swelblog

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.  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. 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. 

I had made up my mind that I was not going to write anything more on National Mediation Board activities, at least until after the scheduled public hearing on December 7 in Washington. Isn’t it interesting that the date for the hearing is synonymous with Pearl Harbor Day?  I digress.

I have heard from many people regarding the two recent NMB pieces I posted on this blog.  Most of the comments have been private and along the lines of:  “How can you oppose something so fundamentally akin to our democracy? “And “How can you possibly be against anything that is so aligned with the Constitution of the United States? “

Negotiation and Compromise Were Wright

As I think about my feelings, I reflect back on the reasons I helped American Airlines a few years back in its campaign against Southwest’s push to repeal the “Wright Amendment.”  After all, Southwest’s CEO Herb Kelleher had made a deal in 1979 (or maybe 1978, or maybe 1977, or maybe earlier)when he agreed to the Wright Amendment’s limitations on Southwest’s flying from Dallas Love Field.  Then, in 2004, for reasons unstated but not hard to figure out, Kelleher wanted to undo that deal and expand his airline’s ability to fly nonstop on new routes from Love to points beyond the eight state limit that had been legislatively imposed. 

The Wright Amendment was negotiated with a purpose and a commercial issue at its core.  The law was largely designed to promote stability in the Dallas/Ft. Worth airline market as a then-fledgling DFW Airport came online.  In my work on the campaign, I was often asked how I could oppose unfettered competition in the Dallas marketplace. My reasoning was simple: I believed repeal would lead to dangerous instability in the airline marketplace, particularly for American at a time when all legacy carriers were on life support.  Southwest's motives were largely intended to take advantage of commercial weakness.   

When I assessed the Dallas market and the potential impact on American if the Wright Amendment was immediately repealed, the tenets of a compromise played themselves out in the analytics. That analysis supported a phased-in repeal that immediately allowed through ticketing for Southwest at Love Field.  It certainly was not my place to suggest that compromise.  That compromise came only after a lot of hand wringing among politicians and senior airline executives alike.  But it assured more stability in the market and will ultimately lead to what Southwest sought:  Come 2014, it will be "free" to fly to any and all domestic points from its home base in Dallas.

A Cram-Down Would be Wrong

Based on what we know today, the National Mediation Board through its Notice of Proposed Rule Making (NPRM) seems to leave very little room for negotiation or even compromise as to how representation elections should take place.  This, despite concerns raised from not only management interests but from other unions with interests as well.  Interesting, and disturbing, behavior for a quasi-government agency with the mandate to reach agreements with parties rather than provoke, and perpetuate, actions that lead to disruption and delay, don’t you think?  

As I wrote in my last blog, as drafted the NPRM smacks of politics, disregard for prior practice and arrogance in its refusal to address key subjects in the labor arena, including the ability of employees to decertify a union and a union’s right to demand the personal contact information of employees they hope to organize known as an Excelsior list.

Let me be clear here:  I have no issue with the rule change per se.   But I have major problems with how it is being done.  In a real world application of NMB mediation cases, doesn’t the Board provide one or both parties “political cover” in reaching an agreement that might otherwise be politically unpalatable? That sure as hell is not the case here. 

The Wright Amendment was a politically and commercially-charged issue between two airlines and two cities that also had national implications because airline activities so often do. Changing the union organizing process under the Railway Labor Act has implications beyond airlines and airline unions as well. I believe that by changing the rule, the NMB will be creating more instability on top of an already unstable airline marketplace.  And that has national implications. How many industries have interdependencies on the airline and railroad industries?  A stimulus question indeed.

The truth is that some at the NMB are looking to do nothing more than change a rule that would initially make it easier for unions to organize a largely non-union airline (Delta) and add/retain thousands of dues-paying workers to union ranks. But the ramifications have much longer-term implications that very clearly favor one side (union supporters) over the other (those who oppose unionization).  That’s one upshot of a draft rule that ignores rail and airline employees’ right to decertify a union or provide their personal contact information to union organizers.

It sounds to me like either the NMB and its proposed rulemaking should be put on ice, or a Presidential Emergency Board be convened in order to make sure that all input be considered.  At least in a PEB, history suggests that neither party will be totally happy. Inside baseball tells us that means a good deal has been reached.

