How soon before the industry "stablizes"

[shon7]

How soon before we see some kind of stability in the industry? In your opinions-

1) will the industry fragment into luxury, full service and LCC's (like the hotel industry -- as the former Boeing Chairman predicted)

2) will we see any more consolidation?

3) will pilot wages every settle down in a mid range (that is no $225K Captains at majors but at the same time no $12K FO's at regionals)

 

[FurAA]

I believe there are way to many unknowns out there to predict this, not the least of which is the US government meddling in the industry. You can't have it both ways. Either stay out of the business and let the market decide who stays and who goes, or re-regulate fully. The oppresive interference by the government directly led to the situation we find ourselves in. Since de-reagulation, had the market been allowed to play itself out, then the prediction of a few network carriers as well as several point to point low cost carriers would have already happened. Instead, it is what is being predicted to happen, except far more painfully. United is a prime example, with there soon to be pension programs wiped out. Now the government is going to have to bail out the PBGC. US Air, ATA, are soon to be casualties, and perhaps UAL. All this would not have happend if the market would have been allowed to evolve since 1978.


So I guess the short answer is that it will NEVER stabalize as long as we have the controls that are in place. As soon as someone gets to much pie, the government will be there to slice it up. Think if Wal-Mart were an airline. Do you think the government would have allowed them to grow into the largest company in the world? Nope. No way, no how. They would have limited the amount of stores they could have, and even told them that other lower cost stores have to be given priority at prime locations to stimulate competition.
No other industry is as heavily regulated as the airlines, especially when you consider we are now de-regulated.

 

[~~~^~~~]

Shon:

(1) People do not meet on airplanes, spend several days on them, or use them as a business address. There will be some market fragmentation, but the real "First Class" section got off the airlines a few years ago and got on fractional ownership of business jets.

(2) Absolutely. When it costs me more to return mail a 1lb overnight package to DC than it does for me to fly there and hand deliver it - obviously there is real overcapacity in the marketplace. Southwest and American are probably the only sure bets at the moment.

(3) $225 an hour Captains are flying Delta's smallest airplanes. Don't ask what their 777 drivers get paid for three on, four off, two leg a week schedules. ( I jumpseated with a DAL Line Check Airman that was pilling in over $400K a year with his training dept pay and Duane Woerth gets paid over $400K in trip drops, so Northwest must pay their pilots fairly well also )

But pilot pay is a small part of the equation. For example, Comair pilots went on strike for what amounted to $15,000 in pay and benefits. Their strike cost $355,000 per pilot. Tilton pulled huge amounts of money out of UAL ( 200 million a year with more hundreds of millions going to consultants like McKenzie and Co. ) as did Mullin here at Delta.

There may be no end to the cycle of new airlines with new airplanes and new employees are simply cheaper to operate than old airlines with old airplanes and senior employees. Management is going to try some innovative tricks like recycling old employees into new subsidiaries ( Mid Atlantic, perhaps ASA and Comair ) but it will only be a matter of time before the unions tire of alter ego subsidiaries and use the tools available in labor law to stop the practice.

When ALPA begins acting like a union again and brings pilots together the huge pay disparities will begin to close. The union has been hijacked, but the hijackers have just about crashed it they will be gone, but aviation will continue.... some of us may become car mechanics while others are paying $45,000 to get their ratings and a degree from Riddle.
My $0.02 worth.

~~~^~~~

 

[SDF2BUF2MCO]

Also need to add that a lot depends on how the USA economy is doing. That is a big IF and will be bigger as time goes on. At this moment, I'm not convinced our economy is out of the woods yet.

In yesterday's USA TODAY there were a couple of articles regarding the business traveler. One article indicated that the LCC's are soliciting big corporations and having some success. Who would have thought that 10 years ago?

 

[737 Pylt]

Shon:

(1) People do not meet on airplanes, spend several days on them, or use them as a business address. There will be some market fragmentation, but the real "First Class" section got off the airlines a few years ago and got on fractional ownership of business jets.
QUOTE]

Well said there, I agree completely. After 9/11 the airlines, DAL in particular, Mullin the thief to be specific thought that the business traveler would return, and they did not!

(3) $225 an hour Captains are flying Delta's smallest airplanes. Don't ask what their 777 drivers get paid for three on, four off, two leg a week schedules. ( I jumpseated with a DAL Line Check Airman that was pilling in over $400K a year with his training dept pay and Duane Woerth gets paid over $400K in trip drops, so Northwest must pay their pilots fairly well also )

You sound bitter with that statement. Stop worrying about what DAL pilots are doing, and focus on your part of the equation. DAL's pilot pay is about to come down dramatically

But pilot pay is a small part of the equation. For example, Comair pilots went on strike for what amounted to $15,000 in pay and benefits. Their strike cost $355,000 per pilot. Tilton pulled huge amounts of money out of UAL ( 200 million a year with more hundreds of millions going to consultants like McKenzie and Co. ) as did Mullin here at Delta.

Again, very well said, now you're sticking to more important issues! However, I'm surprised you didn't take another cheap shot at ALPA.

