The Up-And-Coming Airline
5
American? A challenge for them and us
Even before Christmas the
rumors were out that American Air
lines was going to begin service to
the heart of Piedmont's system. At
one point, the rumors escalated to
the level that the two airlines were
going to merge. Wliat was the truth?
The truth was that beginning this
Spring. American will begin service
to several points in North Carolina
and South Carolina, albeit at very
limited levels, and that no merger
talks have ever been initiated by
either airline.
American is a big, successful,
tough competitor. No question
about that. The question industry
observers and Piedmont employees
are asking is this: How well is
Piedmont prepared to compete with
American?
It's a fair question.
William R. Howard, Piedmont
President and Chief Executive
Officer, answered it this way:
"Under any circumstances, we're
well-prepared to meet the test
American represents. So let's first
look at exactly what the circum
stances are and see Just how well
prepared we are to deal with them."
AA service
He pointed out that American
will have service to seven cities in
the Carolinas. Except for Charlotte,
none of these communities will
have more than four daily depar
tures. And, including Charlotte,
from these two states American will
provide just nine daily flights to
points outside of the Carolinas. In
other words, of a total 28 American
daily departures from North Caro
lina and South Carolina airports,
19 will be between airports in the
two states for collating traffic, and
nine flights will be more or less
directly competitive with Piedmont
and other airlines.
American brings with it an out
standing reputation for customer
service and, at its hub in Dallas/Fort
Worth and Chicago’s O'Hare Field,
American ranks as the largest, or
(at ORD) second largest carrier. It is
an extremely profitable airline (its
net profit of $233.9 million in 1984
ranked third in the industry) and it
has considerable resources. (Amer
ican had total revenues of more
than $5 billion in 1984).
THEYEAROF
CHALLENGES.
American has vastly improved its
efficiency during the past several
years and now enjoys so-called "B "
scale contracts with its major
unions.
That's a thumbnail description of
the newest entry into the Carolinas
air semce markets. Now, liow will
we deal with it?
"We certainly respect American,
its abilities and its resources,"
Howard said, but Piedmont has a
great many strengths, and those
strengths are centered exactly
where American is coming.
He pointed out that although
American has an excellent reputa
tion for service. Piedmont has had a
better record for fewest passenger
complaints year in and year out.
PI competitive
"None of our people need to bow
their heads in the presence of
American or any other airline. Our
service has been demonstrated to
rank with the best standards of the
industry, be it in llight, reserva
tions, at our ticket counters and
gates — everywhere we meet the
passenger," Howard said. "Our serv
ice is competitive, and we can be
even better if the challenge
demands it. I know our people, and
they won't be outdone. They just
won't."
Piedmont has more than 10
llight departures from this region
for each departure American will
operate. While American’s service
will focus on Dallas, Chicago, and
points west of these cities. Pied
mont will be a full service airline
with strong service patterns to the
north, to the south, to the midwest,
and if they choose to compete with
us to Colorado or California, they'll
find our nonstop services far super
ior to connections at their enor
mous, congested hub airports.
"We have a good array of resources
at our disposal now." Howard said.
"Perhaps a few years earlier we
would have had difficulty mounting
the equipment and dollars neces
saiy to meet a major competitor.
But we have a modern jet fleet that
will number more than 120 aircraft
by the end of this year, and Ameri
can clearly does not intend to bring
a major portion of their resources
to bear on us. They have a great
many major competitors to deal
with in markets which are far more
important to them than the
Carolinas."
efficiency
As to efficiency, he points out
that Piedmont has a far lower break
even load than American: Piedmont
earns a higher profit on each sales
dollar than does American; Pied
mont has two labor agreements in
place already that will enable us to
compete with their comparable
labor groups at competitive costs;
Piedmont has a far more efficient
and smaller management team;
and the Boeing 737-300 aircraft
deliveries will bring us equipment
as efficient as American's, and
probably even more efficient.
