American’s President Goes to United and Both Airlines May Benefit

I know I said I was going to do the first half of my 9 Airports, 1 Day trip report today, but, well, it’s not every day that the President of American moves into the same role at United. I had to write about this.

American’s President, Scott Kirby, is out at American and COO Robert Isom is taking his place. According to the airline, “the Company concluded it would not be able to retain its existing executive team in their current roles for an extended period. As a result, the Board chose to act proactively to establish a team and structure that will best serve American for the longer-term future.” Got that? Yet the same day, United announced Scott would take over as President there.

United Scott Kirby

It seems clear that this didn’t happen overnight. In the end, it’s a seismic shift at both airlines, and strangely enough, I think it could be good for both. Let’s start with United.

United Gets the Revenue Muscle It Needs
United has been the whipping boy of the industry for several years now thanks to operational and financial under-performance. New CEO Oscar Munoz has made some strides in fixing the airline’s culture, but he’s not an airline guy and he’s not the guy to fix the nuts and bolts. When he brought in Julia Haywood last week to be the Chief Commercial Officer, I could only scratch my head. She’s a young consultant who didn’t seem to have the chops for a role like this. But now that the other shoe has dropped and Scott is on board, this all makes sense.

Scott is a revenue mastermind, and he has been working his magic in the industry for years. I worked on his team at America West when I was there 15 years ago, and I feel lucky to have learned in that environment. United will benefit greatly from someone at the top who really understands how the industry works from a revenue perspective. Assuming he’s given free reign, he’s going to have a big impact.

It’s hard to imagine that he won’t have the latitude to do what’s necessary. Remember when PAR Capital and Altimeter Capital made a move to try to build a more functional board at United? Well you know that Scott Kirby’s name was in the mix from day one. PAR Capital has a long history with Scott’s companies. It was heavily invested in America West and it partially funded the US Airways merger. Scott had to have been their dream candidate. Whether Oscar had much of a say in this or not is something I don’t know. But if Oscar focuses on the people side of things, as Doug Parker has done at American, then that relationship could work well.

This gets Scott closer to the CEO job at an airline. Doug wasn’t going anywhere at American, but who knows how long Oscar will want to do this job?

United has already been improving, but this is a big piece of the puzzle that was missing. Oscar now has a formidable team to really fix that place.

American Gets a Fresh Start
If this is good news for United, how can it also be good for American? Every airline has different needs.

To be clear, this is a huge change at American. The core of the management team (Doug, Scott, Robert, CFO Derek Kerr, EVP People and Comm Elise Eberwein, and EVP Corporate Affairs Steve Johnson) has been together since the America West days. Frankly, it’s remarkable that such a successful management team has been able to stick together for so long.

While Scott brings badly-needed revenue sensibility to United, American is in a different place. It has strong revenue management and network teams that are going to be just fine. Its operation, however, has slipped as of late.

Yes, I know that Robert has been overseeing the operation as COO, but sometimes (as was the case in LA), the commercial team’s decisions are what hurt the operation. Robert may bring more balance between the operational and commercial needs now that he’s in charge of both.

Then there is a giant weakness that has bugged me since the merger went through. That’s sales and marketing.

US Airways under Scott Kirby was an airline focused on selling convenience and reliability. It didn’t find much value in investing in sales and marketing functions. But a full service airline like American needs something more robust, and it still hasn’t even built a structure to acknowledge that. Just look at how sales is set up today. The airline’s highest sales job is a VP role, and it’s been empty since Derek DeCross left at the beginning of the year. (Rumor has it that a replacement is coming in the next month, but maybe that changes with a new President.) But that sales job today reports to Andrew Nocella, SVP and CMO. Andrew then reports up to the President, now Robert Isom.

Contrast that with Delta, which has Steve Sear as the Executive VP of Global Sales (not to mention, President of International). United has Dave Hilfman as its Senior Vice President of Worldwide Sales. Both airlines consider those people to be on the leadership team. But at American, that’s not the case.

Scott Kirby is a numbers guy, and Robert Isom is an ops guy. But Robert is also a people person, and he understands the value of relationships. I know that first-hand since I also worked on his team when he took over revenue management at America West. One of my coworkers and I used to go into his office and drool over all the models and plaques he had. One in particular that stood out was from IAE, the Pratt & Whitney/Rolls Royce joint venture that built all the America West Airbus engines. He took note of that and was so appreciative of the work we did to help his transition that he used his ops contacts to get us a behind-the-scenes tour at the engine facility in Hartford. I’ve never forgotten that gesture.

