Support for other pilots and Simple Math

[Andy]

Andy your textbook explanation doesn't explain why after at least 6 FARE increases this year load factors are in the 80 percent range. The textbook answer to that would be that the demand is much less elastic than it has been in the past. If the demand is relatively inelastic a price increase will have little effect on demand.

Specifically, airfares were raised on which routes? Elasticity of demand is not uniform across all city pairs. If you really want to get into the weeds of elasticity of air travel, read this: http://www.iata.org/SiteCollectionDocuments/air_travel_demand_summary.pdf

However, the topic that you were discussing was pilot salaries. I was using the supply-demand curve example with respect to pilot supply, demand, and salaries.
Simply put, if there are less pilots than demand for pilots, salaries will increase. If there is a surplus of pilots with respect to demand for pilots, salaries will decrease.
In the real world, changing pilot retirement age to 65 has resulted in a surplus of pilots and keeps wages depressed. Similarly, pilot contracts which increase pilot productivity have the same negative effect on wages.
Raising the minimum pilot requirement from commercial license to ATP to fly part 121 will result in a smaller pilot pool and will result in higher wages.

 

[pilotyip]

Raising the minimum pilot requirement from commercial license to ATP to fly part 121 will result in a smaller pilot pool and will result in higher wages.

and we could raise the requirements to get an ATP to an ACT score of 29, about the same for academy admission. That would certainly cut down the ATP numbers.

 

[Jetjockey]

You guys realize that passengers will change airlines to save that 2 dollars per hour right?

Yet they line up around the corner to buy a frappecino whatever with whip cream from Starbucks for $4.

I'm done believing that bs from managment.

 

[pilotyip]

Yet they line up around the corner to buy a frappecino whatever with whip cream from Starbucks for $4.

I'm done believing that bs from managment.

Yes and over on another site, is a pilot wanting to know how to the cheapest fare to take his girlfriend to Sun n' Fun.

 

[GhettoBeechjet]

Specifically, airfares were raised on which routes? Elasticity of demand is not uniform across all city pairs. If you really want to get into the weeds of elasticity of air travel, read this: http://www.iata.org/SiteCollectionDocuments/air_travel_demand_summary.pdf

However, the topic that you were discussing was pilot salaries. I was using the supply-demand curve example with respect to pilot supply, demand, and salaries.
Simply put, if there are less pilots than demand for pilots, salaries will increase. If there is a surplus of pilots with respect to demand for pilots, salaries will decrease.
In the real world, changing pilot retirement age to 65 has resulted in a surplus of pilots and keeps wages depressed. Similarly, pilot contracts which increase pilot productivity have the same negative effect on wages.
Raising the minimum pilot requirement from commercial license to ATP to fly part 121 will result in a smaller pilot pool and will result in higher wages.

Andy
1. According to AMEX the average FARE across the industry is up about 8 percent this year. http://about.americanexpress.com/news/pr/2011/airhotl.aspx .
2. Your link while interesting appears to be from 2007.
3. Since there has never been a shortage of qualified applicants wages at the major airline level have been determined by contract not supply and demand . I think your statements about increasing productivity and age 65 have affected wages at the regional level since those pilots are now trapped due to a lack of upward mobility.

My original point was that with that amendable dates coming due on the latest round of concessionary contracts and we need to realize that the industry can afford to increase our wages based on current industry health and conditions. We need to change our perspective from Southwest is paid too much to Delta is paid too little.

 

[GhettoBeechjet]

Yes and over on another site, is a pilot wanting to know how to the cheapest fare to take his girlfriend to Sun n' Fun.

YIP the public loves cheap tickets and management loves cheap labor. In general consumers want the best deal. However if there are no cheap tickets people only have the choice of not flying or paying the higher fare.

 

[pilotyip]

We need to change our perspective from Southwest is paid too much to Delta is paid too little.

