Kellner's comments at the Merrill Lynch Conference
Jun 19, 2006, 10:29 am
#1
FlyerTalk Evangelist
Original Poster
Join Date: Apr 2006
Location: Los Angeles, California
Programs: United, American, Delta, Hyatt, Hilton, Hertz, Marriott
Posts: 14,792
Kellner's comments at the Merrill Lynch Conference
Continental gave a presentation at the Merrill Lynch Global Transportation Conference last week. You can find a PDF of the slides used here. The link to the audio is broken, but you can find that audio here. You need to scroll down to Continental.
Here's an overview of what I heard. None of the statements below should be attributed directly to an employee of Continental Airlines. If you want to get the verbatim quote, you'll have to listen to the presentation!
Highlights
CO is hiring aggressively, which invigorates the culture. The company doesn't have public labor issues.
B777 will get the new AVOD next, once the B757 fleet is complete.
In a comment on domestic growth, Larry Kellner said that Continental had to grow more than planned due to competitive reasons. I am curious as to what happened there and what those reasons were!
Larry Kellner commented that the airline will “spend a dollar to get a dollar ten.”
The company is expanding internationally but is watching that the domestic feed is in balance.
He showed a nice set of slides that highlighted the international, year-by-year expansion from both EWR and IAH.
Employees receive stock incentives; everyone is focused on the stock price.
Jeff Misner took over and talked about the excellent RASM the company has. The company also has great operating margins--Continental doesn't only focus on RASM/CASM but on the bottom line.
The airline shows great growth in a low cost distribution system (co.com), but will continue to support travel agents for high yielding tickets (business travelers)
He concluded a lengthy discussion with a comment on XJT; CO has 274 RJ’s; Misner claims that CO doesn’t need them all. He said that CO will have a substantial savings by turning the jets over to XJT. Per the agreement, XJT will run the jets outside of CO’s hubs.
Now have a simple, straightforward fleet. Down to essential three equipment types for scheduling purposes
CO has planned for a fleet of 461 aircraft by 2011. However, the company has the ability to remain flat too if the market so requires
With regard to finances, the company is working on ’07 maturities; the cash position is strong and continues to improve
Summary
They went back to Larry for the summary.
The company is very well position.
Management wants to get to a position of sustained profitability.
The company has a strong culture.
They will continue to work the hub facilities; they require no new major investments.
The carrier will continue to focus on cost savings; they won’t take things away of value.
Questions
CO has done well over the last decade because of the management team. The company reported in the past that it will buy aircraft when it has a 10% operating margin. The company has is not profitable yet, but has gone out to buy 787 and 737NG’s. What’s the company's thinking on this topic? The company is growing fast; what if airlines follow?
Kellner commented that you get a different view of the world when oil is $20 versus $70; the B787 is a game changer. Continental is a huge operator of 737 NG, but has about 100 classic planes (the 300’s). As the company matures, the company can replace 300’s with 800’s or 900ER’s. It’s a way to maintain the equipment advantage. CO was right ordering the B787 and CO believes it’s a game changer.
Could you speak to how you’re billing the 69 express jets? Can you go to the unions and fly 90 seaters?
We operate 274 RJ’s, or soon will when the final acquisitions arrive. We won’t replace all 69 jets. We are looking at Q400’s, RJ's and other aircraft. To the 70 seat prop issue, we can operate those under our current scope clause; we’ll explore 90 seater’s. He commented that the RJ is best suited for the 2 or maybe 3 hour range. Kellner doesn’t believe that the passengers have the capacity to fly further than 2 or 3 hours in those planes. CO will replace RJ’s with wider-bodied aircraft on various routes. For example, they will probably replace RJ’s on IAH/PHX with mainline aircraft. The RJ's have done exactly what CO needed them to do. With regard to losing the 69 RJ’s, CO doesn’t feel pressure; they have a lot of availability in the fleet as is.
A question was asked on the fleet expansion plan and the financing for this activitiy.
