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Bethune: "We're a stupid industry led by stupid people,"

Bethune: "We're a stupid industry led by stupid people,"

 
Old Jun 15, 02, 9:09 am
  #1  
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Bethune: "We're a stupid industry led by stupid people,"

Winter's Frustrations Linger for U.S. Airline Industry
By EDWARD WONG

Gordon M. Bethune usually struts with enough Texan swagger to stave off the clouds of gloom and doom. He drives a Porsche, rides a Harley and takes spins in the Boeing jets flown by Continental Airlines Inc., which he happens to run.

But lately, Mr. Bethune has been reduced to throwing up his hands. "We're a stupid industry led by stupid people," he said, his face twisted somewhere between a grimace and a smirk.

Mr. Bethune turned Continental from a near-bankrupt airline into the country's most successful full-service carrier. But that is an empty superlative in a profitless industry, and like some other top airline executives, he admits that he is running out of ideas on how to breathe life into the business.

Still staggered by the Sept. 11 attacks, the airlines are as close to recovery as a comatose patient on an intravenous drip. They lost $2.4 billion in the first quarter of this year and a record $11 billion last year. The biggest carriers need to make deep cuts in labor costs while narrowing the gap between leisure and business fares, experts say. But few people can agree on exactly how to do that.

Everything is up for grabs as executives re-evaluate their operations, from legroom to labor contracts. Some are even calling for retooling the hub-and-spoke route model, which the biggest carriers have developed over the last two decades to feed passengers through transfer points. The giants are looking jealously at the lower-cost operations of Southwest and JetBlue, which do not build their business around fast, easy connections.

So far, though, many of the industry's stabs at resuscitation appear short-sighted.

Airlines that slashed their schedules to save money after Sept. 11 have been furiously adding back flights to gain market share, regardless of whether competitors fly the same routes on the same schedules and at roughly the same prices. Carriers have done nickel-and-dime cost-cutting, removing hot towels and food service, but have yet to address much more serious costs, like labor inefficiencies. Three times in the last two months, carriers have tried — and failed — to raise round-trip leisure tickets by $20, and they have yet to overhaul their fare structures to woo back business travelers.

So low have the airlines fallen that they are looking to the government to point the way to salvation, a quarter-century after Washington deregulated the industry.

Executives are carefully watching United Airlines, the second-largest carrier, and US Airways, the sixth largest, as they struggle to win the big labor concessions that the government is demanding if they are to be granted loan guarantees. That backing would come from a $10 billion program set up by Congress after the Sept. 11 attacks.

If those airlines succeed in their negotiations, their competitors almost certainly will set out to roll back their labor costs, too.

"What's broken is that the pricing model reflects a cost model that's not sustainable," said Michael E. Levine, a former airline executive who teaches at Harvard Law School. "The cost model that's not sustainable is not a technological problem, but a problem of fixed commitments like labor contracts and infrastructure contracts. There's nothing wrong that reorganization won't fix. That could take place through renegotiation of contracts, workouts or Chapter 11 bankruptcy."

Of course, the airlines would prefer to avoid bankruptcy court, having had ample experience in it. And they hope that their usually combative unions — knowing that the industry has hit rock bottom — will deal with them.

That approach seems to be working at US Airways. The Air Line Pilots Association said Monday that its 4,800 active workers would be willing to give up $400 million a year in wages, benefits and work rule changes, more than two-thirds of the $595 million that executives want. Other labor groups have also offered concessions.

At United, the pilots' union and management reached a tentative agreement yesterday on concessions. Both parties declined to give details. The agreement is still subject to ratification by the union's members and approval by United's board and labor committee.

"If approved, it will result in significant cost reductions for United while providing our pilots with additional opportunities for participation in United's future growth," said John W. Creighton Jr., the carrier's chief executive.
But other unions have yet to start serious discussions with United executives over the airline's recovery plan.

"When things are bad, the first place they come to is labor," said Robert Roach Jr., the general vice president for transportation at the International Association of Machinists and Aerospace Workers, which represents 110,000 active airline workers across the country. "But whenever you're in trouble, 9 times out of 10, it's because of mismanagement. We're back in that situation now."

