Continental a Decade in Australia

In a record turnaround the airline recently reported a net profit of $US32. 1 million in the 1989 second quarter, a $US183m improvement over the same period last year. The result was based on revenues of $US1. 3bn. The profit has given the airline a six month result of $US15. 6m on revenues of $US2. 5bn compared with the 1988 first six month loss of $US231. 5m.

Recent reports from the USA indicate the Texas Air management is considering offers for the sale of the airline. In an answer to a question during a company management conference Texas Air’s Chairman, Mr Frank Lorenzo, said that the company may consider the sale of a minority or controlling portion of the Continental Airlines unit and that it had had discussions with parties who have expressed an interest in Continental.

Lorenzo also said that although there are some arguments in favour of seeing Continental emerge with a new owner such as giving the company access to stronger financial or marketplace resources, there are also a number of compelling reasons why a sale of the company may not be advisable. He said a reason not to sell the airline is because it is now emerging from a period of consolidation over the last two years as a greatly strengthened company and shows real potential for improved financial results. He also pointed out that he and his associates have been involved with the company for over 17 years.

Compared to Australian carriers Continental is enormous. It serves 49 international airports and 84 domestic ports within the USA. It averages 1,358 departures a day throughout its network. An example of a high frequency route served on a daily basis is Newark, which serves New York (in fact you can see the Statue of Liberty from the terminal) to Boston with an average of 21 roundtrips a day. Another busy route is from the airline’s headquarters at Houston, in the south of Texas, to Denver with 13 roundtrips average per day. In the year ended 30 June last its load factor was 59% and it flew 5. 9 billion passenger kilometres with 8. 6 billion available seat kilometres.

At October 1 the airline had a fleet of 329 aircraft including 8 Boeing 747s, 15 DC-10s, 12 Airbus A300s, 94 Boeing 727s, 41 DC-9s, 94 Boeing 737s and 65 MD-80s. It is the third largest airline in the USA. and has more than 35,000 employees including about 4,100 pilots, 6,300 flight attendants, 4,900 maintenance staff, 3,000 staff in reservations and 7,600 airport agents.

An order was recently signed for 30 Boeing 737-300s with the right to convert the contract to 737-400 or 500 models. Options taken at the same time for 30 Boeing 737-300s may also be converted to -400s or -500s. Deliveries will commence in 1992 and be complete in 1995. Option positions follow with completion, in 1997. According to an airline spokesman the financing of the new aircraft will be arranged nearer the date of delivery.

At the same time as the Continental order was made, parent Texas Air ordered 20 Boeing 737-300s and optioned 20 for Eastern Airlines which is also owned by Texas Air and currently involved in a bitter industrial war with its pilots and ground maintenance unions. Continental is also to take over 11 of Eastern’s Airbus A300s and a large holding of the aircraft’s spare parts. Texas Air management is also arranging for Continental to assume the lease of two DC-10-30s and purchase Eastern’s DC-10 spare parts inventory. The effect will be, in addition to assisting Continental assume the mantle of Texas Air’s large intercontinental carrier, to transfer funds into the troubled Eastern Airlines. Delivery of the former Eastern aircraft is to begin late this year. The aircraft movement among the Texas Air fleet follows plans to change Eastern’s character into a smaller ‘economically viable’ airline.

Continental’s history in Australia has been one of steady growth. The first four a week services to Australia in 1979 were increased by October the next year to seven weekly. Twelve months later flights to Melbourne were included in the airline’s timetable as an extension to some of the Sydney terminators. In May 1984 flights were scheduled to San Francisco with an increase in frequencies to 10 weekly. Vancouver was introduced to the South Pacific flights in October 1985 when frequencies into Australia increased to 14 weekly. Twelve months later frequencies increased to 18 weekly and flights to Tahiti were introduced. New York flights were also introduced as part of the South Pacific timetable.

In June 1987 the Boeing 747 was introduced onto the South Pacific network when seven weekly were timetabled. The DC-10 flights were accordingly reduced to seven per week and Fiji was dropped as a port at the same time. The Boeing 747s initially introduced onto the South Pacific were former Qantas aircraft which had originally been sold to People Express on their retirement from the Australian international carrier.

During November 1987 the DC-10 services were increased back to nine weekly as traffic growth continued with Australia’s tourist boom. Vancouver was dropped as a port in August 1988 although the number of weekly services across the Pacific remained the same. The following month tour extra Boeing 747 flights each week were timetabled with the DC-10 flights reduced to five. In October three additional DC-10 flights were put back into the system with Cairns and Brisbane introduced as Continental ports in response to the growing tourist demand for Australia following Crocodile Dundee and a depreciated Australian dollar.

