Southwest vs American - The Cult of Herb | 5
It's the morning of June eleventh nineteen. Eighty-one. Sixteen polished, aluminum, red, white, and blue jets shimmer in the Texas son as they fly in a line of Dallas Fort Worth international airport. The squadron descends one by one. Seven forty, seven maintained one seventy or eighty one seventy or knots American fifty, seven forty, seven. One eight clear to land American fifty. Nine eighty six eight left the morning. This is an unprecedented invasion. No airline has ever sent this many planes from this many different locations to one airport in such quick succession. Concourse, all traveling on American will to New York. LaGuardia. Your flight is ready for boarding to passengers get off the plane. It'd be back in the air and just a couple of hours headed for new destinations. The future of American Airlines has just derived in Dallas. It's a future summit. American didn't believe could happen just four months ago when company president, Bob Crandall executive team told Americans ground crews. They would bring the fleet in and send it back up multiple times a day, a revolt nearly broke out. It's a big shift airlines. Normally, scuba passengers from small markets and much like a commuter train, make multiple stops for passengers to get on. And off as the plane makes its way across the country. Grandma is keen on the hub and spoke model. He and his team believe it's more cost effective to bring passengers from smaller markets to a hub where passengers can be consolidated into fuller flights headed for other markets. Delta does that in Atlanta American wants that in Dallas, but with a much tighter Turner out window American is looking over its shoulder at delta, but it's real target is braniff the other airline based at Dallas Fort Worth or DFW. Under deregulation. Braniff expanded its roots exponentially, but Crandall knows they're critically strapped for cash and Volna Rable to direct competition. So when Crandall gathers his lieutenants, he makes his scorched earth mission crystal clear. I wanna crush braniff I wanna crush all the competition. That's what competition is all about. But Crandall has overlooked. One thing flying to those small Texas cities has put American directly in the flight path of another carrier, the highly profitable Southwest Airlines. The insurgent airline is always competed in unconventional ways. But at this point, southwest hasn't figured out how to grapple with America. It doesn't know yet, but it's about to weaponize her. 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 ARS to get twenty five dollars off your first eligible booking. From wondering, I'm David Brown, and this is business wars. You're listening to the fifth installment in our south west versus American airline series. The cult of herb. A quick warning that this episode contains some adult language. No. In our last episode, American Airlines decamp from its former headquarters in New York for Dallas to keep from going broke, and it's used powerful political allies to clip Southwest's wings. Southwest is confined to flying from its home base of love field just outside Dallas destinations within Texas and surrounding states American. Meanwhile, is free to fly anywhere and it benefits from the industry reservation system designed that no surprise favors American Airlines. These are mighty headwinds for southwest. It's June nineteen. Eighty-one just a few weeks after American has debuted its DFW hub. In a ballroom behind hotel. Southwest is celebrating the purchase of three brand new state of the art, Boeing, seven, thirty seven three hundred jets tomorrow moment. Herb Kelleher, southwest chairman steps up to a podium. Hello, everybody. This is a big deal for south west airlines. These new planes will save on fuel costs, making our already highly efficient airline, even more efficient than three hundred series is also seventy three percent. Quieter. I say quieter than the seven thirty seven two hundred series that southwest is flown since its inception. The audiences chuckling because Kelleher is alluding to grumbling by residents around love field who are unhappy with Southwest's increasingly busy noisy operation there takeoffs and landings at love have more than triple just nineteen seventy-four across town. DFW American Airlines gets complaints too, but in a television interview Crandall deflects the criticism, many takeoffs that produce the most noise come from runway. Thirteen alad DFW a plane. Taking off. There has to make a hard left turn. Iron Nause left turn to avoid getting into the airspace of flights from love field. If we didn't have this one airline operating flights love when everyone else is operating DFW that turned wouldn't be necessary. And the noise could be abated. But on August third nineteen Eighty-one the noisy skies over Dallas full quiet, not because of resident protests are new jet engines. No, because more than twelve thousand air traffic controllers have just gone on strike across the country. Seven thousand flights are canceled in Washington President, Reagan issues and ultimate them. It is for this reason that I'm tell those who failed