TWU Waving White Flag Already

[TIME FOR CHANGE]

Looks like NWA is tired of subsidizing fuel

http://biz.yahoo.com/ap/080404/northwest_fares.html

 

[Bob Owens]

Nice try. Here it is by division:

D.O.T. DOMESTIC -5.9%
INTERNATIONAL +3.0%
ATLANTIC -0.2%
LATIN AMERICA +8.4%
PACIFIC -8.8%

Note that domestic was down 5.9% year over year. That's not the weak dollar vs. the Euro. It's fare hikes, and people being really worried about how they're going to fill the gas tank or buy groceries next month....

If anything, the weak dollar is helping international travel in markets where AA has a strong international point of sale, i.e. Latin America.

Well according to your figures ;
Headline: American Airlines March traffic down 2.8% on 4.6% less capacity
they cut capacity by 4.6% but trafffic was only down 2.8%, meaning the planes were even more full, and theoretically more profitable. How does that prove your arguement that higher fares scares away more customers than the increase is worth?

 

[eolesen]

Well according to your figures ;
Headline: American Airlines March traffic down 2.8% on 4.6% less capacity
they cut capacity by 4.6% but trafffic was only down 2.8%, meaning the planes were even more full, and theoretically more profitable. How does that prove your arguement that higher fares scares away more customers than the increase is worth?

Fewer passengers are fewer passengers, Bob.

As far as capacity goes, what AA canceled over the month helped offset the drop in passengers. It wasn't anything deliberate on AA's part...

-- 0.6% of the 4.6% "capacity reduction" was directly tied to the MD80 checks from 26 & 27 March
-- 1% was due to the storms on 19 March
-- 0.4% due to cancellations on March 6

The drop in capacity, unintentional as it was, doesn't help as much as you might want it to. Fact is traffic was still lower month over month in a timeframe where it should have been higher due to a major holiday and spring break.

 

[Dr. Freud]

There is no other definition of socialism for us than that of the abolition of the exploitation of man by man."

 

[American Air Surf]

John Conley never met a white flag he didn't enjoy waving. This is pathetic!!!
*********************
Fuel costs could cut union demands on American Airlines
By TREBOR BANSTETTER
Star-Telegram Staff Writer
PHOENIX -- Skyrocketing oil prices may cause a "seismic shift" in the airline industry that could affect ongoing labor talks, a top union official said Thursday.
"Look, we're at $100 crude," said John Conley, air-transport division director at the Transport Workers Union, which represents ground workers at American Airlines as well as some employees at American Eagle, Southwest Airlines and other carriers. "I don't know that it bodes well for us being as successful [in negotiating new contracts] as we had once hoped."
Conley appeared on a panel at the International Aviation Symposium in Phoenix. Several industry insiders said that the price of fuel, which is the No. 1 cost for airlines, could devastate the industry.
"This could very well be a seismic-shift year," Conley said. He said the environment "could be an opportunity to consider not being as intractable as folks have been in the past."
Analyst Gary Chase of Lehman Bros. pointed out that the run-up in fuel is having a greater impact on airline costs than a typical recession.
"With fuel, it's like this is three recessions at once," he said. "And then, we also have a recession."
The union is negotiating new contracts for mechanics and other ground workers at American. The airline is also holding contract talks with pilots and will soon begin negotiating with flight attendants.
All three labor groups have said they want full restoration of 2003 wages and benefits, which were cut significantly to keep American out of bankruptcy.
The American talks are being closely watched throughout the industry.
Chase said that even cutting labor costs won't be enough to offset the spike in fuel prices, nor will fare increases. He argued that only a reduction in airline capacity can bring the industry back to profitability.
"It's not like we have to shut down half the industry," he said. "But capacity is the only way the industry can do it."
TREBOR BANSTETTER, 817-390-7064
[email protected]

