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Today I had the pleasure of participating on a panel at the 35^th Annual FAA Aviation Forecast Conference, my second consecutive year taking part in one of the breakout sessions.  I shared a dais with the President of the Regional Airline Association, Roger Cohen, and long-time industry consultant, historian and photographer George Hamlin on a panel titled: New Decade......Dawn or Dusk for Regional Carriers?  I had the hotseat – responsible for discussing the reliably controversial subject of mainline pilot scope clauses.

It is my view that there can’t be an honest discussion on the shape or structure of the US domestic airline industry without talking about scope – the contractual clauses pilot unions negotiate to protect certain flying for their members.  I believe that this round of contract negotiations at major carriers will be the most important since deregulation, and scope will play a pivotal role as the airlines take a hard look at economics. And mainline pilot scope agreements are all about economics. 

Today’s industry architecture in which regional carriers fly large numbers of aircraft with 76 seats and less was drawn on the equivalent of vellum paper using compasses, triangles, French curves, triangular scales and protractors.  The working structure did not come about easily. First, earlier era scope clauses were relaxed during the late 1990s and early 2000s to permit carriers to deploy 50-seat regional jets between hubs and markets that could no longer support the economics of a mainline jet.  Delta and Continental had a significant head start on the rest of the industry in using these smaller aircraft because they had few limitations imposed through their pilot agreements.

Other mainline carriers: American, Northwest, United and US Airways, were late to the game.  Scope-relaxed competitors were using the 50-seater to claim traffic that was traditionally the domain of the scope-constrained carriers still limited to feed markets within the turboprop drawn 400 mile radius around a hub.  Now these little jets could overfly hubs, aggressively changing the competitive structure in the US domestic market.

So those carriers that needed the permission of pilots to compete on a level playing field recognized the need to relax restrictive scope clauses that limited what type of aircraft regional pilots could fly.  And that made the scope clause important trading currency for pilot unions that agreed to relax scope protections only in return for improvements in other parts of the agreement.  For example, when United pilots negotiated a new agreement in the Fall of 2000, the union leveraged scope relief to demand a weighted average 23 percent wage increase and two subsequent 4.7 percent increases, as well as a number of other contract enhancements that ultimately contributed to landing the carrier in bankruptcy.

I am convinced that, if not for bankruptcy, we would not be seeing mainline carrier’s regional partners flying aircraft 70 seats and greater in the numbers we are seeing today.  So if today’s architecture was drawn with outdated tools, then tomorrow’s architecture will likely require Computer Aided Design (CAD) software.  That, as old-school architects might say, is equivalent to replacing the pencil with a keyboard -- limiting in that the digital world requires exact inputs rather than the less precise nature of sketching. And that has real implications for pilots and the carriers that employ them. 

Tipping Point

From my perspective this next round of pilot negotiations could be the tipping point for scope:  the critical juncture in an evolving situation that leads to a new and irreversible development.  What if mainline pilots again treat the relaxation of scope as trading currency to make improvements in the collective bargaining agreement? Wouldn’t they ultimately be ceding mainline narrowbody flying in the US domestic market?  I think so. 

This approach would be a mistake for management, too, because scope relief has historically been assigned too much value in bargaining.  There is value in the shift of flying from the mainline to regional partners to be sure.  But the differences in labor rates between the mainline and the regional are nowhere near what they were before the last round of industry restructuring.  Domestic revenues continue to suffer, particularly compared to the revenue environment when values were last ascribed to scope relief.  And with little growth expected in US domestic flying, airlines must question where they’ll find the arbitrage.

I make this projection for domestic flying based in part on a comparison to historic growth rates. Today, the travel spend as a percent of GDP produces $35+ billion dollars less in revenue than did the high water-market in 2001.  Labor rate differentials between mainline and regional carriers are significantly smaller than they were in 2001.  Regulatory oversight of the regional industry will add expense that is not yet known or understood.  Negative media coverage could undermine passenger acceptance and willingness to fly regional carriers.  Most mainline airlines are ordering narrowbody equipment to replace aircraft in their fleets, not expand their fleets. And there are still thousands of mainline pilots on furlough.

Does Scope Produce the Intended Outcome?

In the most simplistic terms, scope is the definition of work for the class and craft of employees governed by the provisions of a collective bargaining agreement.  Its purpose is to provide job security for those employees.  But it is safe to say that most scope clauses produced unintended consequences.  Between 2000 – 2008, legacy carriers reduced the number of narrowbody aircraft they fly by 800, and more than 14,000 pilot jobs have disappeared.

So, one could argue that scope is just another example of protectionism that failed. As economist Henry George, a sharp critic of protectionist policies, once said: “Protectionism teaches us is to do to ourselves in times of peace what enemies seek to do to us in times of war.” 

Scope negotiations have been divisive not only between labor and managements but just as much between the unions representing mainline pilots and those representing regional pilots. Ultimately airlines must determine whether the 90-125 seat flying of tomorrow should go to the mainline or be flown by their regional partners. To arrive at the right economic solution, it is time for organized pilot labor and management to stop putting a Band-aid on problems.

The Boyd Group International recently released an interesting fleet forecast that looks in part at new aircraft orders. So far, the only area of real growth is in the 75-125 seat category.  Orders in other seat ranges are forecast simply as replacements from now until 2015.

Ironically, 2015 is when many regional contracts expire, primarily those for 50-seat flying.  These expirations could eliminate nearly 500 existing airplanes currently under contract between now and 2016; with the lion’s share coming off contract in 2015.  This is a conundrum for the regional industry for sure.  There will be a thirst for new flying.

It Is All About the Economics

Perhaps a better way than scope for pilot unions to think about job protection is to find the economics that will employ the most pilots at the mainline.  That challenge must acknowledge the fact that today’s industry is not the industry of yesteryear.  If the regional industry has been used as currency to cross-subsidize pilots at the mainline; and assuming that the trading currency is not what is was as we engage in this round of bargaining, then something has to give. 

There are two solutions as I see it:  1) relax scope in order to win bigger increases in wages, benefits and working conditions for pilots that remain at the mainline; or 2) embrace the absolute fact that contractual rates, work rules and benefits need to be lower for US domestic mainline flying.  That type of carve out can be negotiated.  Domestic market flying differentials can be the new trading currency used to adapt any pilot contract to the market realities of today.  There is no way to “perfume the pig” here; the mainline did something similar in 1984 in order to average down labor costs to facilitate growth.  When it was decided that the concept was not internally healthy, mainline pilot labor made the regional industry the new vehicle for cross-subsidization of mainline pilot terms of employment.

One trend is clear:  the industry’s pricing structure cannot now support labor rates that keep pace with inflation.  An unpopular message -- yes.  But there needs to be a structure in place that recognizes the different conditions in the US domestic market versus international markets.  This structure must recognize that not all flying is created equal, just as the airlines are coming to appreciate that a one size fits all operation is not financially sustainable.  There is a tremendous opportunity to put in place something better – if only the players at the table can let go of the past and come to terms with a new era in the airline industry.

Where Do I Come Out?

I recently saw a piece by Lori Ranson on the Airline Business blog titled:  “A New Line In the Sand” that cites comments by long-time Raymond James analyst Jim Parker on the future of scope: “As employee groups seek to regain some concessions made early last decade as a host of carriers spent time in Chapter 11, there could be some leeway in the size of jets flown by mainline regional partners,” according to the analysis.  James sees the potential to renegotiate current scope clauses, moving the dial from 70-seats to 90-seats.

I am not one to be on the other side of Parker often, but on this one I am.  I do not believe that the mainline pilot unions can afford to make another mistake.  Their arrogance toward regional jet flying led to their current predicament.  The economics of US domestic flying is simply much more difficult now for the legacy carriers.  If labor can’t let go of their memories of what the industry was 20 years ago to focus instead on where it’s going over the next 20 years, then they will have no one to blame but themselves if they fail to help position airlines – and the pilots they represent  – for success.  John Kennedy once said:  “Change is the law of life. And those who look only to the past or present are certain to miss the future.”

It won’t be easy for pilot union leaders to find a solution for a problem that they helped to create.  Just as the US Airways East scope clause defines small, medium and large regional aircraft, it is time to define small, medium and large narrowbody equipment necessary to profitably serve the domestic market. 

Once again, a call for pilot union leadership.  My view is that management is indifferent as to which pilot group does the flying.  I am thinking we are at that critical juncture in an evolving situation that leads to a new and irreversible development – mainline legacy carrier pilots performing narrowbody flying in the US domestic market 20 years from now – or NOT.

When is Gary Williams going to be voted into the Hall of Fame?

Consolidation; the National Mediation Board; APFA; Republic Holdings and Captain Prater

Last week, Reuters held its Travel and Leisure Summit in New York.  A number of airline CFOs participated, including Kathryn Mikells of United, Tom Horton of American, Derek Kerr of US Airways and Laura Wright of Southwest.  It was, overall, a really good group of voices who spoke pretty much in concert about the challenges facing the airline industry. Then came the sour note, from another invitee, Captain John Prater, president of the Air Line Pilots Association, whose. comments nearly caused me to choke on Cheerios. But more on that later.

Consolidation was the big storyline in the coverage.  Southwest continues to not rule out the possibility of a merger, although Wright made it clear that organic growth is its preferred route.  Mikells talked more broadly about consolidation and did not limit herself to discussing consolidation within sovereign borders.  Kerr, too, spoke favorably about consolidation but suggested that merger activity would have a more positive effect on the industry’s fundamentals if it involved a carrier with a US domestic presence.

