United announced this week that CEO, Oscar Munoz, would step down with United President, Scott Kirby, taking over May 1st, 2020. Changes like these don’t affect flyers often but I’m reconsidering my loyalty to United.
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United CEO Munoz Moves to Chairman, President Kirby to CEO
Last week, United Airlines announced that CEO Oscar Munoz would move to an Executive Chairman role with President Scott Kirby taking over as CEO. Prior to United, Kirby was the righthand man for Doug Parker at American Airlines. He is known for making moves that enhance the value of the business, but not necessarily the customer experience. The change takes place in May of 2020.
Why Munoz Was Great
Though I never personally met the CEO, others I know have and I’ve not heard an ill word about Mr. Oscar Munoz. From a professional aspect, he took over following a disastrous case of bribery that led to the departure of Jeff Smisek, neither a Wall Street nor customer favorite.
Early in his tenure, Munoz overcame a heart condition and the Dr. Dao incident. He moved customer service in the right direction. Polaris was launched while he was at the helm which is arguably the best ground experience and a fully competent hard product business class amongst US carriers.
Kirby’s Track Record
Munoz brought Scott Kirby to United from American Airlines, Matthew presumed he was picked to eventually take this role from the start. He is known to be an excellent practitioner and operational tactician, but also for his Wall Street-first, customer last approach. He was a leader in the Basic Economy movement and has kept United as the worst amongst peers in Basic Economy fares (the only flag carrier that doesn’t allow for a personal item and a carry-on bag with the fare.)
He’s reduced meal options and service right after United had elevated the service in Polaris. Gone are the wine flights and domestic meal choices. The steps United took in the right direction, Kirby has moved in the wrong direction from a customer viewpoint.
American is in smoldering ruins and Kirby was a big part of that. He slashed and burned a lot of what made American Airlines flyers tolerate their other deficiencies. He was just as much a part of the labor contract holdouts as Doug Parker. He left without righting any of his wrongs and brought new customer experience devaluations to United.
Reconsidering Loyalty to United
I’ve just switched to United from American. I have zero confidence in American Airlines right now but most of that comes down to changes Kirby made. Delta just doesn’t work for my work flights due to the location of their hubs and my lack of trust in their loyalty program.
The devaluation of the loyalty program and switch to dynamic pricing is something that makes me very, very nervous with Kirby. His policies have run rough shot over their best customers with the assumption that a certain number will fly their carrier no matter how disloyal it is in return simply because of convenient direct flights and habit.
For me personally, I like the way that United has evolved. I think the PlusPoints switch from GPUs/RPUs is a huge bonus as I would prefer to use them for more international routes than regional flights. I see value in the changes United has made to elite qualification and their support of partner flights for elite earnings.
But since those announcements were made, United has also decided to make partner flights dynamically-priced as well and that for me has reduced my enthusiasm for the new Mileage Plus.
Matthew Has Unwavering Support for United
I appreciate Matthew’s loyalty to United and dedication to the airline. I also respect his presumption of innocence until proven guilty for Mr. Kirby. However, my friend Matthew hadn’t seen the airline he loved completely destroyed by Kirby and cronies as I had at American. He hasn’t had to make the switch yet after years or decades of loyalty because of Kirby’s customer-last approach and that’s where we differ.
Perhaps with Munoz holding on to an Executive Chairman role, the customer service changes he helped to lead will remain.
Conclusion
Management at US airlines matter. Kirby has proved he can affect change, positive for shareholders and negative for customers, though operationally he has been very successful. I should follow in Matthew’s footsteps and wisdom by giving Mr. Kirby the presumption of innocence first and likely will through 2020 but I am open to recommendations.
What do you think? Is it too early to jump ship? Will much change at United from where it is now?
