The Great Airline War
Flying the not-so-friendly skies of Texas.
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Russell Thayer held the world between his outstretched hands. “This, over here, is Hawaii,” he said, jiggling his right hand, “and this,” jiggling his left, “is Dallas. We fly a 747 between them, the only 747 we’ve got. To make a 747 pay off, you have to have a long haul with a lot of people on board. Now, it turns out that the distance between Dallas and Honolulu is exactly right. If it were any shorter, you couldn’t fly it as efficiently. And if it were any longer, you couldn’t turn it around for the daily round trip.”
Thayer lowered his hands and leaned across the desk. “I decided that the islands were in the right place, and I didn’t move ’em an inch.”
Russell Thayer laughed, a hearty, warm-natured laugh that rumbled up out of his football player’s body. He was sitting in his office on the ninth floor of the Braniff Tower on the west side of Dallas. Around the airlines industry, Thayer is known as a genius, as the man who has helped turn Branifif into one of the most efficient money makers the business has ever seen. Five days a week he works in Dallas as Braniff’s executive vice-president for Corporate and Market Planning The other two-days—this is the beauty of working for an airline—he spends at home in Princeton, New Jersey. Word is that he hates Texas.
One floor above Thayer, Harding Lawrence—with studied informality—came from behind his desk and gestured his visitor to the coffee table at the opposite end of the room. Perched on the table was a model of the supersonic Concorde jet, painted in bright Braniff colors. At Lawrence’s elbow was a matching model of the Boeing 747.
When he became chairman and chief executive officer of Braniff ten years ago, Lawrence was often described as “dashing” and “romantic.” Now, his silver hair and deeply creased face make him look ten years older than 55; his appearance hovers on the line between “distinguished” and “tired.” A smile on his face, Lawrence offered his visitor an expensive cigar, then began chewing on an unlighted one himself as he talked about his airline.
“We have our creeds, our objectives. We know what we stand for. Our job is to promote the foreign and domestic commerce of the United States, the national defense, the postal service—and to do that in the public interest. You might say, in the consumer’s interest. The airline industry is the most consumer-oriented business I know.
As Lawrence spoke, a red and orange jet from Southwest Airlines, perfectly framed in the picture window behind him, settled in for a landing at Love Field. In addition to pursuing its high-flown goals, Braniff has spent almost five years trying to prevent this very occurrence. For its efforts, the company has been indicted by a federal grand jury for antitrust violations in trying to kill Southwest.
Serious as such a charge is, it is not the most serious challenge facing Lawrence and his airline. In Washington, an accusation of unprecedented gravity is now pending before the Civil Aeronautics Board (CAB). Based on revelations of a sizeable Braniff slush fund (generated through “off the books” sale of tickets and used to bribe ticket agents in South America), the complaint threatens Braniff’s right to operate any route, foreign or domestic, as long as “present management retains operational control.” “Present management,” as everyone understands, means Harding L. Lawrence.
In Houston, Francisco Lorenzo was turning on the charm. Four years ago, when he had just turned 30, Lorenzo came down from the Northeast, trailing his Harvard Business School pedigree, to take control of Texas International Airlines. TI was in deep, deep trouble at the time; the year before Lorenzo became president, the airline lost more than $6 million. Now TI is in deep trouble again. During the first half of 1975, after TI’s disastrous, five-month-long strike, the company was losing money even faster than it had in 1971. Like Braniff, TI is under federal indictment for antitrust activities against Southwest. Nonetheless, Lorenzo was the very picture of urbane good will as he listened to a question based on the latest appalling hypothesis about Texas International: that it had outlasted its reason for existence.
“Of course we don’t agree with that,” he said, attempting to suggest with his smile that no reasonable man possibly could agree. “We came to a company that was flat on its back, twenty million in the hole. It was in trouble not because it had bad routes, not because its employees weren’t dedicated, but because management had made some bad mistakes. We’ve turned that around now. Until the strike, we were making money. We’ve paid off more than half of that twenty million. We are making long strides forward.”
Lorenzo was ready for another question; whether, as many people suspect, he had taken over TI as a business pirate’s booty, to be sold quickly at a profit.
“Texas International is not for sale. It has not been for sale. It will not be for sale,” Lorenzo continues to smile, with apparently genuine graciousness.
“Are there any circumstances under which it might be for sale?”
“When we get to the bankruptcy courts.”
Lamar Muse was a symphony in pink. On his bald spot and on the cheeks which framed his white mustache, his skin was as pink as a newborn baby’s. His aviator’s glasses were tinted pink. He wore a pink-striped tie, and a shirt of pink checks. His jacket was a plaid—gray and pink. He radiated, like a pastel sun, as he sat munching on a cheeseburger in Austin’s Polonaise restaurant.
“There’s a story I love to tell, about a man who ran a hamburger stand, whose children wanted to open up a fancy restaurant. He took them aside and told them, ‘Boys, remember this: feed the rich, and grow poor; feed the poor, and grow rich.’ That’s really what we’ve done. We’ve made airline travel available to the average person.”
Muse is president of Southwest Airlines, whose flights between Houston, Dallas, San Antonio, and the Rio Grande Valley cost 25 per cent, 40 per cent, 50 per cent less than do comparable ones on Braniff and TI. Muse, however, has spent at least as much time fighting the two other Texas airlines as in running his own. (“Mr. Muse hasn’t been here in weeks,” the Southwest office said at one point this fall. “He’s been too busy with the suits.”) Southwest has been tied up in virtually continuous litigation by its rivals, ever since it filed for its first routes in 1968.
“You know,” Muse said between bites, “Harding Lawrence is probably the best chief executive officer of a trunk line in the United States. But he just got a hard-on about Southwest Airlines. It didn’t make any difference to him whether it made economic sense to fight Southwest. He was just going to do us in. He had told hundreds of people in Dallas that we weren’t going to make it, and he wasn’t going to be proven wrong. He let his emotions get control of him.”
Muse paused, and called the waitress over for a dish of butter-pecan ice cream. “The funny thing is,” he continued, “every one of his tricks backfired on him. If he had just let us alone from the very beginning, we’d probably have gone under by now.”
The dilemmas of Lawrence and Lorenzo have their own special drama, but it took the entry of Muse and Southwest to create the Great Texas Airline War. Like other grand episodes of commercial conflict, this one has all the requisite elements—jealousy, intrigue, back stabbing, high stakes, and occasional honor. The personal futures of several of the participants hang shakily in the balance, and a corporate future or two as well. This war is also a preview of the future for the American airlines. During the coming year, the airlines, along with their benign regulators in Washington, are in for a major assault. Waving banners of “competition” and “deregulation,” their opponents will be storming the barricades of Braniff, American, United, and a dozen other carriers, as well as the CAB which nestles protectively over them; the assailants will ask that the industry be broken up the way the oil trust was at the end of nineteenth century (for all the good that has done). And, as the national struggle wears on, every one of the potential outcomes will already be on display in Texas. Price competition, the decline of the “feeder” lines, shake-ups in long entrenched management—you’ll see it all first, right here.
