To all of who continue to deny NWA needs concessions (from all empoyee groups; both Management and Contract), I humbly submit Exhibit A.
I dare you to read the whole article and explain how NWA can continue with the same antiquated salaries and work rules.
JETBLUE IS LATEST THREAT TO NORTHWEST AIRLINES
By Eric Wieffering
Sunday, August 17, 2003 Star-Tribune
NEW YORK -- It might not look like it, but the blue and gold airport shuttle speeding through Manhattan at dawn on a recent Sunday is a telling indicator of how profoundly low-cost carriers have transformed the airline industry.
Five of the van's bleary-eyed occupants will be flying the upstart carrier JetBlue Airlines -- four to locations once dominated by Delta Air Lines. The lone passenger flying a major airline is using a frequent-flier ticket.
In an industry ravaged by recession, terrorist attacks, war, a worldwide viral infection, labor unrest and bankruptcy, JetBlue is the most improbable of success stories. Four years ago, it was little more than a business plan. Today it's the most profitable airline in the world and, together with Southwest Airlines and AirTran Airways, poses perhaps the biggest threat to Northwest Airlines and the other big carriers.
Northwest, Delta, United and American, which lost a combined $8.8 billion in 2002, are laying off workers, trimming service and canceling plane orders. At the same time, the Big 3 of the low-cost segment -- the only airlines to post a profit last year -- are expanding their fleets, adding new lines to their route maps and siphoning passengers from some of the most lucrative routes served by their much larger rivals. AirTran alone has added 11 new cities and 34 new routes since Sept. 11, 2001, including Milwaukee, a vital market for Northwest.
JetBlue's impact on Eagan-based Northwest has been minimal to date, and most Midwesterners probably have had little occasion and few opportunities to fly the New York-based carrier. But with JetBlue expanding much more rapidly than most other airlines, that is bound to change.
David Neeleman, JetBlue's founder and chief executive officer, said the arrival of new, 100-seat jets, beginning in 2005, eventually will allow JetBlue to begin poaching even more passengers from smaller markets who might otherwise connect on Northwest through its Twin Cities, Detroit or Memphis hubs.
At some point -- though Neeleman won't say when -- JetBlue will come to the Twin Cities.
"We think we have a good-enough product and low-enough cost to be able to compete with NWA, but it's a matter of priorities," Neeleman said. "We can make so much money doing other things first."
Market changes
Back when TWA was a grand airline, John F. Kennedy International Airport in New York was the primary gateway for travelers departing to and arriving from Europe, and Terminal 6 was its home. TWA is gone, and much of the terminal's former glamour has faded. The carpeting is thin, the lighting dim, and by 8 a.m. the Sunday before July 4 it is as crowded, noisy and chaotic as the Port Authority bus depot in Manhattan.
Terminal 6 is JetBlue's home, and gates 12 through 17 are jammed with travelers young and old heading to or returning from vacation. The intercom blares out arrivals from Oakland, Las Vegas, Orlando. The planes are cleaned quickly and prepped for the next legs of the day -- New Orleans, Syracuse, N.Y., and Burlington, Vt.
For years, the knock against low-cost carriers was that they were great, if you wanted to get from small, underserved markets, such as Tulsa, Okla., to Jackson, Miss., or if you wanted to fly from Florida to New York.
JetBlue, for example, flies to only 22 cities. You can fly JetBlue from New York to Florida, but not New York to Iowa or Florida to Iowa. For either of those trips, you'll have to fly one of the big airlines.
"If you happen to be on their route system, it's great," said Daniel Kasper, an airline industry analyst with LECG, an economic consulting firm in Cambridge, Mass. "Otherwise, it can't get you to very many places you want to go."
As low-cost carriers add more markets, that's beginning to change. AirTran is the second-largest carrier out of Atlanta, after Delta, and that airport looks increasingly like a traditional hub for AirTran. As Southwest's network has grown, it has become a more-attractive option for business travelers willing to take connecting flights in order to save money. Analysts estimate that about 20 percent of Southwest's $5.5 billion in 2002 revenue came from passengers who made one stop or more on Southwest before arriving at their final destination.
