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Forbes: F9 To Cut 10% Of Workforce, Etc.  
User currently offlineNZblue From United States of America, joined Jun 2004, 638 posts, RR: 3
Posted (7 years 2 weeks 5 days 2 hours ago) and read 5571 times:

Frontier Airlines to cut indirect workforce 10%, cites extreme cost environment[

excerpt:

"Frontier...said late Wednesday it now expects a third-quarter adjusted pretax loss in the range of 58 cents to 68 cents a share, in light of a 'significant increase' in operating costs...The Denver-based carrier also said, that due to the 'extreme cost environment' it plans to reduce its indirect labor workforce by 10%, which is estimated to save the company about $5 million on an annualized basis."

Thoughts? Comments?

[Edited 2007-12-05 16:46:55]


It's an entirely different kind of flying; all together.
27 replies: All unread, showing first 25:
 
User currently offlineEghansen From , joined Dec 1969, posts, RR:
Reply 1, posted (7 years 2 weeks 5 days 1 hour ago) and read 5381 times:

Not very meaningful. Indirect employees means only back office people, not flight attendants, pilots, ramp workers, mechanics.

If the average person cut makes $30,000 per year, then $5 million only adds up to 166 people. These could be cut through attrition.


User currently offlineUadc8contrail From United States of America, joined Sep 2003, 1782 posts, RR: 9
Reply 2, posted (7 years 2 weeks 5 days 1 hour ago) and read 5382 times:

nzblue,

what is "indirect workforce"????? is this code for "non essential" workers???? sad to hear this, i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?



bus driver.......move that bus:)
User currently offlineEghansen From , joined Dec 1969, posts, RR:
Reply 3, posted (7 years 2 weeks 5 days 1 hour ago) and read 5304 times:

what is "indirect workforce"????? is this code for "non essential" workers???? sad to hear this, i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Actually "indirect labor" is a standard accounting term. You start with Total Revenue, subtract Direct Costs or Expenses which are the costs directly related to production of a product. Since pilots and flight attendents are paid per hour of flight time, they are considered Direct Labor. You can credit the cost of pilots and flight attendents to a specific flight.

The Indirect Labor cannot be applied to any specific flight, so the cost of this administrative or overhead personnel is usually applied as a percentage of other labor. For example, the accountants will add a 10%-20% premium to the flight attendant/pilot expense to distribute the overhead costs to each flight.

Have a BS in Accounting, so I know all this minutiae.


User currently offlineAirframeAS From United States of America, joined Feb 2004, 14150 posts, RR: 24
Reply 4, posted (7 years 2 weeks 5 days ago) and read 5265 times:



Quoting Eghansen (Reply 1):
Indirect employees means only back office people, not flight attendants, pilots, ramp workers, mechanics.

My defination is outsourced work?



A Safe Flight Begins With Quality Maintenance On The Ground.
User currently offlineCarsAir04 From United States of America, joined Jun 2007, 162 posts, RR: 1
Reply 5, posted (7 years 2 weeks 5 days ago) and read 5208 times:

Its never fun when people lose there jobs, essential or not. Especially at this time of the year, which seems to be the norm in any industry. I am sure a lot of others have been thru the same type of job cuts, so we all know how sad it can be around the office when people you know are let go.

User currently offlineMariner From New Zealand, joined Nov 2001, 25693 posts, RR: 85
Reply 6, posted (7 years 2 weeks 5 days ago) and read 5129 times:
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Quoting Uadc8contrail (Reply 2):
i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Some, for sure. But the major reason, as Mr. Menke has said many times, is oil at $90 bbl.

mariner



aeternum nauta
User currently offlineStburke From United States of America, joined Sep 2007, 96 posts, RR: 0
Reply 7, posted (7 years 2 weeks 5 days ago) and read 5127 times:

Hmm. And they're setting record pax at the same time. I know more pax doesn't directly translate to revenue but I did not see a loss coming. I'm sure Lynx was a large factor in the loss.


aaaand it's gone.
User currently offlineYtib From United States of America, joined Nov 2004, 578 posts, RR: 1
Reply 8, posted (7 years 2 weeks 5 days ago) and read 5101 times:



Quoting Stburke (Reply 7):
Hmm. And they're setting record pax at the same time. I know more pax doesn't directly translate to revenue but I did not see a loss coming. I'm sure Lynx was a large factor in the loss.

