Hard Landing (10 page)

Burr’s frustration became dangerous. He owned a small single-engine
plane called a Mooney, known for speed—a hot-rod plane, as Burr thought of it. The plane was his escape vehicle for the weekend.
One weekend Burr climbed into the Mooney with his wife, then nine months pregnant, and his two children in the back seat, bound for a weekend of skiing in Vermont. Though the weather was threatening, Burr took off. Soon the plane was caught in a snow squall. It pitched and dove. His children began to vomit all over the back seat. He couldn’t make sense of his instruments. Airports were closing; he could not find a place to land. Soon he was running low on fuel. A controller finally talked him through a landing in the blinding storm. Never again would Burr pilot an airplane.

Burr left Wall Street in 1973 to work at Texas International, headquartered near Hobby Airport in Houston. Texas International made its home in a
windowless building constructed of galvanized metal whose azure hue caused employees to call it the Blue Barn. Figuratively the Blue Barn resembled Peyton Place, with Byzantine intrigue and office politics that eyewitnesses would later describe as Kafkaesque.

Burr accepted Lorenzo’s job offer, making it clear he wanted a
full partnership: the same pay, stock options, and responsibilities that Lorenzo had. They would become co-chief executive officers of Texas International, as Burr understood it. But when Burr arrived in Houston, he found Lorenzo had made him chairman of the executive committee, whatever that was. Then, when the two of them paid a
visit to Alvin Feldman, the head of Frontier Airlines in Denver, Feldman looked at Burr’s business card and remarked that at some companies, the most powerful executive carried that title. Lorenzo soon made Burr an executive vice president instead.

Once Burr was on the scene, Lorenzo’s longtime partner, Bob Carney, was all but
yesterday’s news. Though Carney continued his probing financial investigations and maintained vital contacts in the banking community, it was Burr who became Lorenzo’s soul mate. Despite their misunderstanding over Burr’s titles, they worked, ate, and drank together—and always the conversation was airlines, their airline. When Lorenzo married, Don was his best man. When Burr’s son Cameron was born,
Frank was the godfather. But they also fought. Burr would grow emotional, yelling and gesticulating, until Lorenzo would cut him down, elliptically targeting some vulnerability,
playing a “conversational crossword puzzle,” as Burr called it, to keep him and others off balance.

How come our on-time performance was so bad last month?

Frank, you may remember that we had a hurricane!

Well, then, why didn’t you have the planes tied down?

“He would make you
feel despicable,” Burr later said.

Yet still they grew closer. They began jogging together, eventually competing in the New York Marathon, skiing together, spending holidays together, and always, it seemed, quarreling.

On one issue, though, they were in complete agreement. With Southwest Airlines having replaced its fourth airplane, it was soon bringing in its fifth and sixth 737s. Texas International had an edge over Southwest since it had many connecting routes outside of Texas on which Southwest was prohibited from competing. But Lorenzo and Burr would have to cut costs if they had any hope of competing inside Texas.

Burr and his operating aides therefore hung tough when a labor contract for the airline’s ground employees came up for renegotiation. Finally Burr went to Lorenzo for approval of a final offer that everybody at the bargaining table had resolved to live with. Burr, hearing no objection from Lorenzo, then gave the go-ahead to the company’s chief negotiator. The negotiator, bargaining late into the night, at last closed the deal, and Burr once again called Lorenzo.

“
Frank, great news,” Burr said. “We got the deal.”

“What deal?” Lorenzo asked.

“You know, the deal we discussed!”

“I didn’t agree to that.”

Burr was stunned. Of course Lorenzo had approved the deal, he thought. But now the company’s negotiators had to go back to the bargaining table and take it all back. The union, outraged, promptly launched a strike, the first in Texas International’s history. The strike, one of the longest in the industry in years, lasted some four months, but it was no financial calamity for Texas International. The industry had a program known as “mutual aid,” in which all airlines subsidized the losses incurred by any one of them that took a strike. It was the airlines’ way of assuring that wages never got disproportionately high at any one employer—that they would all remain in the same boat, so far as wages were concerned. During his long
strike, Lorenzo raked in more than
$10 million in mutual aid from the rest of the airline industry. He had turned adversity into gain. As he later confided to Burr, “We
needed the strike.”

