by Richard Foss
Dan Air, which had experimented with seat-back catering, was one of these hybrid carriers. In the 1960s that company faced increasing competition from British United Airways, which was the largest unsubsidized airline outside the United States. By 1970, when they were sold to a Scottish airline, BUA served Europe, Africa, and South America, and the combined carrier later became famous as British Caledonian Airways.
That carrier became increasingly respected in the industry, which couldn’t be said of a former BUA managing director named Frederick Alfred Laker, who was later knighted as Sir Freddie Laker. Freddie, as everybody called him, was the single most disruptive person in the history of the European airline industry. He had a vision of a budget travel concept he called Skytrain that he was sure had the potential to draw hundreds of thousands of new passengers who had never been able to consider flying before.1
Laker took the well-worn path of starting a charter airline and applying for permission to operate scheduled services, all the while badgering regulators for permission to operate new routes at lower costs. He announced the Skytrain concept at a press conference in 1971, after he had formally applied for permission to fly regular scheduled London to New York service at the price of less than thirty-eight pounds per direction—far less than half the price charged by British Airways and Pan Am. Laker’s application predictably went nowhere, but the British public adored the idea and started pressuring the government to consider the plan.
Laker didn’t get what he wanted immediately, but the door opened a crack in April 1973 when the British government liberalized the rules on transatlantic charters. Previously these had been at least theoretically limited to so-called affinity groups like clubs and churches, but in practice many people paid a nominal fee to join a club for the sole purpose of going on a trip. (Some of these were deliberately given silly names to mock the system; the Birmingham Caged Bird Society, for instance, existed only as an excuse to take charter flights.)2 The new rules ended the need for memberships and allowed airlines to operate an unlimited number of charter flights to create something that was almost regular scheduled service—the only restriction was that flights had to be booked in advance and couldn’t be changed, restrictions designed to deter business passengers.
Laker launched services immediately and did heavy advertising on the theme “The End of Skyway Robbery,” while lobbying the government to allow him to operate additional services to Hong Kong and Australia. He didn’t get those, or much else that he asked for, but Skytrain services were up and running in 1974 and became wildly popular. Passengers could only buy their tickets on the day they wanted to travel—the polar opposite of the advance booking charters—and there were charges for everything—luggage, alcoholic drinks, and meals included. The payoff was the price, $245.00 round trip from New York to London.
Passengers swooned over the price and the cheerful service, though not the food. A travel article in the Norwalk, Connecticut, newspaper The Hour referred to a continental breakfast of “a stale roll, orange juice, butter and jelly, and a cup of coffee,” while the cooked breakfast was “cold scrambled eggs, sausage, and a roll.” Still, despite an article in which the author detailed the stress of lining up for tickets without knowing if she would get them and other inconveniences, she finished the article with “Would I go again? Take me, Freddie. I’m ready.”3
A flood of new airlines leaped into the market for services from Britain to destinations on several continents, enabling connections to and from everywhere in Europe through London. The French government liberalized their airline market too, and a flood of new carriers sprung up. A few of these flew full-service flights, but most were emulating the high-capacity/low-service Laker. Almost all eventually went bankrupt, but they did their part to undermine the entrenched players in the market.
National carriers throughout and beyond the continent suddenly woke up to the fact that they faced something they had never dealt with before: price competition. Many were overstaffed and had deals with their governments that involved flying politicians and their families for free; faced with the inability to reform such systems, they were paralyzed. They could copy a few of the strategies from the discount carriers, such as eliminating meals on short flights and adding one extra seat to each row, and in short order they did. Australian travel writer John Pringle memorably mourned, “It is a curious fact that aeroplanes are the only form of transport which have got more uncomfortable with progress,” and complained about the lines in airports with a song parody. Based on an old Fred Astaire number, it ran,
We traveled Qantas to see the world,
And what did we do?
We stood in a queue.4
Pringle glumly admitted that millions of people would be able to travel in economy seats under the new airfare system, but he couldn’t muster any enthusiasm for it. Neither could other sophisticated flyers, especially those who traveled for business, and it was here that the established airlines saw an opportunity. They would make a new overture to the only segment of the market they really understood: business travelers. Recognizing that many companies wouldn’t pay for first-class seats anymore, in 1976 KLM pioneered the idea of special seating, then called “Full Fare Facilities” for passengers who bought nondiscounted tickets. Until that time, the only recognition that people paying the highest undiscounted economy fares received was a sticker on their luggage that theoretically meant it would be delivered first.
