May 22, 2005
Who Says There's No Free Lunch on Planes?
EVERYONE knows that the airline business is a mess. United Airlines, operating in bankruptcy, just succeeded in punting four employee pension plans, covering 122,000 people, to the Pension Benefit Guaranty Corporation - and, hence, taxpayers. Delta Airlines lost $5.2 billion last year, its worst performance in 70 years of operations. Other airlines, including American, have been allowed by Congress to defer up to 80 percent of their pension obligations.
Pretty dire, all around.
So when an American Airlines flight attendant stood up at the company's annual meeting last Wednesday and suggested how the company could save an estimated $50 million a year, you'd think its executives would have leapt out of their seats with joy. Instead, they hemmed, hawed, said they were looking into the idea and shortly thereafter declared the meeting over.
The flight attendant was Patti Haddon, who had traveled all the way from New York to attend the annual meeting of the AMR Corporation, the airline's parent, in Fort Worth. She is also an AMR shareholder.
Once there, she proposed that the company's executives should revamp the system of travel perks received by thousands of people who don't even work for American. Ms. Haddon said at the meeting that the travel privileges extended to an estimated 70,000 people who are not American employees are, by her calculation, a $50 million-a-year luxury the airline cannot afford.
Why this perquisite, which dates from 2000, remains at American is a mystery shareholders might want to plumb. At Friday's close of $12.42, AMR shares were trading at around a third of their average price in 2000 - the year the company expanded its travel perks to include any person an unmarried employee designates as a friend. (Gay employees are not the issue, because in 2000 their partners had the same travel privileges as spouses.)
Much has happened in the airline business since 2000, almost none of it good. American has asked employees, customers and even taxpayers to dig deep into their pockets or to make significant concessions to help keep it aloft. To save $375,000 a year, for instance, American no longer has pillows in coach on domestic flights. It has also stopped providing pain relievers to customers, for approximately $20,000 in annual savings.
So why continue to offer valuable travel privileges to nonemployees? If AMR went back to charging "extended family members and friends" what it did before - a heavy discount but a bit more than they now pay - it could generate badly needed cash flow, Ms. Haddon said.
Tim P. Wagner, an AMR spokesman, said that Ms. Haddon's estimates were incorrect but declined to provide the program's costs. "It's not a sacrosanct program; we have to leave no stone unturned," he said. "But a lot of employees see it as extremely valuable to them."
Maybe. But American has certainly not hesitated to ask workers for $1.8 billion in concessions, including cutting out meals for flight attendants on long-haul flights. And it cut back on other travel perks. In late 2001, for example, it stopped giving free tickets to workers who had not taken a sick day for a year or more.
Meanwhile, nonemployees keep traveling under the same terms as American's increasingly beleaguered workers. While it's nice to see a company be generous with its workers and their friends, it's clear that American is in no position to play Santa. After all, an employee's spouse has to bear some of the company's financial pain, but most of the frequent-flying friends do not. And when nonemployees fly, workers sometimes can't get a seat.
Ms. Haddon declined to comment beyond what she said at the meeting. Certainly AMR should do an accounting of the travel program to see how much it costs shareholders.
Among those who benefit from the generous travel arrangements are AMR's outside directors, their spouses and dependent children. According to its proxy filing, AMR provides travel to directors and their families and pays the taxes that the perks generate. The company accounts for these perks at cost. Last year, these costs were over a quarter-million dollars. In the last five years, the costs totaled $1.4 billion.
Chump change, of course, for a big airline, but worrisome enough to one unidentified shareholder at the AMR meeting who wondered aloud about excessive directors' travel. One director received more than $61,000 under this perk. That would cover 145 round trips between New York and Tokyo as well as taxes paid at a 40 percent rate, by Ms. Haddon's calculations, which she offered at the meeting. She said her figures were calculated using numbers provided by the office of Charles D. Marlett, AMR's corporate secretary.
One notable on AMR's board who receives travel privileges from the company - as well as money to cover the taxes they generate - is Philip J. Purcell, the embattled chief executive of Morgan Stanley.
First of all, who knew Mr. Purcell stooped to flying commercial? The Morgan Stanley proxy statement, after all, notes that because of security concerns he is required to use the corporate jet for all his personal travel. Last year, Mr. Purcell's personal travel on the Morgan Stanley jet was valued at $467,142.
(The company is probably right in its requirement. Heaven help Mr. Purcell if he were seated next to a Morgan Stanley shareholder on a commercial flight - he might have to endure a tirade about the stock's poor performance under his watch.)
A spokesman for Mr. Purcell said that his travel on American Airlines flights would likely have come about because the Morgan Stanley jet was unavailable on certain occasions.
BUT why Mr. Purcell, who made $22 million last year in salary, bonus and restricted stock, needed to bill AMR shareholders $14,528 in travel and taxes last year is a puzzler.
That any of AMR's directors would choose to bill shareholders for the taxes generated by travel is just another data point for your "executive excess" file. It's not a lot of money. Then again, that's what makes it so cheesy.
Do members of the executive class pay for anything they use or consume? Is it not enough that they make piles of money? Does every single product or service have to show up on some shareholder's tab?
Alas, the answer becomes more obvious by the day.