"It's five major carriers, it's too fragmented," Kerr said of the U.S. airline industry. "You have too many hubs, all chasing the same passengers trying to connect through the country. We believe that it needs to be consolidated."

One issue that puzzles me though is that the consolidation discussion focuses only on the five legacy carriers. I think the most interesting sector for consolidation is the regional sector (on which, as it turns out, Prater appears to agree with me.)  But why are names like Alaska, jetBlue and AirTran not part of the discussion? What about Air Canada?  Is consolidation limited to just two carriers?  What if United, or American, or US Airways, wanted to sell part of their domestic operation to one carrier and another part to a third carrier? That concept is not so different than the slot swap deal that Delta and US Airways negotiated only to have the government make such dramatic changes to the terms of the deal that it now makes no sense.

Now back to Prater. In his remarks, Prater said that ALPA is for what he called the “right: consolidation – one that “actually protects and enhances jobs and creates a profitable carrier."  Just to be sure, I read it twice.  Yep, those were the words of the same pilot leader who has done little to nothing for his membership for the past three years.  Then I remembered that it is an election year at ALPA. Maybe that is why Prater’s words and tone have changed to better mirror what Captain Moak said and carried out at Delta during its largely successful merger with Northwest. 

Where was Prater when the US Airways and America West guys needed leadership?  If my memory serves, I believe he was flexing his muscles after winning election on a “we will take it back” campaign.  Of course, there is still little evidence to suggest that United is any better positioned than any other legacy carrier to return to the days of the bloated and inefficient labor contracts that helped tipped the carrier into bankruptcy. So Prater might be testing out a new campaign platform to convince UAL pilots that he deserves a second term.

From the management perspective, the CFOs wholeheartedly agreed that capacity discipline is the key for the industry to become and possibly remain profitable.  They also agreed that alliances are here to stay as the industry’s answer to mergers across borders that are forbidden by rules and regulations. 

"What you will see United and other industry participants doing, is basically within the regulatory framework that we have today, trying to get some merger-like benefits without merging," United's Mikells said.  The discussion that followed focused on the big three alliances and their efforts to find cost synergies as well as the revenue synergies already in place.

And that’s where airline labor comes in.  In the past, many unions have been cool to any merger that might threaten the union’s stranglehold on flying for its own members, even when that flying comes at a high price. Prater’s ALPA, for example, is a loud opponent of global mergers, even when the alliances in place today support so many pilot jobs in the US.  Surely he does not think that each of the five legacy carriers would be as big as they are even today if they were not carrying alliance partner traffic?  So the “consolidation that actually protects and enhances jobs” he talks about actually occurs every day when that United flight leaves Washington Dulles for Frankfurt with 60 percent of its passengers bound for points beyond Frankfurt on STAR partner Lufthansa.  Just like the American Airlines flight leaving Washington Dulles for Los Angeles that is carrying a cabin full of passengers connecting with Qantas to Sydney and beyond?

Republic Is Confusing, Confounding

What the Hell Is Republic Doing?  I get notes from really smart people in the industry asking me this question.  After all, I was really jazzed over the prospects for Republic’s purchase of Frontier and wrote a lot about the possibilities here on swelblog.  Now I am confused.  First, I have not understood the level of management energy spent on the presumption that Midwest can be reborn.  TPG had already destroyed the carrier literally and figuratively.  I can see the possibilities of keeping in place some of Midwest’s best flying.  But messing with Frontier’s brand to right-size Milwaukee makes absolutely no sense.

Ann Schrader of the Denver Post wrote about Republic’s “bumpy integration” in her February 21 story Merger muddles Republic Airways' branding. I appreciate that piecing together an airline is much easier said than done.  But every day Republic seems to further confuse the confusion.  And if serious industry watchers are confused, then just imagine how former loyalists to Midwest and Frontier must feel. It is those loyalists that are the brand – or maybe were the brand?  I am a Daniel Shurz fan and I have every confidence that he can get the right aircraft in the right place at the right time.  But there is much more to this delicate exercise than moving airplanes and picking markets.

I will buy the decision to dismantle Lynx (Frontier’s regional operation) given that it would have taken many more aircraft in the Q400 fleet to realize scale economics.  Now Republic has placed an order for Bombardier’s C-Series airplane.  On paper the aircraft is interesting – but why have orders been so hard to come by – unless someone needed to trade out of an aircraft type?  Then Republic puts an unproven engine on a not yet embraced airframe.  Confused. 

A big part of the Frontier and Midwest brands was the people.  This is about as bad a job of managing work forces as I have witnessed.  Given the new representation rules likely coming this week from the National Mediation Board, Bedford’s Republic promises to be a ripe target for union organizers.  Surely this is not Bedford making these calls?  I have gone so far to say that Republic will play in tomorrow’s US domestic market in a meaningful way.  Now I am not so sure.   And I am simply confounded by any decision to upset the work force at Frontier.

The way this seems to be playing out is that under Republic, both the Frontier and Midwest names will disappear.  So why then buy Frontier, an acquisition clever because Republic was buying a great brand. The deal in fact gave Republic an actual airline – something Republic is not.  The purchase also bought Republic a management team that knew how to run an airline and an IT infrastructure that made the deal really interesting.  But now it seems that Republic’s management team thinks you can feed a cookie (Midwest) to Grizwald or Montana (Frontier) and out comes Herman the Duck (Republic).  Remember that brand?

The National Mediation Board

This is a week to pay attention to the National Mediation Board. Jennifer Michaels at Aviation Week reports that the Board’s “cram down” representation rule change will be published in the Federal Register on Friday.  I believe that there will have to be some comment time or at least that is the way things used to work in Washington prior to this administration.  Unfortunately this issue is playing out the way the health care debate is playing out – along party lines.

The other story playing at the NMB this week involves American Airlines’ which is again in “lock down” negotiations with its flight attendant union, APFA.  The APFA already has threatened to request a release from the NMB if the two sides fail to reach a deal by the end of this round of talks. Whether the NMB will do so is questionable given what I see as the administration’s reluctance to risk a strike in the midst of a fragile recovery.  Moreover, we typically do not see releases during the busy travel season – particularly when economic recovery is at stake.  And rarely do we see releases when, by all reports, the parties are still pretty far apart based on what the union is demanding and the company believes it can afford.

The APFA, in all that I have read, does not seem willing to embrace any productivity in return for increased income for its members.  American has been transparent in communicating its proposals, including on a public website. So what might the NMB do with the parties if a deal is not reached?  Grant the APFA a release?  No.  Grant the APFA its release with the full intention of creating a Presidential Emergency Board?  Maybe. Put the negotiations on ice?  Maybe.  Set new dates for the parties to resume negotiations?  I think not.

Will the Board be proactive in trying to close a deal?  That is the question.  It is what watchers of this incredibly difficult round are trying to discern.  How will this NMB deal?  So far, with only a few airline labor negotiations cases closed, the NMB has not yet been pushed to the brink. But there are still 82 open cases.  The AA – flight attendant deal might be the first big test.

Europe and Strikes

Speaking of the APFA and its loose-lipped talk of strikes, last week was most interesting in Europe.  The Lufthansa pilots.  The BA flight attendants.  The French air traffic controllers.  And of course, all things Greece

Europe is undergoing today what the US airline industry has been experiencing for the past 20+ years: the need to continually transform business models with relatively high cost structures in the face of declining revenues.  Unbridled competition in the US domestic market was its catalyst to reduce costs, particularly labor costs.  The decline in premium class revenue and the blurring of borders that used to protect individual flag carriers will serve as the catalyst for the European carriers to also reduce their labor costs.

The labor instability in the European airline industry demonstrates an expected collision of socialist policies promoting entitlement with an industry forced to adapt to market forces.  I expect that there will be more weeks like this one as the European unions come to grips with market realities that could make any number of flag carriers irrelevant in tomorrow’s global airline industry. Unless, that is, those unions instead choose to adapt to the industry’s evolution . . . a story that has played out in the US in the names of Pan Am, TWA and Eastern Airlines to name a few.

It’s not just Europe.  Look at what is happening in Japan where JAL, another legacy carrier with outsized costs relative to revenue, is in bankruptcy.  Following 9/11, more than half of the US airline industry was in bankruptcy at one time.  European airlines – and their respective unions - are not immune to the same market forces.  And there are certainly lessons that can be learned from the US experience. 

There is no way to describe United Airline leader Glenn Tilton other than resilient.  He is disliked internally by organized labor and questioned externally by nearly everyone who has an eye on this industry.  He has taken his role as the industry spokesperson seriously, perhaps more seriously than anyone before him.  We listen intently to Giovanni Bisignani, the CEO of IATA.  But we do not listen enough to Tilton. Why? Because Tilton’s is a message of change not cluttered by this industry’s history, and some people don’t like the message.

Tilton was quoted shortly after United ended a three year stay in bankruptcy: “If I were able to draw a visual image of the beginning (of bankruptcy) to today, it would be one continuous experience of knocking down internal and external barriers.”  In his role as chief spokesperson for the US airline industry as Chairman of the Board of the Air Transport Association, Tilton waxes philosophical about the barriers that impede the industry’s natural evolution.

I have a long history at United and knew the “old company” well.  United epitomized all that was wrong with the US airline industry prior to its bankruptcy in December of 2002.  One of Tilton’s predecessors as CEO, Stephen Wolf, did some very good things along the way that provided United with its global roots.  But even Wolf did little to address the company’s bloated cost structure and a management bureaucracy that often resulted in paralysis.  For every cubicle in Elk Grove Village, one could find at least one silo. 

