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Entries in Air Line Pilots Association (2)


All Eyes on Texas

As the airline industry turns away from the round of labor restructuring that began in 2002, it is now at a crossroads. Pilot negotiations now underway, or about to begin, at each of the Texas carriers underscore how difficult this next round will be. And depending on which side of the table you sit, these negotiations are blessed and cursed in many ways.

In each case, fragility rules the day, whether by the condition of airline balance sheets, relationships, expectations, competition, over promising, under delivering. What is clear at the outset is that U.S. airlines need to seriously reexamine their communications to employees and shareholders if they are going to successfully negotiate this treacherous path.

I rank upcoming negotiations at the Texas-based airlines from easiest (nothing will be easy) to most difficult (requiring a new prescription in the rose colored glasses) in this order:

1) Continental, in that the company and its pilots negotiated a protocol agreement that will help preserve effective communications and a productive process.

2) American, in that, by virtually any metric, its pilots are already at the top of industry in terms of total compensation but have the ability to create currency through improved productivity that might be used to subsidize other parts of a new agreement; and

3) Southwest, in that the company and its pilots already lead the industry in productivity click here and as a result do not have much “give” on that front;; have the highest average wages click here; and face slower growth. Man, I would not want to be in Gary Kelly’s shoes on this one.

A case can be made that this upcoming round of negotiations with airline unions may be the watershed event since deregulation. It could go far in determining tomorrow’s airline winners, losers – and mere survivors. Remember Eastern and Pan Am. Every 15 years or so something happens that changes the game.

So why are all eyes on Texas?

Continental and the Air Line Pilots Association’s negotiating protocol paves the way for them to begin bargaining early in an attempt to complete negotiations by the scheduled amendable date of December 31, 2008. American’s contract with the Allied Pilots Association is amendable in April of 2008. And Southwest and its pilots are currently working under an extended agreement that is currently amendable

In my view, Continental has one of the best – if not the best -- management teams of all the network legacy carriers. They were first in signaling the end of the small regional jet euphoria – or, as the former Chairman of the Federal Reserve Bank, would call it “exuberance.” Continental has leveraged its Newark hub to grow transatlantic flying (a model others are trying to emulate but with population bases one-sixth the size of the New York CMSA – but I digress); and they have continued an open communication with all of their employee groups that evolved after the airline emerged from bankruptcy hell in the mid 90s and has clearly led to a good internal operating environment.

In Continental’s case, neither the management side nor the labor side negotiate agreements that prohibit the goose from laying “golden” eggs for all stakeholders. They, too, negotiated concessionary agreements outside of filing for court assistance but they did not have to go near as deep given the competitive pay rates and productive work rules in the collective bargaining agreement.

Between the two Texas network legacy carriers (NLCs as we refer to them at MIT), American faces the toughest negotiations. Its cockpit crew members currently have the highest total compensation per pilot in the sector. More importantly, when total compensation is calculated (wages, pension and benefits and personnel expenses as dictated in the contract) AA has the highest pilot cost per block hour of any carrier in the industry click here.

Given this unenviable cost disadvantage, is it any wonder why American did not immediately agree to the whopping 30.5% pay increase and other sundry contract enhancements demanded by the APA’s prior administration – and now we wait on a new proposal that is speculated to be even more? In fact, that number is uncomfortably close to the number sought by then-Chairman of the United Pilot MEC, Rick Dubinsky during the dreaded summer of 2000, which all but killed the UAL “golden goose” and forced the carrier into bankruptcy. It was said to me at the time that the tentative agreement made nearly two-thirds of United's international flying unprofitable. Now, as a result of the extended trip through bankruptcy, UAL's pilots are among the lowest paid versus the highest paid in the industry.

American’s pilots today enjoy a cost per block hour advantage against no major competitor in the industry click here whereas Continental enjoys a cost per block hour advantage against four of its six NLC competitors.

