Southwest vs American - Free LUV | 6
It's fall. Nine hundred eighty five. Thanks to deregulation. No frills knockoffs of southwest. Take to the skies, like crows new carriers start service from coast to coast, but some have trouble staying aloft about one hundred. Twenty airlines have gone out of business or filed for bankruptcy since the industry was deregulated in nineteen seventy eight. Among those successfully rising above the flock, his people express, it's buying plane's cheap, like secondhand clothes from bankrupt. Competitors like granite. It's an airline where mostly young employees own stock share jobs and manage themselves. If southwest is the author shucks airline people express seems like an airline run by new age hippies. The adult at the helm of the youthful airline is Donald. Ver a Harvard educated preppy. And it's no frills airline. Make southwest look posh by comparison passengers pay for luggage, even coughing fifty cents a Cup. They pay for their dirt cheap tickets in flight blue cost airline becomes the greyhound bus of the sky. In fact, it's tickets are cheaper than bus fares flights are packed, but the CEO of people express is about to get a wakeup call from an unexpected source. Hi, mom, what's up, we'll thanksgiving is coming up, so I just wanted to let you know I'm visiting your brother this year. I actually just booked my airplane ticket to go see him. I'm flying on American Airlines way. Mom, you what you booked a flight on American. Yes, they've got a great sale right now. It's all over the news, seventy percent off mom. You can fly free on people express when Burr hangs up. He feel sick. Yeah. His own mother is defecting to American. The airline has been growing explosively moving from second tier two airports in highly competitive markets, but to survive on such thin margins planes need to fly nearly full. And things have been getting ugly airports, people express customers are angry about chronic delays. Cancellations. Some began calling the airline people distress. American smells blood and circles. People express like it's a wounded bird. It aims to knock the star airline and others like it right out of the sky with low fares and dependable flights, and American has a huge technological edge. It's saber reservation system can accurately predict how many seats will be sold on any flight on any given day. Some seat sell for full price, but when Sabre's algorithms detected seats go unsold American quickly offered discounted fares to fill those spots. They dubbed the discounts ultimate super savers American CEO Bob Crandall is moving on another front to he's building new hub terminals at airports around the country at breathtaking speed. Adding on average one new plane thousand new workers to American every week. In early nineteen eighty-seven. Crandall and Southwest Airlines CEO herb Kelleher our in Washington for an industry conference. Someone asks Kelleher what it's like competing with Crandall. Well, I'll tell you being a Dallas right now with what's happening with American. It's not unlike being Finland in the shadow of Russia. Crandall smirks. He's not looking for a detente with southwest just yet as one important difference there. Unlike the Soviets right now, I reduce my arse all those hubs. All those planes. All important weapons to have when the economy is right side up for when things go, south Franco will face a frightening question, will the things that give the company strength suddenly become a liability. We're well into the summer months now. 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So to start getting really great deals at great hotels for this summer and beyond. Check out the hotel tonight app right now and with promo code biz wars, you can get twenty five dollars off. Your first eligible booking. That's promo code biz wars be is e. w. a. r. s. to get twenty five dollars off your first eligible booking. From wondering, I'm David Brown, and this is business. You're listening to the final installment in our southwest versus American series. Free love. In our last episode American built the most powerful hub in the airline industry and bested braniff in a long fare-war war helping to drive one of south West's main rivals out of business southwest. Meanwhile, Volvo from a kitschy carrier selling sex appeal to one that has more fun in-flight than anyone else. Now, as this business war intensifies, southwest looks to turn its quirky corporate culture into a long term strategic advantage. American charts, of course, to becoming the biggest smartest carrier in the sky, and they're both headed toward a final resolution in a fight for hometown air rights. It's eight. Oh five AM on August night. Nineteen eighty-seven. A Royal blue McDonald Douglas MDA is performing a low altitude fly by the terminal at Houston's hobby air the plane circles back then touches down, gently and taxis toward its gate. A flight attendant makes an announcement, the seventeen passengers on board ladies and gentlemen on trans star