Up in the Air

How the CEOs of American, Continental, and Southwest Airlines are navigating the uncertainty of the world since 9-11.

"YOU LIKE TACO BELL?" Gordon Bethune, Continental Airlines' chairman and chief executive officer, asks me as he leads the way through bustling Terminal C at Houston's George Bush Intercontinental Airport. Usually CEO lunch interviews are bland, catered affairs with finger sandwiches or something equally boring served in a stiff corporate setting. But Bethune—whom no one would ever accuse of being bland, boring, or stiff—likes his power lunches a bit spicier and more egalitarian. Not to mention cheaper, especially in the cost-cutting frenzy following September 11.

"Are things really that tough in the airline business?" I ask, only half-joking.

"Hell, I can't even afford to buy my lunch anymore," Bethune shoots back with a laugh, his ruddy complexion growing even redder under a fringe of gray hair. As flight attendants and pilots pass the tall man in the dark suit and the pink tie with comical little cows marching across it, they wave and call out, "Hi, Gordon." Bethune stops to chat for a moment—he seems to charm them all—then he bellies up to the Taco Bell counter in the airport's fast-food concourse and orders three crispy beef tacos. Sure enough, Ned Walker, Continental's senior vice president of worldwide and corporate communications, whips out some cash to pay for them.

Bethune is only half-joking himself about needing a handout at lunchtime. After the terrorist attacks dealt a devastating blow to the airline industry and Continental announced that it was laying off more than a fifth of its workforce, he gave up his salary for the fourth quarter of 2001 (he had made a total of $966,000 in 2000) and kissed his bonuses good-bye (which last year totaled over $2 million). He was also the first airline executive to say flatly that the airline business was heading toward bankruptcy after 9-11 and to appeal to the Bush administration for financial assistance—a move for which he was applauded by some and attacked by others. "I've kissed so much ass in Washington that I need to buy Blistex by the barrel," he says.

I sought out Bethune because he's known for saying bluntly and publicly what other airline executives are only thinking. But I was also on a larger quest. I wanted to find out what was going on in an industry that seemed to find itself almost instantly insolvent in the aftermath of the terrorist attacks. Security lines were lengthening, millions of Americans were vowing not to fly, and revenues were in free fall. So I decided to interview the CEOs of the three major airlines based in Texas—Continental's Bethune, Southwest's Jim Parker, and American's Donald J. Carty—and ask each of them three questions: First, when are their airlines going to start making money again? Second, how have their companies changed to cope with a crisis that has already caused them to cut 32,000 jobs? (American and Continental have cut 20,000 and 12,000 respectively; Southwest so far has resisted cutting any jobs.) Third, has the airline business been irreparably harmed? It was a testament to just how chaotic the industry has been lately that it took me a full three months to set up those interviews.

To the first question, the three had different answers. Bethune is the optimist. He predicts that Continental will start showing a profit again as early as March. In December the airline was losing at least $3 million a day. Jim Parker, Southwest's CEO, says he thinks it will be summer before the industry starts to turn a profit. He couldn't promise that Southwest would make money in the fourth quarter; a quarterly loss would be its first since 1991, during the Gulf War. But the consensus among securities analysts, according to Thomson Financial/First Call, is that Southwest will be back in the black in this year's first quarter, albeit with a slim profit of only 5 cents a share. Donald Carty is the most pessimistic, perhaps in part because his airline was hit harder than Continental and Southwest (American, of course, lost two jets in the terrorist attacks, in November lost another airplane in a crash in Queens, and in December had a bomb scare aboard a transatlantic flight). "I'm fairly hopeful that by midyear we'll see some recovery in the economy," he tells me. "But I'm more inclined to think it will take longer to get back to profitability." American's parent, AMR, reported its biggest quarterly loss ever in the third quarter of last year—$414 million. By the end of the year it was bleeding almost $10 million a day.

If the terrorist attacks proved anything, it was how quickly fortunes can turn in the airline business. Just over a year ago, Bethune, Parker, and Carty were all cruising at high altitude. Continental was racking up accolades and profits as one of the best-performing airlines in the business. Parker was piloting the industry's most consistently successful airline along with president Colleen Barrett, who is now the top-ranking woman among the major airlines. And Carty, who had succeeded the abrasive but brilliant strategist Robert Crandall at American, was finally starting to put his mark on the airline with mergers, including the megadeal he spearheaded last year to buy ailing TWA. But because of the events of 9-11, Carty may be best remembered as the guy who steered American through its worst crisis ever.

Whenever the airlines do recover, one thing seems certain. They won't be the same, nor will their CEOs, whose management styles have been placed under a magnifying glass and who have added another role to their job descriptions: chief consoler and hand-holder. Bethune says he now spends more time listening to employees and communicating with them. Every Friday for the past seven years he has recorded a message that employees can hear by dialing a toll-free phone number. In the week after 9-11, he was doing it every day. "People didn't expect us to have all the answers; they just wanted to know we had some direction," Bethune says. "It made them feel better.

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