Hard Landing (52 page)

To Don Burr it was as if a bull’s eye had been painted over his likeness.

“This is it!” he cried, slamming the newspaper down on the desk of one of his marketing executives. “This is a shot
across our bow! If we don’t invent a way to deal with this, we’re history! We’re going to be dead meat!”

In his panic Burr wanted to know how many seats American was offering at these prices. Two seats on any plane, or 20, or 200 on a DC-10? There was no way of telling from American’s ads or public comments. Burr began rounding up people to dial the phones like mad,
posing as American customers and keeping track of which flights had sold out of discount seats and which still had low-fare seats available, but the answers kept changing. The advertising agency working for People Express was pressed into action; hundreds more calls went out. But the more they called, the less they knew. As the days progressed, calls went out by the thousands, eventually to United as well, once it had matched American. The answers kept changing there too! Burr was beside himself. How could he compete with something he couldn’t see? How could he fight the devil?

And—
whump!
—just like that, the losses mounted at People Express. Twenty million dollars in a matter of weeks, a tide of red ink such as People Express had never experienced. The panic worsened.
What could Burr do? Like many executives in times of crisis, he listened to Wall Street, and following the admonitions of the stock analysts who had always criticized People Express’s fares for being too low, Burr
raised
fares in the midst of everyone else’s lowering them.

Soon
Burr was shocked to realize that Continental and New York Air between them were making severe inroads against him in New York. Burr couldn’t believe his complacency. He had allowed Frank Lorenzo to creep up on him.

Worst of all, Burr was
dying at the thought that the mystique shrouding People Express was now evaporating. The red ink forced him to withhold profit sharing. The stock price was plunging. Soon there were union organizers at his doorstep. Burr imagined his employees turning on him, the pilots in particular. He heard that they were referring to the Precepts as “Kool-Aid,” the poison-spiked beverage that the demonic cult leader Jim Jones had used to conduct a mass suicide a few years earlier in the jungles of Guyana. Burr imagined the pilots in their cockpits asking one another, “Have you
had your Kool-Aid today?”

Burr was in the depths of this depression when the editor of
Inc
. magazine stopped in with a tape recorder one day in the summer of 1985. Burr complained of being surrounded by “bad forces.” The love and trust, he said, were dissipating. People Express had become … corporate.

“But doesn’t it give you an extraordinary sense of achievement?” the interviewer graciously asked. “A thrill?”

“You know,” Burr answered, “it used to. When the first planes were delivered here, three whole planes—now that was a thrill.… Now when I look out there, I don’t know, there are just so many damn planes out there. It’s just not the same anymore.”

Later
Burr’s mother called—the woman who had steeped him in the notion of public service, who had warned him against becoming just another money-grubbing businessman. She was planning a trip to visit Burr’s brother. She had purchased her ticket, she said, on American Airlines.

But Burr was not finished yet far from it. The team from American Express was madly working on the new in-house computer system, by which Burr hoped to adopt the same variable pricing that American, United, and even Continental were now using against
him. And then another comeback opportunity emerged. While visiting an exclusive
tennis club in Carmel, California, a guest of his investment bankers, Burr learned of a deal by which he might restore the market power of People Express—while also acting in the role of Frank Lorenzo’s spoiler.

The final battle for the dominion of Denver was under way.

Frontier Airlines, once a regional powerhouse in Denver under the late Al Feldman, was struggling for survival, caught in the crossfire between United and Continental. In the unwritten rules of the post-deregulation era, three major airlines operating within a single hub city was at least one too many. As American had displayed in Dallas, operating a hub had become a contest to control the maximum number of passengers between the maximum number of city pairs. This strategy demanded a huge number of airplanes flying hundreds of hub landings and departures every day, like a hive of worker bees racing to and from their queen. It was only marginally economical for two big carriers to conduct service on this scale at a hub; where three airlines attempted to do so, planes flew empty, which meant that fares plunged, which meant that no one made any money on anything. Thus was Chicago sorting itself out as the sole domain of United and American, Atlanta the sole domain of Delta and Eastern, Dallas the sole domain of American and Delta, and so on.