If Robert’s understanding of the importance of relationships extends from employees to customers, then that could mean good things for the sales and marketing organization… and for travelers.

There are still plenty of unanswered questions about how this will unfold, but the potential is there for this to be great for both United and American, two airlines that need different things right now.

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34 Comments on "American’s President Goes to United and Both Airlines May Benefit"

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Mike
Guest

The roles and people in the airline business seems to be a revolving door.
Case in point is Delta Airlines. Richard Anderson was from Houston, started at Continental, went to Northwest, then to United Health Care, then to Delta. I know United Healthcare is not in the airline business, but its the reason Delta’s health insurance carrier is…United Healthcare. Different size airlines require different skills I guess from the same people at different times..

A
Guest
The C-level club is a revolving door of the same people within most industries. Kirby could go work in an unrelated field, I guess, but we all know where his value is. My only gripe overall is that far too few companies seem unwilling to take a “risk” on promoting up from within. While I’m sure there are still opportunities for someone to work from the mail room up to the CEO position, oftentimes these days boards would rather just find someone out there already at that level. I think they are just missing good talent and new ideas from… Read more »
Sean
Member

what kind of revenue fixes might we expect to see at united in the coming months? all I’ve read is that this is the guy who tried to charge for water and didn’t put wifi on us airways’ planes. these changes don’t seem passenger friendly.

Oliver
Guest

Doesn’t necessarily mean that at a different airline (like UA) he would have made the same decisions. Time will tell. Watch your Stroopwaffels.

Brian
Guest

Yes, what serkeltik said!

thomas.g.benedict
Member

If you want to get a companion pass quickly– get both a personal and business SWA visa card and alternate between canceling and a getting a new one.
50,000 points from a new card.
I am sure you already know this. You should be called the Happy Flier.

drybean
Member
Brett has brought up an interesting point about AA that has not been mentioned much in the media or blogosphere. Since the forced take over of AA by US the Sales & Marketing efforts have been almost non-existent..especially in smaller hub and non-hub markets. It seems almost that all the AA marketing people packed their bags one day and departed to an unknown destination. This has to hurt. Loyalty will take you only so far. Its as if the Parker/Kirby team thought there was no new business out there or that it would somehow magically migrate to AA. Lets see… Read more »
Tim Dunn
Member

There is no way to downplay that this is a huge strategic coup for United and an immense failure for American. The market sees it that way at this hour.

Kirby was dissed after 20years at Parker’s side and took American’s plans and loads of strategic data with him to United

American’s decision to not have executive contracts will cost them way more than if they had them and bought out a few

Sean
Member

This is an interesting point you make. He’ll definitely have knowledge of what routes American plans on starting, how they plan on enacting lower level economy fares, and I’m sure a bunch more. So, strategically, this can keep United ahead, but all we have to go on is his past performance, which isn’t exactly exciting to someone who’s slightly less cost-conscious than most but by no means a frequent flyer.

noahkimmel
Member

That being said, knowledge and execution are two totally different things. It’s not like taxi companies dont know Uber is out there – they just can’t seem to execute on decent service….

AA and UA are relatively mature and somewhat transparent to the Marketplace of near-term plans. Execution of plans is the hardest part. And what works for one airline doesn’t work for another. If it did, UA would be a lot more like Delta!

Giff
Guest

So, you have a new President who has a history of managing deceased, troubled, or failing airlines. This is someone who felt charging passengers for water was a good idea. I don’t doubt that if he could, he would have charged them for air.

Is there any airline, or any business that has benefited and prospered after he went to work there? Why did he have to leave the Air Force? He was an Academy grad, but somehow couldn’t make a career of it?

CS
Guest

This sort of grinds my gears… A lot of academy grads do their time and move to C-suite level positions. Think about it, they basically go to a college that, from day one, invests hugely to develop them into great leaders. Some make a career of it, many more go into private industry.

Oliver
Guest

Seems to me that scrappy little airline called America West (I flew them a few times 20 years ago) has done quite well overall, morphing into the largest US airline by some measure through acquisitions of larger rivals that were failing.

LT_DT
Guest

I don’t know what the exact statistics are but I don’t think there’s much difference in long-term retention rates, in the Air Force at least, between the academy and other commissioning sources (ROTC, OTS). In fact, based on folks I’ve encountered, many academy grads are “burnt out” by the experience once they finally graduate and end up leaving the AF after their initial service commitment is up.

