United's Ousted CEO Was in a Nose Dive Even Before the Corruption Probe

A difficult merger integration, hostile unions, and crippling computer glitches made trouble for former United CEO Jeff Smisek.

United Continental Grounds CEO's Turbulent Tenure

Even before a weekly flight from Newark to South Carolina came under scrutiny from U.S. prosecutors, United was a troubled airline.

Before his departure on Tuesday, United Chief Executive Jeff Smisek was struggling with the fallout from a poorly integrated merger, unhappy labor groups, and a series of high-profile technology glitches that grounded flights and outraged travelers. The latest computer problem popped up Tuesday afternoon—United’s newly redesigned website was out of commission for almost two hours—not long before United announced Smisek’s ouster from the top job. Two other senior executives also left the company as part of an investigation into United’s dealings with David Samson, the former chairman of the Port Authority of New York and New Jersey. 

The ability to win back customers—especially corporate clients who may have defected amid the turbulent merger—will be key to new United CEO Oscar Munoz, who joined the board of Continental Airlines in March 2004. “We need to reach our customers with a better service product, and we need to convince them that that is our commitment,” Munoz told analysts on a conference call Tuesday evening. 

Smisek, 61, a former corporate attorney and Harvard Law School graduate, engineered the merger of Continental with the larger United and successfully closed the deal in 2010. He had been lured to Continental in 1995 by that carrier’s former chief executive, Gordon Bethune, who was in the midst of a dramatic turnaround at the Houston-based airline. After succeeding Bethune, Smisek helped push U.S. airline industry consolidation by assuming control of the larger United and taking much of his management team in Texas to Chicago to run what was then the world’s largest airline.

But cracks began to appear quickly, even though United’s network was superior in many respects to those of rivals Delta and American. Delta managed its integration with Northwest with more aplomb and began delivering greater reliability for travlers and more robust financial returns for shareholders, alongside fat profit-sharing checks for employees. American filed for bankruptcy and then merged with US Airways, in an ongoing integration that was heavily informed by executives who observed what worked for Delta and what failed at United. 

To the puzzlement of many, including former colleagues of Smisek at Continental who now work at other airlines, the well-regarded management team from Houston struggled after the merger. Revenue performance at United has lagged smaller rivals, and customer service marks have slipped. Flight delays reached a nadir in June, heralding a summer of trouble. In June, about 30 percent of United’s flights were delayed at least 15 minutes, a performance that ranked it behind all other U.S. carriers save for ultra low-cost operators Spirit Airlines, Allegiant Travel, and Frontier, according to data tracker FlightStats.com. The operation improved slightly in July, with delays affecting 24.6 percent of United flights, worse than Delta and American but better than Southwest, according to FlightStats.

Several top United executives have also quit, most recently CFO John Rainey, who left on Aug. 4 to assume the same position at PayPal.

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United 24,000 flight attendants and 9,000 mechanics, meanwhile, have grown angry with the delays in getting a new contract. “We believe a fresh perspective will be healthy for United Airlines in all areas, especially where labor relations languished under previous leadership,” Sara Nelson, president of the Association of Flight Attendants-CWA, said Tuesday in a statement.

Munoz, the former president and chief operating officer at freight railroad CSX, said he will begin his new job by traveling around United’s network to talk with employees. Among his chief tasks will be to repair relations that soured under Smisek, who began a deep cost-cutting program, dubbed Project Quality, amid the merger integration. The cutting has caused some employees to complain that areas of the company were either short staffed or run in such a lean manner that it regularly fouled operations, such as maintenance on United’s widebody jet fleet. “The folks that work here right now are doing the absolute best they can, and we’re going to give them all the tools they need,” Munoz said. 

In his first remarks on his first day in charge, Munoz acknowledged that the board had clearly decided United was overdue for change. “It is certainly a new chapter for United, and I recognize that there have been many before,” he said. “I’m ready to get to work.”

(Updated to add on-time performance information to the sixth paragraph.)

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