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Feb182010

« Patience and Perseverance: Tilton Walks It Like He Talks It »

There is no way to describe United Airline leader Glenn Tilton other than resilient.  He is disliked internally by organized labor and questioned externally by nearly everyone who has an eye on this industry.  He has taken his role as the industry spokesperson seriously, perhaps more seriously than anyone before him.  We listen intently to Giovanni Bisignani, the CEO of IATA.  But we do not listen enough to Tilton. Why? Because Tilton’s is a message of change not cluttered by this industry’s history, and some people don’t like the message.

Tilton was quoted shortly after United ended a three year stay in bankruptcy: “If I were able to draw a visual image of the beginning (of bankruptcy) to today, it would be one continuous experience of knocking down internal and external barriers.”  In his role as chief spokesperson for the US airline industry as Chairman of the Board of the Air Transport Association, Tilton waxes philosophical about the barriers that impede the industry’s natural evolution.

I have a long history at United and knew the “old company” well.  United epitomized all that was wrong with the US airline industry prior to its bankruptcy in December of 2002.  One of Tilton’s predecessors as CEO, Stephen Wolf, did some very good things along the way that provided United with its global roots.  But even Wolf did little to address the company’s bloated cost structure and a management bureaucracy that often resulted in paralysis.  For every cubicle in Elk Grove Village, one could find at least one silo. 

Tilton cares less about the history of United than its future.  His history lesson was a short one – whatever structure in place when he arrived in 2002 did not work and therefore needed to be changed.  If Tilton was wed to preserving United’s legacy, then he likely would not have taken the same course in fundamentally reshaping the company. He would not have taken on the pilot union, ALPA, over its actions to disrupt United’s operations – winning an airtight legal victory for management that ranks among the most significant victories in decades.  Rather he would have permitted bad behavior – or paid the pilots to stop behaving badly - just as prior administrations had done. 

Today United is a lot smaller, with a mainline operation 30 percent smaller than it was 10 years ago.  For this, Tilton takes a lot of heat.  As the pilots union watches its ranks diminish, ALPA constantly reminds Tilton that an airline cannot shrink its way to profitability.  This may have been true in United’s past, but on Tilton’s watch growth will only occur if it is profitable growth.  It is hard to envision a day when United will again have 12,000 pilot equivalents on the payroll.

Tilton and others recognize that the industry is still too big.  In the most read Swelblog article to date, Montie Brewer makes a clear case that the industry’s capacity-lead business model is the number one reason why the airline industry will never be profitable over a sustainable period.  Also weighing in on the subject is Professor Rigas Doganis who writes about over capacity in Airline Business.  According to Doganis, the airline industry is inherently unstable and airlines have only themselves to blame for the constant state of oversupply and the downward pressure on fares that result.

Doganis goes on to discuss how airlines are “spasmodically” profitable, quoting Tilton on the fact that the industry has "systematically failed to earn its cost of capital."  This is a fact that has long bothered the former oilman.  In a recent speech to the Wings Club in New York, Tilton raised the industry’s continuing and daunting challenge: “How to navigate to sustainable profitability in light of our financial instability.”

In London he made the point again and differently:  “Volatility and losses have been the norm for this industry, as has our systemic failure to earn our cost of capital and achieve any level of consistent financial resilience. The industry has lost nearly $50 billion worldwide since 2000 and a staggering $11 billion last year alone.”

Tilton at United – From Hands On to Chief Strategist

One can be sure that when Tilton arrived at United in September 2002, he had little idea just how bad things were.  But he would soon find out.  Three months after his arrival in Elk Grove Village, United landed in a downtown Chicago courtroom for more than three years as the company restructured itself.  There were mistakes along the way.  There was some bad luck along the way particularly as it pertained to rising values in the aircraft market.  There was the decision to terminate employee defined benefit plans, which among other things permanently damaged Tilton’s reputation in the labor ranks, but enabled the airline to get the exit capital it needed to start anew.

As United exited bankruptcy protection in February 2006, oil prices were on the rise.  The company restructured itself around $55 per barrel oil – a price that was fast becoming a memory and a bad assumption in the company’s plan of reorganization.  Company performance – operational, financial or otherwise – was nowhere near expectations set based on an entity that had spent three years fixing itself.  For either right or wrong reasons, Tilton kept many of United’s legacy management team around to complete the bankruptcy process.  What he belatedly came to appreciate is that leadership at the company had to change – and change it did.

