Cleveland Saved?

I was perusing the forums at Airliners.Net when I came across a topic referencing current pension reform legislation before congress and the fact that if the reform measure is passed, then our Cleveland hub will be saved.

Which begs the question if Cleveland was ever on the corporate chopping block as far as our company is concerned. We've been repeatedly told over the past two years that the company is commited to the future of the Cleveland operation, and that it remains a viable hub in our network.

But the following story onKRIS Tv seems to imply that if pension reform measures aren't passed in congres, then the 4,000 plus Continental employees in cleveland would cease to be employed, at least by us.

Minneapolis-based Northwest Airlines has a hub in Detroit and Atlanta-based Delta Airlines has a hub in Cincinnati. Continental officials say the geographic proximity of the three hubs makes Cleveland vulnerable: It would lose important connecting-flight traffic to the larger Northwest and Delta hubs if those airlines were able to save on pension contributions and then lower their fares.

"Our Cleveland hub is relatively small and is therefore highly susceptible to competitive pressure from other hubs in the region, like Northwest's large Detroit hub," said Continental spokesman David Messing. "That kind of competitive pressure could have become exceedingly threatening if the pension legislation had delivered unequal financial relief to one competitor over another."

It makes me wonder if management is playing it close so that the remaining solvent carriers are on the bankrupty precipice benefit from any airline legistionlation before congress. I've looked around for similar stories and talked briefly with contacts in the company but no luck in finding a backup source.

There are some notable discrepencies in the article though. It states that our pilots have frozen their pension, which from my understanding wasn't the case. It was that our workgroups in our company were part of the same pension plan, and that after the company asked for concessions, the pilots part of pension contributions and benefits was split off into a seperate plan. I'll have to look into that when i'm at work tomorrow.

I know there has been a lot of rumor and fear among the agent groups about the status of the Cleveland hub. While Cleveland has approximately 250 daily departures, the majority of them are regional flights operated by Express Jet. The big question behind that, is if the majority of those flights are operated by Express Jet, how long will it be before the station becomes an Express jet station in it's entirety instead of a Continental station.

Funding The Underfunded

This week the company announced that they contributed $84 million to our defined-benefit pension plans, thereby meeting our minimum requirements for funding under federal law.. While it's welcome news, our pensions are still underfunded. The last I heard our pensions are underfunded by approximately 10% of their current value. Definately better than Delta's and Northwest's position of having to contribute close to $8 billion by next year, unless current legislation in congress is enacted allowing airlines to defer their current contributions over 14 years. I still have a nagging suspision that the latest two entrants into bankruptcy protection will eventually seek to dump their pension obligation on the federal government. If they do, I strongly suspect that both American and Continental will follow into bankruptcy to do the same.

I was talking with a gate agent the other day, and there is still a lot of rancor and bitterness concering the wage concession they were forced to take. There was a lot of talk about how upper management views the field services divison as a "cost center." The agent didn't seem to understand that, with the prevailing idea is that field services doesn't spend money. That the only time field services "cost" money is when agents damage an aircraft. I think their is some misinformation about what a cost center is. That is field services doesn't generate revenue. Field services is considered a cost center because the company has to pay those employees, without those employees generating revenue for the company. I find it ironic, especially when agents collect excess and overweight baggages fees, collect revenue from tickets purchased at the counter, and collect monies from change fees. While it may not equal the revenue generated by reservations, cargo, and continental.com, it is still revenue, not to mention the fees that employees have to pay to travel on stand-by.

The agent also went on to complain how local management does nothing but complain and criticizes agents for doing their job with the constraints placed upon them. The agent's perspective is that downtown yells at the airport director, who inturn yells at the assitant directors, who inturn yells at supervisors, who finally take it out on the agents. I tend to agree as I've seen it happen myself.

We're also looking at increased competition from jetBlue, who plans to add 52 additional flights from it's JFK hub to Boston, MA, Austin, TX, and Richmond, VA. jetBlue is our biggest low cost carrier competition in the new york area. It will be interesting to see how we handle the competition and think of ways to compete, or else if we will fall further into the "the fuel prices are too high & they off fares to cheap" mantra that seems to plague the majors.

