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St. Paul, Minn. — Richard Anderson took the job of running Northwest Airlines in early 2001. Within a month events started to hammer him and the industry: first, the recession, then 9/11, the war in Iraq, and now sky-high jet fuel prices. Add to that, growing competition from low-cost airlines like JetBlue and AirTran pushing down airfares.
The result? United Airlines and US Airways are in bankruptcy. Delta is struggling to stay out of bankruptcy. Northwest itself has racked up losses of more than $2 billion and cut more than 14,000 jobs since the start of 2001.
Anderson couldn't be reached for comment, but as he weighed whether to leave the industry, the future probably didn't look much easier. Consultant Robert Mann of R.W. Mann & Company says it won't be.
"Very difficult work. No fun, frankly, difficult decisions to make, unpopular decisions to make," says Mann.
In the tough last three years, Anderson has done quite well, says airline analyst Joel Denney with Piper Jaffray.
"Northwest has shined very well. I mean they have outperformed most of their peers," says Denney.
Anderson has done much hard work reshaping Northwest. He has cut $1.6 billion from Northwest's annual operating expenses, improved service and built a cash horde of about $3 billion. But there's more to do to ensure the airline's future success. Northwest wants to cut almost $1 billion more in annual labor expenses. That means the difficult task of getting union members to accept painful choices like pay cuts, reduced vacation, more expensive health insurance, and possibly layoffs.
Very difficult work. No fun, frankly, difficult decisions to make, unpopular decisions to make.
The pilots union accepts that some cutbacks are necessary. But the CEO's job is likely to get harder from there, not easier. Contract talks begin soon with the unions representing mechanics and flight attendants, both of which rejected the concessions Northwest proposed last year.
"Nobody wants to sit down and talk to anybody about cutting their pay," says Joel Denney. "But in reality the competition is forcing it on them, and if they want to be competitive over the long term, they're going to have to."
And for all the stress airline executives face, Denney says they aren't paid as well as CEOs in a lot of other fields.
"Richard Anderson, in his position, he took a lot of heat for getting paid too much, as [did] others at some other companies, but the ones at the other companies made significantly more than he did. Well, if you're going to get complaints about your pay either way, might as well get paid better," says Denney.
Anderson's new pay at UnitedHealth Group has not been disclosed. Analysts say the demands airline executives face and they pay they get are moving in opposite directions. Head-hunter Joel Koblentz of Morgan Howard Worldwide says that's creating a catch-22 for the industry.
"On the one hand you want to lower the costs, as Delta did this last week, by dropping executive pay 10 percent, and restructuring its compensation. On the other hand, to attract the kind of quality of people to deal with such a complex issue of leading these airlines, you're going to have to pay up in order to attract that quality of talent--if, in fact, you can attract it at all," says Koblentz.
Finally, Anderson probably felt he could safely leave Northwest without jeopardizing the work he's done to get the airline in better shape. He's turning the controls over to Doug Steenland, his former number two. Steenland says the pair functioned almost like co-CEOs. In fact, says Joel Denney of Piper Jaffray the key job of winning labor concessions has been and remains primarily Steenland's responsibility.
"Would the odds of them getting an agreement have changed because of Friday's decision? No," says Denney. "I think the negotiations continue just as they have and I think Doug will just continue moving forward with those."
Denney says he doubts Anderson was looking to get out of Northwest, but faced with what Denney calls "a great opportunity," he decided to move on. Anderson is not alone. He's the sixth major airline CEO to leave since 9/11, though some, unlike Anderson, were under pressure to go. The last major airline CEO in place before 9/11 is Continental's Gordon Bethune, who announced in January he would retire at the end of this year, earlier than expected.