WSJ: Deregulation finally taking hold after 25 years

[FL000]

In an era where business moves at warp speed, it turns out airlines are an anomaly. The rise of efficient, low-cost airlines and the ever-expanding benefit for consumers are just what deregulators envisioned -- it merely took a quarter-century.

"people have to realize that the paradigm has shifted."

Long Flight

How Airlines Resisted Change
For 25 Years, and Finally Lost

After Deregulation, Carriers
Failed to Cut Labor Costs;

Internet Helps Upstarts

US Airways' Turbulent Ride

By SUSAN CAREY and SCOTT MCCARTNEY
Staff Reporters of THE WALL STREET JOURNAL

October 5, 2004; Page A1

When Congress deregulated the U.S. airline industry in 1978, many fares came down, flights increased and air travel took off.

But one side of the business changed much less: airline costs. To keep their grip on the market for more than two decades without rewriting expensive labor contracts or improving efficiency, big airlines used a bag of tricks: frequent-flier plans, the "hub" system of controlling key markets and international alliances to keep business customers. The airlines often gouged business travelers, their best customers, and bedeviled vacation travelers with restrictions and fees.

Now the airlines have run out of tricks. As upstart carriers spread across the nation with across-the-board cheap fares, the traditional higher-cost carriers are struggling to transform themselves into versions of the low-cost model. The most desperate to change is US Airways Group Inc., which entered bankruptcy last month for the second time. No other airline has tried as many gambits to avoid the day of reckoning as US Airways, and no other airline is in as much danger.

In an era where business moves at warp speed, it turns out airlines are an anomaly. The rise of efficient, low-cost airlines and the ever-expanding benefit for consumers are just what deregulators envisioned -- it merely took a quarter-century.

"It's a change we predicted in 1978, and we all scratched our heads wondering why it has not gone faster," says Michael E. Levine, a former executive at several airlines who helped push deregulation as an official in the Carter administration.

Airlines, Mr. Levine says, proved "far more ingenious in defending themselves than we thought."

The mistake of the established airlines -- and those who invested in them -- was to imagine that this death-defying act could continue forever. They defeated the first crop of low-fare airlines easily in the 1980s and worried more about strikes than new competition. So labor contracts that kept expenses high and productivity low stayed in place.

Sept. 11, high oil prices and the Internet, which showed customers when they were getting a bad deal, delivered the coups de grace. US Airways warned in a recent court filing that it might have to liquidate by February without emergency labor savings. Other higher-cost airlines are also in bad shape as fuel costs rise.

UAL Corp.'s United Airlines has been under bankruptcy-court protection for nearly two years, having failed to get financing to resume operating as a normal company. Delta Air Lines says it is sliding toward a bankruptcy filing if it can't restructure its $20 billion debt and win concessions from its pilots. AMR Corp.'s American Airlines barely escaped bankruptcy last year in an out-of-court restructuring, but its cost-cutting is already falling short. American says it's spending $1.1 billion more on fuel this year than it had planned. Northwest Airlines is urgently seeking concessions from its unions.

These airlines are expected to survive. But they'll need to become more like the low-cost leaders such as Southwest Airlines and JetBlue Airways, which themselves have proven lately that their bottom lines aren't immune to high fuel prices and bruising competition. Indeed, America West Holdings Corp.'s budget carrier America West Airlines warned last night that it expects to report significant third- and fourth-quarter losses due to price pressure and fuel costs.

Under the old regulated system, the federal Civil Aeronautics Board set fares and parceled out routes. Like electric utilities, airlines could ask the board to raise prices whenever their costs went up. The board, where Mr. Levine served in the late 1970s, effectively made it impossible for newcomers to compete nationally since they couldn't get quick approval for a route network.

The Carter administration pushed deregulation as a way to lower consumer prices during the high-inflation years of the 1970s. Over the objections of most major airlines, Congress voted to allow carriers to choose their own routes and fares.

cont'd...

 

[FL000]

Counterinsurgency

By the 1980s, new airlines such as People Express Airlines had emerged offering rock-bottom fares. But Robert Crandall, the legendary chief of American Airlines, invented a key weapon in the big airlines' counterinsurgency arsenal: the frequent-flier plan. For years, it engendered deep loyalty among big-airline passengers.

American and United both built centralized reservations systems that favored their own flights over others. By working closely with travel agents, who got a 10% commission on ticket sales and bonuses for delivering extra market share, the big airlines got the lion's share of corporate business.

International alliances also sealed business travelers' loyalty. All the major airlines created networks of regional carriers to feed traffic to and from their hubs.

