wider command of the operation than the scheduler, and that was the president. Among those parameters subject to human manipulation, the scheduler worked within boundaries established by the president. If the scheduling department was the nervous system of the airline, then the president’s office was the brain. It was an office well suited to someone who liked to be in control.
By the beginning of 1980, seven years after he had joined the company, 45-year-old Bob Crandall was still not the president of American Airlines. This meant, among other frustrations, that he lacked dominion over the vital scheduling function, a frustration that was all the more galling because on the organization chart of American Airlines, the scheduling department reported to him. Despite the chain of command, Crandall was forced to battle endlessly with Robert Norris, American’s senior vice president of finance, who insisted on maintaining veto power over the flying schedules. These apocalyptic flare-ups ultimately landed in the office of Albert Casey, American’s chairman and president, who finally took Crandall’s side. Norris soon left American Airlines.
Vanquishing that rival, however, did not bring Crandall any closer to the presidency he coveted. Crandall was in a horse race with yet another of American’s senior vice presidents—a brilliant Ph.D. named Donald Lloyd-Jones, the head of operations. Though neither the radical thinker nor the strong personality that Crandall was, Lloyd-Jones had spent more than twenty years at American. He was popular among employees, who could easily spot him walking the halls of American’s Third Avenue offices with a pipe clenched in his teeth. Crandall’s own relationship with Lloyd-Jones, though outwardly collegial, was imbued with rivalry. Crandall had once ordered the firing of a public relations executive who scheduled a media interview with Lloyd-Jones that Crandall thought he was more suited to handle; Lloyd-Jones intervened and got the PR man reassigned instead.
Crandall’s problem was resolved when Frank Lorenzo, looking for legitimacy and experience to match his outsized ambitions, called to ask Crandall to come to work for him, not at Texas International but at a major airline befitting Crandall’s standing—another takeover target, now in Lorenzo’s sights. Rumors
swept Texas International that Lorenzo had offered Crandall a $3 million signing bonus.
With the company’s brilliant marketing chief a hot commodity, the board of American saw fit to elect Crandall president in July 1980, with Casey remaining as chairman. Bob Crandall had at last defeated Donald Lloyd-Jones. “Each of us wanted to be president of the company,” Crandall would later remark. “I was successful and he wasn’t.” Notably, Crandall saw to it that the scheduling function continued to report to him instead of to his successor as marketing chief, making Crandall’s control of the operation unassailable.
His promotion made Crandall the equal of Dick Ferris at United, except that United remained a much larger airline, with 369 airplanes to American’s 253. In the minor scheduling realignments of the Big Four following deregulation, American, in fact, soon slipped behind Eastern airlines, becoming the third-ranked domestic airline not only in fleet size but by the most widely accepted yardstick, the total mileage its paying passengers flew. In his first speech as president to American’s top marketing executives, in February 1981, Crandall demanded unwavering commitment to a renewal of the company’s success.
“The game we are playing,” Crandall told them, “is closest to the old game of Christians and lions.” He demanded “that every one of your players knows the game plan, that every one of your players knows the stakes, that every one of your players has pride in himself or herself, and that every one of your players is committed to the victory that we simply must have.” Crandall asked, “I wonder if all of your people feel so strongly about American that they bleed American red, white, and blue?”
Despite the enthusiasm of his halftime speeches, they were not the primary reason Crandall had aspired so urgently to the presidency of American. “I’ve always been a person of ideas,” Crandall would later explain. “As a leader you have a lot of latitude to test your ideas.” And Bob Crandall had quite a few of those.
Crandall began every week with a staff meeting in the boardroom at American Airlines headquarters on Third Avenue, a windowless room filled with the latest audiovisual gadgetry. Any aspect of an airline’s operations could be reduced to numbers, and those numbers could be reduced to charts and graphs, and they, in turn, could be burned into a slide or an overhead transparency. Hour by hour the numbers were projected against the wall as Crandall and his inner circle remained assembled around the massive conference table. A blizzard of paperwork went around—long reports written in excruciating detail. “Let’s turn the pages,” Crandall liked to say.
This planning session would go on most of the day, occasionally late into the night, the ceiling literally disappearing above a cloud of cigarette smoke. Only two or three nonsmokers sat at the table, each sinking deeper in his seat as the accumulating haze inched lower and lower. Tom Plaskett, Crandall’s successor as American’s head of marketing, had to change his clothes the minute he returned to his home every Monday night, so overpowering was the nicotine odor to the rest of his family.
Bob Crandall loved meetings, the longer the better. He once scheduled a meeting for 5 A.M., and one of the participants showed up in his pajamas. During staff meetings there was never a bathroom break, ever. The participants either waited for lunch or dinner or excused themselves when duty called. Crandall, for his part, never did have to get up. His subordinates on occasion would slyly pour him cup after cup of coffee just to see if they could force him to take an unscheduled break, but they never succeeded. They credited Crandall’s stamina to “mankind’s biggest bladder.”