~~~^~~~:
You make some valid points. I agree with you to an extent, that ALPA is not perfect. They are a necessary evil. However, you forget one very imortant thing. Where you and I might draw the line in the sand, and not do this job for less than a certain amount out there, there are folks who don't care what they get paid, and how hard they have to work, just to say they are "an airline pilot." Groups such as the rjdc are trying to ruin the profession as we know it. As long as they are out there, then this industry will continue its down spiral. Me, I could care less about this profession any more, to me, its just a job to feed my family. What little "glory" there was in it, in my opinion, went out the door in the late 90's!
Cheers,
737

 

[smellthejeta]

If the airlines are going to be viable in the long term, two things must happen:

1) The airlines MUST, ABSOLUTELY MUST, get off of the pay-for-seniority system. They need to institute a compensation system that recognizes total experience, not just total time with the company, like any other job in any other industry.

2) The airlines have to charge fares that meet or exceed their cost to produce said product.

In a deregulated environment, I don't think you can have long term viability without both points 1) and 2) . Also, they support each other as well.

Where do I get off making those absurd statements? The actual costs to run an airline (lease/buy a gate, lease an aircraft, buy parts for an aircraft, buy fuel, etc) don't (and can't in a free market economy) vary much between airlines. (Even if they did, it would be the large carriers with volume that got the cheaper prices) The one cost that IS different and controllable between airlines are labor costs -- pilots, flight attendants, mechanics, rampers -- they all get paid on a seniority system that ignores how much previous experience they have outside the company.

Companies like the Big 6 (or however many there are now) have a rather mature labor force. This allows startups like B6, WN, F9, and FL to come in and undercut labor costs because everybody gets paid on year 1 scales. Heck, even IAIR Bus pilots are all being paid on second year pay scales. Throw in some favorable mx and leasing terms, and you have a new carrier poised to threaten the revenue stream of the existing network carriers. Companies can afford to grow because growth means a younger labor force which means cheaper pilots. However, when the growth stops, the labor costs begin to mature and when they start furloughing, the cheapest pilots go first, leaving them with even more expensive labor -- when they least can afford it.

With much lower costs, these young carriers can come in and undercut fares of the majors, forcing the majors to match fares in order to keep market share. These new carriers will have their costs mature as well, and in 20 years, they're going to have the same problem the majors have now. In the long run, the public wins with cheap fares and the airlines lose with instability and volatility, which is EXACTLY what we have now.

With the current structure, the airlines have the pilots by the balls and they know it. How? If a company threates wage cuts, you pretty much have to accept them -- taking a 5% cut sure beats taking an even larger one by going to another carrier and starting at year 1 pay scales. If pay was determined by free market forces like it is for any other job, it would be much easier to leave your old company when threatened with concessions.

So what would stop a new carrier from offering lower pay than an existing carrier under a market-pay scenario? The need for experienced employees. A new carrier MUST pay the same as (or even pay better than) an existing carrier if they wanted to lure away employees to start the new carrier. You won't be getting 737 pilots from riddle or NODAK and since you need typed captains and what not, you have to get them from somewhere. Type without time doesn't help either, so you won't get pilots from XJet or Mesaba just desperate to have a job and just paid $6000 for a 737 type. In other words, if you want experienced people, you have to make it worth their while to leave their old carrier, and you can't do it without giving them market-rate pay.

With less cheaper competition, the airlines can afford to charge fares that meet their costs and thus hopefully remain more profitable. No other industry has such a messed up pay system, and I'm convinced that's a large reason the airline are having the problems that they do.

