A Race to the Bottom

I shouldn’t have been surprised to read that the Air Line Pilots Association (ALPA) has joined forces with several U.S. carriers in fighting a foreign carrier permit for Norwegian Air.  After all, in ALPA’s view, the Ireland-based carrier is in a “race to the bottom” in establishing wage rates and working conditions for its workers.

This blog isn’t, however, about Norwegian. It’s about the race to the bottom that has been a part of the network carriers’ DNA for decades.  It is about the relationship between mainline and regional carriers.  It is about the fact that low labor rates at regional carriers cross-subsidize the higher rates paid at the mainline, and what that could mean to hundreds of communities.

I need more than fingers and toes to count the number of smaller airports that are deeply concerned about their future as a dot on the airline network grid.  Many of these communities have strong underlying economics that suggest that their place on that map is safe.  But as the industry evolves, that is not necessarily the case.  The real question is whether the network carriers will actually need all of the feed from their regional partners to fill those mainline tubes as they serve only bigger and bigger markets?  At risk is service to smaller communities as airlines gravitate to only the largest markets in a network map that could look much like it did when deregulation began with the primary difference being a map that is hub-centric.

In my opinion, the industry went too far during restructuring in its use of third-party providers in the out stations. It made sense when the industry was trying to bank every possible nickel and, perhaps, makes some economic sense today.  But the fact is that no third-party provider really cares about an airline’s customers the way an in-house employee does.  As airlines compete more on service, this has to change.

I fear that, in investing in this industry, the focus on the mainline ignores the critical piece of the network served exclusively by regional carriers.  When it comes to regional lift, business still goes to the lowest bidder.  And one result is that regional pilots get whipsawed despite the fact that there is a real live pilot shortage that will impact the industry well beyond the regionals. 

Part of the blame goes to Congress which, in its infinite wisdom, now requires 1500 hours of flying to qualify for a commercial pilot license.  And while Congress mulls more hearings, the regional carriers are suffering the consequences, intended or otherwise.

New flight and duty time rules only compound the problem.  With the day’s last inbound flight often canceled, the first departure in the morning is also affected. And in small communities, these are the flights that allow business to be conducted in a day. This is not the fault of the airlines any more than it is the fault of employees who are “timed out” for the day. The customers, however, pay the price, as do the small communities so reliant on reliable air service.

Meanwhile airfares for service to those small communities continue to rise even as larger markets gain the benefit of more competition. Those customers are not, however, getting more for their money.

Don’t get me wrong. I am a fervent believer in the direction the mainline airlines are going.  Recent investments in the fleets, cabins, services and people of the mainline carriers are making for a much better product– domestically and internationally.  But I am disgusted with the price the regional carriers and their people are paying, be it through the whipsaw or the general neglect of a critical component of our domestic air service.

When a market doesn’t fit, it’s time to attrite. So let’s start trimming back that service now rather than delaying the inevitable.  Let’s begin to build a pool of pilots to service the 250 or so markets that will make the cut – a pool big enough to meet the demand driven by Washington’s arbitrary regulations. ALPA advocated for consolidation for all of the right reasons, first and foremost a stable industry. So why is it only the mainline pilots who should enjoy that benefit?

ALPA cannot make its race to the bottom case against Norwegian without first addressing the race to the bottom here at home – a downward plunge the union itself created. The economics of the regional market are distorted, influenced by middlemen and unresponsive to consumer demand. Now is the time for the industry to work with ALPA to fix the problem – and that probably involves bringing some, if not all, of the work back in-house. 

Scope Yet Again; Commenting to a Commenter

There is often some very good reading over at www.airliners.net inside their civil aviation forum with some very good commenters and very interesting threads to follow.  This week, one asked:  “United/Continental Conceding Domestic Market?”  Another speculated about the future of the Air Line Pilots Association (ALPA).  Another asked which is the next US carrier to file for bankruptcy? That speculation is rightfully focused on the regional sector of the industry.  But much of the discussion fails to recognize the tangled web called the domestic network business, which includes mainline carriers, regional carriers and the unions. The players in this web are inextricably intertwined - but too often discussed in silos. 

United-Continental Holdings’ CEO Jeff Smisek once said something I now quote in every presentation I make. Of the world’s now largest airline, he said:  “We’ll have the domestic operations sized solely to feed the international traffic.”  That quote and its derivatives are sprinkled throughout the airliners.net thread focusing on whether United/Continental is conceding the domestic market.

In my view, the US domestic business is at a crossroads.  Do iconic names like United, Delta, American and US Airways continue to make pure domestic flying a significant portion of their route portfolio, or do they continue to attrite pure domestic operations away because cost structures can no longer support mainline flying in what has become an ultra low fare market?

Some in the thread note that Smisek’s words worry some pilots, as they should. And those concerns shouldn’t be limited to the flight deck.  In a ‘be careful what you ask’ for scenario, there are forces at work that ensure the regional sector of the business as we know it today will be smaller tomorrow.

There is a virtuous circle of events at play:  with in the wing oil in excess of $100 per barrel; no 50 seat and less replacement aircraft in the pipeline; regional flying under contract that won’t be renewed because of economics; the prevalence of low cost carriers in the primary and secondary catchment areas of small and non hub airport markets; a pilot shortage that will impact the regional sector; flight time/duty time regulations that will require more regional pilots to perform the same level of flying being performed today; a new law requiring 1500 hours of flying for new pilots; and the fact that the smallest aircraft coming to market will be at least 100 seats. 

And so the circle spirals downward for the regional sector of the business.

I think scope is a cancer because it has been used as a bargaining chip.  It has been, and is, a Ponzi scheme as I wrote in US Pilot Unions’ Dirty Little Secrets.  There has been a B-Scale in place supporting the rich mainline contracts since 1984 when new hires were offered positions at lower rates of pay.  When it was deemed wrong for unions to do such a thing, regional airline code sharing relationships were formed.  This “outsourcing” was agreed to by the union in return for higher wages and benefits for incumbent mainline pilots.   

After my last two posts on scope I expected, and received a lot of interesting mail.  Much of it emotional but some as ugly as the commentator who suggested “a certain poetic irony to the image of you[Swelbar] in a smokin' hole and another Captain Renslow at the controls.  Be careful what you ask for.”

Now it is my turn to say:  Be careful what you ask for.  If no B-Scale for domestic flying is possible and a phasing out of regional jobs is the goal in this round of negotiations, then what is going to cross-subsidize the wages, benefits and work rules at the mainline? By my calculation then, there is even less money to go around to for mainline pilots to win in a new contract.  And with the loss of feed traffic from a smaller regional sector, the real question is just how many mainline narrowbody aircraft does a carrier need?  In a point-to-point world, the answer is a whole lot less. If 14,000 mainline pilot jobs were lost in a decade of downsizing then more job losses are on the way from a loss of feed.  And the effects of a pilot shortage are even less.

And so the virtuous circle spirals downward for the mainline sector of the business.

Commenting on a Commenter

I received the following private email from John, which encompasses the views of many other commenters (public and private). He writes:

I read your blog because I know management does, I’m not your biggest fan.  However, I would like to see your opinion on the consolidation of regional carriers.  To me, scope is synonymous with outsourcing, which you say allows for flexibility.  But the real advantage of outsourcing is the low cost entry into markets (and exit). 

Things have changed, wouldn’t you agree?  Cash strapped regional airline are a thing of the past because consolidation has honed the market down to three: Republic, Skywest, and Pinnacle.  With size came assets, more loan opportunities, and market dominance.  In my opinion, I believe that regional airlines have reached a size where they have serious power over code sharing agreements or have the option to go many markets alone, Skywest is already considered a major airline with a MC of $6B.