One thing we are doing is adding new inflight entertainment on our Boeing 757-200 aircraft. The new IFE will feature audio and video on demand with touchscreen controls. Since the new AVOD equipment is smaller, we will be adding three more coach class seats where the old IFE equipment use to be.

Bethune Cares, Employees Don't

This past week we won tentative approval to provide service from Houston To Buenes Ares. No word yet as when service will begin, but I heard yesterday that it the company is hoping that it will take place before christmas. Fairly quick time to open a new station in my opinion. Of course I learned of us being awarded the route before the company ever made an announcement. For a company that prouds itself on quick and open communication with it's employees, it seems that we're always hearing news of our company's plan long before the company ever mentions it to us. The first time I was ever laid off from this company, I learned about it from my local news station while on my lunch break.

Our company has an internal group called 'We Care.' It's a program that is funded by employee's and former employees, who's goal is to off aide and assistant to Continental employees in times of personal emergencies, tragedy, etc. There usually a number of activites through out the year to help raise monies, i.e., gold tournements, bake sales, burger burns, etc etc, as well as the option for employees to set a certain amount to be deducted from their paycheck each month to donate to the We Care fund. A fairly laudable program at our company. The only reason I'm mentioning it this week, is that our former CEO, Gordon Bethune made a contribution this week to the fund. When he made his donation to the fund, he stated that he still feels a connection to the employees of Continental and wanted to do something to help those affected by hurricanes Katrina & Rita. Now, having just retired less than a year from the company, with a retirement package in excess of $34 million dollars, one can only imagine the generosity of the man who still feels "connected" to his former employees. His contribution? a heartwarming $1,800 dollars. That's right. $1,800 US dollars. Apparently it's the amount Time Magazine paid him for his article he authored that i referenced earlier in the week. Quite impressive.

In other news Oppenheimer Funds now owns approximately 6.8 million shares of Continental stock, or 10% of the company. Joining the other institutional investers...

I was walking through the terminal the other day, and ended up talking with one of the ramp agents. He was not in the best of moods. He was trying to fly up to Denver, and the poorly ran bus system that ferries employees between the airport and the employee parking lot, took half an hour to get him to the terminal. (normally 10 minutes at tops) and he missed his flight. We talked at length about attitude among the employees, and he said most of the men and women in the T/ops work group just don't care anymore. I can see why they have that attitude. They don't see our company doing anything to return us back to profitability besides asking for pay cuts... or forcing pay cuts, since the ramp and gate agents aren't unionized. He said that most people do the bare minimum if that for their job, that there is no reason to go out of their way to do more, to make sure that bag gets on the right plane, to make sure that plane goes out on time, etc etc. He says the local mgmt team, supervisors, asst. directors, the directors are only looking out for themselves, don't back up their employees and only look for reasons to do a write up, or fire employees, that supervisors notice when the best employees make a mistake, but say nothing to the slackers, like having the mentality that "oh well that's the way they've always been and nothing will change with the slackers" mentality.

Part of that is having a seniority based system of reward. It's allows an employee to be rewarded for length of service regardless if it was years of bad service. There is no incentive for employees to perform better. Just show up to work ontime, and go home. About all that you need to get raises, vacation time, and all the other benefits of working for this company.

Outsourced Diversions

Over the past year there have been numerous stories about outsourcing jobs in all industries, not just the airline industry. Though it has been a fairly comman practice among every airline to outsource some of their positions. Usually it's ramp services that airlines contract out. Those people who park the aircraft, load/unload freight, mail, and baggage. The ones who make sure the plane is connected to power and conditioned air while at the gate. In most outstations, it's not economical for airlines to keep a full time ground crew, when they may only operate 2 or 4 flights to that city on any given day.

There are plenty of companies that offer such services, Menzies, being the main one worldwide. Though airlines have been known to contract with other airlines to provide ground service. Airlines also contract out actual flying. Here in Houston we contract out our express flights Express Jet and to Colgan Air. Express Jet use to be a wholely owned subsiderary of Continental till it was spun off approximately a year ago. They provide most of our regional feeder service at all three of our hubs. Colgan Air provides feeder service to select small markets in Texas. Markets that Continental would be profitable if they were operated by Express Jet.