Why it looks like you have all the answers, you to need move over into management and save the airline industry. Why, you could work for a $1.00/yr to show how you are not ripping off the workers. You can just ignore all of those markets forces, those consumers of airline tickets, and start up airlines. When the traveling public sees how a $100K/yr airline pilot struggles to make ends meet, why they will leap up and gladly pay an additional whatever to ensure pilots are happy with their pay.

YIP the public loves cheap tickets and management loves cheap labor. In general consumers want the best deal. However if there are no cheap tickets people only have the choice of not flying or paying the higher fare.

True, but back to Andy's curves, if you raise the price, there will be fewer purchased. So with higher prices, fewer passengers, fewer flights; fewer, but better paid pilots. As in all solutions to this dilemma, it is good for a few senior people and not so good for everyone else. BTW How do we keep start ups out of the market as they see opportunities to undercut and make a profit because all of their employees are on first years wages. Ah! Yes back to regulation. Again good for a few senior people and not so good for everyone else.

 

[GhettoBeechjet]

Why it looks like you have all the answers, you to need move over into management and save the airline industry. Why, you could work for a $1.00/yr to show how you are not ripping off the workers. You can just ignore all of those markets forces, those consumers of airline tickets, and start up airlines. When the traveling public sees how a $100K/yr airline pilot struggles to make ends meet, why they will leap up and gladly pay an additional whatever to ensure pilots are happy with their pay.

I don't claim to have all the answers. You keep mentioning start ups. The reason that there aren't any to speak of is because labor is at such a small historical percentage of CASM. With that being the case the cost advantage a start up would enjoy isn't big enough to overcome the high start up costs. Instead of me moving into management how about you start up an airline and sell ultra cheap tickets with ultra low pay for your employees. That worked out really well for Skybus.

True, but back to Andy's curves, if you raise the price, there will be fewer purchased. So with higher prices, fewer passengers, fewer flights; fewer, but better paid pilots. As in all solutions to this dilemma, it is good for a few senior people and not so good for everyone else. BTW How do we keep start ups out of the market as they see opportunities to undercut and make a profit because all of their employees are on first years wages. Ah! Yes back to regulation. Again good for a few senior people and not so good for everyone else.

Andy's curves miss the elasticity of demand. As I pointed out if this were accurate then we would not be seeing continued load factors in the 80s in the face of the FARE increases this year. The highly elastic demand has already been priced out of the market. I don't think we need to return to regulation. That wouldn't be good for the consumer or even most of us. Besides which now that the airline buisness is actually being run like a buisiness it is somewhat self regulating. I think there is room in this market to continue to give the consumers a good deal, pay labor at WN rates, and make money for the shareholders. I agree that if FARES go up too much due to labor then we could end up in a position where a start up would make economic sense and demand would drop off.

 

[pilotyip]

I think there is room in this market to continue to give the consumers a good deal, pay labor at WN rates, and make money for the shareholders. I agree that if FARES go up too much due to labor then we could end up in a position where a start up would make economic sense and demand would drop off.

We agree that airlines are now being run more like businesses, no more chasing market share no matter what the cost. But there are flaws in WN model, their costs continue to rise as pilots move up the pay scale and deliver the same product at a higher cost, how long can this go on? The SWA model was based upon we can always grow and bring in new people at the bottom of the pay scale. That model has reached its limits.

 

[scoreboardII]

I agree with you here and you are right. The game of musical chairs in this industry is finally coming to a halt. All the airlines left no longer have to fight over market share as the seats out there are all in demand. There is no room left for any airline to liquidate like in the old Braniff, EAL PanAm etc days when one airline could pick up the slack if another disappeared.

AA can't go away, to much demand for what they fly. At worst, if they hypothetically couldn't come up with a reorganization plane, their planes and employees would have to be deployed somewhere (merger). AA/USAir is the only option left for any real kind of consolidation. May or may not happen, but the bottom line is every airlines routes and equipment are now in demand.