Such gambits made it hard for low-cost carriers to get a foothold. Some had poor strategies themselves, trying to compete with insufficient capital to ride out fare wars. They alienated customers with old planes and inconvenient schedules. Most went bankrupt.

The initial wave of postderegulation competition did claim a few big-airline victims. During the deep recession of the early 1990s, big carriers such as Eastern Airlines and Pan American World Airways closed their doors.

But most of the big airlines survived, and their twisting course toward the current disaster is well illustrated by the travails of US Airways, now the smallest of the higher-cost flock. For the past 25 years, business for US Airways -- once called Allegheny Airlines, then US Air -- has been an endless game of dodging radical change.

In the early days of deregulation, US Air was one of the nation's most profitable airlines, thanks to its monopoly routes to small cities in the Northeast. But a wave of consolidation was sweeping the industry. Trans World Airlines bought Ozark Airlines and Delta snapped up Western Airlines. US Air faced the choice of "standing still or growing bigger," recalls Edwin Colodny, the chief executive from 1975 to 1991. So it bulked up with back-to-back purchases in 1987 of Pacific Southwest Airlines and Piedmont Aviation.

The two deals turned the company into the nation's No. 6 airline. In hindsight, they also represented US Air's first big failure to overhaul its business. The airlines it acquired both had lower costs and better service. But instead of adopting their culture, US Air introduced high living to them.

Workers at the two acquired airlines got large raises that brought them into line with US Air's employees. US Air's costlier work practices also spread to the newly acquired companies. For instance, Piedmont customer-service agents who earned $6.75 an hour also worked on the tarmac, directing planes in and out of gates. At US Air, a mechanic who earned at least $18 per hour performed that job. US Air had to hire 400 mechanics to serve the added Piedmont flights.

Imposing the lower-cost system on US Air employees would have involved a nasty fight, and that is why Mr. Colodny says he didn't force the issue. "Everybody remembers how difficult it is to take strikes in this industry," he says. United's pilots, for example, had staged a 1985 strike to defeat management's attempt to put newly hired pilots on a "B scale" with lower pay and more hours.

But the cost of buying labor peace was steep. Unable to compete with Southwest Airlines in California, US Air in the early 1990s scaled back and ultimately pulled the plug on most of its routes within the West, essentially writing off its acquisition of Pacific Southwest Airlines.

US Air still had a leading position in the East and controlled hubs in Pittsburgh, Philadelphia and Charlotte, N.C. Travelers living in those cities had little choice but to pay US Air's high fares.

US Air needed every dollar it was bringing in. The acquisitions had given the company unneeded maintenance bases, reservations centers, training facilities and crew bases -- and it failed to close them. It also had many different types of planes, in contrast to discounters that saved money on maintenance, training and scheduling by having fewer types. Headquarters functions were scattered from Winston-Salem, N.C., to Pittsburgh to Arlington, Va., the company's actual headquarters.

Mr. Colodny's successor, Seth Schofield, thought a global alliance might be the answer. He sold 24% of US Air stock to British Airways in 1993 for $300 million. Such deals had become popular: KLM Royal Dutch Airlines owned a piece of Northwest; Continental Airlines had teamed up with Scandinavian Airlines System and Air Canada.

But only a couple of years later, British Airways became fed up with US Air's lack of domestic breadth and money-losing ways. It sold its shares. In 1995, after the collapse of labor talks aimed at cutting expenses, US Air tried to sell itself to United or American, but both passed.

The next year Stephen Wolf, a veteran airline turnaround specialist, joined US Air. Before he took the job, Mr. Wolf, a former CEO of United, told the board there was no place in the industry for a high-cost, midsize airline. "Short of open warfare with labor, where everyone loses," Mr. Wolf says, "consolidation was the only viable alternative" for US Air.

So he set about making the company more attractive. Lifted by the soaring economy in the late 1990s, it returned to profitability. Mr. Wolf renamed the company US Airways, ordered a huge fleet of Airbus jets, expanded European flying and closed some of the redundant facilities. He also indulged US Airways in another industry fad by creating a low-fare division called MetroJet. The experiment failed at US Airways and elsewhere because companies didn't have low costs to match the fares.

Alfred Kahn, who brought about deregulation as chairman of the Civil Aeronautics Board, says the brief booms that airlines occasionally enjoyed in the 1980s and 1990s encouraged them to believe that radical change wasn't necessary. Change "didn't happen faster because it was always a moving target," he says.

cont'd...

 

[FL000]

Smaller Jets

Mr. Wolf belatedly convinced the pilots' union to let the airline buy smaller regional jets for its commuter affiliates, making US Airways more competitive with its rivals. But he had to make other concessions to stave off two strikes. Labor contracts signed in 1997 and 1998 gave most of the workers parity with the four largest airlines plus 1% -- in retrospect a very expensive proposition.

