When United Airlines brought in Oscar Munoz as its CEO a year ago, his hiring was unusual because he came from outside the airline industry.
Munoz had served on United’s board, but he had no direct airline experience, having first worked for AT&T, then Coca-Cola and PepsiCo, and later serving as president of CSX, a rail company.
Given United’s struggles with responding to customers during former CEO Jeff Smisek’s reign, passengers may have wanted United to fill its senior ranks with outsiders charged with making the company more like a typical consumer-oriented business. But because of how the airline industry operates — carriers face more regulation and operational and financial challenges than is typical elsewhere — airlines rarely fill top jobs with newcomers.
So it surprised few industry watchers when Munoz hired two consummate insiders for his management team — president Scott Kirby, who came from American, and CFO Andrew Levy, former president of Allegiant Air. Both started last month, along with new Chief Commericial Officer Julia Haywood, a former consultant who had worked with United.
“Oscar knows that he is not going to be able to run an airline — the operation and the details,” Brett Snyder, an airline industry analyst and blogger, said in an interview. “You want people who have expertise in that. Scott Kirby is a guy who has that in spades.”
Hiring insiders is common in all businesses but the trend seems to be more pronounced with airlines. Several U.S. carriers have replaced their chief executives in the past two years, and other than Munoz, all hired men who had spent much of their careers working for airlines. Frontier Airlines CEO Barry Biffle had 20 years of industry experience when he took over in March 2016, while Ed Bastian, who became Delta Air Lines CEO in May of this year, has spent much of his career at Northwest Airlines and Delta. Bob Fornaro, named Spirit Airlines’ CEO in January, had been the top executive at AirTran Airways until it merged with Southwest Airlines. And Robin Hayes, JetBlue’s chief since early 2015, worked for 19 years at British Airways before joining JetBlue in 2008.
Often, the executives have non-compete agreements, though Kirby did not. Even when they do, they often wait it out.
“There is an old boy network to it,” said Robert Mann, a former TWA marketing executive and an airline industry analyst. “There is no question to that. But these are old boys who have done it and they have been been successful at it.”
Kirby is considered adept at revenue management, or the science behind ensuring an airline captures the most possible money from ticket sales from each flight.
Most other industries have set prices, or if firms vary prices they do it in an easy-to-understand manner. But airlines constantly tweak prices according to demand. Hotels probably come the closest to that process, but they remain less sophisticated than airlines when it comes to both demand and frequency.
“The complexity of airline revenue management is unique,” Mann said. “If telephone carriers charged you the same way airlines do, you would be charged in real time based on network congestion, length of call, and competitive factors in the market. That would be the equivalent to what airlines do in real-time every day.”
There’s even more to it. At United, Kirby will be in charge of deciding the mix of passengers United carries. Snyder gave a flight from Denver to Chicago as an example. Some passengers will be flying nonstop. Others will be traveling from California to the East Coast, with a stop in Denver. Others might start in Denver, but will connect in Chicago on their way to Europe. All pay different fares, so airlines prioritize each type of traveler differently. An airline might try different mechanisms to try to attract more Europe-bound travelers on the Denver-Chicago flight, because they pay higher fares for what is essentially the same seat.
“You’re selling a variety of things that use the same resource,” Snyder said. “You have to figure out how to optimize, and it’s a very hard thing to do. Most industries don’t deal with that.”
After United hired Kirby, analyst Hunter Keay of Wolf Research endorsed the move, noting Kirby had been the “primary architect” of American’s pricing and network strategy. Similarly, Daniel McKenzie of Buckingham Research Group noted, “Scott Kirby is widely regarded as the best when it comes to revenue management, an area where United has fallen short since its merger with Continental.”
Other departments often require insiders, too. When Mann took over as marketing vice president at TWA in 1988, part of his job included explaining the industry’s intricacies to Carl Icahn and his team after the investor took the airline private.
Icahn’s team had mostly run companies in other industries and were always curious about whether TWA could mimic what worked elsewhere, Mann said. But it was never so easy.
“We said, ‘you could do it that way, but here’s what happens if you do it that way,”‘ Mann said. “There was a constant enlightening process.”
Mann acknowledges marketing may seem like a department perfect for an outsider takeover, but even it has challenges. He notes that while airlines seek product consistency, most have so many different airplanes, all of different ages, that it’s hard to guarantee customers the experience they will have.
“Even among people who have a lot of advertising experience or branded product experience, it is rarely to the level of complexity you need to run an airline every day,” Mann said.
United is taking more risks
Despite hiring Kirby as president and Levy as CFO, United still has more outsiders than the average U.S. airline. Munoz surprised some when he named Haywood, a partner at Boston Consulting Group, as executive vice president and chief commercial officer.
That’s a job usually filled by an industry lifer, not a consultant — even one who has worked with airlines.
“You just don’t get to touch things as a consultant at the depth that you have to use them in the operating environment,” Mann said. “Whatever experience an outside consultant thinks they have, they’re about to get thrown into the deep end of the pool.”
Snyder said he was puzzled by Haywood’s hiring, but understands it now that United has hired Kirby. She may offer a fresh perspective, without being responsible for all commericial decisions.
While both Mann and Synder generally endorse hiring experienced management, they acknowledge airlines might consider outsiders for some roles. Mann said carriers sometimes add outsiders to run technology departments, which makes sense, since airlines for so long failed to invest in IT. Synder recommended carriers consider hiring non-airline people to help simplify their loyalty schemes. Most “are insane,” in their complexity, he said.
Still, for other jobs, both said airlines should stick with what works. That’s also the mantra of most institutional investors and analysts, many of whom cheered United’s recent moves. The investors know one person cannot unilaterally fix an airline, but they are nonetheless bullish on Kirby —United’s stock rose roughly 10 percent the day after it hired him.
“These are guys who have invested in Kirby’s last couple of companies, and they know him well,” Snyder said. “They know he has the skills to solve the problems United has today.”