As much as anything else, the struggle between the three Texas airlines is a contrast of styles—different styles of making money, different views on life. Lamar Muse may grumble about the $2 million Southwest has shelled out in its legal crusades since 1968 (during 1975, this came to $35 per flight), but he clearly relishes having the bullies of the block so relentlessly picking on him. The scrap books in Southwest’s office in Dallas bulge with clippings describing the latest horror visited upon them by Braniff or TI. While recounting their troubles, the people of Southwest often resemble the conspiracy nuts who hang around so many newspaper offices, fitting every random occurrence into a seamless pattern of malign intent. The difference in this case is that Southwest’s paranoia seems justified: there really are people out to get them. No vindication could have been sweeter than the day last February when the federal grand jury indicted Braniff and TI for their dirty tactics against the fledgling airline. Southwest is only too eager to take off its bandages, display its bruises, and point the finger at the man with the blackjack.
Meanwhile, everyone at Braniff feigns magisterial disdain for any other airline that might happen to be operating in the same corner of the country. The Braniff PR man, a corporate incarnation of Ron Ziegler name Jere Cox, at first affected not to understand references to an “airline war,” and then, when the mystery was finally explained, said, “Oh, you must mean the controversies between Southwest and TI.” The impression, up and down the Braniff organization, is of a classily dressed society lady who makes polite conversation while kneeing her neighbor in the groin.
On the other hand, Teas International’s people are too preoccupied with survival to worry about appearances. Lorenzo and his friends grumble freely about the injuries they suffer at the hands of Southwest, and about the Texas Aeronautics Commission, a demon in their dark hierarchy second only to Southwest. They prepare position papers to plead their side of the story, they slug it out in the courts, they leave absolutely no doubt about who their enemy is.
The differences in the airlines are highlighted by the personal contrast between Muse, Lawrence, and Lorenzo. Lamar Muse is as uninhibited as his airline’s advertisements—the ones that refer to Southwest as “The Someone Else Up There Who Loves You,” that manage to work a busty stewardess into every bit of publicity, that strove, at one point, to give the company an “Ali McGraw image.” When the company’s stock was introduced for trading on the American Stock Exchange in October, its chosen symbol was “LUV.” Muse drives a flashy Mark IV, whose license plate reads FLY SWA. It is as difficult to imagine Harding Lawrence riding in that sort of car as it would be to see him with the white patent-leather shoes that would be the perfect complement to Muse’s outfit.
If Muse is a spectrum from the raw entrepreneurial end of the business spectrum, Harding Lawrence comes from the other extreme: he is the cold shark of the boardroom, charm and calculation mixed in his icy stares and fixed smiles. When Lawrence responds to a question, large sections of the answer are likely to be missing, as if he were producing a verbal Swiss cheese. When several of these answers are put together, something like deception is the result. (When asked about Braniff’s two-fold reputation—as the most efficient, and the meanest, of the Texas airlines—Lawrence set off on a long spiel about Braniff’s employment totals in Texas and its commitment to public service. Thirty minutes later he smiled and said, “I haven’t really answered your question, have I?”) Through his factotum, Jere Cox, Lawrence demurs on questions about the Latin American kickbacks, saying that it would be “inappropriate” to talk while the CAB investigation is going on. That may well be true, but it did not keep him from plastering a one-sided explanation, distorted by omission, before the Braniff stockholders in the latest annual report. Lawrence is a man who won on a fast track; not surprisingly, he is both suspicious and suspect. He is smart enough to have brought men like Russell Thayer to work for him, and smart enough to know now the kind of trouble he is in. Lamar Muse might look on the “airline war” as a kind of exhilarating sport; Harding Lawrence must sense that he is now involved in a struggle for his life.
In a different world, Francisco Lorenzo might have learned to play the part of Harding Lawrence. Since he is at Texas International, however, a more straightforward role has fallen to him. There are few ellipses in his answers, few obviously canned responses. He is trying to save the airline, and disguise or chicanery will not help him in that task. He is affable without being overtly manipulative. “Many people think that because Frank is so charming, he must be a real politician,” says a man who has worked with him in Houston. “But he’s not. You remember Lyndon Johnson’s definition of a politician—a man who could walk into a room full of strangers and know, before anyone spoke a word, who was for him and who was against him. Frank can’t do that. Most of the time he thinks everyone is for him except on bad days, when he thinks everyone is against him.” Harding Lawrence would pass the politician’s test easily.
The arena in which these disparate spirits contend is one of the remaining romantic pockets of the business world. The shades of Lindbergh and Earhart may have departed the airline business, but the romance they embody lives on. An accountant who works at General Foods might think of himself as an accountant; an accountant who works at Pan Am would tell his friends that he is “in the airlines business.” This pull of glamour and derring-do is felt all the way to the top of the corporate structure; most of the presidents and managers of airlines have had a life-long affair with they sky. Muse and Lawrence both got their start at the same time, as very young men, shortly after World War II. Lorenzo, twenty years their junior, was trained in finance but soon heard the seductive song of the airlines. If he had simply been interested in maximizing the return on his time and his capital, he would have sold TI long ago and sunk the money in real estate. He has not done that, because he too has been captured by the romance.
From casual glances at the business page, the industry’s fortunes might also seem to be romantically unpredictable. During the Sixties the airlines were making money faster than they could carry it to the bank, but during most of the Seventies they have had to try desperately to avoid big losses. What this apparent riskiness conceals, however, is the basic secret of the airlines business. In some industries you make money by driving your competitors out of business, or monopolizing the talent, or landing the big contract, or getting the best patents. In the airlines industry, you make money by being in business. Like broadcasting, though to a less grotesque extent, the airlines are government franchisees, whose product is almost guaranteed to sell. Management and intelligence can make a difference: bad managers have gotten many lines into trouble, and smart management, at a line like Braniff, can help it clean up on its competition. But the rules of the game are fixed far more than for most businesses. The most vicious competition—the efforts which will make the big difference in profit and loss—take place not before the customer but before the government: before the Civil Aeronautics Board, to be precise, which distributes routes to the various supplicant airlines. If you get a route from Dallas to Seattle, Chicago to London, or Houston to Mexico City, then you should make money. It is like being given the right to operate a new TV station: the opportunity is there, yours for the taking. There is, of course, a whole subsidiary level of competition over scheduling and equipment, but the real battle is to get the route. This is why the airlines were so distraught with the CAB’s “route freeze” of the last few years. While the CAB was awarding no new routes (they said they might start again last summer), airlines did what they could to squeeze extra profits out of their existing routes, but they knew they would not see any big changes. Those big changes were not under the customers’ control or the managers’, but under the CAB’s.
Because of the CAB, the airlines business has been more stable than most others. Of the sixteen truck lines (the cross-country carriers) chartered by the CAB in 1938 eleven are still in existence. Not one of them has gone bankrupt or out of business (five disappeared through mergers). Not one new competitor has been allowed to enter the market.
It is, of course, possible to lose money in the airlines business, even in good times. One of the quickest ways is to buy too many airplanes, or airplanes too big for your market. When the first commercial jets came rolling off the assembly line in the late Fifties, they were a godsend to the industry. The cost of carrying a passenger from point A to point B was cut dramatically, and the speed was dramatically increased. The airlines bought planes as fast as Boeing and Convair could turn them out; to get on the delivery list ahead of your competitor was to have a significant edge.
At the end of the Sixties, another generation of miracle planes was on the way. These were the “wide body” jets, the 747s and the DC-10s. Airlines stood in line to buy these, too; soon Delta had 20, Eastern 27, Continental 15—and these were only the smaller trunks; United had 45. But these planes were different from the jets of the early Sixties. They might bring the cost per passenger down, if you were flying full planes over long hauls (such as Braniff’s flight to Honolulu), but they could run the cost per passenger right through the ceiling if they were only one-fifth full, or if they flew on unrealistically short routes. There were far fewer profitable markets for the 747 than the airlines had hoped, and two or three years after they made their first appearance the jumbo jets were looked on as one of the major threats to the airlines’ financial stability. Continental had to park three 747s on the sand near Roswell, New Mexico; whatever rot and deterioration they suffered there would be less expensive than keeping them in the air. (Finally, last summer, Continental managed to unload them on the Iranians, who are able to afford such things.) Braniff was virtually the only line to avoid the 747 frenzy; the company bought only one big jet, and makes a profit flying it to Hawaii.
