Who's really on top?

[Birdman]

Bob Redding is the latest of a long list of management heads to proclaim AA (i.e..TWU) has the highest labor costs in the industry. I guess it must be so since the labor unions are not publicly disputing their claims. It doesn't jive with their own charts on their negotiation's website but still the union(s) are silent. I've been personally told by a TWU representative (e-board member) that we make enough money and should be grateful to have a job. Can the union honestly say they're negotiating in earnest with that mentality coming from the leadership? IS THERE A REAL UNION OUT THERE WILLING TO DISPUTE THE COMPaaNY'S CLAIMS?????

 

[Birdman]

Must be so. Here's Arpey on "Center for Asia Pacific Aviation".

Labour costs - waiting for competitor catch-up

American, which is the only legacy not to enter bankruptcy in the post-9/11 period, is facing cost headwinds compared to its competition which have what Arpey called “bankruptcy labour and pay rates.â€￾ Most legacies, including American, are facing contract expirations but what the company is not doing is asking employees to match the labour and pay rates of its competitors. Instead it seems to be waiting for the bankruptcy labor and pay rates to rise.

“If you look at the trailing quarters, their operating results can be explained by paying their people less,â€￾ he said. “But we are doing a good job on the revenue side. We want employees to understand that we are at a competitive disadvantage but we will not suggest that [those pay rates] is what we need from them to be successful. We believe over time there will be a convergence and that our competition will not be able to sustain those labour rates forever. I think trying to get our employees to match those rates would be counterproductive.â€￾

 

[Tex-Mech]

Must be so. Here's Arpey on "Center for Asia Pacific Aviation".

I think trying to get our employees to match those rates would be counterproductive.â€￾

But yet he is trying to match, or even lower the bar by allowing low paid ASM's to be used at a 50% rate.

We are not on top according to page 7 of this company presentation.

http://aa.twu.org/Uploads/V1MandRUPDATED%20011310.pdf

 

[BoeingBoy]

You need to differentiate between labor expenses and pay rates. Then, of course, you've got to factor size into any labor expense calculation - an airline with 100 employees could have total labor expenses of $100 million (a million/year per employee) but that would be less than AA's labor expense for tens of thousands of employees.

According to MIT's Airline Data Project which compiles BTS figures, AA had the highest labor expense per available seat mile for 2008. Of course, by doing nearly all it's own maintenance AA is at a disadvantage when comparing to airlines that sub out maintenance since reported contractor maintenance costs don't break out labor expense.

Jim

 

[Tex-Mech]

According to MIT's Airline Data Project which compiles BTS figures, AA had the highest labor expense per available seat mile for 2008. Of course, by doing nearly all it's own maintenance AA is at a disadvantage when comparing to airlines that sub out maintenance since reported contractor maintenance costs don't break out labor expense.

Jim

So that would explain why AA's "other then labor and fuel costs" were much lower then other quite a few carriers.

 

[TWU informer]

If management (pay, insurance, bonuses. and productivity) count against the labor cost at AA then without a doubt AA has the highest labor cost in the industry which I have no interest in subsidizing with more concessions.

 

[BoeingBoy]

So that would explain why AA's "other then labor and fuel costs" were much lower then other quite a few carriers.

When adjusted for size (as measured by available seat miles) you're largely correct. Just excluding fuel brings AA's cost per available seat mile down to 2nd lowest among the "big 6" legacy carriers (DL and NW still operated on separate ops certs so reported to BTS separately).

In reply to the post after your's, MIT doesn't break out just management expense but rather combined management and other expense. Again adjusted for size, AA has the second lowest expense in this category among the "big 6" network carriers behind CO. That makes sense, since most of the "big 6" pay the execs within a fairly narrow range - US' CEO makes $650K/year in salary alone yet is about 1/3 the size of AA - and have pretty lavish bonus/benefit packages - US' execs can get up to 200% of their annual pay in bonuses plus stock options, stock appreciation rights, etc. That's not to say that some/most airline's execs, especially the "big 6", don't make too much money.

Jim

 

[Bob Owens]

You need to differentiate between labor expenses and pay rates. Then, of course, you've got to factor size into any labor expense calculation - an airline with 100 employees could have total labor expenses of $100 million (a million/year per employee) but that would be less than AA's labor expense for tens of thousands of employees.

