How Guam (Air Micronesia or “Air Mike”) saved Continental Airlines

I’m sure you’ve heard of David and Goliath or, if not, then surely Erin Brockovitch. Well, every once in a while, the small people do big things. This is a true story of one of those big events.
Guam is an eight-hour flight beyond Hawaii. That ought to make your knees buckle and seat smart. It’s a United States territory just 30 miles long and 10 miles wide in the general shape of a peanut. Continental has flown the islands around Guam since 1968; we still have flight attendants and pilots who flew DC-6s around the islands in the early days. Now we have separate Air Mike flight attendants and a separate air carrier certificate for the B-737s on Guam.
Let’s go back to 1995 on the mainland. Continental Lite was winding down. (Bob Ferguson was just 10 years ahead of his time. Could he be working behind the scenes at TED?) Ferguson was soon to be replaced by Gordon Bethune. Continental was short on cash and a good candidate for possibly going into bankruptcy protection for the second time that decade. Rumor had it management was having trouble gathering the cash for our payroll.
Air Mike, on the other hand, was doing well. In 1995 Air Mike was approaching a milestone of carrying one million Japanese and Chinese tourists to Guam to enjoy the sun and duty-free shopping. History is always written by the conquerors. History’s point of view is from their eyes and point of view. They write what they know best which is what they were able to affect.
Well, this is a missing piece of the puzzle from back in 1995, when Gordon Bethune was definitely affecting the mainland Continental Airlines in a positive way. On Guam, it was just more of the same. Price and sell the product in Japan in yen and play the international money flux to our favor when the dollar was king and the yen brought in more dollars every week. While mainland Continental was having trouble finding money for its turnaround, Air Mike made $67 million profit running a decent, small airline with 20 leased aircraft and crews from Continental Airlines. Was that enough to save the parent company from bankruptcy court until they dismantled Continental Lite? No, Gordon needed more money to avoid court and put his and Greg’s plan into full play. They needed time and money to earn the respect of the much abused employees of Continental.
This is where the missing piece of history was written but it remains little known to the Continental family.
Even in 1995, Delta Airlines was envious of Continental, or at least lusted after Air Mike. Out came the Delta advance team with bean counters in tow. The idea was that they would look at Air Mike’s books and operation and make a bid to purchase that subsidiary (certificate). Air Mike would be cut off after flying the islands for more than 25 years and in doing so, give Continental the cash it so desperately needed. Surely Gordon knew of the Delta deal, maybe initiated it, but his book From Worst to First doesn’t mention this bit of history.
Regardless, Continental didn’t do Delta but did use the value Delta had placed on the table to borrow $375 million with Air Mike’s certificate as collateral. At a time when Continental’s balance sheet could swing plus or minus $5 million a month as Gordon mentions in his book, this was the cash needed to reorganize the airline and make payroll – a well-timed transaction.
Air Mike continued its fine operation, with many months over a 99 percent completion factor, consistently beating the number one on-time airline (Southwest) by as many as 3 to 4 percentage points in the DOT standard on-time statistics. (Air Mike didn’t get the awards because it was reported as an international carrier and subsidiary of Continental.)
There were two distinct pilot groups on Guam: those who maintained a home on Guam and those who commuted to do their flying. 1995 was a painful year for the pilots, as well as all work groups at Continental. Big cost cuts were necessary to fund the future and Gordon needed all work groups to shrink to fit his new airline. The pilots hired in 1990 had endured two to three years of frozen first year pay because of the earlier bankruptcy and were moved to Guam as the junior base. Most came willingly with their families because it looked like a long stay ahead of them in 1994.
When the furlough was announced in 1995 almost all the Air Mike B-727 second officers got a furlough letter.
“Go (or go back) to Express, take a leave or quit - you’re furloughed at the end of the month.”
Well done, Continental. Furlough one third of the most profitable segment of your route system in one slash of the pen and, by the way, we can’t get your replacement pilots out to Guam in time so send our junior pilots back by the end of the month and we’ll dribble out disgruntled more senior pilots forced to commute to Guam. (Who knew if it was the last furlough or not?)
The little guy, Air Mike, had to speak up.
Take our profit, try to sell us, borrow money with our certificate as collateral so we’re leveraged to the hilt but you can’t be serious. You want us to furlough all our second officers on the same day with no trained replacements on Guam yet? We’ll have to cancel all our prepaid vacation customers from Japan, devastating our profitable airline and losing all our biggest travel group operators in one fell swoop. Not a great idea!
Marketing and sales in Japan are unique. As the award winning movie with Bill Murray certainly shows, some things are Lost in Translation. Japan does business differently. Once or twice a year the biggest travel operators that organize the vacation packages to Guam get together with all the airlines operating to the island and buy up in advance all the seats for the year ahead. Then they go about the business of packaging and marketing their vacations to the Japanese. These travel booking agents have given us a lot of money in advance and their customers are in receipt of flight tickets, hotel reservations and, in many cases, chapel reservations for their Western wedding. Failing to crew their return flights was not a good idea.
Guam got a reprieve just before the midnight execution approached. The furlough was postponed one month.
Another month of pay, another month to get the kids out of school and international movers to the houses, another month to make plans to get off the island in an orderly fashion. No revenue lost but a great loss for our friends and families. Guam is so far away from our true families we bonded together as a family unit while on the island and tried to support each other in those trying times.
Gordon got his money in 1995 to turn Continental around and into a first class airline with the help of Air Mike.
Guam is hardly mentioned in everyday conversations at mainline but is the jewel in the crown of Continental. Did you know that Guam-Honolulu is the most profitable route in the entire Continental system today? I rest my case.