Hard Landing (74 page)

Even in the aftermath of the Gulf War, with airlines around the world losing billions of dollars annually, Colin Marshall could unabashedly proclaim British Airways the “world’s
most profitable airline.” It distinguished itself as the last privately owned airline in the world to preserve
an A rating from the credit agencies.

As part of a rearguard action against the invading American carriers, Marshall stepped up his strategy of promoting multiple “brands” within a single airplane. The company established a free valet service for passengers in premium classes, complete with luxury showers, changing rooms, and clothes pressing right inside Heathrow. Bob Crandall was angry that American did not know about the new facility until after the construction had been completed. “When those hammers
started hammering, we should have been down there looking under the curtains!” he snapped during a meeting with employees in London.

Service was only part of the battle. With United and American attacking from the west and the surging carriers of Asia attacking from the east and Virgin Atlantic in his backyard, Marshall resolved to make British Airways the
first global megacarrier not only by spanning the globe but also by collecting and transporting passengers within individual continents and countries. He bought control of a German airline that fed passengers into a British Airways hub
at Berlin. He bought nearly half of TAT European Airlines in France, linking its operations at Charles de Gaulle Airport with long-haul British Airways departures. He picked up a major interest in Qantas, the Australian national carrier with the elegant, leaping kangaroo on the tail of its planes.

Even so, a gaping hole remained in Marshall’s global expansion plans. It was the United States. He had briefly succeeded at breaking in through United, only to watch his code-sharing partner turn into his competitor. Every other airline in America was either bankrupt, in business against British Airways, or already hitched up with a European counterpart—except for USAir.

It was, if nothing else, a survivor. USAir by 1992 was the last of the original local-service operators. Few airlines had been more brilliantly managed or more consistently profitable in the years immediately preceding and following deregulation. Much of its success was due to its near-monopoly of Pittsburgh, which flourished as a medical and high technology center in the postindustrial economy of the 1980s. Pittsburgh was also one of the country’s most valuable hubs, perfectly situated among the Great Lakes, New England, and mid-Atlantic regions. USAir was a short-haul airline, Chairman Ed Colodny liked to say, “because that’s the way the country’s built
east of the Mississippi River.”

Colodny assiduously resisted major acquisitions until, in the late 1980s, it was clear that USAir either had to begin swallowing other airlines or be devoured itself. It laid out a total of $2 billion to acquire PSA in California and Piedmont in the East, but it managed the mergers poorly. Because USAir had been so profitable for so long, workers refused to give meaningful concessions. The fuel-price surge following the invasion of Kuwait punished USAir severely because of its concentration of short-haul routes. Then to the rescue came riding Sir Colin.

Marshall proposed to invest in USAir the same $750 million he had tried to put into the ill-fated employee buyout at United. In exchange British Airways would have 21 percent voting control—safely within the legal limit. Together British Airways and USAir
represented the largest airline in the world, with $16 billion a year in business. They served 339 cities in 71 countries. Marshall was convinced that within five years British Airways and USAir, on an operating
basis, would become
a single airline with one route system, one management, and possibly one name—British-American Airways, perhaps.

Marshall had spent enough years working in the United States to recognize the virtue of completing his USAir investment before the 1992 presidential campaign reached its peak, for the deal was politically vulnerable in one respect: although British Airways would have only 21 percent voting control, its massive contribution of cash would represent 44 percent of the equity in troubled USAir. That gave the U.S. Department of Transportation the power to wreck or wave through the deal.

The agency expressed no misgivings, until Bob Crandall threw a hissy. Crandall had seen such a deal coming; in the high-stakes trading over access to Heathrow a year earlier, the United States had approved unlimited code sharing by British carriers. Crandall’s people did some quick arithmetic and came up with
20,000 pairs of cities for which British Airways theoretically could list its own flight numbers, even if USAir was flying all the segments within the United States. British Airways could, in theory at least, fill the travel agency screens of the world with artificially seamless flights—Milwaukee to London, say, or even Richmond to Riyadh.
Crandall was convinced that Marshall had taken one of the most dramatic steps in the history of commercial aviation.

