The rise and fall of Pan Am

Following is a transcript of the video.

Irene Kim: Pan Am was once the largest international airline in the US. In 1970 alone, it carried 11 million passengers to 86 countries worldwide. Pan Am is also known as the pioneer of multiple features of modern air travel, and it also holds cult status for its iconic aviation style. But after 60 years of flight and decades of financial turbulence, Pan Am went bust. So what happened?

Pan American Airways was founded by two US Air Force majors. It began as an airmail service between Key West, Florida, and Havana, Cuba, in 1927 and was the United States’ first scheduled international flight. Within a year, aviation visionary Juan Trippe took the controls, and Pan Am introduced its first passenger services to Havana. An ad campaign cosponsored by Pan Am and Bacardi successfully encouraged Americans to fly away from alcohol prohibition in the US to drink rum in the sun in Cuba. And Trippe quickly expanded Pan Am’s network.

By 1930, Pan Am was flying routes through most of Central and South America. Crucially, it used a fleet of flying boats, or clippers, to land aircraft on the water at destinations that didn’t have concrete runways for traditional planes. Since they flew seaplanes, Pan Am pilots wore sea captains’ uniforms, a decision that still influences aviation uniforms today. And there were far more important innovations that Pan Am developed in its early days of flight.

David Slotnick: Everything from things we take for granted today, like air traffic control and different flight procedures, different ways of forecasting the weather, of flight planning. Pan Am was the first airline to fly around the world. They actually set a few different records about that. They were the first to fly from the US across the Pacific. It was really a lot. They launched this international service that really helped define what we have today as just regular air travel.

Kim: By 1958, Pan Am offered regular flights to every continent on the planet except Antarctica, giving itself the title of “The world’s most experienced airline.” Pan Am’s modern fleet of pressurized aircraft could fly smoothly above turbulent weather, which provided a comfortable experience for passengers. Its lavish cabins were staffed by a multilingual, college-educated flight crew who served luxurious meals like steak, Champagne, and caviar.

Commercial: On October 26, 1958, Pan Am becomes the first American airline to fly jet aircraft. A Pan Am Boeing 707 streaks from New York to Paris in eight hours. The world enters the jet age.

Kim: The powerful new jet engines, which could fly nonstop over long distances, allowed Pan Am to introduce daily flights to London and Paris. And with the introduction of economy class, Pan Am opened the world of air travel to tourists, not just the rich and famous. In 1970, Pan Am carried 11 million customers over 20 billion miles. Thinking that air travel would only continue to grow, Pan Am invested half a billion dollars in a large fleet of Boeing 747 jetliners.

But this would turn out to be a big mistake.

In October 1973, the Organization of Arab Petroleum Exporting Countries declared an oil embargo against nations, including the US, that were supporting Israel in the Yom Kippur War. By the end of the embargo in March 1974, the price of oil had risen by more than 400%. This hit Pan Am harder than other airlines because of its exclusively long-haul flights, which required more fuel.

Slotnick: They were the launch customer for the Boeing 747. At the time, that was a great airplane for them to buy. That was the right choice, but the oil crisis really changed things for Pan Am. It was all of the sudden the wrong plane to have. It wasn’t the most efficient. It was flying routes that really weren’t selling that well because demand for travel was going down, and that was a very difficult time. But when they made the decision to buy the planes, who would’ve known?

Kim: While Pan Am’s operating costs skyrocketed, the economy slowed, and America’s appetite for international air travel greatly reduced, leaving Pan Am dangerously overcapacity, with huge, half-empty jets taking to the skies. As a result, between 1969 and 1976, Pan Am lost about $364 million and was estimated to be $1 billion in debt.

Pan Am had long hoped to add domestic flights within the US to its operation and even talked to a number of domestic operators, including American and United Airlines, to propose a merger. But rival airlines convinced the US Congress that Pan Am threatened to monopolize US aviation, and the Civil Aeronautics Board repeatedly denied Pan Am permission to operate domestically. But in 1978, the Airline Deregulation Act was passed into United States federal law, meaning the government could no longer control airline routes. Pan Am was now allowed to acquire a domestic system, and it hastily purchased National Airlines for $437 million.

Barnaby Conrad III: It cost a tremendous amount of money to acquire this particular airline, to get the routes. They obviously made a choice. They couldn’t build from scratch. They needed to go out and buy something. You basically had two cultures going on: Pan Am, very worldly, sophisticated, international. Then you had National Airlines. They were sort of puddle jumpers. They were considered country pilots, so there was a mix of culture that didn’t work there. Then you had different kind of aircraft, and so mechanics had never worked on certain airplanes. I think there was a mismatch there too, personnel, different airports. Just in general, it was really a small southern airline that was matching up with an international airline.

Kim: Within a year of the National Airlines purchase, Pan Am lost $18.9 million, even after selling its iconic Manhattan head office for $400 million. Pan Am continued to self-liquidate to offset its losses. In addition to trading its hotel chains, it sold its entire Pacific division to United Airlines.

