Six reasons airlines are set to crash

[Ty Webb]

Quote o' da week!

That's a great argument. Until it is YOUR employer.

Heh-Heh! Flightinfo quote of the week. Nice job! imp:

 

[dashtrash]

Bump to get rid of ALK/USair thread.

 

[Kalifornia]

A nice does of reality. It is the consumer of airline travel that will determine the profitability of an airline. This consumer if they are paying for their tickets will change airlines for a $1.00. Last week SWA dropped their prices again after raising them early in April. I am guessing that their advance bookings dropped off drastically. As stated above, it is neither management nor unions that can operate without considering the impact on the consumer who has instant access to the cheapest fare on every route.

Silly that you argue basic economics for ticket prices, yet choose to help destroy this profession with economics. If less pilots are interested or qualified to fly professionally, then pilot pay and benefits go up is this simplistic theory. But some such as yourself are intent on letting every Johnny and Suzy believe that this is a nice little hobby job ignoring the economic realities of flight training costs, low end pay, and ignoring that this is far more than a job, or a career, it's a lifestyle and a huge responsibility that deserves good compensation.

 

[Metrojet]

One very prominent reason for the airlines problems is that insolvent bankrupt carriers like US Airways were allowed unfair competitive advantages given through bankruptcy, in some cases more than once. If those airlines were not given unfair advantages, pricing power would have been retained in the industry.

Lets see -

Use of US Bankruptcy Code -

United
Continental
Delta
Northwest
GM
Chrysler
Delphi Automotive

Did they all have unfair pricing advantage also - or do you just like singling out US AIRWAYS?

Metrojet

 

[hockeypilot44]

One very prominent reason for the airlines problems is that insolvent bankrupt carriers like US Airways were allowed unfair competitive advantages given through bankruptcy, in some cases more than once. If those airlines were not given unfair advantages, pricing power would have been retained in the industry.

Carriers like US Airways never would have went bankrupt if start-ups like Valujet, Jetblue, Skybus, Virgin America, etc. were not given ridiculous unfair advantages on landing fees, slots, labor, plane loans, etc. The playing field has never been level. The government has been in the process of bringing ticket prices down at all cost since deregulation. Unfortunately, the prices the government wants tickets to cost is lower than the cost to actually provide those tickets. To get to this goal, the government is encouraging and helping any and every potential start-up airline.

 

[pilotyip]

Brign reg back?

Carriers like US Airways never would have went bankrupt if start-ups like Valujet, Jetblue, Skybus, Virgin America, etc. were not given ridiculous unfair advantages on landing fees, slots, labor, plane loans, etc. The playing field has never been level. The government has been in the process of bringing ticket prices down at all cost since deregulation.

Yea, we should have never had those airlines; we should have stayed regulated. Life was good for a few pilots under regulation. However there are probably 4-5 times as many pilot’s jobs now as there was in 1977 and most of the pilots on this sight have benefited from de-reg. Back in reg time it was about 90% military that went to the majors. Dereg opened up a lot of airline job to non-military pilots. The bottom end ticket purchaser does not have to fly. To return to regulation would raise ticket prices, reduce the number of passengers, and therefore reduce the number of pilots needed. As in almost every example, a rise in ticket prices will be good for a few senior guys and bad for everyone else.

 

[pilotyip]

Brign reg back?

Carriers like US Airways never would have went bankrupt if start-ups like Valujet, Jetblue, Skybus, Virgin America, etc. were not given ridiculous unfair advantages on landing fees, slots, labor, plane loans, etc. The playing field has never been level. The government has been in the process of bringing ticket prices down at all cost since deregulation.

Yea, we should have never had those airlines; we should have stayed regulated. Life was good for a few pilots under regulation. However there are probably 4-5 times as many pilot’s jobs now as there was in 1977 and most of the pilots on this sight have benefited from de-reg. Back in reg time it was about 90% military that went to the majors. Dereg opened up a lot of airline job to non-military pilots. The bottom end ticket purchaser does not have to fly. To return to regulation would raise ticket prices, reduce the number of passengers, and therefore reduce the number of pilots needed. As in almost every example, a rise in ticket prices will be good for a few senior guys and bad for everyone else.

Silly that.......... that deserves good compensation.

I confess I am the puppet master who has destroyed the profession.

