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A Crisis That Tops Them All

Cactus73

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The oil thread is turing into a political football so I thought I would start a new discussion.

The Jet A shortage, oil at $70, and lost revenue from cancelled flights may just be the perfect storm that destroys all our careers.

Think about it - this crisis may top 911 in terms of how it slams the airline industry. Other threads are worried about petty stuff and this is happening right under our noses.

In the last five years we have seen the bankruptcy of:
United
US Airways
ATA
Aloha
Hawaiian
Midway
TWA
Vanguard

In the next month you can probably add:
Delta
Northwest
Independence

Others that might be close:
Midwest
Continental

Instead of fixing their business plans managements are trying to hammer labor for every last dollar, outsource jobs oversees, gut hard fought contracts, and destroy any hope of a sound retirement.

How irresponsible is it for airlines to hold sales for $49 from NY to Florida when it is clearly below cost. If a foreign company does this it is called dumping - in the US we call it friendly competition.

When are we all going to collectively say: Enough is Enough!

If something doesn't change we all may be out of jobs. Even Southwest isn't going to be immune to $2.50/gallon Jet A.
 

Freight Dog

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Cactus73 said:
Instead of fixing their business plans managements are trying to hammer labor for every last dollar, outsource jobs oversees, gut hard fought contracts, and destroy any hope of a sound retirement.

How irresponsible is it for airlines to hold sales for $49 from NY to Florida when it is clearly below cost. If a foreign company does this it is called dumping - in the US we call it friendly competition.

When are we all going to collectively say: Enough is Enough!

If something doesn't change we all may be out of jobs. Even Southwest isn't going to be immune to $2.50/gallon Jet A.

Of course! See, why should they manage the airline correctly when the labor is just giving away pay/bennies/work rules every time they ask for pay cuts or threaten bankruptcy?

At what point do you draw the line and mean it? I don't mean chest-thumping, but truly mean it. Give you an example of what I'm talking about:

Company wants paycuts, ALPA says to pound sand, the company goes Chapter 11, the judge tells ALPA to negotiate paycuts, ALPA refuses, judge imposes paycuts, ALPA goes on strike, or if the judge EXPRESSLY states that a strike would be a violation of RLA, ALPA MEC officers bring in the letters of resignation of every single pilot on the seniority list and say judge, if you don't reverse those paycuts, these become effective immediately.

Now I doubt you'll ever see this kind of leadership from ALPA... but the question remains... at what point do you draw the line that you don't back down from?
 

JoeMerchant

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If it is TRULY that bad, why are we all still working in this business? Cactus 73 and Freight Dog why do you still show up each day? What would you two suggest "WE" do? There is nothing stopping anyone from turning in their resignation. Turn yours in if you think it will help. This problem started in 1978 with deregulation. It has been accelerated by Sept. 11, the internet, and soaring fuel prices. ALPA has ignored the problem since 1978 and now you want us all to "stand together". Your a day late and dollar short.

Joe
 

Icelandair

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Put out a tip jar in the front of the plane to supplement the minimum wage incomes that are coming. Hey at least the public will be able to fly from NY to SEA for only $25!
 

Cactus73

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JoeMerchant said:
If it is TRULY that bad, why are we all still working in this business? Cactus 73 and Freight Dog why do you still show up each day? What would you two suggest "WE" do? There is nothing stopping anyone from turning in their resignation. Turn yours in if you think it will help. This problem started in 1978 with deregulation. It has been accelerated by Sept. 11, the internet, and soaring fuel prices. ALPA has ignored the problem since 1978 and now you want us all to "stand together". Your a day late and dollar short.
Joe

I show up each day because I love my job. I do have a side business if things go south but I'll stick with flying too. Why should I resign? I don't get your point.

Yes, I want us to stand together. Not just ALPA, but all airline pilots. We need to start pressuring our managments to pass along our costs to the customer.

Imagine you owned your own business. Every week you put up a sign saying that you will beat anyone's price by 50%. At the start of each week you also cut your employees salaries by 5% to help pay for the endless sale. Lot's of cash is coming in so you figure it makes sense to take a little bonus because you have more business than you ever had before. When the mortgage bill arrives you go down to the bank and tell them that you will need to defer your payments a few months and they agree because business is so strong and time will heal the revenue problem. When you are finally on the brink of bankruptcy you go to your employees and get just a little bit more out of them. Now you go back to the bank and tell them you can't pay either. The bank does a quick study and sees that they can't unload your business very quickly on the market so they agree to give you some more cash - after all your business is just crazy with customers. Of course your cash flow is really great with all these customers and since you aren't paying your employees or the bank, you figure it's still a good time to take a little cash bonus again before the business totally fails.

Sound familiar?