But Pan Am still had a global reputation as the flagship US airline. However, this claim to fame would attract a devastating terrorist attack above the skies of Lockerbie, Scotland.

Kenny MacAskill: On the 21st of December, 1988, Pan Am Flight 103 took off from Heathrow. It was bound for New York. It was never scheduled to either touch down or land in Scotland. A bomb that had been placed on board accordingly blew up over a small town in the southwest of Scotland called Lockerbie. 259 people all aboard the plane were killed, passengers and crew, and 11 citizens in the small community of Lockerbie were also killed. Pan Am were held culpable and negligent in failing to have adequate security measures. You can have some sympathy for Pan Am, because their defense, if it was a defense at the time, was simply that they had carried out the normal security measures that the entire aviation industry did. But the courts took the view that that was inadequate. They had failed to properly secure the airplane, and as a consequence, a bag had got on board that shouldn’t have been on board in the first place. But Pan Am, you can say, took the hit metaphorically as well as literally for an industry where security standards had not got up to speed.

Kim: The Lockerbie bombing cost Pan Am more than $350 million and proved to be the final blow to the once giant airline.

Just two years later, on January 8, 1991, Pan Am filed for bankruptcy.

After a bidding war, Delta Airlines purchased the majority of Pan Am for $1.4 billion, acquiring its European routes, its northeastern shuttle routes, 45 jets, its mini-hub in Frankfurt, Germany, and its flagship Pan Am Worldport terminal at JFK International Airport. Pan Am hoped to emerge from bankruptcy court, but after realizing it was losing $3 million per day, Delta stopped its cash advances. After failing to raise money from other sources, a phone call was made to Pan Am’s head office on December 4, 1991. The message was: “Shut it down.”

Conrad: Pan American Airways went bankrupt, and they shut down services. It broke people’s hearts, really, not just the people that worked for the airline, but for many other people that flew it and knew it, and it was the flagship airline of America. Pan Am, this legendary airline with its legendary logo, was the second most recognized trademark in the world at the time. A group of friends of mine actually bought those trademarks, and, in fact, I was one of the investors in that group. We bought those trademarks. Unfortunately, Charles Cobb, who was the largest investor, wanted to start the airline again, and we said, “But it didn’t work last time.” We parted ways. He bought us out. He slapped the Pan Am globe on this airline, which is sort of like putting the Pan Am globe on a Greyhound bus. It lasted a couple of months, and it crashed. All the other attempts to do something else with the trademark have failed.

Kim: But Pan Am’s legacy continues to be felt almost 30 years after its collapse. Its innovations remain the pillars of modern air travel. Its brand style has survived throughout the decades as an iconic mid-century fashion statement, with products featuring its sleek, retro logo still being sold. And the Pan Am lifestyle is still romanticized in TV and movies. But the airline itself remains grounded.

EDITOR’S NOTE: This video was originally published in February 2020.

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How Toms went from a $625 million company to being taken over by its creditors

Following is a transcript of the video.

Narrator: Chances are, you once owned a pair of these. That’s because TOMS had the perfect product. Its one for one donation model made buying one of it’s iconic canvas shoes an act of charity. And for a while, that really worked. By 2013, TOMS was reportedly making 250 million dollars in sales a year and had donated 10 million pairs of shoes since it’s launch. Just one year later, the company was valued at 625 million dollars.

Russ Winer: It was a brand that resonated with a lot of, especially younger people at the time that were looking for brands that were not sort of traditional corporate kind of brands.

Narrator: Entrepreneur, Blake Mycoskie, started the company in 2006 because he wanted to give back. Yeah, Blake, not Tom. There was never actually a Tom behind TOMS shoes. The company was originally named Shoes For Tomorrow then Tomorrow’s Shoes and then shortened to TOMS. Mycoskie, who you might recognize from season two of The Amazing Race, was inspired to start the shoe company after a trip to Argentina. The story goes that Mycoskie wanted to help all the kids he saw without shoes. While he was there, a shoe design caught his eye. The Alpargata. Comfortable and affordable, the Alpargata is an everyday shoe for many Argentinians. A local shoe maker helped make an updated version for TOMS and came up with a buy one, give one model. Soon, the shoe was everywhere.

Russ Winer: It got some publicity and just grew very rapidly. It had a huge amount of demand at the beginning. Hollywood stars started wearing the shoes and there’s all this buzz around the shoe and they grew into what it is today.

Narrator: TOMS slip on canvas shoes, became synonymous with the brand turning into what marketing pros call a hero product.

Russ Winer: A hero product is a product that is the archetypal brand, all right, for a company, the one that’s the most successful that people think of when you think of the company. So, for example, like Nike, it could be Air Jordans, for Porsche, it might be the 911.

Narrator: It’s like how when you see Hermes, you think of the Birkin bag or associate Heinz with Ketchup. For TOMS, it was the original shoe, based on the Alpargata. Paired with its charitable giving model, TOMS seemed unstoppable.

Russ Winer: TOMS branding and marketing was very effective because it was one of the first companies that used this buy one, give one kind of philosophy to try to appeal to not only consumers that liked good looking shoes, but also were interested in companies that had some kind of corporate social responsibility angle.