to report for duty this morning. They are in violation of the law. And if they do not report for work within forty eight hours, they have forfeited their jobs and will be terminated two days. Later Reagan makes good on his threat. Commercial air traffic slows to a crawl, but within days thousands of air traffic supervisors and unionized controllers who did not strike get planes into the air. Again, traffic returns to something just short of normal. The difference the FAA is now issuing what it calls slots, the slots system rations takeoffs and landings, and that limits air traffic. But those lots are being doled out in a way that Kelleher considers arbitrary. The system limits, southwest and benefits American. He looks for a way to work the system and lands on a pretty crazy idea which it southwest means it's totally worth considering. He shares it with southwest CEO Howard Putnam lesson. Howard back in nineteen seventy seven. Before you got here, we incorporated a company called midway Southwest Airlines that was supposed to operate out of midway airport in Chicago and the n we'd bailed on the idea. But here's the thing. It's still a registered airline where the FAA. Now, what if we can resurrect midway southwest to get more slots for ourselves Putnam is a forty four year old straight talking. Iowa new grew up on a farm. He used to fly his father's j. three piper cub over the family fields. He thrives on competition and he loves the audacity of this idea does not waste time file the paperwork today, but the f.. AA tells Kelleher, if he's going to use midway southwest to get extra slots, the Chicago concern has to actually have flights there. Midway southwest is operational, but just barely. It consists of a man flying. Single Learjet Kelleher makes him an offer. I like to sell you are subsidiary company called midway southwest for a nominal fee. Now in return, you'll agree to Lisa's whatever slots the FAA gives you a midway airport, the operator nabs Keller's offer and the FAA issues slots to midway southwest which Kelleher snaps up. But within weeks, the ploy is discovered. Kelleher is summoned to Washington. He's busted. Lynn Helms. The administrator of the FAA closes the door of his office behind Kelleher. Listen, her Mike general counsel's office is really peeved about this. Midway thing I'm supposed to be telling you off right now, but honestly. I think this is Larry's. You've just taken advantage of the rules. Brilliant, but her don't get me in trouble when you walk out of here, I want you look like, I've just cleaned your clock. All right. As Kelleher leaves the office. He scowls in his jaw muscles, tents wants out of the building. He bursts out. Laughing is boy has been foiled, but he's had a good time trying to pull it off. Days. Later back in Dallas Kelleher is in a funk Putnam Southwest's CEO who was hired just three years ago has quit. He has a new job and not just any sky high executive job. But in the movie, the new CEO of braniff airlines company wants convicted along with its rivals of trying to legally four southwest out of business Putnam's betrayal hits Kelleher harder than he'd liked to admit. It's the morning of February first nineteen eighty-two before dawn. Granules running on his home, treadmill. He's cranked up hall and oats on his walkman. Crandall may be three package smoker, but he rarely misses his morning run. Granville wraps up his workout and heads to his kitchen. For breakfast, he opens the paper is stopped short by braniff ad. It's an attack on American. One of many braniff has launched in recent weeks. The two Dallas carriers are locked in a brutal fair war with deregulation. Braniff has entered dozens of new markets over extending itself. In the process. Deregulation also has allowed American to enter many brands markets using low fares to undercut braniff everywhere. The two airlines compete today, though brands at isn't touting lower fares. It's claiming to have a better on time record. Then American Crandall throws the paper to the floor. Bullshit. This is bullshit. They can't touch us on on time performance wanna give that cinema bitch, peace of mind. Crandall puts on a gray suit slips back his hair with Palmer. And races from his home to his office at DFW. He gets Howard Putnam on the phone. Howard I think is dumb as hell for Christ's sake. All right, to sit here and pound the shit out of each other. And neither one of us making a fucking dime. I mean, you know, God, damn what the hell is a point of it. Look Bob. Nobody asked her American to serve Harlingen. Nobody asked American to serve Kansas City and we were killing each other with low fares there too. You know about Howard DFW hub complex here and going to change their right. As no reason I can see put both American and braniff out of business, but we can both live here if we can squeeze out delta. There's a pause in the line, but in wonders, if Crandall is suggesting that they collude to drive other competitors out of business. Finally, putting them puts it to Crandall Robert. You have a suggestion for me. Yeah. Give braniff to raise God damn fares, twenty percent. I'll raise mine the next morning, Robert. You'll