If the influence of Don Carty can be felt anywhere, it is most obvious at the American Airline's home base close to Dallas/Fort Worth International Airport. Since taking the helm as American's chairman and chief executive, this easy-going Canadian expatriate appears to have knocked any stuffiness out of this most corporate of entities. Casual dress for all office staff is now the norm - an infinitely more comfortable and sensible option in the hot Texan climate. Dialogue and teamwork are important words not only in the vocabulary of Carty, but also among his senior management team.
This desire to be seen as human as well as hard-working was a latent resource waiting to be tapped, it seems, and Carty has not had to turn to outsiders to support his new direction. While he has shuffled the pack in a restructuring of his executive team, the faces remain the same. Most, like vice-chairman Robert Baker, executive vice-president, marketing and planning, Mike Gunn and executive vice-president operations, Gerard Arpey, are seasoned American managers who have worked closely with each other, and with former chairman Bob Crandall and with Carty for years. But Carty has given these mainstays of American a new focus - the core airline, its people and its product.
This is more controversial than it might at first seem. While the handover from airline legend Crandall was seamlessly smooth - an American Airlines' management hallmark - some of what Carty has since done might seem almost heretical. What Crandall enthusiastically built during his legendary tenure, his heir has torn down. The AMR empire, shed of AMR maintenance services and Sabre information technology and computer reservation company, is once again simply American Airlines. That is how Carty likes it. Having taken a few months to let people become accustomed to the new leadership and to reassess the company, Carty felt the time was right to concentrate on the airline.
"It has been timely. We built a number of companies based on the skills we had as an airline. I concluded there was no other place we wanted to take those companies. I thought that more value could be created at those companies by a third party," says Carty. "When we looked at what Sabre was worth and what the airline was supposed to be worth, it didn't add up. We were missing $1 billion of value to the shareholder."
Carty cites some areas of conflict that those companies, newly independent of American Airlines, no longer face. "AMR Services was finding, for example, that some people were ambivalent about using an American Airlines company," he says. "Sabre was different. The interests of Sabre and of American were diverging and you are not able to add value to a company when the interests diverge." Wall Street agreed; shares at American rose sharply after the spin-off.
But there was another reason behind Carty's decision to sell off the non-airline parts of AMR and it lay closer to home: people. "Our employers wanted to see us focus on the airline," says Carty. He points out that people join an airline because they want to be in the airline business; so it follows that they would rather see their senior management focus attention on that core business. Carty claims that this was an obvious and timely move that would have happened "under anyone's leadership" because it is about creating value to the core business. But the way this new policy is being instilled into the company underscores the strikingly different management styles of Carty and his predecessor. Crandall, the baron-like leader and decision-maker, expected those decisions to be obeyed; Carty is a consensus-builder who enjoys motivating his staff and having them on board.
Carty agrees that the two management styles are "very different", but plays down any notion that it was difficult to follow in the footsteps of a name as big as Crandall. "Bob was a legend and he created a lot of change," says Carty. "But most of the existing management team has been part of this process for most of the 80s and 90s. We all have a lot of history here and we have all had a lot to do with the operational strategy of the company. In the last three years [before Crandall retired] I was president and Bob and I were working closely together, so it was not like coming new into this company."
Investment plan
The changes brought about by Carty in his first two years as chairman add up to an investment plan for the core airline and its wholly owned regional subsidiary, American Eagle. The most obvious result to the outsider is this year's decision to add more leg room to the economy cabins of all aircraft in the American fleet, on domestic and international routes, by removing 7,200 seats, or 6.4% of coach capacity. This move has allowed Carty a little self-promotion.
Standing 6ft 3in (1.9m) tall, he was the ideal candidate to demonstrate the benefits of a little extra leg room. Sitting on a cabin mock-up in which the floor moved to show the difference between 780mm (31in) pitch and 890mm pitch, Carty was all smiles. "It might not sound like much," he told a packed audience at a Washington DC event, "but I can tell you that at 6ft 3in, it makes all the difference."
Carty's argument for the more spacious economy cabins is that it makes good business sense. He believes that if the policy results in American being able to attract just 10% more of the full-fare economy passenger market, it will pay off. The move also wins support from Wall Street because it shows a willingness to control capacity at a time when the transatlantic market is looking particularly bloated. But it also falls in line with one of Carty's key strategic initiatives; to differentiate the American product from low-fares' products and to be marked out as a quality service airline.
"It has been a home run," says Carty. "The reception from almost every front has been terrific. Customers are burying us with e-mails saying 'thank you'." By the end of May, American was ahead of schedule in conversion work, with about a third of its domestic fleet completed. Work on the international fleet begins towards the end of the year.
Carty lists service and the product as two areas of focus in his six-part strategic leadership plan for American. Other focus areas are safety, network, internal culture and technology. "By focusing on these areas we will separate the winners from the losers," he says. "And at American, we are absolutely committed to being leaders in each one of them."
