Special Report: Airline Giants

By Richard Woodbury

At 4:50 on a Monday afternoon, the scene is hectic in a giant ten-story tower at the Dallas-Fort Worth airport. Rows of technicians at consoles keep tabs on a swarm of taxiing jetliners. Other workers stand in front of bay windows to direct planes near the gates below. But this is no Government-run control tower. The command center is run by American Airlines, whose staffers supervise only their own planes on the ground. The airline erected the unusual structure just a quarter-mile from the air-traffic tower run by the Federal Aviation Administration to cope with the torrent of American's arrivals and departures (daily average: 800).

While Dallas-Fort Worth is the carrier's largest hub, the pace is nearly as furious at 155 other airports served by American as the airline pursues a jet- propelled growth spurt. American has added 51 of its destinations in just six years and has become a major international force, flying 119 foreign trips a day, compared with just one in 1983. Last November American officially became the No. 1 carrier in the U.S. by overtaking rival United Airlines in monthly revenue-passenger miles. That milestone prompted American's hypercompetitive chairman, Robert Crandall, 53, to take to the public address system at Forth Worth headquarters to shout congratulations to his staff. Says Crandall now: "We had a strategic plan, to grow the airline very fast. It worked out very well." Last year American's parent company, AMR, posted sales of $8.8 billion and profits of $476.8 million, a 140% earnings gain from the previous year.

Such bullish expansion seemed out of the question when Crandall became American's president in 1980, a year in which the carrier lost $75.7 million. The price of jet fuel was skyrocketing, and the industry was embarking on fare wars. Saddled with high labor costs, Crandall fashioned a then novel wage structure that enabled American to hire new pilots, flight attendants and mechanics for as much as 50% below existing pay scales. He persuaded the airline's unions to accept the plan by guaranteeing them lifetime employment and promising not to cut wages for current employees. The resulting labor savings enabled Crandall to embark on a hiring spree in which he doubled the payroll, to 67,000 workers, in just six years. Many of the employees hired at lower wages have reached the higher pay scale through advancements.

Crandall has acquired airplanes just as aggressively. The airline now takes delivery of a new jet every five days, a pace that will swell its fleet by the end of the year to more than 500 planes, second in the world only to the Soviet Union's Aeroflot. Because Crandall began his buying binge in 1984, American got a jump on the current industry rush to replace aging aircraft. The carrier's fleet is one of the industry's newest, averaging 9.4 years old.

Crandall's strategy has been to build from within. Though American bought California's AirCal for $225 million in 1987, Crandall has otherwise avoided giant acquisitions like those that haunt Texas Air's Frank Lorenzo.

The cussing, chain-smoking chairman, who made $1 million in salary and profit sharing last year, leads his workers with a tightfisted, demanding management style. Middle managers work twelve-hour days and eat lunch in their small battleship-gray office modules. Mondays Crandall meets with ten top vice presidents for planning sessions that can run ten hours without interruption and leave participants staggering from his pointed questions.

Crandall provides further motivation through a profit-sharing program that last year paid out an average $2,000 to each employee. He conducts give-and- take sessions with workers throughout the route system and awards them travel passes or merchandise for their suggestions. To test new dinners, the airline rolled out a 767 at the Dallas-Fort Worth airport for a lavish feed for workers and their families.

For all his acumen, Crandall can be rash. He is notorious for a 1982 phone call in which he suggested to Howard Putnam, then the chairman of Braniff, that the two airlines curb their fare wars. The Braniff boss tape-recorded the conversation, in which Crandall said, "Raise your goddam fares 20%. I'll raise mine the next morning." The Government accused American of trying to create an illegal monopolization, a charge Crandall later settled by signing an agreement not to engage in any such practices.

The most remarkable element of American's success is that in the midst of rapid growth and sharp cost cutting, the airline has achieved a topflight reputation for customer service. Says Robert Baker, a senior vice president: "When no-frills roared in, we resisted quality deterioration." The company has relentlessly created new lures for customers, ranging from the first frequent-flyer program, in 1981, to its recent opening of luggage-repair stations at Dallas-Forth Worth and Chicago's O'Hare. At the Los Angeles airport, American is testing a system to help incoming passengers who miss connections because of delays. The travelers are met at the gate by agents who give them rebooked tickets.

For all his attention to keeping passengers happy, though, Crandall rarely loses sight of the bottom line. Case in point: he ordered olives removed from the salads served aboard American flights. Annual saving: about $100,000.