A comment was made that the 737-300’s that expire on the timeframe on the slide; there’s no extra burden, they don't have to retire these aircraft early. If they’re retired, they will do so without penalty. For financing, they will continue go through the process of looking at the markets and get the best deal.
Congratulations on the early debt pay down. Can you do more?
Not realistic to make a huge change in the debt ratio; we will focus on debt maturities and on keeping a good cash balance. Need to be selective on paying debt.
The final question had something to do about "open skies."
In answer to a garbled question, Kellner stated that foreign ownership is clearly tied to “open skies.” How much comfort does rule making give people; it could be changed down the road. One administration could have a set of rules that another overturns. Kellner reported that he is not opposed to true open skies. It’s all about LHR, if you don’t have LHR, you don’t have open skies. He commented that the current policy is all about getting treaties in place rather than substantive change. If implemented as is, it would favor stronger airlines. BA has said that they would use LHR to increase foreign expansion very aggressively accessing airports in the US that they currently can’t get access to.
Here's an overview of what I heard. None of the statements below should be attributed directly to an employee of Continental Airlines. If you want to get the verbatim quote, you'll have to listen to the presentation!
Highlights
CO is hiring aggressively, which invigorates the culture. The company doesn't have public labor issues.
B777 will get the new AVOD next, once the B757 fleet is complete.
In a comment on domestic growth, Larry Kellner said that Continental had to grow more than planned due to competitive reasons. I am curious as to what happened there and what those reasons were!
Larry Kellner commented that the airline will “spend a dollar to get a dollar ten.”
The company is expanding internationally but is watching that the domestic feed is in balance.
He showed a nice set of slides that highlighted the international, year-by-year expansion from both EWR and IAH.
Employees receive stock incentives; everyone is focused on the stock price.
Jeff Misner took over and talked about the excellent RASM the company has. The company also has great operating margins--Continental doesn't only focus on RASM/CASM but on the bottom line.
The airline shows great growth in a low cost distribution system (co.com), but will continue to support travel agents for high yielding tickets (business travelers)
He concluded a lengthy discussion with a comment on XJT; CO has 274 RJ’s; Misner claims that CO doesn’t need them all. He said that CO will have a substantial savings by turning the jets over to XJT. Per the agreement, XJT will run the jets outside of CO’s hubs.
Now have a simple, straightforward fleet. Down to essential three equipment types for scheduling purposes
CO has planned for a fleet of 461 aircraft by 2011. However, the company has the ability to remain flat too if the market so requires
With regard to finances, the company is working on ’07 maturities; the cash position is strong and continues to improve
Summary
They went back to Larry for the summary.
The company is very well position.
Management wants to get to a position of sustained profitability.
The company has a strong culture.
They will continue to work the hub facilities; they require no new major investments.
The carrier will continue to focus on cost savings; they won’t take things away of value.
Questions
CO has done well over the last decade because of the management team. The company reported in the past that it will buy aircraft when it has a 10% operating margin. The company has is not profitable yet, but has gone out to buy 787 and 737NG’s. What’s the company's thinking on this topic? The company is growing fast; what if airlines follow?
Kellner commented that you get a different view of the world when oil is $20 versus $70; the B787 is a game changer. Continental is a huge operator of 737 NG, but has about 100 classic planes (the 300’s). As the company matures, the company can replace 300’s with 800’s or 900ER’s. It’s a way to maintain the equipment advantage. CO was right ordering the B787 and CO believes it’s a game changer.
Could you speak to how you’re billing the 69 express jets? Can you go to the unions and fly 90 seaters?
We operate 274 RJ’s, or soon will when the final acquisitions arrive. We won’t replace all 69 jets. We are looking at Q400’s, RJ's and other aircraft. To the 70 seat prop issue, we can operate those under our current scope clause; we’ll explore 90 seater’s. He commented that the RJ is best suited for the 2 or maybe 3 hour range. Kellner doesn’t believe that the passengers have the capacity to fly further than 2 or 3 hours in those planes. CO will replace RJ’s with wider-bodied aircraft on various routes. For example, they will probably replace RJ’s on IAH/PHX with mainline aircraft. The RJ's have done exactly what CO needed them to do. With regard to losing the 69 RJ’s, CO doesn’t feel pressure; they have a lot of availability in the fleet as is.
