He left the plane and entered the gate area at LaGuardia fantasizing about his first cigarette in four hours. At the end of a long, uphill concourse, Kelleher approached a small throng of limousine drivers holding signs with the names of arriving passengers. Huffing and puffing like any four-pack-a-day man bearing a suitcase and briefcase, Kelleher angled past the limo drivers and walked outdoors to light up and stand in line for a cab into the city.
POSTSCRIPT: MAGIC ACT
The history of marketing and technology is the history of ourselves. While marketing reveals what we want as a society, technology determines what we are capable of fulfilling.
What do we want from our airlines? We want them to take us wherever we choose anytime we like, and we want them to do so at a low price. With their superb use of information technology, the airlines go a long way toward fulfilling these wants, but with an important limitation: they cannot satisfy both demands simultaneously. The passenger must sacrifice cost for flexibility, flexibility for cost.
It is for this reason that flying has remained—and doubtless will remain for years—an industry of two components, one serving those motivated by convenience and comfort, another serving those motivated by price. By the mid-1990s, when the settling-in process was well along, aviation was bifurcated as cleanly as the restaurant industry, in which the customer could choose an establishment with a full menu, a bar, and meals prepared to order, or a fast-food restaurant at a high-volume traffic intersection. Or like the television industry, which gave consumers the choice of uniformly consistent reception on dozens of channels for a fee or uneven access to a few channels through a set of inexpensive rabbit ears.
Certainly, there remained occasions when the two separate components of commercial aviation crashed together. Among the major “network” airlines, many of the most strategic hub cities had at last come under the dominion of a single airline: American in Miami, Delta in Atlanta, USAir in Pittsburgh, Northwest in Minneapolis, and United in Denver, among others. As points of connection, these hubs competed vigorously with one another; whenever passengers had the choice of hubs through which to reach their destination, fares remained moderate. The story was different for people who started or ended their journeys in a hub city. These hapless passengers were forced to pay monopoly prices—until a low-cost airline such as Southwest was finally drawn into the market. Then a battle ensued, and fares were quickly brought under control.
Fares had become purely market-driven, as sensitive to supply and demand as a Middle Eastern bazaar. Airline prices no longer bore the slightest relation to the cost of providing the service, which was why a 300-mile trip beginning and ending at a hub airport might cost three times that of a 1,000-mile trip through a hub airport. Instead, airline pricing depended almost entirely on what the market in any place and at any moment would bear. The major “network” airlines could only hope that when they had added together their $59 fares, their $1,200 fares, and everything in between, the sum exceeded the cost of having provided the service. For Southwest and other point-to-point carriers the exercise was no different, except that the fares—and their costs—were so much lower to begin with.
As the network airlines and the point-to-point carriers were settling into their respective roles, a new worry emerged for them all. In the first half of the 20th century the airlines had put trains and ocean liners out of business. In the second half they had made intercity auto and bus travel all but anachronistic. As the century drew to a close, it was the airlines who faced a terrifying new competitor: fiberoptic cable.
Notwithstanding that one transmits voices, images, and data and the other whole human beings, telecommunication bears an uncanny resemblance to flight. The telephone system, like the air transport system, was developed as a regulated public utility. Both began by offering products that were remote and prohibitively priced. (Charles Lindbergh devoted two pages of The Spirit of St. Louis to the cost and marvel of long-distance telephony.) Both industries were deregulated at a time when new entrants—Southwest and MCI—were demonstrating the marketing virtue of low prices. In both industries the upstarts emerged only after succeeding in protracted legal battles against entrenched competitors. Both industries were swept up in deregulation drives. To create brand loyalty in a newly competitive world, the airlines introduced frequent-flier programs, and when the long-distance phone companies created their own repeat-usage programs, they too began awarding frequent-flier miles.
The aviation chieftains have long looked warily on phones, as well as the kindred technologies of telex, fax, and modem. But for most of the airlines’ history the phone proved a friend rather than a foe. Just as moviegoing stimulates book buying and television viewing stimulates newspaper buying, so had telecommunications always seemed to promote air travel. More and better and faster information only made business people want to have more meetings, not fewer.
By the mid-1990s that had begun to change. After studying the matter for decades, American Airlines detected that for the first time in history businesses were sometimes choosing video and audio conferencing over flying. Electronic communications, American’s studies showed, was poised to reduce business travel by as much as 11 percent by 1998, representing $1.3 billion in business vanishing from American alone—a sum vastly exceeding its entire profit in an excellent year.
American was wise to remain on guard, for telecommunication technology had finally begun to accomplish what the airlines could not: uniting low cost and flexibility of use in the same product. Fiber-optic cable (and even some conventional wiring) became capable of transmitting so much digital information that a dozen people could meet face-to-face, in real time, while writing on the same document and studying the same engineering drawing or X-ray. Moreover, by 1995 they could do all this by loading $1,995 in off-the-shelf software into each of their desktop PCs.
How could the airlines ever begin to cut their costs to meet such a challenge?
