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- <text id=91TT2431>
- <title>
- Oct. 28, 1991: Interview:Robert Crandall
- </title>
- <history>
- TIME--The Weekly Newsmagazine--1991
- Oct. 28, 1991 Ollie North:"Reagan Knew Everything"
- </history>
- <article>
- <source>Time Magazine</source>
- <hdr>
- INTERVIEW, Page 18
- The Man Who Fired a Dog To Save a Buck
- </hdr>
- <body>
- <p>Tired of cramped seats in planes? Angry at rising fares?
- American Airlines chairman ROBERT CRANDALL argues that you are
- still better off in the deregulated skies.
- </p>
- <p>By Janice Castro and Richard Woodbury and Robert Crandall
- </p>
- <p> Q. A lot of people feel that the big carriers have got to
- be reined in, that we need more public control over air service
- in this country.
- </p>
- <p> A. Senators and Congressmen who want to tell the airlines
- what to do are not sticking up for consumers. It's consumers
- who pay when we are forced to operate in inefficient ways.
- </p>
- <p> Suppose they said, "We don't want you guys to lose our
- bags anymore. And every time you lose a bag we're going to fine
- you a million dollars." Well, I can fix that tomorrow morning!
- We will never lose another bag. But it will be very
- inconvenient to travel. Today you come into Dallas-Fort Worth
- from all these different places, and in 45 minutes you make your
- connection and you go out. But in the world of the future, where
- bags are never lost, I'm going to keep you there for three
- hours, because I'm going to make sure I get every bag.
- </p>
- <p> Q. In 1978 Washington began to deregulate the airlines
- with the goals of increasing competition and improving service.
- Yet critics say deregulation has backfired, that it has
- enriched the biggest airlines but has hurt passengers by
- producing less competition, higher fares and fewer choices.
- </p>
- <p> A. It would be hard to be more wrong. Studies by the
- Brookings Institution show that during the first 10 years of
- deregulation, passengers saved $1 billion.
- </p>
- <p> Q. Well, of course fares were lower during the '80s. But
- that was during the shake-out, during the bloodiest fare wars
- in airline history. That wasn't a normal period.
- </p>
- <p> A. What is? The problem isn't deregulation; it was
- regulation. For 40 years, the government regulated the airlines,
- and did a perfectly awful job of it.
- </p>
- <p> Q. That's not how consumers remember it.
- </p>
- <p> A. That's because regulation distorted reality. When the
- government was running things, regulators designed any kind of
- routes and service they wanted, with no regard whatsoever for
- matching consumer desires or providing something that people
- were willing to pay for.
- </p>
- <p> Q. Still, one result is that air travel is less
- convenient. Left to their own devices, airlines have eliminated
- many direct flights and have forced passengers into the
- Cuisinart machine of a system that forces people to fly to hubs
- like Chicago or Atlanta in order to catch planes to their real
- destination.
- </p>
- <p> A. Let me ask you this: Do you have a grocery store right
- next to your house? Well, why not? Wouldn't it be more
- convenient for you? Of course it would! If you could regulate
- grocery stores, you might be able to have a rule that there
- would be a grocery store on every block. But how many grocery
- stores can one neighborhood support? That's what airline
- regulation did. The government required us to put in all kinds
- of service that consumers didn't need. And we've been trying to
- sort it out ever since. The hub-and-spoke system helps to hold
- down prices.
- </p>
- <p> Q. Then why are average fares higher at the hubs?
- </p>
- <p> A. Because the best flights are available there. Nonstop
- flights cost more, and a lot of people choose them. If you are
- in Dallas-Fort Worth and you want to go to La Guardia, you can
- fly nonstop and pay a premium for that convenience. Or you can
- save some money by flying a connecting flight, say through
- Chicago. The notion that we're gouging people is crazy. It's
- sort of like asking, What's the average room rate at the Ritz
- Carlton and Motel 6? Well, it's higher at the Ritz Carlton. It's
- nicer there. You get what you pay for. If you want a lower
- price, you can go to Motel 6.
- </p>
- <p> Q. You have defended the fact that the seats are so much
- closer together...
- </p>
- <p> A. Because that's what the public wants.
- </p>
- <p> Q. Cramps?
- </p>
- <p> A. We can only provide the service that the public is
- willing to buy. The public selects airlines on the basis of
- three factors: price, price and price. So it is imperative that
- we do all we can to offer the maximum possible service for the
- lowest reasonable price. Deregulation works. There are more
- flights, and there is more competition than there was in 1978.
- </p>
- <p> Q. And yet after 10 years, American, United and Delta
- control almost 60% of all U.S. air traffic, and will soon
- control about a fourth of all world traffic. The big carriers
- keep getting bigger, and most of the small ones are going out
- of business.
- </p>
- <p> A. Look around the world: almost every other country has
- one airline. Why? Because airlines are enormously expensive to
- operate. They are not a business that can be practiced in just
- one place. We have to buy a lot of airplanes and move them
- across a vast network to carry people from many places by way
- of interchange points to other places.
- </p>
- <p> Q. What about concerns that the financial stress of
- deregulation has hurt safety?
