The Brancatelli File
IT'S ALL YOUR FAULT
BY JOE BRANCATELLI
August 22, 2002 -- Continental chief executive Gordon Bethune, who has never seen a problem or a quarterly loss so large that he couldn't blame someone else, has a convenient new scapegoat: You.
It's all your fault that Continental is hemorrhaging cash and nearing the abyss of bankruptcy and collapse.
You are not flying enough. You are not paying high enough fares. You aren't forking over enough fees and surcharges. You aren't smart enough to realize that Continental is better than the average airline. You are not doing what Bethune told you to do.
And it is clear from his declaration of war against travelers Tuesday that Bethune is mad as hell and he's not gonna take it anymore. You've pissed him off and he's gonna punish you.
Before we detail Bethune's ludicrous little list, you need to understand why Continental, in specific, is facing ruin.
After a dramatic and unprecedented turnaround in the late 1990s--funded primarily by mortgaging the airline's future and the financial sacrifice of Continental's rank-and-file--Bethune began to fancy himself a genius. Continental, in fact, has rivaled American Airlines for sheer arrogance and Bethune apparently feels he can be just as big a bully as Bob Crandall, American's erstwhile tough-guy-in-chief.
The airline was heading for a fiscal and operational decline long before September 11, but Bethune took no notice. He was too busy giving interviews and telling anyone who'd listen that his competitors were dumber than dirt and that he alone knew the secret of running a successful, high-fare carrier.
Since September 11, Bethune has been exposed. He misread the depth of the current crisis even though highly leveraged Continental might have been the first carrier into bankruptcy after September 11 had Congress not been buffaloed into the $4.5 billion airline bailout last November. He consistently claimed business travelers had no choice but to return to the skies and pay him the rapacious fares he was charging. He's tried to raise fares at least four times since the beginning of the year. He alone among the Big Six chieftains has refused to admit that the current fare structure is a disastrous farce. He even rashly claimed Continental was going to post a profit in the second quarter of this year.
When Continental turned in a staggering $139 million second-quarter loss instead--bringing the carrier's first half losses up to $305 million--Bethune said it wasn't his fault. He would have been profitable had it not been for his stupid competitors, he said.
Now Continental is in serious trouble. It is burning through almost $2 million a day even though it has the lowest labor costs of the Big Six carriers. There is no hope of profit in the foreseeable future and the carrier might lose as much as $750 million this year. Unlike its competitors, Continental has few assets to sell or mortgage to help it weather the next storm. And Continental has lost more than its share of high-yield business travelers, due primarily to its heavy-handed tactics with corporate travel buyers and its infuriating cuts to the OnePass program.
So how is Gordo the genius gonna fix it all? Since it's all your fault, he's gonna nickel-and-dime you. Besides some operational adjustments--a 4 percent decrease in flight schedules, retirement of some jets, and more costs shifted to Continental employees--he's got a menu of junk fees on tap. Here are just some of the highlights of Tuesday's bill of fare:
--An immediate $20 fee for paper tickets;
--Elimination of corporate discounts on some low-fare categories;
--"Rigid enforcement of all fare rules and a new, strict policy against 'waivers and favors,' " the industry jargon for occasionally bending a fare rule for a loyal customer;
--"A disciplined adherence to policies on the collection of excess baggage charges, change fees and other items;"
--And the big kicker: "new and additional fees for services that low-fare customers select." Bethune was too busy Tuesday to tell us what those new fees could be, but perhaps he's thinking of pay toilets in coach.
As with American's rescue plan, which we discussed last week, Bethune's scheme has a problem with the math. By Continental's own admission, these new fees, charges, cutbacks and passenger annoyances will only save the company about $80 million during the rest of this year and just $350 million on an annual basis. Now I didn't go to genius school like Bethune, but I can count. And $750 million minus $350 million still leaves you $400 million short of breakeven. Of course, this doesn't count all the quarters from the pay toilets in coach, so I may be a few bucks off.
And then there's this problem: People aren't flying Continental now. How do you charge "new and additional fees" to people who aren't flying?
I can think of only one way. Bethune will have to go door-to-door and beat the extra dough out of us by claiming he's owed a "excessive staying at home" fee or a "refusing to fly" surcharge.
This column originally appeared at JoeSentMe.com
Copyright © 1993-2007 by Joe Brancatelli. All rights reserved.