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Oscar Munoz Will Leave On Top. Will American Airlines Let United Stay There?

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The airline industry’s biggest news last week was that Oscar Munoz will step down while he is on top, turning the United CEO’s job over to Scott Kirby in May.

Munoz has been United’s best CEO since Stephen Wolf left in 1994. His replacement will be an industry star-in-waiting, highly regarded by Wall Street, unions, and reporters – pretty much everyone except for the people who decided to fire him from American Airlines in 2016.

A less-reported story was that American’s Thanksgiving week operations were excellent. On Dec. 4, David Seymour, American operations SVP wrote employees a letter entitled, “A November to Remember.” He cited improved operating statistics – including a record seven days with no cancellations, a third consecutive month of improvement and American’s third best month for on-time arrivals since the 2013 merger with US Airways.

Are the two stories related? Of course they are.

Much of United’s recent success has seemed to come at American’s expense. Kirby’s selection focused attention on the dissimilar paths the carriers have taken since he joined United at the start of September 2016. In general, United has prospered while American has faltered. American is betting that 2020 will be different.

Since Sept. 1, 2016, United shares have gained 73%. Delta shares have gained 51%. American shares have lost 24%.

The three carriers have roughly similar business models. Yet Delta’s market cap is $36 billion, United’s is $22 billion and American’s is $12 billion.

Not only has American’s financial performance disappointed, but also its operations faltered badly in the second quarter. In April and May, American was ranked ninth in on-time departures measured by the U.S. Transportation Department. One other stat:  For the three months ending June 30, 2019, American had 5,227 involuntary denied boardings. Delta had zero.

American has blamed its poor operations on the Boeing 737 MAX grounding in March and on a slowdown by mechanics and fleet service workers, who have been negotiating a joint contract for four years.

While nobody can forecast the date of the MAX’s return, the slowdown ended. The two sides have talked this month, although progress has slowed.

Wall Street responded positively to American’s October earnings call, when executive said capital spending will decline while revenues will improve due largely to growth in American’s two biggest hubs: Dallas and Charlotte.

In fact, Kirby’s principal route planning initiative at United has been to grow traffic at hubs, reversing downsizing by previous management, which had sought unsuccessfully to cater to Wall Street’s often misguided preference for reducing capacity whenever possible.

Now, United is catching up at its hubs and American is growing at its hubs, generally an indication that the two are both firmly committed to exactly the same thing: bigger hubs.

Last week, Cowen & Co. analyst Helane Becker estimated American’s 2020 capacity growth at 4.8%, following slow 1.1% growth in 2019. She estimated United 2020 growth at 5.6% in 2020, following 3.5% growth in 2019, and Delta growth at 4.5% following 3.5%. In other words, American grew more slowly than peers in 2019, but will be right with them in 2020.

Munoz changed United. Last week, he won praise from all three of United’s biggest unions. “Oscar Munoz took the reins of United after the Jeff Smisek debacle and turned the company around,” said Sito Pantoja, IAM general vice president. “Scott Kirby was a big part of that resurgence. Under their leadership labor relations at United improved dramatically, creating an environment for collaboration that other carriers would be wise to emulate.”

On Twitter, flight attendant national president Sara Nelson said, “Oscar Munoz fought against all odds to rescue United from being torn apart and [returned] it to premier status in the industry.” Todd Insler, chairman of United pilots ALPA, said, “Over the past four years, Oscar put a leadership team in place that successfully changed the culture at United.”    

Among airline industry executives who executed a turnaround and then left on top, Gordon Bethune at Continental stands out. Bethune stepped in after predecessor Frank Lorenzo set the stage for success, cutting costs and building the Newark and Houston hubs. Bethune brought culture change and new aircraft.

Munoz predecessor Jeff Smisek did not approach Lorenzo as an airline builder, but he too was disdained by employees. Moreover, he listened too much to Wall Street, cutting capacity and ceding the advantage on routes like Newark-Atlanta to a smarter competitor that flew bigger, more appealing airplanes and flew them more frequently.

It’s hard to think that American will make the same mistakes United used to make.






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