Perspective

[Bob Owens]

From Turbulent Skies, pg 72
ISBN 0-471-10961-4

"Between 1929 and 1939, the cost per passenger mile fell from 12 cents to 5.1."

Here we are 81 years later and AA just said the cost is 11.8 cents!!!

pg 71,

1936

"The round-trip fare to Manila was $1438.20, a years wage for a working man."

From Orbitz:

Asiana Airlines LAX to Manila, Feb 17 24 2011

1 stop $649
total $946

From Wikipedia;The real median earnings of men who worked full time, year-round climbed between 2006 and 2007, from $43,460 to $45,113

So airfare went from a years pay to a little over a weeks pay.

Our efforts make anyplace on the Globe accessable, its time we get paid fairly for what we do.

 

[Crapdog]

You’re trying to compare apples to oranges. How long did it take to get to Manila in the 20's and 30's at 90 to 140 knots per hour in a float plane? Those prices you are quoting include airline owned hotel rooms on the multiple island hops to get there. I don't remember AA ever flying to Manila or overseas before deregulation.

 

[Bob Owens]

No I'm comparing CASMS to CASMS and the price of a ticket to the price of a ticket. The fact is that air travel has become very cheap, I only used Manila because thats what was in the book.

What other services can you think of are available today that are that much cheaper than they were then?

 

[737823]

No I'm comparing CASMS to CASMS and the price of a ticket to the price of a ticket. The fact is that air travel has become very cheap, I only used Manila because thats what was in the book.

What other services can you think of are available today that are that much cheaper than they were then?

Long distance telephone calls, internet access, electronic goods such as televisions, computers, stereo equipment even taking into account hedonic adjustments (ie a laptop purchased today for $500 provides more value than one purchased in 2000 for $1500). Perhaps the same could be said of automobiles (again factoring in the added feature and value) and in some markets real estate. So no, the airlines aren't the only ones.

Face it, besides Emirates, Singapore, Cathay Pacific airlines are essentially commodity goods. I care most about reliability and flying non-stop. Many customers could careless if they fly an AA 737 or a United Express CRJ if UAX ended up saving them $25, they'd be on UAX. I think the mentality among airline employees that "we are subsidizing cheap tickets for the public" isn't true. It's more that the public demands cheap tickets and is unwilling to pay a premium for service (yet still complains about no free meals, checked baggage fees, service cuts, etc). If airline employee compensation was truly keyed to ticket prices (in real dollars) employees would be in for a big paycut.

Josh

 

[Bob Owens]

Long distance telephone calls, internet access, electronic goods such as televisions, computers, stereo equipment even taking into account hedonic adjustments (ie a laptop purchased today for $500 provides more value than one purchased in 2000 for $1500). Perhaps the same could be said of automobiles (again factoring in the added feature and value) and in some markets real estate. So no, the airlines aren't the only ones.

Face it, besides Emirates, Singapore, Cathay Pacific airlines are essentially commodity goods. I care most about reliability and flying non-stop. Many customers could careless if they fly an AA 737 or a United Express CRJ if UAX ended up saving them $25, they'd be on UAX. I think the mentality among airline employees that "we are subsidizing cheap tickets for the public" isn't true. It's more that the public demands cheap tickets and is unwilling to pay a premium for service (yet still complains about no free meals, checked baggage fees, service cuts, etc). If airline employee compensation was truly keyed to ticket prices (in real dollars) employees would be in for a big paycut.

Josh

Some of what you are talking about are goods, not services and some of them didnt exist then such as televisions, computers, stereo equipment. My guess is the average price for a car in 1936 was under $1000, try finding a new car today for $1000, Real Estate would be same, I doubt you could find anything anywere that would go for around or less than it would in 1936.

We are subsidizing cheap tickets because all the other parties in this industry keep grabbing up all the extra revenue created by increased effeciency. As they grab more and more the airlines tell their workers there isnt anything left for them. They claim they cant raise ticket prices even though they do through fees.

AMR is bringing in around $4 billion a year more than they were back when they took away 25% of our compensation, they also shrank our ranks by 35%, saving them even more money, they pay half what they used to pay and they have $4 billion more coming in yet they cry poverty at the negotiations table and all the talking heads in the media agree and parrot their arguements. The Flying public gets cheap airfare, the banks, lessors, airports, oil companies and everyone else except the workers get more and more while we get less and less.

