WorldTraveler
Corn Field
- Dec 5, 2003
- 21,709
- 10,662
- Banned
- #106
Yes, the endless DL pay and mostly benefits discussion…. And yes there are more than enough comments from multiple people alleging that DL’s benefits are competitive with other carriers.
First, there is some truth that DL’s benefits package is more closely competitive with US general industry than with the airline industry. There is a host of information available showing benefit levels that have been done by the US Dept. of Labor as well as private companies, foundations, or research groups. By just about any measure, DL’s benefits package is average to above average in competitiveness with American general industry for large companies.
However, unions have long negotiated better benefits packages than what private employees receive – DOL statistcs show that unionized employees and public workers (also largely unionized) receive on average better benefits packages than private sector employees.
Unions obviously have the ability to “lock in” benefits and prevent market forces from resetting levels… it is no surprise that benefits for American workers are decreasing in value. But especially in the airline industry, unions have been unable to maintain the benefits they have locked in, particularly around job security and scope. It is no surprise that BK has been ruthlessly used to reduce benefits far more than actual pay levels – and AA is focusing nearly all of its employee cuts on benefits and productivity.
But let’s look at a couple benefit categories.
Vacation time… it is true that DL capped accrual of 5th and 6th weeks of vacations… but American workers on average get just under 20 days of vacation per year. Even in large unionized companies, only about half of employees can obtain more than 20 vacation days. More info from the DOL here. http://www.bls.gov/ncs/ebs/benefits/2011/ownership/private/table23a.pdf
DL also took the axe to sick time accrual…. Again, far less generous that what most network airlines provided via their unions – but DL’s levels are in line with private industry.
Virtually no one in private industry in the US gets paid lunch. Glad you enjoyed it as long as you did.
Medical costs continue to increase at near double digit annual rates… I’m not sure why anyone would expect their employer to not pass along those costs or think that expecting a company to eat the increased costs won’t come at the expense of something else. Health care costs, like rising fuel prices, are a given in American life. DL committed that it would seek to recover through fare increases the full cost of increased fuel prices over the past year – and they largely did – and that is noteworthy because airlines have traditionally reduced their profitability and turned to their employees to subsidize operations when fuel prices have soared. It isn’t unreasonable to expect customers to pay for fuel price increases and employees to pay for health care cost increases….. and it still remains that DL’s expectations regarding employee share of health care costs is in life with American industry… and if it is just 1-3% off the best in the airline industry, I can assure you that your benefits are a whole lot more competitive than a lot of other people in typically very cyclical industries.
Profit sharing…. Yes, DL and UA employees received nearly the same level of profit sharing… which does prove there are two different ways of reaching profitability with respect to labor. But keep in mind also that DL COULD HAVE paid PMNW people at the lower PMNW levels for the 11 months of the year before the NMB’s final rulings regarding representation came out…. Had they done that profit sharing for PMNW people would have been reduced by hundreds of dollars per year… far more than the increase in increase in health care costs that DL.
And then we get to pensions. Once again, some want to conveniently forget that DL is STILL funding its DB plans even though it is set to the only US network airline who has chosen to not terminate across the board. The PBGC argued in AMR’s BK case with the same point that I have made for years – DL’s post-retirement costs RIGHT NOW are the highest in the airline industry because they made the decision to freeze rather than terminate their DB plans. The current level of funding DL is providing for its frozen DB plans is more than ONE MONTH’S PAY for every employee right now – more than 10% of DL’s annual employee related costs.
Sure, some of you argue that you don’t get anything out of DL’s decision to maintain control of its pensions… and that may be true. You need only look at what is playing out in the AMR BK to be reminded once again that terminating pension benefits has resulted in one of the greatest reductions in employee compensation in the industry. Further, because most airline pension plans allow retirement benefits to commence before PBGC or most general industry retirement plans, there are huge changes in lifestyle and expectations by being told that your pension benefits will be paid out but you have to wait longer to begin to draw them. Overwhelmingly, active employees in a company would prefer a freeze to a termination.
