These have been turbulent times for United Airlines, Chicago’s hometown carrier. Customers gripe about its notoriously late arrivals, sloppy baggage handling, and overzealously canceled flights. The airline placed dead last among the big five domestic carriers in J.D. Power’s 2016 customer satisfaction study. A sluggish integration of Continental Airlines following the 2010 takeover led to investor unrest. And most embarrassing was the headline-making bribery scandal last year that rocked the carrier and upended its management.
But Oscar Munoz, who began his second year as CEO in September, is leading the airline into clearer skies. In his first year, he settled labor disputes and an investor challenge, improved on-time arrivals, and built a strong new executive team. He even promised to improve the onboard coffee. (No small perk when you’re flying the redeye to Buffalo.) “Oscar has done pretty positive things restoring trust with frontline employees,” says Hunter Keay, an analyst at Wolfe Research.
Munoz, 57, knows transportation: He’s been a Continental board member since 2004 (and moved onto the United Continental board after the merger) and, until taking the airline’s top role, served as president and chief operating officer of the Florida-based railroad operator CSX. He’s also skilled at re-engaging disillusioned staff: “Oscar is a generous listener who cares what the other person is saying,” says United board member Walter Isaacson, an author and former journalist who heads the nonprofit Aspen Institute.
United should have been flying high when Munoz took over. Fuel prices were at historic lows. Business and leisure travel had improved since the Great Recession, and planes were operating at more than 80 percent of capacity. But self-inflicted wounds had left the company in disarray.
United’s slow assimilation of Continental caused it to lag behind its peers financially in key areas: revenue per seat mile and profit margins. Union employees were unhappy over the inability to settle new contracts. Flight attendants picketed periodically. United fell to fourth in traffic among major domestic carriers. And then there was the main reason Munoz took over: CEO Jeff Smisek’s resignation in the wake of a scandal involving the trading of favors with the chairman of the Port Authority of New York and New Jersey.
Although Munoz came from outside airlines and had never been a CEO, he earned high marks at CSX for a collaborative management style in an industry that, like aviation, is capital intensive and oversees a dispersed workforce. “He told stories about the challenges he faced as a Hispanic coming up in the corporate world, which was eye-opening to managers,” says CSX general counsel Ellen Fitzsimmons. (Munoz was unavailable for an interview.)
Only a month into his turnaround drive at United, Munoz was sidelined by a heart attack, which was followed by a heart transplant. When he returned from medical leave in March, he was greeted by this welcome-back message: a proxy challenge from shareholders who charged that the airline’s underperformance was the result of an “underqualified, ineffective, complacent and entrenched board.”
An April settlement with two hedge funds that owned a combined 7 percent of UAL stock resulted in a board reorganization that gave seats to representatives of the hedge funds—PAR Capital Management and Altimeter Capital Management—and named a new chairman, former Air Canada CEO Robert Milton.
Management’s relations with United’s unions have long been contentious, but Munoz settled contracts, most significantly with the carrier’s 25,000 flight attendants. The lack of a combined contract had prevented the newly merged airlines from integrating because Continental crews couldn’t be assigned to United aircraft and vice versa.
Sara Nelson, president of the Association of Flight Attendants and a longtime United flight attendant, recalls meeting with Munoz in February, shortly before he returned to work full time, to discuss the bargaining stalemate. She says that by the next day the tenor of the talks changed, underscoring that the CEO had signaled a new urgency to company negotiators. It will still take a year or more to complete the integration, Nelson says, “but now we have a timeline that makes sense.” (The carrier employs 84,000 worldwide, including 15,000 in the Chicago area.)
Munoz has made passenger-pleasing moves, too. He’s vowed to bring back free snacks in coach. The airline is upgrading its business class service (see below) and has said it plans to add more Economy Plus seats, which offer more legroom for an extra charge.
Munoz’s August hiring of Scott Kirby, recently booted from American Airlines, buoyed Wall Street. UAL shares rose 10 percent on the news and were trading at more than $50 in late September. Investors see Kirby, who will serve as No. 2 to Munoz, as an aggressive manager skilled at increasing revenue, which will be critical because Munoz paid big to buy labor peace and upgrade aircraft. “There’s enthusiasm that United will now be able to close the [profit] margin gap with Delta,” says Joseph DeNardi, an analyst with the investment firm Stifel.
The news isn’t all good coffee and free peanuts. The airline still has to show that it can deliver consistent, sustainable growth in profits, which were down 47 percent during the first six months of this year. Passenger satisfaction, too, will be a tough nut to crack. In 2015, United was nowhere near the best among domestic carriers for on-time arrivals (though it had an uptick in the first half of 2016), flight delays, mishandled luggage, and overbooking, according to statistics from the U.S. Department of Transportation. United ranked 10th out of 13 airlines based on the number of consumer complaints and, disturbingly, had the most incidents involving the death or injury of transported animals.
Until it betters those metrics, United won’t grab market share in competitive hubs, especially among the most lucrative customers: frequent fliers. “It’s hard to win back customers who grew weary of delays,” says Joseph Schwieterman, a professor in the School of Public Service at DePaul University and a former pricing analyst at United. Adds DeNardi: “Oscar’s attracted a lot of talent. Now it’s a matter of executing, which will be more difficult than what he’s done up to this point.”
United is trying to catch up to rival airlines with a service overhaul for international first and business classes that rolls out December 1. Among the promised perks:
- Seats that convert to 6-foot-6 flat beds (almost big enough for Jimmy Butler!)
- Choice of a quilted duvet or throw blanket from Saks Fifth Avenue
- Gel-cooled pillows
- “Do Not Disturb” button
- Cotton PJs (for flights longer than 12 hours)
- Skin care products from Soho House’s Cowshed Spa
- Fancy snacks, including treats from Vosges Haut-Chocolat (in lounges) and lobster mac and cheese
2 months ago