wnbubbleboy
Veteran
By ERIC TORBENSON / The Dallas Morning News
LAS VEGAS – Maybe traditional airlines aren't so much broken as permanently changed.
In three decades of collective bargaining, organized labor built some of the best contract terms of any business. But over the past three years, airlines have coldly eviscerated those deals in a mad dash to slash costs.
At the Las Vegas World Aviation Forum last week, some leading industry players said they believe unions at traditional carriers will never get their negotiating leverage back.
Any carrier unable to compete with low-cost carriers such as Southwest Airlines Co. will simply push the bankruptcy button – or threaten to push it – and hire lawyers to re-write labor deals.
"The gun's been handed back to management," said Jonathan Orenstein, head of Mesa Air Group. "If their costs are too high, they'll just use bankruptcy to blow up labor. It's a new world."
Consider how the old-line network carriers found themselves in the current mess, with nearly 60 percent of the nation's current capacity under federal bankruptcy protection.
In the past five years, traditional carriers lost pricing power to low-fare rivals.
Falling revenue exposed higher labor and infrastructure expenses at the network carriers. Even before the first painful restructurings were completed, fuel prices soared.
Network carriers find themselves "in a race to the bottom" with their employees in what feels like a constant cycle of givebacks, said Teddy Xidas, a union leader representing flight attendants at US Airways.
"We thought there would be an end to it," Ms. Xidas said, referencing the first round of cuts at her carrier three years ago, which were followed by two more. "But there was no end to it, and now there is no end to it."
At Northwest Airlines Inc., bankruptcy is leading to a second round of restructuring and the freshest evidence that even labor's most powerful weapon – the strike – may do little to halt the steady erosion of retirement plans, wages and work protections.
The carrier has continued to hire replacement mechanics; the striking Aircraft Mechanics Fraternal Association's 4,000 members weren't given the chance to vote on a new deal.
Even if they had been allowed to vote and ratified a strike-ending contract, only a few hundred would have gotten their jobs back.
Some experts say the latest round of restructurings may not be enough.
Lower fares
The biggest driver behind the network carriers' malaise – persistently declining average fares – will worsen as Southwest, JetBlue Airways Corp. and AirTran Airways Inc. add more than 200 large planes anong them to the domestic system in the next three years.
Though the low-cost carriers fly only about 30 percent of the nation's total capacity, each of those cheap seats forces rivals to match lower prices to protect market share.
The ripple effect has network carriers facing low-cost pricing on more than 80 percent of their systems. Despite cutting their top fares in half this year, most are still undercut by Southwest's $299 one-way fare cap.
Plus, hundreds of millions of dollars in investment await carriers yet to launch, such as Virgin America. Those start-ups will flood markets with rock-bottom fares just as Independence Air did along the East Coast.
Such trends suggest average fares will continue their gradual slide, giving network carriers an ever-moving cost target.
How AMR compares
A study of AMR Corp. from Airline Capital Associates for American Airlines Inc.'s pilots' union suggests the carrier has a long way to go to compete against low-cost airlines on U.S. routes.
American's costs are 26.9 percent higher than Southwest's on domestic flying, but the Fort Worth-based carrier earns only an 8.3 percent revenue advantage over Southwest.
The cost gap is even wider when American is compared with JetBlue, where American gets a 34.1 percent revenue edge but has costs a sobering 62.5 percent higher.
AMR "will need to restructure as thoroughly and completely as United [Airlines] has done and Delta will do," the report says.
Though American's parent has a $3.9 billion cash balance, the report notes that came from mortgaging assets and not from free cash created by American's operations.
American officials say they're working hard on a collaborative strategy with labor to get costs back to where the company has consistent profits that, in turn, can help lower the carrier's $20 billion in long-term debt.
Settling a 2-year-old grievance last week, American will allow more rest time for flight attendants in exchange for letting the airline maintain lower staffing levels on some flights.
Usually such differences between management and the union head for costly arbitration. But that was avoided this time because the sides are working together more collaboratively.
And now American's pilots are discussing the possibility of opening talks with the airline in an aim to improve productivity, an effort being fiercely fought among the leaders of the Allied Pilots Association.
The squeeze
The growing tension at American pales in comparison with the friction at US Airways, where more jobs are likely to be lost through its merger with America West, and at Northwest, which is threatening to outsource many flight attendant jobs to lower-paid foreigners.
Some Wall Street insiders are unsympathetic to the plight of traditional carriers.
"If you can't get your costs at least reasonably down and use your hubs to get pricing power, you're going to be a victim in this business every down cycle," said conference panelist Bill Franke, formerly head of America West, who now invests mostly in overseas carriers. "I'm not sure if I even care if the legacy carriers can fix their problems."
American is trying to squeeze every nonlabor penny it can, announcing a $500 million cost-cutting initiative for next year.
It also is counting on an additional $300 million in new revenue from ideas such as allowing passengers to pay $25 to secure a standby seat.
"Over the next few years, an airline's ability to manage revenue and create revenue premiums becomes at least as important as the ability to manage costs," said Mark Dunkerley, chief executive of Hawaiian Airlines Inc., which just emerged from bankruptcy protection.