Tilton cares less about the history of United than its future.  His history lesson was a short one – whatever structure in place when he arrived in 2002 did not work and therefore needed to be changed.  If Tilton was wed to preserving United’s legacy, then he likely would not have taken the same course in fundamentally reshaping the company. He would not have taken on the pilot union, ALPA, over its actions to disrupt United’s operations – winning an airtight legal victory for management that ranks among the most significant victories in decades.  Rather he would have permitted bad behavior – or paid the pilots to stop behaving badly - just as prior administrations had done. 

Today United is a lot smaller, with a mainline operation 30 percent smaller than it was 10 years ago.  For this, Tilton takes a lot of heat.  As the pilots union watches its ranks diminish, ALPA constantly reminds Tilton that an airline cannot shrink its way to profitability.  This may have been true in United’s past, but on Tilton’s watch growth will only occur if it is profitable growth.  It is hard to envision a day when United will again have 12,000 pilot equivalents on the payroll.

Tilton and others recognize that the industry is still too big.  In the most read Swelblog article to date, Montie Brewer makes a clear case that the industry’s capacity-lead business model is the number one reason why the airline industry will never be profitable over a sustainable period.  Also weighing in on the subject is Professor Rigas Doganis who writes about over capacity in Airline Business.  According to Doganis, the airline industry is inherently unstable and airlines have only themselves to blame for the constant state of oversupply and the downward pressure on fares that result.

Doganis goes on to discuss how airlines are “spasmodically” profitable, quoting Tilton on the fact that the industry has "systematically failed to earn its cost of capital."  This is a fact that has long bothered the former oilman.  In a recent speech to the Wings Club in New York, Tilton raised the industry’s continuing and daunting challenge: “How to navigate to sustainable profitability in light of our financial instability.”

In London he made the point again and differently:  “Volatility and losses have been the norm for this industry, as has our systemic failure to earn our cost of capital and achieve any level of consistent financial resilience. The industry has lost nearly $50 billion worldwide since 2000 and a staggering $11 billion last year alone.”

Tilton at United – From Hands On to Chief Strategist

One can be sure that when Tilton arrived at United in September 2002, he had little idea just how bad things were.  But he would soon find out.  Three months after his arrival in Elk Grove Village, United landed in a downtown Chicago courtroom for more than three years as the company restructured itself.  There were mistakes along the way.  There was some bad luck along the way particularly as it pertained to rising values in the aircraft market.  There was the decision to terminate employee defined benefit plans, which among other things permanently damaged Tilton’s reputation in the labor ranks, but enabled the airline to get the exit capital it needed to start anew.

As United exited bankruptcy protection in February 2006, oil prices were on the rise.  The company restructured itself around $55 per barrel oil – a price that was fast becoming a memory and a bad assumption in the company’s plan of reorganization.  Company performance – operational, financial or otherwise – was nowhere near expectations set based on an entity that had spent three years fixing itself.  For either right or wrong reasons, Tilton kept many of United’s legacy management team around to complete the bankruptcy process.  What he belatedly came to appreciate is that leadership at the company had to change – and change it did.

United mainline is much smaller today than it was the day it emerged from bankruptcy.  Tilton oversaw its downsizing in bankruptcy and continued the work as oil prices climbed.  But he also recognized that he was not the guy to handle the day to day operations. Like any good restructuring guy, Tilton knew to hand over the operation of the company to others on the executive team, particularly  John Tague, Kathryn Mikells and Pete McDonald.

And the plan seems to be finally working.  United is starting to produce some good results.  There might be a lesson here for others in the industry, including the consideration of whether CEOs should delegate the day-to-day functions and concentrate on their role as the company’s chief strategist.  Just as pivotal, in United’s case at least, was Tilton’s decision to focus on tearing down the barriers to change – something all industry CEOs should consider in improving the financial prospects for a once proud industry relegated to underperformance, in part by the stakeholders who benefit from its inefficiency.

Tilton and Government

In one way or another, Tilton delivers the message that “no matter how well United or any U.S. carrier transforms its business, none of us will be as strong as we should be - much less in a position to compete in the emerging global aviation industry - if there's no change to the regulatory environment in which we operate.” Without a coherent U.S. aviation policy that “reverses the bias against airline size and removes the barriers that prevent us from constructive consolidation, U.S. carriers will be unable to compete on a global scale and we risk being marginalized,” Tilton said.

Among the questions for the industry, as Tilton outlined in a talk to the UK Aviation club, is what motivates the protectionists’ view of the industry.  “What is it that they are “protecting? A chronically underperforming industry?” he asked.

Concluding Thoughts

For what it’s worth, I focus on Tilton not because of his work at United but because of the message he delivers and its relevance to the rest of the industry.

As I predicted in my last post, February 2010 has been a significant month for airline news – some of it good and some of it bad like government’s call for slot divestitures in the USAirways – Delta slot swap.  It appears likely that oneworld will get permission to compete on an equal footing with the STAR and SkyTeam alliances.  This is the necessary next step to ensure inter-alliance competition as we think and talk about the industry’s structure going forward.   Tilton is a huge proponent of alliances who quickly recognized that one airline cannot be everything to everybody and that network scope and scale can be economically garnered through partnerships that leverage each member airline’s strengths.

Tilton also remains a proponent of consolidation.  His voice is growing increasingly louder on the subject of cross-border mergers and the flow of capital based his belief that the US and the European Union should move forward on Phase II of a transatlantic agreement and pave the way to permitting cross border commercial activity in the airline industry.  As Tilton noted in his UK speech, “capital is global and doesn't have sovereign inhibitions."

Like him or not, Tilton rarely shies away from stating his views, even at the risk of ruffling some stakeholder’s feathers.  For Tilton, too many people focus on the past rather than the future and what needs removed in order that the industry can continue to evolve. That evolution may continue to prove painful for some in the industry as Open Skies and re-shaped alliances bring new competition all the while presenting new opportunities for agile and nimble operators.

Tilton’s role, like that of the Anderson, Arpey, Smisek , Parker and other airline CEOs, is to serve as agents of that change and find a way to balance the demands and interests of labor, shareholders and other stakeholders that depend on a robust, profitable industry.

Note:  I hold stock and options in Hawaiian Holdings, Inc. as a result of my Board position.  I also hold stock in United Airlines accumulated at various points in time since the company emerged from bankruptcy.

This month promises to be full of news in the airline industry, and potentially in a big way.  February is the month where we celebrate Groundhog Day.  And like the movie of that name, we’ll probably see some of the same stories emerge, over and over again.

Colgan, Congress and the Regulators

One of the biggest, in my view, is the ramifications of Colgan 3407, the subject of many megabytes on Swelblog.   The tragic crash of the Colgan Air flight came last year on February 12 and there have been a number of Congressional hearings since focusing on the safety of the airline system generally and the regional airline system specifically. Last week, Federal Aviation Administration Administrator J. Randolph Babbitt and DOT Inspector General Calvin L. Scovell III testified before the House on the status of the FAA’s response.. 

In its Call to Action, the FAA is looking at fatigue; crew training; pilot qualifications; training program review guidance; pilot mentoring/experience transfer programs; pilot records; and code share agreements.   

New scrutiny on code sharing comes courtesy of Reps. James Oberstar and Jerry Costello, who have demanded that the DOT IG investigate these widely-used agreements between airlines. The congressmen ask, at a minimum, that the investigation consider:

1. Whether the DOT and the FAA have the legal authority to review code -share agreements between mainline carriers and their regional partners;
2. How mainline carriers ensure that their regional partners operate at the same level of safety; and
3. Whether the flying public has adequate information about code-sharing arrangements to make informed decisions when purchasing a ticket.

As if this story needed fuel to fire the debate, PBS Frontline will air an hourlong investigative report on the Colgan crash on February 9.   If PBS publicity on the subject is any indicator, then this piece will be will be as much about sensational journalism as it is about half-truths.  Already, Frontline is making much of the low salaries some regional pilots earn in a story centered on Colgan but that by all appearances paints all regional operators with the same brush. It will be important to parse the information offered and the story-telling in this piece. 

oneworld and an Immunized Atlantic (and Pacific?) Alliance

As STAR and SkyTeam fortify their alliances with new partners, anti-trust immunity and “metal neutral” joint ventures; American, British Airways, Iberia, Finnair and Royal Jordanian await word as to whether the third time will be a charm for oneworld to operate with immunization across the Atlantic. In a January article, Lori Ranson of Airline Business writes about some of the issues before the regulators.

This is only one big decision affecting AA – another is the continuing saga regarding whether Japan Airlines will stick with oneworld or submit to entreaties from Delta and join SkyTeam.  [NOTE:  JAL announces its intention to stay with oneworld on 2/9/10]  The media has been all over the board on this one, with this week’s predictions going oneworld’s way. This story has had more leads from unnamed sources than even the rumored merger talks in past years involving Continental and United, and United and US Airways.

But one thing is certain, and that is February 10, 2010, when four slot pairs become available to US airlines to serve Tokyo’s Haneda Airport under an “Open Skies” agreement between the U.S. and Japan. [DATE moved to 2/15 due to weather in Washington DC]  Initial applications for those slots are due this Wednesday, with final submissions due to the US Department of Transportation by March 1, 2010.  The winner could be flying as early as October of this year when the fourth runway at Tokyo’s downtown airport is scheduled for completion. 

As part of the pact, Japan also made immunized alliance relationships for JAL and ANA a condition of the deal. And it has long been thought that if applications for immunity were not made by mid-February then it would be difficult for the US government to complete the necessary analysis in order to meet the October deadline.  Few, if any, ATI applications have been approved in eight months or less.

United/Continental/ANA have already applied.  JAL is bankrupt but needs to pick a partner soon.  That means that the ongoing soap opera playing out in Japan may soon be coming to an end. 