The thing is though, most of the ramp crew members I've talked to in Houston think it's a huge comical joke. Those flights are contracted out to Colgan Air. The ground handling, since it technically isn't a Continental flight, is handled by Delta Ground Services. There is another contractor who cleans the aircraft, and still one more who caters the flight. The Colgan Air flights are operated as a pad operation; meaning they don't have jetways to pull up to, but a spot they park at and passgeners are bussed from the plane to the terminal. That means, why yes, another contractor to do the bussing.

And while I think outsourcing can be nice on the financial side for a company, one should really pause to think about the consequences of what may or may not happen. A few months back, we had a Colgan Air flight leave full of passengers, but the ramp crew did not load a single bag on board. Apparently most of the planes passengers were transiting through customs, and they cleared customs sooner than their bags did. The ramp crew seemed to have their collective head up their ass thinking "wow, i make 6 bucks an hour, i can buy a 40 ounce beer and a pack of smokes," instead of questioning that they had no bags to load on this flight.

The one thing though, is that with as quickly as companies are outsourcing their labor, it's give fear to the actual company employees that are left. The other day i was walking through the terminal just listening into various employees talk, and one guy pointed out, that with the way things are going, every position will be contracted out. Ramp & gate agents to Wal-Mart rejects, reservation centers to india, and the pilots and flight attendants will become independant "contractors," and the A&P mechanics will be replaced by a grease monkey from your local Pick-A-Park. That an airline, will just be a name, some uppermanagement officals and that's it. Scarey thought.

In other news, the The New York Post ran an article critizing Continental for stranding passengers in Gander, Newfoundland, Canada. In the article they critize the airline for diverting flight 55 that was enroute from Newark, New Jersey to Paris, France due to an engine problem. The NY Post is usually considered one of the best papers for tabloid reporting and this article is no different. They interview one person who is quite irate for the stop at Gander, and the paper reports that the hundreds of other passengers that were stranded at Gander had experienced the flight from hell.

A couple clarifications. On that particular flight, Continental operates a Boeing 767-200 aircraft. The seating configuration for that particular aircraft does not even hold 200 people, so I'm wondering what flight these 'hundred of other passengers' came off. As far as it being the flight from hell, I can understand people being upset about not making it to their destination on time. The flight was delayed out of Newark for four hours due to maintenance, and then diverted due to an oil pressure light that came on during flight. I don't know about anyone else, but if i'm flying, and some warning light comes in regard so the engine, I want those pilots to get that aircraft on the ground as quickly and safely as possible. If I'm not mistaken there was a flight that crashed into the Atlantic Ocean mainly due to the pilots ignoring a low oil pressure light. Now that would have been a 'flight from hell' for me. We also just didn't strand them there. We offered to put them up in a hotel, give them compensation. It's not like the captain came across the p.a. and announced "ok folks, we're cruising over Gander Newfoundland, the flight attendants are coming through with parachutes and this is where everone gets off."

The article also doesn't interview anyone else on the flight. Only the one irate passenger. There isn't much more Continental could have done. We normally don't store spare aircraft in Gander, nor do we have an infinite amount of aircraft near any given airport we serve that could have been flown in as a replacement. I particularly got a chuckle that in the Post's report that the put "engine trouble" in quotes, as if the pilots made that up so they could make a stop in Gander to visit friends. They also have a picture of an aircraft in the story... the byline being "a boeing 767-200, just like the one pictured below" but, the picture below is of a boeing 757.

I think if anything, the aritcles shows the mindset of people who actually fly, then on how airlines actually function. The post never sent a reporter to Gander to investigate. The one passenger who they interviewed, called the Post herself to make her complaint. Though I doubt many people will realize it, and just chalk it up to big bad rich airline screws the little person again.

Stocks & Rants

With the close of the markets this past friday, it's marks the end of the third quarter. Continental's (CAL) closed at $9.66 a share. This means our employee stock purchase plan this quarter will not allow us to buy shares. At last years annual shareholder meeting, they approved a new stock purchase plane for employees, that has a condition that we can't buy shares through it, if the price of the stock is below $10 on the opening or closing business day of the quarter. That means sometime this business week, the company will refund those monies that employees who are enrolled in the plan, contributed through out the quarter. We can still buy shares if we have a regular brokerage account with any brokerage firm.