"The unions kept demanding higher pay and perks," says Kevin Hughes, a unionized US Airways dispatcher and 34-year veteran. "Management, in order to buy labor peace, kept acquiescing."

That view is shared by some in the rank and file, but union leaders say management should bear the blame for failing to cut nonlabor costs faster and attract more business. "Since the early 1980s, all of airline labor has been taking concession after concession," says Robert Roach Jr., vice president for transportation at the International Association of Machinists union. He notes that some successful airlines such as Southwest and Continental are mostly unionized.

All along, US Airways endured, thanks to its ability to charge extremely high fares to businesspeople. But the rise of the Internet undermined this advantage. Previously, only travel agents had access to computerized reservation systems. But with pricing information available at the click of a mouse, passengers could quickly find a $200 ticket on a route for which US Airways wanted to charge $2,000. In many fliers' minds, the mileage awards, airport lounges, first-class cabins and other amenities offered by the big carriers no longer justified the higher fares.

In 2000, US Airways pulled a final trick out of the bag by agreeing to be acquired by United for $4.3 billion and the assumption of $7.3 billion of debt and leases. But the Justice Department deemed the combination anticompetitive a year later.

Then came Sept. 11, 2001. Still midsize, US Airways was hurt more than its peers by the travel slowdown, and, under a new CEO, it entered bankruptcy in August 2002. Thanks to $900 million in loan guarantees from the federal government, it emerged from bankruptcy in March 2003. It excised about $2 billion from its annual expenses while under court protection but once again failed to take strong enough measures to ensure its viability. Its cost to fly a seat a mile -- a common industry benchmark -- remained the highest among airlines.

US Airways' old nemesis, Southwest, moved in for the kill. US Airways was continuing to charge high fares on flights to and from Philadelphia, its most profitable hub. While there was talk of Southwest entering the market, US Airways didn't change its high-fare policy, assuming its rival would use the less-convenient airport in Allentown, an hour north of Philadelphia. Instead, Southwest moved into Philadelphia itself this past May. US Airways was forced to add flights and cut fares in response. Four months later, it was back in bankruptcy court.

Today, it seems US Airways finally gets it. In a court filing earlier this month, the company acknowledged that during its previous stint in bankruptcy it "did not accurately anticipate the magnitude of the structural shift" caused by the growth of low-cost carriers. In the first bankruptcy proceeding, US Airways said it expected it could succeed if it competed well against other higher-cost airlines. "Now, it is clear that US Airways cannot survive unless it can compete effectively against the low-cost carriers as well," the new court filing says.

It must, in essence, become another Southwest. In an attempt to do so, US Airways is de-emphasizing its Pittsburgh hub and adding direct flights between nonhub cities. That follows the model of discounters, which have found that the hub-and-spoke model of flying a flock of planes into an airport at the same hour and then departing in a mass rush is inefficient. US Airways is also lowering its fares and trying to push more customers to its Web site. It is demanding $950 million in added annual savings from its unions, hoping to survive the slow winter months and buy time to become a true discounter. Yesterday, the company announced deep pay and pension cuts and job reductions in its salaried and management work force.

Competitors and airline analysts think the company's chances of survival are poor, citing the reluctance of the unions to agree to more givebacks and US Airways' precarious cash position. And there are doubts about whether the rest of the old-style carriers can make the leap to the low-cost model. Bruce Lakefield, CEO of US Airways since April, says he hopes employees are seeing the light. "Sooner or later," he says, "people have to realize that the paradigm has shifted."

Write to Susan Carey at [email protected] and Scott McCartney at [email protected]

 

[enigma]

Wow, the pundits have figured us out. Labor killed the industry. Shame on us.



If I wasn't so disappointed that the WSJ was so shallow, I'd write a reply and send it to the email address at the end of the story. On second thought, I believe I will.

regards,
enigma

 

[pilotyip]

Not labour fault

The consumer killed the industry, aided by the internet to find hte cheapest fares.

 

[Publishers]

Interesting

That is an interesting proposition, that the consumer killed the industry. It seems to me that the consumer is why the industry exists. Secondly, you are implying that the Internet assisted in this killing as it provided the consumer more information. Is that not the idea, and, is that not a tool you use in your everyday life to find price and product information today about everything. The industry exists to serve the customer not the other way around.

During regulation, there was little incentive for the airline to control labor costs and so they did not. They could make progress as there used to be several manufacturers of aircraft and much competition for a number of aspects related to the business.