You know, you don't have to be the smartest person to be in the TWU, to beat AA at it's own game. But it helps if you take good notes, while doing your job. Very few people are aware, that AA is going to loose it's butt in a lawsuit in California, in regards to paying (or, NOT paying, overtime) in the state of California. AA is trying to mediate this now, but doubt that will help- It is going to trial. Guess who is going to loose their butt, in all of this? Hmm, AA- Now, come tell me, why we shouldn't get all our money/benefits back. Sure Oil/Fuel is high, but they also should have thought about all this stuff (10 year/forecast), before lining their (mgmt's) own pockets. You know, with all AA's cost cutting initiatives, - it helps to obey the law, as it is written. Just one of many things, in this regard going down at AA. :angry:

 

[FWAAA]

I dont care where they get it, pay me or shut it down. Maybe they will have to strike better deals with Boeing and other suppliers, maybe $1000 toilet seats will be a thing of the past.

AA has been spending money like a drunken sailor. Winglets, Goldhoffers, electric tugs etc. Maybe they will have to be a little more discretionary in their spending.

This is your response? So does AA need 30% more revenue or not? In your earlier post, you dismissed the idea that AA would need 30% more revenue to pay for fuel and raises for the three work groups. Shown the math, you respond with this.

Good luck with that-truckers use the same fuel as jets, in fact they pay more.

Except that truckers can move 25 tons of freight one mile down the highway for about a dollar's worth of diesel. More fuel efficient than flying. Same with trains. Unless you have to cross an ocean with perishable freight, flying it has become a luxury fewer shippers will pay for. The higher prices for air cargo could have something to do with part of that 8.6% decline in cargo volume in March.

Could also be because of the weak dollar. We dont make all that much stuff to export and we cant afford as much imports-especially from Europe.

According to the feds, exports are booming - most attribute that to the lower weak dollar.

Well according to all those economic theories the industry should have vanished decades ago, but it hasnt so your theories dont provide all the answers do they?

Uhh, Bob - knowing that raising the price equals fewer customers doesn't have anything to do with why the airline industry has lost money for all those years.

Here is one set of variables to plug into your theories. What if airline workers had simply said no to concessions in the aftermath of 9-11? All we did was delay the inevitable fuel price crisis that the airlines are facing. In fact all we did was take our money and give it, indirectly, to the oil companies. As far as personal income, I lost two years of pay anyway, I lost the money and the ability to sell my time somewhere else so letting the airlines shut down wouldnt have been as devastating to my finances as taking the pay cuts, perhaps more disruptive to my life but not to my overall long term finacial well being. If we had simply said no,and perhaps called a general strike, the oil companies would have either had to come to agreements with the airlines or face the prospect that the broader economy would collapse as airlines(one of their biggest customers) ceased flying. That would then have created a glut of oil and the price would have had to come down.

I agree that more airlines should have been liquidated in the past five years. Their liquidation would have improved the lot of the employees of those that didn't go out of business.

Yes but reducing capacity would have broader effects on the economy. Hotels would have empty rooms, the Feds would be collecting less in departure taxes, Local and state government would be collecting less in airport fees, oil companies would be selling less fuel, banks would be holding planes that are sitting in the desert, etc etc. Like I've said before, this industry doesnt exist as a money maker, never did according to the experts, but as long as we are moving people and things lots of other industries and parties are making money. Thats why it exists and thats why the government prevents consolidation.

I agree. Things are gonna get very grim in the travel industry unless fuel gets cheap again. Many hundreds of thousands more people in those other sectors are gonna get a taste of what you've been eating for over 6 years (falling revenue, disappearing profits, lower wages).

Yea but they are economists, they were taught from the same books about the economy and none of them really run a business do they?

Actually, several of them run real-life businesses. They don't run airlines, if that's what you're getting at, but you don't have to be Arpey and Co. to see why AMR (and the others) are in the fix they're in.

Never said I was an expert on pricing but despite all your theories sometimes plain old common sense provides the best course of action. After all the "experts" went to the same school of thinking as you yet in 75 years they still havent made this a profitable industry have they?

