Writing on the wall for major airlines

[goldentrout]

I was looking at a wall the other day...and this writing started appearing out of nowhere

"Air Tran, JetBlue and Southwest are only three of the nation's discount carriers, but they're the healthiest and fastest-growing. Southwest, the biggest discount airline, with 379 jets, is taking 42 new planes next year and more than 20 a year after that. JetBlue and AirTran are poised to double their fleets in five years. "

Actually, this is from an article in USA Today last Friday, 8 Aug.

In summary, Jet Blue plans to go from 44 to 173 planes by 2008. AirTran plans to go from 67 to 156, and SWA plans to go from 379 to 567.

Also, until a few months ago, DAL had a lock on the non-stop ATL/LAX route, with a walk up fare off $2,221. Last month, Air Tran put one of their planes on that route.

Today on Orbitz the DAL fare to go ATL/LAX is $513.

The rest of the article basically lays out how the low cost carriers are going to start serving large metropolitan areas where the majors have pretty much a monopoly and charge outrageous fares.

My hypothesis is even if DAL filled up every coach seat on it's 757
from ATL to LAX, it's overhead would still probably prevent it from making any money. My conclusion is that with flight schedule reductions at the majors, flight loads are up around 75-80%...yet the majors are still losing hundreds of millions a quarter...no where near even breaking even despite increased flight loads.

SWA/FRONTIER/JET BLUE/AIRTRAN all will have

1. Newer, more comfortable, more fuel efficient planes, with more passenger amenities.
2. Significantly lower overhead costs.
3. Routes which overlap the majors hubs out of ATL/JFK/DEN/STL etc.
4. A safe operation

Furthermore...most of the majors' pilot groups either have a scope clause or pay rates that will keep their companies from buying new mid-sized planes at a cost where they are competitive.

The whole major airline business plan is predicated on the high dollar business traveler who will make up for the $200-$300 leisure fare traveler.

Those days are gone forever.

Smarter airline executives have seen the market for low cost, safe air travel, and are making money doing it just as good at a significantly lower cost.

I imagine ALPA's strategy is to get with the MECs of the low cost carriers and have them demand outrageous pay rates in their next contract, so that the low cost carriers will have to raise their ticket prices.

After watching the UAL/US Air/DAL/AMR MECs kill their golden gooses, it would be suicidal for the AirTran or SWA MEC to demand the kind of contracts exisiting at UAL or DAL prior to 9/11....but then again greed is a powerful thing.

And I don't buy the argument that eventually all the low cost carriers will start losing money, as they compete with each other as they get more and more market share.

So what if they compete with each other? Many industries in this country have multiple companies in competition, yet making money.

The only thing that will kill the low cost airlines is if their unions demand outrageous contracts, or if they start crashing planes.

It's just a matter of time before AirTran has a jet on every route served by DAL out of ATL...then the writing on the wall will have already faded away for those who didn't see it soon enough.

I'm all fopr as much money as we can get, but what good is it to make 100-150K for three years as a 737 FO if your on the street for the next five years...assuming your comany even exists in five years.

How about 60-100K for 737 FOs, and 100-150K a year for 737 CAs, 15 day or so off a month for lineholders, with sometype of decent retirement plan (no A fund), a profit sharing program, a company matched 401K, with good medical/dental/travel benefits?

Man, now there's an original idea where an airline could probably make some money, with an overhead structure that could weather some bad times and let the employees share in the good times...maybe I'll start an airline like that.

**CENSORED****CENSORED****CENSORED****CENSORED**...I forget...SWA has been doing that every year for the last 20 years or so, and AirTran and Jet Blue are already making millions on that band wagon too.

The writing is on the wall (or at least in USA Today) for those who want to see the future of the US airline industry.

When will ALPA put the interest of the airline pilot profession ahead of the greed of the few at the top of the list who will destroy the rest of us at all costs to "preserve the profession." (translation "preserve our retirement").

 

[jarhead]

Nice rant................and I agree with it! The ALPA national leadership is blind and arrogant. They will not recognize market forces, and it will be their swan song.

 

[KingAirer]

How many 10 year captains does Jetblue have?

Its only going to become more expensive to operate when planes and pilots get older.