Today, there is little choice as to aircraft manufactureres, little variety in insurance costs, training costs, etc. One place they can separate themselves is the handlying of personnel costs and productivity. As Southwest proves every day, it is possible to have a reasonable compromise of these two things.

The consumer did not kill this industry, it was a suicide.

 

[enigma]

That is an interesting proposition, that the consumer killed the industry. It seems to me that the consumer is why the industry exists. Secondly, you are implying that the Internet assisted in this killing as it provided the consumer more information. Is that not the idea, and, is that not a tool you use in your everyday life to find price and product information today about everything. The industry exists to serve the customer not the other way around.

Agreed, but Yip is not wrong. The consumer changed, not the industry. The industry was making record profits in the late 90's and it's hard to see a problem when the enterprise is profitable. If anything changed, it was the amount of money that pax were willing to pay for their tickets. The truth is, the difference between the current losing business environment, and the previous profitable business environment, is revenue. Not costs. The economy changed, business's changed their way of doing business, and terrorism happened.

During regulation, there was little incentive for the airline to control labor costs and so they did not. They could make progress as there used to be several manufacturers of aircraft and much competition for a number of aspects related to the business.

Today, there is little choice as to aircraft manufactureres, little variety in insurance costs, training costs, etc. One place they can separate themselves is the handlying of personnel costs and productivity. As Southwest proves every day, it is possible to have a reasonable compromise of these two things.

The consumer did not kill this industry, it was a suicide.

The WSJ article gave the impression that the industry was business as usual for 25 years. That is not true; just ask any of the pilots who were affected by Crandalls "B scale". The business existant in 1999 was significantly different from 1978. There is no comparison.

The idea that the industry is dead is objectionable, the industry is NOT DEAD. The legacy carriers have one foot in the grave, but the last time I looked, at least three carriers were looking real good. WN, B6, and F9 are all doing ok.

The premise that our problems were suicide is even more objectionable. First, if it was suicide, then the hand holding the gun belonged to management. I am no fan of most management, yet even I can't believe that they intentionally inflicted fatal damage to their own business.

If I must pick a reason for the current state of the industry, I'll choose change.
Change happened. If you really need to find someone to blame, you can blame management for not properly forecasting the change; but I seriously doubt that they intentionally ignored it. Well, maybe Siegal ignored it last year, blame him.


Kudos go out to Herb Kelleher and company for always keeping their costs and prices at a sustainable level. If their competition had studied the emphasis that WN put on keeping fares affordable, maybe the competition would have seen the train coming at them.

enigma

 

[Rez O. Lewshun]

I say the industry has simply evolved, however it is not pretty for pilots...

 

[enigma]

I say the industry has simply evolved, however it is not pretty for pilots...

Nor for investors

enigma

 

[Publishers]

change

There is no question there was a change. The change though was masked by yield management programs, more pasengers flying under discounts, frequent flyer programs that had employees paying higher fares because they got the FF award even though the company was paying for it, and the boom years of the 1990's when everyone was doing well.

The reason for deregulation was to better consumer fares and to some extent, that worked almost immediately. If it had not been for a Valuejet crash and other pressures, might even have happened sooner rather than later.

When I said suicide -- I was referring to a number of the legacy carries, here today and some from the recent past. Small niche players have always had an impact.

I do not give management much credit for the past 25 years in general, and certainly do not blame labor for what they have received. Did it get out of hand, absolutely. A flight attendant position is not a $100k a year job nor originally was it a career. The average turnover was something like 2 years. When they started hanging around and thinking of it as a long term career, the years of seniority went up and the average wage did too. When one carrier is paying $47,000 for a semi productive flight attendant and the carrier over here is at $18,000 for a more productive flight attendant, it does not take great math to see the difference.

 

[Otto]

Once again the WSJ is a bunch of know it alls. It's the same old solution of kill the hub and spoke and become like Southwest. Is anybody else tired of hearing that? I just don't think you're going to beat Southwest at their own game so why is eveybody trying? To use a retail analogy, instead of everybody trying to be a Wal-Mart maybe somebody needs to be a Target. Low cost but with a hint of class.

 

[shon7]

The "majors" were charging fares that were way out of line and engaging in monopolistic tactics. That is, they were pricing their tickets in such a ridiculous fashion ONLY BECAUSE THEY COULD GET AWAY WITH IT. The market changed, consumers could access more information easily -- and the majors couldn't continue this -- subsequently they started sinking. For those who argue that it was just supply and demand -- well then the current state of the industry too is based on supply and demand -- so there is not much point in complaining.