But DL made its decision – and its decision to freeze rather than terminate its pension plans (including those of NW with whom DL had obviously planned their BKs) – is also one of keeping your word. Isn’t it just a tad ironic that all of the unions at virtually every other airline that offered DB plans was unable to protect those plans in BK yet DL retained the plans for its non-union employees who supposedly had no one speaking for them? Kinda makes you wonder if there was a concerted effort between airlines with unions and DL….
If you factor in the cost to DL for continuing to fund its pension benefits, it UNQUESTIONABLY makes DL’s pay and benefits package the most expensive among network carriers – and perhaps even higher than WN’s.
As in any large organization, some would prefer to NOT have one benefit relative to another… but DL not only made the decision to not terminate its pensions because it provided a cleaner BK process but it also retained a benefit that had more value to more people than any other benefit… and unlike any other benefit, once the plan is terminated, the loss to the employees is permanent and irrevocable.
Note also that DL’s approach to sick and holiday time was the same as it was with its pensions… it FROZE the accrual of additional higher level benefits but there are many DL employees who still have their previous sick banks which amount to months of sick time and those who had already reached the 5th week didn’t lose it. Compare that approach of grandfathering to what other carriers have done in BK with benefit cuts.
Let’s talk about UA which is now being used as the “standard” for measuring employee benefit competitiveness.
First, it is worthwhile once again to remember how deeply UA’s payroll and benefits were cut during BK… DL’s overall pay and benefits were reduced far less than UA’s… so if UA employees have gained a slight lead, it cannot begin to make up for the years at which they were much lower than the rest of the industry. Notably, UA employees do not have pensions - other than PMCO employees, most of whom rebuilt pension benefits after CO’s BKs.
Second, it was known at the time that CO and UA merged that UA would pay a high price for labor integration. So far, UA seems to be in little hurry to push workforce integration in part because it is having to push thru wage and benefit increases to its own people before the unions will even talk about integration and then they will be looking for even more increases in order to integrate.
It is also worth noting that of the big 3, UA has a smaller maintenance operation and gains very little revenue from insourcing compared to DL… even if UA builds a few more hangars, it is very doubtful they will do as much maintenance in-house as AA or DL are doing or will do – and will still have less insourcing potential.
It is very possible that once again UA will end up with the highest labor costs in the industry – and that is not a good place to be. DL will not allow itself to get into that position; AA employees most certainly will not be post BK; and WN employees may see their growth in wage increases slowed but they have long understood that high pay is tied to high productivity.
UA’s long-term future and thus the stability of what its employees will have accrued in terms of pay and benefit levels will be in question if UA has to pay as much as it appears they will to integrate their workforces. Given how deep the cuts were for UA employees for years and the potential that UA will be forced to deal with its high labor costs again, I’m not sure I would be emulating UA employee salaries and benefits, esp. if the difference now comes out to 2-3%. And of course, UA’s higher costs will result in reduced profit sharing… so even if UA employees gain more in salary, their profit sharing will not remain at the same levels… DL and UA compete over so much of their networks that it will be virtually impossible for one or the other to maintain a cost or revenue imbalance relative to each other and remain successful.
Finally let’s look at the potential that exists to pay for increased pay and benefits which is the only thing that makes it possible to think in terms of retaining compensation increases which have been gained.
UA never has predicted the amount of revenue increase that DL did in the NW merger and analysts all recognize that DL’s ability to increase revenue through the merger was unique in the industry.
http://www.thestreet.com/_yahoo/story/11430956/1/amr-exec-we-add-flights-we-add-revenue.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
UA is removing a lot of duplicate and money losing capacity, such as to/from DEN, which remains a 3 way competitive battle which is only hurting everyone involved. WN is having an effect on UA’s revenues in EWR. And if AA is able to reduce its costs and have access to other aircraft types, UA will likely find it much harder to gain the revenues it thought it would gain from AA, esp. if AA becomes the low price leader among the big 3.
UA will increase productivity thru the merger but it is unlikely they can keep revenue momentum going as much as DL can. The slot deal and the implementation of product upgrades (Economy Comfort, int’l business class) has already added hundreds of millions of dollars in revenue that UA for the most part already has had.
.
