Hard Landing (53 page)

Lorenzo’s forces, meanwhile, also targeted Burr’s sacrosanct home base of Newark, offering $99 fares to as far as the West Coast. Continental used a
New Yorker
-style cartoon in an ad depicting the huddled masses of the North Terminal milling about with
stink lines rising from their hair. “Give me your tired, your poor,” Continental’s ads declared, “your huddled masses yearning to be free of People Express.”

By May 1986 the media were at last on to Don Burr in a big way. Overbooking, always a problem, ran out of control as Burr’s people
tried to eradicate no-shows without computers to track reservation trends.
The Wall Street Journal
reported that an
elderly woman had clunked a People Express agent over the head with a telephone. A frustrated man pushing his mother in a wheelchair had grabbed a sheaf of papers from behind a People Express counter, heaving them into the air in a flutter. People Express was now “People’s Distress.” The company
grew tardy on some of its payables.

Burr himself could feel the end approaching as he walked the hallways at Newark. Where once there had been love! and trust! there was now panic and grief. In his mind’s eye Burr saw the image of the heroes’ planet in the movie
Star Wars
destroyed by a terrible beam of energy from Darth Vader’s
Death Star. “These were
my children being slaughtered,” he would later say. Then even the board of directors turned against him. Twice in the summer of 1986 William Hambrecht of Hambrecht & Quist, the investment banker who had been so important in getting the company off the ground, asked Burr to resign. “You guys are out of your
fucking minds!” Burr snapped. “If I resign, this place will fall through the floor!”

But they were right about one thing, Burr realized. Something drastic had to happen. All that mattered now was how much could be salvaged of the People Express vision and how much the employees of People Express could get for their stock in the company. Among these employee shareholders, there was none bigger than Burr himself. Another major shareholder was his companion, Melrose Dawsey.

Burr knew what he had to do. There was no end to the number of people who would buy his planes and gates and slots and routes, but there was only one person, Burr figured, who would be willing to buy out the company in its entirety. And only he, Burr, could get him to do it.

“Don,
I kept this,” Lorenzo said to Burr. “I knew there would come a day when this would be appropriate.”

In Lorenzo’s hand was a small section of propeller blade, the customary gift presented to departing executives back at the old Texas International. The keepsake had been prepared for Burr when he had left in 1980 to start People Express, but Lorenzo had withheld the gift, saving it through all the gothic turns in their relationship
over the following six years. Now, it appeared, the two of them might be getting together again.

The 1986 summer season on the Cape was just beginning. Burr was at his 10-bedroom “castle” on the Vineyard; Lorenzo was at his place on Nantucket. John McArthur, the Harvard business school dean who had joined the board of People Express, was acting as
a go-between, helping to keep the negotiating process on track. As Lorenzo and. Burr talked, they felt a little of that old warmth coming back. Don, the best man at Frank’s wedding … Frank, the godfather to Don’s child … their years of marathon training together … skiing together … the salad days back at Texas International, in the Blue Barn. They began to joke about their
titanic egos. Maybe, at last, they thought, Texas Air—with Eastern and Continental and New York Air and People Express and Britt and Provincetown-Boston—maybe
that
was a company big enough for both of them. Maybe they could make it work this time.

There would in any case be a big role for Burr in the organization, of course! Burr was sure he heard the words pass Lorenzo’s lips: Don, you can become the chief executive of Continental and the president of Texas Air; I can remain chairman of Continental and chairman and chief executive of Texas Air … Burr would have the chance to weave the culture of People Express into Continental. The Precepts would live on.

Only one person stood between the fulfillment of the reunion fantasy: Dick Ferris of United Airlines. For several weeks Ferris gamely played for Frontier, first for a substantial portion of its fleet and later for the company in its entirety. Frontier had been Al Feldman’s airline, before Feldman had moved to Continental Airlines, where he took his own life. Ferris and his friend Travis Reed had a plan to put the Frontier fleet to work for United in Denver, “
a final salute,” as Reed would explain it years later, to their martyred friend.

Ferris reached an agreement with the board of People Express to buy Frontier, only to watch the deal slip through his fingers. The pilots of United Airlines, unable to contain their loathing and mistrust of Ferris, refused to agree on the terms by which the pilots of Frontier would be absorbed into United. The pilots’ union at United had the de facto standing to veto Ferris’s purchase of Frontier, and, unbelievably, it did.

When United was out of the picture it was Frank Lorenzo who took control of Frontier, along with everything else that had become a part of People Express.

“While this may be a
bittersweet moment in personal terms,” Burr said at a press conference, “the sweetness far outweighs the bitterness.… It doesn’t matter if the faces aren’t painted on the tails.” The important thing, he insisted, was that People Express would still be around, as part of Texas Air, to fight “those fat cats, like United Airlines and American Airlines.”

It was a notable day in another respect. For a year American Express had been working feverishly to complete the computer system intended to endow People Express with the sophisticated pricing and reservations management it needed to stay afloat in the turbulent new skies of commercial aviation. On the day he announced the merger agreement with Texas Air, Don Burr’s computer was
flipped on for the first time. Now it too was Frank Lorenzo’s.

The reunion of Lorenzo and Burr was short-lived. When they went jogging together
they argued about the executive titles Burr was convinced he had been promised. When they went skiing together Lorenzo turned out in a white jumpsuit and Burr laughed in his face. Before long Don Burr was gone, this time for good.

CHAPTER 13

THE SOUTHWEST SHUFFLE

T
he computer technology that wiped out People Express in the marketplace did for flying what the assembly line did for the automobile. It reduced it to the most common denominator.

