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Struggling Hertz turns to former American Trans Air CEO

November 25, 2014

John Tague, who spent more than a decade in executive leadership at now-defunct Indianapolis airline company ATA Holdings Corp., has landed at another type of transportation company.

Hertz Global Holdings Inc. last week named Tague as its new CEO, appointing the manager credited with boosting sales at United Airlines to restore investors’ confidence in the car-rental company plagued by an aging fleet and sloppy accounting.

Tague, 52, who was formerly president and chief operating officer of United Airlines, also became Hertz’s president, the Naples, Florida-based rental-car company said in a written statement. Described by a former employee as a “customer-focused” executive, he was most recently CEO of transportation provider Cardinal Logistics Holdings.

Hertz chose Tague over Scott Thompson, the former Dollar Thrifty CEO, whom investor Jana Partners called the “obvious choice” to succeed Mark Frissora. Hertz, which said in September that Frissora resigned for personal reasons, hasn’t reported financial results in 2014 and has told investors not to rely on its last three years of financial statements.

A 25-year veteran of the airline industry, Tague boosted United’s revenue at a crucial juncture: just before it merged with Continental.

“While most on the buy-side seemed to be enamored with the prospects of bringing a certain former rental-car company CEO back to the industry, our familiarity (through our airline coverage) with what is required of the president and COO at a large, complex, global airline leads us to believe that the selection of Mr. Tague will prove over time to be a prudent choice,” Fred Lowrance, an analyst with Avondale Partners, wrote in a research note.

Hertz shares rose 4.5 percent on Friday after the announcement, to $23.77 each, paring the loss for the year so far to 17 percent. They rose another 59 cents on Monday.

Faced challenges

Tague has faced challenges before. He joined United in 2003, while the carrier was in the midst of a bankruptcy reorganization that eliminated employee pensions. He focused on customer relations, marketing and sales as he ascended the executive ranks.

In his operations role, Tague efficiently carried out the comeback charted by then-CEO Glenn Tilton, which culminated in the 2010 takeover of Continental Airlines.

Tilton hired Tague as head of sales and marketing because he was looking for someone to apply operational rigor and change a relationship-based system of corporate accounts.

As COO, Tague was responsible for managing the plane fleet, deciding how and when to replace them and how to position them around the world, Tilton said in an interview.

“You need the right aircraft at the right time in the right place,” Tilton said. “That’s all pretty analogous to the Hertz business model.”

Tague’s career hasn’t been all smooth sailing. He had a succession of leadership roles at airlines that ultimately failed before joining United, said George Hamlin, a Fairfax, Virginia-based aviation consultant, including Kansas City, Missouri-based Vanguard Airlines, Chicago-based Midway Airlines and Indianapolis-based American Trans Air.

Those failures, rightly or wrongly, hurt his reputation in the industry, said Hamlin and Robert Mann, an aviation consultant in Port Washington, New York.

“I never understood how he got to that position at United,” Mann said. “I never thought he was a thought-leader. He may have been excellent execution guy, and maybe that’s all they needed.”

ATA years

Tague was with ATA Holdings from 1991 to 2002, with executive roles in marketing (1991-92), president and chief operating officer (1993-95) and president and CEO (1997-2002).

He briefly left ATA in the mid-1990s but was brought back by aging founder J. George Mikelsons so he could retire. Tague led a massive growth effort that saw revenue grow from $300 million to $1.4 billion and employment soar to 8,000.

The Sept. 11, 2001, terrorist attacks started a massive slump in the airline industry that eventually put several airlines, including ATA, out of business. Tague left ATA two years before the company filed for bankruptcy and joined United in 2003.

United success

Dennis Cary, former chief marketing and customer officer at United Airlines, worked under Tague and credited him with boosting ancillary revenues such as bag fees and Economy Plus seating, which sells passengers extra legroom. While the airline was restructuring, oil prices suddenly spiked, he said, blowing some of the financial assumptions of the restructuring plan.

“He got his core three or four commercial leaders and said, ‘We’ve got to find a billion dollars of revenue, because that’s our new reality,’” said Cary, now an airline consultant with ICF International in Chicago.

‘Customer-focused’

Those early moves on ancillary revenue laid the groundwork for today’s surge, Cary said. Shorewood, Wisconsin-based IdeaWorksCompany in July estimated United’s 2013 total ancillary revenue at $5.7 billion, the highest among the 10 largest global airlines.

“He was one of the leaders in that new way of doing business,” Cary said. “John is a customer-focused guy, so he understood the need to change the business model with things like bag fees, knowing that wouldn’t be popular.”

As chief operating officer in 2008 and 2009, Tague spruced up United’s fleet with cleaner planes, invested in plusher front-of-the-cabin seating and realigned operations so that more flights arrived when they were scheduled. The carrier briefly held the industry’s best on-time performance. United was also nimbler after shedding 100 of its oldest Boeing 737s in 2008 on Tague’s watch, as peaking oil prices were followed by a global recession.

Unprecedented opportunity

 “I am honored to have been selected to lead Hertz to its full potential at a time of unprecedented opportunity for the company and industry,” Tague said last week in a written statement. “I look forward to partnering with Hertz employees as we work to earn sustained industry leadership for the benefit of our shareholders, customers and team.”

Thompson said Hertz had made a good choice in picking Tague as CEO and predicted that the company will “return to its proper position as an industry leader” under his stewardship.

“Mr. Icahn’s unequaled track record for picking the right people for the right job speaks for itself,” Thompson said in an e-mail, referring to Carl Icahn, who took a stake of more than 8 percent in Hertz in August and tweeted his approval of Tague’s appointment.

Steve Miller, chairman of American International Group, was a United director during Tague’s tenure. He said Tague was a “constant presence in the board room,” first as head of sales and marketing, later as COO.

“He’s absolutely the right choice,” Miller said. “He has a great business head on him and he’s got deep experience in operations and in something probably more complex than Hertz, operating an airline.”

Frissora’s failures

Hertz investors had sought to replace Frissora, who ran the company for eight years, because of operating and accounting missteps. The day after Hertz withdrew its 2014 forecasts on Aug. 19, Fir Tree Partners, which holds more than 3 percent of the stock, urged the board to replace Frissora, and billionaire Icahn disclosed his stake and said he may seek board representation. Hertz reached an agreement with Icahn in September, replacing some of the company’s directors with his associates.

Hertz had been poised to reap the benefits of higher prices after the consolidation it sowed in the rental-car industry. Its acquisition of Dollar Thrifty shrank the number of major rental-car firms in the U.S. to three from four. Those four, including closely held Enterprise Holdings Inc., controlled about 98 percent of airport car rentals in the U.S., the Federal Trade Commission said in 2012 when reviewing the combination.
 

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