Published on September 15th, 2015 | by Jim Lee0
Jeff Smisek steps down from leadership roles at United, Oscar Munoz named as new president and chief executive officer
In a surprise move on 8th September, United Continental Holdings announced that Jeff Smisek had stepped down from his roles as chairman, president and Chief Executive Officer, and as a director. These changes are effective immediately. It named Oscar Munoz as its new president and Chief Executive Officer. Mr. Munoz will also continue to serve on United’s board of directors. The board also appointed Henry L. Meyer III, United’s lead independent director, to serve as non-executive chairman of the board of directors. Mr. Munoz brings to this role deep and broad experience in the transportation industry and large consumer brands including AT&T, Pepsico and The Coca-Cola Company. He most recently served as president and chief operating officer of CSX Corporation.
Henry Meyer, non-executive chairman of the board of directors of United Continental Holdings, Inc. said, “Oscar’s track record demonstrates that he has the right blend of strategic vision and strong leadership to continue United’s upward trajectory. United is well positioned to continue executing on its strategic plan to further improve performance and the value and service it provides to its customers. I’m honoured to have been elected non-executive chairman by my fellow directors. The board thanks Jeff for his service to both United Airlines and Continental Airlines.”
“It is truly a privilege to serve as United’s CEO. United has an incredible opportunity for improving an experience that is essential to the vitality of global business and to the personal lives of millions of people, for innovation, and for earnings growth,” said Oscar Munoz, president and CEO of United. “In my years serving on the board, I have been impressed by the dedication and skill of my new co-workers. Together, we will make United the top-performing airline.”
Prior to joining United Airlines, Mr. Munoz served as president and chief operating officer of CSX Corporation, a premier Transportation Company. He also served as a director at CSX. During his tenure, CSX transformed itself into an industry leader in customer focus, reliability and financial performance. CSX was named one of Institutional Investor’s ‘Most Honoured Companies’ for a decade of excellent financial performance, including increasing its operating income by nearly 600%. Prior to joining CSX, he served in various senior financial and strategic capacities at some of the world’s most recognised consumer brands, including AT&T, The Coca-Cola Company and Pepsico.
He has served on the board of directors for United Continental Holdings, Inc. since 2010 and served on the board of directors of Continental Airlines, Inc. since 2004. Mr. Munoz is active in several industry coalitions and philanthropic and educational organisations including the University of North Florida’s board of trustees and the PAFA advisory board of Vanderbilt University.
Mr. Munoz graduated from the University of Southern California with a bachelor’s degree in business administration, and he received a master’s in business administration from Pepperdine University. Munoz has been named one of the ‘100 Most Influential Hispanics’ by Hispanic Business magazine.
The company also announced that its executive vice president of communications and government affairs Nene Foxhall and its senior vice president of corporate and government affairs Mark Anderson had also stepped down.
Background to the sudden departure
In its statement United Continental Holdings said that the departures were “in connection with the company’s previously disclosed internal investigation related to the federal investigation associated with the Port Authority of New York and New Jersey. The investigations are ongoing and the company continues to cooperate with the government”. It added “the company’s internal investigation and the related circumstances do not raise any accounting or financial reporting concerns”.
In February, the United Continental Holdings confirmed that it had opened an internal investigation into its relationship with David Samson, a former chairman of the Port Authority of New York and New Jersey, after it learned of a federal probe.
While it gave no details of this investigation, it concerned the regular United Express flights Mr. Samson took between United’s Newark, N.J. hub and Columbia, South Carolina. It is alleged that the airline launched the twice-weekly flight from Newark to Columbia, SC at the behest of Mr. Samson, who owned a vacation home near Columbia, around the same time that United was seeking funding from the Port Authority, for its facilities at Newark Liberty International Airport. The route came to be known within United as ‘the chairman’s flight’.
Mr. Smisek became took over United in 2010, after it was merged with Continental Airlines, where he was also chairman, president and CEO. He joined Continental in 1995 and was an executive with considerable industry knowledge and expertise who ran one of the world’s largest airlines. In an interview on CNN on 8th September, his predecessor Gordon Bethune, who selected him, remarked on the dangers of getting, “too close to those New Jersey sleazebags.”
