Wednesday, October 13, 2004
Continental chief sees big changes coming in airlines
He says higher fares coming soon, then mergers, failures to pull industry out of mud
THE WALL STREET JOURNAL
>> a d v e r t i s e m e n t <<
In the future, airline passengers will pay more to fly, suffer longer delays and have fewer carriers from which to choose. It is a certainty, said Gordon Bethune, the chairman and chief executive of Continental Airlines.
Bethune will retire Dec. 31 from Continental. Although he might end up running another airline, in the meantime, after 10 years as a chief executive in what he calls "the most dysfunctional industry I've ever seen," Bethune has strong views about what is ahead for travelers.
What he sees: More turmoil in the short term. Rising oil prices will drive ticket prices higher. Fancy seat-back entertainment systems could quickly become a battleground - and airplane food eventually will be back. His prescription for fixing the ailing industry includes a mix of mergers and failures of weak airlines. Someday, he said, he would even like to see UAL Corp.'s United Airlines merge with Continental - a long shot, he knows.
But the first thing, he said, that travelers can expect to encounter is higher prices. Noting that even discount carriers now are warning of financial losses because of high oil prices, Bethune said that fares are going to have to go up. For several years now, travelers have, in effect, been subsidized by airline debt-holders - their losses at bankrupt airlines have kept airlines going and allowed fares to stay low, he said.
Continental tried several times to raise prices this year, but ended up rolling back the increases when a competitor or two didn't go along. Now, "$50 oil gets us all," he said. "Wouldn't you think that will change behavior in pricing?"
It already has. Two $5 fare increases on most tickets initiated by AMR Corp.'s American Airlines stuck in many markets in the past week.
The industry is likely to consolidate in the next 24 months, either by merger or attrition, he said. "Since we've all been in intensive care, it's hard to talk about dancing," he said. "But it should happen."
Once labor contracts and pension issues are resolved, it will be easier for carriers to merge because many will end up with similar contracts. More than $23 billion in U.S. airline losses during the past four years undoubtedly have weakened opposition to mergers among federal regulators and Congress.
For a couple of years Bethune has thought that combining Continental with United Airlines would create a powerhouse carrier that could bring more stability to the industry - something that might appeal to new investors at United or to creditors, two groups capable of financing a merger.
United is strong to Asia; Continental to Latin America. United has rights to land at London's Heathrow Airport; Continental has extensive service to other parts of Europe. United is strong in the western United States; Continental in the east. Combined, the two could be very successful, he believes. "It would be, game over. Checkmate," he said.
He has mentioned the idea to Glenn Tilton, UAL's chairman and chief executive, and his predecessor, Jack Creighton, but neither was interested. No talks were held.
Bethune is leaving Continental because of a bitter feud with financier David Bonderman.
Bonderman reorganized Continental out of its second bankruptcy and brought in Bethune from Boeing Co.
The two clashed over small details and major strategies, and once Bonderman and his investment group had sold all their shares in Continental and were negotiating for other airlines to turn around, Bethune thought Bonderman should leave Continental's board.
Bonderman, in turn, saw his role as "lead director" as an appropriate check to balance Bethune's bravado.
Neither would leave voluntarily alone, so, like Old West gunslingers, they shot each other.
Bonderman and his associates left Continental's board in the spring after Bethune agreed to step down at the end of the year.
"I'm leaving here because it's time to go. Maybe it's the wrong reason, but it's the right time," he said.
Bethune said he will entertain offers from other companies, even airlines.
Continental chief sees big changes coming in airlines
He says higher fares coming soon, then mergers, failures to pull industry out of mud
THE WALL STREET JOURNAL
>> a d v e r t i s e m e n t <<
In the future, airline passengers will pay more to fly, suffer longer delays and have fewer carriers from which to choose. It is a certainty, said Gordon Bethune, the chairman and chief executive of Continental Airlines.
Bethune will retire Dec. 31 from Continental. Although he might end up running another airline, in the meantime, after 10 years as a chief executive in what he calls "the most dysfunctional industry I've ever seen," Bethune has strong views about what is ahead for travelers.
What he sees: More turmoil in the short term. Rising oil prices will drive ticket prices higher. Fancy seat-back entertainment systems could quickly become a battleground - and airplane food eventually will be back. His prescription for fixing the ailing industry includes a mix of mergers and failures of weak airlines. Someday, he said, he would even like to see UAL Corp.'s United Airlines merge with Continental - a long shot, he knows.
But the first thing, he said, that travelers can expect to encounter is higher prices. Noting that even discount carriers now are warning of financial losses because of high oil prices, Bethune said that fares are going to have to go up. For several years now, travelers have, in effect, been subsidized by airline debt-holders - their losses at bankrupt airlines have kept airlines going and allowed fares to stay low, he said.
Continental tried several times to raise prices this year, but ended up rolling back the increases when a competitor or two didn't go along. Now, "$50 oil gets us all," he said. "Wouldn't you think that will change behavior in pricing?"
It already has. Two $5 fare increases on most tickets initiated by AMR Corp.'s American Airlines stuck in many markets in the past week.
The industry is likely to consolidate in the next 24 months, either by merger or attrition, he said. "Since we've all been in intensive care, it's hard to talk about dancing," he said. "But it should happen."
Once labor contracts and pension issues are resolved, it will be easier for carriers to merge because many will end up with similar contracts. More than $23 billion in U.S. airline losses during the past four years undoubtedly have weakened opposition to mergers among federal regulators and Congress.
For a couple of years Bethune has thought that combining Continental with United Airlines would create a powerhouse carrier that could bring more stability to the industry - something that might appeal to new investors at United or to creditors, two groups capable of financing a merger.
United is strong to Asia; Continental to Latin America. United has rights to land at London's Heathrow Airport; Continental has extensive service to other parts of Europe. United is strong in the western United States; Continental in the east. Combined, the two could be very successful, he believes. "It would be, game over. Checkmate," he said.
He has mentioned the idea to Glenn Tilton, UAL's chairman and chief executive, and his predecessor, Jack Creighton, but neither was interested. No talks were held.
Bethune is leaving Continental because of a bitter feud with financier David Bonderman.
Bonderman reorganized Continental out of its second bankruptcy and brought in Bethune from Boeing Co.
The two clashed over small details and major strategies, and once Bonderman and his investment group had sold all their shares in Continental and were negotiating for other airlines to turn around, Bethune thought Bonderman should leave Continental's board.
Bonderman, in turn, saw his role as "lead director" as an appropriate check to balance Bethune's bravado.
Neither would leave voluntarily alone, so, like Old West gunslingers, they shot each other.
Bonderman and his associates left Continental's board in the spring after Bethune agreed to step down at the end of the year.
"I'm leaving here because it's time to go. Maybe it's the wrong reason, but it's the right time," he said.
Bethune said he will entertain offers from other companies, even airlines.