 

[TIME FOR CHANGE]

EXACTLY !
😉

 

[WorldTraveler]

Bob,
the standard of living among the middle class as a whole has decreased... airline jobs were largely considered middle class in the post WWII era when the jet engine began to make air travel commonplace. The reality is that in a deregulated world 1. there is competition and companies that can produce a product cheaper win and 2. not al airline jobs are at the pay levels that were established in the past... as hard as that may be to accept, there is a market for work and if an employer can get the job done just as well for less, then they have a responsibility to their owners to find the best way to get the job done.

The US domestic industry was deregulated more than 30 years ago and with Open Skies, int'l deregulation exists in most of the largest int'l markets.
There are an aweful lot of people who haven't adapated to the reality of a competitive, free market economy in the airline industry.

Specific to AA, the simple fact is that other airlines produce 30% more ASMs than AMR does with the same number of employees, AA's top int'l and domestic markets are under attack, and competitors are marking money in markets like Asia where AA is relatively small.

Employees in any business are only paid as well as the company they work for.... AA has not produced the kind of revenues relative to the industry to justify high pay increases - and yes, that should include AA mgmt as well.

But even if AA started making lots of money, AA's labor costs are above average and until that is brought in line with the industry, no management is going to support a pay raise... and passengers will not pay for it or have any sympathy with employees that expect it.

Telecommunications is indeed a service and there have been major failures in that industry on the way to free markets.

 

[Hopeful]

But even if AA started making lots of money, AA's labor costs are above average and until that is brought in line with the industry, no management is going to support a pay raise... and passengers will not pay for it or have any sympathy with employees that expect it.

Pretty good economics lesson and you do bring up some very good points. But we are talking about American Airlines here. When AA was making money hand over fist we won a 6 1/2% raise over 6 six years from 1995-2001.
AA was making money inspite of itself. Those were some very good quarters and years for AA.
People like to invoke memories of Crandall, but I give credit to Carty accepting a very good contract in 2001. And right after 9/11 we weren't asked to give anythng back except a ban on overtime which was gladly received thanks to the raise.
Then in 2003...well you know the rest.

Traveler, I ask you this....
Do you think it is so unreasonable for us to ask for something we had over 5 years ago? After all work groups gave back billions?
Think about it....asking for the 2001 contract that was revoked in 2003?

I don't think that is unrealistic at all,

 

[WorldTraveler]

While I commend Bob for using numbers, the fact is that they aren't what show up on AMR's annual reports now or in 2003, after the labor accords were reached.

Granted these are AMR SYSTEM numbers but unless you can tell us what group is driving the problem and get them to accept cuts, saying the problems don't exist won't work. And the executives as much as you might want to believe don't amount to the billions in dollars that are being debated here.

Here are the numbers from AMR's annual reports.
In the six years since the concessaionary agreements were signed, AMR's revenue has increased $2.5B, not $4B.
That sounds good.. I want some of that... except that AA's mainline revenue increased only $400M, AE and regional revenues increased $500M.... ok so we have $1B in AMR EMPLOYEE driven revenue....
The largest increase in revenue came from the "other revenue" pot which is a nice way of saying "sale of advantage miles." The loyalty programs (NON-TRANSPORTATION revenue) of the big 3 airlines have generated tens of BILLIONS in revenue over the past decade and THEY are responsible for paying down debt and keeping AMR out of BK and in allowing AMR to order new 738s, and DL and UA to even exit BK.
And while transportation revenues are up $1B, fuel is up $2.5B in six years.... based on TRANSPORTATION revenue, AMR is far worse off than it was 6 years ago.
Most other costs are relatively similar... until you consider that AMR produced about 10% more ASMs for only $1B less revenue in 2003 as they did last year.... AMR as a company has been able to increase revenue only thru increasing sales of Advantage Miles while other costs are generally as high generating 10% less capacity.
AMR has made little progress in improving its competitive position over 6 years....reason enough for AA employees to not realistically expect they will say pay return to levels prior to 2003.