In this case, like Wright, compromise would be right but only after all sides have had their say and issues heard and considered. Because otherwise, something tells me that the outcome will be wrong.

More to come, for sure.

Something is just not right about the speed with which the National Mediation Board issued a Notice of Proposed Rule Making (NPRM) to amend the Railway Labor Act

I’m guessing that the reasons had more to do with politics than good policy. Something is just not right.       

In its proposed rule, the NMB is seeking to change the election process by which unions organize workers in the railway and airline industries. The new rule, which would change 75 years of practice, would for the first time determine the outcome of union elections based on a majority of those who vote rather than current practice, where a majority of all eligible voters must support joining a union.

What is laughable about this change, at least to this observer, is that the Board describes the NPRM as part of its “ongoing efforts to further the statutory goals of the Railway Labor Act.”  Funny, because the overarching statutory goals of the RLA is to minimize the disruption on interstate commerce stemming from labor-management disputes.  And this rule would likely do just the opposite: increase the likelihood of union activities that could wreak havoc on our nation’s commerce.

Never do I remember the use of the formal NPRM process to make such a significant change to labor law.

But before we go too far, it is important to note the dissenting opinion of the Chairman of the Board.  The NPRM was issued by NMB members Harry Hoglander and Linda Puchala – the two Democratic appointees on the three-member Board. The Chairman, GOP appointee Elizabeth Dougherty, in a formal dissent challenged the action of her fellow Board members

 “Regardless of composition of the Board or the inhabitant of the White House, this independent agency has never been in the business of making controversial, one-sided rule changes at the behest of only labor or management,” Dougherty wrote.  And it is this very mindset of Hoglander and Puchala in the drafting of the NPRM that smacks of politics, disregard for prior practice and arrogance in refusing to address subjects of similar importance in the labor arena, including the ability of employees to decertify a union and a union’s right to demand the personal contact information of employees they hope to organize known as an Excelsior list.

Let’s Talk Stability

On September 28, 2009 I blogged in a piece titled:  Airline Industry Eyes on the National Mediation Board,  that looked at this very issue..  The rule change was sought by labor – the Transportation Trades Department of the AFL-CIO as part of its efforts to make it easier to organize airline workers. But the proposed rule is loaded with the potential for unintended consequences, particularly for incumbent unions that might be the target of “raids” by competing unions encouraged by the possibility of picking up new members in an industry already heavily unionized. 

Stability is one issue Chairman Dougherty addresses in her dissent, albeit for different reasons:

 “The Board has repeatedly articulated important policy reasons for our current majority voting rule – including our duty to maintain stability in the air and rail industries,” she writes. “This duty stems directly from our statutory mandate to ’avoid interruption to commerce or the operation of any rail or air carrier.’ The Majority attempts to ignore this important statutory mandate by claiming that only our mediation function is relevant to keeping stability in the air and rail industries. This argument has no merit. The statute does not limit our mandate to only mediation, and it is disingenuous to suggest that our representation function does not play an important role in carrying out our duty to maintain stability in these industries. Moreover, the Board has repeatedly in the past raised this policy issue in conjunction with our representation function.”

But it is just that stability that would suffer in the case of more frequent labor disputes and work actions designed to cripple a carrier’s service.

Some will say that disruption of interstate commerce was one thing in the 1930’s when the RLA was last amended and yet another thing in 2009 to justify making changes to 75 years of practice.  Not so fast.  In the 1930’s, interstate commerce consisted more of construction materials transported by train.  Today’s economy is about “just-in-time” delivery of every commodity imaginable and that includes the crucial role of airlines in getting business travelers to and from their destinations.  Time sensitive materials and travel are critical to today’s economy and fundamental to the service modern airlines provide.  So avoiding disruption is as applicable -- if not more important -- today as it was then.

Why Should You or I Care?

I have been asked by many really smart people why I oppose this change. After all, it would only put in place the very election practice of majority voting that is at the core of our democracy.  From that perspective, I could easily wrap myself in the flag and say the change sought by the unions makes absolute sense. 

But let’s give it a closer look. Our election practices were established by the U.S. Constitution. The 12^th and 17^th Amendments changed the rules for electing Presidents and Senators, but only after careful deliberation.  And just as the Constitution establishes the framework for the establishment of the Federal government and its relationship with states and citizens, the RLA establishes the framework for the resolution of labor-management practices in the railroad and airline industries. 

