SM: Start out with your background. Where are you from and where does your story start?
RL: I grew up in Texas and Louisiana. My father was a chemical engineer who ran research at a large minerals and gold development company. I came from a very engineering-oriented family. I went to school at SMU [Southern Methodist University in Dallas] and got a degree in business and economics.
My first job was with American Airlines. I was a industrial engineer, a time in motion guy who tried to figure out how to cut costs. It was a good grooming job. Airlines are the true Adam Smith model, where profit equals zero when there is true competition. Anybody can get in and out, they don’t make any money, and everybody jumps in to try to make money but profits always equal zero.
The airline industry used to be regulated, and as it deregulated it was no longer about the airline that had the best service but about cost. Under regulation, everyone charged the same from point A to point B.
SM: It was about how well you could manage expenses.
RL: Exactly. The industry moved out of guaranteed revenue of 10% return on assets which the government’s calculations allowed. It was not about who could make money but who could survive. At the time we had Bob Crandall as the CEO; he was a very aggressive, cost-cutting type of guy. This created an environment where capital was at a premium and the way of doing business had to change. The right formulas were those that included automation.
We bought any kind of technology that would leverage people. It had to have an 18-month payback because capital was so expensive back then. All of our money had to go towards airplanes. I was there nine years and had nine different jobs. I moved around a lot, which gave me a broad base of experience. My last three years I was in an internal startup, which is where I gained internal perspective on running a business with broad knowledge. In the airline everybody had very specialized job, which gave them very narrow views of the world.
I fell in love with all aspects of running the business. Literally I was one of 10 people who started selling reservation and marketing services; this grew to 2,000 people. SABRE [Semi-Automated Business Research Environment, a data processing system developed with IBM in 1959 and the early 1960s] was part of what we were doing. We took all of the core competencies of the airline and figured out whom else we could sell it to who was not in the airline business. We sold reservation systems to hotels. We figured we could leverage our assets to help raise income when the economy was low.
In 1988, one of my big wholesaler customers hired me away. They owned a single airplane that flew to Hawaii and back. They were a tour wholesaler with hotels and rent-a-car agencies, and they trying to make their operations a bit more sophisticated. That was the first time I was outside the mother ship. I remember once wondering why people did not have a little more pride about working where they did. I realized that every company has a culture which must be created or sustained. At American Airlines we were the best there was. We were the smartest and fastest, and we were survivors. I realized when I left that people really do take on those aspects of corporate culture.