UNITED’S PILOT
CEO Oscar Munoz, a former soft-drink and railroad exec, now struggles to rescue airline from ‘ the mother of all bombs of a public relations bomb’
Oscar Munoz apologized Tuesday— again.
The apology over the April 9 incident inwhich a passenger was dragged off a United Express flight at O’Hare Airport came as Munoz, United Continental Holdings’ chief executive officer, reported the Chicago- based airline’s latest financial results in a conference call with stock market analysts and reporters.
Munoz, 58, said he bears full responsibility “for making this right.”
He also said no one will be fired as a result ofwhat happened and the furor touched off by the widely shared cellphone videos of Dr. David Dao being manhandled by Chicago Department of Aviation police the airline called.
“I’m sure therewas a lot of conjecture about me personally,” Munoz said, adding that he had spoken with the United Continental board and gotten its backing.
Reflecting how things have gone lately for Munoz, United’s stock dropped 4.27 percent Tuesday after he spoke— the biggest decline among the Dow Jones Transportation Average, closing at $ 67.75 a share.
In 2015, the former soft-drink executive was brought into boost employee morale while navigating the merger of two wildly different airline cultures in United and Continental. He was widely praised for howhe handled that. Earlier this year, the trade magazine PR Week named him its “Communicator of the Year” for his ability to connect and share his vision with employees.
Yet he initially failed to communicate a critical value— the importance of customer service— after the O’Hare incident, says Steven L. Blue, a consultant on transforming business culture.
“There is such a disconnect between the CEO and the values of United as they really are,” Blue says. “I call it being in ‘ values La La Land.’ ”
It’s unfamiliar territory for Munoz, whowas brought in to rescue United amid another controversy, endured a heart transplant soon after and had a big financial incentive to quickly come back towork.
Wall Street analysts asked Unit ed’ s management Tuesday about whether the dragging debacle has hurt the airline’s business. It’s too soon to tell, United execs said.
The answers are critical as United— the nation’s third- largest airline by passenger traffic— ramps up for summer travel. United projects 5.6 percent domestic growth the second half of this year, according to Evercore ISI, a research firm that tracks the airline.
Another critical decision facing United’s shareholders and board is whether Munoz is up to the pressure of turning around what Blue termed “the mother of all bombs of a public relations bomb.”
Thatwould be the video showing Dao, 69, screaming and left bloodied as hewas dragged away. At first, Munoz defended the decision to “re- accommodate” Dao and three other passengers who already had boarded the plane. And he said Dao was “disruptive and belligerent.”
The next day, amid outrage spurred by the viral videos, Munoz apologized. But Dao’s attorneys and social media users bashed him for a halfhearted mea culpa that appeared staged.
In February, Munoz told Business Insider one of his strengths is his ability to read people.
A folksy leader, he at one point ridiculed as “stupid” a cost- saving move to make employees bring in their own coffee cups and brought back Styrofoam coffee cups at company headquarters.
Despite higher fuel and labor costs, the company posted a 2.7 percent increase in revenue for the first three months of the year, to $ 8.4 billion. Though United’s profit dropped 69 percent in the quarter, revenues prior to the incident had outpaced analysts’ estimates.
“The incident that took place
aboard Flight 3411 has been a humbling experience,” Munoz said Tuesday. “This will prove to be a watershed moment for our company.”
Robert Mann, an airline industry analyst who run Sr. W. Mann& Co. in New York, is skeptical.
“If United ran an operationally excellent airline, quality and reliability would be better, costs lower and earnings higher,” Mann says. “Let’s seewhat they intend to do from this ‘ watershed moment’ forward.”
That’s a longway fromthe honeymoon of Munoz’s early days heading United. He looked to be the perfect savior to clean up after his predecessor Jeff Smisek resigned after Labor Dayweekend 2015.
