Luvn737s,
I believe you see the correct problem but I don’t believe it will be solved by the labor methods you propose. The source of the problem is an excess, or really imbalance, of capacity between low cost producers and high cost producers. The LCCs see an opportunity to gain tremendous revenue and market share considering that the legacy carriers still carry nearly 75% of all passengers inside the US and nearly all of the passengers outside the US. Although there are certainly brand preference elements, air transportation is essentially a commodity; the lowest cost producer always wins in a commodity business.
The issue is really cost driven and every cost item that stands in the way of getting to the cost equilibrium will be targeted. Labor IS one of the easiest cost items to attack and will therefore incur more cuts. There really is no precedent for labor standing in the way of reducing costs and having the company succeed. Let me know if you have a good example.
That does not, however, mean that labor should roll over and just give management everything they want. Legacy airlines that survive will not only cut costs but also come up with industry-leading business plans. Developing business plans is the responsibility of management and labor cannot be expected to continue to incur blow after blow while supporting the current management teams. In reality, UAL employees had the best opportunity to replace their management and get true leaders but that was never done because labor was more interested in lining its own pockets than in preparing for the expected changes in the industry (which are undoubtedly far more clear today than they were 12 years ago – even though many experts said we would see what we are now seeing at the time the industry was deregulated 25 years ago).
My predictions as to which of the legacy airlines will survive is based on 1) the ability to cut costs to provide a meaningful chance of becoming competitive while not decimating stakeholders and 2) having strong management and sound business plans. AA and DL are my picks for future leaders in the industry (and possibly the only two long-term legacy carriers). AA got substantial cost relief last year and continues to reduce costs through simplification of its business processes. AA has always been a fairly well run company, particularly from a marketing perspective. AA’s biggest mistakes have come around the ability to execute mergers and acquisitions; fortunately, AA needs little else to become a truly global and nationwide carrier. AA still needs a mid-Atlantic hub which could easily be done by redeveloping RDU (which will work much better with a large and growing fleet of RJs – something AMR didn’t’ have ten years ago) or acquiring an existing hub. AA will probably regret dismantling STL but it can probably be rebuilt if necessary (again heavily RJ dependent) to help counter capacity limitations at ORD. Building new Pacific markets should be relatively easy given the improvement in market access, AA’s strong hubs, and large fleet of 777s. AMR also has significant wealth in its ownership of American Eagle and its extensive maintenance operations, either of which could be sold off or provide revenue streams in providing quality services for other carriers.
DL is my other choice for being a long-term survivor and leader in the industry. DL has long been a well-run company and has had some of the lowest costs and highest quality service in the industry; the last 10 years have clearly been a severe deviation for DL but there are a lot of people at Delta, including Jerry Grinstein, who know how quality airlines were once operated. I believe it is very likely that DL’s stakeholders will agree to significant cost concessions in the next 30-60 days simply because the pain they will incur if they don’t work w/ DL will be much greater and the examples of failures is very apparent elsewhere in the industry. The size of concessions DL is asking for should make DL solidly profitable. Further, DL will stand to gain more than anyone else as US continues to shift away from hub operations and even more if it fails – which at least many US employees regard as very possible if not likely. Part of the urgency for DL to resolve its cost problems is due to US’ impending potentially fatal crisis and the continued shakeout in the industry that will provide Delta will opportunities to grow through acquisitions. Fortunately, DL has done mergers and acquisitions fairly well, and DL will need to acquire to in order to become worldwide and nationwide given its relatively light presence in top world markets. I believe UAL is headed for a painful end and DL will be prepared and capable of picking up the pieces – and gaining access to Asia, London, the west coast, and Chicago and strengthening its Rocky Mountain position; although I’m fairly certain that DL will go after Asia, London, the west coast, and Chicago, I’m not sure that moving mountain operations from SLC to DEN will make sense from a financial sense given DEN’s high costs; there is no doubt that DEN will push for a strong replacement carrier and will be willing to renegotiate costs. Further, DEN will make even more sense if DL shutters DFW since DEN is within RJ range of many of DL’s traditionally strong Texas and SE markets – but SLC is not. On the people front, DL employees will likely make more than UA employees as UAL continues to cut costs to survive so employees could see DL as their savior – exactly as it happened with Pan Am and Western employees. DL and UA obviously have little overlap and the government will likely look favorably on a DL distress acquisition of UA if it means preserving air service.
CO and NW could well both be survivors although I wouldn’t be surprised to see an eventual merger between the two facilitated by an aircraft swap between DL-UA and NW-CO. Although DL-UA could proceed by eliminating several older fleet types at both airlines, CO-NW could probably never happen without swapping fleet types to provide commonality (unless you happen to think Air France’s fleet plan is a model for the industry).
In summary, Luvn737s, DL probably has a very good chance of surviving with your help. Although the cuts DL is asking for are hefty, they give DL a very good chance of surviving. At the same time, DL management appears to be close to figuring out what they have to do to be a viable, long-term competitor against a flock of LCCs and ALPA is right to ensure that management presents a credible plan for turning around not only Delta’s employee costs but also its entire business and operational plan – much as AA has already started doing. In return, DL will likely grow to become a significant worldwide player and ALPA has a legitimate right to ask for a stake in that future profitability through equity and profit sharing.
It would be very nice to see at least one airline go to the brink and walk away stronger for the experience. I am confident Delta can do it and you can be there to share in the victory.
I wish you the very best…
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