What makes an airline successful?

[atpcliff]

Hi!

The following quote is from the CEO of Airtran:

"Robert Fornaro: Our business will be successful as long as the goals of the company, management and labor are aligned."

this is the article address...
http://cgi1.usatoday.com/mchat/20030415001/tscript.htm

What can you do at your airline to improve it?

Cliff
GRB

 

[atpcliff]

Hi!

I think ALPA wants to do what's best for the pilots, as a whole, but I think their biggest problem is that they're still operating as a union would in a regulated environment. I don't believe they've adapted to de-regulation yet.

I think that was also the problem of the majors-they were set up and organized to operate in a regulated environment, and they're just now getting around to changing to operate efficiently in a de-regulated environment.

CLiff
GRB

 

[Wats]

ALPA's biggest problem is that they try to protect the interests of non-members rather than doing what's best for their members.

 

[Timebuilder]

but I think their biggest problem is that they're still operating as a union would in a regulated environment.

This is an important concept.

ALPA's biggest problem is that they try to protect the interests of non-members rather than doing what's best for their members.

Actually, I think the problem has more to do with how pilot unions responded to the growth of regional jets, and their decisions involving the representation of those pilots.

Here is an article from another website, used by permission:

>>There are some things you need to know as you consider a career here in the clouds, in addition to the advice to never cross a picket line. Airline labor is a part of a synergy that is the airline business, and you need a look at the Big Picture. So here you go…

Currently, as airlines file for bankruptcy protection, many labor agreements are being abrogated, meaning that the original agreements will not be in force at the affected carriers. In fact, the term “major airline” is becoming an anachronism. The highly paid airline captain and crew is being furloughed, and his aircraft parked in the desert while the “commuter” airlines are taking an increasing share of US domestic flying. Startup carriers like Southwest and JetBlue have remained solvent while the traditional industry leaders have stalled. Comair has made a profit while Delta has had a hard time. Last week, American Airlines announced a One Billon Dollar loss for the first three months of the year. A Billion! What has happened to cause this?

As with everything in the world of business, the cause is market forces. Many types of transportation used to be regulated, meaning that the rates for shipping and passenger carriage were set by officials instead of being determined by supply and demand. High ticket and shipping costs were set, and these costs provided an artificial environment that supported high pay and big profits. For many reasons, regulated carriage came to an end. Prices and profits both came down. Management was pressed to remain competitive. More efficient turboprops and smaller jets came into favor, and smaller affiliate airlines and “wholly owneds” grew like a wildfire. Big Airline labor made a Big Error, by failing to see these carriers as the leading edge of an airline sunami.

What had been a “stepping stone” job at a “commuter” airline, where a pilot built the experience and judgment needed to act as a pilot at a major carrier, was quickly becoming the career destination for many pilots. Large airline labor groups failed to show the needed interest in representing these so called “smaller” carriers’ pilot groups, fearing that their own pilots might have to accept smaller pay for flying the smaller airplanes. Rather than take an active role in protecting the piloting profession as a whole, these larger airline pilot groups decided to circle the wagons and try to protect themselves with “scope” agreements. This has been a disaster for pilots everywhere, but it is only a single variable.

After deregulation, carriers still dictated fares to the public. This too changed with the exponential presence of the Internet, and travel sites that allowed for bidding on tickets, cost comparisons, and a host of related services. Carriers were still able to fill most of their seats, but ticketing had become a buyer’s market. The business model had not been structured to support low fares, and a tide of red ink swamped the industry. Carriers that had built their businesses on low costs like Southwest and JetBlue were able to flourish.

What is your future in the industry? It is a far more competitive market than most of us had imagined, with highly experienced pilots unable to find commensurate work. Overcapacity is being reduced by business failures. By the time you are ready to compete for a top-level job, many of these pilots will be well into retirement, but the industry will have continued to evolve, and those fortunate enough to have labor contracts will not be negotiating the levels of compensation that the retiring Delta captain has enjoyed for his tenure. It’s a new world out here, and it’s for those of us who love to fly. If you want to get rich, this is no longer the place to expect to accomplish your goal.