 

[CoolSidePillow]

Wasnt regulation kind of like big government? Those start up airlines with lower costs bring lower fares which helps local economies bring more people. They allow business travelers more economical travel ability as well as family vacations more afforable. I think it is a pro/con situation. Sams, BJs and all of the other discount stores are the same way. This whole country is based on consumerism. Quantity and not quality. It is not just the airline business but an entire cultural thought process. We are a disposable society. People do not even own cars anymore. They just keep leasing. So where is the line drawn? When and where are low prices ok? The only people that complain about low fares are the pilots who want more money. Unfortunately, we are the very small minority. Low far wars are not going to go away.

 

[waveflyer]

"In the history of airlines, very few CEOs have effectively run an airline. In fact, only one CEO in recent history, Herb Kelleher of Southwest Airlines (LUV), has been successful. Every other airline CEO in recent history has mismanaged during their short tenures, only to take large bonuses and golden parachutes on their way out. With idiots and thieves running the show, airlines are doomed to crash."

only quote in the article worth reading.
-------------------
as far as bankruptcy abuses and regulation- guess what, this is still the industry that if not outright regulated, is the most highly taxed and meddled with industry in the world. When it comes to financial health- 1 point is important- the powers that be know that cheap airline tickets stimulate the overall economy. We will always have a toughtime getting paid and should really concentrate on unifying and stop being our own worst enemies.

 

[pilotyip]

Who will pay for it.

the powers that be know that cheap airline tickets stimulate the overall economy. We will always have a toughtime getting paid and should really concentrate on unifying and stop being our own worst enemies.

Ok lets suppose you are successful in unifying, and you double pilot pay. Who will pay for it? The marginal consumer will reject air travel, these are the ones that buy the $99 seat MDW-SAN, the ones who fill the empty seats on Tues, Wed that allow profitibility. In the end it is the consumer who will determines how much can be charged for an airline seat. Higher prices will be good for senior guys, not so good for everyone else.

 

[Flightdawg]

Wasnt regulation kind of like big government?

Yes, it was the Nanny State. Funny how the same pilots who are so against big government want it when it comes to saving their jobs.

 

[OHGOON]

Ok lets suppose you are successful in unifying, and you double pilot pay. Who will pay for it? The marginal consumer will reject air travel, these are the ones that buy the $99 seat MDW-SAN, the ones who fill the empty seats on Tues, Wed that allow profitibility. In the end it is the consumer who will determines how much can be charged for an airline seat. Higher prices will be good for senior guys, not so good for everyone else.

Higher prices also mean less bankruptcies and furloughs, that benefits the junior guys me thinks.

Also please explain to me how the head long rush to the bottom or the "marginal consumer" as you put it will be the tool to profitability? Seems like we are there already in every way and yet that profitability thing is not looking so good, still.

The employee "cost" is not the only one, nor is it even the biggest or most important one in this business. It just happens to be the easiest one for an incompetent management team to trot out because they know we are A) a trapped audience (seniority) and B) they know that we are notoriously willing to cut our own throats as long as there is some advantage for the individual doing the cutting.

Finally, if your reasoning was true then how do you explain LUV? They have one of the highest pay scales in the industry but still are at or near the bottom for actual PSM costs, and therefore, despite the pilots actually making a livable wage, actually remain very appealing to your "marginal consumer."

In short, pilot unity (if it were actually possible) really would not bring down our beloved airline biz. Just like the layers and doctors insistence that they are rewarded as professionals is not having a deleterious effect upon their professions either.

 

[Draginass]

Lets see -

Use of US Bankruptcy Code -

United
Continental
Delta
Northwest
GM
Chrysler
Delphi Automotive

Did they all have unfair pricing advantage also - or do you just like singling out US AIRWAYS?

Metrojet

In case English isn't your primary language, notes are inserted for complete understanding:

One very prominent reason for the airlines problems is that insolvent bankrupt carriers (plural, as in there are multiple carriers that this applies to) like US Airways ("like" meaning US Airways is an example, and probably the most egregious example of allowing zombie companies to infect and weaken the market in general) were allowed unfair competitive advantages given through bankruptcy, in some cases more than once. If those airlines were not given unfair advantages, pricing power would have been retained in the industry.

 

[waveflyer]

Pilotyip-
how much of every dollar spent on airline tickets ends up in the pilot's wallet?
Give me some numbers

 

[pilotyip]

not much

Pilotyip-
how much of every dollar spent on airline tickets ends up in the pilot's wallet?
Give me some numbers

Only a small part. But there are tremendous overheads in the airline business. Most airlines are in a cash trading business, bring $3.00M today and pay out $2.95M for ramp fee, salary, airframes, fuel, etc. That $50K per day profit comes from the marginal traveler. Lets say an airline has 1500 departures per day. That is $350 per flight profit. Figuring $100 advance marginal flyer seat purchases that is 3.5 cheap pax per flight that make profitable. Now obviously this is not uniform, flts on Tues. and Wed have lots of cheap seats, flt on Fri don't.

