Bankruptcy's Siren Song

[mweiss]

The $1.2 Billion from labor is counting all 47,000 employees back in 2001. We are now approx 28,000. The cost savings was calculated $1.2 Billion PER YEAR.

So somewhere along the way the numbers have changed. It can't still be $1.2B per year when the number of employees has dropped by 40%. Employees that are no longer employed are providing no service for no dollars, and thus no longer enter the cost equation at all (except for any maintenance on residual benefits). An admittedly very rough approximation of the adjusted cost savings from concessions after furloughs would be 40% of the $1.2B, or $485M.

 

[PITbull]

Jim,

The $1.2 Bil was not over the life of the agreement. That would mean that the $110 mil that AFA gave in summer and winter of 2002, was in actuality only $22 mil saving per year.

Not so.

The $1.2 bil was an annual savings per year, every year for 5 years to 2009. The job losses were not even counted in, otherwise, we are into billions per year.

 

[PITbull]

So somewhere along the way the numbers have changed. It can't still be $1.2B per year when the number of employees has dropped by 40%. Employees that are no longer employed are providing no service for no dollars, and thus no longer enter the cost equation at all (except for any maintenance on residual benefits). An admittedly very rough approximation of the adjusted cost savings from concessions after furloughs would be 40% of the $1.2B, or $485M.

mweiss,

If we are doing the jobs of 20,000 folks that use to be here, how to you figure that the company didn't realize these cost savings?

Lets just carry out your thinking the reverse. Just put those folks back into the equation, and then see the company's costs go up. In addition, the company received another $800 mil from vendors and leaseholders in BK.

This $2 billion only lowered the CASM by .5 cents.

Where do you get your logic?

 

[BoeingBoy]

Pit,

I must have phrased it wrong because that's what I meant - an average of $1.2 billion PER YEAR.

Since some things were phased in (like the big increase in medical the first of this year), and some things still haven't been implemented (like preferential bidding), it is possible that the first year there weren't the full $1.2 billion savings. Of course, offsetting this are the contract violations that I'm sure weren't given any value in the concession negotiations.

Jim

 

[BoeingBoy]

mweiss,

PitBull said it right. Not having those people on the payroll is a cost savings.

Jim

 

[mweiss]

If we are doing the jobs of 20,000 folks that use to be here, how to you figure that the company didn't realize these cost savings?

Yes, technically you realize cost savings from layoffs. However, it's not like AFA was staffing the airplanes with 40% more people on the same number of aluminum tubes. If the layoffs have corresponding production decreases, then the cost per unit doesn't change.

In other words, cutting costs by cutting production isn't really cutting costs. Otherwise, you can take it to its logical conclusion and suggest laying everyone off. You are guaranteed to reduce costs by a few billion a year. But you still go bankrupt.

Or, more to the point, it's silly to ask where the $1B went if it didn't get a chance to go to the bottom line.

 

[PITbull]

Mweiss,

You are not correct on the productivity. These concessions in cutting personnel on the planes, for example, were considered "productivity enhancements". In other words, the f/as that were left on the planes produced actually more by using less f/as. The service hasn't decreased. The service stayed the same. Therefore, we do more with less.

The new reserve system again is another example. It created what management considered a more efficient and productive system to run the reserve coverage operation by eliminating f/as. Just for 2004, we have lost over 200 f/as through attrition (retirement, terminations, resignations), and we are only into May. Then add the 250 from January's furloughs...whoa, major savings again.

There has been no "recall" to fill any vacancies. In fact, management has just announced Voluntary furlough #9.

 

[BoeingBoy]

mweiss,

"If the layoffs have corresponding production decreases, then the cost per unit doesn't change."

And that's the fallacy of your argument. Has the fleet count gone down since the concessions? No. Have the number of passengers gone down since the concessions? No - up in fact. Have the number of ASM's produced gone down since the concessions? No - up in fact.

Productivity didn't go down, it went up.

You also mentioned the average savings per employee in one of the posts. Not all concessions were in dollars earned - there were changes in those evil work rules, at least for flight crews (don't know enough about other groups contracts to comment on them). There were changes in training pay, vacation pay, etc., which meant more days working to make a full month. There were changes in medical premiums and co-pays. And as far as wage rates, I took a $75,000 per year reduction and I didn't have to go to a lower paying airplane or seat. That helps bring that ole average up.

Jim

 

[jbragg476]

Pitbull...
So how many more F/A's do you expect to be cut by the end of summer/winter??
(best guess)

 

[mweiss]

You mean to tell me that you were still flying with more than the minimum FA complement? Everyone else was already down to minimums by that point, so I can see how that would have contributed to US's higher costs. I didn't realize you were still flying with "extra" FAs in 2001. Wow.

So, let me see if I understand what those AFA concessions amounted to:
- Reduced staffing to FAA minimums (significantly reducing the cost per flight, though when amortized over many seats and many miles probably amounts to a few tenths of a cent)
- Increased hours per FA (reducing the overhead costs associated with benefits, again a small change to CASM when amortized over the number of seats and miles, but a few more tenths of a cent)
- Reduced wages (blah, blah...tenths of a cent)

Am I understanding this correctly?

 

[mweiss]

I took a $75,000 per year reduction

Wow...you must have been making some serious coin. I'm not going to go into whether or not it's earned; I don't sit in that left seat on a jet, so until I fly a mile in your rudder pedals... 😉

But you gotta admit, that's a mighty fine income you had there. And unless you took more than 50%, that's still nothing to sneeze at. But let me reiterate, I'm not passing any judgements about whether or not it's earned.

Oh, and to your other points, I guess I misunderstood the terms of your concessions. So how did CASM do after the concessions?

 

[PITbull]

Pitbull...
So how many more F/A's do you expect to be cut by the end of summer/winter??
(best guess)

I can only guess by the historical averages through attrition. I've seen the attrit rate go up substantially the past two months. I suspect that May will be the all time highest rate.

I don't see any immediate furloughs beyond the VF 9 for the next 6 months. Management will be focused on the concessions and will not even mention future furloughs, because they want everyone's vote.

If the concessions go through, we could see major furloughs in all groups for the productivity enhancements alone.

The only "known" at the moment is the attrition rate. I can guess by October, we will have probably another over 250 f/as gone. That may cause a shortage under the present contract and may cause a recall. However, it will be short lived if it would occur.

 

[PITbull]

From reading your posts...I'm not sure what your understanding is.

I can tell you that you are incorrect when you say that only U was not at FAA min on the a/c. You are seriously incorrect.

Since 9/11, there have been some major layoffs in our industry to the tune of OVER 100,000.

I don't believe you thought of the fact that the legacy carriers have been serving meals on board, where the LCC have or are not.

So, we had staffing to reflect service.

Since that time, the service stayed the same;however, the staffing decreased to capture a cost savings.

I hope that is more clear.

 

[BoeingBoy]

mweiss,

For a couple of months, it was a nice annualized income, and just what Wolf wanted with his "parity + 1%". Of course, UAL, AMR, and DAL pilots were making it for the year before I saw it since the parity was a backward looking measure, and so far the DAL pilots are still making it.

Jim

 

[mweiss]

I can tell you that you are incorrect when you say that only U was not at FAA min on the a/c. You are seriously incorrect.

Who else was running extras? Not CO, NW, or AS. I don't recall on UA at the time.

I don't believe you thought of the fact that the legacy carriers have been serving meals on board, where the LCC have or are not.

AS has been doing it, with mostly short hops, and with FAA minimums. So, yes, I have thought about it.

Since that time, the service stayed the same;however, the staffing decreased to capture a cost savings. I hope that is more clear.

As a bell.