When Continental Airlines chief Jeff Smisek phoned his counterpart at United Airlines, Glenn Tilton, in early April, the long-awaited merger between these two well-matched partners was finally set in motion. Now the task of building a beautiful relationship begins
Finally, two of the industry's most obviously suited suitors have popped the question. And for United Airlines chief executive Glenn Tilton (far right), it all happened on 9 April, his birthday. With the celebration cake already in the oven for a rival United-US Airways deal, Tilton took a call on his Chicago-Houston hotline from a certain Jeff Smisek, his counterpart at Continental Airlines.
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A CLEVER MOVE
With Continental finally in the bag [barring unforeseen regulatory pitfalls], Tilton can pass United on to what many believe will be a predominantly Houston-originating management team and leave on a high.
Let's face it, being the man to at long last woo Continental deserves plenty of credit for an industry outsider brought into United in September 2002 from a career in the oil industry.
In fact, leaving solid ChevronTexaco for pathetic United did seem an act of madness at the time. United was in terrible shape. From being held to ransom by its pilots in 2000 to the horrific events of September 2001, when two of its aircraft were hijacked by terrorists, United was forced into Chapter 11 bankruptcy just three months after Tilton arrived.
It took United a staggering three years to exit bankruptcy - including the controversial cancellation of its pension plan along the way. With United being virtually the definition of a true legacy carrier, Tilton has worked to strip out the legacy layers of the much-maligned behemoth with mixed success according to observers. Some feel he should have done more in this period to prune the airline's bloated cost base, in addition to extracting major concessions on the labour side.
While that is now an academic question, there is no debate about how Tilton has radically changed the size and shape of United. That journey has been downwards, with United being touted as the incredible shrinking airline. But size is irrelevant to Tilton; his mission has been to drag United back to consistent profitability. That mission has palpably failed.
But during this decade Tilton has demanded an obsession with reining the airline back. "When I started United had over 100,000 employees, today we have 47,500," he said during a speech to the Aviation Club in London recently. Its revenues have fallen from $19 billion in 2000 to $16 billion in 2009. Passenger numbers and RPKs have shrunk.
Almost the only number lines on United's results to have grown are the wrong ones. In the past decade United has lost $16 billion [excluding a $20 billion reorganisation charge in 2005] at the net level. Only twice in these ten years has the airline made a profit.
Despite this picture, United has survived. And back in the early part of the decade that was not a given. Addressing the Aviation Club in late 2005, Tilton was typically frank: "We are here today and will exit Chapter 11 in February 2006 because we were not in denial three years ago about what needed to be done to fix our company, nor are we in denial about what needs to be done in the future to remain viable and competitive."
SURVIVAL MISSION
Five years ago Tilton was answering questions about whether United deserved to remain in existence. After his 2010 speech he drew comfort from the fact that the questions were not about survival anymore, but on his chosen topic of the elimination of economic barriers like foreign ownership.
And while he undoubtedly heads an airline that is heavily in debt and still unprofitable, he does lead one able to dictate terms when it comes to the shape of the US industry going forward. "We have exactly what we need," Tilton says of the merger with Continental. Certainly the route maps of the two carriers dovetail almost perfectly. "It is a thing of beauty from a network perspective," says one analyst. "United has been modelling this stuff for 20 years. They knew all that time ago that Continental was the partner for them from a route structure point of view."
However, while the logic for a United-Continental tie-up is self-evident, getting the stars to align is another matter. Tilton says it was "serious and sincere" about working with USAir, but he adds that the chance to bag Continental "trumps work you already have underway".
Now the hard work of making the merger work begins. In contrast to the management that forged the Delta and Northwest Airlines merger, Tilton and Smisek have not had time to pre-negotiate any agreements with labour. This is no small challenge. The fact that Smisek will be in the front line rather than Tilton, whose relationship with labour has been strained to say the least, should help.
CONTINENTAL'S STRONG TEAM
In fact, it will not only be the accomplished Smisek from Continental's executive ranks that are expected to run the new United. Most observers believe strong managers like financial chief Zane Rowe and head of marketing Jim Compton will be pivotal players in the merged carrier. The only worry for some is the potential for distraction at Continental that the merger will bring and the potential to spoil its strong corporate culture.
On the corporate sales front, the merger of their loyalty programmes redoubles the battle for business travellers with Delta-Northwest. "You would not be surprised that I tell you the two happiest sets of employees in our two organisations are our corporate sales teams," says Tilton.
As he sees out his tenure as non-executive chairman of United, Tilton leaves behind a battered airline on a slow upward trajectory, but safe in the knowledge that it is one with a cool partner that could put it on the real road to recovery. He has plenty of critics of his time at United, who say he has overseen the decline of a once mighty carrier. However, as one commentator puts it: "No matter how bumpy the ride, he has got United to where it needs to be."
So for all Tilton's detractors - ex-Continental chief executive Gordon Bethune famously described him as "clueless" about the airline industry - this polished and articulate executive will be remembered as the man at United who did the Continental deal. And that is something worth being remembered for.
Source: Airline Business