According to the U.S. Department of Transportation, low-cost carriers now command more than 30 percent of the market in the top 1,000 cities, up from 27 percent in 2000. The biggest inroads in recent years have come in long-haul markets, trips of 1,500 miles and more that used to be the almost-exclusive domain of the big carriers. JetBlue, Southwest and AirTran have added nonstop, coast-to-coast flying in recent years. Phoenix-based America West is scheduled to begin such service this year.
Though Northwest doesn't offer nonstop service between the East and West coasts, it has been hurt by the advent of low-cost service on those routes.
"Suddenly, Northwest has an inferior product because its customers have to stop in Detroit or the Twin Cities," said Bill Swelbar, an industry analyst with Eclat Consulting in Arlington, Va. "To stay competitive, it has to lower its prices, too."
Because their costs are so much higher, Northwest and the other big airlines rarely are able to win a price war with the likes of Southwest or AirTran. It cost JetBlue 2.8 cents per available seat mile to operate its fleet of Airbus A320s during the fourth quarter of 2002. The same plane cost Northwest and United 4.9 cents per available seat mile, according to an Eclat analysis of carrier filings with the Transportation Department.
Labor costs are the biggest reason for the difference. JetBlue paid its A320 crew an average of $413 per hour in the fourth quarter of 2002, while Northwest paid $752 and United paid $973. Northwest executives are pushing for $950 million in annual labor cuts.
JetBlue's workers are not unionized and generally are lower-paid than their counterparts at the big airlines. A senior pilot at JetBlue, for example, makes $96,000 a year, while the most veteran pilots at Northwest can make $200,000 flying international routes (JetBlue does no international flying). Even so, Neeleman said JetBlue has 6,000 résumés from pilots on file.
Even at AirTran and Southwest, where most employees are unionized, labor costs are lower. Southwest's crew on its Boeing 737-300 cost an average of $419, while Delta's cost $908.
Productive strategy
While pay might be the biggest factor keeping costs low at JetBlue and other airlines, it's not the only one.
At Northwest and other big airlines, cleaners descend on planes after they empty. At JetBlue and Southwest, flight attendants and pilots clean an airplane after passengers exit, which allows them to ready planes more quickly for the next flight. Pilots at JetBlue, AirTran and Southwest fly more hours per month than pilots at the big carriers. Maintenance and pilot training costs are lower because because they operate primarily one or two kinds of planes, which ensures that pilots spend fewer hours training and more flying. More than 70 percent of JetBlue's tickets are purchased online, rather than through travel agents or its own ticket agents. Not having to fly to places such as Minot or Bemidji also means huge cost savings.
The looser work rules and other factors combine to make low-cost carriers much more productive than the big airlines. JetBlue's planes spend almost 13 hours a day in the air, carrying passengers and making money. Compare that with Continental Airlines, which has the lowest operating costs among the big airlines. It flew its planes an average of 9.5 hours a day in 2002, while Delta's planes were flown an average of 7.3 hours per day. Northwest does not release such figures.
Given these cost advantages and the weakened condition of their larger competitors, "none of the low-cost airlines are particularly fearful of competing directly against any of the legacy airlines," said Bill Wren, who heads airline recruiting efforts for the Metropolitan Airports Commission, which owns and operates Minneapolis-St. Paul International Airport. "The low-cost airlines today are in the driver's seat."
Tough competition
JetBlue is not the first start-up airline to soar. Eleven went public between 1992 and 2002, but more than half are out of business. Indeed, as Citigroup analyst Brian Harris has noted, only one new national carrier -- Southwest Airlines -- has managed to grow beyond 50 aircraft without experiencing "significant losses, bankruptcy or worse."
Many of the newcomers operated on little more than a wing and a prayer before eventually succumbing to furious competitive responses from the big airlines. JetBlue, in contrast, was the best-funded airline start-up in aviation history, with Neeleman contributing $4 million of his own cash to the initial $130 million investment. At recent stock prices of about $46, JetBlue is valued at more than $3 billion, a figure that exceeds the combined value of American Airlines, Northwest Airlines and Continental Airlines.