I know you love to blame labor, because your audience isn’t.  I understand you have to make a living, and the ATA may not want to hear this, but they are screwing up.  The majors better start thinking of in-sourcing or face another round of upstart airlines entering the market with low cost structure and plenty of established routes thanks to the majors giving them business.

After all, outsourcing worked so well on the 787 it aught to do equally well for the airlines…right?

For the record, I do not see scope as outsourcing as it was agreed by both parties that a certain number of smaller jets can be used within the domestic system carrying a certain airline code.  After all, the mainline pilots did not want to be bothered with those little jets.  As for John, the real advantage of deploying small jets under the airline code is to maintain presence in feed markets that the mainline cost structure could no longer support.  Mainline aircraft in markets like Charleston, WV is a thing of the bygone years that immediately followed deregulation, yet they unfortunately still comprise a disproportionate size of the memory bank called entitlement. 

Yes, things have changed and are changing.  There are haves and have nots within the regional industry today as there were in mainline industry of yesterday.  There is one airline, SkyWest, which stands alone in the industry because of stellar management that understands the carrier’s place in the industry and their role in building a balance sheet that ensures Skywest will be part of the discussion for years to come. While I am sure that SkyWest would love to have a market capitalization of $6 billion that you make fact – on Friday the market capitalization of SkyWest was less than $650 million.

To make a valid argument, John would need to produce economics at the mainline that allow the company to serve Ft. Wayne, Indiana with non-regional (77 seats and more) equipment.  And my guess is that he could not. How many of those 737s/A320s/MD80s are filled with traffic coming from 50 and 70 seat jets?  How could he produce the same economics on the flying without having to make wholesale changes to his existing collective bargaining agreement in order to keep the flying in house? 

I get this argument often from other commenters that look back before looking ahead. Yes you can bring the flying in house - but not until the terms of the collective bargaining agreement reflect the B-Scale terms and conditions the mainline pilots found, and find, appropriate for their regional brothers and sisters.

Many claim I am too quick to blame labor.  In this case, it is the unions that create this purported “outsourcing” to support bloated mainline salaries, benefits and work rules.

John is right in his comment that “the majors better start thinking of in-sourcing or face another round of upstart airlines entering the market with low cost structure and plenty of established routes thanks to the majors giving them business”  -- at least on one front.  Today, the use of the regional industry is a defensive weapon used by networks to curb encroachment into mainline markets.  By forcing regional carriers to fly fewer 76-seat aircraft and less as well as limit their ability to fly anything bigger (again assuming the pilot unions would not change their collective bargaining agreements to meet or exceed the terms available from the regional provider), any airline network will begin to vacate certain markets that may then become an opportunity for a start up or an inroad for an incumbent like Southwest or jetBlue. 

Scope is as much as regulator of the business as is government at a time this industry does not need any more regulation.  Regulation often results in unintended consequences, one of which will be to create market vacuums that an upstart might willingly fill. Nature abhors a vacuum.

And John and many of his fellow mainline pilots end up over-regulating the business of feeding the aircraft they fly.  No feed – assuming that airlines cannot get to the right economics to fly certain routes – will likely result in significantly less mainline narrowbody flying – perhaps just enough to support the international operation.  And that may not be the consequence that mainline pilots have intended.

Time to Look Forward – Not Back

Historically,www.swelblog.com has taken space this time of the year to reflect on the biggest stories of the year. In this column, I want instead to spend more time looking at issues that will be important in 2011.

First, the look back: 2010 began with me taking sides in the battle for JAL and siding with the ultimate victor, American.  We wrote about the National Mediation Board, wondered aloud whether the labor-friendly Obama Administration would permit an airline strike given the fragility of the economy. We challenged Captain John Prater, President of the Air Line Pilots Association, on multiple fronts, offered a favorable perspective of the controversial Chairman and CEO of United Airlines, Glenn Tilton, and looked at mainline pilot scope and the pilot unions’ associated rhetoric. We challenged Southwest to put its money where its mouth was in the proposed slot swap between Delta and US Airways and noted Continental’s contract offer to its pilots that offered Delta wage rates plus $1 per hour. We laid out why we did not like the proposed United – US Airways merger; criticized the tarmac delay rule, pondered the American and jetBlue tie up at New York’s JFK airport; applauded the United and Continental merger and argued that American and US Airways will be fine in a consolidated world – at least for the foreseeable future.  We questioned why the airline industry was losing numerous battles in Washington, the looming threat from carriers in the Middle East,  the price of regulation in terms of what is a public good and lobbed yet another challenge to now ex-Congressman James Oberstar. We also weighed in on the Export-Import Bank; the Southwest – AirTran merger; the national elections; and questioned the need for the number of commercial air service airports in use today. We explained why pilot picketing and other union activity revealed only part of the labor quandary at US carriers, and predicted that foreign ownership restrictions will be the subject of ongoing debate.

Meanwhile, we only touched on airline profitability – a nice change, but noted with caution as three quarters do not make a trend. The airlines are doing what they should be doing in de-leveraging their balance sheets, with consolidation occurring not just in the mainline sector, but beginning to reshape the regional sector as well.  Oil was less of an issue in 2010, with price volatility muted compared to the prior two years. And the revenue picture brightened, particularly coming off a dismal 2009.  Finally we saw pivotal votes rejecting unionization at Delta, although the jury is still out whether labor’s defeat there was due to something unique to Delta or a broader referendum on a union’s ability to improve the lives of dues-paying members

Thanks to all of you who are regular readers and those who check in occasionally, readership was up significantly in 2010 and I hope you continue to read in 2011.

LOOKING FORWARD:

LABOR:  Labor promises to remain a significant story in the coming year.  There is new leadership at the Air Line Pilots Association; the Allied Pilots Association; and the AFA-CWA to name a few.  While it is hard to predict whether things will change at the largest flight attendant union, AFA-CWA, after multiple terms under Patricia Friend, I am confident that changes in leadership will benefit the pilots represented by both ALPA and the APA.  This is not to say that I expect either of the unions to roll over, but believe that there is much to gain for both sides in a constructive dialogue that was too often absent in the previous union administrations. It is safe to say that the terms served by Captains Prater and Hill did more to set the unions back than advance the pilot profession.

The NMB will remain on my watch list.  We could see action sooner rather than later at American, where Larry Gibbons, Director of the Office of Mediation Services, will now oversee the negotiations that have been underway for several years. Will the NMB become even more political as Gibbons sits closer to the board members than do other members of the team he oversees?  Will the Board play a crucial role in facilitating new and joint agreements at Continental – United?  Will the Board side with the unions in determining whether Delta interfered in the IAM and AFA representation elections as the unions allege? Ultimately, the unions will determine how aggressive they need to be to leverage the support of employees at the merged carriers anxious about recent changes in working conditions and how the seniority list is constructed.

It is clear that the industry will be watching as Delta manages one of the least-unionized workforces, particularly as former union members from Northwest are brought into the fold. One might say that the hard work is now done as the votes have been cast and the election is over.  But I say the hard work is just now beginning.  It won’t be that long until another election can be called.  And the difficulty of the task is highlighted by the civil war between the work groups at US Airways that continues into yet another year.  It seems unlikely that the legal issues dividing the merged pilot groups and pilots and management are near resolution. All eyes will be on United CEO Jeff Smisek and Southwest CEO Gary Kelly to see how they manage culture change at their bigger, more complex carriers.