Fulfilling Marshall’s worst fears, Crandall moved to engage the presidential candidates. Independent Ross Perot had catapulted himself ahead in the voter polls by demagoguing on the “giant sucking sound” of jobs going overseas. Crandall, who had recently built a massive
maintenance facility on property owned by the Perot family, got a call through to the candidate just before the last of the presidential debates. When the rapt and massive audience was tuned in, Perot cackled, “We’re getting ready to dismantle the airline industry in our country, and none of you know it!” The British Airways deal, Perot said, would be “terribly destructive to the U.S. airline industry.” Stephen Wolf meanwhile worked the
Clinton campaign, and before long, candidate Clinton declared that he had “real problems” with the deal.

Sir Colin knew he could preserve his deal for a price: giving up some of his landing slots at Heathrow to the American carriers. But
that price was too great. Marshall considered the barrier around Heathrow to be the “ultimate
bargaining chip,” worth trading away only if British Airways won the right to fly anywhere or own anything within the United States.

Marshall announced the deal was off—but only to prepare a second maneuver, this one designed from the bottom up to be attack-proof in Washington. In January 1993 Marshall’s people won the agreement of USAir’s leaders to spread out British Air’s big investment over several years. The first step would involve $300 million, representing only 19.9 percent of USAir’s equity—safely within the law by any method of reckoning. In future years, as USAir’s equity base swelled, Marshall could inject additional funds. The new terms left the U.S. government with no grounds on which to intercede.

Marshall announced that the deal had been completed on January 21, 1993, only hours after Bill Clinton had been sworn in as president. Crandall’s PR people were instructed to plant suggestions in the press that Sir Colin was trying to slip a fast one past the new administration, though the timing appeared to be coincidental.

One step remained in Marshall’s grand ambitions—mostly a formality, perhaps, but one that meant something to him. Although Marshall by 1993 had been running the show for nearly 10 years, the title that he had once confessed to coveting more than any in the world—chairman of British Airways—still belonged to the curmudgeonly Lord King of Wartnaby.

Shortly before completing the USAir deal,
Lord King convened a meeting of the British Airways board in London at which the company’s outside law firm reported on the suit that music impresario Richard Branson of Virgin Atlantic had filed nearly two years earlier, the suit charging British Airways with dirty tricks and Lord King with libel. To the astonishment of the board British Air’s lawyers reported that Branson had a point. British Airways
had
poached Virgin’s passengers. British Airways operatives
had
spread malicious stories about Branson. It was evident that British Airways would have to settle with Branson. If nothing else, the delicacy of British Air’s efforts, to crack into USAir demanded disposal of the Branson affair.

British Airways agreed to pay nearly $1 million in damages, one of the largest judgments ever paid in a British libel case. Of greater
relevance to Branson was the assent to a public apology. “Both British Airways and Lord King apologize unreservedly for the injury caused to the reputation and feelings of Richard Branson and Virgin Atlantic,” a lawyer for Lord King stated in court. In the orgy of congratulation that surrounded Branson, the
Princess of Wales sent him a note from Kensington Palace scrawled with a single word: “Hurray!”

Within weeks, his retirement date accelerated, Lord King was gone. Marshall, having
signed a statement disavowing any knowledge of the dirty tricks campaign, assumed at last the title of chairman—an almost eerie replay of the circumstances by which he had become the head of Avis two decades earlier.

After the machinery of Marshall’s USAir agreement was bolted into place, British Airways flights were teeming with connecting passengers scooped up in the cities served by USAir—each a passenger that might otherwise have conducted his or her entire journey on United or American. For itself, however, USAir was operating poorly, though by 1995 it had finally finagled wage concessions from most of its labor groups. The airline was afflicted with a spate of tragic accidents, including one that killed 132 at its principal hub of Pittsburgh. But USAir’s problems did not diminish the financial benefits of code sharing to Sir Colin, which he estimated to total £70 million in 1994 alone.

