Checkmate

[WorldTraveler]

It is true that airlines that have relied exclusively on employee concessions have not been long-term survivors. The reality is that both HP and CO substantially changed their revenue model at the same time they restructured their costs: HP adopted an LCC fare structure etc while CO moved toward high value hubs (EWR and IAH).

Part of the reason why UA, in my opinion, is doomed to fail is that they have failed to really address the fundamental revenue problems at an airline of its size. Along with US, UA has moved so far down the failure path that there is no escaping without seriously alienating employees. AA’s out of court restructuring gave them a substantial cushion which they are now using to restructure their operations. Along with employee concessions and changes to costs, AA is clearly doing a number of things to reduce complexity in its operation – exactly what every legacy carrier has to do. I fully expect that DL will follow a path similar to AA and will probably improve on it in several regards just by virtue of going later in the process. For both AA and DL, employee concessions will be critical in giving those companies the financial flexibility necessary to restructure their operations and get their costs down.

 

[luvn737s]

Regardless of my opinion of what employee salaries should be, the airlines must be able to stabilize and balance the revenue/cost relationship if they are to survive long-term. Each time the cost carosel goes around one party lowers theirs to maintain a competitive advantage allowing them to offer lower fares which in turn require a reduction in cost and so the spiral continues.

Airlines need to act rationally by raising fares in unison. Each individual airline feeds into the fantasy that it can choke off a competitor and reduce capacity, making fare increases easier. Trouble is all you have done is embolden a customer base that now demands artificially low fares whaich will be provided, not by the winner in the war of attrition, but by a new upstart whose costs are low and workforce motivated. In short, the airlines are better off acting as an oligolopy and using their combined power to strengthen an industry by providing service at rational fare levels.

As it is now, the only fuel or the war of attrition comes from the employees and at the expense of morale and loyalty. Labor has to cut off these supply lines and force managements to wake up and face their own insanity.

 

[WorldTraveler]

Luvn737s,
I believe you see the correct problem but I don’t believe it will be solved by the labor methods you propose. The source of the problem is an excess, or really imbalance, of capacity between low cost producers and high cost producers. The LCCs see an opportunity to gain tremendous revenue and market share considering that the legacy carriers still carry nearly 75% of all passengers inside the US and nearly all of the passengers outside the US. Although there are certainly brand preference elements, air transportation is essentially a commodity; the lowest cost producer always wins in a commodity business.

The issue is really cost driven and every cost item that stands in the way of getting to the cost equilibrium will be targeted. Labor IS one of the easiest cost items to attack and will therefore incur more cuts. There really is no precedent for labor standing in the way of reducing costs and having the company succeed. Let me know if you have a good example.

That does not, however, mean that labor should roll over and just give management everything they want. Legacy airlines that survive will not only cut costs but also come up with industry-leading business plans. Developing business plans is the responsibility of management and labor cannot be expected to continue to incur blow after blow while supporting the current management teams. In reality, UAL employees had the best opportunity to replace their management and get true leaders but that was never done because labor was more interested in lining its own pockets than in preparing for the expected changes in the industry (which are undoubtedly far more clear today than they were 12 years ago – even though many experts said we would see what we are now seeing at the time the industry was deregulated 25 years ago).

My predictions as to which of the legacy airlines will survive is based on 1) the ability to cut costs to provide a meaningful chance of becoming competitive while not decimating stakeholders and 2) having strong management and sound business plans. AA and DL are my picks for future leaders in the industry (and possibly the only two long-term legacy carriers). AA got substantial cost relief last year and continues to reduce costs through simplification of its business processes. AA has always been a fairly well run company, particularly from a marketing perspective. AA’s biggest mistakes have come around the ability to execute mergers and acquisitions; fortunately, AA needs little else to become a truly global and nationwide carrier. AA still needs a mid-Atlantic hub which could easily be done by redeveloping RDU (which will work much better with a large and growing fleet of RJs – something AMR didn’t’ have ten years ago) or acquiring an existing hub. AA will probably regret dismantling STL but it can probably be rebuilt if necessary (again heavily RJ dependent) to help counter capacity limitations at ORD. Building new Pacific markets should be relatively easy given the improvement in market access, AA’s strong hubs, and large fleet of 777s. AMR also has significant wealth in its ownership of American Eagle and its extensive maintenance operations, either of which could be sold off or provide revenue streams in providing quality services for other carriers.

