Anyway, Burr thought, what choice did he have? The Reagan administration was letting the major airlines gobble everything in sight; he had to keep up. And the Precepts—Burr would extend them to a wider workplace, would prove that trust and love could work even in a unionized environment such as Frontier’s. “Over time,” Burr would publicly explain, “the fundamental ideas that give direction to People will find root at Frontier.”
Don Burr did not realize that he was whistling “Dixie.” The majors were not, as a matter of fact, using their transcontinental routes to subsidize their short-haul routes—at least not enough to account for their 70 percent discounts. The majors were offering low fares against People Express because they had computers that enabled them to offer rock-bottom prices to discretionary passengers and still keep as many seats as necessary in store for higher-paying passengers. That was the cross-subsidy that was killing People Express.
After reaching Denver, Burr approached not only the management of Frontier but the unions as well. Although Burr practically had to hold his nose at the mere mention of the word “union,” he stifled his prejudice and earnestly told the union leaders that the employees of Frontier were much better off casting their lot with him than with his union-busting former partner Frank Lorenzo. Burr was then off to New York, where the Frontier board was scheduled to meet.
With the deal hanging in the balance, Burr stopped by a newsstand to pick up The New York Times. To his horror he read that Lorenzo had just increased his offer, from $20 a share to $22 a share.
The Frontier directors were keen on selling to Burr, so devoutly did the employees of Frontier fear Frank Lorenzo. All Burr had to do was match Lorenzo’s $22-a-share offer, and Frontier was his.
Burr offered $24 a share.
Gerald O’Neil, the controlling shareholder of Frontier, smiled. “That’s a remarkable offer,” he said. The board agreed to lock up the deal for Burr. Burr flew back to the North Terminal and drew a standing ovation from his loyal employees.
Burr was not through yet. A major commuter airline named Britt Airways came on the market, an operation with nearly 50 planes zipping in and out of Chicago and St. Louis, feeding small-town passengers into connecting flights on United or American; Burr bought it on barely a day’s notice. Then came the largest commuter airline in the country, Provincetown-Boston Airline, which scheduled a flock of airplanes among the little airports of the Cape and the Vineyard and Nantucket in the summer and then migrated them to Florida in the winter. It too went into the kit bag of Don Burr.
Burr believed he was buying time—simply grabbing passengers any way he could, even if he had to buy planes and terminals along with them, until his own computer reservation system came on line. But some people sensed a different motive. As the Frontier takeover generated headlines, Burr was having dinner at home with his children. “Dad,” asked his 12-year-old, Kelsey, “what’s this Frontier thing?”
“Dad is just doing what’s popular,” his 20-year-old son, Whitney, interjected. “The raider-type stuff.”
Burr felt a stab in his heart. “It’s exactly what I’m not doing!” he snapped.
Burr was able to finance his plunge into the takeover game thanks in part to the media’s blindness to his struggles. In January 1986 Burr appeared on the cover of Time, joining a hall of fame that included Charles Lindbergh and C. R. Smith of American. Business Week had previously put Burr on the cover, calling him a “new wave capitalist,” a “1980s business giant who may in time rank with Henry Ford.”
Academia also continued to swoon over Burr and his unorthodoxy, holding them out—just as it had Eastern, in its short-lived period of labor-management détente—as the American answer to the Japanese economic challenge. At Harvard Business School students viewed a videotape documentary about Burr on a 10-foot screen that made him look like Mussolini. One Harvard professor held out People Express as “the most comprehensive and self-conscious effort to fit a business to the capabilities and attitudes of today’s workforce.” Even the venerable dean of the Harvard Business School, John H. McArthur, who once had the young Don Burr as a student, joined the board of directors of People Express.
