On Wings of Commerce The Wright brothers were first. Lindbergh made it sexy. But it was the Boeing 707 that brought air travel to the masses--and changed the world.
(FORTUNE Magazine) – On Oct. 26, 1958, a Pan Am flight made the trip from New York to Paris in eight hours, 41 minutes. Today that time would be nothing special, maybe even a little slow. But in 1958, such a short transatlantic flight was revolutionary, and so was the plane that achieved it: the Boeing 707, America's first passenger jet.
The Wright brothers may have gotten aviation off the ground, and Charles Lindbergh and Amelia Earhart may have popularized it, but it's no exaggeration to describe the coming of the 707 as the single most transformative event in the annals of 20th-century flight. Prior to the 707, air travel was primarily for the rich, and even they had their doubts about its safety. The propeller planes of the day were also slow, needed frequent refueling stops, and vibrated like crazy. No surprise, then, that only four out of ten passengers crossing the Atlantic in 1952 went by air. And although the inaugural edition of the FORTUNE 500 in 1955 didn't include transportation companies (until 1995 the list was restricted to industrial firms), the magazine's separate transportation rankings for that year found the top ten spots all occupied by railroads. The highest airline was American, at No. 12.
The 707 changed all that. Its turbofan jet engines made it suitable for high altitudes and high speeds, and its sleek, streamlined design exuded a palpable sense of security. (The ultimate validation of this came in 1962, when the White House began using a 707 as Air Force One.) Its large cabin could accommodate up to 200 passengers--enough to change the economics of ticket pricing--and its cruising speed of 575 miles per hour was nearly two-thirds faster than any propeller-driven passenger plane. With nonstop flights becoming more the rule than the exception and rides becoming smooth enough for passengers to keep a cocktail glass on their tray tables, the 707 transformed the romance of flight from daring and adventure to a sense of cosmopolitan sophistication. It even changed the language, giving rise to terms like jet lag, the jet set, and the New York Jets.
But the plane's revolutionary effect wasn't limited to the flying public. By essentially launching modern air travel, the 707 sent a ripple effect through American business, affecting everything from heavy industry to tourism. It delivered a body blow to the railroads (in 1959, the first full year of the Jet Age, three airlines appeared among FORTUNE's top ten transportation companies) and sounded a death knell for ocean liners. It also transformed an industry that soon threatened to become too successful for its own good. And for better or worse--some of both, really--it created a travel culture that's become seamlessly integrated into countless facets of American life, eventually turning something miraculous and exciting into something, well, miraculous and banal.
The 707 got its chance in large part because of the failure of another jet, the de Havilland Comet. This pioneering British plane, which debuted in 1952, was poised to occupy the place in history that the 707 now holds, but a series of catastrophic accidents--triggered by metal fatigue exacerbated by the plane's square windows--grounded the Comet fleet and opened the door for Boeing. Still, putting the 707 into production was a huge gamble: There were no orders, so the project was done completely on spec, and Boeing's estimates projected development costs of $16 million--20% of the company's value and more than twice its 1951 profits. As it turned out, by the time Pan Am took delivery of the first 20 planes in August 1958 (the airline had placed its order in 1955, a year after Boeing demonstrated its prototype), the development costs had exceeded Boeing's net worth. But the gamble paid off: In 1958, the year of the 707's debut, Boeing jumped from No. 32 to No. 19 in the 500 rankings; it wouldn't fall as low as 32 again until the oil crisis of 1973.
In the world beyond Boeing, the 707 made all sorts of things possible. As Pan Am president Juan Trippe put it, "In one fell swoop we have shrunken the earth." As if to prove him right, in 1960, FORTUNE ran a feature story entitled "The World Is Their Territory," about the exciting new trend of American executives taking business trips abroad--imagine that!--where they encountered such exotic problems as foreign languages and weak martinis. Such provincialism sounds laughable measured against today's road-warrior business travelers, but from those humble beginnings came one of the Jet Age's major outgrowths: multinationalism, as companies found it easier to move people and resources around the globe.
While some companies were shipping their executives hither and yon, others were shipping freight. Airborne deliveries had once consisted of little more than airmail letters. (Boeing, in fact, had its own airmail route in the 1930s, until the government decreed that plane manufacturers couldn't simultaneously be carriers.) But the 707, with its shorter flying times and larger cargo holds, made the skies much friendlier for packages: From 1955 to 1965, airborne freight ton-miles increased by 382%. UPS, whose initial attempt at air service had been scuttled by the Great Depression, resumed flying for good in 1953 and saw its air business shoot upward during the Jet Age. But it was Federal Express, which began operations in 1973, that really exploited the jet's capabilities by creating the overnight-delivery market. In 1981, FedEx went beyond packages by introducing the overnight letter, and the following year UPS began offering next-day service as well. You probably know both companies are now FORTUNE 500 mainstays; what you may not know is that their air fleets both rank among America's ten largest. As for airmail, once a premium offering of the Postal Service, the classification no longer exists and the term is a quaint anachronism: Today nearly all mail is airmail.