DL is my other choice for being a long-term survivor and leader in the industry. DL has long been a well-run company and has had some of the lowest costs and highest quality service in the industry; the last 10 years have clearly been a severe deviation for DL but there are a lot of people at Delta, including Jerry Grinstein, who know how quality airlines were once operated. I believe it is very likely that DL’s stakeholders will agree to significant cost concessions in the next 30-60 days simply because the pain they will incur if they don’t work w/ DL will be much greater and the examples of failures is very apparent elsewhere in the industry. The size of concessions DL is asking for should make DL solidly profitable. Further, DL will stand to gain more than anyone else as US continues to shift away from hub operations and even more if it fails – which at least many US employees regard as very possible if not likely. Part of the urgency for DL to resolve its cost problems is due to US’ impending potentially fatal crisis and the continued shakeout in the industry that will provide Delta will opportunities to grow through acquisitions. Fortunately, DL has done mergers and acquisitions fairly well, and DL will need to acquire to in order to become worldwide and nationwide given its relatively light presence in top world markets. I believe UAL is headed for a painful end and DL will be prepared and capable of picking up the pieces – and gaining access to Asia, London, the west coast, and Chicago and strengthening its Rocky Mountain position; although I’m fairly certain that DL will go after Asia, London, the west coast, and Chicago, I’m not sure that moving mountain operations from SLC to DEN will make sense from a financial sense given DEN’s high costs; there is no doubt that DEN will push for a strong replacement carrier and will be willing to renegotiate costs. Further, DEN will make even more sense if DL shutters DFW since DEN is within RJ range of many of DL’s traditionally strong Texas and SE markets – but SLC is not. On the people front, DL employees will likely make more than UA employees as UAL continues to cut costs to survive so employees could see DL as their savior – exactly as it happened with Pan Am and Western employees. DL and UA obviously have little overlap and the government will likely look favorably on a DL distress acquisition of UA if it means preserving air service.

CO and NW could well both be survivors although I wouldn’t be surprised to see an eventual merger between the two facilitated by an aircraft swap between DL-UA and NW-CO. Although DL-UA could proceed by eliminating several older fleet types at both airlines, CO-NW could probably never happen without swapping fleet types to provide commonality (unless you happen to think Air France’s fleet plan is a model for the industry).

In summary, Luvn737s, DL probably has a very good chance of surviving with your help. Although the cuts DL is asking for are hefty, they give DL a very good chance of surviving. At the same time, DL management appears to be close to figuring out what they have to do to be a viable, long-term competitor against a flock of LCCs and ALPA is right to ensure that management presents a credible plan for turning around not only Delta’s employee costs but also its entire business and operational plan – much as AA has already started doing. In return, DL will likely grow to become a significant worldwide player and ALPA has a legitimate right to ask for a stake in that future profitability through equity and profit sharing.

It would be very nice to see at least one airline go to the brink and walk away stronger for the experience. I am confident Delta can do it and you can be there to share in the victory.

I wish you the very best…

 

[firstamendment]

I'm afraid we at US Airways have led the way to negotiations, union or no union. We are up for round three and possibly Chapter 11 Part 2. It goes like this, folks...cut and we will not file chapter 11. Result? Lie...file anyway. Next...We will not need anymore cuts. Result? Lie...DIP financer has the power and wants more cuts threatning liquidation and ALL employees gone. Next, We, the great upper management team with a $5 million golden parachute declares we were wrong with our estimations..you must have the same work rules of Jetblue to survive...Dave Siegle.." I'm here for the long run"...Lie..Seeing that he has lost the trust of the employees, he bails with 5 million dollars. Next..continuing attempt to cut cost...threat..Chapter 11...here we go again.

It is hard for people to make decisions when you are unsure if liquidation threats are true or not. In our case, sad but true, we are not needed in the industry. The other carriers could take up the slack, so I feel this even adds to the lack of control our unions currently have. What our unions ARE doing is holding the line...whatever that is.

 

[N305AS]

Just curious. Do you work for ASA?

[post="167613"][/post]​

I work for Alaska Airlines.

 

[KCFlyer]

Airlines need to act rationally by raising fares in unison. Each individual airline feeds into the fantasy that it can choke off a competitor and reduce capacity, making fare increases easier. Trouble is all you have done is embolden a customer base that now demands artificially low fares whaich will be provided, not by the winner in the war of attrition, but by a new upstart whose costs are low and workforce motivated. In short, the airlines are better off acting as an oligolopy and using their combined power to strengthen an industry by providing service at rational fare levels.

