Old School 737
NG's now and it is A OK!!
- Joined
- Jun 13, 2005
- Posts
- 986
By now I'm sure you've heard that pilot position bid 2008-05 which closed on November 19th has been cancelled. I'm sure this is disappointing to many of you and it likely has generated a number of questions about our 2008 business plan. In fact, I've heard some of our pilots questioning our whole Corporate planning process and even the skills of our flight crew planning staff. To anyone who may wonder how our staffing requirements could change so much in such a short period of time, let me start by saying "the world is changing." The business assumptions underpinning our 2008 ops plan and the 2008-05 pilot position bid have changed dramatically. Let's look at just three of the changed assumptions behind the canceled bid: skyrocketing fuel costs, a softening economy and an expected change to the mandatory retirement age for pilots. When we started building the 2008 plan last summer, the landscape looked quite different.
First, fuel prices have risen almost as much in the last 7 months as they have over the last 7 years. Oil is currently trading at between $91-$93/bbl.while only 7 months ago it was trading at $60/bbl. Remember that each $1 increase in the price per bbl adds about $8.5 M of expense annually to Alaska's fuel bill. So this $33/bbl price increase since May has added the equivalent of $281M in annual fuel expense to our bottom line. That's more than last year's Air Group pretax income of $216M. Skyrocketing fuel prices have raised our A/C operating breakeven considerably, creating a big drag on profits, and ruining the economics of some of our most marginal flying. This is especially true on routes operated by MD80 aircraft. As a result we're parking 2 MD80s -- aircraft 981AS will be grounded on Dec. 31st and aircraft 982AS on Feb.17th. Both MD-80s were previously scheduled to be delivered to their new owner in late 2008. While no one is excited to be parking aircraft, at a recent investment conference, United Airlines' CFO, Jake Brace, said "either the industry passes on the higher fuel prices or we're going to have to lower capacity, but you have to make the equation work." He said United Airlines could ground as many as 100 aircraft. To be sure, it remains to be seen whether capacity reductions can solve the long-term problems of a historically profitless industry, and there continue to be airlines even in this environment that refuse to take fuel-related fare increases. And while I'm talking about fare increases and fuel prices, I thought I'd share a couple of interesting facts from a recent report by the Air Transport Association. In their report they stated that the average charge to fly 1000 miles has declined by 10.2% since 2000 while the average jet fuel price/gallon has increased by 116% over the same period. The math simply doesn't work. Thankfully, 34% of our anticipated 2008 fuel consumption is hedged at $65/bbl and we have a reasonably strong balance sheet to carry us through what appears to be the start of another tough time in the industry.
The second changed assumption of our 2008 plan is that we now expect the economy to slow considerably while only 4 months ago we expected the economy to stay relatively robust in 2008. High energy costs, a weak housing sector, the sub-prime mortgage crisis, and plummeting US consumer confidence is expected to take a toll on domestic airline travel in 2008. When the economy slows, air travel is one of the first discretionary expenditures to get hit. Add to that a number of fuel-related fare increases and fuel surcharges and demand contracts further. Unless several of our competitors pull down flying, supply will exceed demand and place downward pressure on fares next year. In anticipation of the slowdown, we're planning to take a more cautious approach to growth.
Third, we are now expecting an imminent change to the mandatory retirement age for pilots. Prior to the legislative events of last week we had been forecasting the change for the middle of 2009, now we expect this to be effective by the second half of 2008. There are 47 captains turning 60 in 2008 and almost as many again in 2009. Some of these pilots will choose to stay active at Alaska thereby reducing the number of new-hires we require to staff our operation.
As a result of these changed assumptions, we now expect pilot hiring to be minimal in 2008 and we have abandoned our plans to use Alteon to meet our training requirements. With fewer training events, we now have sufficient resources to meet our training needs using our own equipment and employees. A new pilot position bid will be posted in early December with a bid effective date in May or June 2008. The size of the next bid will be a fair bit smaller than the 2008-05 bid and will include reductions on the MD80. In the meantime, we're continuing to watch our advance bookings closely and will be prepared to make further schedule changes in response to signs of softening demand. Right now forward bookings for the next quarter are roughly on pace with last year and travel to sun destinations is strong. Our new daily SEA-CUN service and trans-Pacific flights to Hawaii are very heavily booked for the next 90 days, but short haul business markets are trailing prior year results.
Finally, I'd like to take a moment to recognize SEA-based Captain Bryan Burks. I recently received a letter from Ed Cook, an FAA Operations Inspector assigned to the FAA`s Air Transportation Division, at FAA Headquarters in Washington, DC. Ed is Senior Advisor for Flight Training and Simulation and is working on a project that has to do with harmonizing the numbers of aircraft flight simulation training device levels the world should have, the technical requirements of those device levels, and what specific flight training, checking, and testing tasks
could logically be expected to be performed in each of those levels. Ed wrote saying, "you folks at Alaska Airlines have been gracious enough to let Captain Bryan Burks represent the Air Line Pilot`s Association (ALPA) as a member of this International Working Group (IWG). I could not have found a more competent, eager, or tireless worker had I personally searched. As a result, the progress of the IWG has been very effectively assisted by Bryan`s cogent and reasoned comments, suggestions, and cautious questioning. Bryan`s first hand knowledge of training program requirements and applications from the Alaska Airlines perspective has provided a bonus to the over-all effort we have mounted. If I could offer an observation, there is little doubt that, in addition to his assistance to the IWG effort, Bryan`s participation has benefited both the ALPA interests as well as the interests of Alaska Airlines." Thanks Bryan for representing Alaska, ALPA and your fellow pilots so well.
