SKLJ
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- Aug 26, 2003
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Dec. 16, 2006, 7:04PM
Advice for Continental: Take the solo flight plan
By LOREN STEFFY
Copyright 2006 Houston Chronicle
Don't do it, Larry.
Don't listen to the investment bankers whispering in your ear. Don't believe all the intra-industry babble about how it makes sense. Don't heed your fellow executives in desperate need of an exit strategy.
Continental Airlines doesn't need United nearly as much as United needs Continental.
The details of your negotiations are mostly speculation at this point, but the pitfalls are legion.
Continental is among the best run of the so-called legacy carriers, and it has one of the strongest balance sheets. United, on the other hand, is a siren, beckoning you toward the rocks of potential financial ruin.
It looks enticing. Its balance sheet, freshly scrubbed from three years in bankruptcy court, is attractive. It's reported three straight profitable quarters. It has a spiffy new paint job for its planes. It has an impressive global route network, especially in Asia, that would mesh well with Continental's strength in Latin America.
But who knows what dark secrets are hidden by the lingering glow of Chapter 11 refinancing? United, after all, spent the past decade mired in tenacious labor issues that included infighting among its unions after the employees bought the airline. Those employees saw their pensions gutted in bankruptcy and made concessions in salary and benefits.
They, no doubt, will be expecting some reward for their sacrifice.
Glenn Tilton, United's chief executive, was brought in to clean up the mess. He's an oil guy with a yen for mergers, having orchestrated the union of Chevron and Texaco. It took him only a few months to put United into bankruptcy.
I'm sure that if such a deal were to go through, Continental's management would take charge of the combined airline. You've got the stronger management team, and Tilton seems to be looking for a way out.
US Airways touched off this latest merger fervor by making a hostile bid for Delta Air Lines. It's already been rebuffed by Delta's management and protested by Delta's unions.
But it's triggered a deep fear that has guided airline thinking since deregulation, a fear that the remaining airlines may be left out. They won't be as big. They won't have the market share.
As you know, Larry, Continental learned this lesson the hard way. Since its second bankruptcy, it's worked hard to avoid that mentality. Your employees made sacrifices in that bankruptcy. They made a commitment to fix what was broken, and in many ways they have. They deserve better than to be saddled with United's problems now.
Your passengers deserve better, too. When the sheen comes off the United deal and the inevitable cost cutting kicks in, we'll all take it in the knees. We always do.
If we look hard enough, we can probably come up with some reasons why a Continental-United bonding "makes sense," as the analysts like to say. But most of the reasons they cite are rationalizations that have little to do with Continental itself.
Instead, they're based on the idea, as Tilton himself has said, that capacity in the industry has to be reduced. There are too many empty seats, and that's one of the things that keeps fares depressed. Mergers will sop up some of that capacity, but at what cost to Continetnal?
Mergers won't, of course, stop the greater threat, the onslaught of low-fare carriers into key markets.
Continental and the others that were around before deregulation are called legacy carriers. It's worth remembering what that legacy is: inefficiency, high fares, fewer passengers and, perhaps most importantly, repeated failure.
Legacy carriers cling to the inefficiencies of the past, cycle themselves through bankruptcy when those inefficiencies become insurmountable, then take away customer service in the name of fleeting profitability.
Only two, American and Continental, have avoided bankruptcy in the past decade. American is the only legacy carrier that's never gone bankrupt, although it came within minutes of it a few years ago.
Mergers are often described as a dance, but in the airline industry, they're more like dodge ball. Success comes to the last carriers standing.
The promise of deregulation was driving the legacy of inefficiency from the business. Continental has come further than most in embracing that promise, of standing on its own.
Don't turn back now, Larry. Your employees and your passengers deserve better.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at [email protected]. His blog is at http://blogs.chron.com/lorensteffy/.
Advice for Continental: Take the solo flight plan
By LOREN STEFFY
Copyright 2006 Houston Chronicle
Don't do it, Larry.
Don't listen to the investment bankers whispering in your ear. Don't believe all the intra-industry babble about how it makes sense. Don't heed your fellow executives in desperate need of an exit strategy.
Continental Airlines doesn't need United nearly as much as United needs Continental.
The details of your negotiations are mostly speculation at this point, but the pitfalls are legion.
Continental is among the best run of the so-called legacy carriers, and it has one of the strongest balance sheets. United, on the other hand, is a siren, beckoning you toward the rocks of potential financial ruin.
It looks enticing. Its balance sheet, freshly scrubbed from three years in bankruptcy court, is attractive. It's reported three straight profitable quarters. It has a spiffy new paint job for its planes. It has an impressive global route network, especially in Asia, that would mesh well with Continental's strength in Latin America.
But who knows what dark secrets are hidden by the lingering glow of Chapter 11 refinancing? United, after all, spent the past decade mired in tenacious labor issues that included infighting among its unions after the employees bought the airline. Those employees saw their pensions gutted in bankruptcy and made concessions in salary and benefits.
They, no doubt, will be expecting some reward for their sacrifice.
Glenn Tilton, United's chief executive, was brought in to clean up the mess. He's an oil guy with a yen for mergers, having orchestrated the union of Chevron and Texaco. It took him only a few months to put United into bankruptcy.
I'm sure that if such a deal were to go through, Continental's management would take charge of the combined airline. You've got the stronger management team, and Tilton seems to be looking for a way out.
US Airways touched off this latest merger fervor by making a hostile bid for Delta Air Lines. It's already been rebuffed by Delta's management and protested by Delta's unions.
But it's triggered a deep fear that has guided airline thinking since deregulation, a fear that the remaining airlines may be left out. They won't be as big. They won't have the market share.
As you know, Larry, Continental learned this lesson the hard way. Since its second bankruptcy, it's worked hard to avoid that mentality. Your employees made sacrifices in that bankruptcy. They made a commitment to fix what was broken, and in many ways they have. They deserve better than to be saddled with United's problems now.
Your passengers deserve better, too. When the sheen comes off the United deal and the inevitable cost cutting kicks in, we'll all take it in the knees. We always do.
If we look hard enough, we can probably come up with some reasons why a Continental-United bonding "makes sense," as the analysts like to say. But most of the reasons they cite are rationalizations that have little to do with Continental itself.
Instead, they're based on the idea, as Tilton himself has said, that capacity in the industry has to be reduced. There are too many empty seats, and that's one of the things that keeps fares depressed. Mergers will sop up some of that capacity, but at what cost to Continetnal?
Mergers won't, of course, stop the greater threat, the onslaught of low-fare carriers into key markets.
Continental and the others that were around before deregulation are called legacy carriers. It's worth remembering what that legacy is: inefficiency, high fares, fewer passengers and, perhaps most importantly, repeated failure.
Legacy carriers cling to the inefficiencies of the past, cycle themselves through bankruptcy when those inefficiencies become insurmountable, then take away customer service in the name of fleeting profitability.
Only two, American and Continental, have avoided bankruptcy in the past decade. American is the only legacy carrier that's never gone bankrupt, although it came within minutes of it a few years ago.
Mergers are often described as a dance, but in the airline industry, they're more like dodge ball. Success comes to the last carriers standing.
The promise of deregulation was driving the legacy of inefficiency from the business. Continental has come further than most in embracing that promise, of standing on its own.
Don't turn back now, Larry. Your employees and your passengers deserve better.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at [email protected]. His blog is at http://blogs.chron.com/lorensteffy/.
