(FORTUNE Magazine) – MOST U.S. BUSINESS leaders are nothing but a bunch of wimps, according to the latest conventional wisdom. It seems that a lot of them start screaming for help the moment a competitive bully from overseas shows up spoiling for a fight. Makes you wonder if too much quiche is being served in corporate dining rooms around the country these days. Well, take heart. The folks at Texaco are not the only American executives who still relish a good scrap. The truculent fellows who run U.S. airlines have been flailing away at each other and anyone else who gets in their way since deregulation in 1978, and the survivors seem to have acquired a strong taste, if not a passion, for corporate combat. American Airlines Chairman Robert Crandall, one of the industry's most furious infighters, fairly beams when he describes his chosen field as ''the closest thing to legalized warfare.'' In the months ahead, the ongoing battle will engage more than the five chief executives in the illustration, who now dominate the U.S. airline business: Crandall of American, Richard Ferris of United, David Garrett of Delta, Frank Lorenzo of Texas Air, and Steven G. Rothmeier of Northwest. Also involved will be the industry's bellicose unions and the passengers who pay the bills -- including all those U.S. companies facing rising air fares at a time when they are struggling to cut costs. For example, the big airlines recently hiked ticket prices to help recoup losses from the now expired ''MaxSaver'' discount fares. This should serve as fair warning that millions of Americans have a big stake in a business they patronize but know little about at the operations level. The computer, a key weapon for the Fearsome Five, has refined the fare finagling to a science. Each megacarrier maintains a sophisticated reservations system to juggle ticket prices and ensure maximum revenues for every flight. On a single day recently Delta used its computer to make 79,000 fare changes, adjusting them up and down as tickets were sold. American adjusted 106,000 fares the same day. For passengers, of course, these computerized systems produce the bewildering range of fares that have helped make air travel a complex, sometimes daunting, experience (see box). Tough labor skirmishes, long a feature of the air wars, are likely to continue. Airline unions at most carriers have granted concessions of various kinds in recent years, but management-labor relations are still volatile throughout the industry. The flight attendants' union at American has hired Ray Rogers, the labor firebrand who most recently led the protracted Hormel strike in Minnesota, and has begun picketing the headquarters of the airline's institutional investors to protest the low wages paid new employees.

The nastiest clashes are likely to take place between highflying Texas Air chief Frank Lorenzo and the unions of newly acquired Eastern. Lorenzo is seeking an average 35% wage cut from his pilots, flight attendants, and machinists in contract talks that begin later this year. Trouble, in the form of strikes or other labor agitation, is likely. In early April members of Eastern's pilots' union picketed various airports wearing surgical masks. Eastern's management, they contend, has been encouraging pilots to report for work even if they are sick. , Northwest Chief Executive Steven G. Rothmeier has also been buffeted by labor unrest. His difficulties have been especially acute at his Detroit hub, where former Republic employees complain that they earn less than their Northwest brethren in the newly merged company. On several occasions disgruntled baggage handlers tore the destination tags from luggage, condemning the bags to a Detroit limbo until they were claimed. The handlers took particular aim at suitcases with business cards, figuring that squeals from corporate travelers would get Rothmeier's attention. The five winners that have emerged from the decade-old air wars now control well over 70% of all U.S. air traffic, and their reach is likely to broaden. But keep your seat belts on: The turbulence isn't over yet. Industry leaders are closely watching Carl Icahn, who wants to either expand the No. 6 carrier, TWA, or make some kind of deal (see following story). Also, Pan Am continues to report huge operating losses and may well end up on the block before long. Crandall has negotiated marketing agreements with Pan Am that give him the right of first refusal if that carrier comes into play. He strenuously denies that that means he is in any way committed to a deal. Lorenzo says he expects corporate raiders to follow Icahn's lead and begin making assaults on the large carriers. Donald Trump, the highly visible New York real estate mogul, began buying shares of Allegis Corp., United's parent company, this spring. He announced takeover plans at one