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   Vol. 14  No. 71
Monday September 7, 2015

Why Bob Crandall Matters

Robert Crandall True Confessions

     I believe it was during George Shipman’s captaincy of American Airlines’ cargo effort that we met in Fort Worth to untangle a couple of cargo issues. We didn’t get very far when Robert L. Crandall, then president, popped in to say hello. He didn’t stay long, but long enough to deliver a cheery rah-rah picture of AA Cargo in hard drive. Less than a week later, American made nationwide headlines with the grounding of its transcontinental freighter system. Pure and simple economics had placed the cargo belly in a comeback role.
     The air-shipping market was not adequate for the operation of a pair of side-by-side cargo services—one in aircraft designed for the exclusive carriage of freight, and the other for stowing traffic in growing space beneath passengers’ feet. There ensued a brief period of protests, especially by volume users. Notably Julius B. Kupersmit, president of Containair Corporation, a close observer of the air freight industry, deplored the cessation of all-cargo service, pointing out that you can’t have two hares with a single dog. But he immediately conceded that the conduct of business does not necessarily follow attractive adages, underscoring this by quoting Ben Franklin’s advice to “drive thy business or it will drive thee”. Crandall’s decision was a critical example of what he later referred to as an “always interesting aviation business”.
     In the paragraphs that follow, it is Bob Crandall the businessman in full voice. Not once is the word “cargo” or “freight” or “forwarder” mentioned. It is an experiential wrap-up of decades of high-level activity in an industry that is overwhelmingly passenger-oriented. Yet-unmentioned-between and within some issues, the fortunes of the cargo business are included and real.

Robert Crandall
     Last spring, Crandall, now 17 years since retirement as chairman and executive officer of AMR Corporation and American Airlines, opened wide his experience and opinions in a riveting address as central part of the Wings Club Foundation’s Harold R. Harris “sight” lecture.
     A native of Westerly, R.I., he was a graduate of the University of Pennsylvania’s Wharton School in 1960.
     Had he noted any significant changes in his post-airline years? Absolutely. The most dramatic was the “long anticipated consolidation of multiple major carriers,” morphing a highly intensive competitive industry into a sellers’ market. Four megacarriers control about four-fifths of U.S. originating passengers. Speaking academically, Crandall held that “the bare-knuckle brawls” since deregulation are largely nonexistent.
     Still, change has been on leaden feet. While air transportation economics has undergone important change, he hasn’t seen much change since retirement. The business, he said, “remains uniquely capital- labor- and fuel-intensive. Because the federal aviation administration operates the national airspace system, he maintained that “airlines are uniquely and adversely impacted by the political conflicts that seem endlessly to rage in Washington”.
     Is more airline consolidation in the wind? Crandall thinks so. Behind his thinking is the record or “favorable economic impacts” further consolidation, he said was “likely”. Crandall added: “In addition to continued growth and consolidation, I think we will see more intensive use of automated tools and techniques to cut costs and facilitate the customer experience.”
     Bob Crandall, who The Wall Street Journal credited with “having changed the way the world flies,” warned that if evolution displaced three trends—growth, consolidation and automation—“the industry’s major problems are going to go unresolved. These problems were identified as unhappy customers, inadequate and uncertain funding sources, an outmoded airspace management system, deteriorating airports, and an intrusive, overpriced security system—nor provide “proactive responses to other problems, including unfair international competition.”
     How can one do a better job of satisfying customers? This, said Crandall, is one of the problems the industry should be giving great thought. In his candid opinion, bluntly stated, “there is little doubt that many airline customers are deeply dissatisfied”. According to the American Customer Satisfaction Index, airlines rank 20th out of 22 industries tracked. American’s ex-chief drew on a list of these dissatisfactions: indifferent employees, hidden fees, late and cancelled flights, cramped seating, delayed and lost luggage, substandard frequent flyer programs, fewer service options, and incompetent complaint resolution. He confessed thinking it unlikely that airline customers “will ever think as well of us as well as we think they should”.
     In the business of air shipping, price is unquestionably the customer’s first concern. Deep in the same mold, the price of passenger flight “was and remains the driver”—which ultimately leads to carriers installing more seats in their planes. But Crandall didn’t accept seating arrangements as a final solution, stating:
     “Acknowledging the public’s preference for price over nicety does not preclude using technology to improve the product and make the travel experience more enjoyable. In-flight connectivity, for example, becomes a reality on most domestic aircraft, and is beginning to appear on international flights as well. While connectivity is highly valued by those who must stay connected for business purposes, it’s utility for non-business travelers, for airline crews and for the airlines themselves has been limited to date by the slow speeds imposed by inadequate bandwidth and early stage technologies. In the next few years, technological advances now being perfected and installed by GoGo and others—I am a director of GoGo—will greatly increase the speed and utility of both air-to-ground satellite linkages. As speeds increase, crews will be able to do a better job of serving customers, passengers will be able to enjoy more entertainment options, and airlines will be able to gather more information about planes in flight than has been possible in the past.”
     Anticipated results: fewer delays, lower costs, increased customer satisfaction.
     To achieve the goal of improved service, Crandall suggested that the industry turn its back on some of the outsourcing and allocate a little more “cash flow to labor and reduce capital a bit. As he sees it, this act would generate hefty public approval while ticking up employee and customer benefits.

Robert Crandall More Photos
Corporate public relations boilerplate photographs are fairly common stuff, and no doubt during his 25-year career at American Airlines, volumes were created. However, something unexpected emerges here. Notice the unqualified joy on the face of Bob Crandall at various corporate and American Airlines-inspired functions. Whether he was busy creating one of the truly great airlines of the world, performing community service, or having a good time, Bob showed up to party.

