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.
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.
