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A new debate... Pilot pay/costs

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Double Breasted _ _ _
Dec 1, 2001
Things have been a little dry here lately (IMHO) so here's an article to stir things up.....

Source: http://www.forbes.com/business/2002/04/18/0418airlines.html

The Secret To Southwest's Success
Lisa DiCarlo, 04.18.02, 1:57 PM ET

NEW YORK - The secret to the success of Southwest Airlines is not rocket
science: low costs attributable to no-frills point-to-point routes and
aircraft efficiency. But the largest advantage the airline has over its
competitors is that it is the only major carrier that does not belong to a
national pilots union.

Southwest (nyse: LUV - news - people ) today reported that first quarter
earnings dropped 82%, but it still managed to turn in a profit of $21.4
million on sales of $1.2 billion. Meanwhile, its larger competitors reported
hundreds of millions of dollars in losses--each--and they don't expect a
profit in the second quarter.

Labor represents the largest expense for all airlines, even the small
regionals. But for some carriers, it makes up a crushing 40% of costs. The
average is 37%, according to the Air Transport Association. Southwest's
pilots are independently unionized, and while its overall labor costs are
just slightly below average, they are more efficient because they fly far
more hours than those at other airlines. National union rules limit the
number of hours pilots can fly.

That means that even if Southwest pilots made the same salary as, say,
United Airlines (nyse: UAL - news - people ) pilots, the airline would still
be better off because planes would be flying paying passengers instead of
sitting idle. Other workers at Southwest are nationally unionized. For
example, its mechanics are members of the Teamsters.

At JetBlue Airways (nasdaq: JBLU - news - people ), which last week had a
spectacular public offering and whose pilots are not unionized at all, its
labor costs are about 29%. In a filing with the U.S. Securities and Exchange
Commission, JetBlue cited the possibility of unionization as a risk factor
to its business, saying "unproductive work rules" could raise costs and
could potentially result in work slowdowns or stoppages in the event of a

Running a profitable airline is very difficult because the fixed costs are
so high. But there is little airlines can do about the cost of fuel, landing
fees or insurance. The big fish is controlling labor expenses, and experts
say that companies must reduce costs or get better efficiency (i.e. more
working hours) out of pilots.

"The airlines need to cut 20% of costs to restore profit, and if you don't
touch labor it's impossible to see clear the way they will do that," says
Michael Dyment, managing director of the airline practice at Arthur

Seasons Of Wither For Airlines
Company Q1 '02 EPS Q1 '01 EPS
American (nyse: AMR - news - people ) ($3.53) ($.28)
Delta (nyse: DAL - news - people ) (2.90) (1.02)
Continental (nyse: CAL - news - people ) (1.79) .16
Southwest (nyse: LUV - news - people ) .03 .15
Northwest (nasdaq: NWAC - news - people ) (2.01) (2.05)

*United and America West will report on April 19

The Air Line Pilots Association (ALPA) is the largest national union,
representing over 60,000 pilots. While its official charter is to protect
the safety of pilots and ensure beneficial working conditions and salaries,
its leverage in the industry is what makes them a powerful--some would say

"It's an organization that instills terror into the hearts of airline
executives," says an industry veteran who requested anonymity. "They're
supporting a cost structure that has no ability to generate revenue. There's
no economic justification for it."

A call to ALPA was not returned.

A New York Times Magazine article noted in February that pilots lack the
"free agency" of other professions. That is, if an American Airlines (nyse:
AMR - news - people ) pilot moves to another ALPA airline, he loses his
seniority and starts at the bottom of the pay scale. That, says the Times,
"makes him utterly dependent on the union and makes the union a potent

On a conference call today, Southwest's finance chief, Gary Kelly, said that
the company has "traded formal notices" with the independent pilot's union
over contract negotiations. Salaries may increase, but it will still have a
labor cost advantage over everyone else. That's not going to change, and in
fact other airlines, JetBlue in particular, are emboldened by what they see
as an inherent weakness in the system.


OK, my peanut gallery comments:

The article says that SWA is the only major that does not belong to a national union, thus the cost advantages. Who else besides American is in the APA? How are they considered a national union?

The article also says that the national union is what limits how many hours a pilot can fly? I think many ALPA members would disagree with this as they are flying more hours then other ALPA members (and probally more hours than many SWA pilots)

Work more, make less

'The article says that SWA is the only major that does not belong to a national union, thus the cost advantages. Who else besides American is in the APA? How are they considered a national union?"

UPS pilots are represented by the IPA.

The bottom line is that the low cost carriers are doing well because they squeeze more work out of their pilots and pay them less. Hopefully, they will eventually get tired of being overworked and underpaid and we can all look forward to "restoring the profession". I'm sorry but $39 fairs are just plain ridiculous. You can hardly fill a gas tank in your car for that lately.
If an American Airlines pilot goes to another ALPA carrier... They make it sound as if AA is ALPA and only national unions limit work rules. Good research, huh? DiCarlo also fails to mention why these work rules are negotiated and how each pilot group has different agenda's concerning work rules. Not because a national union dictates what they will be. This article doesn't impress me much, and of course, there go the analyst blaming labor for all the airlines problems. This Lisa DiCarlo gal should have done a little more research before writing this. It sure doesn't give accurate info to the public, but does it ever?

IMO, management are the ones who give us 3.5 hour sits which in turn decreases productivity. It's not our fault they chose to do this, but yet we are to blame.