flight. Five, four, seven, welcome to Houston. This is the termination of our flight today and our airline. Thank you. Trans star is or was a subsidiary of Southwest Airlines. It was formed out of Muser. The airline begun by former southwest CEO Lamar muse Kelleher bought Musar in one thousand nine hundred five. It's been losing two million dollars a month with trans star, weighing on its books, southwest posts, its first money losing quarter since nineteen, seventy three southwest sells most of trans stars eighteen planes to Texas Air, thirteen hundred, trans star workers lose their jobs. Those who get offered jobs at southwest are in for a bit of a culture shock. They're shown a southwest orientation video for new employees. This show, but without. On the ground. Strange. Yeah, that's her doing a funky little rap. Who else? Southwest is now banking on fun rather than its early days of sex appeal. In the video flight attendants have ditched hot pants in favor of khaki shorts, where flights in nineteen seventy-one had a Las Vegas lounge vibe today. Southwest is more like a backyard barbecue in the air except with peanuts instead of brisket. By April nineteen Eighty-eight. Southwest decides to play up fun while it pushes down prices for years. Southwest kept its fair structures, simple. So as not to confuse passengers. But now southwest bows to the market pressures created by Americans ultimate super savers southwest introduces advanced purchase seats called funfairs. It looked like another boring month. He was going to rearrange his sock drawer. She thought they'd fixed the cat. Then they discovered Southwest Airlines funfairs soon. They were getting away from just nineteen dollars to all sorts of exciting cities. Seeing things their mothers had warned them about eating food. They couldn't pronounce laughing out loud for no apparent reason. Southwest Airlines, funfairs. If you've got nineteen dollars, they're available. Now, if not never. Crandall may have lowered the bar with his high tech fares, but southwest has just limbo right under it offering rock bottom rates that are half the price of Americans lowest fare. It's may twenty third nineteen eighty eight and Kelleher demonstrates he's not above a bit of huxterism. One of the Airlines, Boeing, seven, thirty-seven. Three hundred touches down in San Antonio. It's painted like Shamu the killer whale a top attraction at SeaWorld and it's named Shamu. One southwest is signed paid promotional partnership with the marine mammal part. The plane taxis to a set of air stairs on a corner of the tarmac, getting off the plane or five people wearing penguin suits. One is Keller. The others are the chairman of SeaWorld of Texas and the mayors of San Antonio, Houston, and Dallas. They stand in their penguin suits in front of the seven thirty seven, which has just made its inaugural flight. They reinforce its image as the carrier that doesn't take itself too seriously. No kidding. The next day Bob Crandall the gruff Rhode Island, born CEO of American calls Keller. Her nice gimmick, but I do have one question for you. What are you gonna do with all the whale crap. Well, Bob, I'm gonna turn it into chocolate mousse and spoon feed it. All you Damn Yankees in Rhode Island. If you days later package arrives Crandall office, it's a three foot wide plastic tub filled with chocolate mousse in the middle of tub. There's a spoon in the shape of shampoo. The whale. Crandall laps and calls in his staff to eat up Keller's offering. He thinks to himself this crazy herb guys and half bad. At the moment. Crandall has plenty to smile about American is poised to become the number one air carrier in the country best in United in total domestic market share. It also has the biggest fleet and the most employees of any airline eighty thousand workers. It's late in nine hundred nine in calling Barrett, the corporate secretary of southwest and keeper of Kelleher schedule. He's notoriously disorganized is in her office with a team of her direct reports. The writing responses to letters from customers. One part of Barrett's work to reinforce the company's friendly culture. Today. A couple of hundred letters are stacked up on Barrett's desk. She's a chain smoker, like our boss, and she takes a long drag on barklay while reading one of the letters. Oh my gosh. Well, you look at this one. This is from a customer and V-neck. She was on a plane recently and says, this grey haired man got up from his seat and ask the flight attendant. If he could help her pass out peanuts, she's talking about her. She has no idea. Look, she writes, I just think it is so nice that Southwest Airlines is giving work opportunities to elderly people. American may have it size algorithms, but Southwest's corporate culture has definitely created something unique. As the decade rolls on Southwest's competitors. Also try to give that loving feeling to passengers and that would be all well and good if it weren't for the turbulence in the new decade ahead. America awakes to the drumbeats of war, sending oil and gas prices up and markets down. 