As a post previously mentioned, there are numerous reasons why the majors have failed. From concentrating on wrong items like MARKETSHARE and not concentrating on the QUALITY OF SERVICE. The hub and spoke system that was hailed as one of the greatest innovations was and is actually a DISASTER. That was because the consumer was not kept in mind-- only efforts towards better efficiency and achieving economies of scale. Take for example UAL -- where even back in 2000 they were LOSING money on most routes except a couple of International routes and the flights to CA. Delta at one time had a strategy of: "flying more planes to more places than anyone else" (flawed from its very inception).

No matter how much we lambaste the LCC's -- the service they provide (even if it is minimal) is FAR BETTER than any major I've flown on. Paying $2000 for a ticket, getting frequent flier miles, upgrades, fancy lounges and meals is pretty much useless if one is greeted by IRATE flight attendants who feel that it is the consumers PRIVELEGE to be flying with THEM.

part of the solution --

1) Apart from COSTS the majors need to get their SERVICE up to standards...least of which is, polite and decent looking FA's who are there to SERVE the customer. As many will tell you, clients don't remember a positive experience -- BUT a negative experience they will remember FOREVER.

2) REVENUE -- better yield management. Can't charge ridiculous prices with all sorts of qualifiers attached. JBlue has an interesting approach here where it sets limits on what the highest priced ticket for any two city pairs should be.

3) Cargo -- there is money to be made in CARGO. Small fish like MartinAir, JAL, EVA even Korean Air are running profitable cargo divisions. No reason why UAL, AA, DAL etc. can't do the same.

4) Marketshare -- Do away with Unprofitable routes. For certain areas of the country say cities/towns in SD, IA, ND -- if the government mandates that these have to be connected (by air service) let the airlines be subsidized for the same. Bottom line: don't fly routes that don't make money.

5) Hub-Spoke -- minimize this kind of flying or either make this more attractive to the economy passenger. If on an economy ticket it takes a consumer 5 hours to get from ORD to IAD flying on a tiny regional jet halfway and connecting in some hub -- most would opt to fly into a secondary airport (BWI) and then pay for a cab. Ironically, some of the International Airlines like EMIRATES, KUWAIT AIR have found a partial solution to this where they offer to pay for one nights stay at a hotel at their hub. Within the U.S. Domestic market this is more of a challenge BUT there ARE solutions.

6) Finally, everytime a "major" has tried to increase fares by $10 or even $5 -- it has not been successful. That is because, there is NO difference in the product they are offering. With better marketing and creative thinking there is no reason why they cannot charge more and NOT lose passengers to rivals. Airlines like Virgin Atlantic do this very successfully, where a lot of clients just fly to see what the hype is all about. Virgin's product is not that much different but with the advertising coupled with good service and small things like giving backpacks to kids, upgrades to seniors etc. Virgin is able to retain its clients (AND I'm talking about ECONOMY passengers here).

7). Find an alternate to the SENIORITY system. Because it gives every startup an advantage in terms of costs (even if they match the existing payscales). Even otherwise, the seniority system in some ways is the equivalent of getting raises for just showing up to work. Granted the pilots are conducting safe flights but there has to be a system that is based on MERIT combined with the YEARS of FLYING rather than just the time at a company alone. In the few conversations I have had with pilots a sentiment frequently echoed is: "there are a few individuals who are JUST UNFIT FOR COMMAND." And then there are some who are just insolent and arrogant. From my managerial experience, it takes far more effort for management to make life miserable for employee groups and go through pages of documents/investigations to find procedures and rules that were violated -- just to get back at a few employees. But in a unionized environment coupled with pressure from consumers and the corporation management HAS TO TAKE action and almost always A FEW EMPLOYEES succeed in making life miserable for the MAJORITY OF THE WORKFORCE (again this is based on my managerial experience).

 

[General Lee]

Shon7,


Your "managerial" experience obviously has blinded you to the "seniority" system. That is probably because you are used to receiving things via nepotism or some other unfair practice. Let me guess? You are a trust fund baby? The seniority system is the only fair way to conduct business, and the way to keep good employees around. Not everyone can pass a Captain upgrade, and that will weed out the bad Captain wannabees. Upgrades based on brown nosing or merrit will not keep the best pilots. That is the case at many major INTL airlines, like Singapore, Emirates, and others. People are leaving Singapore in droves because of unfair upgrades due to brown nosing etc.


I think you need to get your managerial buttocks off your C152 and into the real world, or maybe just stay away from this topic. A little real world experience would help you a lot, and not just as a manager of a Subway sandwich shop.


Bye Bye--General Lee

 

[46Driver]

Perhaps not the seniority system, but the idea that you get paid more or less for different types of equipment has always struck me as odd - and extremely wasteful with people moving back and forth in training instead of producing revenue by flying. Why not simply pay pilots based on seat and seniority (ala the military rank and years of service)?

