It's a race, but where is the bottom?

[Singlecoil]

United announced today that they want to be able to operate more regional jets because the costs are so much lower than mainline.
As we all know, that is certainly nothing new. It is probably cheaper for them to run two CRJ-700's than one B-737.
Of course a huge part of that is labor costs. I'm not aware of any RJ operator that offers retirement to its pilots, and Southwest and Jetblue don't either.

My question is this: Is company paid retirement going to be a thing of the past? Or is it more likely that the pendulum is swinging right now to RJ's and LCC's, but once people realize that they are going to be there for an entire career, they will demand higher pay and benefits, thus driving costs up at those carriers and making the majors more competitive?

I know, if we were all plumbers or electricians we would all be in the same union and wouldn't have this discussion, but we're not nor will we be in the future.

What are some forward thinking ideas about how all of this is going to end up? I don't think the ATC system can handle the flood of RJ's that the CEO's would like to unleash in the next five to ten years. Is more, smaller jets the wave of the future?

 

[ceo_of_the_sofa]

company sponsored retirement...that must of been nice...I don't think I'll ever get that gold watch and a wooden plaque, no matter what industry I am in...

 

[cessna_driver2]

What about boieng and airbus. Will they be able to switch from wide bodies and start building smaller crj?

I think when we see them do that, The big boy days will be over.

just .02

 

[46Driver]

It is very difficult to write this being completely distracted by the photo beside FlyChicago but the thing to add is that the customer prefers the convenience of Delta (or airline of your choice...) offering RJ flights morning, noon, and night instead of 1 flight per day with a 737, take it or leave it. Thus another reason for the spread of the regionals.

 

[I.P. Freley]

I'm afraid I will have to agree with the above...

It's official. FlyChicaga is my hero.

 

[bobbysamd]

United plans

From MSNBC.com

United unveils transformation plans

Carrier to launch separate low-cost unit with cheaper fares

CHICAGO, Feb. 5 — Bankrupt United Airlines on Wednesday revealed some of its plans for transforming itself, including intentions to launch a completely separate low-cost unit with cheaper fares for leisure travelers.

UNITED IS STICKING BY its plan for a low-cost “airline within an airline,” first discussed a few months ago, even though its unions have criticized the notion of a legally separate division.
The so-called “transformation plan” being unveiled is separate from a plan of reorganization, which will be needed to emerge from bankruptcy protection. That will come later in the process, United said on a telephone hotline to employees.
Elk Grove Village, Illinois-based United, a unit of UAL Corp., filed for bankruptcy in December, the largest airline ever to do so. It followed smaller US Airways Group’s Chapter 11 filing in August.
Public information about the plan has been scarce as United begins negotiations with aircraft lessors, suppliers and workers about concessions to turn the carrier around.
Details of the “transformation plan” were presented to unions on Tuesday. UAL’s board of directors glimpsed it last week and issued a statement in support.
Included in the plan are continued mainline jet service, a new low-cost carrier that is an entirely separate entity with a single fleet, continued use of United Express regional service with 70-seat regional jets, and alliances, the airline said on the hotline to employees.

TOTALLY OPPOSED

Paul Whiteford, head of the United branch of the Air Line Pilots Association, said in an interview Wednesday that he remains totally opposed to a separate legal entity that could be spun off, with separate pay scales and seniority lists.
“It was a PowerPoint presentation,” Whiteford said of the union briefing Tuesday. “It’s hard to describe it as a business plan—there aren’t fiscal targets for labor to negotiate.”
Whiteford said that, if United insists on creating a separate entity, a judge will ultimately decide how to proceed since ALPA will not go along with the proposal.
The International Association of Machinists, meanwhile, said it continues to negotiate with the airline and will not release a position on the low-cost carrier plans.
United said its transformation plan — created under new Chief Executive Glenn Tilton — was designed to meet four different criteria. It must transform the airline, meet the changing needs of travelers, build a cost-competitive airline, and reengage investors.
UAL’s common stock was trading Wednesday at 94 cents a share after being above $100 in the late 1990s. The company’s chief financial officer has said in court the shares are likely to be worthless at the end of the bankruptcy process.
United said its network is “central to the plan for transformation’s success.”
“The goal with the main (air)line is to meet the needs of the core business traveler while maintaining the lowest costs among the network carriers,” it said. “The company is in discussions with its unions on wage and work rule changes, renegotiating its aircraft lease and mortgages and restructuring its fleet, with the goal of saving $500 million.”