Beyond labor costs, airline managers are re-examining other fundamental aspects of the industry that they now say might be hobbling operations. For example, American Airlines, which popularized the hub-and-spoke system in the 1980's, is looking at whether it should alter its connecting schedules. One idea is to not have so many flights converge and depart at the same time from hub airports like O'Hare International in Chicago and Dallas-Fort Worth International.

"Does it need to be loosened a little bit so that we can achieve reasonable connections and get our costs down so that we provide a product that the customer is willing to pay for?" asked Donald J. Carty, American's chief executive.

At Continental, the fifth-largest carrier, Mr. Bethune said he did not know what more he could do to cut costs without losing the carrier's high levels of worker morale and customer satisfaction.

He has shrunk the fleet from 9 different kinds of aircraft seven years ago to 5. He has invested heavily in regional jets, which are cheaper to buy and operate and make it affordable to feed traffic into Continental's system from smaller airports. The airline has installed self-service check-in kiosks in airports and replaced first-run movies on some flights with older films like "Citizen Kane."

"We did about all we could without compromising the quality of the product and taking the cheese off our pizza," Mr. Bethune said.

But that makes the industry picture even more worrisome, because Continental's recovery remains sluggish. Its revenue per available seat-mile, a standard industry measure, was down 6 to 8 percent last month from a year earlier. It also expects to report a loss this quarter.

A core problem for the industry is that airlines refuse to downsize, with too many carriers flying overlapping routes from the same hubs, experts say. The airlines cut capacity by a fifth after the Sept. 11 attacks and boasted that they would revive along leaner and meaner lines. Instead, they have added back flights until capacity in April was down only 11 percent from the period a year ago, often fighting it out in what Mr. Bethune calls "testosterone wars."

Today, for instance, American Airlines is starting two daily flights between New York and Long Beach, Calif. JetBlue began three flights on the same route last November, added a fourth last week and plans a fifth in October. American said it was strengthening its route structure rather than reacting to JetBlue, but JetBlue executives disagree.

At O'Hare, a knock-down battle between American and United has been unfolding, with the two airlines quickly adding back flights this summer to reach pre-Sept. 11 capacity levels.

"My feeling is there is still too much capacity out there," acknowledged Rono J. Dutta, the president of United. "But when we're adding back, we can't give up market share to others."

Costs are only part of the picture. To regain their health, the airlines need to lure back business travelers, who usually account for about 40 percent of passengers but two-thirds of revenue. During the recent recession, though, businesspeople turned to video-conferencing, trains, cars and discounted plane tickets. Security delays and other post-Sept.11 inconveniences have also kept many away from airports.

Some experts say that the major airlines should look at simpler fare structures like the ones used by Southwest and other no-frills carriers. These airlines usually have only four or five tiers of pricing, as opposed to dozens at the larger carriers, and the walk-up tickets popular with business travelers cost no more than twice advance-purchase fares.

"I think the way things are priced is going to change forever," said James Corridore, the airline analyst at Standard & Poor's. "I think it's more than just a cyclical issue. The cyclical highs are not high enough to offset the cyclical lows. It's not just Sept. 11."

Some carriers are experimenting with advance-purchase fares intended for business travelers, while many have offered deeper discounts to corporate travel departments and small businesses, said Terry Trippler, an airline consultant and fare expert. But the carriers have yet to come up with a fare structure that truly works.

Like virtually all the other problems faced by the airlines, that remains a Gordian knot.

"We need something going for us as an industry," Mr. Bethune said. "We're constantly looking, but it's getting tougher. The tide is pretty heavy."
EWR-COflyer is offline  
Old Jun 15, 02, 10:02 am
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Well, for once Gordo says something that makes sense.

For once, I do not disagree with him re: who is leading the industry.

lol.
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Old Jun 15, 02, 10:10 am
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"Still staggered by the Sept. 11 attacks, the airlines are as close to recovery as a comatose patient on an intravenous drip."

...gets my vote as worst metaphor of the year (so far). But there's still 6+ months to go, Edward.
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Old Jun 15, 02, 2:39 pm
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by RustyC:
"Still staggered by the Sept. 11 attacks, the airlines are as close to recovery as a comatose patient on an intravenous drip."

...gets my vote as worst metaphor of the year (so far). But there's still 6+ months to go, Edward.
</font>
Agreed.....usually a comatose patient is on much more than an IV, and relatively healthy people can be on one as well.


