Business: A New Air War

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Pancho Lorenzo flies high

Francisco ("Pancho") Lorenzo, 40, has been chopping prices and carving up competition in the Southwest for the past eight years with his Texas International Airlines. Now Pancho is moving east. Lorenzo last week announced that his Houston-based firm, Texas Air Corp., is taxiing up a subsidiary called New York Air to compete with Eastern Air Lines on the rich air corridor connecting New York City and Washington, D.C. Starting Dec. 14, New York Air plans to offer $49 tickets on ten daily business-hour flights between the two cities. The weekend and evening fare will drop to $29, which is only 55¢ more than the cost on the Greyhound bus. Eastern now charges $60 for a shuttle ticket. Lorenzo intends later to extend service to Boston, and then to expand to twelve Northern cities as far west as Indianapolis.

Lorenzo has become the flying ace in the new era of unregulated airline routes and prices. After graduating from Harvard Business School in 1963 and working as a financial analyst for Trans World Airlines and Eastern, Lorenzo and Robert Carney teamed up to form their own airline management consulting firm. In 1971 they paid $1.1 million for controlling interest in Texas International, a small, regional carrier nicknamed "Texas Treetop" because of its poor service and antiquated planes. At the time it was losing $6 million a year on revenues of $70 million.

At Texas International, Lorenzo installed a new team of cost-conscious managers who began monitoring fuel consumption almost to the teaspoon, rearranged seating for maximum capacity and inaugurated "Peanuts Fare" discounts on selected routes. The price on flights from Albuquerque to Los Angeles, for example, was cut from $76 to $38. Half-empty planes were quickly filled, and revenues on the flight rose 75%. In the first six months of this year, Texas International earned $26.6 million on sales of $455 million.

Within the industry, Lorenzo has become famous for quixotic attacks on the giants. Two years ago, he began quietly buying up National Airlines stock. When Texas International had acquired 9.2% of the outstanding shares, he offered to buy the airline. National—almost three times bigger than Texas International—was horrified. Pan American World Airways eventually outbid Lorenzo with a $300 million offer, thereby allowing Texas International to sell its National shares for a $47 million pretax profit. Last year Lorenzo went after Trans World Airlines. Over breakfast at New York City's Carlyle Hotel, he told TWA Chairman L. Edwin Smart that he wanted to buy the troubled airline, which is ten times the size of the Texas upstart. The offer was quickly rebuffed.

New York Air is aiming to take business away from Eastern with a combination of cheaper flights and better on-board service. Instead of the round-'em-up-and-herd-'em-on shuttle treatment, New York Air will offer a free drink and food. Eastern will be fighting the competition with its guaranteed seat service, which means that any travelers showing up at the gate always get on board. Lorenzo himself took advantage of that convenience last week, when he flew the Eastern shuttle from New York to Washington because he could not wait for a reserved seat. "Good flight," he conceded.