One class of airlines, however, was created to lose money, to fly routes where the passengers aren’t. These were the “feeder” lines, the “local service” carriers, which included companies like Trans-Texas, the forebear of TI. Theirs has been a riskier life than that of the trunks; of the nineteen feeder lines that have sprung into brief existence since 1945 only nine remain. The rest have fallen to the bankruptcy courts, the license-renewal office at the CAB, or to mergers and name changes. The cost of serving the little towns, the Brownwoods and the Big Springs that generate a handful of passengers each day, continues to rise, while the money that the government will cheerfully devote to this cause keeps going down. The question running through many minds, both in Washington and in offices like the TI headquarters, is how long the feeders can last, and what contortions they might have to go through in order to survive. If the Texas Airline War is any indication, the outlook is not good.
This story will eventually roll through the muck, so it might as well start out on the high road, with the good things that Harding Lawrence has done for Braniff. Although the modern era of Braniff dates from Lawrence’s arrival in 1965, the airline has been in business since 1930, three years after Thomas Braniff was bitten by the airline bug. Braniff, a businessman in his forties who was getting tired of running an insurance company, bought his own private plane during the excitement following Lindbergh’s voyage over the Atlantic. Braniff soon put his plane to work flying commuter runs (with his brother at the controls) between Oklahoma City and Tulsa. Even after it expanded its operations over a broader network, Braniff was not dealt in on the first big federal subsidy to airlines—the payment for making space available for airmail. Braniff did not begin partaking of this nourishing sustenance until 1934, when—after a series of complaints from Braniff and other have-not carriers and a brief, disastrous fling at having the military fly the mail—the government re-awarded the contracts, cutting a few new lines like Braniff in on the action. Four years later, the carriers that had been getting airmail payments were enshrined in the Civil Aeronautics Act as the existing trunk lines; their position has been unassailable ever since.
Braniff remained under the control of its founder until 1954, when Thomas Braniff, irony of ironies, was killed in an airplane crash. Through the next decade, both ownership and management passed from hand to hand, until the big change of 1965. That year, the three major stockholders sold out to Dallas’ Troy Post, head of the Greatamerica Corporation, for some $60 million. After a search through the ranks of the airlines business, Post recruited Harding Lawrence, then the number-two man at Continental, to come back home to Texas to be the new manager of his airline. Two years later both Braniff and Greatamerica were acquired by Ling-Temco-Vought, then in the headiest years of its conglomerating. In 1970 the Justice Department forced LTV to dump either Braniff or Jones and Laughlin Steel in an antitrust action; since the steel company was then worth twice as much as Branniff, LTV elected to get out of the airline business. Braniff was sold to a widely dispersed group of smaller investors. Through all the shuffling Harding Lawrence remained in control.
Lawrence had gotten into the industry during World War II by helping run a pilot-training school in Terrell, Texas. After the war he started at Pioneer Air Lines and zoomed up the corporate ranks at Continental when it acquired Pioneer. By the time he came to Braniff, the 44-year-old Lawrence was (in the words of the New York Times) “a dark-haired Texan who looks as though an agency had sent him over to play the part of a dynamic airline president.” “Hardly a man alive looks more like the ideal head of an airline than Lawrence,” Stanley Brown wrote in his book Ling. “His wavy hair, silvery at the sides, his careful attention to his modified modish dress (especially notable and colorful at the ranch), and the image his airline projects in its advertising and decor…all conspire to present Braniff’s top manager as a jet-age personality.”
That’s just the part he played, too, on several fronts. The pre-Lawrence Braniff was something of a joke in the industry, its routes small, its performance poor. The most immediately visible of Lawrence’s innovations was the change in the style of the airline—“The End of the Plain Plane,” as the admen put it. Shortly after his arrival, Lawrence turned to a New York advertising agency, Jack Tinker and Partners, to give the airline a little pizzazz. The head of the team assigned to work with Lawrence was one Mary Wells, who helped develop the ideas that made Braniff gaudily famous—the bright colored planes, the Pucci outfits for stewardesses, the retreat from stodginess on all fronts. The following year, Mary Wells and her associates struck out on their own to form a new advertising agency, the now famous Wells, Rich, Greene. The rest, as they say, is history: Harding Lawrence divorced the wife he had married in 1952, he and Mary Wells were married in Paris to the oohs and ahs of the planeload of American friends, and they have lived happily ever after, she working out of New York, he out of Dallas, pieds à terre in each city. “They’re the sweethearts of American business,” wrote Marilyn Bender of the New York Times, “the Mary Pickford and Douglas Fairbanks of the corporate realm.” Bender quoted Wells: “I am stark staring in love with my husband, and he with me.” To avoid all appearances of conflict, Wells, Rich dropped the Braniff account soon after the marriage; for consolation, they picked up TWA, with billings three times as large.
Even after the departure of Wells, Rich, the stylish imprint remains. In many of his annual reports Harding Lawrence talks in astonishing detail about chic innovations—the new hors d’oeuvres called “conchitas,” the “air strip” costumes which his stewardesses peeled off the as the planes headed south, the introduction of drinks like the “Capuccino” (unrecognizable to any Italian), containing coffee, hot chocolate, and brandy.
Beneath the bright colors, Harding Lawrence was doing something even more important: he was making big profits; 1974, the tenth year of Lawrence’s regime, was the richest year in Braniff’s history. Profits were $26.2 million, up thirteen per cent from the year before—which had been a record itself. In 1974, Braniff earned an 18.2 per cent return on equity, a staggering figure for the American business world as a whole and more than twice the average for the rest of the airlines. During Lawrence’s ten years, profits had increased by an average of sixteen per cent, compounded, every single year. As one of the smaller trunk lines, Braniff takes in only four per cent of the industry’s total revenues; but on that money, it makes eleven per cent of the industry’s total profits.
It was the kind of picture that few executives in any industry besides oil could paint in these troubled times—least of all executives in the airlines business. Pan Am lost $82 million last year, and Eastern, whose revenues are three times as large as Braniff’s, made less than half as much profit. (Only Delta, with one of the most favorable route structures in the industry, made proportionately more profit than Braniff in 1974.) The “secret” of Braniff’s success lies with two principles that strike outsiders as obvious, but which have not been widely followed elsewhere. One is to build a network of routes and schedules sensitive to the passenger’s demand—“You go when the passenger wants to go,” says Russell Thayer. The other is to purchase the right kind of airplanes for those routes.
“The most important thing on a passenger’s mind when he chooses an airline is the schedule,” says Thayer, whose own high reputation depends on his having put these principles into effect. “There may be a little bit of loyalty to a certain line or hostility to another, but in general, if you go at five o’clock, and I want to go at five, I’m going to go with you. This means that you have to work back from the schedule, make your whole system start there.”
