Money Talk, UAL Bankruptcy discussion

[skykid]

Thanks for the Bob Brinker link, Jim. That is the first I've heard of messing with frequent flyer miles. I'm not sure about that one - upsetting customers maybe shouldn't be part of a recovery plan.

 

[surplus1]

Now, how do we resolve the apparent contradiction between the concept that high labor costs are not UAL's problem and the concept that low labor costs are indeed the RJ's advantage?

Don't want to turn this in to another RJ debate but, IMO, there seem to be some misconceptions in the whole discussion including those related to the RJs.

First of all I would argue that "labor costs" are definitely the highest single cost item in every airline, whether it operates no RJs or all RJs.

Many, if not most, major airline pilots are keen to adopt two concepts: 1) if we flew for free it wouldn't change a thing, and 2) RJs are proliferating because they have low pilot salaries. Both are myths, in my thinking.

Pilots everywhere need to recognize that "labor costs" are not limited to pilot salaries. The majority of employees in an airline are not pilots. Face it guys, we aren't the only game in town. Yes, pilots are a component of the labor costs and yes, they make more money than any other labor group in an airline, with the possible exception of management. However, the entire package of labor costs, which includes "burden" (costs other that wages) are usually more than double whatever is in second place. That is why pilot concessions alone cannot "fix" what's wrong with UAL or U, et al.

Granted there are lots of other problems to fix at UAL besides labor costs, but it is also true that without significant changes in those costs, across the board, it won't work. With respect to pilots, productivity is a much higher component of labor costs than the book rates that everyone seems to focus on.

By realizing that there is no correlation between the economics of an airpane vs the economics of an airline.

Sorry enigma, but I can't really agree with that either. There are factors in the economics of an airplane that do correlate to the economics of an airline. They are not the most siignificant factor, but do make a difference. One of particular interest is the "age" of the fleet. Lots of old airplanes generate very high maintenance costs which is part of the economics of the airplane. Competitively, these factors are minmal because airlines operate essentially the same equipment. There's not much variety in choice of airplanes.

The RJ's do fit at the bottom. They are currently displacing narrowbody mainline aircraft because of low wages and reduced demand for travel.

Pre 9/11 there was virtually no evidence to substantiate the major airline pilots' claim that RJs were "replacing" mainline narrow body aircraft. That's just another urban myth. Post 9/11 the RJs are indeed replacing some mainline aircraft. That has virtually nothing to do with the wages of their pilots (or other employees). It is happening exclusively because of reduced demand.

Every "mainline aircraft" (if there is actually such a thing) has a much lower CASM than any RJ flying. Almost a nickel less than in the most efficient RJ only operation. The RJ is a "niche" aircraft that fills an area of the market than cannot be fillled by the so-called "mainline aircraft". The RJs are operated by subsidiaries or subcontractors in part because of lower labor costs, but also because of the rest of the infra structure of the major airline. If placed into that structure, the already high cost RJ would simply become unprofitable. Pilot wages are far from being the only reason.

A good example is Southwest. They are operating "mainline aircraft" exclusively, but their operating CASM is about 3 cents less than the closest other major. That is NOT due to low pilot wages. It is due to a more simple infra structure and high productivity.

I imagine that saying so will disturbe the Comair guys, but the regionals are subsidized by the majors and don't pay the full cost of competing in the marketplace.

Yes, it will disturb this Comair guy, but only because it is a misconception and not true. Today, Comair is no more than a name on a corporate shell charter, but Comair did have a yesteday. In that yesterday, Comair was not "subsidized" by any major. Comair, obtained its own financing, bought its own airplanes, promoted its own services with advertisinng, did its own marketing and paid for everything it ever got from Delta or anyone else. We bought many services from Delta, since we had a code share with Delta, but we paid for those services. Your assumption simply is not accurate. Popular with mainline pilots yes, but not accurate.

