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

  1. Mike says:

    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 says:

      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 “insiders” they already have. Usually the rank and file know more than are given credit for.

  2. serkeltik says:

    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 says:

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

    • serkeltik – If that’s all you’ve read, then I’d suggest you keep reading since there’s a whole lot more out there. If you really want to get a sense for how he views the industry, then go back and read through earnings call transcripts. There’s some great material there.

      Some of the initiatives that he’s been guiding at American, including Basic Economy, are already in progress at United as well. So it’ll just be a matter of implementing those. Others like Premium Economy are not. You might think that someone who comes to the conclusion that a prem econ product is best for American might come to the same conclusion at United, but there’s no way to know.

      That being said, I don’t expect many of the near term changes to be changes in the physical product. It’s going to be about better managing the network to improve revenues. At least, that’s where I’d start.

  3. Brian says:

    Yes, what serkeltik said!

  4. thomas.g.benedict says:

    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.

  5. drybean says:

    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 who he brings on board and what kind of power and influence the new sales leader is allowed to have. What are Gary Foss and Bob Hill up to?

  6. Tim Dunn says:

    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

    • serrkeltik says:

      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.

      • Noah Kimmel says:

        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!

  7. Giff says:

    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 says:

      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 says:

      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 says:

      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.

  8. Daud says:

    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…

    • Daud – There are a lot of ways to generate revenue, and where Scott excels is in managing a network to get the most revenue out of it. If you think about it from a US Airways perspective, he put together a revenue-generating machine based on the strength of the schedule. It’s that basic nuts-and-bolts change that United needs at this point.

  9. realist says:

    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?

  10. Gerry says:

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

  11. Eric in ICT says:

    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.

  12. Giff says:

    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 that worked out? Prior to that at Western Airline (https://en.wikipedia.org/wiki/Western_Airlines). There were 3 “Western Airlines”, but I am going to go forward on the premise that we are talking about the one that was bought by Delta. I notice that Kirby did not go to Delta with the merger. Now he is with American after their merger with U.S. Airways; so folks, how is that working out? You don’t have to read very closely between the lines on the link to see it didn’t work out very well.

    My personal opinion is that anyone who wants to charge passengers for water would probably want to charge them to use the toilet, with an extra charge for toilet paper.

    Bethune’s famous saying was that you could make a pizza so cheap that nobody would want to buy it. This was followed by Smisek’s “Shrink For Success”. And no we have someone who’s track record indicates he doesn’t really give a hoot about passengers or the employees – and he thinks that will increase the bottom line. LIke I said, how has that worked out in the past?

    On the upside, he isn’t a lawyer.

    • Giff says:

      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 says:

        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 back to it as part of its stock repurchase program.

      • CF says:

        Giff – Wow, I have no idea where you’re getting your background information, but almost none of this is right.

        Kirby wasn’t even 20 years old when Delta bought Western. I don’t think he ever worked there, but if he did it was definitely not in any kind of managerial capacity. His first major industry role was when he joined America West in 1995. Literally everything you cited as being bad about America West happened before he got there. Under his tenure (along with the rest of the management team that has been together for so long), America West became incredibly successful for what it was. Then the merger with US Airways was undeniably successful beyond anyone’s expectations.
        The American/US Airways merger so far has also been very successful, though it’s too soon to really say that definitively.

        • Giff says:

          Hello Cranky,

          I did try to correct myself with the self-reply. I got most of my info about air crew feelings first hand as an airline pilot.I have since retired (Not at America West). But I did share layovers with some of them, and I got to know them.

          From a stockholder or management standpoint it may have been a successful merger. From a crewmember standpoint it was terrible. Morale was in the toilet, and almost no one who worked there had anything good to say, at least not on the layovers. I know that junior FOs lived in fear everyday. I don’t remember what their union representation was, or if they even had any. I am pretty sure it was not ALPA.

          I am not sure when Kirby was there, but stuff rolls from the top downhill, and Parker was certainly his mentor, and he did try to sell water. I consider this good evidence he adopted the attitude of his mentor. Seriously? You can’t even give away water? i did link most of what I got with Wikipedia. I guess I could see if there are anything in the ALPA archives, but honestly I don’t care quite that much. But it still does not refute the contrast between Bethune and Kirby.

          On the other hand, I don’t really have a dog in this fight. So if there is some substantial success in his background comparable to Bethune or Bob Crandall (Talk about someone who was hated!) or Richard Allen. How many airlines can brag that the employees bought the airline a 727?!

          Today I spend most of my time reminiscing with other old schoolers about the glory days at Pan Am and reading Earne Gann novels. Unless you were there, you can’t understand what the golden days were like. We didn’t have all the gee-whiz stuff they have today, but the airlines weren’t driven by Wall Street analysts – it was a good trade.I can remember the first time I saw a 747 landing at SFO. As I remember I was sitting in a tavern called “The Green Turtle” that had a view of short final on the north bound runways; I thought to myself “Nothing that big can really fly!”

          I do hang out with some old U.S. Air folks from time to time. If you seriously think that merger went smoothly from an employee standpoint, you need to take the time to talk to some of the old school guys on a layover. The acrimony was – well it was/is substantial. No doubt I look at these things from a crewmember standpoint, but the reason that I mention Bethune is not just because I am former Navy, but he understood that leadership means taking care of and motivating your employees.

          • David M says:

            The pilots were the biggest problem area with the US/HP merger. Pre-merger, both groups were represented by ALPA, IIRC. But they went into binding arbitration about how to integrate the two, but the US pilots didn’t like it. So they broke away from ALPA and formed their own union, USAPA. Since there were more US pilots, they outnumbered the HP pilots so they were successful. However they were never able to come to proper resolution so US was actually flying with two separate pilot groups.

            The only reason this really got settled is with the AA merger, AA’s larger pilot group overwhelmed the US group and AA’s union took over. Plus Parker got the unions on board earlier to back the merger.

            • Giff says:

              Are they all playing nice in the sandbox now? Who is their union, and how did they end up with whatever union they have?

  13. DesertGhost says:

    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 back to it as part of its stock repurchase program.

  14. Rick Brown Jr says:

    Very well written!

  15. Michael Rowan says:

    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 airline, many business travelers also get to choose wether to fly at all. The track AA had headed the past year with AAdvantage has the markings that the USPS and the baby-bells, assuming demand will not decrease in favor alternatives, even with market share and consolidation.

  16. Giff says:

    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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