Bob Crandall Flies Off the Handle
In the eighties, his toughness and intensity made American Airlines the best in the business. Today, his rivals are undercutting him, Washington is ignoring him, and answers to his company’s woes are eluding him. No wonder he’s so angry.
Barreling high-speed through the airport terminal, Bob Crandall is cutting it close, as usual. The head of American Airlines boards the plane just seconds before the door swings shut. “Hey, kiddo,” he rings out to the slightly flummoxed flight attendant and charges down the isle to his favorite seat on the last row of the first-class section, a skinny man in a black suit and an old-fangled frat-row haircut. But he needn’t have hurried: Flight 509 to Los Angeles isn’t budging. Outside, blackish rain has turned the runways at Dallas—Fort Worth International Airport into a monstrous traffic jam. Silver-bodied American jets are backed up to the horizon, burning fuel while they wait for the weather to clear. So there he sits—the tireless, ruthless, brilliant, infuriating, and intimidating airline titan, whose bare-knuckled tactics have made his American the most envied and loathed airline in the world—trapped on a rain-pummeled runway, going nowhere.
He is stuck in more ways than one. American Airlines and its parent company, Fort Worth—based AMR Corporation, have been hemorrhaging money for three years—including a stupendous $935 million last year alone. Incapable of enduring more losses, furious at the unwillingness of the federal government to follow his advice, Crandall is switching course, reversing a decade of nonstop expansion by shrinking the airline: shutting down hubs, selling off planes, firing employees—indeed, changing the very nature of the company. Now he is on his way to Los Angeles to explain his actions to his employees. But how could a man who has staked his career on the philosophy that in order for some to win, others have to lose, admit that this time, winning might not be an option? How could a man who loves to dominate stand before an auditorium of a thousand employees and explain that American Airlines is in a tailspin because of forces entirely beyond his control?
To begin with, Crandall could have passed out copies of an article from that day’s newspaper, which reported that American’s rival, Southwest Airlines, was about to expand into San Jose, California. Even as American was shrinking, Southwest was charging ahead, opening new routes, hiring new workers, and last year, chalking up record profits of $91 million. Unable to compete, American would announce that afternoon that it would slash its own service to San Jose by nearly 40 percent. In a stroke, the gleaming San Jose hub that Crandall had spent $50 million to open five years ago would be abandoned, and with it, any hope Crandall had of making money on the West Coast.
Seemingly invincible just three years ago, American Airlines has become one of the bloated behemoths of corporate America. In vast segments of the domestic market, the airline no longer stands a chance against short-haul rivals like Southwest, Reno Air, and UltrAir. American is not alone: All of the big, full-service carriers are trapped between soaring costs and slackening revenues. In the past four years, U.S. airlines have lost more than $10 billion. Since the summer of 1990, Continental, American West, and Trans World Airlines have all filed for bankruptcy. Three more—Eastern, Midway, and Pan American—ran out of cash and closed up shop. Continental restructured and emerged from bankruptcy in the spring, but now Northwest Airlines is teetering on the verge of bankruptcy. The future of both airlines may depend on the outcome of an antitrust lawsuit against American that is scheduled to be heard in Galveston this summer. Northwest (represented by Joe Jamail) and Continental are claiming that Crandall’s 1992 price-cutting fare war was intended to put them out of business.
But there is no trace of gloominess about Crandall this morning as he whips through his newspapers and stuffs them into a paper sack at his feet. “More of the same,” he says breezily about the San Jose debacle, before hauling out a stack of papers from his briefcase. Even sitting still, Crandall is pumped up, full throttle, ready to pounce. The only hint that anything might be amiss is the appearance of his fingernails, which are almost completely shredded, as if they have gone through a grater. Yet even the condition of his fingernails suggests a high-voltage determination. Crandall does not merely nibble at his nails: He gnaws them all off.