 

[General Lee]

46driver,


Well, the Europeans have pay based on years of service, and the most SENIOR guys at Lufthansa fly the 737-300 intra-european routes so they can be home 5 nights a week. That would be ok, as long as SENIORITY allows you to bid that way. Maybe some SENIOR guys want to fly 744s to Osaka.



Bye Bye--General Lee

 

[shon7]

General Lee wrote: "The seniority system is the only fair way to conduct business, and the way to keep good employees around. Not everyone can pass a Captain upgrade..."

Care to elaborate why or how the seniority system is the only way to go? And how do you address the problem of startups who will always have lower costs because of the seniority system. And let me get this -- you are arguing that pilots should NOT be promoted on MERIT because in your view only "brown-nosing" helps recognize the meritorious!

The senior pilots at any airline will always defend the seniority system -- not for any greater good but because of the attitude "well we have put in XX years at the airline and reached seniority number X so we shouldn't compromise/adjust now." Well the UAL and US Airways pilots still retain their seniority -- however the companies might not be around in the future. Same might hold true for DAL. The result of this rigid seniority system is (directy or indirectly): growth of the LCC's and startupcarriers, outsourcing of mainline flying to regionals (management WILL always find a way to cut costs), your payscales at the regionals, the state of the industry in general, erosion of benefits. But hey -- as long as a select group of pilots retain the seniority that shouldn't matter right!!

As for your comment about seniority being the only way to keep good employees around -- could you defend your statement with additional comments on why and how.

In my view, employees stay at an airline because of seniority, that is, before leaving for another airline one will always think about starting right at the bottom again and that at times works against the employees' own judgement. There are numerous pilots at AE, US Air, UAL, DAL who would leave but at any other airline they would have to start at the very beginning and so they put up with whatever goes on at their respective airline. Take any other industry -- if professional employees are raped and pillaged (as has been the case with pilots) the majority WILL leave for other companies. Unfortunately, most pilots do not have that choice partly because of the SENIORITY system.

And as for Captain upgrades -- yes not everyone can pass those. By the same token, there are many out there who pass these upgrades but are still "unfit for command."

As for my managing experience at a subway shop -- you should be careful what you say because the next time DAL needs sandwiches or muffins for their International Flights (your most profitable routes as stated by you numerous times) you might just have to come down to the subway shop!!

 

[enigma]

shon7, You and General Lee are discussing apples and oranges. You find fault with the automatic pay raises that go along with longevity. I believe that you'll find longevity rewards in almost every job, union or not. Most employers recognize rewarding a loyal employee is the right thing to do.

What General Lee is defending is not longevity raises, but seniority as a way for pilots to be ensured fair treatment.

I agree with GL. We work in a 24/7/365 environment.Someone must work Christmas and Thanksgiving, someone must work on SuperBowl weekend, etc. We defend seniority lists because they are what prevents management from giving the best schedule, or the upgrades, to the arse-kissers.

I tend to agree with you that a junior pilot is just as responsible as the senior pilot and that increasing seniority in itself should not be a automatic pay raise. However, just how much do you think the pay scales rise over one's career? For the sake of the argument, forget FO pay. FO's are fine people and fine pilots, I used to be one and hope to become one again. Real soon, but that's another string. The buck stops at the left seat, so let's talk Captains pay.

At my company, Captain pay rates raise about 20% over ten years. That might be excessive, maybe not, we could have negotiated an average rate that would cost the same over ten years. Does it really matter?

I would argue that junior Captains deserve as much as senior Captains. (I are a junior Captain) But I will also argue that those rates are negotiated and remind you that management was a fifty percent party to the agreement. (That's what all of the management apologist fail to admit; management is 50% of the agreement and therefore 50% at fault for pay rates)The rates are also up for renegotiation every four years; a fact that sort of negates the ten year pay scale. In fact, the longevity pay in our contracts is inconsequential in the overall scheme of things. If it were the problem, then just rolling the longevity back to year one would fix all of our current problems. Obviously, more is needed. On a related note: In case you haven't noticed, pilots are willing to accept concessionary bargaining when times are bad. There is no credibility to any argument that pilots and pilots alone are to blame for spiraling pay rates. Look at Delta, when they renegotiated, their employer was recording record profits, Delta management agreed to pay what were competitive rates at the time. Had Delta felt that they couldn't pay those rates, they wouldn't have agreed to them. Inexperienced people like yourself should take the time to learn all of the facts before you place blame in matters in which you obviously have little experience.

