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New United CEO Focuses on Push Towards Recovery
United Airlines CEO Oscar Munoz has officially stepped down from his post at the airline. He will be replaced by Scott Kirby. Kirby, an industry veteran, is widely considered well equipped to lead United through the Coronavirus crisis, the worst in the airline’s history.
In stepping down, Munoz will become United’s Executive Chair for one year.
Kirby first joined United in 2016. A former American Airlines executive, he served as President until this transition. It was announced he would become CEO in December 2019.
Kirby started his career at America West in the 1990s. He helped that airline manage its merger with US Airways in 2005 and he played a key role in the US Airways merger with American Airlines in 2013.
Kirby is taking the reins amid United’s worst crisis in its history. United announced Tuesday that gross bookings fell 95% in April compared to April 2019 levels, while cancellations reached unprecedented levels.
Still, the airline expects that its capacity will begin to rise slowly but surely. In May and June, the company expects slightly higher passenger numbers compared to April. The airline’s bookings will be down only 75% in July compared to July 2019.
While the airline sees its demand slowly creep up, it is anticipated that Kirby, who is known for being a brutally honest and hands-on person, will take a number of drastic changes to protect both the passengers and the airline. He will continue to oversee operations, revenue and other business that he managed as President, easing his transition and helping the carrier to maintain consistency at a crucial time.
“It’s far better to be too aggressive than not aggressive enough,” Kirby said in March.
Preserving capital will be key to United’s survival. Kirby’s first actions are expected to focus on cutting costs and reducing cash burn. On a May 1 earnings call, Kirby said that daily cash burn is expected to be cut from $50 million a day in Q1 to $40-45 million a day in Q2 to potentially below $40 million a day in Q3.
United has raised $4 billion over the past few months. As of April 29, it has $9.6 billion in liquidity, and it has access to 10% of its cash directly on hand.
Salaries and benefits account for roughly 30% of United’s cost. The airline has received federal aid through the CARES act, which means it cannot voluntarily lay off or cut pay for its employees through Sept. 30, though Munoz and Kirby are both forgoing their base salaries.
Job cuts after Sept. 30 are a very real possibility, but Kirby said Wednesday that United is interested in working with unions to avoid as many furloughs as possible. He told CNBC that he wants to focus on adjusting pay and “using voluntary programs and, in particular, asking people to work fewer hours until we get through the crisis” instead of cutting jobs, temporarily or permanently.
“If we can keep them kind of on the sidelines a little bit while we get through the crisis then when there is a recovery, and there will be a recovery … we can snap back quickly,” Kirby said. “If we furlough people, if we lay them off, the snapback is going to be really, really hard.”
“Our union will make sure management remembers there are real people behind the numbers,” Ken Diaz, president of the United chapter of the Association of Flight Attendants, which represents the airline’s some 25,000 cabin crew members, its largest labor group, said. “We look forward to working with Scott to get results that matter to the people of United Airlines and those who fly with us.”
“One of the things I like about Scott is Scott is aggressive and when the opportunity is there, we’ll seize it,” said Todd Insler, the Chairman of the union that represents over 12,000 United pilots. “But also because Scott’s aggressive you have to watch him. Scott’s aggressive but so am I.”
Kirby will also have to focus on convincing travelers that it is safe to fly. United has implemented a number of measures to improve safety on its flights in the short-term, like notifying customers if flights are near capacity and offering the option to change flight dates or accept a travel credit. It will also roll out Clorox electrostatic sprayers and disinfecting wipes at its Chicago and Denver hubs before expanding to other locations. United is also implementing touchless kiosks at airports and mandating temperature checks for crews and staff.
Other airlines are taking actions that may give a hint at other actions United may implement more long-term. JetBlue is blocking out seats on its aircraft through at least July 6 to allow for effective social distancing, checking crew temperatures and stepping up its aircraft cleaning practices in June. Delta will cap capacities on any specific aircraft at 60% beyond June. Most major airlines in the U.S. are requiring crews to wear Personal Protective Equipment to work and are encouraging passengers to do the same; some are even requiring such.
“We are going through hell right now, but we know this virus will ultimately be defeated, and we will get to the other side,” Kirby said on that same May 1 earnings call. “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.”
“By the time we get to Oct. 1, hopefully, we will have continued to see a recovery in demand but none of us think it’s going to be back to 100% and that is going to lead to some hard decisions,” Kirby told CNBC.
Kirby went on to add that normal capacity will not return until a vaccine is widely available. After Boston-based drug company Moderna said it is starting large-scale human trials on a Coronavirus vaccine that had a promising pilot study, it is possible that demand could begin to return more significantly as soon as 2021, but it’s still unclear whether Moderna’s drug will prove effective in a large study, how soon it could be widely available, or how soon after being vaccinated people will be willing to fly again.
United carried 35,000 passengers daily last week, a figure over three times the 10,000 it carried daily mid-April.
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