Who Says There's No Free Lunch on Planes?
EVERYONE knows that the airline business is a mess. United Airlines, operating in bankruptcy, just succeeded in punting four employee pension plans, covering 122,000 people, to the Pension Benefit Guaranty Corporation - and, hence, taxpayers. Delta Airlines lost $5.2 billion last year, its worst performance in 70 years of operations. Other airlines, including American, have been allowed by Congress to defer up to 80 percent of their pension obligations.
Pretty dire, all around.
So when an American Airlines flight attendant stood up at the company's annual meeting last Wednesday and suggested how the company could save an estimated $50 million a year, you'd think its executives would have leapt out of their seats with joy. Instead, they hemmed, hawed, said they were looking into the idea and shortly thereafter declared the meeting over.
The flight attendant was Patti Haddon, who had traveled all the way from New York to attend the annual meeting of the AMR Corporation, the airline's parent, in Fort Worth. She is also an AMR shareholder.
Once there, she proposed that the company's executives should revamp the system of travel perks received by thousands of people who don't even work for American. Ms. Haddon said at the meeting that the travel privileges extended to an estimated 70,000 people who are not American employees are, by her calculation, a $50 million-a-year luxury the airline cannot afford.
Why this perquisite, which dates from 2000, remains at American is a mystery shareholders might want to plumb. At Friday's close of $12.42, AMR shares were trading at around a third of their average price in 2000 - the year the company expanded its travel perks to include any person an unmarried employee designates as a friend. (Gay employees are not the issue, because in 2000 their partners had the same travel privileges as spouses.)
Much has happened in the airline business since 2000, almost none of it good. American has asked employees, customers and even taxpayers to dig deep into their pockets or to make significant concessions to help keep it aloft. To save $375,000 a year, for instance, American no longer has pillows in coach on domestic flights. It has also stopped providing pain relievers to customers, for approximately $20,000 in annual savings.
So why continue to offer valuable travel privileges to nonemployees? If AMR went back to charging "extended family members and friends" what it did before - a heavy discount but a bit more than they now pay - it could generate badly needed cash flow, Ms. Haddon said.
Tim P. Wagner, an AMR spokesman, said that Ms. Haddon's estimates were incorrect but declined to provide the program's costs. "It's not a sacrosanct program; we have to leave no stone unturned," he said. "But a lot of employees see it as extremely valuable to them."
Maybe. But American has certainly not hesitated to ask workers for $1.8 billion in concessions, including cutting out meals for flight attendants on long-haul flights. And it cut back on other travel perks. In late 2001, for example, it stopped giving free tickets to workers who had not taken a sick day for a year or more.
Meanwhile, nonemployees keep traveling under the same terms as American's increasingly beleaguered workers. While it's nice to see a company be generous with its workers and their friends, it's clear that American is in no position to play Santa. After all, an employee's spouse has to bear some of the company's financial pain, but most of the frequent-flying friends do not. And when nonemployees fly, workers sometimes can't get a seat.
Ms. Haddon declined to comment beyond what she said at the meeting. Certainly AMR should do an accounting of the travel program to see how much it costs shareholders.
Among those who benefit from the generous travel arrangements are AMR's outside directors, their spouses and dependent children. According to its proxy filing, AMR provides travel to directors and their families and pays the taxes that the perks generate. The company accounts for these perks at cost. Last year, these costs were over a quarter-million dollars. In the last five years, the costs totaled $1.4 billion.
Chump change, of course, for a big airline, but worrisome enough to one unidentified shareholder at the AMR meeting who wondered aloud about excessive directors' travel. One director received more than $61,000 under this perk. That would cover 145 round trips between New York and Tokyo as well as taxes paid at a 40 percent rate, by Ms. Haddon's calculations, which she offered at the meeting. She said her figures were calculated using numbers provided by the office of Charles D. Marlett, AMR's corporate secretary.
One notable on AMR's board who receives travel privileges from the company - as well as money to cover the taxes they generate - is Philip J. Purcell, the embattled chief executive of Morgan Stanley.
First of all, who knew Mr. Purcell stooped to flying commercial? The Morgan Stanley proxy statement, after all, notes that because of security concerns he is required to use the corporate jet for all his personal travel. Last year, Mr. Purcell's personal travel on the Morgan Stanley jet was valued at $467,142.
(The company is probably right in its requirement. Heaven help Mr. Purcell if he were seated next to a Morgan Stanley shareholder on a commercial flight - he might have to endure a tirade about the stock's poor performance under his watch.)
A spokesman for Mr. Purcell said that his travel on American Airlines flights would likely have come about because the Morgan Stanley jet was unavailable on certain occasions.
BUT why Mr. Purcell, who made $22 million last year in salary, bonus and restricted stock, needed to bill AMR shareholders $14,528 in travel and taxes last year is a puzzler.
That any of AMR's directors would choose to bill shareholders for the taxes generated by travel is just another data point for your "executive excess" file. It's not a lot of money. Then again, that's what makes it so cheesy.
Do members of the executive class pay for anything they use or consume? Is it not enough that they make piles of money? Does every single product or service have to show up on some shareholder's tab?
Alas, the answer becomes more obvious by the day.