Of course, jets' primary cargo was people, and as jets made travel more accessible, more people took advantage of it--too many, in fact. From 1955 to 1972, the number of airline passengers grew from 42 million to 205 million, resulting in clogged airport runways and routine flight delays. By 1966, FORTUNE was calling airport congestion a "disturbing national problem"--and a permanent one, apparently, as indicated by subsequent articles like "The Worsening Air Travel Mess," "Airports: The Dark Side of the Travel Boom," and "How to Cure Those #@*&! Airline Delays." Boeing's 747 jumbo jet, which debuted in 1970 (and would eventually drive Lockheed out of the passenger-jet arena and lead Boeing to acquire its other chief rival, McDonnell Douglas), was supposed to ease the overcrowding, but instead it exacerbated it by making air travel more accessible. By 1974, 45 million more Americans had flown than in 1968.
This influx of new travelers, plus the 747's need for longer runways, set the stage for the development of the modern airport, which has now become an important yardstick of urban viability and has spawned its own on-site service economy. Hotels, which used to be clustered downtown, are now clustered around airports as well; so are rental cars, which didn't become airport mainstays until the Jet Age. Think of this planes/hotels/cars troika as the hospitality-industrial complex. United Airlines tried to capitalize on these synergies in the 1970s and '80s by merging with the Westin hotel chain and then acquiring Hertz, creating a one-stop-shopping company for business travelers. Although that experiment failed--United sold off the hotel and car units--the concentration of airport-driven hotel business has vaulted chains like Marriott, Hilton, and Starwood into the 500 listings.
Meanwhile, with conference rooms and other business facilities increasingly available within airports, business travelers can now arrive, attend their meetings, and return home without ever leaving the terminal's hermetic seal. So instead of being a gateway to a destination, the airport has become a destination itself. But the modern road warriors living this lifestyle aren't exactly the fanciful globetrotters that the Jet Age's pioneers envisioned. "Business travel is pretty context-free today," says Gary Hamel, a strategy consultant who at one point traveled about 150 days per year (he's now down to 100). "You arrive in a city, often after dark, you go to a hotel that's like any other hotel, and by lunchtime you're in a car going back to the airport."
Ironically, supertravelers like Hamel often get little sense of where they're traveling. "If I go to Helsinki, even in winter, I don't bother to take an overcoat, because I'll be going from the airport to a car to an office building," he says. "It's not like you walk anywhere or really see anything." For these contemporary jet setters, the world has shrunk so much that flying has essentially been reduced to long-haul commuting. Service industry consultant Linda Novey, who has traveled 200 days a year for two decades, says, "My friends get up in the morning, go to the garage, get in the car, and go to work. Well, I get up in the morning, I go to the airport, I get on the plane, and I go to work. The end result is very much the same."
This parallel world in which people live from airport to airport, combined with modern air terminals' massive size (Chicago's O'Hare employs more than 50,000 people, and Dallas's DFW has its own Zip Code), has led many cultural observers to describe airports as cities. Which is true enough if you mean a city with crummy food, boring shops, no emotion or creativity, and a Cinnabon on every corner. The more apt comparison is a mall, with all the suburbanized blandness that implies--it's T.G.I.Airport. And it wasn't supposed to be this way: In 1958 FORTUNE described New York's Idlewild airport as an "inspiring aerial gateway" with a new renovation that promised "striking architecture and landscaping." If that doesn't sound like any New York airport you've ever experienced, that's because Idlewild is the overcrowded monument to tedium now known as J.F.K., its once-proud TWA terminal, designed by Eero Saarinen, now sitting dormant (although JetBlue is hoping to revive it as a lobby).
Given the huge number of people an airport has to process, this lowest-common-denominator environment was probably inevitable. And there's no escape--even the most well-appointed airline club lounge is ultimately just a generic limbo with no sense of place. If this really were a city, they'd call it Nowhere.
Most of the airlines did boom business in the early years of the Jet Age: The average value of airline stocks jumped 250% between 1960 and 1965. But with complaints mounting about delays and deteriorating service, a reckoning was inevitable, and it arrived in the form of the Airline Deregulation Act of 1978. Since 1938, the federal Civil Aeronautics Board had controlled the industry's routes, schedules, and prices, which were generally kept artificially high to protect the airlines. This left the carriers with little to compete over except whose flight attendants had the sexiest outfits (a trend begun in 1965 as a marketing stunt by Braniff, whose stewardesses would shed several layers of their uniforms during a flight, a routine known as the "air strip").
But with deregulation, the big airlines suddenly had to compete with an array of low-cost, no-reservations carriers moving in on their long-established territories. The blueprint for this type of service had been laid out in the early 1970s by Southwest, which wasn't subject to price regulation because it flew exclusively within Texas and therefore didn't qualify as interstate commerce. This head start helped Southwest navigate through deregulation's initial chaos and emerge as the consistently successful operation it remains today. Other cut-rate pioneers, like Laker Airways and People Express (the latter of which was so no-frills that passengers paid their fares on the plane), didn't survive the revolution they helped start, but you can draw a straight line from them to contemporary outfits like JetBlue and AirTran, with a dotted line to the major airlines' new budget-priced subsidiaries, like Delta's Song and United's Ted.
