Walter Dias, managing director of sales and marketing for Continental Airlines in Greater China and Southeast Asia, has been in the job since January, but he’s hardly a tourist. The 22-year veteran executive for the US airline spent 15 years running sales and marketing for Continental Micronesia on the island of Guam, during which time his remit also included Greater China. As regional head he is now based in Hong Kong. Dias explained to CHINA ECONOMIC REVIEW how Continental is reaping the benefits of a liberalized aviation treaty between the US and China.
Q: Why did it take so long for Continental to officially enter the China market?
A: Due to the US-China bilateral aviation treaty, Continental was precluded from doing any sales or marketing in China until 2005, so we really didn’t do much on the mainland, but we did do a lot in Hong Kong. We were operating flights from Hong Kong to Guam and then in 2001 we took the major step of launching non-stop service to New York from Hong Kong. When that was launched it was the longest commercial aviation flight in the world. The bilateral treaty was liberalized in 2004 to allow new frequencies to start up in 2005. After those negotiations, the US Department of Transportation opened a public hearing and route case for airlines to compete for a new frequency to China. Eleven airlines applied and Continental emerged as the winner, making it the first new authorized US airline to operate in China in about 17 years. We launched our daily non-stop Beijing-New York service in the summer of 2005. With the launch of our Shanghai-New York route in March, we’re looking at a seat mile capacity increase of 50% for Greater China.
Q: How has the financial crisis affected Continental’s China business?
A: Obviously the financial crisis has had a major impact on the industry throughout the world and more so in the US where we’ve seen a large decline in business-related traffic. That has spilled over to the international arena too. Luckily for us, most US airlines had been grappling with the fuel crisis last year. With oil prices at over US$140 per barrel last summer, Continental decided to reduce its total available seat miles by about 7%. That helped us weather the current financial storm. In China we’ve seen some drop off in the financial business travelers, specifically from New York. But quite frankly the businesses have been holding up relatively well compared to other regions in the world.
Q: Does the bilateral treaty need to be renegotiated?
A: If you asked me that question a year ago I would have said absolutely. In the bilateral treaty there’s a limit to the number of flights that can be offered, split equally between American and Chinese carriers. Historically the US carriers have used 100% of the total frequencies permitted. This is the first year that US carriers are not using all of their frequencies. But 2010 will see an additional number of frequencies become available, so right now we could do additional flying with the current treaty.
Q: What additional challenges does Continental face in China in both the short and long term?
A: The H1N1 situation has been a big challenge over the last few months, but I look at that as a short-term issue. In the long term, some of the challenges that we’ve faced have already been addressed. One of the bigger ones was the fact that on the China side, the US did not have approved destination status. The Chinese government requires that a destination that’s going to be visited by their citizens be properly approved. As part of this, the host country must set up a designated travel agency for Chinese visitors, which the US government couldn’t provide. The two countries had been working on that for a number of years and they came to a compromise in 2008 that essentially allowed travelers from China to visit the US as true leisure travelers. Prior to that we couldn’t advertise leisure travel to the US in China. Now we’re seeing additional growth because of this new ability to advertise leisure packages to the country.
Q: What sort of packages are Chinese visitors interested in?
A: Travelers from China tend to visit either the east coast or the west coast and then travel within the US very quickly. They could be visiting 10 cities in 14 days. It’s a pretty whirlwind tour and you have a hard time getting a flavor of the country. Our sales teams in Beijing and Shanghai have been working with travel agencies to develop more detailed packages where visitors get to spend more time in particular cities. We have east coast packages, for example, where you may spend a few days in Florida, Washington DC and New York.
Q: How do you differentiate yourself from the competition in a market that’s unfamiliar with your brand?
A: With the launch of the Beijing-New York route in 2005, we embarked on an advertising campaign to get the word out on our brand. We were starting from scratch and it’s a very big market. Now we have a local team and most of the people working for us are industry veterans who have good networks with travel agencies and industry personnel. Then we do familiarization trips for travel agencies and media members, allowing them to try out the product. We typically fly a number of travel agents to New York to familiarize them with the New York City area and give them a sense of the scope of our organization. If you’re in Beijing or Shanghai you may only see one Continental aircraft per day. But when you go to our hub in Newark [in the state of New Jersey] you’ll see hundreds of Continental aircraft. We also give them a tour of the operation. We’ve invested billions of dollars, along with the port authorities of New York and New Jersey, in developing a state-of-the-art terminal in Newark. And even though it’s on the New Jersey side of the Hudson River, it only takes about 30 minutes to get into Manhattan.
Q: Given the restrictions on your operations in China, are you planning any new routes to the mainland?
A: There’s nothing on the immediate horizon, but we believe China is the most important market in the world in terms of potential growth. We’ve invested substantial amounts of money in our fleet. Ours is one of the younger fleets in the industry and it’s very fuel efficient – we use about 36% less fuel to fly a seat mile than we did 10 years ago. We’ve just finished installing audio-visual on-demand systems on our 777s, which operate on the Beijing, Shanghai and Hong Kong routes. The system offers about 250 movies, 350 short programs and 3,000 songs as well as game consoles. In September we introduced "lie flat" seats in our "BusinessFirst" class cabins. That will be a big game changer for us on the transpacific routes. We also have one of the largest orders for Boeing 787 Dreamliners, which will provide a much better customer experience. Once Boeing starts making deliveries we will definitely look at them for additional services to China.