Pan Am clipper, Vol. 14, No. 3, April 1988

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Moscow Express” Set To
Launch May 14
Pan Am and Aeroflot officials are finalizing the multitude of logistical arrangements in preparation for the inauguration of the historic “Moscow Express” on Saturday, May 14.
This high-profile U.S./U.S.S.R. joint venture between Pan Am and Aeroflot is an excellent example of General Secretary Mikhail Gorbachev’s “perestroika” movement —the radical economic restructuring which is sweeping the Soviet Union.
“It’s one thing to say you are going to do something,” said Executive Vice President Hans Mirka, “it’s yet another to actually make it happen. In most instances, our Soviet counterparts made every effort to produce what they promised — considering that joint venture working relationships are a new innovation for the Soviets,” he said.
The alacrity with which the agreement was put together was remarkable. The Pan Am team consisted of Executive Vice President Hans Mirka; John McCaffrey, Vice President Industry Affairs; Dick Carlson, System Director International Affairs; Carlos Bragado, System Director Dining Services; Ivan Dezelic, Director of Sales, Eastern Europe and USSR; Bob Butler, Director Cargo System Services; Bob Distler, System Director Schedules Control and Distribution; Erik Sorensen, Director Airport Systems Automation; and Bill Kobler, Unit Manager DCS Data Base. A contingent of these experts first went to Moscow on August 30 and by September 25th, the far-reaching deal was inked.
Mirka was quick to praise the cooperative spirit exhibited by two senior Aeroflot officials, Vassili Tkatchenko, their Deputy Commercial Director in Moscow and Vladimir Kourkov, Aeroflot’s General Manager-North America. “Without the commitment of these two gentlemen, months could have passed without result.”
Ivan Dezelic was another key Pan Am team member on the Soviet project. “From the outset, we tried to foster personal relationships with our counterparts,” he said. “After mutual trust and respect were established, it was far easier to tackle the issues.” To ‘break the ice,’ Dezelic threw a barbecue for the Soviet delegation at his home last year, which drew rave reviews.
“Both sides were given a job to accomplish,” said Dezelic, “and the mission was clear. It was the satisfaction of turning a plan into a product that was so rewarding to all of us. But especially pleasing to each side was the new alliance that was built among friends.”
To head the start-up team, Mirka tapped Dick Cozzi, General Manager Airport Services and a veteran of two recent projects — Pan Am Express and The Pan Am Shuttle. The challenge: Take it from concept to reality in six months.
“This was the most interesting assignment I’ve had in my 22 years with Pan Am,” Cozzi said. “The cultural differences which have existed between our countries and dearth of longstanding working relationships made this project extremely challenging.”
Cozzi spent a week in Moscow last month reviewing procedures for passenger and aircraft handling for the new service. “The 747 aircraft will be ground-handled by Aeroflot in Moscow and by Pan Am in New York. The two companies will share operating costs on a 50/50 basis, with each company having a similar allocation for the sale of its own seats and cargo.
“The space will not be split down the middle,” Cozzi said. “The aircraft has been divided by sections to allow an intermingling of passengers in all parts of the cabin.”
Cozzi added that if either Pan Am or Aeroflot used its entire allocation on any given flight and the other carrier had space available, the overflow would be handled on a normal interline basis.
“Perhaps the most difficult task was to coordinate the check-in process in Moscow where two continued on page 3
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ST. MARTIN / SINT MAARTEN, The French-Dutch Caribbean delight will be on the itineraries of many Pan Amers in 1988. Four hotels, three restaurants and a car rental company have rolled out the red carpet with special prices for Pan Amers beginning this month. Your beach chair is waiting! See pages 4 -5.
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CLIPPER
VOL 14 NO 3
APRIL 1988
Strategic Plan Focuses On Six Critical Issues
In the fall of 1987, the Board of Directors of Pan Am Corporation was presented with a detailed strategic plan for Pan American World Airways for 1988 through 1995. It was the first such document of its kind in the company’s 60 year history, presenting a multi-year roadmap for Pan Am’s development.
The plan was produced by a strategy team under the direction of Bob Gould, now Senior Vice President Operations. The team consisted of Bill Lange, who is now Vice President Airline Planning; Don Garvett, Vice President Revenue Management; Ramesh Punwani, Senior Vice President Finance and Information Systems; and Pan Am Express President John Leonard.
