THE INTERVIEW: GORDON BETHUNE! (PART 2 OF 2)

"This is the part where we're supposed to act like good buddies"!

With Gordon Bethune, Chairman of the Board,

Aloha Airline Holdings & Aloha Airlines!

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[ In our conclusion, Gordon covers a wide area of subject matter that I selected as Editor of my Blog for it's appeal. While the concluding edit appears long visually, it is actually a fairly quick read as I adjusted the pagination for the Blog. Again, I'll remind the squeemish, that this contains Adult Language--which I found amusing. Gordon is candid, and with that let's get back to a fun and memorable visit!]

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BETHUNE: You asked an earlier question about how other airlines are getting off-track. I think sometimes they measure the wrong stuff. I noticed that the big Airbus airplane was here in the United States—the A380. And I asked myself. I said, ‘Okay, who do you think decided that bigger was better?’ Some engineer or some government official who wanted to crow about how their airplane was bigger than your airplane. But they didn’t ask people who buy tickets. Because you say, as a person who buys tickets ‘What is in it for you to wait in line with 600 people to get on board? What is in it for you to get off with 600 people on board? What’s in it for you to wait for your bag with 600 other people?’ If you’re flying internationally, will you have to wait in Customs and Immigration with 600 other people? And will you wait in a taxi line with 600 other people? So, how does that help you? The answer is, it doesn’t! That’s not what you would consider to be “better”. “Better” is defined by you, not some engineer, not some state politician. So, they measured the wrong thing and guess what? They got the wrong stuff. The airplane won’t sell in this country at all. None. You know why? It doesn’t fit our markets.

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MANNING: No, it doesn't. I quite agree.

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BETHUNE: A lot of people don’t want it. (Leaning into the microphone) You take one airplane in the afternoon, and load that son of a bitch up from New York to L.A. once a day. I’ll take five small airplanes and I’ll kill ya with 8 O’clock, and 10 O’clock and 12 O’clock and 2 O’clock and 3 O’clock and 10 O’clock and BANG! ---take the market right away from those people! If those people want to go when they want to go and they want to go nonstop, and don’t want to go to London to catch a plane to Mumbai, they want to go from Mumbai nonstop. Well, how do you get that kind of plane in markets the size of Chicago or San Francisco? It doesn’t fit. Not enough people want to do it. So, they measure the wrong stuff. You take a look at American (Airlines) wanting to be the biggest airline in the world. They buy TWA to do it, right? Remember TWA? (Trans World Airlines--a Class act in 2001). How did that work out for them?

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MANNING: Not too good. It was a waste. (Note: American reacted to the potential merger of United and US Airways by forcing TWA to agree to enter Chapter 11 a third time, then layed off all but 500 pilots, cancelled the new Boeing 717 aircraft and kept MD-80's and a St.Louis hub where they closed Concorse D. They cherry-picked and essentially let the TWA employees go, quite shamefully. The United and US Airways merger was denied by the Department of Justice and American took home its "prize". TWA was a Class operation at the end. Now TWA is, sadly, a mere memory with a ton of dormant routes that will likely never be flown throughout the globe. This deal made American "The biggest airline in the world".)

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BETHUNE: Nobody gives a shit whether you’re the biggest airline in the world or not. You either make money or you don’t. I mean, you never saw Herb Kelleher (Chairman of Southwest Airlines) worrying about being the biggest airline in the world did you?

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MANNING: No, no.

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BETHUNE: How’s he doing’? Pretty good, right?

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MANNING: Pretty good!