Braniff has a “radial” route structure, with its center at Dallas, which is harder to coordinate than long cross-country routes like those of TWA, United, or American. “On a system like this,” Thayer says, “the purpose of each connection is to feed the overall network. You try to start flights as far back as possible, so you can build up the traffic for the longer hauls. You start by analyzing traffic out of the smaller stations. Take Austin—as state capital, a lot of good traffic coming out of there. We found that the main long-haul destination from Austin was Washington. The next most important destination was Chicago. You keep that in mind, while you do the same thing with other cities all over the systems. You try to weave them together to make the connections. We’re a high-frequency, short-haul airline, and we pay more attention than other lines do to the most convenient timing of the flights.” Despite Braniff’s reputation as the World’s Largest Unscheduled Airline, it also pays attention to getting the planes to their destination on time; in 1974, it had a better on-time record than most other trunks.
“Once you have the schedule, you look at the equipment and see what’s going to be most effective for the specific market you’re serving.” The Braniff fleet is composed almost entirely of two tested if unromantic workhorses. One is the 727, used for flights inside the United States; the other, the DC-8, for the long hauls to South America. (If and when the Concorde goes on the market, Braniff may buy some for its South American routes, which have all the right qualities for a supersonic flight: long hauls, over water, and full of business travelers who don’t mind paying the higher prices.) Because it has only two basic planes, Braniff doesn’t have to juggle its equipment around; repairs and scheduling also become easier.
There is one other plane in the Braniff fleet—the famous 747. When Harding Lawrence comes close to letting down his guard and speaking from the heart, it is about this plane.
“All the other guys were going a different route than we did,” he says, referring to the 747 orgy a few years back. “They were all buying the wide-body planes, and we were out of step. You heard comments—‘Lawrence has lost his touch.’ A lot of bankers wondered what the hell we were doing.” He lights his cigar and takes a puff. “We figured that it might be a mistake to buy the plane, or it might be a mistake not to buy it. If we were making a mistake by holding back, that would be fairly easy to rectify. But if purchasing it was the mistake, that would be very hard to rectify.” In the twinkle in Lawrence’s eye, one can see visions of poor Continental’s jets, baking in the New Mexico sun.
Lawrence pulls out his scratch pad, and begins drawing a series of parallel lines. “You have your jumbo jet, costing X million dollars, and carrying so many passengers. You find that for the same money you can operate two smaller planes, carry the same load, and have them take off thirty minutes apart. Those thirty minutes may be very important to your customers. One of them wants to go at four-thirty, and the other wants to go at five. You can serve both of them if you stay with the smaller planes.” When Braniff finally did order its one 747, it did so for a tailor-made market. Braniff’s 747 was the one hundredth plane off the Boeing assembly line, but it has already surpassed every other 747 in the world in number of hours flown, profitability, efficiency, and everything else. It is in the air nearly fifteen hours every day of the year.
“Once you’ve got the equipment and the scheduling,” Thayer continues, “then you market the system, you tell people what you’re offering. We have schedules at all our ticket counters; a lot of other lines think they’re too expensive to print up. You don’t use your advertising to talk about legroom or frills. [Braniff has reason to be modest about its legroom. Its coach seats are only 34 inches apart, compared to 36 inches for TWA.] You tell people where you go and when. It’s all part of coordination—really, coordination is the key to our success. You have to coordinate four elements. First, the kind of equipment you purchase. Second, how much of it. Third, the scheduling, and fourth, the marketing. At some lines, the equipment is chosen by the engineers, and the amount is determined by how many planes they’re getting rid of. The scheduling is set up for the convenience of the maintenance men, and marketing has to push what’s left. That’s no way to run a railroad.”
While Harding Lawrence was painting his planes and helping his airline prosper, another side of his spirit was making its influence felt. The consequences have not yet fully run their course, but they came to a climax of sorts last summer, when a tenth-floor office at Braniff Tower was hurriedly vacated. In August 1975, ten years after he arrived, Braniff’s president Edward Acker was leaving the airline business. An announcement in the Wall Street Journal brought the surprising news that Acker was going to New York—a city low in his esteem—to be second in command of the Transway Company, whose main business was ocean freight. In Braniff Tower, the official reaction was predictable: a mixture of heartbreak at the loss of a great and promising executive, and best wishes for Eddie’s future. As Lawrence put it, with the faintest glint of a tear in his eye, “Ed is forty-six years old. That’s a vulnerable age, a time when many people make changes in their careers. I made mine when I was forty-four. The man he’s understudying at Transway is sixty-five years old. I am fifty-five. Now, Eddie’s never said anything like that to me, but if I had to put forward a supposition about why he left, that would be it.”
Lawrence continued, “Ed was my choice for president, my successor, but”—and here he flashes a steely grin—“I’m going to be around for a long time.”
There is another view about Acker’s departure, a view Lawrence flatly labels “nonsense” but which has somewhat wider credence outside his office. It involves Braniff’s troubles with the CAB, and it begins—small world—with Watergate.
In the fall of 1973, Harding Lawrence was one of the many corporate officials who pled guilty to making illegal contributions to the Nixon Campaign. Braniff had given $40,000 to the Finances Committee for the Re-election of the President, in violation of federal law. The company was fined $5,000; Lawrence himself was fined $1,000. If its involvement in the Nixon scandal did not make Braniff unique among American businesses, the subsequent course of investigations did; for the government was soon much more interested in how Braniff had generated the money than in the uses to which it had been put.
According to the complaint now pending before CAB, Braniff’s political contribution to CREEP was only a droplet from a slush fund it had been illegally collecting for the previous three years. Beginning in the fall of 1969, Braniff distributed some 3,626 tickets for “off the books” sales. The tickets looked like ordinary tickets, and the customers who bought them got to take their airplane rides. But the tickets were never recorded on the company’s normal books, and their proceeds went into a special fund. In this manner, Braniff built up a sum of money, which the CAB has estimated, contained between $641,285 and $926,955.
Apart from the relatively small contribution to Nixon, the money (so Braniff says) went for kickbacks and bribes for ticket agents in South America. Because the CAB complaint inconveniently hit the headlines just as Lawrence was preparing his glorious ten-year report, he felt obligated to begin with a special explanation to his stockholders, designed to knock down the “erroneous and misleading publicity” the company had been receiving. The case he made, essentially, was that all the other fellas were doing it, and that Braniff had to play the game in order to survive. “The fact is,” Lawrence wrote in the report, “the market in South America in 1968 and 1969 was being diverted from Braniff to foreign carriers who were paying travel agents extra commissions.” As responsible managers, the executives at Braniff had little choice: “Your company executives charged with responsibility for the Latin American division decided in late 1969 to defend the company by meeting the competitive practices used by other carriers, and thus to protect the company’s revenues from continuing erosion.” The same Harding Lawrence who felt it would be “inappropriate” to answer questions about the CAB complaint tossed a final plum to the shareholders in his report: he assured them for that modest investment of less that $1 million in kickbacks, the company had “protected” more than $13 million in revenues.