The imperative to eliminate one of the three Denver carriers had reached the point of no return by the mid-1980s. As the third-ranked carrier, Frontier’s principal value had become that of the kingmaker. In September 1985 Frank Lorenzo of Texas Air announced an offer to buy two thirds of Frontier for $20 a share in cash, a total of $250 million.

When word reached Burr on the tennis court in Carmel that his old boss had put Frontier Airlines in play, he was like a pyromaniac in a match store. He cut short the vacation and raced to Denver, formulating a new mission for People Express along the way.

It was obvious to Burr that the major airlines were winning the fare battle on the turf that he considered his own: the short-haul route. They could do so, Burr began to think, because they charged such high fares on their long-haul, transcontinental routes. Therein resided the kernel of a comeback strategy, Burr figured: if People Express
could force the major airlines to cut their transcontinental fares, they would lose the profits with which they subsidized their short-haul flights. They could no longer afford to maintain such low fares in the mainstay markets of People Express. His company would be saved.

Burr realized, however, that he could never trash the prices for the entire transcontinental market just by flying a few jumbo jets between New York and California. Frontier, Burr determined, presented the solution. He imagined uniting Denver and Newark with massive service, an “
air bridge” connecting two powerful hubs: 50 cities in the East feeding 50 cities in the West, and vice versa. People Express, overnight, would become a major transcontinental carrier.

Anyway, Burr thought, what choice did he have? The Reagan administration was letting the major airlines gobble everything in sight; he had to keep up. And the Precepts—Burr would extend them to a wider workplace, would prove that trust and love could work even in a unionized environment such as Frontier’s. “
Over time,” Burr would publicly explain, “the fundamental ideas that give direction to People will find root at Frontier.”

Don Burr did not realize that he was whistling “Dixie.” The majors were not, as a matter of fact, using their transcontinental routes to subsidize their short-haul routes—at least not enough to account for their 70 percent discounts. The majors were offering low fares against People Express because they had computers that enabled them to offer rock-bottom prices to discretionary passengers and still keep as many seats as necessary in store for higher-paying passengers.
That
was the cross-subsidy that was killing People Express.

After reaching Denver, Burr approached not only the management of Frontier but the unions as well. Although Burr practically had to hold his nose at the mere mention of the word “union,” he stifled his prejudice and earnestly told the union leaders that the employees of Frontier were much better off casting their lot with him than with his union-busting former partner Frank Lorenzo. Burr was then off to New York, where the Frontier board was scheduled to meet.

With the deal hanging in the balance, Burr stopped by a newsstand to pick up
The New York Times
. To
his horror he read that Lorenzo had just increased his offer, from $20 a share to $22 a share.

The Frontier directors were keen on selling to Burr, so devoutly did the employees of Frontier fear Frank Lorenzo. All Burr had to do was match Lorenzo’s $22-a-share offer, and Frontier was his.

Burr offered $24 a share.

Gerald O’Neil, the controlling shareholder of Frontier, smiled. “That’s a
remarkable offer,” he said. The board agreed to lock up the deal for Burr. Burr flew back to the North Terminal and drew a
standing ovation from his loyal employees.

Burr was not through yet. A major commuter airline named Britt Airways came on the market, an operation with nearly 50 planes zipping in and out of Chicago and St. Louis, feeding small-town passengers into connecting flights on United or American; Burr bought it on barely a
day’s notice. Then came the largest commuter airline in the country, Provincetown-Boston Airline, which scheduled a flock of airplanes among the little airports of the Cape and the Vineyard and Nantucket in the summer and then migrated them to Florida in the winter. It too went into the kit bag of Don Burr.

Burr believed he was
buying time—simply grabbing passengers any way he could, even if he had to buy planes and terminals along with them, until his own computer reservation system came on line. But some people sensed a different motive. As the Frontier takeover generated headlines, Burr was having dinner at home with his children. “Dad,” asked his 12-year-old, Kelsey, “what’s this Frontier thing?”

“Dad is just doing what’s popular,” his 20-year-old son, Whitney, interjected. “The
raider-type stuff.”

Burr felt a stab in his heart. “It’s exactly what I’m
not
doing!” he snapped.

