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Jeff @ CAL and merger stance...

hotwing

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Straight-talker takes to the skies

By Jeremy Lemer
Published: March 15 2010 02:00 | Last updated: March 15 2010 02:00

Step on to any Continental Airlines flight today and you will be welcomed by Jeff Smisek, the new chief executive, beaming down from one of the multitude of liquid crystal displays dotted around the cabin. Sporting a smart suit and crisp blue tie, greying hair perfectly coiffed and standing to attention, Mr Smisek's 30-second greeting is a pleasant respite before the obligatory lesson in how to fasten a seatbelt.
Monarchs have their coronations, the Olympics has its torch ceremony, but when dynasties change at Continental, the transition is marked by an in-flight video. Where Larry Kellner, his predecessor, delivered a long eulogy to staff, Mr Smisek's approach is pert, lean and businesslike - not a bad description of the man himself and the airline he wants to build. "I never pat staff on the back and tell them everything is going to be OK if it is not," he says. "You could say I am a little blunt but . . . it comes with integrity and honesty."
Within the company he has served for 15 years, Mr Smisek has developed a reputation as a clever, aggressive and disciplined leader (he goes to the gym every lunchtime), willing to take tough decisions, but also as a team player who "bleeds Continental blue". Indeed, if the world's fifth-largest carrier doesn't make any money this year, Mr Smisek won't either. When he took the top job in January, among his first acts was to wager his $730,000 (€531,000, £480,000) salary and his bonus on returning the company to "sustained profitability".
Not surprisingly the phrase has become a war cry for the 55-year-old and helped set the tone of his corporate strategy. "Candidly, we've lost $1bn since 9/11," Mr Smisek says. "And some of our people had become complacent. 'If we have lost a billion, why can't we lose another billion?' There's an answer to that: we are a business and can't stay in business and lose money."
Mr Smisek has taken over as Continental emerges from one of the toughest decades in the industry's history. For someone fretting about the bottom line, though, Mr Smisek has a deceptively relaxed air. The Texas executive wears an open shirt and smiles easily when he is interrupted fiddling with a part-assembled Chinese New Year gift.
In an unpromising field, Continental has long stood out, making more money in the good times and losing less in the bad times than its direct peers. Observers highlight Continental's strengths, including a young fleet, a powerful New York hub, a leading position in Latin America, good labour relations and a focus on customer service.
Much of the credit goes to Gordon Bethune, who took over the twice-bankrupt carrier in 1994 and transformed it "from worst to first" - the title of his famous book. His successor, Mr Kellner, is also well thought of for steering Continental clear of Chapter 11 in the past decade while rivals were laid low by high fuel costs and the economic downturn.
Following two such highly regarded executives will be a formidable test for Mr Smisek, although he wears it lightly. He admires both men, but says simply, "I think it is important just to be yourself."
For all that, he intends to continue many of the plans that Messrs Bethune and Kellner developed, including driving international revenues. Continental derives more of its sales from international travel than any other US carrier - almost 50 per cent.
Mr Smisek also shares their desire to keep the company independent. In 2008, Continental considered linking with United Airlines as a response to Delta's merger with Northwest, which created the world's largest carrier. People familiar with the matter say Mr Smisek was the first Continental executive to declare his opposition to the deal. He believes that joining the Star Alliance, which is anchored by Lufthansa, gives Continental the scale it needs. "If [Delta] should begin to outperform financially and discover a better mouse trap, we will need to rethink the strategic direction we decided on a couple of years ago. But so far I have been unimpressed by their financial performance."
Mr Smisek says Continental is fighting hard to maintain its crucial revenue premium - the higher fares it has traditionally achieved from corporate travellers - in the face of intense competition. "[Delta] have their gunsights on us . . . but we are holding our own. We are a vibrant competitor and that is why they view us as such a threat."
Mr Smisek's start at Continental was an unlikely one. He was a partner at a Houston law firm, specialising in corporate finance, when Mr Bethune came looking for a general counsel for his turnround team in 1995. Company legend has it that, at the time, Mr Smisek had standing orders with his secretary not to book flights on Continental because their service record was so terrible.
Despite the inauspicious beginning, he rapidly became a member of Mr Bethune's inner circle, using his legal and financial skills to help the company avoid a third bankruptcy. He went on to become president, chief operating officer and a crucial support to Mr Kellner.
Since taking the top job, Mr Smisek jokes, the big changes are that he gets "exponentially" more e-mail and that colleagues rarely stop by just to chat. "Now when someone comes into my office there is an agenda," he says.
He says it will not be easy to achieve his goal of "sustained profitability", which will require a series of "rapid" changes amounting to a "second corporate turnround" of a similar magnitude to the one Mr Bethune engineered. His measure of success is a demanding one. "Making $50m or $100m is not profitability for a carrier of our size. We need to be in a position of making . . . $500m in a year and do that regularly," he says.
Mr Smisek's plan is conventional, however, combining cost-cutting with top-line growth. That means pursuing more revenues from non-ticket sales, such as bag fees and charging customers for seats with extra legroom.
Retaining Continental's edge will also mean tackling the unions, whose contracts came up for negotiation this year. The challenge will be to keep costs down while preserving the company's "secret sauce", its collaborative culture. "I am a huge believer in the work culture here," Mr Smisek says. "We call it 'working together' but what I like to say is that we treat people 'like your momma taught you to' - as we would like to be treated.
"I understand [workers] want more out of life here and they deserve more out of life here. But no matter what you want and deserve, unless there is money to pay you, there is no money to pay you."
Straight-talking is a key part of his strategy on the labour issue - Mr Smisek says it fosters a culture of mutual respect and openness. But while his approach has been appreciated, the message has received a mixed response. "Mr Smisek's 'sacrifice' . . . hardly touches the sacrifices of . . . employees, many of whom have been forced to go without healthcare, have given up on retirement [and] face unemployment," said Captain Jay Pierce, a Continental union activist, after Mr Smisek announced his salary plans in January.
Given those salary commitments, the difficult labour negotiations and the cost-cutting process that Continental, in common with other carriers, is undergoing, it raises the question: why would anyone want to be an airline executive?
"If you like the business of business, there is no business like airlines," Mr Smisek says. "It has everything: it is capital intensive, labour intensive, it is heavily regulated, it is subject to exogenous shocks, it is a consumer business, it has cool technology . . . It is also really dynamic, it changes every day. Competitors can enter your market at 500mph. It is a tough business to make money in, there is no doubt about that . . . But it is addictive."
The CV
Born: 1954, Washington, DC Education: economics at Princeton University in 1976; Harvard Law School 1982. Career: Joined Vinson & Elkins law firm in 1983 and became a partner in 1990. In 1995, moved to Continental as senior vice-president and general counsel. Became president in 2004 and chief operating officer in 2008. Also serves on the board of directors of National Oilwell Varco. Interests: Admits to being "a little dull" and spends most of his spare time with his wife, Diana, a professor at Rice University and editor of the Journal of Feminist Economics, and their two sons. Enjoys working out, walking his dog, fishing and reading.
 

