Dear FLTops TODAY subscriber:
Although it's a little premature to project the near-term snapback of the wages pilots enjoyed prior to Sept. 11, 2001, the recent new contracts at United Parcel Service (UPS) and FedEx, coupled with improved financial performance and continuing strong traffic results at the major airlines, will likely put upward pressure on pilot wages in the not-too-distant future.
The steepness of concessions gained at nearly all major airlines (Southwest, for example, is an exception), and the fact that furloughs and parked aircraft meant many pilots who were fortunate enough to keep their jobs found themselves flying smaller aircraft or receiving a downgrade to first officer--which meant even steeper pay cuts--will result in more aggressive pressure from unions to compensate pilots as airlines return to profitability. The recent change in leadership at the Air Line Pilots Association may also be a factor, as ALPA's incoming president, Continental pilot Capt. John Prater, sent a not-so-subtle message about his bargaining position immediately following his election.
"The airline pilots of the United States and Canada today sent a clear message that their union desires to return to its roots of aggressive bargaining, strict contract enforcement, tenacious organizing, and pilot action to restore our contracts and our profession," Prater said in October upon his election.
I get the feeling that Prater and company--and pilots as a whole--will look for increased wages, the restoration of at least some of the more pilot-oriented work rules, and benefit enhancements--namely higher retirement contributions for pilots whose carriers terminated their defined benefit pension plans--sooner rather than later.
Pilot wages and work rules have historically ebbed and flowed, but management sought and secured significant concessions and pilots stepped up to the plate because they felt they had no choice. I am not saying management overreached, but I am saying--as I have repeatedly over the years--that I am bearish on the lifespan of these concessions. Management, after the terrorist attacks, spoke of "permanent" changes to the airline business model. I am not convinced the current work rules and pay rates, or anything closely resembling them, will survive the next 18 to 24 months.
While changes to pensions are a reality for many major airline pilots, the contribution rates are likely to increase substantially. Although the traditional defined benefit pension plans may be a thing of the past at United, US Airways and other carriers, once airlines' pretax profits are consistently in the 3% to 5% range, I expect pension contributions to be a hot topic in collective bargaining.
Louis Smith, the president of FLTops.com who has analyzed industry trends for more than 30 years, concurs.
"I think pay raises could easily exceed 30% and contributions will approach 20% for defined contribution plans, including provisions for disability benefits and survivor's benefits," Smith said. He added that he believes management is aware of the tough negotiating positions that will be pervasive in the next round of contract talks, but the carriers that are currently operating under Chapter 11 bankruptcy protection will fully reorganize and gain exit financing before any substantive changes occur.
There may be some creative methods used to get pilot pensions increased to a level where benefits will be closer to those earned under the defined benefit plans. For example, pilots might see a baseline guarantee in the contract, but I wouldn't be surprised to see a fluctuating additional retirement contribution based on profit margins and, say, earnings growth, for example.
While some people may doubt 30% as a reasonable expectation, let's look at current pay rates. A sixth-year Boeing 757 first officer at UPS earns $122 per hour. A sixth-year B-757 pilot at the nation's three largest passenger carriers--American, United and Delta--earn about $99, $94, and $96 per hour, respectively. A 30% increase to those rates would bring pilot pay at the Big 3 in line with the UPS rates. A 12-year Boeing 767 captain earns $224 hourly at UPS, compared to hourly rates of $172, $152 and $155 at American, United and Delta, respectively. Based strictly on hourly rates, it would take increases in excess of 40% to bring the pay of 12-year B-767 captains at United and Delta to parity with some of their cargo airline pilot colleagues.
Simply put, the cargo airlines' pay rates are currently well ahead of those at the passenger airlines, but I expect that to be a temporary situation. I cannot fathom that, once the passenger carriers are out of the soup financially, their pilots will earn less than pilots at the cargo airlines.
Just how quickly--and to what extent--wages begin to rebound remains to be seen. However, I believe the airlines know it's coming. Pilot expectations are going to be high relative to today's pay rates and work rules, and who can blame them? It's been a long, hard five years. Let's hope the showdown isn't too nasty.
Sincerely,
David Jones
Contributing Editor
FLTops.com
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