I am not a lawyer. But I do know that there is much learned discussion around the issue of original intent as it pertains to the Constitution.  Changes can be made and have been made to that ruling document.  Similarly, changes can be made to the RLA.  But that should happen only after careful deliberation. Moreover, it should not occure on the whim of two NMB members.  I hesitate to even suggest that these changes are being imposed by the Obama Administration on a struggling industry as a way to pay back labor for its support during the campaign, but it is beginning to smell that way.

Should the Industry Really Care?

The fact is, this proposed rule change is aimed at a single airline, Delta, which is less-unionized than any other legacy carrier.  And as the nation’s largest airline following its acquisition of Northwest, Delta is clearly a tempting union target.

So should anyone other than Delta really care? There is probably plenty of water cooler discussion taking place in Dallas, Chicago, Houston and Phoenix to name a few airline headquarters. One can only imagine that, in their view and on one hand, it is high time that Delta has to deal with the same labor challenges that have burdened other airlines for decades.

Delta is unique in the industry in its ability to offer above industry W2 compensation in return for work rule and commercial flexibility.  That’s been possible because Delta isn’t constrained by union contracts that limit productivity, add rigid work rules and protections and add other fixed operating costs.  Under unionization this past practice and fact becomes a question mark.

But I believe that the industry should be concerned about this Board action, both in impact and in precedent. Assuming the rule is implemented as I believe it will be, then all airlines with unrepresented work groups should prepare for union organizing activity unlike anything this industry has seen in two decades.  AirTran, jetBlue, Republic/Frontier and SkyWest should stand ready.

Let me be clear.  I am not saying that unions are all bad.  Good leadership on the union side and a willing management can make deals.  Look at the deals done in 2009.  Look at the most unionized carrier in the US industry – Southwest – which thanks in part to a strong relationship with its unions has managed to pay well and do well in the marketplace by building a great corporate culture and making productivity and customer service a priority

On the other hand, unenlightened and parochial thinking pervade the leadership ranks of many airline unions.  The industry will continue to face change and challenges. Unions that adapt and are able to let go of the past will flourish.  Unions that cannot adapt to the new direction of the global airline industry will struggle to deliver for their members.

Will unions grow stronger and gain members under the new rule? Probably. Does the NMB appear politically-motivated? Absolutely. That’s a real problem.

Today, several airlines are negotiating collective bargaining agreements under the auspice of the NMB. Whereas in the past the parties would have been sent back to the bargaining table to work out their differences, we might in the near future see a reckless use of the release process by a politically motivated Board.

[Note:  I am currently a local AFA appointed board member at Hawaiian Holdings, Inc. where the ALPA represented pilots have requested a release from mediation.  Writing on this topic is purely my own view on happenings at the National Mediation Board and in no way is intended to represent the views of Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., or represent the views of local HAL AFA President, Ms. Sharon Soper.  The opinion stated is solely that of William Swelbar.]

What Does it Mean for Airline Unions?

I always watch with interest what James Hoffa and the Teamsters Union say about the airline and railroad industries.  In a November 3, 2009 Wall Street Journal article by Mike Esterl and Melanie Trottman on this very subject, Hoffa is quoted in support of the proposed change: “This reform lets workers choose a union the same way they choose the President of the United States,” he said. Whichever side gets the most votes, wins.”

But I’m guessing that Hoffa’s real goal is something else entirely. Because Hoffa and his Teamsters Union split from the AFL-CIO, they are free to raid another union by petitioning the NMB to organize workers represented by a different union.  The leaders of AFA, the IAM and ALPA ought to start looking over their shoulders now, because another union might be standing in the shadows. And that union might just be aiming for dissatisfied members that – whether out of anger toward the incumbent union or the struggling economy – might just be open to considering switching allegiances in hopes of getting a better deal. After all, under the RLA it takes only 35 percent of the workers in a “class or craft” to sign a card showing interest in a union.  And then, under the proposed rule, only a simple majority of the minority would be necessary to vote the incumbent union out. 

Imagine how tempting the prospect of signing up new dues-paying members from any number of small railroads around the country, whether for the IBT, the SEIU, or any other aggressive union that shows little interest in abiding by the etiquette of the House of Labor?  In industries in which two-thirds of workers already are represented by unions, a raid targeting disgruntled employees (an unfortunately large group in the airline industry) would present the best opportunity for a union to gain “market share.”

