Airlines are recovering 'slowly but surely,’ former United Airlines CEO says

Former United Airlines CEO Oscar Munoz joins Yahoo Finance Live to discuss airline earnings, the travel recovery, unruly flight passengers, M&A activity among air carriers, and crew shortages in the industry.

Video Transcript

BRIAN SOZZI: Welcome back. So what's not happening in the airline industry right now? We have JetBlue swooping in to make a bid for Spirit Airlines, which already began talks with Frontier Airlines. Staff shortages continue to wreak havoc on the travel plans of many. And ticket prices are on the rise for summer travel, as airlines grapple with higher jet fuel costs. Who better to chat through some of these things with than former United Airlines CEO, Oscar Munoz?

Oscar, always great to get some time with you. You know what? I caught the Delta earnings this morning. I like some of the things they said. Margin expansion, pretty good. Outlook, pretty good. Got a sense people are going back out there and traveling, but is this as good as it's going to get this year for the airlines with recession talk and all the inflation that's out there?

OSCAR MUNOZ: I have to caveat everything I say as a former airline executive. I can be a little more free about what I speak about. But you know what? I don't think it's as good as it gets. I think there's still some growth. The international business is still fairly tepid. Business travel, while it's improved mightily from its lows, it's still not where it needs to be. We were talking in the pre-show with regards to I'm in Dallas today. I'm speaking to a group of 700 people, and I'm beginning to be in events like that more and more, so it's slowly returning. So I think all of those issues are certainly going to help.

Fuel prices historically, again, not a lot to talk about pricing [INAUDIBLE], but fuel prices have generally made the price increases for all the airlines kind of sticky. And so I think you're seeing a little bit of that. And you saw Delta's numbers today. I suspect most of the other airlines' numbers will be from a yield perspective relatively on the plus side of where they were suggesting. So there is room to go. Yes, we have labor inflation. Yes, we have ongoing issues, and anything can happen. But I think slowly but surely, the business is recovering across the board.

BRIAN SOZZI: Oscar, isn't it great that you don't have to worry about the earnings calls? That's good, you know? But moving forward, one of the biggest themes right now in airlines is that a lot of these ticket prices are going up this spring, this summer. Depending on where you're going, the prices are pretty exorbitant. I mean, as a former airline CEO, do you try to push through more price increases this summer because demand might come back?

OSCAR MUNOZ: I think the pricing algorithms in the airlines are fairly refined to a point where they do measure capacity and demand. And I think that's the important part that I don't think anybody is out there. I mean, the word "exorbitant" probably is not one I would accept necessarily from any point. I think, you know, as you look at the margins on these businesses, they're still not terrific.

And so I think demand in the summer will create on a limited capacity, and you've seen some of the airlines begin to trim their summer schedules because of the issues you mentioned around staffing. All of that from an economic perspective is probably going to lead to the point that pricing will continue to be at a premium, for lack of a better term.

EMILY MCCORMICK: Oscar, this is Emily here. What do you think is potentially the answer for labor shortages at the airlines? We've been hearing about bonuses, added perks. Are these sustainable solutions?

OSCAR MUNOZ: Well, labor inflation is something that we've all known for some time. And so it's here. It's been accelerated by the circumstances of the past couple of years. But interestingly, at least from a United perspective, I travel a lot, so I've talked to the Delta and American-- the big hubs. While everyone has shortages in different pockets, the biggest issue is one of pilots. And that's what's going to put up pressure. And that'll happen for a while.

And so United's-- you know, you talk about interesting sort of mechanisms to induce people. Certainly, on the front line staff, we've done a lot. Everyone's done a lot. But we've tried to create at United with Aviate program sort of a unique pipeline for the course of time. And I think that's going to prove to be a meaningful difference over the next couple of years. But yes, staffing continues to be an issue. But it continues to be an issue for almost all sorts of businesses in so many different parts of the economy today.

BRIAN SOZZI: Oscar, look, flyers continue to be up in arms about still having to wear masks on planes. Do you think it's time to lift that? And then in life after mask wearing on planes, what can be done to protect flyers? It has just gotten completely unruly on some planes.

OSCAR MUNOZ: You know, so two things. So with regards to the mask mandate, I think the CEO sent a letter just recently to President Biden, which I would concur completely. If there's anyone that's been at the forefront of this, it's been us at the airline. I mean, I was at the forefront of it when I was still CEO. We've done the most to keep things clean, all the things that have been done in the industry.

So the points made by the airline CEOs is a good one, and I completely agree with. And I'm immunocompromised, so I'm highly sensitive to these things. And I fly all the time. And the studies have shown that getting, contracting the virus while on an aircraft with the ventilation systems that exist is almost nil. The percentage is almost nil with that regard. So yes, I do support them. I think customers are ready to move on from that. With regards to-- what's your second question?

