February 2010: Short on Days, Long on News

This month promises to be full of news in the airline industry, and potentially in a big way.  February is the month where we celebrate Groundhog Day.  And like the movie of that name, we’ll probably see some of the same stories emerge, over and over again.

Colgan, Congress and the Regulators

One of the biggest, in my view, is the ramifications of Colgan 3407, the subject of many megabytes on Swelblog.   The tragic crash of the Colgan Air flight came last year on February 12 and there have been a number of Congressional hearings since focusing on the safety of the airline system generally and the regional airline system specifically. Last week, Federal Aviation Administration Administrator J. Randolph Babbitt and DOT Inspector General Calvin L. Scovell III testified before the House on the status of the FAA’s response.. 

In its Call to Action, the FAA is looking at fatigue; crew training; pilot qualifications; training program review guidance; pilot mentoring/experience transfer programs; pilot records; and code share agreements.   

New scrutiny on code sharing comes courtesy of Reps. James Oberstar and Jerry Costello, who have demanded that the DOT IG investigate these widely-used agreements between airlines. The congressmen ask, at a minimum, that the investigation consider:

1. Whether the DOT and the FAA have the legal authority to review code -share agreements between mainline carriers and their regional partners;
2. How mainline carriers ensure that their regional partners operate at the same level of safety; and
3. Whether the flying public has adequate information about code-sharing arrangements to make informed decisions when purchasing a ticket.

As if this story needed fuel to fire the debate, PBS Frontline will air an hourlong investigative report on the Colgan crash on February 9.   If PBS publicity on the subject is any indicator, then this piece will be will be as much about sensational journalism as it is about half-truths.  Already, Frontline is making much of the low salaries some regional pilots earn in a story centered on Colgan but that by all appearances paints all regional operators with the same brush. It will be important to parse the information offered and the story-telling in this piece. 

oneworld and an Immunized Atlantic (and Pacific?) Alliance

As STAR and SkyTeam fortify their alliances with new partners, anti-trust immunity and “metal neutral” joint ventures; American, British Airways, Iberia, Finnair and Royal Jordanian await word as to whether the third time will be a charm for oneworld to operate with immunization across the Atlantic. In a January article, Lori Ranson of Airline Business writes about some of the issues before the regulators.

This is only one big decision affecting AA – another is the continuing saga regarding whether Japan Airlines will stick with oneworld or submit to entreaties from Delta and join SkyTeam.  [NOTE:  JAL announces its intention to stay with oneworld on 2/9/10]  The media has been all over the board on this one, with this week’s predictions going oneworld’s way. This story has had more leads from unnamed sources than even the rumored merger talks in past years involving Continental and United, and United and US Airways.

But one thing is certain, and that is February 10, 2010, when four slot pairs become available to US airlines to serve Tokyo’s Haneda Airport under an “Open Skies” agreement between the U.S. and Japan. [DATE moved to 2/15 due to weather in Washington DC]  Initial applications for those slots are due this Wednesday, with final submissions due to the US Department of Transportation by March 1, 2010.  The winner could be flying as early as October of this year when the fourth runway at Tokyo’s downtown airport is scheduled for completion. 

As part of the pact, Japan also made immunized alliance relationships for JAL and ANA a condition of the deal. And it has long been thought that if applications for immunity were not made by mid-February then it would be difficult for the US government to complete the necessary analysis in order to meet the October deadline.  Few, if any, ATI applications have been approved in eight months or less.

United/Continental/ANA have already applied.  JAL is bankrupt but needs to pick a partner soon.  That means that the ongoing soap opera playing out in Japan may soon be coming to an end. 

The National Mediation Board and Airline Strikes

On January 21, 2010 the Association of Professional Flight Attendants (APFA) ended a two-week intensive bargaining session with American Airlines without reaching a deal. Leading up to these talks, the union had been working hard to rally its members, even going so far as to stage a mock strike with limited impact. Next up:  yet another round of mediated negotiations in Washington, DC beginning February 27.

Serious industry watchers may conclude that a a round of talks in Washington at this relatively advanced state of negotiations could mean that a “release decision” is imminent.  Another viewpoint is that the NMB might be more likely to put the negotiations “on ice” given the wide gap between what the union demands and the company believes it is able to provide.  Even in historically difficult times for the US airline industry, the APFA’s rhetoric suggests that the union will pay little to nothing in efficiency in return for the improved economics it seeks.  So these talks may be the next milestone marking how Obama’s NMB will deal with labor negotiations in the airline industry.

