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Friday
Mar212008

Ironical Catalysts; Seniority No More?; and One Last Comment on Force Majeure

Ironical Catalysts

Isn’t it ironic that the number one catalyst cited as driving a consolidation phase for the US industry is now being discussed as the number one reason that consolidation is being put on the back burner – or even being pulled off of the stove? Ted Reed of the Street.com writes a column offering the Northwest pilot’s take on the industry at $110 per barrel oil as well as their views on how oil might stand in the way of executing what the pilot leaders termed as “an aggressive business plan” by the other carrier [read Delta even if not mentioned by name].

On the surface, Mr. Reed’s story might be read as the Northwest pilots pointing to anything and everything rational that could provide cover for not reaching agreement over an emotional issue. On the other hand their counterparts at Delta, whether ALPA or management, are not suggesting much compromise, let alone capitulation, either. So we have a stand off. The Northwest pilots have a bird in the hand, assuming that no adjustments are made to the terms of the single collective bargaining agreement, versus Section 6 negotiations in 2011. And as I have written here, only the MEC can decide that issue.

What is encouraging about the industry today is its willingness to address some difficult issues with swift and decisive actions – like making the hard choice to further reduce capacity. But these decisions are not limited to Delta. We now have CEOs in the industry that are willing to address these tough issues that prior management teams would have decided to “fly through”. And in the last week, jetBlue, AirTran and Frontier have all sold aircraft or delivery positions largely to augment their respective liquidity positions.

When I first read Mr. Reed’s column this morning, fresh off of a 24 turn between Los Angeles and Washington, I interpreted it to suggest that consolidation is dead. That is not what he is saying at all. But US Airways sure views the lull in the action as a potential entry point to get back in the game as Mr. Reed reports.

Seniority No More?

Let’s segue from seniority integration into seniority. Today, the Washington Post’s Steven Pearlstein writes in his column about industry woes, commercial airline pilot careers and questioning seniority generally.

He concludes with the following two paragraphs: “The reason it's so hard for airlines to find a fair and rational way to combine pilot seniority lists is there is nothing fair and rational in the way seniority is used. It causes a disconnect between performance and reward, discourages movement of employees between and within companies, creates a corrosive caste system that breeds resentment among junior employees and an overblown sense of entitlement among those who are most senior”.

“Airline customers, employees and shareholders would all be better off if the industry spent less time and energy figuring out how to combine seniority lists and more time on how to eliminate them”.

Back in December, two days before Christmas in fact, swelblog.com questioned whether seniority worked for each airline management and labor. Now two days before Easter, a similar question is being raised by Mr. Pearlstein. While some of what Mr. Pearlstein suggests is impossible given equipment qualifications, he raises a fair issue. It is fair particularly when an industry is in serious need of a total overhaul.

While I am confident that any suggestion of seniority will raise the ire of organized labor, this is the time to explore such issues. It is time because many of the legacy constructs within this industry are prohibiting it from moving forward – and seniority is but one. And based on the many issues burdening the industry that are not of its own doing, everything should be on the table and everything explored.

A Little More on Force Majeure

Clearly my prior post generated some comments and most were not in agreement with what I had written. I knew that when I wrote the piece it would not be embraced by all. I certainly expected the note from the American pilot. I did not expect the “call out” by Blackbook, who is one this blog’s most astute commenters. Blackbook's fair questions and comments, and my answer to Blackbook, are available for all to read in the comment section.

While Force Majeure has many, many legal issues surrounding its use and I, admittedly, am not qualified to answer those questions, my intent was to raise a number of issues out there that bother me and to look at pools of expense that could be explored for cost savings. On Thursday of this week, Suzanne Marta of the Dallas Morning News blogged on research notes written by Kevin Crissey at UBS and Jamie Baker at JP Morgan.

Mr. Baker writes: "We would note that with the exception of the immediate aftermath of 9/11, the only time the industry even approached a single-year capacity correction of this magnitude was during the Gulf War I recession - and it required the failure of Eastern, Midway, Pan Am, several discount airlines, and bankruptcies at America West, and Continental to get there."

Immediately following 9/11, certain force majeure clauses were invoked. While force majeure may not be the effect - or even the right action - stemming from today’s environment, the macro environment has many attributes of a cause.