Labor is not the problem

[SDF2BUF2MCO]

Interesting discussion....
I do think labor is a major part of any business. The key is how people are utilized in conjunction with the way the business flows (and yes wages and benefits are a big part as well). Another key is focusing on what kind of business you want to be. If you want to be all things to all people then it is going to be much more difficult to manage it efficiently. A company like SWA is more narrow in their focus.
A non-airline business example is Wal Mart vs. Target. Wal Mart goes for being the cheapest prices and volume. Target goes after the "up scale" discount shopper but less volume. Target is not as low on prices but their niche appeals to a different kind of customer. Both companies are successful at this time. I speculate that both pay similar wages and benefits (albeit lower wages and benefits compared to other industries).
I agree with AA that people could work for free and that still may not solve a companies woes. Labor plays a big part but not the only part. I see two major issues in upper management. One is the love of bureaucracy (ISO9000 and Sixth Sigma are examples. BTW the cartoon Dilbert does a good job of capturing the essence of this bureaucracy at least in non-airline businesses). This is due in part to not coming up with solutions so by forming a committee a business feels good they're doing something. The other part, and I think probably the most important, there lacks honorable people at the top. They'll do anything to make themselves look good or keep their little kingdom (all in the name of share holder value of course!). Not to sound too judgemental because that may be human nature. In addition, the pressure to perform may make a normal human being do strange things.
On another note, it seems like we have it backwards regarding business in that businesses are bent on "slashing costs" while our bloated government is only concerned with expanding and getting more money out of its citizens

 

[BigFlyr]

This is true, but when we were rocking, the 2% of business travelers gave us 27% of our revenue.

AH-HAAA!

AAflyer, first let me compliment you on your well composed original post and follow-ups. I knew I would open a can of worms with the "premium" vs low-cost carriers issue. I did not mean to compare apples with oranges either, fully aware that JB or SWA or AirTran to name a few, don't offer the "frills" packages that are apparently only 2% of AA's business but 27% of AA's revenue. THERE'S THE PROBLEM RIGHT THERE!

Maybe the majors should "spin-off" their "premium" services as independently operated airlines to compete with other "premium" airlines rather than have their losses subsidized by their "non-premium" coach domestic operations.

 

[AAflyer]

Bigflyr,
I agree, this is why the old gouge your best customer will not work anymore. I wish I knew how to solve these problems, hoping that these guys and gals areputting their MBAs to good use.

AAflyer

 

[A Squared]

AAflyer,

No, you didn't explicitly state that you were a premium pilot, but, in your first post, you objected quite strenuously to your pay being compared to Southwest pilots, because your's is a premium airline, and southwest is not. If you believe that a comparison to southwest pilot pay is invalid, you must believe that there is a difference in the service you provide.


>>>>If you can not figure out the revenue on a 767 overseas is far greater than a 737 flying from Luv to Orlando than I can't even begin to explain the rest.

Yes, I understand this concept quite well, in my post I spoke of making a comparison between similar flights. You're merely trying to cloud the issue by attempting to shift the comparison to domestic vs international routes. Comparing pilot costs per ASM are about as good a way as we have for removing equipment size, length of route and such from the equation, so why don't we look at those instead of trying to divert attention with specious details? By your own numbers; AA's pilot costs per ASM are 53% more than Southwest's. That's substantial in anyone's books.


You seem to have 2 points:

1) Your pay alone is not responsible for your airlines problems, there for your pay shouldn't be cut

and

2) Your airline's ratio of labor costs to total cost are similar to southwest's or other airlines, and therefore your pay shouldn't be cut.


OK, number one:

Yes I agree that labor costs alone are not solely responsible for AA's economic plight. There are probably numerous reasons, high fixed costs, excessive executive salaries, the costs of the Admiral’s rooms, I don’t know what all, but I’m sure there are a lot of reasons that AA’s costs are too high. But to say that pilot salaries must be left alone, because they are not the sole reason that the company is in trouble is just silly. Companies rarely go bankrupt for one single reason, generally it’s a collection of factors. Right now, United is staring down the barrel of bankruptcy. They also have the highest pilots salaries. Are the pilot’s salaries *the* reason they are in trouble? No. Are the salaries *one* of the reasons they are in trouble? Absolutely. Each cost AA has contributes to it having a poor bottom line, and each cost should be examined for possible reductions. I’ll agree that executive salaries should bear equal scrutiny. The fact remains that pilot labor costs at AA are high compared to other operators competing on some of AA’s routes.