Finally, while many airline employees want no more consolidation, the simple fact is that as fuel prices continue to increase – and they will – the only way to continue to maintain market presence is to consolidate the industry. Increased fuel prices result in decreased demand which means that either an airline must shrink over its existing network or it must grow in order to find new places for the capacity it must remove from existing routes in order to force fare levels up to pay for higher fuel prices (or else as historically occurred, the burden of those higher fuel prices fall on the shoulders of airline employees). If DL becomes yet another initiator in the next round of consolidation in the industry, it stands to gain the most benefits, just as it has with the past round.
Note that as of the most recent data, DL has a 15 cent /gallon advantage in fuel prices relative to other US airlines…. a 3% difference in fuel costs can amount to hundreds of millions of dollars in increased profitability – and thus higher profit sharing.
.
In summary,
- It is true that by being largely non-union, DL has the ability to match benefit policies more closely to the trends in industry rather than what has occurred in the airline industry.
- If DL employees have at times lagged their peers in benefit costs, they have paid a lesser price when corrections have come, as they have done in BK.
- DL’s benefits are very close to average with general American business.
- When you include the value of DL’s frozen pension plans, DL’s benefit costs are far higher than its peers.
- UA may have better benefits in some categories, but several UA employee groups DO NOT make as much as their counterparts at DL – and UA employees gave up far more in BK and took much longer to regain them.
- It is far from certain how UA’s costs will look when merger integration is complete but it is likely that UA will have the highest labor costs in the industry again… no company in that position has been able to compete long term and those benefit gains have quickly been wiped out.
- Consolidation is the only way to continue to grow revenue in an environment where fuel prices continue to rise – and revenue growth is the only way to ensure that gains in pay and benefits can be retained.
Should DL employees blindly accept pay and benefits the company offers, esp. if it is not competitive with other airlines or general American industry? Absolutely not.
Should DL employees make their case to management for increased pay and benefits where it is clear DL is not competitive? Absolutely.
Should DL employees threaten the company with further attempts at unionization in order to gain increased pay and benefits? Yes, because it has worked in the past.
But DL employees should also recognize that DL has used its largely non-union status to adapt the company faster and better than its competitors, which has translated into greater stability and less cuts than many of its peers have changed. Further, DL’s ability to run a strong business overall but particularly with respect to growing revenues is the best assurance that DL can continue to provide the pay and benefits that it has committed to providing and enhance them when it is necessary and possible to do so.
First, there is some truth that DL’s benefits package is more closely competitive with US general industry than with the airline industry. There is a host of information available showing benefit levels that have been done by the US Dept. of Labor as well as private companies, foundations, or research groups. By just about any measure, DL’s benefits package is average to above average in competitiveness with American general industry for large companies.
However, unions have long negotiated better benefits packages than what private employees receive – DOL statistcs show that unionized employees and public workers (also largely unionized) receive on average better benefits packages than private sector employees.
Unions obviously have the ability to “lock in” benefits and prevent market forces from resetting levels… it is no surprise that benefits for American workers are decreasing in value. But especially in the airline industry, unions have been unable to maintain the benefits they have locked in, particularly around job security and scope. It is no surprise that BK has been ruthlessly used to reduce benefits far more than actual pay levels – and AA is focusing nearly all of its employee cuts on benefits and productivity.
But let’s look at a couple benefit categories.
Vacation time… it is true that DL capped accrual of 5th and 6th weeks of vacations… but American workers on average get just under 20 days of vacation per year. Even in large unionized companies, only about half of employees can obtain more than 20 vacation days. More info from the DOL here. http://www.bls.gov/ncs/ebs/benefits/2011/ownership/private/table23a.pdf
DL also took the axe to sick time accrual…. Again, far less generous that what most network airlines provided via their unions – but DL’s levels are in line with private industry.
Virtually no one in private industry in the US gets paid lunch. Glad you enjoyed it as long as you did.
Medical costs continue to increase at near double digit annual rates… I’m not sure why anyone would expect their employer to not pass along those costs or think that expecting a company to eat the increased costs won’t come at the expense of something else. Health care costs, like rising fuel prices, are a given in American life. DL committed that it would seek to recover through fare increases the full cost of increased fuel prices over the past year – and they largely did – and that is noteworthy because airlines have traditionally reduced their profitability and turned to their employees to subsidize operations when fuel prices have soared. It isn’t unreasonable to expect customers to pay for fuel price increases and employees to pay for health care cost increases….. and it still remains that DL’s expectations regarding employee share of health care costs is in life with American industry… and if it is just 1-3% off the best in the airline industry, I can assure you that your benefits are a whole lot more competitive than a lot of other people in typically very cyclical industries.