The mission of the Strategic Plan is to produce a six percent net profit margin as measured by a return on sales for principal subsidiary Pan American World Airways. This profit margin was determined to be necessary for Pan Am to succeed in an increasingly competitive industry.
The plan includes goals necessary to accomplish the mission and action plans for achieving those goals.
The plan is based on the assumption that Pan Am is successful in achieving labor cost reductions and productivity improvements with each of its five U.S. labor groups. Without those changes in Pan Am’s cost structure, the plan cannot be implemented. The mathematics of the plan are not complicated. In actual 1988 terms, the forecast 61.9 percent passenger load factor requires Pan Am to achieve a yield of more than 10.0 cents per revenue passenger mile and a cost of less than 7.0 cents per available seat mile. Such a combination of load factor, yield and cost per seat mile can result in a six percent profit margin when all elements of the strategic plan are in place.
The plan involves significant growth of the airline during 1988 to take full advantage of labor cost modifications — when they are achieved — as well as the two-tiered pay scale which is already in effect. 1988 growth is projected at a 16.3 percent increase in capacity to 47 billion available seat miles. That growth is being supported through additional hiring of pilots, flight attendants and mechanics. Growth of 11.3 percent is projected for 1989, and growth rates of between six and seven percent are projected for each year from 1990 through 1995.
The growth in 1988 is focused toward increasing market dominance in the Atlantic by selective capacity increases on Pan Am’s ‘bar-bell’ hub structure, an advantage in the industry unique to Pan Am. The weights on Pan Am’s barbells are the major hubs in New York, Miami, London, Frankfurt and Rio. The bars are the international routings between these hubs. Market dominance is gained through increasing schedule frequency to important destinations such as New York-Nice and New York-Milan to daily services. Further dominance is gained from selective new nonstop services such as Frankfurt to Orlando, New York to Moscow, and New York to Stockholm and Helsinki.
Beyond overall growth and creation of market dominance, a third major strategic element is to expand and improve Pan Am feeder services. This does not mean a wholesale expansion into domestic hub and spoke operations such as at Atlanta, Chicago and Dallas-Ft. Worth, already dominated by entrenched domestic competitors. Feed flights must be added to build up traffic to Pan Am’s long haul international gateways, and not to simply attempt to wrest market share away from incumbent local domestic carriers, continued on page 2

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Airbus Delivers First A320
Pan Am Deliveries Begin Next Year
Airbus Industrie delivered the first A320 to Air France on March 28 after the new aircraft won simultaneous certification from four European Aviation authorities just a month earlier. Certification by the U. S. Federal Aviation Administration is planned for later this year with the first deliveries to Pan Am slated for June, 1989.
The Airbus A320 is a single-aisle twin engine aircraft with a seating capacity of 130 to 179 passengers, depending on configuration. It has the range to carry a load of 150 passengers with bags and six tons of cargo a distance of 1920 nautical miles. With just passengers and baggage, the range increases to 3150 nautical miles. That would permit the A320 to fly, for example, from Dallas nonstop to virtually any destination in North or Central America. It is being viewed by many carriers, including launch customer Air France as a replacement for the Boeing 727. In addition to its range and passenger capacity, the A320 bums about one-half the fuel of the 727.
According to Airbus market research, the new A320 has been designed for total efficiency in all phases of operation. The reduced operating costs gained from lower fuel consumption is a plus in itself. But other factors in the design mean that the aircraft can be profitable, according to Airbus Industrie figures, with load factors in the mid-20 percent range, depending on a carrier’s operating cost structure. Breakeven load factor on an average flight with passengers and baggage, but no cargo, is estimated at as low as 23 percent. From the cargo point of view, despite its narrow-body design, the A320 is designed to accommodate LD3 cargo containers which are the cargo mainstay of the B747. From the passenger and flight service perspective, the A320 offers a wide-aisle design that allows room for both a passenger and a serving cart in the aisle at the same time; no longer is access to the lavatories blocked by the presence of the serving cart in the aisle. Aisle access for wheelchair continued on page 3
THE AIRBUS A320 will sport the Pan Am name and logo in June, 1989 as the first of 16 aircraft is delivered. Current plans call for the A320 to enter service in longer-haul domestic feeder flights, on flights between New York and the Caribbean and in the IGS.