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BETHUNE: So, flying to all 50 states—that was United’s big claim. I think they went to North Dakota just so they could say all 50 states. How is that good for you? I think when we put in a flight from Newark to Hong Kong; they put in a flight from JFK (New York) to Hong Kong so it could be longer than our flight –58 more miles or something. But they didn’t have the 777, they had to use the 747 and they could only carry like 60 people on it because of payload restrictions on the route where we had an unrestricted payload because we had the right equipment on the proper routing. So, wanting to be the longest flight? How does that work out? How did measuring success like that work out for you? I noticed they went bankrupt! Maybe because of too much of that type of thinking like more states and longer flights—bigger. So, when you start measuring the wrong stuff, you get the wrong results. And I think that most failures, I mean the mediocrity you see is people measuring the wrong stuff. I got a bigger airplane that you got! Oh. That’s good, that’s really smart. I fly more flights than you can fly. Well that you can really muster. Remember America West when they bought 747’s?

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MANNING: Yeah, two of them.

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BETHUNE: Two of them killed them!

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MANNING: Yup.

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BETHUNE: You know, what the hell did they do that for? Gotta have a bigger airplane. You see, just ask Herb Kelleher. Did he think it’s important for Southwest to have 747’s like that? I don’t think it ever crossed his mind. It comes down to what he measures. (Note: Kelleher, who like Bethune is quite a sharp 'maverick' is stepping down in 2008 as Chairman of Southwest Airlines--the industry's most profitable airline for 35 consecutive years. Herb stated years ago that Southwest will fly one type of airplane--the 737 and only the 737, because it suites the mission Southwest flies so well).

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MANNING: Last year, Bob Crandall (ex-Chief of American Airlines) stated that bankrupt carriers who cut fares below cost while they’re in Chapter 11 harm the healthier carriers and they ought to be shut down.

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BETHUNE: Bob would be right if that were true. And what I saw---and I really respect and admire Bob Crandall by the way---in the United, Northwest and Delta bankruptcies is that the Creditor’s Committee put a lot of pressure on the testosterone management to knock that behavior off. And they wanted to see profitability restored. In other words, you put a lot of pressure on people to get a business that works—not fix yourself here and there. And so, you saw a huge reduction in the available seat miles from United, from Delta and from Northwest. Cincinnati (a Delta hub) got pulled back; I mean things that are just way over capacity and doing things for all the wrong reasons. Fifty states, flying the longest flights—they gotta stop that shit. Creditors Committees made them do that not the management! The discipline of a court process—I mean you’ve got to start showing them some results here or I’m going to remove you and put in a Trustee like they did over at Eastern (with my late friend, the brilliant Marty Shugrue).

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MANNING: Absolutely.

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BETHUNE: So, I haven’t seen too much of that. I did see them lowering their costs pretty dramatically through re-negotiations of airplane leases, re-negotiations of labor rates so they could make a profit at a lower fare. And that put pressures on the guys that have higher costs. But that’s the name of the game. I’ve often thought, had I the opportunity that Southwest had where they were smart enough to buy fuel hedges---and I give them credit for the way they did it—that I would have taken the benefit of that and priced my product as if I was paying 70 dollars a barrel like everyone else was. I would have taken the profits from that and put it in the bank. They didn’t. And they priced pointed it so that they could still make some money, but Delta, United and Northwest couldn’t. I think that helped drive United, Northwest and Delta into bankruptcy, whereupon they used that process to get rid of their pension costs, cut their costs in their airplanes, cut some labor. You have to come back out now with a much lower cost basis than you have at Southwest. At about the time Southwest—their hedges (puchased in 2002) are expiring—so now their going to have to price to the same oil that everyone else does. But these guys are much leaner and tougher competitors. And at Southwest, the costs have gone up in the end. I’m sure it’s a tactic. But I do know that the bankruptcy process did allow those three carriers to dramatically reshape themselves and to cut a lot of crap that had built up over 60 years out of the picture. And they’re very, very competitive—as is US Airways today in the marketplace.

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MANNING: Do you think this process is a band aid or is that a long term fix?

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BETHUNE: No, I mean to the extent that there’s compound learning in our business—which I don’t believe there is—we suffer from flat-learning. We learn the same shit over and over again. So, I already hear labor leaders crying out, you know, ‘Let’s go back to the old ways and let’s get that again’. Do you know, Michael, that a Walrus isn’t born fat and ugly—they become that way?