Inside the government, a somewhat colder eye is being cast on the Braniff affair. The CAB’s Petition for Enforcement has an unmistakable voice-of-doom quality about it. (The petition is, in a way, Ralph Nader’s doing. The Aviation Consumer Action Project, one of his organizations, is listed as the complainant, and it was largely at ACAP’s insistence that the CAB began looking hard at Braniff.) It names six individual respondents (Lawrence and Acker; John Casey, the vice-president for sales and operations; Charles South, vice-president for Latin American division; Robert Burck, executive vice-president for public affairs; and Camilo Fabrega, regional vice-president for Panama) and accuses them of scheming to “generate an ‘off the books’ source of funds for use by Braniff management, including Lawrence and Acker, as management saw fit, and at least in part for unlawful purposes.” The six are accused of lying to the CAB investigations about the scope and nature of the program. Finally, at the end of the complaint, the boom comes crashing down. As part of its “Prayer for Relief” the Bureau of Enforcement not only makes the rather obvious point that Braniff should cease and desist from its illegal operations, but also asks the full CAB to answer the following question:
“Whether the public convenience and necessity require that Braniff’s authority to operate in air transportation generally or to operate air transportation within Latin America should be altered, amended, modified, or suspended for such period of time as present management retains operations control over its activities, or be revoked for intentional failure to comply with the Act…”
Translated from legalese, the question is whether the CAB will pull Lawrence from the helm. That the CAB does have the power to “alter, amend, modify, or suspend” Braniff’s route authorities is beyond question, even though the agency has never exercised it in such circumstances before.
Whether Lawrence will actually bite the dust is quite another issue. One school of thought, as expressed by a Texas airline man, is that “If they’re going after Harding, they’re going after a mighty big hoss.” In this view, the CAB’s purpose was to strike a tough pose, and to give Braniff a scare in the process. Now that Acker, Lawrence’s number-two man, has disappeared, the government will settle back, content with the “shakeup” in the management. But many familiar with the CAB’s intentions think that the board actually does mean to depose Lawrence. When a man has so molded an airline in his own personal image, this argument runs, he can hardly escape liability when it comes to grief. Although officials at the CAB, in proper legal fashion, will say absolutely nothing about the case, outsiders point out that the new director of the Bureau of Enforcement is Thomas McBride, who has had his dealings with Braniff before. As part of the Watergate Special Prosecutor’s office, he investigated Braniff’s illegal campaign contributions. He is, in the words of Business Week, “an advocate of strong deterrent penalties.”
Whatever their final legal consequences, the Latin American kickbacks suggest a certain frame of mind at Braniff, an inner voice saying, “When the going gets tough, the tough pay kickbacks too, rather than running like sissies to complain to authorities.” Perhaps the most interesting aspect of the Latin adventure, and about Braniff’s run-ins with Southwest, is the light they shed on Harding Lawrence’s character. More than most businesses, the airlines have traditionally borne the stamp of their romantic leaders; and it is Harding Lawrence, with his vanity and derringdo writ large, whom many people see embodied in the warfare with Southwest.
The Southwest concept, anathema as this may seem to local patriots, originated not here but in California. Ever since the Civil Aeronautics Act went into effect, people in the business knew that there were only two ways to escape the CAB’s heavy-handed regulation. One was to operate small air-taxi services, of the variety that Metro, Rio, and Davis airlines now run in Texas. Their aircraft were so small that they could never hope to complete in the big leagues. The other solution was to operate wholly within the boundaries of one state, so that the power of the CAB, even when extended to its limits under the “interstate commerce” clause of the Constitution, could not apply. This second approach had some geographical limitations, however: to make an intrastate airline pay off, it took a special kind of state—one with several large cities separated by several hundred miles. If the cities were too small, there would not be enough traffic, and if they were too close together, airplanes could not compete with cars. California—with San Francisco and Los Angeles separated by more than 400 air miles—was the intrastate man’s dream, and the local lines go their start there. More than a dozen of the lines rose and fell—this is the law of the marketplace—before one of them, Pacific Southwest Airlines (PSA) established itself as the model of a profitable, low-cost intrastate line.
Texas was the next most likely state on the list, and in 1967 a Harvard Business School contemporary of Francisco Lorenzo’s named Rollin King decided to give the idea a try. That year he incorporated Air Southwest, and in January 1968 he filed with the Texas Aeronautics Commission for a license to fly commuter flights between Houston, Dallas, and San Antonio. The TAC, by every indication, was delighted to have this case fall into its lap. Established in 1945 to modernize and promote the air system within the state, it had up to this point divided its attention between the two-bit local air taxis and the rural air strips necessary to keep small, lonely towns in touch with the rest of the state. An intrastate commuter line, which could provide fast, cheap travel between the state’s major cities, was part of its vision of a better Texas. Then as now, Southwest was supplied with ample political credentials. On its list of investors appear such names as Dolph Briscoe, Robert Strauss, Jake Jacobsen, George Brown, John D. Murchison, and several others from the big time of Texas politics and finance. After the hearing in January 1968—at which Braniff and TI had made their own stab at political weight, being represented by Fulbright, Crooker of Houston and Clark, West, Keller, Clark, and Ginsberg of Dallas—the TAC voted unanimously to give Southwest its license. Then the troubles began.
Demonstrating the ancient truth that, with enough money to pay for enough good lawyers, a dedicated opponent can keep almost anything from happening for years and years, Braniff and TI ran Southwest through half the courts of the country. The first prolonged legal battle was over the TAC decision; that finally made its way to the Texas Supreme Court in 1970, where Southwest won a unanimous decision. Braniff and TI promptly appealed to the U.S. Supreme Court, but the Court refused to hear their case.
Not to be daunted, Southwest’s opponents tool another tack. This time they appealed to the CAB, saying that Southwest’s operations would inevitably violate their “intrastate” limitations. Who could tell, their lawyers asked, whether someone journeying from another state into Dallas might step onto a Southwest flight into Houston, thereby making the airline part of the interstate system. The CAB, even though it is traditionally the trunk lines’ friend threw this case out promptly, at which point Braniff and TI appealed that decision to the courts. By the time this case was finally disposed of, in December of 1972, the Senior Judge of the U.S. Court of Appeals for the District of Columbia let Braniff and TI know that he was on to their game:
“I have read carefully the pleading and briefs filed by all parties in the Texas Courts—a mass of material more than four inches thick—and have become familiar with the arguments advanced by the diligent and resourceful counsel for Braniff and Texas International. They have omitted no point which their ingenuity could devise in their attack upon Air Southwest….It is now five years since Air Southwest applied to the Texas Aeronautics Commission for a certificate of public convenience and necessity. This litigation should have been terminated long ago; it’s under prolongation approaches harassment.”
While this case was bobbling through the courts, an equally bitter and even more complicated one was also keeping the lawyers occupied. This time the zeal of Braniff and TI was exceeded by that of the cities of Dallas and Fort Worth, who envisioned their mammoth, expensive, world’s-largest airport turning into a municipal disaster at the hands of Southwest. The cities—which had been forced by the CAB to give up their downtown airports (Love Field in Dallas; Greater Southwest near Fort Worth) and join in a shotgun wedding to build the gala new facility—had made all the CAB-certified carriers sign a blood oath that they would move to DFW when it was built, so they could start paying enormous landing fees to help retire the bonds. The airlines were hardly delighted at the prospect; it was made palatable only by the fact that everyone was being forced to do it together.
There was one airline left out, however—Southwest, which had only been a gleam in Rollin King’s eye when the DFW contracts were being signed. As opening day approached at the big field, Southwest was understandable reluctant to move its commuter flights twenty miles outside the city—passengers would spend more time in their cars than they would in the plane. As Herbert Kelleher, the attorney from San Antonio who has fought Southwest’s battles up and down the appellate system, likes to say, “The passenger has a right to travel from Dallas to Houston, and not from Grapevine to Conroe.” Although this litigation probably has a few more appeals left before it finally dies, some of the panic seems to have left the city fathers of Dallas and Fort Worth. Everyone except Southwest is now at DFW, chipping away at the construction bonds, while Southwest continues to use Love Field and Hobby Airport in Houston.