KLM’s innovations were modest—the full-fare passengers were separated from those using discounted seats and given the area just behind first class, where they could board last and deplane first. It was left to British Air to actually differentiate the business-class experience in other ways. As columnist Richard Turen humorously put it in Travel Weekly, a magazine for the industry,
The theory here was that passengers who were stupid enough to pay the list price for a coach seat ought to be separated from normal passengers. So they were allowed to sit in a special economy section between the really rich people in first class and the poor, unwashed wretches in the rear of the aircraft. Historians of commercial aviation will note that 1978 was the pivotal year in the development of the business-class concept. In the fall of that year, British Airways announced Club Class, for the express purpose of separating discount “tourists” from full-fare business clients. Soon afterward, Pan Am introduced Clipper Class. Qantas launched its business class, and Air France happily began providing better seats for its more sophisticated passengers. In 1981, SAS debuted EuroClass, which further separated business flyers from the population at large by employing separate check-in counters and lounges.5
The new class of service proved popular with business travelers and lured some away from the discount carriers, but not all airlines provided the same level of service. British Airways offered first-class-quality meals and free drinks in economy-class seats, while in 1979 Qantas became the first airline to refit their aircraft with seats that were wider and reclined further than economy, but not as much as first class. Even Laker Airways, the airline that had started the whole discount craze, started offering “Regency Service” in 1981 with leather seats, free drinks, Wedgwood china, real Champagne, and actual meals included, which caused some journalists to wonder if Laker had forgotten his roots.6
Other carriers were very slow to do anything that would discourage business travelers from flying anywhere but in first class. On Air India in 1979, according to author Rabindra Seth, “a seat just behind the first class and close to the exit plus free drinks was all the perks that went with a full fare.”7
As business class became established as something more luxurious than coach and much cheaper than first, it created a situation both business travelers and airlines had been dreading. Companies that had been allowing first-class travel for executives started restricting them to business class. This cut the airlines’ revenue from first-class seats and took away the glamour from businessmen’s tr
avel.
The state-owned airlines in Europe and Africa that were already losing money had no budget for refitting their aircraft with business-class seats and faced competition from other carriers that did. Many of them went with a canny strategy: rename their first-class cabin business class, so corporate travel departments would continue allowing executives to use it. This allowed the airlines to struggle on while still trying to formulate a strategy to deal with the discounters.
The state-owned carriers could go on for a while absorbing ever higher subsidies, so the first victims of liberalization in Europe were American. Pan Am went bankrupt in 1991; the carrier had no short-haul feeder system within the United States, a large pool of retirees with pensions, and a highly paid and aging workforce. Other American airlines would follow, because travel inside the United States was changing too.
In the US domestic market, where first a postmaster general and then the head of the Civil Aeronautics Board had upended the industry, it was the turn of a professor of economics to throw the system into chaos. In 1977 Alfred E. Kahn was appointed as the chairman of the Civil Aeronautics Board despite the fact that he admitted he knew nothing about the airline industry. Based on economic theories that stressed the virtue of competition, and with the European experience in which discounted seats had led to a flood of new carriers and lower fares for passengers, Kahn decided to throw the airline industry open to unlimited competition. The Airline Deregulation Act of 1978 eliminated the requirements that airlines serve some short and unprofitable routes in exchange for access to profitable longer routes, allowed market access for multiple carriers on routes which had previously been restricted to two, and abolished rules that said that airlines couldn’t raise or lower fares without advance notice. The expectation was that whatever new paradigm emerged would be more robust and offer more passenger choice.
In the short term, he was right about the choice part. Freed of bureaucratic restrictions about where they could fly, regional airlines expanded and new carriers leaped into business. Southwest Airlines, once restricted to flying within Texas and the states bordering it, started the explosive growth that was to make them a national carrier—and they did it while serving only drinks and peanuts. They flew to secondary airports like Houston’s Hobby Airport and Dallas’s Love Field, which were as close or closer to the city centers of the respective cities but had landing fees that were a fraction of the major airports nearby. The lack of catering and low costs meant that Southwest could price their flights far lower than anybody else and still make a profit. It was a business model that airlines with established infrastructure at expensive airports couldn’t imitate.
The major network carriers fought back with a brilliant plan: the frequent flyer program, introduced by American Airlines in 1981. The intention was to stop frequent travelers from considering each trip separately and booking the cheapest carrier for that journey, and instead book all flights with the same airline even if it wasn’t the most convenient. The fact that the eventual benefits would probably be paid for by the travel budgets of the companies that business travelers worked for, but used for their own vacations, was an unstated but important factor. The major carriers began to claw back a little traffic from Southwest and the other upstarts, and for a while they kept their food service at current levels.
