(FORTUNE Magazine) – BOB CRANDALL is feeling good, remarkably so for a longtime workaholic approaching his 55th birthday. Whippet-thin, he jogs precisely 4.5 miles each morning. His hair, still dark brown and abundant, is piled high up front in a 1950s-style pompadour. The eyes are icy blue; they seem to laser in on you from across his desk. On this particular summer day, Crandall takes time from talk about business to exult over the results of his recent physical: ''The doctor said I should not be let out of the house -- I'm just too dangerous.'' He laughs hard a couple of times and slaps the desk. ''Yeah,'' he says, ''I'm gonna be around this place for a good while yet.'' That is very bad news for his competitors. Crandall has consistently bludgeoned the opposition since joining top management at American Airlines a decade ago. An industry also-ran in the days before Crandall took charge, American now leads all U.S. carriers in revenues and operating income. AMR Corp., American's parent company, also heads FORTUNE's list of the world's largest airlines, measured by revenues (see following story). To stay on top, Crandall, like the leaders of U.S. companies from Procter & Gamble to McDonald's, believes that American must accelerate its drive into rich overseas markets. With Pan Am and TWA, the traditional U.S. flag carriers abroad, both failing badly, he is storming into the void with his customary swagger. In recent months American has acquired a batch of promising new routes to Asia and Europe. By the year 2000, Crandall aims to generate about 30% of American's revenues from foreign routes, up from virtually nothing ten years ago. To reach that ambitious target, he has committed $11 billion -- more than half American's capital spending budget -- to expanding and upgrading his international operations over the next five years. Crandall is speeding ahead, even though the industry has entered one of its periodic bumpy patches. Domestic traffic growth was slowing and labor costs were rising even before Iraq's invasion of Kuwait sent jet fuel prices soaring some 30%. American actually lost $19 million in the first quarter of this year, and second-quarter earnings were down 27% from 1989 to $129 million. Investors, accustomed to the company's 15% annual earnings growth since 1984, have grown queasy. AMR shares were recently selling for just $44.875, down sharply from their $107.25 high last fall. But with over $1 billion in annual cash flow, American looks strong enough to withstand far more turbulent weather -- and even to profit from it. During the domestic fare wars of the 1980s, Crandall regularly scooped up precious market share abandoned by weaker carriers. Earlier this year, when struggling Eastern Air Lines put its big Latin American route system up for sale, he grabbed it. He is poised to do so again. Just as critical, though less visible, is Crandall's internal push to retrain his troops to provide the better service demanded by international fliers. Says Prudential-Bache airline analyst Paul H. Nisbet: ''He's doing exactly what he should be doing -- and he's proceeding in a very careful, intelligent way.'' Any company looking to go global could learn much from Chairman Crandall's vision and tactics. Why plunge overseas now? The most compelling reason is that air traffic in the U.S. is expected to grow merely 3% to 4% a year over the next decade, vs. much quicker increases abroad -- 6% to 7% in Europe and Latin America and 8% to 9% in Asia. Crandall also figures that entry into foreign markets, already an arduous process, will become harder as time goes by. Carriers from countries in the European Community, he contends, will exert more pressure to keep out U.S. airlines after they forge a unified market in 1992. In addition, growing airport congestion will limit opportunities for newcomers in Japan and key European cities. MEANWHILE, technological advances have opened up new international opportunities. Traditionally, airlines carrying passengers long distances were forced to rely on jumbo jets like Boeing's 747. Jumbos provide many pluses: Passengers like the roomy cabins, and the big planes are cash machines when loaded during the peak summer months. But they are ruinously expensive to operate when they fly half full during the off-season. In the last few years, however, aircraft manufacturers have developed more efficient aircraft that can carry smaller passenger loads across oceans. Example: the Boeing 767-300ER, which accommodates 210 passengers, vs. the 747's 400. These new machines, combined with American's extensive hub system in the U.S., allow Crandall to pursue what he calls a ''fragmentation'' strategy on many of his new European routes. In effect, American is breaking up the traditional system of flying big planes across the