Daud
Guest

I don’t know that I see Kirby as revenue-generation specialist as much as I see him as a cost-control specialist. You pretty much admit that he doesn’t really believe in sales and marketing and most of his “successes” have related to leveraging lower than normal costs as opposed to generating out sized amounts of revenue. Just my opinion though…

realist
Guest

Brett, you told us over and over again while you were shilling for the merger how Kirby was going to supercharge the New AA’s revenue once he took control, and you’re singing the same tune now that he’s going to United. Quite frankly, it never happened as AA’s revenue has actually lagged for the most part. Maybe that’s why AA’s board was willing to let him go to the competition?

flyingcat
Guest

Q2 RASM
AA: 12.71 cents
DL: 13.59 cents
UA: 12.52 cents

Gerry
Guest

This is just merely step one in Parkers plan to created United American Airlines and rule all the airlines of the world.

Eric in ICT
Guest

Definitely want to hear the backstory on all this when/if it comes out. An aside, this might be your best, and funniest, PhotoShop work yet, Brett.

Giff
Guest
Even if I were to concede the point that Kirby might be on of most/many Academy grads who get out of the Air Force for greener pastures, it is a small point compared to the main point: Where is Kirby’s record of success anywhere else? Contrast Kirby with Gordon Bethune (https://en.wikipedia.org/wiki/Gordon_Bethune). When Bethune went to Continental he had a history of success that spanned from his career in the Navy, his academic success at Harvard, and his managerial success at Boeing. Compare this with Kirby (http://www.forbes.com/sites/martinrivers/2016/08/30/scorned-american-airlines-president-scott-kirby-has-jumped-ship-for-united/#693b1ea36dff). His big claim to fame was his time at American/U.S. Airways. So, how has… Read more »
Giff
Guest
My Bad, he was at America West (https://en.wikipedia.org/wiki/America_West_Airlines), which is not an improvement. I particularly liked this attitude toward employees: “America West also used an aggressive employee stock ownership program, in which new employees were required to invest 20% of their salary in company stock, providing a steady flow of cash as the company grew. America West pilots and other employees were paid wages far below those of their competitors” and “America West operated under bankruptcy from 1991 to 1994. As part of their restructuring, employee stock became worthless, ’nuff said.
DesertGhost
Guest
As Brett writes, this had to be in the works for a while. This kind of thing doesn’t happen overnight (although the announcements did). I’m speculating (and ONLY speculating) that United contacted Kirby and an arrangement was made among the parties. Much has been made of the Termination agreement and stock acceleration on some airline boards, but it was probably necessary. How would it look if the president of United Airlines owned $9,000,000 worth of American Airlines’ stock? I’m guessing (and ONLY guessing) that United will trade Kirby’s shares for an equal amount of United stock and sell American’s shares… Read more »
DesertGhost
Guest

I put this in the wrong spot.

DesertGhost
Guest
As Brett writes, this had to be in the works for a while. This kind of thing doesn’t happen overnight (although the announcements did). I’m speculating (and ONLY speculating) that United contacted Kirby and an arrangement was made among the parties. Much has been made of the Termination agreement and stock acceleration on some airline boards, but it was probably necessary. How would it look if the president of United Airlines owned $9,000,000 worth of American Airlines’ stock? I’m guessing (and ONLY guessing) that United will trade Kirby’s shares for an equal amount of United stock and sell American’s shares… Read more »
Rick Brown Jr
Member

Very well written!

Michael Rowan
Member
As an American ExPlat considering hanging up the traveling lifestyle, I’m quite happy to see the transition. I think Kirby is great and ran a good ship while I flew with HP/US/AA as a PHX hub-centric flyer – but the sudden depreciations at AA has me hoping for any sign of improvement, Isolm brings me great hope. AA is poised for operational greatness – they do fantastic by me every week, and are already competitive on price. What they need to compete on is motivation. As a people person I know he won’t forget that in addition to choosing an… Read more »
Giff
Guest

This just popped up ref AA on the news today (http://www.nytimes.com/2016/08/30/business/media/great-fliers-make-the-best-of-their-situation-american-airlines-suggests.html) The theme is that it is up to the passengers to have a good trip. It was met with less than enthusiasm by most of the posts I saw. I am just wondering if they put this together before Kirby jumped ship, or If he left because this is a long term policy he disagrees with.

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