Nearly an hour behind schedule, flight 509 finally stirs to life, taxis onto the runway, and rises through the storm clouds. At that moment, what Crandall really wants is a cigarette. For thirty years, he had been an unrepentant two-pack-a-day smoker. Then last November, after one of his vice presidents had surgery for lung cancer, Crandall quit, and when he did, so did nine of his executives at American. I ask him about his father, who died at age 54 from emphysema. He turns toward the window and the white clouds below. “You’d have to be a moron to keep smoking after you’ve seen someone like that who can hardly breathe, with two oxygen tanks hooked up to his back,” he says, and for a moment silence overtakes him and the only sound is the engine of the MD Super-80 thrumming above the cloud bank. A few seconds later he corrects himself, smiling. “I should never have quit,” he says. “Nobody lives forever—we’re all just ants on a marble.”
To understand how Robert Crandall triumphed over the airline industry—and how the airline industry might very well triumph over him—requires a little education, and Crandall is ready to provide it. Flight 509 has been aloft for an hour, he has plowed through his paperwork, and the flight attendant has refilled, again, his mug of black coffee. “Let me show you something,” he says, and with a Cheshire smile, he seizes my notebook and begins to scribble furiously: circles with little lines poking out of them (hubs and spokes), small boxes connected to bigger boxes (feeder routes), and a series of small arcs and overarching lines (short- and long-haul flights). By the time he is through, he has traversed the industry’s major ailments: soft demand for air travel, U.S. bankruptcy laws that keep ailing airlines in the air by allowing them to ignore their debts and union contracts, passenger preference for discount airlines on trips of two hours or less, crippling labor agreements, foreign incursions into the U.S. market, and worst of all, overcapacity, or as Crandall puts it, “too many planes flying too often to too many places.”
But isn’t American Airlines to blame for the overcapacity? Wasn’t it Crandall himself who led the industry on a spending spree back in the eighties, ordering hundreds of planes, opening hubs, grabbing new routes, doubling his payroll, building up the very same costly infrastructure that is now dragging him down? He pauses, a cold, inimical look flashes across his face, and the color mounts from his chin to his perfect widow’s peak. “We did not expand too much!” he thunders, slamming both hands, karate style, onto his plastic meal tray. “We did not over-ex-pand!” Chop! Chop! Chop! “That is simply”—chop!—”factually”—chop!—”wrong.” Chop!
Crandall leans across the armrest, until his face is inches away, close enough to count the pores, close enough to smell the coffee on his breath. “We vanquished those guys,” he rumbles, meaning his competitors on Chapter 11 life support. “If they were gone, we wouldn’t be shrinking.”
Physically, Crandall is not a formidable person. Instead, his forcefulness comes from the sense that he always seems to be advancing on you, reaching over and banging his fork on your side of the table, inhabiting your personal space. “Stronger than horseradish” is one of his favorite expressions, and it fits in perfectly. He is an overachiever, a perfectionist who wakes up at five in the morning and spends 45 minutes on the treadmill. When he was invited to be a guest chef at a Japanese restaurant for a charity in Dallas, he was given a couple hours of training on a hibachi grill. Alone among the guest chefs, Crandall went back for an extra lesson; he wanted to be sure he knew how to use those knives.
Like a candidate on a campaign stump, Crandall has been traveling the country for months, hammering on the theme that what American Airlines needs—indeed, what the entire U.S. airline industry needs—is a massive overhaul. His ideas for making the industry profitable mostly have to do with changing the bankruptcy laws, eliminating government hindrances, freeing up the supposedly free market. But in Washington, D.C., the one place that really matters, Crandall’s strong-arm approach has done as much to undermine as to promote his cause. When Secretary of Transportation Federico Peña recently established a fifteen-member commission to come up with suggestions for fixing the industry, Crandall, the head of the nation’s biggest airline, was not among the appointees. (Herb Kelleher, the chairman of Southwest Airlines, was.) Until the committee makes its recommendations, Crandall has no choice but to sit back and wait.
The sky is bright and unclouded as flight 509 descends into the Los Angeles basin. Crandall is out of his seat the instant the plane rolls to a stop. He reaches into his pocket and pulls out a piece of nicotine gum. Tonight he will tell his employees that AMR Corporation can make more money as a service company—by selling its skills to other airlines, doing things like running the Warsaw Airport for the Polish government, teaching English to employees of Turkish Airlines, even selling computerized reservation services to rivals like Southwest and UltrAir—than it can running an airline. When he flies back to DFW, I will not be joining him on American. My return on Southwest Airlines—with a change of planes in Albuquerque—will take longer, but I will save $240.
