Hard Landing (66 page)

Therein lay the problem. Increasingly those same U.S. carriers were flying over the Atlantic themselves. Where American might have once flown a passenger from Phoenix to New York so he could board a British Airways flight to London, American was now flying that passenger into Dallas to connect on its own flight over the Atlantic. Delta, too, had also been slowly building up its presence over the Atlantic.

As Marshall pondered his predicament, he realized that there was a clever, almost cute, solution. He would make himself a partner of United Airlines.

Though a major player in the Pacific after 1985, United had never flown a flight to Europe and had no intention of doing so. United, in short, was no competitor of British Airways. So why couldn’t United function as a surrogate for British Airways between the cities of the United States? United could try to recruit Europe-bound passengers onto its flights, then dedicate itself to turning them over to British Airways for the rest of their journey. British Airways, in turn, could find a way of steering
its
passengers arriving in the United States into connecting flights aboard United. Both airlines would win.

Preliminary discussions began in the months before Dick Ferris was ousted as United’s chairman. Negotiating in utmost secrecy, Ferris and Marshall saw so much merit in such a joint operation that they even discussed United’s buying a
20 percent ownership interest in British Airways, with British Airways doing the same in United. Together the two companies would establish the world’s first Anglo-American airline. When Frank Olson of Hertz took over as interim chairman after Ferris was removed, he found the entire issue suddenly in his lap. Facing him across the bargaining table was one of
his
fastest friends in the business world, Colin Marshall. Marshall had once worked at Hertz himself. Later, as the chief executive of Avis, Marshall had competed vigorously with Olson, but in the aristocracy of the executive suite the two men had only grown closer.

Looking on American, and Crandall, as a common enemy, Olson and Marshall ultimately approved an arrangement known as “code sharing.” Code sharing was created to evade another of the immutable rules of airline marketing: passengers, though never eager to change planes, harbor an even more powerful aversion to changing
airlines
. The odds of a missed connection multiply. Luggage is more apt to become errant. The marathon race between airport gates is elongated. In the years before computers dominated, the airlines came up with a practice that tricked travelers (and travel agents) by hiding the fact that they would have to change airlines on certain connecting flights. The
Official Airline Guide
would list a number of flights, particularly to such faraway destinations as Alaska, under the two-letter designator code of a single airline even though the service involved one airline meeting a connecting flight with another. The government felt justified in permitting this deception because the flight crews in such cases switched planes with the passengers. Usually the return flight reversed the same arrangements. The combination of airline deregulation and computer reservation networks facilitated this practice.

In Europe code sharing, considered an outright subterfuge, was a violation of the law. Indeed British Airways, invited by the U.S. government in 1984 to comment on the practice, responded without equivocation. “British Airways,” the company said, “believes that it is
intrinsically deceptive for two carriers to share a designator code.”

But in 1987, as the practice came into even more widespread use, British Airways and United announced the most sweeping code-sharing arrangement yet undertaken in the world—“the ultimate global airbridge,” as they called it. When a travel agent summoned a list of flights from Denver, say, to London, she would now observe a British Airways flight going the entire distance—as well as a United flight leaving and arriving at the same time. The appearance of the same flight twice gave the partnered airlines twice the opportunity to sell the same service. And in either case the customer would be buying a ticket on which it appeared that he or she would be flying a single
flight on the same airline for the entire journey, when in fact the passenger would discover that the itinerary actually involved not only a change of airplane but a change of airline. It was a new kind of screen science, only in this case Bob Crandall was the target rather than the inventor.

British Airways and American were hardly the only combatants over the North Atlantic. There was also Pan Am, reeling in the crossfire. But Pan Am was about to get a new boss intent on reversing the company’s fortunes.

From the ashes of Braniff Airways had risen a new airline, flying under the Braniff name but known throughout the airline industry as Braniff II. It was controlled by Jay Pritzker of Chicago, a former naval aviator whose family owned the Hyatt Hotels chain. By 1987, alas, the new Braniff was struggling just as its progenitor had. Pritzker resolved to merge with a larger airline.

