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AirKarp

Four questions arising from Scott Kirby's American-to-United move

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What does United's president/CFO pairing of Kirby and Andrew Levy foretell?

If you click on the URL for Scott Kirby’s executive bio at American Airlines, you land on a generic link on American’s website that states: “This page must have taken flight.” This is perhaps the understatement of the year in the airline business.

Indeed, Kirby’s surprise jump earlier this week from the post of American’s president to United Airlines’ president, breaking up a longtime association with American chairman and CEO Doug Parker, continues to reverberate around the global airline industry. Here are four pressing questions arising from the switch:

Did American really decide to cut Scott Kirby loose? American has tried to spin the move as a proactive step it took, noting that Kirby—who goes from being the #2 executive at American to the #2 executive at United—is receiving a lucrative severance package ($3.85 million in cash). But for anyone who follows the US airline industry closely, it defies belief that American would unilaterally decide to dump its top strategist and one of the brightest stars in global airline management—absent Kirby having other options and wanting out for some reason.

Kirby and Parker go back more than two decades, and Kirby has been Parker’s right-hand man through the America West Airlines-US Airways and US Airways-American mergers. But American is Parker’s airline to run, and it is expected to be for some time. Kirby’s exit from American is likely a combination of the opening at United, where CEO Oscar Munoz has been revamping his executive team, and a realization by Kirby that he would have to wait a very long time to become CEO at American

Will Kirby be United’s next CEO? Nothing has been said publicly on this front, but there is widespread speculation that Kirby at least has been led to believe this is a possibility, whereas it wasn’t a realistic possibility at American. Say one thing for Munoz, who joined United from the freight rail industry last September: he is not afraid to have deputies with high-profile credentials who are considered potential airline CEO material. Both Kirby and new CFO Andrew Levy have held the title of “president” for multiple years at other airlines despite only being in their 40s.

While there is speculation that Munoz was forced into making these hires because of the board turmoil at United earlier this year, my sense is that Munoz truly wants to turn around United by surrounding himself with talented people who, like him, are willing to think outside of the conventional box. Even if Munoz—who is well liked by United’s employees—does not end up being United’s CEO for a decade, being the man who finally righted United Airlines would be quite an achievement, and Munoz is assembling a team that gives him the best chance of success.

Does Kirby bring insider knowledge of American’s strategies and thinking to United that will hurt American? Per the terms of a separation agreement, Kirby has agreed to hold American proprietary information “confidential and will not use or disclose any such proprietary information…,” including to a new employer. In truth, US airlines are legally forced to divulge so much information publicly that there are not too many secrets. And Kirby is a very candid talker on quarterly earnings calls with analysts and reporters—usually speaking more than Parker on American’s calls—so his views on a wide range of issues, from fuel hedging to ultra low-cost carriers to Brexit, are widely known. The fact that Kirby is no longer in the room when American executives are strategizing is what hurts American most.

What does the pairing of Kirby and former Allegiant Air president Andrew Levy as United’s president and CFO foretell? Expect United to develop a very specific product offering to appeal to passengers flying on ULCCs like Allegiant, Spirit Airlines and Frontier Airlines (a big player at United’s Denver hub). Kirby noted last year that half of American’s revenue comes from 87% of its passengers who fly only once a year. Those infrequent flyers view flight tickets as a commodity and simply want the lowest fare, Kirby has said.

“When 50% of our revenue is up for grabs, we have to compete,” Kirby, who spearheaded ULCC price matching at American, has explained. “We can’t just walk away … If we’re going to fly head-to-head, we need to match their fares.” 

Also, I would expect United to reevaluate its fuel hedging program and probably drop it altogether. American and Allegiant do not hedge (which has allowed both carriers to fully benefit from low fuel prices), and Kirby and Levy have both been publicly critical of the practice.

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