The National Mediation Board and Airline Strikes

On January 21, 2010 the Association of Professional Flight Attendants (APFA) ended a two-week intensive bargaining session with American Airlines without reaching a deal. Leading up to these talks, the union had been working hard to rally its members, even going so far as to stage a mock strike with limited impact. Next up:  yet another round of mediated negotiations in Washington, DC beginning February 27.

Serious industry watchers may conclude that a a round of talks in Washington at this relatively advanced state of negotiations could mean that a “release decision” is imminent.  Another viewpoint is that the NMB might be more likely to put the negotiations “on ice” given the wide gap between what the union demands and the company believes it is able to provide.  Even in historically difficult times for the US airline industry, the APFA’s rhetoric suggests that the union will pay little to nothing in efficiency in return for the improved economics it seeks.  So these talks may be the next milestone marking how Obama’s NMB will deal with labor negotiations in the airline industry.

If nothing else, the APFA has been reckless in talking about a strike.  Long-term observers may recall that the union pulled off a coup in 1993 with a strike even the airline didn’t think would happen; and the union leaders seem to think they could do it again.  So as APFA’s strike talk continues, American did what a responsible airline must do, confirming in a media story that it is working with the FAA to prepare, if necessary, to train replacements if the APFA strikes.  Clearly the news story made a few APFA members nervous as, shortly thereafter, APFA President Laura Glading criticized the company, calling its contigency plans "an ill-conceived and doomed strategy." My question to Ms. Glading is:  How, then, is your strike rhetoric not an ill-conceived and doomed strategy not only for your members but for all employees at American Airlines?

As a footnote, last week the story took an amazing turn with news that former TWA flight attendants – nearly all of them furloughed after the APFA put them on the bottom of the seniority list following AA’s acquisition of TWA's assets -- would be willing to cross a picket line and work if the APFA went out on strike. Now I wonder how much time Glading is spending reliving the strike of 1993 when faced with the prospect of an airline ready with trained replacements at hand, including a group of flight attendants with an axe to grind against her union?

Finally, February may be the month we get a decision from the NMB following the effort of two Board members to change by fiat the law that governs labor law in the railway and airline industries and would make it far easier for unions to organize workers.  The decision has, however, generated a tremendous amount of comment and controversy, so we may be waiting until March Madness for that story to break.

Stay tuned. It may be a wild ride.

Things just happen when things move too far too fast.

Wow.  All I could say after Tuesday night’s victory for Scott Brown in Massachusetts was wow.  I am still in a head shaking wow mode as is much of the country.  Then again, this has been one amazing 40 days for the country when it comes to politics.  Much of the political power grabs have been occurring within the health care reform debate arena where the “Cornhusker Kickback” and the unions wringing a “Cadillac Plan” tax exemption out of the White House emerged.   

During these amazing 40 days, the airline industry was not immune from political meddling and arrogance that somehow manage to turn politicians into CEOs and airline route planners either.  Nevada Senator Harry Reid went so far as to write a letter to US Airways CEO Doug Parker expressing concerns about the airline’s decision to significantly downsize operations at Las Vegas’ McCarran International Airport.   Reid’s letter provides a lot of fodder for comment, but there are a few I want to highlight.

Reid writes, “As I am sure you are aware, Nevada has been particularly hard hit by the recession affecting our nation.”  Hey Harry, have you noticed the U.S. airline industry lost nearly $60 billion during the 2K decade.  Or that airlines shed 150,000 jobs because of economic conditions that plague the country and, thus, this industry which is inextricably tied to the health of the economy?  Or that taxes and fees on airlines increased while the revenue environment deteriorated?  Or that you chose to pursue, and fund, a railroad serving a few rather than funding an air traffic control system and equipping an industry now serving the masses?  I suppose not.

Then Reid has the audacity to write, “Because of the commitment you have shown to Nevada, I have been a longtime supporter of your airline.  From the merger with USAir to accessing additional slots on the East Coast, we have worked together to build the airline into one of the premier national carriers.”  Wow, how arrogant is that?  Does that mean if US Airways pulls down Las Vegas, Reid will stand in the way of a commercial arrangement that would make US Airways stronger?  Then again, that line of thinking is more typical than atypical of this Congress and its view of an industry that facilitates commerce.

Politics are the rule of the day even with quasi-government agencies charged with minimizing instability within those very industries. The way the National Mediation Board is going about changing a 75-year rule that worked until organizing possibilities presented themselves at Delta Air Lines is another example of politics run amuck.

Speaking of the National Mediation Board

There is a lot of talk in the mainstream and industry press about airline strikes.  The process by which airline and railroad unions can strike is quite different than other industries – and it all runs through the National Mediation Board.  It is explained better by some reporters than others. 

This round of negotiations is the first since the restructuring negotiations of 2002 that resulted in significant salary and work rule provisions being stripped from many collective bargaining agreements.  Some of those negotiations were done under Sections 1113 and 1114 of the U.S. Bankruptcy Code and others were not.  The current round of talks will involve the National Mediation Board in many, if not most, instances.  Complicating matters is the sheer number of cases already being negotiated under the auspice of the NMB.   And there are more cases on the way. 

As I write, all organized groups at both American and United Airlines (per a reader: except the IBT, PAFCA and IFPTE) are in mediation.  At some point, certain of those negotiations will have gone as far as they can before the NMB determines the two sides are at an "impasse".  Once an impasse is declared, then the parties are put into what is known as a “30 day cooling off period.”  If no agreement is reached inside that 30 day period, then either side is free to engage in “self help.”  Self help permits management to either “lock out” employees or to "impose its last offer" on the work force. The union can choose to withdraw its services – otherwise known as a strike - - or utilize other “work actions.”   The parties can mutually agree to continue talks until such point that further discussions are deemed fruitless by either side.

Dilemmas for Obama As He Considers a Request from Airline Workers to Strike

Going into this negotiating period and suspecting difficult, if not impossible, negotiations, I wondered aloud about how decisions would be made to release parties into a cooling off period.  I wondered aloud if strikes would be more prevalent than they have been in the past.  I have wondered aloud about who might be this decade’s Eastern Air Lines.  I have wondered just how the NMB is possibly going to manage this work load all the while promising a more speedy negotiating process as part of its new charge.  And recently I have been wondering how politics might affect NMB thinking when it comes to releasing parties from mediation. 

In my prior thinking I believed that this round would result in more Presidential Emergency Board proceedings to ultimately decide the terms of a contract.  A Presidential Emergency Board?  Yes, as the 30 day cooling off period expires and, more often than not, the union decides to engage in self help, there is a parallel decision that must be reached by the White House. 

The White House must determine how commerce might be disrupted if a certain airline were to go on strike.  That calculus involves, at a minimum, the level of unaccomodated demand in certain markets if one carrier were to strike.  Or said another way, can the remaining service in the market accommodate the passengers that cannot travel on the carrier they booked on due to the strike? 

In the era where 80+ percent load factors are the norm, the case for suggesting that demand can be accommodated by the remaining service is increasingly difficult.  It was already starting to get difficult when the Northwest pilots decided to strike in August of 1998.

So if Obama, in this case, determines that a strike would provide too much harm to certain air travel markets, he could stop the strike and order a Presidential Emergency Board to be convened… just like President Clinton did in 1997 when the American pilots chose to strike.  In the case of a PEB, a panel of neutrals, usually arbitrators, is formed to hear the economic case presented by each side.  If the parties cannot agree, then the panel will suggest a "non-binding" settlement.  There is still the possibility of a strike and also the possibility that Congress could legislate a settlement to avert such strike – more than likely the settlement offered by the PEB.

But that is a long way down the road.  I only raise the issues in this piece because politics prior to Massachusetts at least would seem to be nothing more than promises made to special interests (unions) in a dark room in order to garner their support for Obama.  And it worked and has worked.  But might things change?

Compunding the complexity of White House decisions in this round is the possibility of interstate commerce disruption when government stimulus money is in play.

Dilemmas for Airline Labor As They Decide to Strike

About the only thing that you can predict is that a strike at a major, legacy airline will more than likely result in yet another tombstone in the airline graveyard.  Said another way, if a union wants to strike one of today’s legacy carriers, I can see a lock out, use of replacement workers or the sale of assets to another airline that does not include employees.  Ultimately, the majority of the flying done by the striking airline will be replaced. Should a strike result in the liquidation of an airline, the flying will be done by companies that can do it more efficiently – which means fewer jobs.  And that cuts against this administration’s agenda too – doesn’t it?

As hard as it might be for unions to understand, not enough was done on the productivity side of the equation during the restructuring negotiations.  Yes, a judge presided over most of the restructuring negotiations.  But the unions were largely permitted to “pick their poison” when it came to making contractual changes with pensions being the exception.  The poison chosen was to reduce pay more than it needed to be reduced in order to preserve work rules. The tenet that rules the day in any union caucus room is that you can never get work rules back.

In order to get more money in the pockets of workers, more efficiencies need to be found in this industry.  For unions, that will mean fewer dues paying members.  But, this smaller work force would be earning more cash compensation.

One can only hope that a Presidential Emergency Board fully understands the tradeoff between pay, benefits and productivity.

In this post, I’m going to pick sides in the mighty contest for the JAL bride.

But before we begin, let’s dispense with some business.

First, let the record show that I have long been a fan of Delta Air Lines on many fronts, particularly how it went about its merger with Northwest.  I applauded the strategy CEO Richard Anderson led in demonstrating the benefits of an “end to end merger” versus the old model merger with “significant network overlap.” It is interesting to me how Delta is suggesting to the world that getting immunity for a relationship with JAL will be fairly easy.

