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727LOVER
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What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 5:46 pm

At year's end 1985, AA had 291 aircraft. By the end of 1992, AA had 260 MD-80s alone.

During this period, AA opened up hubs in BNA and RDU, and gotten a hub at SJC with the Air Cal merger. With such massive growth, AA passed UA and became the USA's largest airline. UA had held that position since 1961.

Afterward, in the early 1990's MIA came online.

What fueled all of this growth?

I thought I have read that AA introduced a two-tier pay system for its pilots at the time, can someone explain this, and did that contribute to the massive growth?


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superjeff
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 5:52 pm

With deregulation, AA moved their home office from New York to Fort Worth. They already had a pretty massive DFW operation, and were second only to Braniff at that airport. However, they were much bigger and many believe they overlaid Braniff's route map out of DFW, and then massively weakened that carrier. When Braniff failed in May of 1982, American quickly became the dominant carrier at DFW and continued to develop their hub there. I don't think that's the only reason for American's growth, but it certainly is a major consideration.
 
Tan Flyr
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:06 pm

727 LOVER...I'll take a stab at this for you.

entering the early 80s, fuel was high, the country was in a crummy recession and decisive action was needed.
De gregulation was killing those with heavy fixed costs and contracts, while the likes of People Express, etc were eating the lunch of many majors.

so, somewhat in the same general time frame, several events came to pass...in late 1981 AA retired the last of the 707's, and acquired some 15 or so used 727 from Braniff ( this may have been in 82 or so)

At about the same time the MD 80 came onto the market, and after a slow start to a few European carriers, Douglas was desperate for a domestic sale. The offered TWA anad Aa a number of frames on a "flye'm and if you lie 'em, buy em..with a 30 day walk-away clause in the lease.

Bob Crandal quickly realized the virtues of a 2 man cockpit, 2 engine jet that could do a number of missions, more cost effective than a 727.

He had to get wages in line with the new upstarts to compete on price. So offering a 2 tiered wages on new hires for a time, coupled with the MD 80's, it propelled AA to widen it's reach with the 3 new hubs of RDU, BNA and SJC.

He cut a deal with McDonnel Douglas that effectively made every third MD80 a free one. I think they were ordered in batches of 100 the first 2 times, then the balance.

So, a lot of new hires, new flights, lots of promotions to first officers for flight engineers, and to captains for first officers fueled a kick start that made the AA of the late 80's and 90's possible.

Tjhat is it in a quick nutshell.
 
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LAXintl
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:11 pm

It was do or die for AA.

If you read Robert Seeking book Eagle he explains in detail how the company after losing money and being at competitive disadvantage had to go all in and grow scale or become irrelevant and die.
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mmo
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:12 pm

There are several factors that helped AA grow in the early/mid 80s.

First is the deal AA did with McD on the MD-80. Bob Crandall, the then CEO of AA, got a great deal on the MD-80 series of aircraft. That allowed AA to really develop their hub and spoke system and that system accelerated their growth. Deregulation was fully up and running by then and industry consolidation was just starting to take place.

AA also was the first major airline, in the US, to have the B scale, which was in essence two different payscales for the same job. I interviewed with the in the 83-84 time frame and their big pitch was if you join in essence the B scale won't make too much difference as you will be a Captain in hardly any time. The B scale was only for F/Os and once you moved to the left seat you went on the A scale. Not one to believe in fairy tales, I quickly passed on that notion. However, the B scale did catch on with quite a few US airlines. I am not convinced though the B scale really helped them expand all that much.

I think the final thing was deregulation itself. There was a tremendous pent up demand for air travel. With the development/refinement of the hub and spoke system, it became much more economical for people to travel and the spread of air service to cities that previously had very limited service.

Just my thoughts...
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simairlinenet
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:18 pm

I view Crandall as the most influential airline leader ever, because he introduced/widely adopted four concepts in the 1980s that massively changed the industry:
1) Hub-and-spoke systems
2) Frequent flyer programs
3) Yield management
4) Computer reservations systems

Honorable mention for:
5) The B-scale and MD-80 acquisitions certainly helped the growth. When you have low marginal costs, you can grow quickly. When your marginal costs are higher, you get into trouble. This is why Southwest is growing so much lately--they've entered that same trap of a mature company.
 
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clickhappy
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:18 pm

What Fueled AA's Growth In Mid/late 80's?

In a Marco sense, Paul Volcker and the FOMC ended the policies that resulted in interest rates that hit almost 15% in 1980. By 1983 it was below 3%. The mid-80s also saw a lot of Mergers and Leveraged Buyouts. By taking on a bunch of debt they were less likely to become a takeover target.
 
FWAERJ
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:23 pm

Quoting simairlinenet (Reply 5):
1) Hub-and-spoke systems

By the time AA opened up their DFW hub and was preparing to hub ORD, DL had been using a hub-and-spoke system for over 25 years, and had refined and perfected it in the process.

AA simply copied a model pioneered and proven by DL.
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TVNWZ
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:24 pm

I remember seeing a lot of Fokker 100's in BNA. It was almost like Fokker heaven. So, that plane must have played a role in that hub operation.
 
simairlinenet
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:27 pm

Quoting FWAERJ (Reply 7):
AA simply copied a model pioneered and proven by DL.

That's why I said

Quoting simairlinenet (Reply 5):
he introduced/widely adopted


Having one idea is great, tying two or more complementary ideas together is even more powerful than 1+1.

[Edited 2015-10-08 11:30:05]
 
Tan Flyr
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 6:28 pm

Couple of other thoughts..