Continental was the first US carrier to service Queensland.

Last April flights to Micronesia were also introduced which saw the introduction of the DC-1Os with the ‘pub’ configuration. These have a bar area for up to 40 people, including seating for ten in a 29 square metre area between the aircraft’s business and economy class areas. The lounge has two fixed bar stools and a three metre L shaped bar, a four seat sofa with a coffee table and a group of four easy chairs with a second coffee table. The airline maintains that the area does not mean a loss of valuable revenue space on the aircraft because the situation of the aircraft’s galleys and toilets made it into a difficult area to use for normal seating anyway.

The flights, from Guam to Brisbane, take about six hours. Three weekly are currently timetabled. These flights are expected to eventually help introduce the many resort areas of Micronesia to the Australian tourist and were introduced with an especially good transport, air travel and accommodation package.

Continental has recently started to emphasise its business class service for flights to the USA with expensive car and hotel offers available overseas. A large and comfortable lounge for first and business class passengers has also recently been opened in Sydney’s international terminal.

In a recent visit to Australia the airline’s Chairman and Chief Executive Officer Mr D Joseph Corr said that the airline has longterm plans to replace its DC-1Os with either the MD-11, Boeing 767-X, or the Airbus A330 or A340. He said a Continental requirement for the new jets was the ability to fly non-stop from Los Angeles to Australia. The airline would like to see its new widebody aircraft introduced in the early 1990s. It intends to first replace its DC-10-1Os and the 7 47-100s with the new generation equipment but plans to fly the 747-200s and DC-10-30s into the second half of the next decade.

The airline is talking with Boeing over a possible order for the new 747-400 which would be ordered, if a decision in their favour is made, in conjunction with the 767-X and indicated the orders for long-range twins and wide body three or four engined aircraft would come, as far as possible, from the same manufacturer so as to obtain the best deal. Mr Corr said that the Continental fleet is not particularly old but did not accept there would be any long delay in the airline obtaining delivery positions for its new widebody fleet as when serious negotiations start with manufacturers and orders are at stake, the delivery positions are not as far ahead as some people believe.

The airline’s current planning shows it is very interested in the proposed MD-11 version which has the improved wing and a stretched fuselage over the variant first on offer. This model will give the range of the standard fuselage model and the capacity and advantages of the stretched version.

The Chairman, who was previously the President of TWA until he joined Continental in December lastyear, said that the Pacific was the airline’s number one strategic objective. It was seeking additional ports from its Guam and Honolulu hubs such as Perth which could be served from Bali or flights into the growing Northern Territory tourist region centred on Darwin which could be served from Guam.

A possible purchaser of an interest in Continental, if the suggested sale of the carrier goes ahead, is the Scandinavian Airlines System, which has formed a close alliance with the US operator over the past year. Although a foreign entity cannot purchase more than 25% of a US airline, it is rumoured in US financial circles that the European carrier is in close talks with several US financial institutes. SAS already holds almost 10% interest in Texas Air.

One of the top management positions in Continental Airlines is held by an Australian, Paul Casey, who is Vice President Pacific Asia and President and Chief Executive of Continental-Air Micronesia. Casey is one of the few Australian born aviation executives to hold a top management job in a foreign international airline. Based in Honolulu he is responsible for the airline’s operations in Australia, Japan, New Zealand, Hawaii, the Philippines, Indonesia, Papua New Guinea and Micronesia. He also looks after a special Pacific sales and marketing division on the US mainland. Casey, who has been with Continental since April 1985 was previously with Pan American for 16 years.

Continental’s Australian General Manager is Mr Col Hughes who joined Continental in June 1985 after 20 years with Cathay and Qantas. With Cathay he was manager for NSW and ACT before which he had a nine year career with Qantas. Col Hughes is apprehensive the local tourist industry is not being promoted sufficiently well overseas and compares the total Federal Government tourism budget for the whole country to the state budgets in other countries. He is also concerned the lack of airport capacity at Sydney will mean the inability to handle future growth which will also adversely affect the number of passengers willing to come to Australia in the future.

Continental expects to handle more than 270,000 passengers leaving Australia this year with the 7,638 weekly seats it has available. These figures can be compared to ten years ago when, in its first year of operation, it handled 15,000 departing passengers with the 1,040 weekly seats available. Additional competition will soon be on the routes across the Pacific but any restriction on future growth is in the hands of the government.