The strike was a blessing for Lorenzo in another respect: it forced him to come to terms with Southwest, in a way that would revolutionize the airline industry.

The showdown came over service to the unlikely locale of Harlingen, Texas. Harlingen was a dusty border town in the southernmost tip of Texas, a Hispanic-settled agricultural center that seemed as much a part of Mexico as America. Texas International had served Harlingen for years. Although the city never seemed to produce more than a handful of passengers, the fare was always high. A remote six or eight hours by car from just about anywhere, Harlingen was vitally dependent on that air route. When the strike shut down Texas International’s service, the townsfolk of Harlingen felt betrayed.

Southwest’s operating chief, Lamar Muse, saw Harlingen as the perfect place for Southwest to take its next step; Harlingen was only a few minutes by car from the coastal resort of
South Padre Island, which Muse recognized as an up-and-coming tourist spot. But Harlingen was among Texas International’s most dearly held destinations, a monopoly route with high fares. Lorenzo vowed to block Southwest from Harlingen,
sparing nothing in the effort.

Lorenzo’s aides launched an advertising campaign depicting Southwest as a Trojan horse with wings, claiming that if Texas International were forced to abandon service from Harlingen, the city would lose its vital route connections to destinations all across America. Texas International, after all, could pick up business passengers and cargo in Harlingen and arrange their shipment to any region of America, if not on its own system, then on Braniff or another airline. Southwest, by contrast, was strictly a point-to-point carrier. Southwest did not write connecting tickets. It did not “interline” baggage or freight to other airlines. Southwest
didn’t even carry U.S. mail. (Doing so caused too many late departures.)

In defending his monopoly, Lorenzo hired a new general counsel named Sam Coats, a former Texas state representative who had grown up in Harlingen. Charged with rallying the hometown folks against Southwest, Coats failed to deliver anywhere near the support
Lorenzo required. When
dozens of Harlingen residents made the long trek to Austin for a public hearing on Southwest’s application (by bus, because Texas International was still on strike), virtually all of them promoted, rather than opposed, the new service by Southwest. The best that Sam Coats could do in Texas International’s behalf was to have a
funeral director from Harlingen testify that he relied on Texas International’s connecting flights to ship snowbird caskets outside Texas for burial.

Southwest’s new intrastate route was readily approved, and suddenly, at the nice round figure of $25 each way, Southwest was carrying close to a thousand people a day where Texas International had been lucky to carry a few hundred at $40. Before long,
passengers from Mexico were coming over International Bridge in droves to seize the low fares. Harlingen Airport was teeming with such business that the dirt parking lot had to be paved over.

Lorenzo, Burr, and everyone else at Texas International watched as Southwest launched one jam-packed plane after another. Texas International had to do something drastic, fast. Its executives launched themselves on a crash course in discount pricing economics, with Lorenzo joking that they were now enrolled at
Southwest University.

The duty to develop a response fell principally to two of Don Burr’s subordinates. One was Gerald Gitner, who had been hired as Texas International’s marketing head a few years earlier at the age of 29. Gitner was one of the true prodigies of commercial aviation, an industry in which, everywhere outside of Texas International, the old fogies held sway. Hired at TWA in 1968, Gitner had soon become the youngest vice president in the industry. He was, among other things, one of the first people in the industry to discover the “portable” electronic calculator—a device the size of a salesman’s case that Gitner hauled around to route swaps and other complex bargaining proceedings among the airlines. Gitner reeled off numbers and analysis with such speed and intensity that his coworkers called him
Gatling Gun Gitner. Eager for the chance to earn some equity, tiring of the dinosaurs who didn’t “get it,” Gitner abandoned his 40th-floor corner office at TWA, with its view of the harbor and Kennedy Airport in the distance, to work in the windowless confines of the Blue Barn in Houston. One of Gitner’s principal aides, in
turn, was James O’Donnell, who had
started his career conducting sales calls on pharmacies for the maker of Vicks Vaporub. O’Donnell had gone on to Mohawk Airlines, where he had become acquainted with Lorenzo, and later to Texas International.