Finally, look for organizing activity to increase at other airlines.  The losses at Delta will make the unions hungry for increased membership and recent changes to federal election law under the Railway Labor Act make it easier for union to win a secret ballot election.  Already unions are targeting jetBlue and SkyWest –where unions lost past elections under the old rules.  If the Delta vote is a referendum on the former Northwest employees not being content with their union, might there not be opportunities for the International Brotherhood of Teamsters to begin raiding select work groups?

FUEL:  As I write, West Texas Intermediate is trading at $91+ per barrel.  As Southwest CEO Gary Kelly, put it, volatility in fuel prices is the industry’s “No. 1 challenge” and “the single biggest threat to aviation.”

The price of oil is sure to be a story in 2011.  Goldman Sachs, the firm that predicted $200 per barrel oil in 2008, is predicting $100 per barrel during the first half of 2011.  Given growing confidence that economic recovery is finally taking hold and the levels of new industrial production activity in the Asia-Pacific region that often drives market oil prices, $100 per barrel seems reasonable. 

Here at Swelblog, we were among the first to suggest that the best thing that happened to the US and global airline industries was oil at $147 per barrel, which more than anything else served as the impetus to reduce capacity from an industry that had grown too big.  If oil prices continue to climb, it will serve as a discipline on any efforts to add marginal capacity to the system, particularly in the domestic market.  And this time around, a Southwest does not enjoy the same hedge book and fuel cost saving potential v. the industry as it had when oil prices surged in the 2004 – 2008 period. 

Should oil continue its rise, we will begin to see further reductions in small community air service.  For many communities, a fuel surcharge on top of what many believe are high fares will test the price elasticity of even the more inelastic customers - who will take to the highway as their first point of access to the air transportation grid.  This would be a healthy outcome for the industry that is still arguably over-connected.  Rising oil prices – along with regulation imposed costs that will come to fruition in 2011 - should be a catalyst for continued consolidation in the regional sector.

If fuel prices rise, the passenger carriers will likely be successful imposing fuel surcharges to fares, just as the cargo carriers were in the past.  Southwest may not charge for bags, but even they will have to consider fuel surcharges this time around.  That is a big differentiator for the US airline industry in 2011.  What makes this tricky is that the US consumer was long conditioned to paying fares based on industry costs of $30 per barrel in-the-wing jet fuel.  The industry has adapted.  At $95 per barrel the industry begins to be tested yet again.

WASHINGTON:   the Air Transport Association has a new leader in Nicholas E. Calio, a former Citicorp executive with keen bipartisan skills. Calio becomes the new President and CEO of the industry’s trade group on January 1, 2011, hoping to turn the airline industry fortunes after some trying legislative and regulatory losses in 2010.  With new costs and operating constraints posed by rigid new tarmac delay rules, increased passenger compensation for overbooking, a new push to have a total cost of trip (fare and fees) made known to the purchaser, proposed constraints on regional carriers,  changes at the NMB, investigative actions by the FAA, the rejection of the slot swaps between US Airways and Delta, and the loss on appeal of the right of airports to implement congestion pricing, airlines are hoping for kinder, gentler treatment in Washington in the new year.

In a recent media release, the ATA said it was pleased with the recommendations of Secretary LaHood’s Future of Aviation Advisory Committee.  I am assuming this will prove to be a blueprint agenda for Calio and his team at ATA.

And with Oberstar now gone from the House Transportation and Infrastructure Committee, new Chairman John Mica (R-FL) has an opportunity to make some headway on relevant and important issues that threatened to make US aviation a second-tier player in the global industry under the misguided direction of the former chairman.

I am encouraged by the leadership changes taking place in the industry and hope that we can finally have a discussion on issues with a mindset on positioning the industry within the global sphere.

CONCLUDING THOUGHTS

The industry’s work is far from done.  Progress on consolidation, cutting capacity, new technologies and efficiencies, and re-balancing labor costs have dramatically improved the cost structure in the industry, just as anti-trust immunity, open skies agreements and global partnerships have improved revenue opportunities for US carriers. But work must continue on alternative fuels and reducing the impact of aviation on the environment and ensuring that the airline industry is not paying more than its fair share of the tax burden.

There are still barriers to better operations on the labor front as well. Union leaders need to decide once and for all how to address the split between mainline and regional flying all the while securing/maintaining some form of scope protection their members expect.  A good start would be to stop the charade that this is a 76-seat issue.  The mainline does not want that flying because they will not accept the rates necessary to do the flying.  Once again, labor did much to create the problem, now it is time that they figure out how best to fix it.

Finally, it is time to stop playing politics with the FAA Authorization bill and put together a clean bill to address the aviation infrastructure.  Let’s get rid of the pet projects loaded into a bill that should be designed for efficiency.  And airlines and airports need to figure out how to work together.  The debate should not be about an increase in the PFC but the extent to which the industry has a say in how the money is spent.  Just as airlines need to be positioning themselves to succeed in a global industry, airports that add little to no value to the airline map of tomorrow should not be spending precious money building out an infrastructure that may not be used.

Let’s hope that in 2011, we can stop living in the past and look toward a strong future for the US airline industry. We have to get our impediments fixed at home to prepare for the next upcoming competitive battle for advantage in the global market.  For some this next competitive battle will be much tougher to win.

Happy New Year. 

Swelblog: On Election Morn

This has been a busy month for the US airline industry with earnings and all.  As a result there has been lots of news and most of it good. Of course, two quarters do not make a trend -- something I'm frequently reminding people when I'm out on the road speaking on all things airline industry. 

So as we sit awaiting results on what promises to be a most interesting mid-term election, I want to look back on what has been a very political two years

First up: labor. Unions are all politics all of the time and that has played a big role in the airline industry since President Obama took office.  A cynic would say -- and I might agree -- that unions are simplistic organizations that too often focus on only on the next contract or the next election.  The result is too often a strategy in which they do everything they can to “choke the golden goose” for all of the pay and benefits possible at the time, which only puts their successors in the difficult position of presiding over concessions when the "gains" are no longer economically viable. There are some who say that this blog is too quick to bash unions.  But as I've said before, I'm equal opportunity in calling out bad behavior when I see it. And when it comes to airline labor leadership, I've seen a lot of it.

I've spent a lot of time challenging the leadership at the two largest pilot unions: Captain Lloyd Hill of the Allied Pilots Association and John Prater of the Air Line Pilots Association, both who ended their terms as president this year.  My fundamental criticism was each man’s decision to run on the opportunistic platform that all concessions would be returned and more.  Unrealistic.  Unfortunate.  Unfulfilled.

Lo and behold, the two important pilot unions have replaced “over promise and under deliver” with two new but seasoned presidents: Captain David Bates at the APA and Captain Lee Moak at ALPA.  [Moak has been the subject of much commentary on this blog and I encourage you to learn more about him].  I had the opportunity to spend time with both men last week at the Boyd Group International’s 15^th Annual Aviation Forecast Summit in New Orleans.

I don’t want warm and fuzzy from union leaders and I don't expect it from management. What I want is a sense that each side understands and negotiates with a clear understanding of the economic environment in which the industry operates.  From both pilot leaders I am confident that principled negotiations and decisions will be the rule of the day.  From both pilot leaders I sense a potential to depart from gridlock and enter disciplined negotiations.  From management I want to see a renewed effort on communicating clearly the rigors of the business from a global perspective.  That would be true leadership.