Bob Crandall was not seduced by the romance of flight. He was not an aviation buff. He does not, as they say in the business, have kerosene in his blood. He came to American Airlines in the spring of 1973 as a vice president for finance, a number-crunching job. It was a bleak time for the industry. The country was in the midst of the Arab oil embargo. Air traffic was down. The national economy was in a free-fall. American had a fleet of noisy fuel-inefficient jets and no money to buy new ones.
In the five years since Crandall had gotten his MBA on full scholarship from the Wharton School of Finance and Commerce at the University of Pennsylvania, he had hopscotched from Eastman Kodak to Hallmark Cards to Trans World Airlines, making an impression everywhere he went for his aggressive self-confidence, his stamina, and his brains. As assistant treasurer of credit and collection at TWA, Crandall would stay at the office until nine, ten, eleven o’clock at night, eating meals at his desk, always smoking, always alert. He was fiercely ambitious but unpolished. A colleague remembers how Crandall once wrote a speech, then transferred the text to a series of slides and proceeded to read the speech straight from the slides. “It was absolutely abominable,” recalls a former colleague. “I sat through the whole thing, and I thought he was a bore.” But Crandall was learning. From TWA he went to Bloomingdale’s department store, where he chafed at the sedentary pace of retail until he got the offer to join American. He was 37 years old.
In the days before deregulation, the airline industry was dramatically different. Airlines needed government approval to do everything: to obtain new routes, to add new service, to change prices. It was a safe and genteel way of doing business. With deregulation in 1978, the older established carriers found themselves suddenly facing competition from an epidemic of upstart airlines like People Express, New York Air, and Air Florida. Like most of the other carriers, American vehemently opposed deregulation. It had the wrong planes, the wrong routes, and union contracts that were far too costly. But faced with the inevitable, American eventually became more aggressive, an ideal strategy for someone as ferociously driven as Bob Crandall.
Not long after he joined American, Crandall helped develop the industry’s first computerized reservations system. It was a revolutionary step: Any consumer who wanted to buy a plane ticket had to make only a single phone call to find out the lowest price on the market. The result was that each carrier was constantly forced to match its rivals for the lowest price or suffer instant losses. Computerized reservations gave rise to the cutthroat fare wars of the eighties, in which American always seemed to come out ahead.
In an industry in which everyone competes viciously for the same piece of turf, Bob Crandall stood out as the toughest guy in the business. He lived in suburban New Jersey with his wife and three kids and took the first train to the company’s headquarters in mid-town Manhattan at six o’clock and the last train home. No golf, no martini lunches, no social lubrication—just endless work. It took him just seven years to get to the top. In July 1980, a year after American moved its headquarters to North Texas, chairman Al Casey named him president.
Under Crandall, American Airlines became the most sophisticated, the most analytical, the most heavily computerized carrier in the business. Crandall wanted quantification of everything. If an airplane was one minute late departing from the gate, if the number of no-shows exceeded what was planned, if fewer passengers flew to a given location than expected, Crandall had to know why, and he wanted it in numbers: spread sheets, percentages, data. Crandall was the first person in the airline industry to recognize that computers could be used to process information—to analyze results, lower costs, improve sales, and ultimately increase profits.
Take, for example, a typical route such as Austin to Dallas. American flies this route nine times a day. Into the computer goes a tidal wave of information about each flight: how many passengers fly at what prices, how many seats are empty, how many passengers end their trip in Dallas, how many go on to other destinations. The value of any given seat is not the same for all customers: It depends on when you buy your ticket. Airlines try to boost their revenues by selling as many seats as possible for as much as possible. Crandall realized sooner than anybody else how computers could help maximize revenues for each seat.
When Crandall became president in 1980, American Airlines was essentially a North American carrier with a few routes to Canada, Mexico, and the Caribbean. It was also a floundering company; in 1980 it had a record loss of $75.8 million. So Crandall began whittling away. He withdrew from hundreds of unprofitable routes. He put inefficient Boeing 707s up for sale and redesigned the rest of the planes to increase the number of seats. And then, after he had slashed the company to the bone, he began planning a massive expansion. What he wanted was a new fleet of planes. He wanted to develop new domestic hubs. And he wanted to expand to Europe and other markets. All he lacked was money. But how could he do it when low-cost start-ups like People Express were undercutting his prices?