While surfing around I found a blog titled Detrick On The Rocks written by a captian who flies international routes for Northwest Airlines. In this entry he lambasts upper management at Northwest. While his overall attitude regarding upper management strikes a resonating chord with me, I imagine that many people in the flying public are sympathetic to management. The general trend I've noticed on most aviation forums seems to entail the attitude "hey, a job at lower pay is better than no job."

I really don't understand that attitude. Maybe it's people who have never worked in the airline industry, or maybe people who hold entry level jobs at some Dollar General store, who would love an oppurtunity to hire on with an airline at half the wages that airlines pay now and far fewer benefits. Which the way things are going in this industry they might have that oppurtunity before long.

I think the general flying public, those people who may fly once every couple years, have the idea in their head, that to pilot an aircraft, to run a succesful operation, is as easy as catching their local mass transit bus. It's not. Pilots, maintenance & ramp workers all have duties that ensure each aircraft makes it to it's final destination. Maintenance workers make sure that aircraft is in safe working order. Ramp agents load those bags and freight in the cargo bins to carefuly prepared load reports, so that aircraft is balanced while in flight. I remember a story a few years ago of a cargo flight, where the ramp agents didn't load it correctly, and the freight shifted in the cargo bins which caused the center of gravity for the aircraft to shift. The aircraft ended up crashing and killing everyone on board. And the pilots...while much of actually the actual flying is automatic these days, anyone who recently watched the jetBlue debacle in Los Angeles the other week, knows that you need skilled pilots who can handle such a situation to get that plane safely on the ground.

It's definately not the same as driving a bus for Greyhound or your local transit system. I'm thinking one day we're going to have to have such a serious airliner incident where the FAA can trace it's route cause to lousy pilots or mechanics or ramp workers, who hired on for Wal-Mart wages before the public realizes that the cheapest thing out there, isnt' exactly the best thing.

Cancelling Flights

In our daily newsletter yesterday, 30 September 2005, the company announced it is considering cancelling flights in select markets due to high fuel prices and the fact that the company hasn't been able to achieve wage reductions from all work groups, mainly the flight attendants. I find it difficult to believe that the still to be enacted wage reduction for that one workgroup is making the difference in us being profitable or not, since the company was only looking for approx. $78 million in concessions from them, far less than every other work group.

With jet fuel almost reaching $125 per barrel this week, CO is considering temporarily suspending some flights in select markets. The extremely high cost of fuel, together with the fact that CO has not been able to achieve its targeted wage and benefit reductions, means that the revenue from some flights doesn't even cover the cash costs of operating those flights.

The company went on to say that high fuel costs and the flight attendants not reaching an aggreement on concessions have combined to render revenue from certain flights to not cover the cash operating expenses.

Both American Airlines and Delta Airlines announced flight cancellations. American announced that they are cancelling 15 round trip flights out of it's Chicago and Dallas-Ft. Worth hubs and will re-evaluate at the end of the month their decision. Delta announced that they are 'proactively' cancelling 'some' flights in order to conserve fuel.


Now at the same time, we are having a system wide employee appreciation day, with free ice cream and free t-shirts for all the employees. Supposedly this appreciation day is being underwritten by General Electric since they are designing and building the GEnx engines that will power Continental's Boeing 787 aircraft.

While I'm sure the front line employees will eat up the ice cream and t-shirts, i would tend to think that it doesn't make up for the pay reductions and financial uncertainty that our company is careening towards at an ever-increasing speed.

Gordon's Solution.

I was surfing aroud today and came across an article in Time written by Gordon Bethune, our former and elustrious chairmen of the board. The article is his take on the mess the airline industry is in, and the cure to fix it. Gordon lays the main part of the industry's problems at the government's feet. His solution is for the government and manufacturers (GE Capital) to stop bailing out weaker airlines, and letting the market decide who will survive and who will fail. And that reform in government laws would allow airlines to merge and offer better competition. Gordon also believes the airline industry is saddled with too many taxes, at current count airlines pay 14 seperate taxes to various governmental entities. Usually quite often, taxes the airlines can't pass on to consumers due to increased competition from low cost carriers. Gordon also wants the government to stop the 'pork' spending in bills and pour that money into our nations aviation infrastructure, i.e. upgraded ATC system, upgraded airports.

