Smisek - No pay until CO is profitable
Jan 4, 2010, 3:49 pm
#16
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Interesting PR stunt- 3 major work groups have contracts up for negotiations - if he thinks we don't work hard now, it is going to be a bumpy ride for him going forward.
For the past decade we took it in the shorts with no positive long term results. I can't wait to hear what everyone thinks when we start our own B-O-B - no more "meals at mealtime" without paying.
For the past decade we took it in the shorts with no positive long term results. I can't wait to hear what everyone thinks when we start our own B-O-B - no more "meals at mealtime" without paying.
Oil crossed $80 today - the clock is ticking.
Jan 4, 2010, 4:03 pm
#17
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I haven't found the BoB meals of these carriers to be appealing in any way. Way overpriced small bready sandwiches or snack boxes. On my NW flights, I can't recall more than a handful of sales.
I'd prefer to see CO raise the bar and go after the VX model. Since LiveTV is going to end up in most of the fleet, and the devices already have credit card readers built-in, I'd rather see them emulate the VX menu (reasonably priced, large portions, healthy options and variety) and sales strategy - tout the goods on the TV screen and allow customers to order for seat-side delivery at any time after the beverage cart finishes its first pass.
They have a built-in marketing device which sits inches away from every customer's face - right now it just endlessly loops a promo for LiveTV. They could leverage unsold screens to tout BoB food, upscale beverages (isn't everyone sick of 'beer, wine and margaritas' by now?) and other services.
I'm open to certain changes - but I still fear Jeff's approach to the problem (extracting more revenue per available seat mile) will be to strip cost out of the product until that side of the equation better reflects the revenue he's accustomed to seeing. The VX approach seeks to enhance the revenue side.
Another option - restrict exit row and bulkhead seats for pre-assignment to CO Plats/Golds/Silvers, then "sell" the unclaimed seats during OLCI for a higher up-charge - and include free LiveTV, a complimentary selection from the BoB menu and EliteAccess for that flight segment. VX extracts a premium of $100 (and ofter much more) for their exit row and bulkhead seats which are nothing more than the same coach seat with a tad more legroom, free BoB food, free TV and reserved overhead space.
That illustrates the difference between those who lead by thinking outside the box (i.e. Gordon) and those who follow by staring at balance sheets and just slashing perceived 'excess' (Anderson, Mullin, etc.)
I'd prefer to see CO raise the bar and go after the VX model. Since LiveTV is going to end up in most of the fleet, and the devices already have credit card readers built-in, I'd rather see them emulate the VX menu (reasonably priced, large portions, healthy options and variety) and sales strategy - tout the goods on the TV screen and allow customers to order for seat-side delivery at any time after the beverage cart finishes its first pass.
They have a built-in marketing device which sits inches away from every customer's face - right now it just endlessly loops a promo for LiveTV. They could leverage unsold screens to tout BoB food, upscale beverages (isn't everyone sick of 'beer, wine and margaritas' by now?) and other services.
I'm open to certain changes - but I still fear Jeff's approach to the problem (extracting more revenue per available seat mile) will be to strip cost out of the product until that side of the equation better reflects the revenue he's accustomed to seeing. The VX approach seeks to enhance the revenue side.
Another option - restrict exit row and bulkhead seats for pre-assignment to CO Plats/Golds/Silvers, then "sell" the unclaimed seats during OLCI for a higher up-charge - and include free LiveTV, a complimentary selection from the BoB menu and EliteAccess for that flight segment. VX extracts a premium of $100 (and ofter much more) for their exit row and bulkhead seats which are nothing more than the same coach seat with a tad more legroom, free BoB food, free TV and reserved overhead space.
That illustrates the difference between those who lead by thinking outside the box (i.e. Gordon) and those who follow by staring at balance sheets and just slashing perceived 'excess' (Anderson, Mullin, etc.)
Profit is earned by calculating the right intersection of cost and revenue, not simply by slashing cost, as has been the unimaginative tendency of the legacy carriers.