Neeleman is highly regarded in the airline industry. He co-founded Morris Air in Utah in 1984, sold it to Southwest in 1993 and served briefly as a Southwest executive. When he left, he started and sold an online reservations system to Hewlett Packard. When his noncompete with Southwest expired, he launched JetBlue.
Like Southwest, JetBlue is concentrating on point-to-point service, but with a difference. Passengers can reserve a seat on JetBlue, which they can't do on Southwest. The all-leather seats are roomier and include a 24-channel satellite TV service. JetBlue's average trip was almost 1,200 miles in 2002, while Southwest's was 720 miles. JetBlue's average one-way fare was $106.95; Southwest's was $84.15.
The combination of low fares and some frills appealed to travelers weary of paying premium prices for poor service. "The JetBlue model works particularly well at this time, when willingness to pay is the factor that determines whether an airline can be successful," said Robert Mann of R.W. Mann & Co., a New York airline analysis and consulting firm.
Some analysts worry that Neeleman's decision to buy 100 smaller, 100-seat jets will complicate its elegantly simple business model. Though pilots and crew members on the 100-seat jets will get the chance eventually to move up to the larger 152-seat Airbus jets, they initially will be paid less than crew members on those planes. That could create tension among workers.
"It adds complexity to what had been a very simple operation," said LECG's Kasper. "Complexity adds cost and takes more management time."
Neeleman dismisses those concerns. The 100-seat jets, which have a range of 2,100 miles, eventually will allow JetBlue to enter smaller markets in the Midwest, Canada and the Caribbean. "There are 1,700 markets with between 50 and 599 passengers a day," he said. "We've shown we can stimulate passenger demand in those markets.
Once JetBlue begins to widely deploy its smaller jets, it will be competing against 50-and 70-seat jets operated by regional partners of the big carriers, such as Mesaba Airlines and Pinnacle Airlines do for Northwest. Those regional carriers provide a vital source of feed for hubs operated by Northwest and the other big airlines, but Neeleman has no doubts as to who will win the battle for those passengers.
"Our average fare will be lower than what their costs are," he said.
Wren, meanwhile, said he keeps in touch with JetBlue on behalf of the MAC, hoping to lure the carrier here sooner rather than later. "They are looking, and no city wants to be left out of the picture," he said.
I dare you to read the whole article and explain how NWA can continue with the same antiquated salaries and work rules.
JETBLUE IS LATEST THREAT TO NORTHWEST AIRLINES
By Eric Wieffering
Sunday, August 17, 2003 Star-Tribune
NEW YORK -- It might not look like it, but the blue and gold airport shuttle speeding through Manhattan at dawn on a recent Sunday is a telling indicator of how profoundly low-cost carriers have transformed the airline industry.
Five of the van's bleary-eyed occupants will be flying the upstart carrier JetBlue Airlines -- four to locations once dominated by Delta Air Lines. The lone passenger flying a major airline is using a frequent-flier ticket.
In an industry ravaged by recession, terrorist attacks, war, a worldwide viral infection, labor unrest and bankruptcy, JetBlue is the most improbable of success stories. Four years ago, it was little more than a business plan. Today it's the most profitable airline in the world and, together with Southwest Airlines and AirTran Airways, poses perhaps the biggest threat to Northwest Airlines and the other big carriers.
Northwest, Delta, United and American, which lost a combined $8.8 billion in 2002, are laying off workers, trimming service and canceling plane orders. At the same time, the Big 3 of the low-cost segment -- the only airlines to post a profit last year -- are expanding their fleets, adding new lines to their route maps and siphoning passengers from some of the most lucrative routes served by their much larger rivals. AirTran alone has added 11 new cities and 34 new routes since Sept. 11, 2001, including Milwaukee, a vital market for Northwest.
JetBlue's impact on Eagan-based Northwest has been minimal to date, and most Midwesterners probably have had little occasion and few opportunities to fly the New York-based carrier. But with JetBlue expanding much more rapidly than most other airlines, that is bound to change.
David Neeleman, JetBlue's founder and chief executive officer, said the arrival of new, 100-seat jets, beginning in 2005, eventually will allow JetBlue to begin poaching even more passengers from smaller markets who might otherwise connect on Northwest through its Twin Cities, Detroit or Memphis hubs.
