Watch out for the koolaid!
I have heard a few mentions that it is the insane payscales at the majors.... IF YOU BELIEVE THAT CRAP, THEN MGT IS WINNING THE WAR!! Read this pilots excellent post, it is a REVENUE and PRODUCT problem, not a PILOT or LABOR problem. Read the facts as he compares to the major that everyone says has it right SWA.
With that said, I do agree with the previous poster, ALPA is lowering the bar for our industry by creating a "C" scale profession.
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-Labor is not the problem-
This seems to be running in a few threads, thought I would say my piece and let the comments fall under one thread.
What if we all worked for free? We find ourselves barraged again with repeated allegation that our labor costs are fundamental to the industry problems, this is not so.
In 1993 Bob Crandall was seeking $300 million in savings on the AA pilots contract in order to make AA more competitive with SWA. Specifically, it was labor that was targeted, however the actual products were vastly different. There was no pretense of competing with SWA. In fact, industry comparisons over the last decade all the "majors" are compared to each other but not "the other" airline. SWA with its no frills service was never viewed as a competitor but when the opportunity arose for cost comparisons, they were the easy benchmark to throw in the face of labor.
American's premium service and SWA's leisure market are products that are worlds apart. 9 years ago AA's labor costs were 38% of it's costs. SWA's were a few points lower. Today a look at labor during the last two "NORMAL" qrtrs. (Q1 of 2001 and Q2 of 2001, show that labor was 37% of both AA and SWA. UAL was only slightly higher at 38%. Labor costs in the industry range from 35-38% of total costs.
Presently however AA and UAL management are citing higher proportionate levels of labor costs. Why you may ask? They are choosing to man inefficiently. The result of "over manning" is that pilots receive lower furlough rates and risk having labor costs thrown in their faces or held up to politicians. AMR operates its people and equipment at an underutilized rate to be more responsive as flying returns to pre-9-11 levels. SWA, which did not REDUCE its flying, is still at 37% labor costs.
This begs the question, if we worked for free and corporate salaries were eliminated would are costs still be out of line with SWA. Yes. This is because you are comparing apples to oranges. AMR's revenue stream is based on business travel and premium services and revenue. SWA is based primarily on leisure market revenue.
As the economic good times developed untapped markets that offered low fares which lured travelers out of their cars and into airplanes, emerging new-mid-level carriers presented a third travel option, but were undercapitalized and failed to deliver the large net-work carrier services. These carriers also failed next to SWA balance sheet, yet labor costs were never blamed for their demise.
SWA has never citied labor costs as part of the reason for it's SUCCESS. Instead, it credits a sound business plan and highly motivated workforce.
So what has changed? Before accepting labor costs at UAL and DAL have surged to unprofitable levels, we should remind ourselves that labor costs were trimmed significantly at UAL in trade for equity. This equity appreciation model failed miserably. At DAL, overall costs have been balanced on the shoulders of mainline pilots as the airline increases operations of it's low cost RJs.
Would shrinking an airline or chopping labor costs make airlines more viable? no!
Would labor costs have made Yugo a viable product? Would low labor costs make tube televisions able to compete with Hi Def TV? The answer is again no.
American tickets today generate only 60-90% of the revenue that they did a year ago. If labor costs were eliminated the loss would be less, but not significantly so.
If pilot costs were eliminated, the cost per seat mile drops from 11.22 cents per ASM to 10.07 ASM. This is also FULLY ADJUSTED for our pension and benefits. In the face of unit revenue dropping to 18% our contribution would be seemingly insignificant. The pilot costs per ASM is only .0115 cents per mile.
Increasing pilot costs by 20% increases overall costs per ASM to .0018 per ASM.
Should AA or other airlines focus on pilot wages as a way to shore up revenue swings of 15-18%? I don't think so.
In an industry that markets a perishable commodity, high fixed costs compel AMR and others to get more planes flying to generate more revenue that will cover costs. In today's economy revenue is dictated by 2 things, product differentiation and competitive capacity. Overtime our revenue at AA based on sale of premium tickets has fallen prey to a number of factors.
1. Internet sales
2.More efficient tracking of business expenses
3.over-capacity
4.Development of new RJ markets
5. Hub bypassing (which will continue)
Another factor is mainline hub and spoke systems do not offer enough product differentiation to prevent customers from flying point to point. Market share will drive carriers to examine feasibility. Individual markets will continue to define themselves. Low cost carriers are in a position to attack lucrative point to point flying previously dominated by premium carriers. New equipment and route structures are enabling SWA and JB to overlay AA’s and other routes. Business will be pressured to gravitate to the lowest cost services and will gladly do so as some of the new carriers begin offering sat tv and internet services (that is why I love jumpseating on JB thanks guys!!)
So how LOW do labor costs have to go to make AA and others viable? too low. The premium customer market is now at 9% down from the high 14% that AMR and others enjoyed in 2000. That means revenue will remain below the break-even point for our business model. this problem had surfaced before 9-11. The AMR revenue pricing model is damaged. Stripping labor costs will not make this model profitable until capacity is tripped out and revenue seat miles rates increase significantly.
Cost per ASM at SWA is approx .076 cents per ASM. As demonstrated, dropping the pilots out of the AA formula will not make it competitive. It only reduces AA's costs per ASM to .1007 cents per ASM. Yes ladies and gentlemen only down to .1007. It is the company’s premium product, International services, and carrying costs for that type of infrastructure to support the product, drive costs well beyond SWA costs (for all you people thinking we can all take on SWA’s model).
Are the labor force expenses, as part of the cost structure in line between the two carriers? YES!!!! At SWA the labor has traditionally been 37% of costs. PILOT labor at SWA equals .75 cents per ASM. SWA overall costs are 7.6 cents per ASM. For the past decade. Pilot labor costs have remained at approximately 10% of the cost per ASM. At AA the pilot costs are 1.15 cents per ASM and costs are 11.22 per ASM. AA has done a fine job managing these costs, but still has to overcome the cost burden inherent with
1. Multiple fleets
2.extra training
3.Higher percentages of reserves.
Even if adjusted stage length costs were considered, the argument only gets stronger that AA labor reductions would still not make it competitive with SWA. Ladies and Gentlemen:
IT IS A PRODUCT AND REVENUE PROBLEM, NOT A PILOT PROBLEM
Airlines know that they must address revenue issues. As the only controllable cost, LABOR is an easy target. But even Wall Street gets it, pointing out that revenues are lagging and business models are aging.
While labor has always been ready to listen to the needs of the industry, we know that flying for free couldn't fix the ills that plague this battered industry. Here are the facts:
If you and I fly for free, service to Brookings, SD will still need to be subsidized.
If you and I fly for free, premium carriers will still need to fix their revenue problems.
If you and I fly for free we only give the company more time to delay difficult decisions.
It's time for the industry as a whole to recognize that its pilots and entire workforce deserve respectful wages and safe work rules.
AAflyer
Stats are from a cost study performed for the APA by airline analyst Bob Mann.
Much of the commentary is from Capt Dave Eitel. SFO dom char.