LOW-COST CARRIER
United said it faces low-cost competition in 70 percent of its markets. It had its own shuttle service on the West Coast, but shut it down after the Sept. 11, 2001, attacks slashed the demand for travel nationwide.
The company is currently discussing the structure and size of the low-cost carrier, but said it has proposed a completely separate entity with its own management, uniform fleet, separate workforce and access to capital.
“While it would remain separate in these key areas, it would be fully integrated into United’s hubs and network, as well as its frequent flyer program and brand,” it said.
Joseph Schwieterman, a transportation expert at DePaul University in Chicago, said he was less skeptical than other analysts about the low-cost carrier’s viability.
“It will lessen the pressure on making draconian changes throughout the airline,” Schwieterman said. “It will allow United to compete for travelers who want rock bottom prices, while protecting its premium product for business fliers.”
United also said it is falling behind the competition in regional service to smaller communities and that it needs 70-seat regional jets to beef up that sector.
“The 70-seat jet falls nicely into the fleet, filling a significant hole between the 50-seat (regional jets) and the 100-seat airliner,” said Doug Hacker, UAL’s chief strategic officer.

What a surprise. Watch the spinoff turn into an alter-ego. <sigh>

Sounds like the regionals are the place to be and where most people will stay, unexpectedly.

 

[Illini Pilot]

it really does make sense, with the decrease in demand for huge airliners to smaller, more efficient CRJs, etc. I think flexibility, convienence and quickness will be the focus of the airline industry, not how big of an airplane can be created to shuttle 500+ people around at a time. security and the global focus on efficency and speed (i.e. email/electronics/internet are replacing snail mail,etc) will create the demand for more flights, but not necessarily a huge increase in passengers. this appears to be a good thing for pilot demand, because 1 crew flying a 747 will be cut into 3 crews flying 757s, 737s, A320, CRJs, etc(depending on the length/demand of route). however, i dont think the 200,000+ salaries will continue to exist, rather leveling out at a southwest-esque pay scale...which certainly aint bad! speaking of southwest, the "no frills" approach to airfare definately appeals to the masses, people no longer treat flying as a special event, like a cruise or whatever, they want to go to the airport, walk onto the airplane, and then get off within a few hrs. just my opinion tho

 

[flywithastick]

Re: CRJs

You can't make that much revenue on 50-seat jets. You can make a lot more with 150, 200, 300 seats.

I think I see what you're saying... they're loosing money with their current business model. So maybe they could just make it up with increased volume!?

I know we're all in a love-fest with the CRJ, but it just isn't the Godsend we're making it up to be.

IMO, RJ's (ERJ or CRJ) are here to stay in a big way.

This is a bad sign for United.

With respect to the folks who did and still work at UAL, if the airline can't make it in the 21st century in their current form, then so be it. Adapt or move out of the way.

As long as were discussing it, I predict a strike at UAL by some group in the next few months. They'll try and endure for a month or so then liquidate. Hope not. But if I had to bet, this is where I'd put my money.

Back to the top... singlecoil said SWA didn't offer a retiremant plan. I find this kind of hard to believe. If this is the case, there must be stock purchase, 401K matching or other savings benefits available to their people - a better solution than traditional retirement plans actually, IMO. More portable.

my 2¢

 

[flywithastick]

Re: CRJs

No, I'm not saying that increased volume will help

That was a joke... You can't make any more profit on something you're selling at a loss by upping the volume!!!

 

[PBRstreetgang]

Hey,
All of the above is partially correct. If one looks at the ratio of flight crew to ground personel it is roughly between 8to1 at the majors and 4to1 at the regionals. Factor into the mix the average ramper at a regional makes little more than minimum wage and the mainline ramper makes somtimes 4to5 times that amount. Employee wages are the variable that managment seeks to exploit. Shift the jobs to the regionals, this eliminates the mainline jobs and sets the longivity reset button. ie 5th year ramper,mechanic, f/a, pilot at the mainline looses job, job opportunity opens at the regional because of the shifting of the flying. The dream of corperate america managment, the ability to reset employee pay to lowest possible amounts.
This is not unprecedented, look at the explosion of the temp agencies during the '80s-90's. Oh yes I was not picking on the rampers, this analogy applies to any hourly employee at an airline.
See ya
PBR

 

[skyboat]

Singlecoil-

Comair has a defined contribution plan for it's pilots. Air Wisconsin has a retirement plan, not sure if it's a defined benefit or contribution. Mesa just had a TA, any word on retirement there?

With the regional airlines getting larger and larger and having more and more carreer pilots, it is only natural that you will see more and more retirement plans. Probably not defined benefit plans as these were mostly created during the early 1970's during times when the tax codes were more favorable to them. Another added benefit is that the pilot controls the plan and can take it with them if they leave or a company shuts down during hard economic times.

 

[Mr. Irrelevant]

singlecoil/flywithastick,


SWA has a retirement plan!!! It is a 401k plan, often refered to as a defined contribution plan. The plan pays the employee a dollar for dollar match up to the first 7.3% of the employees pay when the employee elects to defer their income into the plan. This is a fantastic retirement plan! The advantage is that the money is the employees to keep and not subject to the company reducing the benefit amount if the company cannot keep the traditional pension plan funded adequately. See what is happening with the U.S. Airways pension plan for a good example. The other advantage is that you will have control over the investments your hard earned dollars are placed into.

SWA also has a profit sharing that varies based on the company's earnings that year. I believe some pilots here have said it is generally 10-15% of salary.