This was the courtroom side of the story; and while it may illustrate the many evils to which the law is prey, it was aboveboard and legitimate. At the same time, efforts of a darker sort were underway—this, at least, is the contention of the U.S. government in its indictment of Braniff and TI for violations of the Sherman Anti-Trust Act. Everyone, even a corporation, is innocent until proven guilty, but the allegations, spelled out in a sixteen-page Bill of Particulars, tell a fascinating story of commercial intrigue.
According to the government, the collaboration between Braniff and TI began long before Southwest took to the skies. “On or about May 14, 1970,” the Bill says, “the management of Braniff and TI held a meeting in Dallas. The purpose of the meeting was to promote more cooperation between the two airlines.” Among the alleged fruits of that cooperation was not only the legal and administrative appeals, but other tactics of much less subtlety. Some of these were immediately obvious to the public: on June 18, 1971, the day that Southwest’s first plane went aloft, Braniff and TI decided to cut their fares to competitive levels. Later, in 1973, Braniff embarked on a brief, and even more obvious, fare war with Southwest. The “Thirteen Dollar War,” as it was called, saw Braniff dramatically slash its fares—but only on flights directly competitive with Southwest. This meant, for example, that passengers flying to Dallas from Hobby Field (where Southwest was a competitor) paid $13 on Braniff, while a flight from Houston’s Intercontinental Airport, where Southwest was out of the picture, still cost $27. For a short time, Braniff charged less on flights from Dallas to San Antonio (where it competed with Southwest) than from Dallas to Austin (where it did not). With its brassy full-page newspaper ads, reading “No One’s Going to Shoot Us Out of the Sky for a Lousy Thirteen Bucks,” Southwest generated a handsome return in both business and public relations during the “war.” “The Thirteen Dollar War was what really backfired on them,” says Lamar Muse, who came to the company when it looked as if the planes would finally get off the ground (Rollin King became Southwest’s number-one pilot). “It was so incredibly obvious what they were trying to do. They lost more sympathy on that than on anything else they did.”
According to the government’s allegations, Braniff and TI also took other steps which, if less evident to the outsider, were even more heavy-handed. One was to keep Southwest from using the fuel hydrant at Houston’s International Airport; another, to blackball Southwest’s application from membership in the interline credit card system, an application all other airlines were willing to support. When a flight on Braniff or TI was cancelled, passengers were allegedly funneled to the collaborating carrier; they would be picked up in a bus and taken to a waiting plane, rather than allowed to roam free in the terminal, where they might happen upon Southwest. There was a touch of the vindictive as well; according to the Bill of Particulars, Braniff cancelled an agreement with a package pickup service, called Security Couriers, because Security had had the poor judgment to sign a contract with Southwest.
The Bill mentions one other incident, rendered thus in its dry prose: “On or about July, 1972, Edward Acker, president of Braniff, pressured First of Texas Co., a stock brokerage firm in Houston, to withdraw an investment research analysis which represented Southwest as a favorable speculative stock for high risk capital seeking growth.” Lamar Muse tells the story with somewhat richer detail:
“We’d been in business about a year, when the vice-president for research at First of Texas got real interested in us. He wrote up a beautiful investor’s report on us, and when it came out he sent us a few copies. About a week later, I got a call from the guy. He said they’d found a mistake in the report that they needed to correct. He asked us to send all our copies back. So we sent them back. The weeks went by—two, three. There was no report. About six months or a year later, I was told in casual conversation—assuming that I already knew—that Braniff had called the top man at the First of Texas. The First owns Docutel, which had a contract to construct baggage-handling facilities at DFW. Braniff said that if you don’t call that report off the streets, we’ll cancel the contract with Docutel. That contract was about ninety per cent of Docutel’s business.”
If even one of these stores is true, the most interesting question is why—why Harding Lawrence’s Braniff, which had only a small fraction of its business threatened by Southwest, would try with such vengeance to extinguish its tiny spark. Lamar Muse’s theory that “Harding got a hard-on” may, in its own way, hit the mark. Lawrence has long been a creature of formidable pride. In Ling, Stanley Brown tells the story of Lawrence’s twisting James Ling’s arm for an enormous increase in pay, so that he could keep pace with his wife’s bountiful earnings from Wells, Rich. As one of the industry’s swashbucklers, Lawrence has a reputation as a man who can get away with things; indeed, among his colleagues the events of the last year seem actually to have improved Lawrence’s reputation, since he has survived scandals that would have toppled less agile men. If the CAB does finally do Lawrence in, the psycho-historians may look back and decide that this was Lawrence’s tragic flaw, the hubris that led him astray. The man at the top might have thought that anything was possible, that if you were smart enough you did not have to play by the rules, that there was no reason not to indulge a whim. (And it was not just the rules of fair play which fell by the wayside; simple business sense suffered too. Although Braniff disputes these estimates, Lamar Muse claims that Braniff lost $4 million during the course of the $13 war out of Hobby Airport—or about half of the entire profit from Braniff’s domestic operations in that year, 1973.) It was this apparent absence of proportion, the loss of any sense of limitation, which has now endangered Lawrence in holding on to his very job, and will force his company to stand in the defendant’s dock in San Antonio as well as before the CAB in Washington.
A very different question arises about relations between Southwest and Texas International. In Braniff the provocative element is the pointlessness of it all; Southwest was not going to put Braniff out of business. For Texas International, the dangers are not illusory. Braniff has treated Southwest with exceeding politeness, ever since word of an antitrust indictment was bruited about in legal circles. Although most of TI’s involvement in the antitrust mess took place before Lorenzo’s ascent, the new regime has gone after Southwest with renewed vigor in the last year, fighting prolonged and bitter legal battles. Through August, September, and much of October, lawyers for Southwest and TI slugged it out in an Austin courtroom, fighting over Southwest’s right to fly into the Rio Grande Valley, a fight emblematic of TI’s entire dilemma.
Southwest had first gone into Harlingen during the TI strike last winter. It might seem graceless of TI to protest this incursion while its own planes were grounded, but even before its strike was settled it took two quick steps. One was to file a suit asking that Southwest be removed from the Valley—or more formally, that the TAC’s decision granting it the route be reversed. The other was a filing with the CAB, asking that if Southwest stayed in Harlingen TI be allowed to move out. The hard fact is that TI can’t compete with Southwest; Southwest can offer lower fares out of the Valley, or anywhere else it flies.
There are several reasons for Southwest’s advantage. One is labor costs: Southwest, which is not only non-union but aggressively anti-union, still gives its employees the feelings of working in a family business, and thereby manages to shell out less hard cash. Its pilots, unlike TI’s, have not fallen into the clutches of the Air Line Pilots Association. Francisco Lorenzo says that the average pilot at TI makes close to $30,000; at Southwest, the figure is closer to $25,000. (Lamar Muse does claim, however, that his pilots will make as much as TI’s when they have accumulated the same amount of seniority. Twenty of Southwest’s 39 pilots have been hired since the beginning of 1974.) Another reason goes to the heart of the controversy between “regulated” and “non-regulated” carriers. Because Southwest doesn’t have to arrange elaborate reservations through other carriers, sell interline tickets, check baggage from one line to another, or do anything but get passengers from one city to another, it shrugs off much of the overhead which burdens down TI and the other CAB carriers. (“Say that these expenses came to five per cent of our costs, which is just a guess,” Lorenzo says. “When you consider that in the best years we’re just making a two or three per cent profit, the cost is significant.”) Finally, and what has the TI management most steamed up, is that Southwest is free to pay travel agents extra commissions without having the CAB breath down its neck. For all these reasons, TI must either push Southwest out of the market, or find a new reason to justify its own survival.