 

[Bob Owens]

While I commend Bob for using numbers, the fact is that they aren't what show up on AMR's annual reports now or in 2003, after the labor accords were reached.

Granted these are AMR SYSTEM numbers but unless you can tell us what group is driving the problem and get them to accept cuts, saying the problems don't exist won't work. And the executives as much as you might want to believe don't amount to the billions in dollars that are being debated here.

Here are the numbers from AMR's annual reports.
In the six years since the concessaionary agreements were signed, AMR's revenue has increased $2.5B, not $4B.

Where are the numbers?
Not sure what reports you are looking at but here are the numbers from AMRs 10Ks;
Year Revenue in millions
2003 17440

2004 18645
2005 20712
2006 22563
2007 22935
2008 23788
2009 19917
Total 128568 /6=21423-17440=$3.983 Billion, around $4 billion. Do you want to quibble over $17 million dollars?

That sounds good.. I want some of that... except that AA's mainline revenue increased only $400M, AE and regional revenues increased $500M.... ok so we have $1B in AMR EMPLOYEE driven revenue....
The largest increase in revenue came from the "other revenue" pot which is a nice way of saying "sale of advantage miles." The loyalty programs (NON-TRANSPORTATION revenue) of the big 3 airlines have generated tens of BILLIONS in revenue over the past decade and THEY are responsible for paying down debt and keeping AMR out of BK and in allowing AMR to order new 738s, and DL and UA to even exit BK.

Its all employee revenue, if AA stops flying people wont want their AAdvantage miles. When they use those miles to fly or upgrade those advantage miles become employee driven revenue.
Now that you mention that you brought up another point, the company says the ticket prices are down but by selling Air miles that are redeemed for flights they should really factor that in as part of the price paid for tickets!

And while transportation revenues are up $1B, fuel is up $2.5B in six years.... based on TRANSPORTATION revenue, AMR is far worse off than it was 6 years ago.

Fuel In Millions
2004 3969
2005 5615
2006 6402
2007 6670
2008 9014
2009 5553
Total 37223/6=6204-2772=3432

With the arrival of 737 and the completion of winglet installation fuel cost are likely to go down even more, also with the arrival of the 737 mechanic headcount will continue to diminish, saving them even more money.

How do you figure AMR is for worse than 6 years ago? Are you saying that the $3 billion they claimed to have lost was inflated?On average fuel went up 3.4 billion and Revenue went up $4 billion, that leaves $600 million.

Most other costs are relatively similar... until you consider that AMR produced about 10% more ASMs for only $1B less revenue in 2003 as they did last year.... AMR as a company has been able to increase revenue only thru increasing sales of Advantage Miles while other costs are generally as high generating 10% less capacity.

Is the objective to generate capacity, empty seats, or revenue? The fact is that AA is generating a lot more revenue with less airplanes, less capacity, less employees. 2009 was an execeptionally bad year, things have improved a lot this year, AA had to work at showing a loss the last quarter.

AMR has made little progress in improving its competitive position over 6 years....reason enough for AA employees to not realistically expect they will say pay return to levels prior to 2003.

I could care less if AA is "competitive", they just love to throw that word around without being specific. The fact is that AA's wages are not competative, they are just about rock bottom. They throw out that they have the highest labor costs but leave out all the relevant facts, such as the fact that we do all our heavy maint in house and we do a substantial amount of 3P work. In Europe the guys there do more 3P work than AA work( They also make around $10/hr more than us with more paid Holidays, vacation, sick time, IOD time etc). This drives up labor costs and produces an inaccurate comparasion, they should subtract all the revenue that is generated from 3P work, then factor out the cost of OH then make a comparasion. In reality all you have to do is look at the wage. At AA the average wage for an aircrraft mechanic (Title1)is somewhere around $27/hr. Sure they show the topped out wage but not all mechanics get there such as OSMs, Part Washers, cleaners etc.

I not only expect my wage to return to those levels, I demand it, and I'm willing to shut the place down in order to get it. Like I said, the savings from just the job losses more than cover whats needed, they would still be savings hundreds of millions because there's less of us and if we were paid better they would get better performance from us, hard to quantify that into dollars but SWA proves that it pays to pay mechanics well.