make more money and I will to Robert. We can't talk about pricing. You know that. Oh, bullshit. Howard we can talk about any goddamn thing we want to, but quickly ends the call and stops the recording. He secretly made of the conversation. Crandall has just suggested collusion with this tape. Putnam is locked and loaded, but he hesitates to pull the trigger and that will prove fatal. Braniff is seven hundred million dollars in debt and his laid off one quarter of its workforce. But instead of teaming up with American Putnam decides to attack his competitor, even harder he has sorely over estimated his hand. Two weeks later button, Amazon a flight from New York to Dallas, sitting in first class talking to brands lead adman. I'm getting damn sick of American making it seem like they've got the lowest fares. When do our commercials go on the air tomorrow and all the markets here. Listen to this radio spot. People's out walkman and hits play. Normally, American only gives you low and restricted fares when they face low-fare competition. And that's usually competition from breath. The ads help, but braniff is still bleeding money. So it enlists a cadre of well-known Dallas executives and celebrities in one TV spot, Tom Landry coach of the Dallas Cowboys looks into the camera. So join the fight five Ranna the Cowboys due on may twelve Crandall learns that Putnam has turned over a recording of their February call to federal antitrust officials. Crandall boards a flight to Los Angeles to meet with his attorneys. This could be bad, really bad for American. But powerful thunderstorms delay, takeoff while the plane remains grounded, the pilot walks back to Crandall first class seat. Mister Crandall just got a call from headquarters. Braniff is pushed back all its planes from the gate. They're telling employees to go home. Looks like they're shutting down lack. Dan open this door. I'm getting all eighteen months into deregulation. Braniff becomes the first major airline in America to declare bankruptcy. After braniff nosedive American Airlines hikes fares on every route where at once competed with braniff. Crandall has shot one competitor out of the sky, but if he's now going to take aim at Southwest Airlines and other low-fare competitors, he'll need an even more powerful weapon. And yes, he's already got something in the works. Long before southwestern American Airlines were battling it out in the business world Wilbur and Orville Wright, two brothers from Ohio dreamt of being the first aviators to successfully fly airplane on December seventeenth nineteen. Oh three. They made that dream a reality with a fifty nine second flight in Kitty Hawk North Carolina, that would change the course of history for ever. If you've got a dream, it's time to make it a reality. The easiest and quickest way to get started is by showcasing your work with a beautiful website from squarespace with squarespace, you can customize look and feel settings and more with just a few clicks. And if you get stuck or just need a little help square spaces, twenty four, seven customer support is there for you. Every step of the way all you have to do is go to squarespace dot com. Slash be w for a free trial. And if you'd like to support this show, then when you're ready to launch us, the offer. Code be w to save ten percent on your first website or domain that squarespace dot com. Slash b, w offer code be w. Today, conveniences king, we choose convenient businesses daily, and there's some of the world's most dominant brands. I mean, just think for a moment about the last time you used Netflix more Amazon podium is a service that helps all kinds of companies big and small become easy to find choose and connect with with podium. You don't have to be an app or online business to be a convenient business through podium. Customers can get in touch with your business. Ask questions, schedule points, leave online reviews, and more all via text. They can message your business through your Google listing and even start a text conversation right from your website need another reason to try podium, podium users get more reviews more customers and more revenue. In fact, the average podium user sees a six percent increase in revenue just from online reviews. Get a leg up on your competition by getting started with podium right now. Podium is giving business. Listeners ten percent off their service just head on over to podium dot com slash BW to get started. That's podium dot com. Slash BW. It's February nineteen. Eighty five back in Dallas. Herb Kelleher is recovering from pneumonia and trying to muster strength to take care of some unfinished business. Since nineteen Eighty-one southwest is competed directly on a handful of roots in Texas and beyond with a startup carrier called news air as in Lamar muse, the CEO of southwest to resigned. After dust up with company, founder rollin, king muses, son, Mike started news air, but Lamar muse joined the carrier as fulltime CEO in late nineteen. Eighty four. The company was headed into a financial tailspin after years of mismanagement and price war on half a dozen routes with muses al-matar south west. He tried