[post="167712"][/post]​

Rational fare levels were tried back in the early 1990's when AA tried to implement value pricing. It was a great concept, slightly higher advance fares and drastically reduced walk up fares. But IIRC, it wasn't an upstart nor an LCC that began the "fare war" that eventually got rid of value pricing, it was Northwest.

 

[WorldTraveler]

I don’t think there is any doubt that the reason NW continues to oppose any fare hikes is because they see themselves as a survivor. I believe it was CO that recently showed what just $5 more per passenger would do to improve its financial position; a proportional benefit can be expected at other legacy carriers. Even though the majority of the most heavily used fares are set by LCCs, NW’s fare actions can certainly hasten the demise of some of the weaker legacy carriers.

 

[Vikedog64]

Luvn737s,
I believe you see the correct problem but I don’t believe it will be solved by the labor methods you propose. The source of the problem is an excess, or really imbalance, of capacity between low cost producers and high cost producers. The LCCs see an opportunity to gain tremendous revenue and market share considering that the legacy carriers still carry nearly 75% of all passengers inside the US and nearly all of the passengers outside the US. Although there are certainly brand preference elements, air transportation is essentially a commodity; the lowest cost producer always wins in a commodity business.

The issue is really cost driven and every cost item that stands in the way of getting to the cost equilibrium will be targeted. Labor IS one of the easiest cost items to attack and will therefore incur more cuts. There really is no precedent for labor standing in the way of reducing costs and having the company succeed. Let me know if you have a good example.

That does not, however, mean that labor should roll over and just give management everything they want. Legacy airlines that survive will not only cut costs but also come up with industry-leading business plans. Developing business plans is the responsibility of management and labor cannot be expected to continue to incur blow after blow while supporting the current management teams. In reality, UAL employees had the best opportunity to replace their management and get true leaders but that was never done because labor was more interested in lining its own pockets than in preparing for the expected changes in the industry (which are undoubtedly far more clear today than they were 12 years ago – even though many experts said we would see what we are now seeing at the time the industry was deregulated 25 years ago).

My predictions as to which of the legacy airlines will survive is based on 1) the ability to cut costs to provide a meaningful chance of becoming competitive while not decimating stakeholders and 2) having strong management and sound business plans. AA and DL are my picks for future leaders in the industry (and possibly the only two long-term legacy carriers). AA got substantial cost relief last year and continues to reduce costs through simplification of its business processes. AA has always been a fairly well run company, particularly from a marketing perspective. AA’s biggest mistakes have come around the ability to execute mergers and acquisitions; fortunately, AA needs little else to become a truly global and nationwide carrier. AA still needs a mid-Atlantic hub which could easily be done by redeveloping RDU (which will work much better with a large and growing fleet of RJs – something AMR didn’t’ have ten years ago) or acquiring an existing hub. AA will probably regret dismantling STL but it can probably be rebuilt if necessary (again heavily RJ dependent) to help counter capacity limitations at ORD. Building new Pacific markets should be relatively easy given the improvement in market access, AA’s strong hubs, and large fleet of 777s. AMR also has significant wealth in its ownership of American Eagle and its extensive maintenance operations, either of which could be sold off or provide revenue streams in providing quality services for other carriers.

DL is my other choice for being a long-term survivor and leader in the industry. DL has long been a well-run company and has had some of the lowest costs and highest quality service in the industry; the last 10 years have clearly been a severe deviation for DL but there are a lot of people at Delta, including Jerry Grinstein, who know how quality airlines were once operated. I believe it is very likely that DL’s stakeholders will agree to significant cost concessions in the next 30-60 days simply because the pain they will incur if they don’t work w/ DL will be much greater and the examples of failures is very apparent elsewhere in the industry. The size of concessions DL is asking for should make DL solidly profitable. Further, DL will stand to gain more than anyone else as US continues to shift away from hub operations and even more if it fails – which at least many US employees regard as very possible if not likely. Part of the urgency for DL to resolve its cost problems is due to US’ impending potentially fatal crisis and the continued shakeout in the industry that will provide Delta will opportunities to grow through acquisitions. Fortunately, DL has done mergers and acquisitions fairly well, and DL will need to acquire to in order to become worldwide and nationwide given its relatively light presence in top world markets. I believe UAL is headed for a painful end and DL will be prepared and capable of picking up the pieces – and gaining access to Asia, London, the west coast, and Chicago and strengthening its Rocky Mountain position; although I’m fairly certain that DL will go after Asia, London, the west coast, and Chicago, I’m not sure that moving mountain operations from SLC to DEN will make sense from a financial sense given DEN’s high costs; there is no doubt that DEN will push for a strong replacement carrier and will be willing to renegotiate costs. Further, DEN will make even more sense if DL shutters DFW since DEN is within RJ range of many of DL’s traditionally strong Texas and SE markets – but SLC is not. On the people front, DL employees will likely make more than UA employees as UAL continues to cut costs to survive so employees could see DL as their savior – exactly as it happened with Pan Am and Western employees. DL and UA obviously have little overlap and the government will likely look favorably on a DL distress acquisition of UA if it means preserving air service.