Second, I was recently asked by to present at a one-day seminar on the subject of anti-trust immunity hosted by American’s legal counsel Jones Day.  I am not retained by American in this matter, but the airline did cover my travel expenses.

My views are my own. And they are based on a very firm foundation of data.

Now, let’s talk about alliances.

The North Pacific Market

In the U.S. – Asia market, the two most important Asian gateways are Tokyo Narita and Seoul Incheon.  And just as airlines compete, gateways compete for the same traffic. Tokyo and Seoul offer services that can facilitate 10.4 million U.S. – Asia passengers a year.  Of those, 10 million passengers can be accommodated by either Tokyo or Seoul, while only 400,000 are uniquely served through Tokyo’s Narita gateway.

Airlines form alliances to partner with other airlines and more effectively participate in traffic flows between world regions. Alliances permit a carrier to leverage its own network across its partner’s network to create benefits that would not otherwise be logistically possible or economically viable. 

Now Japan Airlines is the “it” airline in a global contest to win its favor and woo it from one alliance to another.  The troubled airline’s current partners in the oneworld alliance are determined suitors in their effort to keep JAL happy at home, while Delta is playing the part of home wrecker, posing and making promises that the opportunities are greater for JAL as part of the SkyTeam alliance.

If I am Delta…..

I would be pursuing JAL as well.  Why?  Because Delta has the most to lose from any new competition into the U.S. – Japan/U.S. – North Pacific marketplace.  Why?  Because of the extraordinary rights Delta has to fly beyond Tokyo and Japan and carry traffic that originates in Japan.  Why?  Because the route rights granted to Northwest (Orient) in 1952 came at a time when Japan was dependant on the U.S. in its post war recovery.

The bilateral agreement in place between the U.S. and Japan has been largely unchanged since 1952.   Both sides have thought the pact unfair, but little progress was made until 2009.  To Japan, the bilateral was imbalanced, with too many NRT slots held by U.S. airlines using them to provide local intra-Asian service.  To the U.S., the bilateral was viewed as anticompetitive as it restricted frequencies, favoring incumbents and preventing market-driven price discounts.  Those incumbents are Northwest and United, which bought the rights from the late, great Pan Am.

What complicates the DAL’s JAL play is that Delta in effect already owns most of the rights of a Japanese flag carrier as a result of the 1952 bilateral agreement.  Along with its immunized relationship with Korean Airlines, Delta already enjoys a commanding market position in what promises to be one of fastest growing markets over the next 20 years – the North Pacific.   

Those route rights now held by Delta as a result of its merger with Northwest give the carrier significant market power.  Those route rights have over the past six decades enabled Delta to build a U.S. – Asia network via Tokyo that could only be rivaled by United.

Only now, under an Open Skies pact between the U.S. and Japan, can that incumbent status be truly challenged.

Oberstar and the Fear Mongers Sure are Quiet

As this story unfolds, one thing we’re not hearing is the usual braying from Congress’ self proclaimed, air travel consumer protection cop James Oberstar.  Is it because the situation involves his former hometown airline?  Or is it because the Congressman is just waiting to pounce?  In either case, the man who has previously been quick to try to apply regulatory and legislative “solutions” to the airline industry’s complex challenges is atypically quiet.

As regular readers know, I am no fan of the Minnesota Congressman’s approach to competition in the industry.  But as we approach a situation in which the term “duopoly” will describe inter-alliance competition should Delta and JAL form a partnership in Japan – his silence is, well, deafening.

Today, American + JAL at Tokyo, Northwest/Delta at Tokyo and Delta + Korean at Seoul are competing for U.S. – Asia traffic.  There are 413 city pair markets in that region that involve 19 overlapping Asian markets served by each Tokyo and Seoul that have at least 5 passengers per day each way.  Currently, 83 percent of those 413 city pair markets either originate in or are destined to points behind a U.S. gateway to one of those 19 points beyond the two Asia gateways. 

It is these markets that represent a competitive disadvantage to the non-immunized alliances today – chief among them  American’s oneworld.  These markets also represent true opportunity for the immunized alliances of tomorrow – those, that is, that would now be permitted by the U.S. – Japan Open Skies Accord – and that’s what has the incumbent airlines looking nervously over their shoulders at the prospect of new competition.

Today both STAR and oneworld are limited in their ability to compete for this traffic by a lack of immunity with their Japanese partners.  Northwest/Delta, on the other hand, can coordinate schedules and set fares for traffic connecting over Tokyo Narita (as a result of the agreement negotiated with Japan in 1952) and for traffic connecting over Seoul with its Korean Airlines partner.

In fact, on 98 percent of the 413 city pairs we’re discussing, either Delta/Korean or Northwest/Delta or both “immunized” combinations have a larger share of this critical connecting traffic than does American + JAL. 

This ability to generate traffic and offer passengers a choice of carrier and gateway is just one of the important benefits that accrue to airlines and consumers as a result of a relationship that allows immunized alliance airlines to coordinate schedules and set fares.

Today Delta’s U.S. domestic network is roughly 2.5 share points larger than American’s, yet it is able to connect disproportionately more traffic from the U.S. to Asia.  Network economics suggests that this relationship does not make sense unless one considers the power of immunity.

The Threat of Competition

Today, both oneworld and STAR compete for the same traffic against SkyTeam.  Today there is certain symmetry among the three global alliances for U.S. – Japan traffic and U.S. – Asia traffic.

In the U.S. – Japan market, STAR’s share is 31%; oneworld w/JAL is 38%; and SkyTeam w/o JAL is 30%.  In the U.S. – Asia market: STAR’s share is 34%; oneworld w/JAL, 22%; and SkyTeam w/o JAL, 28%. 

Based on MIDT data American commissioned from Compass Lexicon and analyzed by me, if JAL were to be lured away by SkyTeam, the numbers would look very different.  In the U.S. – Japan market:  STAR, 31%; oneworld w/o JAL, 6%; and SkyTeam w/JAL, 61%.  In the U.S. – Asia market:  STAR, 34%; oneworld w/o JAL, 10%; and SkyTeam w/JAL, 30%.

Delta will likely challenge that analysis, claiming that it should not include traffic between Japan and the U.S. “beach markets” of Hawaii and Guam. I will leave that argument to the lawyers.  But last I checked, one was a U.S. state and the other a U.S. territory and each are therefore governed by the U.S. – Japan bilateral.

In simple terms, the real threat of liberalization in the U.S. – Japan market is the overnight competition Delta/SkyTeam will face from oneworld and STAR for the nearly 10 million U.S. - Asia passengers.  Do the math: If Delta is successful at luring JAL away from oneworld, then SkyTeam and STAR will have a 92% share of the U.S. – Japan market.  In most economic analyses, that share represents a duopoly.  And that should not be the result of market liberalization. But then again, do we have a duopoly on the Atlantic given that oneworld is not immunized there either?

Oberstar and the Fear Mongers have already protested the prospect of limited competition in three alliances hell bent on “gouging” air travelers.  So where are they when it comes to the prospect of just two alliances controlling so significant a share of the Asian market?

Duplicitous Delta and the Source of My Confusion

In late 2006, while Delta was in bankruptcy, U.S. Airways made a hostile offer to take control of the company.  Delta rejected U.S. Airways’ overtures vehemently and was ultimately successful in fending them off. “US Airways’ principle goal in its hostile takeover attempt is to eliminate its key competition,” Delta(Grinstein) said at the time. “In a pro-competitive merger, the two airlines’ routes do not overlap excessively; they are complementary. Joining complementary networks can enhance competition and create consumer benefits that result in lower prices and increased service option.”

Then in late 2007, Delta, on its own terms, began to pursue a merger with Northwest. Anderson argued time and again that the two airlines had “complementary instead of overlapping route systems” that would maximize synergies.

With the two airlines already connected through alliance relationships, Anderson said:  “Alliance relationships are valuable and very difficult to extract yourself from.”  He noted that neither Delta nor Northwest needed to pull out of its existing alliance, which would have “disrupted revenues and required tearing out significant infrastructure and then rebuilding someplace else.” 

Given regulatory restrictions regarding cross border mergers, an immunized alliance is a defacto merger in the sense that it gives the combination the ability to act as one airline in determining service levels, pricing, marketing.

On the surface, the size of Northwest/Delta’s North American network is slightly larger than American’s.  However, the fit of the network is more important than size.  The ability to leverage one network against the other in order to create new city pairs to sell is critical to any network’s success.  American and JAL would make for a true “end to end” combination whereas Delta and JAL possess significant overlap with each other – the very combination it suggested results in an anti-competitive combination.

On the surface, the solution is crystal clear - at least to me: Three alliances across the Atlantic and the Pacific that each benefit from anti-trust immunity and equally competitive tools.  Even if JAL ultimately restructures through bankruptcy, a partnership with American would still provide a true end-to-end partner that Delta itself contends is the very best way to maximize the synergies of a commercial combination.

But the more I study the data, a different picture emerges. Delta’s play for JAL is not about JAL at all.  It is about preserving Delta’s dual flag status in Japan.  For 58 years Northwest/Delta has been tweaking its US network to sync with its Japan-based network – and they have done it well.  Under Open Skies, Delta will realize new and more vigorous competition on many routes where it enjoys little to no competition today.  Self preservation is a strong instinct and I am all for consolidation in this industry.  But I am also for open and fair competition, particularly where all three alliances are concerned. 

Either way, Delta wins.  It wins by delaying anti-trust immunity for each American and United and thus preserving its legacy competitive position.  And it wins by potentially eliminating a competitor (JAL) where redundant flying can be removed. 

