Continental CEO Kellner to step down at year end and be replaced by company president Smisek
By David Koenig, AP Airlines Writer
On Thursday July 16, 2009, 9:47 pm EDT

DALLAS (AP) -- Chairman and CEO Lawrence W. Kellner will leave Continental Airlines Inc. at the end of the year to return to the private-equity business and will be replaced by company president Jeffery Smisek.

Continental, the nation's fourth-largest airline, announced the change late Thursday.
Kellner, 50, has spent 14 years at Continental, including the last five as CEO. His tenure included discussions with United Airlines over a combination, but talks collapsed last year when United's finances worsened.

In one of Kellner's last achievements, the company this month won antitrust immunity from federal officials for its plan to work closely with United Airlines and other partners in setting prices and schedules for international service.

"It is the right time for this transition," Kellner said, citing the antitrust immunity, which he said "will allow us to continue as an effective global competitor."

Smisek, 54, will take over both of Kellner's jobs on Jan. 1. He has been president and chief operating officer.

Smisek has been responsible for overseeing flight operations, maintenance, labor relations and other duties. A corporate finance and securities lawyer, he joined the airline in 1995 as general counsel and was promoted to president in 2004 and chief operating officer in 2008.

Henry Meyer, the lead director on Continental's board, said it was Kellner's decision to leave.
In recent years, Continental has performed financially better than many other so-called legacy airlines, those that date back before 1978, when carriers were closely regulated by the federal government. It earned profits in 2006 and 2007.

"Larry, Jeff and their team have run the best-performing network airline with the best labor-management trust relationship in the business," said Robert Mann, an airline industry consultant in Port Washington, N.Y.

But like others, Continental was hurt last year by record-high fuel prices -- it lost $585 million -- and this year by plunging demand for air travel, especially among high-ticket business travelers.
Mann said Kellner was leaving at a difficult time in the airline industry. But, he said, the company was in good hands with Smisek and others who helped manage through the fallout from the 2001 terror attacks and a restructuring.

Kellner faced one of his toughest decisions last year whether to merge his airline with UAL Corp.'s United.

Delta Air Lines Inc. was in the process of buying Northwest to become the world's largest carrier, and some analysts believed other carriers needed to consolidate too. But Kellner broke off the talks.

"He made the right call," said Darryl Jenkins, an airline consultant who knows executives at both companies. "Continental's product is much better, and it would have been very difficult to integrate the two products."

Continental under Kellner tried to preserve amenities including food service in coach and free blankets, which he believed set his airline apart.

Although Continental and United did not merge, they will soon be partners in the Star Alliance. This month, the U.S. Transportation Department approved antitrust immunity for the airlines to work together on setting prices and schedules on many international routes. The arrangement could be a precursor to a later merger.

United CEO Glenn Tilton said of Kellner that he "appreciated his leadership as we partnered to gain antitrust immunity to the benefit of our customers and the communities we serve."

When Kellner took over as CEO from Gordon Bethune in 2004, Continental was still recovering from the recession and terror attacks of 2001 plus increasing competition from low-cost airlines such as Southwest, JetBlue and AirTran.

In a restructuring, he extracted concessions from labor groups while avoiding bankruptcy.
Before joining the airline, Kellner was executive vice president and chief financial officer of American Savings Bank, owned by a member of the Bass family investors in Texas. He had also been CFO of real estate and construction firm The Koll Co.

Kellner will leave Continental to lead a new Houston-based private investment firm called Emerald Creek Group LLC.

According to the company's proxy filed with regulators in April, if Kellner resigned other than for "good reason" he would get a lump-sum supplemental retirement benefit estimated at $5.3 million last Dec. 31, plus health insurance and lifetime family travel benefits on Continental.

Last year, Kellner was paid a salary of $296,875, down from $712,500 the year before. The company valued his compensation package at nearly $5 million, but it could be worth much less today because his stock and option grants have lost value as Continental's stock price has tumbled.

Smisek is well-known to Wall Street analysts and industry insiders, who expect a smooth transition.

"Smisek is an airline guy that has touched many facets of the company's functions during his professional growth," said William Swelbar, a director at Hawaiian Airlines' parent and an airline-industry researcher at MIT.

Mike Boyd, an airline consultant in Colorado, said the switch from Kellner to Smisek should be just as smooth as the one that brought Kellner in five years ago.

"It's a very rough job, being an airline CEO," Boyd said. "You might sometimes get a vacation, but you never get a day off."