Lessons from Pan Am for aerospace startups
Obstinance leads to world-changing aircraft
Cover photo: Pan Am’s Martin M-130 China Clipper - source.
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30 years after its demise, Pan Am is still one of the most well known brands in history.
Juan Trippe, Pan Am's CEO from 1927-1968, was equal parts inventor, persuader and conquistador. His hubris and stubbornness were legendary. If he had pursued his vision with any less fervor, airplanes and airlines wouldn't exist as they do today.
Trippe’s obstinance led to several generations of world-changing aircraft. These fleets revolutionized aviation and thrust forward new categories of commercial service. As we think about the potential impact of several new aircraft today - from urban aircraft to supersonic jets - Trippe and Pan Am hold lessons from the past on how to build the future.
Pan Am was the dominant global air carrier for six decades before succumbing to bankruptcy in the face of regulatory changes and an aging cost-structure. Though Pan Am eventually failed, it will forever hold a legacy of having built a global empire in the sky. To do so, the company navigated countless political, economic and technical challenges.
Trippe, for his part, always saw the potential of the business. He never relented in his striving to conquer the sky.
Here are a few of the lessons Juan Trippe has for the aviation conquistadors of today:
1. Build operational nodes and establish incumbency
There are two points here - first, central operational bases (or hubs) are important success drivers. Second, incumbent benefits (holding the number one or two position in any market) contribute significantly to the viability of the business.
Airlines benefit from network effects. Hubs or nodes are cost effective. They allow for economies of scale and operational efficiency. A central base of operations enables crews and aircraft to be efficiently scheduled. If one aircraft is grounded, another is usually available to take its place.
Hubs also accrue revenue benefits. The largest airlines offer the best schedules and most connectivity. They also earn the most revenue. All those cost and revenue benefits enable profitability. A strong hub that throws off cash is the perfect basis for growth.
Trippe built incumbency into Pan Am's business plan. He understood that his leverage was directly tied to other's reliance on his company.
First, Trippe procured several airmail contracts from the US government. By doing so, Trippe secured guaranteed revenue for Pan Am. Pan Am's first air mail route was from Key West to Havana. From there, Pan Am grew to carry air mail to other parts of Latin and South America. To further strengthen Pan Am's position, Trippe negotiated exclusive landing rights everywhere he could.
After dominating Latin America, Trippe copied the strategy in other regions. Initially, across the Pacific and, eventually, the Atlantic.
Startup and on-demand airlines should closely consider the efficiency benefits associated with network hubs. Surf Air proposes on-demand air travel, while Joby promises electric aerial ridesharing. The on-demand nature of these operating models is meant to emulate Uber.
Infrastructure, crews and spare parts, though, will have to be concentrated at airports or vertiports. While a trip may be sold nearly instantly through an app, successful on-demand airlines will concentrate their network assets. This probably means scheduling many aircraft on a few highly trafficed routes (i.e. LAX to the downtown LA metro station).
The key is prioritizing operational efficiency and building incumbency in select geographies before expanding. In this way, the operator copies and pastes what has worked elsewhere in new geographies.
2. If you don't like how the table is set, turn over the table.
Grit, resilience and pliability are necessary attributes for all startups. Pan Am offers a version of them with wings.
Trippe was never dealt exactly the hand of cards that he wanted. Instead, he took the hand he was dealt and traded for a better one. To do this, Trippe maintained a dogged approach toward his end goal but was flexible about how he'd get there.
Two examples from Trippe's legacy come to mind. Trippe's first airline job was as Vice President and Manager of Colonial Air Transport. There, he pushed to expand the airline rapidly. He wanted to add new airplanes and routes. Colonial's owners, however, preferred making a profit to rapid growth.
What they failed to realize was that scale is everything in the airline business. Trippe, for his part, left Colonial and founded the Aviation Corporation of America. There, he bid on the Key West to Havana route, alongside two other operators. In the end, the Assistant Postmaster General, W. Irving Glover, encouraged the three bidders to merge. Trippe, negotiated to become President and General Manager of the newly merged Pan Am.
Later, in 1939, Trippe was removed from his role as CEO of Pan Am and demoted to President. The move didn't last long. Trippe had spent years centralizing control of the affairs of Pan Am. The man designated to oversee the executive committee was Thomas Morgan. He said of Trippe, "(he) had everything so snarled up nobody could ever untangle it." In this way, Trippe was irreplaceable. By 1940 he had re-taken the reins as CEO at Pan Am.