But it is American’s cross-town competitor, that faces the toughest labor situation of all, at least to this observer. Yes, I mean Southwest -- the envy of the industry in terms of pilot/employee productivity. And therein lies the rub. The magic in collective bargaining – and historically for Southwest - is to find a way to trade productivity for higher wages. When you have a pilot group that flies an average of 65 hard hours per month against a mandated industry maximum of 1000 hours per year, there is not much room to move. This, on top of the fact that Southwest pilots are already the highest compensated in terms of average salary per pilot along with an arguably rich benefit package – begs the question: where do they go from here? As growth slows, it will be increasingly difficult to move the “productivity needle” through operational changes click here. And don’t look now, but Southwest pilots fly the least number of available seat miles per dollar of total compensation than even the network legacy carriers – output per labor dollar has declined more than 25% since 1995 click here.

So as we watch the airline labor negotiating world begin the contract kabuki dance, all eyes should be on Texas. Like it or not, the concept of pattern bargaining still is alive and well in the industry and it is just as much of who’s on first (industry leading) as it is who is going to go first – and set the pattern?


Swelblog.com Taxiing Into Position

Welcome to Swelblog.com . For some of you, the name Swelbar is recognized. For others it will be new. Following nearly 30 years of airline industry experience, mostly in the consulting world, I hope to use this space to focus on the most talked-about issues in the airline business: the people running the airlines, the labor unions, customer service, competition and finances in one of the most interesting industries in the world.

Of course we may deviate some to talk about golf, college basketball or wine and other vitally important things, assuming there are any.

I did not start this blog to win friends or influence anyone. I’m a data guy, and I’ve been studying the industry long enough to come up with some strong opinions . . . many of which aren’t popular in either boardrooms or union halls. My approach is analytical because, in my view, the numbers don’t lie.

I want to start with scope, which has powerful implications for airline fleet use, labor and the bottom line. I spent a lot of time studying labor contract “scope clauses” in a prior incarnation, looking specifically at the issue of scope clause constraints on market development in 1999. Some agreed with the analysis, others did not. Some were dignified in their responses to the analysis, others were not. I expect much of the same here and it is my hope that the site can in time lead to a cogent, coherent and congenial discussion on the many issues and opinions that are sure to rear their head.

I rejoined the scope debate in a recent issue of Aviation Daily. In August, a well known and respected regional airline industry analyst raised issues with pilot scope clauses as an impediment still plaguing certain carriers. That piece was followed by a response from a current leader of a pilot labor organization and then followed by a response from the current President of the Regional Airline Association. After reading it all, I could not quiet my fingers.

In my posting you will find many issues that I have addressed publicly over the years, not only scope, but also the regional-mainline carrier relationship in general. I have taken the liberty below of sharing the opening and closing paragraphs of each submissions that lead to my response which I have published in full. Much more to come……..


Scope Disparities Growing on 8/2/07

By Doug Abbey, Partner in Washington-based aviation market research and consulting firm The Velocity Group

First Paragraph:

As Continental commences formal negotiations with its pilots on a new multi-year contract, it is ironic to note that the carrier now has the most restrictive scope clause language in the industry. By having successfully avoided bankruptcy, Continental (along with American) has been rewarded commensurately; both carriers now find themselves widely out of competitive touch with their post-reorganization peers.

Closing Paragraph:

We therefore encourage Continental and American to consider a new direction not encumbered by old ways of thinking or doing business. Scope is an anachronism — both in and out of bankruptcy — that does far more harm than good.

Opinions expressed are not those of Aviation Daily or McGraw-Hill. Bylined submissions should be sent via e-mail to aw_departures@aviationnow.com.

Scope: Beneficial To Pilots And Airline Managers on 8/17/07

First Paragraph:

In the “Departures” section of the Aug. 2 edition of The DAILY, airline industry consultant Doug Abbey expresses the view that the scope clauses contained in some pilot contracts do more harm than good for major carriers’ key constituencies. A brief examination of the facts illustrates that he could not be more mistaken.

Closing Paragraph:

It’s a tired refrain for consultants like Mr. Abbey to blame labor contracts for corporate shortcomings. I submit that it’s management’s responsibility — the executives who lavish themselves with hundreds of millions in bonuses — to fix the factory through vision and leadership.

Capt. Lloyd Hill is president of the Allied Pilots Association, collective bargaining agent for the 12,000 pilots of American Airlines.