Aircraft technology had largely run its course, at least so far as anyone could see. New airplane models could transform the cost structure of the airline industry only by flying at much greater speeds or with vastly increased seating capacities. And although there was much talk of “monster jets” and “super jumbos” flying at supersonic speeds, the airlines, it appeared, faced financial pressures too challenging in the short term to gamble on such long-term solutions.
Labor-saving technology was also largely played out; by the 1990s it was possible to fly almost any distance with only one engine on each wing, saving maintenance costs, and only two pilots in the cockpit. Herb Kelleher remarked that if the Wright brothers were alive, “Wilbur would have to fire Orville to reduce costs.” But it was hard to imagine any passenger content to board a flight with a solo pilot.
With flying technology static, the industry turned its attention to seating technology. At the airlines’ request, Boeing rolled out the 777 in 1995 with galleys and lavatories that could be removed to make way for more seats, should any airline wish to step up service in a densely traveled short-haul market. Refining cabin flexibility even further, British Airways developed individual seats that could be made two inches narrower, instantly adding an additional seat to every row when the time came to switch an aircraft to a vacation route (to Barcelona, say) from a business route (perhaps to Paris). In the cost-saving drive ValuJet introduced “ticketless travel,” recalling Phil Bakes’s “airport of the future” project nearly a decade earlier at Continental. Passengers received a confirmation number by phone, which they presented at a boarding gate as if checking into a hotel. Other airlines copied the practice.
Finally, the airlines turned their attention to the one major category of expense that had long escaped the ax. For years they had been paying travel agents a 10 percent commission on every ticket, plus special sweeteners. But by 1995 the nation’s 33,000 travel agents could hide no longer. The airlines imposed a $50 commission cap, a policy that had the effect of cutting the airlines’ costs by billions of do
llars annually—a major breakthrough, it would appear. Unfortunately, the effect on the passenger, in whose interest this move was purportedly conducted, was quickly blunted if not negated: the major agencies announced that they would simply begin making passengers pay fees on top of the ticket prices.
Southwest even tread into the sacrosanct area of safety in the search for further efficiencies. It began lobbying for permission to push away from boarding gates while passengers were still taking their seats, arguing that the four minutes that this requirement added to the average flight cost the company $182 million a year in lost flying revenue—the equivalent of roughly $4 a ticket. Buses roar through city streets with passengers standing, Southwest argued, which was true, of course, except that buses are equipped with gripping devices for precisely this purpose, and bus passengers do not hoist heavy bags overhead while the vehicle is moving, and buses rarely hit the brakes with the suddenness that an airplane taxiing backward might.
There came a point when all such cost-cutting endeavors took on the air of disingenuousness. Even if consumers were demanding lower and lower fares, was it really worth consciously making a safety trade-off? Was it worth alienating the travel agent distribution channel? Was it worth a new round of ugly battles with organized labor, all to cause a few more people to fly a little more often?
No. It was time for the airlines to moderate their obsession with costs. They had whacked enough already. They had nearly cut to the core. It was enough for the airlines to dedicate themselves to preventing an increase in costs. Further cutting endangered the most basic and fundamental product provided by the airlines. That product is magic.
The magic is most abundant in the airlines’ safety record. In America alone the airlines hurtle their more than 1 million a day over tremendous distances with injuries no worse than a few broken nails. To relentlessly attack costs year upon year, with no letup, only invites compromise, and even a single compromise is one too many. Merely establishing a dialogue about loosening on-board safety procedures—to invite so explicit a trade-off between safety and costs—is a first step down a slippery slope that the airlines, if they stop and reflect, would wisely choose not to take.
How we feel when we fly is another part of the magic. Complaints come loud and long from some of those who became spoiled in the regulated era, when seats were wide, meals were elegant, and flight attendants had college degrees. But for most people, the mystical quality remains. Flying, the novelist Joyce Carol Oates wrote in 1995, fosters “fantasies of childhood, of omnipotence, rapid shifts of being, ‘miraculous’ moments; it stirs our capacity for dreaming.” Those who claim otherwise are either liars or cynics. The journey itself remains part of the richness of travel—except to the extent that we are distracted by the annoyances and miseries of obnoxious service, late arrivals, lost bags, crowded seats, long waits for the bathroom, and endless dashes through hub airports, all of which can only become more common as the airlines continue to cut costs.
If the airlines feel compelled to cut costs further in order to make flying as accessible as a phone call, they risk debasing their product to the same level. The airlines have legitimate reasons to worry about the advent of video telephones and other new communications technologies. But they will lose a certain amount of business to new rivals no matter what. So long as the airlines preserve their magic quality—including, above all, their safety and reliability—they will be guaranteed a significant role in the workings of the world. Science will never digitize an embrace. Electronics will never convey the wavering in the eye of a negotiating adversary. Fiber-optic cable can do many things, but it cannot transport hot sand, fast snow, or great ruins.
Consumers will always pay to fly at a half-reasonable price, unless the people providing the service drive them away.