motch

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Don't know where to begin~
 

nimtz

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Well unlike the mcdonald's on exit 15, at least we know who pissed in the secret sauce.
 

Ex737Driver

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SSDD as well as SSDE.
 

densoo

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"Candidly, we've lost $1bn since 9/11," Mr Smisek says. "And some of our people had become complacent. 'If we have lost a billion, why can't we lose another billion?' There's an answer to that: we are a business and can't stay in business and lose money."
And the guys who cost the company $400M in bad fuel hedges? They are where? Oh yeah, still working at CAL. I guess the complacency only applies to the wage workers.
 

tie1on

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a 57.3 percent pay raise to bring the pilots up to the cost of living would be a good start. nothing but pay cuts, downgrades, and furloughs since 1997. some management team.
 

densoo

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nothing but pay cuts, downgrades, and furloughs since 1997. some management team.
It's a brilliant management team. They got their employees to take drastic paycuts, multiple times, while the company was profitable and they were paying out bonuses like a sailor on leave.

The pilots on the other hand, not so much.

Notice how the target is now not break even, but $500m/year above break even. This is the setup for more woe is me, we can't pay you.

The new set point means that CAL can make $499M this year and they can say, sorry, we didn't make our target, we need more concessions.

For every penny below +$500M, they will ask for a penny back from the wage employees.
 
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tie1on

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I wonder if they can run an airline without a 20% cost advantage of their competitors?
 

densoo

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"I understand [workers] want more out of life here and they deserve more out of life here. But no matter what you want and deserve, unless there is money to pay you, there is no money to pay you."

Talk about a shot across the bow. He's loudly said he's not taking any pay or bonus this year, but his incentive program? Not so much....