United mainline is much smaller today than it was the day it emerged from bankruptcy.  Tilton oversaw its downsizing in bankruptcy and continued the work as oil prices climbed.  But he also recognized that he was not the guy to handle the day to day operations. Like any good restructuring guy, Tilton knew to hand over the operation of the company to others on the executive team, particularly  John Tague, Kathryn Mikells and Pete McDonald.

And the plan seems to be finally working.  United is starting to produce some good results.  There might be a lesson here for others in the industry, including the consideration of whether CEOs should delegate the day-to-day functions and concentrate on their role as the company’s chief strategist.  Just as pivotal, in United’s case at least, was Tilton’s decision to focus on tearing down the barriers to change – something all industry CEOs should consider in improving the financial prospects for a once proud industry relegated to underperformance, in part by the stakeholders who benefit from its inefficiency.

Tilton and Government

In one way or another, Tilton delivers the message that “no matter how well United or any U.S. carrier transforms its business, none of us will be as strong as we should be - much less in a position to compete in the emerging global aviation industry - if there's no change to the regulatory environment in which we operate.” Without a coherent U.S. aviation policy that “reverses the bias against airline size and removes the barriers that prevent us from constructive consolidation, U.S. carriers will be unable to compete on a global scale and we risk being marginalized,” Tilton said.

Among the questions for the industry, as Tilton outlined in a talk to the UK Aviation club, is what motivates the protectionists’ view of the industry.  “What is it that they are “protecting? A chronically underperforming industry?” he asked.

Concluding Thoughts

For what it’s worth, I focus on Tilton not because of his work at United but because of the message he delivers and its relevance to the rest of the industry.

As I predicted in my last post, February 2010 has been a significant month for airline news – some of it good and some of it bad like government’s call for slot divestitures in the USAirways – Delta slot swap.  It appears likely that oneworld will get permission to compete on an equal footing with the STAR and SkyTeam alliances.  This is the necessary next step to ensure inter-alliance competition as we think and talk about the industry’s structure going forward.   Tilton is a huge proponent of alliances who quickly recognized that one airline cannot be everything to everybody and that network scope and scale can be economically garnered through partnerships that leverage each member airline’s strengths.

Tilton also remains a proponent of consolidation.  His voice is growing increasingly louder on the subject of cross-border mergers and the flow of capital based his belief that the US and the European Union should move forward on Phase II of a transatlantic agreement and pave the way to permitting cross border commercial activity in the airline industry.  As Tilton noted in his UK speech, “capital is global and doesn't have sovereign inhibitions."

Like him or not, Tilton rarely shies away from stating his views, even at the risk of ruffling some stakeholder’s feathers.  For Tilton, too many people focus on the past rather than the future and what needs removed in order that the industry can continue to evolve. That evolution may continue to prove painful for some in the industry as Open Skies and re-shaped alliances bring new competition all the while presenting new opportunities for agile and nimble operators.

Tilton’s role, like that of the Anderson, Arpey, Smisek , Parker and other airline CEOs, is to serve as agents of that change and find a way to balance the demands and interests of labor, shareholders and other stakeholders that depend on a robust, profitable industry.

 

Note:  I hold stock and options in Hawaiian Holdings, Inc. as a result of my Board position.  I also hold stock in United Airlines accumulated at various points in time since the company emerged from bankruptcy.

Reader Comments (23)

Glen Tilton has laid off thousands and outsouced the experienced hands that used to control the airplanes to save a buck. United will be a regional jet airline with almost every ticket saying United operated by *****, and you are revaling in this idea. Glen Tilton wants to merge and run with his big bucks. Just remember that when your family walks onto these aircraft. The staff working the flight that is responsible for your life have been gutted with pay cuts, lost their pensions, and overall have been demoralized, yet you want to say they are behaving badly???? That is a huge stretch from the truth. Do you know it usually costs around $60,000 to $100,000 for a flying education so it will be no wonder in a couple years when there are no exceptional pilots coming up through the ranks. The job will not be worth it. Half the year away from home and family with terrible pay and pensions, not to mention the school loans to pay off. Sad day. Just speaking for the other side here that you call behaving badly. They have been abused.