Deregulation was supposed to be good for consumers, and in many respects it was. The average fare, as measured by the cost per mile flown, decreased by 28% from 1979 to 1993. And while many complained about the hub-and-spoke route system that deregulation fostered (cue joke: "When you die and go to heaven, you have to change planes in Atlanta!"), it had some unsung advantages: In 1978, 50% of passengers changing planes on domestic trips also had to change airlines; by 1993, that figure was down to 1%. But removing the industry's governor wheel led to even more overcrowding: Deregulation's first two decades saw a 70% increase in commercial flights (and more articles about those #@*&! delays).
All that frequent flying led to the advent of frequent-flier programs. The first one, which awarded first-class trips to Hawaii for elite-level travelers, was announced by American Airlines in May 1981. United followed with its own version a week later, and TWA did likewise the week after that. "We were pretty convinced that some form of what we were developing would hang around for a long time," says Rolfe Shellenberger, who helped create American's AAdvantage program and is considered by many to be the father of the frequent-flier phenomenon. But neither he nor anyone else could have foreseen that one day consumers would be earning miles by switching long-distance phone carriers and using airline-branded credit cards, that they'd be redeeming those miles for magazine subscriptions and charitable donations, or that the whole system would become a sort of independent barter economy.
Meanwhile, by encouraging price wars that led to razor-thin margins, deregulation turned what had been a relatively staid industry topsy-turvy. This led to a new breed of airline executives, epitomized by the notorious Frank Lorenzo, who took a regional operation called Texas Air and built it into a national powerhouse by purchasing other airlines, including Eastern, Continental, and People Express. His signature move came in 1983 when he broke Continental's unions by moving the airline into Chapter 11 bankruptcy--despite its $60 million in cash reserves--which allowed him to annul the company's labor contracts and then resume operations under significantly less generous terms. Eastern's unions were so afraid of him that they tried, unsuccessfully, to arrange an employee buyout before he could acquire the airline.
If Continental's bankruptcy was a calculated maneuver, Eastern's subsequent plunge into financial ruin and eventual 1991 liquidation--at the cost of 40,000 jobs--showed that Lorenzo's strong-arm tactics didn't always work. Not that anyone else had a magic touch during this period, either: America West, TWA, Braniff, Midway, and even the venerable Pan Am all filed for bankruptcy protection between 1989 and 1993, with the latter three joining Eastern in shutting down for good. (TWA, whose last profitable year was 1988, emerged from its 1993 bankruptcy but was permanently grounded in 2001, with American eventually purchasing most of its assets.) Nine of the nation's ten largest carriers lost money during this stretch.
The industry was just stabilizing when it was hit by something much bigger than deregulation: 9/11. The disaster didn't just expose how vulnerable the air transport system was to attack; it also showed how dependent the economy had become on air transport. We found out, if only for a few days, what life was like without airplanes: stranded travelers, canceled conferences, no overnight packages, nonexistent parts deliveries leading to idle factories. When flights resumed, many travelers were reluctant to fly, just as in the old days. The shrunken world became big again.
So what happens next? Industry analyst Michael Boyd expects passenger traffic to return to pre-9/11 levels around 2006. Among those hoping he's right is European aerospace manufacturer Airbus, because that's the same year it will introduce the A380, a double-decker megajet that can carry 555 people. But aviation's future won't just be about getting bigger: The main selling points of Boeing's next major passenger plane--the 7E7 Dreamliner, expected to launch in 2008--are fuel efficiency and Internet connectivity. By then the industry may also be seeing an increased trend toward small, short-range planes called microjets. Particularly well suited for the smaller airports that the major carriers are abandoning in favor of urban hub consolidation, microjets may end up functioning as a sort of air-taxi system, which would relieve overcrowding at the hubs and provide a new aviation network for domestic business travelers. In some ways, this is already happening with JetBlue, whose use of long-neglected secondary airports--Long Beach instead of LAX, Oakland instead of San Francisco--shows how even an industry as elephantine as this one can still be nimble and responsive when a bit of creativity is applied.
As for the 707, Boeing stopped producing it in 1991, although it's still in service here and there, mostly in Africa and South America. The era it ushered in promised to be suave and cultured--think about that the next time you're walking through security in your socks or standing in line at Pretzel Time. But if the Jet Age never fully delivered on that promise, that's not because it failed--it's because it succeeded too well, generating a public demand that has constantly outstripped the industry's capacity. It's also because travelers craved an unattainably romantic notion of what air travel could represent, a notion that was slowly eroded by decades of delayed flights and then destroyed entirely by 9/11. So while we'll no doubt keep flying, any lingering view of the skies as a picturesque fantasyland is gone. As Federal Aviation Administration chief Jane F. Garvey said two months after the World Trade Center attacks, "Americans have long known that 'eternal vigilance is the price of liberty.' Now we know it is the price of mobility as well." In retrospect, maybe it was the big world that was more romantic after all.