United Airlines president Scott Kirby speaking in Chicago, Illinois, June 5, 2019.
Kamil Krzaczynski | Reuters
United Airlines‘ incoming CEO Scott Kirby doesn’t mince words.
“It’s far better to be too aggressive than not aggressive enough,” he told a J.P. Morgan industry conference in early March, laying out a dire picture of potentially sharp revenue declines, as the coronavirus was starting to disrupt everyday life in the U.S.
Weeks later, the pandemic dragged air travel demand down to the lowest levels since the 1950s and the country’s airlines, including United, posted their first losses in years. In quick succession, United announced a series of capacity cuts and idled hundreds of planes as Kirby and CEO Oscar Munoz warned of job cuts this fall if demand doesn’t return.
They scrambled to raise and conserve cash, including debt and equity sales, and sale leasebacks of some planes.
Kirby, 52, United’s president since August 2016 and a more than two-decade airline executive, slides into the top job on Wednesday, facing the greatest challenge of his career, during which he navigated bankruptcies, mergers, the effects of the Sept. 11, 2001 terror attacks and the 2008 financial crisis.
Known as an action-taker with a talent for growing airline networks to maximize revenue, analysts expect Kirby to focus on reducing cash burn and reducing costs. United went into the second quarter burning about $50 million a day and plans to reduce that to a daily average of between $40 million and $45 million in the second quarter and possibly below $40 million in the third quarter, Kirby told investors on a May 1 earnings call.
Kirby will not only have to guide the airline through the unprecedented drop in demand and likely a deep recession, but the tricky job of convincing travelers it’s safe to fly again, as every flight has the potential to show up on social media when passengers are uncomfortable. Kirby and Munoz have gone through public backlashes before, few more memorable than the April 2017 dragging of passenger David Dao off of a United Express flight.
After a photo surfaced earlier this month showing a packed United flight, the airline implemented a policy that allows customers to switch to other flights or receive a travel credit if their flights are booked close to full capacity. United said that “because our schedule is so reduced, there are a small number of flights where our customers are finding planes fuller than they expect.”
The airline industry is one of the most hurt by the pandemic as travel demand plunged and cancellations outpaced new bookings. United’s shares are down more than 72% this year, while American’s have lost more than 65%, Delta’s are down nearly 63% as revenues plunged. The investor exodus has included Warren Buffett, who announced this month that Berkshire Hathaway has sold its stakes in American, Delta, Southwest and United because of the impact of the virus.
No minced words
People who have worked with Kirby describe him as a detail-oriented decision maker with little tolerance for half measures. Some analysts say that’s just who the carrier needs as it faces its biggest-ever crisis.
“I think you need a strong decisive person who is going to call it like it is,” said Savanthi Syth, an airline analyst at Raymond James.
Quipped another Wall Street airline analyst: “If I had to trapped on a deserted island with hopes of figuring a way off, Scott would be my overwhelming choice.”
Kirby rose through the ranks at America West and after mergers, at US Airways and then American Airlines, where he was president before separating from the company in 2016. Shortly after leaving American, he was named United’s president in August 2016.
At United, he instituted a daily 7:30 a.m. call with several dozen staff members to go over the previous day’s operation and discuss any issues in the day ahead. “He’s very hands-on,” said one executive. Kirby has continued those calls from his home in the Dallas area over the past few weeks, where he is working remotely. He will continue to oversee operations, revenue and other areas of the business under his watch as president.
Kirby’s vision for strong growth and cost-cutting haven’t always landed well. He pushed for United’s aggressive plan to grow as much as 6% a year from 2018 through 2020, which was met with a stock rout as investors feared low fares would dent revenue when the airline unveiled the strategy in early 2018. But the plan had paid off thanks to strong demand. United shares reached an all-time high in November 2018 of $96.70. In January 2020, United touted that it reached its per-share earnings goal a year ahead of schedule. United forecast full-year earnings of $11 to $13 a share in 2020 but in February it became the first major U.S. airline to withdraw its full-year financial forecast because of the virus.