The carriers that were most endangered were the ones that didn’t have the low cost structure of Southwest but lacked the nationwide coverage of United, American, and Delta. These had three choices: grow, merge, or die. Continental Airlines decided on aggressive growth, and in ten years of canny expansion went from a Denver-based regional airline to one that flew to Australia, Samoa, Japan, and a vast network throughout the United States, along with routes to the Caribbean and Mexico. Continental was able to keep a loyal following partly because their food service was well above the standards of most of their competitors; they owned a company called Chelsea Catering that employed Cordon Bleu chefs, and they regularly won awards as the best in the industry. At a time when other carriers were following Southwest’s model and diminishing service, Continental introduced a pub concept with a bar, popcorn machine, and an electronic “Pong” game.8 Continental’s Hawaii flights included meals made according to the recipes from the famous Don The Beachcomber restaurant, with rum drinks to match.9 The airline’s “We Really Move Our Tail for You” ad campaign always included depictions of lavish food service, and the carrier successfully made the transition from minor to major carrier.
Western Airlines had always been one of the shakier carriers financially, partly because the CAB had blocked them from expanding substantially beyond their West Coast bases—and at many of those, they competed with low-fare carrier PSA. Deregulation gave the airline that chance to expand, but as one of their stewardesses named Teri Caroll observed, it was in a changed world.
Overnight the whole industry changed. . . . The most notable difference was the passengers we were now flying. We were used to experienced business flyers. Deregulation seemed to create another group of travelers who didn’t understand the nature of our business. We went from five flight attendants covering 120 passengers to four trying to serve 140 people—many of whom had never flown before. The public’s expectations just weren’t realistic. I had women actually get upset that I wouldn’t baby-sit their children or serve lunch on a 35 minute flight.10
Western’s service to Alaska was particularly lucrative but involved competition with Alaska Air, a well-established carrier with a high reputation for service. Western rose to the occasion with “Pacific Horizon” service, featuring a fruit plate followed by two entrée choices at all meals and complimentary cocktails, wine, and beer. Western was successful for some time and flew some unusual routes like Honolulu to London with a stop in Anchorage. They continued as a viable carrier for almost a decade before being bought by Delta.
Many others were not so lucky. There hadn’t been a single airline bankruptcy in the United States before deregulation was passed in 1979—within five years, twenty-four carriers had filed Chapter 11, and more had been acquired by other carriers at fire sale prices.11 Faced with evidence that financial calamity was possible, regional airlines started merging, losing whatever distinctive personalities they had previously had.
Piedmont Airlines also tried the expansion route from their hub in North Carolina and eventually served both Los Angeles and London, bringing to those cities their unusually sophisticated menu. Though the main courses were the usual beef, chicken, or fish, they almost always finished with Southern pecan pie. Another signature was offering “Old Salem” Moravian ginger and sugar cookies, a North Carolina specialty.12
Another such example was Alaska Airlines, previously a small carrier that flew north from Seattle. The airline expanded as far south as Mexico and started service to several destinations in Siberia. To promote this they started “Golden Samovar” service featuring stewardesses in Cossack tunics serving borscht and beef stroganoff, along with a drink they called “Bolshoi Golden Troikas”—coffee, vodka, and coffee liqueur. Alaska became famous for the quality of their food and controversial for another element of their meal service: putting a small card with bible verses on every tray. Alaska Airlines continued doing this until January 2012, when they decided to stop “out of respect for its religiously diverse customer base.”13
These were rare examples of airlines improving their service in an era when most were cutting back. The most famous example of a major carrier curtailing costs aggressively was the incident that became known as “Crandall’s Olive.” The president of American Airlines was reportedly aboard one of the airline’s flights and began contemplating his dinner salad. As the New York Times put it in a business section article,
By now, it is the stuff of legend: in the 1980’s, Robert L. Crandall, then the head of American Airlines, came up with the idea of removing just one olive from every dinner salad served to passengers. They would never notice, let alone
squawk, he figured, and the airline could save some money. He was right, to the tune of $40,000 a year.14
It’s one of the most famous decisions in the history of the airline, and cited in many studies of effective management, but there’s some doubt that it actually happened. American Airlines has a corporate archive of Crandall’s papers at the C. R. Smith Museum in Dallas and has been asked many times whether Crandall ever recounted that story, but the museum has never responded.15 There is also a question about how much money might have been in question—the book Corporate Creativity claims $500,000. Many people have also questioned how removing one olive could save that much money, because olives aren’t that expensive; the book explains that five-item salads from airline caterers cost substantially more than four-item salads, and that Crandall just looked at fellow passengers’ meals to see what was left behind.16 The same publication said that after the story became public, an association of olive growers threatened a boycott of the airline unless the olives were restored, and reports,
After some negotiations, American agreed to stock every flight with olives and make them available to any passenger who requested them. This arrangement required no extra catering, since some olives were already put aboard every airplane for martinis.17
Whether it was really all about an olive, in 1981 Crandall did begin a program that cut the quality of airline meals, and other carriers followed. United removed beverage garnishes for an estimated savings of $50,000, Delta removed the strawberries from salads in first class for $210,000, and Continental even stopped serving pretzels and was said to have saved $2.5 million.18 As Flight Catering expressed the situation,