Within days, United Airlines warned that liquidation was a “distinct possibility.” American Airlines, already teetering on the brink of bankruptcy, announced additional cuts in its international service. And hours before the Iraqi war began, Continental Airlines announced $500 million in cost-cutting measures, including 1,200 layoffs and the closure of some service centers. NEWSWEEK’s Jennifer Barrett spoke with Continental chairman and CEO Gordon Bethune about the effects of war on an already troubled industry, and what can be done to remedy the situation.
NEWSWEEK: The ATA has said the airline industry could lose as much as $13 billion this year under the most severe scenario–which includes war and the possibility of more terror attacks. Is that realistic?
Gordon Bethune: Those are worst-case figures. But, yes, that certainly could be true. You can lose a huge amount of money very quickly in this business–as we’ve demonstrated.
Just before the war began, you announced 1,200 job cuts and the closure of some ticket offices–efforts to save $500 million this year. Do you foresee additional cuts in jobs, office closures or the cancellation of service to some cities if the war is prolonged?
I was just asking if we got Saddam yet.
It doesn’t appear so–not yet anyway.
Well, the war could be over pretty quickly if a break like that would occur. But it’s too early for us to tell. We’re going to start monitoring daily what is happening and how it is affecting us. When we see this is getting to be longer than we’d hoped for, we’ll start moving with further cancellations and reductions both in domestic and international flights.
How long would the war have to last before you’d consider more cuts in jobs or routes?
It’s really a subjective thing. It’s hard to put those things back once you pull them out. So you try to wait and not jump the gun. I’m going to dipstick this next week. We’ll have a meeting and see how we feel about taking more risks by parking more airplanes or running them another week.
How many planes does Continental have ‘parked’ now?
We still have 20 jets parked. But what we’ve done is change the utilization of airplanes. We’re flying six hours a day instead of 10. We are flying four days a week instead of seven. Three of our Boeing 777s are over there now with troops. So, some of our capacity is being picked up by the government–but certainly not enough to sustain us. These are the ways to reduce flying though. You don’t necessarily park the airplane. If you park it, it’s hard to get it back up again.
Some critics argue that some airlines were not run well to begin with and that they are using the war as an excuse to ask for more handouts or federal tax breaks. How would you respond to that?
There’s no question that the war has exacerbated all our problems. I’m not going to say that some airlines didn’t have a problem before 9-11 even. We were making money that day–Continental was. Others were losing money then, but they’re in much worse shape today.
I’m not sure they use it as an excuse, but as a reaction to the reality that not as many people are flying today and oil prices are through the roof.
But Continental is in better shape than some of the biggest airlines.
We have a fleet plan and we could adjust our costs to accommodate the slow decline in traffic that we saw even before 9-11. Others were not able to do that. They were caught up in negative when we were still positive. Then traffic dropped by 40 percent overnight after 9-11. Many of your costs are fixed in this industry, so when traffic–or the marketplace–changes overnight, none of us could dump costs fast enough. Some of us ran out of money. Continental is more nimble, but we’re all trying to figure out how to get rid of our costs because the revenue is not coming in the door. I believe some of us should have known better than we did. But none of us could have predicted 9-11 or the ensuing war.
You’ve said you don’t want grants or loans from the federal government.
No. Right now, if the government wanted to stop sucking our blood it would give us a break on the excise tax–a yearlong break, or some extended period of time. The excise tax is 8 percent of the ticket price plus a segment fee of $2 or $2.50 per ticket. And it would permanently repeal the security costs and fees. On a $200 plane ticket, we’re paying about $52 in fees and taxes. We earned that money; let us keep it. Don’t take it away at a time when we are all dying. The thing is, Congress has seen us as a cash cow. It’s clear now that the airline industry cannot sustain this blood transfusion or the patient could die on the table. The government also ought to permanently handle the war-risk insurance –they’re doing it on a temporary basis now–because there is no way anyone can afford it.
Has the government been receptive to your suggestions?
[Laughs] No. I’d like to see the government pass legislation saying war-risk insurance is a necessary part of doing business. There are all kinds of costs–security costs–that I’d like to see the government say, yeah, we will pay for that. This is a national-security issue–this is not just an airline-industry issue.
If the government does not step in, and some of these other major carriers go under, how will that affect the industry?
Continental, Delta, Northwest and others have literally thousands on furlough who would love to come back and fly airplanes that we’ve parked. The demise of United Airlines would be as sorely missed as were TWA, Pan Am and Eastern. But the gap they left was filled after, and the same thing will happen this time. United represents about 15 to 18 percent of the domestic seats. That’s about the amount of seats there are too many of in the market right now. If they went under it would actually put the supply and demand in equilibrium.
So that alone could go a long way toward solving the industry’s current problems.
Yes, that would mean fair types of pricing would occur that would allow the rest of us to get stable financially. It would put us back in a stable position to think about growth, letting the marketplace decide the growth, which would be wonderful.
Continental survived two bankruptcy filings. Do you think some of these other struggling airlines can do the same under the current circumstances?
We’ll survive this. We’re in survival mode. We’re taking our own measures. We’re not counting on the government. There is going to be more fallout and a lot more jobs lost [with the war]. And I do think there will be airlines that disappear. UAL [United’s parent company] may not make it. It doesn’t appear that they can overcome their problems. I just don’t want the government to prop up a loser; then we all lose.