As many as three pens clasped in his shirt pocket, his gold-rimmed glasses glistening under the harsh lights of the meeting room, Crandall maintained his concentration for hours at a time. In later years, in a new headquarters building, Crandall’s aides would gather around a massive conference table with a surface so white it made one squint. Crandall and his people used croupier sticks to push computer runs and internal reports across the vast surface. Junior executives assigned to make presentations would work all weekend, perhaps staying up half the night on Sunday. They would walk into the meeting with knots in their stomachs, for it was an unforgivable sin at American Airlines to appear in a meeting before Bob Crandall without having every fact at one’s command. He would cut you to ribbons. Some executives endlessly tracked Crandall’s moods, timing their approaches accordingly. Others simply accustomed themselves to Crandall’s temper—the screaming, the swearing, the sarcasm, the sputtering through those thick lips and pointed teeth. Some even found they could dish it right back to him, they could bully him, particularly if they had the wits to hit him fast with a compelling intellectual argument. Logic, in the end, could snap Crandall from a rage.
Nothing held greater interest for Crandall than the company’s progress against other airlines—mainly against United—in hardwiring travel agencies to the Sabre network. By the time he had become president, some 2,000 travel agencies around the country had been signed on as subscribers, in many cases after a pitched battle with United. Sabre had invaded the point of sale like no other distribution system in history, and the travel agents using Sabre had little idea of the extent to which they were being controlled. American accomplished this feat through a practice that Crandall’s people called “screen science.”
A travel agent sat before a terminal with a telephone headset strapped across his or (usually) her head. She took the customer’s query—What have you got from LaGuardia to LAX tomorrow morning?—and typed in the relevant cities, dates, and times of day. Sabre then culled through its database, which included the schedules at every airport on the planet, going out some 300 days into the future. It then displayed a screen full of flight suggestions ranked according to how closely they matched the query—usually several screens, in fact, if the agent chose to view them all.
Years of relying on the OAG had conditioned travel agents to expect to see the fastest flight listed first. Crandall’s people found that in more than half of all reservations travel agents now selected the flight appearing on the first line of the Sabre terminal. In about 92 percent of all cases, the reservation was made from the choices listed on the first screen.
But how did Sabre, with its many mainframes and its millions of lines of programming, actually choose which flights to list on the first screen? The first line? How did Sabre decide which flights were most “convenient”? The answer depended on how one defined “convenient.”
Sabre was programmed to score flights according to a formula based on the elapsed time of the flight, the proximity of the departure hour to the time requested by the agent, whether the flight involved a connection, and whether the connection involved a switch in airlines. The formula left great room for judgment, however, in the weighing of these factors. American promised travel agents that the best service based on these criteria would always be displayed on the first screen, regardless of the airline providing the service. But American made no such promise with respect to the all-critical first line, where, if it happened to serve those cities, the American flight invariably appeared.
American’s salespeople promoted the virtues of selling from the first screen and the first line. “Trust the machine,” they told the travel agents, and the agents did, causing American’s share of the business in the local market to increase vastly. One study found that although American flew 42 percent of the seats between New York and Los Angeles, it got 60 percent of the business booked by travel agencies subscribing to Sabre. Between Baltimore and Chicago American had 25 percent of the total flying capacity but 44 percent of the bookings made through Sabre. In an industry in which a single market share point could make a huge difference in profitability, the marketing power of Sabre was explosive. “I would suggest we limit the results of this research to a need-to-know basis, since it could create some heat from our subscribers,” one of Crandall’s top aides wrote in a memo.
Crandall’s people searched for ways to assure American top billing wherever it went head-to-head with another airline, regardles
s of who offered better service. “We must achieve first screen, first line in every competitive situation,” one of Crandall’s lieutenants wrote in an internal memo. When American introduced service from Dallas to Honolulu, for instance, Sabre, left to its own devices, listed the competing Braniff flight first. Braniff’s flight, after all, was nonstop, while American’s service involved a layover in Los Angeles. There was no way that a mere tweaking of the algorithms could overcome the fact that Braniff arrived in Honolulu two hours faster than the American flight; Sabre’s flight-scoring algorithms would have to be corrupted outright.
One of Crandall’s top sales people demanded just such a cheat in a memo to Richard Murray, one of Sabre’s handlers. “I would like to adjust our Sabre display on our service to HNL out of DFW,” he wrote. “What do we need to do to provide the necessary bias to give American the preferred display?” Another request came to add 57 minutes of bias in favor of American’s service from Chicago to Honolulu. In that case, a memo noted, “The bulk of the displacement would be at United’s expense.”
Murray, though initially a willing participant in the practice of screen science, soon thought the top brass were getting greedy. We’ve got a good thing going here, Murray told them. Let’s not call too much attention to it. He pleaded to penalize other airlines’ flights only in tiny increments, in hopes that the travel agents and the other airlines might not notice. But people in the company were soon making snide remarks to Murray, questioning his loyalty. Didn’t he bleed American red, white, and blue?
Murray’s unease turned to panic when American mounted a major marketing study of DFW. In some cases the information that Sabre was accumulating was confidential, data that American had pledged never to use in furtherance of its own operations. Murray had been asked by Max Hopper, Bob Crandall’s data processing guru, to ask Lorenzo’s people for permission to use some confidential Texas International data in American’s marketing study. In return American would share the results of its analysis with Texas International. While awaiting reply from Texas International, Murray was watching a slide presentation at a marketing meeting and was stunned to see the very same data—Texas International’s booking figures at DFW—projected for all to see.
Hard Landing Page 18