Economics for Paid Pilots

old mentor

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Rejection of the pay raise by SkyWest pilots and comments by many pilots about their work and pay ignore the economic conditions that control money flow in the airline industry. In the distant past of our profession, when airlines were growing, government subsidies substituted for lack of cost control by management, and pilots were few, airline salaries climbed without restriction. Those conditions no longer exist.
For pilots contemplating their pay scale, it is advisable to consider relevant conditions that do exist. These are best seen by considering some fundamental , economic facts that apply to employees of any for-profit or non-government entity operating in a free market (that's us). Money is essential for a company to exist and operate as a going concern. The money has to come from 2 sources: investors and customers. Neither source just gives its money freely to a company. People in the company have to earn it;if they do not, investors and customers direct their money to companies that do.
Successful investors put and leave their money in a company only if there is a return on investment that is commensurate with the risk. If an investor can earn 5% return on a zero-risk government obligation, he/she will not invest in a company where the maximum potential return is not greater than 5%.
For a customer to spend his/her money with a non-monopoly company (that's us) he/she must believe that he/she receives good value for the goods or services purchased. To evaluate such value, customers compare prices among competitors. Competition between companies is the constant struggle for survival that controls the price limit a company can charge for its service or product.
A long-lived company must make a profit - take in more than it spends. Labor expenses are influenced by all the other categories of a company's expenses. Categories of expenses are not equal in terms of control by the company. Setting of individual salaries is preceded by a budget process. This involves making a projection of all income, expenses, and other obligations, then setting a budget amount for each category of expense, one of which is total labor.
While the budgetary amount for total labor is commonly discussed in salary negotiations, the person responsible for the company's financial health has ultimate responsibility to set the amount of total labor, considering both the company's past financial performance and estimated future financial performance. In determining feasibility of increasing the total labor budget, it is near pointless to say, "The company had a profit of $x last year, so salaries should increase". "A profit of $x" is meaningless without considering the capital investment that produced that profit. Thus, financial performance is evaluated with terms such as, "return on investment", "return on shareholders equity", and "profit margin". To decide whether your company's total labor cost is reasonable, look at its recent past and estimated future financial performance using the above terms. Companies that budget for labor and other categories of expense based on past performance alone, without accurate estimates of the future, often experience unpleasant events such as layoffs, salary reductions, shrinkage, and failure.
Allocation of the company's total labor cost among individual employees or classifications of employees is where salary negotiations arise. An individual's salary is properly proportional to the amount of the company's profit that results from that individual's efforts and is influenced by the availability/cost of other individuals willing and able to perform the job. The necessity for an employee to "carry his/her load" and contribute to the company's profit is a continuing requirement, as the company's need for profit is a continuing requirement. The concept of "I have paid my dues by longevity and therefore I should be paid more than my contribution to the company's profit is worth" is not a valid argument for a particular salary leve. If a company yields to that argument, the resulting paycheck is a charitable donation and not pay for service received. Past perfomance is a legitimate criterion for us to recognize and respect fellow employees, but company survival depends upon performance today and tomorrow.
An employee's contribution to company profit arises not only from his/her direct labor, but also through the impact he/she has on other employees' performance. Consider 2 empoyees in identical jobs: one who enhances the performance of others is more valuable than one who degrades others' performance. What coach of a sports team would keep a player who degrades the performance of others by expressing discontent, defeatism, or disloyalty? This kind of freedom of speech leads to freedom from groceries.
Nice things such as pay increases, job security, and pleasant working conditions come only through a company that is financially successful - they cannot be provided by a union, government legislation, childish actions, or whining. As we have seen, there are conditions, events, and mistakes that can destroy companies, even though all levels of employees were doing their best. That's risk. Pilots know risks. We minimize the risk of corporate and individual failure by making our best effort toward company strenth and encouraging our fellow employees to do the same.
 
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Stifler's Mom

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Try using a larger font, d a m n near got a headached trying to ready the first line.
 

bvt1151

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Is this one of those letters from Comair management during the strike? Sure looks like a carbon copy.
 

Socalplt

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. An individual's salary is properly proportional to the amount of the company's profit that results from that individual's efforts and is influenced by the availability/cost of other individuals willing and able to perform the job.


