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United Continental Holdings announced the abrupt departure of its CEO Jeff Smisek yesterday along with two other officials.
The announcement came on a day that United suffered technical issues, this time with the recently updated United.com, which failed and forced the airline to tell travelers to use its mobile site only for check-ins and reservations. Considering United’s long history of failing to fix its technology woes, following its merger with Continental in 2010, one wouldn’t have been way off base to think that this latest failure finally forced the board to drop Smisek as CEO in a straw-that-broke-the-camel’s back moment.
Buried at the end of the press release announcing new CEO Oscar Munoz, a United Continental board member who was president and chief operating officer at rail operator CSX, was this note:
The departures announced today are in connection with the company’s previously disclosed internal investigation related to the federal investigation associated with the Port Authority of New York and New Jersey. The investigations are ongoing and the company continues to cooperate with the government.
This is much more interesting.
The origin of this investigation — which is not only internal at United but is also a more troublesome federal case involving the U.S. Attorney’s office — has its roots in a dinner between United’s Smisek and Port Authority of New York and New Jersey Chairman David Samson in September 2011. Samson was chairman from February 2011 until he resigned in March 2014, following disclosures in the Bridgegate scandal. Samson is a close ally of New Jersey Governor Chris Christie and is a political heavyweight in the state, serving as Attorney General for a time, among other roles.
United wanted financial assistance to expand the PATH train, a subway line that begins in midtown Manhattan, to Newark Liberty International Airport, where it is the dominant airline.
At this dinner, Samson had a more personal concern: It took him and his wife too long to get from New Jersey to their second home in South Carolina during the weekend. If only there was a direct flight from Newark to make this trip easier.
At Newark United Airlines controls Terminal C, and also operates flights out of Terminal A. Terminal C is the best of the three terminals at the airport, often the only one that can keep pigeons from roosting in the seating areas.
The other player is the Port Authority of New York and New Jersey, a bi-state agency responsible for operating the region’s airports, which including Newark, LaGuardia, and John F. Kennedy airports, as well as tunnels and bridges, including the George Washington Bridge. The closure of this bridge for political purposes likely torpedoed Governor Christie’s chance at the Republican nomination for president in 2016, and a related investigation has so far implicated multiple appointees in allegedly illegal behavior. Including Samson.
The Port Authority is historically where political operatives from both New York and New Jersey have gone to wage petty battles with one another while earning hefty six-figure salaries, all the while wreaking havoc on people commuting in or visiting the region. The agency is a constant target of federal probes into kickbacks and improprieties similar to the one that Smisek and United are contending with. It’s because of the Port Authority that the Vice President compared LaGuardia to a third-world airport and the best terminal in the city is actually run by a division of Amsterdam’s Schipol Airport, largely outside of the Port Authority’s oversight.
At a time when smaller cities around the country are suffering because legacy carriers eliminated their flights and lifelines, United is accused of adding one just for a political favor at one of its most important hubs, Newark Airport.
The federal investigation is focused on a roundtrip flight on United regional carrier ExpressJet between Newark and Columbia, South Carolina that flew south on Thursday evenings and returned on Monday mornings. Columbia’s airport was a short 50-mile drive to a second home for Samson.
According to the Bergen Record, which was the first media outlet to break the story in February 2015, the flight “ranked in the bottom 3 percent of all commercial passenger routes nationwide based on the share of seats filled. And it was dead last in that category among routes flying out of Newark Liberty International Airport, The Record’s analysis of nearly 25 million flights over a 19-month period found.”
Short story: This was one of the least-popular flight routes in the entire United States, and it just so happened to provide a short and convenient trip for a powerful politician for more than three consecutive years of cushy three-day weekends.
The Record dove deeper, pointing out that the flight had “a 51 percent average passenger load compared with an average of 80 percent for all flights nationally and 79 percent for all ExpressJet flights from September 2012 through March 2014.”
United cancelled the route three days after Samson resigned from his post.
Missing in this is the passengers who were routinely bumped from flights that could have flown out or into the slot that the Chairman’s Flight took, or the ones who suffered at Terminals A and B because JetBlue, Southwest, Air India, Porter Airlines, and other airlines didn’t have a treat to dangle — or refused to dangle one — that had a direct relationship to powerful politician’s weekend plans.
The case, if nothing else, reveals why it’s so hard to make airports work well in the U.S. and other countries where airports are treated as contract-rich outposts to often pack full of political appointees who have two unifying characteristics: They know next to nothing about operating airports and care little about anything beyond their own self interest. Smisek and his fellow fired executives come off as the bad guys, clearly, but they are hardly alone in how their actions often led to a negative passenger experience. There is a legion of cousins, siblings, spouses, and children of political players that serve in executive positions at U.S. airports, and it’s nearly impossible to point to a positive contribution they make to traveling in America.
According to a regulatory filing, Smisek has agreed to continue to cooperate during the investigation and will receive a multi-million dollar severance of nearly $5 million, among other life-long benefits and restricted stock options.
United’s unions wasted little time showing support for Smisek’s departure. The machinists’ union announced “The dedicated, hard-working employees at United deserve better than the questionable leadership Jeff Smisek provided,” said General Vice President Sito Pantoja. “We look forward to working with new CEO Oscar Munoz, who we hope will respect the good people at United and provided them the tools to put their airline back on top.” They weren’t alone, as legions of employees openly hated Smisek.
Munoz has plenty to do at United. Operations and on time performance were among the worst in the industry, with executives promising as recently as last week that this time, really, things would be better. And they needed to get better. Despite a booming economy in air travel, United’s profits were minimal compared to its competitors.
As far as the case goes, United Continental general counsel Brett Hart said on a conference call today that the airline’s internal investigation is ongoing, as is the federal probe. United officials declined to comment on the federal investigation other than to say that the airline is continuing to cooperate with it.
As for the United.com outage that was the bad part of United’s day before things became more bad?
New CEO Munoz said he’d heard about the outage at United.com but couldn’t provide any further comment on it at this time.