Hard Landing
Page 57
By the end of 1993 Southwest was the eighth largest airline in the United States (behind United, American, Delta, Northwest, Continental, USAir, and what was left of TWA). But among the 100 largest airline markets in the country—the 100 city pairs traveled most frequently by the most passengers—Southwest was number one.
Southwest’s success had by 1994 spawned a generation of imitators, companies established from the remains of Eastern, Pan Am, and other failures. Many went into business serving the New York-Florida market, where a low price was all that mattered, companies with names like Carnival Air Lines and UltraAir. A group of unemployed Eastern and Pan Am people, their companies killed in part by high labor costs, formed an airline they called Kiwi International, in honor of the bird that could not fly. Kiwi’s pilots gladly went to work for lower wage levels than Ed Acker or even Frank Lorenzo had ever had the nerve to impose. The transformation of the passenger markets was especially evident in the name chosen by the most successful of the new entrants, based in Atlanta: ValuJet Airlines.
While some forgot (or were too young to know) that the upstarts constituted a second generation of Southwest imitators, there was no doubt that the new upstarts were benefiting from the errors of the earlier generation. Texas International, People Express, the post-bankruptcy Continental, and others had copied elements of the Southwest formula but had then strayed, lusting for the trappings of the established airlines: widebody airplanes, hubs, computers. The first generation of upstarts had tried to acquire for themselves the kind of presence that the major airlines had been awarded in the spoils conference of 1934. The second generation knew better than to overextend. The notion of critical mass had been discredited.
The second upstart revolution caused many to question whether Bob Crandall really knew what he was doing after all. The pilots’ union at American hired a consulting firm that accused Crandall of overmanaging American Airlines. “The normal profit motive,” the consultants’ report said, “gave way to the notions that if two hubs are good then six must be better, and if ‘bigger is better’ then ‘biggest must be best.’ ” Hubs, the consultants said, forced flight crews to sit and wait for airplanes. Hubs required the company to maintain a massive infrastructure. Southwest by contrast had no hubs and no reservation network. Southwest simply flew from one city to another and back again, over and over. American’s problem wasn’t high wages or restrictive work rules, the report concluded, but “structural problems within management’s control.”
Crandall bitterly resented his pilots’ joining the “tulip craze” around Southwest. “You never see me on the line trying to fly your leg,” he scowled at a meeting of captains. “You never hear me telling you how to fly airplanes! … We trust you with very expensive machines. We trust you every day with our lives.”
Even his admirers began to doubt Crandall. Had he lost his touch? He and his team had always come up with the silver bullet for whatever problem plagued the company, whether charter operators or Braniff or People Express, whether the need to establish a computer reservation network or to institute b-scales or to break into the international markets. Had Crandall lost his creative spark? Had his organization atrophied? Or after 15 years of deregulation had all the original ideas at last been used up?
As if to comfort his doubters, Crandall in the fall of 1993 finally joined the battle he had been avoiding for so long: he attacked his profitability problems on the cost side, with labor as his target and Southwest as his new bogeyman. While waiting for the pilots’ contract to expire, he resolved to make an example of the flight attendants. If he had to take a strike—his first strike ever—then so be it. Despite his unforgiving debt levels, he would take a chance that he could fly through a strike. Flight attendants, after all, were easy to replace. Nobody respected their picket lines. Flight attendants couldn’t begin to shut down an airline.
Crandall, however, had not counted on two things. After years at the bottom of the industry’s heap, the flight attendant profession was ready to extract revenge. In addition, Crandall was unprepared for Denise Hedges. In her 23 years as an American flight attendant, Hedges, age 46, had had three children, each born under a different company maternity policy. The shifting rules stirred her interest in union affairs. As American grew in the 1980s, flight attendants became numbers in complex scheduling formulas built on higher mathematics, making their work schedules dizzyingly unpredictable.
Crandall wanted even more control over scheduling—to eliminate hard-fought union staffing rules that promoted flight attendant hiring but compromised the perfect deployment of personnel. Crandall also wanted to block the union’s attempt to erode further what remained of the b-scale provisions in the contract. And in keeping with the need to manage such great numbers efficiently, American insisted on their maintaining uniform weight standards, which failed to take account of the changing demographics of a flight attendant corps that included more mothers and older women all the time.
Hedges vowed to resist. She brought in labor consultants who had perfected telephone trees and other mass communication techniques. Rank-and-file flight attendants were indoctrinated in the evils—and dangers—of crossing any picket lines once a strike began, just as the United pilots had been in the great strike of ’85. “You will be marked as a scab for life,” the flight attendants’ strike handbook said. “Strikers will know who you are.… You will not be forgiven.”