Crandall’s answer was a series of innovations that would change the U.S. airline industry. In 1977 American introduced the first Super Saver fares—selling a limited number of seats far in advance at cut-rate prices—to compete with the charter business. One year after he became president, he started the industry’s first frequent flier program, creating a loyal customer base. American didn’t invent the hub-and-spoke system—Delta did when it made Atlanta the first huge airport where everyone changed planes—but it was American that made the most brilliant use of it.
And then, in 1983, Crandall finally freed up the cash he needed to expand. Risking a pilot’s strike, he jawboned the unions to accept a two-tier wage scale, one that paid new employees considerably less than current employees. As he cut labor costs, he embarked on a hiring spree, doubling his payroll and zealously buying airplanes. The next few years at American were golden. Fuel costs were down. Traffic was up. American became a significant player in Europe, and Crandall began talking about Moscow, even a large Asian network. In 1989 he placed one of the biggest airline orders in aviation history, including 150 MD-11 and MD-80 jets, for an astronomical $9 billion. American was taking delivery of a new jet every five days. And whatever American did, everyone else followed—Delta, United, Northwest, and USAir all joined in the dizzying scramble for new planes, new routes, new hubs. By the late eighties, American Airlines was acknowledged as the best airline in the country, and Bob Crandall was being praised for the hard-nosed qualities that would later cause him problems.
When he comes to the door of his house in North Dallas, Crandall does not look like an intimidating, karate-chopping corporate chieftain. He wears blue jeans, a forest-green pullover, and penny loafers. On this spring evening, he is ebullient: He loves showing off his home.
Like its owners, the house where Bob and his wife, Jan, live is austere, hard-edged, and somewhat out of step with its surroundings. It sits on a leafy narrow street in old Preston Hollow, among palatial residences placed at the end of long trailing driveways. The house is a Dallas landmark, designed by Edward Durrell Stone, a noted modernist architect—”aaah-chitect,” as the New England—bred Crandalls say. When it was built in 1957, magazines around the world called it “the ultimate bomb shelter” because of its impregnable steel and concrete construction. Inside, it is airy and very white. There are few walls in this house, only a series of marble (“maaah-ble”) pavilions separated by latticed partitions, with open channels of water flowing from one space to another, an indoor swimming pool, and a moat with aqua water encircling the dining room table. Guests fall into the moat with such regularity that Jan Crandall keeps a registry for them to sign. Bob’s 83-year-old mother was the first to tumble in, at a Christmas party. Contrary to rumor, there are no sharks in the moat.
Jan Crandall is a lot like her husband: direct, assertive, unflappable. Her face is tanned, her hair short, white, and unfussy. She wears a plain gray sweater and gray slacks, and like her husband, she is overthin. She and Bob met at Barrington High School in Rhode Island. Without him, she says, she would have never made it through English, and without her, he would never have passed Latin. “It was just one of those perfect things,” she says, her voice a smoker’s mezzo (she also quit, then started again). “But I don’t think, at sixteen, I was smart enough to know that. I think he bullied me into marrying him.”
In a city that inflates and idealizes its corporate leaders, the Crandalls are pleasantly old shoe. Their number is listed in the phone book, and customers often call to complain about service. Not long ago, Bob and Jan spent hours on the phone tracking down some lost luggage that contained a wedding dress. They send fruitcakes at Christmas. They avoid the charity-ball scene, fashionable restaurants, and small talk. “Their idea of a good time is to sit around with four or five friends and have a hellacious argument,” says a former American executive.
The Crandalls’ house is a mechanical wonder, full of marvelous gadgets and examples of singular craftsmanship. Bob and Jan provoke, debate, and interrupt each other, thrusting and parrying as they lead their guests through 12,000 square feet of marble, steel, concrete, and glass, up the circular staircase, down the hydraulic elevator, and through three bedrooms, nine bathrooms, and a cavernous basement. Every few feet, one or the other pauses to expound on some astonishing detail: the walnut cabinetry, the low-voltage electricity, the poured-concrete foundation.
