The Canadian at American

How Don Carty’s doing.

A few days after Don Carty was named CEO and chairman of AMR, the parent company of American Airlines, a reporter asked him how he compared with his predecessor, Robert Crandall. “Basically,” he said, smiling nervously, “I’m an optimist, and he’s a pessimist.” Carty was referring to Crandall’s famously stern personality, which over the years had earned him the nicknames Darth Vader and Fang. He also seemed to be signaling a difference in business philosophy, but he wasn’t—or at least nothing that’s visible thus far. Nearly a year after taking the helm of American, Carty has taken steps to de-Fang the place, but little else has changed.

That’s not entirely surprising. “Big airlines are like battleships: They take forever to turn,” says Edward Starkman, an industry analyst with investment bank Warburg Dillon Read. And Carty’s long history as a company man suggested he’d be a kind of caretaker CEO. Except for a two-year stint running CP Air in Canada in the mid-eighties, he has been on the payroll of Fort Worth—based American since 1978, overseeing, at various times, the company’s finances and strategic planning. In 1995 he was named president of the airline, a position he held until he was tapped for the top job last April.

Still, given the state of flux that American and its competitors find themselves in, you might have expected more. Carty, 52, assumed control of the nation’s second-largest carrier during the most tremendous shift in the industry in a decade. In the eighties airlines were working hard to build efficient hub-based domestic systems; today they’re forming international alliances that promise seamless worldwide service. Carty, who was born and bred in Canada, has always been a proponent of such alliances. American Airlines and British Airways, along with Hong Kong—based Cathay Pacific and the successor to CP Air, Canadian Airlines, serve as the anchors of Oneworld, one of three “supercarriers”; the others are the STAR alliance, led by United Airlines and its foreign partners (primarily Lufthansa), and the newly consecrated Northwest-KLM-Continental combine.

Carty’s first major move as CEO was to acquire West Coast airline Reno Air last November for $124 million. Reno started up in 1992, the year before American closed its hub in San Jose, California, and the following year took over many of American’s operations there. Seven years ago, American laid off 610 pilots for three years—yet the airline has said it will find slots for all 297 of Reno’s pilots, a decision that irks the Allied Pilots Association (APA), the union that represents American’s pilots. “Reno can almost serve as a place marker for where we were back then,” says APA spokesman Gregg Overman, who acknowledges that the purchase of Reno was an understandable business decision made “largely because of pressure from the international alliance partners” for more West Coast destinations.

The Reno deal casts in full relief the balance Carty will have to strike between two goals seemingly incompatible at American in the past: remaining intensely competitive and making employees feel valued. Asked about tension in Crandall’s tenure, Carty admits that things weren’t easy. “During the eighties, American tried to lead in functional things,” he says. “There was an incredible pressure on the economics of the business. We don’t want to lose our leadership there, but we’ve embarked on a cultural crusade to create mutual respect between management and labor. American’s employees don’t always feel listened to or paid attention to.”

Although not wildly overjoyed about the prospect of labor relations under Carty, union spokesmen say they’re “cautiously optimistic.” Cliff O’Neal, the national communications coordinator of the Association of Professional Flight Attendants, offers one reason: “When we opened contract negotiations in 1991, Crandall created a very cold atmosphere,” he says. But for the 1998 contract negotiations, Carty invited the negotiating team out to dinner with other top executives. O’Neal notes that the new boss has also organized task forces to hear and address the concerns of flight attendants. “We now feel like a more respected work group,” he says.

Labor tension isn’t the only problem Carty faces, says a longtime American observer who asked not to be identified. “American,” he says, “is a mean, nasty competitor whose philosophy is ‘Grab passengers by the short hairs and make ’em ours.’” By way of example, he points to a recent marketing tie-in American struck with wireless phone companies along the Austin—Love Field route. When a person dials *LUV, he’s directly connected to American’s reservations system. “What do you think of when you see LUV?” the observer asks. “Southwest. Now that’s just dirty.

“Carty seems focused on changing that culture,” the observer continues, “but it’s going to take the rest of his career to pull it off.”

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