Smisek was paid $1.4 million under an incentive program that rewards executives for the company's performance over the previous three years. Monday's regulatory filing said Smisek's pledge to forego salary and bonus would not affect future payments under incentive programs. http://www.nj.com/business/index.ssf/2010/01/continental_airlines_ceo_refus.htmlhttp://www.nj.com/business/index.ssf/2010/01/continental_airlines_ceo_refus.html

On 60 Minutes, Steve Croft interviewed Michael Lewis who wrote "The Big Short, Inside the Doomsday Machine" about the Wall Street collapse. Aside from the fact that one private investor saw it coming in 2005 and started betting against the bundled mortgages (and made $725M), this was one of the best put statements I've heard in a long time:

Wall Street is able to delude itself because it's paid to delude itself. One of the lessons of this story is that people see what they're incentivized to see. If you pay someone not to see the truth they will not see the truth. You have to be very careful how you incentivize people because they well respond to the incentives.

Execs are incentivized to take as much from labor as they can in pay, retirement, health benefits, and even jobs. What they take builds their mansions and buys their yachts. The delusion that they are doing what is right goes right up to the Goldman Sachs rep in London saying he is "doing the work of God."

Don't believe it? Here's the interview. http://www.timesonline.co.uk/tol/news/world/us_and_americas/article6907681.ece
 
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njcapt

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Kind of a derail, but this Matt Taibbi article associates the actions of Goldman Sachs and the other big investment firms and old time street hustlers. Very well done.

The article speaks to the actions of incentivation.
 

HHH

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It's a brilliant management team. .

More like greedy, unethical, and selfish. Contrary to the aforementioned and typical "cop out" argument, the job of management is NOT to rape, pillage, and piss of its' employee groups in exchange for $$$. Competent, successful, and ethical managers understand the importance of their "co-workers" and treat them with TRUE dignity and respect. They understand that fellow coworkers hold similar if not a greater interest in the company and its' well being than stockholders, upper management, etc.
 

HHH

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Straight-talker takes to the skies

"I never pat staff on the back and tell them everything is going to be OK if it is not," he says. "You could say I am a little blunt but . . . it comes with integrity and honesty.".

Smisek,
You pontificate that you are a blunt, candid, and honest straight shooter. To be blunt and candid, your greed and arrogance is appalling and lacks any integrity or honesty. You have been paid over $17 million dollars in recent years while the "staff" that actually make CAL an airline have worked under pay cuts in an understaffed and continually deteriorating environment. You have been paid MILLIONS while CAL sells almost all of its product and STILL loses money. In August of last year your predecessor cried that CAL will have to lay off ONE THOUSAND FIVE HUNDRED employees to save $100 million. Later that year that ONE person was "compensated" almost $22 million. You have been part of a team that "mis"-led CAL to lose almost one billion dollars, yet have taken MILLIONS from the company. That same "team" has displayed ZERO integrity in splicing, ignoring, and abusing the pathetic CBA that the CAL pilot group are enduring. Now you say to those that have been sacrificing while you have prospered that they must sacrifice longer and harder. You should be ashamed of yourself.

Your haughty and misleading claim to forgo your salary may fool the useful idiots of blog world, but not the tired, disgusted, and pissed off front line "staff" at CAL - especially the pilot group. This CAL pilot, and thousands of others will burn this place down before ever approving anything worth a penny less than the proposal that was recently submitted by CALALPA. I have no fear of a bankruptcy, merger, or any other threats that you can create.

PS Stop whining about scope. All CAL flying needs to be flown by pilots on the CAL seniority list.
 

CiFIknow

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I'm at Express and hope that CALALPA does not cave one inch as far as scope is concerned. I am a commuter and made it a hobby to count and underline the term "co-workers" in Kellner's monthly letter in every Continental magazine on my ride to and from work. By the way, my record was eight times. I can understand using a corporate "buzz word" maybe once in a while, but eight times in a one-page letter?? Give me a break. By the way, the term "co-worker" was never used less than three times in any of Kellner's letters in Continental Magazine.

I was curious to see how Smisek would approach his letters in the magazine and notice that instead of a full page letter, his consists of one column in english and the second column is the spanish version. And, he has yet to mention the term "co-worker" more or less than once in his short letters.

I know this is completely inane, but maybe Jeff gives less of a sh!t about his "co-workers" than Larry did. And we all know how much Larry "cared".
 