Like you I have never met Mr. Kirby, but as a loyal UA flyer I wish him well. We all tend to forget that Mr. Kirby’s job is to run a profitable airline which we should all agree is on a good day very difficult to do. We also forget the industry is fraught with minefields of problems including a highly regulated environment, inability to control – for the most part – fuel prices, weather and due to history labor issues. UA’s Board deserves kudos for bringing together Mr. Munoz and Mr. Kirby on the same ticket to resolve the multiple issues UA had. To me it allowed Mr. Munoz to focus on being the face of UA, resurrecting the moral and creating a super image with the public, all the while Mr. Kirby was fixing the opps issues. It was a brilliant strategy which worked well. Mr. Kirby has big shoes to fill on the PR part of this job and with further coaching I bet he will do just fine.
The fact that he aggressively focuses on costs and trims the product as needed does not really bother me as what I am looking for is safe, frequent transportation. He and the other US carriers are delivering exactly what the public wants: frequent transpiration between points at a low as possible costs. Complain we do, but price seems to be the most significant factor.
While DL may provide a somewhat better experience, is it that much different than UA for you to switch? That is only something you can answer based many of the factors you have previously discussed to include how much lift they have from your home airport, etc.
Personally, I plan to stick with UA and frankly I hope AA resurrects itself as I flew them for many years and there are many good people there.
Kyle, thanks for your writing. I look forward every weekend to see what Lucy is doing, where she is going and oh your excellent writing. Thanks for spending your weekends with Matthew’s audience!
I really appreciate your comments, Mike.
My loyalty to UA has gone since the changes to loyalty earning next year made under Munoz’s watch. Any leader will do whatever they can to make the business more profitable – I don’t think that’s limited to Kirby. The real question is whether he’ll go too far, as he did with AA, or whether he’s learnt some lessons since then.
Fair statements.
Similar to reader NB, I have decided not to fly with United in 2020 after they changed Elite qualification based on dollar next year.
@Kyle: I agreed with you on several points in this article. The only thing I puzzled was how you thought “the PlusPoints switch from GPUs/RPUs is a huge bonus.” Let’s say a passenger flies from LAX to Zurich via Newark. With GPU method, United could upgrade the portion from Newark to Zurich. Later or on the date of travel, if the upgrade is available for LAX to Newark, it is automatically for the passenger. Now with the PlusPoints, if United upgrades the portion from Newark to Zurich first, they would take 40 PlusPoints. Should the portion from LAX to Newark available, United would take an ADDITION 20 PlusPoints. Thus, the total would be 60 Points (or theoretically 1.5 GPU certificate). Then how could this be a huge bonus for passenggers?
They would not take the additional points, it’s whichever is greater. The reason why I thought the Plus Points change made sense was because travel patterns and preferences vary yet everyone is essentially locked into X number of GPUs and Y number of RPUs. If you’re an internationally-focused LAX flyer, regional upgrades are worth a lot less to you than an extra GPU. Likewise, if you live in a city like Omaha where you will have to connect somewhere but most of the routes are one-hour flights plus a two-hour flight following the connection you may not even be able to use an RPU on one of those legs.
@Kyle: After reading your response, I visited the United site. This is what they posted. Using my previous example, it would cost passenger 60 Plus Points, “not 40”, Kyle. Their link and example are below.
https://mileageplusupdates.com/mileageplus/english/upgrades/#accordion-faq-11
* For example, your itinerary could include two flight segments to get to your final destination; Chicago to New York/Newark and New York/Newark to London.
* You could place a request only for New York/Newark to London. The request is cancellable as long as it has not been upgraded.
* If, after receiving an upgrade from New York/Newark to London you’d like to also add Chicago to New York/Newark, it will require a net new PlusPoints request and cost additional PlusPoints.
It would cost 60 points only if you requested the upgrades separately. If you requested the upgrades as a single request, it would cost a maximum of 40 points, but there’s a risk that the EWR-LHR upgrade request doesn’t clear while the ORD-EWR flight does, in which case you would have spent 20 points for the domestic upgrade. This could be frustrating for some customers who wouldn’t want to “waste” 20 points on a domestic upgrade, but this isn’t any different than applying a GPU to multiple segments of a flight and not having the longer segments clear.
In my experience however if the long (overseas) segment doesn’t clear, the GPU is returned to my account.
