Continental Gets Served With Recognition For Good Customer Service
Thursday, June 29, 2006SUSIE GHARIB: Continental Airlines has flown off with JD Power and Associates 2006 award for highest customer satisfaction for a network airline. The market research company says Continental excelled in check- in, in-flight service and cost. But airline analysts are wondering whether Continental can turn good service into higher profits. As Washington bureau chief Darren Gersh reports, the carrier`s CEO is confident it can.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Airline analysts will tell you all passengers really care about is price. But Continental CEO Larry Kellner insists the good service for which his carrier was recognized today can make a difference.
LARRY KELLNER, CEO, CONTINENTAL AIRLINES: We know just looking at the historical data back to `95 that we improved our revenue relative to the industry 15, 20 percent over that time frame. And it happened very quickly as soon as we switched to a reliable product with good service. We saw our revenue pop way up as a result of that. Because when people have a choice, they`ll pick the individual with the same price that`s got a little better product. But the issue is, that`s the seat that won`t go empty in our case.
GERSH: Luckily for the airlines, there aren`t many empty seats out there. Domestic airline capacity is down 2 percent this year and ticket prices are up. How long will this relative pricing power last?
KELLNER: I think as long as capacity stays in sync with demand, you will see airlines able to price the product with some effectiveness. And if you see capacity start to grow too fast or you see demand fall off because the economy slows down, both of those could be a problem as you look forward. Right now we see a pretty robust economy offset by pretty high fuel prices.
GERSH: Another way Continental bucks the industry, it`s buying new planes, hiring new employees and planning to expand capacity by more than 5 percent a year. The airline industry has tried really hard over the last couple of years to ground planes, reduce capacity, and shed extra employees. You`re adding capacity. Why?
KELLNER: If you look at the big U.S. carriers, the big hub-and-spoke carriers, we`re fourth in size and we`re substantially smaller than Delta, United or American. And having the breadth of that network and that range is important to us. So we`ve got some room to grow, first and foremost to kind of fill in the gap. Two, right now we see in our hub cities in Houston and at Newark Liberty, we see real opportunities to add additional service internationally as well as to supplement that with some domestic service. We want to be careful not to get too international, but we`ve seen very good growth. We`ve serve 28 cities in 15 countries across the North Atlantic today. Ten years ago, we served four cities and four countries or 11 years ago. It`s amazing to watch. We haven`t had any huge growth. It`s been very focused over the years if you look back over the last 10 years.
GERSH: Analysts believe it is possible for Continental to pick up some business as other carriers cut back.
CHRIS LOZIER, AIRLINE ANALYST, MORNINGSTAR: But it`s still a dangerous move. I mean, this is really what`s gotten a lot of these airlines in trouble in the first place, is that they continue to put planes in the sky in order to get more passengers to pay plane tickets in order to cover their fixed costs and, in some cases, what that`s led to is them flying, frankly, non-profitable routes.
GERSH: And Continental`s costs are still among the highest in the industry. Kellner counters he has cut operating expenses by $1.6 billion over the last five years.
KELLNER: Once you adjust for how long we fly, where we fly, the product mix we have, we are very comfortable with our cost structure versus the other network competitors and don`t plan to go back for additional cost reductions from our co-workers.
GERSH: With a stock price that has doubled over the last year, morale at Continental should be high. The trick will be maintaining that service with a smile through the ups and downs of the bumpy airline business. Darren Gersh NIGHTLY BUSINESS REPORT, Washington.