point, reportedly hoping to sell the company's airline and Hertz rental car division while retaining the Westin and Hilton International hotel chains. Trump, through his 73% control of Resorts International, also owns a chunk of Pan Am, while the Pritzker family of Chicago and Coniston Partners, a New York arbitrage firm, are also buying into Allegis. All this activity apparently emboldened United's pilots' union, which has been at odds with management over cost-cutting measures. In April the United pilots announced a $4.5-billion bid for the airline. Allegis boss Richard Ferris dismissed the offer as ''a publicity stunt,'' but company executives were clearly chafing over criticism of the current corporate strategy to blend the airline, rental car company, and hotels into a three-part travel empire. In conversations, Ferris and his staff continually emphasize the travel synergies -- combined check-ins, reservations, and the like -- available through their divisions. % Lorenzo seems best equipped to win the upcoming battles. By starting some of his own operations and rapidly acquiring others, he now controls the largest market share of any U.S. airline and can dominate almost any territory he wants. Since much of his fleet is not unionized, he also holds a clear cost advantage over his major rivals. Such a prominent role in American business seemed unlikely for the 47-year- old Texas Air chief just a few years ago. Son of a Spanish immigrant who operated a beauty parlor, he worked his way through Columbia University driving a Coca-Cola truck and later went to the Harvard Business School. At 26, Lorenzo started a small financial advisory firm and an aircraft-leasing operation. In 1972 he bought foundering Texas International and turned it around, in part by offering discount fares during off-peak hours and on slow travel days. When deregulation came along, Lorenzo knew he had to grow fast. He says: ''We did not have a particularly good hand. We were a small Texas airline without a name franchise, with no public identity, without any large aircraft. It looked like we were going to be the ham in someone else's sandwich.'' Lorenzo, a lean, intense man who jogged away 45 pounds from his once pudgy frame, tried to buy both National and TWA before starting New York Air in 1980. Two years later he picked up Continental, a struggling Denver-based carrier. The Continental operation gave Lorenzo some of the size he needed, but competition was stiff at the carrier's home base, and high labor costs were eating up profits. By 1983 the situation was grim. ''We were definitely going to have to shut the doors unless something happened,'' he says. Lorenzo made things happen in a move that stunned the industry -- and earned him the undying enmity of airline labor leaders. He declared Continental bankrupt, then immediately reopened it as a non-union carrier. With his labor costs sliced neatly in half, Lorenzo was able to start flying at a profit. For a time at least, it seemed that his tough tactics might backfire. In 1983 he lost out to Icahn in a bid for TWA largely because of union opposition. The same thing happened later that year when he battled Donald Burr, then People Express chairman and one of his former proteges, for control of Frontier. In 1986 Lorenzo finally began to win a few. He picked up Frontier and People Express when Burr's operations went under after severe overexpansion. (Burr, who had rejoined Texas Air after the merger, recently resigned.) Then Lorenzo outdueled several other buyers for Miami-based Eastern Airlines. According to colleagues, Lorenzo adopted a new management style during Continental's financial crisis. He had been an aloof figure, setting policy and then retreating. Since the bankruptcy, he has become much more of a hands- on executive who digs into the operational details of his enterprise. Lorenzo has no regrets about his various purchases, despite the upcoming trouble he faces with Eastern's testy unions. He says: ''History has shown that the companies that didn't take risks took the biggest risk.'' Lorenzo's chief rivals share that sentiment. They may seem a diverse group of U.S. businessmen. United C.E.O. Ferris, 50, is an outgoing leader who began his career in the hotel business. American's Crandall, 50, a consummate workaholic, has been the prime innovator in the industry. Delta Chairman David Garrett, 64, is a conservative Southerner who reflects his company's reputation for caution and reliability. Northwest chief Steven G. Rothmeier, 40, is a quiet, brainy bachelor with a strong financial background. But these executives are all part of a new breed. Running a major carrier used to bring membership in an exclusive club, where gentlemanly behavior and a keen appreciation for the romance of air travel predominated. The leaders of today's greatly altered