APFA Labor cost analysis

[commavia]

Lame lame lame. How in the world can you people keep making excuses for this management team? You are so quick to continue to blame EVERYTHING on labor when the facts just don't point in that direction.

Lame lame lame. How in the world can you keep making excuses for these unions? You are so quick to continue to blame EVERYTHING on management when the facts just don't point in that direction.

It's a two-way street.

Management conservatism, lack of dynamism and innovation, and bad decision making is partly responsible for AMR's current financial condition, as is the company's labor costs which are - by the APFA's own numbers (minute 4:55) - are the highest among major U.S. carriers. Again, that's the APFA's own numbers, not mine.

Both labor and management deserve blame for the things that have gone wrong, and they both deserve credit for what has gone right.

 

[eolesen]

Lame lame lame. How in the world can you people keep making excuses for this management team? You are so quick to continue to blame EVERYTHING on labor when the facts just don't point in that direction. Maybe CO filed for bankruptcy 20 years but in 2010 their labor costs are in line with AMR's and they are making money so obviously something else is going on here. Nice try.

Can't help it if you don't like having basic facts pointed out to you. Labor costs aren't all about pay.

Yes, CO did file nearly 20 years ago, but they are definitely reaping the benefits of those actions.

Pay rates may be on par with AA, but you can't overlook the impact of shedding decades of workrules in the 1983 bankruptcy.

Good example of this is crew rest. Pilot crew rest accommodations for CO pilots consists of blocked seats in coach, while AA requires seats in the highest cabin offered. Compare the revenue impact of blocking 3 seats in coach vs. blocking off two seats in J on AA's 767 fleet or the lost floor space from crew bunks on the 777.

CO also didn't have scope restricting them from outsourcing things like aircraft cleaning or ramp handling. They didn't have unions grieving their partnerships with SK, HP, NW, DL, or UA.

Since pre-1983 pensions were dumped on the PBGC, they also have a much lower retiree overhead...

All that adds up, especially over a 20 year period.

CO may have unions representing their workers again, but they haven't been able to negate a good portion of the cost savings that Lorenzo was able to put in place post '84 or that Bethune was able to continue with post '93.

CO got a lot of other benefits from their bankruptcies which go beyond labor costs -- exiting real estate leases, restructuring debt and aircraft leases, and writing off almost all of the debt associated with acquiring People Express and Frontier.

When 9/11 hit, CO had less debt and didn't have to borrow to the same degree as AA.

Those are all facts, Jersey. And the same principles now apply at the other legacies who went thru bankruptcy, especially UA and US.

They have nothing to do with supporting AA or AA management, but go straight to the heart of the ignorance expressed with regard to the labor cost advantages other carriers have over AA.

And again, it's labor costs, not labor rates. They're mutually exclusive concepts.

 

[Bob Owens]

Not to mention that there is really no good reason at this point to replace all the MD80s. Doing the math, the MD80s are still perfectly good airplanes for many missions that have shorter stage lengths and thus are less fuel-intensive. The MD80s may cost 20% more per block hour on fuel, but they are almost 35% less expensive on ownership cost because they were generally paid off years ago. As such, if you drew a graph of those two equations - the fixed (monthly ownership) plus variable (hourly operating) costs of both aircraft types, there's a place where those two lines intersect, and anything on one side of that line is effectively still - generally speaking - a viable mission for the MD80. Why would the APFA want the company to go out and spend billions re-capitalizing airplanes that still serve their purpose quite well? Seems wasteful to me.
PTVs sound nice - but at what cost? How much does it cost to install them, maintain them, carry their weight around in fuel, etc.? Would the unions prefer AA spend money on that, or on funding their pensions?

PTVs in MD-80s would be cheaper than new airplanes. But in reality I would rather have more money in my pocket than New airplanes or PTVs.

 

[Veritas]

PTVs in MD-80s would be cheaper than new airplanes. But in reality I would rather have more money in my pocket than New airplanes or PTVs.