You say that we could not compete without being under the wing of a major partner. That sounds nice, but it makes little sense because it avoids acknowledging what we do an who the competition is. Don't misunderstand. Comair benefited immensely from its contract with Delta (pre buyout) and, by the way, so did Delta. It was not Comair's role to "compete" with major or global airlines. That wasn't in the business model. We had to compete with other regionals (many of whom were indeed subsidized) and did so more successfully than any other regional airline anywhere. We were also often successful in competing with inefficient majors, like USAirways. In limited cases we even held our own competing with SWA in the low yield FL market. By the way, while doing that, we also refused to allow our code share with DL to include Delta Express, which may surprise you.

Inspite of our high CASM, efficiencies in the operation resulted in Comair becoming the most profitable airline in the US. As a matter of fact, only one airline in the world (SIA) had higher margins. I realize it is popular (particularly among Delta pilots) to say that we were "subsidized" but a popular misconception is not truth. Yes, I'm and "insider" and I do know.

Since Comair was acquired by Delta, I don't know what's happening now for Delta chooses to bury Comair's numbers somewhere in its books, but I would venture an educated guess that the bottom line of the Comair operation is hardly a liability to Delta Air Lines. Since we have been "absorbed" into the Delta way, we are doing many things today that we would never have done as an independent, because they are inefficient and push the profitability envelope in the wrong direction. Since in reality there is no longer any Comair, we are puppets and if the puppeteer isn't too bright, there's nothing we can do. When we were the real Comair we not only could do, we did.

As an example, we now have some flights in and out of Atlanta. Comair management would never have tolerated the inefficiencies and bad service that we are being forced to provide there. We would either have fixed the mess or withdrawn from the market, but we would not have allowed Comair's reputation and operation to be so adversely affected. Where we still have Comair people, that sort of thing just doesn't happen. Those of us, like me, who appreciated our Company feel ashamed.

Before the Delta purchase, Comair was the most successful small airline in the country. Don't overlook that the concept of the RJ and how to use it came from Comair. There is no greater measure of success than to have everybody and his brother copy what you did. "The Best Little Airline in America" was a reality, not an accident and was most certainly not the result of subsidy.

The way I see it, the RJ's/regional's are like spanish moss. They die without a host tree.

You're painting with a brush that's far too broad. All regionals are not the same, just as all majors are not the same. The reason Comair does not exist today is precisely because it could survive without the "host tree" and the host tree knew it and could not afford to let it happen. Remedy, buy it .... and they did.

If you think Delta is worried about AirTran and JetBlue today (and they are), just take a deep breath and think about how Delta would worry about AirTran or JetBlue, owned and operated by Comair. Yes, it could and probably would have happened if Delta had not made its unfriendly takeover.

All regionals were not the same. Comparing a Comair to Mesa is like comparing Spirit to Delta. There is no comparison. It's much the same as calling AirTran, JBlue or Spiriit major airlines. They aren't. Hopefully they will eventually become, but they aren't now.

Getting back on the main theme, I will agree with you that pilot labor rates are not THE cause of UAL's troubles, but they ARE a factor in the equation.

The economic downturn that we are now experiencing was coming but we really don't know how severe it would have been. I believe that anyone who thinks it was not greatly augmented by the 9/11 debacle is extremely naive.

On the other hand, regional wages are the result of too many years of pilots who didn't care about regional wages as long as they could use the regional to gain experience and move up to a major. How times change.

This is partly true, but don't blame in all on the regional pilots. The major pilots and the union they control has been a major cause of the attitude of regional pilots and a major obstacle to those who didn't share that view and tried to improve themselves. The greed of the mainline pilot groups and the union opression they directed is as much to blame.

Perhaps you've noticed today that the pilots of SWA have reached and agreement with their Company. As usual, it is sensible and forward thinking. It's too bad that pilots in the mega carriers can't seem to acquire the logic of what is reasonable and management can't embrace the philosophy of success. My hat's off to the SWA pilots and their management. That Company is the Comair of the major airlines, much as Comair was the SWA of the regionals. Too bad (for us) we lost Comair. I don't think all the "big boys" combined can afford to buy SWA. Lucky them.

 

[publisher]

Way to Go

Actually Surplus, I thought that was one of your more on target posts.

The issues are here are much more complex than most on here want to imagine. You have addressed some of the myths well.

In this particular case, it is sometimes hard to distinguish between factors caused by the recession, the terrorism, or systemic changes that were coming and were only hastened by the above.