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MANNING: (amused) A Walrus?

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BETHUNE: A Walrus, yeah. You know, they’re not born that way. So, if you want a date, you gotta kinda slim-down and keep yourself in shape. And you know, there’s going to be a Jet Green, a Jet Yellow, a Jet Red—I mean it’s never gonna stop. So, if you get fat and ugly again, someone’s just going to take it away from you—just like they have taken it. Who are the big losers? The employees lost the most. The pensions, income. Well, don’t let that happen to you again! You know, the guy that over eats is the one that dies. So, quit it! Don’t get fat. Where there’s a management that says “Fine. We have to sign this contract, that we know that if we do will put us at a very non competitive situation and will ultimately kill us".Don’t sign it! “Well, if we don’t sign it they’re going to strike and take the company out". Well, let em do it! Do it now. How do you pull a band aid off?
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MANNING: Slowly…

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BETHUNE: If you do it fast (makes a 'swishing' sound) do it quick. See? One hair at a time or get that goddamn thing off—it’s got to come off. Get it over with! So, United, Delta, Northwest and others were a victim of compromised—another layer of fat, another deal they shouldn’t have signed, another concession because the consequences are severe right now if you don’t. Take your medicine now. Don’t let that build up, because you’re gonna die.

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MANNING: They felt they couldn’t take a strike!

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BETHUNE: Well, take it! Shit, you’re going to go broke anyway! It might as well be them that causes it and not you! Who’s the dumb S-O-B’s that caused Delta to go bankrupt financially? Why? Cause it came to the cost. They should have done it.

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MANNING: Well, the reason I keep asking you about the rumors we keep hearing out here that you’re going to take over as Chief of Delta is that (Gerald) Grinstein keeps telling us, “Hey, look. Once we emerge from Chapter 11, I’m out of here”.

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BETHUNE: (visibly amused) The guys that are running that place and the guys that are making those decisions are committees. The people who make those decisions are committee members. I know that cities are on those committees. At Northwest, it’s the City of Detroit or Minneapolis are on the Creditors Committees. Delta had a big Atlanta and Cincinnati presence. They have a different agenda than a bond holder would. So, creditors are a diverse group. And they don’t always see the world the way like each others see it. They actually argue amongst themselves. So, the labor leaders, the cities, the bondholders and some of the suppliers all have a different perspective of what needs to be done. And those people decide who gets to run it. And that person will have to take the test of what’s good for the company, this city---and I don’t know how you find a guy that can kiss everybody’s butt. I’m probably not the guy.

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MANNING: Let’s talk for a moment about the high costs of security our airlines pay for. Do you feel the government should be paying for these costs the way we see it done in so many foreign countries where they pay for the costs of their carrier’s security?

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BETHUNE: Well, let me put it this way. Every April 15th I get to send them a huge check personally and you do too. And that is, ostensibly, a check for the social programs in out country and our national defense. That’s what income taxes are for—national defense. 9/11 as an example: They didn’t want to blow up any airplanes; they wanted to blow up The White House, and the Trade Centers and The Capitol. Isn’t that what we have an Army and an F.B.I. and an Air Force for? Who should pay for that? Just the people who happen to be captured on the airplane that is going to be used? So, we somehow made it a transportation issue when they weren’t trying to blow up an airplane…

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MANNING: ...No.

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BETHUNE: So, why would airline passengers have to pay a national tax so that The White House is protected? Isn’t it in everyone’s interest? Isn’t that a national security issue? But you know how the elasticity of the market works. Like if you get one more dollar on the ticket you actually sell less tickets, and the net is you lost money instead of made money on that dollar, because with enough people there was a breaking point where this won’t go. So, you’ve lost the whole goddamn money on that ticket. Enough of those that even the dollar extra that you did sell didn’t make up for the ones you lost. That’s called elasticity. So, if we’re pricing right there and the government says ‘No, I want another three bucks, that’s three dollars more on the ticket price' which causes some people to drop out. The government says “We’re not paying it, the airlines are paying it.” The airlines in the last three years borrowed money to cover their losses on things like pensions they pay to the government. And they had to borrow the money to give it to the government, because if they didn’t make it, they couldn’t sell enough tickets to get that much money. I don’t see that as a good thing.