Unions and management must break through the gridlock that leads to protracted contract talks and ultimately keeps money from pilots' pockets.  And both sides need to be honest with pilots about the extent to which the world has changed and the industry continues to change with it.  For example, today’s union negotiations should be less about who should fly 76-seat small jets and more about how to position an airline to challenge new and vigorous competition in Latin America, the Middle East and the Asia-Pacific regions. For the mainline carriers, competition is now more about Dubai than Duluth, and more about Auckland than Austin.

It is fast becoming clear that flight attendant union leaders are also increasingly out of touch.  And no one is more out of touch than the President of the Association of Professional Flight Attendants President Laura Glading. Glading, more than any union leader in the past or present, is too quick to threaten chaos and strikes without a clear understanding of the competitive realities that affect contract negotiations.

In her latest unconscionable act, Glading is calling on American Airlines flight attendants to write letters demanding a release to a "cooling off period" and possible strike from the National Mediation Board. Maybe Glading doesn't really understand the Board and its mission which, last I checked, is to try to prevent work actions that would threaten the nation's air transport system. Further, it would be unconscionable if the NMB were to cave into a letter writing campaign by a union that has done more to cause dissension in its ranks than promote the high level of customer service and professionalism the airline needs to compete. 

It has been interesting to watch the flight attendant negotiations at Continental and United. The Continental flight attendants actually voted down a tentative agreement that would have put money in their pockets immediately at a time the industry remains vulnerable economically. "Immediately" should have been an important factor considering that there will need be a representation election between the AFA-CWA and the IAM before any real negotiations can begin at the merged carrier.  My guess is that it could now take a couple of years before either the Continental or United flight attendants realize any economic gains over what they earn today.

As for negotiations with under-the-wing employees other than mechanics, the TWU negotiations at American provide a lens for one of the most difficult issues facing airlines: how to appropriately compensate ground workers.  In almost every case, this work could be outsourced for a fraction of the costs of keeping the work "in house" -- particularly when you consider the comparatively rich benefits package most airline employees receive. The baggage handlers are the most vulnerable yet the union group still holds out with demands for more. 

But if the unions may have a false sense of power because the worst-kept secret in the airline industry is the fact that baggage handlers have long ridden the coattails of the more skilled mechanic group, demanding wages that far exceed what these workers could command outside the airline industry. Said another way, because the skilled mechanic group has "carried" these less-skilled workers for so long, they have received less in negotiations over the years because the political structures of the TWU and the IAM includes baggage handlers in the same "class and craft" as a way to boost their ranks.

This week we will know the outcome of vote of the Delta and Northwest flight attendants, who are deciding whether to organize under the AFA-CWA banner (which would be a first for Delta flight attendants) or be a non-union group.  This election is the biggest yet under a new NMB rule that made the most significant change to the union election process under the Railway Labor Act in 75 years. That new rule likely will be the deciding factor in the outcome.  The change in the rule was all about politics, with a clear 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.

But that is reality in Washington today as it pertains to the airline industry.  We have had a number of issues become political in the name of consumer protection.  There are a number of matters being regulated or legislated in the name of safety.   A FAA Reauthorization bill cannot get passed because of all the non-FAA issues lawmakers stuck in the Senate and House versions as goodies for their own political constituencies.  But no matter the outcome of the national elections tomorrow, gridlock promises to rule the day in Washington for the next two years as well.

As British author Ernest Benn wrote:  “Politics is the art of looking for trouble, finding whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.”  That sums up how Washington deals with an industry that delivers value and jobs to the economy each and every day.

Let’s Make Today’s Unions Tomorrow’s Source for Labor

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.  

US Pilot Unions’ Dirty Little Secrets

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.    

Campaign Season: Little Substance and Fewer Facts

At least in the race for the US Presidency, a winner will be declared. In the corporate campaigns being run by the American and United pilots against their respective employers, no one wins. 25 years ago, corporate campaigns had some effect as they were new. They are often targeted at individuals, either senior executives or board members in hopes of exposing something “dirty” in exchange for leverage that can be traded at the bargaining table. As we have written here before, this upcoming round of labor negotiations is odd in that neither side has significant leverage and the most important in history since the industry was deregulated.

So the pilots, the “professionals”, the “flying investment bankers”, at United and American have taken to erecting billboards, calling for the heads of their CEO, challenging executive compensation schemes, talking openly about safety and ensuring that each carrier’s operating statistics remain in the press long after they have been reported - all the while hiding behind the veil of improving the product for each carrier's customer base. And hiding behind the financial and still unknown economic condition of the industry. What a laughable approach that promises no more leverage than what they have today as the path to a Presidential Emergency Board is carved.

I could have entitled this blog: The Summer of 2008 Part II.

Presidential Campaign

Like many I talk to, I am disappointed that we have not heard peep #1 of substance from either McCain or Obama on transportation issues generally and nothing on the airline industry specifically as they march toward the November general election. Some band-aid ideas on energy from Obama and the energy solutions suggested by McCain would have a long road to hoe to be implemented. Nonetheless, I am disappointed at this juncture that little is being discussed regarding this battered industry.

Corporate Campaign(s)

My view of the antics undertaken by the Allied Pilots Association and their current leadership, who still can claim that they represent 8,300 airmen at American Airlines, has been well documented in this blog. But most of the unprofessional behavior demonstrated by this current administration has been displayed by leadership of this independent union during every other cycle in the past.

Not so long ago, a desperate grasp for leverage only cost APA’s members $45 million in dues dollars. Today, their inflexible bargaining position based on a dream and actions undertaken against the employer to try and bully the employer to accept their outlandish ask could cost the American pilot membership more. Maybe much more. But they have been there before………. And I am still betting that this one gets put on ice and lands before a Presidential Emergency Board 18 months from now - long after the Delta and Northwest pilots begin to enjoy the improved terms of their new collective bargaining agreement that required the loss of certain legacy mindsets.

One thing that has always perplexed me about this industry, and I was persuaded to pursue the same actions in my past as a union leader: why do this industry’s unions perpetually make deals that minimize the headcount reduction while maximizing the pay cut undertaken by all employees? I have talked about how the industry has always over-expanded in the up cycles and never taken enough uneconomic capacity out in the down cycles. Well the same is true with labor.

The unions choose bigger paycuts to preserve jobs in the down cycles. Stated another way, pay cuts have masked the fact that legacy labor has engaged in bargaining practices that have made them less and less productive in the down cycles. These practices then lead to the airline hiring more employees than needed in the subsequent up cycle. This is a classic example of another inefficiency that has compounded itself over three decades of deregulation. But no, we will try to injure the entire membership to protect 200. Makes a strong cost-benefit analysis case don’t you think?

Corporate Campaign #2: United Pilots Call for Tilton to Resign

I was beginning to believe that the corporate campaign season would be limited to the independent union suspects: APA; and USAPA. But no, we are now joined by the United Airlines chapter of the Air Line Pilots Association. [And anyone that knows a few things about ALPA politics know about the cowboys at United.] First we have a public cry challenging the safe maintenance of their airplanes by the company’s own mechanics. Then we have the claim of an unlawful action on the part of the union by the company. Now we have the pilots at United calling for their CEO’s head.

This Is Nothing New......

A little history would be helpful here. Let’s take a walk down memory lane of United pilot and CEO relationships. In 1981 I believe, the United pilots made a significant concessionary pact in productivity to the company called “Blue Skies”. The subsequent negotiations between the company and the pilots did not return those concessions to the pilots and the result was a six-week strike in May of 1985.