In the Nov numbers release they equated the difficult environment to the price of oil.

"Even though we are 40 percent hedged in the December quarter with crude oil derivatives, our current estimate of the price of fuel for the December quarter of $2.53 is a 17.7 percent year over year increase. In light of this significant increase to our operating costs, we are revising our previous guidance and we now anticipate a pre-tax loss for the December quarter in the range of $.58 - $.68 cents per share excluding special items."

Additionally, "We are also evaluating our fleet size and future aircraft deliveries to ensure the fleet is 'right-sized' to endure this difficult cost environment."

Expect to hear this from other airlines who have not stated something similar. WN announced a slower growth rate, UA stated they may park some aircraft, etc.


User currently offlineEghansen From , joined Dec 1969, posts, RR:
Reply 9, posted (7 years 2 weeks 4 days 22 hours ago) and read 4889 times:



Quoting AirframeAS (Reply 4):
My defination is outsourced work?

That would be contract workers. They would be laying them off, the contractor would.


User currently offlineEghansen From , joined Dec 1969, posts, RR:
Reply 10, posted (7 years 2 weeks 4 days 22 hours ago) and read 4864 times:

This link has a definition of "indirect labor". Sorry no one has heard the term before, but it is extremely commonly used in financial analysis, business courses and accounting.

http://dictionary.bnet.com/definition/indirect+labor.html


User currently offlineRedFlyer From United States of America, joined Feb 2005, 4376 posts, RR: 28
Reply 11, posted (7 years 2 weeks 4 days 22 hours ago) and read 4791 times:



Quoting NZblue (Thread starter):
it plans to reduce its indirect labor workforce by 10%, which is estimated to save the company about $5 million on an annualized basis."



Quoting Eghansen (Reply 1):
If the average person cut makes $30,000 per year, then $5 million only adds up to 166 people.

166 seems to me to be a lot of indirect staff to be whacking. Besides, I think $30,000 is a little on the low side, even for clerical type positions when you include other associated costs. My guess is that if they are indeed eliminating indirect labor then it's going to be a smaller number of personnel, but higher salaried. Perhaps even indirect management types?

Quoting AirframeAS (Reply 4):
My defination is outsourced work?

I think that might be a pretty good guess, although, when they outsourced some staff last year they came right out and said they were being outsourced. This time around they are calling it a labor reduction. So if they are outsourcing then they are not calling it such.

Quoting Mariner (Reply 6):
Quoting Uadc8contrail (Reply 2):
i wonder if the q400 delay and subsequent contracting to republic and expressjet along with the mem flights had anything to do with this?

Some, for sure. But the major reason, as Mr. Menke has said many times, is oil at $90 bbl.

How does $90+/bbl oil impact their cost modeling for Lynx? With the delays and the more turbid operating environment does Lynx even make sense anymore? Or does Lynx become even more critical to enhancing their bottom line?



My other home is a Piper Cherokee 180C
User currently offlineFuturecaptain From , joined Dec 1969, posts, RR:
Reply 12, posted (7 years 2 weeks 4 days 22 hours ago) and read 4765 times:



Quoting NZblue (Thread starter):
in light of a 'significant increase' in operating costs...

It is almost worded like the company didn't see this coming. I would hope the company would have the forsight to know oil has only been going up lately.

Quoting Stburke (Reply 7):
And they're setting record pax at the same time.

Crazy isn't it. I wonder how much Southwest serving DEN has impacted yields though?

Quoting Ytib (Reply 8):
Additionally, "We are also evaluating our fleet size and future aircraft deliveries to ensure the fleet is 'right-sized' to endure this difficult cost environment."

Translation: We wish we stuck with Boeing.  Smile  duck 

I'd say this could read that the A318 will be the first to go and other A318 deliveries will become A319's. But lets not jump to conclusions yet.


