Continental Airlines has given up its long resistance to seeking employee concessions in response to rising fuel prices and a competitive marketplace.

Continental's move comes as other carriers have brought their costs down to the Houston-based airline's benchmark levels. Its reversal came almost two years to the day after United Airlines went into bankruptcy reorganisation, using its court protection to accelerate industry-wide cost cutting.

Continental's outgoing chief executive, Gordon Bethune, says the $500 million goal for wage and concession savings could be worse. "While a competitive financial analysis would support our asking for substantially larger reductions, $500 million is the absolute minimum we need to be a survivor," he says. The airline wants to have concession packages covering pay cuts, as well as changes in benefits and work rules, in place by 28 February. Larry Kellner, who replaces Bethune this month, says: "We put off asking for concessions because we are trying hard to find every dollar we can everywhere else in the business."

JP Morgan analyst Jamie Baker says Continental's move came earlier than expected: "We thought Larry Kellner would have spent the first several months of his tenure building new bridges with labour...we were mistaken."

It is the bankruptcy dynamic that is fueling management's drive to lower costs throughout legacy carriers. United's lengthy stay in bankruptcy court has given it the power to return to the concessions table repeatedly and to make credible threats to abandon most employee pensions. Similarly, it is bankruptcy that let US Airways begin the difficult court process of forcing steep pay cuts on its workers without negotiations. This use of raw but legal power has led to the first signs of organised labour revolt at US carriers, with two of the main unions at US Airways and one at United threatening to strike even though the legality of any strike is questionable.

This context makes Continental's approach to seeking concessions all the more remarkable as the airline attempts a delicate manoeuvre in a tense atmosphere. It may have a reservoir of goodwill built up over the past two years in which it avoided cuts, but every US airline employee is keenly aware of the spectre of the bankruptcy courts.

Bethune's willingness to expend his reserves of personal and political capital are important here. As UBS analyst Robert Ashcroft puts it, the quest for cuts "will likely be cast as doing one last thing for Gordon Bethune". Bethune will have left office as "the good cop", leaving Kellner as "the heavy". But Kellner has moved to mitigate this by announcing that he will take a 25% pay cut. Four other top officers will take 20% cuts and all will decline 2004 bonuses.


Source: Airline Business