Compensation doesn't add up in Airlineland

By LOREN STEFFY
Copyright 2005 Houston Chronicle

When you look at the list of highest paid executives in Houston last year, one question jumps out.


How can somebody in one of the worst-performing industries make more money than all the energy industry executives whose options and performance were fueled by record oil prices?

The answer lies in what passes for success in Airlineland.

As you'll see elsewhere on this page, former Continental Airlines Chief Executive Gordon Bethune tops the pay list, pulling down $34.3 million, largely because of a generous retirement package.

Since joining Continental as president in 1994, Bethune has led one of the more spectacular turnarounds in the industry.

Under his leadership, a twice-bankrupt carrier pulled itself together, upgraded its fleet and improved customer service. And he did it while throwing off folksy aphorisms comparing airlines to pizza.

But was it worth $34 million?

Continental, after all, is far from fixed, and that was obvious well before Bethune retired at year's end.

It faces many of the same fundamental problems it did in 1994. In the ensuing decade, low-fare carriers have chipped away at market share and driven down fare prices. While Continental lost money in three of the past five years, Southwest Airlines posted profits.

Excluding his $27 million retirement package, Continental last year paid Bethune $7.2 million in salary, bonus and other benefits, according to the company's filings with the Securities and Exchange Commission.

Southwest's chairman, Herb Kelleher, who helped found the airline that has changed the face of the industry, received $710,000. He also received stock options that may eventually be worth another $5 million, based on the company's estimate.

In fact, Southwest's six-member executive team cost shareholders $3.5 million , excluding options.

At Continental, the cost of the top six executives, excluding Bethune's retirement package, was $17.9 million. It would have been higher � $19.3 million � if current CEO Larry Kellner and President Jeffrey Smisek hadn't waived their bonuses.



Estimates are much higher

To be fair, options are a big part of Southwest's compensation plan, and using the company's highest estimates brings the costs more in line � about $18.9 million. Because Southwest stock went sideways last year, those options aren't going to pay out any time soon.

In other words, shareholders didn't get a return, and so executive pay was limited, despite the industry's best financial performance.

Continental shareholders, meanwhile, saw the value of their investment fall almost 17 percent last year.

Again, some perspective is needed. A 17 percent decline by airline standards isn't bad these days. Delta, just a few steps from bankruptcy, is the worst-performing stock in the Standard & Poor's 500 Index this year, falling some 60 percent.

Many of the initiatives begun under Bethune may help bring Continental out of its malaise. The airline is focusing on more profitable international routes and investing in more efficient aircraft.



Problems will continue

But it's far from fixed. As Continental was delivering Bethune's big check, it was asking its employees to surrender some of theirs. The airline pressed workers for $500 million in concessions and got them this spring.

Even before that, Continental workers earned less than the industry average . On an hourly basis, Southwest pays its pilots more.

That's because back in 1994, Continental's turnaround was financed in part by workers' sacrifices. They agreed to lower pay on the promise they would reap the rewards later.

Unlike Bethune,their reward has been more sacrifice It's as if the money went straight from their paychecks to his . Perhaps they could have set up a convenient payroll deduction plan.

We hear a lot of blather from the airline industry about how difficult the business is. They can't control fuel prices, unions are too demanding, Sept. 11 hurt the industry.



A one-time event

Well, Sept. 11 was a one-time event that, from the industry's financial standpoint, is long gone. Fuel has been a component of flight costs since flight began. And labor? Well, obviously unions aren't the only driver of those costs. So whats the answer? Clearly no one knows. But thats the point. For 34 million, someone should.

He earned it during his time with CO

And so have the employees. Yet, they are the ones who keep getting sh*t on?

Under an odd topic title

EmailKid