You mention upgrades, again you show your inexperience. Let me assure you that upgrades are not given out in seniority order. The opportunity to upgrade is given out in seniority order, but the upgrade itself is not, I repeat, NOT given away. Unless you've got compromising pics of the check airman, the upgrade is earned. Period. In case the company is too easy, the FAA observes a good percentage of the type/upgrade rides. Also, the company gets to set the upgrade standards, as well as the right to deny the opportunity to upgrade if the candidate shows obvious problems. Unfortunately, there are some people who are good pilots, and good people, but they aren't suitable to be in command. Seniority will not get that person a seat on the left side of the cockpit.

enigma, praying for the opportunity to work for managers that get it!

 

[General Lee]

Shon7,


I would GLADLY debate this issue with you. If you have the chance, go look at pprune.org and read statements from pilots in the Middle East for example. Pilots at Qatar Airways, for example, are leaving in droves due to unfair upgrades--mainly due to who you know. That is the same at Emirates--where an upgrade may be due to how well you know a sim instructor or who you may know in the company. This is not the case in US airlines---where seniority allows you the CHANCE to upgrade, and then you have to prove whether or not you are worthy. This is called a "fair practice", and one that most pilots respect. If I were almost senior enough to hold a Captain spot at an airline and the son of the Chairman gets to upgrade first with less time at the company, I would bail out quickly---and most would do the same. Over time, your airline would be full of less experienced brown nosing wannabees that might not be as safe or have the experience as NORMAL airlines with the seniority system. Merrit based promotions can allow less experienced pilots to flow into the left seat, which compromises safety when you need it most. One large crash caused by "pilot error" can cause the company to go belly up. You should know that. Also, I don't know many Captains that I fly with that aren't capable of being a good Captain---maybe your friends know some at other airlines, but I haven't run into many that I thought weren't totally qualified. There are a few that have different attitudes, and some that I may not have been comfortable with on a personal level, but they were still good Captains and made good decisions. Brown nosing might get you far in the boardroom, but not in a heavy snow shower on a three mile final. Again, you should know that! Where do you fly that Cessna 150? Have you ever been in the situation of deciding what to do with 250 people sitting behind you and you are watching your fuel quantity closely? I have been a part of that process. You probably have made a huge decision like determining whether or not you should do a full stop or a touch and go.


As far as leaving for another company and starting over, that pretty much is called "life." It may not happen at the top corporate level, like Airline CEO's moving around to other CEO jobs, but if you are a doctor or lawyer and you stop your practice in a certain town to move to a new one, often you have to start over looking for new patients or clients. If your airline is merged with a new one, often someone loses seniority, and they often aren't very happy about it. Choosing an airline to fly for initially is a big gamble. Guys who interviewed at USAir or the original Piedmont 17 years ago probably never thought that they would be furloughed today. That sucks. The reason they didn't move on to another airline is because they probably had three kids in college and couldn't afford to start over. It all comes down to choosing the correct carrier initially, or being young enough without home liabilities and being able to move around without hurting you or your family.


As far as your funny Subway story concerning our catering, that was really a contract issue between Gate Gourmet and Delta. The judge in ATL saw that, and immediately ordered them to continue. It is interesting to note that the new CEO of Gate Gourmet is Dave Siegel, of ex-USAir fame, who never really liked Delta. There have been a lot of conspiracy theories floating around out there, but I would be interested to know the inter-workings of that agreement and what demands were made between those parties.


Bye Bye--General Lee

 

[climbhappy]

let the free market system work.

based on the article, why does the government need to step in and help the inefficient prolong their fate? The sad truth is unless two or three tank , the extra capacity and price cutting won't stop. Overcapacity and not labor is the real enemy right now.

 

[shon7]

Enigma and General-



I am responding to selected points from both your responses.



Enigma, you wrote,"most employers recognize rewarding a loyal employee is the right thing to do." Yes I agree. But my point is that employees who stick around for long periods of time are NOT ESSENTIALLY loyal. There are numerous other factors that are influencing their decision. Jet Blue and some European operators have found a good way around this where they sign on pilots with mutually renewable contracts. That way, ever five years you still have a chance to get rid of the bad apples.



You further state, "I agree with GL. We work in a 24/7/365 environment.Someone must work Christmas and Thanksgiving, someone must work on SuperBowl weekend, etc. We defend seniority lists because they are what prevents management from giving the best schedule, or the upgrades, to the arse-kissers. “The alternative to Seniority is NOT always Management Assigned. As far as scheduling goes -- airlines like Virgin use a system of rotating seniority for bidding so that nobody hogs the good trips. Upgrades -- here I will agree with your statement that the CHANCE to upgrade should be given out in order of length AND QUALITY of service to the airline. The classic argument to this will be, "how do you measure an intangible like QUALITY?" My response -- one of the ways is that you go back to everyday situations at an airline (delays, catering screwups, irate/unruly customers) and see what initiatives (if any) the pilots and other employee groups took to retain their client base and ensure the success of the airline. LUV is touted as an example where pilots help out with cleaning the aircraft and throwing bags if need be -- those are the kinds of people we should look to retain and promote because people like THEM will ensure the success of the airline. There was a book out a while back called, "Moments of Truth" by the head of SAS. That is exactly what each moment of client contact at an airline or in any service business comes down to.