IFE and new planes bring customers. More money in your pocket does not.

 

[eolesen]

IFE and new planes bring customers. More money in your pocket does not.

IFE and new planes can also justify charging a revenue premium. Look around, and you'll see cases where Virgin America's fares are higher than AA's. AA can try and compete based on price and loyalty programs instead of their product, but they only win price sensitive travelers and mileage whores, and that's not where the real money is...

 

[Bob Owens]

Labor costs aren't all about pay.

Agreed and not everything is about labor costs either.

Yes, CO did file nearly 20 years ago, but they are definitely reaping the benefits of those actions. Good example of this is crew rest. Pilot crew rest accommodations for CO pilots consists of blocked seats in coach, while AA requires seats in the highest cabin offered. Compare the revenue impact of blocking 3 seats in coach vs. blocking off two seats in J on AA's 767 fleet or the lost floor space from crew bunks on the 777.

Really, and what specific benifits are the reaping from those Bankruptcies? According to Gordon Bethune they nearly did the company in. Currently CAL employees have both a DB and a 401K match as far as pensions, they get more pay, more vacation, more sicj time, more Holidays and more holiday pay.

Very rarely are first class seats all sold out at first class prices, you just resent the fact that it reduces the chances of someone like you getting an upgrade.

Since pre-1983 pensions were dumped on the PBGC, they also have a much lower retiree overhead...

All that adds up, especially over a 20 year period.

CO may have unions representing their workers again, but they haven't been able to negate a good portion of the cost savings that Lorenzo was able to put in place post '84 or that Bethune was able to continue with post '93.

How many people who retired in 1983 are still collecting pensions from AA? Thirty years of exposure to some of the most toxic chemicals known to man must have killed most of them off by now, now the company is trying to kill off our families by having us take home our toxic clothes for cleaning as well. I believe CAL still cleans their mechanics uniforms or gives them an allowance.

Such as? I know of several former coworkers who went over to CAL and stayed. One guy lives in Queens, drives right past JFK to EWR to work for CAL rather than work for AA. He refused Recall.

CO got a lot of other benefits from their bankruptcies which go beyond labor costs -- exiting real estate leases, restructuring debt and aircraft leases, and writing off almost all of the debt associated with acquiring People Express and Frontier.

When 9/11 hit, CO had less debt and didn't have to borrow to the same degree as AA.

Those are all facts, Jersey. And the same principles now apply at the other legacies who went thru bankruptcy, especially UA and US.

They were also a much smaller company.


OK, so CAL has better pay and benifits than we currently do and the company is healthier, so what you are saying is that we should have made the company go bankrupt rather than give these concessions and keep them out of bankruptcy?

They have nothing to do with supporting AA or AA management, but go straight to the heart of the ignorance expressed with regard to the labor cost advantages other carriers have over AA.

And again, it's labor costs, not labor rates. They're mutually exclusive concepts.

Again I agree. And if our labor costs are higher it really doesnt mean anything, whats important is why they are higher and what effect it has on other costs. If AA labor costs are higher because AA wants more FAs on its overwater trips so they can command a higher price thats their business decision and should have no effect whatsoever on what the workers should expect to get paid. If AA does their maintenance in house instead of paying around $55hr to outsource and ends up with shorter turn times and higher quality that too is a business decision and should not deter our expectations to make as much as the top paid aircraft mechanics in the industry.

 

[commavia]

If AA labor costs are higher because AA wants more FAs on its overwater trips so they can command a higher price thats their business decision and should have no effect whatsoever on what the workers should expect to get paid. If AA does their maintenance in house instead of paying around $55hr to outsource and ends up with shorter turn times and higher quality that too is a business decision and should not deter our expectations to make as much as the top paid aircraft mechanics in the industry.

Okay, but who are we kidding here? This is, fundamentally, where the APFA's so-called "analysis" gets a bit comical.

Does anyone here or anywhere else honestly think that AA "wants more FAs on its overwater trips?"