On the one hand, it’s difficult to believe that a man of this knowledge and calibre would cross any legal lines; on the other, why such a sudden departure? What is clear however is that United was initially reluctant to re-enter a money-losing route it had exited in 2009. This changed after Mr. Samson twice removed United business from the meeting agendas of the Port Authority and United decided to launch the route. United operated the route from September 2012 to April 2014. Service was only suspended just three days after Mr. Samson resigned as Port Authority chairman. This followed news of a separate federal probe into the potential conflict of interest between his role as Port Authority chairman and his private law firm. Learn more about Florida’s mandatory sentencing laws on our official website.
Separately on 9th September Mr. Smisek submitted his letter of resignation to the board of National Oilwell, where he had served for 17 years, according to a stock exchange filing.
But it’s not all bad news for Mr. Smisek, because he stepped down instead of being sacked, he will receive a generous severance package, which according to a regulatory filing, is worth nearly $5 million (around €4.48 million) in cash, plus other financial compensation, that could exceed $20 million (around €17.75 million). In addition, and like most former airline Chief Executives, he will receive free first-class tickets on the airline for the rest of his life. United have confirmed that Mr. Smisek would have to forfeit some of his severance package and other perks only if he’s convicted of a felony or a crime “involving moral turpitude.”
Unfortunately, the federal probe is only one challenge facing Mr. Munoz. United is lagging behind its rivals on financial and operational performance and has been dogged by recent computer outages, including one in July that temporarily grounded the United fleet globally, stranding passengers, and one more recently that delayed 4,900 flights for as long as 90 minutes. Incidents like these have led to the airline posting the worst on-time record of major US carriers.
His real challenge will be to convince shareholders that United can make faster progress to bridge this gap in financial and operating performance with its major rivals and also to restore relations with his workforce that has in the past had very difficult relations with management under his predecessor. This has led to workers protesting at shareholders meetings and demanding Mr. Smisek’s removal over his failure to reach contracts for flight attendants and mechanics. In an early conciliatory move, the new CEO told the company’s employees in a letter that he would meet as many workers as possible and “hear about operations directly from you.”
Workforce comment was universally anti Mr. Smisek. Sara Nelson, president of the Association of Flight Attendants, in a comment on the former CEOs demise said “We are overjoyed, quite frankly, that the cloud of Smisek’s leadership has been lifted.”
In a statement on behalf of the International Association of Machinists and Aerospace Workers (IAM), General Vice President Sito Pantoja added “The dedicated, hard-working employees at United deserve better than the questionable leadership Jeff Smisek provided.” He went on “We look forward to working with new CEO Oscar Munoz, who we hope will respect the good people at United and provided them the tools to put their airline back on top.”
David Bourne, director of the airline division of the International Brotherhood of Teamsters, said he was “very, very happy” with the choice of Munoz because of his rail background. Bourne said he had a “rocky start” with Mr. Smisek when he initially proposed, outsourcing ground service operations at several airports, including Newark.
United has more than 84,000 employees who reside in every U.S. state and in countries around the world. United Airlines and United Express operate an average of nearly 5,000 flights a day to 362 airports across six continents and in 2014 they operated nearly two million flights carrying 138 million customers. It has the world’s most comprehensive route network, including U.S. mainland hubs in Chicago, Denver, Houston, Los Angeles, New York/Newark, San Francisco, and Washington, D.C. United’s transatlantic capacity in August was 4.7% up on last year and traffic 3.1% up giving a passenger load factor of 85.6% down 1.3 points. United operates nearly 700 mainline aircraft, and this year, the airline anticipates taking delivery of 34 new Boeing aircraft, including the 787-9 and the 737-900ER. United is also welcoming 49 new Embraer E175 aircraft to United Express. The airline is a founding member of Star Alliance, which provides service to 192 countries via 28 member airlines.