Competition loses.  If Delta lures JAL away from oneworld and the U.S. grants the Delta/JAL combination anti-trust immunity, then perhaps Oberstar finally has a position he can defend. Three way alliance competition is robust.  Institutionalizing duopolies in Open Skies markets is something else.

A Challenge to ALPA Captains Paul Rice and John Prater

On the last day of 2009, Caroline Salas of Bloomberg (edited) wrote an article on the regional airline industry titled:  Pilot Complaints Highlight Hazards of Regional Airlines.  In it were references to Gulfstream International (a training academy and airline) that were first reported by Susan Carey and Andy Pasztor of the Wall Street Journal on December 1, 2009. Salas quotes Captain Paul Rice, First Vice President of the Air Line Pilots Association (ALPA) alleging that the industry contracts flying to regional carriers to circumvent pilot agreements at the mainline carriers. 

Rice says: "The way the industry is structured is that management will go out and find a new airline and start siphoning off the business to whoever will fly for cheaper.  The American public is only just starting to wake up to that. What they are buying is the lowest-cost operation that's available."

This is a gross misrepresentation of the truth. What Rice does not say is that his very own union is a primary reason why the industry is structured the way it is. ALPA and others negotiate contracts with mainline carriers that proscribe the terms on which an airline can outsource flying to its regional partners.  Under the restrictive collective bargaining agreements common in this industry, most airlines can’t even make these important business decisions without the authorization of the pilot unions.

It is high time for ALPA and Captains Prater and Rice to tell the truth and take some responsibility for the current structure of the industry, even when it doesn’t necessarily serve the interests of big labor and its members. 

In a recent post, Sacred Cows and Fatigue, I referenced a thought-provoking column by Michael E. Levine in Aviation Daily that took on some of the debate over regional flying today.  In it, Levine noted that the February 2009 Colgan Air crash near Buffalo raised issues about pilot experience, fatigue and performance that “underscore the need to revisit negotiated seniority rules and pay scales that pay pilots more to fly bigger aircraft, leaving some of the least experienced pilots to do some of the most demanding flying.”

Earlier, in US Pilot Unions’ Dirty Little Secrets, I discussed the complex structure of airline networks that have developed over time through mergers; acquisitions; regulation and, importantly, union influence. And one place that labor influence plays out is in pilot contract “scope” clauses that too often hamstring an airline’s operations in the name of job protection for pilots.  The question we in the industry should be asking is whether those scope clauses really serve that purpose or, rather, whether some union leaders use scope in a way that is both misguided and ultimately harmful to the pilots they represent.

My Challenge to Captains Rice and Prater

Based on the testimony of ALPA since the Colgan accident, there has been nothing said that makes me think that the nation’s largest pilot union is ready to take responsibility and become part of the solution. Yes, regulatory barriers play a role in many airlines’ ability to serve certain markets profitably.  But at the same time scope clauses also contribute to a situation in which airlines are forced to outsource flying to their regional partners when mainline economics cannot support that flying. This fact is as true today as in the late 1980’s when the architecture of the network carrier's relationship with the regional airline industry was being drawn.

How about this resolution: Beginning in 2011, ALPA and other unions that hold collective bargaining rights for airline workers actually employ the members they now represent. Let’s use pilots as the example:

Let’s say Airline X needs pilots for 1.7 million block hours of mainline flying.  Of that, the airline needs .6 million hours of 777 flying; .2 million hours of 767 flying; .5 million hours of 737 flying; and .4 million hours of 757 flying.  Based on its projections of the revenue it can earn to fly these routes, Airline X is willing to pay $1.2 billion for pilot labor. In addition, and a result of the current industry structure, Airline X will require .5 million hours of CRJ flying and .5 million hours of EMB70 flying for which it can pay $500 million.  So, in total, Airline X needs pilots to perform 2.7 million hours of flying and is willing to pay $1.7 billion for those services.

Based on calculations compiled in MIT’s Airline Data Project and an assumed split for captains and first officers, on average, the industry pays a captain cost per block hour of $325 and a first officer cost per block hour of $225 for small narrowbody flying.  For 757 flying, the cost per captain block hour is $350 and $250 per first officer hour.  And for widebody flying, captains cost $563 per block hour and first officers earn $400 per block hour.

So, in our example, simple math produces a mainline cost that is $85 million more than what Airline X can pay based on projected revenue for that flying.  As an employer, ALPA would either have to agree to reduce the rate charged for each pilot or find another way to get the flying done at that cost.  That might mean increasing pilot productivity beyond the average 40-50 hours per month most network pilots now fly.  Or expanding the arbitrary and artificially low limit most unions put on pilot duty time. Or rethinking the level of benefits provided.  But the exercise itself – one not dissimilar to what most airlines are trying to do through labor negotiations to correct for bloat and inefficiency in current contracts – would be an eye-opener for labor leaders who don’t now have to trouble themselves with the hard work of making the airline’s budget actually balance.

The Math Is the Math

Now ALPA has to decide if it is in their best interest to maintain a greater number of pilots (today’s practice in which younger pilots ultimately subsidize the generous pay provided more experienced flyers) or fewer pilots who would earn more based on what the market is willing to pay. 

That decision must include many considerations, including:

• Is there really a difference in the cost of a life flying on a 50-seat regional jet versus a 250 -seat B777?;
• As market economics have made mainline narrowbody flying uneconomic in a large number of markets, is it good practice for a union to negotiate lower rates and different work rules for pilots at one carrier in order to support higher wages and more time off for pilots at another carrier?;
• Is it the case, as Prater testified before Congress, that “a safety benefit is derived from all flying being done from a single pilot-seniority list because it requires that first officers fly with many captains and learn from their experience and wisdom before becoming captains themselves”?; 
• If ALPA actually employed all pilots, then wouldn’t the creation of a single pilot seniority list facilitate the implementation of a system to address the experience problem at the regionals where, as Levine suggests,  a  30-year 737 captain might actually be assigned by ALPA to fly the demanding flying that today is performed by 50 seat CRJ pilots?; and
• Does a system of pilot promotion from right seat to left seat; from regional to mainline in a market that promises only a growth rate roughly equal to the rate of attrition at best, really work anymore?

As employers, the unions might be forced to make decisions like management must – based on what is in the long-term best interests of the airline and all of its employees.  From that position, it is much harder to throw stones or seek job protections and wages that don’t recognize market realities. ALPA and the unions would have to answer some really tough questions.  

Given that the market offers little promise for growth like that experienced between 1978 and 2001, it is time for a new compensation and work rule model.  Perhaps it is time to put the most experienced pilots on trips that include the most demanding flying. 

And it is time that organized labor, particularly ALPA, to step up to the plate and become part of the solution rather than continue to contribute to a troubled industry’s troubles by not accepting any responsibility for today's structural predicament.  ALPA can put its dues money where its mouth is and truly promote safety.  But that might just mean a total overhaul of the way pilots are compensated.  

It is that time of the year again when it is time to put the packages under the tree. The packages represent my 12 days of Christmas, or the 12 airline industry issues that took place in 2009 that I find important. I have placed my packages under the tree in descending order of importance.

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Last week, I was in Boston listening to the students in MIT’s Airline Industry class make group presentations on six US airlines.  It is always refreshing to hear the analysis, reflection on strategies and recommendations from really smart kids who aren’t burdened, like me, by three decades of taint or cynicism. 

Do We Have a National Aviation Policy?

The student presentations got me thinking about the role of national policy on the U.S. airlines. Michael E. Levine, now a Distinguished Research Scholar and Senior Lecturer at  the New York University School of Law, wrote an op-ed in the December 1, 2009 Aviation Daily titled:  “We Have a National Aviation Policy.”  Many will remember Levine as one of the minds behind and framers of the Airline Deregulation Act of 1978.  Levine went on to serve in numerous senior management positions at a number of airlines along the way.  To the serious industry observer, Levine is a must-read.  You may not always agree with his viewpoints, but you always know that the work will be well researched, thoughtful and provocative.

Levine’s Aviation Daily piece has its roots in the recent comments by former American Airlines CEO Robert Crandall and Business Travel Coalition President Kevin Mitchell suggesting that the U.S. lacks an effective  aviation policy.

Levine disagrees:  “Our government has an excellent aviation policy:  continuously improve safety, promote environmental goals, maintain consumer choice, and allow the general public access to a system not run specially for the benefit of stockholders, banks, elite purchasers, aircraft manufacturers and workers more privileged than they are,” he writes. “We even have a mechanism in place to make sure that service is provided where social policy demands it and the market won’t pay for it.”

In Levine’s view:

• Profit is the job of managements and shareholders, not government
• Air transportation must be safe
• Government’s job is to ensure that aircraft are safe, not new
• Airline wages and career options should be no more or less a government concern than they are for workers in general
• US airlines should compete in world markets, and our government should eliminate impediments put in their way by other governments
• The terrible accident in Buffalo raises issues about pilot experience, fatigue and past performance that underscore the need to revisit negotiated seniority rules and pay scales that pay pilots more to fly bigger aircraft, leaving some of the least experienced pilots to do some of the most demanding flying
• Pilot fatigue comes not only from duty assignments but also from lifestyle choices that have pilots commuting to work from homes that may be thousands of miles from their jobs.

I encourage readers to find a copy and read Levine’s piece in its entirety.  It is good.  And of course many of the ideas are those espoused here at swelblog.com.  If I have a quibble at all with Levine’s piece, I would say that the US government and the narrow-minded thinkers in Washington who are in power positions on committees overseeing US commercial aviation produce at least as many impediments as do other governments. 