industry have neither the time nor the inclination to be overly polite; they stay busy keeping their companies alive. They are all adept number crunchers, aggressive marketers, and fearsome labor negotiators. They are also prickly sorts, executives who do not readily back away from confrontations. Theirs is a business where you can wake up one morning, look at the newspaper, and come to the sickening realization that a rival has just launched a suicidal fare war or invaded your territory like some rampaging buccaneer. This does not lead to cozy personal relations among industry leaders. Says Rothmeier: ''Everybody pretty well runs his own little empire. And except when it comes to very broad issues that may affect the industry as a whole, there just isn't very much we agree upon.'' Contrariness and a strong sense of self-preservation are necessary attributes for running an airline. When fares, routes, and schedules were closely regulated, the airline bosses grazed sleepily on a peaceful playing field. The sudden shock of contesting fiercely for every inch of turf was too much for many. Dozens of carriers large and small have shut down or been consumed by stronger competitors. In their place have emerged the five megacarriers, which have grown more and more powerful through the years, coming to dominate the business with vast fleets, technological prowess, and superior operating skills. Controlling costs, especially labor costs, is an absolute necessity. The industry had become highly unionized during the regulated era, and labor costs spiraled up to sky-high levels. From 1970 to 1978, for example, the consumer price index rose by 68%, while airline workers' wages doubled and benefits more than tripled. Instead of facing those big bills, the carriers blithely passed the check along to their passengers. But then new, non-union operations with far lower labor costs, such as upstart People Express and Lorenzo's Continental, began to steal business by slashing prices. Fare wars erupted all over the map, playing hob with everyone's bottom line. The old-line carriers lost more than the newcomers because of their vastly higher labor costs. But the airline establishment was reluctant to wring big givebacks from the unions. Strikes and shattered morale were certain to result. American's Bob Crandall came up with a compromise solution, an innovative two-tier wage formula, since copied in diverse industries throughout the U.S. Workers already on the payroll would be asked to improve productivity, but they would not face pay cuts and would even get guaranteed increases. New employees, however, would come on at sharply lower wages and reach parity only after several years. The beauty part, as Crandall saw it, was that his average labor cost would continue to decline as older employees retired and new hires entered. And the faster he expanded his operation through internal growth, the faster his average labor cost would decline. CRANDALL'S TWO-TIER scheme, a winner from the management point of view, swept through the industry. United, Delta, and Northwest all negotiated, sometimes rancorously, two-tier agreements with their unions. But Lorenzo's non-union Continental operation, which includes People Express, still has the upper hand. Labor costs at Continental run about 25% of passenger revenues, vs. an industry average of about 38%. Crandall emphasizes just how crucial labor costs can be in terms of overall profitability. Labor costs per available seat-mile amount to about 2.7 cents at American, about 1.3 cents at Continental. Multiplied by the total number of seat-miles American flew during 1986, the difference comes to about $700 million. Crandall says longingly that if American had had Continental's labor costs last year, his company would have reported about $1.1 billion in operating earnings on nearly $6 billion in revenues. American's actual 1986 return: a relatively puny $392 million. At the same time they were trying to put a lid on costs, the megacarrier bosses were scheming for ways to improve revenues. Crandall once again took the lead. In the early 1970s he recognized that carriers might benefit by increasing their use of computers for reservations and ticketing. When deregulation, with its myriad pricing possibilities, came along, the computerized reservations systems became a requirement for any carrier hoping to maximize revenues. Crandall expanded the reach of his Sabre system, placing terminals in thousands of travel agent offices throughout the Southwest and East. United's Ferris, meanwhile, launched his Apollo system and used his marketing muscle to expand quickly in the Midwest. Garrett at Delta developed a system of his own, while Rothmeier bought 50% of TWA's PARS system. Lorenzo acquired Eastern last year in part because of that carrier's well-regarded System One.

