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United Won’t Pay Munoz a Full Bonus: U.S. Airline CEO Pay 2018

Brian Sumers
United Won’t Pay Munoz a Full Bonus: U.S. Airline CEO Pay 2018

After United Airlines’ disastrous 2017 — when security officers in Chicago forcibly removed a customer from an overbooked plane — the company’s board revamped how senior executives earned performance bonuses, adding a segment for customer satisfaction.

By most accounts United has improved. But not enough, the board found.

“While progress has been made, the Company had not yet achieved the desired levels of customer satisfaction,” it said in its recent proxy filing.

CEO Oscar Munoz still did fine in 2018, as United hit targets for pretax income and “strategic” initiatives, and came close to operational goals for on-time performance, lost baggage rates, and flight completion rates.

Munoz earned total compensation last year of $10.5 million, almost $1 million more than in 2017, when he did not take his bonus because of the Chicago airport incident.

Most U.S. airline CEOs earned more total compensation in 2018 than the previous year, and for good reason. Business was booming, and while there was one industrywide blip — fuel prices were up in the second and third quarters — airlines generally handled the adversity well, passing on increased costs to customers.

Delta: Leader of the Pack

Of the leaders of the nine large publicly traded U.S. carriers, Delta Air Lines CEO Ed Bastian made the most, earning nearly $15 million in total compensation.

According to Delta, 94 percent of Bastian’s compensation is at risk, and Bastian takes a base salary of less than $900,000. But the board determined the airline hit many of its operational and financial goals, leading to big bonuses for reaching short-term and long-term incentives.

“Delta’s results seem to justify the CEO’s $15M all-in compensation, in our view, which is up from $13.2 million all-in last year,” Hunter Keay, an analyst at Wolfe Research, wrote in a note. “Delta pays its people generously, but they hunt in packs and deliver results.”

American CEO Doug Parker was the only CEO among the Big Four to make less in 2018 than the year before. His pay dropped about 1.5 percent, to $12 million. He is unique among CEOs, as he takes no salary, and all of his bonus is paid in stock.

Parker also has a more simple bonus structure than most of its competitors. He takes much of his compensation based on the airline’s pretax income.

Keay said he wonders whether it’s time for American to move to “a more balanced framework of compensation targets,” like Delta and United. Analyst Joseph DeNardi of Stifel said the current paradigm, in which Parker’s pay is tied closely to financial performance, should provide comfort to investors. But DeNardi said it may not be having the intended effect.

“What continues to be so curious about American is that the company’s compensation program would seem to align the interests of management well with shareholders,” he said in a research note. “However, a common theme we hear from investors who are frustrated with American’s performance is that there is a sense of complacency and a lack of urgency from management.”

Meanwhile, Southwest Airlines CEO Gary Kelly continues to make less than his peers, even as his company continues to report solid results. He earned total compensation of $7.7 million last year, up about 2 percent compared to 2017.

Kelly’s variable short-term compensation is determined by many metrics, including unit revenue, costs, return on invested capital, on-time performance, and voluntary turnover.

Southwest reached 93.2 percent of its short-term goals, Keay said, slightly more than last year. “For the second straight year, Southwest didn’t hit its short-term annual objectives last year despite what felt like a good, but of course not flawless, year,” Keay said.

Alaska Airlines CEO’s Pay Miss

Kelly did better than Brad Tilden of Alaska Airlines, who runs the fifth-largest U.S. carrier. Tilden was the only CEO other than American’s Parker to earn less in 2018 than 2017. His compensation dropped more than 23 percent to $4.37 million.

Alaska performed fine on short-term pay metrics, including costs, loyalty program growth, and overall profitability. Tilden earned significantly less in his safety-related bonus, perhaps because in August, a Horizon Air employee stole a Bombardier Q400 turboprop and crashed it. Horizon is an Alaska subsidiary.

Tilden also took a hit because Alaska’s relative shareholder return and return on invested capital lagged behind 2017.

At JetBlue Airways, CEO Robin Hayes is paid a bonus based on several factors, such as on-time performance, customer satisfaction, costs, and pretax margin. The board also looks at relative return on invested capital and relative pretax margin.

Hayes made $3.59 million last year, up more than 7 percent year-over-year, with the board finding JetBlue made gains in customer satisfaction, on-time performance, and cost control. But Keay said he might still be underpaid compared to the competition.

“JetBlue’s CEO continues to make relatively modest money given his scope of responsibilities, the challenges of running an airline in complicated airspace, the unique cultural demands of the board, and the high cost of living where JetBlue is located [NYC],” Keay said.

Hawaiian CEO Peter Ingram, who heads a smaller airline, made nearly as much as Hayes, despite not taking over until March 1. Ingram, who had been the airline’s chief commercial officer, earned total compensation of $3.35 million.

Hawaiian uses 19 metrics to determine CEO pay, including unit revenue, unit costs, and return on invested capital. In his note, Stifel’s DeNardi said, it’s “the most in the industry and seems like too many to us.”

Allegiant Air CEO Maury Gallagher earned about $2.85 million last year. He took no salary, but the board gave him a discretionary cash bonus of $825,000 and a discretionary equity grant of about $2 million. Gallagher, who founded the company, also owns a considerable share of it.

Spirit Airlines CEO Robert Fornaro left at the end of December after three years. In his final year, he earned $2.4 million in total compensation. Like several of his competitors, he was paid based on unit revenue and costs, as well as on-time performance.

U.S. Airline CEO Compensation 2018

CEO Airline 2018 Pay 2017 Pay Change Ratio to Median Worker
Ed Bastian Delta Air Lines 14,982,448 13,205,703 13.45% 184 to 1
Doug Parker American Airlines 11,999,517 12,175,486 -1.45% 195 to 1
Oscar Munoz United Airlines 10,493,832 9,561,134 9.76% 144 to 1
Gary Kelly Southwest Airlines 7,726,455 7,560,200 2.20% 98.4 to 1
Brad Tilden Alaska Airlines 4,374,845 5,718,166 -23.49% 80.4 to 1
Robin Hayes JetBlue Airways 3,585,420 3,341,648 7.29% 66.5 to 1
Peter Ingram* Hawaiian Airlines 3,349,324 48 to 1
Maury Gallagher Allegiant Air 2,850,307 2,320,613 22.83% 57 to 1
Robert Fornaro** Spirit Airlines 2,405,551 2,238,356 7.47% 50 to 1

* Promoted from chief commercial officer on March 1, 2018
** Retired on Dec. 31, 2018

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