One can only assume that the strategists at the TTD and the AFA-CWA have thought all of this through. They must be counting on passage; otherwise, why would the AFA-CWA and the IAMAW have moved to withdraw their applications for single carrier determination at the merged Delta that is necessary to initiate a representation election?  And the fact that they’ve come this far leads me to believe that they have some pretty powerful friends in Washington, D.C.

Something is just not right

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Southwest Airlines’ Media Day – All “Green”, All of the Time

I attended Southwest Airlines’ Media Day last week.  Prior to this, I had not witnessed a “Southwest Show” personally, other than occasional Congressional testimony.  My takeaways are many, but the main one was the pride the management and the employees have in their company.  That point resonated with me in a big way. 

The theme of the day was INNOVATION.   The morning was painted “green” and focused on the investments Southwest is making in aircraft interiors, engine washing, blended winglets and other programs that have an environmentally friendly end game.  Then the program moved on to describe how Southwest is investing in new air traffic technologies as they come available - putting their own money where their mouth is.  Of course, savings in flying time saves fuel, which contributes to helping the environment.  Southwest presented itself as an industry leader in promoting this agenda.   

The afternoon began with Southwest announcing its 68^th destination, a “green” field airport serving Panama City, FL.  The innovation here was a unique financial arrangement made with St. Joe, a company that owns hundreds of thousands of acres in Northwest Florida, to backstop any losses up to agreed amounts.  Under the terms of the deal Southwest is assured of at least breaking even during the first three years of the service.   There is an environmental angle to this story as well as the new airport is among the very first LEED rated, Leadership in Energy and Environmental Design, terminal buildings in existence.

While it was grey outside, the Southwest message was innovating with green technologies.  I could only think how other airlines would be green with envy that Southwest is planning and investing in tomorrow while so many carriers are busy simply try to stay alive so that there is a tomorrow.

Another Thought on That Agreement between Southwest and St. Joe

One of the unique aspects of the deal between Southwest and St. Joe is an agreement that Southwest will not start air service within 80 miles of the new airport during the term of the agreement.  Should Southwest launch service at an airport that is between 80 miles and 120 miles away from Panama City, the terms of the agreement can be renegotiated.

I think the 80/120 mile bands accurately define the primary and secondary catchment areas around individual airports.  Service at one location impacts service at another when airports are located within a reasonable driving distance.  If one airport in a catchment area has lower fares, then it may prove to be the airport of choice for more air travelers. If a passenger chooses the lower fare rather than the closer airport, then that passenger is diversion within a region.  New demand is not created; rather a region’s demand is being accommodated by another airport with attributes the customer finds more appealing.

Herein lies the rub:  How many airports do we really need?  By my count, there are 451 airports receiving commercial air service.  100 of these accounts for 81 percent of all commercial air service seats.  200 of these (44 percent of the total) comprise 97 percent of all domestic origin and destination traffic.

Stated another way, should 56 percent of the airports – those that account for only 3 percent of US domestic traffic -- really be competing for funds that are needed at more congested airports?  The more congested airports lie in the nation’s population centers.  This is where air service providers need to be, not in Hays, KS or Joplin, MO or other points on Transportation Committee Chairman Jim Oberstar’s map.

oneWorld and Immunity

Where to start?  I just love it when regulatory authorities point to individual nonstop routes when evaluating commercial combinations ignoring the network architecture that describes the airline industry in 2009 versus 1969.  They cite fears about consumers being gouged.  But when exactly in the past 30+years has the airline consumer really been gouged?  

For the first nine months of 2009, passenger revenue on transatlantic routes for US carriers is down nearly 24 percent.  On those routes, passenger yield, or the amount of revenue the air travel customer pays per mile, is down 20.5 percent.  According to the Air Transport Association, to date, US carriers are earning 10.77 cents per mile -- only modestly more than the 10.50 cents the US carriers earned per mile in 1997.  And that’s not adjusting for inflation.  No competition?