You realize how ridiculous you sound? Why would any good CEO make changes that’s don’t enhance the business? If a policy or product is improved that doesn’t garnish additional revenue…. would you do it ?? Would you share 10% of all your ad revenue to those who click on your site the most ? Bloggers are freeloaders that have minimal common sense. No good company dies things that won’t make money. Those 5 star Asian airlines bleed , don’t make a dime.
Plenty of CEOs make terrible business decisions all the time. Some make business decisions that should be good but turn out to be terrible (like Target’s entry into the Canadian market.) However, you can nickel and dime your customer to the point that they stop coming around. look at the decline in passenger traffic on American during the period. They made a ton of customer changes that were to their detriment and all the sudden passenger numbers, profitability from flying started falling off and then Delta sees an unexpected boost in traffic while United feels emboldened to raise their spending requirements.
Also, just for the record, if you think bloggers are sitting here diving Scrooge McDuck-style into hordes of ad revenue – you’re the one that’s ridiculous. You’ll have to trust me that this is a work of passion, not a job.
Kirby gets a lot of credit for negative changes at AA, but it almost seems to the exclusion of “dead-man-walking” Doug Parker as CEO. He’s still there, and AA is demonstrably worse than when Kirby left. How much of AA’s problems are attributable to Kirby, as opposed to, you know, the guy that’s been in charge all along?
Kirby is a convenient villain.
@Ryan it’s indeed possible that Kirby’s move to just look at $ for loyalty will turn out to be a terrible business. I’ve had plenty of spreadsheet jockies at my company think that if we just raise prices 7% we will make so much more money without understanding that the demand will evaporate.
@Ryan
1) For the better part of the last 5 years AA has lost money on everything they do APART from their requent flyer program, so this idea that constant devaluation leads to better overall performance is patently erroneous.
2) Let’s think of some airlines that are really good and make money. 1. Emirates 2) ANA 3) JAL. There are some examples, of course, which prove your point (Cathay and SQ to name a few), but Air France has a highly devalued award chart in Flying Blue and still loses money.
3) You mention to Kyle “you realize how ridiculous you sound?” — It’s not ridiculous for a CEO to want to make a company more profitable, but, likewise, it’s not ridiculous for a consumer (or, in his case, a very frequent flyer) to be opposed to devaluations that worsen the flying experience. I fail to see how that is ridiculous. In fact, I’d argue it’s much more ridiculous to be completely OK with anything an airline does to their experience or FF program no matter how much money or loyalty one gives them.
Just landed following an 9-hour flight. Sam, you’re my hero.
With a devalued loyalty program and UA seeming to try to charge more for a lesser product (except for the Polaris lounges), I’m not so sure this will maximize profits. Personally, I’ve just been buying the cheapest international business class and that seems to work fine.
“2) Let’s think of some airlines that are really good and make money. 1. Emirates 2) ANA 3) JAL.”
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Emirates? They barely make a profit, less than 1% operating margin last year, and the first half of this it’s only up to just under 2%. Without their generous financial operating environment (no or hardly any taxes from their home government) they’d be substantially loss making.
Delta and Southwest for me. From STL they cover all my needs. AA and UA are only in a pinch.
It’s “roughshod” not “rough shot.” Like a horse with horseshoes with the nails popping out for more traction, thus tearing up a turf track.
Appreciate the sentiments of the article though, for sure. Just isn’t clear there is a better option.
I appreciate that. Spell check can only get us so far (sometimes Grammarly makes it worse).
Sam, I think I’m 100% spot on when I say bloggers shouldn’t be advising CEOs, they are only interested in what they can get for free. No big spenders actually give a crap about miles. Most people who don’t pay for their tickets should be happy they get anything at all. What a messed up set of expectations… airlines should lose money on me. Delta has it figured out. Let’s face it, their FF program sucks the big one. They only give back what they KNOW will make money. Good service and a good product. Most people in this blog are the 1%. No one cares about keeping your dream first class vacations in check.
