One Year Ago Today…….No Swelblog.com

One year ago today, I barely knew what a blog was let alone think for a minute that I would own one. I remain amazed at the time it takes to “feed the blog”. The time spent reading, researching and thinking has been time well spent. This new medium is a good one. The diversity of opinion on matters in this industry is what makes it both great and frustrating during this period of change.

In my first post, Swelblog.com Taxiing Into Position, I stated: “I did not start this blog to win friends or influence anyone. I’m a data guy, and I’ve been studying the industry long enough to come up with some strong opinions . . . many of which aren’t popular in either boardrooms or union halls. My approach is analytical because, in my view, the numbers don’t lie”. Well, I know in many cases I did not win friends. And that is fine with me. Did I influence anyone? I don’t know. Do I have some strong opinions based on nearly 30 years of being in and around this industry in a variety of roles? Yes I do.

We have talked about a lot of controversial stuff over the past year: pilot scope clauses; foreign ownership; merger and acquisition activity in the US and abroad; the pull down of hubs; entitlement by labor and other stakeholders in the industry; terms of art in labor negotiations like “put it on ice” and “clear the underbrush”; rejecting comments attacking other commenter’s; sharing with readers my beginnings in this industry; Doug Parker, Glenn Tilton, Richard Anderson, Gerard Arpey, Willie Walsh, Richard Branson, Doug Steenland and other CEOs that are shaping the structure of the industry going forward; Capt. John Prater, Capt. Lloyd Hill, ALPA, USAPA, AFA-CWA, TWU and other unions; labor-management relations in general and the fact the world must be laughing at us here in the US; globalization; air traffic congestion; asset divestitures; nothing to fear from the loss of a carrier; how cool it would be to be the UPS whiteboard guy; Lufthansa and its aggressive, and brilliant, real estate plays; seniority; Lee Moak as I will not put him next to Prater and Hill; the auto industry and airlines; the banking industry and airlines; Jim “Hell NO”berstar; the Business Travel Coalition and its leader, Kevin Mitchell; creative destruction; Bob Crandall and his lost after life; Gordon Bethune; catalysts for change; executive compensation; United – Delta; Delta – Northwest; United – Continental; United – US Airways; Allegheny-Mohawk Labor Protective Provisions; the airline customer; Maryland Terrapins; March Madness; The Masters; US Open golf; US competitiveness in a global industry; wondering and wandering; Force Majeure; “Hush Money”; “A Flying Pig”; Crude oil, the crack spread and jet fuel; words that start with “c”; price elasticity; “Rent Sharing”; yawning; Back to the Future; liquidity and all things cash; unbundling; top 10 lists; STAR, oneworld and SkyTeam; Starbucks; small community air service; naysayers; speculation, consternation and detoxification; union corporate campaigns; labor arbitrage; outsourcing; capacity cuts; interdependencies; virgins; and the memorializing of dates.

WHEW. To name a few.

Not only does today mark the end of year 1 of swelblog.com, it also means that the 2008 golf season for me is coming to a close. And it has been a great year in terms of venues played: Caves Valley in Baltimore; Butler National and Medinah #3 in Chicago; Erin Hills, Whistling Straits and Blackwolf Run in Wisconsin; The Bridges and Torrey Pines in San Diego; and Wailae in Honolulu. A good year indeed. Now if I can only get that chance to play Augusta National before I die, the top 100 list will be largely played. Oh, and I do have some work to do on Long Island. For the next four days I will join dear friends (Jack Ginsburg, Pete Robison, Ro Dhanda, Bill Musto and Greg Lane) and my partner, Dr. Craig Faulks, in our annual member-guest tournament.

Readership has exploded for a blog that does not promote itself. Most cool for me is the growth in the non-US readership. I thank the students at MIT for the multiple challenges posed in answering your questions as your unaffected enquiries often prompt an idea for a blog.

First rate reporters like Susan Carey, Liz Fedor, Terry Maxon, Justin Baer, David Field, Dave Koenig, Barbara DeLollis, Ben Mutzabaugh and others offer great insight to the industry. I never know where to put other bloggers/reporters/columnists like Holly Hegeman but thanks to you as well. Whereas this blog is my own, it is made better and sharper because of people like these that challenge the industry each and every day.

Wall Street analysts like William Greene at Morgan Stanley; Kevin Crissey at UBS; Jamie Baker at JP Morgan; Gary Chase at Lehman/?; and Ray Neidl at Calyon all offer us great insight and analytically supported opinions. The chief economists at ATA and IATA, John Heimlich and Bryan Pierce, have made the trade associations most valuable resources for looking at the industry from a variety of perspectives and supplying us with material that helps to put things into a global context.

I thank the readers who agree with me and disagree with me. To know me, really know me, is to know that I do not suffer fools well. I turned 50 this year and my guess is that will not be changing much. This blog is about change and it will remain about change. Because this industry sure as hell needs to change. I hope the next 12 months results in writing more about Dubai than Dallas. But damn, Dallas is one fun place to watch, and write about, as it has it all. The good with Southwest – at least for the moment – and the bad with American.

As I close, I want to revisit a quote that I published in January as it seems most appropriate:

"Bubble to Bubble to Bubble"

At the World Economic Forum in Davos, Switzerland, yesterday [January 24, 2008], Stephen Roach, the head of the Asian operations of Morgan Stanley, slagged Mr. Bernanke for being "goaded into action just by what the markets are doing." Mr. Roach described the Fed's actions as "excessive monetary accommodation that just takes us from bubble to bubble to bubble." It is "a very reckless way of running American monetary policy," he said. "I'm quite astonished that they did what they did."

It really is hard to know what is right. For many, my views are wrong, or at least not what you want to hear. Despite many incorrect facts printed about me on this blog and on other blogs by Howard Putnam, APA folks and others, it is nice to know you are reading.

This transition from consulting to thinking has been, and will continue to be, great. I recommend it.

Jill, Sam and Romy - YOU ROCK!

Swelblog.com Taxiing Into Position

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

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

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

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

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

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

Swelbar

Scope Disparities Growing on 8/2/07

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

First Paragraph:

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

Closing Paragraph:

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

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

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

First Paragraph:

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

Closing Paragraph:

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

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

Stop The RJ-Bashing on 8/23/07

First Paragraph:

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

Closing Paragraphs:

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

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

Roger Cohen is president of the Regional Airline Association.

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

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

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

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

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

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

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

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

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

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

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

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

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