We are all in big trouble! I don't want to lose this career, that's why I'm posting this.
 

TopGun-MAV

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i am also concerned. i made a comment to a seniour pilot i fly with that we should all voluntear and work for free for a week. this would help out the managers a lot and save them money which will go to the fuel bill
 

spacecadet1

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I believe we are about to see a massive restructuring along with a large reduction in capacity. This will be very painful; there will be some survivors. It really is a matter of supply and demand. I listen to guys say "but the loads are full, how can you say there is too much capacity?" It really is straight out of econ 101. Yes, the loads are full, and actually, yes there is too much capacity! You could cut the fares in half and double the capacity, and guess what: the planes would be full again! The only way to get fares up is to cut capacity. It will start to happen shortly. My guess is probably 1/3 to 1/2 of the 50 seat rj fleet will be parked in the desert soon. Boyd had been alluding to this. Many people have been bashing him, but I believe he is on the mark here. Hang on folks, we are in for a wild ride.
 

Redmeat

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Cactus73 said:
I show up each day because I love my job. I do have a side business if things go south but I'll stick with flying too. Why should I resign? I don't get your point.

Yes, I want us to stand together. Not just ALPA, but all airline pilots. We need to start pressuring our managments to pass along our costs to the customer.

.

This has been studied by ALPA up, down, side-ways, back-ward, forward and around in circles. The fact is if you raise fares 5% you lose 5% of the flying public, 10%, 10% of the flying public etc, etc. ALL with diminishing returns. It is NOT that simple to just raise fares. Do you think that if Steenland could make more money for his bonus by raising fares he would? YES! The LCC's will always have lower operating costs than the Legacy's, pure and simple. Their pay structure's are the future. It sucks but it is the "end of an era".
 

Dan Roman

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Wish I had a copy of it. But about a week ago the Local Hawaii newspaper (Advertiser) ran an article about the cost of fuel. One of the points made was that the profit margin for Kerosene (home heating and jet fuel) was increased last year, the increased profit that was realized on jet fuel last year was slightly more than the cumulative loss'es of the airline industry. Had the profit margin in 2004 stayed the same as the profit margin in 2003 the airline industry would have been in the black.

You have to wonder about a Presidency that every appointed member of it's cabinet worked in the oil industry at one time.
 

FN FAL

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spacecadet1 said:
I believe we are about to see a massive restructuring along with a large reduction in capacity. This will be very painful; there will be some survivors. It really is a matter of supply and demand. I listen to guys say "but the loads are full, how can you say there is too much capacity?" It really is straight out of econ 101. Yes, the loads are full, and actually, yes there is too much capacity! You could cut the fares in half and double the capacity, and guess what: the planes would be full again! The only way to get fares up is to cut capacity. It will start to happen shortly. My guess is probably 1/3 to 1/2 of the 50 seat rj fleet will be parked in the desert soon. Boyd had been alluding to this. Many people have been bashing him, but I believe he is on the mark here. Hang on folks, we are in for a wild ride.
Fuel costs and shortages are not going to be the airline/cargo industries only problems. Thanks to the higher costs at the pumps, other businesses will suffer and they will layoff as well. Laid off people don't buy airline tickets to go on vacation or buy goods that need to be shipped on cargo airlines. The extra cost at the gas pumps will also be a burden on motorists, as that higher cost cuts into their disposable income as well.

It appears that grocery prices have jumped up with the cost of fuel, so I would imagine that anything that is manufactured or shipped is going to go up in price...further cutting into American's disposable income.
 

mamba20

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Its official the writing is on the wall, dont believe all the government crap that the country is recovering, its not! its getting worse? How long does it take to get Canadian citizenship?
 

Green

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Dan Roman,
Be careful people might label you a conspiracy theorist if you connect the dots between ex oil execs running the country with unprecendented profits at the oil companies. Bush has to pay back all those who put him in office, and it sure as heck wasn't the workers.
 

Redmeat

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JoeMerchant said:
This problem started in 1978 with deregulation. It has been accelerated by Sept. 11, the internet, and soaring fuel prices. ALPA has ignored the problem since 1978 and now you want us all to "stand together". Your a day late and dollar short.

Joe


The best EVER (in history) year (profit-wise) for the top 8 US airlines was 1999. That year the airlines made 5.3 Billion in profit. So I dont think we have been sliding down-hill since 78. Look at AMTRAK, they are regulated, how good are they doing? De-regulation was a good thing.
 

On Your Six

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Watch out Comair Pilots....

If Delta files soon, I'll bet that a large number of CRJs will be parked very soon thereafter with RJs kept on only the most profitable connecting or point to point routes.... You can't make much money on those things in a low-fare environment with these stratospheric fuel prices. I am sure the 737-200s and the 300s will also be candidates for the parking lot. It might be a pretty tough road ahead.
 
