Is Cost The Answer Pt. 2

[BoeingBoy]

In another thread, MrPlane offers an idea as to how to compete with the LCC's. As I mentioned in "Is Cost the Answer", I don't believe that U can compete with LUV, JBLU, etc., through cost reductions since cost reductions alone do not lower CASM enough. The underlying effeciencies of the LCC's still provide them with an advantage.

Creating a division of U with LUV's contracts, route structure, etc., could provide that division with a CASM similiar to LUV's. I think the first question is whether management wants to BE a LCC or network carrier. If the answer is to become a LCC, starting with a subdivision and eventually transfering the whole operation to that division might be a practicle method. There are the host of problems to be solved - seniority, etc. - but in theory it could work. The only possibly insurmountable problem I see is whether U could survive long enough to make the transition to a LCC. During the transition, mainline losses could more than eat up any low-cost division profits.

The other alternative is to succeed as a network carrier. To refresh memories on the state of where we are form "pt. 1":

Total expenses 26.9% lower than 2Q01
Employee costs 31.6% lower than 2Q01
CASM 9.5% lower than 2Q01
Another interesting conparison with 2Q01 - ASM's are 26.5% lower, about the same as total costs.

Wolf and Gang were what you might call "two hit wonders". Their mantra was "cut costs" and "merge with United". While costs (as opposed to CASM) came down under Wolf et al, the merger didn't come to pass. Consequently, nothing was accomplished as far as addressing the structural problems at U for almost 2 years.

Now we have Dave & company, who could be called "one hit wonders". His mantra is "cut costs". Hell, I could teach my granddaughter (when she's old enough to talk) to say "cut costs", but that wouldn't make her an effective CEO. What is needed is imagination, expertise, and a willingness to be bold & innovative.

Apparently, Dave doesn't want to become a LCC. The emphasis on RJ's makes that clear. If he wants to be a competitive network carrier with an ability to hold our own against the LCC's, his "one hit" will not do it.

As I said in "pt. 1", efficiency is the answer on the cost side. Rolling hubs, giving up underused facilities or using them more, etc. create efficiency. On the revenue side advertise, differentiate your product, tinker with the fare structure like America West. These are just a few of the things that could be done. Many others have been mentioned by others on this forum. But they all require more time, energy, and smarts than just saying "cut costs".

 

[BoeingBoy]

PineyBob,

You are right, at some places it has worked. It requires a company that is successful (profit sharing, etc, is worthless without profits), a management that incentivizes performance (instead of browbeating as a motivational tool), and that views employees as valuable assets (instead of necessary evils).

Kelleher (sp?) at LUV understands this - he publicly puts employees ahead of customers, knowing that happy & motivated employees perform in a way that will keep the customers happy.

Bethune at CAL understands this - offering incentives for on-time performance, low PAWOB (pax arriving without bags), and less sick time use rewards employees for meeting those goals.

At U these leadership traits have been non-existent for the last decade. Given that history and the direction of current management, any chance of creating a partnership for success is basically nil.

 

[wnbubbleboy]

Kelleher (sp?) at LUV understands this - he publicly puts employees ahead of customers, knowing that happy & motivated employees perform in a way that will keep the customers happy.

That not exactly true. We have the same importance as the customer. Which is important since we feel we have a voice to vent any problems that we have with the company. Here's an example: Years ago I worked on the ramp at smaller station at the time and we had 5 new hires quit within two weeks. The next week HQ sent a representive of the company to our station. He cleared the supervisors from the room and said "OK, what's the problem here?"

That's where WN differs from U. It sees it's people as assets not liablities. There is no secret to WN's success. Treat your employees with respect and you'll see the results in profits. I haven't worked a U in over 10 years but from what I remember is that you have too many MBA's running things instead of airline people. How many of those people ever worked a real day out there on the ramp or upstairs with the passangers.

IMHO You guys have given enough. It's time for your managment team to change it tactics. It seems the only thing they are good at now is laying people off.

 

[76200]

Siegel talks about cutting costs another 200 - 300 million.

We're not hearing about....... Increasing Revenue.

What about increasing the size of mainline ?

What a novel idea that is.......

Keep it simple.


Increase Mainline size


Increase stage lengths


Increase International flying.


Some of the seasonal international routes would add additional revenue if
they were flown year round.


76200

 

[PITbull]

U is increasing International flying through their United alliances and the Star Alliances. Management's thinking is why not code share with these international carriers and receive a portion of the fare, without having to supply a A330, crews, maintenance, and the liability to fly this segment by U. Hell, when all is said and done, they only end up with a portion of the fare as profit, if any, anyway.

