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Patience Please! Give United Continental CEO Oscar Munoz Some Time

By Adam Levine-Weinberg - Sep 30, 2015 at 10:20AM

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United Continental needs a sound plan to improve its performance -- not a quick one.

Just three weeks ago, former CSX executive Oscar Munoz stepped into the CEO role at United Continental (UAL 3.63%): one of the top three global airlines. Munoz quickly reached out to employees and customers, promising to mend fences and improve results at United, which has been a perennial laggard in the airline industry since its 2010 merger with Continental Airlines.

The masses are already getting restless. But while it's natural to feel skepticism about Munoz's efforts given United's track record, it's completely unreasonable to expect even concrete plans -- let alone action -- at this stage in his tenure. Turning around a $40 billion company will take time, and doing it right is better than doing it fast.

The critics swarm
A little more than a week after Munoz was appointed, travel critic Joe Brancatelli described him as an "intern" who was "hired in a panic." And despite paying lip service to not judging him on first impressions, Brancatelli goes on to excoriate Munoz for not being an industry insider, for introducing himself to frequent fliers with a rather generic letter promising change, and for having no credibility with United's unions.

Oscar Munoz is already taking heat in his first month as United's CEO. Photo: The Motley Fool

Brancatelli's diatribe fits his usual impossible-to-please, muckraking style. It's also littered with errors. (For example, he asserts that Munoz's predecessor, Jeff Smisek, was also an outsider. Smisek was actually a 15-year veteran of the Continental Airlines side of United Continental, rising through a variety of legal and operational roles to become CEO of that company in 2010. Brancatelli's claim that Munoz has no credibility with labor is also belied by the numerous declarations of support he received from United's major labor unions within hours of his hiring.)

However, Brancatelli wasn't the only critic waiting in line. Many people criticized Munoz for soliciting feedback from frequent fliers in an email that didn't have a "reply" function. (United advised customers to use the normal feedback forms on the airline's website instead.) Chicago Business Journal's Lewis Lazare also took a skeptical view of Munoz's early letters to employees.

Expectations are way too high
Personally, I think that Munoz was a solid choice to be United Continental's next CEO. As a veteran of the company's board, he's not completely clueless about the airline industry -- whatever the critics might charge. Yet he's also enough of an outsider to be a credible driver of much-needed changes at United.

In any case, it's way too early to make any judgments about how he's doing. United is a $40 billion company and a very complex organization with more than 84,000 employees. It takes years to engineer a business turnaround on that scale.

Customers, employees, and investors should be very glad that Munoz plans to take his time to fully understand the issues facing United. (In addition to meeting with lots of employees, he also plans to engage management consultants for a thorough review of United's practices.) When making wholesale changes takes so long, it's critical to get them right the first time.

No immediate danger
It's important to recognize that United Continental is not falling apart. The company bottomed out in Q1 2014, posting an ugly $0.5 billion loss when most airlines were earning record profits. Since then, United has addressed many of its most pressing problems. It has dropped routes that were consistent money-losers, cut back on capex, started phasing out uncomfortable and costly to-operate 50 seat regional jets, and is simplifying its scheduling to reduce delays.

United Airlines is phasing out most of its 50 seat regional jets. Photo: The Motley Fool

These smart moves made by the previous management team -- along with the benefit of lower fuel prices -- have United on track to post a record profit of more than $4 billion in 2015.

As a result, it's OK if Munoz takes his time to understand United's problems rather than rushing to promulgate solutions. Furthermore, to the extent that United needs to make big investments in new technology or facilities to improve its reliability and the customer experience, it won't have trouble paying for those upgrades.

A lot of people are anxious to see how Oscar Munoz will get United Airlines back to performing on an elite level. But hopefully -- for the sake of customers, employees, and investors -- Munoz will continue to focus on gathering information rather than trying to solve United's problems quickly. The last thing the airline needs is another half-baked strategy.

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