FlyingSig
Double Breasted _ _ _
- Joined
- Dec 1, 2001
- Posts
- 560
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
Airlines
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
strike.
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
Andersen.
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
fearsome--force.
"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
force."
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)
Comments.....??????
Source: http://www.forbes.com/business/2002/04/18/0418airlines.html
Airlines
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
strike.
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
Andersen.
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
fearsome--force.
"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
force."
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)
Comments.....??????