FWA,
If you want to mix apples and oranges, then you can certainly make the case that labor has and always will bear the brunt of airline restructuring. Since apples are not oranges, it is very possible to get to the root cause of where cost cuts come from as well as the profits that AA is now reporting, and I am glad to see.
First, you took a comparison of the last year that DL and NW were in BK compared to AA’s current quarterly report and turned it into a full-scale comparison of the reduction of labor costs over a multi-year period, with no consideration of the factors involved. Subpoint one is that DL and NW started reducing their labor costs via headcount reductions after 9/11 and continued that process up to and thru BK. Dec 31, 2004 was NOT the beginning of DL and NW’s BK filing – it came 9 months – and DL and NW both did reduce labor costs before BK, as well as in it. Yet, AA did the very same thing in 2003 – they just didn’t have the BK part. So, the assumption that BK is necessary to restructure the business is not accurate. In NW’s case, since they were more heavily unionized, many of those cuts between 9/11 and BK came thru consensual agreements – even if under duress, just as they did with AA in 2003. Subpoint two is that the largest part of airline labor cost reductions since 9/11 has come by reducing the number of employees and not the total compensation per employee. It is not at all accurate to say that “restructuring came on the backs of labor” if employees VOLUNTARILY left the company, including thru attrition. In DL’s case, they used voluntary programs MULTIPLE times after 9/11 to reduce headcount on top of normal attrition and probably obtained the majority of their reductions thru voluntary programs; NW had a similar program. I don’t know the exact numbers involved, but AA did have some voluntary programs as has UA, including since their merger and outside of BK.
AA’s restructuring started 10 years ago… how much of the total cuts that AA employees will take between 2003 and 2013 are you going to attribute to BK?
Second, the AMFA strike and subsequent end resulted in the loss of a large number of the jobs and reduction in costs that NW cut in the 2000s and the strike had nothing to do with BK; mechanics for NW then and in many cases still are for other airlines the highest paid non-pilot work group.
Third, the BK process provides a means for recovery for those who have suffered losses as part of a company’s restructuring plans. Employees are very much claimants and do have the right to recovery. UA and US employees had significant recovery leaving their BK; DL employees- non-contract and contract – received billions of dollars worth of stock in the new company as well as cash on emergence. Thus, when you talk about how much employees at any company “lost” during BK, you need to finish the calculation with what they gained in recovery at the end of the process. AA employees will have some recovery on emergence but it is not yet clear how much that will be.
Fourth, DL employees have had the largest and fastest post-BK financial recovery among any legacy airline employee group in the form of salary increases and profit sharing. DL has paid $1 billion in profit sharing over the past three years which works out to more than $14,000 for the “average” Delta employee. When you factor in multiple pay increases and profit sharing (which wasn’t there before BK), DL employees have indeed recovered large portions of what they lost. I would be thrilled if AA employees recovered just as much just as quickly or more so.
Fifth, health care cost increases have been one of the sore spots in the AA BK process just as they were for PMNW employees during the transition process with DL. The simple fact is that health care costs throughout the US doubled over the past ten years; holding onto a piece of paper in the form of a CBA that forced the company to continue to eat cost increases that the rest of America’s employees had to face is precisely the reason why companies seek BK protection in the first place. It is no more reasonable to expect the company to be able to buy jet fuel at five year old prices than it is to think they should or will pay five year old (or more) health care costs, including the employee contribution part of the equation. When you factor in the “normalization” of health care costs for airline employees that were kept below-market because airline employees are more heavily unionized than other industries, then the airline industry-specific increases in costs are a whole lot less.
Finally, you once again sidestepped the lack of growth in revenue at AA. The simple fact is that the minute AA or any company leaves BK, costs start to grow again. IN new AA’s case, just like what happened at UA, the costs will grow very quickly because the cost of merger integration in the form of pay raises to employees for them to agree to integrate is very expensive. UA spent two years deciding what routes couldn’t make money and then royally screwed up the customer-facing IT integration which stopped their revenue growth in the tracks – which resulted in huge losses because the employees have not been willing to sit around waiting for the paycheck. The simple fact is that revenue synergies have to be the basis for creating long-term financial stability post-BK and so far AA has not demonstrated where it is going to obtain increased revenue. Parker might be able to figure out ways to extract revenue from AA’s network that AA mgmt couldn’t figure out, but I doubt it; AA has long had some of the best revenue-minded leaders in the industry. IN the absence of significant increases in revenue, including turning AA’s Pacific operation into a profitable and sustainable entity and protecting DFW from WN’s growth at DAL and competitor growth in other key markets including Latin America, LHR, and DCA and it becomes even harder to expect that new AA’s revenue is going to grow anywhere close to the levels necessary to support the increased costs that will come with the merger.
On an apples to apples comparison basis, other carrier employees have indeed done well post BK. Since you have touted how great the AA BK would be in terms of recovery for shareholders and creditors, how about you throw just a little support behind the idea that AA and US employees could genuinely benefit as a result of the merger including thru financial recovery post BK. While you have argued for years that AA employee costs are the reason for the company’s problems and you now seem to enjoy the prospect that those cuts will never be restored, I will continue to hold out hope that real revenue increases at new AA can and will provide the basis for improved financial performance for individual employees – and I will hold out the example of companies whose employees have benefitted because of their company’s successes as evidence that a revenue-based recovery for the company is good for employees and provides the greatest potential for their long-term success.
