Continental Airlines this week officially became the 25th member of the Star Alliance after formally ending its participation in SkyTeam last week. Continental established loyalty program reciprocity with Star carriers and will take part in the Star Alliance Conventions Plus program. It also will form codeshare links with Star partners--it quickly announced plans to do so with Asiana and ANA--and begin work on a joint venture with United Airlines, Lufthansa and Air Canada. During a briefing this week, Continental CEO Larry Kellnerfielded questions from media on the alliance transition and other topics. Excerpts follow.
What have you been doing during the past 16 months to make the Star Alliance move?
We had to figure out all the computer systems, so, when [a traveler] left on SkyTeam on Saturday and [is coming back] on Star today, we can provide seamless service. There has been a lot of brand work and work with regard to agreements with all these carriers that were signed over the past couple of days. With 24 other partners in Star, there is a tremendous amount of effort that goes into tying all those pieces together and making sure that we were ready to go this morning, which we were.
Is this joint venture a way to bypass the idea of merging?
It is another business model. What's key is you can't merge foreign carriers even if you wanted to, but the world is becoming much more global. And what you see the world evolving to is three global alliances: Star, SkyTeam and oneworld. That's going to provide a level of seamless service for customers around the world. It's different than a merger, but it's a structure that will be very good for consumers and it could help companies like ours grow. We looked at mergers within the U.S. and decided not to do that at the time, but at the same point we made the alliance decision. There are clearly benefits of the alliance; you get a lot of benefits on the revenue side like you would if you had merged. Alliances have been a way to put global networks together.
What is the process for getting corporate clients with alliance deals out of SkyTeam and into Star?
We have corporate deals with many great customers, and those corporate deals are with us so those deals stay in place. We will work hard to listen to those customers' needs. We need to work with them to find out what's best for them. We can offer our corporate customers today a lot better alternatives than we could a week ago. We have got a lot of new things that we can go talk with our corporate customers about but a lot of work to do. With this new alliance, we have the sales team out working aggressively right now, talking to all our corporate customers about the new opportunities we can provide because we are in Star. It works, and it's available today. For customers that we had in the past because we were part of SkyTeam, we have to make sure that we have a way to service them in Star. Meanwhile, a lot of the Star corporate customers didn't use us because we weren't Star and will now use us.
Let's say business demand doesn't come back to the previous levels in the next one to two years. What is the strategy for your airline and the entire airline industry?
You will see carriers run record load factors because if you think business demand is there you will hold some seats for the business demand. Part of the reason why it costs more when you fly as a business traveler is because you are buying that seat at the last minute. It is expensive to have seats available at the last minute, because sometimes you need them and sometimes you don't. What is often missed is the whole process to make sure that there is availability for the business demand that is there. The less business demand, the more seats you are going to sell in advance, so the higher the load factors you are going to run. As business demand comes back, you would look at pulling down the number of seats that you sell in advance. That's revenue management--how we make sure that we have seats available if a business traveler needs one.
How much does it cost you to make sure that seat stays open?
It is balanced; that is why walk-up fares tend to be higher, to offset that cost. We are driven toward business travelers; that's what the airline is built around. We carry a tremendous amount of leisure travelers, but, again, the result you would see if business travel doesn't come back to the levels it was is higher load factors. Leisure travel has been very strong historically, as long as you price it correctly. The challenge is that if you don't see business traffic come back and leisure travelers only are there at very discounted fares, airlines will have to continue to look at capacity and make sure they are matching their capacity with demand.