Dec-3-2008

What United Airlines could learn from JAL

Post written by Chris Spagnuolo. Follow Chris on Twitter 13 comments
Haruka Nishimatsu
Haruka Nishimatsu

There was an amazing interview on CNN recently with Haruka Nishimatsu, the CEO of JAL, Japan Airlines. The interview could have been a primer on how to be an ethical CEO who cares about his people and his company more than he cares about his own compensation. According to the report, when JAL slashed jobs and asked older employees to retire early, Nishimatsu cut every single one of his corporate perks, and then for three years running slashed his own pay. In 2007, he made about $90,000 U.S., less than what his pilots earn. In Japan, says Nishimatsu, there’s less of a pay gap between the top and the bottom. “We in Japan learned during the bubble economy that businesses who pursue money first fail. The business world has lost sight of this basic tenet of business ethics.”

The report also details Nishmatsu’s daily routine: “After his morning commute on the city bus, Haruka Nishimatsu heads into the office and gets busy at his desk with the rest of his Japan Airlines coworkers. At lunch, he lines up in the cafeteria and hopes lunch doesn’t get too cold as he waits to pay. Not exactly the glamorous life you’d expect from the CEO of one of the world’s top ten international airlines. ‘Is it so strange?’, asks Nishimatsu.”

Glenn Tilton
Glenn Tilton

Now, consider Glenn Tilton, CEO of United Airlines. Tilton’s total compensation package is the highest in the airlines industry. In 2006, Tilton’s compensation alone exceeded $39.7 million ($38 million in stock and options) in a year the company emerged from bankruptcy and employees were forced to accept painful cuts. In 2007 Tilton was rewarded with $10.3 million and United has an additional plan called the “2008 Incentive Compensation Plan” to again lavishly reward failed decision making. Tilton’s compensation seem pretty excessive in light of his company’s poor performance and the impact of extreme inequity on the morale of the workforce.

Consider this too: Until recently, soaring oil prices were the alleged reason United decided to impose a $15 fee to check your first bag and a $25 fee to check a second bag on domestic flights. Even though oil prices have come back down, United’s baggage fees remain because they are boosting the airline’s dismal finances and moving customers to “a la carte” pricing — passengers pay for the services they use, whether it’s a sandwich bought on board, a checked bag or assistance from a telephone reservationist. United has said it expects to collect $275 million annually from the first- and second-bag fees.

As United Airlines is losing money, cutting their services, and asking you, the flying public, to pay for standard services, or a fee for 5 inches of leg room, Tilton is raking in a seriously inflated compensation package based on a poor performance record. Aside from the basic ethical and moral issues that this raises, on a deeper level think about what this does to morale at United Airlines. I mean, really, who would you rather work for: Nishimatsu or Tilton? Or better yet, who would respect more and work harder for?

The fact that Nishimatsu makes less than his employees is significant. That he takes the bus to work, has a simple office, eats lunch with his employees in the cafeteria, and has cut everyone of his executive perks is really significant. He’s one of them. He cares more about his employees than he does about money. How many CEO’s can say that? He’s also not a top down kind of manager. In his 2008 Greeting on the JAL website, Nishmatsu said:

Strengthening workplaces is not something that can be done entirely from the top down. Currently, an employee-proposed and led initiative called “JAL Tomorrow” is being carried out in order to create a vision for JAL’s future. By the end of fiscal 2007, Group employees had submitted 11,596 proposals and comments concerning the kind of company they want JAL to become, the kind of airline they want to work for. I was very surprised by the number of responses. It is fantastic that employees created their own initiative to help JAL become a company that will be more trusted by customers. The management team and I will continue to support this initiative in every way possible.

Compare that to United performance statistics since Tilton took over as CEO of United in 2002. Here are some stats from the US Department of Transportation’s Air Travel Consumer Report:

  • Capping their steady decline, United tied US Airways in calendar year 2006 for the highest number of complaints per passengers flown (1.36 per 100,000 system-wide enplanements).
  • In the category of customer service problems, which the DOT defines as “rude or unhelpful employees, inadequate meals or cabin service, treatment of delayed passengers“, United holds the distinction of being the worst among the top-10 US carriers for 2004, 9th place in 2003 (Continental took 10th), tied America West for 9th place in 2002 (American took 10th).

And Tilton’s pilots aren’t in love with him either. This year, they went on an all out offensive to remove him from his position. Their main complaint: His excessive compensation package in light of his poor performance. They’ve started a website called Glenn Tilton Must Go. And this was the message they flew around United’s Chicago headquarters this past Labor Day:

Glenns gotta goUnited’s Pilots to Tilton: “Glenn’s Gotta Go!”


Hmmm, not so great for United and Tilton. Nishimatsu is, in my mind, what a true leader should be. Inspiring, caring, fair, and most important, ethical. I’d work for him tomorrow.