02.19.2010 | Unregistered CommenterJohn Doe

Hey there, John Doe-

Next time run a spell-checker. While you're at it, have your mommy do a proof-read. You have zero credibility because you can't even convey your thoughts in decent English.

02.19.2010 | Unregistered CommenterCMwings

Dear John

I have been awaiting a response like this to the piece I wrote. I am not regaling in the idea that you suggest. I would regale in the time when organized labor appreciated that it too needs to change. One could make a case that mainline pilot arrogance contributed to building the regional airline industry.

Disrupting the operations of any carrier while in a fragile state is bad behavior – period, end of sentence. It may make you feel good, but what about the tens of thousands of other employees that still want to work at United Airlines and do not side with your grievance?

I am a 1K flyer on United. I appreciate the significant cuts taken by employees at United. [I am confident each and every time I fly that I am not riding with a cockpit crew that is on a suicide mission as I find the crews on United most professional.] That said, if the cuts were not made, and unfortunately the pensions terminated, the 50,000 people working at United would not be working today as there would likely not be a United Airlines. The same holds true for the remaining employees of the former US Airways.

What I do find sad for you is that you must think that the United pilot contract negotiated in 2000 could actually be supported by the economics of the industry. Not only did Dubinsky choke the goose, he strangled it to death. And while you are thinking about that, you might want to ask if the seniority system works in today’s world? Are the “best of the best” employed in today’s industry after the downsizing?

This article was written about the need to look forward, not to look back. If you do not take that away then I am not sure you really read all of it, but only what you wanted to read.

Along those lines, there is a very interesting article on page 3 of today’s Wall Street Journal titled: Teacher Seniority Rules Challenged; With Tens of Thousands of Layoffs Looming, Government Officials and Parents Want to Change the ‘Last in, First out, System.

02.19.2010 | Unregistered Commenterswelbar

John Doe, you need to grow up and get yourself an education regarding sound business sense and understanding marketing and demand. It is about what people are willing to pay against the service they are willing to acceopt..... and a venue where they can quickly see what their price options are ... like the internet and the transparency that it lends to the process.

Folks want to pay the lowest price possible for some base level of service they can live with. People just do not see the value in paying a higher price for a ticket in order to support a payscale for a person who is manually loading their bag that has that person doing low skill work making more than the teacher educating their children. Same applies to pilots and pay and the different work rules they have managed to negotiate into their contracts.

02.19.2010 | Unregistered CommenterK.C. Dawe

William,

A pity you wholly segregate "organized labor", instead of the vast majority of general UAL employees company-wide, who also have the same regard to Tilton, as that initial barb distorts some reasonable points. Southwest is the most "unionized" airline in the US but clearly, that does not impede its management from dominating its market segment.

To suggest that the aviation industry is capacity lead inclined implies that airlines are actually in the business to show a profit. From your continued 'research' surely even you must have concluded that the major US airlines' PRIMARY goal is to generate a bow-wave of cash (from ticket sales today for a service they will provide to its customers at some point in the future) and thereby maintain a presence in a market which may or may not be profitable, depending on which silo is the flavor of the month.

An airline's management is only as smart as its dumbest competitor and there is evidence a plenty to prove that statement true.

Re-regulation is the ONLY way for the US airline industry to adapt to the global future and allow its employees, its customers and its shareholders a realistic and healthy future.

Anything else is simply another form of rearranging deck chairs on the Titannic.

Regards, Rob

02.19.2010 | Unregistered CommenterRob Baker

The U.S. must regain its world aviation leadership.

FAA should be removed from the USDOT and report to a new five-member National Aviation Board (NAB) that would report direct to the White House with some Congressional oversight. USDOT does a good job with surface modal transportation like transit, highways, rail, St. Lawrence Seaway, etc. Aviation, however is national and global. Major aviation activity now underway at other federal agencies, like Commerce, State etc., would be transferred to the NAB. The NAB would be responsible for safety, strategic planning, policy, vision and promotion of U.S. aviation worldwide.

The U.S. has lost commerical aircraft builders Douglas, Lockheed, Convair, etc., and only Boeing is left. Hundreds of thousands of the world's best aircraft workers lost their jobs.
Indeed, many of the regional jet airlines flying 50, 90 passenger jets are built outside the U.S.