LAS VEGAS – Maybe traditional airlines aren't so much broken as permanently changed.
In three decades of collective bargaining, organized labor built some of the best contract terms of any business. But over the past three years, airlines have coldly eviscerated those deals in a mad dash to slash costs.
At the Las Vegas World Aviation Forum last week, some leading industry players said they believe unions at traditional carriers will never get their negotiating leverage back.
Any carrier unable to compete with low-cost carriers such as Southwest Airlines Co. will simply push the bankruptcy button – or threaten to push it – and hire lawyers to re-write labor deals.
"The gun's been handed back to management," said Jonathan Orenstein, head of Mesa Air Group. "If their costs are too high, they'll just use bankruptcy to blow up labor. It's a new world."
Consider how the old-line network carriers found themselves in the current mess, with nearly 60 percent of the nation's current capacity under federal bankruptcy protection.
In the past five years, traditional carriers lost pricing power to low-fare rivals.
Falling revenue exposed higher labor and infrastructure expenses at the network carriers. Even before the first painful restructurings were completed, fuel prices soared.
Network carriers find themselves "in a race to the bottom" with their employees in what feels like a constant cycle of givebacks, said Teddy Xidas, a union leader representing flight attendants at US Airways.
"We thought there would be an end to it," Ms. Xidas said, referencing the first round of cuts at her carrier three years ago, which were followed by two more. "But there was no end to it, and now there is no end to it."
At Northwest Airlines Inc., bankruptcy is leading to a second round of restructuring and the freshest evidence that even labor's most powerful weapon – the strike – may do little to halt the steady erosion of retirement plans, wages and work protections.
The carrier has continued to hire replacement mechanics; the striking Aircraft Mechanics Fraternal Association's 4,000 members weren't given the chance to vote on a new deal.
Even if they had been allowed to vote and ratified a strike-ending contract, only a few hundred would have gotten their jobs back.
Some experts say the latest round of restructurings may not be enough.
Lower fares
The biggest driver behind the network carriers' malaise – persistently declining average fares – will worsen as Southwest, JetBlue Airways Corp. and AirTran Airways Inc. add more than 200 large planes anong them to the domestic system in the next three years.
Though the low-cost carriers fly only about 30 percent of the nation's total capacity, each of those cheap seats forces rivals to match lower prices to protect market share.
The ripple effect has network carriers facing low-cost pricing on more than 80 percent of their systems. Despite cutting their top fares in half this year, most are still undercut by Southwest's $299 one-way fare cap.
Plus, hundreds of millions of dollars in investment await carriers yet to launch, such as Virgin America. Those start-ups will flood markets with rock-bottom fares just as Independence Air did along the East Coast.
Such trends suggest average fares will continue their gradual slide, giving network carriers an ever-moving cost target.
How AMR compares
A study of AMR Corp. from Airline Capital Associates for American Airlines Inc.'s pilots' union suggests the carrier has a long way to go to compete against low-cost airlines on U.S. routes.
American's costs are 26.9 percent higher than Southwest's on domestic flying, but the Fort Worth-based carrier earns only an 8.3 percent revenue advantage over Southwest.
The cost gap is even wider when American is compared with JetBlue, where American gets a 34.1 percent revenue edge but has costs a sobering 62.5 percent higher.
AMR "will need to restructure as thoroughly and completely as United [Airlines] has done and Delta will do," the report says.
Though American's parent has a $3.9 billion cash balance, the report notes that came from mortgaging assets and not from free cash created by American's operations.
American officials say they're working hard on a collaborative strategy with labor to get costs back to where the company has consistent profits that, in turn, can help lower the carrier's $20 billion in long-term debt.
Settling a 2-year-old grievance last week, American will allow more rest time for flight attendants in exchange for letting the airline maintain lower staffing levels on some flights.
Usually such differences between management and the union head for costly arbitration. But that was avoided this time because the sides are working together more collaboratively.
And now American's pilots are discussing the possibility of opening talks with the airline in an aim to improve productivity, an effort being fiercely fought among the leaders of the Allied Pilots Association.
The squeeze
The growing tension at American pales in comparison with the friction at US Airways, where more jobs are likely to be lost through its merger with America West, and at Northwest, which is threatening to outsource many flight attendant jobs to lower-paid foreigners.
Some Wall Street insiders are unsympathetic to the plight of traditional carriers.
"If you can't get your costs at least reasonably down and use your hubs to get pricing power, you're going to be a victim in this business every down cycle," said conference panelist Bill Franke, formerly head of America West, who now invests mostly in overseas carriers. "I'm not sure if I even care if the legacy carriers can fix their problems."
American is trying to squeeze every nonlabor penny it can, announcing a $500 million cost-cutting initiative for next year.
It also is counting on an additional $300 million in new revenue from ideas such as allowing passengers to pay $25 to secure a standby seat.
"Over the next few years, an airline's ability to manage revenue and create revenue premiums becomes at least as important as the ability to manage costs," said Mark Dunkerley, chief executive of Hawaiian Airlines Inc., which just emerged from bankruptcy protection.
If bk is so wonderful, why don't some of the LCC's come join us? Welcome to reality!
