MIAMI— The recently departed Jeff Smisek was underrated as United’s CEO. Before you drag out the pitchforks at my title and opening line, let me clarify by saying that I don’t believe that Jeff Smisek was a great CEO or even a particularly good one. He was in fact decidedly average as a CEO though, which made him a better CEO than he was portrayed as. Ergo Jeff Smisek was underrated.

Unfair Comparisons

Before diving into the case for Jeff Smisek, it’s important to discuss an important piece of context. Jeff Smisek had the deep misfortune of running one of the world’s largest airlines during what amounted to a veritable golden age of airline CEOs in the United States. Over the course of his tenure, Smisek was compared to his most immediate peers, namely Richard Anderson at Delta and Doug Parker at US Airways then American, then excoriated for failing to match their standards. That’s an insane standard to judge an airline CEO by, because Parker and Anderson are arguably two of the five best CEOs in the history of the US airline industry.

I mean if you were going to put together a “power rankings” of US airline CEOs based on their performance across a variety of metrics like profits, cash flow, shareholder returns, operational excellence and contextual variables such as their airlines’ raw network earnings potential and the competitive environment, the Top 10 airline CEOs of all time might look something like this.

  1. Herb Kelleher
  2. Richard Anderson
  3. Gordon Bethune
  4. Robert Crandall
  5. Doug Parker
  6. Ben Baldanza
  7. Brad Tilden
  8. David Neelman
  9. Juan Trippe
  10. Maury Gallagher

By my (admittedly subjective) count, 5 of the top 10 and 4 of the top 7 airline CEOs of all time are contemporaries of Jeff Smisek, and that absolutely affects how he is perceived. If you put him up against Ron Wolf, Frank Lorenzo, and Carl Icahn, all of a sudden he looks a lot better.

Moreover, even over the course of his tenure at United, he hasn’t necessarily been the worst CEO in the industry. By the same metrics, here are my “power rankings” of airline CEOs who were contemporaries of Smisek in the US industry.

  1. Richard Anderson – Delta
  2. Doug Parker – US Airways/American
  3. Ben Baldanza – Spirit Airlines
  4. Brad Tilden – Alaska
  5. Maury Gallagher – Allegiant
  6. Mark Dunkerley – Hawaiian
  7. Gary Kelly – Southwest
  8. Jeff Smisek – Continental/United
  9. Bill Franke – Frontier
  10. Tom Horton – American
  11. Bob Fomaro – Air Tran
  12. David Cush – Virgin America
  13. Glenn Tilton – United
  14. Bryan Bedford – Frontier
  15. Jeffrey Erickson – PEOPLExpress

In reality, he’s middle of the pack, not amazing, but not uniquely terrible either. And his record is more defensible than you’d think.

Money Talks

Any defense of Jeff Smisek begins with financial metrics. Measured against Delta or the non-fuel hedging juggernaut of the new American, United’s financial performance over the past five years was subpar. But in absolute terms, United under Smisek’s watch made a cumulative $2.03 billion in net profits and $6.45 billion in operating profits. Over the prior decade combining United and Continental’s figures, those same metrics came in at a cumulative net loss of $14.46 billion and a cumulative operating loss of $10.36 billion. Even in a strong profit environment, that’s a lot of money made.

United was also two years behind Delta in its merger with a slower integration process (partially Smisek’s fault but partially out of his control), which made the head-to-head comparisons always a bit ludicrous. For comparison, in the fifth year after its merger (2012), Delta made a net profit of $1.01 billion. In the fifth year after its merger, United made a net profit of $1.13 billion. Beyond headline profit numbers, Smisek also managed to bring United’s non-fuel costs under control (admittedly by force via Project Quality) and de-leverage United by paying down high interest debt.

Watching Out for Shareholder Interests

The company also returned a boat load of cash to shareholders during Smisek’s tenure, both in terms of free cash flow feeding into dividends and share buybacks, and in terms of share price appreciation (176.4% since 2010). Indeed share price appreciation is probably the best explanation for why he wasn’t fired till now. And all else being equal, Smisek was a decent steward of shareholder capital.

Shareholders are the owners of the airline and as much as we in the media like to beat our chests about airlines selling out to Wall Street, airlines do have to look out for the interests of shareholders as well. In fact many of the cutbacks and outsourcing initiatives that sullied Smisek’s name among employees and customers were directly about putting more money into the pocket of shareholders. Even if some of those were misaligned with the long term interests of shareholders (even as they provided a short run boost), Smisek’s approach was still superior to the historical precedent among airline management of effectively setting shareholder capital on fire over and over again. I’m an airline shareholder myself (not in United but in American and Delta) and I much prefer Smisek’s over-correction in this regard to the historical precedent.

Market Leadership in Capacity Discipline

Another area where Smisek was underrated was in his adherence to, nay market leadership in capacity discipline. For enquiring minds, he seized the title of Grand Poobah of capacity discipline from the three way tie with Richard Anderson and Doug Parker after Delta started building up Seattle and American launched a fare war in the Metroplex post Wright Amendment expiration. Unconfirmed eyewitness reports indicate that Gary Kelly has absconded with the Poobah’s crown to Dallas, where he is rubbing it desperately to see if it can put a spell on investors and make them believe that Southwest too believes in capacity discipline.

