Remember when?
"Out of the shadow; Don Carty is finally erasing the brand of Robert Crandall from American Airlines"
Wednesday, January 10, 2001
By Dan Reed
Fort Worth (TX) Star-Telegram
FORT WORTH -- American Airlines Chairman Don Carty will emerge today -- at
long last, according to some doubters -- from the shadow of his former boss,
the fiery Robert Crandall.
Carty will be in New York to announce the details of American's complicated
twin deals to acquire most of the assets of Trans World Airlines, which is
in bankruptcy protection, and about 20 percent of US Airways for between $3
billion and $3.5 billion.
And with those deals -- assuming that the company gets the necessary legal
and governmental approvals -- the airline built by the legendary C.R. Smith,
saved by the cagey Al Casey, and turned into a juggernaut by Crandall will
become, in the eyes of many around the industry, Carty's American.
"We've all been wondering what Don Carty's strategy was going to be, what it
was that would define how American would be perceived and understood as a
result of his stewardship of the company," said airline industry economist
Darryl Jenkins, director of the Aviation Institute at George Washington
University in Washington, D.C.
"Well, now we know," he said. "This is no longer Bob Crandall's airline.
This is Don Carty's airline now."
Jenkins, who meets with American and other carriers on a frequent basis,
candidly admits that he, like a number of other analysts, consultants and
former and current industry executives, haven't known what to make of Carty
or American since Carty took over as chairman and chief executive officer in
May 1998.
Jenkins carefully places himself among Carty's "doubters and wonderers."
There's also been a significant number of harsher Carty critics.
They have never doubted the tall, gray-haired Canadian's intellectual depth
or financial acumen. But Carty's amiable manner stands in stark contrast to
Crandall's intensely aggressive style. Similarly, Carty's desire to spend
more time away from work and with his new wife and child is a big change
from Crandall, a classic 12- to 15-hour-a-day workaholic.
Those differences -- and the lack of any major trend-setting innovations or
deals like those that rolled out of Crandall's American for 20 years, as if
it was a factory for such things -- had many industry observers wondering if
Carty was up to the job.
Carty has not yet spoken about his airline's pending announcements, and
company officials have also declined to speak publicly.
The list of American's innovations under Crandall is impressive: Advanced
purchase discount fares. Frequent-flier programs. Modern hub-and-spoke
airline networks. Computer reservations systems. Advance boarding passes. A
tripling of the fleet in eight years. Expansion to Europe. Lightning-quick
expansion into, and domination of, South America. The two-tier wage systems
that fueled the industry's growth in the 1980s and still contribute to its
legacy of labor unrest today. Long-term, multibillion-dollar airplane order
deals. Inventive ways to finance new planes and facilities. Even the bold,
but ultimately failed "everyday low pricing" strategy known as "The Value
Plan."
Carty was very much a part of the team that helped Crandall. But, since
taking over as CEO, he has a much shorter list of achievements he can call
his own.
Carty's hopes of improving what under Crandall were American's frequently
sour relationships with labor have been frustrated.
American's purchase of Reno Air in late 1998 triggered an angry 11-day
sickout by about 2,500 pilots in February 1999. And a new contract for
flight attendants -- negotiated without rancor in 1999 -- was, much to
Carty's surprise, overwhelmingly rejected by union members. Now, American's
attendants are growing increasingly frustrated by the lack of a new deal and
are beating the war drums.
Similarly, the Oneworld global airline alliance that Carty and British
Airways Chairman Bob Ayling put together in 1998 hasn't worked out the way
Carty had planned.
It was an effort to catch up with the Star Alliance formed by United and
Lufthansa airlines. But Oneworld has been decidedly less successful than
Star in stimulating new business for its member carriers. Oneworld's
performance was even a factor in Ayling's ouster last year at BA.
The closest thing to a big innovation that Carty can claim is American's
successful "More Room Throughout Coach" marketing plan introduced last year.
That program represents a dramatic departure from industry belief that
removing seats from planes to give passengers more legroom will produce
smaller, not larger, revenues. But it hasn't exactly changed the world. None
of American's competitors has yet matched the concept.
"In fairness," Jenkins said of the doubts about Carty that have bubbled
since it became obvious that he was Crandall's heir-apparent in the
mid-1990s, "that's probably more because he's not Bob Crandall than anything
that Don has done, or not done.
"With Bob, there was never any doubt or wondering about what American's
position on things was, or where it was headed," Jenkins said. "Those things
haven't been nearly as clear about American under Don as they were under
Bob. But now they are. Now we know where he wants to take this company."
Michael Boyd, an Evergreen, Colo., consultant who at times has been critical
of American's management under Crandall and Carty, agrees.
Carty's influence, and his willingness to challenge industry dogma, such as
the belief that there was no point to buying the struggling TWA, were keys
to putting the TWA and US Airways assets deals together, he said.
"In the history of the airline business, there's probably never been a more
complicated, more intricately put-together deal, set of deals, as this one,"
Boyd said. "It took a lot to be able to see how these very different pieces
not only could be put together to make money, but also to see how to put
them together in a way that it makes it very likely that they will probably
get all the necessary government approvals. Now that's impressive, and Carty
deserves the credit for that."
Jenkins agreed, saying that American's pending announcements will put the
airline in position to be the industry's dominant player along with United.
He noted that American will solve one of its increasingly nagging
problems -- severe congestion at its Chicago O'Hare hub -- by acquiring
TWA's efficient St. Louis hub. The package plan also includes the
acquisition of airplanes, airport facilities, and half the US Airways
Shuttle operation from US Airways.
"Add the assets they're getting in the East from US Airways to what they're
already doing in the East on their own, then couple that with the St. Louis
hub, their existing big hubs at Chicago and [Dallas/Fort Worth Airport] and
what they've done in the western part of the country in the past year or so,
and you can see that American is positioning itself superbly to compete in
every single market region," Jenkins said.
"Not only will they become the biggest carrier at Reagan National Airport
in Washington, and not only will they get half of the Boston-New
York-Washington shuttle, American is already building up in Boston," he
added. "They're building a $2.5 billion new terminal at Kennedy Airport in
New York. They are growing throughout the Northeast. They've got a very
strong hub at Miami, and a smaller hub at San Juan that now will get better
access to all those population centers of the northeast and mid-Atlantic
regions.
"Beyond that, American is already the biggest competitor on the
transcontinental routes, and the addition of the St. Louis hub will
significantly improve their reach into the major and secondary transcon
routes. It's just a very good deal. And one that should make them a lot of
money. They're picking up a lot of additional earnings with these deals. And
Don has to get credit for that. He's definitely putting his stamp on
American with this deal."
***** ***** ***** ***** *****
Things don't always work out the way we think they will.