From the Houston Chronicle - 11/9/07
Nov. 9, 2007, 11:47PM
New York area is 'critical' to Continental
Revenue from Big Apple flights about to eclipse that of Houston
By BILL HENSEL JR.
Copyright 2007 Houston Chronicle
NEW YORK — Continental Airlines may live in Houston, but its rich uncle is in New York City.
The carrier's international revenue, mostly from flights to or from the New York area, has grown some 20 percent in the past year and now provides about half its passenger revenue, which totaled $13.1 billion last year.
Other airlines have taken notice, a big reason why a Big Apple battle has broken out and promises to get more intense, even as federal regulators move toward limiting flights in the region.
After a decade in which Continental and the Port Authority of New York/New Jersey spent some $2 billion to build up a hub at Newark Liberty International Airport, Continental is the dominant carrier in the financial capital of the United States with 469 daily departures.
The next closest competitor is Delta Air Lines with 333 daily flights, and the list drops off sharply after that.
Atlanta-based Delta in particular has pushed for a larger market share, spending more than $50 million to upgrade facilities at John F. Kennedy Airport. Delta executives say the airline will have spent more than $100 million by next summer.
JetBlue also has expanded of late in its hometown of New York City, where it too flies out of JFK, and has said it wants to expand more.
Just how competitive is the New York market? Consider this sign seen on cabs around New York: "This taxi can't take you to Beijing. Neither can Delta."
That's part of Continental's new ad campaign, which began in September and was designed to emphasize the carrier's international scope compared to other airlines, spokeswoman Julie King said.
Continental isn't really threatened by the growth of the other airlines in the New York area because it has the "very enviable position" of having almost all the flights out of Newark, CreditSights analyst Roger King said.
"That allows them to have almost all domestic flights into Newark, and allows all their international flights to hook up with the domestic feed, which JFK flights don't have," King said. "That hub at Newark is the strongest Atlantic gateway of any airline."
Scheduling reduction
All the recent growth at JFK — some 40 percent more flights over the past 18 months, according to government data — led to considerably more congestion. And that helped prompt the Federal Aviation Administration to call a scheduling reduction meeting.
Scheduling restrictions already were in place until last January, when Congress lifted them. One tool being discussed now to help ease crowding is congestion pricing, which would raise fare prices at the busiest travel times.
Federal officials seeking to avoid a repeat of massive congestion this summer have proposed cutting back flights at JFK next summer, and a decision is expected to be announced within weeks. The agency also is looking at other New York-area airports, meaning next up could be Continental-dominated Newark, which, like JFK, has seen crowding and delays.
New York's close-in airport, LaGuardia, handles primarily domestic flights.
U.S. Transportation Secretary Mary Peters said the government's strong preference is to develop market-based solutions.
"But we will consider scheduling reductions as a last resort in order to prevent a repeat of this summer's nightmare delays," she said in prepared remarks recently.
Her department has suggested an hourly limit of 80 flights at JFK, which amounts to a 30 percent reduction, said Calyon Securities analyst Ray Neidl.
'In a strong position'
It was a decade ago that Houston-based Continental began its push for a major international hub in the New York region and dubbed Newark, 16 miles from midtown Manhattan, its "global gateway." The carrier runs 11 nonstops from Bush Intercontinental Airport to Newark each weekday.
Continental's 10-year buildup in the New York area has been key to its international expansion and overall growth, said Larry Kellner, the carrier's chairman and chief executive.
"Continental is well-positioned for the next several years," Kellner said. "We continue to be in a strong position financially."
One reason for that is the cash engine Continental has built in the New York area, which explains why airlines continue to spend money to gain an edge here, despite the threat of government-imposed flight limits.
Continental President Jeff Smisek said the carrier currently has a quarter of the New York-area market share and offers 43 percent more seats than its nearest competitor.
"We are proud to be the largest carrier in New York/New Jersey," he said.
The carrier's chief financial officer, Jeff Misner, said 138 of its 282 destinations — nearly half — are outside the United States.
But Delta's Glen Hauenstein, executive vice president, argues there's plenty of room for others because JFK — about 12 miles from Manhattan in Queens — is by far the largest international airport in the country.
Hauenstein, a former Continental executive who actually worked on its expansion in Newark, said all the airlines will have to give up something.
"At the end of the day, the government has the authority to do whatever it wants," he said. "The airlines have been very responsive. I was very disappointed the government started out by pointing fingers at the airlines because we could point the finger back at them even more."
The Air Transport Authority and the Port Authority of New York and New Jersey have done just that. The ATA represents most airlines, while the Port Authority runs the airports and depends on their revenue.
"Cutting the number of flights at one airport to levels not seen in almost 40 years and declaring victory isn't a solution," said Anthony Shorris, executive director of the Port Authority, referring to possible changes at JFK.
Continental agrees. Smisek also is sharply critical of the federal government, which he says has failed to keep up with the growth of air travel.
The airlines all have strongly urged the government to fix and modernize the nation's air traffic control system.
That system could come under more pressure. An agreement liberalizing routes between the United States and the European Union promises to increase trans-Atlantic traffic.
A weaker dollar also makes this country cheaper for visitors from across the pond, and New York City's mayor, Michael Bloomberg, has launched a campaign to draw more international tourists.
Continental has modernized its fleet in recent years and continues to do so. It will take delivery of 25 Boeing 787 Dreamliner aircraft in 2009, and many of them will fly out of the New York area.
Fleet issues
"Over the next three years, we will spend more than a couple of billion dollars on fleet issues," Kellner said.
Just how big a deal is the New York-area hub for Continental?
The amount of revenue Continental gets from New York-area flights is about to surpass revenue from its Houston flights, executives say. That's despite the fact that Continental has more than 700 daily flights out of Houston, far more than New York.
New York "is critical, absolutely critical," to Continental, said aviation consultant Mike Boyd.
Continental serves 155 destinations from Newark, including 74 abroad. In 1977, it served 26 international destinations from Newark.
Such expansion around New York has come at the expense of efficiency, with the three New York-area airports rating consistently among the worst in on-time performance.
The airlines need to work harder to reduce congestion, said the Transportation Department's general counsel, D.J. Gribbin.
"The operational improvements that have been proposed (by the airlines) don't appear to be dramatic enough to meet demand," Gribbin said. "So we have to come up with something as how to best meet demand."
But Kevin Mitchell, chairman of the Business Travel Coalition and a member of the committee meeting with the government on congestion matters, suggested regulators are falling short.
"The FAA has not made a compelling case whatsoever about caps or congestion pricing," Mitchell said. "They have brought in a lot of people designed to bolster the FAA's case for congestion pricing, but it is just not compelling."
RESOURCES
NEW YORK FLIGHTS
Number of daily flights out of the New York area*:
• Continental: 469
• Delta: 333
• American: 249
• US Airways: 226
• JetBlue: 200
• United: 65
• Northwest: 44
*Includes JFK, LaGuardia and Newark airports
Source: Continental Airlines
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