The lapsing of the 30-day clock freed American to impose its own terms on the flight attendants in November 1993. But Hedges did not call a strike immediately, waiting instead until just before the long Thanksgiving weekend, the busiest travel period of the year. The strike, Hedges furthermore determined, would last only 11 days, her estimate of the time it would take American to train replacement workers. As Thanksgiving approached, the flight attendants also moved to curry public support—not easily done, since a holiday strike would terribly inconvenience passengers. Flight attendants distributed pamphlets pointing out that they earned a median salary of $23,007, “less than a mail carrier, or a roofer, or a security guard.” They called attention to in-flight sexual harassment. And through a mixture of hyperbole and honesty, they called the public’s attention to themselves as victims in other ways:
We lift, push, pull, bend, and stoop in confined work areas. We are often required to work 14 hours on domestic flights, more on foreign trips. We are subject to constant changes in cabin temperature and humidity, vibration, turbulence, and time-zone changes that disrupt our work-sleep patterns.… And we pay for it all with back problems, foot, knee, and leg aches, eye, ear, nose, and throat maladies, headaches, high rates of colds and infections, hearing problems, skin irritations, menstrual and reproductive problems, varicose veins, fatigue, and depression.
This outpouring of grievances had an effect as well on the attitude of the flight attendants themselves. At one point someone distributed an essay comparing the company’s behavior to that of an abusive husband.
If any managers sensed a groundswell of bitterness against the company, they were not reporting it to the people at headquarters, or if they were, no one there had the nerve to tell Bob Crandall. “They were regularly polled,” Crandall would later say of the supervisors, “and they regularly expressed the opinion that flight attendants would come to work.” As Thanksgiving approached, American blitzed its markets with messages that any strike would present only a slight, temporary disruption; there was no reason for anyone to change his or her travel plans.
On the night of the negotiating deadline, November 17, 1993, Crandall flew into Dallas from a meeting in New York and went to the office. His bargainers, meeting with the union’s negotiators at a site in New Orleans, were still pressing his demands. About midnight, a time when American’s operations had largely rolled to a stop for the day, the strike officially began.
About 4 A.M. Bob Baker, the airline’s operating chief, traipsed to American’s operating center, a gymnasium-size room filled with dispatchers, scheduler
s, mainframes, and video workstations. A computer was programmed to flash warnings when crews had not signed in for their flights on the electronic punch-in clocks scattered throughout the airline’s realm. With daylight approaching, the system all but started smoking. Almost none of the flight attendants were coming to work. And the company had not trained replacements.
There was, moreover, a kind of double whammy hitting Crandall. The American fleet operated on such brilliantly efficient schedules that in order to operate any significant number of flights, American had to keep the entire system in operation; a selective shutdown, Crandall’s people determined, would only “supercharge” the complexity of maintaining everything else. Thus American was enduring the punitive and improbable need to keep planes taking off and landing the world over with too few flight attendants, and therefore not a single paying passenger aboard. American was shut down by a strike but still had to pay to keep its operation going—and on top of that still had to service its debt.
To make matters worse, because American was able to board some flights with line crossers or management flight attendants, it continued urging passengers to maintain their travel plans; passengers were drawn to the airport only to watch planes take off without passengers. Even American’s own labor negotiators had to fly back from their last bargaining session in New Orleans on Southwest. As angry passengers left the airport, they heard picketing flight attendants chant that management, not the strikers, were responsible for the inconvenience:
They lied to us
They lied to you
Now you know
What we go through.
At one point Federico Peña, the transportation secretary, blasted American for issuing a press release claiming it had “operated a normal schedule”; Crandall had scratched out a more moderate characterization in a draft of the press release and had substituted those words himself.
Crandall’s strategists rationalized American as a victim of “a very angry group of people,” as one later described it, a group prone to activism in part because of “the gay and lesbian component.” “You set up a scenario,” this executive said, “where you can get a lot of energy very quickly, and it can get out of control.”
Crandall again had become his own victim. His ferocious temper had blocked the flow of vital information. The size and unforgiving perfection of his schedules had cost him dearly.
Four days into the strike, with Thanksgiving at hand and with Crandall expressing fears to his aides of falling into an “abyss,” President Clinton personally intervened, asking whether both sides would submit the entire contract to arbitration. Crandall readily agreed. The full 11-day strike might well have killed American Airlines.
About the time of the flight attendants’ strike, the cover of The New York Times Magazine showed an American plane flying off the page, leaving behind a quote from Crandall: “Unless the world changes, we will never buy another plane. We won’t replace the airplanes that wear out.… The company simply won’t be here anymore.”
Some of Crandall’s aides cringed at his rhetoric, but they knew it was bluster, calculated to worry the unions into relenting to his proposals. Bluster was all Crandall had left if he wished to cut his labor costs. If the flight attendants could beat him, any employee group could. Ultimately the pilot contract too would go to arbitration, so fearful of another strike had Crandall become. “That strike was a tragedy,” Crandall told employees. “We must never have another.”
The bluff in Crandall’s threat to liquidate the airline was evident only a few blocks from American headquarters, where at the height of the tension with his employee groups Crandall presided over the dedication of an architectural masterpiece called the American Airlines C. R. Smith Museum. If Crandall had any expectation that American would shrink into oblivion, it was not evident in this museum—a memorial not only to C. R. Smith, but to R. L. Crandall.
