United CEO Says Board Was Too Isolated to See Airline’s Slide

  • We are ‘not as engaged with the front line,’ Munoz says
  • Shareholder ditched carrier because of customer service

United Airlines’ board was too isolated in recent years, allowing the carrier to fall behind rivals since its 2010 merger, said Chief Executive Oscar Munoz, who shouldered some of the responsibility himself.

“As board members, we only meet infrequently and are not as engaged with the front line, necessarily,” he said at the airline’s annual meeting Wednesday in Chicago. “The first thing I did as CEO was I left this board room” and visited employees at United, the No. 3 U.S. airline by traffic last year.

Oscar Munoz.

Oscar Munoz.

Photographer: Wayne Slezak via United Continental Holdings Inc.

While directors don’t meet often, they carry “some of the blame” for not being more observant, said Munoz, who was named CEO in September. Better operational insight might have prompted the board to insist on fixing a buggy reservations system that resulted in grounded flights or to solve technical issues that prevented employees from being paid on time, he said. While Chicago-based United has improved its on-time arrival rate significantly in recent months, it ranked 10th out of 13 carriers for the year through September.

Munoz accepted criticism for his own oversight since 2004, first as a board member of Continental Airlines and then of United. The pair merged in 2010.

Investor Criticism

A few investors and employees criticized the board’s lack of oversight as shareholders re-elected 14 directors. Half have joined the board since March, following a shakeup in which two large investors put forth their own candidates.

Jim Jackson, a United shareholder, said he stopped flying United five years ago because he was frustrated with bad customer service, especially by flight attendants. He now flies Delta and American, he said.

“How in the world did you allow United to get out of hand like it did?” Jackson asked.

Munoz praised the flight attendants and said years of mistreatment may have taken a toll. “They are human and were not treated as professionals,” he told Jackson.

New Directors

A man who identified himself as an employee and shareholder praised the addition of United’s new board members, “who can call B.S.” when they hear it.

Chairman Robert Milton, who previously ran Air Canada, is among the new directors. Ed Shapiro and Barney Harford joined in April at the suggestion of activist investors Altimeter Capital Management and PAR Capital Management.

United tapped Munoz as CEO after ousting Jeff Smisek in connection with a federal probe into the airline’s relationship with the Port Authority of New York and New Jersey. Munoz suffered a heart attack a month into the job, had a heart transplant in January and returned in March. He has spent much of his time visiting with employees as a means to win back their loyalty.

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