Skift Take

Under Oscar Munoz, United Airlines has a knack for getting itself in the news with viral stories. But operationally and financially, the airline is doing OK, and sophisticated investors aren't calling for him to leave. He may get more time to fix what ails United.

Almost a year ago, United Airlines CEO Oscar Munoz joined three other senior airline executives for a panel discussion about the art of the apology. In the modern, social-media driven world, they agreed, airlines may have as little as 15 minutes to say they’re sorry — whether they’re at fault or not.

Munoz apparently took the advice seriously. With United embroiled in two new viral incidents, both involving dogs — one died in an overhead compartment after being ordered stowed there by a flight attendant, the other mistakenly sent to Japan rather than Kansas — Munoz has been on something of an apology tour. On Wednesday, Munoz told a group of Chicago executives, “We got it wrong last week.”

As happens almost every time a United issue makes the news, some are asking whether Munoz will survive this round of apologies, or whether the board of directors might try to bring in another leader. While the dog issues likely won’t force a CEO switch, the board could use the situation to reevaluate the carrier’s priorities and make a change. Then again, it may not bother, perhaps calculating he hasn’t had enough time to repair problems he was hired to fix.

“I am very sensitive to the fact that someone’s dog died,” said Mark Drusch, a former executive at Delta Air Lines and Continental Airlines and a vice president at ICF, a consulting firm. “That’s horrible, but that’s not going to bring somebody down by itself. It comes down to, what is United’s board focused on? If they think United’s lost dog is indicative of a service culture that has not been turned around, and they think that’s important for United to preform well financially, then it’s an issue.”

Blame Game

Over the past year, Munoz has received more criticism than almost any big U.S. company CEO.

Still, he’s probably directly responsible for just one issue, when he declined to apologize immediately after security officers called by United employees in Chicago last April forcibly removed passenger David Dao from a plane, injuring him. Had United apologized immediately, the airline might have saved itself from at least some of the bad publicity. But Munoz, who had been trying to repair frayed relations with employees, decided to defend United’s workers.

It’s a fun game to blame Munoz for United’s other issues, but many of them pre-date him. Earlier leaders shrunk United to make it profitable, a winning strategy in the recession and post-recession period, but one that makes it tougher for United to keep pace with American and Delta. Other executives didn’t focus on service training, nor worry much about culture. And previous executives forced job and wage cuts that hurt employee morale so much it’s only beginning to recover.

Still, Munoz, a former United board member who had never worked for an airline before taking the top job in September 2015, has not been able to accomplish what he had hoped — turning the carrier into a premier global airline, with happy work force and a profit margin comparable to Delta’s and American’s. There’s some question about whether Munoz had had enough of an opportunity to implement his vision — “I just need a little more time,” he said in October on United’s third quarter earnings call — or whether he has had his chance, and United should move on.

He has, however, had some successes. While customer service sometimes falters, Munoz took over with a mandate to improve employee relations, and help merge disperate work forces — former United employees, and former Continental workers — who had more often acted like they worked for two different employers. On that front, he has made strides, most notably persuading the Association of Flight Attendants to accept a new contract that puts all flight attendants on the same seniority list.

Even financially United seems to be in an improved position, perhaps part of the reason why investment analysts generally are not calling for Munoz to go.

They mostly cheered United President Scott Kirby’s appearance last week at a J.P. Morgan investor event, with J.P. Morgan analyst Jamie Baker noting demand and yields “remain robust throughout the network,” and close-in yields — that’s business travelers booking last minute — “continue to trend in the right direction, a strong indicator of overall corporate demand.” Some even seem to be warming to United’s plans to add 4 to 6 percent capacity over a three year-period, a strategy the airline predicts will boost margins.

If United’s business keeps improving, Munoz might stick around even if the airline’s public image doesn’t get better. Contrary to popular belief, customers rarely choose airlines based on service, instead preferring a mix of price and schedule, Drusch said.

“If bad customer service were enough to get rid of a CEO, there would have been a lot of CEOs who would have been fired a lot sooner,” Drusch said. “Northwest never had great customer service. But they didn’t got through CEOs because they still performed pretty well.”

Atypical CEO

Of course, Munoz isn’t the typical CEO.

He was a surprise pick in 2015, and insiders have noted that while he clearly understands employee relations, customer service and branding, he may not be as well versed in the minutiae in the airline industry as many senior executives. That was apparent last year at a Congressional hearing following the Dao incident, when Munoz repeatedly deferred to Kirby to answer questions.

Munoz also had a heart transplant in 2016, returning to work two months later. Some executives never return after such a trauma.

If Munoz leaves, there’s little secret about his likely heir apparent. It’s Scott Kirby, a respected industry veteran who joined United in August 2016 from American. Kirby is the architect of United’s growth strategy, with the airline adding flights over the next three years from Chicago, Houston and Denver to help it better compete against similar middle-of-the-country hubs operated by Delta and American. Usually, Kirby has said, larger hubs provide better connectivity for customers and generate higher profits for airlines.

Kirby has also led the charge to re-time flights at many of United’s hubs to facilitate better connections, and help improve United’s revenue management system to make it better able to predict demand.

But while Kirby is known for his financial acumen and his command of hub economics, he may not have as much experience with customer service or employee relations. At United, though, Kirby has worked more closely with employees, and he signed the memo earlier this year introducing United’s new core4 mantra — safe, caring, dependable, and efficient — that is supposed to guide workers.

“This new training is all about taking care of our customers and fellow employees and elevating our customer service to the next level, and the core4 reflects that,” Kirby said.

Kirby, however, has had his own recent faux pas that went viral. Recently, he decided to replace an employee bonus system for on-time operations that awarded some workers big prizes, like cars, and many others with nothing. Employees complained, and Kirby walked it back. “Our change to the operational bonus plan was a mistake, and it’s my responsibility,” he said at the J.P Morgan event.

“Scott definitely went up with the intension of being the next guy,” Drusch said. “But as we know, things happen along the way. Scott was also the next guy at American. Just because you were the next guy on day one doesn’t mean on day 500 you still are.”


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Tags: airline innovation, execs, paxex, united airlines

Photo credit: United Airlines CEO Oscar Munoz speaking with employees following his return to work in 2016. 185784

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