It's an interesting article. Gordon is known for "telling it like it is" instead of sugar coating his words. People either love him or hate him. I have mixed feelings for him, he came to Continental from Boeing when Continental was under dire financial hardship and many thought the airline would fail or be bought out, instead he turned it around to one of the most admired airlines in the United States. But, he left Continental in almost the same situation. While we're losing money, we're not losing as much as the rest of the industry. We are fully leveraged though, with approximately 21-22 billion dollars in debt. I'm sure our on corporate board is eying Delta & Northwest and the benefits that bankruptcy offers. The ability to discard labor contracts, the oppurtunity to dump an underfunded pension on the government and the possibility of returning our most unprofitable aircraft ( the boeing 737-500) to lessors.

So while I agree with his assement that the government needs some serious reform in it's laws and taxation of passenger airlines in the states, I don't think it's the full solution. It seems to me that these corporate boards of all the legacy carriers; United, Delta, American, Northwest, Continental, need to sit down and re-evaluate the whole business model. It seems that they are still hoping for a return of the business traveller, of lower oil prices, as the main means to profitability. I don't see this happening. Personally, I think we should all accept this reality, and work towards and develop a business model that accounts for this basic shift in flight travel and fare pricing that has occured in this industry, along with less government intervention (taxation, regulation, etc)

Though Gordon is right in one aspect, the airline industry is the most heavily regulated un-regulated industry.

Fares Raised, Airports Razed

With record high prices for Jet A, the comany had decided to raise fares. $10 on one way tickets, and $20 on round trip tickets, for domestic flights in the continental 48 states, including Alaska and Hawaii. It remains to be seen if the rest of the industry matches the fare increases so that they will stick. I imagine Northwest will finally match a fare increase, since they are in bankruptcy as of now. Traditionally Northwest Airlines is the spoiler in the airline industry and does not match fare increases. Things may change with their bankruptcy.

We've also announced new service to Copenhagen Denmark begining in May 2006. While I love te expansion into new marketes and European cities. I still wonder if we're basing to much of our expectation on international markets. While international routes tend to be profitable. It just seems like we're abandoning the domestic market to low cost carriers. Quite often in international markets, the airline industry is nationalized and ran by the government. And people tend to partake in nationalistic pride and fly their national carriers.

If you listen to Larry Kellner, and the rest of the board, they continue to blame on fuel prices and a weak domestic fare enviroment, that we're taxed so highly... which is all true, but i'm tired of hearing what we can't do. We can't just complain and hope the price of fuel comes down, or that the government will lower/repeal taxes on the airline industry. I don't see it happening anytime soon.

I would rather see and talk about what we can do. Hedging out fuel supply would greatly help, though would be extrememly difficult for us to do now. Due to the economics of hedging. Hedging requires good credit, and right now our company's debt rating is at Junk status, along with the rest of the industry, with the exception of Southwest. Technically the only reason Southwest is profitable at the moment is that they have their fuel supply hedged over the next three years. It's the main reason they can continue to off low fares and set pricing for the entire domestic side of the industry. So how do we compete with that?

That's the big question, start hedging our fuel supply definately. Until the playing field is level we will continue to see distorted pricing by the low cost carriers vs. the legacy carriers. Maybe pressure the government into providing 'loan guarentees' so that the airlines can hedge their fuel supply? I don't know. There is only so much money the airlines can take from labor, before employees start leaving in massive droves, only to be replaces at low wage earners, a la Wal-Mart.

We still have no concrete update on the status of the Lake Charles & Beaumont airports. As it stands right now we've cancelled service to Lake Charles untill 8 October, and to Beaumont untill 16 October. Both airports suffered major damage due to hurricane Rita. Colgan Air our partner airline that operates our Continental Connection service out of Houston is working with those two airports along with Continental to determine the extent of damages, assist in repairs, and return service to both. The company says that conditions at both airports are very fluid and that dates of when service will start back up is subject to change at any time. Hopefully soon, are key feeder markets for the Houston operations.