Edited to add:

In exchange for more "cash up front," you would have to expect that the most senior pilots wouldn't see the high pay that they currently (or in the recent past anyway) do. This type of system will beneift the airline in the long haul, because when times are tough, the companies aren't stuck with disprportionately high costs. If you guys are going to be tossed from carrier to carrier, you'd also appreciate a "livable" first year wage.

Fire away.

 

[7B2]

How soon before we see some kind of stability in the industry?

As soon as Scotty can beem us up and we no longer need planes!

 

[~~~^~~~]

Where you and I might draw the line in the sand, and not do this job for less than a certain amount out there, there are folks who don't care what they get paid, and how hard they have to work, just to say they are "an airline pilot." Groups such as the rjdc are trying to ruin the profession as we know it. As long as they are out there, then this industry will continue its down spiral. Me, I could care less about this profession any more, to me, its just a job to feed my family. What little "glory" there was in it, in my opinion, went out the door in the late 90's!
Cheers,
737

My 737 friend, you do not know what ALPA is negotiating.

First, the history. ALPA put mainline pilots in jobs at "jets for jobs" carriers without their longevity. That means they are making less than the RJ pilots who currently perform the flying. We incumbant RJ pilots are not the folks lowering the bar. For example the E170 pilots at concourse D earn 20% less than ASA pilots ( and ASA is not exactly getting rich - I've got my second job )

Now - do you know what ALPA is negotiating at Delta? Proposals have been made to put mainline pilots in Regional Jets and our information is that this has been without their mainline longevity. Skip Barnette, ASA's President, said Delta really does not care who flies the airplanes, as long as they are flown at competitive rates. In the same Q&A he told an ASA pilot he should not be against jets for jobs ( AKA brand scope ) until he saw the numbers. :EEK:

So don't be so eager to claim the RJDC is ruining the profession. The RJDC's founders wanted one list, which would have been perfect scope. ALPA is the party that refused to merge our pilot groups and gave us the inside track on the race to the bottom.

But, this might not matter. Delta's got to get in better shape or else we will not have any jobs to fight over.

Good luck,
~~~^~~~

 

[737 Pylt]

We incumbant RJ pilots are not the folks lowering the bar.

That is not what I said! What I said was that there are folks who are willing to do the job, no matter what it pays. The rjdc wants to fly bigger planes for lesser money, making them part of the problem, not the solution.

Now - do you know what ALPA is negotiating at Delta? Proposals have been made to put mainline pilots in Regional Jets and our information is that this has been without their mainline longevity.

Unless you have proof, you are just talking nonsense! Show me written proof what negotiations have taken place re: J4J for DAL mainline pilots to be placed in rj's. That sounds like rjdc rhetoric to me!

So don't be so eager to claim the RJDC is ruining the profession. The RJDC's founders wanted one list, which would have been perfect scope.

WRONG! The rjdc wants elimination of scope, so they can fly any equipment they want to for any amount of money they want to!

But, this might not matter. Delta's got to get in better shape or else we will not have any jobs to fight over.
Good luck
~~~^~~~

At least we can agree on one thing! We'll all need good luck!
Regards,
737

 

[~~~^~~~]

The rjdc wants to fly bigger planes for lesser money, making them part of the problem, not the solution.

Unless you have proof, you are just talking nonsense! Show me written proof what negotiations have taken place re: J4J for DAL mainline pilots to be placed in rj's. That sounds like rjdc rhetoric to me!

WRONG! The rjdc wants elimination of scope, so they can fly any equipment they want to for any amount of money they want to!
Regards,
737

737 - You are flat out wrong regarding the RJDC's intentions. Unlike ALPA, the RJDC has published its agenda. You may find it on their web site. Do your homework and show me anything that supports the garbage you just wrote. If Dan Ford's ideas on scope were implemented it would make job protections much stronger. That is why ALPA is going to have to go that direction eventually - they may not give Dan Ford credit - but the union has to end alter ego to survive.

As far as written proof of what ALPA has proposed, the RJDC has it, thanks to discovery in Ford v. ALPA. If necessary to present this documentation at trial, then they would become public, until then you just have to look at what has happened at other jets for jobs carriers and try to rationalize why Delta would be different than every other mainline carrier.

