Labor is not the problem

[Salty Dog]

AAflyer,

Well said. I would add that AA, Delta, and United all have another expense SWA doesn't share: carrying the load for wholly owned or contract subsidiaries. I wonder what impact those costs impart on the major that are divided only among the Big Iron seat miles? Especially on those wonderful "fee for departure" deals. Whose balance sheet eats that one?!?

This is not unlike the USMC claiming their "tooth to tail" ratio is higher than any other service. Fortunately for them, they don't provide (train, pay, equip, etc.) any of thier own doctors, flight schools, ships that enable them to accomplish their amphibious mission, or even their own field medics. Not to bust on Marines, but it's easy to claim greater efficiency when somebody else is paying (at least part of) your freight.

I'm not claiming to know the answer and I hope somebody else can help out here. Who pays ASA/Comair gate agents, advertising, internet ops, ticket printing etc? Are they completely stand-alone or are they consolidated?

 

[Groucho]

Labor Cost Vs. Labor Productivity

From the text; Airline Management: Strategies for the 21st Century. Paul Stephen Dempsey and Lalurence E. Gesell

"Over the 15yr period from 1980 to 1995, as a percentage of operating expenses, labor costs declined 26% while rentals, or lease payment soared 861% and commissions to travel agents increased 238%." It is true that costs are up since 1995 but overall labor is not the problem. Productivity is where the industry has been hit. "The dominant megatrend of deregulation-hubbing-robbed the industry of productivity improvements." "Hubbing results in more ground time." "While the marketing and yield benifits of hubbing are considerable, hubbing pushes costs up and productivity down."

With the growth of the low fare carriers the yield premium from hubbing, the reason the airlines got into to it in the first place, is eroding and the earnings are going with it.

Metrojet, Shuttle by United, CALite, and Delta Express, are all attempts to emulate a point to point operation somewhat but they all still depended on hub or central traffic. A small subsidiary will not allow enough productivity improvement. Hubs just eat up to much money now.

"These are my principles, if you don't like them I have others." Groucho Marx

 

[surplus1]

Who pays ASA/Comair gate agents, advertising, internet ops, ticket printing etc? Are they completely stand-alone or are they consolidated?

Since their acquisition by Delta, Inc., both Comair and ASA are in consolidated statements of Delta, Inc. There is no way for someone like me to tell who is subsidizing what.

Prior to the purchase of Comair (can't speak for ASA), the Company was an independent airline with a codeshare agreement with Delta. The codeshare was not a "fee for departure" system, but a revenue sharing system.

At that time Comair paid for its own gate agents in most stations and subcontracted with other airlines, including Delta, to provide those services in others. It paid for its own advertising, but the codeshare, as all others, also allowed it to benefit from some of Delta's advertising. It paid for the use of Delta's reservations system and for tickets printed by Delta as well as its own ticket stock, which was minimal. It paid for its own internet ops, aircraft, maintenance, customer service agents, baggage handlers, etc. It was extremely profitable consistently earning a return of around 24% or more.

Sixty percent of its revenue came from passengers that never set foot on Delta aircraft. The other 40% generated by the codeshare agreement.

When the codeshare agreement came up for renegotiation, Delta wanted the "fee per departure" system. Comair refused. This caused Delta to purchase the Company.

As I'm sure you know there was a long strike at Comair and according to Delta, that cost them $700 million in losses over 90 days. It has taken about a year to get the airline back to where it was pre-strike. How much Comai'rs costs have increased or decreased since its acquisition by Delta is not something I can answer, but it is reasonable to assume that the profitability has not substantially declined now that the airline's operations are fully restored, in which case it is a big plus to the bottom line. An asset, not a liability.

You'll have to judge for yourself what all of that may mean in the context of your post.

 

[DarnNearaJet]

Now I get it -- if we simply lowered doctors' salaries our national healthcare costs will decrease. Duh!

 

[surplus1]

Now I get it -- if we simply lowered doctors' salaries our national healthcare costs will decrease. Duh!

Let's raise the doctor's salaries by 30% to the equivalent of Delta Plus. Health costs won't increase because all we have to do is let more paitients die. We can blame it all on bad hospital management.

Doctors are undepaid and need to make more now. It's not their problem if hospitals go bankrupt or if the government (taxpayers) have to pay higer costs of medicare to bail them out. And by the way, don't foreget that Nurses, receptionists, clerks, janitors, ambulance drivers, EMT's, and etc., ALL need to make more too.

