American Airlines President Moves to United Continental--2nd Update
5:33 pm ET August 29, 2016 (Dow Jones) Print
By Susan Carey
The president of American Airlines Group Inc. left the company Monday but immediately moved into the same role at rival United Continental Holdings Inc., in one of the most unusual management shake-ups seen in the competitive U.S. airline industry.
The departure of Scott Kirby breaks up a management team at the nation's largest airline by traffic that dates back more than two decades and orchestrated two mergers. But his move could give United the kind of broad industry experience some critics of the third-largest U.S. airline contend it is lacking.
United is in the midst of strengthening its management bench under Chief Executive Oscar Munoz, a newcomer to the industry who is under growing pressure to address lagging financial and operational performance. Mr. Munoz, who is both chief executive and president, would cede the latter role to Mr. Kirby.
United said Monday that Mr. Kirby's appointment is effectively immediately. The 49-year-old United newcomer will report directly to Mr. Munoz and have responsibility for operations, marketing, sales, revenue management, alliances and network planning, the company said. In a memo to United employees Monday, Mr. Munoz said the change would allow him to "sharpen" focus on his own CEO role.
American separately said Monday that it named Robert Isom, its chief operating officer, to the post of president, following Mr. Kirby's departure. Mr. Isom, 52 years old, will continue to oversee the airline's operations and assume all revenue responsibilities, the company said. American expressed its gratitude to Mr. Kirby.
American said Monday that its board's succession planning and subsequent conversations about the career expectations and marketability of its executives led the company to conclude it wouldn't retain its existing management team in their current roles for an extended period. As a result, the board chose to "act proactively" to establish a team and structure for the long term.
According to people familiar with the board's thinking, American Chairman and Chief Executive Doug Parker is only 54, well thought of by the board and expected to remain in the top job for years to come. As a result, these people said, Mr. Kirby was told that he needed to "transition out" of the Fort Worth, Texas, company, paving the way for American to elevate Mr. Isom to the president's post.
Like other top executives of American, Mr. Kirby, 49 years old, doesn't have an employment contract or a noncompete agreement, and he is free to make the lateral move to United. But American said it would pay him a severance because he wasn't let go for cause, these people said. His severance agreement with American includes $3.85 million in cash, plus the accelerated vesting of nearly 259,000 restricted stock units with a current value of $9.4 million.
Mr. Kirby's base salary in 2015 at American was $660,000, and his total compensation was $8.3 million.
Mr. Kirby said Monday that he was honored to join United and "have the opportunity to accelerate the momentum the airline has achieved over the past year." The executive said he sees "real opportunity to build on the airline's vast global network."
At United, Mr. Munoz, 57, has been making changes since returning to work in March after recovering from a heart attack and later a heart-transplant surgery. He quickly found himself in a proxy contest that was resolved by a big overhaul of the airline's board, including adding more directors with airline experience and installing an industry veteran as nonexecutive chairman.
Mr. Kirby's turnaround credentials should take some of the burden off Mr. Munoz and provide United with another source of deep industry knowledge. But one person familiar with the matter noted that the new post isn't a predetermined path for Mr. Kirby toward the top job at United.
Earlier this month, the Chicago-based company hired a new chief financial officer and tapped a new chief commercial officer.
Mr. Munoz has overseen an improvement in the carrier's operating performance and forged better labor relations, which had suffered since the 2010 merger of United Airlines and Continental Airlines. But the combined company's margins still lag its big competitors.
Mr. Kirby is known for having strong views and speaking more openly than others in the industry. He abandoned fuel-hedging at US Airways in 2008 and pulled American out of the futures market in 2014, calling hedging "a rigged game that enriches Wall Street." He led a price-matching assault against budget airlines in 2015 that dragged other full-service airlines into the fray.
Both Mr. Kirby and Mr. Parker independently landed in senior roles at America West Airlines in 1995, after starting their airline careers at American. Mr. Parker became CEO of Phoenix-based America West in 2001, and Mr. Kirby was executive vice president of sales and marketing.
The two men were crucial to the 2005 merger of America West and US Airways, when the latter emerged from its second trip to bankruptcy court. Mr. Kirby was named president of the combined carrier, called US Airways, in 2006, and Mr. Parker kept the CEO position.
Late in 2006, US Airways made a hostile bid for Delta Air Lines Inc., when the larger carrier was in chapter 11, seeking to bulk up. That ultimately started a wave of mergers that have highly concentrated the U.S. industry, with the top four carriers controlling more than 80% of domestic capacity. But Delta's creditors rejected the offer, and US Airways withdrew it early the next year.
Undeterred by that defeat, Messrs. Parker and Kirby also were instrumental in forging the 2013 combination of American and US Airways, winning over American's unions and the creditors in American's bankruptcy case by making the argument that American was better off stepping out of court protection with a partner than with going it alone.
The two executives, plus several other top US Airways executives, moved to the new American in their same roles after the merger.
American's integration of US Airways has been comparatively smooth, and American has been highly profitable, helped in part by lower fuel prices. Lately, with much of the integration process behind them, American's executives have focused more effort on trying to meld a single employee culture.
The new changes at United's top ranks raise questions about the hiring of Julia Haywood, a New York-based airline partner for Boston Consulting Group, who was tapped less than two weeks ago as the commercial chief. She has no operating experience and is taking on responsibilities that Mr. Kirby has been fielding for years.
Write to Susan Carey at susan.carey@wsj.com
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