Continental CEO Forsees A Lot of Cancellations

By David Koenig
|  Tuesday, Mar 9, 2010  |  Updated 12:16 PM CDT
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Continental CEO Forsees A Lot of Cancellations

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A Continental Airlines Boeing 737-724 jet takes off from Los Angeles International Airport (LAX) on June 5, 2008 n Los Angeles, California.

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Jeff Smisek, CEO of Houston-based Continental Airlines, said the airline will cancel flights rather than risk stiff fines under new federal rules designed to punish carriers for delaying passengers.

Smisek said Tuesday the result will be that passengers will have more trouble getting to their destinations.

A spokesman for the U.S. Transportation Department said airlines can avoid fines by doing a better job of scheduling flights and crews.

Under a Transportation Department rule taking effect next month, airlines can be fined up to $27,500 per passenger if planes are delayed three hours and passengers can't get off.

Smisek said at an investor conference in New York that long delays are rare, and mostly caused by an outdated air traffic control system that the government has failed to upgrade.

Airline industry officials say they should decide whether to wait out delays, even if the delays go past three hours.

Smisek said many passengers on delayed flights "really want to go to LA or Mumbai, but the government by God says, 'We're going to fine you $27,500.' Here's what we're going to do: We're going to cancel the flight."

Because airlines have cut flights, leaving the remaining ones more crowded, passengers will have fewer chances to rebook on another flight. Passengers, he said, won't get to their destinations "for maybe days."

Transportation Department spokesman Bill Mosley said the new rules will help consumers pick airlines that don't have tarmac delays or that routinely cancel their flights.

"Carriers have it within their power to schedule their flights more realistically, to have spare aircraft and crews available to avoid cancellations" and to rebook passengers when there are cancellations, Mosley said.

The new rules grew out of passenger frustration over incidents in which planes were stuck on the tarmac for hours before takeoff. With Congress considering legislation to crack down on delays, the Transportation Department imposed its own 3-hour rule, including fines of up to $27,500 per passenger.

That means that for a fully packed medium-sized plane such as a Boeing 737, fines could top $3.5 million per flight, and go much higher on bigger planes used for international flights.

At the same investor conference, Smisek repeated earlier comments that Continental is beginning to see a return of business travelers.

Continental, the nation's No. 4 airline, is still thinking about growing by combining with another airline. Continental cut-off merger talks with United Airlines a couple years ago, but both are now smaller in comparison to Delta, which acquired Northwest to become the world's largest airline.

"If we think it's in our best interest to bulk up defensively, we'll do so," Smisek said.

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