Burr had vowed that he would not be taken in by his own press, that he would not even read it. He knew he was vulnerable to the effects of that kind of adulation. With his survival in doubt, he knew he had to stay focused, to keep his internal balance, to be like Herb Kelleher at Southwest Airlines, whom Burr considered “innately humble.” Committed though he may have been to keeping his ego in check, it was, after all, pretty tough to miss oneself on the cover of Time. He couldn’t help noticing all the academics and consultants swarming through his organization. He told himself that no one—not Lorenzo, not Crandall—had ever built a billion-dollar airline from scratch.
And as the adulation continued, Burr’s need for control intensified. Burr was increasingly surrounded by yes-men, people who would tolerate his rages and do his bidding. Some pilots swore that a few of Burr’s aides actually began to emulate his walk—stooped slightly forward, one hand behind the back, the other perhaps on the chin, the face intense with concentration. Burr surrounded himself with his people even on weekends. He bought a century-old home facing the water on Martha’s Vineyard and enlarged it into a 10-bedroom mansion, a retreat for business, a place to continue preaching love and trust and the Precepts to the people he often thought of as children. The Vineyard home was his castle; “my moat,” he would later observe, “was people.”
As he had planned, Burr grafted the systems and culture of People Express onto Frontier; the disaster was monumental. Frontier had always been considered a classy airline, and the years of warfare with United and Continental had only brought out the best in service at all three. Now longtime Frontier passengers were being charged 50¢ for a cup of coffee. To stuff more seats into Frontier’s airplanes, Burr took out the galleys and began serving cold meals—three bucks for crackers, cheese, maybe some sausage. “Kibbles’N Bits,” people called it. Ingeniously Continental positioned agents in Denver’s Terminal D, where Frontier operated, and distributed 5,000 free boxed lunches to anyone showing a Frontier or People Express ticket.
Burr cut prices and cut them again, fervently trying to “boom” the market to cover his operating costs with an explosion of marginal passengers; Continental and United, however, matched him dollar for dollar and then some. Soon a passenger could fly anywhere from Denver for $89 and to many destinations for much less—to Colorado Springs, in fact, for a grand total of $9.
“My agenda was beat the shit out of Don Burr,” Lorenzo’s marketing chief, Jim O’Donnell, would later explain. “My agenda was to win.” O’Donnell, the former Vaporub salesman who helped create peanuts fares, loved this kind of guerrilla sales war. Frontier had posted a billboard outside the Stapleton airport proclaiming that it had the lowest airfares in Denver and vowing to “change this board” if anyone proved otherwise. Because of a technicality involving the addition of an advance purchase requirement, a 14-day period occurred during which Frontier, in fact, did not have the lowest fares. O’Donnell procured a giant camper and parked it in the abandoned gas station lot underneath Frontier’s billboard, hoisting a 30-foot banner that said, “We’ll be here until you tell the truth.” Frontier gamely sent some of its $3 Kibbles’N Bits boxes to the camping Continental executives as a kind of peace offering; they took a box apart and promptly announced that as a unit of People Express, Frontier was charging $3 for a snack box with only $1.26 worth of food inside.
Lorenzo’s forces, meanwhile, also targeted Burr’s sacrosanct home base of Newark, offering $99 fares to as far as the West Coast. Continental used a New Yorker-style cartoon in an ad depicting the huddled masses of the North Terminal milling about with stink lines rising from their hair. “Give me your tired, your poor,” Continental’s ads declared, “your huddled masses yearning to be free of People Express.”
By May 1986 the media were at last on to Don Burr in a big way. Overb
ooking, always a problem, ran out of control as Burr’s people tried to eradicate no-shows without computers to track reservation trends. The Wall Street Journal reported that an elderly woman had clunked a People Express agent over the head with a telephone. A frustrated man pushing his mother in a wheelchair had grabbed a sheaf of papers from behind a People Express counter, heaving them into the air in a flutter. People Express was now “People’s Distress.” The company grew tardy on some of its payables.