There is no question that things are changing and the classic majors will have to change their fare stucturesor route structures to compete. Right now they arent doing a good job of making the flying unique and different and worth the "extra" money to fly. LCC arent all that brand new, even though there is a new fad right now, and when the economny picks back up, i think youll see business passengers and higher paying passengers back at the classic majors taking advantage of the mileage programs, clubs, and wide route stuctures.
Jetblue hasnt barely even ventured out from the proven runs of NYC, Florida, and California.

 

[jarhead]

Sorry, KingAirer.....you're not even close to being on the mark. There is a sea change going on, in an industry that has not learned from the lessons of the dinosuars, and their ultimate extinction. Adapt and change......or die.

That's it....that's all.

 

[KingAirer]

There is no question that things are changing and the classic majors will have to change their fare stucturesor route structures to compete.

 

[flx757]

SWA/FRONTIER/JET BLUE/AIRTRAN

I imagine ALPA's strategy is to get with the MECs of the low cost carriers and have them demand outrageous pay rates in their next contract, so that the low cost carriers will have to raise their ticket prices.

After watching the UAL/US Air/DAL/AMR MECs kill their golden gooses, it would be suicidal for the AirTran or SWA MEC to demand the kind of contracts exisiting at UAL or DAL prior to 9/11....but then again greed is a powerful thing.

While I agree with much of what you said in your post, I wanted to point out a couple of things. None of the 4 LCCs mentioned above are ALPA carriers, so it would be hard for ALPA to "get with the MECs" of these airlines and have them demand anything. SWA, Frontier and AirTran each have in-house unions and jetBlue is non-union.

Secondly, at AirTran (and SWA also, I believe) there is no "MEC". The governing body of our union is called a Board of Directors or "BOD". Just nit-picking, but trying to be factual. In any event, I don't see our BOD demanding a "suicidal" contract, nor do I see the company or the pilot group agreeing to one. SWA has avoided the "suicidal" contract for over 30 years now, so I don't believe they are in danger of this, either. I would think that our BOD and pilot group, when addressing our next contract, will look for improvements in certain areas while, at the same time, keeping the long term goals and viability of the company in mind.

 

[ex nav]

I agree with most of what is outlined in this post but want to look beyond the present-time "pay the lowest fare with no frills" industry that we seem to be evolving into. A couple of questions.

What will the future look like when the LCCs run the former "major airlines" out of business and a person needs to fly international? Pan Am proved that an international airline couldn’t be supported without a domestic feed in the days after deregulation. Will AAL, DAL, NWA, & UAL meet the same fate as Pan Am? If so, who will fill the void, foreign carriers?

Also, what will be the fate of the CRAF? We cannot count on foreign carriers to supply us with airlift in the event of a national emergency and the 737s etc. will not support the requirement.

Just some passing thoughts......

 

[cornbread]

In terms of business practices this all reminds me of the old "Grasshopper and the Ant" fable. SWA is one hell of an ant.

The business practices and ethics of some of the majors is laughable. I don't know any other industry that planners say "Well, since we can't run this one successfully, lets put some more money (that we don't have) into this new shinier version of ourselves."

Not to mention when a company, any company, becomes large enough it will inevitably become as inefficient and lifeless as government.

Darwin does business.

 

[46Driver]

ex nav,
Very good questions. I would think that some type of codeshare (i.e. Star Alliance, SkyTeam) could seamlessly handle a traveller's plans. However, I do think that not all of the majors are going to be out of business - but their numbers will be reduced to just 2 or 3.
As for the CRAF, that is a very good - and scary - question. The only answer that I can give is that we would have a lot of airplanes in the desert....

 

[dogg]

Nice vision Golden, So after working for xyz for 15 years you are going to be happy taking home 80,000.00 a year and spending every holiday on the road. Sounds like the standard from an ex mil type who had a million bucks of our money spent on there training and is suckin on a retirement program.
I say keep the pay rates high and when the well runs dry go do something else. Full pay to the last day and then shut it down..... And let all the lowfare vultures crawl alll over themselves to provide an ever higher level of service for an ever lower price........I would rather sell cars............better benefits anyway

 

[JungleJetFO]

why is it always the pilots fault?