At least five new international airports should be built now to meet future U.S. growth ahead. California for example, needs one new International airport in Northern California and two in Southern California.

There is much to be done.

Bill Shea
Woodland, CA

02.19.2010 | Unregistered CommenterWilliam F. Shea

Mr. Swelbar;

I'm a Captain and 23 year veteran of United Airlines. I believe there's a kernal of truth in what you say, it's also true that perspective is lacking in your post. Make no mistake Glen Tilton is no airline messiah. His continual missives about consolidation and regulatory freedom will serve only one person, Glen Tilton. Mr. Tilton operates recklessly with a major US corporation that serves the traveling public. I'll give you an example. Shortly after we emerged from bankruptcy he, (with the boards approval) authorized a $250 million payment to shareholders. Shortly thereafter we were cash poor, and reduced to selling assets to meet short-term obligations. In the mist of the wildly gyrating oil markets he negotiated hedging contracts that were mistimed by over $1 billion. Glen Tilton continues to believe the airline industry is an industry of capital. When one fails to generate his fair share of capital that would be his perspective. Yes, I do believe it's true that shrinking to profitability is not possible. Herein lies Mr. Tilton's dilemma, failure to generate sufficient capital for the assets he possesses. Mr Tilton's dilemma is not riding on the back of his employees.

There's an old joke among airline employees, "we could really run a good airline without those pesky employees". Yes I feel you're falling victim to that joke. It's been my observation that every dollar of employee concession will eventually translate into lower airfares and do nothing to bolster anyone's bottom line. Think I'm wrong? Since 9-11 every legacy airline has renegotiated employment contracts down by double digits, load factors are at historical highs. Still airlines bleed red ink. If a five foot tall man is drowning in a 20 foot pool it wont do any good to drain 10 feet from it. I've honed my craft for nearly 30 years. I go to work every day knowing that a bad day at the office for me results in someone writing checks for $500 million dollars minimum, hundreds of peoples lives depend upon my skills. Referring to my caste as "arrogant" is galling.

You mention our contract of 2000. You fail to acknowledge that the pilot group was the single biggest shareholder of common shares, in excess of 25%. We gave concessions for that privilege. Jim Goodwin took that basic fact and spit in our eye by entering into the brilliantly stupid merger agreement with US Air. From my personal perspective it was the equivalent of telling Warren Buffett, "I know you have a big investment here, if it's not working out for you, tough luck." Yes, Rick Dubinsky with the pilots behind him wanted a pound of flesh for that.

I accept your appreciation that we, mainline pilots, serve you (1K) with professionalism and a safety conscience attitude. Primarily you can thank ALPA and the committees that will work to guarantee those standards.

Captain Brian Jacobson

02.19.2010 | Unregistered CommenterCaptJake

Rob

Yep, United IS different. I will selectively point to UAL. It is a different company than Southwest – to make the attempt to compare is unfortunate. Its lineage is different. If United were to dominate its sector, then government policy would have to be different. Southwest and its LCC brethren have been the media and regulator darlings. They now heavily influence the fragmentation of the domestic market that is reality.

Your description of the past strategy of airline managers is eerily right. It must change.
Airlines have not been in the business of making a profit.

Tilton and today’s CEOs recognize that if that does not change, then current names that dot the skies will not be the names tomorrow. Tilton – and others - think the model of recycling capital among various stakeholder groups is not sustainable and he is right. Regulation does little but recycle capital.

So if the status quo is acceptable to you and the others you speak for, then I hope you get what you wish for – re-regulation. Fares will be higher and the industry will be smaller --- yet.

Swelbar

02.19.2010 | Unregistered Commenterswelbar

Mr. Shea

I fundamentally agree that the FAA should be separated from the US DoT - or that an appropriate re-examination of the issue occur. Didn't the Balisles Commission look at this? I am biased as I have had a business relationship with the current FAA Administrator in a prior life, but Captain Babbitt is, and will prove to be, a breath of fresh air.

Much of what is occurring today happened on someone else’s watch. To know Captain Babbitt is to know that he will not deflect. But I am all for a policy board. Let’s at least put into place a strategic plan and it might as well be under Secretary LaHood’s watch.