 

[Bob Owens]

Bob,
the standard of living among the middle class as a whole has decreased...

Yep, and its about time we put a stop to that.

Specific to AA, the simple fact is that other airlines produce 30% more ASMs than AMR does with the same number of employees, AA's top int'l and domestic markets are under attack, and competitors are marking money in markets like Asia where AA is relatively small.

Revenue, Revenue, Revenue. Business exist to generate revenue, hopefully more than they spend generating it.

Which airline has the same number of employees as AA and produces 30% more revenue? How much does that airline pay to vendors to supply the labor to do what used to be done in house?

Employees in any business are only paid as well as the company they work for.... AA has not produced the kind of revenues relative to the industry to justify high pay increases - and yes, that should include AA mgmt as well.

$20 billion is a lot of revenue.

But even if AA started making lots of money, AA's labor costs are above average and until that is brought in line with the industry, no management is going to support a pay raise... and passengers will not pay for it or have any sympathy with employees that expect it.

AA is making a lot of money, they just choose to spend it faster than its coming in, its easy to do when you build all these facy terminals all over the world, and have your managers piss it away throughout the operation, even silly things like replacing desks because "if I dont spend all the money in my budget they will reduce my budget next year", they redid the Admirals Club at JFK, scrapping hundreds of thousands of dollars worth of stuff that was pretty much new, planted a garden and put sprinklers in to water the grass, new airplanes show up at the new gates, RISE programs, Executive bonuses, they've been in a spending frenzy for the last 10 years! Its the only way they can show losses and continue to drive down labor costs, M&R isnt the only work group to see reductions, since 2001 AMR eliminated 50,000 employees(thats $3.5 billion saved right there), 300 less airplanes and is on average bringing in around $2.5 billion more(2001), sure the increase in Fuel ate up a chunk of that extra revenue (why havent the airlines appealed to Congress over price gouging by the oil companies, why didnt BK judges tell the oil companies to sell fuel at cheaper prices? The year oil spiked they showed record profits.) but what about the savings from having 300 less airplanes and 50,000 less employees? People like to say Look at the big picture, well 9 years is a lot bigger picture than just looking at one year here and one year there.

 

[WorldTraveler]

Bob,
Again, the majority of the revenue increase has come from the sale of Advantage miles, not from increased transportation revenue - and only half of the transportation revenue increase came from mainline.
You can act like that revenue increase was attributable to mainline employees but the reality is that there are a handful of people in headquarters that drive the majority of that revenue - and that is true of all the network airlines. AC sold off its Aeroplan - one of the few airlines that have been willing to do it and the results for the airline have not been easy to overcome.

AA built a great loyalty program and it has really only been challenged by the size of DL and UA's programs that have come through their mergers. Advantage is not going anywhere.. it is immensely valuable. AA is also not going anywhere... but as long as you want to count the Advantage revenue as attributable to mainline employees, you will be very disappointed 'cause the company is NOT going to share it with you.

CO, DL, and UA all have labor CASMs 30% better than AA's.... and while many here are quick to point out that those airlines contract work out, they somehow manage to have showed double digit profits. The cost of those contracted services ultimately is figured into their CASMs and even with their contract work, they manage to show profits that AA cannot.
The simple fact is that on most other metrics - other costs and revenues - AMR could be competitive... but a 30% labor cost disadvantage CANNOT be overcome in the marketplace - and THAT is why AMR is losing far more money than its competitors - and why AA continues to watch market share erode.

$20B is a lot of money but in the most recent quarter, AA's mainline revenue increase was the lowest of the "big 3" - who will be AA's competition in the years ahead. AA's mainline revenue increased 16% compared to 20% for DL and 26% for UA. Incidentally, DL added about $300M in revenue in the Pacific even as they added 4 or 5 new transpac routes while UA added $400M or so. AA has tried to add more transpac routes in the past but restrictive labor agreements make that problematic.

AMR and most of the airlines supported - and won - legislation that limits fuel price hedging which is what part of what allowed fuel to go to $130/bbl.

While AA mgmt has missed alot of opportunities, they have indeed run the business as if they intend for it to be around.... and you have to modernize and invest in your facilities and business if you want to stay around. I'm not sure why you believe that renovating an Admirals Club is wrong but buying a new airplane is not.

