Southwest and American

Hopeful

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Dec 21, 2002
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Again, Southwest has just posted another profit!
Southwest has been around for over 30 years and have always had a profitable quarter.
Then it hit me!
My question to American is why did AA not try to adopt their strategy of and mentality early on? Is it only now because we face the toughest period in airline history? I think that mangement and the unions could have gradually made changes to work rules and tie wages to profits 10 or 15 years ago. Did they think Southwest never directly posed a threat?
If the first response to this post is going to be Well the unions fought and always resisted change, then that same response should include management's failure to recognize early on the long term threat of the low cost carrier.
I think that because AA has grown the way it did, had many profitable years and successes, both management and the unions got too comfy with their respective situations. Keep in mind that Southwest is a heavily unionized carrier! So whats the difference? LABOR RELATIONS!
No union wants to bargain away anything as no management wants to give away the store. The unions have been too smug and the management has been too arrogant. I wonder if Southwest is run by a Human Resources Department as is AMR. I wonder if they brow beat their employees over sick time. I just plain old wonder if Southwest thinks good labor relations are the key to success, even before profits! I would say yes!
KCFLER, you had recommended that employee wages be tied to management increases. I like your way of thinking. If we get the same deal as this KMART exec, you have my vote for FED CHAIRMAN:
CHICAGO (Reuters) - Kmart Corp. (Other OTC:KMRTQ.PK - News) will pay Julian Day, its newly named chief executive, a base salary of $1 million plus a $1 million bonus when it exits bankruptcy, the retailer said in a regulatory filing on Wednesday.
ADVERTISEMENT


Kmart said former CEO and current Chairman James Adamson will receive $3.6 million when he steps down, as planned, after the company emerges from bankruptcy.
Day's employment contract, which runs through Jan. 31, 2006, includes perks such as use of a company jet and a 10-year option for 1.5 percent of the equity in the reorganized company once it exits bankruptcy, Kmart said in a filing with the U.S. Securities and Exchange Commission.
Kmart, based in Troy, Michigan, filed for Chapter 11 bankruptcy protection a year ago, battered by fierce competition in a discount sector dominated by Wal-Mart Stores Inc. (NYSE:WMT - News).
It hopes to emerge from bankruptcy by the end of April and is expected to file its plan of reorganization with the bankruptcy court in Chicago by Friday.
Kmart named Day to the additional post of CEO on Sunday, replacing Adamson, a turnaround specialist who will continue to serve as chairman through the final stages of Kmart's reorganization.
Day's pay package calls for a bonus of up to four times his base salary if Kmart beats performance targets that will be spelled out in its business plan.
For the current year, any bonus will be at the discretion of a post-emergence compensation committee.
For fiscal 2004, the performance target is $400 million in earnings before interest, taxes, depreciation and amortization, Kmart said in the filing.
If Kmart hits 75 percent of that target, Day would receive a bonus worth half of his salary. If it reaches that goal, the bonus grows to 100 percent of base salary, and if it doubles that mark, the bonus would by 200 percent. If it reaches 300 percent or more of the earnings target, the bonus would be four times annual salary.
Day's contract allows for use of company aircraft for business purposes and personal use if necessary for security, according to the SEC filing.
 

KCFlyer

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Hopeful, with all due respect, in the gravy years, it seemed that the mere thought of trying to impose a "Southwest style" contract was an anathema to the unions and the union members. You heard the refrains of "They don't pay as much", "They don't have a defined benefit retirement plan", "Profit sharing isn't REAL pay", and this from the unions as much as managment "They aren't in the same league as us".

I dunno, SWA has always had pay tied to company performance. As a result, labor really did work as a team with management - pretty much from the start. They trusted management. IMHO, in all the years of AA's labor relations, there has never been a management team that the unions trusted - not even Crandall, who is on a par with Herb as one of the most visionary airline CEO's ever.

I doubt AA will ever have labor relations to match Southwest's...there isn't anybody that you would trust enough to allow that to happen. Because for that to happen you would have to take that giant leap of faith and trust management...either your current management or whoever comes in to replace them.

You have to drop your fixation on how much the CEO is paid. Herb made about as much as Carty in base salary, and he exercised over $40 million in stock options this past year.

You have to drop your dislike of the health insurance benefits the executives get versus what is offered to the rank and file. The execs at LUV have more complete coverage.

Not saying it couldn't be done, but for it to happen, a whole lot of folks will have to start liking the taste of the company kool aid.
 

AAquila

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Sep 22, 2002
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Dear Hopeful:

The 'folksy' Southwest model is being challenged daily by lower bus and train fares, and by in-flight TV on JetBlue. LUV has always had a great product the only thing that can stop them now is the market they serve, but they will never get any further than being 'winged' buses.