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Old Jun 15, 02, 5:04 pm
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Of course, the executes could look at reducing their bloated salaries for a lot saving a lot of money in these times. Might be true of pilots also!
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Old Jun 15, 02, 6:34 pm
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Airline CEOs well paid despite woes
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Continental CEO Gordon Bethune gave up $279,000 of a $1.1 million salary. Total compensation: $4.2 million, down $1 million. Bonus: $967,000 for the first three quarters vs. $2.1 million in 2000, but he received a $2.3 million LTIP that was up 194% from $782,000 in 2000.</font>
I guess he ain't too stupid, but he did sacrifice that 279 Grand.

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Old Jun 16, 02, 8:01 am
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arturo salve the situashun reel fas. awl aerolin see-e-oh's, el presidente's, an vee-pee's giv up boneusis an pirks an tak stok az thees. sootkase peepl, fixit peepl, pilats, ehhfff-aayys, kleeneng peepl, an awl othr peepl that werk et aerolin giv up tin persent of pey an tak stok fore pey loss. sew, thin evrywon hav steak en aerolin an thay fin wey to mak profet an mak stok goe up. thin whin peepl wan moar dinero, thay jus sel stok fore dinero.

(edioted fore mitey-ducs spileng.

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[This message has been edited by arturo (edited 06-16-2002).]
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Old Jun 16, 02, 9:05 am
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Gordo, you've gone way beyond those cost-cutting measures to which you allude. Cheese? Surely you're joking! Your pizza is hardly a soda cracker anymore. Maybe employee morale is level due to taking BF upgrades and awards away from the passengers and giving them to the employees, but your customer morale is at rock-bottom, yet you continue to dig...

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by EWR-COflyer:
At Continental, the fifth-largest carrier, Mr. Bethune said he did not know what more he could do to cut costs without losing the carrier's high levels of... customer satisfaction.

"We did about all we could without compromising the quality of the product and taking the cheese off our pizza," Mr. Bethune said.
</font>
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Old Jun 16, 02, 12:17 pm
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" A stupid industry led by stupid people". For a second I had to check 'cause I thought I'd wandered back into the Air Canada forum.
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Old Jun 16, 02, 2:06 pm
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If they're so stupid, how come they were smart enough, within only a couple days of the Trade Center crashes, to suddenly develop a scheme, execute it, and thereby turn several billion in corporate welfare from the taxpayers?

And if that wasn't smart enough, they did this with zero commitment to accountability to their taxpaying benefactors.

I think we're the stupid ones.

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Old Jun 16, 02, 2:08 pm
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If they're so stupid, how come they were smart enough, within only a couple days of the Trade Center crashes, to suddenly develop a scheme, execute it, and thereby turn several billion in corporate welfare from the taxpayers?

And if that wasn't smart enough, they did this with zero commitment to accountability to their taxpaying benefactors.

I think we're the stupid ones.

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Old Jun 16, 02, 7:28 pm
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by arturo:
arturo salve the situashun reel fas. awl aerolin see-e-oh's, el presidente's, an vee-pee's giv up boneusis an pirks an tak stok az thees. sootkase peepl, fixit peepl, pilats, fa's, kleeneng peepl, an awl othr peepl that werk et aerolin giv up tin persent of pey an tak stok fore pey loss. sew, thin evrywon hav steak en aerolin an thay fin wey to mak profet an mak stok goe up. thin whin peepl wan moar dinero, thay jus sel stok fore dinero.

</font>

brilliant as usual, arturo. however, you spell check program missed a word... i believe that in arturo-ese "fa's" should have been spelt "ehhfff-aayys". please update you prgrom. thank you.

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Old Jun 16, 02, 7:47 pm
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Probably like most people, I immediately scroll past any posts by Arturo. They could be brilliant, but they are so painful to read that I don't even bother trying anymore. And if there's any humor there, I guess it's my loss as well.
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Old Jun 17, 02, 8:10 am
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Unfortunately, I must agree with sobay_terp

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Old Jun 17, 02, 8:21 am
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I used to blow over Arturo's posts as well, but one day I stopped and actually read a post, and darn it, he makes sense from time to time! (let's just say is batting average is much better that FCTSTY)

In our "instant information" world, the way Arturo writes his posts makes one actually slow down and read it. And personally, I like his sense of humor!

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