User currently offlineYtib From United States of America, joined Nov 2004, 578 posts, RR: 1
Reply 13, posted (7 years 2 weeks 4 days 22 hours ago) and read 4765 times:



Quoting RedFlyer (Reply 11):
166 seems to me to be a lot of indirect staff to be whacking. Besides, I think $30,000 is a little on the low side, even for clerical type positions when you include other associated costs.

Agree with you here as if you eliminate some IT positions, financial folks it will add up with a salary greater than the 30k identified by another poster. Additionally when calculating the cost for an employee you need to include in the contribution Frontier makes to FICA, Medicare, health insurance, 401k and any other benefit which would be included for the employees.

Quoting RedFlyer (Reply 11):
With the delays and the more turbid operating environment does Lynx even make sense anymore? Or does Lynx become even more critical to enhancing their bottom line?

With a lower operating cost due to the lower CASM it is a key to moving forward. Lynx has employees on a lower pay scale in addition to the aircraft being more fuel efficient than a regional jet. Additionally since they are both under Frontier Airlines Holdings, Inc. there is also a lower cost since the the flying is technically in house and not being contracted to another company.


User currently offlineStburke From United States of America, joined Sep 2007, 96 posts, RR: 0
Reply 14, posted (7 years 2 weeks 4 days 21 hours ago) and read 4751 times:



Quoting Futurecaptain (Reply 12):
Crazy isn't it. I wonder how much Southwest serving DEN has impacted yields though?

Passenger yield is down 3 percent from Nov. 2006 and down 1.3 percent on the year. http://news.moneycentral.msn.com/tic...te=20071205&ID=7906894&Symbol=FRNT
Might be safe to say this is from the Southwest effect.



aaaand it's gone.
User currently offlineYtib From United States of America, joined Nov 2004, 578 posts, RR: 1
Reply 15, posted (7 years 2 weeks 4 days 21 hours ago) and read 4700 times:



Quoting Futurecaptain (Reply 12):
I'd say this could read that the A318 will be the first to go and other A318 deliveries will become A319's. But lets not jump to conclusions yet.

Hard to change those deliveries when neither of the two aircraft you mention are on order.


User currently offlineEghansen From , joined Dec 1969, posts, RR:
Reply 16, posted (7 years 2 weeks 4 days 21 hours ago) and read 4677 times:



Quoting RedFlyer (Reply 11):
166 seems to me to be a lot of indirect staff to be whacking. Besides, I think $30,000 is a little on the low side, even for clerical type positions when you include other associated costs. My guess is that if they are indeed eliminating indirect labor then it's going to be a smaller number of personnel, but higher salaried. Perhaps even indirect management types?

Who knows? What the companies I have worked for usually do is initiate a hiring freeze. Then the extra people are allowed to disappear through attrition. Other times they require managers to fill out additional paperwork in order to hire someone who replaces a person who left. Then staffing in some critical departments gets a little thin, so management starts making exceptions. The whole thing is usually ill-defined and often poorly handled.


User currently offlineFuturecaptain From , joined Dec 1969, posts, RR:
Reply 17, posted (7 years 2 weeks 4 days 21 hours ago) and read 4674 times:



Quoting Ytib (Reply 15):
Hard to change those deliveries when neither of the two aircraft you mention are on order.

Oops, I just checked Airbus's O&D table and see all the A318's and A319's have been delivered....shows how much I keep up to date.  Smile Just 10 A320's left.
Anyway, the point remains that if FR downsizes, or "right sizes," their fleet I'd expect the A318 to go first. If costs are as imporant as they stress in the press briefings.


User currently offlineN174UA From United States of America, joined Jun 2006, 994 posts, RR: 0
Reply 18, posted (7 years 2 weeks 4 days 21 hours ago) and read 4628 times:



Quoting Eghansen (Reply 10):
Sorry no one has heard the term before, but it is extremely commonly used in financial analysis, business courses and accounting.