According to MIT's Airline Data Project which compiles BTS figures, AA had the highest labor expense per available seat mile for 2008. Of course, by doing nearly all it's own maintenance AA is at a disadvantage when comparing to airlines that sub out maintenance since reported contractor maintenance costs don't break out labor expense.

Jim

"AA is at a disadvantage", thats misleading just like Mr Reddings letter. That would be like saying that AA costs for running 777s is much higher than SWA, sure thats a factual statement but SWA doesnt have 777s.

AA labor costs do not put it at a competitive disadvantage, they simply have a different business strategy. How do AAs maintenance vendor costs compare? Did other carriers embark on as ambitious upgrades and Mods as AA did?

I asked Arpy about the so called labor cost disadvantge as to whether insoucing results in total costs of producing seats being higher or lower and he claimed "the jurys still out on that". Well if it cost more to keep in house maintenance then he would have said so, but he didnt, obviously AA sees and advantage to in house maintenance despite the BS they throw out about "Labor costs" the fact is they dont pay nopwhere near the highest in the industry for mechanics, they are closer to the bottom of the top ten. Their own website shows that.

 

[BoeingBoy]

"AA is at a disadvantage", thats misleading just like Mr Reddings letter. That would be like saying that AA costs for running 777s is much higher than SWA, sure thats a factual statement but SWA doesnt have 777s.

Bad example - every airline has costs to maintain their airplanes, even WN. You also distort what I said, which was that AA's labor costs were higher than airlines that outsource more because the outsourced labor cost isn't included in other airline's employee expense while AA's employee expense for doing the same maintenance other airlines outsource is included in AA's employee costs.

AA labor costs do not put it at a competitive disadvantage, they simply have a different business strategy. How do AAs maintenance vendor costs compare? Did other carriers embark on as ambitious upgrades and Mods as AA did?

Which is why I said that outsourcing affected the perception of labor costs, but not the truth of labor costs. And it's not just maintenance - AA "outsources" to Eagle and connection carriers a smaller percentage of total ASM's than about any of the other "big 6" and that labor costs is included in AMR's SEC filings but not AA's BTS filings.

I asked Arpy about the so called labor cost disadvantge as to whether insoucing results in total costs of producing seats being higher or lower and he claimed "the jurys still out on that". Well if it cost more to keep in house maintenance then he would have said so, but he didnt, obviously AA sees and advantage to in house maintenance despite the BS they throw out about "Labor costs" the fact is they dont pay nopwhere near the highest in the industry for mechanics, they are closer to the bottom of the top ten. Their own website shows that.

First, the jury is still out - AA thinks there's some combination of better and cheaper maintenance from not outsourcing as much while most other airlines think that outsourcing saves money while providing the same quality. Both views can't be right.

Second, labor expense is one of those statistics that can "prove" either side. AA reports more in labor expenses per available seat mile by doing more maintenance in-house (plus more other things in-house) yet that doesn't mean AA pays mechanics as much or more than airline X, Y, or Z. It just means that 1 - more labor expense is reported as such by AA and 2 - AA has more mechanics than airline X, Y, or Z when adjusted for size because AA does more maintenance in house - more mechanics paid somewhat less per hour can still equal higher reported labor expense.

In short, AA is doing what all airline management does - chose which statistic fits the argument they want to make. During contract it's "look at how high our labor expense is". They don't talk about things like pay rates, outsourcing, etc compared to other airlines.

Jim

 

[Bob Owens]

Bad example - every airline has costs to maintain their airplanes, even WN. You also distort what I said, which was that AA's labor costs were higher than airlines that outsource more because the outsourced labor cost isn't included in other airline's employee expense while AA's employee expense for doing the same maintenance other airlines outsource is included in AA's employee costs.

You said AA was "at a disadvantage", they arent, as you explained.

Another factor not considered is all the work that AA does for other carriers. When we work for other carriers Labor dollars generate revenue but not ASMS, this further skews the numbers in a way thats unfair to workers. While many carriers do line maintenance for other carriers we have the largest OH facilities and contract in more work to the OH bases than any other carrier.