    Statistics are often employed to underscore opinion. Crandall brought forth his figures as a shocker.      Turning the calendar back to 1959 when American scheduled its first transcontinental B707 flight (LAX-JFK), the carrier planned a block time of 4:45 westbound and 4:00 eastbound. Today’s times are 6:31 and 5:40, respectively—a deterioration of 30%. Said Crandall: “I cannot tell you how much of that deterioration is due to operating at less than design speeds to save fuel and how much to airways and runway congestion, but I can tell you that reducing the impact of congestion will produce a handsome financial and environmental return on whatever investment is required.”
     There are “common-sense steps” that need to be taken. But Crandall is frankly “astounded’ by positions taken in some quarters of the business. He hit those who rejected compromises for the “common good” as well as a Congress “unwilling to offend anyone”. He cited Bill Shuster, chairman of the House Transportation and Infrastructure Committee, who asked industry participants to ignore “petty politics” and lend support to his effort at a “transformational” bill.
     It’s high time for the United States to add speed to its progress toward completion of “next-gen (advanced air traffic management” or ATM), which provides many benefits. He urged eliminating the ATC from the FAA and build a self-supporting corporation to take over the ATC function. With the ATC out of the FAA, other choices are required: How to pay for ATC activities. How to finance other FAA functions? How to govern the new ATC? Crandall suggested that predecessors have shown “ways that work”.
     Major airports are the recipients of about half the Airport Improvement Program’s $3.5 billion a year. Major commercial airport operators are on record that they are willing to surrender AIP as a replacement for higher PFCs. The airlines, however, are not buying this. Their preference is to pay for newer and more capacious facilities via higher rental charges and landing fees. Crandall tends to favor the airports’ side of the argument, holding that a GAO study shows that the impact of higher PFCs and higher charges have “little impact on the volume of travel. And many international airlines, as well as IATA, are of the opinion that facility charges should be borne by the traveler. To be sure, Crandall proposed what he believed to be “a good deal”. This would involve exchanging higher PFCs for air and building provisions to give carriers some protection from airport “grandiosity”!
     Turning to security, American’s former boss eyed its “hassles and costs”. He declared that over the years TSA has “grown enormously” and has done “little to identify ineffective aspects of its operations”. Today, more than 50,000 TSA employees are performing their duties at more than 450 airports. The cost to travelers and taxpayers is $7.5 billion a year.
     According to Crandall, “a lot of that is simply “wasted”. Behavior detection officers (BDOs) cost TSA $200 million a year. A GAO report issued in November 2013 stated that TSA had spent $900 million on BDOs since the program’s inception, but had not kept a single terrorist out of an airport or off an airplane”.
     Nor did Crandall’s critique end there. There were the “several thousand” air marshals (whose actual total is classified information) covering roughly 10% of all flights, produced an annual average of four arrests. A bit of arithmetic results in about $250 million per arrest. Calling agency’s mission vital but flawed, he urged the industry to “push Congress to take a very hard look at TSA”.
     In an abrupt shift of topic, Crandall asserted a dire need: halting “handing our aviation markets and our aviation jobs to foreign airlines and service providers in other countries”. He remarked parenthetically occasionally thinking that some of the country’s economic policymakers have “lost track” of a basic truth: In order to be a consumer, a priority is finding a job. And he went on to say:
     “The labor participation rate in the United States is far lower than it has been in prior years. Back in 1970—when I was working for TWA before moving to American—about 68% of national income went to labor, and the remaining 32% went to capital. Forty years later, in 2010, those shares had become 62% for labor and 38% for capital, which means that about $1trillion had moved from the labor column to the capital column. As income flowed away from labor, household incomes atrophied. Between 1989 and 2013, median household income didn’t increase at all. These dreadful numbers of course, simply underscore how dramatic income inequality has become. There are many reasons for these changes . . . However, I will note that some of the damage can be attributed to the misuse of Open Skies negotiations by the United States government and abuse of Open Skies treaties by some of the countries with whom Open Skies were agreed”.
     Over the past 23 years, the United States has signed Open Skies pacts with 111 foreign governments. Each of these negotiations was approached “with the attitude that any Open Skies agreement is consistent with the best interests of the United States”. Crandall admitted that he never agreed with that approach, holding there had been a few agreements, which were, at the time they were signed and in ensuing years, “clearly contrary to the interests of U.S. carriers”.
     Bluntly expressed, Crandall is a strong proponent of good jobs which outweigh low prices. He applauded fair and equal competition; not so, unfair and unequal competition which permits international carriers to “deprive U.S. airlines of the inherent advantages of our huge home market are inappropriate and damaging to our airlines and our economy”.
     Crandall called attention to recent concerted action by American, Delta and United who provided Washington with hard-core information about state-owned carriers and Qatar and United Arab Emirates are on the receiving end of huge subsidies from their state sponsors. Arguing that these airlines would not be commercially viable without the subsidies, under existing circumstances they are stealing considerable traffic. The three U.S. complainants pointed out that unions and other employee protections normal in U.S. industry are prohibited in Qatar and UAE. He termed “nonsense” charges that the U.S. airlines sought ‘protected markets”. The decisions and practices of the Persian Gulf airlines, Crandall said, may in the long pull, force U.S. carriers to withdraw from many international routes.
     In a final shot, Robert Crandall declared, “we can and should end the charade of the assailed Gulf carriers”. He expressed hope it happens soon, as well as a “careful reexamination” of all our Open Skies agreements.
Richard Malkin

Richard Malkin



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