Continental Sees Itself Acting Differently Than Its Peers

Continental Airlines President Jeff Smisek was particularly candid in an address he gave at the Bear Stearns Global Transportation Conference last week in New York.

In addition to some colorful insights on the industry, Smisek offered his own frank observations about the airline's competitors. The criticisms, some of which were not-so-thinly disguised references of specific industry players, offer a window into the highly competitive business of flying the friendly skies.

On competitors who have wrested concessions from employees through bankruptcy: "Our network competitors have frankly screwed their employees by defaulting on their pension plans and taking away wage and benefits in a very hostile manner."

By contrast, Smisek said, Continental sought $500 million in wage and benefit reduction only after going through its system and slashing $1.2 billion in non-employee costs. Continental also retained its pension plans, he said.

On widespread efforts to move planes from domestic to international service, where yields are higher: "Continental was international before international was cool."

Continental has built its international system gradually over the past decade, Smisek said. For instance, it spent $1 billion to upgrade facilities at Newark Liberty International Airport in New Jersey. From Newark, Continental now offers transatlantic service to 28 cities in 15 countries, up from five cities in four countries 11 years ago.

On competitors' aging fleets: "Our competitors have got a lot of gas-sucking pigs for aircraft."

Continental, Smisek said, has gradually upgraded its fleet. It now costs Continental 24% less to produce a seat mile than it did in 1998, thanks to a more efficient fleet, he said, noting: "That's a permanent fuel hedge."

On reducing in-flight amenities to save money: "We did not follow our competitors in a race to the bottom to achieve a crappy product. ... We did not take off pillows, we did not take off blankets, we did not take off meals at mealtime and we will not charge fifteen bucks for an aisle seat."

On the 36 channels of free TV programming offered by JetBlue Airways (JBLU:Nasdaq): "They are a low-cost carrier, they are also an extremely low-RASM carrier, and their customers don't pay them a penny to watch those I Love Lucy reruns. ... It is a wasted investment in my mind."

Smisek said Continental will offer advanced video-on-demand options in some flights, particularly when it starts taking delivery of new-model Boeing 787s in 2009. But the company believes that in the future, airlines will offer in-flight Internet services that will allow passengers to control their own entertainment options.

On efforts by Delta Air Lines (DALRQ:OTC BB) to rapidly boost its transatlantic capacity: "Our successful international expansion is being copied by a lot of people, including at least one bankrupt airline in Atlanta. They've already gone through their stockholders money; now they are using their creditors' money. They are throwing a lot of capacity into the market. I predict they will lose their shirts on it."

Smisek added that when Continental adds routes, it is subject to "adult supervision."



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