Not to worry, if enough hospitals close and enough people die, healthcare costs will decrease. We don't need to waste money treating all those "old people" anyway.

 

[AAflyer]

Can I give it away?

Surplus1,

I hate to be the bearer of bad news, but many doctors make a heck of a lot more than Delta Plus. Infact my friends wife is an oncologist (nurse in that field) and made more than most RJ captains last year.

I also answered an add in a newspaper for a management position for who else? (Burger King, for sh1ts and giggles) guess what starting pay is, more than my friend as a captain on the RJ makes at Airlink.

Also love the raise our ball throwing friends received. You are right, I am a fool, where can I send my paycheck and demand I take a cut!!!!


AAflyer
(all in good fun, P.S. if AMR will not take my check, I will endorse it over to the RJDC)

 

[publisher]

points

you are sort of missing the point on the premium deal.

The fact is that to an average domestic passenger not only is there not a difference that is perceivable, they prefer the SWA approach.

That conceded, the problem is that these international giants need to feed their traffic. They create feeder systems to do that. They have vast infrastructure costs to serve the many markets. In the end, when things get tough, they cannot serve all masters.

International service has a whole can of its own problems. For those airlines that elect to pass by that type of service, they can gear to a different service level.

The ones that get on here and say we need a new model, I say great. I hope you realize that the new model does not include paying you any thing like the old model.

 

[AAflyer]

Publisher,

Since you are leaps and bounds ahead of us on managment perspectives, maybe you could enlighten me and the group as to how we should be paid.

You seem to be able to run an airline from your experience and posts, so I will give you some time, and I would like to see a payscale from the 50seat jets to the 777s, what do you say? Up for the challenge?

P.S. I got the points, to bad you failed to understand what the original post was all about.

AAflyer

 

[enigma]

RE: the discussion about premium services. This may be a little off the subject, but I would like to add a slightly different twist. There are many nuances that diffrentiate the premiums from the low cost carriers. It's not necessasarily only the inclusion of first class and international service.

From my perspective, here are a few differences between AA\DAL/etc, and a low cost carrier. (With tongue partially in cheek)

Climate controlled jetways. premium carriers aircondition the jetways and other carriers just allow their customers to sweat like a pig.

Clean airplanes. I've observed AA actually using a "hot-water extraction" style carpet cleaner on the entryway floors during a turn. Our "cleaners" just redistribute the sticky goo on that resides on the entryway floor with a dry mop. On a related note, premium carriers actually cater their aircraft from the off side by using a catering truck. Low cost carriers just drag the leaky trashbag out of the main cabin door and the caterers stand in the way of the exiting pax awaiting their turn to use the door.

Clean airplanes, Part II. Premium carriers actually clean the carpets and seat covers on a regular schedule. Others clean them at a "C" check.

Climate controlled aircraft. What is it about some carriers that prevents their airplanes from actually cooling the air? The premium carriers aircraft are much better at maintaining the cooling ability of their aircraft. Maybe, it's because the premium carriers actually pay the money to hook external air up at every turn, enabling the onboard a/c systems to have a fighting chance once the door is closed.

These threads always turn into fights about barely related subjects, so why not turn this one into a list of the differences between "premium" carriers and the rest.

Have some fun
8N

 

[bayoubandit]

Premium carriers offer the extended furlough program!!


Haven some fun!

 

[surplus1]

Re: points

The ones that get on here and say we need a new model, I say great. I hope you realize that the new model does not include paying you any thing like the old model.

You were doing good until you got to that part. While I may agree that this is not exactly the right time to be asking for big increases at the "premium" carriers, it's also true that the well managed carriers can hold the status quo unless things get really worse (like another airline related attack).

UAL and USAir have obviously been mismanaged. AA & DAL are doing better so are NWA and CAL. The AA & CAL guys may well need to back off of big raise ambitions. DAL can probably hold the line (thanks in part to its big fleet of revenue jets). All the big bananas will have to belt tighten though.

Outfits like enigma's can afford a reasonable raise and should pay it. They're doing quite well, but it's not going to be Delta Plus or anything close.

However, the idea that we're all going to have to go back to the stone age to put smiles on management faces is not less exaggerated than the idea that we can get a 30% raise.