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My heart desires and then switch over to pretty much anything else I want because with apple music, I get over fifty million songs ad free and get this. If you go to apple music dot com, slash BW, you can get your first three months for free. There's no obligation and you can cancel at anytime. So find your next album to put on repeat by visiting apple music dot com. Slash BW and get your first three months, free apple music dot com. Slash BW. January sixteenth nineteen Ninety-one. The United States has begun an aerial bombardment of arrived five months ago Sadam Assane started this cruel war against Kuwait. Tonight the battle has been joined. The Gulf war has already rattled markets in sent the price of crude oil skyrocketing. A global recession is underway, but Southwest's loyal employees come to the company's rescue agreeing to have money withdrawn from their paychecks to help the company cover rising fuel costs, the gestures big, but its impact on the bottom line is not steal. Southwest's leadership manages planning for two major economic shocks per decade. When this one arrives, they've already Inc long term contracts to buy fuel at locked in prices price. Is lower than those found during the Gulf war that helps southwest become the only big airline that makes money in these years. For most other major airlines, the economic crisis is financially crushing. The biggest carriers have followed American Airlines lead in recent years by investing in new planes hiring new workers and building new hub terminals at airports around the country. Now with all that new capacity available planes are flying empty. Reading start spilling across the big carriers balance sheets and bad blood rises among them. On June tenth nineteen Ninety-two Bob Crandall appears before a Senate committee. He's been summoned to respond to accusations that he's been trying to put competitors out of business by pricing. His airlines fares below its costs that same day shareholders of continental and American west filed suit against American making the same accusations Crandall who's been called the bully of the skies and the Attila the hun of airlines is relishing the coming confrontation as cameras role in a bit of showmanship. He tells the Senate committee that if it really wants to make a difference issued reform, the bankruptcy laws so that air carriers in chapter eleven can't break union contracts. The laws flexibility currently allows broke airlines to us bankruptcy court to reduce their operating costs and beat competitors prices. Senators. The problem with America West is that its management has failed. Some of these airlines are Wheeler dealers noted the balance sheet with dead. You allow the market to finish the painful process of eliminating surplus capacity. Don't prop- bad operators up in bankruptcy courts where they're free to change their cost structures and lonely bankrupt. All of us and this business is already intensely vigorously bitterly savagely competitive. Nearly a year later in April of nineteen Ninety-three Crandall boards in American Airlines flight from DFW to San Jose, California. He's heading out to address the corporate troops amid an intense fair war going on in California between southwest and United Airlines. United has launched a low cost airline within an airline called shuttle by United much like southwest. And now the battle between shuttle and southwest is drawing blood at American. When Crandall reaches the conference hall in San Jose, the troops are waiting, but they are completely unprepared for the bomb. He's about to drop. Our losses in San Jose have been significant. They amount to fifty million dollars annually and more competition is on the way. Southwest Airlines announced it will substantially expand service in California, more specifically in San Jose, then he delivers the kicker. So with regret, I inform you that we are closing our hub in San Jose, and we'll begin an immediate draw down of flights in service here. Southwest is coming and Tila Bihan is in full retreat. June. Third nineteen Ninety-three is a beautiful breezy seventy three degree day in Washington DC, but a commission created by congress is locked away inside the Eisenhower executive office building. Wise cracking Kelleher is they're being as usual affable self, turning around in his seat to glad-hand folks at the hearing. Well, the commission please come to order including Mr. Keller. Yes. Mr chairman, he's appearing before a committee, looking for solutions to the ongoing airline industry. Crisis airlines have been dropping from the sky like crazy from nineteen eighty nine to nineteen Ninety-three airlines have lost a collective, thirteen billion dollars that wipes out every dollar airlines have made since the Wright brothers. I took off from Kitty Hawk in nineteen. Oh, three. The commission is considering everything from bankruptcy reform to outright reregulation of the industry. Its