APFA Labor cost analysis

[jersey777]

http://www.apfa.org/images/negotiations/white_paper.pdf



Very interesting read and puts negotiations in perspective.

 

[eolesen]

http://www.apfa.org/images/negotiations/white_paper.pdf



Very interesting read and puts negotiations in perspective.

Yes, interesting, but it also has some seriously flawed logic in a couple places, i.e. blaming management for how long it took to get ATI approval. Never mind the fact that regulatory authorities turned it down twice, and the fact that Open Skies with the UK didn't exist until two years ago (which is about the time AMR started filing again for ATI with BA).

I also have to question the logic of trying to kick off a fleet replacement program while fuel prices were at their peaks between 2004 and 2007. With all the uncertainty over fuel prices, tying up available cash may not have been the smartest thing to do with their cash...

 

[IORFA]

AA copuld have had ATI long ago, they just didn't like the conditions that were set by the DOT. So your argument doesn't hold water. You should have said AA and BA turned down ATI twice. That is the truth.

 

[jersey777]

My favorite part is how AA has not or will not show supporting figures to prove their assertion that AA's labor costs are $600 million more then the competition. It is real easy to throw out figures but in negotiations you cannot make any moves without facts to support your allegations.



As far as blaming management for the having an inefficient fleet of aircraft, the blame must be spread back years before Arpey took control. I think the APFA hit the nail on the head when the said the company focuses too much on costs for the immediate future. The 2020 plan is a bunch of hot air and is supposed to make you think that AMR is planning for the long haul. But look what they are doing. They are making the same mistakes with aircraft by being years behind when it comes to amenities. No PTV in the 737's,767's or 767's in coach. We are still handing out DVD players in business on the 767 and having to collect them an hour before landing. It is going to take us years and years to catch up to Delta and United on this and I think it is a big mistake.....one more example of a stodgy management team without vision and unable to put a little excitement into the American Airlines brand.

 

[Bob Owens]

My favorite part is how AA has not or will not show supporting figures to prove their assertion that AA's labor costs are $600 million more then the competition. It is real easy to throw out figures but in negotiations you cannot make any moves without facts to support your allegations.



As far as blaming management for the having an inefficient fleet of aircraft, the blame must be spread back years before Arpey took control. I think the APFA hit the nail on the head when the said the company focuses too much on costs for the immediate future. The 2020 plan is a bunch of hot air and is supposed to make you think that AMR is planning for the long haul. But look what they are doing. They are making the same mistakes with aircraft by being years behind when it comes to amenities. No PTV in the 737's,767's or 767's in coach. We are still handing out DVD players in business on the 767 and having to collect them an hour before landing. It is going to take us years and years to catch up to Delta and United on this and I think it is a big mistake.....one more example of a stodgy management team without vision and unable to put a little excitement into the American Airlines brand.

When people talk about Jet Blue whats the first thing you hear? Personal TVs. When the kids fly whats the first thing they ask? Are we going to have a TV in our seats? They defineatly are a plus and they make any flight seem shorter.

Instead AA is going with thinner seats so they can jam even more people on board, as if there wasnt a shortage of OH bin space already.

I liked the whole report, I just wish that our union would do something like that as well, unfortunately if they did it would probably have a different conclusion. The $600 million would become a Billion dollar cost disadvantage. Like the pension shortfall, the International told us it was a Billion and it turned out to be $500 million.

 

[commavia]

Yes, interesting, but it also has some seriously flawed logic in a couple places,

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.

I also have to question the logic of trying to kick off a fleet replacement program while fuel prices were at their peaks between 2004 and 2007. With all the uncertainty over fuel prices, tying up available cash may not have been the smartest thing to do with their cash...

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.

AA copuld have had ATI long ago, they just didn't like the conditions that were set by the DOT. So your argument doesn't hold water. You should have said AA and BA turned down ATI twice. That is the truth.

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.

As far as blaming management for the having an inefficient fleet of aircraft, the blame must be spread back years before Arpey took control. I think the APFA hit the nail on the head when the said the company focuses too much on costs for the immediate future. The 2020 plan is a bunch of hot air and is supposed to make you think that AMR is planning for the long haul. But look what they are doing. They are making the same mistakes with aircraft by being years behind when it comes to amenities. No PTV in the 737's,767's or 767's in coach. We are still handing out DVD players in business on the 767 and having to collect them an hour before landing. It is going to take us years and years to catch up to Delta and United on this and I think it is a big mistake.....one more example of a stodgy management team without vision and unable to put a little excitement into the American Airlines brand.

