United CEO Forced Out as New Turmoil Rocks Airline

The head of United Airlines quit under pressure Sunday after his warning that the huge airline might “perish” sparked an uproar among its workers, the latest twist in the ongoing saga of the U.S. airline industry following Sept. 11.

The remark by James Goodwin probably was the final straw that prompted directors of United’s parent company, UAL Corp., to replace him as chairman and chief executive. Goodwin, 57, had presided over several other setbacks at United since being named to the top job in early 1999.

But Goodwin’s abrupt departure also exemplifies the chaos that has reigned in the airline industry since the terrorist attacks. That he would even write such a comment, which came in a letter to his employees, underlined the severity of the problems in the industry, which is now expected to lose at least $5.5 billion this year.

UAL alone is expected to show a loss for the July-September quarter of more than $500 million when it reports its results Thursday.

Indeed, the entire airline industry’s dramatic downsizing might not be over, even though the carriers secured a $15-billion federal bailout. Many other airline executives are saying that the carriers, which already have eliminated more than 100,000 jobs since the attacks, might have to retrench further if the slump in air travel persists.

That could mean more layoffs, further reductions in flight service and added pressure on remaining airline workers to accept lower pay and other concessions.

On Sunday, UAL’s board promptly and unanimously named another of its members, John Creighton Jr., to succeed Goodwin. But Creighton is 69, leaving some analysts to suggest that he’s likely an interim chief while the airline looks for another long-term leader.

Creighton said he is determined to steer United into the black. And even though United already has slashed its work force and operations to cope with the plunge in passenger travel since Sept. 11, he warned that United is still conducting a “rigorous examination” of ways to further cut costs.

United, based in the Chicago suburb of Elk Grove Village and the nation’s second-largest airline behind American, already has cut 20,000 jobs and reduced its operations by 26%. But Creighton said “some tough compromises will be required from all of us at United in the short run. Everything is on the table.”

United’s unions applauded Creighton’s election, after being outraged by Goodwin’s letter, which they asserted had scared United’s workers, customers and investors unjustifiably.

And although others said Goodwin was merely trying to ensure that United’s employees understood the magnitude of the airline’s dilemma, the unions representing its mechanics and flight attendants last week demanded that Goodwin be sacked.

“Today’s management shakeup was necessary for United Airlines, its employees and investors,” said Tom Buffenbarger, president of the machinists union.

United’s unions have considerable influence, because UAL is majority owned by its employees, and its board of directors includes union representatives.

The timing of Goodwin’s letter also left many dumbfounded, because it surfaced just as United rolled out a series of television ads that feature United employees talking about the airline. The ads are especially poignant in the aftermath of Sept. 11, because two of United’s jetliners were hijacked and used in the terror attacks, killing all of their crew and passengers.

“Goodwin realized that his time was up,” said Raymond Neidl, an analyst with the investment firm ABN Amro in New York. Neidl said Goodwin, with his “perish” remark, “was just being very blunt and saying this is what needs to be done,” but it still helped seal his ouster because of United’s previous problems.

Goodwin said in a statement that “it is the right time for a new leader” at United, where he spent 34 years.

During Goodwin’s 2 1/2 years at the helm, United was a key factor in the disastrous summer of air travel in 2000, when tens of thousands of flights were canceled or delayed throughout the industry. A labor fight between United and its pilots union, which led to legal job actions by the pilots, was a major contributor to the snags.

Then United signed a lucrative new contract with the pilots to end the dispute, one that saddled the airline with sharply higher labor costs. The new pact also paved the way for more expensive labor contracts at other airlines, just as the airline business was running into turbulence because of the weakening U.S. economy.

At the same time, UAL was trying to buy US Airways in a $4.3-billion deal, mainly to strengthen its presence in the Northeast. But after Goodwin and the rest of UAL’s management spent more than a year trying to complete the deal, it was scuttled three months ago in the face of antitrust objections from the Justice Department.

Most other airlines also have cut back operations by 20% or more in response to the drop in air travel, and some ended service to smaller, unprofitable cities altogether. The industry has received a federal bailout of $5 billion in cash grants and $10 billion in loan guarantees.

But some question whether the bailout will be enough to keep all the airlines flying. So far, they’ve received about half of the $5 billion in cash grants, but they haven’t yet tapped the loan guarantees. The airlines have until next June to apply for the U.S.-backed loans.

Whether the airlines actually slash their operations further rides on whether more Americans decide to fly again in the coming weeks, and whether they’re willing to pay for flights that aren’t on sale.

Even though more people have been boarding jetliners in recent weeks--thanks in large part to the carriers’ current fare reductions--the airlines are still saddled with too many empty seats. And indications abound that travel this holiday season, by air or otherwise, will be down sharply even with lower prices.

“We do not contemplate at this point any added [worker] furloughs, but it’s all going to depend upon passenger demand” and the ability of the airlines to raise ticket prices, cautioned Richard Anderson, Northwest Airlines’ chief executive.

“We will respond as our customers respond in the marketplace,” he said last week in announcing Northwest’s third-quarter results, which were better than expected only because the airline received $158 million in federal aid in September.

With less than a month before the Thanksgiving holiday--the busiest weekend of the year for the industry--American Airlines said its advance bookings for November were down 6% from a year earlier. And that’s after accounting for the 20% reduction in the operations of American, the world’s largest airline, following Sept. 11.

“If the revenues continue to be weak, as weak as they are today, then 20% capacity cuts may not be enough,” said Tom Horton, chief financial officer for American and its parent AMR Corp.

Other airlines also report soft bookings for the rest of this year, as are hotels, cruise lines and resorts. Many people are still unwilling to venture far from home, owing to either continued anxiety about flying, fears of another terrorist-related crisis or the desire to save money in the face of a sluggish U.S. economy.

All manner of travel in the current quarter “is expected to drop significantly” compared with a year ago, and “will remain soft in the first half of 2002,” the Travel Industry Assn. of America, a trade group, said recently.

Even with more people flying again, there are still about 1.5 million fewer passengers taking domestic flights each week compared with the week prior to Sept. 11, according to the airlines’ trade group, the Air Transport Assn.

Some observers, though, are optimistic. Karl Peterson, chief executive of the online travel service Hotwire.com, said his firm has seen steadily increasing bookings for the Thanksgiving and Christmas periods.

Peterson therefore believes fares won’t go much lower. “I don’t think you’re going to see any large-scale reduction” again of the airlines’ operations, he said.

But he and others don’t minimize the troubles faced by the airlines, whose biggest problem is their struggle to get their “yields”--or average fares--high enough to offset their costs and thus turn a profit again.

The number of business travelers, who account for a majority of the carriers’ income because they typically pay higher fares, remains depressed. Because of the economy, corporate travel already was falling sharply before Sept. 11, and there are no signs of a rebound.

“That’s the main problem, the drop in the business-travel sector,” said Bob Jones, an analyst with OneTravel.com, an online travel service. With companies slashing their costs to survive the economic slowdown, cutting travel was one of their first steps, and the skittish atmosphere after Sept. 11 only adds to their reluctance to restore employees’ air travel schedules.

The Travel Business Roundtable, a trade group, recently issued an ominous survey for the airlines. It showed that among business travelers who are now flying less than they did before Sept. 11, a whopping 64% would not go back to their former flying schedules “even with much tighter security” at the airports.

Creighton also is nonexecutive chairman of Unocal Corp., the El Segundo-based oil and gas concern. Creighton said he plans to meet with Unocal’s other directors “to work out my relationship with that company in the future.”