In the living room, we get an explanation of how cool air flows continuously throughout the house.
Bob: “Right above this ceiling is an eighteen-inch plenum, between the ceiling and the floor.”
An eighteen-inch what, I ask?
Bob: “A plenum, a space, where the cool air moves.”
The Crandalls bought the house in 1990, long after their three children had grown up and moved away. (Mark is a commodities trader in London, daughter Marty is a partner in the Dallas law firm of Strasburger and Price, and Stephen is a financial analyst in Dallas.) When Bob Crandall first saw the house, he admired the mechanics, the construction, the monumentality of it. Then he discovered the plumbing and fell in love. Instead of a handle on the side of each commode, rubber buttons were inset into the floors. To flush the toilets, you simply step on the buttons. He rushed to the phone to call Jan at their weekend home in Massachusetts. She flew in, and two days later the house was theirs. It is currently valued at $1.2 million.
Now the plumbing has become the centerpiece of the grand tour. We are standing in an upstairs bathroom off the master bedroom. “See that?” Bob says, depressing the button with his toe. Whoosh! It sounds as if Niagra Falls is cascading behind the wall. Whoosh! He steps on it again. Whoosh! He is all grins, a kid in a toy store. Meanwhile, Jan Crandall is standing to the side, pointing out the gargantuan walk-in closet, the heated marble floors, and the pink bidet.
Bob and Jan Crandall are fervently, obsessively united in a mission to restore their house to perfection. They tracked down and purchased most of the original modernist furniture. They found the old landscaping plans, and Jan has been digging up the Burford and yaupon hollies by hand and replanting them in their original locations. They have restored all the plumbing, the electricity, the heat, the air conditioning, even the doorknobs. But there is one problem that the Crandalls have yet to address: the dark granite countertops in the kitchen. They are hard to keep clean.
“Come look right down here,” Jan says, drawing her visitors down to countertop level. “You can see all sorts of stuff that I missed. See?” Standing off to the side, Bob Crandall mutters, “White counters. You gotta have white counters.”
“Crumbs, dust, cornmeal ” Jan lists all the particulates easily obscured by the granite. Does she mean Kenyon’s cornmeal, I ask?
“Kenyon’s cornmeal? Do you know about Kenyon’s cornmeal?” She dives toward the freezer and begins pawing through frozen packages, yanking open drawers, searching for the sack of cornmeal that she orders from a mill in Usequepaugh, Rhode Island, where Bob worked almost forty years ago as a part-time bagger. Bob, meanwhile, is off on another pedagogical tangent, explaining the mechanics of a corn mill. “You’ve got two stones grinding in different directions, and the corn comes down and drops between the stones and, through gravity, is forced out the side . . .”
Bob and Jan Crandall are a compendium of facts: that the concrete foundation of their house can hold up six more stories; that Rhode Island johnnycakes must be cooked six minutes on one side, six on the other; that fruitcake needs to be wrapped in cheesecloth and soaked in brandy. This vast white palace is their refuge in Dallas, a city that is much too showy for a couple of New Englanders who are, at heart, unshowy people. But for Bob Crandall, especially, the house seems to be a statement of defiance. If he can’t prevent the decline of his airline, he can at least create the ideal house, one that is seamless, indestructible, and perfect.
Take the absorption with detail that Bob Crandall brings to his house, put it in the corporate environment, and you have a sense of what it must be like to work for this man. He likes to hold marathon meetings that go on all day and frequently into the night. People prepare all week and then quake in his presence. His sense of perfectionism is so powerful he can barely stand it when he doesn’t find the same quality in others; he can be maddeningly demanding. Crandall has a way of creating a crisis about everything, whether it is something tiny, worth 57 cents, or something huge, worth $57 million. “To say that he had an idea a minute is really true,” says Jim O’Neill, head of Sky Chefs, an airline-catering company in Dallas. “That mind of his kept clicking on everything I said, and he was able to take it one step further than I had. He always had another question.” When Crandall became chairman of the AMR Corporation, he began holding board meetings at seven in the morning, and nobody complained.