Cultural change
The focus on internal culture, Carty admits, is more difficult to define than a commitment to better customer service. "It doesn't happen quickly or easily," he says. "But cultural leadership, especially in a service company, is a strategic imperative." But Carty is finding ways to make a cultural shift more than mere nice language. Aside from allowing office employees to dress more comfortably, Carty is investing $15 million to provide subsidised home computers, printers and Internet access to all employees and their families.
Carty says the "tremendous turmoil" in the industry in the 1980s and 1990s created an environment of distrust. "There was a perception that management didn't care and that we were doing things to them rather than for them. Where you have that situation, trust breaks down between management and employees." The home computers will not be a quick-fix, acknowledges Carty, but the gesture has been a welcome surprise. "A box of chocolates doesn't fix it, but it doesn't hurt either and it's part of the solution," says Carty.
The management team is also meeting regularly with employee groups and union groups to talk through its strategies and goals. Such dialogues have not yet resulted in overcoming prickly relationships with flight attendant and pilot unions - the Allied Pilots Association, in particular, is still negotiating over the integration of regional carrier Reno Air into the American system. But Carty sees "some progress".
Another cornerstone of Carty's leadership plan is technology and e-commerce opportunities. The home computer program dovetails with Carty's idea that technology can be used increasingly as an internal mechanism to reduce costs and provide better information; many administrative processes will be provided directly to employees via those computers. "This allows us to link ourselves much better to our 100,000 employees," says Carty. "It takes a lot of anxiety out of their lives and allows us to give more service to them."
But Carty is looking to extend the company's use of technology much more deeply. "I am a real believer that the greatest piece of economic value that will be created by this revolution in technology will be in employing the new technologies in old companies," he says. "A number of the dot com companies will not create any real value. But the best of the old companies will work out how to use this new technology. New technology is part of our six-point strategy plan, not just to provide lip service to Wall Street, but because we know that if we can lead on technology, then we can lead in the industry."
On the distribution front, Carty is determined "to be in both fields" because he believes it is too early to tell which way customers will go. While he would prefer they go straight to American's web site, AA.com, to plan their travel and make reservations, he acknowledges that some customers want the functionality that independent sites, such as Travelocity and Expedia, offer.
"We will play a wide-range strategy, but do focus groups to monitor use of each of our mediums," says Carty. American has also forged a partnership with America OnLine (AOL) to promote its frequent flier Advantage miles as on-line currency. "We have taken the leadership here; this is a logical cascading of our strengths. We led in the creation of frequent flier programmes and the story goes on," says Carty.
Carty also has some major business-to-business e-commerce initiatives under way which he expects will reduce inventories and take cost out of the company's supply chain.
Positioned for the next downturn
Such initiatives, he believes, put American in a good position to see it through the next economic downturn. He points to "one of the strongest balance sheets in the industry" and "very positive momentum" in this year's first quarter results despite higher fuel prices and soft traffic early in the year around the millennium. Net earnings were $89 million compared with 1999's first quarter loss of $2 million. Full-year earnings for 1999 before special items were $737 million, compared with $1.3 billion the previous year.
Carty sees reason for optimism, for the industry and for American in particular. "While the US economy has not turned down yet, we have seen two hits, in capacity and in fuel prices - and in each case the industry has behaved more responsibly than before," he says. "Most airlines in the USA have today created niches for themselves and points of strength, They are stable businesses and their own raison d'etre. American is particularly well placed, however, because we are positioned better with the business traveller than any other airline in the country and we will retain the high-yield customer. We have also positioned ourselves, through our arrangement with Boeing, to increase or to not increase capacity on a relatively shorter timeframe than ever before."
In the meantime, the atmosphere at corporate headquarters seems more akin to that of another Dallas-based major carrier famous for its ethic of making hard work fun - low-cost carrier Southwest Airlines. Carty may never dress in an Elvis suit and host rock and roll parties for his employees, but his easy-going style is catching on fast.
One senior manager, on looking forward to an approaching company-wide extended weekend, noted with a smile: "There were never any long weekends in Bob Crandall's day: only very short ones.
American's adopted Canadian
An expatriate Canadian, Donald Carty is a graduate of Queen's University in Kingston, Ontario, and of the Harvard Graduate School of Business Administration. He serves on the boards of directors of Dell Computer, Brinker International, and the Canada-US Foundation for Educational Exchange, as well as the Family Gateway advisory board. He is an associate member of the Dallas Citizens' Council. May 1998 Carty became chairman, president, and chief executive of AMR Corp after serving as President of AMR Airline Group and American Airlines since March 1995. Before becoming chairman, Carty was the company's principal airline executive, responsible for all operational elements of the American and American Eagle domestic and international route systems. 1989-1995 Carty was executive vice president-finance and planning for AMR and American Airlines, overseeing a broad range of strategic planning matters and a wide array of critical financial activities. 1985- 1987 Carty had been a key executive for American before leaving the airline to become president and chief executive of CP Air in Canada. In March 1987, he returned to American and was elected senior vice president, airline planning. 1985 Before joining American, Carty spent seven years in various management positions with Celanese Canada, Air Canada and the Canadian Pacific Railway.
Source: Airline Business