Atlantic from one international city like New York to another like London or Paris. Instead, it gathers a smaller number of passengers from, say, Des Moines and Indianapolis and funnels them through its hub in Chicago. After crossing the Atlantic, they land at smaller, less congested destinations such as Glasgow or Brussels. Crandall could never keep a fleet of 747s filled on such routes, but with the new 767s he doesn't have to. IN PART, this strategy makes a virtue of necessity. Since permission to fly between countries is granted only after tough bilateral negotiations, a new player like American cannot expect to elbow into a hotly contested market like New York-London right away. Crandall demonstrated his lust for prime locations by paying TWA $195 million for its Chicago to London route last year. But for a growing number of passengers, including a lot of full-fare business fliers, American's direct flights between secondary cities have been a godsend. Says John Pincavage, a director at New York City investment banking firm Transportation Group: ''No one in his right mind who lives in the middle of the country wants to go through New York to Europe. But until recently, you had almost no choice.'' Crandall's forays into the lucrative markets along the Pacific Rim have so far been more tentative. The problem is that about half of all transpacific traffic is destined for Japan, and American has snared only a couple of these tightly controlled routes. It does fly daily from Dallas/Fort Worth to Tokyo and this summer won another Tokyo route from its California hub in San Jose. Crandall expects to pick up more business in coming years as cities like Seoul, Shanghai, Hong Kong, and Taipei generate enough traffic flow to serve as gateways to other Asian business centers. But he concedes he blundered badly by not pursuing Pan Am's Asian division when it was for sale several years ago. United, which bought the routes for $750 million, has since enjoyed double-digit growth every year. Pointedly, Crandall did not repeat his mistake when Eastern's Latin American route system was up for grabs earlier this year. He snatched it for $423 million. The system, which connects 20 cities in 15 Central and South America countries, never made Eastern much money. But American has more marketing muscle and far more domestic traffic to fill its southbound planes. Another plus: American has developed a strong hub in Miami well suited to handling Latin American traffic. Because such expansion opportunities are so unpredictable, American's overseas growth has come faster than company strategists had anticipated. That has led to problems. For one thing, American failed to order enough new aircraft to handle all the international routes opening up. Donald J. Carty, 44, executive vice president for finance and planning, admits, ''We are falling all over ourselves with opportunities, but there are no airplanes to service them.'' Some industry experts also question whether American's button-down internal culture can adapt to such wrenching external changes. Says Kevin C. Murphy, Morgan Stanley's chief airline analyst: ''TWA and Pan Am are anachronisms, and I have no doubt the mantle of U.S. flag carrier is passing to airlines like American. I just wonder if they are flexible enough to cope with brand-new situations in places like Latin America and Asia.'' Crandall and his aides concede that the rapid opening up of foreign markets has been stressful, but they point to years of preparation devoted to getting ready. To acclimate employees to the higher standards of service demanded by international travelers, for example, American in 1983 launched a ''snoop program.'' Employees took dozens of flights on some of the international carriers known for their skill in coddling passengers -- Singapore Airlines, Lufthansa, and Swissair among them -- and closely observed the rituals of fine service. Subsequently, American ordered up new sheepskin-and-leather seats for first and business class and hired chefs like Cajun maven Paul Prudhomme to prepare more appealing menus. Further market research turned up some surprises. For example, international $ fliers care a lot more than was expected about the tiny niceties of meal service. They noticed when American flight attendants warmed the mixed nuts accompanying their cocktails to the precisely correct temperature (98 degrees F.). The research also prompted the airline to provide quick, simple executive meals for business fliers, who want to eat soon after takeoff and then sleep or work undisturbed the rest of the way. American now adjusts its service features to national preferences. German passengers, for example, are very particular about the use of formal titles like ''Herr Doktor'' when addressed by attendants. Japanese fliers abhor being