If they do increase any International flights, it will be to make the airline worth more in order to increase the share value, and then sell the airline or merge it. Mid Atlantic, IMO, will serve great purpose in this entire equation, two fold. One, to increase share value for the senior execs, and two, to incentivize the potential to sell off the entire airline.

So, the question remains, if this could be a probability, like I suspect, why would I help a company to this end, and expedite my own employment demise?

Unless management can prove that their interest on this property is for the LONG-TERM solvency of our carrier, and they are not just visiting here, and they no longer look to reduce head count. systemwide in all groups...I may concede.

 

[PITbull]

Bob,

What's your point? Like you implied , my individual 58 shares means diddly squat in the scheme of things. But collectively, we are part stake holders of this fine company.

 

[BoeingBoy]

PineyBob,

The employees started with approx 24%. About 1/3 was withheld to pay taxes - it varied from person to person depending on state of residence. That left 18%. The largest block went to pilots - 19% - who owned 12-13% after the tax withholding. Only 1/2 of that vested on 7/31/03, making 6-7% in the hands of the pilots and maybe 10% for all the employees. I think you'll find that the employees are voting on management with their shares - I believe most if not all the selling so far has been employees.

 

[PITbull]

Gee Bob,

I guess your comments are "all about me". Its blantant and obvious that my sentiments really annoy you. But honestly, vice versa.

First, 58 shares at $9 equates to 1 month's sick pay penalty for many f/as.

Second, We were not given shares of stock as a "freebie" like you want to imagine. The stock equated to the % of the concessions/sacrifices given by your particular group. Our particular group was given 90 shares per f/a, but 32 shares were taken to pay the tax. I will sell the shares when I am good and ready. I have already lost approx $80,000 out of my 401K from the BK process, so the 58 shares to me is laughable. The senior execs WHO ARE HIRED TO MAKE THE RULES AND HAVE BEEN ON THIS PROPERTY 18 MONTHS, GET MILLIONS OF SHARES COLLECTIVELY TO SPLIT AMONG APPROX 10 EXECS. So, having 23 year contribution to our airline, and having 18 months and getting the bigger portion of the pie with no signs of showing any performance of success, is problematic in my mind's eye.

With regard to your comments, I do not make the rules, I take the rules and follow them OR CHALLENGE them if they are unreasonable, illogical, punitive and unfair.
Being that I am part of this company and have a voice in the work place; I AM LOUD! And, since your post obviously imply to me, I never say "the company has screwed me", never. The company are the employees. What I do imply, is management has misrepresented themselves and decieved us as Labor. Management is a small part of the the "whole" company. Hope you understand my sentiments more clearly.

Lastly, I could leave the company tomorrow if I choose to bail out. But, I rethink it for many reasons that I do not have to share publically on these boards.

JG is staying; so I'm staying.

 

[BoeingBoy]

PineyBob,

Vaunted logic would tell you that "the company" is an inanimate entity - not capable of screwing or anything else. Common sense would tell you that "the company", when taken in context, could be the employees (ie. the soul or brawn of the company) or management (ie, those that make the big decisions & the big bucks).

 

[PITbull]

BoeingBoy,

Exactly!

 

[PITbull]

Bob,
Please tell me what monies the senior execs used to pay for their stock. Please tell?

I have never said the company screwed me. Find the post that says this or implies company. Take your own perspective out of this for a minute.

Read the post again, minus your anger.

 

[PITbull]

Bob,

That is my point as well. Management, who did not pay for the stock, has much to gain. In fact, millions of dollars that has to do with the "share holder value".

But, once they gain this, do you believe that they are here for the long-term? What... to grow mainline, where presently it is no where in the business plan? Do you think Bronner wants to keep his investment in the airline Industry? He has stated in one of his interviews earlier this year that he aimed to stay in the industry for 1 or two years. With that statement, one must ponder is anxiousness to get his profits and move on.

Management has much incentive to show a profit on an individual basis for the obvious reasons than the individual rank and file employee. And I doubt very much that this mangagement will be staying longer than a short visit, as did Gangwal and wolf.

 

[76200]

Hi Pitbull,

Thanks for the clarification about International.

We used to have 3 flights a day from PIT to International destinations :

1. PIT - Paris ( CDG ) Charles DeGaulle

2. PIT - London ( LGW ) London Gatwick

3. PIT - Frankfurt ( FRA )

Of course we're still flying Frankfurt.

We were net profitable on all international flights.

The freight alone made it viable.