Now Brussels is apparently stating concerns that American Airlines and British Airways, with their market power at London Heathrow, would raise first and business class fares if granted immunity to operate a Joint Business Agreement.  Well, I sure as hell hope that is the case because, without some increases in the price of premium travel, many of the iconic names in the sky today will land in the airline graveyard.  A monopoly in an Open Skies regime?  Sounds to me like Virgin Air Chief Branson and the Fear Mongers are trying to take a page out of the old playbook to take away slots from the incumbents.  Because that, after all, is the way it has always been done.  Money for nothin', slots for free. 

My bet is if first and business class fares were to get too high on BA/AA, the big winner would be Branson and his Virgin Atlantic as he is positioned in every major US gateway offering service to London Heathrow.  No one else has the same ability to impose discipline on the fares charged by two carriers than he does.  Or maybe he would be just as happy to raise Virgin’s fares too.  But, no, instead he will have us all believe that his sole concern is the customer and there is nothing mercenary in his opposition.  Just sayin’.

And before I leave this one, let us not forget that it was these first and business class fares and full Y fares that drove revenues (and helped keep wage rates high) in the past.  Now no meaningful yield premium exists in the US domestic market.  And we all know that the rapid deflation in first and business class revenue has been a major contributor to the global industry’s loss of $80 billion in revenue.  Yet certain US airline labor unions oppose the transaction-based on consumer issues?   

Third Quarter Earnings Calls

Given my travel schedule, I  did not get to listen to as many earnings calls as I normally do - that is why they have transcripts.  That said, was there a major theme?  We have said ad nausea that any recovery will be uneven – for carriers and geographies.  I did not read/hear much about a specific recovery, just that the worst may be behind us.  And I am encouraged by the good signal in the freight sector.  But if that’s a leading indicator, is the passenger sector recovery still 6-9 months away?  After all, it was nearly 9 months prior to the recession that plummeting traffic and revenues in the freight sector served as a warning.

By now,and unless you have not read a thing on the airline industry the past few years, there is little need to talk about revenue or rehash the direction of the price of oil or try to predict when a macroeconomic recovery might begin.  But what did catch my attention during the earnings season was the reference to items “below the line,” namely interest income and interest expense.  Think of all of the borrowing that has taken place at relatively high interest rates.  Net interest expense is going to take on a more important meaning.

With that said, it is time to perform a calculation that we should have been making for some time:  CASM including net interest expense and excluding fuel and transport related expenses. Just thinkin’. 

Concluding Thoughts

I am thinking I am ready to put 2009 in the books if for no other reason that the industry would lose less if the year were only 10 months.  What is there to say about the various happenings in the industry that hasn’t been said before?  So many recent events (labor squabbles, immunized alliances, failure to pass a FAA reauthorization bill, a passenger bill of rights, and how much liquidity is sufficient, to name a few) are cyclical reruns.  These are not long-term changes but rather predictable events based on history and the direction of the wind.

I am thinking it will be fun to see this industry finally recover from this economic malaise.  I am thinking that 2010 will be a lens through which we will be able to begin to evaluate which airlines have made the right moves in remaking themselves and which carriers have not.  Finally, I am thinking that nothing has really changed other than that a new administration is in place and some surface transactions transpired that hold promise only in theory.

If we are going to charge fees, when are we going to charge for the convenience of carry on?  Just sayin’.

After all, there are still two months before I can close out 2009.

Boo! And Happy Halloween. 

I keep waiting for real leadership to emerge from labor unions in the US airline industry, particularly from pilot unions.  During past down cycles, pilot unions could be found taking the lead in creating a nuanced solution that addressed a company’s competitive needs and the concerns of pilots they represent.  The template crafted by pilot union leaders in the past often formed the framework for companies seeking help from the non-pilot workforce.

Today, more often than not, I see the work of pilot unions doing more to pose a barrier to an airline’s success than to promote it.  To be fair, the unions at Delta, Alaska and Southwest get credit for smart leadership. But the same can’t be said at other airlines, and here’s one reason why.

The legacy carriers all operate as part of networks that have formed over time, through mergers; asset buys; regulatory frameworks; and, importantly, union influence.  By this I refer in part to the dirty little secret in pilot union contracts: “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 are really serving that purpose or, rather, whether some union leaders are using them in a way that is both misguided and harmful to the pilots they represent.