What makes an airline successful? For one thing, a business model that is appropriate to the current environment, and able to adjust to change. For another, a pilot group that understands the changing environment and partners itself with their traditional adversaries for the health of the compnay, which will benefit their members. Right now, the name of the game is "cost control" and "low fares". Gone are the words "we demand", unless of course, those words are coming fromm the customer.

 

[Airpiraterob]

Giggly girls in Hotpants.

Arm Wrestling for the use of a trademark.

Sipping Wild Turkey when you loose.

Fun.

Fun is by far the best business model i've ever heard. Ill stay somewhere for a long time for fun. if i can live fine and have fun ill do that. making alot more money and not having fun while doing it? whats the point? ill sacrifice some of that for the fun quotient.

Naked pilots?

ASK yourself this: ideas for change and improvement come from people that are really having a good time and enjoying life. Depression dosent breed any good ideas unless youre composing music or bad poetry. make sure everyone is having fun first and you will reap the rewards of good ideas for company improvement and change.

tell me who hasn't xerox'd their butt in the office?

i dont think ive ever heard of an aircraft being uncontrollable and difficult to handle without clothes more so than with.

"CAUTION: Lack of clothes in operation of this aircraft may cause instability during cruise flight"...hah!

 

[Draginass]

Agree with timebuilder to a large extent. The problem isn't necessarily labor costs as much as it is the capital intensive nature of the business and the business model of the individual airline.

Right now SW and JB are making money. But, they cherry pick only the most lucrative routes and cities and do not need regional/commuter feeders. Although they have traditionally paid lower compensation than the "majors," with the concessionary contracts imposed by BKs, their compensation is not much different than the old-school airlines now. But, the old-school airlines will continue to lose boatloads of money even after they slash labor costs, due to their very high capital costs and an expansion in the 90s to meet demand.

Now, if you want to have a coherent and rational national air transportation system, using JB and SW models won't work exclusively. If you want that then you will probably see many smaller cities without air service and city airports that aren't going to be able to extract exorbinate rents from their facitilites.

Now that that demand is a fraction of what it was, the old-school airlines are caught with at least 25% more capacity than the public is willing to support.

Further, there is a fundamental and long term shift in the customer. Price is all important. Business is no longer willing to pay high last minute fare prices.

Quite frankly, the major airline managements saw this coming a couple of years ago but did nothing. Now SW and JB are cleaning their clock. To be fair however, even if all the airlines used SWs and JB business model, EVERYBODY would be losing money because there'd still be a gross overcapacity in the system.

The fundamental truth is that our national transportation system (regardless of business model) cannot adjust to wild swings in demand. The business is too capital intensive.

What to do? Well, the industry could go to a seasonal type job where workers are at-will and can be laid off and brought back as demand dictates. Or the industry can be regulated again so that the boom and bust cycles and predatory pricing ceases.

One thing's for sure. The system we have now isn't working and, in fact, probably will result in a couple of really big names in the airline industry closing their doors. I heard an interesting hypothisis the other day that said the last company to the Chapter 11 table will the be one that goes Chapter 7.

Given the high likelihood that the economy stays tanked for another 2 years, the huge cost of the war in Iraq and uncertain aftermath, the basic disdain that our customer base has for the airline industry, and continuing weak corporate leadership, the future of the airline industry is very very uncertain. Even in the best scenarios I can think of, it's not a plus for workers.

I only hope I'm wrong. Just thoughs while sitting reserve with no flying.

 

[enigma]

Hi!

The following quote is from the CEO of Airtran:

"Robert Fornaro: Our business will be successful as long as the goals of the company, management and labor are aligned."

this is the article address...
http://cgi1.usatoday.com/mchat/20030415001/tscript.htm

What can you do at your airline to improve it?