Last edited:

Cactus73

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Redmeat said:
This has been studied by ALPA up, down, side-ways, back-ward, forward and around in circles. The fact is if you raise fares 5% you lose 5% of the flying puIfblic, 10%, 10% of the flying public etc, etc. ALL with diminishing returns. It is NOT that simple to just raise fares. Do you think that if Steenland could make more money for his bonus by raising fares he would? YES! The LCC's will always have lower operating costs than the Legacy's, pure and simple. Their pay structure's are the future. It sucks but it is the "end of an era".

I don't agree that raising fares neccessarily equates to a proportional loss in passengers. Yes, there will be loss - simple economics. But people still need to travel. The public has come to expect $99 coast to coast fares and the airlines have been more than willing to offer them seats at this price even though it is well below their costs.

I think airline managments have become more preoccupied with cash flow than the P+L statements. As long has loads of cash are coming in the front door with 90% load factors, they can take bonuses, pay some of the bills, and squeez a little more out of their workforces. Tilton at United figured this out very early on. I don't think he has passed on a raise or bonus since United has been in BK protection.

Most successful companies find ways to pass on costs to the consumer.

If they didn't spend so much time and energy attacking labor, maybe they would figure out better business models?
 

JoeMerchant

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To all you "just raise the fare" crowd, why doesn't Southwest "just raise their fare"? Wouldn't they make more money? Is Southwest management just dumb?

To cover the costs, the legacy carriers would probably have to raise their fares by 30-40%. Do you really think a carrier, who raises their fares that much, wouldn't see a dramatic drop in traffic?
 

JoeMerchant

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Redmeat said:
The best EVER (in history) year (profit-wise) for the top 8 US airlines was 1999. That year the airlines made 5.3 Billion in profit. So I dont think we have been sliding down-hill since 78. Look at AMTRAK, they are regulated, how good are they doing? De-regulation was a good thing.

1999 was an anomaly. The whole dot-com bubble was an anomaly that created a very false sense of wealth that carried over to the airline industry. There were many expense accounts that could afford last minute walk up fares over a thousand dollars. Those days are over for good. Since 2000, the airline industry has lost more money than it has made since the Wright brothers first flew. De-regulation was good for the consumer, but it has changed things for the airline employee forever. Deal with it or move on.
 

General Lee

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JoeMerchant said:
To all you "just raise the fare" crowd, why doesn't Southwest "just raise their fare"? Wouldn't they make more money? Is Southwest management just dumb?

To cover the costs, the legacy carriers would probably have to raise their fares by 30-40%. Do you really think a carrier, who raises their fares that much, wouldn't see a dramatic drop in traffic?

Joe,

Maybe you didn't know this yet, but the legacies have been lowering their costs dramatically. The average Delta employee WAS paid 23% higher than the average Southwest employee in March of 2004. As of May 2005, the average Delta employee is now paid 7% less. Delta let go over 6000 employees in that time frame also, and increased efficiency. The problem we have is debt and pension payments. Those pensions payments will either be extended by Congress, or dropped. The debt looks like will be worked on in court. All of the legacies are having problems, but most are fixing them and after a stint in court could come out stronger. But, Southwest has a one type fleet and does domestic flying, whereas most legacies have INTL flying and hubs. You can't always compare Southwest to the others.


Bye Bye--General Lee
 

skykid

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To cover the costs, the legacy carriers would probably have to raise their fares by 30-40%.

The numbers CAL and AMR put up last qtr say otherwise.
 

Cactus73

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JoeMerchant said:
To all you "just raise the fare" crowd, why doesn't Southwest "just raise their fare"? Wouldn't they make more money? Is Southwest management just dumb?

To cover the costs, the legacy carriers would probably have to raise their fares by 30-40%. Do you really think a carrier, who raises their fares that much, wouldn't see a dramatic drop in traffic?

Southwest has been raising their fares. Every month or two they initiate a $3-4 increase.

Southwest prices their product to generate a certain margin - they aren't out to gouge the customer. They also want to maintain their low fare customer perception. No, Southwest management is far from dumb. They are quite smart.

Southwest also is paying quite a bit less for their fuel than most other airlines.

My airline is heavily hedged through the end of the year too and has been raising ticket prices independent of many of our competitors. We just reported record traffic for August and Kirby stated that we saw double digit revenue increases. He developed a peak day pricing structure and it seems to be paying off.

But our new airline partner is in BK court, has zero hedged fuel, and is really going to hurt from this crisis. They are also guilty of offering $49 seats from PHL to many Florida cities. This is just insanity to me.

We need all the airlines to rationally price their products for the industry not to totally self destruct.
 
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