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.

When people talk about Jet Blue whats the first thing you hear? Personal TVs. When the kids fly whats the first thing they ask? Are we going to have a TV in our seats? They defineatly are a plus and they make any flight seem shorter.

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?

Instead AA is going with thinner seats so they can jam even more people on board, as if there wasnt a shortage of OH bin space already.

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.

 

[eolesen]

I think investing in IFE was a bad decision, but at least they've invested in GoGo. At this point, PTV's and seatback IFE are going to become the AirFone of the 2000's.

Ten years from now, you'll see customers getting streaming video and audio from an onboard media server delivered to their iPad v9 via wi-fi. AA's already putting in the right infrastructure for that.

 

[jersey777]

You can defend management all you want but the bottom line is that EVERY major US airline has made money this year besides AMR and that includes those that went into bankruptcy (Delta, United, USAir) with those that haven't (Continental, Southwest, Alaska). It is disingenuous and pathetic for this management team to place all the blame on its employee costs and not take ANY responsibility for past mistakes. I think the APFA brings up some very valid points and unmasks some of the fallacies in the company's position.


BTW...most all of the cost advantages you mentioned correspond to other work groups besides the flight attendants. There wasn't one item BESIDES our pensions that was not slashed in 2003. There are so many variables in a contract, from staffing to aircraft type to pay that it is difficult to directly compare apples to apples. I think the APFA is trying to do that yet the company keeps on throwing out these numbers and lumping us in with all other work groups without any basis to check the facts.

 

[commavia]

You can defend management all you want but the bottom line is that EVERY major US airline has made money this year besides AMR and that includes those that went into bankruptcy (Delta, United, USAir) with those that haven't (Continental, Southwest, Alaska). It is disingenuous and pathetic for this management team to place all the blame on its employee costs and not take ANY responsibility for past mistakes. I think the APFA brings up some very valid points and unmasks some of the fallacies in the company's position.

No argument in general.

Is labor the only reason why AMR is losing money while everyone else is making it? No, of course not. But are they one of the reasons? Of course.

Management is responsible for AMR's loss, but so are labor costs. It's a two-way street. Everyone deserves some credit for all the things - often overlooked when someone (management or labor) is trying to make some other point - that have gone astoundingly right with AMR in the last decade, but they also all deserve blame for some of what has gone wrong.

BTW...most all of the cost advantages you mentioned correspond to other work groups besides the flight attendants. There wasn't one item BESIDES our pensions that was not slashed in 2003. There are so many variables in a contract, from staffing to aircraft type to pay that it is difficult to directly compare apples to apples. I think the APFA is trying to do that yet the company keeps on throwing out these numbers and lumping us in with all other work groups without any basis to check the facts.

It was the APFA's assertion that AMR's bankrupt competitors did not derive a labor cost advantage from bankruptcy. I was responding to that asinine assertion, which I think even many union members would see right through if they're being honest. I laid out various ways where Delta, Northwest, United and USAirways absolutely derived some material economic advantage over AMR from filing for bankruptcy. And, of course, that ignores the millions of seats riding around the skies these days on new-entrant, post-deregulation competitors who didn't even need bankruptcy to have a huge labor cost advantage over AMR because they didn't overhaul planes to begin with, didn't have pensions to begin with, didn't pay their people anywhere close to what AMR pays to begin with, worked their people more hours per month than AMR to begin with, etc.

 

[FrequentFlierCA]

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.

 

[Imjustsayin]

APFA "White Paper" what a joke - pure union babble. The financlal community didn't give it the time of day. That's the same union whose officals were in the news the day after telling the world that Slater was a hero.

 

[jersey777]

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.

Uh, Continental didn't go through bankruptcy...explain that one.

 

[eolesen]

Uh, Continental didn't go through bankruptcy...explain that one.

CO went thru two bankruptcies -- in 1983 and again in 1990, which gave them a notable cost advantage for most of the 90's, and continued well into the "Decade of Nothing" between 2000 and 2009.

 

[TIME FOR CHANGE]

If AA would have filed there wouldnt be all this chatter on some BB. Maybe they will do it after all three unions force there hand. Time will tell... 😀

 

[jersey777]

CO went thru two bankruptcies -- in 1983 and again in 1990, which gave them a notable cost advantage for most of the 90's, and continued well into the "Decade of Nothing" between 2000 and 2009.

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.