Fresh blood in the C-suite of United Airlines is widely seen as positive for the carrier, though two departures in the past month raise execution concerns.
“New [chief executive] Oscar Munoz will bring some fresh perspective to UAL,” says David Fintzen, an analyst with Barclays, in a report following the news that Munoz was replacing Jeff Smisek as president and chief executive of the Chicago-based carrier on 8 September.
In addition, Henry Meyer III was appointed non-executive chairman of the Chicago-based carrier’s board of directors with Smisek’s departure.
Fintzen’s comments are echoed by other Wall Street analysts who think Munoz’s so-called freshness could benefit United in a number of ways, from resolving its outstanding labour deals to catching up with its peers in terms of customer experience and investor returns.
The airline has widely been seen as lagging the likes of American Airlines and Delta Air Lines in improving margins, while also being dogged by technological and operational issues that have impacted customer satisfaction.
Michael Derchin, an analyst at CRT Capital, is even more bullish.
“The appointment of Mr Munoz may be a blessing in disguise,” he says in a report today. “At CSX, Mr Munoz helped transform the railroad into an industry leader in customer focus, reliability and financial performance. These are major priorities for UAL, in our opinion, and Mr Munoz could be the right man at the right time to take the helm at an airline that could improve in these areas.”
Munoz was previously president and chief operating officer of CSX, one of the largest freight railroads in the USA. He served as chief financial officer of the railroad before that and has also worked at AT&T and Coca Cola.
However, he has sat on United’s board since its merger with Continental Airlines closed in October 2010. He joined Continental’s board in 2004.
Analysts are positive about Munoz’s familiarity with United’s existing initiatives. These include its $2 billion cost savings programme dubbed project quality, its $3 billion share repurchase programme through the end of 2017 and on-going fleet renewal and upgauging plans that include replacing the majority of its 50-seat regional fleet with larger 76-seat regional jets or mainline aircraft.
“Having the experience of many years on the CAL/UAL board to maintain continuity with a strategic cost and fleet plan that we think is headed in the right direction,” says Fintzen.
Still, Munoz’s acknowledges that he has a lot to learn during an analyst briefing shortly after his appointment.
“In terms of China, [New York] JFK and Newark, I have a ton of calls with all of these folks and I’ll get up to speed very quickly,” he says when unable to answer analyst questions on the topics.
Munoz plans what amounts to a 90-day listening tour in the coming days. He will travel around United’s system where he will meet with its employees to learn about its operations, strengths and weaknesses, he says.
Fintzen and other analysts express some concern about the departure of two C-suite executives in the course of a month. United’s chief financial officer John Rainey left the airline for the same position at PayPal in August, with its treasurer Gerry Laderman currently acting chief financial officer.
They cite the potential for “execution risk” in maintaining United’s policies while also navigating what is a major leadership change.
However, even Rainey’s departure led to calls for fresh blood in the corner office.
"UAL has an opportunity to bring in a true airline outsider with a solid reputation and no cultural baggage who can bring fresh, out-of-the-box ideas to UAL as UAL searches for innovative ways to close the margin gap relative to peers," said Hunter Keay, an analyst at Wolfe Research, in a report on Rainey’s departure in August.
LABOUR RESET
One of the biggest challenges Munoz faces is reaching labour deals with two of the largest labour groups at United: flight attendants and technicians.
“I’m committed with reaching agreements here as quickly as possible with the folks we have outstanding,” he says, adding that he wants to create a “win-win” environment with employees.
Flight attendants represented by the Association of Flight Attendants-CWA (AFA) are an immediate concern. Negotiations with the union, which represents all three of the airline’s flight attendant groups – Continental, Continental Micronesia and United legacy – fell apart in August after they missed a mutually agreed upon July deadline for a tentative agreement.
The AFA subsequently blamed United for stalling and other subversive tactics, seeking federal mediation of the negotiations in August.
“When AFA stops blaming the company and starts simply representing the interests of United flight attendants, we can have a deal within weeks,” said Jeff Wall, vice-president of labour relations at United, in a letter to the AFA on 21 August. “We’re ready to sign an objectively industry-leading contract – not one that looks like American or Delta, but one which addresses the real concerns of United flight attendants, provides industry-leading compensation and allows United to remain competitive on overall labour costs.”
The US National Mediation Board (NMB) has scheduled the first meeting for 22 October in the Washington DC area.
“We believe a fresh perspective will be healthy for United Airlines in all areas, especially where labour relations languished under previous leadership,” says Sara Nelson, president of AFA International, in a statement. “We look forward to discussing a bright future with our new CEO."
United continues mediated negotiations with the International Brotherhood of Teamsters (IBT) over a joint agreement. The next scheduled meeting is on 21 September, said Don Wright, vice-president of maintenance operations at the carrier, in a letter to employees on 21 August.
Michael Linenberg, an analyst with Deutsche Bank, sees the appointment of Munoz as a potential “catalyst” for reaching agreements with both the flight attendants and technicians.
“We don’t see the news altering our fundamental outlook,” he says in a report today. “[The] news could be the catalyst for United to resolve its labour issues… which would think would be positive.”
The airline has joint agreements in place the rest of its work groups, including pilots.
NEWARK IMPLICATIONS
The sudden departure of Smisek and two of his top government affairs officers raises questions about the gravity of a federal investigation into United’s interactions with the operator of Newark Liberty International airport the Port Authority of New York and New Jersey (PANYNJ).
The resignations of the three executives followed an on-going internal investigation that is cooperating with a federal investigation into the PANYNJ, says the carrier. The federal investigation followed the so-called “Bridgegate” scandal, when the Port Authority closed lanes connecting Fort Lee to the George Washington Bridge for political reasons in September 2013.
Former PANYNJ chairman David Samson resigned as a result of the investigation in March 2014.
Reports state that Smisek and the other executives – executive vice-president of communications and government affairs Irene Foxhall and senior vice-president of corporate and government affairs Mark Anderson – attended a dinner with Samson in 2011 where the PANYNJ chairman jokingly asked the airline to relaunch Newark-Columbia flights to improve access to his holiday home.
United was pushing for a Port Authority commitment to extend the PATH commuter train to Newark airport as well as renegotiating fees at the airport at the time, reports state.
The carrier launched Newark-Columbia flights in 2012 only to discontinue them after Samson resigned in 2014.
“We don’t expect it to impact our operations,” says Brett Hart, general counsel at United, referring to the federal investigation into the PANYNJ during the analyst call.
Hart and other executives repeatedly decline to comment further on the internal and federal probes.
“The incremental negative is clearly that the known Port Authority investigation is severe enough to trigger material senior management changes,” says Fintzen. “We’d like to think a CEO change draws something of a line, but time will tell.”
United operates its third largest hub at Newark airport, Capstats data shows.
Source: Cirium Dashboard