So anything that increases costs, that reduces load factor almost instantly the airline is not profitable.

But if this unity thing is really workable, go for guys, double everyone's salaries, but be aware of the unintended consequences. The airlines are all at the mercy of the marginal passenger that fill the cheap seats.

BTW Last time I saw anything on SWA employee cost were 42% of gross revenue, with a profit margin of less than 1%. So if pilots get a raise, do all of the other SWA employees stand by and watch the pilot make more? From these figures, something like a 2% raise across the board would make the company unprofitable. Lets say a pilot make $100K/yr, would he be happy with a $1500/yr raise, take home about $80 per month increase to make his airline unprofitable. Please correct me if my assumptions are incorrect.

 

[AirCobra]

Finally, if your reasoning was true then how do you explain LUV? They have one of the highest pay scales in the industry but still are at or near the bottom for actual PSM costs, and therefore, despite the pilots actually making a livable wage, actually remain very appealing to your "marginal consumer."

LUV did not have the highest pay scales for many years (check out what they did in 1983 to freeze pilot wages and get concessions...did someone say 'B' scale?). It was only after their profits consistently met expectations did pilot wages rise. So a pay raise at an ariline that is bleeding money is not what occured at LUV. I will add that many of Southwest's employees such as ramp agents and dispatchers are still paid below the national average for airlines so that helps in reducing their PSM.

Just like the layers and doctors insistence that they are rewarded as professionals is not having a deleterious effect upon their professions either.
Yes but it has had a deleterious effect on the consumer and I think that is what Yip is saying. Aren't healthcare and legal costs out of control? Problem is if healthcare and legal services are often not optional. Doctors and lawyers have a captive audience, so, like paying $8 for a soda in a movie theatre, you don't have much of a choice. That is just not the case when it comes to air travel.

I think the consumer is the most overlooked segment of air travel. Labor thinks it can continually demand wage increases even though that money never has come out of the pockets of management, it always comes out of the pockets of the consumer, thus less people fly, and CEO thinks they can treat the consumer like trash by upcharging and cutting corners.

 

[pilotyip]

Factors.

Finally, if your reasoning was true then how do you explain LUV? They have one of the highest pay scales in the industry but still are at or near the bottom for actual PSM costs, and therefore, despite the pilots actually making a livable wage, actually remain very appealing to your "marginal consumer."

SWA may have the lowest PSM, but they also have among the lowest load factor. For advance purchase is unbeatable, for near term purchase they can be beaten on any day. This is repeat but if fits here. This is a pilot board so saying anything in defense of management is like peeing into the wind, that is, it is going to come back to you. CEO's are not intentionally running airlines into the ground. They would very much like to succeed. For lack of other reason it would make their resume look great, they would be doing something no other CEO had ever done. Top management includes many besides the CEO, the CEO sets direction as requested by the board. The CEO has little control over the airline, the airline is run by regulation and union contracts. They are at the mercy of the purchasing public, who with Internet access has made the airline ticket a perfectly elastic commodity. There is little they can do inside their structure. Other high paid top management personnel, in Operations, Maintenance. Marketing, Legal, Finance, etc. have unique skills in dealing with large organizations. This makes them marketable when shopping for a job, unlike pilots whose skills are nearly universal. Now I will agree that CEO leadership in many cases leaves much to be desired. An issue of ATW in 2002 had an article about “Airline Management a dying breed”, the article basically said no one wants to do it. The good track record CEO’s are going to other industries. With tremendous, payrolls, overhead burdens, and extremely low margins, there is no tried and true path to success. Most have tried to increase market share, but this has lead to low price and ridiculous breakeven load factors in 95% range. The consumer with internet ticket price access seeking the lowest fare, drives management to always seek lower costs to stay competitive. What is management supposed to do? Eliminating management will bring the end quicker for the airplane industry, and their salaries are insignificant to the airlines operating costs. Why is every time, pilot salaries come up, they are immediately compared to top management. I saw an article in ATW in 2001 that stated at DAL there were 17 members of top management made more than the top DAL Captain. The combined top 17 salaries equaled less than 1/6 of 1% of the combined pilot salaries. If management worked for free all pilots in the company would get a 1/10 of 1% raise. (for a $100K per year pilot that would be $3/wk increase in take home) Boy that raise would really make the pilot group happy. Top management possesses skills that allow them to move from job to job and command high salaries. And every one of these managers wants to see his/her airline prosper. They just can not do it.