Burr himself could feel the end approaching as he walked the hallways at Newark. Where once there had been love! and trust! there was now panic and grief. In his mind’s eye Burr saw the image of the heroes’ planet in the movie Star Wars destroyed by a terrible beam of energy from Darth Vader’s Death Star. “These were my children being slaughtered,” he would later say. Then even the board of directors turned against him. Twice in the summer of 1986 William Hambrecht of Hambrecht & Quist, the investment banker who had been so important in getting the company off the ground, asked Burr to resign. “You guys are out of your fucking minds!” Burr snapped. “If I resign, this place will fall through the floor!”
But they were right about one thing, Burr realized. Something drastic had to happen. All that mattered now was how much could be salvaged of the People Express vision and how much the employees of People Express could get for their stock in the company. Among these employee shareholders, there was none bigger than Burr himself. Another major shareholder was his companion, Melrose Dawsey.
Burr knew what he had to do. There was no end to the number of people who would buy his planes and gates and slots and routes, but there was only one person, Burr figured, who would be willing to buy out the company in its entirety. And only he, Burr, could get him to do it.
“Don, I kept this,” Lorenzo said to Burr. “I knew there would come a day when this would be appropriate.”
In Lorenzo’s hand was a small section of propeller blade, the customary gift presented to departing executives back at the old Texas International. The keepsake had been prepared for Burr when he had left in 1980 to start People Express, but Lorenzo had withheld the gift, saving it through all the gothic turns in their relationship over the following six years. Now, it appeared, the two of them might be getting together again.
The 1986 summer season on the Cape was just beginning. Burr was at his 10-bedroom “castle” on the Vineyard; Lorenzo was at his place on Nantucket. John McArthur, the Harvard business school dean who had joined the board of People Express, was acting as a go-between, helping to keep the negotiating process on track. As Lorenzo and. Burr talked, they felt a little of that old warmth coming back. Don, the best man at Frank’s wedding … Frank, the godfather to Don’s child … their years of marathon training together … skiing together … the salad days back at Texas International, in the Blue Barn. They began to joke about their titanic egos. Maybe, at last, they thought, Texas Air—with Eastern and Continental and New York Air and People Express and Britt and Provincetown-Boston—maybe that was a company big enough for both of them. Maybe they could make it work this time.
There would in any case be a big role for Burr in the organization, of course! Burr was sure he heard the words pass Lorenzo’s lips: Don, you can become the chief executive of Continental and the president of Texas Air; I can remain chairman of Continental and chairman and chief executive of Texas Air … Burr would have the chance to weave the culture of People Express into Continental. The Precepts would live on.
Only one person stood between the fulfillment of the reunion fantasy: Dick Ferris of United Airlines. For several weeks Ferris gamely played for Frontier, first for a substantial portion of its fleet and later for the company in its entirety. Frontier had been Al Feldman’s airline, before Feldman had moved to Continental Airlines, where he took his own life. Ferris and his friend Travis Reed had a plan to put the Frontier fleet to work for United in Denver, “a final salute,” as Reed would explain it years later, to their martyred friend.
Ferris reached an agreement with the board of People Express to buy Frontier, only to watch the deal slip through his fingers. The pilots of United Airlines, unable to contain their loathing and mistrust of Ferris, refused to agree on the terms by which the pilots of Frontier would be absorbed into United. The pilots’ union at United had the de facto standing to veto Ferris’s purchase of Frontier, and, unbelievably, it did.
When United was out of the picture it was Frank Lorenzo who took control of Frontier, along with everything else that had become a part of People Express.
“While this may be a bittersweet moment in personal terms,” Burr said at a press conference, “the sweetness far outweighs the bitterness.… It doesn’t matter if the faces aren’t painted on the tails.” The important thing, he insisted, was that People Express would still be around, as part of Texas Air, to fight “those fat cats, like United Airlines and American Airlines.”
It was a notable day in another respect. For a year American Express had been working feverishly to complete the computer system intended to endow People Express with the sophisticated pricing and reservations management it needed to stay afloat in the turbulent new skies of commercial aviation. On the day he announced the merger agreement with Texas Air, Don Burr’s computer was flipped on for the first time. Now it too was Frank Lorenzo’s.