As mmo mentioend, the pent up demand...the lowering of fares made travel by air not a luxury, but a very effective option for vacation travel for millions.

Also, as the 80's progressed, Reagan de-regulated the US oil industry, and by 1986 Crude was less than half of what it was 4 years earlier. Result, lower Jet-A costs..and they remained mostly stable until 1990 and the first Gulf war to free Kuwait from Iraqs' invasion.

After that was resolved, prices came back down again, aiding the bottom line of all carriers.
 
mmo
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RE: What Fueled AA's Growth In Mid/late 80's?

Thu Oct 08, 2015 8:39 pm

Quoting simairlinenet (Reply 5):
Honorable mention for:
5) The B-scale

The only problem was the B scale came back and bit AA management on the backside! In addition, you compare AA to Southwest and that's like comparing a turd to an apple! Southwest does not have, as you write, low marginal costs. And back then they didn't either. Crandall forced APA to take the B scale or run the risk of shutting down. Low cost does not have to equate with low wages. It means working smart.
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WA707atMSP
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RE: What Fueled AA's Growth In Mid/late 80's?

Fri Oct 09, 2015 2:00 pm

I think the single biggest factor that drove AA's success was that they had the most advanced yield management system throughout the 1980s. This enabled AA to keep fares high for expense account travellers while also offering low fares for price sensitive passengers. Other airlines had to choose between keeping fares high and losing passengers to low fare airlines, or matching other airlines' low fares and having all of their passengers fly on cheap tickets. This really hurt Delta in the early 1980s, because Delta's computer technology was far less advanced than AA's.

Another factor that helped AA was that their biggest competitors (United and TWA) were in disarray throughout the 1980s. United's parent company (UAL Corporation / Allegis) under invested in the airline, to free up money to buy Hertz Car Rental and the international division of Hilton Hotels as part of a strategy to create a one stop travel company that could sell customers airline tickets, hotel rooms, and car rentals, in one transaction. United's employees weren't happy their airline wasn't getting the funds to grow, and this caused serious labor tension. TWA was in even worse shape, because they were spun off from their parent company (TW Corporation), then taken over by Carl Icahn. American's management was able to focus on running a great airline, while United and TWA lurched from one crisis to another.
 
mmo
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RE: What Fueled AA's Growth In Mid/late 80's?

Fri Oct 09, 2015 2:46 pm

Quoting WA707atMSP (Reply 12):
international division of Hilton Hotels

Wrong hotel chain. It was the international division of Westin. Stayed at the MNL property many, many times, it was the Philippine Plaza.
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WA707atMSP
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RE: What Fueled AA's Growth In Mid/late 80's?

Fri Oct 09, 2015 3:30 pm

Quoting mmo (Reply 13):
Quoting WA707atMSP (Reply 12):
international division of Hilton Hotels

Wrong hotel chain. It was the international division of Westin. Stayed at the MNL property many, many times, it was the Philippine Plaza.

I did not mention Westin because that chain was purchased by UAL in 1970, long before UA tried to develop their "one stop travel super store" concept in the mid 1980s. Westin (which was known as Western International until the early 1980s) did not have separate domestic and international divisions; all of their hotels were a part of a UAL owned company.

In the 1960s, Hilton Hotels split into domestic and international divisions, and sold their international division to TWA. TWA's former parent TW Corporation sold Hilton International to United in 1986. UAL / Allegis sold Hilton International to Ladbroke the next year. The US division of Hilton purchased Hilton International from Ladbroke in 2005.
 
Italianflyer
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RE: What Fueled AA's Growth In Mid/late 80's?

Fri Oct 09, 2015 3:34 pm

Just some random .02 here: to be fair, Allegheny also perfected the hub & spoke model in PIT. They took it up a notch by hiring contractors to feed the hub from small communities vis a vis Allegheny Commuter System.....a radical concept in the 1970s & early 80s. Ironic how things played out 40 years later.

Aside from the good points mentioned above; the name of the game in the 1980s was market share. AA had a gaping hole in the Southeast and they were not going to cede the market to DL & flailing EA. The dual axis southern strategy was brilliant bit risky. With ATL & CLT spoken for they needed a nexus for east coast flows and inland traffic. RDU was the northeast to Florida/Carolinas/Georgia hub and BNA was the south central anchor ( think BOS-MSY, PHL-OKC,ATL-CLE). At the end of the day, yields were trashed in the post Gulf War I recession and the ventures abandoned.
 
mmo
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RE: What Fueled AA's Growth In Mid/late 80's?

Fri Oct 09, 2015 9:23 pm

Quoting WA707atMSP (Reply 14):
I did not mention Westin because that chain was purchased by UAL in 1970, long before UA tried to develop their "one stop travel super store" concept in the mid 1980s. Westin (which was known as Western International until the early 1980s) did not have separate domestic and international divisions; all of their hotels were a part of a UAL owned company.

But UAL only held the Hilton chain for just over a year. I should say Allegis Corp, as that was the business entity that held UAL, Hertz and the Westin chain. In April 87, Allegis management announced a recapitalization program that would have burdened the company with $3 Billion debt. The recapitalization was to fend off a proposal by Coniston Partners, a NY Investment Banking company who controlled 13% of the stock. Coniston wanted to sell off the parts of the company and return the cash to the shareholders. ALPA responded by coming up with their own proposal to buy the company and retain the airline and sell off the other assets. The ensuing issues was the downfall of Ferris.

Funny, I remember staying in Westins in the early 80s and they were know as Westins then...
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