The message of this blog as it pertains to the current round of industry-wide negotiations can be boiled down into six words: Doing More With Less For More. Honestly, I have not heard management teams say they are seeking concessionary contracts. I have not heard anything suggesting W2 wage reductions are being sought. What I have heard is productivity is needed in return for an increase in W2 compensation. So Doing More (flying/working more productive/smarter time) With Less (fewer headcount needed to staff some level of flying) For More (increase in wage and salary compensation).
When I posted my last blog item, Oil and Water; Jet Fuel and Labor, I expected colorful comments from readers. And I wasn’t disappointed. You can’t have had my career and not ruffle some feathers. And I did. The comments were also instructive, showing sections of my blog that needed additional explanation and clarification.
Yesterday, I had a private exchange with a thoughtful pilot leader. After some initial back and forth over the merits [or lack thereof] of my blog piece, he wrote, “My pilots and I have been living under a concessionary contract for X years now. Our work rules were gutted down to the FAA Minimum....the CEO and the officers seem to be doing quite well though, aren't they? Nobody is looking to break the bank. I don't begrudge what anyone else makes. I just get tired of the excuses that there is no more left for the working guys after everyone at the top has already skimmed off all the cream!”
I lead with this exchange because it captures the essence of many of the comments made. It’s pertinent for its truths and its misconceptions, just as many of the other comments were. For instance:
Going back to my exchange with the learned pilot leader, this is how I responded, “I have been around a long time like you, and if someone can say the past volatility in labor’s earnings worked nicely for them then ….. there is just not much to say. Many of the business practices in this industry are built on a model of growth. When there is no growth, then something has to be done to those costs that are controllable. There is no more need to file for bankruptcy because oil is not controllable. [Inserted today: The price of oil cannot be restructured]. Not a damn thing that can done.”
I went on to say if people would take the time to move beyond their visceral reactions and think about my arguments, they’d see I believe flight crews are less an issue than “below the wing employees” where differentials have grown significantly at some carriers. “I want you to have yours too. But the zealots saying ”I am going to get it all back and more” when the environment is diametrically different – as it is – then someone in a (labor) leadership role is not doing their job.”
“There is enough to go around, as I will write later in the week. But [pilots] and flight attendants working 40 hard hours per month are not an answer. Too much headcount for the amount of flying to be done. Ground workers at an all in rate of $25 when it can be outsourced for a fraction, which is what many of the LCCs do, is simply not good business. The restructuring is not done. Doing More With Less For More needs to be a mantra. If oil keeps going, and my dart board is as good as anyone’s, then capacity will again get cut in the fall. 2008 all over again – just not as deep.”
“As for management doing nothing, this is the first time in 30+ years where capacity actually reflects a business environment where costs can be passed through. Even Southwest is a participant. That is but one change that had to happen.“
Final Thoughts
There is no question the key to success for this industry going forward is raising fares. And that’s happening, thanks to Southwest now taking a lead versus being the carrier always fighting the industry on pushing through an increase. Since December 2010, Southwest has been part of five – read five – fare increases. No longer does the lower cost carrier enjoy a unit fuel cost advantage either - Southwest isn’t hedged like it was between 2004 – 2008.
As one commenter said, “This notion that airlines cannot control domestic pricing is absurd.” Then the same person actually outlines how airlines are finding new revenue streams from unbundling attempts. Here’s the catch: The unbundling was done in response to high oil prices in 2008 because there was no industry consensus on increasing base fares. If one carrier doesn’t raise fares like everyone else, the attempt to increase ticket prices typically fails. To say that management has done nothing to address a poor revenue environment is simply wrong.
Any discussion of management compensation on this blog is a non-starter - as I have learned. The comment section is not big enough to house the emotions that spew forth over the subject. Few things at the Board of Directors level are more difficult than management compensation plans; especially with the level of scrutiny those plans now receive. Because of the outcry, the chairperson of the Compensation Committee might be even more important than the chairperson of the Audit Committee. That’s just not right. Management has their contracts. Organized labor has theirs. Given the volatility in costs and the push to see pay-for-performance as the rule and not the exception, labor should be making it a part of their overall compensation as well.
That I’m somehow tying labor costs to oil costs is absurd. I suggested volatile - and increasing - fuel prices consume more of a finite revenue pie. I should have explained that better. The pie is finite when base fares are considered because the industry has to agree. The unbundling strategy being employed is designed to increase the size of that pie. It is working. But when an industry is profitable primarily because of fees collected, one can easily read that as a negative simply because it’s not sustainable.
A long-time critic of the message of this blog stated, “Even Wall Street says there is no blood left to squeeze out of the employees yet you still beat that drum over and over and over........ Get some new material. You being a shill for the ATA I assume the always lower labor cost mantra will continue until everyone is working for free.”
I challenge anyone to read this blog and find where I said airline workers should work for free. Further, I dare anyone to find where I suggest contracts in this round need to be concessionary (less total cost than the previous contract). I have said time and again expectations that the industry can afford to repeat its past patterns of repaying concessions, plus more, have to stop. I have also said productivity improvements are paramount in the industry as it is still operating with too much headcount. This is where the business of unions needs to look in the mirror and ask, “Is it better to negotiate a great agreement for fewer people or an OK agreement for many people”?
This is about Doing More With Less For More – that’s the reality. While I understand the emotions that can be triggered when talking about people’s livelihoods, it doesn’t change the reality. My hope is the sooner a truculent industry embraces what it is, the better off every ground worker, pilot, flight attendant, shareholder and, yes, even management will be.