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When Gordon Bethune was named president and chief executive officer of Continental Airlines in 1994, he took over a bankrupt company that consistently ranked last among major U.S. airlines in customer-satisfaction surveys. The Houston-based carrier posted a profit at the end of Bethune's first full year at the helm, and he gained the loyalty of its formerly demoralized employees through innovative profit-sharing and bonus-incentive schemes. A high-school dropout who spent 20 years in the U.S. Navy as a mechanic before entering the airline industry in 1979, Bethune, 63, stepped down as Continental's top executive in December. He spoke last week with NEWSWEEK's Joseph Contreras about the state of the airline industry. Excerpts:
BETHUNE: The barriers to entry have gone down to where you and I could start an airline. The Internet allows you access to the marketplace and instant credibility, so what we've had is a proliferation of new start-ups. At the same time, you had 9/11 and the price of oil, which exacerbated the kind of compression between revenues going down and expenses going up.
The problem isn't about low-cost carriers. Continental was the lowest-cost air carrier in 1983 and 1990 when it went bankrupt. You remember People Express? Really low cost, really s----ty product, and what happened to them? They couldn't deliver reliably good service, and people avoided them like the plague. It's not as simple as getting your costs down. You need that market strategy, you need a product, and a lot of guys can't bring all three of those home.
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You have a rebound in business travel, [but] you're seeing businessmen traveling on discount tickets. They can find a proliferation of very low discount fares up to two or three days before they leave. How can Continental charge you a walk-up fare of $1,200 if you can get a JetBlue ticket the day before for $300?
You learn to live with the fare environment. Listen, boys, it used to be we could get $900, now we're getting $300 and it isn't going to change. Either learn to live with it or die.
Our unbridled competition has been here since 1979. We've seen the growth of new low-cost carriers in Europe [like] Ryanair. You're seeing the start of that in Indonesia and some parts of the Pacific where the government allows those things. At the same time, governments restrict air transportation between countries, so that's not an open market. The international marketplace enjoys some barriers to competition that carriers in the United States don't have.
U.S. carriers on balance do a pretty damn good job in the international arena with what we have as labor law and restrictions. Why do you think Singapore Airlines always has the No. 1 customer-satisfaction rating? Because they have twice as many crew members, they pay them nothing in Singapore and they have nice girls who are younger than 25 because they get fired when they're 26. It's 12 hours to Singapore, so they can give you movies and wine and kiss your a for a long time. If you're just going to Amarillo from Houston, it's not going to be like that.
Emirates takes you over to Dubai and then to anywhere in the world. It's called the one-stop: [Emirates] doesn't fly nonstop, say, between Sydney and London--it does that cheaper [through] Dubai, and some of the London-Sydney traffic will take that. The big boys like British Airways and Air France are getting more competition from the Middle East because these guys have very good product and very good cost structure.
It's depressing to see this needless slaughter. When you look at every other product in the world, you [peg the] price to the price of oil. It hasn't happened in our business; [there are] not enough smart people [or] discipline. I'd probably go into journalism if I had a choice. [ Laughs ] [But] this will pass just like everything else. The dot-com bubble didn't last forever, and the bad times don't last forever. There's always going to be a place for good carriers to make a hell of a lot of money.
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