Which brings us to number 2:

You keep mentioning the percentage of labor costs as if it had some real significance. It doesn’t, it’s just another specious and deceptive argument. AA’s costs are too high. 37% of too high, is still too high. The fact that AA fancies itself a "premium" airline doesn’t logically require that it pay pilots more. The pilots are not a part of providing that "premium" service. They don’t serve drinks in the admiral room. They don’t make ticketing changes for the select business traveler. They don’t transfer the passenger’s luggage to the Zurich plane in Dallas. None of the "premium" services that you speak of are performed by the pilot. The AA pilot’s shows up and fly the plane, in a manner which is indistinguishable from the way the Southwest pilots fly the plane. Just because your employer provides additional services to the customer, doesn’t somehow entitle you to more money. Perhaps I can illustrate the irrelevancy of your labor cost ratios with a non-airline comparison:

Suppose you have 2 hotels in the same city, a cut rate hotel, and a 4 star hotel. Both have the same number of rooms, and roughly the same occupancy rate. Each of these hotels needs to have it’s garbage hauled away, so they pay a garbage company to haul it away.
Now, does it make sense that the 4 star hotel should pay 53% more per ton of garbage hauled than the cut rate hotel?

Does it make sense that the trash hauling costs of the 4 star hotel should be the same percentage of the hotel’s total costs as the cut rate hotel’s?

Of course not, the trash hauling costs at the 4 star hotel should be a *smaller* proportion of the total costs. The 4 star hotel is obviously going to have much higher costs in a lot of areas. Higher capital costs from a higher quality building with more elaborate furnishings, Higher taxes on the more valuable real-estate, staffing the kitchen with European Chefs vs. the short order cooks in cut rate hotel’s kitchen, the Bellhops that the other hotel doesn’t have, more maids per room, boxes of mints to put on the pillows, silk sheets rather than cheap polyester ones. Exercise rooms, and Saunas. ...... the list goes on. The 4 star hotel will have much higher costs per room night But does that mean that their trash hauling costs should be proportionally higher? No.
The yearly dollar amount of the trash service could be expected to be slightly higher at the 4 star hotel, because you could expect the 4 star hotel to generate slightly more trash per room night, but the ratio of trash costs to total costs at the 4 star hotel should be much lower than the cut rate hotel; the 4 star hotel provides more services, but the trash is about the same. The trash hauling that the trash company does for the 4 star hotel is not intrinsically more valuable than the trash hauling done for the cut rate hotel, merely because the 4 star hotel provides a greater level of service to it’s customer.

So to bring it back to the question at hand, yes, AA provides a greater level of service to *some* customers, so their costs per ASM could reasonably be expected to be higher than SWA’s, but the AA pilots themselves do not provide a higher level of service than SWA pilots, so there is no reason to claim that the pilot costs per ASM should be proportionally higher.

Hey, I don’t want to see your company having troubles, and I don’t want your salary to be cut. None of this makes me particularly happy, and it’s not good for anyone in aviation.

My point is that your reasons that your salary should not be cut are completely without basis in reality.


Regards

 

[1900laker]

Jetexas is right, the key word is service. And the big boys don't provide it anymore. Fly on AA from Miami to Dallas and get a bag of pretzels and not one smile from anyone! Deal with security, long lines, late flights malcontent employees and guess what? Both the business and vacation traveler will go else where. SWA, Jetblue, etc. That is it in a nutshell. The big boys Sh*t on the passengers during the boom days, and now those pax have moved on during the bust days. Either driving or tele-conferencing, fractionals, or the SWA, Jetblue option. Not trying to start anything except concur with Jetexas' presumption of service or really lack of service as being the issue here.

Not necessarily, and before I proceed, let me state that I don't have a dog in this fight but just an observation I made as a commuter.

I commuted back and forth from BWI to STL all summer. My two direct flight options for non-reving (OAL jumpseating) were AA and SWA. I consistently made it on more SWA flights because they had seats left to sell, while many days every single flight on AA was oversold, overcapacity. And I am comparing apples and apples, both having direct flights. I even checked the prices on tickets for the two (just out of pure curiosity) and found that AA was charging more. So what is the reason behind this. While some have undoubtedly gone to southwest for cheaper fares, they are still leaving the gate with open seats, while some passengers on AA were left standing at the gate, having paid a higher price in the first place. I'm not so sure that the majors have p'od the traveling public as much as one might think. Thoughts?

 

[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!