JetBlue also has a 401k plan however I do not know the specifics.

I think singlecoil made a good point in his first post in regards to the proliferation of RJ's causing ATC logjam issues. This was a serious issue that was getting national attention prior to 9/11. The pressure will really be on the airline's management teams to use larger aircraft when the economy is on better footing. And given the way these companies make money when the economy is healthy I believe we'll see them using larger aircraft. My biggest worry as a low-time future professional pilot is whether they will continue to simply add these larger aircraft at the so-called "regionals".

I think maybe two years ago I saw pay proposals at an airline adding 70 seat jets to their 50 seat jets that increased captain pay only by $4 per hour for 20 more seats. So for 40% more seats the proposed increase in pay was deplorable. If this was the case and the union accepted or had to accept the increase it seems forboding in regards to what the pay would be like if the regionals all fly 90 seat, 110 seat, 135 seat aircraft. I would be shocked if management at the airlines do not try and do something like that. They would be fools not to. I know alot of pilots may say their scope will prevent that from happening. From an outside of the industry perspective (I work in Investment Management full-time, CFI part-time) the airline management groups have run roughshod over those scope agreements.

I can certainly agree with anyone here who sees the contracts and working conditions improving at the regionals. Once people realize it is their final stop they will have greater resolve to improve their quality of life. Only makes sense.

I think the pay and retirement improvements will come at the smaller airlines, only it will take time. That Comair contract seems to be only the tip of the iceberg. I think from what I read it was a great improvement over what was existing and a impressive show of solidarity, however the benefits of it pale in comparison to what an employee gets at my firm and sadly some of the employees here couldn't learn how to turn a C152's engine over much less fly anything! Really, that bad and yet they get company funded pension and a 401k that are both better than what most regionals receive.

I wish good luck to all pilots and pilot unions in their quest for improved working conditions and pay. Particularly at the regionals.

Very good topic single. I was wondering when someone would bring it up.


Mr. I.

 

[Singlecoil]

Certainly not irrelevant comments from Mr. Irrelevant.
I agree that a 401K with a hefty company match (7.3% is quite good) is a good way to go for future retirement plans. But most majors today have defined benefit plans that will pay a pilot with 25 years seniority $100,000 or more for the rest of their lives, as well as additional 401K's. Those 401K's don't have a very high employee match, however.
I like the idea of generous profit sharing with lower annual wages for airline pilot compensation. This industry is cyclical, and always will be, and that model provides an excellent means for the company to ride out the rough times. When the company is making big money, so are you. There's no opportunity for the employees to develop bitterness at how much the company is making and they aren't. That bitterness leads to solidarity and powerful labor unions that demand high compensation. Then in the lean times like we have today, the companies go right back and ask for the money back to balance the books. With a profit sharing model, all parties know up front what the rules are during boom and bust times. There is no chance for discontent and distrust to form. In addition, all employees in on the profit sharing will feel a direct stake in the success of their company, which should translate into a positive customer service experience for the paying public. I don't think you would hear a pilot under that compensation model make statements that we need to "...choke the last golden egg out of the goose..." as Captain Dubinsky did at United.

 

[jetflyer]

Singlecoil,

Great points! I've thought forever that a very large profit sharing option is the way to go. Like you said it let's you prosper in the good times, helps the company in the bad, and gives everyone involved in the profit sharing incentive to work harder.

Are there any drawbacks to the very large profit sharing model. I'd like to see them twice as large as Southwest's to really work well.

 

[Mr. Irrelevant]

Good replies single and jetflyer. To see what an SWA pilot might have in their 401k after 30 years or so I threw some numbers in a spreadsheet and came up with what are probably very rough results.

I assumed the amount defered into the 401k is exactly 7.3% and that appreciation is not earned on that amount until the end of the year. Obviously this is not a real world scenario but I wasn't going to take the time compound monthly assuming a monthly deferral. I assumed annual returns of 9% per year up to 59 years old and 6% per year afterwards. For salary as a FO for 5 years I started at 38k, then 50k, 62k,74k, and 80k. I assumed upgrade in year 6 with salary at 135k rising 5k each year. Very rough estimates I'm sure but I didn't have a contract in front of me to review and pin down salary amounts.

The numbers; $3.1 million at retirement. That is in 2003 dollars though. Adjusting for inflation, I assumed 2.8% per year, I get over $1.3 million in today's dollars. Less than what was mentioned for major airline payouts from defined benefit plans. Those can change though from majors as is happening with U.S. Airways. The amount that one can withdraw from a 401k with those results though is on par with 100k payouts per year in 2003 dollars(taxes not included). None of this assumes the profit sharing has been invested either.

My numbers are just estimates on the yearly remunerations of course but I think the 401k, considering the control the employee has over it, is the better route. The 401k may not be the best for everyone depending on their own comfort level, financial situation or age.

Maybe someone else will chime in with another point of view. I look forward to reading it.


Mr. I.