Not to be on too big of a Japan vs. U.S. kick these days, but what do Japanese companies understand that American companies don’t? Last month I wrote about Toyota and their commitment to their employees. Now this interview with the JAL CEO surfaces a similar sentiment. If more executives would show more respect and caring for their employees and their companies like Nishimatsu has, maybe they wouldn’t be in the bad shape they’re in today.

If you missed the interview, here’s the complete video:

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  1. Thomas Boyle said,

    In Japan, honor is still an important ethic. In most of the countries I have traveled to I would say the same.

    If you consider, how many centuries other cultures have existed, China, 60, Egypt 50, Japan 40, Russia 30, Europe 30, England 25, …etc … and our own country is just 2 centuries old, perhaps the 2 year old still has much to learn…..

    Tom

    PS. It always makes me wonder, why does the United Nations allow the 2 year old have all the guns? ….Hmmmmm? I bet the 2 year old at your house, has less ‘real’ guns than say Grandma & Grandpa.

  2. Dr. Jerry Dollar said,

    Having flown 1.2 million miles in my life (and growing), I have flown over 50 different airlines. Any business carries a trickle down effect from the office of the CEO. Even without your facts and figures, the sheer pride of the JAL flight crew and cabin staff told me I was dealing with a different corporate culture. Example: UAL to Narita . . . the flight attendant was insulted that I asked her to find a blanket for me. JAL to Narita . . . three flight attendants dropped everything to find a pair of slippers that would fit my oversized American feet!

    Enough said!

    Thanks for the insights,

    Dr. Jerry Dollar
    JV.D...@EnerisQ.com

  3. Avi Weiss said,

    I think the lesson that can be learned are so obvious and simply stated that they require no additional explicit listing.

    I think the real issue is will the United board of directors take action to force reduction in unwarranted compensation, and work to get the company profitable again.

    -avi

  4. Tony said,

    Thanks for another interesting article on running a good company.

    One correction – the United statistics are not actually on United’s own site as your hyperlink suggests. They’re on some kind of shadow site (check the spelling carefully!). :-)

  5. MaxFlight (Max Flight) said,

    From edghopper blog: What United Airlines could learn from JAL. http://tinyurl.com/5mzc68 I miss those business trips to Tokyo.

  6. Chris said,

    Thanks Tony. Correction noted and made.

  7. cspag (Chris Spagnuolo ?) said,

    RT @perrybelcher: Who else thinks $15 to check a bag on Delta is a major scam? @cspag says I do, check out http://is.gd/adus for the proof.

  8. Joy'll Cambridge said,

    I am a former CEO/COO myself of my own firm & for years prior of course, to selling my share of the firm to my associates (at a 500% profit) who became my business partners, I did not draw a salary from the company to help sustain our growth. So many American companies, have it BACKWARDS. Being in such a capitalistic environment as the U.S. they cannot help but be that way unfortunately.

  9. Mac said,

    Contrary to opinions above, JAL is NOT a splendid company.
    JAL, even if a top-10 world airline, suffers from lots of problems about labor-management relations during recent 2 dacades. The airline has labor unions of type of jobs; pilots, flight attendants, engineers, and other type of employees. The relations of JAL and these labor unions are so bad. And average wage of the pilots is high because of the strongness of the pilots’ labor union. As a result, the personnel expenses highly suppressed the management.
    In addition, in the company, they have insider power groups and these factions make JAL not to obtain effective management. The airline is not successful in low cost management, marketing, & diversification.
    Nishigaki, who took office as the president last year, by reducing his salary & frindge benefits, showes his message to radicaly restruct JAL’s efficiency to the labor unions, employees, & insider power groups.
    This type of management; cut CEO’s own benefit first, is NOT strange and a rare case in Japan. Japanese people evaluate much more moral & ethic rather than money, especially when they are leaders. If a Japanese top leader cuts his benefit at first, employees find the re
    ason & assent of the hard management condition.
    According to one Chineses old saying, “Lead the way by setting an example”. Indian Mahatma Gandhi said, “You must be the change you wish to see in the world”. In Japan, even if modern age, many traditional social wisdoms exsist in common.

  10. yaz said,

    i agree with Mac. Japan Airlines is not so good companis of Japan.They walk on thin ice because of their over $100 bil. huge liability for spending their highest abour cost of the airlines on earth. CNN send another messege to the world as a paid publicity on JAL.

  11. Mark said,

    Tell you what–as a 20-year employee of UAL, I’d be happy to trade Tilton for Nishimatsu.

  12. PINGBACK said,

    PINGBACK: http://boardingarea.com/blogs/thingsinthesky/2008/12/06/saturday-links-22/

    Here’s a great article comparing the CEOs of JAL and United. (Hat tip to Max for the link.)

  13. cspag (Chris Spagnuolo ?) said,

    RT @DalydeGagne: Saw recently that CEO of United salary in the millions; CEO of JAL makes less than $200,000…http://is.gd/adus

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