New United Airlines CEO faces long list of challenges
Sep. 10, 2015
The new CEO of United Airlines faces a daunting list of problems he must fix, including late flights and technology that too often suffers embarrassing outages.
But if Oscar Munoz listens to people who fly his airline — and some who have stopped — he'll start his tenure by addressing a longtime problem for the world's second-biggest airline: poor customer service.
Early signs point to a honeymoon for Munoz, the railroad executive tapped to replace Jeff Smisek as CEO. United's labor unions and Wall Street analysts were mostly upbeat about Munoz's arrival — or maybe more accurately, Smisek's departure.
Munoz knows the airline from his combined 11 years as a director first of Continental Airlines and then at United Continental Holdings Inc. Now he must guide United on a day-to-day basis:
"I know from my time on the board we've made significant progress, but there's still a lot to be done," he says.
Among the biggest challenges:
— Improve customer service:
Frequent fliers often say that United's employees are less likely to help than counterparts at other big airlines.
"Half of their flight attendants are genuinely kind, but the other half are resentful — like, 'Why are you flying on this airline?'" said Andrew Acker, who frequently flies on United for a software company in Newport Beach, California.
Brian Kelly, CEO of travel site ThePointsGuy.com, said United's hub airport in Newark, New Jersey, "is ground zero for customer-service failures."
Chicago-based United finished last in customer service among six traditional North American airlines in a recent survey by JD Power. It trailed Alaska, Delta, American, Air Canada and US Airways. Among the 12 largest U.S. airlines, United had the second-worst complaint rate in the first half of 2015, according to the U.S. Department of Transportation.
Munoz acknowledged to analysts Tuesday that United must convince customers that it is committed to better customer service. "That is going to take a lot of time and effort," he added.
— Reduce delays and cancelled flights:
In the first six months of this year, United's on-time performance trailed its three largest peers — Delta, American and Southwest. In early 2015, it canceled large numbers of flights on its United Express regional brand, which is operated by other carriers.
Ed Pizzarello, who writes a blog on BoardingArea.com, said such operational problems and poor service have caused him to fly less on United this year. Pizzarello said he has platinum-level elite status on United but won't change a flight from American or Delta "to a carrier I'm having trouble trusting."
— Fix technology glitches:
Since combining its reservations and other computer systems with those of Continental in 2012, United has suffered several widespread outages, often leading to hundreds of canceled or delayed flights. United blamed the most recent outage, in July, on a faulty router. As if to put an exclamation point on Smisek's tenure, United's redesigned website went down for about two hours on the day he departed. It was replaced by the old website — temporarily, a spokesman said.
— Resolve government investigations:
Smisek and two other senior executives departed because of an ongoing investigation into whether United gave preferential treatment to the former head of an agency that runs New York-area airports including United's hub in Newark, New Jersey. Federal prosecutors wouldn't comment, and United executives haven't said much other than suggesting that they don't expect a large financial penalty.
In addition, the Department of Justice is investigating possible collusion between United, American, Delta and Southwest to drive up prices by limiting seats.
For all of United Continental's woes, Munoz is hardly being asked to save a dying company.
While the airline was slower to return to profitability after the last recession — it lost $600 million in early 2014 when Delta, American, Southwest and Alaska were solidly in the black — it has bounced back thanks to cheaper jet fuel.
United posted a record profit in the second quarter and earned $1.7 billion in the first six months of 2015. That newfound prosperity could give Munoz a cushion to ease up on job reductions and other cost-cutting moves that have angered employee groups. Labor leaders believe more of the newfound profits should go to front-line workers and less to shareholders in stock buybacks.
While the bottom line performance rebounded, revenue lagged in the first six months of the year, down 2.6 percent from a year earlier.
Jim Corridore, an analyst for S&P Capital IQ, said to boost revenue, Munoz must convince key business travelers — the kind who buy expensive, last-minute tickets — that United won't suffer the kind of meltdowns that have occurred in the last few years. Munoz might even offer travel rewards to lure back those who defected to Delta or other carriers, the analyst said.
Scott Sneddon, a computer-networking architect, has stayed with United because he's got elite frequent-flier status and United has a good schedule of flights to Asia from his airport in San Francisco. He's not wild about the airline. He said service has declined steadily since the Continental merger — too many grumpy flight attendants, old planes and mediocre airport lounges.
"I think about switching all the time," he said from the airport in Seoul, where he was on a business trip. "But that South America trip I took on Delta just wasn't any better, and I've never had a good experience on a domestic American (Airlines) flight. I feel like I'm kind of stuck."
David Koenig can be reached at http://twitter.com/airlinewriter