Startup operators, too, should also seek to maintain a degree of pliability. The market enabled by new aircraft technologies is yet unknown. While the objective may be clear – to build new networks of flying enabled by technology. The order in which that happens and with which players involved, is yet unknown. The key is to hold onto the end goal and approach it with great discipline. The solutions, though, must be as flexible as Juan Trippe.
3. Go where the technology allows, then buy a better airplane.
From the day he joined the business, Trippe wanted to serve the transatlantic market.. Unfortunately, airplane technology was a long way off when he started. The first scheduled airline flew in 1914 with a route across Tampa bay.
Airplanes were hardly better in 1922, when Trippe formed Long Island Airways. So he flew where he could - shuttling wealthy families from New York City to their summer homes on Long Island. He launched service to Atlantic City and, with several stops, flew to Canada and the Caribbean.
Trippe made good use of the aircraft, but pushed relentlessly for more performance. Each successive generation of aircraft was to be faster and offer more payload and range.
Trippe knew what was possible with the technology of the day. He developed his own rudimentary knowledge of aircraft and hired the best. Andre Priester, Pan Am's head of operations, was instrumental in pushing the envelope on aircraft safety and performance. Charles Lindbergh, too, served as a technical consultant to Pan Am.
Leveraging Lindbergh and Priester's expertise, Trippe played aircraft manufacturers against each other. Trippe's most impressive chess moves came at the dawn of the jet age when he needed a jet capable of nonstop transatlantic flights.
Boeing had committed to building the 707 around Pratt & Whitney (P&W) JT3C (J57) engines. Those engines, though, wouldn't enable transatlantic performance. So Trippe went to P&W to buy 120 experimental JT4A (J75) engines without an airplane to fly them on. P&W only made the sale when Trippe threatened to buy from the British Rolls-Royce.
From there, Trippe proceeded to play Douglas and Boeing against one another until he got not one, but two transatlantic aircraft. Douglas committed to building a stretched version of the DC-8. Boeing redesigned the 707 around the JT4A and produced the 707-320. In 1960, Pan Am inaugurated the first regular transatlantic jet service on its 707s.
New forms of aviation ought to do the same as Pan Am. Create commercially viable businesses around emerging aircraft technology. As the technology improves, the potential of the business case will too.
Kinect Air is a startup air operator launching with today's technology and an eye to the future. The company will start with Pilatus PC-12 and Cirrus SR22T aircraft. Eventually, it will employ VoltAero Cassio 330 hybrid-electric aircraft. The former will allow Kinect Air to offer an initial product at an attractive price point, albeit one higher than a truly transformational aircraft could achieve.
The Cassio 330 will be the desired game changer, allowing Kinect Air to achieve a much lower cost per seat mile. That will open up both new markets and much more demand on existing ones. Eventually, autonomy and alternate propulsion will make airplanes cheaper than buses.
4. If there is no runway, build one.
The United States has a lot of public airports - more than 5,000. Most airports, though, don’t support normal passenger operations. To operationalize, these airports will need investment in passenger facilities, air traffic upgrades and several other areas.
In the mid 1930s, Trippe's plans to launch transatlantic service fell apart. So he turned his attention to the Pacific. North America and Asia could connect via Alaska, but the arctic climate made operations difficult. Instead, Trippe looked to cross at the equator - directly across the Pacific. It was possible, but only by stopping several times. The China Clipper would fly via Hawaii, Guam and the Philippines. It would also need two more stops on remote islands - Midway and Wake. Unfortunately, neither Midway nor Wake was ready for service.
Midway was at least inhabited and could be modified to employ a water runway and terminal building. Wake, though, was hardly even recorded on the map. When an expedition was sent there, little went according to plan. After much effort,including blasting the coral reefs out of Wake’s shallow lagoon, the bases became adequate for air service.
Building Pan Am's Pacific bases was a challenge that most would've considered impossible. They took longer and cost more than originally anticipated. Yet, building them enabled the first Pacific air crossings. If they hadn't, the flywheel of progress might never have started. Consequently, our world would be less connected and a countless number of innovations wouldn't have been possible.
Aerospace startups need not be afraid to build. Runways, terminals, digital and physical infrastructure are all needed. With a long term vision, economics will sort themselves out. The key is to remove the blockers that prevent new technologies from commercializing at scale. That means building!
Sources used for researching this paper: