Oldfreightdawg

Continental's Kellner states case for regulation
By LOREN STEFFY Copyright 2009 Houston Chronicle
March 20, 2009, 10:56PM

Larry Kellner served me a cup of coffee with the aplomb of a veteran flight attendant, and then, a few moments later, served up a stunning
comment about the airline industry. “If the government wanted to re-regulate the business, I wouldn’t be opposed to it,” he said.

While he didn’t mean the wholesale regulation of yesteryear, it’s still a surprise coming from the chief executive of Continental Airlines, the nation’s fourth-largest carrier by traffic. Thirty years ago, airline executives battled fiercely to preserve government control of routes and pricing. Former merican Airlines chairman Bob Crandall, then a rising executive, declared profanely that deregulation would ruin the business.

Fast-forward to today, and Kellner, agrees, at
least up to a point.

“What we’ve got today doesn’t work,” he said in an exclusive meeting with me and several Chronicle colleagues. “It isn’t creating a stable industry.”
about price, and in that sense, it’s been a roaring success. Where it has failed, though, is on the cost side. Most airlines today have a cost structure that’s changed little since deregulation, which impedes consistent profitability.
Airlines’ profit margins are dictated almost solely by fuel and labor costs, which almost never decline in tandem.

New government rules?
Kellner said he prefer new government rules that would remove some of those cost constraints, allowing airlines to make money, employees to earn decent pay and passengers to feel they’re getting a good deal.

Among the biggest rule changes would be revamping the Railway Labor Act, which has governed labor agreements since the dawn of passenger air travel.
The RLA was designed to keep railroads running during labor disputes at a time when trains were the nation’s lifeblood of commerce and travel.

For airlines, it means lengthy contract talks, which often wind up in mediation that leaves both sides unhappy. “The problem is the structure of the RLA creates a very cumbersome process,” Kellner said. “It hasn’t worked well since deregulation. It creates a tremendous amount of angst on both sides.”
Customers’ anger Previous attempts to alter the RLA, though, have failed in Congress, and few lawmakers have shown an interest in revisiting it.

Over the years, airlines have tried to revamp labor agreements with disastrous results —strikes, bitter negotiations, acrimonious relations
between unions and management.

If the current state of the industry doesn’t benefit workers, it also doesn’t benefit investors. Continental’s market share, for example, has fallen to about $1.1 billion from $3.8 billion in 2006, and the airline lost $585 million last year.
Nor are customers happy about the current state of the industry. Passengers angry over flight delays and poor service are pressing Congress to enact minimum standards for the industry.

Equal playing field
I had intended to ask Kellner if he thought the airline industry could ever achieve sustainable profitability, but his comment about regulation made the question moot. The industry, he said, needs new rules, ones that make the playing field equal for all carriers while still allowing competition to thrive.

Kellner may be right, but I was surprised by his candor. It’s the first time in more than two decades of covering airlines that I’ve heard an executive pine for more regulation.

Then again, it’s also the first time I’ve had an airline executive serve me coffee.

Loren Steffy is the Chronicle’s business
columnist. His commentary appears Sundays,
Wednesdays and Fridays. Contact him at loren.
[email protected]
. His blog is at http://blogs.chron.
com/lorensteffy/ .

XHooker

He begins the article talking about deregulation, then shifts to the RLA, which has nothing to do with deregulation.

I've always considered the RLA to be advantageous to management, not labor. When management starts talking about supporting something I consider to be to our advantage, I get very nervous. What's the end game?

Unlike the auto industry, pro sports, or any other industry not covered by the RLA?

Continental's market capitalization has fallen, not it's market share. In general a very shallow and sloppily written article on what is potentially a very important subject to labor, shareholders, and consumers. There is no follow up on what modifications to the RLA Kellner believes are necessary, or how they'll help stabilize the industry.

Blockoutblockin

“What we’ve got today doesn’t work,” he said in an exclusive meeting with me and several Chronicle colleagues. “It isn’t creating a stable industry.”
about price, and in that sense, it’s been a roaring success. Where it has failed, though, is on the cost side. Most airlines today have a cost structure that’s changed little since deregulation, which impedes consistent profitability.
Airlines’ profit margins are dictated almost solely by fuel and labor costs, which almost never decline in tandem.