AMR has a great product also, one that depends on the business class to return. True; AMR could begin to retool and go 'bare-bones ,' but a total 'makeover' would take tens of years and hundreds of million$ more.

Carty must stay the course, conserve cash while not yielding in areas were they are truly number one, namely Latin America.

MIA ll ( Latin America) and JFK ll
(European) are on track for 04, once these two airports come on-line, AMR will open the now famed ' TWA treasure chest 'and begin adding service year by year. TWA's MXP, BCN are around the corner.

Yes; Carty will use whatever means necessary to keep AA alive, including wage reductions and union contract revamping. Still this talk of going to BK court is premature. Even as they retain counsel, it's more show than substance.

Stay true to your handle, Hopeful.

The Silver Eagle is perched on high, patiently she awaits.
 

WingNaPrayer

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[BR][BR]
[BLOCKQUOTE][BR]----------------[BR]On 1/22/2003 8:40:34 AM AAquila wrote:[BR][BR]Yes; Carty will use whatever means necessary to keep AA alive, including wage reductions and union contract revamping. [BR]----------------[/BLOCKQUOTE][BR][BR]So tell me, just how great of a carrier do you think slashed waged, benefit reduced, pension plan raided, double work loaded, disgruntled employees are going to make? Especially when executive management continues to draw their fat salaries and continue to enjoy 100% company paid health care and stock option profit sharing? Who cares if they took a wage freeze, I doubt that any one of you could not survive on 300K a year and up![BR][BR]The only reason that silver bird is perched high is to keep it's employees heads high in the clouds...where verry little oxygen appears to be getting to their brains![BR][BR][FONT color=#ff0000][STRONG]Note to the Advisory Boards:[/STRONG] It's time to STOP believing that the only news about the company is available in the jetwires you are spoon fed....and start rallying the masses![/FONT]
 

KCFlyer

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Hopeful - you didn't mention executive pay and perks in your initial posts, but you have in other posts - thus my comments.

Right now, Jetblue doesn't look too bad. Look at posts just a year ago - did something change and Jetblue suddenly get massive raises?

Please don't think that I am so "pro management" that I think the K-mart deal is the one to follow. I've said before, and I'll say again that a guy picked for CEO with a passion for the industry would work for far less and do a better job than a guy who has to be "bribed" into taking the position. Executive pay is out of control across the board, not just the airlines. But executive pay in the airlines really lags what's they could make in another industry. The whole country has a way's to go to right that wrong. A lone judge here in KC had it right - a small local telecom entered bankruptcy, so the judge capped executive pay at $100,000 a year, figuring that they had at least some responsiblity for the company's position. It was quickly overturned after the execs petitioned a different judge who promptly tripled that cap. Ain't right, ain't fair, but that's the way the country sees things right now. IMHO, if you had union leadership who was more concerned about conditions for their members than the union dues, they would be standing side by side in bankruptcy court to fight for as good a deal as the executives were getting. Chances are good that a bankruptcy judge might just think twice before approving such a lucrative managment compensation package.

Southwest has had 30 years of good labor relations. American hasn't. Any changes won't happen overnight, because turning AA around is like turning an aircraft carrier 180 degrees...it can be done, but it takes quite some time to do it. It takes less time if the first mate isn't trying to turn left while the captain is trying to turn right. So everybody has to accept that their in it together and work together to get things turned around.
 
OP
Hopeful

Hopeful

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Dec 21, 2002
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My reason for starting this topic is because Carty continuously uses the low cost carrier structures of Southwest and JetBlue as a major factor affecting the industry. I have always contended that Southwest never really competed directly with AA, but Carty acts like they do. JetBLUE competes directly with AA on the lucrative NYC-FLA routes and now SJU and LGB.

KCFLYER, I don't recall in THIS particular post bashing Carty and management compensation. Labor Relations at AA are and always have been rocky to say the least. JetBlue, for instance starts with 5 weeks vacation for a new employee. Employee compensation is not that far behind the majors.

The big difference in all of this is that Southwest was born and reared with a good labor relations model. JetBlue seemed to one-up Southwest in the "we are a team" mentality department.

Change is always difficult. But AA expects us to swallow this bitter pill without any water and no clear cut plan on their survival plan. Employee discontent is a natural reaction when faced with the gloom and doom rhetoric we now are faced with.

Just as Bush needs to give the public proof for a war, Carty needs to give the workforce proof of financial ruin and show a clear cut plan as to what AA needs to do to survive. Just asking for paycuts and workrule changes and telling us thats what they neeed to survive just does'nt seem to go down that easy.

KCFLYER:

You had suggested that we tie empolyee increases to management increases.
I like your way of thinking as long as we get what this KMART exec is getting.

