Just before Jeff Smisek, president of Continental Airlines, walked in to the Airline Distribution conference, the audience was asked: please turn off your tape recorders or other recording devices. Uh oh. What was this guy afraid of? To the journalist, this is usually a warning sign that the speaker is a little (or, actually, a lot), uncertain about what he'll say or sometimes that he's just a dud, a highly-scripted, dull-tongued figurehead. Not this guy, not Jeff. The number two at the world's number five airline presents a blend of extraordinary candour and optimism that you really want to be there to catch, and is someone to be heard in person rather than second hand. So we'll just offer a few of his more pointed points:
On low-cost long-haul, a topic much in the news with reports that Ryanair may offer obscenely low transatlantic fares, Jeff says, "there already is low-cost across the North Atlantic. It's called coach. It's not our market and will never be our market, though it's possible, I suppose".
Low-cost domestic competition: "over time, airlines grow up, their planes get older and so do their employees. Real airlines have real costs." Continental, he says performed an analysis in which it took JetBlue's wage scales and applied Continental's average seniority, and then took JetBlue's maintenance costs and applied them to Continental's aircraft age, and found that it would have been $750 million to the better. "There will always be new entrants. But low-cost carriers, like children, all grew up."
New airliner models: Continental is an early customer for the Boeing 787 Dreamliner, but is not the first delivery customer. "We never again will be the launch customer for a new airliner model! We learned our lesson on the Embraer 145", of which Continental's then wholly owned regional subsidiary, Continental Express, was the launch customer. "We'll let someone else work through the teething problems," he explained. In March., the airline increased its Dreamliner firm-order commitments to from 20 to 25, including 17 of the -9 longer-range model and eight of the -8 model; the commitment was the second time it increased its 787 order. Dreamliner deliveries are set to begin next year to launch customers such as ANA, but Continental won't take any of the twinjets until 2009.
On open skies: "Finally! We're coming, Heathrow". Jeff is confident that the airline will have Houston-Heathrow flights "before" the summer of 2008, and the airline has already asked the regulators in Washington to grant it blanket open skies authority between the US and the EU. Smisek had no doubts that Continental can obtain slots at Heathrow, but didn't say if it would favour a purchase on the gray market or a deal with one of its SkyTeam partners.
On mergers and consolidation: "we've heard rumours for the 12 years I've been in the business. Airlines merge when they have run out of alternatives. The bankers and the lawyers talk about the synergies that they don't have to make facts. We don't believe in mergers".
Places where Continental should start making some improvements. "We know we have to make some changes. We know we have gaps. For instance, in terms of north-south flows up and down the West Coast, we suck." And: "we could so a much better job of selling rental cars and hotels and we will."
A note on the airline and on Jeff: Continental has always been an airline that has obtainable ambitions rather than the grandly pretentious ambitions and mega-poly-global vision of some airlines, the kind of airline that want to be the best in all things to all people everywhere. Continental since its turnaround under former chairman Gordon Bethune has focusesed on building its strengths while keeping itself free of the kind of internecine strife and in-house anger that has tripped up many a carrier of vast ambitiousness. As Smisek told the several hundred airline and distribution executives in Fort Lauderdale, back when other airlines were demanding really deep concessions from their people, "we went out of our way NOT to screw our employees". (Like Bethune, Smisek is a friend of the vernacular; unlike the legendarily expletive-prone Bethune, his choice of the colourful phrase or word seems driven by context and flows naturally). In other words, Smisek says, "our culture is our magic". Which may sound like something one of those 'no recorder' guys would say until you think of the truly, monumentally bad old days before Bethune, back when Frank Lorenzo ran Continental into the ground, into bankruptcy court and into contention for the titles of 'angriest airline in the world" and 'worst labour relations'. Continental now wins traveller plaudits in large part because its people want to do a good job and the airline makes a point not to over-manage and let them do so.