A Dutch Tale
The Netherlands, commonly called Holland (although that name really refers to just part of the country), is a small but very independent nation that has relied for centuries on trade and treaties for both survival and prosperity. Among the leading Dutch and Anglo-Dutch companies that have flourished in this unique environment are Shell, Unilever, Philips, and Reed Elsevier. However, no Dutch company reflects the entrepreneurial spirit of the country–or the dramatic history of the airline industry–better than the national airline, KLM.
The world airline industry was born in the 1920s and 1930s. In mapping the earliest airline routes, the European powers naturally reached out to their colonies in Africa and Asia. In 1929, Imperial Airways (today known as British Airways) reached from London to India, and later met up with Qantas to reach Australia. Air Orient (later Air France) by 1931 plied the routes from Paris to Saigon.
The Netherlands had founded one of the first airlines, KLM (“Royal Dutch Airlines”), in 1919 under the management of thirty-year-old Albert Plesman. The Dutch wanted to get to their remote colony, the Dutch East Indies (today Indonesia) and its capital Batavia (now Jakarta). But, unlike France and Britain, the Netherlands did not have a series of colonies in which they could land en route. Therefore, KLM had to negotiate landing rights in British and other locations.
However, Plesman turned this lemon into lemonade, linking a series of stops to create the shortest and best route from Western Europe to Asia. On October 1, 1931, KLM opened regular passenger service from Amsterdam to Batavia, covering 9,000 miles in just ten days, with 81 hours of flying time. At the time, this was the world’s longest scheduled airline route. Sometimes the three passengers could be bumped by the higher-priority mail. Even after the Brits opened their competing service to the Far East, many British businessmen preferred KLM because of its great reliability.
When war broke out and Hitler conquered Holland, Plesman was taken prisoner. But his alert staff and pilots were quick enough to fly KLM’s fleet out of Amsterdam to safety in Britain. KLM planes served the Allied cause throughout the war, flying routes in the Mediterranean and the Far East. After the war, Plesman continued to run KLM until his death in 1953. Today KLM, the oldest of the world’s major airlines, plays a key role in world aviation from its hub at the Amsterdam airport.
If you had been Plesman, would you have figured out how to keep your “also-ran” airline not only alive but prosperous for 34 years?
Ralph Hitz was born in Vienna in 1891. He ran away from home to work as an elevator boy at the Hotel Sacher. (Ever hear of a Sacher Torte? Yes, it’s the same Sacher.) But Ralph’s father, a horse dealer, lured him home by promising to take the boy to New York on his next business trip. (Sounds odd? Not really–New York was a great place to buy cavalry horses.)
In 1906, at the age of 15, Ralph again ran away, this time to become a bus boy at a hash house on New York’s Broadway. He subsequently worked his way through kitchens across America – Oklahoma City, Houston, Galveston, and Cleveland. He gradually learned English but never lost his thick accent.
By 1928, Hitz was the manager of the Gibson Hotel in Cincinnati. His results were so phenomenal that he was able to start his own company, National Hotel Management, which operated (for a share of the profits) such famous hotels as the Book-Cadillac in Detroit, the Netherland Plaza in Cincinnati, the Nicollet in Minneapolis, the Congress in Chicago, and the Adolphus in Dallas.
His crowning achievement was the opening of the Hotel New Yorker – Manhattan’s largest hotel, with 2,500 rooms – ten weeks after the stock market crash of 1929. Does the date sound inauspicious? Not necessarily. By the Depression year of 1936, the New Yorker was making a profit of $1.5 million on revenues of $5.5 million. Note that this hotel was not for rich people; it was a large-volume hotel for the masses of road warriors – at $3.50 a night.
How did Hitz do it? Check out the May 1937, issue of Fortune to learn all the details, but I’ll mention a couple. Hitz’s team tracked every regular customer. If they didn’t hear from a particular patron for a few months, they’d send a letter asking if anything was wrong. If a bellhop saw a little boy with his parents in the elevator, he’d ask the little boy what his birthday was. A birthday card would follow. Hotel management knew the preferences of every regular guest. Teams of clerks kept track of all this information in the days before computerized databases. The New Yorker’s positioning line was “The Big Hotel that Remembers the Little Things.”
In a thousand ways, from marketing to telephone operators to kitchen management, Ralph Hitz perfected the operation of his hotels. Today Ralph Hitz is long gone, but the New Yorker is still in business at 8th Avenue and 34th Street.
What lessons might we learn from Ralph Hitz? Looking back, I see that he could afford to capture customer histories and send out birthday cards and other messages because he had access to cheap Depression-era labor. By the 1950s and 60s, labor costs had risen dramatically, and these labor-intensive marketing techniques may have seemed impossible. By the 90s, top-end hotel chains like Four Seasons and Ritz-Carlton prided themselves on knowing these kinds of details about their customers. They could afford to, on the profit margins they achieved at prices of $300 and up per night.
But I believe that if Ralph Hitz were alive today, he would be operating inns with $100 rooms and he would know everything about his customers. Of course, he would take advantage of today’s low-cost computers and database management software, and he would probably use the Internet as a super-efficient tool for communication and management. Hitz would care about every detail and he would act on it, just as he did seventy years ago.