Ty Webb said:
This is primarily to resond to a few issues that "Fly Deltas Jets" has raised:
1) "Low Cost Carriers" don't necessarily succeed or fail because of "lower pay" as you claim. That would be like me saying that Delta is losing billions because they pay too much. The truth is not so simple.
In our case, we are succeeding for a number of reasons, and a lot of them have to do with shrewd management, employees who are willing to use a little more innovation to save money where possible, and keeping things simple with a single fleet type. Hence the reason to outsource the RJ's. It made more sense, and it adds to the bottom line. If the company makes money and grows, we make money and grow.
2) Perhaps the problems in the industry could be traced not to the (marginally) lower pay of our pilots, but to the assinine pricing strategies employed by the big 5.
We make money at our prices, but when your company sees us open a city, they will flood that city with hundreds of extra seats, at prices that cause them to hemmorhage money, while we are still making money.
Now, there's a business strategy- it's called "cutting off your nose to spite your face". That dinosuar business model will cause Delta to continue to lose money, until they are dragged, kicking and screaming, into the millenium.
3) Which leads me to my next point- your airline is losing money because they are trying to provide something that they can't.
Mercedes doesn't make money competing against Chevy. Mariott doesn't compete with Days Inn, and Delta will not make money trying to compete with us for the bottom customer.
The sooner they figure that out and start focusing on what they CAN succeed at, the sooner it will get better for us all. Delta has things to offer that we never will, and the sooner they focus on what they are, instead of trying to be all things to all people, the better for everyone.
And you know what? Maybe then we will be able to get more money in our third contract and meet your expectations.
Oh, and last- our concessions (the ones you were so worried about) lasted for 60 days. That's it. Then back to the contract.
Ty,
First of all, thank you for the more rational post. I enjoy these types of discussions much more.
Secondly, I am not too "worried" about the temporary concessions. If you reread the thread, you will find it was not I who first brought it up.
I also believe that you bring up some good points about DAL's profitability and strategy (or lack of same!). I have some major differences with some recent business decisions as well.
That being said, however, I think it is naive to credit your success to innovative employees and a single fleet type. While those things certainly factor into the equasion, you cannot possibly deny that the largest cost savings you enjoy come from your largest expense...labor.
An airlines largest expense is emplyee wages, and it is here that low fare airlines gain the largest advantage. Your stated savings from other methods, while they might be admirable, are not nearly as signifigant as the savings gainef from lower wages. I will demonstrate using comparisons between Delta and Airtran. However, you 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 you that the 717 is a cool airplane, it does not quite give you 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 few weeks ago. They may 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 airlines 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.
P.S.
A friendly word of caution. You said "if the company makes money and grows, we make money and grow. As we have learned at DAL, the two do not always go hand in hand.