It's interesting to note, by the way, that the one excess that Mullin et al never deemed important enough to slash were their own gargantuan pay packages, often earned while their companies were losing billions of dollars.
Jan 4, 2010, 4:37 pm
#18
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Would you prefer he continue to draw his usual salary and bonus structure? PR stunt or not, it still hurt his personal bottom line - he may be working for free for a few years if the airline can't return to profitability.
Oil crossed $80 today - the clock is ticking.
Oil crossed $80 today - the clock is ticking.
I think Jeff came out with a punch toward the employee groups - we work with what we are given and if he thinks we are working toward making our airline profitable, then I consider that to be a slap in the face. Frank used to have a similar position; he expected us to make do with less and still retain customers - it didn't work then and it won't work now.
Jan 4, 2010, 4:43 pm
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They have a built-in marketing device which sits inches away from every customer's face - right now it just endlessly loops a promo for LiveTV. They could leverage unsold screens to tout BoB food, upscale beverages (isn't everyone sick of 'beer, wine and margaritas' by now?) and other services.
We've already seen that it's not intuitive to turn off the screen because DTV wants to flash their preview at you.
Another option - restrict exit row and bulkhead seats for pre-assignment to CO Plats/Golds/Silvers, then "sell" the unclaimed seats during OLCI for a higher up-charge - and include free LiveTV, a complimentary selection from the BoB menu and EliteAccess for that flight segment. VX extracts a premium of $100 (and ofter much more) for their exit row and bulkhead seats which are nothing more than the same coach seat with a tad more legroom, free BoB food, free TV and reserved overhead space.
Even things like bag/food/TV package for your whole itin might make sense. Just pay once and you get all of the above for all flight segments.
It's a gamble, and given that most economic indicators show that we've already moved past hitting bottom, it's not even very bad odds.
Jan 4, 2010, 4:44 pm
#20
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It really doesn't matter to me. Jeff's lack of taking a salary/bonus doesn't reflect in my personal bottom line. I topped out years ago and during the past decade I have seen line construction diminish, benefits reduced and pay-reductions implemented.
I think Jeff came out with a punch toward the employee groups - we work with what we are given and if he thinks we are working toward making our airline profitable, then I consider that to be a slap in the face. Frank used to have a similar position; he expected us to make do with less and still retain customers - it didn't work then and it won't work now.
I think Jeff came out with a punch toward the employee groups - we work with what we are given and if he thinks we are working toward making our airline profitable, then I consider that to be a slap in the face. Frank used to have a similar position; he expected us to make do with less and still retain customers - it didn't work then and it won't work now.
All companies need to work together to better themselves, it doesn't mean he's implying you are a slacker.
My company has some big goals this year, and big expansions, I said at new years as we 'look forward to working together to make it happen', in no way shape or form did I mean that employees were not currently doing their jobs.
Jan 4, 2010, 4:53 pm
#21
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It really doesn't matter to me. Jeff's lack of taking a salary/bonus doesn't reflect in my personal bottom line. I topped out years ago and during the past decade I have seen line construction diminish, benefits reduced and pay-reductions implemented.
I think Jeff came out with a punch toward the employee groups - we work with what we are given and if he thinks we are working toward making our airline profitable, then I consider that to be a slap in the face. Frank used to have a similar position; he expected us to make do with less and still retain customers - it didn't work then and it won't work now.
I think Jeff came out with a punch toward the employee groups - we work with what we are given and if he thinks we are working toward making our airline profitable, then I consider that to be a slap in the face. Frank used to have a similar position; he expected us to make do with less and still retain customers - it didn't work then and it won't work now.
Just because he's making this gesture does not therefore mean he will then take Frank Lorenzo-type measures; he might, but we don't know that yet.
As much as this is PR stunt, it beats virtually every other recent airline CEO. Who can forget Leo Mullin, then CEO of Delta, who walked away from an airline he nearly destroyed a very wealthy man?
