Excessive Pay For Airline Ceos

1 of 2 NEXT

Hear those cheers? That’s the nation’s six legacy carriers celebrating the fact that they are all out of bankruptcy and have recorded two back-to-back profitable quarters for the first time in about a decade.

The glee is much ado about little. The six survivors of the era before deregulation—American Airlines, United Airlines, Delta Air Lines, Continental Airlines, Northwest Airlines, and US Airways—only earned a combined $1.6 billion for the second quarter of the calendar year. Their pretax margins are thin. Despite a surge in passenger traffic, the Big Six are reducing their domestic capacity. Several have gambled on expanding international flights, even though their product offerings in the highly profitable business- and first-class cabins still lag behind those of their overseas competitors.

And all that screaming you hear? That’s us business travelers. We’re enduring schedule-busting, body-breaking service so that the airlines can register their paltry profits. There’s been a collapse of basic services; they haven’t been able to handle baggage responsibly, fly on time, or, in some cases, fly at all. Even those of us who predicted a miserable summer (see “The Summer of Our Discontent”) are stunned by the speed of the Big Six’s operational deterioration.

According to U.S. Department of Transportation statistics released on August 6, the Big Six operated just 64 percent of flights within 15 minutes of their scheduled times during the month of June. It was one of the worst months in the last 12 years. The report also includes a 17-page list of flights that arrived late at least 80 percent of the time. Delta Flight 1891, from New York to Los Angeles, for example, was late every single time in June; the average arrival delay was 2.25 hours. Mishandled-baggage figures jumped 20 percent from a year earlier, meaning more than 450,000 passengers had baggage issues. Additionally, Northwest Airlines canceled 5.3 of its flights that month. And Mesa Air Group, which operates commuter flights for three of the Big Six, canceled 6.4 percent of those flights.

You’d think that all of the service problems and financial weakness would make airline C.E.O.’s a humble and fiscally circumspect lot. But they’re raking in colossal payouts. Shareholders, employees, and passengers are all expected to offer up tribute money to these self-styled sky gods.

Are you shocked by the Portfolio.com multimedia feature that shows U.S. chief executives making 465 times more than the average worker in 2005? That’s child’s play in the airline business.

United Airlines chairman, president, and C.E.O. Glenn Tilton earns 1,000 times what a United flight attendant at the top of the scale takes home. Tilton’s total compensation package for 2006 was estimated at $39 million. After United flight attendants made several rounds of concessions during the company’s bankruptcy, they now earn an average salary of about $31,000. New hires make about half that, which means Tilton earns 2,000 times what newbies do.

Tilton made his millions through the bankruptcy process, in a way the New York Times’ Gretchen Morgenson called “insanity squared.” When he arrived at United, the nation’s second-largest carrier, late in the summer of 2002, the former oil executive suggested that bankruptcy wasn’t inevitable. But the company had filed for Chapter 11 protection before Christmas. During the course of the longest (38 months) and most expensive (at least $325 million in fees) bankruptcy filing in airline history, Tilton wiped out shareholder equity, slashed employees’ pay and dumped their pensions, shrunk the airline’s route network and market share, and left a string of unpaid bills at airports around the world.

1 of 2 NEXT