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densoo

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More like greedy, unethical, and selfish. Contrary to the aforementioned and typical "cop out" argument, the job of management is NOT to rape, pillage, and piss of its' employee groups in exchange for $$$. Competent, successful, and ethical managers understand the importance of their "co-workers" and treat them with TRUE dignity and respect. They understand that fellow coworkers hold similar if not a greater interest in the company and its' well being than stockholders, upper management, etc.
In a completely free market it is management's job to make the most profit for the least cost. There is no greed, ethics, or altruism. There is only money. The "true dignity and respect" that you speak of is simply a tool to gain greater productivity at a lower cost. Until they get the employees to work for free--and be happy about it--they've failed at their job. Everything else is socialism.

Unless the employees realize this, they will always be taken of advantage of. There are many fine individuals in the workplace, bosses and peers alike. But this can't be confused with the company. The company as an entity is amoral. It exists to make money for the owner or shareholder and the employee is an obstacle to that goal.

There are no more secretaries because the computer could replace them. There are no more FEs because black boxes could replace them. When they find a way to replace a human being with a machine, they do and they will. People are a necessary evil in a company. If they can be replaced, they will be. When they can convince the traveling public that a single pilot airliner is safe, they'll do it. No pilot, they'll do it.

A CEO's latest statement: "there is no money to pay you."
 
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CiFIknow

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In a completely free market it is management's job to make the most profit for the least cost. There is no greed, ethics, or altruism. There is only money. The "true dignity and respect" that you speak of is simply a tool to gain greater productivity at a lower cost. Until they get the employees to work for free--and be happy about it--they've failed at their job. Everything else is socialism.

Unless the employees realize this, they will always be taken of advantage of. There are many fine individuals in the workplace, bosses and peers alike. But this can't be confused with the company. The company as an entity is amoral. It exists to make money for the owner or shareholder and the employee is only a necessary evil to accomplish that goal.


Thus the irony in the term "co-worker". Insulting to those who look beyond the fluff don't drink the "secret sauce".
 
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mamba20

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Make no mistake about it, Jeff is no friend to pilots. Right now, he is our sworn enemy.
 

HHH

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In a completely free market it is management's job to make the most profit for the least cost. There is no greed, ethics, or altruism. There is only money. The "true dignity and respect" that you speak of is simply a tool to gain greater productivity at a lower cost. Until they get the employees to work for free--and be happy about it--they've failed at their job. Everything else is socialism.

Unless the employees realize this, they will always be taken of advantage of. There are many fine individuals in the workplace, bosses and peers alike. But this can't be confused with the company. The company as an entity is amoral. It exists to make money for the owner or shareholder and the employee is an obstacle to that goal.

There are no more secretaries because the computer could replace them. There are no more FEs because black boxes could replace them. When they find a way to replace a human being with a machine, they do and they will. People are a necessary evil in a company. If they can be replaced, they will be. When they can convince the traveling public that a single pilot airliner is safe, they'll do it. No pilot, they'll do it.

A CEO's latest statement: "there is no money to pay you."

We do not live in a completely free market. The best economic system ever devised by man is capitalism. However, because people are inherently flawed, pure capitalism needs certain boundaries. Unfortunately, as those operating within the system drift away from a moral compass there needs to be greater boundaries enacted to protect the integrity of the system. BTW Socialism is NOT the solution.

Most if not all successful companies treat their employees with dignity and respect and as an essential member of the company. Those that have not figured this out (and operate within your oversimplified paradigm) are in a continuous cycle of struggle and hardship. As I always encourage those that believe in the false hope of liberalism - just look at the facts of history.

BTW Your first paragraph sounds like the pathetic mantra of current corporate leadership. Sorry, but that simply does not and has never been a viable and successful long term strategy. More importantly, those societies that fall away from ethics and morals always end up becoming insignificant.
 

NEDude

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Unless the employees realize this, they will always be taken of advantage of. There are many fine individuals in the workplace, bosses and peers alike. But this can't be confused with the company. The company as an entity is amoral. It exists to make money for the owner or shareholder and the employee is an obstacle to that goal.

That is the mindset of failing companies. Most successful companies, that I have seen anyways, tend to view their employees as the tools by which they make money. This is espescially true in customer service oriented companies. Unfortunately they do not teach this in most MBA programs now. Which is why most truly succesful and innovative companies are founded by, and run by, people with little to no formal business education.

BTW I think it would be interesting to compare the decline of the American business to the rise in MBA prgrams. I bet there is a link.
 
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