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Continental sees growth
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July 21, 1998: 3:34 p.m. ET
Airline exec says industry cycle, drop in oil will help keep prices down
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NEW YORK (CNNfn) - Continental Airlines has provided a bit of a lift to a sector under some pressure on Wall Street in recent weeks. The Houston-based carrier delivered earnings up 27 percent as it shifted a lot of its capacity out of Asia. Continental reported earnings of $2.11 a share, which was a dime better than expected.
Gregory Brenneman, the carrier's president and chief operating officer, joined "Business Day" on Tuesday morning. He appeared on the show to look at the future growth of Continental (CAL), the new European Union rules at Heathrow, and his company's proposed alliance with Northwest Airlines.
Here's a partial transcript.
JOHN DEFTERIOS, CNNfn ANCHOR: First things first. In terms of getting future growth, not just for Continental, the word on the street right now is that they were into the cycle because economic growth is starting to dip off here in the second half. How do you counteract that?
GREG BRENNEMAN, PRESIDENT & COO, CONTINENTAL AIRLINES: Well, I think if you look at it, people have been saying that for about the last three years. And if you look at airline cycles, they've been much dictated by capacity additions than they have by demand -- economic demand -- turning up and down.
And if you look at the capacity coming into the marketplace, there isn't very much, and almost all the capacity coming in is to replace old airplanes. So we feel pretty good about where the industry is in the cycle, and we think good times will continue for quite some time.
DEBORAH MARCHINI, CNN ANCHOR: The industry has gotten quite a boost, though, from the drop in oil prices. Presumably, that's not going to continue.
BRENNEMAN: Well, you never know. If I could predict the oil prices, I'd probably be in a different line of work. But so far this year, oil has been low, and that's been very good for us.
We hope to see that trend continue. One of the things that hasn't happened this year is you haven't seen a lot of price increases. And typically, at least some of the increase in oil prices gets passed through with price increases to the customer.
So I think it's been good for the customer. The oil prices have been low. It's kept fares very much in check.
MARCHINI: Continental recently signed a contract with its pilot's union, and labor costs are going to be going up. What do you plan to do to offset that?
BRENNEMAN: Well, you've seen in the last quarter -- actually, in the last three quarters -- the increases in labor costs that we've been facing. We've been accruing for it, and it's in our results for the last nine months. The bottom line is, our employees need to be paid a fair wage, an industry-standard wage, and we're in the process of doing that.
Fortunately for us, our revenue and some of our other expenses have been more than offsetting the increase in labor costs. And our labor productivity remains at the top of the industry. So our total rates remain good.
DEFTERIOS: A couple of other issues on the table here is opening up London. Are you satisfied with the European Union requirements to loosen up Heathrow and Gatwick with the slots that American Airlines and BA have to give up?
BRENNEMAN: Well, we're not satisfied. We think that they didn't go far enough, and certainly there should be more slots, and gates given up.
But I think they are where they are, and with our alliance with Virgin Atlantic, we'll be able to offer competitive service to American and British Airways, if we're allocated enough slots into Heathrow.
But I think the commission came up a little short of where they should be. It certainly is a big force when you take American and British Airways between the U.S. and London and combine them. But we'll do our best to compete with that.
DEFTERIOS: Bring us up to date on the Northwest alliance. It seems to be stalling in Washington. Are you frustrated by it?
BRENNEMAN: Yes, absolutely, we're frustrated. It seems like whenever anything gets to Washington, it takes an awfully long time. We were predicting -- knowing exactly where we were in the Department of Justice -- some time this month. I'm not sure if that's going to happen or not.
I've given up predicting on when we might see something come out of Washington. We've supplied several semi-trailer loads worth of information. And if you take a look at Continental and Northwest, and combine them domestically, in terms of their size, we're only as big as American, Delta and United are today.
So essentially it takes the Big Three and turns it into the Big Four. So we're confident we'll prevail. It's just taking a long time. 
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