The fact is that life has changed and there is really no reason to think our industry is not changing as well. Think of how we do most things today and the effect of technology on things.

It was not all that long ago that no one had cell phones, palm pilots, cable modems, etc etc. Ask your travel agent if things have changed. Ask a railroader if things have changed.

We need to adapt or perish.

 

[TurboS7]

If you are looking for a nice cheap place to live in FLL come over to our side of the tracks. Margate/North Lauderdale, taxes are still cheap and the people are nice. The best kept secret in South Florida, now if you have money to blow, go live on the inter-coastal and enjoy it.

 

[enigma]

Surplus1,

The last person I would try and match words with, is you. I don't mind being wrong, so show me; it's the best way to learn. I say that Comair's growth was largely due to its DAL codeshare. Show me a time where Comair was successful without a major affiliation and I will change my tune, and admit my mistake. Other than that, I really didn't start this to debate the RJ.

Bob Brinker echos a misunderstanding of how UAL got where it is, and I hate to see pilots continue to take it on the chin when the managers that made the stupid moves are sitting on the beach and having their anti-worker views upheld by the financial community.

Turbo7S, I'll drive up there next week. Thanks for the tip. I really don't want to leave Texas, but the commute is bad and with the major downsizing, I'm afraid it will get worse. Now if we can just get a decent raise, maybe I can afford to buy close to the intercoastal, not. I hate the water. Grand Junction is the place for me, or somewhere that I can see the aspens turn golden.

regards
8N

 

[TurboS7]

If Mt. Ranier sat where Lake Okechobee sits then this would be a wonderful place to live. If you do move over her don't paint the house lime green and put bars on the windows.Overall it is not a bad place to be.

 

[enigma]

JimNTexas,

I'm pasting part of the Brinker quote, "quote:
--------------------------------------------------------------------------------
United Airlines is considering bankruptcy; its labor unions, which account for 40% of its expenses, have a strangle hold on United’s business plan. "

I fly in the left seat of an MD80 at Spirit under an ALPA contract. I make less than $80 an hour for a 72 hour a month guarantee. (we are in negotiations to get some raise, wish us luck, our new scales may be closer to the new industry standard than most would like to consider) anyway. I need a three hundred percent raise to come close to a comparable UAL Captain, Yet my company also claims that labor consists of approximately 40% of its total cost.

Brinkers line of logic isn't logical. Just because labor costs are a large portion of operating costs, doesn't mean that labor costs are the cause of UAL's trouble. The NFLs labor costs are also a large portion of total costs, does that mean that the NFL is in trouble>

With the current line of thinking, the company will still be in trouble even if the workers cut their pay in half. The underlying problems won't go away just because the workers take it in the shorts.

Brinker may be correct in that UAL must cut costs to survive, but I feel that he should address more of the reasons for the problems instead of just taking the easy way and blaming those overpaid pilots.

regards
8N

 

[skykid]

You make a good point. Unfortunately the folks who are deciding who get the gov backed loans are focused like a lazer on labor costs. If you were cynical you might think there is some behind the curtain action - tell us we have to cut costs more so we can tell the newspapers that in the morning. I would like to hear alot more talk from management on taking care of customers. Safety first, then it ought to be like a broken record - customers customers customers. Then maybe you're teamlike enough to get employees to give up a little.

 

[publisher]

Enigma

Actually they, Comair, has been pretty successful from the get go. They had a crash early in CVG and survived that. From then on they just grew and grew. Sure there were times but they were right time and right place.

The trouble is that you can waste a tremendous amount of time over who is to blame and that same effort would be better spent trying to figure out how to go forward.

40% only means something if you are comparing equals of size and mission. You cannot really directly compare a Spirit or a Southwest with a large international carrier. They operate to a different model, a different plan, and it makes no sense.

I used to struggle with Flying Tigers because the pilots thought that they were an airline. From a business perspective, they were not. UPS is not an airline. It is a freight company that has some planes.

 

[TurboS7]

The only way to be successful in the air freight business is to move freight not airplanes. The airplanes are only a way to get the job done. Then you want to use the airplanes as little as possible and use your trucks as much as possible to keep your cost down. If you could fax the freight believe me fedex and ups would be doing that.