Francisco Lorenzo inherited this burden when he came to TI. The airline had already mastered one of the secrets of losing money—it served a network of tiny towns that never generated enough income to pay off, even with the government subsidies. Until 1966, when the line was bought by a group of investors from Minnesota, the situation had not been so bleak, and the Trans-Texas (as it was known until 1969) had earned steady, if modest, profits. But with the arrival of the Minnesotans, and the musical-chairs sequences of presidents who came in their wake, the airline did not see another profitable month. The figures were those usually associated with impending bankruptcy: TI lost more than $6 million in 1969, and even more that that the following year. By the end of 1971, it was $20 million in debt. The TI stock, which had sold for as much as 29¼ early in 1969, was selling for as little as 3½ by the end of 1971.
This may not be everyone’s idea of a dream business, but to Lorenzo it had its charms. While still in their mid-twenties, he and Robert Carney had put together Lorenzo-Carney Enterprises; a few years later they converted it to Jet Capital Inc., a financing company whose purpose was to serve, as they put it, as “a meaningful platform for successful participation in the exciting but beleaguered field of air transportation.” In other words, to buy their way onto a sinking ship, and hope to keep it afloat. They had made the try before, at Mohawk before it disappeared (by merger) into the maw of Allegheny, but with TI they had a much clearer shot. In April 1971, they became consultants to TI’s panicked management, earning $15,000 per month to help pull the airline out of its nose dive. One year later they were sitting at the controls, on the strength of a refinancing deal that temporarily pacified the creditors.
Even though TI was in trouble, others in the airline business had hoped to take it over and make it pay. There was, consequently, widespread incredulity about how Lorenzo and Carney finally won control. By lining up the refinancing for the $20-million debt—admittedly no small feat—Lorenzo and Carney took over TI on extremely attractive terms. For their part, the two men, through Jet Capital, put up $1,150,000 cash. Actually, since they had been paid some $180,000 in consulting fees over the previous months, and got a $60,000 “finders fee” for arranging the refinancing as well, the cash was easier to raise than it might otherwise have been. In return for their money, they got 59 per cent of the voting stock of the company. (The flier which went out to stockholders explaining the deal, 64 pages of small type and obscure accountants’ terms, dryly told the present stockholders that what used to be 100 per cent of the voting stock would not count for only 35 per cent.) They also received 2,040,000 shares of “series C” stock, convertible after a few years to 1,020,000 shares of TI common stock. Even at the greatly depressed market prices of TI right now, the stock alone is worth as much as Lorenzo and Carney paid for the airline. Lorenzo was also made of president of the company and Carney executive vice-president. One of the rival suitors for TI’s hand, Hughes Air West (run by Howard Hughes) in California, filed a statement with the CAB, saying that the deal was unfair. Lorenzo and Carney were getting too much, the Hughes men said, they were paying too little, and they had twisted the stockholders’ arms in a moment of duress. The protest was to no avail.
In Lorenzo and Carney’s defense it must be said that TI’s stockholders are better off as diluted owners of a going business than as full owners of a business in the bankruptcy courts, and that, once installed, the new managers did everything sensible and possible to get the airline back in business. They angled for the rich routes, most notably one between Houston and Mexico City, which has turned into a steady money maker; they have also improved service routes to Albuquerque, Denver, and other cities not in the Brownwood/Big Spring category. At the same time, they begged the CAB to let them out of service to some “marginal” cities, like Pine Bluff and Lufkin. (The normal process for terminating service owes a great deal to the railroad industry. To win a route-suspension case before the CAB, an airline usually has to demonstrate that there is no real demand for its services from the torpid small tow. There is no better way to dampen such demand than to schedule the required two-daily round trips for, say, five in the morning and ten at night, so that they become just as inconvenient for the passengers as the railroads became when they were trying to discourage all but the hardiest riders.) In 1973, Lorenzo and Carney saw TI make a modest profit of $319,000. The next year, the profit was $401,000. These sorts of figures would be laughed out of the boardroom if they were announced at Braniff, but they were a welcome relief for an airline that had, in its bleakest periods, been losing a million dollars a month.
But all of these well-intentioned efforts went to hell over Thanksgiving weekend of 1974, when the long siege of the TI strike began. The airline lost $3.2 million in the first half of 1975, and traffic depressed through most of the year. The strike also revealed the basic oil-and-water nature of TI’s management. Lorenzo and the earnest young people he has brought with him seem uniformly decent and capable, but there was something about their background that sat ill with the rest of the company. “You often get the feeling,” says a lawyer who has been close to the events, “that Frank and his people came down from Harvard, saw the TI employees driving pickup trucks with gun racks in the back, and thought to themselves, ‘We can handle these guys.’ There was never any kind of natural relationship between the handful of people at the top and everyone beneath them. You saw the results of the bitterness when it took four months to settle the strike.”
For their part, Lorenzo and his associates deny that there is anything like a class division at TI; they also deny that the strike had done any permanent damage to company morale. Lorenzo claims that the management had to weather the strike to keep the company afloat. “It’s the easiest thing in the world to avoid a strike,” he says. “All you have to do is give in. It’s harder to make the necessary judgment of what the company can sustain in the long run.” In this case, the “necessary judgment” was that the company needed to squeeze two concessions out of the union—the right to hire part-time employees (without laying off any of the permanent staff), and the right to let employees voluntarily work split shifts, at a premium in pay. “This is a business of peaks and valleys,” says James O’Donnell, the company’s young PR man who is now becoming one of its six regional managers. “At Lufkin, for example, you’ll have one flurry of business at eight in the morning, and another at five in the afternoon. If you can’t hire anybody to work part-time or on a split shift, you have to hire two full shifts and you’re going to go broke.” (On both these points, the union finally gave in.)
Time, the great arbiter, will give the final answer about TI’s wisdom in taking on the strike, and about class divisions within the airline as well. But one other problem spawned by the strike already has TI screaming. The strike let Southwest into the Valley.
The litigation between Southwest and TI is likely to drag on until the pages of the magazine have turned to dust, and many of the disputes are quite recondite and confusing. If the case were to be distilled to familiar clichés, however, each side would be saying roughly the following: TI tells Southwest that this town ain’t big enough for both of them—that TI can’t compete with Southwest’s fares, and so one or the other of them must get out of town. (“Town,” in this case, is the airports at Harlingen and McAllen; TI now serves both cities, while Southwest flies only into Harlingen.) Southwest, on the other side, contends that a growing pie means bigger slices for all. In its court case and in its appearances before the TAC, Southwest had produced dozens of the Little People of the Valley, citizens of modest wealth who testify gladly that Southwest—with its $25 fare, compared to $40 for TI—has given them wings out of the Valley: they fly to Houston to be treated by Dr. Cooley (how they pay for that is another question), they fly to San Antonio to visit their long-lost children. For those who like numbers, Southwest also has one particularly impressive piece of evidence; in 1973, before Southwest got into the picture, TI was carrying an average of 305 passengers each day out of its two airports in the Valley; in 1974, the average was 331. During August of 1975, Southwest alone carried 785 passengers a day out of its one airport at Harlingen. Southwest, which can afford such sentiments, has a live-and-let-live attitude about the Valley. “TI’s own estimates show that sixty per cent of the traffic out of the Valley is connecting on for out-of-state flights,” says Lamar Muse. “We’re not allowed to carry those people. Anyway, they want to fly to DFW and not Love Field. If TI would just get on the ball and put on two daily nonstop between Harlingen and DFW, they could make $985,000 each year on that route.” To this, Lorenzo replies, “Mister Muse is full of S-H-I-T. He knows very well that there’s no single flight that will cater to the needs of that market. He also knows that we are operating that very flight during August and couldn’t make a fifty per cent load factor on it. So he is just spewing smoke.” Nonetheless, TI’s diffidence about his kind of competition is only one of several illustrations that airlines aficionados cite to show that Lorenzo and company, while decent and honest, just haven’t figured out how to give their airline a winning image.