There's an argument out there that goes like this, you can make the pilots work for free and it won't guarantee that an airline will make money. Look at United. I'm not convinced that the amount of money spent to pay pilots makes a bit of difference on what will happen with Big 5 major airlines. I think the best management is always going to win out in the end. Somebody has to fly the routes, so why does everybody think that SWA and JetBlue are going to take over the world? I'm holding out on my opinion on who is going to be left standing in the end. Until the sleeping giants awaken, with a strong economy and healthy business travel, we are not going to know what they are going to really do to stop the LCC's growth. A small hint is there with Song Airlines and Delta going head to head with JetBlue, and it looks like JetBlue blinked first by backing down in the LA-ATL market. I can only imagine how nasty it's going to get when American can muster up some cash to fight JetBlue in JFK also. This is nothing new in the history of the airline business and it's going to make for some interesting reading.

 

[RockyMnt1]

Change for the airline industry

An intersting quote that I saw recently:

"Change in NOT necessary. Survival is not
mandatory." - Demming

 

[Ty Webb]

Nice summary, GoldenTrout.

One misconception that I see prevalent throughout this industry is the pay rates at the LCC's. . . . not only are they seriously understating the pay rates at the LCC's, but the benefits and schedules.

. . . hell, this string even has some idiot in a Metroliner talking about what a lousy future he has to look forward to . . . now, that's a serious misperception . . . . .but for anyone stupid enough to chant the "full pay to the last day " mantra, I guess he's right where he needs to be . . . . scrounging change out of the cracks in the Barcolounger in the pilot lounge. But, I digress . . .

At AirTran, we do have a company-funded retirement benefit- the company contribution is 10.5% of your gross pay.

We also have aan upgrade averaging 2.5 yrs (last upgrade class awarded had 4/2001 hires).

That means first year at $43,000. second year at $65,000. (with 16-17 days off) and by year three you're close to $110K. and you get to fly with your favorite captain every day- or, you can be a senior FO, making over $70K and probably getting 17-19 days off per month, and the schedule of your choice. Sure, it's not the lap of luxury, but during the worst times in the industry? I would rather make l;ess money with consistent employment, then keep the orange apron hanging in the closet for the next time.. . . . let's not forget the fact that most major pilots spend a number of year being furloughed between cycles, and the impact of that on your life and finances.

As was previously mentioned, we will strive for a better contract each time, but we will also keep in mind that we are in the airlne business, not the money printing business- the comapny has to make money before we can get ours!

 

[goldentrout]

Ty Webb

Thank you for giving me some hard numbers to work with.

Dogg

Obviously your number are wrong about topping out at 80-90K a year.

Third year Capt at Ty's LCC is making 110K a year with a 10.% percent company funded retirement.

Senior FOs are at 70K a year with 17-19 days off a month.

And finally...the reason the LCC are the future of the industry...their employees, apparently, are not greedy!

Ty says

"As was previously mentioned, we will strive for a better contract each time, but we will also keep in mind that we are in the airlne business, not the money printing business- the company has to make money before we can get ours!"

I rest my case.

 

[46Driver]

dogg,
Would you care to explain your comment about the million dollars worth of training for military pilots? Are you saying that we shouldn't be trained? What is your master plan for operating the military? And I assume you want to do away with retirement after the required service - I guess that bodes ill for anybody in the military, FBI, Customs, police depts, fire depts, etc., etc, etc, - once again, what is your master plan?

 

[C150Commuter]

Can someone explain why making 110k/year is the future of the industry...and everyone is thrilled about it. I would rather make 250...guess thats just me.

 

[jarhead]

C150commuter

Why settle for 250K? Why not 500K? Heck, all pilots should make 5 or 10 million a year! Right?

Better wake up and smell the coffee. Did you ever take a course in economics in school? If not, you better consider doing so. There are LAWS of economics, not the least of which, is the law of supply and demand.

While we're at it, let's up the minimum wage for Burger King order takers to $200.00 an hour. Of course, my Whopper with fries will now cost me a few hundred bucks as well. Maybe I'd better skip eating there. Oops? No customers any more. Burger King shuts down, and burger flipper is out on the street with no job.