CHICAGO (Reuters) - Kmart Corp. (Other OTC:KMRTQ.PK - News) will pay Julian Day, its newly named chief executive, a base salary of $1 million plus a $1 million bonus when it exits bankruptcy, the retailer said in a regulatory filing on Wednesday.
ADVERTISEMENT


Kmart said former CEO and current Chairman James Adamson will receive $3.6 million when he steps down, as planned, after the company emerges from bankruptcy.

Day's employment contract, which runs through Jan. 31, 2006, includes perks such as use of a company jet and a 10-year option for 1.5 percent of the equity in the reorganized company once it exits bankruptcy, Kmart said in a filing with the U.S. Securities and Exchange Commission.

Kmart, based in Troy, Michigan, filed for Chapter 11 bankruptcy protection a year ago, battered by fierce competition in a discount sector dominated by Wal-Mart Stores Inc. (NYSE:WMT - News).

It hopes to emerge from bankruptcy by the end of April and is expected to file its plan of reorganization with the bankruptcy court in Chicago by Friday.

Kmart named Day to the additional post of CEO on Sunday, replacing Adamson, a turnaround specialist who will continue to serve as chairman through the final stages of Kmart's reorganization.

Day's pay package calls for a bonus of up to four times his base salary if Kmart beats performance targets that will be spelled out in its business plan.

For the current year, any bonus will be at the discretion of a post-emergence compensation committee.

For fiscal 2004, the performance target is $400 million in earnings before interest, taxes, depreciation and amortization, Kmart said in the filing.

If Kmart hits 75 percent of that target, Day would receive a bonus worth half of his salary. If it reaches that goal, the bonus grows to 100 percent of base salary, and if it doubles that mark, the bonus would by 200 percent. If it reaches 300 percent or more of the earnings target, the bonus would be four times annual salary.

Day's contract allows for use of company aircraft for business purposes and personal use if necessary for "security," according to the SEC filing.
 

KCFlyer

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Hopeful, I'm one of those who feel that the CEO should make no more than 10 to 15 times what the lowest paid employee should make. So yes, I think that management should also take cuts in pay. I don't have a single problem with executives being rewarded for their companies performance, provided that performance results in a profit. Bonuses for "reducing losses" shouldn't be paid. You can pick your jaw up off the floor now.
 
OP
Hopeful

Hopeful

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KCFLYER, I agree with your point on the union's main concern being dues and their reluctance to change with the times. But let's, one more time, look at the compensation issue. Take the current situation at United.

The higher paid pilots agreed to 29% cuts. Mechanics were ordered 13% cut in pay, and lower paid employees down to 7% in cuts. I forget the actual F/A cuts.
It appears they took into consideration who could more afford a brunt of the cuts.
I think that was a somewhat fair approach. Using this method, what do you think those making even more than the pilots, namely upper executives, should have their salaries reduced to? If indeed this is the formula that the BK plan required.
 

DFWCC

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I wonder, if SW has such great labor relations and everybody LUVs each other. Why is SW the most hevely unionized airline?
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Connected1

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The idea that WN is profitable because they are nice to their employees leaves something the be desired. It is important to be nice to your employees, and I'm sure that everyone on this board is well-versed in the circuitous argument that links being nice to profits. However, there may be a more valid reason...

Have you considered that WN might be profitable because they are very good at leaving people wanting more? They have been successful because of their slow growth strategy. They began with a good product and didn't seek to expand too quickly. Instead, they hand-picked select markets that they were confident would be big hits. We, on the other hand, were raised on government cheese prior to 1978, which caused us to grow as quickly as possible (since we were virtually guaranteed a profit). The airline business has largely been a struggle since that time for the dominant network carriers.

Where we are today is a product of our beginnings. And the state of our labor relations is a result of our relative success/failure versus the rest of the industry - not the other way around.
 

KCFlyer

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[blockquote]
----------------
On 1/22/2003 10:58:35 AM DFWCC wrote:

I wonder, if SW has such great labor relations and everybody LUVs each other. Why is SW the most hevely unionized airline?
I thought I have been trusting mngt for the last 20+ yrs. Look where we are at, a near bankrupt flying company. [img src='http://www.usaviation.com/idealbb/images/smilies/14.gif']
----------------
[/blockquote]

They've always pretty much been heavily unionized. Being unionized doesn't mean you have to distrust management. How many other airlines have had grievences filed because a pilot helped pick up trash in an aircraft?
 

DFWCC

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I have worked both sides of the fence. A small non-union semi-professional carrer of 15 yrs and a unionized shop.
They bought have merits. Although there is no such thing as security without profits, there is a greater security when unionized with profits. There are those who will argue that point but keep in mind the "brother-n-law" or the "new broom" effects amoung others.