The other thing people notice about Crandall is his unswerving pragmatism. He views absolutely everything from the perspective of American’s profit margin. Crandall has said many times that he doesn’t believe airlines should offer bereavement fares—discounted tickets for people whose relatives are sick or deceased. “Requesting a bereavement,” he says, “is like going into a department store and asking for a discount on a black dress because your relative has died.” He resolutely opposes government intervention, yet he has never let his free market principles get in the way of improving American’s competitive position. He has pushed for legislation that would establish minimum employee benefits and that supports federal restrictions on noisy airplanes. Both are to the disadvantage of his weaker rivals.
Crandall can be cold and unsentimental. If he decides an employee is no longer useful to the company, he will inform him without the faintest remorse or sympathy. “You can be one of Bob’s very best friends and he can call you in the next day and say, ‘You don’t fit into the plans anymore—it’s time to go,’” says one fired executive. “It has nothing to do with whether he likes you personally.” Yet strangely, many of Crandall’s castoffs still revere him. “He was the best boss I’ve ever had because he made me so much better than I’d ever be in life,” says another former American executive, who left when Crandall didn’t deliver a promised promotion. One day, Crandall called him in and frostily informed him that someone else was going to get the job. “He screwed me to the wall and drove me from the company that I love,” the departed executive says, “but I’m one of the biggest fans of the man.”
And then there are his legendary blowups. When angered, Crandall has hurled trash cans across the room, pounded on the table, thrown people out of meetings. Once, in New York City, he yanked on a window blind and brought the whole thing crashing down. “I have seen Bob so angry that I thought he was going to die on the spot,” says another former American executive. “The man was literally out of control.” At a cocktail party for officials of the pilots union in Phoenix, Crandall suddenly, and loudly, declared, “I hate all f—ing unions.”
In 1982 his temper almost got the best of him in an incident that was repeated gleefully throughout the industry for years by his enemies. In Dallas, Braniff was regarded as the hometown airline and American as the Yankee invader. Both were fighting hard for virtually the same market, and Braniff, which had grown too fast, was faltering. Crandall sensed the kill and moved in, loading American flights onto every route that Braniff flew. Braniff accused American of orchestrating a sabotage campaign by manipulating its reservations system to turn passengers away from Braniff. Desperate for cash, Braniff began slashing its prices, forcing American to match. Both carriers were losing money.
Then, three months before Braniff’s demise, Crandall had a fateful five-minute conversation with its chairman, Howard Putnam. What Crandall didn’t know was that while they were talking, Putnam’s tape recorder was running. The tape later found its way to the U.S. Department of Justice.
Crandall: “I think it’s dumb as hell, for Christ’s sake, all right, to sit here and pound the shit out of each other and neither one of us making a f—ing dime.”
Crandall: “I mean, you know, goddam, what the f—is the point of it? . . .”
Crandall: “I have a suggestion for you. Raise your goddam fares twenty percent. I’ll raise mine the next morning.”
Putnam: “Robert, we—”
Crandall: “You’ll make more money, and I will too.”
Putnam: “We can’t talk about pricing.”
Crandall: “Oh, bullshit, Howard. We can talk about any goddam thing we want to talk about.”
But Crandall was wrong. Price-fixing is illegal. Crandall later insisted he was just making an offhand remark, not asking for an agreement. The lawyers at the Justice Department didn’t see it that way; they filed an anti-trust suit accusing him of trying to establish an illegal monopoly. Played out on the nightly news, the incident didn’t flatter Bob Crandall or American Airlines. Eventually, there was a settlement, but Crandall’s armor had been pierced. He had spent a lifetime creating an image of gleaming invulnerability. Now everyone could see the real thing: a coarser, profaner, more brutal personality. Those who really knew Crandall, of course, already understood that he was merely talking to Putnam the way he frequently talked to people he considered inferior. Outside the company, people began to call it Arrogant Airlines.
By 1988 Crandall had acquired a multitude of unflattering nicknames: Bob the Butcher, Attila the Hun, Fang (inspired by his snaggly teeth). But he didn’t seem to mind; that year American Airlines showed a operating profit of $806 million, the largest in industry history. The company had more than $10 billion in assets, the best hub system in the country, a bunch of new international routes, a quiet, modern fleet, and the industry’s best profit record.
