The Man Who Fired a Dog To Save a Buck

By JANICE CASTRO and RICHARD WOODBURY Robert Crandall

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.

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.

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.

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.

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.

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.

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.

Q. That's not how consumers remember it.

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.

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.

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.

Q. Then why are average fares higher at the hubs?

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.

Q. You have defended the fact that the seats are so much closer together . . .

A. Because that's what the public wants.

Q. Cramps?

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.

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.

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.

Q. What about concerns that the financial stress of deregulation has hurt safety?

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.

Q. Now that American is so big, now that you've won the game, you're insisting , that fares must rise.

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.

Q. But air traffic has fallen this year. If your fares go too high, don't you drive away consumers?

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.

Q. Why is it so difficult to bring your costs in line with your revenues?

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.

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.

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.

Q. Why do you oppose cities spending so much to expand their airports? Isn't that good for your business?

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.

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.

Q. "If we build it, they will come."

A. But we won't! Not if it doesn't make sense.

Q. Where is that happening?

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.

Q. Where do we need airport expansion?

A. Chicago is overcrowded and clearly needs more runways.

Q. What's the problem?

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.

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.

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.

Q. Is it true that you once fired a dog to save money?

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.

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.

A. Yup, that's the kind of business it is. It's not a business for dreamers or dealmakers.

Q. People say you're pretty tough.

A. I think I understand the mission of the company. When we must do something, we will do it. Even if it is unpleasant.