Hard Landing: The Epic Contest for Power and Profits That Plunged the Airlines into Chaos by Thomas Petzinger, Jr.

(New York: Currency, 1995), 629

I read this to get some more travel background for work, and it was quite the adventure! A mix of biography and history and journalism, it tells the story of airline deregulation through the men playing on the field. And wow is it easy to cheer against them, especially Frank Lorenzo and Bob Crandall.

The first thing that strikes anyone familiar with flying today is how arbitrary some of what we take for granted is. For instance, the nautical theme of calling the pilot "captain" and him wearing stripes originated with the China Clipper (13-14), and "coach" class was originally a few seats in the front of the airplane (83).

One thing that always annoyed me in business school was the repeated, superficial case studies on Southwest Airlines. You always just hear people talk about how Southwest is special because they fly point to point and only fly 737s (C.R. Smith did that with DC-3's in 1935), and maybe how they have a special culture. But this book really shows how Southwest has succeeded: they skirted federal regulation of the CAB by only flying within Texas, they sued their way into business (great story on 29-39), they went all in on their Dallas Love Field base by selling "love", they focused on 10-minute turnarounds to keep planes flying for 12+ hours per day and relentlessly focused on reducing costs and eschewing debt (322), they marketed directly to the public in cities they entered (322), they protected their culture by heavily screening new employees (323), and encouraged "spontaneous acts of frolic" (324). Most importantly, they were led by Herb Kelleher whose personality was "unwaveringly self-deprecating" (325), and unlocked latent demand by lowering prices (327). You don't hear all of that in a business school case study.

Below are not exhaustive notes, but some highlights that stood out.

Notes

"This book is about the men who try to earn a profit from the tightrope act." (xvii)
"The story of their entwined careers reveals many of the larger laws of the business world: that the same overweening ambition that drives so many executives to the top also assures their failure; that when executives form emotional attachments in business, whether to people, markets, or machinery, they deprive themselves of their best business judgment; that those who know an industry best are the most likely to take for granted, and ultimately ignore, its most inviolate principles; that although the rebuke may be slow in coming, greed, in the end, is almost always punished; that economics, in short, overpowers ego." (xxii)
The First Rule of Airline Economics: If a plane is going to take off anyway, any paying passenger or payload is almost pure profit. (7) Every empty seat taking off on every flight is a spoiled grapefruit and exactly as valueless. (57)
Walter Folger Brown revolutionized airline economics by paying for airmail by distance and volume flown, and called the Spoils Conference to divide up routes from which the big four were born: United, TWA, American, Eastern (9-11)
Spoils conference frustrations led to airmail going to the lowest bidder, which led to a price war, which led to industry leaders asking for government regulated rates, which led to the Civil Aeronautics Act of 1938 and the era of cost-plus regulation under CAB (16), until John E. Robson started shaking things up (23)
The 747 devastated the industry because it was too much airplane and it killed load factors (21)
"Kelleher jumped into a Southwest plane conducting its final proving flight and was dropped off at the Texas capital of Austin, where the members of the Texas Supreme Court were attending a cocktail party. They consented to hear his appeal the first thing the following morning. That night the Texas attorney general gave Kelleher the use of his library; all night Kelleher stayed up researching and writing. He went before the Supreme Court without a change of clothes, made his case, and won. The battle, for the time being, was over." (29-30)
Reading to learn your industry: "Then one day, while packing for a European vacation, Lorenzo grabbed a pile of annual reports on small airplanes—pleasure reading." (42)
The science of "Reservations Theory" was born, because there is reverse economies of scale in handling reservations (58) and scheduling (136, 362)
Unlike Sam Walton, "Crandall found retailing exquisitely boring." (62)
George Spater is a case study in ethics: He had written articles on ethics but authorized illegal campaign contributions. He went public immediately and took the fall (63-65)
Deregulation: "encrusted with myth and misconception," "had to happen," "historically and economically inevitable" (86-87)
Lorenzo was good at "maneuvering himself into a position of indifference, in line to score a victory no matter which way the action unfolded" (in this case losing the National bid, but profiting handsomely on the shares he had purchased in the process, 113)
Burr: "Pilots have an innate sense of superiority and entitlement." (129)
Hub Rule: whoever has the most flights from a city gets a disproportionate share of the passengers because frequency enhances convenience (150)
- Hub buildup further driven by economics where as cities are added the passenger throughput increases exponentially but the service costs increase only arithmetically (153)
Deregulation's first victim was Braniff, who flew their planes back to DFW to prevent their seizure in the bankruptcy (170)
Frank Borman "read and reread The Red Eagle, a children's novel about airplanes." (178)
Borman instituted a "variable earnings plan" (VEP) based on Eastern Airline earnings (188), but Charlie Bryan and his machinists union won everything they asked for (199)
Lorenzo took over control of Continental, causing Al Felman to shoot himself (223), and then filed for bankruptcy so he could wipe out the labor contracts and hire workers back at half wages (234-239)
Dick Ferris: "Eighty to 90 percent of my time is spent working with people: getting them to do what I want them to do, when I want them to do it, and, most importantly, getting them to do it willingly." (250-251)
United bought Pan Am's routes to the Orient, the "most brilliant transaction in airline history" (257)
- "Crandall...was denied the chance to make the airline deal of the decade because he was just too tough...There was no time for dealing with a difficult personality." (262)
- But United pilots also went on strike (267)
- And United bought Hertz for $587M and Hilton for $1B to build an "integrated travel empire" (269)
Perhaps the most dramatic scene in the book: the Eastern's board of directors decided to sell to Continental (287-292)
Airlines needed to grow: "High growth is where you get your excitement and your learning. It makes for commitment and high levels of energy." (300)
- Growth also to reduce avg labor costs through expanding the fraction of lower-paid b-scale workers (305)
Power of variable pricing: Majors beat People Express (which got acquired by Frontier) by using computers to offer low prices to discretionary passengers and keep as many seats available for full-paying passengers (310)
- This pricing reduced flying to the least common denominator making the least expensive seats available to anyone (317), often subsidized by business travelers (318)
"Airlines pollinate the world's financial system with capital. They create, mobilize, and transport wealth in proportions vastly exceeding the fares paid by the passengers." (383-384)
Colin Marshall of British Airways ran a complete P&L on every element of service, and invented business class (393)
United tried to hire Crandall away from American, but the golden handcuffs kept him in place (407)
"Once at a Democratic Party function in Washington, Bakes was accosted by Senator Kennedy, who angrily accused Bakes of misleading him about the effects of deregulation." (447)
Stephen Wolf walked away with $3M after selling Republic to Northwest (410), a lot from Tiger International, and $50M from selling United to employees (458)
American was shut down by a strike, but still had to service it's large debt, and still had to keep planes flying empty to keep the system running so that some flights could get through (467)
"The past 25 years in aviation history was an extraordinary period, demanding an extreme sort of executive." (477)

Topic: Aviation, Economics

Source

Masha Khusid (2023-08-16-Wed and 2023-10-03-Tue)

Bibliography

file:(~Hard Landing)

New Words

sobriquet: An affectionate or humorous nickname (54)
peripatetic: Walking about or from place to place; traveling on foot. (56)
perquisites: A payment, profit, or benefit received in addition to a regular wage or salary, especially when due or expected. (187)
importune: To make an earnest request of (someone), especially insistently or repeatedly. (359)

Created: 2023-10-03-Tue
Updated: 2024-01-30-Tue