To match his business strides, Crandall buffed up his corporate image. He went to executive charm school, cleaned up his grammar and his table manners, and learned to stop thrusting his finger into the face of whomever he was talking to. When a reporter frankly told him that his bad teeth made it hard to find a flattering photo of him, he had them capped. He took up jogging, lost thirty pounds, and came out looking and behaving like a Fortune 500 CEO. The second quarter of 1989 was the most profitable in the company’s history. Bob Crandall and American Airlines seemed invincible.
Everything changed in the last half of 1989. The economy turned sour. Corporations everywhere laid off workers. Air traffic fell off. Crandall had relied upon hiring cheap labor to free up funds, but now those workers were getting older and moving into higher salary brackets. Just as American had been slow to expand under deregulation, so it was slow to cut back when times were bad. In 1990, a year AMR lost $40 million, Crandall kept grabbing up foreign routes, kept pouring money into hubs, kept adding planes. His biggest competitors, United and Delta, did the same.
Suddenly, the hub system that had worked so beautifully became onerously expensive. Employees worked frenetically during busy stretches, when as many as fifty planes were arriving and departing. But then, after all the planes had gone, the employees were left to twiddle their thumbs, waiting for the next confluence of flights. In other ways as well, American’s costs had simply become too high to compete with the discount carriers. It wasn’t just a matter of hot meals versus peanuts. Take the cost of labor. Southwest’s employees were earning, on average, about the same as American’s, but they worked much longer hours—in 1991 they were 27 percent more efficient. Southwest’s capital costs were lower too. Its airport facilities were less elaborate, and its fleet was standardized. By flying only Boeing 737s, Southwest could cut down on pilot and crew training, mechanics, maintenance, and inventory. By contrast, American was flying nine different jets, plus five propeller planes on its commuter airline, American Eagle. No matter what Crandall did, he couldn’t lower his costs to rival the discounts.
The next three years were horrendous. American had opened three hubs that did not work—Nashville; Raleigh-Durham, North Carolina; and San Jose. American began to lose money on nearly all of its domestic flights. International flights are the most lucrative for long-haul carriers, but Crandall had been slow to act, and so, American missed out on the best deals, especially when it came to the Pacific. Crandall didn’t get serious about Japan until 1986, and as a consequence, American has only a tiny presence at Narita airport in Tokyo compared with United and Northwest.
Flying back and forth to Washington, Crandall lobbied for relief. He had always resented the federal government and its interventionist role in regulation, taxation, and the allocation of routes and airport slots. Now he railed against the bankruptcy laws that sustained sick airlines, the taxes that added 10 percent to the cost of each ticket, and the bilateral agreements that allowed foreign carriers access to the U.S. markets while keeping U.S. carriers out of foreign markets.
Every industry needs a spokesman, someone to articulate its needs from an insider’s perspective, and Bob Crandall might have played that role. Yet the very qualities that had propelled him to success—his unyielding certainty, his pedagogical arrogance, his need to dominate—did not endear him to those he was trying to influence. It wasn’t always what he said but how he said it. In speech after hectoring speech, Crandall offended with his condescending tone. He made no secret of what he thought about then Secretary of Transportation Samuel Skinner. A former Department of Transportation official recalls, “He would demand meetings. You don’t demand meetings. You request them. People who don’t work for American Airlines don’t work for Bob Crandall.” Eventually, there was so much resentment toward him that people would disagree with him no matter what he said.
After three years in which all the major U.S. carriers lost money, Washington has finally taken note that something has to be done. Crandall has emerged as the most persuasive proponent of change in the bankruptcy laws, but the rest of his agenda has met with a lukewarm reception. It’s no surprise that his pugilistic philosophy doesn’t sit well with the Clinton administration, which is, after all, more share-the-wealth than survival-of-the-fittest. “I think people are increasingly not interested in getting involved in an interchange with him,” says one former airline executive. “The universal impression is that you can’t win. You can’t even stay even.”