I don't see the connection between recognizing the relationship with supply and demand and how those affect price with your allegations that they are somehow to blame for the airline industry's long-term losses. The meteorologists accurately predicted the 2005 hurricanes (Katrina and the others) yet people still drowned. Do you blame those weathermen for those deaths? Past losses by the airlines actually conrfirms that the economists are right - losses will follow if you have too much capacity to enable you to charge high (profitable) prices.

Whether you like it or not, raising price often decreases demand, and that often causes even less revenue. THAT's common sense, Bob. It's one place where common sense is completely alligned with learned experts.

You earlier said that airlines were afraid to raise prices; I disagree. Arpey is no more "afraid" to raise prices as you are "afraid" to stand too close to the fans of an operating jet engine (or too close to the exhaust of that engine). You're not "afraid," you realize thru education and experience that either activity could be fatal. Failing to do something that can cause harm doesn't make someone "afraid." It just means they know what they're doing.

Here's an example of the overcapacity plaguing the industry right now:

No wonder JetBlue is leaving

When it comes to flights to New York, data compiled by the U.S. Department of Transportation show it’s not surprising JetBlue would decide to pull out of Tucson - passengers here weren’t paying the price for the service.

Sebastian White, spokesman for JetBlue, said the equation boiled down to his airline being caught in a quandry.

"For the (Tucson) route to be profitable, we would need to charge a lot more than we do," White said. "But raising fares would just mean people would fly less. Frankly, there is more capacity between New York and Tucson than the market can absorb."

He said he was surprised Tucson wasn’t able to generate more passengers to New York. "It’s a big city," he said.

http://www.azbiz.com/articles/2008/04/04/n...f0136018480.txt

Even jetBlew can't escape the gritty reality that they helped create (low fares and too much capacity added far too quickly).

Well this industry has been expanding for 75 years and oil wasnt always cheap. Didnt we only recently surpase its inflation adjusted historical high? Dont worry about the downsizing, the other day only one ETOPS trip left JFK. It wasnt weather, or equipement or a job action, it was a lack of flight crews. A slew of senior pilots retired. Over the next few years expect the labor shortage to become critical. At AA TWU members have to retire by Jan 1 2011. If they dont their pensions, which are based on the best 4 consecutive years out of their last 10, will actually go down the longer they work. Our best 4 out of the last 10 are 2001-2004, with 2002 being the best year.

As I've posted before, the best thing to help declining wages will be shortages among the various workgroups. Fewer mechanics will eventually enable the rest of them to demand more money for their work. There aren't any huge profits for strikes to threaten. Companies give in to labor's demands in hopes of protecting huge profits. There aren't any huge profits of which labor can demand their "fair share." The only real issue will be whether more concessions are imposed. Grim.

You're probably right about the pay numbers above (I haven't analyzed them), but isn't it possible that the best four of ten were actually 1999-2002? Or did the 2001 contract gains outweigh the concessions of 2003 and 2004? I guess only part of 2003 was at concession pay but 2004 was dismal. If I were a mechanic at or near retirement age I'd double check to make sure that 2008 or 2009 wasn't the best year to retire.

 

[eolesen]

I'd been anticipating a retirement spike as well because of the Best of 10 rule, but now I'm not as certain. 401K's are lower, and when the economy sucks, people tend to work as long as they're employable (or given an incentive like a lump sum to leave).

Something else to consider is retirement age. If you go out under 60, you stand to lose a percentage of your retirement if you draw from it right away. If the reduced pension is less than what you'd get by holding out another year or five to full retirement age, you might still be better off continuing to work since you're on full medical coverage.

 

[Bob Owens]

This is your response? So does AA need 30% more revenue or not? In your earlier post, you dismissed the idea that AA would need 30% more revenue to pay for fuel and raises for the three work groups. Shown the math, you respond with this.

Because the math is flawed. All around the ramp I see brand new ground Equipement including 3 Goldhoffers at $750,000 each. From what I hear its the same at other stations. These huge expenditures are for equipement that should last 20 years or more, at least thats what we saw from the equipment it replaced. There are a lot of places where costs could be cut, expenses that wont be there year after yeara nd that changes the break even point.

