TAMPA - Gordon Bethune took over a chronically poor-performing airline with disspirited workers in 1994. Continental soon blossomed into an industry leader in profitability and customer satisfaction.
Like all airlines, Continental has suffered in recent years during the economic downturn and the aftermath of the Sept. 11 terrorist attacks. But airline analysts say Continental is poised to recover faster than most traditional hub-and-spoke carriers. The airline made a $133-million profit for the quarter ending Sept. 30 and expects to break even in 2004.
Bethune, 62, was in the Tampa Bay area Wednesday to receive the annual Tony Jannus Award for achievement in commercial aviation.
In a wide-ranging interview, the Continental chairman and chief executive talked about problems plaguing the industry, why startup JetBlue Airways has financial advantages (which he thinks might prove short-lived) and the reason it takes longer to fix a plane when workers don't like the boss.
Q. More than two years after the Sept. 11 terrorist attacks, why are airlines still mired in their deepest financial slump in history?
Bethune: The issue from the big market change of 9/11 is that capacity and demand are not in equilibrium. Airplanes are 15-year, fixed-cost assets. Demand dropped 30 percent. People who parked airplanes in the desert still have to make the payments.
You saw US Airways and United go broke because they couldn't make the payments. Some of us have airplanes still parked. We still have too much capacity except for July and August, Christmas and Thanksgiving, when demand and capacity kind of line up and we all make money. It's like when there are too many tomatoes, tomato farmers don't make any money.
Q. Is the traditional airline business model - charging business travelers sky-high fares for booking at the last minute - a broken system?
Bethune: The businessman is there, and he is flying, or she is. But they're able, through the availability and proliferation of low fares, to get a low fare up until the last minute. And, of course, (the Internet) lets all that be at your fingertips. That's not going to change, but maybe the availability of a 21-day advanced purchase fare the day before you leave may go away if we ever get back into equilibrium. But nothing's new about economics. To say that today is going to last forever is like saying the dot-com boom's going to last forever. Here's a model that's changing. We need to keep changing with it, and we are. (But) to say we all are going to die is loopy. Some of us will, some of us won't.
Q. How is Continental adjusting?
Bethune: In our business today, you're only as good as your dumbest competitor. And there's a huge contest for that title. We can't raise fares. We've got to figure out a way to get the guy who used to fly United, American or Delta to say, "You know, I like the way I'm treated at Continental a little better." Once you're in the coach section and you don't get an upgrade, you're pretty much all treated the same on the airplane. The guy who bought his ticket on the Internet is treated the same way as the corporate customer - and he paid 30 percent more. So I'm going to get you through security faster. I'm going to give you a priority to board whenever you want during the boarding process. I'll guarantee you no middle seat, and I'll get your bag off first. So, we're looking to how do we increase revenue: You get a bigger share of the higher-revenue guys.
Q. Why can't you follow the pattern of JetBlue, the 3-year-old low-cost carrier that's making money and growing like wildfire?
Bethune: I went to our financial people ... and said I want you to run (a model of) our whole operation exactly the way we have it - same planes, same contracts, same facilities - but I want you to make every employee a two-year employee. Instead of losing $350-million (last year) we would have (made) $450-million. It costs more to insure a 55-year-old white male than it does a 25-year-old. A guy who's worked for your company for 20 years expects to have at least one more week of vacation than one that didn't.
Let's say we get 10 airplanes. And we hire all new employees at first-year salary levels. We fly every airplane 10 hours a day. Two years from now, I've got to keep one parked all the time for maintenance, so I'm paying for 10 but I'm flying nine. Three years from now, two are in (maintenance) and I'm paying for 10 but flying eight. You can keep growing from the bottom. If you stay the same you die.
But you've got to find new markets. Today, a lot of carriers are taking the very best markets - New York to Florida, New York to L.A. When do you run out of those, and how do you handle it? I'm not saying it can't be done, but it ain't automatic.
Q. How did you maintain the support of Continental employees when you had to lay off workers after 9/11?
Bethune: We were the only carrier that didn't use (emergency contract clauses) to not pay the severence pay. (Mistreating) your employees is not the answer. When we laid people off, we treated them very fairly. Our people actually like coming to work.
How do you do that? Trust and confidence. Never lie. Even after 9/11, while we were the first to stand up and say we've got to cut employees, we didn't treat them like children either. They understand it, but you've got to treat them fairly. I used to be an (Navy) airplane mechanic. Do you know how much faster I could fix an airplane if I wanted to fix it?
The Navy sometimes would have officers, just like we have executives today, who think, "Well, I'm a bigshot, so you do what I tell you and you're nobody."
The next time the airplane's broke, and the guy says, "----- it Bethune, is that airplane ready?" And I'd say, "You know, sir, we (fixed) the wires, we changed the brakes, we changed the starter. But every time we engage it, the breakers pop. I'll call you when it's ready." And I let (it) sit there for three hours.
At $30 a hour, times the three extra hours I let it sit there, it cost $90. Or if I want to fix this airplane for you, I could do it for $15.