#5: PAN AMERICAN WORLD AIRWAYS
Pan American World Airways, colloquially referred to as simply ‘Pan Am’, was an airliines that prior to its collapse was the largest in the United States. Pan Am were renowned for their innovation and subsequent contributions, which have helped shape the modern day aviation industry. Pan Am were one of the most iconic airlines around the world, but a series of events contributed to their 1991 collapse. So what went wrong? In this article, we review this case.
The airline was actually initially founded as a shell company (a business that has no employees or real estate, but can be used for registering assets) in 1927, in a bid to win a lucrative contract from the US Government to carry US Mail to Cuba. A few months into the venture, capital was raised – with the aim to make the company active. In mid-1928, the shell company merged with the newly-founed ‘Atlantic, Gulf and Carribean Airways’ company – in the process making it active.
Pan Am were now in a position to fulfil the Cuban contract, with the US Government helping them wherever possible. Soon enough, Pan Am were able to expand – first domestically, then internationally. The airline enjoyed a monopoly on several international routes. Their expansion coincided with the purchase of a number of smaller airlines in Central and South America – earning them further government contracts. Pan Am quickly became the unofficial national airline of the United States.
Pan Am invested heavily in training staff – which was key to their success. Staff were normally college graduates who were multilingual, and were provided with basic medical training. This helped Pan Am’s reputation, and the 1930s witnessed further expansion – with flights to Europe introduced. The need for air transport during the Second World War threatened Pan Am’s dominance – with several other companies being founded to help produce resources needed to help the War effort.
Pan Am had the distinction of running the first ever around-the-world flight in 1947. Further acquisitions and innovations would follow throughout the next decade. Pan Am commissioned an IBM-built computer which could book airline and hotel reservations, all while providing a user with key local information. Pan Am were also early adopters of several new Boeing models, and built the famous ‘Worldport’ terminal in New York. By 1970, Pan Am were both flying to every continent (minus Antartica), and carrying over 10million passengers a year.
However, a range of events would contribute to the decline and ultimate collapse of Pan Am.
- 1973 Oil Crisis: As mentioned earlier, Pan Am were often early adopters of Boeing models. This continued in the 1970s, with a large fleet of 747’s purchased. However the 1973 Oil crisis – where oil prices rose around 400% within a few months, caused a slump in air travel. Pan Am suddenly had a huge debt to pay off, and less demand than expected.
- Debt: With the above considered, Pan Am’s debt almost totalled $1bn by the end of the 1970s. Moreover, federal policies impacted Pan Am, with the airline being paid much less than foreign airlines to carry US mail, while interest rates on loans from the Export-Import Bank of the United States were also high. Turnaround efforts were made, with thousands of job losses, wage cuts and the rescheduling of debt repayments. This allowed Pan Am to avoid collapse.
- National Airlines Takeover: Despite still being under financial strain, Pan Am acquired National Airlines in 1980 for $437million. The purpose had been to strengthen Pan Am’s domestic market share. Yet the two airlines had a very different company culture, and different fleets. Furthermore, Pan Am ended up giving every National Airlines worker a pay rise, to put them level with Pan Am employees. The struggle in integrating the firms led to lower-cost airlines taking domestic market share, and ultimately further financial trouble for Pan Am.
- Restructuring: In dire need of raising finance, Pan Am sold off some of its assets, while stopping certain routes – including the well-renowned ‘around-the-world’ flight. Pan Am made more acquisitions – purchasing several regional airlines. Like their efforts with National Airlines, this was done to try and give Pan Am dominance in the domestic market. However a poor feeder network impacted success levels.
- 1988 Lockerbie Bombing: The tragic bombing in 1988 of a PanAm flight bound for the United States resulted in 270 casualties. Known as the ‘Lockerbie Bombing’, families of the victims filed a large lawsuit, which put PanAm in increased peril.
- 1990 Gulf War: Fuel prices rose unexpectedly in 1990 due to the Iraqi invasion of Kuwait. Air travel demand regressed once again, causing further financial losses for Pan Am. In a bid to stay afloat, Pan Am sold off several key routes, while cutting its workforce further.
These different areas accumulated, putting Pan Am into a perilous financial state. In 1991, Pan Am filed for bankruptcy protection. Key assets were sold off to competitors. Yet another restructuring effort was made, but a relaunch failed to yield any improvement. On December 4, 1991, Pan Am permanently ceased operations. Thousands of jobs were lost, and remaining assets sold off.
A range of circumstances contributed to Pan Am’s demise. There is no doubting that they were unfortunate at times, but mismanagement proved key too – with poor decision making rife in Pan Am’s later years. All that is left now of the once all-conquering Pan American World Airways is the Pan Am International Flight Academy in Miami. This academy acts as a breeding ground for aviation training – with thousands of skilled aviation workers passing through its doors. This at least ensures that Pan Am’s legacy will live on.