Cliff
GRB

Let's see if I can remember my first response. You ask, What makes an airline successful?

First, the airline must identify a sustainable market in which it can find a niche. Then develop its business model specifically to serve that niche. Economists say that purely competitive markets will eventually reach a point where no profit is made, so to be successful long term, an airline must find a way to differentiate its product from the products of its competitors, aka "find its niche". Use your differentiated product to gain loyal customers.

Then it must recruit the best possible personel, train them well and treat them even better. Compensate those personel fairly. Set up a system of management in which decisions are made at the lowest possible level. Encourage innovative thought processes.

Lead by example, and reward success.

In other words, immulate Canyon Blue or Jet Blue.
Using SWA as an example, Herb and company identified a market that has remained viable, the short hop high frequency runs between business centers. It developed itself to serve that market. I.E. short haul aircraft of a single type that was reliable in high frequency ops, developed a unique ticketing/boarding system, etc. They differentiated themselves from the rest of the industry with their image (hot pants, point-to-point, etc) and developed loyal customers. We all know that they have done a good job hiring good people and then treated those people well (never a furlough) Their management has led by example. I'll never forget a story a SW Captain friend told me about Herb throwing bags. My friend was just a new hire and had never worked anywhere where the "suits" ever came down from their ivory towers. He was impressed and took Herbs example.

Another thing SWA has done is avoided trying to be "all things to all people", and has not attempted to go after other carriers market share. They just develop and refine the markets in which they know that they can make money.

I suspect JetBlue has pretty much the same leadership in business and personel.

You ask what we pilots could do to help our companies. I don't know, I can't work for much less or work any more( FAR's you know) I already do my job as efficiently as possible. Any more requires that management/ownership take the initiative to provide me with the resources to increase my efficiency.

regards,
8N

 

[Publishers]

Flexibility

There is no question that any company would have trouble meeting the wild swings in the marketplace that the airlines have to deal with.

The capital intensiveness and long term planning required as have been pointed out are a significant factor. Equally important, airline labor contracts reduce flexibility.

An example:
Most labor unions in the past have had give backs. The trouble is that these usually come only when the airline is or has lost it's ass. Instead of having a system that is highly flexible, that is almost the anti union mantra. That flexibility, at the start of the problem, not well into it, would make for quicker response and the airline would stay healthier.

False economics... many technical developments such as yield manangement almost masked the inherent problems that have been unseating the economic backbone of our airlines. Today, they are not highly leveraged, they are leased. As such they have little hidden reserve to go to when problems come along/

 

[B190Captain]

Hi!

The following quote is from the CEO of Airtran:

"Robert Fornaro: Our business will be successful as long as the goals of the company, management and labor are aligned."

this is the article address...
http://cgi1.usatoday.com/mchat/20030415001/tscript.htm

What can you do at your airline to improve it?

Cliff
GRB

BTW, Fornaro is the COO not the CEO. CEO is Joe Leonard.

 

[Draginass]

"Equally important, airline labor contracts reduce flexibility."

Well, of course. Also, those pesky lease contracts also limit flexibility of the company. Ideally, the airlines would like to see month to month rentals of aircraft and day labor, but it's not going to happen. Commitments and contracts make managers actually have to manage, forcast, assess, and act. While the events of 9/11 have had a devastating affect on the industry, there's plenty of blame to go around for sloth-like reaction from management, myopic planning, no innovation, and some just plain boneheaded mistakes.

If we take the example of the pilots, even with compensation over 50% below industry standard, the market is so bad and so badly read by management that they are still going to lose money. AA contract real wages in 2009 will be well below those 12 years earlier, and that's not even accounting for future inflation.

 

[USC***]

"What makes an airline successful?"

Lots of passengers paying full price

 

[Jetsnake]

Hi!

