FOCUS: New United Airlines CEO Faces Long List of Challenges

The new CEO of United Airlines faces a daunting list of problems he must fix, including late flights and technology that too often suffers embarrassing outages.

But if Oscar Munoz listens to people who fly his airline – and some who have stopped – he’ll start his tenure by addressing a long-time problem for the world’s second-biggest airline: poor customer service.

Early signs say that Munoz, the railroad executive tapped to replace Jeff Smisek as CEO, should have a harmonious period to start, as United’s labor unions and Wall Street analysts were mostly upbeat about Munoz’s arrival – or, perhaps more accurately, Smisek’s departure.

Munoz knows the airline from his combined 11 years as a director first of Continental Airlines and then at United Continental Holdings Inc. Now he must guide United on a day-to-day basis:

“I know from my time on the board we’ve made significant progress, but there’s still a lot to be done,” he said.

Among the biggest challenges:

– Improving customer service:

Frequent fliers often say that United’s employees are less likely to help than counterparts at other big airlines.

“Half of their flight attendants are genuinely kind, but the other half are resentful – like, ‘Why are you flying on this airline?’ ” said Andrew Acker, who frequently flies on United for a software company in Newport Beach, California.

Brian Kelly, CEO of travel site ThePointsGuy.com, said United’s hub airport in Newark, New Jersey, “is ground zero for customer-service failures.”

Chicago-based United finished last in customer service among six traditional North American airlines in a recent survey by JD Power. It trailed Alaska, Delta, American, Air Canada and US Airways. Among the 12 largest U.S. airlines, United had the second-worst complaint rate in the first half of 2015, according to the U.S. Department of Transportation.

Munoz acknowledged to analysts that United must convince customers that it is committed to better customer service. “That is going to take a lot of time and effort,” he added.

– Reducing delays and canceled flights:

In the first six months of this year, United’s on-time performance trailed its three largest peers – Delta, American and Southwest. In early 2015, it canceled large numbers of flights on its United Express regional brand, which is operated by other carriers.

Ed Pizzarello, who has a travel blog, said such operational problems and poor service have caused him to fly less on United this year. Pizzarello said he has platinum-level elite status on United but won’t change a flight from American or Delta “to a carrier I’m having trouble trusting.”

– Fixing technology glitches:

Since combining its reservations and other computer systems with those of Continental in 2012, United has suffered several widespread outages, often leading to hundreds of canceled or delayed flights. United blamed the most recent outage, in July, on a faulty router. United’s redesigned website went down for about two hours on the day Smisek departed. It was replaced by the old website – temporarily, a spokesman said.

– Resolving government investigations:

Smisek and two other senior executives departed because of an ongoing investigation into whether United gave preferential treatment to the former head of an agency that runs New York-area airports including United’s hub in Newark. Federal prosecutors wouldn’t comment, and United executives haven’t said much other than suggesting that they don’t expect a large financial penalty.

In addition, the Department of Justice is investigating possible collusion between United, American, Delta and Southwest to drive up prices by limiting seats.

For all of United Continental’s woes, Munoz is hardly being asked to save a dying company.

While the airline was slower to return to profitability after the last recession – it lost $600 million in early 2014 when Delta, American, Southwest and Alaska were solidly in the black – it has bounced back thanks to cheaper jet fuel.

United posted a record profit in the second quarter and earned $1.7 billion in the first six months of 2015. That newfound prosperity could give Munoz a cushion to ease up on job reductions and other cost-cutting moves that have angered employee groups. Labor leaders believe more of the newfound profits should go to front-line workers and less to shareholders in stock buybacks.

While the bottom-line performance rebounded, revenue lagged in the first six months of the year, down 2.6 percent from a year earlier.

Jim Corridore, an analyst for S&P Capital IQ, said that to boost revenue, Munoz must convince key business travelers – the kind who buy expensive, last-minute tickets – that United won’t suffer the kinds of meltdowns that have occurred in the last few years. Munoz might even offer travel rewards to lure back those who defected to Delta or other carriers, the analyst said.