Stop The RJ-Bashing on 8/23/07

First Paragraph:

Blaming this summer’s air traffic hassles on regional jets brings to mind Yogi Berra’s reason why he didn’t want to eat at a popular restaurant: “No one goes there anymore — it’s too crowded.”

Closing Paragraphs:

But don’t blame RJs. Or the airlines — which lose big with flight delays. Or the FAA’s controllers, since not even Tiger Woods could hit 350-yard drives playing with persimmon head clubs. Instead, can’t we just all get along, stop playing “blame ball” and work together to fix the system — even if it’s one delay at a time?

Then maybe we can make one of Yogi Berra’s lesser known quotes come true: “It’s not too far, it just seems like it is.”

Roger Cohen is president of the Regional Airline Association.

It’s More About Labor And Economics, And Less About Scope

I have one word for the discussion that began in Departures on Aug. 2 and continued throughout the month regarding the issue of scope clauses — hypocritical.

While scope clause limits in mainline pilot contracts were a significant issue in the late 1990s, they can hardly be considered a similar impediment at any carrier today. You can’t claim that scope defines work for mainline pilots any more than you can say that small narrowbody jets have a place only in the regional airline industry.

While I do not agree with Capt. Hill’s economic analysis of the use of 35- to 90-seat jets, I believe he has identified a key issue facing airline labor unions in the next round of negotiations. The arbitrage in labor rates between the mainline and regional sectors of the industry fueled the growth of the regional industry over the past 10 years. Now, as rates have converged across nearly all sectors of the industry, one can make the case that the economics of the relationships between mainline carriers and their regional affiliates may not be the best operating model for tomorrow.

Mr. Abbey cites American and Continental as the airlines with the most restrictive pilot scope clauses. In fact, each carrier has been judicious in its use of its regional fleets and has outperformed the industry during a tumultuous time. Continental made the first declaration that its 50-seat growth would come to an end sooner than expected, and American has been the most vocal of the mainline carriers about the need to keep constraints on domestic capacity.

There are many issues that should be of equal or greater importance to the regional industry than scope clauses — particularly building an airport and airway infrastructure that meets America’s 21st century needs, as suggested by Mr. Cohen. The debate surrounding the reauthorization bill seems to be lacking an important push from labor, as both mainline and regional pilots have a lot at stake in this debate. The current situation does not bode well for growth in either sector, and growth is a critical ingredient for stakeholder success.

We are at a crossroads as the next round of mainline pilot negotiations begins: 1) Will mainline pilots continue to relax their scope and watch as significantly more small narrowbody flying is done by another sector of the industry that could potentially rekindle the discussion of labor arbitrage? or 2) Will mainline pilots seriously reflect and understand that the facilitation of growth at the mainline is their best course of action in terms of job protection — and maybe even job creation?

One necessary outcome in this next round of negotiations is a recognition that structural impediments to success exist within each sector of the industry. Cost maintenance/reduction remains paramount in this less-than-robust revenue environment. We cannot forget that vigilant cost controls must remain the focus if we are ever to find an enduring operating model that creates capital for all stakeholders, rather than recycling capital among them.

Today, network legacy carriers operate nearly 700 fewer aircraft with fewer than 150 seats than in 2000. Just because Embraer- and Bombardier- manufactured equipment resides with the regional sector of the industry today does not mean that the sector is entitled to all aircraft made by these two companies.

So, in addition to getting on with the business of fixing the infrastructure, let’s get busy and negotiate an economic framework that can get the mainline sector of the industry growing again. Unless mainline pilots find a new way to think about domestic flying in this next round of negotiations, aircraft manufactured by Embraer and Bombardier will remain the entitlement of the regional carriers.

This topic, and the fact that it has again reared its head, serves only to remind us that the industry’s restructuring is far from complete.

William Swelbar is a Research Engineer at MIT’s InternationalCenter for Air Transportation.
Labels: Air Line Pilots Association, airline labor, Allied Pilots Association, American Airlines, Aviation Daily, Continental Airlines, pilot scope clauses, Regional Airline Association, William Swelbar draft by Swelbar 8:32:00 AM Delete

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