The pilots claimed that Richard Ferris, who remained Chairman and CEO following the strike, was diverting money from the airline to invest in Westin and Hertz, a combination that ultimately became known as Allegis and included United Airlines. The United pilots hire F. Lee Bailey and began a push to buy the company following the end of their strike. Ferris was pushed out and the company sold its interests in Hilton and Hertz along the way. The CEO and Chairman chairs were held warm until Stephen Wolf was named head of the airline in late 1987.

But the pilots at United were exercising their power over being disgruntled with Ferris’s actions and were making headway toward a leveraged buyout until “Black Monday” – the market crash in October of 1987. Yes, the stock market crash in October of 1987 ended their initial bid. A failed attempt where the pilot union still paid its advisors some $16 million. Ever think how much that was in 1987?

Then, in walks Wolf in late 1987, a deal-friendly CEO that had cashed out nicely at each Republic Airlines and the Flying Tiger Line. By late 1989, Wolf was Chairman and CEO, the Allegis name was dropped and the subsidiaries sold. As Wolf’s tenure in the Chairman and CEO chair began, the economics of the industry were generally strong. Then came 1991. High oil prices and a recession. In 1993, Wolf turned to the unions seeking concessions from contracts negotiated in a much better economic period. [What we did not know at the time was that an inside ALPA lawyer would be financially rewarded for being an intermediary to turn these talks from simple concessions to the vehicle that would be used to sell the company to the employees] The company sold the flight kitchens following a near $1 billion loss in 1992.

The 1993 concession negotiations ultimately led to the ESOP structure that was closed in July of 1994. Nearly seven years after their initial attempts, the United pilots had their wish. Wolf was paid off handsomely and in came former Chrysler CEO Gerry Greenwald to head the company and usher in this new era of employee relations. Greenwald was hand-picked by ALPA to head the new airline, as was his number 2, John Edwardson. And the pilot advisors were paid yet another $16 million in the process.

Employee seats on the board were negotiated with unprecedented and unhealthy corporate governance power. Greenwald makes himself a lame duck during this period by announcing half way through that he would only fulfill the initial 5-year term of his agreement. My guess is he fully appreciated that the economics and the governance construct would inevitably lead to a bad outcome. He left in 1999.

During 1998, employees that had made concessions to buy the airline were entitled to begin negotiating interim wage increases. Management recognized that the increases being sought could not be sustained. Then, using their power at the board level, ALPA and the IAM voiced strong opposition to John Edwardson – the chief opponent - and he was ultimately replaced by Jim Goodwin. Goodwin, was another President and COO that needed the blessing of the unions. Then in early 1999, following Greenwald’s departure, Goodwin was named Chairman and CEO.

The ESOP construct ended in 2000. But as the ESOP construct was ending, which meant that United had to negotiate new collective bargaining agreements with all of its bargaining units except the flight attendants, Goodwin began to pursue a merger with US Airways. Labor tensions mounted as the merger now posed many issues that could negatively impact the outcome of their negotiation of a new collective bargaining agreement.

The pilots ultimately won a ransome-like contract, based in part on their actions, that made virtually their entire portfolio of international flying unprofitable. Further the contract established a false market on the rates the industry could afford to pay for pilot labor. Ultimately the US Airways bid was abandoned in 2001. Then the events of September 11, 2001 unfolded, exactly one-year after ALPA agreed to accept its ransome. And surprise, surprise: as the unions still possessed the extraordinary governance powers negotiated during the ESOP transaction, Goodwin was gone by November of 2001. His chair was held warm by board member Jack Creighton until a successor could be found.

Like the rest of the industry, United suffered in the aftermath of 9/11. The company began negotiations with all of its unions seeking an unprecedented give of $2.5 billion annually. Creighton retires, as he was not the one to lead this company through this difficult period. With governance powers still in place, ALPA, the IAM and the board replace the retiring Creighton with Glenn Tilton. The former oil executive will be the one to lead United into, and out of, bankruptcy protection. Remember, it was ALPA that hired Tilton - like many before him citing that it was one expensive hire but definitely the very best of the candidates interviewed.

Concluding Thoughts

Now United is nearing the time to begin negotiations to replace the consensual agreements reached while the company was in bankruptcy. One of Tilton’s strongest attributes upon his hiring was his familiarity with the bankruptcy process so I guess in some ways that makes him a restructuring guy. It did not take him long to recognize that the negotiations with the unions that were concluded prior to the filing on December 9, 2002, were not going to be enough. And I do not think that Glenn believes the work is done at United yet.

For years, the United pilots have taken to calling for the head of each and every CEO that said no. They were more than willing to put in place those they believed would say yes. But even they had to say no at some point and when they did - they were gone. Tilton has said no and continues to say no so that means that the United pilots should keep with what they know and call for his head. But any good restructuring guy knows when the work is done and when it is not done. Many have stayed too long. I don’t think this will be the case as United works toward righting its operation in anticipation of an alliance with Continental Airlines.

I think some history is important for those looking at the United pilots calling for Tilton’s head as a significant event. It is not significant. It is nothing more than a piece of a tired, three-decade old tactic that the United pilots are using in Corporate Campaign 2008. If the United pilots are serious, as they were in the mid 1980’s, then buy the company again. Otherwise there are two choices: be creative and constructive; or be legacy-minded and destructive. United probably has a liquidation value that shareholders might just view as attractive.

I love how history repeats itself in this industry. This blog was largely written from memory as I have spent a lot of my life at United in these dealings. I am sure that I will be corrected if I have made a mistake on the chain of events.

And further, isn’t it interesting that on the day the pilots call for Tilton’s head, the Delta and Northwest pilots approve a new collective bargaining agreement that will be in place when the merger of the two companies is finally approved. At least at some carriers represented by ALPA there are constructive actions being undertaken to address a changing world.

More to come.

Just Wondering, Or Am I Wandering?

A Few Issues in the Press

1. With the Euro reaching an all time high relative to the dollar yesterday, how will this impact international travel? Can the potential loss of US-origin customers that now deem an EU trip unaffordable because of the currency relationship be offset by EU-origin demand that will find the US cheap?

a. Headline in today’s Wall Street Journal: "Lufthansa Expects Growth in 2008". As the company’s net profit doubled in 2007 v. 2006, the company cites its broad business model that includes aviation services, catering, airports and other areas as a mitigation of downside macro risks. For the US, that might mean increasing the foreign ownership limits?

2. In late 2007, United warned of the potential to “put down” as much as 10 percent of its capacity if oil prices stayed above $100 per barrel. Well, yesterday oil actually traded over $110 per barrel. The $100 price point has become a level that most oil watchers expect to be sustained. My question for the politicians is: will there be more industry capacity removed as a result of oil prices or consolidation?

a. My suggestion to the "know all" politicians: Be very careful for what you say no to.

3. Yesterday, Jamie Baker of JP Morgan downgraded the US airline industry for all intents and purposes. Terry Maxon of the Dallas Morning News blogged on Baker’s research note that suggests a best case scenario, based on current oil prices and a minimal demand loss due to an economic slowdown, is for the US industry to lose $4 billion. The worse case scenario calls for an industry loss of $9 billion.

a. So much for the robust, and sustainable, industry turnaround we hear from labor leaders and others.

4. Speaking of labor, Baker makes a very powerful point, and one that I have used a number of times. He says that since 2002, the industry’s fuel cost will have increased in the neighborhood of $25 billion. This contrasts with his estimate of labor savings over the same period of $7 billion.

a. Will we ever hear the end of the refrain that the industry recovery has been built on the backs of labor? First, and again, what recovery? Then, and again, what is the industry’s ability to repay that $7 billion? This just underscores what will prove to be the most difficult labor negotiations cycle since deregulation.