At some point -- though Neeleman won't say when -- JetBlue will come to the Twin Cities.
"We think we have a good-enough product and low-enough cost to be able to compete with NWA, but it's a matter of priorities," Neeleman said. "We can make so much money doing other things first."
Market changes
Back when TWA was a grand airline, John F. Kennedy International Airport in New York was the primary gateway for travelers departing to and arriving from Europe, and Terminal 6 was its home. TWA is gone, and much of the terminal's former glamour has faded. The carpeting is thin, the lighting dim, and by 8 a.m. the Sunday before July 4 it is as crowded, noisy and chaotic as the Port Authority bus depot in Manhattan.
Terminal 6 is JetBlue's home, and gates 12 through 17 are jammed with travelers young and old heading to or returning from vacation. The intercom blares out arrivals from Oakland, Las Vegas, Orlando. The planes are cleaned quickly and prepped for the next legs of the day -- New Orleans, Syracuse, N.Y., and Burlington, Vt.
For years, the knock against low-cost carriers was that they were great, if you wanted to get from small, underserved markets, such as Tulsa, Okla., to Jackson, Miss., or if you wanted to fly from Florida to New York.
JetBlue, for example, flies to only 22 cities. You can fly JetBlue from New York to Florida, but not New York to Iowa or Florida to Iowa. For either of those trips, you'll have to fly one of the big airlines.
"If you happen to be on their route system, it's great," said Daniel Kasper, an airline industry analyst with LECG, an economic consulting firm in Cambridge, Mass. "Otherwise, it can't get you to very many places you want to go."
As low-cost carriers add more markets, that's beginning to change. AirTran is the second-largest carrier out of Atlanta, after Delta, and that airport looks increasingly like a traditional hub for AirTran. As Southwest's network has grown, it has become a more-attractive option for business travelers willing to take connecting flights in order to save money. Analysts estimate that about 20 percent of Southwest's $5.5 billion in 2002 revenue came from passengers who made one stop or more on Southwest before arriving at their final destination.
According to the U.S. Department of Transportation, low-cost carriers now command more than 30 percent of the market in the top 1,000 cities, up from 27 percent in 2000. The biggest inroads in recent years have come in long-haul markets, trips of 1,500 miles and more that used to be the almost-exclusive domain of the big carriers. JetBlue, Southwest and AirTran have added nonstop, coast-to-coast flying in recent years. Phoenix-based America West is scheduled to begin such service this year.
Though Northwest doesn't offer nonstop service between the East and West coasts, it has been hurt by the advent of low-cost service on those routes.
"Suddenly, Northwest has an inferior product because its customers have to stop in Detroit or the Twin Cities," said Bill Swelbar, an industry analyst with Eclat Consulting in Arlington, Va. "To stay competitive, it has to lower its prices, too."
Because their costs are so much higher, Northwest and the other big airlines rarely are able to win a price war with the likes of Southwest or AirTran. It cost JetBlue 2.8 cents per available seat mile to operate its fleet of Airbus A320s during the fourth quarter of 2002. The same plane cost Northwest and United 4.9 cents per available seat mile, according to an Eclat analysis of carrier filings with the Transportation Department.
Labor costs are the biggest reason for the difference. JetBlue paid its A320 crew an average of $413 per hour in the fourth quarter of 2002, while Northwest paid $752 and United paid $973. Northwest executives are pushing for $950 million in annual labor cuts.
JetBlue's workers are not unionized and generally are lower-paid than their counterparts at the big airlines. A senior pilot at JetBlue, for example, makes $96,000 a year, while the most veteran pilots at Northwest can make $200,000 flying international routes (JetBlue does no international flying). Even so, Neeleman said JetBlue has 6,000 résumés from pilots on file.
Even at AirTran and Southwest, where most employees are unionized, labor costs are lower. Southwest's crew on its Boeing 737-300 cost an average of $419, while Delta's cost $908.
Productive strategy
While pay might be the biggest factor keeping costs low at JetBlue and other airlines, it's not the only one.