Which is why I said that outsourcing affected the perception of labor costs, but not the truth of labor costs. And it's not just maintenance - AA "outsources" to Eagle and connection carriers a smaller percentage of total ASM's than about any of the other "big 6" and that labor costs is included in AMR's SEC filings but not AA's BTS filings.

First, the jury is still out - AA thinks there's some combination of better and cheaper maintenance from not outsourcing as much while most other airlines think that outsourcing saves money while providing the same quality. Both views can't be right.

I look at it a little differently. The other carriers were basically forced to get rid of OH because they could not compete with AA. AA had set in place a program where 20% of OH was paid at much lower rates than anybody else, AA had this cost advantage since 1995. The lower paid workers were brought in through attrition so the chance of open revolt was minimized. When the industry collapsed in 2003 and AA cut everyones pay by 25% without going BK there was no way the others could could cut everyones pay by 25% and then cut 20% of them by close to 50% and not expect a revolt, so they just bailed out of OH. I dont think the jurys still out, deliberations have gone on for six years now and despite AAs wild spending their ASMs are still competitive.

Second, labor expense is one of those statistics that can "prove" either side. AA reports more in labor expenses per available seat mile by doing more maintenance in-house (plus more other things in-house) yet that doesn't mean AA pays mechanics as much or more than airline X, Y, or Z. It just means that 1 - more labor expense is reported as such by AA and 2 - AA has more mechanics than airline X, Y, or Z when adjusted for size because AA does more maintenance in house - more mechanics paid somewhat less per hour can still equal higher reported labor expense.

Exactly, so theres no disadvantage.

In short, AA is doing what all airline management does - chose which statistic fits the argument they want to make. During contract it's "look at how high our labor expense is". They don't talk about things like pay rates, outsourcing, etc compared to other airlines.

Jim

The biggest problem I have is that many on the negotaitions committee take "we have the highest labor costs" or "we have a labor cost disadvantage" as a reason to be concerned and not ask for as much as we should be asking for. We arent even asking for Industry Leading! Who goes into contract negotiations without even starting at "Industry Leading"?? I've never seen anything like it!

 

[Birdman]

In short, AA is doing what all airline management does - chose which statistic fits the argument they want to make. During contract it's "look at how high our labor expense is". They don't talk about things like pay rates, outsourcing, etc compared to other airlines.

Jim

Again I ask, where is the union's (memberships) side of these arguments in the public forum. Bob, being a TWU insider now, could you shed some light as to why the top leadership has not spent money on professional aviation analysts? So far, every indication I've seen from the TWU is we're already making enough money.

 

[Tex-Mech]

Again I ask, where is the union's (memberships) side of these arguments in the public forum. Bob, being a TWU insider now, could you shed some light as to why the top leadership has not spent money on professional aviation analysts? So far, every indication I've seen from the TWU is we're already making enough money.

The same concerns were shared by the DFW President:

Finally, I will say that the lack of support from the TWU International has not gone unnoticed. From the Internationals upper echelons rather weak comments in the newspapers, to the lack of organizing for what could be the biggest fight of our careers; they have been rather disappointing, to say the least. I feel they need to take a page out of the APFA's playbook and get our story out to the press, along with organizing system-wide solidarity days.

 

[BoeingBoy]

You said AA was "at a disadvantage", they arent, as you explained.

No, I said "by doing nearly all it's own maintenance AA is at a disadvantage when comparing to airlines that sub out maintenance since reported contractor maintenance costs don't break out labor expense." You just seized on the disadvantage part and ignored the rest so I had to explain it again.

And that's all I'm going to say on that.

Jim

 

[Hopeful]

Labor expense is not exclusive to aircraft maintenance.
Let's move on to pilot productivity.
Can we see some numbers on AA pilot hours flown as opposed to the rest of the industry.
How about the APA contract as opposed to the rest of industry.

We've read and heard just about all we need to know about mechanics. Let's discuss pilot labor expense and productivity!

 

[BoeingBoy]

What's available in an easy to read format is yours for free. Just cruise on over to MIT's Airline Data Project. What you seek is under the "Data" tab at the top and then the "Employee Compensation" and "Employee Productivity" tab on the left.

Just keep in mind what my discussion with Bob brought out - it's impossible to accurately compare two airlines because there are too many variables. All that can be done is adjust for size (by using per ASM comparisons).

Jim