Hope and change.
Those familiar political themes will echo around United Airlines over the next month as Jeff Smisek, the airline’s new chief executive, embarks on a barnstorming tour aimed at winning over employees and customers of the sprawling airline.
Expectations are riding high for the new United, which boasts an unparalleled global network by dint of its merger with Continental Airlines. Smisek, 56, who was Continental’s CEO, envisions a carrier whose service and teamwork are unmatched.
The merger was legally completed Friday; that’s when Smisek took the reins of the new United Continental Holdings Inc. Now he has about 90 days to convince skeptics, said Greg Davidowitch, a United union leader. If Smisek can’t get workers to buy into the new United, the goodwill and excitement engendered by the $3-billion tie-up could be overwhelmed by rancor and labor strife.
Smisek’s massive team-building mission at Chicago-based United will have to be done against the crushing pressure of combining networks and information systems, and the threat of tumult, as the carrier negotiates contracts with all its employee groups.
Smisek aims to have new contracts in place by 2012, when he expects operations to be fully merged. But many United veterans are impatient to reclaim pay they gave up during the company’s three-year bankruptcy.
If the process bogs down, Smisek could face disrupted service and angry customers, or labor wars like those that have kept US Airways and America West Airlines pilots and flight attendants at each other’s throats five years after that merger closed.
“In my judgment, United can’t wait that long if its goal is to become truly united,” aviation consultant Robert Mann said. “The specter of a US Airways standoff circles overhead like an albatross.”
If Smisek is daunted by the undertaking, he doesn’t show it.
“If you are an airline geek, it doesn’t get any better than this: bringing these two carriers together,” Smisek said last week. “They are the perfect marriage, the perfect fit. I think we’re creating a tremendous carrier here.”
Creating harmony is vitally important because this merger’s benefits will come not from slashing costs but from generating new sales, attracting new customers and connecting cities, analysts said. But striking a balance is crucial because satisfying labor’s demands could nearly wipe out the $1 billion or so in annual benefits the merger is projected to create.
“Is it difficult? You bet. Is it complex? You bet. Will we make mistakes? Of course. We’re human,” Smisek said. “But as long as we act in good faith, we have tremendous prospects.”
Smisek speaks from experience. He and other executives pulled Continental out of a mid-1990s tailspin by unifying a fragmented workforce, a byproduct of four airline mergers, and by creating a common-sense strategic framework that Smisek plans to bring to United.
A Harvard-trained lawyer, Smisek is known as a quick study who has mastered every angle of the airline business in 15 years at Continental, a tutelage that began under then-CEO Gordon Bethune.
“United will be well-served with him as their head,” said airline analyst Darryl Jenkins, who has known Smisek for 12 years. “He’ll be the most capable CEO United’s had in 20 years.”
United has vastly improved since 2008, when a concerned Smisek persuaded Continental’s officers to nix a merger with the Chicago carrier that would have taken off into an economic maelstrom.
And the new United isn’t plagued with the financial or operational problems that beset Continental in 1995, when Smisek decided to jettison a cushy partner position at the law firm Vinson & Elkins to become the struggling carrier’s general counsel.
Smisek had called on Bethune, who recently had been named Continental’s CEO, hoping to gain a new legal client. But instead Bethune sold him on Continental’s promise and offered to teach him the airline business.
“I definitely recognize talent when I see it,” Bethune said. “This guy had a bright eye.”
When he accepted Bethune’s offer, Smisek’s wife, Diana Strassmann — an economics professor at Rice University — had a far better grip on the airline industry, Smisek said. Her doctoral dissertation examined pricing and competition in the deregulated industry.
Smisek had never contemplated an airline career, even though he was raised in an aviation family: His father, Raymond, whom he resembles, was a World War II bomber pilot. His mother, Betty, was a big-band singer with the USO.
Smisek joined a carrier that was rapidly running out of cash as well as coping with a work slowdown by its pilots and lousy service delivered by dispirited workers who were scarred by two trips through Bankruptcy Court.
“I was shocked by how much implicit anger was there,” said Larry Kellner, whom Bethune hired as chief financial officer a few months after Smisek.
Smisek’s first assignment at Continental was to persuade financiers to let it break the leases on its Airbus A300 fleet, which were bleeding the airline dry. Bethune’s parting instruction to the aviation newbie as he headed to New York: “Don’t [mess] it up,” Smisek recalled.
Rather than simply dumping the unwanted planes on the leasing companies, Smisek scrambled all over the world to help find other takers for the aircraft. Instead of feeling burned by Continental, the financiers became long-term partners.
Mann, hired in 1998 to advise Continental’s pilots union on a potential code-sharing deal with Northwest Airlines, said he was taken aback by Smisek’s openness.
“He directed his staff to be absolutely transparent in their dealings with me, and they lived up to his word,” Mann said. “It is a refresher and an eye-opener when you deal with people who like to obfuscate.”
Bethune’s team won over employees by promoting trust and respect, by giving out monthly bonuses when the airline ran smoothly and by providing constant updates on whether it was meeting performance goals, such as operating more than 80% of flights on time.
“It all comes down to expectations, communication,” Kellner said.
Since then, Continental enjoyed a remarkable run under the Go Forward Plan, the strategic framework first crafted by Bethune’s inner circle in 1995. Every year, executives map out finance, market, product and people plans for the year in simple terms, an approach that enabled Continental to navigate market shocks that sent United and other carriers into bankruptcy.
Smisek plans to bring Continental’s business approach and people-first culture to United, as well as a cadre of senior executives who are veterans of the 1995 turnaround. He takes pride in low turnover at the carrier and smooth succession planning. Kellner took over from Bethune when he retired in 2004; Smisek succeeded Kellner at the start of this year.
After Smisek signed merger documents Friday, he planned to roam Chicago’s O’Hare International Airport to meet employees, his preferred way to size up operations. On his schedule for the next day: hosting the first of many CEO Exchanges, question-and-answer sessions with United workers around the world.
Longtime United employees may be taken aback at first by Smisek’s shoot-from-the-hip style, say people who have seen him in action. He’s whip-smart, funny and seeks out dissenting views from staffers, associates say.
“Gordon [Bethune], lots of times, would take a strong position just to see if you’d push back,” said Kellner, who left Continental at the end of 2009 to pursue a career in private equity. “Jeff’s like that. He’ll take strong positions just to see if he can smoke out the reactions.”
Preaching dignity and respect, Smisek probably will have little patience for the grudges that lent a corrosive edge to United’s employee relations over the last quarter-century: the 1985 pilots strike, the wealth and wages lost as employee ownership of the carrier ended amid its 2002 bankruptcy and the 2008 temporary injunction it won against pilots for an alleged sick-out.
“There’s an old saying that we use here a lot: There’s no rearview mirror on the flight deck,” Smisek said. “Because it doesn’t matter what’s behind you. If you’re going 540 miles per hour, who the hell cares what’s back there, right? So you need to look forward. There’s nothing we can do about our past or United’s past. But we can work together to create a tremendous future.”
Not that it will all go smoothly. In 10 months at Continental’s helm, Smisek has upset some passengers by introducing charges for exit-row seating and by phasing out food for most domestic flights, service touchstones that used to distinguish it from other U.S. carriers.
With the United merger, he risks throwing workers at both carriers into turmoil. But Davidowitch, leader of United’s traditionally activist flight attendants union, said he likes what he’s hearing from the new leader.
“From where we’ve been and all we’ve gone through, it’s pretty exciting,” Davidowitch said.
“He’s a change agent,” Bethune said of Smisek. “United has never seen this magnitude of change they’re about to take on.”