Except that truckers can move 25 tons of freight one mile down the highway for about a dollar's worth of diesel. More fuel efficient than flying. Same with trains. Unless you have to cross an ocean with perishable freight, flying it has become a luxury fewer shippers will pay for. The higher prices for air cargo could have something to do with part of that 8.6% decline in cargo volume in March.

Could, but businesses still are keeping lean inventories so air cargo will still be booming. While I agree that trains are more efficient but the system has been decaying for years, I doubt they could handle air freight, the UPS strike displayed that.

Uhh, Bob - knowing that raising the price equals fewer customers doesn't have anything to do with why the airline industry has lost money for all those years.

Like I said, according to "experts" like Crandall the industry has been losing money since its inception and according to President Bush and Clinton airlines like UAL and AA can not be allowed to cease operations because of the impact it would have on the economy.

I agree that more airlines should have been liquidated in the past five years. Their liquidation would have improved the lot of the employees of those that didn't go out of business.

Why do you suppose that there were so few liquidations?

I agree. Things are gonna get very grim in the travel industry unless fuel gets cheap again. Many hundreds of thousands more people in those other sectors are gonna get a taste of what you've been eating for over 6 years (falling revenue, disappearing profits, lower wages).

Then we will likely see more civil unrest. We have already seen truckers protests here and rioting overseas.

I don't see the connection between recognizing the relationship with supply and demand and how those affect price with your allegations that they are somehow to blame for the airline industry's long-term losses. The meteorologists accurately predicted the 2005 hurricanes (Katrina and the others) yet people still drowned. Do you blame those weathermen for those deaths? Past losses by the airlines actually conrfirms that the economists are right - losses will follow if you have too much capacity to enable you to charge high (profitable) prices.

Well how do we know there is too much capacity? We've been hearing that for years but how do you prove it? If we had empty airplanes that would be proof but load factors remain high. Excess capacity is another way of saying too much supply. well if the shelves are empty then there isnt too much supply is there? Full airplanes indicate high demand, now whether that demand is restricted to $99 fares or $130 fares is unknown. Predicting exact points where demand would fall off is at best as reliable as predicting when where and how much it will rain. There are variables that are not that easily quantifiable. Even if traffic fell off after a fare raise at this point it could be from other causes such as fear over the broader economy and not a $30 increase in ticket prices.

Whether you like it or not, raising price often decreases demand, and that often causes even less revenue.

Sure, but you can at best only approximate the point where increased price causes decreased revenue.

It just means they know what they're doing.

If they knew what they were doing they would be making money and so would we, just like SWA.

As I've posted before, the best thing to help declining wages will be shortages among the various workgroups. Fewer mechanics will eventually enable the rest of them to demand more money for their work. There aren't any huge profits for strikes to threaten. Companies give in to labor's demands in hopes of protecting huge profits. There aren't any huge profits of which labor can demand their "fair share." The only real issue will be whether more concessions are imposed. Grim.

Well there isnt a shortage of MBA's yet there are a lot of them commanding huge salaries while the companies they run lose money. No profits no shortage yet huge pay increases, could be because MBAs sit on both sides of the bargaining table. So not everything fits into your formulas or obeys the law of supply and demand.

One of the things that your fomula doesnt take into account is you look at mechanics as individual widgets being sold by many many individual vendors. You leave out the leverage of unionization which makes the worker a part of a unit of which there are in fact very few of. At AA they have a mechanic group of 10,000 mechanics. Thats what they need to run their operation, there are very few, if any, competitors out there that can supply 10,000 mechanics who can run AA operations. Sure maybe they could do like NWA and replace their single mechanics unit with individuals, but I doubt it (so does the government). That was a one off shot. Our wages are not low due to supply and demand but rather due to government interference. In other words the government artificially deflates our wages and strips us of the ability we have as a collective unit to command higher wages.

