American’s Chairman Retires Today : Casey: A Steady Pilot Through Deregulatio

Albert V. Casey has been chairman of American Airlines for a decade, longer than anyone else now at the helm of a major U.S. carrier. Today, on his 65th birthday, the dean of airline chief executives retires.

It’s been a turbulent 10 years. During Casey’s tenure, American has become one of the most successful airlines in the industry, second in size only to United Airlines. And the U.S. airline industry was deregulated, spawning a crowd of newcomers free to fly where they wish and liberating all carriers to compete on the basis of price and convenience.

It was a decade in which the cost of jet fuel jumped from about 10 cents a gallon to more than $1, before falling back to the current 85 cents; airlines stopped paying their employees premium wages and demanded concessions, turning their labor relations inside out; the industry embraced the revolutionary hub-and-spoke concept, routing a majority of flights through key airports to increase the connections available to passengers; and air travel, made accessible to almost everyone by post-deregulation discounting, accounted for 90% of intercity mass transportation.

In his office at American’s headquarters near the Dallas-Fort Worth airport, the white-haired, jovial Casey reminisced recently about the sweeping changes that the industry and his company have experienced since he joined it in 1974.

American, he recalled, opposed deregulation furiously at first but finally came around.

“We fought it and we fought it and we fought it. We were the last holdouts,” he said. But “it came and we had to live under it.”

American had wanted more time to prepare for deregulation. “We wanted to adjust our route structure, our equipment and our employment contracts,” he said.

Deregulation has forced changes in the way that American and other established carriers operate, Casey said. To the average traveler, for instance, service is no longer as important as price.

“Overnight, we found we were in the commodity business. We weren’t in a semi-franchise business any longer,” he said, alluding to the old system under which the now-defunct Civil Aeronautics Board parceled out routes to airlines. “We’re going from point A to point B against one or two competitors.”

‘Terrible Disadvantage’

“It turns basically on price. . . . We give the best baggage service, the best reservation service, the cleanest airplanes, but people don’t want to pay $10 more for it. . . . Traffic flows like water: It finds the lowest level.”

Deregulation hurt American and other established carriers in other ways. The newcomers, for example, moved into the most lucrative routes.

“We knew that American would be at a terrible disadvantage,” Casey said.

It will be four to five years, Casey complained, before American will be fully competitive with the new entrants. But it is fighting back: On Jan. 17, it surprised the industry by announcing a sweeping new price structure, the chief feature of which was an Ultimate Super Saver program with discounts of up to 70% combined with stringent restrictions. The move, quickly matched by competitors, may yet spark a fare war.

For the consumer, deregulation has been an uneven blessing, Casey said. The lower fares resulting from open competition have made air travel affordable to more people, he said. And for those in large urban centers, it has meant greatly increased scheduled service.

But for those who live in some of the out-of-the-way cities, the opportunity to fly has been greatly reduced; American, like other carriers, has dropped sparsely traveled, unprofitable routes.

Another consequence of deregulation, Casey said, was the restructuring of American’s labor contracts. In order to keep its prices competitive, American could no longer pay high wages to all of its employees. Bound by contracts to keep up pay scales for those already on the job, the airline was nevertheless able to get its unions to agree that new employees would be paid the same low scales as workers at the post-deregulation carriers.

Casey said this two-tier wage system has been a help to American but is still not sufficient. He noted that it would be 1991 before even half of American’s employees will be paid at the lower rate.

“We still are being savaged by the Braniffs and the People’s (Express),” he said. “They can underprice us. We have new entry-level people (at low scales), but we still have very difficult contracts, particularly with the pilots.”

Under Casey’s direction, American also has moved into the computer age. Its Sabre computer system is now the largest in the industry, handling 45% of all airline reservations (while United’s Apollo system handles 40%). Sabre also is used for other in-house chores at American, from making flight plans to gauging fuel economy to issuing boarding passes.

Center of Controversy

It has been at the center of a controversy, however. Late last year, the CAB ruled that the Sabre and Apollo systems had to eliminate the preferential treatment that they showed for their own companies. American, critics maintained, had enjoyed an unfair advantage because its flights were displayed first and more prominently on computer screens than the flights of other carriers.

Even before the new rules went into effect, there had been calls--now growing louder--for American and United to divest themselves of their systems.

Casey, noting that American had invested more than $200 million in developing the system, said it is now too late to talk of divestiture.

“Sure, it gives us a big leg up now,” he said. “But how many lawsuits are there from the other airlines? We tried to set up a utility that would have been owned by all the airlines, but nobody would go for it. Now we’ve gone beyond that. We’ve invested too much money.”

Casey added that “one piece of sheer genius on my part was to get out of the hotel business.” American sold its hotel holdings piecemeal in the late 1970s, putting the proceeds into oil and gas drilling operations. As a result, it is now able to hedge against fuel price increases.

Assemble Management Team

Casey said he had remained at American twice as long as he had anticipated. “My primary assignment here was to put together a management team,” he recalled.

But at about the time that he had planned to leave the company, deregulation happened and American decided to move its headquarters to the Dallas-Fort Worth area from New York, for an annual savings that Casey estimates at $7 million.

In October, 1982, American and its various subsidiaries were reorganized into a holding company called AMR Corp.

Casey will be succeeded as AMR chairman by company President Robert L. Crandall, a man to whom some industry analysts give much of the credit for American’s success in the Casey years.

Said Alfred H. Norling, airline analyst with the investment house of Kidder, Peabody & Co.: “Casey headed the airline in a difficult period. . . . He deserves credit as chief executive during this time when American became profitable again. But in the last two or three years, Casey has been eclipsed by Crandall. The aggressive actions that have been taken by American in the areas of financing, marketing and equipment acquisition were Crandall’s.”

Hans Plickert, an analyst with E. F. Hutton & Co., gives more credit to Casey.

“I give him very good grades in terms of having been chief executive officer of American Airlines in one of the most difficult transition periods in the airline business. . . . I think he was largely responsible for the kind of financial muscle American has developed and for helping Bob Crandall put the airline into super shape for survival in a deregulated environment. It took a great deal of courage to authorize the kind of expenditure to give American computer capability without peer in the industry.”