Finally, you mention Emirates and Qatar in the context of unfair upgrades. I suggest that you not compare your airline to Emirates and Qatar. There are some things that they do right and many things that they do wrong. You and especially management should concentrate on what they are getting right.





If you re-read my earlier post I wrote,"Find an alternate to the SENIORITY system. Because it gives every startup an advantage in terms of costs (even if they match the existing payscales). “This is the first and foremost reason one needs to look at alternatives. Otherwise, you will have new startups that have a cost advantage EACH TIME. How to you propose to address this problem while retaining the current seniority system? Can't set a minimum wage for pilots at upstarts because that will keep going down (as we will see with Virgin America), can't base it on supply and demand (again wages will continue to spiral downwards). In addition, it won't be long before startups come up with the idea of "rostering." Again, for some this might seem farfetched but ALL it takes is (for a startup) to put in a clause in the employment contract and sign these renewable contracts with each employee for a period of X years. (Won’t do much for morale but then that has never been a management agenda).



General you write, "As far as leaving for another company and starting over, that pretty much is called "life." It may not happen at the top corporate level, like Airline CEO's moving around to other CEO jobs, but if you are a doctor or lawyer and you stop your practice in a certain town to move to a new one, often you have to start over looking for new patients or clients." Doctors and Lawyers and Managers move all the time but not at the extreme level you are looking at. In those professions a lateral move does not mean that you start from the bottom up EACH TIME. Yes, if you stop your practice and move to a new town it might -- but NOT if you just switch companies/firms/hospitals. With the airlines this is not possible. Because of SENIORITY. You start with a new airline -- you start at the bottom. Even as a Direct Entry Captain -- you start at the very bottom of the payscale (for that position).



I had posted this issue regarding SENIORITY on pprune back in 2002 and below are excerpts from two excellent responses to my post then --

There are clearly pros and cons to Seniority systems. . .One major disadvantage to pilots in general is that pay and promotion is tied so strongly to seniority.. .Seniority favours pilots who stick with their employer.. .If pilots could vote more easily with their feet and change companies for a better deal, it is quite possible that market forces could push pilot pay higher, especially for experienced pilots. Airlines could tailor their workforce to their needs more easily. Tighter regulation of standards would be needed to avoid some airlines going for'cheap' pilots and sacrificing experience and ability.. . At the moment, if you switch employer you join at the bottom of the list. This is a situation that does not happen in many other professions. It is true that pilots and doctors, amongst others, have an unusually critical responsibility.. .. . However,this lack of freedom of mobility of pilots does tend to make pilots rely on Unions for pay and conditions bargaining, to a greater . .extent. Once you have worked 10-15 years with a major airline it becomes a very difficult decision to move on. Many pilots need and would benefit from a change of scene. Motivation can be renewed by changing employer...

AND

... succesful airlines like Virgin and Emirates can operate a rotating bidding system and keep most people happy. Senior people get the increased basic pay, junior people get a shot at the lucrative trips once every x months. Fine, keep seniority for type conversions etc as a reward for long service if you like, but saying "I had it bad in the past, now you must do so also" really is no justification for a system. Would you deny your kids a Polio vaccine on that basis?



Finally, the SUBWAY story. I alluded to that because of this childish portion or your response or maybe your attempt at humor in your first post. But I'm glad you referred to it because International passengers being served MUFFINS on an International Flight isn't going to help DAL in any way. Even if it was just ONE flight -- I can guarantee that the passengers on that flight will take that experience with them and remember it for a long time to come -- IN A BAD WAY. If the brightest idea the employees could come up with was muffins -- that's ok. But from what I heard there was no effort by the FAs and the pilots to go to each passenger and speak with them about the situation and apologize for the same (this is secondhand information so don't quote me on this). A possible attitude could have been "I have put in XX years at this airline and put up with management fiascos 1,2,3,... so I shouldn't have to deal with this..." Again, these would be loyal (read SENIOR) employees (Int. route on DAL -- most probably a senior capt. and senior FA's) but didn't do much to try and retain the clients. But hey, on the bright side, at least someone took the initiative.