If nothing else, the APFA has been reckless in talking about a strike.  Long-term observers may recall that the union pulled off a coup in 1993 with a strike even the airline didn’t think would happen; and the union leaders seem to think they could do it again.  So as APFA’s strike talk continues, American did what a responsible airline must do, confirming in a media story that it is working with the FAA to prepare, if necessary, to train replacements if the APFA strikes.  Clearly the news story made a few APFA members nervous as, shortly thereafter, APFA President Laura Glading criticized the company, calling its contigency plans "an ill-conceived and doomed strategy." My question to Ms. Glading is:  How, then, is your strike rhetoric not an ill-conceived and doomed strategy not only for your members but for all employees at American Airlines?

As a footnote, last week the story took an amazing turn with news that former TWA flight attendants – nearly all of them furloughed after the APFA put them on the bottom of the seniority list following AA’s acquisition of TWA's assets -- would be willing to cross a picket line and work if the APFA went out on strike. Now I wonder how much time Glading is spending reliving the strike of 1993 when faced with the prospect of an airline ready with trained replacements at hand, including a group of flight attendants with an axe to grind against her union?

Finally, February may be the month we get a decision from the NMB following the effort of two Board members to change by fiat the law that governs labor law in the railway and airline industries and would make it far easier for unions to organize workers.  The decision has, however, generated a tremendous amount of comment and controversy, so we may be waiting until March Madness for that story to break.

Stay tuned. It may be a wild ride.

Swelblog’s 12 Airline Industry News Items of 2009

It is that time of the year again when it is time to put the packages under the tree. The packages represent my 12 days of Christmas, or the 12 airline industry issues that took place in 2009 that I find important. I have placed my packages under the tree in descending order of importance.

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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.    

Colgan 3407: Fatigue, Commuting and Compensation

Justin Bachman at Business Week is fast becoming a must-read aviation reporter. In a May 17, 2009 column, Bachman asks: Have Airlines Cut Too Deep? This question of course was also being asked at the NTSB hearings on Colgan Airlines flight 3407. What makes Bachman’s work a must read is the context he provides on the economics of the situation. That is what the best reporters do.

But context in the reporting on Colgan 3407 was generally lacking in many of the press accounts. We read about the most sensational aspects of the story, like one pilot commuting from Seattle; like the other sleeping on a couch in the crew lounge; like the salaries paid at regional airlines; that somehow flight time/duty time was at issue; and of course fatigue. You didn’t need to read too far between the lines to see the supposed correlation between salary and safety.

Fatigue and Commuting

Unless the flight crew was on a suicide mission, this is a grossly unfortunate attempt at sensational reporting. It is incumbent on flight crews that choose to commute to arrive at their domicile rested and fit to fly a schedule that complies with flight time/duty time regulations. And through it all, there was no mention that “Sully” Sullenberger lives in Danville, CA and is based in Charlotte, NC. Or that the same flight time/duty time limits that applied to Sully’s trip applied to the Colgan crew’s trip as well.

Fatigue is a difficult issue. To conduct a meaningful scientific study, one must first assume that the crew is rested prior to the trip that they are scheduled to fly. That is their responsibility. In the case of the Colgan crew, the two pilots did not meet that obligation to the company, their fellow crew members or the passengers on the doomed plane. What is certain to come will be scrutiny on the issue of commuting and a debate as to whether we will return to the days when crew members are required to live in their domiciles.

Already some claim that low salaries force airline employees to live in places other than the metro areas where hubs are located. But that’s an individual choice, and most cities have a broad range of housing available.

The subject didn’t come up in the Sully case in part because, as a captain for a major carrier, he likely makes a pretty good living even after the concessions imposed on US Airways employees and so many airline workers as the industry struggles to turn a profit. But I’m pretty sure living in Danville, CA is not cheap, nor is Seattle known for its budget housing.

But long commutes for airline professionals should be reviewed and possibly prohibited if there is a connection between that travel and fatigue. And the fatigue issue cannot be studied until commuting practices are completely divorced from the regulations covering time on duty for flight crew members.

My guess, however, is that as the Colgan investigation continues, the real debate is going to involve pay.

Over the past weeks, there has been discussion here and elsewhere about the role of seniority in the airline industry and a system that chains flight crews to the fortunes of a single carrier because they risk losing the benefits of seniority if they change jobs. I’ve joined others in advocating for a national seniority list that will help crews preserve the seniority credits they’ve earned in the event of a merger of two airlines. A national seniority list also would provide portability in the event of furloughs or an airline’s shut down, meaning a pilot or flight attendant wouldn’t have to land at the bottom of another carrier’s list and all but start over.