On May 19, one day after American announced it would lay off 412 employees at its maintenance facility in Tulsa, Bob Crandall stands before AMR Corporation’s annual shareholders meeting at a hotel near DFW airport. Aided by a teleprompter, with color slides projecting onto a screen behind him, Crandall tries to put the best face on a rotten year. “You have our assurance that your management will do everything we can to return your company to profitability as promptly as we can,” he says. But even Crandall’s bravado can’t obscure the bottom line. American had anticipated a $165 million loss for botching a reservation system for hotels and car rental companies. Another huge loss occurred when Crandall tried to get his rivals to go along with a simplified pricing plan last summer, one that eliminated hundreds of ticket discounts. The plan failed when cash-hungry Northwest broke ranks by offering what amounted to a two-for-one sale. In a fury, Crandall retaliated by slashing all of America’s fares by 50 percent—knowing that his competitors would have to match. The upshot was a summer of frenzied discount travel and industry losses in the billions, leading to the lawsuit against American in Galveston.
Now the question is whether any of the big airlines can stay out of bankruptcy. The reality of aviation economics is that the long-haul carriers are selling an uncompetitive product. Their tickets are priced too low to recoup their expenses—adjusted for inflation, the average price of a ticket has dropped 25 percent since deregulation—but they can’t raise fares as long as the discount carriers are undercutting them. The hub system adds to the problem. American’s planes, for instance, spend too much time on the ground, waiting for passengers to arrive from other places. Southwest, which flies from point to point with a quick turnaround, gets far better use of its planes and its people.
But Crandall cannot simply transform American Airlines into a low-cost carrier like Southwest—his costs (capital, labor, overhead) are too high. He cannot spin off a separate short-haul commuter airline (as United is considering) under American’s corporate umbrella, because of his union contracts. And he knows he can’t simply slice off excess capacity without losing more revenues—the marketplace won’t let him. For example, both American and United fly from Chicago’s O’Hare to New York’s LaGuardia approximately twenty times a day. The planes are seldom full, because there is not enough traffic to justify that many flights. But neither airline wants to be the first to reduce its number of flights. Market surveys show that, given comparable ticket prices, passengers will always choose the airline with a more convenient schedule. The moment either one of them cuts back, they lose market share.
Crandall’s solution is simply to eliminate the routes that aren’t making money. American Airlines will keep flying, but to fewer places. If American is to make any money in the air, it may eventually be as a transcontinental and overseas carrier, flying routes on which the short-haul carriers can’t compete. Domestically, American will be reduced to linking major cities—New York, Miami, DFW, Los Angeles, and Chicago—and leaving the medium and smaller cities to the discounts. In the meantime, American will concentrate on service contracts, such as designing reservations and pricing systems for the French high-speed railroad and training computer programmers at Aeroflot.
The truth is that Crandall would be better off if he were free to demolish his rivals through old-fashioned cutthroat competition. Compared with the other major carriers, American is in good shape. It has the quietest, most modern fleet in the business. It also has the deepest pockets. But for American to regain its preeminence, the bankruptcy laws would have to be changed so that the weakest carriers do not hang on and undermine the healthiest. Only then would the industry be truly deregulated.
In a press conference after the shareholders meeting, Crandall answers questions in front of an enormous canvas illustration of a Boeing 757. It is a legacy of happier days, but at the moment, it seems to be mocking him. American had ordered seventy of these superquiet narrow-bodied jets back in 1988 and is still making payments on some of them, planes that will be delivered in the next two years. But who will ride in all those shiny new planes? How will American keep up its payments?
The hard-nosed style that got Crandall to the top won’t help him now. If he makes the right cuts and the economy revives and the planes fill up, American might be profitable again in the next few years. But for Crandall, time may be running out. He has hinted that retirement may not be that far off. In 1986 United tried to lure him to be its CEO, and the AMR board countered the offer with golden handcuffs in the form of stock options currently worth about $22 million, which vest when he becomes sixty—in December 1995. If American Airlines is going to be rescued a second time, someone besides Bob Crandall may have to do it.
Perhaps this is the price for playing the role of Attila—you give no mercy, you expect none back. At the shareholders meeting, the reporters are grilling Crandall about the cutbacks. “I think you can count on a sort of continuous stream of long-term layoffs,” Crandall says, with a frozen smile. “It’s going to go on forever.”