A question was asked on the fleet expansion plan and the financing for this activitiy.
A comment was made that the 737-300’s that expire on the timeframe on the slide; there’s no extra burden, they don't have to retire these aircraft early. If they’re retired, they will do so without penalty. For financing, they will continue go through the process of looking at the markets and get the best deal.
Congratulations on the early debt pay down. Can you do more?
Not realistic to make a huge change in the debt ratio; we will focus on debt maturities and on keeping a good cash balance. Need to be selective on paying debt.
The final question had something to do about "open skies."
In answer to a garbled question, Kellner stated that foreign ownership is clearly tied to “open skies.” How much comfort does rule making give people; it could be changed down the road. One administration could have a set of rules that another overturns. Kellner reported that he is not opposed to true open skies. It’s all about LHR, if you don’t have LHR, you don’t have open skies. He commented that the current policy is all about getting treaties in place rather than substantive change. If implemented as is, it would favor stronger airlines. BA has said that they would use LHR to increase foreign expansion very aggressively accessing airports in the US that they currently can’t get access to.
Jun 19, 2006, 11:36 am
#2
Join Date: Feb 2005
Location: PEK
Programs: Alas, the Gravy Train Hath Ended...just happy to be an OW Sapphire and a ST Ivory...whatever
Posts: 4,389
Thanks for the link ot the slides...I especially like the marketing logos at the bottom of each slide, and the CO-787 graphic is now my new desktop wallpaper!
Jun 19, 2006, 11:39 am
#3
Join Date: Oct 2004
Location: Clinging to the edifices of a decadent past from the biggest city in America nobody really cares about.
Programs: (ಠ_ಠ)
Posts: 9,077
Thanks for the link.
Just out of curiosity, slide 8 on the PDF is a black box. Is this just my computer or did the slide not "PDF-erize" correctly?
Slide 34 is interesting (IMHO), shows the break down of airline capacity by market region. Also note how CO compares to DL: TATL capacity is roughly the same but CO has an edge on Latin America and the TAPC; DL has the edge on domestic travel.
Another interesting one is #50, the Non-GAAP to GAAP reconciliation... but you may have to be a bean counter to appreciate it.
Just out of curiosity, slide 8 on the PDF is a black box. Is this just my computer or did the slide not "PDF-erize" correctly?
Slide 34 is interesting (IMHO), shows the break down of airline capacity by market region. Also note how CO compares to DL: TATL capacity is roughly the same but CO has an edge on Latin America and the TAPC; DL has the edge on domestic travel.
Another interesting one is #50, the Non-GAAP to GAAP reconciliation... but you may have to be a bean counter to appreciate it.
Jun 19, 2006, 12:24 pm
#4
Join Date: Oct 2003
Location: DCA
Programs: UA LT 1K, AA EXP, Bonvoy LT Titan, Avis PC, Hilton Gold
Posts: 9,658
No new information, but it is clear that CO plans a GO alone course for the foreseeable future even if NW and DL merge.
Jun 19, 2006, 12:45 pm
#5
FlyerTalk Evangelist
Join Date: Feb 2006
Location: A festering pit; a pustule of a fistula set athwart the miasmic swamps of the armpit of the Gulf of Mexico - a Godforsaken wart upon a dark crevasse of the World. (IAH)
Programs: UA Lifetime Gold, BA Silver, Marriott Lifetime Plat, Hilton Gold, Accor Gold
Posts: 31,403
Excellent to see the Q400's are up at the top of the list for potential regional a/c
Jun 19, 2006, 12:56 pm
#6
A FlyerTalk Posting Legend
Join Date: Sep 2002
Location: LAX/TPE
Programs: United 1K, JAL Sapphire, SPG Lifetime Platinum, National Executive Elite, Hertz PC, Avis PC
Posts: 42,165
When you flew with them, you were thinking of us...
