The cost of flying in style at United Continental…

April 28, 2011

It’s nearly impossible to feel sympathy for the airlines, and surely we’re not the only ones who are weary of shelling out extra money for checking a suitcase, buying a snack box, or getting some actual legroom. Add those fees up over a lifetime of traveling, and we’re talking about a serious chunk of change.

But some airline executives – and even former airline executives – are in for a lifetime of cushier traveling, as recent SEC filings by United Continental Holdings, Inc. (UAL) illustrate. (Note to newer readers: The merger between United and Continental merited a number of footnoted posts last year, all available here in our archives.)

The proxy United Continental filed at the end of the day last Friday disclosed that Kathryn Mikells (former EVP/CFO), John Tague (former EVP of the company and president of United Airlines), and Graham Atkinson (former EVP of the company and President of Mileage Plus) all got some pretty sweet merger-related packages on their way out the door. They got severance and benefits worth more than $11.243 million, $14.367 million, and $6.971 million, respectively. That’s enough to buy a lot of plane tickets, right?

But included in those numbers are a number of enviable benefits, such as continued medical insurance until they reach age 55 (or, in Atkinson’s case, until July 30, 2013). And there’s this one, which really grabbed our attention:

“Flight Benefits. Flight benefits at the level provided to retired officers of UAL immediately prior to the Merger for the remainder of the executive’s lifetime, grossed-up for income tax on imputed income up to an annual cap. Ms. Mikells and Messrs. Tague and Atkinson received lifetime membership in the Company’s airport lounge clubs and their current level of elite status in the Company’s frequent flyer programs.”

According to the chart on page 64, the airline put the value of Mikells’ flight benefit at $23,139 and the tax gross-up at $111,334; for Tague, the benefit is worth $59,221 and the tax gross-up worth $230,289; and for Atkinson, the benefit is worth $83,110, and the tax gross-up is worth $298,456.

United Continental’s current executives will also get these lifetime benefits when they leave, so long as they are not terminated “for cause.” Per the proxy, the flight benefits for Jeffery Smisek, Zane Rowe, Peter McDonald, James Compton, and Irene Foxhall are worth a collective $256,002, and tax gross-up benefits that the company will pay on their behalf are worth more than $1.046 million.

Furthermore, Smisek:

“…is entitled to two parking spaces at the Company’s hub airports in Houston, Texas and Chicago, Illinois for the remainder of his lifetime. The aggregate current annual cost of these parking spaces is approximately $1,200, which has not been separately valued for purposes of the above table.”

Since Smisek is currently 56 years old, it’s likely that he will enjoy that little perk for years to come.

Perhaps the numbers and benefits would rankle less if they hadn’t been filed the day after United Continental filed an 8-K that announced a first-quarter 2011 net loss of $213 million.

Also fresh in our minds is this article, in which Jim Compton, Chief Revenue Officer, discussed customers’ willingness to pay extra fees (given the benign title “ancillary revenues”) in order to “build their travel experience.” United Continental collects $16 per person in “ancillary revenue”, Compton said, which is 15% higher than the number from a year ago. He added:

“We are a leader in ancillary revenues and in innovation and you can expect that to continue with a lot of exciting productions to come. During 2011, the company expects to generate more [than] USD $2 billion in ancillary revenues.”

So while shareholders are wringing their hands over another quarter’s losses, and the rest of us are grinding our teeth as we pay another $25 to check the American Tourister for the return flight home, it’s nice to remember that our “ancillary revenues” are helping to make former airline executives a little more comfortable while they wait for their flights.

Image source: jerandsar via flickr

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