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MANNING: You’re Chairman of the Board at Aloha Airlines. Is the Hawaiian market large enough for three competitors?

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BETHUNE: Not even three. They only need one airline out there. I say Aloha (Airlines) can do it all. The answer is if you look at cities like Cincinnati, like Dallas, like Atlanta, like Houston, how many airlines do they have? Just one big one. And then a lot of guys just serve it as a point but they don’t hub it. Honolulu (Hawaii) never got it. Honolulu is like the next Atlanta where Eastern and Delta fought it out. There’s only one guy in town. And you know, in the Hawaiian market really would be better served with one large, strong carrier dominating a hub and using that to get more nonstop flights to more places because you can get enough scale to put that non-stop in and make it work. Just like Dallas is done, just like Atlanta and Cincinnati has London service, right?

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BETHUNE: You know why?

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MANNING: Of course.

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BETHUNE: Because you have enough feed and enough focus and concentration that you can get an airplane out to London and make it right. But if it were two carriers fighting neck-to-neck then Cincinnati wouldn’t have London because neither one of them would have enough to go to London. The Hawaiian Islands need to let that consolidation occur. I think that would be smart. But we’ll see how it goes.

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MANNING: What are you most proud of in your long career and what does the future hold for you?

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BETHUNE: Well, I’m proud of my limited role at Boeing. Obviously, I’ve made a contribution. My personal contribution on the New Generation airplane (Boeing 737 NG)—I was just briefly for a year—in charge of that. We came out with the 737-700, the one that we sold to Southwest. But we were also tasked with making an 800! And Phil Condit (ex-Boeing Chief) wanted that airplane to fly from New York to L.A. and he wanted it to carry 150 people. So, our engineering guys tackled that and because the fuse-bonding with the wings was going to be the same, we had to get more fuel so we put in a bigger center wing tank. We made that standard so we redesigned the center wing tank to make it bigger with more fuel volume—no box tank—just a standard tank. And I said “I want to take the airplane to 41,000 feet". And I said. “Well, you guys get paid by the month. Just do it! Okay? But I want this airplane at 4-1-0”. Well, I was the general manager, and everybody looked at me and said “Okay”. So, today the New Generation airplane –the 737-800 flies Newark to L.A. nonstop, 157 people at 41,000 feet. And so, it’s like a dog mark on a (water) hydrant. That 737-800 that goes 41,000 feet is (laughing) my little posterity. And then Continental, obviously. I’ve been tremendously proud of the job there that Larry (Kellner) and Jeff (Smisek) have done with the company after so many J.D. Powers Awards—I forget how many—and then they won it again! And you see us now as the most admired airline in Fortune Magazine. It’s a good company and it wasn’t just kind of fixed up and burnished and painted to look good. It’s a structurally sound, good company, good product, good people, and I’m proud of that.

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MANNING: And your future?

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BETHUNE: My future? I just pick up the phone and say “Hello?” And that’s all you can do. I’ve got plenty of irons in the fire. But I want to do the things I really want to do, which is kinda nice.

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MANNING: Gordon, it's been an honor and a lot of fun for me. I want to thank you for being so flexible with your schedule and giving me your time.

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BETHUNE: You're welcomed anytime, Michael. My pleasure.

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My sincere thanks to Kay Jennett for her invaluable assistance with the original interview and of course to Gordon Bethune. Portions of this interview first appeared in Airways International magazine's July, 2007 Edition. It was re-edited here for space amd time constraints. Copyright (c) by Michael Manning.