Piedmont has a long, well
established identity in theCaroli
nas. We have been part of these
communities since Piedmont's
founding, Howard pointed out, and
that record of semce will cany wilh
it a degree of loytilty.
good service
'We aren't so naive to think that
people will come to us even if we
charge more or give less sei'vice, " he
said. “But if our sei'vice is as good,
or better, and our prices equal,
American is going to have a tough
One winter morning recently, an
agent at liWl had a decision to
make. Another airline had requested
that Piedmont de ice its aircraft,
but a memo from the Accounts
Receivable Department did not list
that airline among those whose
credit we accejJted.
"11 was Saturday morning and
that agent ctilled our ofhce to see
what steps he should take," Kit
Basler, assistant director-general
accounting, said.
"He took time to make sure he
was following the correct jjrocedure
and decided to ask the airline in
question for cash uijfront. "
That agent probably saved l^ied
mont money.
"All employees liave an inlluence
on our revenues,” Audree Long, vice
president, controller, and assistant
secretaiy, said.
"f'or some of us it may be min
imal, for example, recommending
Piedmont to friends and business
associates. On the other hand, our
marketing personnel have a signiI
icant impaci on revenues. But no
matter how small your contribu
tion, it makes a difference."
unit cost
The best measure of Piedmont's
efficiency and productivity is our
unit cost, or what it costs us (o run
the airline on a per available seal
mile basis.
In 1980, our unit cost was 8.2
cents. It Jumped to 8.9 cents during
1981 and 1982, and in 1983 was
8.3 cents. In 1984, our unit cost
rose to 8.5 cents. A minimal in
crease, you may think, but not so.
"In 1984 our operating expenses
were $1.1 billion and jjrofit before
taxes, $92 million," Long said.
"Ifour o|jerating expenses per
available seat mile had increased
just two percent—just 1/6 of a
penny for each available seat mile
— our unit cost would have been
8.7 cents and our operating profit
would have been $71.5 million, a
$20.5 million reduction."
time convincing our customers to
leave us.
"In the end, we re being dial
lenged. riiat's whal competition is
about. The challenge is probably a
lesser challenge in ([uantily of
llights I han we alri'ady fac'e from
some of Americ'a’s most successful
airlines. We neither minimize il, nor
nc-ecl to be awc'd by il. We sini[)ly
need to nu'ct it with our bc'st, and
that's going to be a lot lor them to
handle," Howard said.
A decrease ol two perc eni, he
explained, in operating expenses
jicr available seat mile would have
nu'ant a $20.6 million increase in
l)rofit belore tiixes.'I'hat means if
our unit cost had been 8.3 cents in
1984, our jjrofit before taxes lor
the year would have been $ 112.6
million.
"What tliis means is that just a
two percent swing in operatingc'osi
per available seal mile crc'ales a 22
jjercenl swing in profil belore tcixc's,"
Long said.
"An insignilicant c hange in unit
cost can crc'ate big bucks on the
boKom line."
employees can help
What can employee's do lo help
k(‘('|:) the unit cost down?
"Be cost conscious," Long said.
"For c'xample. work to insure' (ha(
baggage gets on the projier IlighI
and is tagged c'orrectly I'hat .saves
us thec’ost of locating lost baggage.
Fm|)loyees know where they can
save the Company money. We
sim|)ly must instill this cost con
scions attitude into our daily rou
line for the .savings lo accrue. Il"s
the little things (hat make the dif
ference," he added.
■"We’ve grown to become a very
large and i^rofitable company —
and that alone brc'cds complacency.
Our unit costs liave historically
been the best in the industry and
we must maintain that enviable
position. With a low unit C'ost basis,
we can do a lot of experimenting
wilh service and fares — we can do
a lot of c omjjeting," Long explainc'd.
"In other words, a low unit cost
basis gives us a lot of leverage. 'I'his
will be one of our major challenges
in 1985."
lA)ng spoke at Ihe recent man
agenient meeting on unit costs.
Much of this information is taken
from his presentation.
Controlling our unit cost
Makes us profitable — or 'un'