Labor has been, is, and will always be under attack. Kellner is not interested in whether employees are happy or not - he just wants to bust into the "cost structure" to increase profitability. Oh, and get that big fat bonus check!

XHooker

No doubt, but what's his angle?

Pitts S2B

A few years ago (when my friend was in training) Kellner came to the new hire class to speak. Someone asked if they had any plans on merging. He said they had no plans on merging but had looked into all possibilities. If any other carrier merged it would force them to merge. Granted that was a few years ago, but if that is still true, there aren't many merger candidates.

Maybe he sees re-regulation leveling the playing field and not requiring CAL to merge. ???

cal73

The only problem I have is the Barriers to entry. Now I'm just as much of an American as anybody else and I believe capitalism and free market economies are the way to go. However new airlines come out of the woodwork with beaucoup financing that allows them to operate with bargain basement fares for years while losing money simply to gain market share. Seriously that is the plan of some these carriers. ...TO LOSE MONEY.

I have friends from ACA and back when Independence was starting up they told me that they planned to lose money for 3-5 years. I also have a friend at Virgin America who said almost the exact same thing. Great plan!!! Lose money.


Independence had 11 flights a day between IAD and EWR so guess what CAL did...11 flights a day between IAD and EWR...I dunno what UAL did but I'm guessing not bow out and say "22 flights is probably enough between the hours of 7am to 10pm". But you can't fault em for doing so. CAL and UAL are protecting their nut.

I argue that Upstart business models are nothing more than Predatory. That needs to change.

Sorry guys this is mostly OT but I'm in bad mood today. Haven't had my beer yet.
Just step around me please.

flight0813

I agree Pitts

We are flying people round trip from MSP to ORD for $89.00, US to London for $600.00 ect.. Here is the problem as I see it. Lets say a CEO at X airlines decides to increase the price to break even (or make a profit for god sake); then the exec at Y Airline operating out of the next gate over keeps the price at a loss (stealing business from X) aiming to push X out of the game. It's a viscous cycle of "who can go into dept the longest without going belly up"? What a horrible situation to be in as an employee (the Exects still feel entitled to their pay until the every end). The Exects are stuck in a situation they can't improve or get out of themselves in such an environment.

As I see it there is only one of two ways to level the playing field.
Unless ALPA takes on an all encompassing attack on all airlines at one time to increase pay and in turn increase ticket prices or the government steps in to regulate, the airline industry in general and our appreciation and QOL as pilots will continue in a graveyard spiral.

NuGuy

Heyas,

I agree that the RLA is a horrible way of doing business. Once your contract becomes "amendable", people start getting grouchy. There's no incentive for management to negotiate, and you wind up with years of bad feelings, which translates into years of **** poor customer service.

Under the NLRA, your contract expires, and the train stops. With that deadline, you can bet both sides would be willing to talk. BUT, you have to be careful as to the transition.

What you DON'T want is some rule REQUIRING mandatory, binding arbitration. In this case, you could wind up with pay raises, but the company could get unlimited outsourcing at the same time, which is bad. Arbitrators, as we have seen recently with the latest AMR deal, give out some really wacky rulings, and you don't want to be stuck with that.

Nu

tomgoodman

The RLA, by locking in the current contract until a new one is reached, favors whichever side least wants a change. When workers in the industry as a whole are gaining contract improvements, management likes the foot-dragging ability given them by the RLA. But when unions at other carriers are being forced to make concessions, management gets impatient for their turn with the axe, and dislikes the RLA.

Pitts S2B

...and to take that a step further, enter the entrepreneur who has been watching from the sidelines and wants an airline. He runs a few numbers and figures out that if he can lower the employee cost 40%, he might just make a profit at those ridiculously low fares. So, he writes a business plan, chooses a few under served cities and voila - SKYBUS.....

....and then the real airlines (planning a long term business model), tell their employess, we can't make a profit with the current salaries....

...on and on it goes....

Stopping the predatory startups will help a lot!