At the front entrance the company had lashed down an American Airlines DC-3, the Plane by which C. R. Smith had revolutionized the economics of air travel—a gleaming, silvery bird, with its endless wings and rounded deco features, meticulously restored by a group of retired American employees. “The most significant commercial airplane ever built,” a plaque read. Inside the building was a steeply pitched theater, outfitted with leather airline seats and a towering Imax movie screen. The same film was shown hourly, every day of the week, with the employees of American Airlines presumed to be the people most often watching it at any time. As the music swelled, the film showed American baggage handlers trading high fives alongside their belt loader, while a newly graduated flight attendant shuddered with a thrill as her wings were pinned to her lapel.
In the museum’s main hall was the exhibit on C. R. Smith’s life (no mention of the Watergate checks, of course). One of the famous Wurlitzer organs, retrieved from a jumbo jet lounge, was placed under glass. Nearby a series of video screens told the story of how Al Casey had been brought into American 20 years earlier at a low point in the company’s history—and how Casey had quickly come to anoint a new president:
His eye fell on Robert Crandall.… Crandall proved to be the ideal choice to lead American in the unpredictable, rough-and-tumble airline industry of the 1980s.… Most observers credit him for American’s successful passage through the post-deregulation years … Among his accomplishments [were] negotiation of innovative collective bargaining agreements … automation of travel agencies … creation of new hubs … expansion into key international markets …
The curators’ script did not comment on Crandall’s skill at exploiting the leverage of the airline business. But in late 1994, with the recession finally well past, with American’s labor costs moderated if not reduced, with the battle against the upstarts largely played out for the time being, something extraordinary occurred. American Airlines reported the highest quarterly profit figure in its history—the highest, indeed, of any airline in the history of the airline business. And the surge continued into 1995. American, it appeared, was not so badly broken after all.
For Crandall the only disappointment was in thinking how much bigger the score would have been, if only his employees had done it his way.
One morning in June 1994 passengers began gathering in a gate area bathed in the first sunlight of the day, waiting to board the early American Airlines flight from Dallas to LaGuardia. Twenty minutes before departure a nondescript white-haired man in a sports shirt ambled into the gate area with a Styrofoam coffee cup, a hanging bag, and a briefcase. He began chatting with the strangers seated and standing nearby. He could have been anybody, but he was Herb.
Buckling into a first-class seat, Kelleher noted that Crandall had packed another airplane. Kelleher himself was flying on American because his own airline did not serve New York. A 20-minute turnaround, much less one half as long, was an impossible dream in New York.
On this particular morning Southwest happened to be in the news, and as a consequence once again people were questioning whether the company could forever survive. For years Southwest had refused to pay fees for any bookings through the major computer reservations systems, other than certain slight fees to American’s Sabre. The two other leading systems, Apollo and System One, finally announced that they were kicking Southwest out. Kelleher said fine. Any lost sales, he estimated, would be trifling in comparison to the tens of millions of dollars that the networks wanted to charge to preserve his visibility in the travel agency computers. The fact was, passengers didn’t particularly need travel agents (and travel agents didn’t particularly want clients) for $19 flights. The computers were part of the full-service airline industry—the equivalent of cable television. Kelleher only needed rabbit ears.
One unwelcome effect of the computer fracas was a plunge in the price of Southwest stock, which hurt the company’s employees and none among them more than Kelleher, whose holdings had ballooned to well over a million shares. Over the course of several months the price would tumble from $40 to $20, causing Kelleh
er’s net worth to deflate by better than $40 million, and the price would soon plunge even further, as the bloody California price battle raged with Shuttle by United. Not to worry, Kelleher sighed. “Being a millionaire ain’t what it was in the 1890s.”
Kelleher asked a flight attendant for a glass of milk to go with his macadamia nut cookie. “I’m coating my stomach for this evening,” he explained.
Kelleher was flying to New York for an industry conference, but he had arranged another piece of business while he was there. People had been telling him for years that he should meet Richard Branson of Virgin Atlantic Airways. Kelleher spent a few minutes of the flight memorizing the lyrics of the Sex Pistols’ “God Save the Queen” so he could impress Branson.
A pilot emerged from the cockpit with a message transmitted from American’s operations center in Dallas and printed out by the onboard computer. It read, “Smooth ride whole way. Tell Herb we said hi.”
Kelleher opened his briefcase and spent a few minutes reviewing traffic figures from the company’s flights at Baltimore-Washington, opened a year earlier. “There was some expressed dubiety as to whether our coming to the East Coast would be successful,” he said. The figures showed that in the fourth quarter of 1993 traffic to Chicago totaled 150,480, an increase of 1,052 percent. “Just a preliminary indication,” he noted. As he stowed away the paperwork, his latest reading material slipped out, betraying Kelleher’s plans for new service in Salt Lake City. It was a history of the Mormons.
As the plane turned into its final approach, one of the flight attendants leaned over to Kelleher with an extra macadamia nut cookie wrapped in a napkin. He lunged for the cookie but stopped short. “I’m not taking this from you, am I?” he asked her. When she said no, Kelleher practically inhaled the dessert.