United Continental CEO: We Are Making Money

Exclusive: Jeff Smisek on airline fees, American Airlines bankruptcy fears

NEIL CAVUTO, HOST OF “YOUR WORLD”: Looking at some of these interviews and stories we’ve covered over the years, I was discussing with my staff how there’s sort of a history-repeating pattern going on here.

A while back in the middle of the freefall in stocks, in the middle of a meltdown, and prior to that after 9/11, remember when all the airline stocks were tanking, and now talk just today that AMR, the parent of American Airlines, is in a heap of trouble. For a while that stock trading under two bucks a share, growing concerns that it could go bankrupt, the company denying such concerns, and that the rumors are nasty and unwarranted.

With us now though is one of the powerhouses of this industry, United Continental chairman Phil Smisek -- or Jeff Smisek -- I’m sorry. I’m looking at my next guest here.

Jeff, one of the things that’s interesting when I look at history repeating itself is the risk that we’re going to revisit all this again, that we will go through an airline industry meltdown. Do you think we are?

JEFF SMISEK, CEO, UNITED CONTINENTAL: No, I don’t think so actually, where we are today with a tepid economy, high unemployment, high fuel, and we’re making money. We’re actually making good money at United Continental.

CAVUTO: But would you have been able to do that, Jeff, without the merger? In other words, the feeling seems to be that, without that, it would have been a lot tougher.

SMISEK: Well, I think it certainly has helped.

Obviously, we’re bringing in the synergies that we have expected, but we have had consolidation. That’s been good. We’ve had very good capacity discipline. As fuel prices have risen, we have burned off demand from higher prices. We’ve taken capacity out to match that demand. And also the airlines are now under professional management. And we don’t have sort of the cowboys of old anymore. We’ve got professional management. So those three things I think are very good for the business.

CAVUTO: What about the workers? There seems to be a dichotomy between workers at some of the other airline or concerns about the ones in a combined entity now, United Continental, whether they will be treated the same, whether they will have an equity interest, whether they will share in the growth, the profits, et cetera. You’ve heard all this.

SMISEK: Sure, sure.

From a co-worker perspective, we want to make sure that everybody shares in the upside of the company we’re building. And I think the markets are differentiating United from our competitors. And I think that’s -- and I think that’s a warranted differentiation.

I think that we’ve got a lot on our plate to do to bring these two carriers together, but at the same time; we’re investing in our product. We’re putting $550 million in the interiors just of our existing airplanes, and we’re taking new Boeing aircraft from Jim McNerney, who’s just on a little earlier.

CAVUTO: Right, right.

SMISEK: And actually we see a lot of upside.

CAVUTO: Who in your industry came up with the idea of the leg room fee?

SMISEK: The leg room fee?

(CROSSTALK) CAVUTO: If you have extra leg room, you pay a little extra for that.

SMISEK: Well, I think what we’re trying to do is give customers a choice of products, so they can pick and pay for the things they want and not pay for the things that they don’t.

CAVUTO: But do you think it went overboard? I’m not saying with you specifically. There are some airlines contending if you bring one bag, if you a larger bag -- I always tell people maybe it’s best to fly commando. What’s the deal?

SMISEK: Well, I think what we’re trying to do, again, is give people a choice.

If you and I fly on the same airplane, pay the same price, and you check two bags, you’re cross-subsidizing me unless you are being charged for the bags. It’s just more fair. You’re the one who’s causing...

(CROSSTALK) CAVUTO: So this is just going to be the way of the world?

(CROSSTALK)

SMISEK: It is. It’s absolutely the way of the world. It lets people pick and pay for what they want to use, and not pay for what they don’t want to use.

CAVUTO: You had a meeting today. In fact, you called for it, with Rahm Emanuel, the new mayor of Chicago, and other airline CEOs went to that meeting. What was it about?

SMISEK: Well, it’s about the importance of aviation to the Chicago economy and making sure that Chicago remains competitive.

(CROSSTALK)

CAVUTO: It’s one of the world’s busiest airports already. What does he want to do?

SMISEK: Well, he wants to make sure that we remain an aviation powerhouse. He’s got Boeing here. He’s got United here. There’s a big presence of American here. There’s a big presence of Southwest here.

(CROSSTALK)

SMISEK: We talked about taxes, because, as you know, we’re taxed more heavily alcohol, tobacco, and firearms. That’s a huge burden. We’re not a sin. We’re a good. We’re not a sin. Talked about things we could do about that. Talked about ways to improve the next generation of air traffic control systems so we could have more throughout as well.

CAVUTO: Did you give any suggestions for his boss on taxes, his old boss Barack Obama?

SMISEK: I did. I’m not sure he’ll take me up on it, but I certainly did.

(LAUGHTER)

CAVUTO: Jeff Smisek, thank you very, very much.

(CROSSTALK)

SMISEK: Congratulations. By the way, happy anniversary.

CAVUTO: Thank you. Thank you very much.

(CROSSTALK)

SMISEK: Thanks for having me. Appreciate it.

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