Thats an excellant argument why we should be paid more to fly the 700 and 900.
 

Socalplt

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This is a great way to set up the doom and gloom speech. Heard the same sort of stuff back in 2002 before the 70 seaters arrived. Amazingly are greatest amount of growth has oocurred since then. We also managed to go out and buy another airline with higher paid pilots! Apparently the investment community thinks great things are gonna happen in the future cause the stock price keeps going up.
 

synchoff

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One payscale for the CRJ. Sheesh. Spread it around, stop forking the big bucks to the top 5% of the pilots for flying the same damn airplane. Perfect way to destory pilot unity is to let the guys who run the union write the contract so they get all the goodies.

Southwest does it. America West does (did) it. Why not Skywest (and Mesa, for that matter?)
 

It'll Fly

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Good words. Accurate. Econ 101. The problem is that management says it without applying it to themselves. Then the workforce, pilots, FA's mechs etc then start fighting for what ever they can get without looking at the big picture and what the long term effects on the company and their own careers will be.

It is a vicious circle that start and ends with management. Only they can make it right and it has to start with them. I don't have the answer and obviously COMAIR, ACA etc don't either. Meanwhile the whining continues.
 

SkyWestCRJPilot

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Organized labor is against econ 101 too but in the United States it's legal to be organized (some countries of the world it's illegal). Because government leaders of the past realized that some fields of labor you can't just quit and get another job (airline pilots). The free market is great and all in theory but when you have a family that relies on your skilled profession that doesn't transfer to any other job, organized labor is there to help protect that job and set the rate for labor contrary to market conditions. The main reason labor rates are being forced down right now is one thing: the price of oil.
 

Propsync

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old mentor said:
Nice things such as pay increases, job security, and pleasant working conditions come only through a company that is financially successful - they cannot be provided by a union, government legislation, childish actions, or whining. As we have seen, there are conditions, events, and mistakes that can destroy companies, even though all levels of employees were doing their best. That's risk. Pilots know risks. We minimize the risk of corporate and individual failure by making our best effort toward company strenth and encouraging our fellow employees to do the same.

We really haven't seen how mistakes have destroyed companies, the BK judges continue to let them operate. All levels of employees do not do their best. If I have a $3 million dollar severance, what do I care if the company succedes?

Listen, a union is management by other means. Unions show up when management FAILS. That's risk mitigation, we all know about that.

On the side, nice anti-union rhetoric. What office do you have at SKYW? How would you like to see pilots beat down? Unlimited duty reserve? 20 hour crew days? 10 hours scheduled?
 

old mentor

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My apologies. I will request of your medical examiner that you be allowed to skip the eye chart on your next physical.
 

old mentor

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If a Comair person wrote a document similar to my post, then we know that Comair has at least one brillant person on board.
 

Traderd

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SkyWestCRJPilot said:
Organized labor is against econ 101 too but in the United States it's legal to be organized (some countries of the world it's illegal). Because government leaders of the past realized that some fields of labor you can't just quit and get another job (airline pilots). The free market is great and all in theory but when you have a family that relies on your skilled profession that doesn't transfer to any other job, organized labor is there to help protect that job and set the rate for labor contrary to market conditions. The main reason labor rates are being forced down right now is one thing: the price of oil.

Would that include the skilled professionals represented by this union?

http://www.ufcw.org/
 

old mentor

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Socalplt: In navigating your way through a situation, it's best not to view the facts as either doom and gloom or joy and cheers. The resulting emotions detract from the energy needed to better your situation. A point of my post: help build a strong and growing company, then negotiate for part of that. The fact that you significantly contributed to the company's strength and growth strenthens your negotiating position. Your company's having the capital to buy another airline is a good thing for you. It prevented the purchased airline, along with its lines and a bunch of your lines, from going to a competitor. Continuing stock growth and having investors hold a favorable opinion of your company are good for you. Investors put in part of the money for which you wish to negotiate. Remember though, investors rightfully invest based on anticipated future performance. It's thanks for yesterday's returns, but what are you going to do for me today and tomorrow? We don't get the same warm feeling from that as we do from being held and cuddled, but it's fact.
 

old mentor

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It'll Fly: Making improper decisions as to where in the company to direct the budgeted salary dollars is a potentially fatal mistake management can make. The results cause loss of good employees, energy absorbing digruntlement among remaining employees and detraction from company performance. The board of directors, particulary outside directors, that must oversee this process to the company's financial health. Do you think Delta's employees, customers, and investors would now concur that their board failed in this responsibility?
 