5. As if the industry needs more weighty issues to test its resolve, the story at Southwest over maintenance practices is most troubling. I am in no way going to suggest anything regarding this situation until all of the facts are known. But, this story will not be going away for awhile.

a. If the economy can be expected to have a dampening effect on demand, will concerns over maintenance have a compounding effect?

b. Jim “Hell NO”berstar gets yet another bully pulpit issue.

6. On another labor issue. I find it interesting that, included in labor’s chants against consolidation of the industry it says it will be looking out for its members (OK, that is their job) and the traveling public?

a. I guess the threats from labor of a strike, or a slowdown, are beneficial to the consumer because the system can quickly reaccomodate demand and there will be minimal disruption to the affected consumer? NOT

7. Yesterday the Continental pilots rallied in Battery Park along with other ALPA carriers and independent unions to call for the repayment of the concessions that the Continental group calls a loan made to the company in 2005.

a. What loan? Did you negotiate terms like those negotiated when money is borrowed?

b. Isn’t it ironic that the labor groups chose Wall Street as the venue for their rally? There must have been a lot of sympathetic observers given that Wall Street employees largely rely on variable earnings to comprise their total compensation and not fixed rates of pay? Oh I digress.

8. The Allied Pilots Association have told us many times and through many different mediums that just a modest increase in passenger fares will pay for one of the most outrageous asks made by a union of a company in my career. NOT

a. In the face of current oil prices, at what point do “pass throughs” of increased fuel costs negatively impact demand? At what point do the US macro economic issues negatively impact demand as consumer disposable income is negatively impacted from a long list of possible reasons?

b. If demand begins to weaken, I do not think fare increases will be the tactic employed by the industry to address the issue.

b. Maybe the CR Smith Museum should be enlarged rather than being refurbished?

9. Politicians and labor should think real hard about the fallout that could stem from the current economic environment versus what the perceived fallout could be in a consolidation scenario.

More to come.

Consolidation, Mediation and an Explanation

CONSOLIDATION

On Thursday, January 10, the Wall Street Journal breaks the news that Delta Air Lines will ask its Board of Directors for permission to explore a merger with either Northwest Airlines or United Airlines click here. The article is entitled: Delta’s Merger Buzz May Stir the Industry. And stir, and buzz, it did. After a month of sustained stock price declines, the airline sector rallied by more than 15% following the story finding its way onto the newswires.

While news regarding the Board’s deliberations is quiet at this writing click here, the news of a deal involving Delta should come of little surprise to airline industry watchers and readers of swelblog.com. Further, at this point, we do not even know how, or if the story will play out. But……

In a November AP story covering a New York investor conference, Delta’s President and Chief Financial Officer, Ed Bastian, called consolidation a “front burner” issue for the carrier. As the company discusses consolidation, its message to all stakeholders has been consistent – a deal that is good for shareholders, employees and communities will be explored.

It has been reported that Delta would like to answer the consolidation question before it makes any decisions regarding asset or subsidiary spin offs. Delta's public statements on this subject have held true and the carrier announced that it will delay a decision to spin off its Comair unit click here. Delta has not denied these reports.

In either merger scenario suggested by the Journal, Comair and Cincinnati will be a source of discussion. Beginning the process of paring 50 seat capacity and secondary hubs are certainly synergies in my analysis supporting any good, and viable, merger proposal. If it is a Delta/Northwest combination, what about Pinnacle and Memphis?

There Is Something Different In Atlanta

And it is labor. It is pilot labor. It is pilot labor leadership. His name is Lee Moak click here.

History has taught us that simply negotiating a term sheet does not a successful merger make. The two speed bumps to a successful culmination of negotiated terms are: the regulators; and labor.

For serious industry watchers, Captain Moak has been on the scene for some time. His presence was felt during Delta’s bankruptcy reorganization. But his real persona emerged following Pardus Capital’s announced intention to facilitate a combination of Delta and United in mid November 2007 click here. Moak then wrote in a letter to his pilots: "Pardus' demand for a merger between Delta and United is a poisonous vision built upon an artificial timeline and focused primarily on a financial transaction…"

Moak has publicly opined that he sees structural change ahead in the industry. And to the extent that it impacts his carrier and therefore his pilots, he will play a role. Just a day before the Wall Street Journal wrote its story, Moak wrote a letter to his pilots suggesting that consolidation was at the door click here. In my opinion, Pardus’ big mistake was that it proposed a deal that could easily be perceived by labor as a “cram down”. And suffice it to say that after bankruptcy/restructuring, labor’s appetite for a "cram down anything" is nil.

It is refreshing to see a real leader emerge in the labor space. Right now the labor space is generally devoid of good leadership -- with a few exceptions to be sure. Whether this story plays out or not, what is different is that you have a union leader who has made it clear that he will represent his constituents and a CEO who will do the same. More importantly, Moak is not saying no for the sake of saying no. Rather he must see an opportunity to better position his pilots in a changing world. How refreshing.

Parallel paths that may ultimately converge to create something better than today’s fragmented and fragile platform?

Concluding Thoughts

What is sure is that US Airways’ CEO Doug Parker’s idea to be a first mover in the consolidation arena was a good one. What is also sure is that Parker provided a blueprint for the industry to merge networks, ensure access to the air transportation system for communities of all sizes while at the same time reducing fixed costs. Now Parker is hamstrung by pilot leadership blinded by the prospect of an unlikely outcome – a better arbitration decision. For Parker, bringing labor along would certainly have proven expensive – and maybe just too expensive.

At Northwest, CEO Doug Steenland is mirroring statements made by Delta’s CEO Richard Anderson that the right transaction – one that benefits employees, shareholders and communities will be considered click here. Steenland and his pilots had to work through a very difficult, and adversarial, operational situation shortly following its emergence from bankruptcy. An outcome was reached that seemed to quiet the rhetoric emanating from the Twin Cities. A platform to build on?

As for United, a new pilot leadership is settling into office. They are presented with a potential opportunity to find a meeting of the minds with a management team that has been most vocal, and visionary, on industry change. Is there a sufficient blueprint out there for the two sides to work as a single mind so as to ensure that United will not just sit on the sidelines and watch others implement Tilton’s strategic vision? Maybe the holiday operational breakdown can be used as a platform -- like at Northwest?

Network and labor blueprints are emerging. Maybe the historic speed bumps to successful structural change are being reduced as a result?

MEDIATION

The Allied Pilots Association announced this past week that they will apply for mediation, with or without American management joining them in the formal request, to the National Mediation Board after the close of business on January 14, 2008. I guess we are now getting a window into a strategy designed for a quick resolution?? My guess is it will still ensure a very long and protracted negotiation that ultimately lands in front of a Presidential Emergency Board.

Is the APA making a bet early in the Presidential and Congressional election cycle that somehow a PEB will fall short of Congressional action? Sounds risky to me. From my viewpoint and based on APA's current table position, there is no "splitting the baby".

In a widely read blog post here click here I borrowed a term often used among the professional negotiators at the Board: put it on ice. The term of art describes a situation where the gulf between two sides is too wide and as a result progress is difficult to measure. In that circumstance, a case is put on ice. Mediation is suspended and the parties are sent home to reevaluate their respective positions.

In this case, I do not see newly elected APA officers moving off of an uneconomic, unpalatable and untenable position anymore than I see American management remotely willing to entertain many, if any, of the economic proposals put forth by the union.