Evolve, Adapt, Reinvent – Or Risk Irrelevance

The ability of mainline carriers to employ regional jets is not new to the industry.  Neither is the ability of mainline carriers to engage in international code sharing arrangements with foreign airlines.   Both activities are governed by scope clauses in each carrier’s collective bargaining agreements with pilot unions. And before we go any further, let’s remember that the language in these collective bargaining agreements is just that – collectively bargained between the management and the unions. 

Much of what I have written at swelblog.com over the past two years has probably earned my picture a place on the dartboard at most pilot union offices. And this column is not intended to resurrect my image with certain pilot leaders in any way.  It’s just that union presidents are really the CEOs of their organizations and they deserve the same scrutiny as do airline CEOs.

And yes, I’ll name names. One is Captain Lloyd Hill who is president of the Allied Pilots Association – which represents only the pilots of American Airlines.  Another is John Prater, president of the Air Line Pilots Association, which represents pilots across the industry. After watching Captain Hill’s misguided attempts to garner leverage for AA pilots during contract negotiations and Captain Prater’s recent embarrassing diatribes before the House Aviation Subcommittee’s hearings on aviation safety, even I feel sympathy for the pilots they attempt to represent.

Captain Lloyd Hill

In the early days of the blog, I wrote a lot about American Airlines and its strained relations with the APA’s Hill administration.  The union was antagonistic toward the company from the very start and began negotiations with an outrageous opening proposal that demanded, among other things, a pay increase of more than 50 percent. I suggested then that it would be a long time before a deal will be reached with these players at the table. 

Two full years later, there is not only no deal, but not even the scent of a deal in the air.  And from my read of the contract cases now before the National Mediation Board, I could make a case that it will be at least two more years before American and the APA reach agreement or a NMB-declared impasse is declared.  But I will leave it to the APA membership and the Las Vegas odds makers to analyze what needs to change in order to improve the odds of a new working agreement.

Never before in my experience have I seen a more misdirected, miscalculated and mismanaged mess of a negotiation by a union.  And because we can all read Hill’s playbook and it’s clear he’s not moving the ball down the field, he keeps going back to his current whipping boy -- the “immunized alliance” the company is trying to achieve through a joint business agreement with British Airways and Iberia.  After calling the same play on second and third down, I am thinking that this fourth down attempt will result in a loss as well. 

Last week the APA issued yet another press release urging the DOT to dismiss American’s application. But this time, the APA was joined in its hollow and transparent opposition by ALPA.   In this case, ALPA was less strident, choosing not to oppose alliances generally but instead to urge DOT to ensure that jobs at US airlines are not eroded as a result of international partnerships.

“As a result of two significant developments during the past several days, we urge the DOT to decline American Airlines’ application for worldwide antitrust immunity,” Hill said in the APA release. “The first of those developments was the EC’s announcement earlier this month that American Airlines’ plans may violate rules governing restrictive business practices. Given those stated concerns, we question the advisability of granting approval to a deal that may fail to pass muster with the DOT’s European counterparts.

“Closer to home, American Airlines management has refused to provide industry-standard job protections for our pilots, despite APA’s concerted efforts,” Hill added. “We can only conclude that our worst fears would be realized in the event American Airlines is permitted to proceed with what amounts to a virtual merger with British Airways and Iberia.

No Captain Hill, your worst fears should not be this alliance.  You see, your contract permits this arrangement and if this type of commercial activity were to be prohibited, your actions in fighting the alliance will all but ensure fewer US jobs – they may be primarily narrowbody jobs but US jobs nonetheless.  Maybe you should begin negotiating with the company with realistic and market-sensitive proposals rather than filing petty grievance after grievance that has resulted in a further weakening of your negotiating position.  Maybe you should stop putting up billboards openly criticizing your employer on product reliability and safety issues because trying to hurt the company that employs your members is no good path to trying to improve their contract.  

Maybe the goal of “restoring the profession” should be to recognize a changed environment and figure out how best the members you represent can prosper under the new economic reality.  

Maybe your dirty little secret is that you do not know how to tell your members that your strategy to “restore the profession” has failed.  But the real sad part is the real losers are the professional aviators who deserve better from their union leaders.

Captain John Prater

Over at ALPA, the world’s largest pilot union, we have John Prater at the helm. Prater won the election to head ALPA by beating out his predecessor, the very skilled and seasoned Duane Woerth, on a platform that overpromised and is sure to under-deliver. Over the years some of the very best union leaders in the airline business have come from ALPA:  J.J. O’Donnell; Hank Duffy; Randy Babbitt and Woerth to name a few, and that doesn’t include a line of great leaders during the union’s formative years.