I read here on this forum and hear directly from AA employees all the time that the company sucks and will do anything it possibly can to screw them, get rid of more of them, pay them less, etc.

As such, doesn't it strike anyone else as a bit ridiculous that supposedly the only reason why AA's FA unit costs are higher is because of overstaffing (relative to peers), and that this is somehow because of an AA desire? Don't you think that if AA could do it - reduce staffing further internationally - they would? But of course, they know that it would never pass ratification with the union, and thus the contract hasn't changed.

In short: even if we're buying into this APFA line that it's all because of over-staffing the 777s internationally, that is hardly because AA "wants" it that way, but because that is what is in the contract, and it couldn't change and pass ratification.

 

[jersey777]

Okay, but who are we kidding here? This is, fundamentally, where the APFA's so-called "analysis" gets a bit comical.

Does anyone here or anywhere else honestly think that AA "wants more FAs on its overwater trips?"

I read here on this forum and hear directly from AA employees all the time that the company sucks and will do anything it possibly can to screw them, get rid of more of them, pay them less, etc.

As such, doesn't it strike anyone else as a bit ridiculous that supposedly the only reason why AA's FA unit costs are higher is because of overstaffing (relative to peers), and that this is somehow because of an AA desire? Don't you think that if AA could do it - reduce staffing further internationally - they would? But of course, they know that it would never pass ratification with the union, and thus the contract hasn't changed.

In short: even if we're buying into this APFA line that it's all because of over-staffing the 777s internationally, that is hardly because AA "wants" it that way, but because that is what is in the contract, and it couldn't change and pass ratification.

I am not sure if you realize it but the APFA has no control over staffing and AA could change the staffing tomorrow if they want. We lost staffing in the 1994 interest arbitration award. So the answer to your question is that , yes, AA does want to staff the airplanes at a higher level then our peers. I am really surprised you didn't know this fact. Makes me lose just a little bit of faith in your knowledge...lol. I kind of look to you as the rational voice of reason with a wealth of information.

 

[commavia]

I am not sure if you realize it but the APFA has no control over staffing and AA could change the staffing tomorrow if they want. We lost staffing in the 1994 interest arbitration award. So the answer to your question is that , yes, AA does want to staff the airplanes at a higher level then our peers.

Good to know.

I am certainly no expert on the union contracts, and did not realize that staffing is not contractual (i.e., someone in the premium galley, X number in the back, etc.).

Nonetheless, I do still find it a bit questionable to suggest that AA "wants" to overstaff flights relative to peers. If fewer flight attendants on a Continental 777 can serve more people, then why does AA need as many as it does? And, if that's the case, is the APFA willing to accept more layoffs when the company turns around and says, "we're just going by what you said - we have the most expensive FAs because of the international overstaffing."

Either way, it still strikes me as a bit stupid on the union's part to position their argument on cost in this way: effectively, they've said that the AA FAs are, indeed, the most expensive in America, but that they are because AA overstaffs. I'm not sure which part of that argument the APFA is hoping to win - highest cost, or overstaffed.

 

[jersey777]

Good to know.

I am certainly no expert on the union contracts, and did not realize that staffing is not contractual (i.e., someone in the premium galley, X number in the back, etc.).

Nonetheless, I do still find it a bit questionable to suggest that AA "wants" to overstaff flights relative to peers. If fewer flight attendants on a Continental 777 can serve more people, then why does AA need as many as it does? And, if that's the case, is the APFA willing to accept more layoffs when the company turns around and says, "we're just going by what you said - we have the most expensive FAs because of the international overstaffing."

Either way, it still strikes me as a bit stupid on the union's part to position their argument on cost in this way: effectively, they've said that the AA FAs are, indeed, the most expensive in America, but that they are because AA overstaffs. I'm not sure which part of that argument the APFA is hoping to win - highest cost, or overstaffed.

