Wednesday, August 31, 2016

Discarded airline bosses are walking away with eye-watering payouts

Scoot Kirby

As president of US Airways, Scott Kirby cut costs by eliminating free non-alcoholic drinks for coach passengers. This week, he was probably popping the cork on something fizzy. On Tuesday, American Airlines, which took over US Airways in 2013, announced that Mr Kirby is out of his job—and filings show that he is walking away with $13m and lifetime flying privileges.

For passengers who have felt the pinch of every airline cost-saving manoeuvre, the discrepancy will feel cruel. So-called golden parachutes are standard practice in the corporate world, and Mr Kirby’s is peanuts compared with, say, Steve Wynn, a casino mogul who negotiated a $358m exit deal. But at least he got peanuts. Airline passengers have found themselves denied even salty snacks in recent years. Employees, meanwhile, have complained of a lack of investment in basic infrastructure.

So they would be forgiven for asking where, exactly, all this money came from. Mr Kirby will receive $3.85m in cash, accelerated vesting of more than 250,000 stock shares (worth nearly $10m), free flights on American for life, and other benefits, according to a filing with the federal government, as first reported by Skift.

The airline industry is enjoying record profits, due, in large part, to low fuel costs. But it is not as if Mr Kirby was rewarded for his excellent work. According to Skift, the president was asked to leave American so that he could be replaced by his chief operating officer. United Airlines immediately announced that it was hiring him as president. It’s not a bad deal for Mr Kirby, who is now next in line for the top job at United, and who presumably wouldn’t have gotten a royal severance package had he simply walked away to join a rival.

Still, his payout is smaller than the one United gave last year to its departing chief executive, Jeff Smisek. Bloomberg estimated Mr Smisek's deal to be worth $28.6m, after he was ousted under suspicion of corruption. (The allegations related to United’s dealings with the Port Authority of New York and New Jersey, which operates the states’ airports, and particularly whether it flew a commercial route simply because it was handy for an official's holiday home.)

Again, there’s nothing particularly unusual about Mr Kirby’s arrangement. It is the context that will rankle with the public. Bank bosses didn’t come under fire for their golden parachutes until their companies crashed and nearly took the global economy with them. Likewise, as flyers pack into ever-smaller seats and enjoy ever-fewer free amenities, their frustration will be amplified by the knowledge that the supposedly cash-strapped, low-margin airlines were able to dig up eight-figure sums for executives whose services were no longer required.

(A.W. - The Economist)

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