United has backed off other plans implemented under Kirby after backlashes. For example, in 2018, United shelved a plan to make it harder for employees to get bonuses after staff complained. Kirby wrote to employees that the airline “misjudged how these changes would be received by many of you.”
When glimmers of an air-travel recovery appear, Kirby will have to weigh his penchant for growth with risks of expanding too much.
Shrink and raise cash
Like its large-airline competitors, United has spent years building up an international network, service that is now nearly halted as the virus, travel restrictions and stay-at-home orders crush demand. These carriers are also challenged by a plunge in corporate travel as companies eschew business trips, particularly those abroad, because of the pandemic. United, which has counted Apple among its largest corporate customers, offered more service to Asia than other U.S. carrier.
Instead it is idling planes. United, however, is standing by the Boeing 737 Max planes it’s ordered. Regulators haven’t cleared those planes to fly since they were grounded in March 2019 after crashes in Indonesia and Ethiopia.
While last year, airlines couldn’t get their Max jets fast enough to cater to strong demand, United’s bigger problem now is a lack of passengers.
“We are going through hell right now, but we know this virus will ultimately be defeated, and we will get to the other side,” he said the a May 1 earnings call. United lost $1.7 billion in the first three months of 2020, the Chicago-based airline’s first negative quarter in six years. “We can’t control or know when or how fast that may happen, but the people of United are doing everything within their power to control what we can, to take care of each other and our customers and to get through hell as quickly as possible.”
United has been focused on raising liquidity as the crisis deepens. The airline said that as of April 29, it had $9.6 billion in liquidity, after raising $4 billion from late March. Raymond James’ Syth estimated in a report Sunday that United has 10 months of implied cash on hand, compared with 11.3 months for Delta and six at American.
Some of the more difficult decisions are ahead as the airline, which employed roughly 96,000 people as of the end of last year, prepares for the potentially massive layoffs or furloughs. Salaries and benefits accounted for around 31% of United’s costs last year. United reached a deal last month for about $5 billion in U.S. government coronavirus aid that prohibits airlines from laying off or cutting the pay rates of employees through Sept. 30.
Sara Nelson, a United flight attendant and president of the Association of Flight Attendants, which represents some 50,000 cabin crew members across 19 airlines, pushed for payroll guarantees in the CARES Act, the $2.2 trillion coronavirus relief package, along with other labor leaders. But Kirby and other top United officials are already preparing employees for job cuts, a scenario that is likely across airlines, barring a sharp turnaround in demand. Flight cuts have already shrunk airline employee paychecks as staff work fewer hours and thousands have taken unpaid leave.
“I think it’s a plus that he is absolutely decisive and incredibly smart,” said Nelson. “I think he is very lucky that United is highly unionized because it’s going to require him to think things through. We’re going to provide a check and balance.”
Nelson said the unprecedented crisis requires engagement with the company.
“Everyone is in survival mode. We’re very aware Kirby’s interest is going to be on the overall health of the airline and our interest is how this impacts individual flight attendants,” she said.
Kirby and Munoz said in an April 15 staff note that “the challenging economic outlook means we have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1.”
Reductions in work hours have already heightened labor tensions. United earlier this month backed off of a mandatory reduction in hours for fleet service and customer service workers after the union that represents those employees sued, calling it a violation of the terms of federal aid and their contract. United warned that if there aren’t enough volunteers, the reduced hours could become mandatory.
Capt. Todd Insler, chairman of the union that represents United’s more than 12,000 pilots, said the company isn’t discussing potential concessions such as pay cuts and that the problem now is weak demand that couldn’t be solved with pay cuts. Insler and some other longtime pilots remember scars of pay cuts from previous bankruptcies.
“We have absolutely been burned before,” he said.
Insler described his relationship with Scott as productive.
“One of the things I like about Scott is Scott is aggressive and when the opportunity is there, we’ll seize it,” Isnler added, referring to Kirby. “But also because Scott’s aggressive you have to watch him. Scott’s aggressive but so am I.”