@Ryan
With respect, I take issue with a number of points you seem to make. In order,
a) “bloggers… are only interested in what they can get for free”
Nothing is free. Let’s take Air France Flying Blue as an example. When you transfer miles from Chase to Air France, Air France charges Chase for those miles. You then pay some pretty hefty surcharges to Air France (in business) for the pleasure. What’s more, Air France restricts mileage availability on the dates/flights on which it thinks it can sell revenue tickets (which are obviously more expensive).
Let’s take the above to it’s logical conclusion. Any ticket Air France thinks it can sell as a revenue fare won’t be made available with miles. Any ticket Air France DOES NOT think it can sell as a revenue fare is sold as a miles ticket, but, Air France still makes a pretty decent return on that ticket (as I have mentioned above). If for a moment we imagine that Flying Blue didn’t exist, because that would constitute providing “free flights”, Air France would actually make less money, because seats on flights that can’t be sold as revenue fares would go out empty.
2. “no big spenders actually give a crap about miles”
I’m not sure who you are referring to here. While I don’t know the intricacies of Matthew’s import/export business, I imagine he spends quite a bit if he is considering the Amex Centurion Card (which, by the way, I find to be a total waste of money, but that’s a conversation for another day). It seems that he cares about miles and points. Moreover, there seems to be an inherent contradiction in your reasoning, as you suggest that “no big spenders actually give a crap about miles” but continue to say that “most people in this blog are the 1%”. Are the people who you seem to suggest are ‘freeriding’ the rich, 1%, or are we peasants trying to get something for nothing?
Not something you addressed specifically, but…
3. Brand Recognition
I find that this is the most compelling case for a loyalty program. I’ll take myself as an example. I am a BA gold card holder and live in DC. While I fly to London several times a year in business, I also fly to other places which are more directly and cheaply served by other airlines. On a trip to South Africa last year, I ditched a nonstop flight on South African in business class from IAD-JNB for 78K lifemiles and $5.60 so that I could connect through London (with a 10 hour layover, no less) and fly BA club, all for the sake of having another year of gold status. While the benefits I receive from being a OW emerald and gold exec club benefits are nice, they probably don’t justify me routing virtually all my travels through London. That said, I do. Why? Because I like receiving personalized emails from managers about flights I’ve taken, or the ability to use 2X avios for any flight in the BA system. I know United frequent flyers who will literally pay more to fly UA economy over AA business, and vice versa. It doesn’t make sense but it works with a lot of people.
I hope I have had some success in conveying to you why I think the case for a (decent) loyalty program is very much the right one.
Sam. Again this blog is the 1% crowd. No airline will put a CEO in place to please the 1%
Thanks for the Economics lesson. As a major in Aviation business I can tell you nothing you wrote above is true. When a passenger is flying on a mileage ticket, there is no RASM… but CASM remains the same or increases depending on the cost structure. I’m not going to go into details with you but it is FAR more complicated then what you explained above. Your thought processes above are elementary and general. Yes. We all know the airlines wish to only make awards available for a seat that potentially won’t sell. But what’s the opportunity cost of providing more inventory if you know you’ll have to give some away. That is NOT always configured on the books when airlines tell you they “made money” on their FF program. Again. Goes far more in-depth than your explanation.
@Ryan
Which university gave you a degree in aviation business? I’m genuinely curious=)
Your response to me is basically, “yeah but it’s more complicated than that so yeah”
(Perhaps unsuccessfully) I tried not to write a dissertation and did not go into extreme detail in my explanation above. If you find those details to be important, then I’d respectfully ask you to spell them out, rather than trying to refute all my arguments with your “details”, which apparently make my arguments “elementary and general”
By the way, let me share why Spirit has done so well. Spirit has thrived in an environment where the competition also offers crap products. Of course price is the #1 factor for many consumers (although probably not “99% of them” as you suggest — that figure doesn’t seem to be terribly scientific) but that’s a completely different topic; namely, the product/price conundrum. Moving the conversation to that topic seems to be a pivot as you’re evidently unable to substantively respond to the three main points I made above about the purpose of decent (not amazing, but decent) loyalty programs.