CO and NW could well both be survivors although I wouldn’t be surprised to see an eventual merger between the two facilitated by an aircraft swap between DL-UA and NW-CO. Although DL-UA could proceed by eliminating several older fleet types at both airlines, CO-NW could probably never happen without swapping fleet types to provide commonality (unless you happen to think Air France’s fleet plan is a model for the industry).

In summary, Luvn737s, DL probably has a very good chance of surviving with your help. Although the cuts DL is asking for are hefty, they give DL a very good chance of surviving. At the same time, DL management appears to be close to figuring out what they have to do to be a viable, long-term competitor against a flock of LCCs and ALPA is right to ensure that management presents a credible plan for turning around not only Delta’s employee costs but also its entire business and operational plan – much as AA has already started doing. In return, DL will likely grow to become a significant worldwide player and ALPA has a legitimate right to ask for a stake in that future profitability through equity and profit sharing.

It would be very nice to see at least one airline go to the brink and walk away stronger for the experience. I am confident Delta can do it and you can be there to share in the victory.

I wish you the very best…

[post="167864"][/post]​

World, you make alot of sense. Call Jerrys hotline at 1-866-548-3283 and hear from the manhimself. He is on a mission to turn this company around and prosper. Thank you for all of your support.

 

[luvn737s]

I don’t think there is any doubt that the reason NW continues to oppose any fare hikes is because they see themselves as a survivor. I believe it was CO that recently showed what just $5 more per passenger would do to improve its financial position; a proportional benefit can be expected at other legacy carriers. Even though the majority of the most heavily used fares are set by LCCs, NW’s fare actions can certainly hasten the demise of some of the weaker legacy carriers.

[post="167981"][/post]​

Deregulation set in motion the series of events that have lead to LCC's (which account for maybe 25-30% at the most of domestic traffic) to be able to set the fares for everyone. For all the disdain for regulation, it did serve it's purpose which was to provide a stable environment for airlines to become established and introduce new technology (i.e. instrument flying, advent of jets, etc.). The compensation for pilots (driven by both unionism and the airlines race for market share) made the job one which attracted highly qualified individuals (except for the early 60's when almost anyone with a pulse would do).

If fares are allowed to continue down to the lowest bidder (i.e. a Wal-Mart of the air if you will) there will be little incentive nor capital to invest in new technology. The job will eventually become one which does not attract the best or the brightest. In fact with many military pilots planning on a future civilian flying career, there may even be reductions in those signing up for military flying. Some of this will be countered no doubt with a change in pilot training requirements and more liberal validation of foreign licenses, but the landscape of the industry will be forever changed by the actions that happen today.

 

[WorldTraveler]

Luvn737s and Vikedog,
Glad I could provide some encouragement to you as I look out on the horizon and offer my predictions of what will happen. Your post is quite accurate in that the "commoditization" of air travel is dangerous for careers (of which there are several employee groups that are highly trained) and for the future stability of the industry. Unfortunately, the industry has been prevented from getting to equilibrium through a good shakedown for 25 years so that what is being experienced is much harsher than it would otherwise be. There is a link to a recent gov't study on the US board and which clearly indicates that the gov't recognizes there is a need for stability to come in the airline industry. As soon as a few inefficient players are moved out to pasture, the fortunes for the remaining players will be much brighter. Even now, however, legacy airlines are beginning to differentiate themselves via their product and their operations so even the ones that remain a year from now will not be clones of each other as they have been for 75-80 years.