Levine’s analysis is also well timed to the formation of Transportation Secretary Ray LaHood’s Blue Ribbon panel to study the industry. A mind like Levine’s would serve the industry well because unlike Crandall and Mitchell, he does not have a dog in the fight.  Furthermore, his writing reflects the need to cut to core issues that govern US aviation today and fix the things don’t work – even if those things include some sacred cow(s).

Pilot Fatigue

Last week, FAA Administrator Babbitt testified before the Senate Commerce Committee’s Aviation Subcommittee on a variety of safety issues including pilot fatigue. As I have written here many times, there can be no productive discussion on pilot fatigue until the issue of commuting is included in that discussion. 

Until last week, any Congressional testimony fatigue or flight time/duty time regulation changes centered on the work of an FAA Advisory panel that met during July and August to recommend changes to existing rules.  But that committee -- comprised of labor, management and other stakeholder groups  -- decided that commuting was “outside the boundaries” of their mission.  So it is left to Babbitt and the FAA to seek comment on commuting with respect to the proposed rule changes.

Commuting, of course is among the industry’s most sacred cows. I don’t know how many airlines would be willing to go first in telling a pilot, or a flight attendant, that they cannot commute or that they have to live within X miles of their assigned domicile.  Clearly,  Babbitt is not convinced that commuting is the only major factor in the fatigue question. So for now, Babbitt’s mantra is the right one:  Show up fit to work.

But commuting is a management issue as well.  Back in the day when I was flying, pilots were paid moving expenses and had the company buy their house (in the event it could not be sold) if they were displaced to another domicile.  As the industry began to grow and merge and create new hubs and thus new crew domiciles, the moving expense issue was a big one for companies to consider.  Lo and behold, it was one of the early concessions airlines sought from pilot contracts in their efforts to cut costs and the industry structure began transforming itself.

I am glad that we are looking at fatigue and flight time/duty time regulations with a learned eye to make fixes where science suggests fixes need to be made.  What doesn’t make sense is this hue and cry that fatigue is an issue because airlines have worked to improve productivity by getting their pilots to fly an additional eight hours a month.

Stuffing Romy’s Thanksgiving Turkey with Items for Secretary LaHood to Consider

On Friday, November 20, Montie Brewer, most recently Air Canada’s President and CEO, made a presentation at MIT titled:  “Five Reasons Why the Airline Industry Will Never be Profitable.”  Prior to making his way to Air Canada in 2004, Mr. Brewer (Montie) held senior positions at United Airlines, Northwest Airlines, Republic Airlines, Braniff and Trans World Airlines. He has planned and developed over 20 hub operations worldwide and played an integral role in the founding of the STAR alliance. 

I sat down with Montie following his presentation with the intention to write about it, but also to use his talk as context as Secretary of Transportation Ray LaHood considers establishing a Blue Ribbon panel to study the woes of the U.S .airline industry.  It seems like the perfect stuffing for 2009’s Thanksgiving turkey.

Brewer’s Five Reasons Why the Airline Industry Will Never be Profitable

The boom and bust cycles of airline industry earnings are well documented, as is the fact that subsequent down cycles to industry up-cycles destroy those earnings and more.  The fact remains that any annual airline industry profits rarely exceed the average pre-tax earnings for U.S. corporations. As a preface to his talk, Brewer made clear it would be wrong to surmise individual airlines will not be profitable. Instead he contends the industry will always suffer due to structural reasons.  

  1.  It’s A Capacity Lead Business Model (Causes Constant Overcapacity)

Since deregulation the airline product has been commoditized.  In the commodity framework, the only way the industry, or an airline, can grow revenue is to grow capacity.  Then, the Computer Reservations Systems and the Global Distribution Systems institutionalized the notion that in order for an airline to grow revenue, it needed to offer more and more capacity even before demand warranted.

The addition of capacity led to low and lower operating costs.  On the margin, revenue exceeded cost.  Uneconomic capacity was being deployed each and every day.  Ultimately an industry too big to be sustainable was created.   

The GDS’s were a major contributor to the commoditization of the airline product.  Based on this fact, airlines that distribute directly to the consumer have the best likelihood of differentiating, and more importantly, not commoditizing, their product.  This fact contributes to the notion that certain airlines can do well while the industry suffers. 

  2.   Airplanes Don’t Go Away (They Just Become More Efficient)

A bad airline industry assumption is consolidation of the industry, whether through a merger or carrier liquidation, leads to industry capacity reduction.  The airline industry time and again has demonstrated that once a carrier’s capacity is pushed to the edge, that carrier’s capacity (efficient and inefficient) does not go away.

With the working premise that the only way to grow revenue is to grow capacity, then new aircraft need to ordered.  The problem is aircraft do not go away, and: aircraft do not make their way from an inefficient operator to a more efficient operator; aircraft CAN fly forever; even when an airline tries to retire aircraft, they come back like a bad spaghetti sauce (remember ValuJet using Delta’s DC-9s to compete directly with them in Atlanta); and, when carriers grow they realize great efficiencies. 

An example of those efficiencies is a 3 percent growth in capacity results in only a 1 percent increase in total operating costs.  However, this works in reverse when carriers pull capacity down as the cost savings cannot be achieved commensurate with the reduction.  This fact is what plagues the industry today as a floor is created on just how much capacity can be reduced by any one airline.  

[Note:  If Brewer had his way, Airbus and Boeing would each be allowed to produce 10 new aircraft per year but he would allow the manufacturers to charge whatever amount they could earn on each of those 10 aircraft.]

  3.   Labor Leverage (Political Organizations Cannot Manage Commercial Reality)

Labor organizations are not structured to manage the responsibility they possess.  In Brewer’s view labor has tremendous leverage over the industry.  However, they are highly simple political organizations and, as such, only have a short-term view.  For the politicians, the short-term view is to remain in their elected position.  To overcome this flaw, labor organizations need to completely overhaul their governance structure. 

Like the ordering of airplanes, management historically reaches agreements with labor at the very end or the peak of economic up cycles and then faces the prospect of paying the bill during subsequent downturns.  Given the high fixed costs of the industry, airlines can rarely afford a strike or intermittent work stoppages.  During negotiations, both the airline and labor pretend management is in control.  According to Brewer, the working assumption is management will not allow labor to take too much, but in reality, labor can take all it wants - - then both live with the outcome.  Brewer believes, when costs like labor, fuel, maintenance, airport fees are factored in on a daily basis, the typical airline has 10 - 20 profitable days a year.

With 10-20 days of revenue to spend, some in labor have asked, “Why would management agree to a contract it can’t afford”?  Well, because somewhere during the year, fuel exceeded budget, or the government issued a new airworthiness directive involving aircraft in an airline's fleet, or airport fees increased, or…….the false belief that management will contain labor’s desires from doing stupid things.

  4. Input Costs are Too Volatile (Revenue Cycle and Cost Cycle Out of Sync)

Even in the best of years, the airline industry is a low margin business where it is not uncommon for any number of input costs to increase at least 20 percent.  A low margin business with volatile input costs is a toxic mix.  A good example occurred in 2008 when the price of oil increased from $80 per barrel to $147.  As is typical in the airline business, tickets are often purchased months in advance.  During the first half of 2008, it was not uncommon for passengers to be flying in June on a ticket purchased when oil was $50 per barrel cheaper.

Is the relationship of volatile costs relative to revenue impossible to manage?  No, but it would require companies to maintain outsized cash balances. Cash balances that look good to labor during contract negotiations and to financial raiders seeking to buy a company to harvest that cash.

  5.  Nobody Really Wants It to Be Fixed

Brewer makes a powerful case that things are fine the way they are… and, for the most part, the airline industry value chain, consumers and the government know it.

When it comes to low fares, the consumer can shop the internet and find some market on sale. They may even find the price of a ticket today equal to, or less, in nominal dollars than a fare charged two decades ago.  When adjusted for inflation, it is hard to find any consumer item that is a better bargain than air travel.

Taxes and fees are nearly $60 - or 20 percent - of the price of a ticket today.  This compares to $22, or 7 percent, in 1972.  The government is getting a bigger share of a shrinking pie. 

Perhaps, most compelling is the industry's value chain like airline catering, aircraft lessors, ground handling, manufacturers, airports, distribution systems, fueling; travel agents, maintenance repair organizations and freight operations.  Each of these industry sectors in the airline industry value chain earn a higher return on invested capital than the airline companies that keep them in business. 

Some Questions for Secretary LaHood to Ponder

• Can a commodity business (airline business) that does not have to be a commodity business (too much supply) be permitted to change sufficiently by its stakeholders to achieve sustained profitability? 
• Can an industry where inefficient capacity never leaves achieve sustained profitability? 
• Can an industry where organized labor has outsized leverage but cannot manage the inherent responsibilities that come with that leverage change sufficiently in order for the industry to achieve sustained profitability? 
• Can an industry with widely volatile input costs raise sufficient capital to manage its business without being raided by either a financial investor or a stakeholder seeking outsized payments?
• Can an industry where every stakeholder seems to be happy with the way it is, including governments and their constituents, consider making the necessary changes in order for the industry to achieve sustained profitability?

Any Discussion Must Begin With a Plan for Roads, Rail and Runways

To date, the only public suggestions that I have seen for the Secretary to consider in forming the panel come from Kevin Mitchell at the Business Travel Coalition.  Mitchell, who participated in the Secretary’s discussion with various stakeholders on November 12, wrote LaHood outlining five issues that need studying by the proposed commission:

• No National Air Transportation Policy
• Airline Over-Scheduling
• Broken Industry Work Force Model
• Obsolete Air Traffic Control Technology
• Airline Industry Financial Failure

Mitchell also outlined causes of each, including unbridled faith in market forces; lack of government and industry foresight and leadership; lack of a productive labor-management model; unworkable industry financial model; ineffective FAA management; fragmented industry positions and lack of Congressional leadership. While Mitchell is thoughtful about the problems and their causes, parts of his list of those affected sounds more like advocacy for his clients.