Not only did he receive a monumental pension (he was credited with 22 years of additional service in order to qualify for it), but the trust fund in which the pensions of 32 of Delta's top executives sit (including Mullin's) is uniquely protected from creditors.
Here's the whole, totally outrageous story:
http://money.cnn.com/magazines/fortu.../04/28/341732/
Last edited by TWA Fan 1; Jan 4, 2010 at 5:14 pm
Jan 4, 2010, 4:58 pm
#22
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I was telling some peeps this morning...I actually prefer DL, WN and <gasp> US's coach product to CO's....they've done a nice job packaging some tasty things in the back....and the prices aren't bad.
I happen to believe CO would actually raise the bar by offering BoB....provided it's done right.
Jan 4, 2010, 5:02 pm
#23
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Too much is being read into this. It's a shrewd internal and external PR move, no more, no less.
And while I expect some product changes for CO, I do not envision the sort of wholesale product degradations some of you fear is imminent. For starters, Continental lacks the ability to do so as all of its principal USA-based legacy competitors are actively implementing product and service improvements. Second -- or as a corollary to the first point -- Delta Air Lines is ready, willing, and eager to challenge CO in NYC, and indeed, Delta will almost certainly end up having a larger hub presence in NYC than CO if LGA and JFK are taken together. A surefire way for CO to lose the fight in New York would be to degrade the CO product to something that Delta can match or even exceed, particularly with respect to business travelers. Third, Continental has historically been an airline that uses superior service offerings as a competitive advantage - given that Continental is about half the size of Delta, has only 1/3rd the hubs of Delta, and again will likely be smaller in NYC than Delta within 12 months or so, service levels comprise one of the few areas where CO can decisively outflank Delta.
And while I expect some product changes for CO, I do not envision the sort of wholesale product degradations some of you fear is imminent. For starters, Continental lacks the ability to do so as all of its principal USA-based legacy competitors are actively implementing product and service improvements. Second -- or as a corollary to the first point -- Delta Air Lines is ready, willing, and eager to challenge CO in NYC, and indeed, Delta will almost certainly end up having a larger hub presence in NYC than CO if LGA and JFK are taken together. A surefire way for CO to lose the fight in New York would be to degrade the CO product to something that Delta can match or even exceed, particularly with respect to business travelers. Third, Continental has historically been an airline that uses superior service offerings as a competitive advantage - given that Continental is about half the size of Delta, has only 1/3rd the hubs of Delta, and again will likely be smaller in NYC than Delta within 12 months or so, service levels comprise one of the few areas where CO can decisively outflank Delta.
Jan 4, 2010, 7:01 pm
#24
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It is nice PR, but nothing new. Looking at the proxy covering 2008, the most recent data, both he and LK took no salary for the final seven months of the year and no bonuses were paid to any top guns. I guess LK was just not as loud about it.
With this version, I would want to see their definition of annual profit. Is it just plain net income, is it EBIDTA, is it operating earning before special charges, such as writing off fuel hedges gone south. Also, I would want to see a definition of bonus, whether it is just the annual cash bonus or covers other incentives.
In addition, I see in the SEC filing - http://sec.gov/Archives/edgar/data/3...0410form8k.htm --- that the deal could hurt his 401K and what he gets for employee stock purchase. However, some benefits such as insurance will be picked up by the company. In addition, this will not affect long stock compensation, which is the big payday for a lot of execs, and the calculation of other benes.
For example, in 2008, the seven months of no salary cost Smisek $336,000, but he received $240,000 for the partial year. (His contract salary for 2010 is $730,000.) His total compensation, coming from various sources, was $4.9 million. This included $1.4 million in non-equity incentives that he and LK decided to forego. In sum, he got more than half of his $4.9 million under similar circumstances in 2008.
This may seem nitpicky, but nits can add up.
With this version, I would want to see their definition of annual profit. Is it just plain net income, is it EBIDTA, is it operating earning before special charges, such as writing off fuel hedges gone south. Also, I would want to see a definition of bonus, whether it is just the annual cash bonus or covers other incentives.