Regardless, Smisek was in fact religious in maintaining capacity discipline, sometimes to a fault (*cough* 50-seaters *cough*). His stringency was one of the factors in the industry’s overall financial recovery and as 2015 has seen an uptick in growth amongst competitors, United holding the fort has been one of the factors preventing all out fare wars in several markets. Just the fact that he bought into capacity discipline makes him immediately better than roughly 70% of CEOs in US airline industry history, and his maintenance in 2015 as his competitors gave in to temptation all around him was a gutsy move.

A More Challenging Task

The other thing that’s missing from the deceptively simple Delta comparisons is the fact that United is just a harder airline to profit from than Delta. If you went back to 2010 and switched Anderson and Smisek to the other one’s role, the two airlines would have probably been closer in performance, but Delta would arguably has still been the best performer.

Why? Because of United’s hub structure. United has hubs in many of the largest and most affluent cities in the US, and while that’s great for raw origin and destination (O&D) demand and revenues in those cities, it also exposes United to a way more competitive pressure than Delta. Chicago has three US major hubs (United, American, and Southwest at Midway) plus a huge Spirit presence. San Francisco had Virgin America adding capacity like a drunken sailor for most of the 2010-2015 period and a huge Southwest presence in the broader Bay Area. Los Angeles is a four way battle-royale amongst the four biggest US airlines with healthy Alaska Airlines and Virgin America focus cities plus a huge Southwest presence and JetBlue at Long Beach to contend with.

Denver was a 3-way bloodbath though Frontier is now pulling back. Newark and Washington Dulles were and are technically fortress hub airports, but there is of course plenty of competition in the broader city markets (NYC and Washington). And over the course of Smisek’s tenure, both markets changed substantially for the worse, as the Delta – US Airways (later American) slot swap created viable hubs for Delta and American nee US Airways at New York La Guardia and Washington Reagan respectively. Those moves altered a status quo where United had the only viable hub with high frequency traffic to business destinations in those regions. Even Houston saw Spirit build up a large focus city at Bush Airport (and join Southwest in challenging United’s international dominance in the city). United’s presence in such global cities (Denver excluded) has also exposed it to proportionally more competition from Asia’s rising carriers and the Middle East Big 3 (ironically enough more so than Delta). By comparison, Delta is still un-challenged in Detroit, Minneapolis, and Salt Lake City, and has seen Southwest shrivel like a raisin in the sun in Atlanta between 2010-2015.

More Complex Labor Dynamics

Even Smisek’s biggest failure (slow integration between Continental and United) was at least partially hampered by factors beyond his control. Especially on the labor front, one key difference between United/Continental and Delta/Northwest was that for United and Continental, the corporate cultures and company situations entering the merger were completely different, whereas Delta and Northwest were more complimentary. To give just one example of how this has slowed integration, thanks to historical factors (and Gordon Bethune) Continental was a much younger airline in terms of its workforce, as it had grown sharply during the 2000s while United shrank into Chapter 11 Bankruptcy.

The merged carrier’s flight attendants still don’t have a contract and one of the main sticking points is seniority. United’s flight attendants would prefer date of hire (DOH) seniority in the merged list, but due to the nature of the two carriers pre-merger, that would result in a ton of ex-Continental flight attendants being stapled to the bottom of the seniority lists. Meanwhile a blended seniority list would likely anger United employees with 20+ years of experience. Either scenario results in one subset of flight attendants being unhappy, and this kind of complexity simply wasn’t a factor in Northwest/Delta, where the two carriers were in a more similar position pre-merger or American/US Airways (where the US Airways folks got enough of a raise such that seniority became less of an issue).

And on the subject of management negotiating with workgroups under Smisek, the labor side of the bargaining table certainly deserves some blame for the slow pace of new contracts. In many cases, labor used Delta’s contracts as a benchmark for where they expected pay and benefits at United. But United’s employees are not as productive as Delta’s nor do they offer as consistently strong quality of work across a variety of metrics. Heck they are less productive and less consistent than Delta’s employees were when Delta’s employees made as much as United’s do now. Asking for market leader-comparable contracts given that context was always a bit rich, and management was rightly cautious in making sure that it would get enough productivity improvement to justify those raises. Smisek’s record in dealing with labor was terrible in many respects, but the pace of new contracts was at least partially defensible.

A Cautionary Tale

Look Jeff Smisek certainly had his faults. He made a hash of United’s systems integration, meaningfully pissed off plenty of frequent flyers with poor operational quality (as opposed to their meaningless posturing over First Class meals), failed to invest in improving United’s operation and product, and screwed up employee relations. He also made a boatload of cash for shareholders and did a decent job playing the hand he was dealt. And my point in saying all of this is not to say that Jeff Smisek was a great or even pretty good CEO. But he wasn’t the worst CEO of all time or a terrible one, and that’s what a lot of people are making him out to be.

That’s a dangerous mindset to take, because it’s going to create unrealistic expectations for what new CEO Oscar Munoz is actually going to achieve and improve at United. He could certainly prove to be extremely skilled and repair United’s operations and customer/employee relations while maintaining record profitability, and I’m rooting for him to do exactly that. But there’s a decent chance that he’ll still go ahead with some of those outsourcing and ancillary revenue decisions that have made employees and customers so angry, and that United isn’t all that much more profitable under Munoz as it was under Jeff. As I said in my analysis yesterday, simply swapping Munoz for Smisek isn’t the golden pill that will magically make United all better.

Jeff Smisek was underrated.