Well that's it for this week. Thanks for all you're doing to keep our operation moving smoothly. Fly safely and I'll talk to you again next week. If you'd like to leave a message for me, feel free to drop me an email.
Regards,
Gregg
Gregg Saretsky
EVP, Flight & Marketing
First, fuel prices have risen almost as much in the last 7 months as they have over the last 7 years. Oil is currently trading at between $91-$93/bbl.while only 7 months ago it was trading at $60/bbl. Remember that each $1 increase in the price per bbl adds about $8.5 M of expense annually to Alaska's fuel bill. So this $33/bbl price increase since May has added the equivalent of $281M in annual fuel expense to our bottom line. That's more than last year's Air Group pretax income of $216M. Skyrocketing fuel prices have raised our A/C operating breakeven considerably, creating a big drag on profits, and ruining the economics of some of our most marginal flying. This is especially true on routes operated by MD80 aircraft. As a result we're parking 2 MD80s -- aircraft 981AS will be grounded on Dec. 31st and aircraft 982AS on Feb.17th. Both MD-80s were previously scheduled to be delivered to their new owner in late 2008. While no one is excited to be parking aircraft, at a recent investment conference, United Airlines' CFO, Jake Brace, said "either the industry passes on the higher fuel prices or we're going to have to lower capacity, but you have to make the equation work." He said United Airlines could ground as many as 100 aircraft. To be sure, it remains to be seen whether capacity reductions can solve the long-term problems of a historically profitless industry, and there continue to be airlines even in this environment that refuse to take fuel-related fare increases. And while I'm talking about fare increases and fuel prices, I thought I'd share a couple of interesting facts from a recent report by the Air Transport Association. In their report they stated that the average charge to fly 1000 miles has declined by 10.2% since 2000 while the average jet fuel price/gallon has increased by 116% over the same period. The math simply doesn't work. Thankfully, 34% of our anticipated 2008 fuel consumption is hedged at $65/bbl and we have a reasonably strong balance sheet to carry us through what appears to be the start of another tough time in the industry.
The second changed assumption of our 2008 plan is that we now expect the economy to slow considerably while only 4 months ago we expected the economy to stay relatively robust in 2008. High energy costs, a weak housing sector, the sub-prime mortgage crisis, and plummeting US consumer confidence is expected to take a toll on domestic airline travel in 2008. When the economy slows, air travel is one of the first discretionary expenditures to get hit. Add to that a number of fuel-related fare increases and fuel surcharges and demand contracts further. Unless several of our competitors pull down flying, supply will exceed demand and place downward pressure on fares next year. In anticipation of the slowdown, we're planning to take a more cautious approach to growth.
Third, we are now expecting an imminent change to the mandatory retirement age for pilots. Prior to the legislative events of last week we had been forecasting the change for the middle of 2009, now we expect this to be effective by the second half of 2008. There are 47 captains turning 60 in 2008 and almost as many again in 2009. Some of these pilots will choose to stay active at Alaska thereby reducing the number of new-hires we require to staff our operation.
As a result of these changed assumptions, we now expect pilot hiring to be minimal in 2008 and we have abandoned our plans to use Alteon to meet our training requirements. With fewer training events, we now have sufficient resources to meet our training needs using our own equipment and employees. A new pilot position bid will be posted in early December with a bid effective date in May or June 2008. The size of the next bid will be a fair bit smaller than the 2008-05 bid and will include reductions on the MD80. In the meantime, we're continuing to watch our advance bookings closely and will be prepared to make further schedule changes in response to signs of softening demand. Right now forward bookings for the next quarter are roughly on pace with last year and travel to sun destinations is strong. Our new daily SEA-CUN service and trans-Pacific flights to Hawaii are very heavily booked for the next 90 days, but short haul business markets are trailing prior year results.
Finally, I'd like to take a moment to recognize SEA-based Captain Bryan Burks. I recently received a letter from Ed Cook, an FAA Operations Inspector assigned to the FAA`s Air Transportation Division, at FAA Headquarters in Washington, DC. Ed is Senior Advisor for Flight Training and Simulation and is working on a project that has to do with harmonizing the numbers of aircraft flight simulation training device levels the world should have, the technical requirements of those device levels, and what specific flight training, checking, and testing tasks
could logically be expected to be performed in each of those levels. Ed wrote saying, "you folks at Alaska Airlines have been gracious enough to let Captain Bryan Burks represent the Air Line Pilot`s Association (ALPA) as a member of this International Working Group (IWG). I could not have found a more competent, eager, or tireless worker had I personally searched. As a result, the progress of the IWG has been very effectively assisted by Bryan`s cogent and reasoned comments, suggestions, and cautious questioning. Bryan`s first hand knowledge of training program requirements and applications from the Alaska Airlines perspective has provided a bonus to the over-all effort we have mounted. If I could offer an observation, there is little doubt that, in addition to his assistance to the IWG effort, Bryan`s participation has benefited both the ALPA interests as well as the interests of Alaska Airlines." Thanks Bryan for representing Alaska, ALPA and your fellow pilots so well.
Well that's it for this week. Thanks for all you're doing to keep our operation moving smoothly. Fly safely and I'll talk to you again next week. If you'd like to leave a message for me, feel free to drop me an email.
Regards,
Gregg
Gregg Saretsky
EVP, Flight & Marketing