Another widely used term of art by a negotiator is underbrush. Underbrush refers primarily to negotiations on non-economic issues that should largely be concluded before the NMB is engaged. Well, suffice it to say there is plenty of underbrush.

Yes -- the Board will probably take the case but not before encouraging the parties to engage in more direct negotiations. Once the Board accepts the case, the parties will/can meet with and without a mediator.

As Terry Maxon of the Dallas Morning News asked on his blog (and I paraphrase): who will the lucky mediator be to get assigned this case?

So -- while the airline world surrounding “today’s” largest US carrier is certain to be engaging in commercial transactions that strengthen their respective companies, American and the APA will be spending time discussing: a secondary revenue source like cargo and its relevance to commercial passenger pilot rates of pay; executive compensation; inflationary adjustments to 1992 rates of pay; Super Bowl Sunday -- and probably not at the water cooler; and hourly rates of pay that when used in isolation make a nice story but fail to address the productivity side of the equation just to name a few of the issues. Oh, and computer allowances so that everyone can log on and read how American lost its leadership position.

Pretty sad story. No, a really sad story.

EXPLANATION

Chitragupta, in a comment to my most recent post, suggests I return to my heritage and find some sympathy toward the executive compensation issue. As I wrote in click here my beginnings in this industry as a flight attendant, union leader, ESOP Steering Committee member and numerous consulting assignments have their roots in distressed negotiations. Variable compensation for employees, executive pay packages and labor advisor fee negotiations have been a part of my professional world for as long as I have participated.

Whether the amounts paid to Stephen Wolf on multiple occasions (Republic, United and US Airways) were excessive or not, labor was aware. Amounts paid to ALPA advisors in the 1990s for a failed deal and ultimately a successful deal exceeded $30 million. Whether excessive or not, labor was aware and made the decision to write those checks. Amounts paid to the ALPA and IAM chosen CEO to lead United in the post ESOP era, Gerry Greenwald, were significant at the time and labor was aware. The ALPA and IAM labor directors were present and engaged in the hiring of Glenn Tilton at United. At the time it was certainly not easy to find a qualified CEO for that troubled airline and under Tilton's leadership it has emerged from a bloody period with eyes on being part of a new airline industry structure.

So as I am asked to return to my heritage, I am constantly reminded of other points in history where executives and labor advisors were paid significant amounts of money and, in most instances, labor was at the center of the conversation. This is not different at AA today or any other carrier where executive compensation has been, and will be, paid. In every negotiation I am aware of, labor had access to all information in the distressed discussions that have transpired during the 2002 – 2007 period. Underscoring this fact is that each the IAM, AFA and ALPA were members of the Unsecured Creditors Committee at United – the very committee that approved the plan of reorganization.

I recognize the issue is an emotional one. I was concerned about the timing of the most recent payouts, but my history/heritage - or whatever it may be - is dotted with points in time where significant money was paid to certain individuals. My lack of "sympathy" regarding the issue is that labor knew about most of the payment schemes. Further, in each case, labor was armed with a battery of advisors.

The terms of the current executive compensation plans are documented in the public domain and should be considered a part of history. The future can be shaped, history cannot. It is over. It is time to move on. This issue is not confined to the airline industry. The last 8 years have been an ugly period in American business. There have been many casualties. My assumption is that the next time around, labor will be more aware and thus will be smarter on the issue. So will management.

I grow weary of emotional rhetoric. I have referred to the exec comp issue as a “one trick pony”. My words on the issue are in the public domain. I am more concerned about the competitive positioning of the US industry and its place in the global sphere, not what a CEO makes in Ft. Worth, Atlanta, Chicago or Minneapolis. If the same amount of energy was spent putting forth new ideas to replace the outdated and outmoded ways of doing business in the labor negotiations arena, I might have a different view.

Labor is not a victim. What I am hearing is that management cannot lead, cannot innovate, cannot implement. Labor has a seat. Where there is a seat, there is an opportunity. Just like the Democrats steal a page out of the Republican playbook from time to time, and vice versa, why doesn’t labor take a page out of management’s playbook and negotiate at risk compensation that has the possibility of providing income when the business cycle and the negotiating cycle do not line up. And this happens in most cases.

There has to be a better way. Ask Lee Moak. To others, stop bitchin’ and start doin’. And if that means burn the furniture, then burn the furniture as employees at other carriers in the industry will benefit from your arson. Otherwise, plenty of opportunity exists to make the world better and more secure for your members.

Putting a Few Packages (of Airline Industry Issues) Under the Tree for Readers to Unwrap

Labor

In an industry that is associated with 3-letter identifier codes and with labor’s expectations that “concession recovery” is right around the corner, we should start to think about replacing NMB with PEB. Oh I know that a PEB requires time with the NMB, but …… I never remember a time where neither labor nor management has any meaningful leverage entering a negotiating cycle. I open with this one because trains and Christmas trees are synonymous.

Along those same lines, and with labor’s “one trick pony” leverage point being executive compensation, maybe we should be questioning whether the seniority system really works for airline labor and management. Imagine a real free market where individual airlines actually bid for individual labor's services? Would this type of a "free market" cause airlines to rethink their individual approach to invest in product similar to that provided by the global elite carriers? Free agency has generally been good for compensation levels – average and otherwise.

Isn’t it interesting to see AMFA being challenged on multiple fronts? Most observers expect them to lose their challenge from the Teamsters at United. It seems to me that this is nothing more than a story coming full circle. Just as AMFA challenged the IAM and won at each United and Northwest, by making promises it could not keep while exploiting situations where concessions could not be avoided. It is most interesting to note that by early 2008 AMFA could be gone from its two largest properties. OverPromise and UnderDeliver will be a term discussed more and more over the coming 3 years.

US Economy

With nearly $1 trillion in mortgage resets coming in 2008, doesn’t consumer spending have to be affected at some point?

It has been a long time since I remember reading so many stories and analysis which offer the mixed signals du jour on the direction of the US economy. From recession to inflation, the gamut is covered. The job market and manufacturing have each cooled which suggest a slowdown. Yet the consumer continues to lead the way as retail sales remain strong. But profit margins are less suggesting costs are exceeding the ability to price. Go figure. There is always demand at some price – the US airline business sure captures that concept.

US Government

With New York JFK and Newark operations capped by the US government, and the industry applauding the actions, which major US market will be affected next? What exactly does “new and real” capacity mean when considering a leasing of capacity program?

Remember when jetBlue was lauded as the best capitalized startup in US history? If something were to result in jetBlue failing, what would happen to those JFK slots “given” to the carrier?

Was Virgin America late to the party, or is their timing right? I am intrigued by their recent city pair market choices.

Is it really possible that Singapore Airlines will be serving the New York – London market and the Houston – Moscow – Singapore market in addition to New York – Frankfurt, Los Angeles – Taipei, Los Angeles – Tokyo, San Francisco – Hong Kong and San Francisco – Seoul by the end of 2008? Yes -- the signs of what lies ahead. Where is the home country?

Miscellaneous

Wouldn’t it have been ironic if the New England Patriots went 19-0 and won the Super Bowl, when in the same year the Miami Dolphins went 0-16? Well we know half of the story.

Aren’t you just tired of the same voices making statements that it just cannot be done because it hasn’t worked in the past?