Your aircraft issue should be discussed with the unions that determine who will fly the aircraft.

As for airports, the last thing this country needs is another airport in some Congressman’s district that believes it is entitled to loss-making air service.

Swelbar

02.19.2010 | Unregistered Commenterswelbar

Captain Jake

At least based on the words written in your comment I know I am not responding to another Jake that left fingerprints all over United - or maybe I am. To suggest that I think that Tilton is a messiah is grossly over-stating any issue.

To be fair, and there was another Jake involved when the payment of the dividend that I received, was paid to shareholders. If I can assess in hindsight, Tilton and his team was saying to the world that the new United is about the shareholder that prior United administrations had destroyed.

You fundamentally miss Tilton’s dilemma so it does not deserve a response. But imagine if you, a pilot, had stock in a sale of United -- but I digress.

I do not fall victim to what you suggest. Rather I suggest to legacy carriers to you look at your current contract and ask what serves today’s world and what does not. My view is that airline labor could tear their current contracts in half; keep each section; determine what is important in today’s world and move on. The same necessary protections can be provided and more money could be paid to those employees necessary to run the operation.

Your view that ALPA is good – well we are just going to disagree. Prater has overpromised and will be sure to under-deliver. Without question, the worst President in ALPA’s history – and ALPA has had some very good, thoughtful and respected Presidents. I urge you to step back and really ask yourself if today’s practices really maximize your earnings. I am willing to bet they do not. But ALPA’s coffers are more full based on volume and they could {even more} be if earnings of a lesser number were earning more. Another conversation to be sure.

Swelbar

02.19.2010 | Unregistered Commenterswelbar

I am wondering why you think that all UAL pilots were attempting to disrupt the operation after the furloughs were announced? If you took time to investigate the facts, you would have discovered that the majority of the sick calls were coming from the A320 and 737 F/O categories. Do you think that had anything to do with the announced furloughs? Those furloughs would have come primarily from those two categories. Furthermore, a furloughed pilot gets their sick bank wiped out in a furlough. So, if that individual does return to United, they start with a 0 balance in their sick bank despite whatever balance they had when furloughed. Do you think any individual with an ounce of brain would save all of their sick time in their account when they are being furloughed? This is not a concerted disruption, but people taking what they feel they are owed. Bill, you are as naive as UAL management if you can't understand why that would occur. Its unbelievable to me that management and people like you, with all your education, purport to be surprised by this. You can't possibly lack that much common sense. If managers can't establish a basic understanding of human nature, they don't belong being managers. Furthermore, any good manager knows that you must establish trust to provide for morale. This is something Tilton refuses to accept as part of his job.

Finally, it is incredible to me that you refuse to accept the fact that Southwest is an airline engaged in the same business as United. They may not fly internationally, but at the heart of it all, they fly people from A to B just like United. For how many years didn't management at the legacy carriers uphold SWA as an example for their labor costs. Now that the situation is reversed, they all refuse to acknowledge that SWA is in the same business as they are. The only difference is that SWA is successful, while the legacy carriers still fail with lower wage costs. Thats proof that its not as much about the expense side of the balance sheet as the income side.

02.20.2010 | Unregistered CommenterEric Wandel

Eric,

You cannot equate an airline like Southwest that only operates 737 with an airline like United that operates 320's, 319's, 757's, 747's, 777's, 767's etc. Southwest labor and facilities only need to account for the 737, whereas an airline like United needs to be trained with all of the various aircraft types they operate. Southwest benefits from economies of scale with its labor force and equipment, United does not. Yes they both are in the business to fly passengers from A to B but it costs United much more to do so.

02.20.2010 | Unregistered CommenterMark

Mark,

I can easily equate one airline to another. United is engaged in competition with SWA across a majority of its system. With labor costs beneath Southwest's, why is it that United still cannot make money? For many years United employees heard about the lower labor costs at SWA being the key reason that SWA was beating UAL on the income statement. Now though, the average labor cost at SWA exceeds that of United and has for more than 5 years. Given that information, why is United not making money. Why doesn't United also benefit from economies of scale?? At one time United was many times larger than SWA. The fact still remains United competes with SWA across a large percentage of its system. I guess UAL is having difficulty competing when SWA is flying low ASM cost 737s and UAL is flying high ASM cost RJs. But the messiah Glenn Tilton declared the 737 is a high cost airplane and retired it from UAL's fleet. I also would like Bill to tell me why he praises an oil man who got burned the worst of all the airline CEOs on fuel hedges. What benefit does UAL derive from an oil man if he can't even hedge fuel without a 1 billion dollar loss?

