As an industry, the CEOs of the top 10 publicly listed airlines in the US took home a combined $34.1 million in 2009, while all ten companies put together showed up a combined loss of $3.3 billion.
But some of them are admittedly doing a lot better than the airline industry as a whole. Also, the 2009 figures are a whole lot better than 2008.
In 2008, this same bunch took home nearly $40 million while leaving their airlines reeling under a stunning $19.5 billion loss.
To assign or absolve each of these CEOs from blame, we’ll have to list CEO compensation individually, followed by a brief assessment of each airline’s financial performance.
2009 Airline CEO Compensation (AP data):-
1. Richard H. Anderson, Delta Air Lines – $8.4 million
2. Gerard J. Arpey, American Airlines – $4.7 million
3. William S. Ayer, Alaska Airlines – $4.3 million
4. Glenn F. Tilton, United Airlines – $3.9 million
5. Lawrence W. Kellner – former CEO, Continental Airlines – $3.3 million
(Jeffery A. Smisek – current CEO, Continental Airlines – $0.0)
6. Douglas Parker, US Airways – $2.6 million
7. Robert L. Fornaro, Airtran Airways – $2.0 million
8. Mark B. Dunkerley, Hawaiian Airlines – $1.8 million
9. Gary C. Kelly, Southwest Airlines – $1.6 million
10. David Barger, Jetblue Airways – $1.5 million
Now let’s take a look at which of these CEOs actually earned their pay.
1. Southwest Airlines Co. (NYSE:LUV)
Net income: $99m
CEO compensation: $1.6m
Even though Southwest’s net income dropped from $178m in 2008 to $99m in 2009, Southwest came through the recession in better shape than most other airlines, maintaining a 37 year unbroken record of annual profitability. Widely accepted view that CEO Gary Kelly deserved his $1.6m compensation.
2. Jetblue Airways Corporation (NASDAQ:JBLU)
Net income: $58m
CEO compensation: $1.5m
Turned around a 2008 loss of $85m into a profit of $58m in 2009. Shareholders won’t mind the steep hike in CEO David Barger’s compensation from 1.0m in 2008 to 1.5m in 2009.
3. Delta Air Lines Inc. (NYSE:DAL)
Net income: -$1,237m (loss)
CEO compensation: $8.4m
As far as red ink is concerned, Delta is a serial offender – having shown a profit only twice in the last decade. Extenuating circumstances include reorganization and the merger with Northwest.
The messy reorganization was followed by the $3.1b merger and resultant $8.9b loss in 2008 ($14.4b if you add Northwest’s loss), and topped off with a $1.2b loss in 2009. CEO Richard Anderson’s compensation was slashed heavily from $17.4m in 2008 to $8.4m in 2009.
The post-merger future looks better for Delta, but the clock is ticking and if Delta doesn’t deliver in 2010, CEO Richard Anderson’s 2010 pay will feel the impact again.
4. AMR Corp. (NYSE:AMR)
Net income: -$1,468m (loss)
CEO compensation: $4.7m
AMR suffered a heavy loss of $2.11b in 2008 and $1.46b in 2009, with CEO Gerard Arpey’s compensation dropping only slightly from $5.1m in 2008 to $4.7m in 2009.
AMR Corp. has a complex system of executive compensation, with a performance share plan which pays out based on how well the stock does compared to eight other airline stocks and 26 ’comparator’ companies.
So while AMR Corp is piling up billions in losses, their executives are riding an airline industry boom cycle which propped up their stock price in the last quarter of 2009. It insulates executives from the reality of their abysmal performance. Bottomline – AMR Corp’s entrenched management need a rude wake-up call, and this is no doubt around the corner.
5. Continental Airlines, Inc. (NYSE:CAL)
Net income: -$282m (loss)
CEO compensation: $3.3m
Continental’s past performance, with a $586m loss in 2008 and another $282m in 2009, doesn’t exactly justify the $4.9m in 2008 or the $3.3m in 2009 that was handed out to former CEO Lawrence W. Kellner. But Continental has since rectified the situation.
Kellner’s replacement Jeffrey Smisek took charge in Jan 2010 and has waived his $730,000 salary and all bonuses until such time as Continental shows an annual profit. On top of that, the Continental-United merger and Jeff Smisek’s new job as CEO of the merged United network makes any discussion of pay vs performance for Continental’s CEO a moot point.
6. UAL Corp (NASDAQ:UAUA)
Net income: -$651m (loss)
CEO compensation: $3.9m
United Airlines is another case where executive compensation is defined by an alternate reality. The company posted a $5.4b loss in 2008 topped off by a $651m loss in 2009. But CEO Glenn Tilton’s compensation, instead of being scaled back, has been hiked up to $3.9m in 2009, as compared to $1.7m in 2008.
Another interesting thing to note is that United’s obssession with a merger might have something to do with the fact that CEO Glenn Tilton would have got a $9 million payout due to a change in control clause, if there had been a merger in 2009. The total merger-triggered payout to their top five executives would have been over $17 million.
7. US Airways Group, Inc. (NYSE:LCC)
Net income: -$205m (loss)
CEO compensation: $2.6m
US Airways came a cropper in 2008 with a loss of $2.2b, followed by a loss of $205m in 2009. However, unlike United, US Airways CEO Doug Parker’s compensation did not rise. It actually dropped 31%, from $3.7m in 2008 to $2.6m in 2009.
US Airways did not award bonuses based on financial performance, but only as incentives for achieving specific goals, such as improvements in customer service and baggage handling. Shareholders won’t be happy with US Airways’ financial performance, but Doug Parker won’t be taking too much heat for his pay package.
8. AirTran Holdings Inc. (NYSE:AAI)
Net income: $134.66m
CEO compensation: $2.0m
In a pattern identical to Jetblue, Airtran also turned around a loss of $266.3m in 2008 into a profit of $134.66m in 2009. CEO Robert Fornaro - same as his Jetblue counterpart – got a half-million compensation hike in 2009, up from 1.5m in 2008 to 2m in 2009.
9. Hawaiian Holdings Inc. (NASDAQ:HA)
Net income: $116.72m
CEO compensation: $1.8m
Hawaiian Airlines hasn’t gone out of its way to reward their CEO in the last two years. Mark Dunkerley got no options or bonuses in 2009, and found his compensation nearly the same (1.8m) as in 2008 ($1.84m) and a long way down from a whopping $5.54m in 2007. This inspite of three years of consecutive profits.
10. Alaska Air Group, Inc. (NYSE:ALK)
Net income: $121.6m
CEO compensation: $4.3m
Alaska Airlines, same as Airtran, and Jetblue, turned around a loss of $135.9m in 2008 into a profit of $121.6m in 2009. However, unlike the CEOs of Jetblue and Airtran who got an extra half milion each, Alaska Airline CEO William Ayer saw his compensation jump from $1.58m in 2008 to $4.3m in 2009. Under the circumstances, it seems a bit excessive.
In summary, if you’re looking for overall trends from all these numbers, take a look at the chart below. It looks like the legacy carriers and discount airlines are marching to two different drummers.
In the case of the legacy carriers - the bigger the company, the bigger is the compensation for the CEO. They’re more concerned with stock price than actual earnings. But in this case, the biggest companies also happen to be the biggest loss-makers, so ironically enough – a bigger loss corresponds to a bigger CEO compensation package.
In the case of the discount airlines, bigger profits correspond to bigger CEO compensation – regardless of the size of the airline.