If Robert Crandall weren't in the airline business, he probably could make a lot of money telling corporations how to cut their costs.
Crandall, president of American Airlines since last July, has overseen a reshaping of the airline that kept its first-quarter operating expenses essentially flat -- $944.2 million in the January-March period, just 0.4 percent higher than $939.9 in the first quarter of 1980. This performance is viewed with some awe by others in the airline industry, whose fuel and other costs have been rising rapidly.
At the same time, American's operating revenues grew 9.4 percent in the first quarter to $952.5 million, up from $871 million a year ago, despite a 7.3 percent decline in passenger traffic.
As a result, the airline reported an operating profit of $8.4 million in the first quarter, compared with an operating loss of $68.9 million for the same period a year ago. It had net earnings of $3.9 million (three cents a share) for the first quarter, compared to a $41.9 million loss (1.56) a year ago.
"We've cut the hell out of our expenses," Crandall said in an interview in his spacious office in a building leased from Vought Corp. here. The office is about a half-hour drive from the Dallas-Fort Worth airport where American will open its new quarters next year. The airline relocated here from New York City in 1979.
"We've gone through the company from top to bottom and cut everything we could," the 45-year-old Crandall said. Beside the elimination of 5,000 jobs, Crandall cited several examples of the "hundreds" of things that were changed:
Cuts in communications equipment involved such things as eliminating hundreds of telephone dialing devices, each costing $85 a month, and cutting private lines from places like Dallas to El Paso from three to one, making it "less convenient" to get a call through but saving many dollars.
Printing costs were reduced when management decreed that "we will print 35 percent fewer pages in 1981 than we printed in 1980." This means that every department must cut down, edit, eliminate large margins, anything to cut down on paper used for internal memoranda, guides, manuals, whatever is printed, a spokesman explained.
Reducing the weight on airplanes: Flying one pound around for a year costs $25 in fuel. Crandall said American found it had more coat hangers per plane than were needed, removed gadgets such as hooks and shelves, and replaced heavier carpets with lighter ones.
Even plants throughout the offices were affected when American stopped paying the people to take of care the plants. "When that one dies," Crandall said, pointing to a large palm-like plant in the corner, "it won't be replaced. . . . I'm not a great horticulturist."
The cost-cutting program, which has reduced significantly the number of seats American has to fill on a plane before it breaks even, is the cause of the operating results to date. Looking to the future, Crandall has set in motion other changes that caused Julius Maldutis, the airline industry analyst at Salomon Brothers, to call American "a reawakening giant."
One of Crandall's major efforts is a recomposition of its airplane fleet. For starters, American is grounding its fuel-inefficient Boeing 707. Of its 707 fleet, numbering 58 at the end of last year, 16 will operate this summer and all will be on the ground by September. American has agreed to sell the U.S. Air Force 25 of them for a total of $61 million including spare parts and engines. Crandall said the deal was a great bargain "for us and the taxpayer." Funds for the sale are included in the supplementary military budget.
American has added to its capacity, as have some other airlines, by replacing its old bulky airplanes seats with new slim-line seats that allow more seats per plane, closer together, without reducing -- in some cases, even adding to -- the space available to the passenger. American will add 9 percent to its capacity through the seat program. Although the seat replacements costs money, it's not as much money as adding new planes would cost.
In Crandall's opinion, American also has been able to improve its market penetration; one aid is a continuation of its program to place its reservations computers in travel agencies.
Although he didn't mention it, another plus is probably American's continuing image as a high-quality airline. It consistently rates as the top in travelers' polls, such as the biennial survey of the Airline Passengers Association. In the opinion of American officials, the negative effect on passengers of the 1979 crash of an American DC10 that killed 275 in Chicago has dissipated.
Restructing its route system is another major part of American's program. Always considered a long-haul carrier, now Crandall is reallocating the airline's assets around hub cities that serve as connecting complexes. In June, 77 percent of all American's flights will come in or out of three places -- St. Louis, Chicago and Dallas-Fort Worth. DFW gets the largest boost next month when American increases the number of its daily flights from the current 135 to 216. It will begin service on 15 new nonstop routes, including 11 new destinations, and will increse frequencies in 31 of its existing DFW markets.
The DFW expansion by American hasn't made any new friends over at ailing Braniff International, whose territory is being invaded. Braniff's recently elected chairman, John J. Casey, brother of American's Chairman Albert V. Casey, accused American and Delta Airlines both of "dumping" new capacity on Braniff's traditionally strong markets when it's down.
"He and I know that's not it," Crandall said of Casey's comments. "Our operating results weren't any good, and we had to change the airline," he said. Whether Braniff was weak or strong, we'd be doing the same thing." He said the American move was a defensive response against Delta, which is seeking to establish a second major hub at DFW. "It serves Braniff's purpose to portray itself as the underdog leaned on by the bullies," Crandall said. "I might do the same if I were in his shoes."
American may be using some of the planes it purchased from Braniff last year -- when Braniff sold off part of its fleet to get cash -- on the very routes Braniff is beefing about.
Crandall's other major activity involves continuing discussion with employes to improve productivity. "During regulation, the airlines built up a lot of restrictive work rules, and we have to get rid of them," Crandall said. He cited new competition from young, lower-cost airlines and added, "if we're going to compete, we have to compete on a cost basis."
Crandall has been going around the country talking to employes about the changes he wants to work out, including increases cross-utilization of employes. Right now, an employe hired in one skill cannot help out in another skill even if he or she has extra time, Crandall said.
He also wants the ability to hire part-time employes. Crandall cites instances where three people might be needed at a station to unload baggage and clean an airplane, a task that might take them three hours. But Crandall says they have to be paid for eight hours' work because of the prohibition on part-time employment.
"Airline salaries don't have to be cut," Crandall said. "We only have to get our employes to work more productively, more efficiently."