On one level these reservations systems are extremely useful as marketing and distribution tools. Travel agents sell around 70% of airline tickets, and many can be persuaded through incentive bonuses or other financial inducements to favor the carrier whose computer system they use. The systems provide significant revenues to the airlines as well, through rental fees paid by the travel agents and through service charges. For example, Delta must pay American $1.75 or so every time a travel agent punches up a Delta ticket on a Sabre machine. American's system produced about $400 million in revenues last year. More important, these systems permit the big carriers to adjust and manage the fare yields -- or total ticket revenues -- on thousands of daily flights. With these systems, the carrier's pricing experts can constantly shift fares to make sure as many seats as possible are filled by full-price passengers. Despite advertisements promising rock-bottom prices, few such fares are available on most popular flights. Bargain hunters do not stand a chance for a seat on a 7 A.M. New York-Chicago run well patronized by business travelers, for example. On a less popular flight the elderly gentleman sitting next to you may have paid less than half your fare because he ordered his ticket 60 days ahead of time or simply called after the computers determined that the historic number of full-fare passengers had already booked. That grumpy fellow in the rumpled suit across the aisle, meanwhile, may have paid $100 more than you because he showed up at the last minute without a reservation. Rothmeier, illustrating how vital adept yield management can be, says that he can add somewhere between $40 million and $50 million in operating profits per year if he raises Northwest's average revenue per passenger-mile by one-tenth of 1 cent. And he could achieve that increase by extracting an extra $1 from every passenger he carries between Minneapolis-St. Paul and New York. Like generals in the Clausewitz mode, the airline winners have battled to control key cities. Each of the megacarriers has a system of hub airports, which have become a crucial element in their game plans. The concept is not new. Delta has been routing most of its passengers through Atlanta for decades. Veteran Delta fliers say you can't be sure if you're going to heaven or hell when you die -- but you can be flat certain you'll have to change planes in Atlanta. But deregulation, which allows carriers to adjust their own schedules at most U.S. airports, has made hubs the heart of airline operations. The key is scheduling dozens of short feeder flights, the spokes of the system, into the hub airport so that they coincide with the carrier's fewer long-haul routes. If the system is working properly, each spoke flight will add a few passengers to each of the more lucrative long flights. Lorenzo points out that Frontier struggled for years to turn a profit in Denver because it lacked sufficient size and balance of short and long flights. Says he: ''There's no way you are going to make out running flights to New York out of Denver if you don't also serve places like Billings and Idaho Falls.'' When Lorenzo combined the Frontier schedule with his Continental operations in Denver, load factors -- the percentage of seats filled with paying customers -- jumped on Frontier flights to both coasts. ''The economics changed overnight,'' he says. ''In some ways, these systems are virtually foolproof. You just know they're going to work.'' By dominating a market, the carrier can be close to certain that flights take off with strong load factors, that it can predict daily traffic with - reasonable accuracy, and that rivals will think twice before declaring a fare war. Not surprisingly, all the megacarriers have established ''fortress'' hubs. Passengers flying in or out of the Minneapolis-St.Paul airport are likely to end up on one of Rothmeier's planes. Northwest controls nearly 80% of the market. Because it acquired Western, Delta now has a lock on over 75% of Salt Lake City traffic, as well as over half of Atlanta's business. Crandall has beaten off several interlopers at Dallas-Fort Worth over the years, and American now enjoys better than a 60% market share at its home base. He has also enlarged American's Nashville hub and started a new one in Raleigh-Durham. Lorenzo is an overwhelming power in Houston, controlling over 70% of the flights from that city's international airport. Having bought People Express, he also flies nearly 70% of Newark's passengers and controls about 54% of Miami's traffic. Ferris, who accounts for 44% of the traffic at Chicago's busy O'Hare airport, has become the dominant player at Washington's underutilized Dulles airport. THE BIG CARRIERS have acquired much of their new turf by taking over weak competitors. The shakeout game reached its apogee in late 1985 and 1986. In a few months Burr bought Frontier for People Express; United bought Pan Am's Pacific division; Carl Icahn took over TWA and then Ozark; Northwest and Republic merged; and Lorenzo snatched up Frontier, People Express, and Eastern. Even Crandall, who had steadfastly refused to join in the fun, made a move by adding Los Angeles-based Air Cal to his American team. More recently, USAir bought Piedmont, and Delta and Western merged. In operational terms, several of these mergers have proved unalloyed successes. By buying up West Coast carriers Air Cal and Western, both Crandall and Garrett have greatly extended the reach of their route systems and can both count on an uptick in their transcontinental traffic. Lorenzo's buying spree has given him immense marketing power, operational flexibility, and, of course, debt. Rothmeier's