This system wouldn’t offer a job guarantee – there’s no such thing in the airline industry -- but in the event a surviving airline is hiring, an employee would have the opportunity to compete for an open position and be paid in keeping with his or her experience.

As I envision it, a national seniority list would not serve the whims of those who perhaps want to fly for a carrier in Florida in the winter and a different carrier the rest of the year. Seniority is not necessarily an indicator of the industry’s or a company’s best employees – as important as experience is. But it does serve as the structure that governs pay and benefits.

So let’s talk about pay. Today’s regional industry is yesterday’s B-Scale. Back when the industry began experimenting with a tiered pay scale, the unions argued to get rid of B-Scale wages because one employee doing the same job with the same seniority should not be paid less than another. While the advent of the B-Scale compensation structure in the mid-1980’s led to explosive growth for the industry, the unions were successful in eliminating the two-tier wage scale in the subsequent round of negotiations.

Today, regional carriers like Colgan, Comair, American Eagle and others account for roughly half of all domestic departures. The regional sector has experienced explosive growth because small jet aircraft have allowed airlines to continue to serve smaller markets that couldn’t support bigger planes, in addition to cost and competitive pressures in the industry that have forced down average wages and benefits.

Here is where Business Week’s Bachman provides the proper context: “Anyone horrified by Shaw's [first officer on Colgan flight 3407] salary must also confront their own primary motivation when booking an airline ticket: finding the lowest possible fare. The two are connected, say airline executives and pilots. "People will spend three hours on the Internet to save $8," says Arne Haak, vice-president for finance at AirTran Airways (AAI). "You know this! You do it yourself."

So, What to Do?

Pay rates for pilots have been largely dictated by the size and weight of a particular aircraft type. Supporting this is the idea that more responsibility is associated with flying 250 people versus 130 or 50. The recent NTSB hearings highlight the pay discrepancies between mainline pilots and regional pilots. They are very different sectors flying very different revenue generating flights. But . . .

The pay differences between the mainline and the regionals have become too great. In many ways, the gap between what captains earn and what first officers earn has grown too large. It used to be said that unions employ practices that eat their young. But with an industry in contraction, we have reached a point where current pay practices even eat the old. As the legacy carriers are forced to reduce capacity even further, we now have former captains flying as first officers on the mainline. That’s taking seat progression the wrong direction.

Much has been made about executive compensation in this industry and across the US. But perhaps we should look at pay practices elsewhere in the industry as well. Should a pilot flying 130 passengers be paid three times more than a pilot flying 50 passengers? I think not. Just as it is time to rethink seniority; it is also time for the airline industry to rethink how flight crews are paid. With lighter materials ensured on tomorrow’s airplanes, weight becomes less of an issue. Carriers’ fleets are increasingly made up of smaller aircraft. Perhaps it is time to shed the complex calculation that goes into pilot pay, and consider salaries for cockpit personnel and flight attendants.

Such a system certainly would have better served the first officers at the mainline today who once sat in the captain’s seat. Those pilots took a disproportionate cut in pay relative to the captains that were not forced to move from the left seat to the right during the last restructuring. Given that segments are typically divided between captains and first officers, the industry should reconsider the 35-50 percent difference in their pay. And differences between the mainline and their regional partners should not be 200 percent.

I am certain that a transition to a new pay system will increase costs to the industry. But either the unions get their arms around the issue and come up with a more equitable system, or someone will make that decision for them. Pilot wages are inextricably linked to the industry’s ability to bring in revenues. As we continue to rethink what will help strengthen our domestic airline industry, we should also be thinking about how we allocate those pilot labor dollars.

I am suggesting a sea change in thinking about compensation. Further what I am suggesting will require a challenge to those who fail to recognize new realities in the industry, among them some of the union leaders who have responded to new competitive challenges with nothing but stubborn recalcitrance. In an industry that cannot earn a profit on a sustainable basis let alone earn its cost of capital, maybe the compensation structure that Captain Sullenberger speaks to should be changed to in order to obtain the best and the brightest on all levels.

The upside would be less but the perception that somehow safety of the airline system is somehow tied to salary would be addressed. Moreover, a salary structure is more stable, more predictable, more in line with revenue picture that drives the global industry and certainly more in line with an industry that will not experience the rampant changes in technology that drove productivity of employees in the past.

It is a conundrum. But while in the restructuring mode, address the fundamentals. The airline industry can learn from the head in the sand mistakes made in the auto and steel industries because if not fixed, the industry will continue to contract.