Darnit, how do they know these things?? This is sooo true. If CO would make it easier for me to fly them 100% of the time, I would. I certainly won't miss the NW FA throwing a sack of soy nuts in my lap, or the experience flying a 737 on USAir that makes one feel like they sat in a petri dish.
As for the info....
1) I would like to see CO grow their Trans Pacific offerings more aggressively, especially when the 787s start showing up - OR, if they get their hands on some 777s from another carrier. The 21st century will belong to that region, and CO should be primed to direct growth there.
2) The concept of spending a dollar to earn a dollar ten is refreshing to hear, since most of CAL's competitors seem to be in the mood to lose a dollar to save 90 cents.
Darnit, how do they know these things?? This is sooo true. If CO would make it easier for me to fly them 100% of the time, I would. I certainly won't miss the NW FA throwing a sack of soy nuts in my lap, or the experience flying a 737 on USAir that makes one feel like they sat in a petri dish.
As for the info....
1) I would like to see CO grow their Trans Pacific offerings more aggressively, especially when the 787s start showing up - OR, if they get their hands on some 777s from another carrier. The 21st century will belong to that region, and CO should be primed to direct growth there.
2) The concept of spending a dollar to earn a dollar ten is refreshing to hear, since most of CAL's competitors seem to be in the mood to lose a dollar to save 90 cents.
Jun 19, 2006, 1:33 pm
#7
Join Date: Feb 2005
Location: PEK
Programs: Alas, the Gravy Train Hath Ended...just happy to be an OW Sapphire and a ST Ivory...whatever
Posts: 4,389
I just looked at the Bombardier Q400 page, and I cannot believe some of the promises that they are making about fuel efficiency, noise reduction, and space.
http://www.q400.com/q400/en/home.jsp
Perhaps I've been warped by Colgan Air's SAABs!
http://www.q400.com/q400/en/home.jsp
Perhaps I've been warped by Colgan Air's SAABs!
Jun 19, 2006, 2:21 pm
#8
FlyerTalk Evangelist
Join Date: Feb 2006
Location: A festering pit; a pustule of a fistula set athwart the miasmic swamps of the armpit of the Gulf of Mexico - a Godforsaken wart upon a dark crevasse of the World. (IAH)
Programs: UA Lifetime Gold, BA Silver, Marriott Lifetime Plat, Hilton Gold, Accor Gold
Posts: 31,403
Not just promises...but promises delivered on. I've flown on quite a few Q4's, and they are fantastic. Would make an excellent ERJ replacement on short stage-lengths. Who knows, perhaps even a tiny F cabin (one can dream).
Jun 19, 2006, 2:28 pm
#9
Join Date: Mar 2005
Location: MSY
Programs: AA Plat Pro, UA Plat, VS Silver, Marriott Titanium, Hyatt Explorist
Posts: 2,531
It's true, the Q400 is an amazing little aircraft. If they're scope claused to 70 seats, that means we'd get a 33" pitch!
Now let's hope they buy them, and not the ATRs..
Now let's hope they buy them, and not the ATRs..
Jun 19, 2006, 3:03 pm
#10
FlyerTalk Evangelist
Original Poster
Join Date: Apr 2006
Location: Los Angeles, California
Programs: United, American, Delta, Hyatt, Hilton, Hertz, Marriott
Posts: 14,792
Originally Posted by J.Edward
Thanks for the link.
Just out of curiosity, slide 8 on the PDF is a black box. Is this just my computer or did the slide not "PDF-erize" correctly?
Slide 34 is interesting (IMHO), shows the break down of airline capacity by market region. Also note how CO compares to DL: TATL capacity is roughly the same but CO has an edge on Latin America and the TAPC; DL has the edge on domestic travel.