I think ALPA wants to do what's best for the pilots, as a whole, but I think their biggest problem is that they're still operating as a union would in a regulated environment. I don't believe they've adapted to de-regulation yet.

I think that was also the problem of the majors-they were set up and organized to operate in a regulated environment, and they're just now getting around to changing to operate efficiently in a de-regulated environment.

CLiff
GRB

As a ALPA member in good standing for 3 years, I'll tell
you what ALPA has done for myself and several other
thousand regional pilot's. The magazine has been great at
starting fires for myself in the North woods of Wisconsin.
ALPA doesn't give a **CENSORED****CENSORED****CENSORED****CENSORED** about the regional pilot. PERIOD.
That is a fact.
The Gov't de-regulated the airline industry in 1978.
The airline has adapted to de-regulation.
It just has not adapted to the price increase since
1942. That may sound funky and ridiculous to you and
others, but think about it.
Do a bit of research and you'll find that the average
paying passenger is paying the same amount today as
they were in 1942.
The difference. Those paying passengers were RICH.
That is who flew then.
Not Jerry Springers people.
You speak of the Airline Industry that was set up to be run
in a regulated environment. "You sound like Ted Kennedy"
The airline industry is not just getting around to running
efficiently. They suffer not only due to 9/11 and the war.
They suffer because of unions.
At Air Willy, when we pull into a gate, we have waited
up to 15 minutes while other rampers are sitting around
on tugs and lav carts(I don't know why), but they do.
Only to call OP's and find out that those sitting around
aren't working our flight. Rather than help out and do
the right thing. Working a flight. They'll sit on there ass
and not do $hit. WHY ?
Because the union say's they can only work so many flights.
I ran into a Ramper in STL at a UAL station and she
was worried about losing her part-time position which
made her roughly $40K per year at 28 hours per week.
While I had a smoke with her, she just complained about
how she had to deal with 4 carriers, Skywest,ACA,UAL,and
Air Willy.

If UAL excepts bids from all those that are bidding,
she'll have to deal with 7 carriers.
I'm sure the union group in ORD will accept this and provide
the utmost care to passengers.

Get real.

What union group looks out for the Regional Pilot.
Not ALPA.

Jetsnake

 

[172driver]

Now, if you want to have a coherent and rational national air transportation system, using JB and SW models won't work exclusively. If you want that then you will probably see many smaller cities without air service and city airports that aren't going to be able to extract exorbinate rents from their facitilites

True, JB and SWA models won't work exclusively, but that's why the RJ is so successful. The smaller cities won't go without air service. They'll simply have whatever service customer demand dictates, be it a turboprop, RJ, 737, or a heavy jet.

Most medium size cities can support big jets at peak times with RJ's picking up the rest of the schedule which would not be profitable to the heavies. These cities were previously served by 727's, MD80's, etc.

Most small cities create enough travel to keep RJ routes profitable, even though the demand may not always fill it up.

This is how I see the future. The large cities and the international market will continue to be served by the big guys. Medium cities will be served by low cost carriers/shuttles. All three markets will be served by the RJ. It is simply more customer/market friendly.

Basically, the market demands different types of service at different times of the day. Previously, customers were given no choice. e.g. the plane leaves once a day at 2:00 and the ticket costs $x. Be there if you want to fly. There was very little competition and it was hard to compare prices. Great deal for the majors.

With the advent of the LCC, the RJ, and the Internet, the customer has informed choices to make. They don't have to fly through ATL or ORD to get where they want to go. They can leave when they want to. They can do this for a lower price. Is it any surprise that the majors are in trouble?

I hate to see any airline or its employees hurting. I really do feel that pilots need to stick together as we are a small group of people with a common interest, passion, career. However, the airlines need to restructure and until it's done, some of us are going to be bleeding. We ought not blame this on each other, management, gov't, unions, terrorists, etc. The situation we're in is a product of the changing industry. Airlines, like everybody else, must adjust to what their customer base wants.