I have to say that Delta won me over several decades ago and has not really allowed me to give up my allegiance to them. Let me cite just a couple examples:
- I can still remember going to the then-brand new IAH to pick up my father on more than one occassion and seeing three L1011s lined up side by side (I know it's been a while) - going to Chicago, New York, and Atlanta. What a sight for a young kid.
- In the early 80's, I flew to BOS on the Spirit of Delta and was fascinated not only by the story of the brand new jet and the spirit of the crew onboard but also how effortly it landed in BOS' pea soup fog.
- While living in Chicago in college, I took the young student I mentored to ORD; he had never seen an airplane except high above his housing project in the sky. I went right to the Delta terminal where a TriStar had just pulled in for the night. The agent graciously took us onboard for a look around and the pilot let him sit in the cockpit - he was telling stories about that evening for months afterward.
- More recently, I flew Delta to Columbus, OH in the winter and expected to wait several minutes for my son's car seat and stroller. Despite all of the bad press about Delta's relationship with its pilots, the captain went out into the cold to help the ramp agent carry the pink tag articles up to the waiting passengers. That incident says alot about Delta since few other airlines allow one employee group to help another.
There have been a number of very positive experiences with Delta over 25 years of flying with them. I am probably more desirous of seeing Delta turn itself around than some DL employees.
Probably what strikes me most about Delta is that it has never been given any preferential treatment by the government - it was never one of the "chosen instruments" but has had to fight its way to where it is today but running a very good airline and having the money to buy and grow its way into the big leagues. It is truly ironic that Delta will probably be one of the legacy airline survivors and yet is not really cast from the same mold as airlines like AA, UA, or even NW that accumulated significant routes during the regulated era of the industry.

The sacrifices you and your comrades at Delta will have to make are very real and I trust you all have been preparing for the eventuality of a dramatically restructured pilot-airline relationship. Nonetheless, the upside is significant for Delta pilots. I have always believed that Delta pilots are some of the most business-minded in the industry. With a few exceptions, DL pilots have understood the business better than most pilot groups and have worked with management to ensure a strong company at a time when other pilot groups would rather fight and take down their company. No other explanation can be given for DL pilots ability to agree with DL management on the power and use of such things as regional jets - an asset which DL has clearly used to maintain its strength during the last few years; indeed, I'm sure DL's losses would have been much greater without the RJs.

Clearly my bias is showing but I think it is earned and well-deserved. A couple years from now when the industry is finally stable, I trust you'll be signing luvn777-300 and flying to places that are just glimmers in Delta exec's eyes now. Keep the faith. It can happen. I have every confidence you'll do the right thing.

I wish you well, my friends.

 

[aislehopper]

Wow. Thanks.

ah

 

[LiveInAHotel]

It didn't, not anymore than it would have been with you. Although it buys you time and offers alternatives. It a negotiated deal. Not a unilateral company ultimatum. The idea about having a union in that you have a singe voice in theory. That things like pensions and retiree health care can be protected to a greater extent. APFA is far from perfect, but as much can be said about any company, group or even religious organizations. Its just the idea of work group standing together to make a difference in the job, company and their quality of life.

[post="167515"][/post]​

Why waste the time to explain it to them? They're so deep into "I will do as you say Delta management" because I trust you. Unions negotiate a concessions offer lower then the company wants. If you don't have a voice on your side then you take what the company says! But, CS will never understand this because she is to deep in the Kool-Aid! How is Song treating you these days?

 

[Vikedog64]

Why waste the time to explain it to them? They're so deep into "I will do as you say Delta management" because I trust you. Unions negotiate a concessions offer lower then the company wants. If you don't have a voice on your side then you take what the company says! But, CS will never understand this because she is to deep in the Kool-Aid! How is Song treating you these days?

[post="168497"][/post]​

Live, why are you so angry? Your unhappiness spills out in everything you say. If you think that DAL employees are idiots, than so be it. Why waste your time trying to convince everyone on this site on why your view is so superior? You are looking more idiotic everyday.. :down:

 

[TheDog2004]

Live is an AA employee looking to stir the pot.

/ignore

 

[aislehopper]

Why waste the time to explain it to them? They're so deep into "I will do as you say Delta management" because I trust you. Unions negotiate a concessions offer lower then the company wants. If you don't have a voice on your side then you take what the company says! But, CS will never understand this because she is to deep in the Kool-Aid! How is Song treating you these days?

[post="168497"][/post]​

You never answered the question in your own words. Just how did your membership in APFA save you from having to make concessions?