The reunion of Lorenzo and Burr was short-lived. When they went jogging together they argued about the executive titles Burr was convinced he had been promised. When they went skiing together Lorenzo turned out in a white jumpsuit and Burr laughed in his face. Before long Don Burr was gone, this time for good.
CHAPTER 13
THE SOUTHWEST SHUFFLE
The computer technology that wiped out People Express in the marketplace did for flying what the assembly line did for the automobile. It reduced it to the most common denominator.
Though discounted fares had been available for years, steep discounts had previously been the exception rather than the rule, available only regionally or seasonally. American’s data processing breakthrough changed that, making the least expensive seats available throughout the year, in every region of the country. On some flights the cheap seats were few, but there were almost invariably some. An excursion for which the airlines once offered installment loan contracts could now be expressed in terms of the most prosaic and ubiquitous products and services: Boston to Miami for the cost of a new automobile battery, New York to Los Angeles for the equivalent of a few dental fillings.
The changing character of the passenger markets was evident to anyone who had previously spent time in airports and airplanes. For the first time the crowds walking through the Jetways began to resemble the same cross section of humanity one might find on a city street or in a suburban shopping mall. Flight attendants noticed that they were commanding unusually rapt attention during the preflight safety demonstration; millions of passengers had never observed the ritual. The airlines were unifying friends, families, and loved ones as no medium had since the advent of the Post Office, the telephone network, and the interstate highway system.
Though a novel experience for millions, flying did not long remain a glamorous one for most. As something sold cheaply, flying was no longer something most people felt the slightest compulsion to dress up for or otherwise regard with marvel. Where families of the 1950s and 1960s had scheduled excursions to the airport observation deck to watch the planes, they could now simply schedule reservations and fly on the planes.
The magic of “yield management” alone far from accounted for the widespread accessibility of air travel. For one, the ultralow fares were increasingly subsidized by much steeper fares charged of business travelers. For the airlines the net effect was salutary. While discount fares were plunging rapidly, the average of all fares was declining only slightly to 11 cents a mile in 1986, from 12 cents a mile two years earlier. Even through the most relentless price cutting of the mid-1980s the airlines recorded their best operating profits in history.
There was one additional and important reason for those increased profits: lower costs for oil and, more significantly, for toil. Commercial aviation by 1986 directly employed well over 400,000 people. Among them the journeymen at the big, secure, and established airlines (United, American, Delta, and Northwest) enjoyed the grandfathered rewards of having started their careers in a time of government protection. The more junior employees at American and other airlines with b-scales had experienced no traumatic cutbacks but came into their jobs earning one half or less what their tenured colleagues were making. For the huge proportion of workers employed by struggling companies, living standards had plunged—whether gradually (as at Eastern, Pan Am, and TWA) or traumatically (as at Continental). In this respect as in so many others the airlines were among the leaders of the United States economy: wage cutbacks would soon sweep through other industries, particularly those that had succumbed, as the airlines also had, to the temptations of too much debt in the halcyon investment banking years of the 1980s.
In casting blame the losers in aviation’s transformation could point to a variety of candidates. In the view of many, deregulation remained the principal enabling event. Others blamed the executives of the airlines—inexperienced at the rigors of the free market, congenially unwilling to concede turf to their competitors, consumed in the gratification of their own considerable egos. Frank Lorenzo was a commonly cited villain (a “lightning rod,” as he sometimes put it himself). Many placed the responsibility for labor’s troubles in labor’s own house, arguing that by so strenuously resisting change the unions had only heightened the need for it.
Regardless of who was most responsible, there was little doubt about how the process began. To find the principal agent of change one had to go back to the beginning, back through 14 years of airline history, for behind the birth of yield management and ultimate super savers was People Express and the low-cost Continental, and behind them was Texas International’s lesson in peanuts pricing, and behind that lesson was Southwest Airlines.
Hard Landing Page 39