Bob Crandall called it in the late 1970s, saying airline deregulation would be the ruination of U.S. aviation. You can credit the retired American Airlines chairman and CEO with consistency as he argues that airline mergers — and mergers in general — have contributed to capital accumulation at the expense of workers, and the demise of small cities.
If I hadn’t knowingly phoned Bob Crandall, the former American Airlines chairman and CEO, I might have almost thought I had mistakenly dialed former presidential candidate Bernie Sanders or democratic socialist congressional insurgent Alexandria Ocasio-Cortez.
Not that Crandall, 82 and somewhat reluctantly dispatched from corporate board service because of his age, is a socialist or an insurgent, but his slant on airline deregulation and consolidation in recent years has a decidedly egalitarian bent.
Crandall, who opposed the Airline Deregulation Act of 1978, argues that deregulation greatly harmed the U.S. airline route network for consumers, and that the wave of airline consolidation over the past decade hurt competition, and contributed to widening the gap between the proverbial haves and have-nots.
“At the time when we opposed it, when I opposed it, we took the view that it was likely to result in a relatively unsatisfactory transportation network, and I think that’s happened,” Crandall said, referring to the law in 1978 that ended Civil Aeronautics Board regulation of the U.S. airline industry. “If you look at the number of cities that have lost commercial service, you’ll see there’s a whole lot of places in the country that used to be part of the network that aren’t anymore.”
The impact of the route changes, which left many smaller cities without direct airline service to points of interest, had wider repercussions than just those that might be aviation-related, Crandall contended.
“I think that has accelerated the movement of people towards the big cities and has discouraged the creation of medium-sized cities,” Crandall said. “I think that’s adverse to the economy and adverse to the country. So I think what has happened is not inconsistent with what we thought might happen.”
Crandall’s tenure at American Airlines and AMR Corp., where he served in roles as president, chairman and CEO from 1980 to 1995, wasn’t characterized by a frenzy of acquisitions, although there were a couple, including buying Eastern Airlines’ routes to the Caribbean and Latin America.
“Every consolidation that occurs in every industry is accomplished for one purpose, and that is to reduce competition,” Crandall said. “So, if I was the king of Spain, I wouldn’t permit any acquisition of any company by any other company.”
While a no-mergers-allowed stance would never fly, Crandall talks passionately about the ill effects of mergers and acquisitions.
“Well, the traveler is getting lost, and the employee is getting lost,” Crandall said. “One of the reasons that there’s so much inequality in the United States, and one of the reasons that wealth is distributed so unequally, is all of the consolidation that’s occurred within industry. If you had way more companies there would be way more competitive employers and you’d be seeing wage income, as opposed to capital income, increase at a much faster rate.”
Over the past couple of decades, American Airlines was known for having toxic relations with its labor unions. Many employees might be surprised to hear Crandall’s take on the labor-management trajectory.
“So what’s happened is the economy has gotten way more productive and profitable, but most of the money has gone to capital,” Crandall said, referring to the impact of consolidation. “Relatively little has gone to labor.”
Delta, United and American
Crandall said Delta’s acquisition of Northwest in 2008, the United-Continental deal of 2010, and the US Airways-American Airlines merger, which closed in 2013, have contributed to the mess.
If the decision had been in his hands, Crandall said he wouldn’t have allowed the Delta-Northwest or United-Continental deals to have gone through. “I think once you allowed the consolidation of Delta and Northwest, and Continental and United, then you had to permit US Airways and American,” Crandall said. “But you didn’t have to allow any of those, and we’d have been better off with none of them.”
Asked whether he sees any airlines doing anything particularly innovative these days, Crandall said, “I don’t see anything that’s particularly striking.”
He said Delta would “seem to be doing a good job.”
Taking a historical perspective, Crandall added: “American and Delta and United, they go back and forth. They run in cycles.”
On the competition front, JetBlue founder David Neeleman intends to launch a new airline in the U.S., the first since Virgin America more than a decade ago.
“Well, let’s see how many seats he puts in his airplanes,” Crandall said of Neeleman’s effort. “I guess one of the advantages he has is people say that wherever he goes he’s able to attract a lot of capital. So perhaps he can last longer than some of the other upstarts that weren’t as well-capitalized.”
During his tenure in the airline industry, Crandall was known for a lot of things. American launched one of the first airline frequent flyer programs, AAdvantage, in 1981, and pioneered yield management, for example. He also famously had the airline remove one olive from every salad served in-flight, achieving a savings of $40,000 annually.
Crandall reflected on the creation of AAdvantage. He said the airline wanted to promote loyalty so it came up with the idea of travel awards, which were something similar to what S&H Green Stamps was doing when consumers collected booklets of stamps to redeem products at supermarkets and department stores.
“The fact is in those days you had something called S&H Green Stamps,” Crandall recalled. “People got stamps when they went and bought Ganzo knives, or whatever else they were supposed to buy. So we simply substituted airline miles for S&H Green Stamps.”
Asked what he wanted his airline industry legacy to be, Crandall said the biggest thing is that he was open to — and encouraged — new ideas.
“There are a lot of individual things you can … there’s a couple books out there that can list all of the things we did,” Crandall said. I think the overall thing was that I was very open to new ideas, and so during the years that I was there, the industry was in a very rapid transition from a completely regulated utility to a completely deregulated industry. I think it’s fair to say that American led the way. A lot of the new developments during that time period started at American.”
He credited that to letting the innovators at the airline innovate.
“I was interested in new ideas, we had a lot of young people,” Crandall said. “I encouraged those young people to come up with things that would work, and they did come up with a lot of things that would work. So we led the way and we had a very profitable run. So that’s the legacy. The individual things, a whole string of individual things, but they really stem from a mindset that said, ‘Come on, the world’s changing, let’s lead the way.'”
Not everyone, though, is open to new ideas. You can see a lot of companies and executives who get comfortable if something is working, and rest on their butts, until it is too late. So where did Crandall get a look-to-the future outlook?
Said Crandall: “God knows. Who knows? Maybe out of a lifetime of panic.”
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Photo credit: Bob Crandall at the Robert W. Baker Integrated Operations Center IOC in Fort Worth, Texas on October 25, 2017. Crandall is a longtime critic of airline consolidation. Brandon Wade / American Airlines Group