Donald J. Carty, the head of American Airlines, said Monday that he made a "big mistake" in not disclosing to the airline's unions that top American Airlines execs would receive huge retention bonuses and a sweetener for their pensions -- even as three airline unions voted to cut their own pay to keep the ailing airline from declaring bankruptcy.
Carty's wrong. His big mistake was awarding himself and six other senior management suits big bonuses. This we learn at the close of a quarter in which American Airlines lost more than $1 billion.
Bonuses, after all, are to reward success. Earth to Carty: By no measure is losing $1 billion in a single quarter success.
Carty claimed the bonuses were necessary to retain airline executives who otherwise might retire or go on to work for another company -- presumably not a rival and also nearly bankrupt airline. But when an airline is talking about laying off rank-and-file workers, the big cheeses leaving should be a good thing.
"They've got layers and layers of management," said Morten Beyer, an aviation consultant with Morten Beyer & Agnew in Arlington, Va. "They undoubtedly have many people who are qualified to perform many functions. American's strategies can't be all that great, given the record they've got. It might be better to replace all those guys and get some new thinking."
To be fair, the airline's woes aren't entirely the fault of management. Sept. 11 cut deeply into the airline business. Then the war in Iraq soured some consumers on flying just as they were starting to get back in the air. Fear of SARS isn't helping.
Airline executives shouldn't shoulder all the blame for events beyond their control. They can be blamed, however, for not responding quickly to those events and for prices that have driven consumers in droves to low-priced competitors.
Carty explained that with his agreement to voluntarily cut his $811,000 salary by 33 percent, "I am the lowest paid CEO among the major carriers." With the retention bonus, Carty stood to earn $1.6 million annually. These perks would have doubled the executives' pay if they stayed through 2005.
Boo hoo -- except he's wrong. According to the Atlanta Journal-Constitution, James Parker, the CEO of Southwest Airlines, earned a salary and bonus of $492, 000 in 2002 -- and Southwest is the only major carrier that turned a profit last year. (American is larger: It carried 2 million more passengers last month than Southwest.)
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