If you don't think DL and UA lost a whole lot of REAL money but somehow managed to turn themselves around thru deep cuts - alot of it to the employees, then I probably can't convince you that AMR is any different.

If you want to shut the place down in your efforts to obtain what you believe to be a fair wage, I certainly can't stop you... but I sure will ask you that you look at Eastern Airlines. Their people said the same thing and it didn't take very long before no one got a paycheck from EA anymore. And you know what did happen? DL and a few other airlines were able to grow a whole lot in their place. That's how the free market works.

 

[Bob Owens]

Bob,
Again, the majority of the revenue increase has come from the sale of Advantage miles, not from increased transportation revenue - and only half of the transportation revenue increase came from mainline.
You can act like that revenue increase was attributable to mainline employees but the reality is that there are a handful of people in headquarters that drive the majority of that revenue - and that is true of all the network airlines. AC sold off its Aeroplan - one of the few airlines that have been willing to do it and the results for the airline have not been easy to overcome.

Please, dont insult us. What are AAdvantage Miles primarily used for? They are used for the service that we provide with our labor, so whether they buy their tickets with cash, check credit card or AAdvantage miles they are still buying what we produce.

AA built a great loyalty program and it has really only been challenged by the size of DL and UA's programs that have come through their mergers. Advantage is not going anywhere.. it is immensely valuable. AA is also not going anywhere... but as long as you want to count the Advantage revenue as attributable to mainline employees, you will be very disappointed 'cause the company is NOT going to share it with you.

Well if it comes to that they wont have it to share.

CO, DL, and UA all have labor CASMs 30% better than AA's.... and while many here are quick to point out that those airlines contract work out, they somehow manage to have showed double digit profits. The cost of those contracted services ultimately is figured into their CASMs and even with their contract work, they manage to show profits that AA cannot.

Are their CASMs 30% better? AA can show a profit, they choose not to with all three of their unions sitting out there with open contracts.

The simple fact is that on most other metrics - other costs and revenues - AMR could be competitive... but a 30% labor cost disadvantage CANNOT be overcome in the marketplace - and THAT is why AMR is losing far more money than its competitors - and why AA continues to watch market share erode.

The reason why they look so favorable in those "other metrics" is the reason why they dont look so favorable on the labor metric. Thats what Arpey meant when he said "the jury 's still out on that" when I asked him about insourcing.

$20B is a lot of money but in the most recent quarter, AA's mainline revenue increase was the lowest of the "big 3" - who will be AA's competition in the years ahead. AA's mainline revenue increased 16% compared to 20% for DL and 26% for UA. Incidentally, DL added about $300M in revenue in the Pacific even as they added 4 or 5 new transpac routes while UA added $400M or so. AA has tried to add more transpac routes in the past but restrictive labor agreements make that problematic.

Well if AA competitors pay better then maybe we should hope that they continue to succeed, not continue in a race to the bottom by giving AA an even greater advantage with lower wages.

AMR and most of the airlines supported - and won - legislation that limits fuel price hedging which is what part of what allowed fuel to go to $130/bbl.

While AA mgmt has missed alot of opportunities, they have indeed run the business as if they intend for it to be around.... and you have to modernize and invest in your facilities and business if you want to stay around. I'm not sure why you believe that renovating an Admirals Club is wrong but buying a new airplane is not.

Because in a service industry the most important part of your business is your people, and if you dont treat them right they wont treat your customers right and if they have the option both will go elsewhere.

If you want to shut the place down in your efforts to obtain what you believe to be a fair wage, I certainly can't stop you... but I sure will ask you that you look at Eastern Airlines. Their people said the same thing and it didn't take very long before no one got a paycheck from EA anymore. And you know what did happen? DL and a few other airlines were able to grow a whole lot in their place. .

EAL workers gave and gave until they realized there would be no end. They did the right thing, I work with scores of them and they all feel the same way. They are willing to do it again if they have to, thats why 95% voted NO. Just as they traded in their EAL IDs for AA, UA, etc IDs we can trade our AA IDS for those that will pay because if AA fails ,like you just pointed out, others will be able to grow in its place.

That's how the free market works.

Get rid of the RLA then we can see how a free market works.