touched. On flights carrying a lot of Latin American passengers, the main course is likely to be beef, and the wines had better be French. ''All you have to do is listen to the customers -- they'll tell you what to do,'' says Michael Gunn, 45, senior vice president for marketing. For Crandall, establishing American as a major international airline would cap an already remarkable career. Raised in Rhode Island, he graduated from his state university and the University of Pennsylvania's Wharton business school. Crandall worked as a regional credit supervisor for Eastman Kodak and later headed the computer programming division at Hallmark Cards. In 1966 he joined TWA as assistant treasurer. He left the industry briefly in 1972 to become senior financial officer at Bloomingdale's department stores but came back to stay the next year when American made him chief financial officer. Early on at American, Crandall's pugnacious personality and relentless work habits did not endear him to colleagues. At one point he had called so many weekend meetings that the wives of his subordinates got together and drew straws to see who would ask him to ease up. Crandall acquired nicknames like Fang and Darth Vader. But he advanced fast, becoming president in 1980, soon after American shifted its headquarters from New York City to Fort Worth, and then succeeding Albert Casey as chairman in 1985. Over the past decade Crandall and his American team helped formulate many of the innovations that have revolutionized the industry since deregulation. They were among the first to recognize the value of filling up empty seats with big-discount tickets, the so-called SuperSaver fares. Crandall was quick to see the importance of building a route system around central hub airports, and he brought labor costs in line in the early 1980s by helping sell his unions on a two-tier wage system. Under the plan, since adopted by most major carriers, new employees come in at lower wage scales and gradually work their way up to parity with veterans. Most crucial, Crandall used his background in data processing to put his airline ahead of the pack in computer technology. Much of American's success over the past decade can be traced directly to Sabre, its computer-driven reservation system, and to its frequent-flier program (see box). Unlike another industry tough guy, recently departed Continental boss Frank Lorenzo, Crandall stayed aloof when merger mania struck the industry in the mid-1980s. His biggest acquisition was AirCal, a small California regional carrier bought for $225 million in 1986 to strengthen American's West Coast presence. In retrospect, that was clearly the right strategy. Says Crandall: ''The nice thing about internal growth is that you don't have the wrenching change of bringing in 5,000 or 10,000 new people all at once.'' Internal growth also enabled American to lower its relative labor costs. Under the industry's two-tier wage structure, the new mechanics, flight attendants, and pilots that American hired in the 1980s earned considerably less than the experienced crews that competitors acquired through their mergers. More recently Crandall avoided getting entangled with the host of foreign carriers looking to link up with U.S. lines. SAS's purchase last month of a large chunk of Continental stock was only the latest deal. KLM, Swissair, Singapore Air, Japan Airlines, and Ansett Transport of Australia have acquired strategic stakes in U.S. airlines. By keeping foreign carriers at arm's length, Crandall figures he has more freedom to work his way into overseas markets without stumbling into the turf of a financial ally. His biggest challenge will be keeping a lid on costs. Sporadic fare wars remain a constant of the business, limiting any airline's ability to pass along cost increases quickly to customers. The problem is magnified at a megacarrier like American, where a 1-cent-per-gallon rise in fuel prices translates into a $25 million difference in costs. Looking ahead, Crandall, along with every other airline executive, is deeply concerned about what might result from the troubles in the Persian Gulf. Says he: ''I'm not just worried about my airline or industry. We have been playing a very dangerous game with our national economy by becoming so totally dependent on imported oil.'' Even without fast international expansion, American would be facing enormous capital expenditures over the next several years as it replaces its aging fleet and ground facilities. ''We are 25 years or so into what might be characterized as the first great growth period of commercial aviation,'' says Crandall. ''Things are simply wearing out. You look at National Airport in Washington -- it's worn out. LaGuardia in New York -- it's worn out. Parts of O'Hare -- worn out. Our industry will have to