Pritzker was friendly with Pan Am’s Ed Acker; Braniff II in fact
employed Acker’s son. Acker reacted enthusiastically when Pritzker discussed the possible purchase of Pan Am by Braniff—the company that Acker himself, in an earlier age, had built into a powerhouse.

At the time of Pritzker’s overture Pan Am was again in desperate straits. It had largely burned up the $750 million it had received from United two years earlier as payment for the Pacific routes. Its position had worsened not only against American, a new rival, but against British Airways, a long-standing one. The directors of Pan Am were pressuring Acker to extract still more wage concessions, a confrontation for which Acker displayed
little enthusiasm. A board meeting to vote on a sale to Pritzker was set for December 1, 1987.

To the extent that Acker was delighted by Pritzker’s emergence as a rescuer, Marty Shugrue, now the vice chairman of Pan Am, was beside himself. Pan Am,
sold?
Shugrue considered it unthinkable. Unlike Acker, Shugrue was a Pan Am man from the start. He went into overdrive, rounding up his pals in the union leadership to plead for new concessions from employees, arguing that if he could deliver wage cuts to the directors of Pan Am, then the board would have no reason to sell to Pritzker. “The
clock is ticking!” Shugrue cried to the bargainers on both sides. Literally minutes before the board meeting
began, letters, signatures, and handshakes were exchanged. Shugrue triumphantly entered the oval-shaped boardroom of Pan Am announcing that there was no need to sell. The concessions were in hand.

That was impossible, Acker said.

And with that the directors of Pan Am were treated to the spectacle of the chairman of the board and the vice chairman
at war before their eyes. The argument dragged on for three days of meetings and adjournments as Acker and Shugrue each attempted to torpedo the other’s deal. Pritzker walked away from the entire mess, once again leaving Pan Am on the precipice of failure.

Pan Am in reality had few problems that could not be cured with fuller airplanes and higher fares, especially over the Atlantic. But among the Pan Am directors—and particularly in the view of Bill Coleman, among the most senior of them—the main problem was
sky-high wages. With the company’s two top executives feuding, Coleman took matters into his own hands, approaching the company’s union leaders to establish their price for the concessions he thought the company so urgently required. Two days before Christmas in 1987 he got his answer: their price was
Acker’s head. Coleman obliged. While he was at it, Coleman resolved to make a
clean sweep; he fired Shugrue as well.

Acker, who had an employment contract with Pan Am, walked away with a settlement on the order of $1 million. Shugrue got 90 days’ pay.

A
committee of the board—the same committee that had recruited Acker when
his
predecessor had been fired seven years earlier, in 1981—readily found a new chief executive. The new man at Pan Am was Tom Plaskett, freshly fired from Continental Airlines. Shugrue, for his part, landed on his feet as well. He accepted an offer to become president of, ironically, Continental Airlines. Plaskett and Shugrue had essentially exchanged jobs. Miraculously, in this round of executive musical chairs nobody had taken away any of the chairs.

Plaskett rode the elevator to the 46th floor of the Pan Am building and turned toward the chairman’s office, the room in which Juan Trippe had presided over the world’s greatest airline, in which a succession of followers, culminating with Ed Acker, had presided over
its demise. Plaskett could see the rendering of the Pan Am network hanging at the end of the hallway, those gold lines delicately painted over the mahogany map of the world, lines to places like Tokyo and Hong Kong—places that Pan Am had long since abandoned. It
broke Plaskett’s heart to see that map; before long he ordered it stripped from the wall.

Happily, though, for him, Tom Plaskett was at last running something. Denied the opportunity at American by Crandall’s unwillingness to delegate, again denied at Continental because of what he considered Lorenzo’s meddlesomeness, Plaskett now had an entire company to himself. But what a mess it was, so much worse than he had been led to believe in agreeing to take the job. “
When I arrived at Pan Am in January,” he told a group of employees later in 1988, “I found a company that was not just weak and foundering. I found a company in utter chaos.”