I have. I was going to explain it, but you did a great job and beat me to it.  Smile

Also known as "general and administrative" or "G&A" costs on the income statement.

In the short term, labor is a variable cost, and thus the easiest (unfortunately) to reduce if the company is struggling.

I haven't seen the statement of cash flows for F9, but I would bet operating cash flow figure is negative, and you can't sustain that long term before big things happen. Reducing your indirect labor force will help reduce the outflow of operating cash flows.

Very generally...you can still show a net loss on the income statement for a month or two, but if you're still cash flow positive, you're in a good position overall. However, sustained periods of negative cash flows are bad. For all you investors in F9 out there, watch the statement of cash flows going forward, and in particular the unrestricted available cash that they have.

High oil costs and economic slowdowns don't bode well. See 1991-92 for an example.


User currently offlineFuturecaptain From , joined Dec 1969, posts, RR:
Reply 19, posted (7 years 2 weeks 4 days 9 hours ago) and read 4651 times:



Quoting TinPusher007 (Reply 27):
And the fact of the matter is that airlines are simply not charging fares that cover the cost of their operations.

Yep, and if the government would step off more then the weak would perish and the whole industry would rebound. But with government money supporting failing airlines all those years ago rather than letting nature take its course we are in our current situation.

Quoting Cubsrule (Reply 21):
It's cheaper to fly a full 318 than a 319 with 16 empty seats...

First, as was said those 16 seats would probably not be empty with record load factors.

Second, the A319 has 23% more bulk hold volume over the A318 according to Airbus, so alot more cargo potential. Cargo is where the money is.


User currently offlineTinPusher007 From United States of America, joined Feb 2005, 983 posts, RR: 1
Reply 20, posted (7 years 2 weeks 4 days 9 hours ago) and read 4601 times:



Quoting MaverickM11 (Reply 30):
When you increase the ticket price, what happens to the passenger numbers, and therefore total revenue?

When you offer rock bottom fares that don't come close to covering your number one cost (fuel), that is skyrocketing, what happens to profit and therefore the financial health of your company? I see your point...do you see mine? It's a big catch 22, I know.



"Flying isn't inherently dangerous...but very unforgiving of carelessness, incapacity or neglect."
User currently offlineBennett123 From United Kingdom, joined Aug 2004, 7809 posts, RR: 3
Reply 21, posted (7 years 2 weeks 4 days 8 hours ago) and read 4541 times:

Futurecaptain

FR is Ryanair, and F9 is Frontier.

 Smile


User currently offlineFuturecaptain From , joined Dec 1969, posts, RR:
Reply 22, posted (7 years 2 weeks 4 days 6 hours ago) and read 3961 times:



Quoting Bennett123 (Reply 33):
FR is Ryanair, and F9 is Frontier.

Doh.  banghead   blush 


User currently offlineUnited319 From United States of America, joined Jul 2006, 541 posts, RR: 0
Reply 23, posted (7 years 2 weeks 4 days 3 hours ago) and read 3331 times:
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Quoting Ytib (Reply 8):
UA stated they may park some aircraft

They aren't parking any aircraft...that was just a rumor. They dont have any plans to do so right now.



It's Time To Fly
User currently offlineYtib From United States of America, joined Nov 2004, 578 posts, RR: 1
Reply 24, posted (7 years 2 weeks 4 days 3 hours ago) and read 3270 times:



Quoting United319 (Reply 35):
They aren't parking any aircraft...that was just a rumor. They dont have any plans to do so right now.

When the CFO of United Airlines states they may park some aircraft I wouldn't call it a rumor. Like all airlines they are identifying ways to handle the unexpected increase in fuel costs. If the load factors drop in the first of the year we may be hearing this from numerous airlines.


25 Post contains images Lightsaber : Its not just WN. The current market is brutal. Rising CASM (due to oil) with flat RASM. I'm surprised the airlines aren't contracting more. Personall
26 Post contains images Mariner : That's a toughie in hard numbers. The big airlines have a lot more cash in hand, $2 or $3 billion or more, compared with about $200 million at Fronti
27 B757capt : Amen
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