In 1992, TWA filed for bankruptcy, emerging in 1993 with its creditors owning 55 percent of the company. One of those creditors, to the tune of $190 million, was Icahn. He resigned as chairman in 1993, and by 1995 he was growing impatient to be repaid. TWA executives, desperate to bring the tragic Icahn chapter to a close, gave away the farm, the cows and the farmer’s wife. They came up with a deal called the Karabu ticket agreement, an eight-year arrangement that allowed Icahn to buy any ticket that connected through St. Louis (but not those that originated or ended here, so St. Louisans never had access to the cheap tickets) for 55 cents on the dollar and resell them at a discount.
Karabu blocked Icahn from selling the tickets through travel agents, but it didn’t even mention the embryonic Internet, where he immediately set up Lowestfare.com and commenced to bleed TWA dry, one ticket at a time. “He put downward pressure on the amount TWA could sell tickets for because we were essentially competing with ourselves,†Gratz says.
American Airlines later estimated that Karabu cost TWA $100 million a year, but as bad as Karabu turned out to be for TWA, and as fervently as its constructors may have later wished they had closed the Internet loophole, TWA didn’t have many options at the time.
“There was no $190 million. There was nowhere to get $190 million. TWA had two choices: accept the agreement or shut down,†says Mark Abels, who was vice president of corporate communications from 1996 to 2001.
“They said, ‘OK, you mangy pirate, we’ll do the deal.’ If the airline didn’t do the Karabu deal, it would have gone out of existence in 1995 rather than 2001.â€