You're probably right about the pay numbers above (I haven't analyzed them), but isn't it possible that the best four of ten were actually 1999-2002? Or did the 2001 contract gains outweigh the concessions of 2003 and 2004? I guess only part of 2003 was at concession pay but 2004 was dismal. If I were a mechanic at or near retirement age I'd double check to make sure that 2008 or 2009 wasn't the best year to retire.

The formula does not include overtime. I'd have to recheck the numbers (2002 may be year one) since the pay increase kicked in several months into 2001. But base pay rates were higher in 2001, 2002, 2003 and even 2004 than they were in 2000 or 1999, thanks to AMFA.

 

[eolesen]

Could, but there people and businesses still are keeping lean inventories so air cargo will still be booming. While I agree that trains are more efficient the system has been decaying for years, I doubt they could handle air freight, the UPS strike displayed that.

Guess you didn't notice the hundreds of millions that NS, CSX, BNSF and UPRR have put into track improvements (especially double and triple tracking) over the past few years, or the fact that average train speeds have been increasing. The limiting factor for the railroads right now is getting enough engineers....

Sidenote: If you hate airlines, this is a great time to look at railroads. They actually have options to run without oil, and it wouldn't surprise me to see electrification start to come back into style with the freight railroads.

Why do you suppose that there were so few liquidations?

Because of the flawed bankruptcy laws that weren't changed until 2005?

Think about it --- just about every airline who entered bankruptcy prior to that date emerged either with new investors or as part of another carrier.

Those who have filed for bankruptcy or voluntarily ceased operations since 2005 have almost all liquidated.

-- Nov 2005, Independence Air files, Jan 2006 shuts down
-- Mar 2007, Regions Air shuts down
-- Dec 2007, Maxjet files and shuts down
-- Feb 2008, Boston-Maine (Pan Am 3.5) shuts down
-- Mar 2008, Big Sky shuts down
-- Mar 2008, Aloha files, shuts down 10 days later
-- Apr 2008, ATA files and shuts down
-- Apr 2008, Skybus shuts down, but didn't immediately file for bankruptcy


You can say they're all small airlines, but collectively, between 10,000 and 12,000 jobs were lost because there hasn't been a lot of interest in putting equity into airlines.

Then we will likely see more civil unrest.

That's right. Hotel and rental car employees of the world unite....

Doubtful, Bob.

If we had empty airplanes that would be proof but load factors remain high. Excess capacity is another way of saying too much supply.

Yep. There is too much supply. Problem is that airplanes and ground equipment have high price tags, and there are some companies who feel it's better to get some money out of them than none, even if it means operating at a loss. Because union contracts are what they are, the legacy airlines can't just put the asset on the ground until there's demand, because you're stuck paying the employees for not working. But that's exactly what carriers like Allegiant can do -- they don't even bother to fly at all on Tuesdays or Wednesdays if I recall... Pan Am 3 & Boston-Maine were known to put aircraft down for a month at a time.

Even if traffic fell off after a fare raise at this point it could be from other causes such as fear over the broader economy and not a $30 increase in ticket prices.

It could be over a fear of the economy, but the historical data points also show that price increases kill leisure demand in good times as well. That's why airlines weren't able to keep up with GDP growth over the past 30 years. Yet business travelers airfare has kept up... You're tired of subsidizing the company, and I'm tired of subsidizing leisure travelers. So go for it. I'm all for reducing supply.

Sure, but you can at best only approximate the point where increased price causes decreased revenue.

No, there's a pretty good forumula for doing it. It's market specific, and season specific, but knowing the pivot point for pricing is definitely a known factor.

Well there isnt a shortage of MBA's yet there are a lot of them commanding huge salaries

Not so sure about that, Bob. There are a lot of MBA's out of work and accepting jobs at lower rates than they're used to, mainly because they, too, have mortgages to pay and mouths to feed.

Likewise with programmers... I just hired a couple statistical programmers this week, and the rates they're accepting are notably less than what I would have had to offer five years ago.

And likewise with pilots. A friend of mine flies corporate jets part-time. He's seeing a notable influx of former big-airline pilots who have finally given up on their hopes of recall anytime soon, but were too proud to go work for Mesa....