Looks like The General was right all along!
Arrivals: Can Airlines Pin Their Woes On Labor Costs Alone?
Aviation Daily05/19/2004
Labor costs, labor costs, labor costs. That's the drum airlines have been beating for nearly three years as they desperately try to restructure and win concessions from workers to stay competitive with growing low-cost carriers (LLCs).
It may come as a surprise to some network carrier executives, however, that cutting labor costs will not lift their carriers out of perennial red ink to the solid ground of a low-cost operation. According to a new analysis by The DAILY and partner Eclat Consulting, low-cost carriers like Southwest actually pay some of the highest wages in the industry, but they have an efficient all-around business model. Southwest has had 52 straight quarters of profitability.
Other network carriers, such as US Airways, which went through one bankruptcy and are now screaming for more concessions from labor, had the highest non-labor unit costs of the 12 U.S. carriers in the study. Perhaps the problem dwells deeper than hourly wages. A basic point that seems to be lost is that many airlines' business models -- and not merely wage rates -- drive losses.
The DAILY and Eclat discovered that Southwest devotes 41% of total expenses to labor, more than any other carrier except Delta and 10% to 15% more than other low-cost carriers. Southwest's Boeing 737 pilots are the industry's third-highest paid, ramp workers and mechanics rank highest and flight attendants rank fifth-highest despite nearly two years without a raise due to stalled contract negotiations.
These wage scales contrast sharply with other low-cost carriers, such as JetBlue, America West and AirTran, which consistently pay lower wages than legacy carrier counterparts. Yet Southwest continues to be competitive with other LCCs in total unit costs, paying less than eight cents per available seat mile.
In terms of labor unit costs, the efficiency of the Southwest model is clearly evident from the data. Despite its high nominal wage rates and the high percentage of costs associated with labor, Southwest's labor cost of 3.2 cents per ASM is lower than that of all traditional network carriers except Continental, which pays 2.78 cents.
One reason for this is the more efficient use of labor, which is a byproduct of a business model built on high aircraft utilization, short turn times and better crew scheduling.
"Labor costs must of course be managed, but not in isolation." said John Donnelly, Eclat managing consultant. "The mantra of high labor costs must transition to one of fundamental change if the industry is to achieve sustainable profitability."
The fact remains that Southwest still pays a significantly higher labor CASM than other LCCs that use similar efficiencies. While these airlines take advantage of the lower wage rates as well as lessons learned from the Southwest model, the data show that the game is still about all expense lines, not just labor.
Arrivals: Can Airlines Pin Their Woes On Labor Costs Alone?
Aviation Daily05/19/2004
Labor costs, labor costs, labor costs. That's the drum airlines have been beating for nearly three years as they desperately try to restructure and win concessions from workers to stay competitive with growing low-cost carriers (LLCs).
It may come as a surprise to some network carrier executives, however, that cutting labor costs will not lift their carriers out of perennial red ink to the solid ground of a low-cost operation. According to a new analysis by The DAILY and partner Eclat Consulting, low-cost carriers like Southwest actually pay some of the highest wages in the industry, but they have an efficient all-around business model. Southwest has had 52 straight quarters of profitability.
Other network carriers, such as US Airways, which went through one bankruptcy and are now screaming for more concessions from labor, had the highest non-labor unit costs of the 12 U.S. carriers in the study. Perhaps the problem dwells deeper than hourly wages. A basic point that seems to be lost is that many airlines' business models -- and not merely wage rates -- drive losses.
The DAILY and Eclat discovered that Southwest devotes 41% of total expenses to labor, more than any other carrier except Delta and 10% to 15% more than other low-cost carriers. Southwest's Boeing 737 pilots are the industry's third-highest paid, ramp workers and mechanics rank highest and flight attendants rank fifth-highest despite nearly two years without a raise due to stalled contract negotiations.
These wage scales contrast sharply with other low-cost carriers, such as JetBlue, America West and AirTran, which consistently pay lower wages than legacy carrier counterparts. Yet Southwest continues to be competitive with other LCCs in total unit costs, paying less than eight cents per available seat mile.
In terms of labor unit costs, the efficiency of the Southwest model is clearly evident from the data. Despite its high nominal wage rates and the high percentage of costs associated with labor, Southwest's labor cost of 3.2 cents per ASM is lower than that of all traditional network carriers except Continental, which pays 2.78 cents.
One reason for this is the more efficient use of labor, which is a byproduct of a business model built on high aircraft utilization, short turn times and better crew scheduling.
"Labor costs must of course be managed, but not in isolation." said John Donnelly, Eclat managing consultant. "The mantra of high labor costs must transition to one of fundamental change if the industry is to achieve sustainable profitability."
The fact remains that Southwest still pays a significantly higher labor CASM than other LCCs that use similar efficiencies. While these airlines take advantage of the lower wage rates as well as lessons learned from the Southwest model, the data show that the game is still about all expense lines, not just labor.