Are the leaders of commercial aviation up to the task? Can they control their costs without debasing their service? Can they motivate their workers without alienating them? The answers are neither simple nor clear.
The past 25 years in aviation history was an extraordinary period, demanding an extreme sort of executive. From the moment the jumbo jets appeared the gloves came off, first in the competition to provide the most absurdly solicitous service, then to provide the lowest price. The brutal fare wars that gave so many their first taste of flying would never have been so significant without the likes of Frank Lorenzo, Phil Bakes, and Don Burr. It took a Bob Crandall to develop the sophisticated pricing necessary to fill up the airplane cabin. Sir Colin Marshall set a vital example for quality and consistency. Only the macho aggressiveness of a Dick Ferris could keep organized labor from taking all. A compulsive organizer such as Stephen Wolf was exactly the kind of leader required to extend an airline around the globe. Ed Acker displayed the keenest sense of growth.
But that was then. The airline markets are different now. Though it took nearly two decades, the shocking effects of deregulation have largely run their course. There will always be battles, of course; in a business won and lost in the margins, the fight over a single point of market share will always assume life or death proportions. But these titanic struggles have become, and will remain, far fewer. Today, the airlines need leaders willing to commit themselves to the customer as an end in himself rather than as a prize in a contest of adversaries.
The relentless efficiency of history and economics has gone a long way toward making the necessary adjustments at the top. The great airline leaders of the past 25 years—men for their time—are nearly all gone now. Within this special group of leaders, only three remain: Herb Kelleher, Sir Colin Marshall, and Bob Crandall. And in Crandall’s case, the impossible had occurred in 1995. The title of president of American Airlines, which Crandall had long vowed never to yield so long as he remained the chairman, went to Donald Carty, one of the architects of American’s fabulous expansion in the 1980s. Carty was a man of obvious intellect, perhaps even Bob Crandall’s equal. And although Carty was capable of flashing anger and aggression, in those respects he did not come close to matching Crandall.
As for Kelleher and Marshall, they were men of ego every bit as much as the others. They too pursued their goals with fervor: the chairmanship of a global airline in Marshall’s case, and the creation and survival of a niche airline in Kelleher’s. Neither Marshall nor Kelleher had an unblemished career; both displayed a knack for pushing to the edge of the rulebook of business. But they also distinguished themselves with dignity. They were satisfied to win without killing off their adversaries. They were content to profit without profiteering. They saw themselves as part of something larger: an intricate economic system that depends on the worthy intentions of its participants.
Business, after all, is business. It is the space in which technology and marketing unite, in which man conducts the serious work of fulfilling the physical needs of society. Business is not sport, is not amusement, is not a toy—least of all the delicate business of flying.
POSTSCRIPT TO THE
PAPERBACK EDITION
The danger in writing about a dynamic industry is that the story never ends. The tableau shifts constantly. The best a writer can accomplish is capturing an accurate snapshot of the moment when the final lines are committed to paper.
The airline industry has continued to evolve, although the pace of change has slowed from the halcyon days following deregulation. Stephen Wolf, who led, turned around, and reaped tremendous profits at more airlines than perhaps any executive in aviation history, agreed to try his hand one more time, at the long-suffering USAir. The assignment encompassed both of the main obstacles that Wolf had overcome in his previous campaigns: a high cost structure and a mishmash of a route map. The employees of USAir were urgently hoping that Wolf would not order a new paint job for the fleet, the first signal, it had always seemed, in his past efforts that he was getting ready to sell an airline.
Wolf’s move to USAir was fraught with a certain irony, as it threw him into partnership with one of the airlines that had maneuve
red so vigorously against him during his tenure at United: British Airways. The marketing alliance between British Airways and USAir remained a favorable arrangement for both companies, but its future was thrown into question as yet a different marketing agglomeration occurred, this one between the unlikely partners of British Airways and American Airlines.
These were the same two airlines that had fought so bitterly when American moved to plant its flag at Heathrow and British Airways maneuvered so desperately to keep it out; the fight had been just as nasty when British Airways was buying into USAir, and American cried foul. And although protégés were coming up rapidly behind both of them, Sir Colin Marshall and Robert Crandall remained the chairmen of BA and American, respectively. There had been no love lost between them over the years. Crandall, of course, had been known to some British Airways loyalists as “Wretched Robert.” But by June 1996, when the two airlines announced they would coordinate their schedules and feed passengers into one another’s systems, the commercial imperatives at last had begun to outweigh the personality issues and the legacy of feuding. As partners, American and BA became an airline powerhouse unlike any the world had ever seen. The two airlines dominated the vital North Atlantic. They forged a vibrant link between Europe and the rapidly developing economies of South America. British Airways helped begin to fill the biggest hole in the American route map, in the Far East.
Whether USAir would be ultimately cast aside or fully absorbed into the BA-American alliance—indeed whether it might even be acquired outright—remained unclear. But to the people who followed the industry’s personnel lineup, the involvement of three personalities with so much history—Wolf, Crandall, and Marshall—could only make things more interesting.
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