After reading all of Ryan’s comments on this, its clear he’s unable to grasp your, or really any, argument. He can’t figure out the point of loyalty programs as a driver of retention and incremental spend, seeing it only as a loss leader. And decoupling miles from “big spenders” is a fundamental misunderstanding of the value of rewards to business travelers flying on corporate accounts. Especially since that “1%” drives such a large amount of airline revenue.
Let it go, Jake. It’s Chinatown.
Not sure what the bloody argument is about. It’s a free country. Kyle you go ahead and dump united. Don’t let Ryan scare you from not doing it you got this.
Wow
I thought I was obsessed about frequent flyer issues. I agree that the changes at UA you attribute to Kirby were ridiculous at best (“here’s our fancy new Polaris service, now we’re going to downgrade food quality to quick heat one plate crap”).
Yes its a business. But that doesn’t mean the only way to make money is chasing low fare flyers. The newest version of UA’s program will reward those that spend the most and fly the most frequently, becoming spend and segments. It began who flies the most miles (money or frequency not important).
I’ve been 1k forever, I fly multiple Asia trips, US, and some other intl every year. I’m making some mileage runs this month (short on the $15k rqmt, I hit 110k miles already).
I don’t know if I’ll hit 1k in 2020, the segments is a reach for me, and I do buy some non UA flights.
I’ve read that one high value option in the new plan is flying other star alliance partners on high mile low fare tickets. So I’ll be trying that to hit the new $18,000 rqmt. Segments? Maybe next December I’ll be doing a 5 leg flight to hit the segment rqmt.
We’re like kids with Pokémon.
I’m cautiously optimistic that Kirby has realized UA is in a fundamentally different strategic position from his previous airlines, all of which were heavily dependent on attracting cost-sensitive connecting travelers with lots of price competition, while also dominating their hubs (i.e. monopoly position = service doesn’t matter). UA has nondominant hubs in premium business cities (a beginning or end point for 75% of US business travel, according to him) with lots of nonstop LCC competition – places where service attracts local business fliers over price. They can’t really win on price/cost in these hub cities anyway because of competition from Spirit, Frontier, Alaska, JetBlue, and SWA. Their only wise strategic option is to go upscale premium.
I might have accepted that previously, but Doug Parker’s apologists promised the same thing – that he was “smart” and would know that AA was a fundamentally different operation than US or HP. Instead, he did exactly what a lot of us former AA loyalists figured he’d do, run the operation like the low-cost carrier America West was but that isn’t even particularly low cost. Frankly, I don’t see any signs that any of the old America West gang get it, either. Kirby is the guy behind the Polaris service cuts, punitive Basic Economy policies, reducing staffing in J, the MP devaluation, etc.
While I share your lack of enthusiasm about Kirby – as I told Matthew, a leopard doesn’t change its spots – I think your best course of action is to take a wait and see approach. Given that your only other real option is the other branch of America West (AA), it really isn’t going to improve your happiness.
Tory…. genius! Drive up the cost and get your a— kicked. That would be a terrible move. The US consumer has spoken. 99% buy the cheapest fare. Why do you think Spirit has been so successful and all the airlines had to create basic economy ? That wasn’t created by Spirit , that was consumer choice. People CHOSE spirit low price over the mainline carries. There is still a pretty big difference in service although the gap has narrowed.
Ryan: they’ve already done it and they’re thriving. In fact they’ve moved from the #3 to the #1 largest carrier in the world based on passenger-miles flown. Basic economy just lets them dedicate part of each plane to competing with Spirit etc. without cannibalizing the high-margin business customers and elite fliers (including not taking their overhead bin space with carry-ons).
I think you have no choice but to take a wait and see approach. At such time as your carrier of choice changes the loyalty equation to the point that your spend will generate a better return elsewhere that’s when you make a change.
Much of the comments however have gone in another direction that of running a business. Of course Kirby has to do that. But I would submit that airlines by and large (especially the big 4) are essentially a commodity. With the possible exceptions of Delta and American (Delta being very reliable and AA a total disaster) the last few years there has not been a meaningful difference between them especially as they have raced to copy each other.