02.20.2010 | Unregistered CommenterEric Wandel

"Spasmodically profitable?" Has everyone already forgotten that in the year 2000, UAL was throwing off in excess of 900 million dollars in free cash flow every quarter? That is some serious coin. Come Sept. 11th, their revenue dropped by 40%. There isn't a capital-intensive company in the world that can survive a 40% drop in revenue in one year. But...when it works, it produces golden eggs. It's the external shocks that make it spasmodic. Go back and look at the 10-k for UAL for the year 2000 if you want to make your eyes water. Big, big bucks come out of that company when the economy is running on all eight.

02.21.2010 | Unregistered CommenterSmart Dude

Eric

As you might now suspect, I typically do not respond to all comments. Particularly those that smack of emotion and little substance. Read the piece. I said that mistakes were made along the way. Unfortunately the industry, and United, made some bad bets on oil. Losses were incurred by nearly every airline.

Your take on Southwest is interesting. Mark's response to you is spot on.

Southwest this. Southwest that. You are right that Southwest's salary paid to pilots is about 40 percent higher on average than what is paid to United pilots. But you know what, they also work 40 percent more on average. That is the simple tradeoff that is missed by organized labor. That is what still plagues the legacy carriers. The fact that United, American and others need many more pilots than does Southwest to do an hour of flying is a problem. That gap probably cannot be fully closed for reasons mentioned by Mark above, but there is still much work to be done.

Finally, it may be human nature to drain a sick leave account knowing that you will be furloughed. That said, that is sick leave abuse. Period.

I sense that you somehow think that hourly rates should return to levels negotiated by goose assassin Dubinsky. Go back and take a look: united pilots making $180,000 a year on average while only flying 40 hard hours per month on average. As they say in the south, that dog just don't hunt.

Call me naive or whatever, but your expectations and beliefs that the way the industry was will work again -- well that dog just won't hunt either.

Swelbar

02.21.2010 | Unregistered Commenterswelbar

Bill,

First lets talk about productivity. Are you aware there are no labor contract barriers at UAL that prevent the company from flying a pilot every bit as much as an SWA pilot?? As a matter of fact there are even less work rule protections for the UA pilot than an SWA pilot. United's problem, as is the other legacy carriers' problem, is the inefficient scheduling of crews due to an inefficient hub and spoke system. At Southwest, a pilot is scheduled for a minimum of 15-16 days off per month. At United that number is a minimum of 12 days off. Therefore, that tradeoff has not been missed by organized labor and is therefore available if the carrier chooses to take advantage of it.

Second, the sick leave issue is two pronged. In the first place, people learn by following the example set down by the executive leadership. After three long years of Tilton talking about shared sacrifice with respect to compensation, shortly after the company's emergence from bankruptcy Glenn takes a 40 million dollar bonus. When the unions approach management they are told they have a contract and the company would not alter that contract. Bill, is that not abusive as well? Isn't great leadership supposed to lead by example?? Is it not common sense that shared sacrifice should also mean shared reward for all as well? Is it not abusive of a company to furlough someone for years then bring them back from furlough for less than a year or two only to furlough them again a short time later? Is there a different set of rules for labor than for managent? As for the second part of sick leave usage, if a pilot does not feel well enough mentally or physically they by law are not to fly. Well after a layoff notice, many people may not mentally feel up to the challenge of flying an airplane. Would you want someone whose head is "not in the game" that day to be piloting an airplane with your family onboard?

Last but not least, I don't seek a return to the contract 2000 wage rates or work rules. I agree that contract was excessive. I do feel though that if the company does not productively use my time, I should not be penalized for it. Furthermore, I don't understand why an airline that DIRECTLY competes with United across a large portion its system is not fair game for comparison. Shouldn't all the carriers be attempting to emulate a successful company that upholds employee contributions as a key part of their success? Or is the industry as a whole too busy trying to reinvent the wheel with respect to labor management relations?