At Northwest and other big airlines, cleaners descend on planes after they empty. At JetBlue and Southwest, flight attendants and pilots clean an airplane after passengers exit, which allows them to ready planes more quickly for the next flight. Pilots at JetBlue, AirTran and Southwest fly more hours per month than pilots at the big carriers. Maintenance and pilot training costs are lower because because they operate primarily one or two kinds of planes, which ensures that pilots spend fewer hours training and more flying. More than 70 percent of JetBlue's tickets are purchased online, rather than through travel agents or its own ticket agents. Not having to fly to places such as Minot or Bemidji also means huge cost savings.
The looser work rules and other factors combine to make low-cost carriers much more productive than the big airlines. JetBlue's planes spend almost 13 hours a day in the air, carrying passengers and making money. Compare that with Continental Airlines, which has the lowest operating costs among the big airlines. It flew its planes an average of 9.5 hours a day in 2002, while Delta's planes were flown an average of 7.3 hours per day. Northwest does not release such figures.
Given these cost advantages and the weakened condition of their larger competitors, "none of the low-cost airlines are particularly fearful of competing directly against any of the legacy airlines," said Bill Wren, who heads airline recruiting efforts for the Metropolitan Airports Commission, which owns and operates Minneapolis-St. Paul International Airport. "The low-cost airlines today are in the driver's seat."
Tough competition
JetBlue is not the first start-up airline to soar. Eleven went public between 1992 and 2002, but more than half are out of business. Indeed, as Citigroup analyst Brian Harris has noted, only one new national carrier -- Southwest Airlines -- has managed to grow beyond 50 aircraft without experiencing "significant losses, bankruptcy or worse."
Many of the newcomers operated on little more than a wing and a prayer before eventually succumbing to furious competitive responses from the big airlines. JetBlue, in contrast, was the best-funded airline start-up in aviation history, with Neeleman contributing $4 million of his own cash to the initial $130 million investment. At recent stock prices of about $46, JetBlue is valued at more than $3 billion, a figure that exceeds the combined value of American Airlines, Northwest Airlines and Continental Airlines.
Neeleman is highly regarded in the airline industry. He co-founded Morris Air in Utah in 1984, sold it to Southwest in 1993 and served briefly as a Southwest executive. When he left, he started and sold an online reservations system to Hewlett Packard. When his noncompete with Southwest expired, he launched JetBlue.
Like Southwest, JetBlue is concentrating on point-to-point service, but with a difference. Passengers can reserve a seat on JetBlue, which they can't do on Southwest. The all-leather seats are roomier and include a 24-channel satellite TV service. JetBlue's average trip was almost 1,200 miles in 2002, while Southwest's was 720 miles. JetBlue's average one-way fare was $106.95; Southwest's was $84.15.
The combination of low fares and some frills appealed to travelers weary of paying premium prices for poor service. "The JetBlue model works particularly well at this time, when willingness to pay is the factor that determines whether an airline can be successful," said Robert Mann of R.W. Mann & Co., a New York airline analysis and consulting firm.
Some analysts worry that Neeleman's decision to buy 100 smaller, 100-seat jets will complicate its elegantly simple business model. Though pilots and crew members on the 100-seat jets will get the chance eventually to move up to the larger 152-seat Airbus jets, they initially will be paid less than crew members on those planes. That could create tension among workers.
"It adds complexity to what had been a very simple operation," said LECG's Kasper. "Complexity adds cost and takes more management time."
Neeleman dismisses those concerns. The 100-seat jets, which have a range of 2,100 miles, eventually will allow JetBlue to enter smaller markets in the Midwest, Canada and the Caribbean. "There are 1,700 markets with between 50 and 599 passengers a day," he said. "We've shown we can stimulate passenger demand in those markets.
Once JetBlue begins to widely deploy its smaller jets, it will be competing against 50-and 70-seat jets operated by regional partners of the big carriers, such as Mesaba Airlines and Pinnacle Airlines do for Northwest. Those regional carriers provide a vital source of feed for hubs operated by Northwest and the other big airlines, but Neeleman has no doubts as to who will win the battle for those passengers.
"Our average fare will be lower than what their costs are," he said.
Wren, meanwhile, said he keeps in touch with JetBlue on behalf of the MAC, hoping to lure the carrier here sooner rather than later. "They are looking, and no city wants to be left out of the picture," he said.