What Kirby and United could (and in my view should) be doing is looking for a way to alter that equation. United has done some of that by making massive improvements to their operation and customer service greatly diminishing Delta’s advantage in this area. But the other lever they can and should be using is their loyalty program. Mileage Plus could if set up properly be a compelling reason to choose United over their competition. Not just for the top of scale
Elites but also for the other end of the food chain. When you present obtainable and desirable goals it alters consumer behavior. If I know that dream trip in J or F is a goal I can actually reach them it’s likely I will focus my spend with that company to achieve that goal. So instead of just buying the cheapest ticket I will pay more to stay with my chosen carrier. I get and hold their credit card and I focus my spend on getting to that goal.
This then does what a loyalty program really should be doing. Not just rewarding the best customers for their loyalty but driving marginal spend that would otherwise likely go elsewhere. It means families buying tickets on United even when they spend a little more. It means elites moving airlines because they see the return on that investment. It’s spend being driven to United that other things being equal would not have been there.
That’s why I’d like to think a smart business man at the helm of an airline would have a compelling reason to enhance their loyalty program. Especially in this age of devaluation. Sadly it’s yet to happen. The closest we have is Alaska but they simply are not relevant for a large chunk of the country.
i hoped for the best with Smisek….after all he studied under Bethune. When he made dumb decisions, I still hoped for the best; When he was arrogant, I hoped for the best; When he ruined the airline operationally, and described it as a mere “detour” on the way to work…..I lost hope. Good riddance Jeffy.
With Oscar, I knew it was going to be a disaster. A railroad man who was a nobody on the Board. It couldn’t go anyplace but further down. He was the last man standing willing to kill his career at UAL. Surprise, we could not have hoped for better. With the exception of the Dao incident, the tenure has been just about pitch perfect.
i think the moral of the story is you can never tell….the one holding the most promise, tutored by the best, failed miserably. The one everyone (most everyone) thought was a placeholder and would continue to aim the nose downward was a true success in almost every metric….you can never tell.
I fly in the 25k to 50k tier of flights so I would be a low-level elite. As such, the benefits are not worth that much, so I’ve gone the free agent route. Whoever has the best schedule/price combination will get my business. I will never earn enough to get any true elite treatment, so it’s not worth the trouble to track the programs. I’ve actually found its quite a nice feeling to let go of all that minutia.
Kyle, don’t you live in Pittsburgh? As an ex-PIT-based flyer (and current PHL-based flyer), I never found the short hops to Detroit to be that bothersome to keep my business with Delta, or to BOS or JFK if you’re headed to Europe. Unless your primary destinations are United Hubs not serviced by DL (Chicago, DC, Houston, Denver, San Francisco), you’re probably having to connect from Pittsburgh anyway, aren’t you?
Rough shod
So your saying Kirby screwed up the passenger experience at AA, and you are going to take a wait and see approach at UA. You said yourself he already has cut the Polaris product back, slashed meal choice domestically. Oh and I might add cut staffing while increasing seat capacity. Let’s all face the airlines are a means to an end. Gone are the days of the journey being the experience. (well know days a bad experience) So invest in the airlines and each time you fly remember you are investing in your stock portfolio when you can’t feel your legs and don’t get anything to eat. Thank Scott Kirby.
I think your comment about Kirby putting shareholders first says it all. It doesn’t work that way. I invite him to read or re-read Gordon Bethune’s book From Worst to First. First empower your employees and give them the tools they need to make customers happy. Then concentrate on the customer..make them want to fly your airline. Happy employees will mean more happy customers which will mean happy shareholders by default. It has been proven (by Kirby and Parker among others) that it doesn’t work the other way around.
You can’t have happy shareholders if no one wants to fly your airline. My experiences with US Airways as a founder of their passenger advocacy movement show what you can do to have an effect (we got US to reverse program changes to Dividend Miles in less than 10 days).