Branson, for his part, catapulted Virgin into a new phase of worldwide growth, adding Tokyo, Hong Kong, Los Angeles, Boston, Miami, and Orlando to his schedules. In 1992 his sale of Virgin Music to Thorn EMI for nearly $1 billion gave him all the money he could ever want to pour into Virgin Atlantic, although in the airline business it was possible to burn up money faster than even Branson could earn it. Though becoming the
ninth wealthiest person in Britain following the sale of his label, Branson had acquired few pretensions. He still seldom wore a tie and ran from office to office in his Holland Park mansion with instructions to himself scrawled across the back of his hand.

The company’s litigious history and its emphasis on festive flights strongly recalled Southwest Airlines. The two chairmen were even physically similar, with blue eyes, light hair, rumpled attire, and the look of men who had done some partying in their day.

“
People keep saying I should meet Herb Kelleher,” Branson once told a visitor from America.

When the 1990s hit, Herb Kelleher hit California.

Although Southwest Airlines was already flying into California on slots he had tricked out of the FAA, Kelleher had avoided the north-south corridor between Los Angeles and San Francisco. The busiest air corridor in the world, it had long been famous for bruising fare battles. When USAir began to cut back the service it had acquired from PSA—PSA, the very airline whose low-fare flights of the 1960s had inspired the creation of Southwest—Kelleher jumped into the void.

Southwest established itself first at the secondary airports of Oakland on the northern end and Ontario and Burbank on the southern. Cutting fares by two thirds and more, Southwest caused the number of Oakland-Ontario passengers to surge by 123 percent in only the first quarter of service. The route from Oakland to Burbank instantly became the
28th busiest aviation route in the United States (up from 272). As USAir cut back further, Southwest quickly rushed in, soon becoming the second largest carrier in California. United, the market leader, promptly began losing its shirt to keep what it had.

To Kelleher picking city pairs and launching massive operations had become a matter of formula, and although the formula succeeded to varying degrees, it never seemed to fail. Through 1992 and 1993, while the rest of the industry added up its losses, Kelleher continued reporting massive profits. In came more planes—737s all. Southwest’s arrival in a new city not only sparked a surge in new travel but often an economic development boom.
Spiegel, for instance, established a massive mail-order center in Columbus, adding 1,500 jobs to the local economy, in part because Southwest added service to the city. So many people made the 135-mile drive from Memphis to catch Southwest flights in Little Rock that a truck stop halfway in between, in Wheatley, Arkansas, began pumping 20 percent of its gasoline for Southwest passengers.

Kelleher’s employees continued to worship him. A group of pilots passed the hat and bought Kelleher a chrome-plated Harley Davidson trimmed in Southwest’s colors, presenting it to him at a company
chili cook-off with 5,000 in attendance. Kelleher practically wept. He was perpetually looking for excuses to party, to loosen things up, to poke fun at himself. In 1992 Kelleher proposed to settle a minor trademark dispute with a sporting adversary by arranging an arm wrestling match, which he called “Malice in Dallas.” Flight attendants in scoop-neck tops turned out as cheerleaders; Kelleher donned a white headband and twisted a cigarette between his lips. When Kelleher’s wrist had been pinned, he keeled to the floor and was carried away on a stretcher, an intravenous line running from his arm to a bottle of Wild Turkey.

Wolf was as meticulous and precise in his early 50s as he had been when he positioned his food on the tray of his high chair. His
friends nowadays preferred taking him to restaurants with limited menus so that he did not spend half the evening interrogating the waiter about the selections.

When he traveled overseas—something he did with tremendous frequency now, often crossing time zones by the dozens in a couple of days—Wolf carried a thick black binder that blocked out his schedule to the minute and contained seating charts and menus for his dinners, license plate and telephone numbers for the various cars meeting him, temperature ranges, locally preferred greetings and salutations, and the résumés of anyone he was likely to encounter. His briefing books, prepared by a Yale lawyer with an M.B.A. degree from Stanford, left little to chance. In Japan, for instance, Wolf’s talking points reached all the way to the idiomatic: “It is a pleasure to meet you.… We must take care not to overreact to transitory circumstances. To use an American expression, we must be careful not to ‘throw out the baby with the bathwater.’ ”