- </p>
- <p> A. Anyone who says that is wrong. The FAA is responsible
- for safety. Safety was not deregulated. The safety record of
- the airline industry is materially and dramatically better than
- it was during regulation.
- </p>
- <p> Q. Now that American is so big, now that you've won the
- game, you're insisting that fares must rise.
- </p>
- <p> A. Well, of course they've got to. The airline business is
- losing billions of dollars. Last year was the worst this
- industry has ever had. Right now, almost 30% of our airline
- service in this country is being provided by carriers that are
- bankrupt or nearly so. Now how can you possibly say the fares
- are too high? They must go up, or we're not going to have an
- airline industry at all.
- </p>
- <p> Q. But air traffic has fallen this year. If your fares go
- too high, don't you drive away consumers?
- </p>
- <p> A. No question about it. More than half of airline travel
- in this country is for leisure. As airline prices rise, people
- who would like to travel are going to stay home. They're going
- to buy more lawn mowers, more tickets to the local ball game,
- and fewer airline tickets. But we cannot continue to produce and
- sell a product for less than its full cost.
- </p>
- <p> Q. Why is it so difficult to bring your costs in line with
- your revenues?
- </p>
- <p> A. Running an airline is not like making dog food. In the
- dog-food business, if you get a recession, you just close a
- couple of plants and make less dog food for a while. Nobody
- cares where you make it. They buy it in all the same places.
- </p>
- <p> But it doesn't work that way in the airline business. You
- cannot inventory a backlog and slow down production for a while.
- We make our product every day. If you reduce capacity, your
- costs rise.
- </p>
- <p> Let me give you an example: let's say an airline has three
- flights a day out of a city, which is our average. Say you have
- a flight at 8 a.m., another at noon and one at 5 p.m. Let's say
- I eliminate the flight at noon to cut costs. Now, none of that
- business is going to fly on my 8 a.m. flight or my 5 p.m.
- flight. It all goes on my competitor's flight at 12 o'clock. So
- the result of reducing capacity is to increase my unit costs.
- </p>
- <p> Q. Why do you oppose cities spending so much to expand
- their airports? Isn't that good for your business?
- </p>
- <p> A. Because airports cost a lot of money. Look, the public
- doesn't build airports, we do. When a city decides to build or
- expand an airport, they sell bonds, and the bonds are guaranteed
- by the airlines on the basis of long-term leases.
- </p>
- <p> Capacity draws business, but only if you add it in the
- right places, where people want to go. Many cities seem to think
- that if you build an airport big enough to be a hub, it will
- become a hub. It's like they are building the Field of Dreams.
- </p>
- <p> Q. "If we build it, they will come."
- </p>
- <p> A. But we won't! Not if it doesn't make sense.
- </p>
- <p> Q. Where is that happening?
- </p>
- <p> A. Denver. A lot of money is being poured into building a
- great big new airport way out in the boonies, and they're going
- to close Stapleton Airport. There's no need for a new airport
- in Denver. Stapleton is already one-third empty.
- </p>
- <p> Q. Where do we need airport expansion?
- </p>
- <p> A. Chicago is overcrowded and clearly needs more runways.
- </p>
- <p> Q. What's the problem?
- </p>
- <p> A. Environmental concerns. Airports that need new capacity
- are blocked because people want everything to be quiet. They
- say that if we fly more airplanes, there will be more noise.
- Well, of course there will. We don't fly gliders. But if they
- don't have any growth, there won't be any jobs, and there won't
- be any new wealth. And then it will get real quiet.
- </p>
- <p> Q. You've earned a reputation over the years as the
- financial whiz of this industry. You invented frequent-flyer
- plans and supersaver fares. You are also known as perhaps the
- most relentless cost cutter in the business.
- </p>
- <p> A. We look and we look and we look. We're always trying to
- find a cheaper way to do it, to avoid paying for something that
- people do not value.
- </p>
- <p> Q. Is it true that you once fired a dog to save money?
- </p>
- <p> A. It's true. We had a cargo warehouse in the Caribbean,
- and we had a guy there guarding it all night long. I was
- reviewing the budget, and I wanted to reduce costs. My people
- said we needed him to prevent thefts. So I said, Put him on part
- time and rotate his nights so nobody knows when he will be
- there. And the next year I wanted to reduce costs, and I told
- them, Why don't we substitute a dog? Turn a dog loose in the
- warehouse. So we did, and it worked. Now the following year, I
- needed to get the costs down some more, and my guy said, Well,
- we're down to a dog! So I said, Why don't you just record the
- dog snarling? And we did. And it worked! Nobody was really sure
- whether there was a dog in there or not.
- </p>
- <p> Q. You have said that you sit in this huge office
- overlooking the Dallas-Fort Worth airport and never look out the
- window, that all you do is work and eat and sleep and exercise.
- </p>
- <p> A. Yup, that's the kind of business it is. It's not a
- business for dreamers or dealmakers.
- </p>
- <p> Q. People say you're pretty tough.
- </p>
- <p> A. I think I understand the mission of the company. When
- we must do something, we will do it. Even if it is unpleasant.
- </p>
-
- </body>
- </article>
- </text>
-
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