United Airlines' New Chief Munoz Pulled From Railroad CEO Track

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United Airlines’ new chief executive officer spent the last dozen years helping run a railroad that hauls coal, grain and autos around the U.S. Moving people around the world on airplanes can be a lot tougher.

Oscar Munoz, the president of CSX Corp., was named CEO of the world’s second-largest airline after the surprise ouster of Jeff Smisek. He takes over a carrier struggling with tardy flights, poor labor relations and frustrated investors -- a legacy stemming in part from the 2010 merger that has left United eclipsed by American Airlines Group Inc. and Delta Air Lines Inc. in benefiting from the industry’s consolidation.

“It’s just an absolute and complete point that we need to reach our customers with a better service product and convenience for them,” Munoz, 56, said Tuesday on a conference call with analysts. “That is our commitment.”

While dealing with United’s operational woes, Munoz will also have to navigate a federal investigation into the carrier’s ties to David Samson, the former chairman of the Port Authority of New York & New Jersey. The probe includes an inquiry into a money-losing flight between United’s Newark hub in New Jersey and Columbia, South Carolina, near a Samson vacation home.

Board Service

Munoz isn’t a stranger to United’s difficulties. He became a director at Continental Airlines in 2004. Then, when that carrier combined with former United parent UAL Corp. in 2010, he joined the board of new company United Continental Holdings Inc.

“We were encouraged to hear him speak directly to the integration challenges that United has faced and improving customer service as a priority,” Duane Pfennigwerth, an analyst with Evercore Partners Inc., wrote in a note on Wednesday.

Munoz had been moving up the ranks in recent years at Jacksonville, Florida-based CSX, the biggest U.S. eastern railroad. He was named chief operating officer in 2009 and president in February, a move that put him in contention to succeed CEO Mike Ward, 65. He previously worked in finance positions at AT&T, Coca-Cola Inc. and PepsiCo Inc.

Munoz served on an executive team at CSX that helped boost profits, efficiency and safety, spurring a fivefold gain in the stock price since he joined the company in May 2003.

‘Instrumental Role’

“We believe the new CEO, Oscar Munoz, will appeal to investors given his instrumental role in CSX’s financial improvement and productivity gains over the past decade,” Savanthi Syth, an analyst with Raymond James Financial Inc., wrote in a note.

United rose 0.3 percent to $57.67 at the close in New York in the first day of trading after Munoz’s appointment. The shares have lagged behind gains for the Bloomberg U.S. Airlines Index in 2015, as they did for the 12- and 24-month periods ended Tuesday.

Munoz told analysts Tuesday he would spend the bulk of his first 90 days at United traveling to various airline operations and meeting with employees, in part to help reduce concern about the carrier’s future. One of his first tasks probably will be to repair relations with unions, which have been strained since the merger of two airlines with different cultures.

Labor Discord

He will need to reach long-delayed contracts with flight attendants and mechanics, and soothe labor leaders angry over Smisek’s moves to buy back shares to appease shareholders instead of investing to improve service.

“This has been a long time coming for the front-line workers of United Airlines who want to see our airline succeed,” Sara Nelson, international president of the Association of Flight Attendants, said after Smisek’s departure was announced. “Previous leadership failed on all accounts to harness the full potential of our airline.”

For Munoz, heading an airline will be a big change from running a freight carrier that dates back to 1827 with the chartering of the Baltimore & Ohio Railroad Co.

CSX, which has 32,000 employees, carries coal, grain, autos, oil and other commodities on 21,000 miles (34,000 kilometers) of tracks. It has no passengers. United, with 84,000 employees, flies people all over the world. For airlines, delays of a couple of hours spark ire among travelers.

Common Elements

Munoz, who graduated with a business degree at the University of Southern California and earned an MBA at Pepperdine University, said the same three ingredients apply to business -- whether an airline, railroad, telecom or soda company: focus on customers, teamwork and innovation.

“There is incredible opportunity for innovation, for earnings growth, and for improving an experience that is essential to the vitality of global business and to the personal lives of millions of people,” he said.

Leaving CSX was an “incredibly difficult decision,” Munoz said, while United offered a great opportunity to continue in a consumer-oriented business.
“I truly believe that United has tremendous potential,” he said.

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