What makes a successful airline? The one that reads the market the best and most readily adapts their assets to serve it. If all carriers efficiently utilize their assets, the pilots will be employed and happy. Unfortunately, the most efficient use of the majors' assets right now is to park some planes. The market doesn't support all those big jets because they're less adaptable. It is hard to move a 767 to a market that supports it better. It's hard to find a route with 300 unserved pax. An RJ can very easily be transferred between cities as demand dictates. It can also fly point-to-point much more efficiently without having to rely on the hubs. Same with the LCC's on a larger scale.

 

[Draginass]

The CASM for an RJ is considerably higher than a SW 737 or JB A320. Many of the RJ operators operate on a major airline contract "fee-for-departure" basis (regardless of the pax count) vice having to fill the plane. Now, for instance, Air Willy is getting squeezed by UAL on that very subject. Given the depressed air fares, I doubt if RJs can "support" themselves in the quanties and departure frequency that exists now. Even with the poor compensation of regionals, if passengers on RJs will have to be paying quit a bit more and the plane will have to be darn full.

The point-to-point flying will probably pick up and in a lot of cases that could be a good market for RJs, if people are willing to pay a premium for it, be willing to fly in an small cabin, and not have to go through a hub. As a coherent "system" however, I don't think large-scale use of point-to-point is viable.

One thing for sure, the traditional airline managements have feet of clay and none of the major airline managements have a clue on how to bring themselves out of this morass. U can't decide if it's a major or regional airline. UAL is a deer in the headlights of an 18-wheeler, AA can't even manage it's PR, much less it's labor force. CAL and NW are next in line for Chapter 11, and DAL is hoping against hope that a miracle happens before next year. Being last in line to the BK docket is not good.

And the government? They could either care less or have no clue on what to do. With taxes on airline tickets about 30% of the price and city governments gouging for airport space, it's a mess. It would appear that they are going to let the free market forces shake out the system. I hope everyone likes what they get two years from now. I don't think it will be very pretty.

 

[Publishers]

Hub

Another aspect of this is that the hub and spoke system also leads to the same lack of flexibility. It is much easier for the point to point people to adjust to changes in the market. In a hub operation, you pull a few aircraft from a bank and it can ripple across a number of other flights that rely on the feed.

While Draginass points out that some leases reduce flexibility, there are two types of aircraft leases, finance leases, and, operating leases. Operating leases can be used to improve your ability to adjust as they usually are much shorter duration.

Smaller more mobile carriers can do well in this environment while the whales struggle.

Now that all have failed except Northwest and Delta, the pressure will be on those two to adjust to the new structure of the others. If their labor and lessors are responsive, they will come through this well. If not, they will join the failed, pulled down to the lowest common denominator.

 

[Draginass]

Yes, that's true, but what's the cost difference in the two. I would assume that an operating lease with it's higher flexibility would cost considerably more.

 

[Publishers]

Short

Yes the shorter term leases do cost more but if you schedule them right, a certain portion of aircraft will come due every year and you can get out of the aircraft.

Finance leases are basically structured leases that cost as it would if you owned them. Often there is a tax implication as well. In the end, the things that managment can deal with in large mainline airlines is somewhat limited.

As I said in the earlier post, it is not so much the wages that cause the problem with unionized workforces. It is all the costs around that unionization. Unions by their nature want to protect full time employment. Once gained, they certainly do not want to let anything go and so we always wait until things become a crisis. Even then, there is the old "it is a management ploy" mentality.

Look at Air Tran as a more positive example. There pilots came together right after 911 and came with a plan to take cuts if no one was put on the street. That willingness to deal that day not months of haggling later made a difference. Contrast that with AMR or UAL and their still trying to get things resolved years later.

This is why labor relations are important. Herb and the others had those type relationships where when the problem came up, there could be a response.

For the most part, it is why we do not have dinosaurs today yet small insects survived.