Taking Flight By Taking Chances:  How Bob Crandall Turned American Airlines, and the Airline Industry, on Its Ear

If you haven’t gathered by now, thanks to the bevy of retail sales and non-stop music in the air, we’re firmly in the midst of the holiday season.

And for many of us, that means travel.  Maybe you’re the one traveling out of town to see relatives, or  you’re the one welcoming them into your home from all parts of the country, or the world.

For those of you who will be flying this holiday season, either for personal or professional reasons, you experienced a process that may be second nature to you by this point.  Book your ticket electronically.  Cash in some of your frequent flyer miles to defer costs, or rack up the miles for better deals down the road.  Book well in advance, or at the very last minute, to take advantage of a great price on a ticket for a seat that would have otherwise gone unused.

None of these developments would have been possible without the determination, the vision, and the intellect of Bob Crandall.

From 1980 to 1998, Bob was the President and CEO of American Airlines, and in that time, he earned every bit of his reputation as THE fiercest competitor in the airline industry, working over his competition (and often, his own people) in order to maximize the success of his company, and the return on investment for shareholders….no small feat, given that over 150 airlines had gone bankrupt since the Airline Deregulation Act of 1978.

And it was that same Airline Deregulation Act,  which removed the government’s control over fares, routes, and markets, that has come to define the legacy of Bob Crandall.  Bob had long been bitterly opposed to the Act, and when it took effect, the biggest airlines, including American Airlines, took the biggest hit. Smaller airlines popped up, charging lower fares, using non-union labor, and establishing smaller, niche-oriented routes.  Things looked grim for an airline that had been the industry leader.

But Bob fought back.  Hard.

Bob had already been a revolutionary force in the marketing department of American Airlines by the time he became President, having introduced his patented SABRE system, designed to help travel agencies use computer technology to book and coordinate flights on any airline, not just American.  He also introduced SuperSaver routes for people who book their flights with American well in advance, giving flyers discounts they never would have enjoyed otherwise, and giving American the cash flow needed to cover overhead.

Shortly after Bob took over the company’s reins, he introduced “AAdvantage“, the first frequent flyer program the industry had ever seen, as well as “AAirpass“, enabling frequent travelers to engage in long-term fixed rate contracts that guarded against future rate hikes.  He also established the first “yield management” system, using consumer data to help American monetize, to any degree it reasonably can, the empty seats (or “spoiled” seats, in industry parlance) that occur on its flights.  (After all, Bob thought, getting $50 for a seat is better than nothing, if all it costs you is the wholesale cost of a bag of peanuts and a soft drink).

The result?  Company performance that not only kept pace with the smaller, upstart carriers, but ultimately drove many of them out of business, never to be seen again. And all of this in an industry where every major carrier filed for bankruptcy, some even multiple times, with the exception of American Airlines.  (Ultimately, AMR, the parent company of American Airlines, DID file for Chapter 11 bankruptcy, but not until 2011, 13 years after Bob retired.)

On this edition of “The Raja Show”, Bob Crandall joins Raja to discuss his impact, not only on one of the most turbulent industries in American business, but also on modern day leadership as well, seeing as few, if any, business leaders got as much out of their people as Bob.  He’ll also discuss the modern state of the airline industry, and the evolution of his developments, which paved the way for how we fly today.

This is a must-listen discussion of an industry with which most of us are intimately familiar, coming from the man who made so much of it make sense.   You’ll want to be there for this one!

Episode 85

Start Me Up:  Bob Herbold’s Front Row Seat For the Ascension of Microsoft To the Top of the Computer Industry

In 1995, Bill Gates knew that the idea of “personal computing”, which, to that point, had been trickling into the marketplace, was ready to explode into the cultural landscape.

And the founder and CEO of Microsoft had just the product to get it there:  Windows 95.

For Gates, this was finally the user-friendly software the public had been clamoring for, and he knew that as soon as Windows 95 goes to market, any perceived advantages that Apple and their other industry rivals had would be wiped away.

But, like any tech venture at the time, Bill Gates was tasked with answering the $64,000 question:  ”How do we SELL this to the general public?”

The marketing approach clearly needed a hook, and in a brainstorming session, somebody threw out the idea of using the Rolling Stones classic song, “Start Me Up”.

It was an idea easier said than done, given that, in their thirty-plus years to that point, the Stones, specifically lead singer/de facto Stones CEO Mick Jagger, had never given one of their songs up for a commercial.  And given Mick was also an astute scholar in business and economics, it would not be an easy, or inexpensive, task.

But Bill Gates told his man to “work him over”.   And that’s exactly what that man, Bob Herbold, did.  Bob’s team was able to work Mick’s team down to $3 million (from an asking price of $4 million).

They deal was done.  The ad was launched.

For the Stones, the ad opened the floodgates to a new form of revenue, and their songs have appeared in dozens of ads since then.   But for Microsoft, the ad opened the eyes of a consumer base that had not been able to embrace the “cool” factor that technology could provide, and helped propel them to the top of the computing industry.

Bob Herbold’s ability to “work over” Mick Jagger was one of the many reasons Bill Gates had tabbed the longtime Proctor and Gamble executive to be the COO of Microsoft during the Windows 95 launch, and by extension, Microsoft’s launch into the public’s consciousness.   Not only was it the “fun” portion of Bob’s remarkable career, but also one where he learned about what it takes for a company to become hot, how to manage the growth of a company poised for the stratosphere, and how to not let mega-success get to your head along the way.

On this edition of “The Raja Show”, Bob talks with Raja about his remarkable career, what it was like as Bill Gates’ right-hand man during the most successful period in Microsoft’s history, and why it takes guts and courage to truly make a difference in business.