A Nail-Biting Sequel

Better Movies, Bigger Seats, Fatter Profits

Shrewd Leadership Positions Shares To Rise 

Welcome to Porter & Co. Distressed Investing, edited by Wall Street’s Dean of High Yield, Martin Fridson.  To learn how distressed investments like this one help us take advantage of “The Greatest Legal Transfer of Wealth in History,” see the complete Guide to Distressed Investing on our Reports page. In addition to hosting Distressed Investing on our website, we also make it available as a downloadable PDF on the Issues & Updates page here.

At mile 1,000, they were pack animals. At mile 3,000, they were puppy chow.

By the end of geology professor Ralph Belknap’s 1932 Arctic expedition to the Upper Nugsuak Peninsula on the northwest Greenland coast, he’d lost touch with his colleagues during a five-day blizzard, run out of supplies, and fed half of his sled dogs to the other half… leaving just enough dog power to get him and his equipment back to civilization. 

The hard-driven huskies hadn’t sacrificed their lives in vain. Mishaps aside, Professor Belknap got what he came for: A map.

Pan American Airways (Pan Am) – Belknap’s employer, and at the time, America’s only international airline – were thrilled to receive  the Prof’s detailed survey of icy Greenland. And that’s all that mattered…

By the early 1930s, Pan Am, founded in 1927 and headed by aviation pioneer Juan Trippe, was well on its way to establishing monopoly status among U.S. air travelers. Starting in 1931, Pan Am began building what became an unmatched route system that crisscrossed the Atlantic and Pacific. In order to find spots for planes to land, and build a network of safe runways, they hired a team of expert explorers and mapmakers including aviation pioneer Charles Lindbergh himself, who joined the Pan Am board in 1929 and flew several fact-finding missions… and, of course, Professor Belknap and his heroic pooches. The Greenland exploration was part of an ultimately successful mission to create a trans-Atlantic route that offered a chain of landing strips and refueling stations in Newfoundland, Greenland, and Iceland before arriving in Europe, a route known as the “Viking Trail.” 

Until 1940, Pan Am was the U.S.’s sole international airline. And by 1970, although other airlines had begun to offer some international flights, no other company chauffeured its passengers to a whopping 86 countries. Plus, no one else offered the perks that Pan Am did…

Trippe envisioned his airline as the sky version of a luxury cruise line like Cunard – with classy Art Deco styling, crisply-uniformed stewards, in-flight entertainment, and gourmet meals (though you had to save the alcohol for the ground). Even the clocks on “shipboard” were calibrated to nautical standards.

A far cry from today’s “perfunctory bag of pretzels” flight experience, Pan Am was the way to fly… until, suddenly, it wasn’t.

Post-World War II, a flock of smaller air carriers like American Airlines and United Airlines began to pop up and demand market share… and the fateful late 1970s brought airline deregulation, snatching the exclusivity card away from Pan Am. Along with budget airlines came “look-at-me” promotions: frequent flier miles and incentives to get travelers to switch allegiance. Luxury cruise-style experiences were well and good – but it was a lot cheaper and more practical to hop on a plane that felt more like a bus, especially if that bus ride came with BOGO (buy one, get one) deals.

Fifty years after the Belknap expedition, it was still a “dog eat dog” world. By 1979, Pan Am’s stranglehold on the skies was slipping noticeably, as it reported an $18.9 million loss, on $2.5 billion in revenue (in 1970s dollars) in a single year and sold off its iconic Manhattan office building to raise cash.

Enter Adam, the Boy Genius.

Boy Meets Card

Just 25 and fresh out of business school, Adam was young to become Pan Am’s director of marketing. But his colleagues immediately dubbed him the Boy Genius for a reason. He instinctively grasped two crucial truths: one, Pan Am still had an edge that no other airline did: the unparalleled network of international routes painstakingly developed by Charles Lindbergh, Ralph Belknap, and Pan Am’s other explorers and surveyors back in the ‘30s.

And two: Pan Am still had a core of loyal travelers who deserved the best.

Adam was honing a philosophy he called “Recognize and Reward.” He believed that above all else, the people who believed in his business should reap the benefits – even if, in the short term, that made margins a little smaller. Long term, he believed, recognizing and rewarding faithfulness would pay off handsomely, no matter the industry.

So Adam created Worldpass… the kind of frequent flier deal that only Pan American Airways could offer.

Worldpass was a gold-tinted piece of plastic that looked a little like a credit card. If you logged a certain number of miles per year with Pan Am, you got one in the mail. True to its name, a Worldpass allowed you to fly anywhere in the world – to any of Pan Am’s huge network of destinations – with a companion, for 30 days. For free.

None of the frequent flier programs at United, American, or Southwest had the resources or the destinations to offer customers this type of gift. In his promotional materials, young Adam called it “the richest frequent flier program” – and unsurprisingly, it became tremendously popular. By the mid-‘80s, Pan Am had partnered with Hertz Car Rental, several hotel chains, and American Airlines to offer an increasing number of perks and points for Worldpass travelers.

Even when Worldpass proved a little inconvenient for Pan Am – as in 1984, when 11% of Pan Am’s total passengers chose to redeem their miles right before the busiest international travel season, causing Pan Am to record a $49.8 million Q2 loss – Adam stood firm, reiterating that rewarding loyalty was worth the effort and expense. And indeed, according to many airline analysts, Worldpass kept Pan Am in the air a full decade longer than expected: after struggling in the early part of the decade, the company reported small profits in 1987 and 1988. It only filed for bankruptcy in 1991 when the Gulf War inflated fuel prices and temporarily halted international travel.

By then, Adam (still a genius, no longer a boy) was on to greener pastures – moving his way up the chain from marketing director positions at a hotel and another airline, and to CEO of a cruise line and a ski resort, and ultimately holding executive roles at nearly a dozen companies. 

No matter where he went, his strategy – and his successes – looked remarkably similar. (At the hotel chain, for instance, he issued “frequent sleeper” cards.) He recognized and rewarded loyalty… and long term, he cashed in. “My whole career has been focused on making sure that consumers’ relationships with companies and institutions are really intense,” he says.

In his latest endeavor, as CEO of an entertainment venture, Adam is following that same playbook by issuing preferred shares for loyal shareholders in an eerie echo of the Worldpass. It hasn’t been an easy path, and the company publicly faltered during the pandemic years. But despite a parade of naysayers, Adam’s steady leadership, shrewd financial stewardship, and time-tested rewarding loyalty strategy is finally beginning to pay off once again… as we’ll examine in this issue.

The Movie Business Comes Back To Life