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Oscar Munoz's tough ride as United CEO

Five weeks into his new job as CEO of United Airlines, Oscar Munoz had a heart attack.It was October 2015. Mun...

Posted: Mar 19, 2018 2:41 PM
Updated: Mar 19, 2018 2:41 PM

Five weeks into his new job as CEO of United Airlines, Oscar Munoz had a heart attack.

It was October 2015. Munoz, then 56, was rushed to the hospital. In January 2016, he had a heart transplant. Two months later, he was back at work.

Munoz had inherited a company in disarray. His predecessor, Jeff Smisek, was ousted after the airline was caught in a federal corruption probe. United's 2010 merger with Continental Airlines had left the carrier an internal mess. Customer satisfaction and employee morale were low, and United's stock was on the decline.

"[An airline has] three legs on a stool - its customers, its investors and its labor. And United had fallen behind on all three," said John Strong, a professor of business administration at the College of William and Mary and an airline industry expert.

Over the next year, Munoz managed to stabilize the company. He prioritized labor relations and renegotiated new contracts with workers, restructured the management team, boosted on-time performance and launched an overhauled business class. In March 2017, the magazine PRWeek named Munoz its U.S. Communicator of the Year.

Then, in April, Dr. David Dao was violently dragged off a United plane from Chicago to Louisville, in order to make space for commuting crew members. The incident was captured by passengers on their phones, and quickly went viral.

United's botched response made the situation into a national news story. Munoz had to issue a mea culpa after the airline's first two statements were seen as callous (at first, Munoz apologized for having to "re-accomodate ... customers").

He was told he would not take over as chairman of United's board later that month.

Now, United is back in the news. Earlier this week, a dog died after it was put in the overhead bin on a United flight. Furor over the episode had barely peaked when news broke that the carrier had mistakenly shipped a Kansas-bound dog to Japan.

Related: How United is navigating another PR disaster

"This series of things over the past 18 months has been kind of outrageous," said Bryan Reber, a professor at the University of Georgia who studies crisis communication and management.

In the midst of all this, Munoz has faced intense pressure from investors to ramp up profits.

So far, Munoz has not delivered as hoped. In the past 12 months, shares of United Continental Holdings have risen only 3%. Delta Air Lines is up 20% in the past 12 months, while American Airlines is up 32%.

"It's no secret that United's financial performance has not been as strong as its two primary competitors, American and Delta," said Henry Harteveldt, founder of the Atmosphere Research Group.

United shares plunged in October after Munoz told investors on a tense earnings call that the company had dug itself into "a little bit of a competitive hole" and needed more time to deliver.

Wall Street appeared tired of waiting. In a note published at the time, Stifel analyst Joseph DeNardi asked: "Is this a catalyst for management change?"

"Clearly, patience with executing the turnaround at United is wearing thin," he wrote. "While we believe management has the support of some of its larger shareholders, it's not absolute support by any means."

A major test for Munoz moving forward will be how United's growth plans play out.

The airline said in January that it would increase capacity between 4% and 6%, a faster rate of growth than it had in 2017. It also announced plans to match the fares of some low-fare competitors like Spirit. Analysts are worried that will make for too many open seats, and slimmer profits.

Related: United shares sink 12% after CEO admits airline is in a 'competitive hole'

When it comes to the recent dog death, Munoz will likely be insulated from some criticism since United took responsibility immediately.

The airline apologized for the "tragic accident" on Tuesday, and said the company was "thoroughly investigating what occurred to prevent this from ever happening again." On Wednesday, United said that by April it will give brightly colored bag tags to customers traveling with pets in the cabin. The response stood in contrast to United's response to the Dao issue last year.

Still, the pet issues are another black eye for Munoz during an already rocky term. United declined any further comment.

"There's something about the United culture that has employees making decisions that are not the right things to do," Strong said.

Another high-profile event could be the final straw, according to Reber. Even if Munoz isn't directly implicated, he could wind up taking the fall.

"History is littered with CEOs who have had to take a hit for a crisis that happened and was caused someplace else in the organization," Reber said.

Mississippi Coronavirus Cases

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