 

[C150Commuter]

I think you need to relax, sounds like the keyboard may be on fire over there. I wouldn't count the majors out just yet either. The LCC's have plenty of plans for growth now, but so did the majors 5 years ago. TWA was the launch customer for the airbus 318. This isn't the first time the majors have put people on furlough for years and years and it isn't the first time that a major has filed for bankruptcy and survived. No one has a crystal ball, at least not for sale anyway, i'd be intertested in a puchase. It will be interesting to see who survives and who doesn't.

 

[Obi-Wan]

Jetblue already had to drop from 3 to 1 flights a day from ATL to LGB as the result of DAL competition. We will see what happens in a couple of years when the majors recover and start competing on their routes.

 

[goldentrout]

Bravo to jarhead!

If you search posts from me from a year or so ago, you'll see that I predicted the rise of the LCCs...not because I'm a prophet, but because I took economics 101 in college.

The difference between this round of furloughs and previous rounds is that the LLCs' ability to come in and take market share with a safe, efficient, low cost operation is much greater than back in the early nineties.

The major airlines came back in the mid nineties because there was basically no alternative other than SWA for people to go get a decent schedule near the sities they needed to go...so they paid whatever price they had to to get there.

Now, and certainly 5 years from now, Jet Blue/SWA/AirTran/Frontier etc., will be posed to offer service to just about any mid to large sized metropolitan area in the country.

That was not the case throught the 1990s.

Additionally, this new service by the LCCs will be with new, clean, amenity filled JET aircraft.

The days of people flying a major airline to avoid the turboprops is over too.

Yes a couple of major airlines will probably survive. DAL is supposedly the strongest now, but wait two years from now after every fare they charge out of ATL has to match AirTran's fare.

There is no way DAL's business model can compete with LCC AirTran's business model out of ATL. As soon as AirTran gets enough planes to offer the same schedule of service as DAL out of ATL, they will destroy DAL, as DAL will not be in a position, as in the past, to take huge losses on a route to put someone out of business. DAL's pockets aren't that deep anymore.

Look at STL...there are what, 2 million or so people in the greater STL area...and soon no major airline will have a hub or significant presence there!

And who do you hear talking about going in there to fill the void...NWA? DAL? US Air? AMR? UAL?

One would think a major airline would be chomping at the bit to get into a 2 million person market.

The answer is SWA...because the major airlines know they cannot compete with SWA out of STL, especially since SWA is getting 42...count 'em 42...new planes in 2004.

For those who didn't take economics 101, here's a summary of two of the basic laws of economics.

The customer will generally pick the lowest cost product on the market that fits his/her needs.

As the supply of a particular product (i.e. LCC expanded operations) goes up, without a corresponding rise in demand, the price of a product (ticket price) will go down.

Every analyst and FAA prediction is that LCCs will continue in the forseeable future their trend of acquiring more and more market share.

So what are the ALPA major MECs doing to protect their pilots?

1. US Air---just told management they could not buy a bunch of 105 seat aircraft and place them at their wholly owned carriers, nor would they accept them at mainline.

So instead of letting their company get the right size plane for the right size market and keeping the flying 100% for their furloughed pilots...they "preserve the profession" and managment buys 100 seat aircraft and contracts the flying out to MESA....how arrogant and stupid that?

2. UAL MEC, according to UAL pilots I have talked to, say pretty much all they wanted from from management after the bankruptcy was the maintenance of one list and protection of the A fund retirement...preserve my retirement. Now UAL has worse work rules than I do at my RJ company! How self serving of the senior UAL guys!

3. DAL scopes out DCI from buying more than 56 70 seat aircraft. Yet, they won't fly them at mainline (or 90 seaters for that matter), because the pay rates to make those planes profitable at mainline would drag down the pay rates on all the other mainline aircraft.

So instead of getting a bunch of new planes, growth, and guys off furlough, the DAL MEC is "preserving the profession" by eliminating DAL's ability to buy right sized planes to compete with the LCCs, and letting his guys stay on furlough because they are too stubborn to accept a 70/90 seat pay rate that allows DAL to be competitive.

How dumb and short sighted is that?

ALPA/UAW/IAM and the steel workers union leaders must have all gone to the same school where the school moto was "max pay to the last day."

The last day, much as it did for the american steel worker and thousands of UAW members, may come much sooner than anyone thinks.