Well, yes and no. Yes, the low-cost airlines had (and have) an impact. The mistake the "legacy" airlines made is not responding to them at all for some time. We all had the idea, "our customers want the amenities like meals on board and assigned seating. They will never fly Southwest."
I don't think anybody could really argue with that point. The network airlines in the 1990s were sitting on top of huge (if ultimately fleeting) profits and were far to slow to recognize the fundamental shift in consumer behavior as the market became more and more competitive and more and more airlines successfully entered the market.
Nonetheless, though, the question now becomes: what do the airlines do about it? To date, all of AA's legacy peers have followed roughly the same path:
* bankruptcy
* lay off thousands
* reduce benefits and relax work rule/flexibility restrictions in the union contracts
* outsource (including heavy maintenance and plenty of flying to regionals)
* freeze and/or dump most if not all defined benefit pensions
* leverage the lower costs from above to grow and expand their networks
* also use some of the billions in freed up cash to plow back into investment in fleet, facilities, etc.
* merge
Will AA follow the same path? It appears Horton & Co. largely want to.
When you say lower wages and less benefits, you must realize that the wages and the benefits are not that much less. In fact, in the case of Southwest, their employees in a number of areas--particularly pilots and flight attendants--are the highest paid or near to the highest paid employees in the U.S. airline industry.
They
are "that much less" in many cases. Southwest is but one example - and I know it's the one AA's unions prefer to talk about because it makes a good comparison for the point the unions are trying to make, but Southwest is going to have their own labor cost challenges to deal with ahead of them, as their CEO has recently acknowledged. I don't even really consider Southwest a low-cost airline anymore. They are now basically just 1 or 2 notches down the airline spectrum from AA/Delta/United/USAirways.
I was speaking in my original comment more specifically about some of the other huge U.S. airlines with which AA, and by extension AA's employees and unions, increasingly find themselves competing. I'm talking about JetBlue, Frontier, Virgin America, and of course all the regionals that Delta, United and USAirways have outsourced far more of their networks to than AA has to Eagle/Connection - airlines like Mesa, SkyWest, Republic, etc.
So, employee remuneration is not the final answer on whether or not an airline makes money. Management and good management decisions figure into the equation as well.
No question about that. What the last decade has taught us, I believe, is that airlines need both visionary leadership and competitive costs (including, but most definitely not limited to, labor) to succeed.
Continuing a route for 10 years (ORD-DEL) that was losing $45 million/year was a good idea. It would have been better if we hadn't paid the employees so much.
But wait - hasn't Ms. Glading been going on for months about how AA has to stop shrinking, and needs to start growing again? An airline (or, for that matter, any company) can't grow in its market if it has the highest costs among its competitors. AA has - for several years - had a cost disadvantage relative to the industry, driven in part by the union contracts. With lower costs - including lower labor costs - AA should be able to expand and grow once again, just like its competitors did when they exited bankruptcy.
WT, have no fear of that rumor of the A319s. From what I have heard from people who attended the company presentations on the "business plan," they intend to do nothing different 2012-2017 other than cut staff and employee pay and benefits.
Frankly, I think the A319 thing is pretty visionary - and I think that vision has the very real potential to substantially help AA's employees, too, if the company and the union can come to some agreement. AA's post-bankruptcy network competitors - Delta, United and USAirways - have all shifted substantially more of their fleets to regionals than AA has - obviously at the loss of plenty of mainline jobs. At the same time, the economics of smaller jets is deteriorating, and that phenomena appears to be creeping upward even to the 70-90 seater level (which is where Delta, United and USAirways have such a huge advantage versus AA). What I believe AA recognized is that while A319s may have a worse CASM than, say, a new 737-800 or A320, they still have a better CASM than a CRJ700, CRJ900, Embraer 175, etc.
So, the company may have been trying to avoid shifting more and more of their MD80-size flying to RJs - as their competitors have done - and instead try and manage the shift down towards more flying at the A319-size level. This obviously represents a huge opportunity for AA's mainline unions, if they can compromise on the economics of the A319 to make it more attractive.
Which would the mainline unions rather have? Option A: AA follows Delta, United and USAirways in replacing tons of MD80s with 70-90-seat regional jets operated by non-owned, perhaps non-union operators, or Option B: agree to more competitive costs on the A319 (call it a "B scale" if you want) and see that flying stay at mainline, operated by mainline union employees? Previous arguments have focused on the fact that those mainline jets would still carry the other mainline "cost burden," which is true, but now - with much of that "cost burden" quite possibly soon to be outsourced to near-Eagle cost levels anyway, the unions can really set a massive precedent here for mainline unions across the industry, and keep this flying at mainline.