Stifler's Mom

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old mentor said:
My apologies. I will request of your medical examiner that you be allowed to skip the eye chart on your next physical.

Don't bother, my doctor allows me to pass the eye exam if I correctly write my check out to him.
 
H

Halo_RJdriver

Fade away old stain.

old mentor said:
It'll Fly: Making improper decisions as to where in the company to direct the budgeted salary dollars is a potentially fatal mistake management can make. The results cause loss of good employees, energy absorbing digruntlement among remaining employees and detraction from company performance. The board of directors, particulary outside directors, that must oversee this process to the company's financial health. Do you think Delta's employees, customers, and investors would now concur that their board failed in this responsibility?


Wow all your management views point to one direction. Either you are management now or you desire a management position in the future. The companys performance depends on a number of factors not just greedy directors that think because they have $$$ they are automatically entitled to point the company in their direction. The board of directors have on thing on their minds that is $$$ and their EGO's. SkyWest for example grossed over 80 million last year. How many more EGO's do we have to please before they return some $$$ to the Laborers. Don't spill your Kool_aid here with your old azz ideas old stain. Fade into the sunset where you belong...oh and nice join date of OCT 5th.
 

old mentor

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Halo: Don't give up your present job for one guessing peoples' background from their brief writings. Killing or berating the messenger never solved a problem, but it remains the action of choice for those who do not learn and deal with the facts. In a discussion of salary and financial issues, issuing a command "to fade" is indicative of a propensity toward meaningless and vain responses to stress. A point of my post was to encourage employees to learn the facts about their company's finances. For publically traded companies, information can be found in SEC filings (available on the web) and at stock research web sites. Pick up a financial management text book. You can obviously comprehend FAR's, so you can master this stuff. Prepare as if you were going after the Chief Financial Officer's job. You are then prepared to conduct technically valid and effective salary negotiations or to advise your representatives on doing so. That approach results in your opinions influencing others. Opinions expressed only by name calling and hostility towards others are common and not influential. Best wishes.
 

old mentor

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SkyWestCRJPilot said:
Organized labor is against econ 101 too but in the United States it's legal to be organized (some countries of the world it's illegal). Because government leaders of the past realized that some fields of labor you can't just quit and get another job (airline pilots). The free market is great and all in theory but when you have a family that relies on your skilled profession that doesn't transfer to any other job, organized labor is there to help protect that job and set the rate for labor contrary to market conditions. The main reason labor rates are being forced down right now is one thing: the price of oil.
SkyWestCRJPilot:On a sustained basis, compliance with economic laws is no more optional than is compliance with the law of gravity.Many professions require high skill levels and high entry costs. Many people in these professions are nice, dedicated, and they have families. Some of these are your competitors, working every day to figure out how to get your investors and customers (and their money) away from you. Being in such a profession does not exempt one from being subject to economic facts. When anyone promises you they can set labor rates contrary to market conditions, they are promising to exempt you from economic laws. (The term "laws" used here does not refer to rules of conduct derived from legislation, but rather to the rules of behavior that began when a caveman traded some clubs to another for some dinosaur hides.) The salary you receive and all other company expenses come from investors and customers. Until these people exempt you from compliance with economic law, you ain't exempt.
 

SkyWestCRJPilot

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Then perhaps we should do away with the NMB, OSHA, subsidies, tariffs, social security, and all social programs. According to you nothing can overcome the "laws" of economics. Adam Smith was an advocate of the pure market economy with the "invisible hand" of economics. Our present day economy isn't anywhere close the pure market economy he envisioned. We are somewhat more enlightened, realizing that as humans there are social programs, government controls, and other entities (unions) that are important to making peoples lives better than would a pure and ruthless market economy.

P.S. "old mentor", Why do you hide behind a brand new user name? You show only 7 posts. Are you afraid of something?
 
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