I humbly submit to you that there is no difference in ALPA's pattern bargaining.

~~~^~~~

 

[GogglesPisano]

For example the E170 pilots at concourse D earn 20% less than ASA pilots ( and ASA is not exactly getting rich - I've got my second job )

~

Posting on FlightInfo doesn't count.

(Just kidding. I'm here Wednesdays and Fridays. Don't forget to tip your waitress.)

 

[PastFastMover]

Shon7,

I have been in the flying for pay business now for almost 40 years. When I joined the military, I thought it was stable but then had to go into combat, that was anything but stable. When I got hired by a large 121 carrier I thought I had made it and was stable. Ooops, anything but, it went out of business. I then went to a couple of what are now called LLC's or startups after deregulation. Great places to work, great people, but time showed they were anything but stable and both are now grounded. Currently getting ready to retire from a large 121 carrier, that is, if it stays in business. Anything but stable. In my opinion as long as there is fossil fuel there will be an airline business. If you want to be a part of it, go for it. Your career will most likely be anything but stable. No one has a crystal ball, just go for what you want to do.

 

[Flex]

The industry hasn't stabilized, nor will it... It is Morphing.

Technology has brought us the regional jet, and things will never be the same. Look for low paid pilots flying 70-90 seat regionals in all of our futures. The "majors" will be the LCC, and the "legacies" will fly the international routes, being fed by their underpaid ALPA bretheren at the "regionals".

9-11 was a great opportunity for the airlines to change to their current structure... and expect more changes to come... for the worse.

Cargo will continue to be a great place... Fedex, DHL, ASTAR, UPS, these are the places I'd be shooting for as a driver.

 

[Publishers]

thoughts for the fire

Let me address the cargo area first.

While air cargo may remain strong, it is still subject to a few variables. Consumers make up a significant part of the business and that economy needs to remain strong. There is considerable difference between Fedex and the other companies. It could well feel the heat before the others as it depends more on overnight as a percentage of business (high yield) and less on cheap freight like Emery. The venture to buy Tigers has produced some dividend in that they are in some higher yield markets.

As to passengers, it is as one put it morphing more than stabilizing. The fact is that there will always be a new entrant coming into the business. Before it was often some carrier with used jets picked up at bargain pricing but with JB that has changed.

The seniority issues mentioned earlier are correct as an important point but it goes deeper across the board than just pilots. That same thing is in all aspects of the carrier.

 

[DesertFalcon]

How soon before we see some kind of stability in the industry?

We are not, and won't be in a stable industry until:

1. We figure out a technology that will solve the "Peak Oil" problem.
2. We stop all terrorist activity.
3. We keep the Chinese from taking over our place as Number 1.
4. The FAA figures out how to handle more aircraft in existing airspace.
5. The public realizes that the current airfares are too cheap.

Just a few of the things that need to be fixed. Minor issues, right?

 

[ivauir]

Companies like the Big 6 (or however many there are now) have a rather mature labor force. This allows startups like B6, WN, F9, and FL to come in and undercut labor costs because everybody gets paid on year 1 scales.

Fire away.

ok I will.

WN is a "startup" paying first year rates? I am not sure where to go with this, other than to ask you to do a little more research. While we are still growing it is pretty steady and our labor force is "rather mature". I guess we a saving money by not laying off our most junior workers, but I think it is fair to say we are no longer a startup.

As to the origional question .... as soon as we stabilze these problems new ones will come along. I am not sure the industry will ever be stable.

 

[Publishers]

Mature

Jetblue has far from the "mature" labor force he is talking about. While everyone likes to point to the pilot group being expensive, the other groups at the legacy carriers are equally costly. You have some middle manager who has been with the airline for 15 years and who makes a salary out of proportion with what their function is or could be done for.

This chain continues along with yearly raises and promotion and eventually the costs are out of sight. A new carrier can come in and rent the same job done for half the cost and without pensions, insurance, and other expensive employee related costs.

 

[smellthejeta]

Jetblue has far from the "mature" labor force he is talking about. While everyone likes to point to the pilot group being expensive, the other groups at the legacy carriers are equally costly. You have some middle manager who has been with the airline for 15 years and who makes a salary out of proportion with what their function is or could be done for.

This chain continues along with yearly raises and promotion and eventually the costs are out of sight. A new carrier can come in and rent the same job done for half the cost and without pensions, insurance, and other expensive employee related costs.