That followed United’s announcing an investigation into Smisek’s dealings with the Port Authority of New York and New Jersey. Federal prosecutors had subpoenaed documents related to former Port Authority Chairman David Samson’s votes on United projects at Newark Airport at a time the airline had resumed flights from Newark to Columbia, South Carolina, where Samson had a vacation home.
Munoz, then a United board member, had been expected to take the reins at railroad company CSX before being thrust into the United CEO role.
The airline didn’t make him available for an interview.
He spoke in his earlier interview with Business Insider aboutwhat shaped him, howhe and his brothers would take baths and showers at night so their sisters could have the bathroom in the mornings.
“All these small little life things that occurred taught me that you are not alone in this world, and there are a lot of other people, and their viewpoints are important to you,” Munoz said.
Before the incident at O’Hare, Munoz might have been best known since joining the airline for the heart transplant he underwent after a heart attack on Oct. 15, 2015.
He had done a triathlon weeks earlier and stuck to a vegan diet. He’s said he has since added meat to his diet to add strength- building protein.
Munoz returned towork at United on March 14, 2016, just two months after his transplant.
His employment agreement provided incentive to get back soon: Hewould get a $ 10.5 million bonus if he worked for six straight months. For a full year, he’d also receive a base salary of $ 1.25 million and a signing bonus of $ 5.2 million. And he would become eligible for an annual performance bonus of at least $ 3.75 million, according to a United regulatory filing. The amount of his total compensation last year is expected to be disclosed later this month.
Munoz didn’t respond to Chicago Sun- Times interview requests over the past year about his transplant. But he has done interviews about his resolve to change United’s culture from docile to highly aggressive and what he called “defiantly disruptive” in a Nov. 18, 2016, interview with Fortune.
The magazine described Munoz as ambitious, boldly recruiting American Airlines president Scott Kirby to take the same role at United and leading a pre- emptive strike against investors trying to remake the board of directors.
Munoz needed every ounce of his ambition and resolve to get to his heady status today, including his $ 3.55 million, three- bedroom home at Water Tower Place that once was a portion of a four- condo combination that talk- showlegend Oprah Winfrey sold in 2015.
Munoz was the first in his family to go to college. He’s the oldest of nine children and grewup inwhat he has called “a modest, blue- collar home” in Southern California. He credits his parents, both Mexican- American, with instilling in him a strong work ethic. His father was ameat- cutter, while his mother raised the children.
Munoz told the Airline Passenger Experience Association for a story published Feb. 9 that a high- school guidance counselor pushed him to apply to colleges he never dreamed of attending.
He got a bachelor of science degree in business from the University of Southern California, where hemet his future wife, Catherine, and went on to get an MBA from Pepperdine University. The couple have four children.
His earlier career included marketing, finance and customerservice jobs at Pepsi Co, Coca- Cola and AT& T.
Munoz won attention when he made a rare jump to Coca- Cola from rival Pepsi Co at 27. Yet he told Hispanic Executive magazine in 2012 that his boss at Coca- Cola told him he might not be as good as he thought hewas, even after an outstanding performance review.
Munoz became a regional vice president of finance and administration in the billion- dollar soft- drink market. And afterworking in financial and strategic executive jobs with US West and then AT& T, he became chief financial officer of railroad giant CSX Corp. in 2003. Hew orked his way up to CSX chief operating officer in January 2012 and finally president in February 2015.
Similar towhat other airlines do, United ties about $ 500,000 of his yearly bonus to customer- satisfaction questionnaires.
Analysts’ reports show they still believe Munoz can leverage United’s top positions in major markets including Chicago, New York, Houston, Denver and Washington to get closer to Delta and American airlines’ bigger profits. United’s pre- tax profit margin in 2016was 10.4 percent, compared with market leader Delta’s 16.5 percent.
In a report Tuesday, Morningstar analyst Chris Harris said, “We think the recent public relations disaster around the flight 3411 passenger incident will be a communications problem and won’t create a long- term financial problem for the company. Indeed, over themid- term, there is a real possibility that United’s management team will finally fix the problems that have historically plagued the carrier.”