BRIAN SOZZI: Just safety.

OSCAR MUNOZ: Oh, well, unruliness.

BRIAN SOZZI: How do you keep people safe on planes?

OSCAR MUNOZ: Yeah, you know, it's-- I just, I don't understand why people do what they do. And it's getting worse. I suspect it's the entire ecosystem that we live in today with people have been quarantined, or they're frustrated. We have a divide [INAUDIBLE]. There's just so many things that are impacting humans, and they tilt. Being in an airline in a confined space on an aircraft has always created a little bit of an issue, but it's been crazy.

So what do you do? I think we have to monitor, A, ourselves and check our troubles at the door, to some degree. But also I know the intensive training that our flight attendants get to manage these things can never be enough when somebody is just a jerk. And so I think there's that-- where I see the mechanism work inside of an aircraft is sort of self management. There's always someone that is acting that way.

I've seen people, other customers that don't know the person, just turn around and say, hey, sir, you want to just relax a little bit? And sometimes that works, sometimes it doesn't. But, you know, other than, you know, there's criminal penalties, there's fines, there's so many things that can be done and are done that aren't calling this.

And so part of it is just society as a whole is just not in a good place. And that is a much broader topic in conversation for some other time. But for the interim, I think what you as an individual can do is just look around yourself, try to smile, try to be a little caring. I know that sounds kumbaya ish and stuff, but it helps. And, you know, we can all help sort of control some of the other people's reactions, to some degree.

BRIAN SOZZI: Duly noted. I will stay smiley. I will keep my AirPods on and look straight ahead on the plane. But Oscar, too, another-- I guess, since we last spoke, this deal activity, I think, surprised a lot of folks. JetBlue now swooping in for Spirit, Frontier still out there. Is there any chance these deals actually happen?

OSCAR MUNOZ: No, I think so. I think there's good mechanism. There'll be the concessions that will have to be applied, as always. I think this administration is scrutinizing all the important things with regards to impact on consumer. So, you know, if I was at United, I would be supportive of this. I mean, consolidation can, indeed, help customers. It can help the level of service. They're not easy. They are very hard to do.

You know, the price points that you have on the screen is a little staggering. And, you know, not only do you have to manage that debt, if you will, over time, but you have to do all the integration issues which, as we know, have never been great. But to your question, I think there will be the right amount of time. There will be due diligence and likely be concessions. And one of those two should be able to pull this off.

EMILY MCCORMICK: Thinking broadly, what lasting changes to the industry do you think will come from all that happened during the pandemic, and we now have the benefit of hindsight, to now this boom that we're seeing in demand during the ongoing recovery?

OSCAR MUNOZ: Yeah, I think, you know, the cleanliness and the effort and focus on that will continue. I think a lot of the more automated digital aspects and tools-- I know at United, we've built a lot of great mechanisms that allow a customer to be able to reach people, solve their issues, and sort of anticipate some of those and work through that. You know, what we have seen from a human perspective is a kind of, other than the unruly subject that we talked about, for the most part, people are generally less stressed.

And so I would hope that some of that chill factor would continue to some degree. But other than that, I mean, I think once business begins to come back, I think you've seen United's program with regard to they call it United Next. I always used to say when I was there in the early days, we had gone from what's wrong with United to what's next for United in an exciting fashion. So I'm glad there's a play on word with United Next. But it's about growth, it's about reaching customers, it's about a continued customer care aspect of that.

So I think, to your question, I think the concept in truly caring about customers is something I'm seeing. And I now get to fly many of the other airlines, and I see everybody making that effort with regards to treat customer, you know, like a customer.

BRIAN SOZZI: Hey, Oscar, before we let you go here, I do want to shed some light on an interesting venture that you're involved with, Latitude Ventures. Tell us a little about that.

OSCAR MUNOZ: Yes, so underrepresented minorities, Latino and Latinas in particular, get very little amount of money from venture capital and private equity. Bane did a study last year to prove that, so we don't make that up. And so between myself and a couple of partners, we've raised a relatively small fund, 100 million. It's our second one. The second one was smaller. But it's indeed situated to find Latino, Latina entrepreneurship from tech to industry to consumer goods.

And it's such a great concept because we have these young people with great energy, great products, great ideas, but don't have access to capital, don't have access to thought leadership, don't have access to connections, where a lot of other people do. And so that's been a fun sort of new mechanism. We have 23 people in our-- 23 companies in our portfolio. And we're so excited to begin to hopefully launch our third fund sometime later this year.

BRIAN SOZZI: Well, good to see you. We need more initiatives like that from more folks. Always good to get some time with you. Former United Airlines CEO Oscar Munoz, safe travels. We'll talk to you soon.

OSCAR MUNOZ: Thanks, Brian.