I didn't mean to blame the problem on the pilots exclusively. Mechs, FA's, rampies, and gate agents are all part of the "seniority rules" problem. Also, at the network carriers, let's not forget that a lot of the ground crews are getting eight hours of pay for not much more than six hours (frequently less) of work. Let's not forget United who used to pay their mechanics to park planes and push them back instead of paying their lower cost rampers to do it. When you guys are doing the outstation turns, there really is not much for the ground crews to do. At the regional I worked at, middle management wasn't paid that well. In fact, you could make much more money outside the industry with the same qualifications.

Ivauir, ok, with regards to the list of "startup" carriers. Well, when is a startup no longer a startup? Perhaps I errored by calling WN a startup, but technically speaking, none of the other carriers are first-year carriers either. WN's cost structures are more in line with those that I listed than those of the network carriers.

I don't have WN's hiring statistics at hand, but your growth keeps your labor costs lower. The minute you stop growing, the minute your labor costs will catch up with you, and your CASM's WILL go up. I would be willing to bet that if you took an average of the seniority of all pilots at WN, it would be less than the average seniority of any pilot group at any of the network carriers.

I'm sure I don't have to tell you that your product and route structure is different than any other carrier and that this difference is what helps keep you profitable. Will WN "get theirs" like the network carriers? Hard to tell. You guys enjoy some efficiencies in your strucuture that very few others do, and these will help leverage your labor costs as the force matures.

 

[ivauir]

Ivauir, ok, with regards to the list of "startup" carriers. Well, when is a startup no longer a startup? Perhaps I errored by calling WN a startup, but technically speaking, none of the other carriers are first-year carriers either. WN's cost structures are more in line with those that I listed than those of the network carriers.

Actually our labor cost as a percent of total cost is "industry leading". While this statistic is tweaked by our overall low costs it cannot be over emphasized that our low cost structure is not the result of underpaid or overworked labor.

I don't have WN's hiring statistics at hand, but your growth keeps your labor costs lower. The minute you stop growing, the minute your labor costs will catch up with you, and your CASM's WILL go up. I would be willing to bet that if you took an average of the seniority of all pilots at WN, it would be less than the average seniority of any pilot group at any of the network carriers.

Our growth is steady and continues, but it is probably less that you think ... 6-7% a year. Yes if we stopped all together our CASM would rise, but not by much. Don'tforget that growth costs too.
A comparison of senority lists to network carriers would not very appropriate as they all still have folks on the street , so of couse we'd look to be a junior work force - the legacy carriers don't have any junior people left! That is not really a reflection of how "mature" WNs labor force is, but would end up being a contest to see which airline had laid the most people off. I am proud to say we'd lose that contest.

I'm sure I don't have to tell you that your product and route structure is different than any other carrier and that this difference is what helps keep you profitable. Will WN "get theirs" like the network carriers? Hard to tell. You guys enjoy some efficiencies in your strucuture that very few others do, and these will help leverage your labor costs as the force matures.

If we "get ours" (and we could) it won't be because our labor force matures (I still argue that it is mature) or even that we stop growing. It will be because too many of us fall in the trap of looking out for number one. I believe how the pilot group behaves during the upcoming negotiations will say a lot about weather WN will continue on strong or start to falter.

In the end the point I really want to foot stomp is don't be fooled into thinking that SWA's advatages lie in cheap labor. It just isn't true. We do have a productive work force, and we do have some great systematic efficencies. But when your manegment comes around and says they can't make money because you are overpaid .... it might be part of the story, but the truth is they don't have a plan to make money in a deregulated environment. That is not WNs fault and it isn't because the pilots (or any labor group) at WN are undercutting the industry or racing to the bottom.

Shon I am sorry we hijacked your thread - I promise I am done.

 

[SDF2BUF2MCO]

You have some middle manager who has been with the airline for 15 years and who makes a salary out of proportion with what their function is or could be done for.

This chain continues along with yearly raises and promotion and eventually the costs are out of sight. A new carrier can come in and rent the same job done for half the cost and without pensions, insurance, and other expensive employee related costs.

Yep. Pretty much could be said about any industry. However, the widget maker moves the business to China or wherever to keep costs down. The airlines have to "fight it out" within the boudaries of the US. It is a race to see who is the cheapest (probably because there are fewer $125K+ Jr. Execs to haul around anymore because that job moved outside the country). Realize it may be a slight overstatement.

I don't get the price is king mentality when we don't think anything about spending $129 a night at the Hilton but think paying $300 for a ticket is too much. You don't see (yet) Hilton competing with Motel6. Maybe the Hiltons and the BMWs of the world just know how to market better or they know how to make their services a perceived "value"?