members include consultants, travel agents, labor officials, ex congressman and exactly one airline executive herb Kelleher. But for today's hearings, the CEO's of almost every other major airline have come to testify. One Commissioner directs a pointed question at the CEO's have plenty of bankruptcy since deregulation. Braniff America, West continental frontier eastern. We've also recently seen the emergence of multiple southwest clones like ValuJet and Kiwi international and more apparently are on their way. And then there's there's theirself west, which has a twenty year track record of success. So my question to the four of you is, why can't you be more like herb her grins? Like a madman Bob Crandall sitting across the room from Keller speaks up members of the commission and his most excellent Kelleher southwest has the world's finest peanuts, but they have no other food costs. Now herb is done a splendid job, but to get where he is. American would have to go back in Terre our company up and some very significant ways in order to match his prices, we'd have to dramatically row back. Compensation benefits. The committee doesn't call reregulation, but it does tell c. e. o.'s to save themselves even if it means tearing up the business models. It seems that one thing is clear to everyone Southwest's model of low fares and officiant. Friendly service now defines the US airline industry. Actually, all kinds of companies are looking to southwest for inspiration. Nineteen ninety six and the Macher rano is a hit song dancing sation. Southwest love field headquarters. Dozens of executives from other companies are required to do the dance too. Southwest quirky, kinetic cultures become so legendary that company now puts on south west days. Several times a year executives from all kinds of industries pay one hundred dollars a head to come to love field for day-long sessions that oil down to this have fun and be nice, especially to employ ease as with many of southwest airline competitors, though, not everyone seems to grasp that simple message at the end of today's session, Kelleher walks up to an executive from Austria to thank him for attending great. Having you here today. When you bring anything you learn back to your company, the executive answers in Swiss German accent. Yeah, going to tell everybody is a half to do the Macarena every day. Well, actually, I think you might miss the point. He might have, but others have gotten the southwest message loud and clear today. Both American and south west still sail the skies there. Fierce competition has both toughened and change them. Southwest has been profitable every year since nineteen seventy three and its business model is mimicked across the globe. American fought several bruising union revolts before going bankrupt and absorbing the failing US Airways in twenty thirteen financially they're both doing quite well. Thank you. American has forty three billion dollars in annual revenues, southwest as twenty one billion. Tober thirteenth twenty fourteen. Love field employees are celebrating Southwest's two year PR battle that ended with local politicians brokering a compromise that free southwest from the Wright amendment. That's the law that kept the Texas airline from flying freely beyond Texas and its contiguous states. Kilgore arrange your sedans team known for the cowboy hats, white boots. High kicks are performing to a rendition of Gary decarlo. So. They're dressed in outfits. Reminiscent of the nineteen seventy-one orange, hot pants, gogo boots, hostess, look, Sir. Richard Branson of virgin America's in the house and band call the why not place outside the terminal banner reads goodbye right amendment. Hello America. Southwest fought hard and long to fly out of love field instead of DFW, and it struggled almost as long to be able to fly from love field to anywhere in America, like other airlines. Now for the first time in its history, Southwest Airlines is finally free to move about the country. The from wondering, this is business wars. Enjoyed this episode. Please subscribe on apple podcasts, Spotify, Google guest Stitcher iheartradio, or where ever you listen to podcasts, you'll find a link on the episode notes, all you have to tap Skype over the cover art, and you'll also see some offers from our sponsors. Please support our show by supporting them, aren't, you know if you like what you heard, we'd love it. If you could give a five star rating until your friends, how to subscribe to another way to support us to answer a short survey at one dot com slash survey and don't forget to tell us what business war stories you'd like to hear and quick note about the conversations you've been hearing. We can't know exactly what was said, but this dialogue is based on best research, your host, David Brown. Does it window wrote this story, Karen low is our senior producer and editor, Ginny lowers our producer. Sound design by bay area sound. Our executive producer is Marshall Louis created by earn on lupus. Four wondering.