 

[AirCobra]

Only a small part. But there are tremendous overheads in the airline business. Most airlines are in a cash trading business, bring $3.00M today and pay out $2.95M for ramp fee, salary, airframes, fuel, etc. That $50K per day profit comes from the marginal traveler. Lets say an airline has 1500 departures per day. That is $350 per flight profit. Figuring $100 advance marginal flyer seat purchases that is 3.5 cheap pax per flight that make profitable. Now obviously this is not uniform, flts on Tues. and Wed have lots of cheap seats, flt on Fri don't.

So anything that increases costs, that reduces load factor almost instantly the airline is not profitable.

But if this unity thing is really workable, go for guys, double everyone's salaries, but be aware of the unintended consequences. The airlines are all at the mercy of the marginal passenger that fill the cheap seats.

BTW Last time I saw anything on SWA employee cost were 42% of gross revenue, with a profit margin of less than 1%. So if pilots get a raise, do all of the other SWA employees stand by and watch the pilot make more? From these figures, something like a 2% raise across the board would make the company unprofitable. Lets say a pilot make $100K/yr, would he be happy with a $1500/yr raise, take home about $80 per month increase to make his airline unprofitable. Please correct me if my assumptions are incorrect.

You are correct. OHGOON's discussion of Southwest has little to do with the rest of the airline biz, not to mention Southwest is doing a little robbing of Peter to pay Paul anyway. When I worked at United the largest profit segments came first from international and business travel, then from air cargo to Asia. Let me know when Southwest offers these services and then we will have a valid comparison. What did United do to compete domestically and raise profit margins? it outsourced 40% of its domestic flying to regional's where pilots are paid dirt to cut its overhead. I don't see why no matter how much you explain this relationship to some people they still don't get it. Most of these guys were or are regional pilots. Do you think they ever stop and wonder why they have a job flying a jet from ORD to DEN, when just 15 years ago they were all in Metroliners flying from South Bend to Moline. Harsh reality says their very existence depends on low pay, otherwise airlines would have no reason to outsource domestic flying at the levels it does.

Maybe very few people here have ever run a business. I would be curious to hear from pilots who are also or were business owners and see what they think. The guys I flew with that ran businesses seemed keenly aware of the relationships you are talking about especially when it came to other labor groups demanding wage increases. It doesn't matter if management has all the money in the world, they are not going to give it to you because they have to protect the investor (and themselves), so its going to have to come from the consumer, and that always has consequences for labor.

 

[pilotyip]

thank you

You are correct. OHGOON's discussion of Southwest has little to do with the rest of the airline biz, not to mention Southwest is doing a little robbing of Peter to pay Paul anyway. When I worked at United the largest profit segments came first from international and business travel, then from air cargo to Asia. Let me know when Southwest offers these services and then we will have a valid comparison. What did United do to compete domestically and raise profit margins? it outsourced 40% of its domestic flying to regional's where pilots are paid dirt to cut its overhead. I don't see why no matter how much you explain this relationship to some people they still don't get it. Most of these guys were or are regional pilots. Do you think they ever stop and wonder why they have a job flying a jet from ORD to DEN, when just 15 years ago they were all in Metroliners flying from South Bend to Moline. Harsh reality says their very existence depends on low pay, otherwise airlines would have no reason to outsource domestic flying at the levels it does.

Maybe very few people here have ever run a business. I would be curious to hear from pilots who are also or were business owners and see what they think. The guys I flew with that ran businesses seemed keenly aware of the relationships you are talking about especially when it came to other labor groups demanding wage increases. It doesn't matter if management has all the money in the world, they are not going to give it to you because they have to protect the investor (and themselves), so its going to have to come from the consumer, and that always has consequences for labor.

A nice post that goes beyond me, me, me. I deserve, I am a professional, and I should be treated like a Doctor. I deserve better, it must be someone's else's fault.

 

[Beaver79]

Ideas regarding the future of the industry.

Here's guessing reason #6 will not be so popular around these parts. Not even sure he understands there are serious barriers to striking in the industry.

"Airlines have always been horrible businesses. However, here are six main reasons their businesses are about to get a lot worse:"

http://wallstcheatsheet.com/breaking-news/6-reasons-airlines-are-set-to-crash/?p=10330/

I completely agree with number 1 and 7. The leadership of the unions and mgmt have already run this industry into the ground. Unfortunately, its the members of the union and the run of the mill employees of the companies that will suffer from the gross misguidance of both 1 and 7....