Swelbar’s View

Among the best of Mitchell’s observations is the need for a coherent transportation policy.  That policy, though, should not focus on an alleged broken regional airline business model; tarmac delays; that the industry is no longer a desired profession; pressure on safety margins; loss of skilled jobs; lost service; or a loss of international leadership. 

The transportation policy should be about roads, rails and runways -- period. After all, there must be some very good reason why Warren Buffett is spending $34 billion to buy Burlington Northern? For aviation specifically, it should address the need to define, resize and equip the desired infrastructure for the 21^st Century. For airports that might be disenfranchised from the air transportation grid, do highways need to be built that easily facilitate a different access point for those air travel consumers?  It should not be about championing a unique labor force that already has considerable power and very good paying jobs relative to the overall work force or the calls of various consumer advocates.

Organized labor was a force behind LaHood's consideration to form a commission to study the airline industry.  But nowhere based on what I have read does labor accept any responsibility for the current condition of the industry.  Times have changed, and unions need to understand that. For organized labor – and by extrapolation, airline labor – to be successful, the unions can no longer be in the business of keeping themselves in business. It has to be about meaningful change. Change that entails understanding the new economic realities, or as the Harvard Business Review recently opined “that there will be no going home again…that the landscape of business has been forever altered.” [actually this question can be asked of every airline industry stakeholder] Can unions change or adapt to the idea that instead of being in business to secure decent jobs for the greatest number of people it might be better off securing great jobs for fewer workers?

Mitchell identifies the right stakeholders, but doesn’t ask ALL of the right questions.  Brewer poses the right questions and does not suggest the market can answer them all.  The answers lie in what this blog is about -- change:  can industry stakeholders change and surrender unrealistic expectations of the past?  Despite all of the cuts, we still have too much capacity, leading to too many inefficient operations, which lead to a government that really does not want to get out of the way --- because it has a stake in that inefficiency.

I hope that the administration is really going to evaluate the industry and recognize that all stakeholders need to change.  And much of the change that needs to take place begins and ends with government accepting that an industry 50 years old ... well, needs to change.

More to come.

This week, Terry Maxon of the Dallas Morning News  wrote about the “surprised” reaction at American Airlines when a correspondent on NBC’s Today Show reported a “potential strike” at the airline following the holidays.

The show was a bit vague on its sources, but my best is that Laura Glading, President of the Association of Professional Flight Attendants, is working her media list to drum up a little coverage for the union’s latest negotiations gambit.

I consider myself a pretty good historian on most things airlines over the past 30 years.  And I remember the APFA’s divisive and destructive Thanksgiving strike in 1993 that attempted to bring the airline to its knees over the critical holiday travel period.  Last year, the union “celebrated” the 15^th anniversary of the strike with a campaign they called “Remember November.”

For this year’s anniversary, the union is doing its best to remind the company of the pain it could again impose in a campaign that all but threatens another strike . . . this one called “Got Guts?” 

To be fair, the APFA has made clear that they do not plan to disrupt American’s operations over the holidays.  However, the union did say it was prepared to strike next year if no contract agreement is reached by January, with Glading saying she will consider asking the National Mediation Board for a “release” from negotiations – the first step toward seeking the right to “self help” under the Railway Labor Act.

First, let’s review the rules.  The NMB will grant a release only if it believes negotiations are at an impasse, and the bar for that is set pretty high.   A release would then open a 30-day “cooling off” period.  Only after that point and if the parties fail to reach agreement can either side engage in self help --  which for a union means work stoppages or strikes and for management allows a company to impose its “last offer” at the table or lock out striking workers.

So let’s be perfectly clear.  The union can’t strike now, no matter what the alarmists may say on Today. There is no guarantee that the NMB would grant a release. And even then, the RLA has several protections built in – the cooling off period and the prospect of a Presidential Emergency Board – to prevent the kind of work stoppages that could ground an airline and impact interstate commerce.

So why is the flight attendant union playing it out this way? Why on one hand are they talking strikes (which in some cases proves reason enough for passengers to “book away” from a particular airline) and on the other hand trying to reassure passengers that their holiday travel plans are safe?

Because that’s what unions in the industry too often have done. . . talk out of both sides of their mouth – paying lip service to their commitment to passengers while at the same time making demands and engaging in work actions that threaten the airlines’ ability to do business.

The Boeing Lesson

Let’s consider the real impact of strikes.

Last September I wrote here:  “In what is starting to be a rather ho-hum event in the aerospace/defense world, the International Association of Machinists and Aerospace Workers (IAMAW) have decided to strike the Boeing Company for the second time in three years. Is this a “yawn moment” or a precursor of things to come as the airline industry begins in earnest the renegotiation of concessionary contracts?”  

In its negotiations, Boeing was looking to balance its economic offer to the union with added flexibility in its contracts the company needed to address the ups and downs in the business cycle.   The IAMAW was not willing to comply. So Boeing ultimately settled with the union, but not before further damage was done to an already fragile relationship. 

The real story, however, played out a few months later, when Boeing announced its decision to build a second production line to build the 787– not in Washington, its corporate home for decades, but in the right-to-work state of South Carolina.

Washington State officials reportedly worked hard to try to convince Boeing to stay, but at the end the state’s governor said the company’s decision to build the line in South Carolina came down to one thing: its difficult relationship with the Machinists union and a failure to reach a no-strike deal. 

And the pain may not be over for Washington’s IAMAW workers. At some point Boeing will need to begin manufacturing replacements for today’s 737 and 777 lines.  Where will those planes be built? 

What is particularly telling in this case is that the IAMAW was publicly dismissive of the fact that the union’s actions had anything to do with the company’s decision to add capacity in South Carolina. 

This is typical of labor of late.  But at some point unions in this space – whether airline or aerospace -- need to recognize the fundamental flaw in their collective bargaining agreements that too often work to choke productivity rather than promote it.

Looking ahead, I believe that the current round of airline negotiations must continue the transition/transformation underway in the US airline industry and address the sticking points in its contractual relationships with its labor force.  These include pay (which is unlikely to return to 2001 levels)  and productivity (which unions resist for fear of losing dues-paying union jobs).

The crux of the problem for labor as I see it is a failure to appreciate the delicate balance between pay and productivity. Without recognition that balancing the formula is critical, the industry, and individual carriers, will continue to find a more efficient means of doing the work.

Sadly, productivity is driven at its core by seniority and all the protections I’ve discussed in the past that unions provide so that long term members feast while newer members are left to feed on the scraps. 

Despite many of the gut-wrenching changes and cost cuts during the last negotiations cycle, the industry did nothing to restructure seniority – the “third rail” on union politics.  In my view, organized labor’s blind commitment to preserving seniority lies at the heart of a race to the bottom.  Yes, the revenue environment contributes more than its fair share to airline’s financial woes, but at some point labor has to accept responsibility for the role of these Depression-era ideologies.  The reality is that, last time around, airline wages were cut more than necessary because of union insistence on preserving seniority and limiting productivity.

Back to the Cabin

So it is in this environment that the APFA waves its strike threat like a red flag in the bullring.  The APFA website even features a report the union commissioned highlighting the failures of airline deregulation and the economic pressures on the industry. On a recent trip to Washington, Glading joined AFA-CWA President Pat Friend in urging the Obama Administration to “stabilize an industry that's not working” and reverse the “damage done” to the traveling public.

Call me nuts, but I’m guessing that Glading’s talk of a strike runs counter to her desire to “stabilize” the industry.  Perhaps other carriers would benefit from the union’s effort to ground the country’s second largest carrier in terms of revenue. But American – and all of its employees – wouldn’t see many benefits.

Or am I to believe that glorifying 1993 and rallying her members to strike in one of the most difficult times in airline history would alleviate the “damage done” to travelers?

I’ve said it before and I’ll say it again – the U.S. industry needs to do a better job of managing labor costs in boom and bust cycles in which fat contracts are approved in boom years only to require painful and at times draconian cuts when the cycle turns down.

Tellingly, and perhaps predictably, the unions are hoping a labor-friendly administration in Washington will help them gain new power in the industry – evidenced also by their efforts to change election rules at the NMB to make it easier to organize workers (even if the AFA-CWA, which is trying to organize at Delta, is hiding behind the AFL-CIO’s Transportation Trades Department to do it.)

What’s happened in Detroit over the last year is a pretty good indicator of what happens when an industry fails to get its costs in line with the market.  A smaller airline industry can’t absorb the same costs – including labor costs – that it did ten years ago.  Already we’ve been at this restructuring thing for more than five years and it’s pretty clear that the market has spoken.

So I’m really confused by what the APFA thinks it will get in return for a strategy that will only hurt the company that employs its members.

I don’t know what a strike buys anyone in this fragile business environment except, perhaps, an unpleasant ending.  Where I do agree with Ms. Glading is the importance of recognizing history.  I, for one, remember Pan Am, Eastern and TWA.  At the time, most believed those proud companies could weather any storm.  And I’d guess there may be another airline on that list before this cycle is complete.

If the past eight years have been rough and tumble, imagine what the next few years could be like as airlines reach pressure points in contract negotiations.   In that case, I can only imagine what would be left to celebrate on the 20^th anniversary of APFA’s Thanksgiving Strike.