Eric

02.21.2010 | Unregistered CommenterEric

Eric

If sick leave is two-pronged, then the hub and spoke model is four-pronged. Inefficient in some areas, incredibly efficient in others. Mature markets, mature work forces and maturing business models that define the US airline industry require changes to adapt and evolve. That is a most important message intended in the piece I posted.

I do not disagree that the management compensation issue is difficult on many levels. I am consistent in what I write, and speak to, that this round of negotiations needs to begin the process of better aligning stakeholder interests. At risk compensation is one of those areas and I absolutely believe that labor needs to accept this foundational change.

United is most fortunate to have Doug McKeen in the management chair leading negotiations. Without question, he is the best person in the labor position at United in nearly 20 years.

Finally, the industry does have to reinvent the wheel as it pertains to labor and management. The simple fact is that the best thing for employees is a consistently profitable industry/company. Until that foundation is in place -- groundhog day comes to mind. Or at least a replay of the past 30 years.

Like Tilton or not, when he ultimately leaves, United will be in a much better place than when he arrived.

Swelbar

02.21.2010 | Unregistered Commenterswelbar

Bill,

My comment regarding reinventing the wheel was aimed at the fact that carriers like United have completely disregarded one of the primary factors that makes SWA so successful. That is the relationship between labor and management at SWA. SWA has consistently treated its employees with dignity and respect. They have truly valued their contribution and have not treated them as liabilities like UAL and others do. Why has United management, among others, disregarded that this is the key component to getting your employees to give 110%? They don't have to reinvent the wheel. Its been turning right in front of them for the past 37 years and it doesn't involve primarily "at risk" compensation. Why should any employee subject their earnings to the whim of a management team who might squander it all with one bad fuel hedge? Is that the fault of the employee if management makes a bad move and squanders a profit? Are employee contributions worth less if management is foolish? Furthermore, United already has an at risk compensation plan. It called profit sharing, and since its been around in the last 5-6 years its paid out only one of those years. Placing more wages at risk is a bridge that is too far to cross for airline employees in light of the bad management practices of the past decade.

02.22.2010 | Unregistered CommenterEric

Eric

I promise this is my last response as we are just going to have to disagree on certain issues. if you want to talk offline, then I am very easy to find.

Bad management practices the last decade? wow. Look who is left and who is not. If United and US Airways were flagged in Europe they would have been long gone - and probably not a bad outcome for the industry. A tombstone in the airline graveyard. Instead they each used US law to restructure and hang on by their fingernails. Still hanging on. Still fragile.

The decade's headlines like: 9/11; rising insurance costs; fuel costs and extreme volatility; persistent growth of the low cost carriers into the US domestic market rendering most legacy carriers uncompetitive; a declining travel spend as a percent of GDP; the worst recession in 70 years; and frozen credit markets to name a few -- I just wonder how you might have managed United through all of this?

I am sure that United would be much bigger and flying narrowbodies to Green Bay. I am sure that you would have United steel flying into Bucharest from the US mainland. As you revel in all things Southwest, step back and appreciate which carrier has largely made you irrelevant in the US domestic space.

Now back to the 1990's when ALPA bought a majority of the airline and removed a CEO to do so. Then saw its handpicked successor announce he was leaving before his term was up - ever wonder if he just simply saw the writing on the wall? United pilots had a virtual veto over who was going to run the company. That is not healthy for anyone. How many CEOs were there at United with ALPA governance in place? Hell Tilton was hired with the governance in place. As a result of these events, ALPA has played a very heavy hand in United's past and yet takes little to no responsibility for its current position.

And there I go looking at United's past. Shame on me. It is about building a structure that can compete going forward. At least there is an attempt taking place. Otherwise we will all just languish in United's past and talk about it over a beer at the memorial service.

02.22.2010 | Unregistered Commenterswelbar

Swelbar,

I appreciate your response and apologize for my mispellings from my previous post. What I said though was credible and in decent enough english to the following posters!!