Profit sharing…. Yes, DL and UA employees received nearly the same level of profit sharing… which does prove there are two different ways of reaching profitability with respect to labor. But keep in mind also that DL COULD HAVE paid PMNW people at the lower PMNW levels for the 11 months of the year before the NMB’s final rulings regarding representation came out…. Had they done that profit sharing for PMNW people would have been reduced by hundreds of dollars per year… far more than the increase in increase in health care costs that DL.
And then we get to pensions. Once again, some want to conveniently forget that DL is STILL funding its DB plans even though it is set to the only US network airline who has chosen to not terminate across the board. The PBGC argued in AMR’s BK case with the same point that I have made for years – DL’s post-retirement costs RIGHT NOW are the highest in the airline industry because they made the decision to freeze rather than terminate their DB plans. The current level of funding DL is providing for its frozen DB plans is more than ONE MONTH’S PAY for every employee right now – more than 10% of DL’s annual employee related costs.
Sure, some of you argue that you don’t get anything out of DL’s decision to maintain control of its pensions… and that may be true. You need only look at what is playing out in the AMR BK to be reminded once again that terminating pension benefits has resulted in one of the greatest reductions in employee compensation in the industry. Further, because most airline pension plans allow retirement benefits to commence before PBGC or most general industry retirement plans, there are huge changes in lifestyle and expectations by being told that your pension benefits will be paid out but you have to wait longer to begin to draw them. Overwhelmingly, active employees in a company would prefer a freeze to a termination.
But DL made its decision – and its decision to freeze rather than terminate its pension plans (including those of NW with whom DL had obviously planned their BKs) – is also one of keeping your word. Isn’t it just a tad ironic that all of the unions at virtually every other airline that offered DB plans was unable to protect those plans in BK yet DL retained the plans for its non-union employees who supposedly had no one speaking for them? Kinda makes you wonder if there was a concerted effort between airlines with unions and DL….
If you factor in the cost to DL for continuing to fund its pension benefits, it UNQUESTIONABLY makes DL’s pay and benefits package the most expensive among network carriers – and perhaps even higher than WN’s.
As in any large organization, some would prefer to NOT have one benefit relative to another… but DL not only made the decision to not terminate its pensions because it provided a cleaner BK process but it also retained a benefit that had more value to more people than any other benefit… and unlike any other benefit, once the plan is terminated, the loss to the employees is permanent and irrevocable.
Note also that DL’s approach to sick and holiday time was the same as it was with its pensions… it FROZE the accrual of additional higher level benefits but there are many DL employees who still have their previous sick banks which amount to months of sick time and those who had already reached the 5th week didn’t lose it. Compare that approach of grandfathering to what other carriers have done in BK with benefit cuts.
Let’s talk about UA which is now being used as the “standard” for measuring employee benefit competitiveness.
First, it is worthwhile once again to remember how deeply UA’s payroll and benefits were cut during BK… DL’s overall pay and benefits were reduced far less than UA’s… so if UA employees have gained a slight lead, it cannot begin to make up for the years at which they were much lower than the rest of the industry. Notably, UA employees do not have pensions - other than PMCO employees, most of whom rebuilt pension benefits after CO’s BKs.
Second, it was known at the time that CO and UA merged that UA would pay a high price for labor integration. So far, UA seems to be in little hurry to push workforce integration in part because it is having to push thru wage and benefit increases to its own people before the unions will even talk about integration and then they will be looking for even more increases in order to integrate.
It is also worth noting that of the big 3, UA has a smaller maintenance operation and gains very little revenue from insourcing compared to DL… even if UA builds a few more hangars, it is very doubtful they will do as much maintenance in-house as AA or DL are doing or will do – and will still have less insourcing potential.
It is very possible that once again UA will end up with the highest labor costs in the industry – and that is not a good place to be. DL will not allow itself to get into that position; AA employees most certainly will not be post BK; and WN employees may see their growth in wage increases slowed but they have long understood that high pay is tied to high productivity.
