OR/MS Today - June 1998 - The Patron Saint of Operations Research

June 1998

The Patron Saint of Operations Research

Robert L. Crandall, the recently retired chairman and CEO of American Airlines, was one of us. Few people could match his understanding of modeling, optimization and constraints.

By Arnold Barnett

Editor's note: Robert L. Crandall, the chairman and chief executive officer of American Airlines since 1985, announced his retirement in April. During his 13-year reign, American soared to the top of the domestic airline industry thanks in large part to the company's innovative business solutions, including the SABRE automation system, the AAdvantage program for frequent travelers, a series of major hubs at Dallas/Fort Worth, Chicago, Miami and San Juan, and the creation of a wide-ranging international route system.

Crandall was a strong supporter of SABRE Decision Technologies, the AA subsidiary that developed yield management and other money-saving models using OR/MS tools and techniques (see related story). Today, The SABRE Group boasts the largest and most influential OR group in U.S. industry.

In the article that follows, Arnold Barnett of MIT, who was described on NBC News last year as "the country's leading expert on the safety of air travel," offers his unique analysis of Crandall's impact on the OR/MS profession.

Years from now, we may all remember where we were when we heard that Bob Crandall was going to retire. No one in recent years has been worthier of the title of patron saint of OR. Where would we be now if, at the critical moment, he had declared yield management a preposterous idea? (In the last issue of this magazine, someone wondered whether INFORMS should be renamed the Revenue Management Society.)

Yet it would be narrow to laud Mr. Crandall on the grounds that he gave us a chance to be brilliant. He contributed much more directly to our field: he was not well-versed in integer programming, but few people in INFORMS could match his understanding of modeling, optimization and constraints. One only has to look at his stewardship of American Airlines to see an electrifying example of OR/MS in motion.

Our Wallets, Ourselves

Yield management, for example, has produced some elegant mathematics, but it ultimately derives from an intriguing insight about the polarization of U.S. airline passengers. On the one hand are the business travelers, who are amazingly indifferent to what fares they pay but who crave a network of air- taxis to carry them when and where they want to go. On the other hand are leisure passengers, who are willing to undergo practically any humiliation so long as their fares are kept low. Crandall understood the opportunity for a massive redistribution of wealth and convenience: the business travelers would subsidize the leisure ones, who in turn would increase overall demand so that highly frequent flights would be feasible. American Airlines would exact a steep brokerage fee for the transaction.

And, of course, there are the frequent-flyer programs so central to modern life. American started the first such program; supposedly the goal was to instill brand loyalty but that explanation somehow seems lacking: other major airlines would surely copy the approach, so American could suffer as much as gain. A more subtle effect of the programs is the conflict-of- interest they create between employers and employees, with the latter spending all kinds of extra money for additional mileage and perks. (It has been estimated that such antics have cost U.S. companies billions of dollars.) American's program has never been especially generous; each year, as the ball drops on Times Square, billions of Aadvantage miles expire. But Crandall sensed that there was no need to be generous with addicts like us, who pay for candy bars with Aadvantage credit cards to get literally a fraction of a mile.

Understanding the "utility functions" of his passengers better than they themselves did, Crandall perceived that, at the margin, frazzled full-fare travelers put a much higher premium on time than on comfort. Few places on earth are as demoralizing as the center seat of an American Fokker-100 flying from Boston to Chicago. But these insects leave every half hour at peak periods, so we can get home to our armchairs much earlier, from which we can denounce American Airlines as we recline in luxury.

Crandall comprehended the constraints on his airline as well as those on his passengers. Given its high cost structure, American could not compete head-to-head on short routes with carriers like Southwest. So American massively withdrew from such routes, with the exception of those into "fortress hubs" at which passengers could transfer to longer-haul flights that were economically viable for American. The idea has been so widely emulated that it might not seem like an American art form, but it is Crandall's shrewd adaptation of the hub-and-spoke concept.

The Longest Day

Crandall's worst day as CEO was surely Dec. 20, 1995, when an American 757 crashed at Cali, Colombia, killing 159 passengers. In a world obsessed with legal liability, American created shock a few days later when it expressed "sadness" that "human error on the part of our people may have contributed to the accident." And, rather than torment the relatives of victims with technicalities of the Warsaw convention which sharply limits airline liability in international air crashes American announced at the outset that it would ignore the covenant.

Then, as months went by, we heard again and again about steps American was taking to advance aviation safety. American became the first airline in the world to use computerized graphic cockpit displays that give detailed warnings of topographical hazards. American announced that it was installing defibrillators on its entire fleet of aircraft, thereby appreciably increasing the survival probabilities for airborne cardiac-arrest victims. And American immersed itself in research about predicting clear-air turbulence, the source of frequent injuries and occasional deaths in the sky. American's response to the Cali tragedy, in other words, seemed to take two stages: first, to take responsibility rather than evade it; and second, to resolve through innovation to save the life of some future air traveler for each person who perished in the accident.

It would be cynical to attribute Crandall's reactions to Cali to some series of cost-benefit calculations. But could any other course have possibly done more for the honor and long-term health of the airline? Did anyone seriously doubt that, after the crash, it was safer to fly American rather than less safe? Is it merely a coincidence that American's passenger traffic went up after the accident rather than down?

Time to Go

The hardest optimization problem for a successful CEO is deciding when to leave. Crandall's skill with this problem was evident this past April, when he stepped down years before he had to do so. When he left, the airline's annual profits exceeded a billion dollars, its labor problems had subsided, and an American century was at last assured. American can now afford to be a kinder, gentler airline because Crandall was neither of these while the carrier's survival was uncertain.

Londoners who inquired about the architectural feats of Christopher Wren were advised, "if you seek his monument, look around." Because OR/MS is more a state of mind than a set of techniques, its monument should be a person who glories in its ideas rather than an algorithm and software. For the end of the 20th century, I would suggest, its monument is Robert Crandall.

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