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Big Airlines' Paths Diverge

Continental Airlines (CAL - Get Report), which is expanding, and AMR's (AMR) American Airlines, which isn't, displayed their contrasting styles at the JP Morgan airline conference Thursday, disagreeing on everything from strategy to pricing to negotiations on the Open Skies agreement.

While Continental forecast 8% growth in 2006, American said domestic shrinkage would cancel out the impact of international expansion. Continental also mocked the Delta Air Lines (DALRQ) simplified pricing plan, which American successfully adopted. And the two carriers clashed over the effects a proposed Open Skies pact would have on access to London's Heathrow airport.

The differences were in evidence despite strong similarities between the two carriers, who are alone among the six major legacy carriers in seeking to restructure outside of bankruptcy court.

Both Continental and American are committed to securing premiums on ticket pricing, and both have won labor-cost reductions through consensual agreements with unions. To this point, Continental has been more successful in terms of improving the margins between revenue per available seat mile and cost per available seat mile.

"We have a laser-like focus on margin," Continental President Jeff Smisek said Thursday.

Continental CFO Jeff Misner said American "has a margin about half of ours at this point." Misner also noted that, on a margin basis, Continental compares favorably with low-cost carriers. He said such carriers, often referred to as "LCCs," ought to be known as "LRCs," for low-RASM carriers.

Smisek said Continental sought $500 million in cost reductions from labor only after reducing other expenses by $1.1 billion annually. "We didn't have to take the company to the brink of bankruptcy," he said.

Meanwhile, Beverly Goulet, American's treasurer and vice president of corporate development, said her company continues to face severe cost challenges. Plus, she said the company must continue to improve labor productivity and efficiency.
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