Another interesting one is #50, the Non-GAAP to GAAP reconciliation... but you may have to be a bean counter to appreciate it.
Just out of curiosity, slide 8 on the PDF is a black box. Is this just my computer or did the slide not "PDF-erize" correctly?
Slide 34 is interesting (IMHO), shows the break down of airline capacity by market region. Also note how CO compares to DL: TATL capacity is roughly the same but CO has an edge on Latin America and the TAPC; DL has the edge on domestic travel.
Another interesting one is #50, the Non-GAAP to GAAP reconciliation... but you may have to be a bean counter to appreciate it.
I like slide 34 a lot too. Things look good compared to the crowd. Of course, I wonder how they came up with that slide. The 'story' is that this entire plan was hatched in 1995; however, I bet the truth is that someone did an analysis and this presentation looks best!
They didn't dwell on slide 50 at all--no comment--they just wooshed through them, the Larry took over with the wrap up.
Jun 19, 2006, 3:05 pm
#11
FlyerTalk Evangelist
Original Poster
Join Date: Apr 2006
Location: Los Angeles, California
Programs: United, American, Delta, Hyatt, Hilton, Hertz, Marriott
Posts: 14,792
Originally Posted by cova
No new information, but it is clear that CO plans a GO alone course for the foreseeable future even if NW and DL merge.
Jun 19, 2006, 3:09 pm
#12
FlyerTalk Evangelist
Original Poster
Join Date: Apr 2006
Location: Los Angeles, California
Programs: United, American, Delta, Hyatt, Hilton, Hertz, Marriott
Posts: 14,792
Originally Posted by theblakefish
I just looked at the Bombardier Q400 page, and I cannot believe some of the promises that they are making about fuel efficiency, noise reduction, and space.
http://www.q400.com/q400/en/home.jsp
Perhaps I've been warped by Colgan Air's SAABs!
http://www.q400.com/q400/en/home.jsp
Perhaps I've been warped by Colgan Air's SAABs!
Thanks for that link. I now know why people are excited about the Q400; I have flown on that plane with flyBE. I was surprised how quiet the trip was. It did feel as if I were flying on a wider-body plane. I wouldn't mind seeing them added to the CO fleet.
Jun 19, 2006, 3:26 pm
#13
FlyerTalk Evangelist
Join Date: Nov 2003
Location: HKG
Programs: Priority Club Plat
Posts: 12,311
Originally Posted by J.Edward
Slide 34 is interesting (IMHO), shows the break down of airline capacity by market region. Also note how CO compares to DL: TATL capacity is roughly the same but CO has an edge on Latin America and the TAPC; DL has the edge on domestic travel.
A few other things I picked up.
1. The Q400 is a scope-buster. Since CO can't have the E170/190 (unless they use mainline pilots), that's the next best thing. I'm pretty sure flying a 70-seat prop is a lot more efficient than a 50-seat RJ in short to medium haul routes.
2. I'm surprised to actually hear a CO exec says that it's not fun riding a RJ for over 3 hours.
3. On slide 46, the minimum capacity scenario is pretty interesting. It consists of deposing owned 733, not the leased ones. And 762 came up again - they really do not like this aircraft, at least with current fuel cost!
Last edited by rkkwan; Jun 19, 2006 at 5:42 pm
Jun 19, 2006, 5:32 pm
#14
Join Date: Dec 2002
Location: Texas
Posts: 640
Originally Posted by rkkwan
I'm surprised to actually hear a CO exec says that it's not fun riding a RJ for over 3 hours.
Jun 19, 2006, 6:10 pm
#15
FlyerTalk Evangelist
Original Poster
Join Date: Apr 2006
Location: Los Angeles, California
Programs: United, American, Delta, Hyatt, Hilton, Hertz, Marriott
Posts: 14,792
Originally Posted by Miggles
I'm surprised that he said 2-3 hours is where RJ's are best suited. It's kind of obvious he has never ridden one for such a length of time.