July 14 Usa Today Money Section

[diogenes]

Interesting, because ALL OF THE LEGACIES, save DL, now have LOWER labor costs, as a percentage of total expenses, than WN.

Interesting, because even though JB is a start-up, with one fleet type, and a junior work force, their labor costs are 30.3% of T.E., while US costs ring in at 34.8%.

HOW CAN THAT BE? How can WN's labor costs exceed U's, and how can U's labor costs approximate JB's, AS WE SPEAK?

Here's how it can be.

Joe Leonard, of AirTran, "we do things OPERATIONALLY (emphasis mine)that save us money that the big guys at the big airlines can't even conceive", and "we'll still have a big, big operating cost advantage for a very long time."

And here's how it can be.

While WN's labor costs have gone from 2.12 cents of CASM in 1993 to 3.10 cents in 2003, WN's NON-labor costs have decreased from 5.13 cents of CASM to 4.50 cents over the same time period.

Paradoxically, even with higher labor costs, WN spends only 3.2 cents on labor to produce one seat mile, while U is paying 4.06.

How can that be?

Here's a good example.

American claims if it had AirTran's seniority and compensation scales (sound familiar?) it would save $2.7 billion, annually.

Neelman of JB "..calls studies like American's a comparison of apples and oranges. The big airlines can't get close to those of low-cost carriers unless (emphasis mine)THEY'RE WILLING TO CHANGE THEIR OPERATIONS."

"But, he adds, if they do that, the big airlines would have to live without the higher revenue their powerful global networks now generate. They're saying, "We'll take our revenues and your costs." But it doesn't work that way. (Emphasis mine)IF THEY HAD OUR COSTS, THEY WOULDN'T GET THEIR REVENUES."

 

[USFlyer]

And hence the dilemma ...

This reasoning is precisely why keeping PIT as a mainline hub no longer makes sense. US will never again get enough revenue to maintain that city as a hub. It just won't happen. My major complaint is they aren't moving faster on building a point to point network.

 

[diogenes]

Agreed, USFlyer (peace to you-ns 'burghers!)

It has never made sense to operate three hubs in such proximity.

And although PHL has higher O&D than PIT, like PineyBob, I'd like to see the full costs of operations into both stations before determining which gets the axe. Granting that PHL revenues are (perhaps were, with the advent of WN) higher than PIT's, what are the total costs (delays, poor airport infrastructure, etc) at PHL vis a vis PIT?

PIT is a sweet operational airport; PHL is a toilet.

Is it worth it? I'd love to know.

But surely, one had to go.

 

[mweiss]

diogenes, your take on that article is right on the money (pardon the pun).

 

[diogenes]

Thank you, sir.

When an employee says such things, and many have, they are evil, lazy,union commies.

When Neelman says so, folks tend to sit up and take notice.

And to beat the horse once again, there is NOTHING in an agent contract with U that is more restrictive than an agent contract with WN, or

let the production begin!

 

[wings396]

That is why they don't compare us to WN any longer. Now it is America West, Airtran and JetBlue. With WN employees earning more that we eved did, the company knew that was the wrong comparison to make. When all the employees at JB get to top scale, will their company try to squeeze them out? Can we ask this company to open up the contracts because the folks over at JB now make more than us? I'm sure you all know the answer to that one!!!!

 

[RowUnderDCA]

And hence the dilemma ...

This reasoning is precisely why keeping PIT as a mainline hub no longer makes sense. US will never again get enough revenue to maintain that city as a hub. It just won't happen. My major complaint is they aren't moving faster on building a point to point network.

Yes, in fact, I think we should call it the Seigel Dilemma.

The problem is that U has to get from where it is to where it needs to be in order to have WNs percent of expenses devoted to labor. Seigel said it couldn't be done. Perhaps he was right. It could not have been done in the swift re-org that U engaged in, perhaps by necessity.

So, since he couldn't pursue that strategy, he tried Neeleman's impossibility: LCC low labor costs with legacy revenues. It's not going to work, except possibly as a layered approach: regional operations underlying an LCC-type, somewhat hubby p2p structure and international operations overlying it.

Do U employees want to finance the transformation? Do they trust that they'll get rewarded once the transformation is complete?

 

[diogenes]

Do U employees want to finance the transformation? Do they trust that they'll get rewarded once the transformation is complete?

As it stands, no.

 

[700UW]

Do U employees want to finance the transformation? Do they trust that they'll get rewarded once the transformation is complete?

The employees have done this twice all ready to a tune of $1.2 billion a year and have gotten nothing in return.

Oh wait, they got lied too, stolen from and punished.

 

[JS]

There is a fallacy with looking at labor as a percentage of total expenses, and you can see it in this thread. Southwest spends more as a % of total cost because they spend so little on everything else. The usable figure of labor cost per seat mile is lower for Southwest.

Imagine comparing your and your neighbor's gasoline expenses as a percentage of total driving expenses. Your neighbor drives a Honda, and you drive a Porche. Even though the Honda gets better gas mileage (like labor CASM at WN), your gasoline % of total is LESS because you spent a huge amount of money on the car.

 

[Dont call me Shirley]

I wonder if anyone in CCY saw the article. USA Today articles are often quoted in the daily company newsline. As long they reflect negatively on labor costs, that is.

The article gets back to the point of non-labor costs. Some portions cannot be compared to an LCC, but the non labot costs must be address for the company to survive, whether or labor costs are brought to an HP level. As has been pointed out before: even if UAIR's entire labor force worked for free, the costs would be at - not below - LCC levels. (Very rough numbers, admittedly, but they make the point.