Fliers Are Back

[BoeingBoy]

Fliers are back. So why are carriers crying for bailouts?
For the first time since 9/11, airlines are flying high. Airports are teeming, planes are full, and commercial travel in April topped traffic for the same month in 2000.

Yet two vestiges of the post-9/11 downturn remain: steep losses by most airlines and a federal bailout program that has pumped $6.5 billion into the industry. Last week, the airlines were back on Capitol Hill seeking new relief from taxes and insurance costs. Their hat-in-hand request comes as the federal Air Transportation Stabilization Board mulls whether to grant a $1.6 billion loan guarantee to teetering United Airlines.

USA Today Article

Jim

 

[repeet]

Well, I have to say that I agree with this article.

The employees have reduced our cost to this company by 1 billion dollars per year, and our vendor another billion, every year. How has that affected our CASM, ZERO!!!

Now, if I believed that this was actually true, I would say that the rules of the free market dictate that we deserve to dissapear. Now truthfully, who here believes that this 2 billion dollars a year cost reduction truely has had no effect on this company's costs.

Again, I agree with this article. We don't need another handout from government. Just a managment team that is more interested in running a company for profit, instead of lowering labor wages in the U.S..

 

[geo1004]

Seniority lists have ensured that the average costs per employee have actually gone up. Take all the junior/lower paid folks and show them the door and hang on to the senior pay employees and even though you've reduced the number of people on the payrolls and cut their wages, the average cost PER EMPLOYEE can go up.


(hypothetical #'s for illustration only...)

50,000 employees with an average cost (wages+benefits) to the company of $35k is an annual expense of $1.75 Billion.

Cut that workforce by 20% using seniority lists and you end up with...

40,000 employees with an average cost to the company of $45k is an annual expense of $1.8 Billion.

That's why even with all the cuts, the legacy airlines have not returned to profitability.

If this market decides anything it will be if it will allow a legacy airline to survive and operate with a senior workforce.

 

[ITRADE]

Well, I have to say that I agree with this article.

The employees have reduced our cost to this company by 1 billion dollars per year, and our vendor another billion, every year. How has that affected our CASM, ZERO!!!

Now, if I believed that this was actually true, I would say that the rules of the free market dictate that we deserve to dissapear. Now truthfully, who here believes that this 2 billion dollars a year cost reduction truely has had no effect on this company's costs.

Again, I agree with this article. We don't need another handout from government. Just a managment team that is more interested in running a company for profit, instead of lowering labor wages in the U.S..

Well, consider the following line from the Fortune Magazine article on the Big 6 airlines: "For the first time ever, the pricing pressure exerted by the discounters--which now have close to a quarter of the domestic air travel market--has become so severe that the majors can't raise prices significantly during a boom. ... The low-cost carriers are now dictating pricing in our business," admits C. David Cush, the chief of sales at American Airlines. Says Bear Stearns's Strine: "Every time the majors match the fares of the discounters, they lose money. That situation is clearly unsustainable."

So, if you can't raise prices.....

 

[BoeingBoy]

Anytime you're talking about CASM, you have to include what happens to ASM's, not just employee cost. From 2Q02 (pre-BK) to 2Q03 (post-BK) U's mainline employee costs dropped just over 30% and total mainline costs dropped about 25%. But guess what happened to mainline ASM's - drum roll please - they dropped about 25% also. Hence the concessions lowered CASM a negligible amount since the lower costs were spread over about equally lower ASM's.

Jim

 

[delldude]

Well, consider the following line from the Fortune Magazine article on the Big 6 airlines: "For the first time ever, the pricing pressure exerted by the discounters--which now have close to a quarter of the domestic air travel market--has become so severe that the majors can't raise prices significantly during a boom. ... The low-cost carriers are now dictating pricing in our business," admits C. David Cush, the chief of sales at American Airlines. Says Bear Stearns's Strine: "Every time the majors match the fares of the discounters, they lose money. That situation is clearly unsustainable."

So, if you can't raise prices.....

The low-cost carriers are now dictating pricing in our business," admits C. David Cush, the chief of sales at American Airlines.

finally we see the intent and end result of deregulation some 20 years later?

 

[repeet]

geo1004
Posted on Jun 9 2004, 07:25 AM

Seniority lists have ensured that the average costs per employee have actually gone up. Take all the junior/lower paid folks and show them the door and hang on to the senior pay employees and even though you've reduced the number of people on the payrolls and cut their wages, the average cost PER EMPLOYEE can go up.

Now here we go. This just goes to show that figures don't lie, but liars figure. Everyone in the organized labor groups that I know of had already been topped out in their pay scale for many years. Therefore, those laid off were top of scale just like the ones who remain. BoeingBoys facts prove it:

From 2Q02 (pre-BK) to 2Q03 (post-BK) U's mainline employee costs dropped just over 30% and total mainline costs dropped about 25%.