Republic deal, which combined two operations covering much of the same territory, may have been the canniest acquisition of all. Northwest had been a major player in the Far East for four decades and had been more than holding its own against Pan Am and foreign carriers in recent years. But when Ferris bought Pan Am's Asian routes, many industry experts thought Northwest was in trouble. It seemed that Ferris's marketing skills, along with United's vast domestic route system, would prove too powerful a combination to overcome. Not so, or not so far anyway. United has barely made a dent in Northwest's market share. Part of the reason was that United faced unexpected start-up woes: Refurbishing Pan Am's fleet and canceling 10% of the early flights because of operational problems cost United $70 million. Cracking a brand-new market has also turned out to be tougher than expected. Says Rothmeier with a smile: ''There are very few secrets in business, but making money flying to Asia is one of them.'' The other reason Northwest has continued to prosper is that it became a far more potent foe after adding Republic's assets to its arsenal. For one thing, the two fleets complemented each other ideally. Northwest had plenty of large planes for transcontinental and international flights. Republic primarily owned smaller craft, perfectly suited for feeder flights. Also, Republic's Memphis hub gave the combined carrier access to international passengers going to and from the Southeast. United's difficulties in the Far East may have attracted the attention of Trump and his fellow raiders. But other carriers seem equally vulnerable to takeover entrepreneurs who think they can run an airline. As business enterprises, even the megacarriers have performed dismally in recent years. Most provide a paltry return on shareholders' equity. They also present some unattractive financial characteristics; they are extremely capital intensive and suffer high labor costs. The carriers do, however, bring along an upside to any buyer looking for a lot of depreciation and a heavy cash flow. Says Rothmeier: ''In good times we can produce a lot of profits very fast.'' For the smaller investor, the airlines are a scary ride. As a group, they have been selling at a discount to the current bull market, and some knowledgeable Wall Street experts expect them to be stellar performers in the future. Analysts at the investment firm First Boston foresee strong earnings from the airlines over the next five years as the megacarriers continue their consolidation. But this is, above all, a very volatile industry. The price of Allegis stock soared during the early spring amid takeover threats. Meanwhile, Texas Air shares, which had been selling at an extravagant price- earnings multiple following Lorenzo's 1986 acquisition coups, have bumped back down on fears of his many upcoming labor battles. In the event of a protracted strike, of course, he could fly Continental staff and equipment on at least some Eastern routes. The carriers' economic future depends in large part on what happens to ticket prices over the long haul. Despite occasional industrywide price hikes such as the current one, competition and sporadic fare wars have kept prices low ever since deregulation. Consumers, especially those able to plan ahead and fly at off-peak hours, have saved many millions. Some industry experts now argue that the era of big bargains will soon be over. Alfred Kahn, former Civil Aeronautics Board chairman and a chief architect of airline deregulation, has repeatedly warned that the industry's consolidation could eventually lead to monopolistic pricing in some regions. Lorenzo says that ticket prices may go up simply because most airlines have been turning such a meager profit. ''In general, prices are too low,'' he says. ''You have companies with $6 billion or more in revenues making $200 million or $300 million. That's just not enough. Why should the airlines be different from anyone else?'' But the factors that have kept prices down are not going away. All the megacarriers have aggressive growth plans and will likely invade any territory that promises profits. That will almost surely mean more fare wars. Airline executives know they are selling what amounts to a very perishable commodity. They are better off filling a seat with a passenger who pays a laughably small fare than flying it empty. Prices have also stayed down because of overcapacity. Airline traffic has been growing at about 7% to 8% annually, while the airlines have boosted capacity 10% to 11% per year. With the big carriers looking to grow bigger, overcapacity will continue and may get worse. So the best guess is that ticket prices on many routes will remain relatively low -- at least for a while. That's perhaps not the only bit of cheer in airline travelers' future. Whether or not they appreciate low prices, most frequent fliers grouse about the steep decline in airline service in recent years. When deregulation was still just a debate, former Delta chairman W. T. Beebe allowed that economic pressures would force airlines to launch ''cattle cars in the sky.'' Anyone able to compare today's grim service with the gracious attentions of the past can attest to the accuracy of that prediction. But the tide may finally have turned. People Express failed in part because & many passengers would no longer suffer the indignities heaped on them by People's no-frills approach, and today's top airline executives are all wary of a passenger revolt in the making. We can all hold out some hope that the feuding warlords' next step will be to make the skies friendly again for the rest of us, no matter how they feel about each other.