After Warren Buffett’s losing 1989 investment in US Air, he famously condemned investing in airlines, saying investors would have saved billions of dollars if someone had shot down the Wright Brothers at Kitty Hawk. He later bought 7 to 9 percent of the nation’s four largest airlines. Such a change in perspective is surely modeled in the turnaround of United Airlines led by exiting CEO Oscar Munoz.
United Airlines was divested from Boeing, which also controlled United Aircraft (Sikorsky and Prat & Whitney) in 1930. Under the beloved CEO Ed Carlson, it led the industry in customer service and spirited employees, but then stumbled over misguided mergers of flawed successors.
By the time Munoz stepped in, United was losing altitude fast. In 2017, I, like most business commentators and much of the flying public, joined in chiding Munoz for mistakenly defending the treatment of a 68-year-old passenger who was dragged off an overbooked flight after refusing to surrender his properly ticketed seat. The video went viral, triggering a PR nightmare and a campaign of apology.
This flashpoint followed a poorly executed 2010 merger with Continental—five years before Munoz was lured off the United board appointed to address a legacy of operational failures, plummeting morale and scandalized leadership. With no experience running an airline, he focused on employee morale and customer service only to be felled six weeks into his appointment with an emergency heart transplant.
While many would have called it quits, Munoz rebounded to address the need for more punctual operations and brought in superstar Scott Kirby, formerly at American Airlines, to help drive this effort. Their efforts led to consistent earning beats and a soaring stock price up 53% over Munoz’s reign compared with 24% for the NYSE’s airline index.
Some have speculated that Munoz’s exit after only four years in office was a sacrifice to retain Kirby who was just named Munoz’s successor. But whatever backstage board drama there may be, Munoz showed character in not giving up in the face of daunting business and personal health crises and showed courage hiring so strong a successor.
Clearly Buffett was wrong and the Wright brothers were right—as Buffett’s own investment has shown.