I have posted the following before, and I apologize if it bores anyone, but it reflects my take on the low cost carriers, and the effect that they are having on the industry and our profession.
There are many reasons that the low cost carriers are making money, and the main one is cost savings. Many have one fleet type, efficient workforces, innovative leadership, etc. However, I don't think that it can be denied that the main cost savings, and therefore the main reason that they are making money is the fact that they pay their employees so much less than established carriers. While other things certainly factor into the equasion, it cannot be denied that the largest cost savings low fare airlines enjoy come from an airlines largest expense...labor. I will explain below. I have used airtran in my analysis, but the numbers are similar with any of the discount carriers.
An airline's largest expense is emplyee wages, and it is here that low fare airlines gain the largest advantage. Savings from aforementioned methods, while they might be admirable, are not nearly as signifigant as the savings gained from lower wages. I will demonstrate using comparisons between Delta and Airtran. However, one can use just about any major and any low-cost airline, and get similar numbers. These numbers come from the annual reports. It is public information, and easy to obtain.
Some have mentioned that Airtran saves money because of a fuel-efficient fleet. While I grant that the 717 is a cool airplane, it does not quite give them a cost advantage on fuel. In 2001, delta hedged fuel, and as a result, spent an average of 68.6 cents per gallon. Airtran, on the other hand, spent 93.85 cents per gallon. Fuel made up 11.7% of Delta's total expenses, while fuel made up 22.14% of airtran's. As you see, airtran does not have a cost advatage because of fuel. As a matter of fact, Delta does.
Some also mention that the fact that airtran bought inexpensive airplanes gives them a financial and cost advantage over Delta. First of all, that is not necessarily true due to higher maintanence costs of older airplanes. Secondly, no matter how cheap the airplanes are, airtran leveraged themselves very heavily to get them. As a result, their debt to equity ratio is 7.91 (ouch). Delta's is 2.77 (not to good either, but a lot better than 7.91). (I researched these numbers a while ago. They have changed, but not signifigantly). As a result, airtran does not enjoy a cost advantage on interest payments, either. Delta has a cost advantage here, too.
Others speak of a high percentage of passengers booking through FL's website. That is correct, and they are correct that that does save money. Not as much as one would think, however. They still have to pay high CRS (computer reservation fees), and Delta has significantly cut TA commissions. Also, we are selling a lot through Delta.com. Not as much as FL, but we are catching up. As a matter of fact, when you add advertising costs to distribution costs (what I believe represents to total cost of selling a ticket), you will find that both airlines spend roughly 7% of total expenses. Not much of a cost saving here.
I will grant you that there are other cost saving factors, but none are enormously significant.
So how does airtran and others enjoy such a huge cost advantage? They pay their employees less. In 2001, employee salaries and related costs made up 39.56% of Delta's total expenses. At airtran, only 25.27% of total expenses were spent on employees. It is is a difference, and it is significant. I will say it again, salaries are an airline's largest cost (by far), and low fare airlines pay much less in salary than the majors do. It is for this reason that they have such a cost advantage, and for this reason that they are able to offer such low fares. To assume otherwise is erroneous.
Some would respond that DAL and airlines like them pay their employees too much. They may be correct. But I would hope that fellow pilots wouldn't join in that chorus. After all, when our pay goes down, others will as well, throughout the industry. I think most will agree that with a similar price, most low-fare airlines would have a difficult time competing with the schedules, routes, size, and FF programs of the majors. In order to preserve their ability to offer lower-priced tickets, they will have to maintain their cost advantage. I hope I have illustrated the major factor behind that advatage.
To those who find us greedy and rejoice in the fact that we may be asked for concessions, please keep in mind that as soon as we cut our labor expenses, other airlines will have to do the same, or lose their largest competitive advantage. The only reason they enjoy the salaries they have is the we earn the salaries we do. If we give them up, it will be a race to the bottom. Where will it end? After all, someone (by default) will have to be the highest paid, and the media, politicians, and mgts will always point to that airline and lament how much higher their costs are than the rest of the industry's. I ask again...where will it end?
I would think that others in this profession would root (as I always have) for every pilot group to fight for higher, rather than lower salaries. Unfortunately, this does not always seem to be the case, as I rarely seem to hear the words "Delta pilot" anymore without the word "greedy" mentioned in the same breath.
I hope that answered your question, and I apologize for the rather lengthy post. However, I am very concerned about the future of our profession, and think that it is time people faced the current trends in the industry, and the negative pressure they put on our careers.
