Continental Airlines connects the dots in Asia

"If you want to be a player, you have to be looking to Asia." That's the view of Walter Dias, managing director for Greater China and Southeast Asia at Continental Airlines, when it comes to the importance of the region to US carriers. And Continental intends to be a player.

The Houston, Texas-based airline will re-launch a non-stop service between Hong Kong and Guam tomorrow, a route it discontinued in July 2008 due to high fuel costs. In addition to resuming the route, the airline joined Star Alliance, the world's largest airline alliance, last October and inaugurated Shanghai-Newark non-stop flights in March 2009 -- at a time when most other US airlines were either cutting capacity or delaying the launch of new services to Asia.

"I've been in the [airline] business for 23 years and this has been the most challenging environment," said Dias, referring to the past two years during which oil prices rose to more than $140 per barrel and passenger demand collapsed along with the global economy. "But we've been very focused on how we approach all the markets here in Asia and we've surprisingly performed fairly well, despite all of those challenges."

Revenues from Continental's Pacific region fell 8.3% year-on-year to $1.08 billion in 2009. The region contributed 8.6% of the company's overall income, up from 7.8% in 2008.

"One example is Shanghai," continued Dias. "We're the only US airline that actually remained firm in our commitment to the US government to fly our route authority." (This is a slight misspeak as Delta Air Lines inaugurated its Atlanta-Shanghai route as promised in March 2008, but discontinued the flight in mid-2009.) "We went into that market during maybe the worst time you could start a new flight but after the good performance of Beijing-Newark, even with the poor economic environment and H1N1, we decided to stick to our commitment and launch the route."

Other US carriers, including Delta Air Lines, Northwest Airlines (now part of Delta) and United Airlines, cut capacity or frequency into Asia, while Hawaiian Airlines and US Airways delayed or cancelled the launch of new routes.

According to the US Department of Transportation (DOT), the total number of international passengers boarding aircraft at the country's airports fell 5.6% in 2009 from a year earlier to 151.5 million. The agency does not break out traffic to Asia.

Continental is not the typical US carrier in Asia. While Delta and United both maintain hubs at Tokyo's Narita International Airport to funnel traffic between the US and destinations in Asia, Continental's wholly owned subsidiary Continental Micronesia operates a hub in the US territory of Guam that caters largely to Asian tourists.

"The core of Continental's presence in Asia-Pacific has historically been Continental Micronesia," said Dias. "Our customers traditionally looked at us as a leisure airline." He explained that after the carrier launched Tokyo-Newark and Houston in the late 1990s, it became known as a business airline as well.

Now, the big question on everyone's mind is the airline's plans for China. Following the latest China-US air service liberalisation talks in 2007, the airline won the right to fly Newark-Shanghai, its second route to China. Service between Guam and China was also liberalised but only to second- and third-tier cities. Service to Beijing and Shanghai remained restricted.

"We definitely see some opportunity in China," said Dias. Asked whether service between Guam and the country could ever look like the fan of routes it has to Japan he said, "yes, something like that".

Of course, Japan is not insignificant to Continental in Asia. The airline flies to more destinations in the country than any other US airline -- nine cities -- and has submitted a request to the US DOT to fly to a 10th, Tokyo's Haneda International Airport, from both Guam and Newark. Four round-trip slots are available at the airport to US airlines following the Japan-US open skies agreement last December.

For now, Continental is focused on integrating with its alliance partners. "The next couple of years will be about building Star Alliance ties," said Dias. By entering the alliance, the airline gained Air China, Japan's All Nippon Airways (ANA), Korea's Asiana Airlines, China's Shanghai Airlines, Singapore Airlines and Thai Airways as partners in Asia. However, Dias said the airline does not currently have plans to launch services to Bangkok, Seoul or Singapore -- Star hubs in Asia that it currently does not serve.

"Joining Star is about connecting the dots that are already there with connections," he said. "We are in the process of formalising some of the opportunities that Star brings to Continental."

With the airline joining Star, long standing rumours of a merger with United have picked up again. Jeff Smisek, chief executive of Continental, fuelled the flames when he said at the J.P. Morgan Aviation and Transportation conference last month: "If we think it's in our best interest to bulk up defensively, we'll do so. But I think it's premature to make that decision at this time."

 "We [do] kind of complement each other," said Dias on a potential Continental-United combination in Asia. "We prefer to remain independent but never say never. From a Pacific standpoint, we already see the benefits without having to go through the painful process of the m-word."

Continental may still be a small US player in Asia compared to Delta and United, but Dias is bullish about its prospects in the region. In addition to its interest in China and building Star Alliance ties, he said the Boeing 787 will be a "game changer" for the airline when deliveries begin in the second half of next year. He would not go into specifics but, based on the manufacturer's specifications, the aircraft's size and range would make it suitable for thinner routes between Continental's Newark and Houston hubs and smaller cities in Asia, for example Guangzhou, Osaka or Seoul.

"Asia-Pacific being the fastest growing international market in the world, we're obviously very carefully looking at opportunities in the region," he said. "We're very much in the market, watching it and trying to take advantage of any opportunities we see to grow and provide more service to our customers."