TIME: Almanac 1993/TIME Almanac 1993.iso/time/051589/05158900.020

Text File | 1992-09-23 | 5.6 KB | 112 lines

                                                                                BUSINESS, Page 57

Special Report: Airline Giants

How the New No. 1 Got There


Under tough guy Crandall, American leads in profits and
popularity

By Richard Woodbury


    At 4:50 on a Monday afternoon, the scene is hectic in a
giant ten-story tower at the Dallas-Fort Worth airport. Rows of
technicians at consoles keep tabs on a swarm of taxiing
jetliners. Other workers stand in front of bay windows to direct
planes near the gates below. But this is no Government-run
control tower. The command center is run by American Airlines,
whose staffers supervise only their own planes on the ground.
The airline erected the unusual structure just a quarter-mile
from the air-traffic tower run by the Federal Aviation
Administration to cope with the torrent of American's arrivals
and departures (daily average: 800).

    While Dallas-Fort Worth is the carrier's largest hub, the
pace is nearly as furious at 155 other airports served by
American as the airline pursues a jet-propelled growth spurt.
American has added 51 of its destinations in just six years and
has become a major international force, flying 119 foreign trips
a day, compared with just one in 1983. Last November American
officially became the No. 1 carrier in the U.S. by overtaking
rival United Airlines in monthly revenue-passenger miles. That
milestone prompted American's hypercompetitive chairman, Robert
Crandall, 53, to take to the public address system at Forth
Worth headquarters to shout congratulations to his staff. Says
Crandall now: "We had a strategic plan, to grow the airline very
fast. It worked out very well." Last year American's parent
company, AMR, posted sales of $8.8 billion and profits of $476.8
million, a 140% earnings gain from the previous year.

    Such bullish expansion seemed out of the question when
Crandall became American's president in 1980, a year in which
the carrier lost $75.7 million. The price of jet fuel was
skyrocketing, and the industry was embarking on fare wars.
Saddled with high labor costs, Crandall fashioned a then novel
wage structure that enabled American to hire new pilots, flight
attendants and mechanics for as much as 50% below existing pay
scales. He persuaded the airline's unions to accept the plan by
guaranteeing them lifetime employment and promising not to cut
wages for current employees. The resulting labor savings enabled
Crandall to embark on a hiring spree in which he doubled the
payroll, to 67,000 workers, in just six years. Many of the
employees hired at lower wages have reached the higher pay scale
through advancements.

    Crandall has acquired airplanes just as aggressively. The
airline now takes delivery of a new jet every five days, a pace
that will swell its fleet by the end of the year to more than
500 planes, second in the world only to the Soviet Union's
Aeroflot. Because Crandall began his buying binge in 1984,
American got a jump on the current industry rush to replace
aging aircraft. The carrier's fleet is one of the industry's
newest, averaging 9.4 years old.

    Crandall's strategy has been to build from within. Though
American bought California's AirCal for $225 million in 1987,
Crandall has otherwise avoided giant acquisitions like those
that haunt Texas Air's Frank Lorenzo.

    The cussing, chain-smoking chairman, who made $1 million in
salary and profit sharing last year, leads his workers with a
tightfisted, demanding management style. Middle managers work
twelve-hour days and eat lunch in their small battleship-gray
office modules. Mondays Crandall meets with ten top vice
presidents for planning sessions that can run ten hours without
interruption and leave participants staggering from his pointed
questions.

    Crandall provides further motivation through a
profit-sharing program that last year paid out an average $2,000
to each employee. He conducts give-and-take sessions with
workers throughout the route system and awards them travel
passes or merchandise for their suggestions. To test new
dinners, the airline rolled out a 767 at the Dallas-Fort Worth
airport for a lavish feed for workers and their families.

    For all his acumen, Crandall can be rash. He is notorious
for a 1982 phone call in which he suggested to Howard Putnam,
then the chairman of Braniff, that the two airlines curb their
fare wars. The Braniff boss tape-recorded the conversation, in
which Crandall said, "Raise your goddam fares 20%. I'll raise
mine the next morning." The Government accused American of
trying to create an illegal monopolization, a charge Crandall
later settled by signing an agreement not to engage in any such
practices.

    The most remarkable element of American's success is that
in the midst of rapid growth and sharp cost cutting, the airline
has achieved a topflight reputation for customer service. Says
Robert Baker, a senior vice president: "When no-frills roared
in, we resisted quality deterioration." The company has
relentlessly created new lures for customers, ranging from the
first frequent-flyer program, in 1981, to its recent opening of
luggage-repair stations at Dallas-Forth Worth and Chicago's
O'Hare. At the Los Angeles airport, American is testing a system
to help incoming passengers who miss connections because }of
delays. The travelers are met at the gate by agents who give
them rebooked tickets.

    For all his attention to keeping passengers happy, though,
Crandall rarely loses sight of the bottom line. Case in point:
he ordered olives removed from the |salads served aboard
American flights. Annual saving: about $100,000.