but ultimately couldn't navigate the company to calmer skies. Kelleher gets word that Muser which is known around southwest as revenge air has up a for sale. Sign and Kelleher wants to buy it. He invites Lamar muse over to his house for breakfast to see if he can strike a deal. God sakes her your terrible cook. You're a hell of a lot better. Make it got tails. They're right, Lamar, but let me ask you this. Would you rather be spending your time retired on your boat fishing for salmon off the Bank Hoover coast and seventy degree weather or being stuck here in hot as blazes Dallas running muse air. Honestly, I prefer the boat then the mar- let's talk numbers. They strike deal southwest will acquire it smaller rival, including its fleet of state of the art MD jets. It's valuable gates at Houston's hobby airport, and it's complete staff for seventy six million dollars for Kelleher, a lawyer with no business training. It's defining moment as CEO. He's made peace with an aggrieved former employees and he's executed a key transaction. The company's brief history, its first Akwa. -sition, but Kelleher starting to make an even deeper impression on south west personal one apart from his legal skills and his newfound business acumen Kelleher is well just plain likeable. So he's pressed into service to connect with the public. Kelleher appears TV ads for south west as the airline expands across the country folks warm up to her and his homespun irresistible charm. In one add, he's facing the camera while behind him, passengers are filling up the plane fast. When he hears the flight attendants closed the doors. He turns around and starts knocking on them calling out, hey, Kelleher here, the doors don't open. Now, Kelleher delights in the limelight and being playful. In fact, a lot of the employee's enjoy their moment in the spotlight with a hostage audience on board. Welcome aboard, Southwest Airlines to properly. Fasten your seatbelts slide, the flat end into the buckle and release lift up on the buckle position seatbelt tied and low on your hip. Just like by grandmother wears her support bra. If you are seated in an exit row, you must be able to handle the functions noted on the card and your seat back pocket in order to assist the crew in the event of an emergency. If you cannot perform these functions, please advise a crew member and they will receipt you. And if you simply do not give function, please let the crew member. No, and they will receipt you to onboard is Keller at the back of the plane where he prefers to sit. He turns to his seat mate. DNR flight attendants have been doing those kinds of Hannigan since nineteen seventy-one. It just happened one day on Southwest's first flight just after takeoff Kelleher asks flight attendant. If he can pass out peanuts to passengers as he goes through the cabin, some passenger starstruck. Ladies and gentlemen, we have an intern on board today who is going to help us with the inflight service, just call them herb because he won't answer to anything else. Kelleher walks down the aisle, stopping to chat with the Lubbock businessman now, sir. Would you care for peanuts Herve? I'd love some peanuts, but I gotta tell you are the ugliest flight attendant, I ever laid my eyes. A few days later when he's back in his Dallas office Kelleher recounts his in-flight fund. The company's corporate secretary, Colleen Barrett. She laughs and suddenly stopped short. You know her. I've been thinking, we've got something really special here with his culture of ours. We have to protect it. Now, neither of them realize it at the moment, but southwest is about to do more than protect its freewheeling culture. It's about to weaponize all those comedic flight announcements and other uniquely southwest personality quirks in ways its rivals will struggle and fail to match. In the next episode of southwest versus American Airlines, Bob Crandall bills the largest fleet in history and rolls out the biggest gun. The airline industry has ever seen a tech weapon that he uses to blast away low-fare competitors and southwest of southwest responds by unleashing the power of its people. From wondering, this is business wars. I hope you enjoyed this episode. Please subscribe on apple podcasts, Spotify Google podcast, Stitcher, iheart radio, or wherever you listen to podcasts, you find the link on the episode notes, just tap a swipe over the cover art. You'll also see some offers from our sponsors, and we hope you can support our show by supporting them. If you like what you heard, we'd love if you could give us a five star rating until your friends how to subscribe to. Another way you can support us is to answer a short survey at one dot com slash survey and don't forget to tell us what business were stories you'd like to hear. And a quick note about the conversations you've been hearing. We can't know exactly what was said, but this dialogue is based on our best research. I'm your host, David Brown. Joseph Quinto wrote this story, Karen low is our senior producer and editor, Ginny lower, is our producer sound design by bay. Area sound. Our executive producer is Marshall Louis created by earn on Lopez, four.