A bit of realism on both sides usually works.

 

[publisher]

counter

My point on new model is this.

To change to a new model is OK but if your union contracts, fleet, airport leaseholds, etc, etc, were geared to the old, it is very difficult to do because people do not by their nature want to change from that which attracted them at first.

If I want to take United to an all A320 fleet and pay all the pilots a flat $100,000 to work, that is not going to sit well with the 777 guys making more than that.

As to a pay scale for an airline, without getting into all the complexities, starting would be about $30k for a FO on a regional jet and top end would be between $175k and $200k international large aircraft. Frankly I am more concerned on the top end and agree with many of the posts on the low end.

These issues are a good deal more complex than I can go into here.

 

[enigma]

Re: counter

My point on new model is this. .................

As to a pay scale for an airline, without getting into all the complexities, starting would be about $30k for a FO on a regional jet and top end would be between $175k and $200k international large aircraft. Frankly I am more concerned on the top end and agree with many of the posts on the low end.

These issues are a good deal more complex than I can go into here.

Publisher, are you also willing to come up with a maximum pay for a CEO? How about just setting an artificial limit on the amount of profit that a privately held corporation can earn? Yea, that's the ticket, lets just limit all airlines to making $XXXX per year. Maybe the excess profits from the good quarters can go to the homeless or maybe the poor.

I always heard that, "what's good for the goose, is good for the gander".

regards,
8N

 

[publisher]

yes

Frankly, I think that the management of these companies are paid obscene amounts of money.

In this country, we tend to reward short term thinking.

In business, balance is critical. Doing the things in the short term that allow you to accomplish your longer term business plan. What we have is thinking that ends at the next bonus period.

That holds true on the labor side as well. There has to be balance between what is being performed and what it is worth. My ex wife once worked at a plumbers union. We laughed at the fact she was paid about 4 times what the job was worth at any other company.

We are not in balance here and not just in this industry. The situations at Enron and Worldcom are examples of management gone amok in short term pursuits.

This is also why dinosaurs like UAL cannnot get out of their own way.

 

[enigma]

Re: yes

Frankly, I think that the management of these companies are paid obscene amounts of money.

Agreed.

But those obscene amounts are what they were contracted to work for. Same for the unions. Contrary to popular belief, the unions DO NOT hold a gun to managements head to get a pay raise. Contracts are negotiated business agreements that reflect an amount that management agreed to. Period.

DAL proved in the Comair strike, that they are willing to take a strike in order to maintain a pay scale that they are happy with.

AA was willing to take a strike during the late ninetys. Proving to me, that the negotiation process provides results that are in line with sound business principles. If the unions were able to rachet the wages up to an unsustainable level, it's the fault of the managers who agreed to those unsustainable levels.

I do believe that a labor group should consider the need to protect the long term health of their employer when negotiation for wages. Unfortunately, mangement has largely lost the trust of the pilots who are/were willing to agree to things such as less money. UAL pilots accepted concessions in the last decade. When times got better, management did not reciprocate. Now management wants concessions again, and the pilots appear willing to agree to those concessions. In light of this and other examples, I find that labor has historically been more than agreeable to working to help keep their companies afloat.

I have a hard time blaming labor for being skeptical and obstinate when I consider history in light of something my mother-in-law used to say.

"Dump on my once, shame on you. Dump on me twice, shame on me."

From my perspective, management has dumped on labor far to often to deserve any cooperation. Yet we offer it anyway. We just keep coming back for more, because the majority of us love it.

Please think about that when you automatically go into your "blame the overpaid pilots" response to every post.

regards
8N

 

[publisher]

OK

I do not think that I blame overpaid pilots in every post. Cannot remember blaming much on that.

While you point out that it is a so called "agreed to" negotiated deal, I have been too closely involved in labor negotiations to believe that. It' s one of those, the closer you get, the worse it looks kind of thing.

Union leaderships actions like management reflect short term thinkers. The fact is that the economics today are that no one can afford a strike anymore. Airlines continue to burn their "hidden reserves" through clever financial deals. The public has no loyalty and will desert you for another carrier in a heart beat.

We will see where all this goes for we are in an adjustment period/ It is not a matter of a blame game. Realistically labor and management are not on an equal keel for if management does not come up with a model and means to generate profit and returns on assets, there will be no need for labor.