Fallout from 1973 oil crisis
Pan Am had invested in a large fleet of new Boeing 747s in the expectation that demand for air travel would continue to rise. This was not the case as the simultaneous introduction of a large number of these high-capacity aircraft by Pan Am and its principal competitors coincided with an economic slowdown. Reduced demand for air travel following the 1973 oil crisis made the airline industry's overcapacity problem worse, leaving Pan Am with its high overheads and fixed costs as a result of a large decentralized infrastructure in a vulnerable position. In addition, high jet fuel prices and the large number of older, less fuel-efficient narrowbodied airplanes in its fleet significantly increased the airline's operating costs. Federal route awards to other airlines, such as the Transpacific Route Case, further reduced the number of passengers Pan Am carried, as well as its profit margins.
On September 23, 1974, a group of Pan Am employees published an advertisement in The New York Times to register their disagreement over federal policies which they felt were harming the financial viability of their employer. The ad cited discrepancies in airport landing fees, such as Pan Am paying $4,200 to land a plane in Sydney, while the Australian carrier, Qantas, paid only $178 to land a jet in Los Angeles. The ad also contended that the United States Postal Service was paying foreign airlines five times as much to carry U.S. mail in comparison to Pan Am. Finally, the ad questioned why the Export-Import Bank of the United States loaned money to Japan, France, and Saudi Arabia at 6% interest while Pan Am paid 12%.
By the mid-1970s, Pan Am had racked up $364 million of accumulated losses over a 10-year period, and its debts approached $1 billion. This threatened the airline with bankruptcy. Former American Airlines vice president of operations, William T. Seawell, who had replaced Najeeb Halaby as Pan Am president in 1972, began implementing a turnaround strategy that entailed trimming the network by 25%, slashing the 40,000-strong workforce by 30% including wage cuts, introducing stringent economies and rescheduling debt, in addition to reducing the size of the fleet. These measures aided by the use of tax-loss credits enabled Pan Am to avert financial collapse and return to profitability in 1977.
Attempts to build a U.S. domestic network
Since the 1930s, Juan Trippe had coveted domestic routes for Pan Am. Throughout the late 1950s and early 1960s, as well as in the mid-1970s, the airline attempted to merge with American Airlines, Eastern Air Lines and Trans World Airlines. As rival airlines convinced Congress that Pan Am would use its political clout to monopolize all U.S. air routes, the CAB repeatedly denied the airline permission to operate within the United States, either as a result of organic growth or a merger with another airline. As a consequence, Pan Am remained an American carrier operating international routes only (aside from Hawaii and Alaska). The last time Pan Am was permitted to merge with another airline prior to the deregulation of the airline industry in the United States was in 1950, when it took over American Overseas Airlines.Following the U.S. airline industry's deregulation in 1978, a growing number of U.S. domestic operators began competing with Pan Am internationally.