I think what the APFA has been doing in its charts and graphs is to not simply take the company at its word. They are trying to counter the AA negotiations web site and to show that when you level the playing field according to staffing levels on international you get a clearer picture of where AA lies when it comes to labor costs. You just never take any number thrown out by the company without supporting documentation. In 1999 when we were in contract negotiations the company told the APFA that crew meals would cost 18 million dollars a year. The union said "prove it" and show us how you came up with this figure. The next session the company backed off that figure and we ended up getting crew meals...which of course were taken away in 2003.

 

[Duke787]

Absolutely.

The company puts out all sorts of "spin" all the time, but they hardly have a monopoly on that, and this so-called "analysis" has so many massive holes in it that you could fly one of the APFA's vaunted brand new 737s right through it.

The most comical piece of B.S. in this whole "analysis" is the union's breathtaking assertion that no other U.S. carrier has derived a labor cost advantage from bankruptcy. That is stunning. Does Laura seriously need Arpey to provide evidence for this?

Is the union honestly suggesting that Delta, Northwest, United and USAirways derived no labor cost advantage from outsourcing 100% of their maintenance overhauls - in many (if not most) cases to foreign countries? Derived no labor cost advantage from tearing up their scope clauses and downshifting more and more of their capacity to regional operators with way lower payscales than mainline? Derived no labor cost advantage from cutting union members' base pay and work rules, in many cases more severely than what AA did in 2003? Derived no labor cost advantage from freezing and or dumping virtually every one of their defined benefit pension plans?

Really, APFA? No labor cost advantage at all. Come on.

The union and the company can haggle back and forth on quantifying the value AMR's labor cost disadvantages, but to suggest that there isn't one strikes me as just ridiculously dishonest, and will probably discredit this entire "analysis" in the eyes of many people who already don't think too highly of the unions these days - i.e., the investment community, shareholders, lenders, the media, etc. The new APA President himself has talked publicly and frankly about how the unions have done a piss-poor job of building bridges with, instead of antagonizing, these critical long-term constituencies.



It is amazing that the APFA apparently thinks that AMR has enough money - have you looked at the balance sheet lately, Laura? - to be both investing billions in a new fleet, and investing billions in "restoring" union contracts to pre-2003 (i.e., way, way above other airlines' 2010) levels. The APFA also doesn't quite seem to understand the concept of opportunity cost. Sure, the company can spend money on new planes. But then they can't fund everyone's pensions, or something else has to get cut. That's the way it works. And no, before somebody even says it, Arpey's compensation wouldn't even cover the down payment on a new plane. You could pay him and all the top guys 0 and you still couldn't pay for a new airplane.

Not to mention that there is really no good reason at this point to replace all the MD80s. Doing the math, the MD80s are still perfectly good airplanes for many missions that have shorter stage lengths and thus are less fuel-intensive. The MD80s may cost 20% more per block hour on fuel, but they are almost 35% less expensive on ownership cost because they were generally paid off years ago. As such, if you drew a graph of those two equations - the fixed (monthly ownership) plus variable (hourly operating) costs of both aircraft types, there's a place where those two lines intersect, and anything on one side of that line is effectively still - generally speaking - a viable mission for the MD80. Why would the APFA want the company to go out and spend billions re-capitalizing airplanes that still serve their purpose quite well? Seems wasteful to me.



Well, the "truth" is that up until now, the price that AA would have had to paid to get ATI would have been fewer Heathrow slots and reduced flying. Would that have been the APFA's preference?

It's not a difficult concept. It's all about cost versus benefit. Up until now, the massive cost - in terms of less Heathrow slots and lost associated revenue, etc. - did not outweigh the economic benefit of joint pricing, ATI, etc. Not to mention, in the past, AA/BA would almost certainly have been required to accept carve-outs on specific hub-to-hub markets in order to get ATI, which would have further undermined the economic benefits of the deal.

Now, thanks to AA's shrewd handling of the situation and patience, AA is getting basically everything they want at almost no cost at all: complete, unrestricted ATI with no carve outs (that is a massive, massive victory versus some other recently-approved ATIs), and with a grand total of only 4 slots (and actually probably even less) actually given up.