By making this statement that supply essentially exceeds demand, you acknowledge that the next round of LCC entrants will quickly emerge with pilots flying retired busses and madogs and guppies for sub RJ wages funded by anyone with a full bank account (GE capital.).

 

[Dan Roman]

By making this statement that supply essentially exceeds demand, you acknowledge that the next round of LCC entrants will quickly emerge with pilots flying retired busses and madogs and guppies for sub RJ wages funded by anyone with a full bank account (GE capital.).

I don't think it will be that widespread, just starting an airline with cheap labor doesn't guaranty success. Far from it, for every SWA there is a dozen PeopleExpress's. Virgin isn't putting pressure on anyone with low wages, if anything they and JetBlue seem to be focusing on upping the service level . I'm an optimist, but I think the airline industry is consolidating and getting healthier than it ever has (which supports Beechs premise). The supply and demand part of the equation comes in with the regional pilots. They are the one's that need the most support for bringing up their wages. I'm guessing the airlines remaining all have a much stronger foothold than they ever have had and don't need to fight over who has the cheapest labor as much as in the past. It's no longer a matter of survival for anyone remaining. Airline pilot wages may have bottomed out as their is no way anyone would consider trying to replace a pilot group (strike) with cheaper labor. It is no longer even remotely feasable.

 

[scoreboardII]

They don't have too, they have us right were they want us, they lowered the bar via regional feed and wipsaw of wage between the RJ/mainline fleets and now have bottomed out the payscale to that of the RJ.

SWA pilots get paid what they made in 1973, adjusted for inflation.

The rest of the industry has collpasped below that level.

You might be right about stability, but wages will remain stagnant.

Unfortunately.

 

[Andy]

and we could raise the requirements to get an ATP to an ACT score of 29, about the same for academy admission. That would certainly cut down the ATP numbers.

While I wouldn't use ACT scores, I'd tighten up ATP requirements to be more like the MCATs. In countries where there aren't extremely high hurdles to becoming a doctor, doctors' wages are lower than in the US. US doctors have artificially reduced the number of doctors by making entry qualifications so high that only a few qualify.
Do the same with pilots and you will resolve most pilot wage issues.

 

[Andy]

By making this statement that supply essentially exceeds demand, you acknowledge that the next round of LCC entrants will quickly emerge with pilots flying retired busses and madogs and guppies for sub RJ wages funded by anyone with a full bank account (GE capital.).

The barriers to entry are near zero to start up a new airline. If it weren't for worldwide liquidity constraints, we probably would have seen one or two startups since age 65 went into effect. And it's not just old aircraft that you'd see startups fly; aircraft manufacturers are very generous with financing new aircraft.

 

[Andy]

Yet they line up around the corner to buy a frappecino whatever with whip cream from Starbucks for $4.

I'm done believing that bs from managment.

Starbucks has successfully branded their coffee. Coffee is a commodity that is offered everywhere, but they have somehow captured a large market share for a product with near zero difference between their coffee and the coffee sold by Dunkin Donuts/McDonalds/Burger King/etc.

The only similar business model that I see in the airline industry is Southwest where they have a very loyal consumer base. To a lesser extent, all of the major airlines have frequent flyer programs that allow them to have loyalty from a small percentage of the flying public.

If you can figure out a way to get the flying public to pay an extra $20 per ticket for a unique flying experience that can't be easily duplicated by other airlines, you'd see the Starbucks effect in the airline industry.

The internet has absolutely destroyed the airline industry. It allows the public to shop thousands of airfares with a couple of keystrokes. With very little to distinguish American from Delta from United, the key variable is ticket price.
That's forced airlines to cut corners in every aspect of the operation in order to lower ticket prices. You used to get free alcohol in coach (long ago). You used to get meals in coach. Now you can't even get a free bag of pretzels/peanuts on most airlines. Airlines have been forced to cut wages in order to remain competitive and I would expect pilot wages to continue downward until demand exceeds supply ... we have a long way to go until that happens.