Burr was able to finance his plunge into the takeover game thanks in part to the media’s blindness to his struggles. In January 1986 Burr appeared on the cover of
Time
, joining a hall of fame that included Charles Lindbergh and C. R. Smith of American.
Business Week
had previously put Burr on the cover, calling him a “
new wave capitalist,” a “1980s business giant who may in time rank with Henry Ford.”

Academia also continued to swoon over Burr and his unorthodoxy, holding them out—just as it had Eastern, in its short-lived period
of labor-management détente—as the American answer to the Japanese economic challenge. At Harvard Business School students viewed a videotape documentary about Burr on a
10-foot screen that made him look like Mussolini. One Harvard professor held out People Express as “the
most comprehensive and self-conscious effort to fit a business to the capabilities and attitudes of today’s workforce.” Even the venerable dean of the Harvard Business School, John H. McArthur, who once had the young Don Burr as a student, joined the board of directors of People Express.

Burr had vowed that he would not be taken in by his own press, that he would not even read it. He knew he was vulnerable to the effects of that kind of adulation. With his survival in doubt, he knew he had to stay focused, to keep his internal balance, to be
like Herb Kelleher at Southwest Airlines, whom Burr considered “innately humble.” Committed though he may have been to keeping his ego in check, it was, after all, pretty tough to miss oneself on the cover of
Time
. He couldn’t help noticing all the academics and consultants swarming through his organization. He told himself that no one—not Lorenzo, not Crandall—had ever built a billion-dollar airline from scratch.

And as the adulation continued, Burr’s need for control intensified. Burr was increasingly surrounded by yes-men, people who would tolerate his rages and do his bidding.
Some pilots swore that a few of Burr’s aides actually began to emulate his walk—stooped slightly forward, one hand behind the back, the other perhaps on the chin, the face intense with concentration. Burr surrounded himself with his people even on weekends. He bought a
century-old home facing the water on Martha’s Vineyard and enlarged it into a 10-bedroom mansion, a retreat for business, a place to continue preaching love and trust and the Precepts to the people he often thought of as children. The Vineyard home was his castle; “
my moat,” he would later observe, “was people.”

As he had planned, Burr grafted the systems and culture of People Express onto Frontier; the disaster was monumental. Frontier had always been considered a classy airline, and the years of warfare with United and Continental had only brought out the best in service at all three. Now longtime Frontier passengers were being charged 50¢
for a cup of coffee. To stuff more seats into Frontier’s airplanes, Burr took out the galleys and began serving cold meals—three bucks for crackers, cheese, maybe some sausage. “
Kibbles’N Bits,” people called it. Ingeniously Continental positioned agents in Denver’s Terminal D, where Frontier operated, and distributed 5,000 free
boxed lunches to anyone showing a Frontier or People Express ticket.

Burr cut prices and cut them again, fervently trying to “
boom” the market to cover his operating costs with an explosion of marginal passengers; Continental and United, however, matched him dollar for dollar and then some. Soon a passenger could fly
anywhere from Denver for $89 and to many destinations for much less—to Colorado Springs, in fact, for a grand total of $9.

“My agenda was
beat the shit out of Don Burr,” Lorenzo’s marketing chief, Jim O’Donnell, would later explain. “My agenda was to win.” O’Donnell, the former Vaporub salesman who helped create peanuts fares, loved this kind of guerrilla sales war. Frontier had posted a billboard outside the Stapleton airport proclaiming that it had the lowest airfares in Denver and vowing to “
change this board” if anyone proved otherwise. Because of a technicality involving the addition of an advance purchase requirement, a 14-day period occurred during which Frontier, in fact, did
not
have the lowest fares. O’Donnell procured a giant camper and parked it in the abandoned gas station lot underneath Frontier’s billboard, hoisting a 30-foot banner that said, “We’ll be here until you tell the truth.” Frontier gamely sent some of its $3 Kibbles’N Bits boxes to the camping Continental executives as a kind of peace offering; they took a box apart and promptly announced that as a unit of People Express, Frontier was charging $3 for a snack box with only $1.26 worth of food inside.