Seems to me AA is just really good at calculating the benefit of ATI versus the cost, and APFA is really bad at grasping it.



I'm within on some of that. I do think it's dumb that they haven't put IFE on the longhaul fleet, and the half-refit of the 767s with the new interiors up to the end of the small Y cabin just looks cheap and tacky.

But in general, when it comes to acquiring new aircraft, AA is simply conserving cash and being shrewd with their capex dollars. Again - would the union rather AMR invest hugely in their fleet and just skip pension payments? I realize many here don't believe that is the trade off, but of course it is.

The truth - if we're being honest - is that they couldn't win no matter what they do. When they don't buy new planes, or go cheap on refurbs, unions b*tch and complain about how bad it looks, how the company is just crying poverty during negotiations, etc., and when they do put money into buying new planes and investing in the fleet, they just b*tch and complain more, about how wasteful it is, and what they should be doing with that money is "restoring our contract," etc. etc. I've heard it myself oh-so-many times.



And what's the first thing people - you know, the adults who actually make the decisions in the family - actually think about when the think of JetBlue? Low fares. JetBlue's IFE has not generally translated into higher yields versus AA.

PTVs sound nice - but at what cost? How much does it cost to install them, maintain them, carry their weight around in fuel, etc.? Would the unions prefer AA spend money on that, or on funding their pensions?



The entire industry is moving towards thinner, slim-line seats. AA is hardly unique in that regard. And it seems that history is being forgotten, since I seem to remember AA trying to go the opposite direction of "jam[ming] even more people on board," and instead spacing seats out, and it was an economic disaster.

Well said, but the logic of your post will go against the same old talking points of many of the posters on this forum. It's the company and union's fault, not the environment we work in.

 

[Duke787]

I hope you understand that the airlines that are making money are largely doing so precisely because they went through bankruptcy. Those airlines were able to tear up labor contracts and get significant cost reductions and productivity work-rule changes. This gives them a big cost advantage over AA (yes, exactly what AA has been trying to tell you) and lets them turn a profit at fare levels that are barely break-even for AA.

Things are out of balance here, and something is going to have to give.

AA FA's make the most per hour after COL, work the least amount of hours, and have the most staffing per wide body then any other airline. How dare you suggest that they would not get their pre 2003 contract.
:angry:

 

[IORFA]

Wrong, AA F/A's DO NOT make the most per hour after COL!! Keep digging. Also, AA chooses to, as you say, "overstaff" flights for marketing reasons. If AA wants to reduce the F/A's per trip, let them. We "overstaff" flights, because AA chooses to do so. As an example,AA chooses to do so by having 16 seats in F/C on the 777. UA as an example only has 8 seats in F/C on their 777's. That right there would drive one less F/A per plane. The union didn't make the seating choices, AA did. CO and DL/NW, don't offer F/C anymore, they have less F/A's per flight, because they chose, for marketing reasons, to offer less classes of service. Once again AA makes these decisions. Don't blame the APFA for AA's choice to offer 3-class service with double the F/C seats on top of that. As eolesen has stated before, for this reason FF's like AA for the frequent opportunities to be upgraded. Untill the union is 100% in charge of those decisions, then we can talk.

 

[commavia]

Wrong, AA F/A's DO NOT make the most per hour after COL!! Keep digging.

No need to keep digging. Who said anything about making the most per hour? I said that AA's flight attendants are basically the most expensive today among major U.S. airlines in terms of cost - as measured by CASM, which the standard measure of cost in the industry, and the metric that the APFA prefers.

Thankfully, the APFA was nice enough to calculate it for me, and put it up on YouTube (this video, time 4:45).

That's the APFA's numbers, not mine - so don't kill the messenger.

 

[Rogallo]

Very rarely are first class seats all sold out at first class prices, you just resent the fact that it reduces the chances of someone like you getting an upgrade.