Far from digging into the competition with Southwest, TI feels so spurned by Southwest, the TAC, and the ungrateful cities of the Valley that is has decided to turn its back on the “Texas Philosophy.” The “Texas Philosophy” was TI’s dream, at least expressed to local chambers of commerce. Lorenzo told them that the airline would give first allegiance to the state, that the Lufkins and Brownwoods would prosper under its aegis. Now, Lorenzo says, “We’ve had to make a wholesale change in the business strategy of the company during the last six months. We have to change in order to allow the company to operate as a viable concern in the business environment of the state [for “business environment,” read “competition from Southwest”]. It’s made us de-emphasize Texas. We had announced service between Hobby Field and Austin. If you look out at Hobby, you’ll see a nice facility that’s never been used. We decided not to offer the service. The current environment prohibits us from making business investments in the state of Texas, if they can be snapped up by someone with different costs and incentives than we have.” And so TI is broadening its horizons, looking toward Las Vegas, La Paz, and Mazatlán, rather than to Longview, McAllen, and Austin. October was the first month that TI’s “revenue passenger miles” pulled ahead of the previous year’s level; and that, says Lorenzo, is because “we’ve succeeded in redeploying the aircraft outside of the state of Texas.” Southwest, meanwhile, is preparing to expand, filing for service to Austin, Corpus Christi, El Paso, Lubock, and Midland-Odessa.
From a profit-and-loss point of view, it is hard to fault Lorenzo’s decision. For more than a decade, the old local service carriers have been trying their best to become the baby trunk lines. When the government got tired of paying exorbitant subsidies to lines like TI, it decided to give the feeder lines a few plums to offset the lemons they’d been assigned to handle: that is why TI got its routes to Los Angeles, Denver, and Mexico City. Seeing that these big cities make money while Waco continues to be a loser, TI, like many other feeder lines, is drawing the obvious conclusion: why bother with the Wacos at all?
It is difficult to have an evil thought about TI. It wears its heart on its sleeve, it puts the state’s name right there on its airplanes. It is trying very hard. Its managers are so appealing, and much more savory than the hard-boiled toughies at the top of Braniff. Its predicament is so touchingly similar to that of the corner candy store being muscled out of the existence by the new, shiny, soulless emporium of a national chain supermarket. Still, the question remains: why is TI still in business? What purpose remains for it to serve?
This is connected to the large question now making the rounds in Washington, which is: what lies ahead for regulation of the airline business? Hearings have been held, reports prepared, and, in the inimitable government fashion, detail amassed in quantities sure to stun all inquiring outsiders. The only trend clearly visible through the chaos is that the CAB is going to get it in the neck. A good number of politicians have decided that the airlines can now be portrayed as a conspiracy against the public, and so the CAB and its clients are the more and more frequent targets of rhetorical abuse. Last spring, for example, Senator Edward Kennedy held a long series of hearings, during which he lost no opportunities to point out the differences between the low fares of Southwest and the high fares of the CAB’s carriers.
On their side, the airlines men do make several plausible points. The first is that the American airline system is, as Russell Thayer of Braniff puts it, “the most remarkable system of transportation in the history of mankind,” and that the “high” fares it charges are only half as high as those charged everywhere else in the world. Anyone who has ever invested a year’s savings in a short flight from, say, London to Rome, knows the truth of this statement. The second point the industry makes is that reduced fares—which are the main goal of “deregulation”—really make very little difference to most travelers. On Braniff, for example, some 70 per cent of the customers are businessmen, traveling on expense accounts; for them, convenient scheduling and speedy flights are far more important than price. One of Thayer’s prize examples of this point is the record of the “Bi-Centennial” excursion fares which United Airlines introduced last summer, and which the other lines reluctantly tagged along with. This special deal offered a twenty per cent reduction on certain journeys; during the first few weeks it applied, Thayer gleefully points out, its most common use was by people who had already traveled and turned their tickets back in for refunds. Even now, he says, it has not enticed many more passengers to fly; it has only allowed the ones who would have flown anyway to fly cheaper.
Even Lamar Muse would agree with this proposition—that modest fare cuts make no substantial difference in the market. “Twenty per cent’s not enough,” he says, “you have to cut the fare by half.” And, short of dismantling the scheduled airline system or bringing on the transportation anarchy that the industry spokesmen constantly warn against, there should be some ways to bring the fares down. Charter flights, group travel free of the awkward administrative burdens that now restrict it—these are the ways to benefit the customers not traveling on expense accounts who pay some attention to price. All CAB fares are now set on the assumption that the average “load factor” on the trunk lines will be 55 per cent—that is, that 45 per cent of the available seats will be empty, carried for free. (In practice annual average load factors fall below that level.) This means, in effect, that the passengers who do travel must pay almost twice as much as they would if the airplane were completely full. Russell Thayer, among others, contents that lines like Braniff, with all their intricate interconnections, could not tolerate a load factor any higher than 55 per cent; if they did, bottlenecks would start developing all over the system. That may be true. But there seem to be clear opportunities for additional service where passengers would trade inconvenience worse scheduling for the benefit of half-price fares. The popularity of the old student standby fares and constant demand for charter flights on long hauls from coast-to-coast or to Europe seem to support this principle. (The restrictions against charters often leave the CAB in the grotesque position of spending most of its energy keeping non-bona-fide group members from stealing aboard a cut-rate flight, rather than encouraging the trunk lines to find more efficient ways to carry the passengers.)
The inertia of vested interests means that few of these changes, if they come at all, will come very soon. The CAB, tired of being the most maligned agency in Washington, announced last fall the beginning of an “experimental” program of freer competition that would allow the existing trunks to cut fares by modest levels—ten to twenty per cent—and to add or drop routes, also within modest limitations. This is what radicals used to call incremental change; it is hardly enough to satisfy the doughty theorists of Southwest, who would like to see the entire business thrown open to competition. The strong would survive, the weak would die, and for several years there would be chaos in transportation. But, when the dust had settled, passengers would be riding in inexpensive splendor—so this theory goes. Sadly, it seems at least as probable that three or four large trunks would squeeze everybody else out of business, and then impose an oligopolistic control over pricing like that of the guardians of the public’s automotive interest in Detroit. Even Braniff might be too small a fry to survive in this sort of free market. “What you’ll see under President Ford’s proposals,” says Francisco Lorenzo, “is two types of airlines. You’ll see United Airlines, and you’ll see some lines like Southwest.” Braniff, TI, and all other inhabitants of the middle tier would be squeezed out of the market.
In the short run, it may not be necessary to make such dire predictions. The deliberate, not to say glacial, pace of governmental reform virtually guarantees that such changes as come at the CAB will come very slowly. But in the longer run someone will win in the national airline war, and the outcome will be presaged in Texas.