He asked, for instance, to see the marketing plan.

The marketing plan?

Yes, the marketing plan. Where is the marketing plan?

Huh?

There was
no marketing plan, he was told.

Pan Am, Plaskett discovered, was selling seats
by the bucket to wholesalers and consolidators—outfits that then resold them to the public at a markup with those small ads and fetching prices that appear in the travel section of the newspaper. Pan Am was practically giving those seats to the wholesalers and letting
them
make the profits, while the company itself was failing even to cover the costs of putting its planes in the air. Pan Am did not have the computer power to perform yield management. Indeed its reservations department was not even a part of the marketing department.

Plaskett
looked with foreboding at the newly announced linkup between United and British Airways. Though Plaskett was offended by code sharing, which he considered misleading to the flying public, he tried to break into the game himself. Pan Am established a code-sharing deal
with Malev, the Hungarian national carrier. Under this arrangement Malev’s flight from Budapest to Frankfurt would appear under the same flight number as a connecting Pan Am flight from Frankfurt to New York. It was the best arrangement of its kind that anyone would make with Pan Am.

Eagerly, almost desperately, Plaskett tried to break into a new European computer reservations network, called Galileo, that British Airways and several other airlines were establishing to fend off American’s Sabre in Europe. The Galileo
partners said no, they did not want to have a bankrupt among them.

But the battle would be won or lost, Plaskett decided, not with the big systems and big financial moves, but with the individual customer. This was where Colin Marshall had succeeded in saving British Airways, and this was where Pan Am had its most severe problems to overcome.

Plaskett was shocked to walk into the Worldport terminal and see two long, snaking lines of customers: after checking bags passengers had to stand in another line for a boarding pass. “The minute they walked in our door, we
inconvenienced them!” Plaskett told his employees. The airplanes themselves were deplorable and filthy, with outdated bathrooms and upholstery and side panels and lighting and carpeting. Plaskett scrounged the cash to have them all ripped out, telling people that without new interiors there would be no passengers, and without passengers there would be no Pan Am. Furthermore, he ordered those airplane exteriors polished
every 45 days.

Pan Am had been staffing jumbo jet flights with four or five fewer flight attendants than the competition, making the passengers angry and the flight attendants angrier still, which in turn only made the passengers all the angrier. More flight attendants! Plaskett decreed.

Plaskett installed yield management programs and took back much of the sales effort from wholesalers. He went on the stump, as he had five years earlier at American when he had won the first b-scale contracts in the airline industry. He resolved to communicate, to prove that he was different from the previous failed managements of Pan Am. “I am
a believer!” he announced to a group of employees.

Plaskett, who had long thought of himself as cool and detached, as a “
professional manager,” was soon becoming emotionally vested in the turnaround at Pan Am. In his second day on the job, as he deplaned from a Pan Am flight, he had been moved when a flight attendant waved good-bye, then called after him earnestly, “We’re
counting on you.” Some 24,000 jobs were hanging in the balance, some 24,000 livelihoods.

“Ladies and gentlemen,” Plaskett told his employees in a big
meeting, “I
can’t
do it alone. I don’t have all the answers. I need your help. We have to do it together. The time has come to put the past behind us … to bury our prejudices, and to challenge the old ways of doing things.… It is time for Pan Am to move beyond the legend.”

And as surely as Plaskett’s commitment deepened, so too did things begin to turn around, ever so tentatively. Blessed with a robust economy and a sudden strengthening of transatlantic travel, Pan Am recorded a profit in the third quarter of 1988, a stunning recovery from a year earlier. Moreover the revenue figure for the quarter was a record, better than any in the company’s history, even when it had the Pacific routes! Cost-cutting labor agreements were finally being ratified and put in place. Seats once occupied by passengers on wholesale tickets were now gradually being taken over by customers paying a profit margin to Pan Am. Although British Airways was coming on strong and Plaskett’s old pals at American were making inroads, Pan Am itself was gaining ground.