But when you reduce your feed into PIT, it will decrease your boardings
on international. In spite of that we still made money.

The other issue is, they initiate service on international, then they cut
the flight.

It's not unusual for our passengers to make reservations in advance
for planning purposes.

A little consistency would help.

Keep the flights year round. Decrease fares during the slow period.
Again, we would show a profit on these routes.

Delta Airlines added international service to Amsterdam and Rome from
Cincinnati............. ( enclosed article below ).

What do they know that we don't ?

We could be doing this out of PIT.


76200








Delta Air Lines Expands International Service at Cincinnati; Flights to Amsterdam, Rome Set To Begin This Spring
Friday October 31, 2:30 pm ET


CINCINNATI, Oct. 31 /PRNewswire-FirstCall/ -. Delta Air Lines (NYSE: DAL - News) today announced a major expansion of its international service from the Cincinnati/Northern Kentucky International Airport.
At a news conference celebrating the inaugural flight of Delta's service to Honolulu, Hawaii, Vicki Escarra, Delta's executive vice president and chief marketing officer, announced that Delta will introduce Cincinnati's first nonstop service to the Netherlands, and reintroduce nonstop service to Italy, on May 1, 2004.

The new flights will feature Boeing 767-300 aircraft, offering Delta's award-winning BusinessElite service with seats in a 2x2x2 configuration and 60 inches of pitch.

"Amsterdam is one of the largest European destinations not already served nonstop by Delta from our Cincinnati hub," said Escarra. "This flight connects two of the most convenient airports in the world - Cincinnati and Schiphol.

"The community's support of our seasonal service to Rome during the summer of 2002 was tremendous," said Escarra. "It's because of that support we are now able to reintroduce and extend this service."

Delta's SkyTeam partner, Alitalia, will offer codeshare service on the new Rome flight. Additionally, customers will be able to take advantage of Alitalia's extensive network at Rome, where the airline operates 216 daily departures and serves 58 nonstop destinations in Europe, Africa and the Middle East.

"Delta looks forward to partnering once again with the Cincinnati/Northern Kentucky community in making these new services a success, and further developing more domestic and international service from our Cincinnati hub," said Escarra.

Delta and its partners already offer Cincinnati customers nonstop service to six international destinations, including Frankfurt, London, Montreal, Nassau, Paris and Toronto.

DELTA'S NEW SCHEDULE BETWEEN CINCINNATI AND AMSTERDAM, EFFECTIVE MAY 1

Flight Departs Arrives
42 Cincinnati at 7:10 p.m. Amsterdam at 9:25 a.m.
45 Amsterdam at 11:30 a.m. Cincinnati at 2:45 p.m.

DELTA'S NEW SCHEDULE BETWEEN CINCINNATI AND ROME, EFFECTIVE MAY 1

Flight Departs Arrives
32 Cincinnati at 6:50 p.m. Rome at 10 a.m.
33 Rome at 11 a.m. Cincinnati at 3:20 p.m.


Delta Air Lines, the world's second largest airline in terms of passengers carried and the leading U.S. carrier across the Atlantic, offers 6,130 flights each day to 453 destinations in 82 countries on Delta, Song, Delta Shuttle, Delta Connection and Delta's worldwide partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. For more information, please go to delta.com .




--------------------------------------------------------------------------------
Source: Delta Air Lines, Inc.

 

[Fatherknowsbest]

PineyBob,
Just want to keep this accurate. The Pilot group recieved 20% of the Company.
That leaves 4% to be split among IAM, CWA, AFA, TWU etc.....

No knock to the pilots, but it ain't just them and managment....the rest of us were left out.......imagine that!

 

[BoeingBoy]

You have to admit that PineyBob is right about one thing - the stock is "found money". After giving up $1.2 billion or so that management said was needed to save this company, the rank & file employees (roughly 28-30,000 of them) received "absolutely free" a few hundreds or thousands of dollars of stock.

Meanwhile, senior management made the supreme sacrifice of a 20% pay cut and forewent bonuses. Poor Dave only made $3.8 million in 2002. Poor Neal Cohen only made $1.4 million in 2002. Poor Jerry Glass only made $629 thousand in 2002. Not bad for less than 9 months work. Senior management can receive 18% of the stock (7.8% initially with the rest over time). This info comes from Multex investor services and the Plan of Reorganization.

While the rank and file employees are told that more sacrifice is needed to be competitive with LUV and JBLU, Dave & company have their compensation tied to the big 5 - American, Delta, United, Continental, & Northwest. Again see the reorganization plan.