Though discounted fares had been available for years, steep discounts had previously been the exception rather than the rule, available only regionally or seasonally. American’s data processing breakthrough changed that, making the least expensive seats available throughout the year, in every region of the country. On some flights the cheap seats were few, but there were almost invariably
some
. An excursion for which the airlines once offered installment loan contracts could now be expressed in terms of the most prosaic and ubiquitous products and services: Boston to Miami for the cost of a new automobile battery, New York to Los Angeles for the equivalent of a few dental fillings.

The changing character of the passenger markets was evident to anyone who had previously spent time in airports and airplanes. For the first time the crowds walking through the Jetways began to resemble the same cross section of humanity one might find on a city street or in a suburban shopping mall. Flight attendants noticed that they were commanding unusually rapt attention during the preflight safety demonstration; millions of passengers had never observed the
ritual. The airlines were unifying friends, families, and loved ones as no medium had since the advent of the Post Office, the telephone network, and the interstate highway system.

Though a novel experience for millions, flying did not long remain a glamorous one for most. As something sold cheaply, flying was no longer something most people felt the slightest compulsion to dress up for or otherwise regard with marvel. Where families of the 1950s and 1960s had scheduled excursions to the airport observation deck to watch the planes, they could now simply schedule reservations and fly on the planes.

The magic of “yield management” alone far from accounted for the widespread accessibility of air travel. For one, the ultralow fares were increasingly subsidized by much steeper fares charged of business travelers. For the airlines the net effect was salutary. While discount fares were plunging rapidly, the average of all fares was declining only slightly to 11 cents a mile in 1986, from 12 cents a mile two years earlier. Even through the most relentless price cutting of the mid-1980s the airlines recorded their best operating profits in history.

There was one additional and important reason for those increased profits: lower costs for oil and, more significantly, for toil. Commercial aviation by 1986 directly employed well over 400,000 people. Among them the journeymen at the big, secure, and established airlines (United, American, Delta, and Northwest) enjoyed the grandfathered rewards of having started their careers in a time of government protection. The more junior employees at American and other airlines with b-scales had experienced no traumatic cutbacks but came into their jobs earning one half or less what their tenured colleagues were making. For the huge proportion of workers employed by struggling companies, living standards had plunged—whether gradually (as at Eastern, Pan Am, and TWA) or traumatically (as at Continental). In this respect as in so many others the airlines were among the leaders of the United States economy: wage cutbacks would soon sweep through other industries, particularly those that had succumbed, as the airlines also had, to the temptations of too much debt in the halcyon investment banking years of the 1980s.

In casting blame the losers in aviation’s transformation could
point to a variety of candidates. In the view of many, deregulation remained the principal enabling event. Others blamed the executives of the airlines—inexperienced at the rigors of the free market, congenially unwilling to concede turf to their competitors, consumed in the gratification of their own considerable egos. Frank Lorenzo was a commonly cited villain (a “lightning rod,” as he sometimes put it himself). Many placed the responsibility for labor’s troubles in labor’s own house, arguing that by so strenuously resisting change the unions had only heightened the need for it.

Regardless of who was most responsible, there was little doubt about how the process began. To find the principal agent of change one had to go back to the beginning, back through 14 years of airline history, for behind the birth of yield management and ultimate super savers was People Express and the low-cost Continental, and behind them was Texas International’s lesson in peanuts pricing, and behind that lesson was Southwest Airlines.

It was a testament to the company’s low profile that in 1986 most airline passengers had not even heard of Southwest Airlines. The company certainly had grown since its first breakout move after the signing of the Deregulation Act; it had increased its fleet nearly fourfold by 1986, to 63 airplanes. Even so it remained only the 14th largest of the 30 airlines in America. Southwest was still less than one tenth the size of United Airlines.

Inside the airline industry, however, everyone knew Southwest and only too well. It had never lost money, from the time it was fully established in business. And it had flourished while defying almost every success maxim of the post-deregulation world: it had no computer reservations system, offered no frequent-flier program, did not conduct yield management, and had never organized its flight schedules around anything remotely approaching a hub.

How did Southwest do it?
Consultants and academics were forever crawling over the company, looking for an answer as if they were searching for the recipe for Coke. Through all the studies no one ever had a better explanation than Robert Baker, who as Bob Crandall’s principal operating aide at American had come to know Southwest well. “That place,” Baker would say, “runs on Herb
Kelleher’s bullshit.”

• • •

When Kelleher finally moved into Southwest as a full-time executive in 1981, the company still served only Texas, New Mexico, Oklahoma, and Louisiana—good places to do business at a time when oil prices were heading toward $40 a barrel. The unique federal rule limiting Southwest to Texas and the contiguous states remained in force, although it applied only to Southwest’s service at Dallas. Kelleher
resolved to strike west from other points, first to Phoenix, then to Los Angeles.

At the time, in the aftermath of the controllers’ strike, the major airports in California still had a ceiling on landings and takeoffs, so Kelleher faced the same hurdle that Frank Lorenzo had to clear in establishing New York Air. Kelleher needed slots.
He boned up on the special rules intended to advantage “new entrants.” Though relatively young as airlines went, Southwest was no new entrant; it had been flying for seven years before deregulation became law. But Kelleher recalled that after the Deregulation Act had been signed, Southwest, in the midst of its big internal brouhaha over whether to begin service at Midway Airport in Chicago, had incorporated a subsidiary company. The new subsidiary had never gotten off the ground, but as a legal entity Midway Southwest was still very much alive.