Burr and his aides began their counterattack by trying to pack more seats into each airplane. Most of the industry in recent years had been going in the opposite direction, ripping out interiors and installing ever wider seats with more room between rows. One of Burr’s planners, however, read about the crash of an Aeromexico DC-9 in which some 90 people were killed, and exclaimed “Ninety? Shit! We’re only carrying 70 on a DC-9!” Burr began studying ways of packing seats more tightly, a complex undertaking that demanded reconfiguring the ballast of the planes, recalibrating takeoff speeds, and installing altogether different tires.

As they studied ways to answer Southwest’s advancements, Lorenzo’s boys quickly realized the virtue in working for one of the smallest airlines in America. With all departments under a single roof, they could analyze boarding patterns by walking down the hall to the revenue processing department and flipping through the ticket stubs for any flight. While bigger companies compiled and collated their operating data according to the reporting requirements of the CAB, Lorenzo’s people worked up their own spreadsheets by hand, according to their own curiosity, a task made infinitely simpler by Gitner’s experience in operating an electronic calculator.

It soon became evident to all of them that Texas International could not compete head-to-head with Southwest. The company could replace the business it had lost to Southwest only by raiding the bigger, more established carriers of passengers. But with its Tree Tops image, how could Texas International ever hope to distinguish itself from the bigger airlines? With a price discount—if they could ever convince the government to allow it.

Lorenzo’s former Harvard classmate, Bob Carney, urged caution; a price cut on the order of 15 percent, he argued, would be radical enough. The junior men in the group, Gitner and O’Donnell, pushed for something simple, something nobody could forget, something like half off. It reminded O’Donnell of his days selling Vicks Vaporub—
half off if you order today!
“A bargain isn’t a bargain unless it’s perceived as a bargain,” Gitner argued.

The arithmetic was obvious: flying a plane completely full at one half the fare was better than flying it one-third full at full fare. Lorenzo, though
eager for the acceptance of his fellow airline chieftains and reluctant to break their pricing stricture, began to appreciate the logic of slashing prices. He told people how busy his father’s Third Avenue beauty salon became when a sign went into the window promoting a
special on permanents.

Lorenzo gave his approval.

On November 2, 1976, Jimmy Carter defeated Gerald Ford. The following day, only a block north of the White House, Gerald Gitner of Texas International stood behind a lectern at the Hay-Adams Hotel to announce that the company was going to the CAB for permission to cut fares by 50 percent in a few markets—interstate markets. Texas International dubbed the new prices “peanuts fares.” It was a pleasant coincidence that peanuts were the airline snack of choice and that the newly elected president of the United States was a peanut farmer.
Flying back to Houston aboard Braniff (Texas International did not serve Washington), Lorenzo’s staffers were delighted to overhear passengers marveling over the
Washington Star
account of that morning’s announcement. “Jesus Christ! Did you see this?” one man exclaimed. “You can fly half-price!”

These were not charter fares. They weren’t holiday specials. They were price cuts, pure and simple, of the kind for which the CAB was fully empowered to send people to jail, except that these fares would soon have the official blessing of John Robson and the other radicals who had moved into the CAB. For the first time in nearly 40 years, an airline flying people across state lines was allowed to institute an across-the-board price cut in response to market conditions.

Back in Texas it was off to the races. On the first day of peanuts fares, Texas International’s passenger loads doubled. They doubled again on the second day, then hit an increase of
as much as 600 percent by the end of the first week—with no advertising except by word-of-mouth and the free publicity generated by the peanuts angle. A product that many people had never even contemplated buying was now, at half off, well within their reach. The notion of value, seldom explicitly applied as a marketing concept in those days, was in full flower. Now confinement to a middle income bracket no longer automatically denied one the excitement and convenience of
flight (if one happened to live in a town served by Texas International, that is).
Surveys showed that 25 percent of the people flying on “peanuts fares” would have otherwise made their trip in a car; an additional 30 percent otherwise would have stayed home. Some of these new, first-time fliers began to think about doing it a second time, and a third.