1980s
In 1981 Texas Air Corporation, an airline holding company controlled by U.S. aviation entrepreneur Frank Lorenzo, acquired Continental after a contentious battle with Continental's management who were determined to resist Lorenzo. Continental's labor unions also fiercely resisted, fearing what they termed as "Lorenzo's deregulation tactics", which they believed implied that he wanted to make Continental a non-union airline. Lorenzo viewed the company as stuck in the pre-deregulation era and in need of serious changes to stay competitive. Continental was experiencing financial challenges both before and after Lorenzo's takeover, and he demanded immediate wage cuts and layoffs to keep the company afloat. During this struggle, Continental Airlines President, A. L. Feldman, committed suicide, on August 9, 1981, in his office. Lorenzo became Continental's new Chairman and CEO. On October 31, 1982 Continental merged with Texas International (which retained the Continental identity and dissolved TI), offering service to four continents (North and South America, Asia and Australia) with a fleet of 112 aircraft. Continental relocated its headquarters to Texas Air's base in Houston, Texas, which resulted in a large expansion of its hub at Houston Intercontinental Airport and extensive new routes to Mexico and the south central U.S.
Airline unions fought Lorenzo and Continental at every step. In the Federal courts, they unsuccessfully sued to stop the company's reorganization. They were successful in working to persuade Congress to pass a new bankruptcy law preventing bankrupt companies from terminating contracts as Continental had successfully done. The law was too late to affect Continental and the cost cutting and changes that had rescued it from liquidation. Frank Lorenzo took Continental into Chapter 11 bankruptcy on September 23, 1983, after unsuccessfully attempting to negotiate a lower pay rate with labor unions. This saved the company from liquidation, but required substantial reorganization, which began immediately. Following bankruptcy, Continental was freed of its contractual obligations and imposed a series of new labor agreements on its union workers, sharply reducing the airline's labor costs at the cost of employee morale. This move made Continental vastly more competitive with the new airline startups then emerging and thriving in the southwestern U.S., but had notable negative impact on employee attitudes and loyalty. By the end of 1984, Continental recorded a $50 million profit. Pilots went on strike in 1983, but were unsuccessful due to Continental pilots and new hires who crossed the picket line.
On April 28, 1985, Continental inaugurated its first scheduled service to Europe with flights from Houston to London/Gatwick. Additional service from Newark to London and Paris started after the airline's merger with People Express Airlines in 1987. However, the airline was still facing significant challenges with consistently low reliability rankings and a high level of customer complaints compared with its competitors. In October 1985, Texas Air Corp. made an offer for a Denver-based regional carrier, Frontier Airlines, opening a bidding war with People Express, which was headed by Lorenzo's former TI associate Don Burr. People Express paid a substantial premium for Frontier's high-cost operation. The acquisition, funded by debt, did not seem rational to industry observers from either the route integration or the operating philosophy points of view, but was in the opinion of most industry analysts rather an attempt by Burr to best his former boss, Frank Lorenzo.[8][15] On August 24, 1986, Frontier filed for bankruptcy and ceased operations. With People Express hemorrhaging cash, Texas Air acquired People Express on September 15, 1986, at the same time gaining Frontier, whose strong network in the Great Plains and intermountain West reinforced Continental's already formidable Denver hub. Because it had been the largest airline operating in the New York market, the People Express hub at Newark would permit Continental to expand its East Coast services dramatically for the first time in its history. Continental soon became the third-largest airline in the U.S. and the predominant force in the New York, Denver and Houston airline markets.
Continental emerged from bankruptcy on June 30, 1986, with improved asset and cash flow positions and a more competitive route structure with routes radiating to every large U.S. city from major hubs at Denver and Houston. Continental also began developing its Midwest hub at Cleveland Hopkins International Airport in 1986, just as United Airlines began to transfer its Cleveland hub operations to Washington Dulles International Airport in Fairfax County, Virginia. On February 1, 1987, People Express, Frontier, New York Air, and several commuter carriers were merged into Continental Airlines to create the third-largest U.S. airline (and sixth largest airline in the world). In so doing, Continental became an even larger player in the northeastern markets. 1987 saw the creation of Continental's OnePass frequent flier program (jointly with Eastern Airlines); and, in 1988 Continental formed its first strategic partnership (and the first international airline alliance of its kind) with SAS.
