Airline Weekly - Sept. 13, 2015
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Airline Weekly - Sept. 13, 2015

The Jockey or the Horse: Can a new CEO lead United to victory? Or is it a beast too difficult to tame?

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Cover Story

The Jockey or the Horse: Can a new CEO lead United to victory? Or is it a beast too difficult to tame?

Is it the jockey? Or is it the horse?

Last week, United’s board suddenly ousted its chairman and CEO Jeff Smisek, a Gordon Bethune protégé from pre-merger Continental and leader of United since the two carriers merged in 2010. He leaves with two other United executives. The apparent cause: federal and company investigations regarding the airline’s relationship with a former chairman of the Port Authority of New York & New Jersey, which runs the airline’s important Newark hub—United allegedly launched a route to Columbia, S.C., as a personal favor to him.

But it’s not as if Smisek was an otherwise celebrated jockey, guiding a thoroughbred horse to victory. On the contrary, he led a management team sullied by missteps and missed opportunities at an airline that—this is the interesting “jockey or the horse” question—nevertheless might have underperformed its peers even had all been managed with perfection. Now the job of taming the horse falls to a new man, Oscar Munoz.

Although a longtime board member of United, and before that Continental, Munoz was (like Delta’s former chief Leo Mullin) first and foremost a railroad executive who will work to put United back on track at a time when its earnings—although strong relative to other global giants—have underperformed its U.S. peers, derailed by woes both self-inflicted and structural.

The self-inflicted list is actually rather long. On the first day of his new job, Munoz was greeted with yet another IT outage. Perhaps it was at least related to a revolving door of jockeys: three different chief information officers since the merger five years ago. United’s finance department, incidentally, has been similarly plagued with turnover, losing one CFO last year and his replacement this year.

After the merger, United unwisely chose to adopt many of the smaller airline’s (i.e., Continental’s) systems—including its all-important passenger service system—repeating a mistake America West’s executives made after acquiring the much larger US Airways. (Those same executives then running American West, who now run American, quickly decided to adopt the larger carrier’s systems this time, never mind their personal familiarity with the systems from the smaller airline, US Airways.) By choosing to run much of the merged global airline on the smaller airline’s platform, United wound up having to replace about two-thirds of its equipment rather than one-third, retrain about two-thirds of its staff rather than one-third and... (417 of 1,669 words)

Also Inside this Issue:

At the start of the current decade, fresh off another brush with financial ruin, Air Canada essentially told its unions: Give us cost cuts, and we’ll give you growth.

Well the promised growth is now in full bloom, pursued with mainline planes and planes flown by Rouge, the LCC that unions agreed to support. Soon Rouge will serve Africa, while deepening its European network too.

Before long WestJet will arrive on the longhaul scene too. But there’s another irksome rival challenging Air Canada’s grasp on leisure travel to Europe. Transat, largely unknown to global business travelers, is a household name among Canadian vacationers. With a fleet of densified A330s, it’s adding new transatlantic routes, just like its larger rival.

SAS, as it happens, is adding transatlantic routes too, in its case between its home region Scandinavia and the U.S. Strong returns in that market helped its summer get off to a pretty good start. But even despite new labor deals and cheaper fuel, there remains the perennial challenge of avoiding wintertime losses.

One thing SAS really wants is participation in Lufthansa’s transatlantic joint venture with Air Canada and United. But for now, Lufthansa is focused on growing longhaul service organically, with its Austrian subsidiary now headed back to Shanghai. Then again, Lufthansa can’t go anywhere when its pilots stage a strike, which they did again last week.

No wonder, then, why droves of European passengers are turning to LCCs for their shorthaul needs. Ryanair, the largest of the breed, said last week to expect its fiscal year profits to be much larger than originally expected.

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