spend huge amounts to replace facilities and build new ones.'' LABOR COSTS, which eat up about 35% of revenues at American, are likely to swell. Unlike his rivals at United and Northwest, Crandall has enjoyed relative peace on the labor front. But his pilots' union is talking tough about big wage increases in current contract negotiations -- a senior captain on an international route can make up to $157,000 a year -- and female flight attendants have raised a public clamor about what they consider to be archaic regulations governing the weight they must maintain to keep their jobs. American officials have been particularly pained by the flap over attendants' avoirdupois, and its implied charge of sexism, because of the carrier's relatively estimable record in hiring and promoting women. They hold several top corporate jobs, including senior vice president for administration and vice president for pricing and yield management. American also employs 126 women pilots (out of 8,000). Contemplating the gathering demands of the unions, Crandall rejects the notion that he might hand out fat salary increases during a profit squeeze. ''Union leaders have to realize that there must be earnings to incentivize the next cycle of investment,'' he says. ''We ought to be able to have a reasoned dialogue about this. If not, this is the kind of thing that will prevent American corporations from competing successfully in world markets.'' AS MASTER of the world's largest airline, Crandall clearly feels he has earned the right to pronounce on crucial issues affecting his industry. Characteristically, his views are usually contrarian. Conventional wisdom holds that competition in the U.S. airline industry will slacken over the next few years because more weak carriers will fold and no new entrants will replace them. Forget that, says Crandall. Even if some lines disappear, the industry will continue to attract gutsy entrepreneurs: ''This is a business | that is very complicated, very intense, very combat oriented. That makes it very attractive to certain kinds of managers. Some guy will always come along convinced he has a better way.'' By banging on so many doors overseas so insistently, Crandall risks making powerful enemies. His periodic skirmishes with the British over American's efforts to fly more routes across the Atlantic, for example, have produced little progress. This summer Crandall filed a protest with the U.S. Department of Transportation because British authorities have refused to allow him to use his own ticket agents and baggage handlers at local airports. British Airways, he points out, has the right to use its own employees at 12 airports in the U.S. Crandall's duel with British Airways, a key competitor in upscale markets, has taken on aspects of a personal grudge match. Sir Colin Marshall, BA's suave chief executive, has had few kind things to say about Crandall since American began its global push. In private, Marshall reportedly refers to his U.S. nemesis as ''Wretched Robert.'' Crandall downplays the feud but is clearly annoyed by the personal sniping. ''I don't know why BA is doing it,'' he says. ''I keep banging at them because they are trying to defend a monopoly. I guess that's why they call me Wretched Robert.'' SUCH FLARE-UPS ASIDE, Crandall has mellowed considerably after his long stint at the top. Though he still maintains a demonic work pace, he plays the tyrant around headquarters far less than in the past and seems to enjoy a full life outside the office. He and his wife, Jan, are reasonably active in the Dallas/Fort Worth social scene. He enjoys skiing in Utah and spends most summer weekends at his seaside home on the Massachusetts coast. Crandall's three children are all grown and pursuing various professional careers. At least part of this style change has been dictated by American's rapid expansion. In years past, Crandall personally performed a line-by-line review of the annual budgets of each of the airline's offices. Now that there are nearly 200 of them, he has to rely on computers to give him early warning of problems. For the same reason, Crandall has also stepped back and placed more trust in his subordinates. Says he: ''I am still a very detail-oriented person. But you have to manage 80,000 people differently than you do 40,000.'' Still, we're not talking about a pussycat here. The last time FORTUNE compiled its periodic list of America's Toughest Bosses (February 27, 1989), Bob Crandall was a shoo-in. He would probably have little trouble making the final cut next time around. In seeking to extend his airline's reach across the globe, Crandall has set a typically lofty goal -- one that seems certain to keep both him and his competition on edge for at least another decade.

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