This seems a little light on facts and research to be a Forbes article. I thought they were better than this.
As far as SWA working more and getting paid less goes...

...well i don't see why that matters. They have the only truly happy pilots in the major's which has to say something. I guess most of these guys would rather be flying than worry about how much money they will make.

IMHO: I would rather make 100K a year and really enjoy my work than make 250K and be working with miserable people.

As most of you have probably seen in the past with my posts, my FAMILY and HAPPINESS come FIRST, and not the amount of money i make.

I guess my reply had more to do with wise guys reply than the original post.

The pilots in the company we work for voted against unionization in favor of a in-house advisory committee, are among the happiest in the business while flying tons of hours, and have never been furloughed. We may not be the highest paid for what we do (I'll bet we're close and at least double for start pay at a regional), but the company is doing well and our jobs are all but guaranteed. We're very fortunate. Ironic similarities to Southwest's business tactics.

I've never been a big fan of unionization, but in all fairness, have never been in a position where I needed the support in strength by numbers. I just don't find comfort in the lack of synergy when you have a company working "against" it's workers' (union) and visa versa. How is anyone ever happy? I understand that in most cases it is a necessary evil to be as such, but I'll avoid it if at all possible.

Just .02
Interesting title for this article:
"The Secret To Southwest's Success"
So if I read this right the sole-arbiter of success and failure in the airline industry is the realtive strength of one workgroup's union. Wow, so if management has almost no control or effect over the financial health of the airline, I guess we don't need to keep them on the payroll.

In this article I don't detect all that much bias or slant, it is just, as bayoubandit menitoned, so light on facts as to be useless. It reads like a bad high-school research paper.
Monopoly on Happiness


Not trying to pick a fight here, got a lot of buddies at SW. But I'm curious as to why you think only SW folks enjoy their job or like to fly. Also, what makes you think every SW pilot is "truly happy" with their work conditions. I know people at almost every airline and each company has its good and bad... including SW. I'm sure that most people's family and happiness come first. Why does that mean you should work harder for less money? Doesn't it seem life would improve for your family and happiness if you worked a bit less and made a bit more? Just observations, not flamebait.

Ms DiCarlo is noted for many "predictions" and "assessments" of the airline industry. Most lack the knowledge and understanding that this piece reflects, but since the people making the decision about what to publish know even less, we have to live with this sort of stuff.

hyper said:

I've never been a big fan of unionization, but in all fairness, have never been in a position where I needed the support in strength by numbers. I just don't find comfort in the lack of synergy when you have a company working "against" it's workers' (union) and visa versa. How is anyone ever happy? I understand that in most cases it is a necessary evil to be as such, but I'll avoid it if at all possible.
Just .02

I find your remarks interesting. While I don't want to "pick" on you, I couldn't resist comment.

You make reference to the "good things" you have at your company and then you tell us that you got it without a union. Candidly, I think you're missing the point much like Ms. DiCarlo.

Your company is doing what it does because of what unions have already done in other places. You may be non-union but you are getting whatever you get because others ARE union.

The only way you can really determine what you would be getting is if there were no unions anywhere. All you're really doing is getting a free ride based on the standards the unions have set.

SkyWest is a non-union airline. Their pay and benefits are similar to other regional airlines. Do you honestly believe that's what they would be if ALL regionals were non-union?

As mentioned in the article, start-up JetBlue has lower costs because it is non-union. How much lower do you think they would be if there were no unions in any airline?

Another example is this. Every worker in America is proud of the so-called 40-hour week and overtime for excess. They are also proud of their non-union status. I wonder how many realize that there would not be a 40-hour week and there would be NO overtime pay, if Unions had not set that standard?

Enjoy your free ride non-union shop while you can but please pay a little attention to who really gave you what you get and how it came about. The fact is there is no significant labor benefit provided anywhere, other that those based on union established norms, with the sole exception of senior management.

The tenet of senior management is basic greed. They enrich themselves at the expense of the shareholders. A giant scam that the uniformed allow them to perpetuate.

I have met many skywest pilots over the last few years, and while there are a lot of really good people there, it seems that most of the newer hires there (less than 3-4 years ago) are very anti-union and completely ignorant to current industry trends.

I met one skywest pilot, a new rj first office who was bitching because air wisconsin was taking "their" routes out of denver. I was amazed at this selfish attitude and pointed out that ASA and Comair felt the same way about skywest being in Dallas. He never understood it one bit. This pilot was a new hire whose only previous experience was flight instructing.

This same pilot, who was a utah native (whose state culture is very anti-union among other things), said there was no reason for skywest to become unionized since their management was so nice to them. The conversation got very interesting when my other jumpseater (who was also skywest, but more senior) started telling us about all the times their management interpreted their so-called contract seven ways to sunday and violated it at will. Various things from bogus terminations, harassment toward ALPA organizing members, scheduling abuses, pay calculations etc... It never registered in this new guys head what his co-workers have had to go through to make his job they way it is today.

Whatever the reason, skywest must be doing something right in the anti-union crusade to brainwash all those new hires into thinking that having no job protection, no seniority protection, no real medical and loss of licsense inurance, no legal and binding negotiated contract, no legal representation, no formal grievance procedures, no formal disciplinary review procedures, bla bla bla, is the way to work these days.

Its the selfish attitude of these people who take for granted the hard work and dedication that union-negotiated contracts have provided them. Without that, do you think skywest would be where they are today?

Next time one of your friends gets fired, or the FAA violates you, you might think twice about your representation!

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