Sorry, but this junior employee vs. senior employee argument, when applied to the organized groups, is just smoke and mirrors.

Says Bear Stearns's Strine: "Every time the majors match the fares of the discounters, they lose money. That situation is clearly unsustainable."

The employees have already given 30%. Since the discounters have pay scales comparable to what US Airways has now, the problem is in the way US Airways is managed.

To quote myself "We don't need another handout from government. Just a management team that is more interested in running a company for profit, instead of lowering labor wages in the U.S.."

If management is incapable of this, then this, and the last couple regimes have killed off a good company; along with the careers of many, many, talented and skilled workers.

 

[mweiss]

finally we see the intent and end result of deregulation some 20 years later?

That pretty much sums it up. Bailey and Kahn didn't consider the possibility of building fortress hubs as a means of staving off the competitive forces, and so they expected the market to look the way it does now back in 1980. In fact, they had all but given up on the whole thing, calling it a complete failure.

I've been doing pretty extensive research into this one, and I have a pretty solid explanation as to

1. Why it didn't happen at first
2. What changed after 1988
3. Why those changes, mostly initiated by the legacies, guaranteed their own demise

 

[RowUnderDCA]

That pretty much sums it up. Bailey and Kahn didn't consider the possibility of building fortress hubs as a means of staving off the competitive forces, and so they expected the market to look the way it does now back in 1980. In fact, they had all but given up on the whole thing, calling it a complete failure.

I've been doing pretty extensive research into this one, and I have a pretty solid explanation as to

1. Why it didn't happen at first
   
2. What changed after 1988
   
3. Why those changes, mostly initiated by the legacies, guaranteed their own demise

You tease. Tell us!

 

[mweiss]

I'm sorry. I didn't mean to tease, but I'm in the process of trying to get it published. Once that's done, I promise I'll be happy to share it.

 

[diogenes]

Seniority lists have ensured that the average costs per employee have actually gone up. Take all the junior/lower paid folks and show them the door and hang on to the senior pay employees and even though you've reduced the number of people on the payrolls and cut their wages, the average cost PER EMPLOYEE can go up.


(hypothetical #'s for illustration only...)

50,000 employees with an average cost (wages+benefits) to the company of $35k is an annual expense of $1.75 Billion.

Cut that workforce by 20% using seniority lists and you end up with...

40,000 employees with an average cost to the company of $45k is an annual expense of $1.8 Billion.

That's why even with all the cuts, the legacy airlines have not returned to profitability.

If this market decides anything it will be if it will allow a legacy airline to survive and operate with a senior workforce.

What I'd like to see.

Overlay WN's cost structure (pay, bene's, work rules) onto U, and assign WN's seniority distribution to U.

For instance if 10% of WN agents have 1 year of seniority, assign 1 year of seniority to 10% of U agents.

Now you'd have a true apples to apples, and I'm wagering, sight unseen, U would STILL BE UNPROFITABLE!

Why? Because Hadji started, in 1999, of saying we needed WN-type contracts to compete. Now that WN actually pays MORE than U, the seniority BS is the next 3 card monte.

And because it's the business plan.

 

[BoeingBoy]

diogenes,

The fast & dirty way to plug WN's operating costs into our system is to apply their CASM to our ASM's. In the first quarter they could have flown our systemwide ASM's for about $687 million less than we spent.

Breaking it down to labor vs non-labor is more difficult, since all the labor costs of the affiliates are buried in "capacity purchases" while WN has no affiliates (or express either). However, using the fast & dirty method again, applying WN's labor CASM to our ASM's yields a figure $183 million less than our personnel expenses - enough to turn a slight profit in the 1st quarter. However, applying WN's non-labor CASM to our ASM's yields a figure $504 million less than our non-labor expenses (which include affiliate labor cost).

Of course, it's all slightly academic. If WN operated a mixed-fleet traditional hub/spoke system their CASM would go up, while if we operated a single fleet type mostly point-2-point system, our CASM would go down.

Jim

 

[Reservation Agent]

Interesting...Mabey that's why they are trying to rush thru more cuts, before they have to start showing profits...

Or will they buy more Embriarer jet, Kiosks machines, card readers to offset a profit?

 

[delldude]

That pretty much sums it up. Bailey and Kahn didn't consider the possibility of building fortress hubs as a means of staving off the competitive forces, and so they expected the market to look the way it does now back in 1980. In fact, they had all but given up on the whole thing, calling it a complete failure.

I've been doing pretty extensive research into this one, and I have a pretty solid explanation as to

1. Why it didn't happen at first
   
2. What changed after 1988
   
3. Why those changes, mostly initiated by the legacies, guaranteed their own demise

you know,FAA really was pushing lcc's...thats why some of the bad aspects came with crashes in the 'glades and all...FAA kinda looked the other way as to safety until it hit them in the face.all in the interest of "cheap tickets".... <_<