Fair and equitable contracts are what I am looking for in this industry. I am in agreement with you that the whole management vs. union business is an outdated and insanely inefficient way to handle labor issues. The sad truth is, however, if there wasn't a union, management would take take take as they pretty much can do anyway through inefficient greivance processes and the contract negotiations of the Railway Labor Act. The pilots at United in my opinion did not disrupt operations, they just simply found out that they were losing their jobs as the 737 fleet was disolved and outsourced to regionals. You said these pilots were behaving badly at that time during a fragile state; It just uterly shocked me though that after these layoffs took place because United was so strapped for cash, they announced the purchased of 50 wide body aircraft. If I was a United pilot I would be incensed.

Time and time again when management makes these big decisions to scale down the airline, I hear, "IT IS JUST BUSINESS." Well I argue that no it is not just business, IT IS PEOPLE, the people that safely fly passengers everyday that are having to make complete life changes to keep their airline a float. The people that have made it through the many barriers of entry into the industry and have taken on massive amounts of debt in time and money. Would you put a doctor under this supply and demand market as another poster said I need to grow up. Both professions handle lives here. I read where the average time from college to right seat at a Legacy airline is 10 years. I equate this profession to the same as becoming a doctor.10 Years to get there and to make roughly what, $33,000 a year at as a first year pilot at United. I am sorry I stand by my post that labor has a right to fight to increase their wages and quality of life. Has Mr. Tilton taken his fair share of the pay and pension cuts he imposed on his employess? I do not think so, but I do not know the honest answer to that.

My main point here is that if this man is being resiliant in shaping the future of the airline industry, he has done it at the expense of his people underneath him; and if that is JUST BUSINESS, than he most assuradly should not be recognized or congratuated for it.

SS

02.22.2010 | Unregistered CommenterJohn Doe

SS

Yep labor has a right to fight. Somewhere in this mess there is a new equilibrium between pay and productivity. It will be found and I think it may get found in this round of negotiations. It will not come easy though.

You offer many thoughtful points. For me one of real sad truths for many (employees, communities, vendors) is the simple fact that false expectations were set as the industry grew too big, too fast. Pilots had an expectation that there would be a fairly fast move from the right seat to the left seat. A regional pilot believed that it would be a reasonable journey to the mainline.

Like bubbles in the stock market; bubbles in commodity prices; and bubbles in real estate the US airline industry is going through a very painful period of deflating the capacity bubble. So much of this industry is built on a growth model. When a model designed only for growth is forced to reverse itself, it is painful. So much of labor's expectations are built on a growth model. So many communities have false expectations on the level of service they should rightfully receive.

It took 22 years to get to the point of realizing how much of the growth was not economic and therefore should not have been deployed. The industry has been removing those excesses for the last 9 years.

I have no doubt that many made outsized investments in themselves based on the expectations that a career path would mirror the industry's growth throughout the 1980's and 1990's and provide a return on that investment. Now it is time to put into place the best practices that address a mature industry - not a growth industry. An industry not reliant on the US domestic market.

The one thing you can take to the bank though is knowing that the US and global economies are absolutely reliant on air transportation. That fact will remain. But at the end of the day, airlines have to be sustainably profitable otherwise capital will find its way into the hands of another airline that can do it more efficiently. As we have seen.

Swelbar

ps forget about misspelling. I cannot believe how many times I go live with a misspelled word or bad grammar or .......

02.22.2010 | Unregistered Commenterswelbar

For an airline that is still struggling. Where the employees have lost their pension! Had their work rules gutted and massive pay cuts. All the while Tilton has a $40M cumulative income over three years and you are putting him on a pedestal?!?!?

http://app4.websitetonight.com/projects/6/1/3/6/613675/uploads/Executive_compensation_2006_2008.pdf

Who are your masters? Who pays you to write this stuff?

Note to self - Organizing sock draw is more productive then stopping by here.

03.1.2010 | Unregistered CommenterChitragupta

"CBS News correspondent Sharyl Attkisson reports.

At the very same time pensions were drying up for 122,000 United Airlines workers, its top executives were cutting deals to make their own golden years comfortable and secure.

CEO Glenn Tilton, CFO Frederic Brace and COO Peter McDonald together got $7.6 million worth of retirement benefits in four years - from 2002 to 2006 - and earned a combined $55.5 million compensation, with perks like a car and driver and country club memberships."

Ladies and gentleman, the honorable Glenn Tilton

03.16.2010 | Unregistered CommenterMD

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