United Airlines’ CEO Jeff Smisek is no longer the CEO. Nor is he even on the board, which he used to chair. It’s a rarity for an airline CEO to make such a grand exit without telegraphing the move to not only the board of directors and shareholders, but even senior management.
There is usually one reason for this. The biggest fear any businessman can face: a federal investigation.
Seems this is exactly the case. Remember how earlier this year, United was involved in an internal investigation regarding preferential treatment to the chairman of the Port Authority of New York & New Jersey, David Samson? You may also remember him from that time Governor Chris Christie ordered a bridge closed. Either way, it was not clear if this investigation would yield evidence of a breach of criminal law. We now know that, at least in the eyes of unnamed federal investigators, it may be.
United has gone even further than Smisek’s spontaneous exodus. United’s EVP of communications and government affairs, as well as United’s SVP of corporate and government affairs have joined him. Keen United watchers may remember those names as potentially being involved in this “flights for favors” issue since the infamous alleged dinner where it was created.
I would not want to be any of the four people I have already mentioned in the article right now. While United wishes Jeff Smisek the best, it’s a hard world to be on your own and under investigation. Regardless of whether or not I thought he was the CEO United Continental Holdings needed, falling on your sword so publicly is miserable. The rest is up for the feds and the courts to decide. After all, his $4.9 million severance and free flying for life are on condition of not being convicted.
So, where is United Continental Holdings now?
Well, what I found surprising was that rather than announcing a search for a new CEO, they appointed one in the same memo – Oscar Munoz. Part of the United board and former president and COO of CSX Railways, he has not taken the honor of Chairman as his predecessor. The new (non-executive) Chairman will be Henry L. Meyer III.
What does that mean?
It could mean one of two things:
First: Oscar Munoz, as COO and president of a heavily unionized railway, has the experience necessary to deal with the complex labor pool of the airline he has been appointed to head. Is it possible that he was being groomed by the board, either on contingency of this investigation reaching a head as it has, or to replace Smisek anyway should the labor issues seem to stall? Absolutely.
United needs to lower its labor costs, harmonize its staff, and head towards a labor cost base that matches its competition. Munoz may be the man to do this. It’s too early to tell. The employees have never had any interaction with their former board member. Their sentiments are focused on the fact one of their perceived adversaries is no more. If United appointed Munoz to be the great labor peacemaker, they are clearly aware that he cannot take steps immediately to rectify those issues. He has to make moves to confirm to investors that United will remain a growing and profitable venture first.
This is why I am dubious that the entire motivation was to always make Munoz CEO. Part of me thinks even he was surprised. After all, “United has millions of human beings traveling on [their] equipment,” is not what you want to be remembered for in your inauguration speech. Well, unless you had a very short amount of time to write it.
I think United needed to not only send a decisive message that they were done with any potential legal malfeasance of their previous team, but also had to show investors that they were decisive and not going to leave their ship without a captain.
I could be wrong; Munoz could be the next Gordon Bethune. He could guide United to new heights.
What does all of this mean for United, beyond a new CEO?
No one can say yet. The thing that really strikes me is that prior to this mess coming unraveled, United’s old CFO John Rainey left for Paypal in August. He and Smisek were the real power players in the old United executive structure. They made the changes “customers would like.” They made several odd statements about their customers to the media. Some argue that that duo are responsible for United’s fall from consumer graces. Of course, the converse of that argument is that they led United to record profits.
The only way we will see what changes Munoz or his replacement will bring to United is to wait. One thing is for sure – we will not know anytime soon.