UA’s long-term future and thus the stability of what its employees will have accrued in terms of pay and benefit levels will be in question if UA has to pay as much as it appears they will to integrate their workforces. Given how deep the cuts were for UA employees for years and the potential that UA will be forced to deal with its high labor costs again, I’m not sure I would be emulating UA employee salaries and benefits, esp. if the difference now comes out to 2-3%. And of course, UA’s higher costs will result in reduced profit sharing… so even if UA employees gain more in salary, their profit sharing will not remain at the same levels… DL and UA compete over so much of their networks that it will be virtually impossible for one or the other to maintain a cost or revenue imbalance relative to each other and remain successful.
Finally let’s look at the potential that exists to pay for increased pay and benefits which is the only thing that makes it possible to think in terms of retaining compensation increases which have been gained.
UA never has predicted the amount of revenue increase that DL did in the NW merger and analysts all recognize that DL’s ability to increase revenue through the merger was unique in the industry.
http://www.thestreet.com/_yahoo/story/11430956/1/amr-exec-we-add-flights-we-add-revenue.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
UA is removing a lot of duplicate and money losing capacity, such as to/from DEN, which remains a 3 way competitive battle which is only hurting everyone involved. WN is having an effect on UA’s revenues in EWR. And if AA is able to reduce its costs and have access to other aircraft types, UA will likely find it much harder to gain the revenues it thought it would gain from AA, esp. if AA becomes the low price leader among the big 3.
UA will increase productivity thru the merger but it is unlikely they can keep revenue momentum going as much as DL can. The slot deal and the implementation of product upgrades (Economy Comfort, int’l business class) has already added hundreds of millions of dollars in revenue that UA for the most part already has had.
.
Finally, while many airline employees want no more consolidation, the simple fact is that as fuel prices continue to increase – and they will – the only way to continue to maintain market presence is to consolidate the industry. Increased fuel prices result in decreased demand which means that either an airline must shrink over its existing network or it must grow in order to find new places for the capacity it must remove from existing routes in order to force fare levels up to pay for higher fuel prices (or else as historically occurred, the burden of those higher fuel prices fall on the shoulders of airline employees). If DL becomes yet another initiator in the next round of consolidation in the industry, it stands to gain the most benefits, just as it has with the past round.
Note that as of the most recent data, DL has a 15 cent /gallon advantage in fuel prices relative to other US airlines…. a 3% difference in fuel costs can amount to hundreds of millions of dollars in increased profitability – and thus higher profit sharing.
.
In summary,
- It is true that by being largely non-union, DL has the ability to match benefit policies more closely to the trends in industry rather than what has occurred in the airline industry.
- If DL employees have at times lagged their peers in benefit costs, they have paid a lesser price when corrections have come, as they have done in BK.
- DL’s benefits are very close to average with general American business.
- When you include the value of DL’s frozen pension plans, DL’s benefit costs are far higher than its peers.
- UA may have better benefits in some categories, but several UA employee groups DO NOT make as much as their counterparts at DL – and UA employees gave up far more in BK and took much longer to regain them.
- It is far from certain how UA’s costs will look when merger integration is complete but it is likely that UA will have the highest labor costs in the industry again… no company in that position has been able to compete long term and those benefit gains have quickly been wiped out.
- Consolidation is the only way to continue to grow revenue in an environment where fuel prices continue to rise – and revenue growth is the only way to ensure that gains in pay and benefits can be retained.
Should DL employees blindly accept pay and benefits the company offers, esp. if it is not competitive with other airlines or general American industry? Absolutely not.
Should DL employees make their case to management for increased pay and benefits where it is clear DL is not competitive? Absolutely.
Should DL employees threaten the company with further attempts at unionization in order to gain increased pay and benefits? Yes, because it has worked in the past.
But DL employees should also recognize that DL has used its largely non-union status to adapt the company faster and better than its competitors, which has translated into greater stability and less cuts than many of its peers have changed. Further, DL’s ability to run a strong business overall but particularly with respect to growing revenues is the best assurance that DL can continue to provide the pay and benefits that it has committed to providing and enhance them when it is necessary and possible to do so.