Happy Holidays,

Swelbar

Circular Logic: US Airways and the Economics of Entitlement

Since US Airways’ failure to convince the US Congress, employees and the Delta Unsecured Creditors Committee that their deal provided many stakeholders with a long-term blueprint for success, issues faced by the US Airways’ management team continue to get more and more parochial. The recent news announcing the continued downsizing of Pittsburgh has elicited responses from Congressmen that this writer finds baffling. And the move by unhappy former US Airways’ East pilots - caused by an arbitrator’s ruling regarding the seniority integration with the former America West pilots - to consider an alternative union to the Air Line Pilots Association is troubling.

The Pulldown of Pittsburgh – A Long History of Weak Hub Economics

To start, let me reiterate my views on the market: there are too many network legacy carriers; too many low cost carriers; too many regional carriers as a result of having too many network legacy carriers; and there are too many hubs which keep too many network legacy carriers and regional carriers operating.

Defining Entitlement Economics: all are conferred a lifelong right to employment and/or abundant service despite the fact that the economics of the US airline industry, particularly its domestic operations, have changed significantly since the early 1990’s.

Remember the early 1990’s: It was during this time that the industry emerged from a recession that was triggered by the Gulf War. American exited Nashville and Raleigh-Durham. Continental was emerging from Bankruptcy #? and exited Denver. Delta’s presence in the Western US, purchased from Western Airlines, was being pulled down. Other carrier’s were also reducing west coast capacity as the market was being impacted by the growth of Southwest and question marks about how successful United would be following its ESOP agreement reached in 1994. And I am confident that I have missed other significant events during this period. What I do sense, is that we are about to embark on a similar period.

The period also marked the beginning of the end for US Airways as accidents, increased competition and the hangover of management decisions to “give away the store” in collective bargaining agreements to all employees from each of the companies it acquired during the late 1980’s were being fully realized. It was at this time, that the management team was changed significantly to see just how many tricks could be pulled out of the hat of an airline with a bloated cost structure and a revenue base under attack from all directions.

Last week there were two articles that caught my eye. The first story, by Dan Fitzpatrick of the Pittsburgh Post-Gazette click here defines the unfortunate position Doug Parker, US Airways’ CEO, finds himself in as his management decisions are being challenged by an uninformed Senator Arlen Specter. An enlightened David Grossman of the USA Today click here does a wonderful job of describing the declining economics of the Pittsburgh hub while at the same time capturing the consumer friendliness of the facility. The facts outlined by Mr. Grossman were intact before US Airways’ merger with America West and should have been a signal of things to come for each the employees, customers and city fathers in Pittsburgh along with the Pennsylvania congressional delegation.

So Senator Specter:

- When you say you might not help US Airways with political issues in Washington DC - that is truly unfortunate. I thought you represented all of Pennsylvania and not just Pittsburgh. I thought that the Senate was interested in the success of companies and industries, particularly those that are inextricably linked to the health of the US economy and assuring that US industry can be as competitive as it can be in the global economy.

- US Airways has reciprocated, and has shown the Pittsburgh area consideration in return for Congress’ support in building a new airport. Quite honestly, the reciprocation has come in spades as Pittsburgh has been among the most overserved cities in the US when considering the fact that only 20% of the airport’s traffic was local Pittsburgh traffic (pointed out in Mr. Grossman’s article). Simply stated, this is just bad economics for an airline hub and all Mr. Parker is doing is making a prudent management decision that should contribute to his company’s financial health.

- Finally, your decision to fly Southwest is certainly yours and I agree that they are a very good competitor in the markets they serve. Government policy in the US aviation market has led to significant market fragmentation and as a result the consumer has benefited from lower ticket prices. But I urge you to look in the mirror and ask yourself who is serving Allentown, Harrisburg, Wilkes Barre-Scranton and Erie. It sure is not the low cost carriers that have been the darlings of Capitol Hill. It is the network legacy carriers that invest in the right sized airplanes to serve those markets when the low cost sector tries to lure those travelers to the big markets they only serve.

So US Airways East Pilots:

- When you say you are unhappy with the Air Line Pilots Association over an arbitrator’s decision and you want to leave ALPA - for the historical success of non-national unions? - be careful for what you ask for. How do you really think things will be better for you and your followers under a new union with little clout?

- It is time to simply recognize that the merger deal with America West was the most important component of the Plan of Reorganization that permitted you and the remaining work force to emerge from bankruptcy #2. Your problems began a long time ago and are not the result of this agreement. Without it, my guess is the US Airways logo (whichever one it is) rests somewhere with Pan Am, Eastern, and TWA.

So Senator Specter, you are not entitled to service in this economic environment just because you have had it in the past; and US Airways’ employees are not entitled to employment. What is troubling to this writer is to have Senators not looking around their own state and recognizing that it is the network legacy carriers that are serving “your” cities of all sizes – not just the largest markets despite the difficult economics facing the industry. If you think that the low cost carriers are the answer to your service dilemmas, then keep making statements about not wanting to help a carrier that has invested, and generated, billions in “your” economy when they visit your office in Washington DC. If you think about it carefully, your logic is circular.

To the US Airways’ pilots, your circular logic is more like the virtuous circle of failure that began long ago. You finally have a CEO that is committed to the operation, committed to finding success comprised of a network with limited short term upside and committed to avoiding a walk down the plank that promises no return. But if the world begins to change along the lines suggested by the last two posts in this blog, then it will be nothing different than the parochial interests that stood in the way of commercial opportunities at the “Old US Airways”.

“I hear the train a "C"omin'”

As earnings season kicks off for the third quarter, Delta announces great results click here and its CEO talks about consolidation click here This, is what the major newswires and bloggers picked up -- not that Delta’s earnings exceeded the Street’s expectations. The exception to these stories is Terry Maxon of the Dallas Morning News writing in his blog about the cleansing of bankruptcy which puts a different, but fair, perspective on the company’s performance click here.

One – no the best question of the day -- came from a significant trader in the airline debt world was: Will the news of Delta being part of consolidation considerations be bad for Delta CEO Richard Anderson? My immediate response was no, Anderson’s public comments have never shut the door on anything other than to make Delta the best it can be in his view and his board’s view.

So now that earnings season is underway, I just wonder how many times the “C” word will be used? We know that UAL has painted a target on its back but will others discuss the “C” word in their comments to the analysts? This, on top of an expected Delta announcement with alliance partners Air France and KLM click here, and today’s announcement click here, makes clear that the management team in Atlanta is not sitting still as it undertakes its transatlantic strategy.

Lots has been written about “unlocking value” by spinning off subsidiaries that are perceived by the market as to not being reflected in the current equity prices of US carriers. $86 oil points to a potentially mean and long cold winter for this industry. Therefore, expect the discussion of the “C” word to be included in this quarter's earnings’ overview. Moreover-- and this is true for each management and labor --remember tomorrow for this industry is about “capital creation” and not “capital recycling” or as some of my smart friends might say “capital destruction”. Or die.

The unfortunate visionary that is being left out of today’s (10/16/07) talk of consolidation is the CEO of US Airways, Doug Parker – but the earnings announcement is days away. He gave us a blueprint of how consolidation is good for the industry and individual companies in his bid for Delta. He openly talked – as to this writer’s take – on the benefits of reducing fixed costs while still maintaining access to the US air transportation system for air travel consumers in markets large and small. [I sure hope the US government reads and thinks about this statement]

What is unfortunate for Mr. Parker click here is the parochial interest of labor in the “C” word discussion. Certainly there is more to come on the US Airways situation in this blog -- but to stand in the way of market development for labor is a major mistake. It is global, it is real, it is now. So if labor thinks they are sitting in Folsom Prison and hoping that they’d moved it on a little farther down the line—stand ready.

“It's rolling round the bend"