Now we have ALPA testifying before Congress in ways that are not becoming of past ALPA leaders.  Prater testified at the September 23 hearing on the crash of Colgan Air 3407 about a number of safety initiatives ALPA is promoting across the regional spectrum. But he also spoke about the relationship between mainline carriers and their regional partners in a way I find troubling.

Prater attributed what he called the “low-experience pilot problem” to the mainline airlines’ business model. 

“Mainline airlines are frequently faced with pressures on their marketing plans that result in the use of the regional feed code-share partners, whether they be economic, passenger demand or essential air service,” he said. “These code-share or fee-for-departure (FFD) contracts with smaller or regional airlines provide this service and feed the mainline carriers through their hub cities.”

Before mainline airlines had regional partners, Prater said, all flying was done by the pilots of an airline on a single pilot-seniority list, where pilots were trained to and met the same higher-than-minimum regulatory standards."

“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,” Prater said.

Now, he argued, major airlines use multiple, regional “vendor” carriers to drive down their costs, a practice he said “harms safety”  because first officers on regional airlines can become captains within a year and “fail to gain the experience and judgment needed to safely act in that capacity.”

Prater goes on:  “When a regional airline operates a route for a mainline carrier and offers subpar wages and benefits, only low-experience pilots, who cannot qualify for a job with a better paying airline, are typically willing to accept such employment. It is not uncommon that training at such carriers is conducted only to FAA-required minimums. However, these low-experience pilots obviously need more training than more experienced airline pilots to gain equivalent knowledge of the operating environment, aircraft, and procedures before flying the line.”

Later, in questioning by members of the committee, Prater insinuated that airlines involved in the crash, as well as other carriers that ALPA is in contract negotiations with, are continuing work practices that may compromise safety.

"The managements at Pinnacle and Colgan have not changed their ways. The management at Trans States Airlines haven't changed their ways. Do I need to go further? I have a big book," Prater told the subcommittee. He then suggested that carriers were actually punishing Captains that report maintenance issues with their aircraft, concluding: "Some managements are still insisting that they are going to beat their pilots into submission."

What Prater fails to share is ALPA’s dirty little secret: that the wage rates, working conditions, training provisions and other particulars he criticizes were negotiated by his union. ALPA represents the majority of regional pilots flying in the US today.  So maybe ALPA needs to step up and take some responsibility for its contribution to building this sector of the industry.  Only by agreeing to lower rates of pay and more flying time at the regional carriers can ALPA justify and sustain the generous pay, benefits and work rules that benefit pilots at the mainline airlines. 

Look at any significant relaxation of the scope clause at the mainline carrier that allows the airline to increase its use of jets 70 seats or less. In just about every case the mainline pilots received a significant pay boost in return for that “concession.”

The fact is that ALPA has played a major role in creating the labor Ponzi scheme that survives at the legacy airlines. How does ALPA find a way to pay another group of new pilots less in order to buy “better” contracts for the regional pilots it now represents? It can’t. And you can bet that ALPA would not ask its mainline pilots to take a pay cut to help increase the wages for pilots flying at their regional counterparts.  A conundrum indeed.

Concluding Thoughts

Labor leaders in the pilot ranks would have you believe that this (international code sharing and the use of regional flying) is all about management abusing provisions of their collective bargaining agreements to enrich their shareholders.  In fact, the creation of B-Scale constructs and the relaxation of scope provisions has been labor’s “quid” in return for increases in compensation and benefits for 20+ years [the “quo].”  Even when the industry economics suggested the quo was too much.  As I have said here before, labor likes to “eat their young.”  This is an issue that is fundamental to the difficulty of today’s negotiating environment.

Hill and Prater are resorting to 1920’s tactics rather than trying to lead pilots in a new world of airline economics. Labor’s “Old New Deal” cannot be supported by today’s competitive environment.  What is needed is a “New New Deal”. It will not look anything like the “Old New Deal” to be sure.  Just as airline executives have been forced to adapt to new economics shaping the industry, labor, too, must adapt because it has no more young to consume to keep senior pilots fat and happy.

It is hard to be at the top - whether looking for necessary capital or creatively searching to support the expectations of pilots.