In addition, I see in the SEC filing - http://sec.gov/Archives/edgar/data/3...0410form8k.htm --- that the deal could hurt his 401K and what he gets for employee stock purchase. However, some benefits such as insurance will be picked up by the company. In addition, this will not affect long stock compensation, which is the big payday for a lot of execs, and the calculation of other benes.
For example, in 2008, the seven months of no salary cost Smisek $336,000, but he received $240,000 for the partial year. (His contract salary for 2010 is $730,000.) His total compensation, coming from various sources, was $4.9 million. This included $1.4 million in non-equity incentives that he and LK decided to forego. In sum, he got more than half of his $4.9 million under similar circumstances in 2008.
This may seem nitpicky, but nits can add up.
Jan 4, 2010, 10:45 pm
#25
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24,344,569 pax (Continental, all CO affiliates)
18,998,192 pax (Delta, Northwest, all DL/NW affiliates)
Even if DL were to take over 100% of the US operation at LGA (which it is not), it would add
2,450,827 (US Airways, all US affiliates)
making DL
21,449,019, still smaller than CO.
I don't think DL will be overtaking CO in the NY area any time soon, barring a massive pulldown by CO. There just is not enough capacity in the region to pull it off. No need to worry
.
Jan 5, 2010, 8:02 am
#26
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Delta has quite a bit of ground to cover to catch CO and its affiliates in terms of total share of NYC pax. ....
I don't think DL will be overtaking CO in the NY area any time soon, barring a massive pulldown by CO. There just is not enough capacity in the region to pull it off. No need to worry.
I don't think DL will be overtaking CO in the NY area any time soon, barring a massive pulldown by CO. There just is not enough capacity in the region to pull it off. No need to worry
.LGA/JFK pull from Manhattan, Queens, Brooklyn, Bronx, Long Island and Southern CT - and from a much, much smaller degree, northern NJ.
They key difference being households (depart-to-airport points) in Long Island, Brooklyn/Queens and So. CT vs. Northern NJ. The lions share of that traffic still looks to LGA and JFK first - so DL has an advantage to tap it. Those folks are not going to go to EWR unless there is a seriously measurable net cost or total-time difference - and with DL beefing up its NY nonstop frequencies, there is little likelihood that differential will exist going forward.
Jan 5, 2010, 8:31 am
#27
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I don't quite understand the psychology of moves like this and why it would inspire confidence. How does a CEO who has come out and basically said he can afford not to get paid for a minimum of one year inspire confidence? Call me crazy, but I would think a CEO who actually needs to make money would be more inspiring, not one who's already rich enough he can afford not to get paid regardless of how the company performs.
Jan 5, 2010, 11:02 am
#28
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Delta has quite a bit of ground to cover to catch CO and its affiliates in terms of total share of NYC pax. The gap is still substantial. I only have numbers from 10/08 to 10/09:
24,344,569 pax (Continental, all CO affiliates)
18,998,192 pax (Delta, Northwest, all DL/NW affiliates)
Even if DL were to take over 100% of the US operation at LGA (which it is not), it would add
2,450,827 (US Airways, all US affiliates)
making DL
21,449,019, still smaller than CO.
I don't think DL will be overtaking CO in the NY area any time soon, barring a massive pulldown by CO. There just is not enough capacity in the region to pull it off. No need to worry.
24,344,569 pax (Continental, all CO affiliates)
18,998,192 pax (Delta, Northwest, all DL/NW affiliates)
Even if DL were to take over 100% of the US operation at LGA (which it is not), it would add
2,450,827 (US Airways, all US affiliates)
making DL
21,449,019, still smaller than CO.
I don't think DL will be overtaking CO in the NY area any time soon, barring a massive pulldown by CO. There just is not enough capacity in the region to pull it off. No need to worry
.
Jan 5, 2010, 11:15 am
#29
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Meanwhile CO continues to be burdened by the 50-pax scope clause for non-mainline flying, while other carriers have been using large RJs with F cabins for years.