Continental Shows Airlines How to Be a Phoenix -- Not a Dodo

Are the big, full-service airlines dodo birds, doomed to extinction?

That question suddenly becomes very real with the expected bankruptcy filing of UAL Corp., the parent company of United Airlines.

The nation’s No. 2 carrier was denied a government loan guarantee last week after the federal Air Transportation Stabilization Board found that United’s hopes for profitable operation, even when good times return, were unrealistic.

Meanwhile, the future remains clouded for most of the other big airlines -- including AMR Corp.’s American Airlines, Delta Air Lines and Northwest Airlines -- that fly passengers nonstop over long distances, serve meals and run so-called hub-and-spoke operations to ferry travelers from small cities to big ones through large, expensive airport terminals.

All of those airlines are posting losses this year and are ceding business to the discount carriers -- Southwest Airlines, JetBlue Airways and others -- that have lower costs because they don’t bother with complex hub-and-spoke systems or offer meals beyond an obligatory bag of peanuts.

So, is it inevitable that the big airlines will dwindle just as many of the once-mighty department store chains have done in the face of competition from discounters such as Wal-Mart?

Don’t bet on it.

The big airlines can have a prosperous future if they reform labor relations, flight schedules and other operations. And there’s a good chance that they’ll take those difficult steps just as one of their brethren, Continental Airlines, already has done.

Certainly, following Continental’s path won’t be easy for many of its rivals.

“The major airlines must reform rigid work rules that prevent productivity -- the kind of rules that say if a lightbulb falls on the floor only an electrician can pick it up,” notes Michael E. Levine, a Yale law professor and former airline executive.

In many cases, the big airlines’ expenses are simply out of control. United’s costs are more than 50% higher than those of Southwest. American’s are 48% higher.

Such differentials allow Southwest and other no-frills airlines to offer cheap fares, and travelers are responding. Discount airlines now account for 20% to 25% of all air travel in the U.S.

But Continental has shown that it is possible for a big airline -- in its case serving 244 cities worldwide with 2,500 flights a day -- to be competitive with the discount carriers. Its costs are only about 17% higher than Southwest’s, a tolerable figure given Continental’s breadth of service.

Continental began its journey to reform in 1994, when Gordon Bethune became chief executive and started cutting expenses where he could. For example, he shifted the responsibility for tugging aircraft away from the gate to truck drivers instead of relying on more highly paid mechanics to perform that task.

The onetime Boeing executive also has reformed Continental’s fleet with new aircraft that are more economical to operate.

Good times in the ‘90s helped. Bethune shrewdly catered to business customers, increasing Continental’s revenue and profit. The airline recently built a new terminal at Newark, N.J., with a special rail connection to New York City for busi-

ness travelers.

He also has played tough when called for. Bethune once threatened to sue American Airlines for trying to impose industrywide size limits for carry-on baggage. His attitude: If businesspeople want to take their baggage onboard, Continental should do everything it can to serve their needs.

Yet by far the most important reforms that Bethune has implemented are on the labor front.

When he arrived at the airline, Continental’s employee-management relations were very bitter -- similar to those now plaguing United.

The airline had been built by Frank Lorenzo, who merged then-Los Angeles-based Continental into his Texas Air and added People Express, Eastern Airlines, Frontier Airlines and others. Lorenzo, an investment banker, put the company through a bankruptcy proceeding in the 1980s that gave him the opportunity to change work rules and slash wages.

Simply put, he wanted to get rid of the unions.

Bethune changed all that, showing that he valued his employees. For instance, he took to handing out cash bonuses for on-time flight performance and cheered on workers demonstrating initiative, like the flight attendant who offered business travelers free drinks to compensate for a shortage of meals on a flight.

What Bethune understands is that employee relations are especially important in a service business such as air travel, where ticket agents, flight attendants and others are in daily contact with often-stressed customers who are dashing for flights or simply afraid of flying.

As Bethune once quipped: “Who wants to be locked up at 35,000 feet” with angry employees?

To be sure, Continental is losing money this year, as are all the big airlines. But with its restructuring largely behind it, Continental is poised to take off once the slump in the travel sector ends, as surely it will.

And though a painful industry shakeup is clearly on the way, the big airlines are bound to follow a similar flight plan. Continental has shown them the way.

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James Flanigan can be reached at jim.flanigan@latimes.com.