Narrator: People saw it’s logo and immediately thought of it’s shoes and its charity work for kids. Which could explain why people were willing to spend anywhere from $48 to $78 on a pair of TOMS canvas shoes. But it turns out, having a hero product can backfire.

Russ Winer: The hero product for TOMS shoes is the Alpargata variant or model of the shoes and they relied on that one model too long. The hero product can become stale at some point if it’s not rejuvenated.

Narrator: Not to mention, TOMS slip on shoe design was easy to copy. So, competitors did and they sold them for much cheaper. Skechers even named it’s version BOBS and donated two pairs of shoes for every pair sold. All this made consumers question whether TOMS was even worth the price. So, just as quickly as it had become a staple, TOMS became a fad. Even though TOMS had expanded it’s product line, people just couldn’t see beyond its original canvas shoe. While TOMS shoe donation program had been innovative and interesting when it launched, it became almost mainstream, copied by so many other brands. People also started questioning whether TOMS shoe donations were actually helping anyone. Something that TOMS had contacted an outside research team about looking into back in 2010. The research team found that the program wasn’t actually that significant.

Bruce Wydick: TOMS was really quick to take the results of the study into consideration so they talked to us about giving away the shoes as a reward for school attendance so kids actually feel like they earned them and they began to develop more alternative kinds of shoes that would last longer.

Narrator: TOMS continue to grow its giving program to be more effective. In 2011, TOMS expanded its brand to include sunglasses. Sales from sunglasses went directly to people in developing countries, for treatments like cataract surgery.

Bruce Wydick: As a person that has pretty high prescription glasses, I can attest to the fact that, personally, like a lot of people, this is a really impactful intervention for many people. Cataract surgery can restore a life.

Narrator: In 2014, Tom started TOMS Roasting Company. It said it would donate a week’s worth of clean water for every bag of coffee it sold. The next year, TOMS teamed up with anti-bullying organizations with a line of backpacks. But despite all these changes, when most people saw TOMS, they only thought of it’s original product and program. So, TOMS had a hard time growing beyond its hero product and its sales struggled. The company had a harder time regaining control over its business because it had relied so much on wholesale when it first started out. Doing this had helped TOMS build it’s brand recognition even faster because its shoes were sold at big department stores like Macy’s and Bloomingdale’s and even at Whole Foods. But a direct to consumer model has a lot of long term advantages. You have more control over your marketing and inventory and most importantly, over prices. All this can help you control your profit margins. Something that’s kind of important when your sales are starting to slump. But instead, TOMS didn’t pivot its business model as quickly or strongly as it should have. Its outlook continued to decline in 2019. TOMS had a 300 million dollar loan due in 2020. Credit rating agencies expected it wouldn’t be able to pay up. So, is this the end for TOMS? Well, in late 2019, a group of TOMS creditors officially took over the company from Bain Capital and Blake Mycoskie in exchange for debt relief. When Business Insider reached out to TOMS, a representative said that, quote, “The new owners support TOMS future growth and are investing 35 million dollars into the company.” Unquote. So, TOMS is definitely looking to rebuild itself. But is there a place for it?

Russ Winer: TOMS biggest obstacle right now is just the fact that there is so much competition in the shoe business and some brands have in fact gone bankrupt. If you look at brands like Rock Port, right? Which is a well known brand, take a look at Pay Less Shoes which is a retailer. There’s just a lot of competition in this market and very difficult to make a sustainable business.

Narrator: So, what should TOMS do?

Russ Winer: I think the smartest strategy for TOMS right now actually is to focus less on the corporate social responsibility angle and focus more on product. I think they need to develop more product variety, styles, colors that consumers want to buy and I think that’s the area they should focus on.

Narrator: And Winer says there’s something else TOMS needs to work on.

Russ Winer: A lot of successful brands that started as direct to consumer like Warby Parker, like a Casper, like others, Bonobos for example, started only direct to consumer, went to retail, gave their customers a chance to again experience the brand and today, brand experience is extremely important for consumers to have a strong affinity of the brand. I think TOMS has to do more of that.

Narrator: But even if TOMS isn’t able to recreate it’s original success, it still made a lasting impact on the worlds of business and fashion. Brands having a social mission might be commonplace today, but TOMS was the one that made it mainstream. Despite everything, TOMS might still be the best at it.

Bruce Wydick: I’d say TOMS is one of the most nimble organizations that I’ve worked with as a development economist. They have a whole department that’s devoted to impact evaluation.

Narrator: In November 2019, TOMS announced that it would be evolving its one for one giving model. TOMS will now be donating one dollar for every three dollars it makes. According to the company, this creates a more flexible and sustainable way of giving.

Bruce Wydick: I think TOMS is a learning organization and when it comes to development and poverty interventions, trust me, we’re all learning. That’s the key.

Narrator: So, who knows? With the right product, TOMS could be the next big thing again.

EDITOR’S NOTE: This video was originally published in May 2020.

Read the original article on Business Insider