737doctor
Topic Author
Posts: 1291
Joined: Mon Mar 19, 2001 4:52 pm

Do You Think That Cuts In Labor Costs Will Work?

Sat Jan 25, 2003 4:50 pm

Do you think that cuts in labor costs will save the troubled airlines?

Read this article:
http://www.usatoday.com/money/biztravel/2003-01-20-airlines-cover_x.htm

I liked this part especially:

Most big airlines are trying to cut costs by 15% to 20% from 2000. So far, they've found ways to save about half that. Much of the rest is likely to come from labor, in pay and benefit concessions, and big productivity increases. Getting those savings could be torturous for airline managers and workers, and for travelers and communities caught in the middle.

"Labor cost savings never come easily or quietly," says debt analyst Phil Baggaley of Standard & Poor's.

Swierenga doubts such large savings are possible. Even if they are, they won't solve the problem.

"I've never known of any company that cut its costs by that much without cutting its revenues by as much or more," canceling out any benefit, he says. "You almost have to rely on the marketplace to generate additional revenues" to go along with big cost savings."


and this:

Robert Crandall, retired CEO of American, suggested last fall that old-line carriers such as American, United and Delta, saddled with many arcane and expensive work rules, could "cut 30% of their labor costs without touching one dime of (workers') pay or benefits." But lots more jobs would be lost.

More likely, airline managements will ask for a combination of productivity improvements and cuts in pay and benefits, spreading the pain around and putting union leaders into a tight box.


OK, so you plan to save money through layoffs and by taking away pay and benefits from your employees, thereby demoralizing those who remain, and then expect them to be more productive?

Good luck with all that.
Patrick Bateman is my hero.
 
gigneil
Posts: 14133
Joined: Fri Nov 08, 2002 10:25 am

RE: Do You Think That Cuts In Labor Costs Will Wor

Sat Jan 25, 2003 4:53 pm

I think restructuring arcane labor rules is imperative... and should go a long way to cut cost without demoralizing the troops.

But I also agree that cutting costs without focusing on increasing revenues is tantamount to suicide.

N
 
737doctor
Topic Author
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Joined: Mon Mar 19, 2001 4:52 pm

RE: Do You Think That Cuts In Labor Costs Will Work?

Sat Jan 25, 2003 5:06 pm

I think restructuring arcane labor rules is imperative... and should go a long way to cut cost without demoralizing the troops.

I agree. But I doubt they'll stop there...

Patrick Bateman is my hero.
 
DCA-ROCguy
Posts: 3903
Joined: Fri Apr 21, 2000 5:03 am

RE: Do You Think That Cuts In Labor Costs Will Work?

Sun Jan 26, 2003 3:07 pm

Crandall's one of the two or three most brilliant airline CEO's of the past few decades. If he thinks that the network carriers can save big bucks through productivity increases, I'd be inclined to believe it. I've read many articles elsewhere (Aviation Week, Washington Post) that suggest the same thing. Outright wage cuts are certainly justified, though, for certain employee groups who are getting them; United's pilots come to mind. Maybe via unannounced, random, pay slowdowns and cancellations? Selected by passengers?  Big grin

But the network carriers also have to have clear business plans, in order to thrive. Above all, as Delta's Mullin has recently said, the hub system is *not* broken. Hubs (and regional feeders to serve these hubs) are a network carrier's core strength--connecting lots of smaller communities to bigger communities, and concentrating pax for efficient distribution. But pax may need to tolerate somewhat longer "debanked" connecting times, in order to reduce the airline's hub costs to tenable levels.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
737doctor
Topic Author
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Joined: Mon Mar 19, 2001 4:52 pm

RE: Do You Think That Cuts In Labor Costs Will Work?

Sun Jan 26, 2003 5:40 pm

Jim, I agree with you about Crandall. He definitely is one of the most influential airline CEO's in history, although I didn't always agree with his motivations and methods. I guess I should make a distinction here; I think that it IS possible to streamline operations without cutting wages and benefits thereby increasing productivity, but I doubt that few workers will work harder after having their pay cut and increase an airline's productivity in that manner.

Patrick Bateman is my hero.
 
apathoid
Posts: 887
Joined: Fri Sep 28, 2001 3:19 pm

RE: Do You Think That Cuts In Labor Costs Will Work?

Sun Jan 26, 2003 5:42 pm

No way. I think that the only salvation is in re-regulation. And, I also think regulation is absolutely inevitable at this point as well. Government steps in, ALPA gets busted, all is well again.
 
jwenting
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Joined: Mon Apr 23, 2001 10:12 pm

RE: Do You Think That Cuts In Labor Costs Will Work?

Sun Jan 26, 2003 5:58 pm

In an industry where labour cost is such a major factor it can indeed help (if a company has a billion dollar expected loss and can reduce labour cost by 1.2 billion they suddenly have 200 million profit).
But it is only a stopgap if the measures aren't permanent.

I also seriously doubt it will work. Unions aren't known for thinking with companies. They see only the shortterm effect which is members who aren't happy that their fat paychecks get trimmed a bit so they go on strike making the situation only worse (and in the end everyone looses their job).
I wish I were flying
 
NKP S2
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Joined: Mon Dec 20, 1999 3:16 am

RE: Do You Think That Cuts In Labor Costs Will Work?

Mon Jan 27, 2003 3:57 am

Don't generalize much, do you?  SmileThat's rich...spoken like a true desk jockey. -- I guess when managements ( of many industries ) sell their seed corn, in deference to impressive quarterly results, then that's just "business" huh? See? I can be just as hyperbolic as you-- though I realize I was being hyperbolic....You, on the other hand............
 
goingboeing
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Joined: Sat Dec 04, 1999 1:58 am

RE: Do You Think That Cuts In Labor Costs Will Work?

Mon Jan 27, 2003 4:24 am

No way. I think that the only salvation is in re-regulation. And, I also think regulation is absolutely inevitable at this point as well. Government steps in, ALPA gets busted, all is well again.

So...the only salvation is to punish the carriers who have succeeded in a deregulated environment by reregulating the industry.

Labor cost cuts alone won't save any airline. They need to also look at their revenue models. Before taking such a drastic step as reregulation, why not "force" the failing carriers to examine the need for 21 different fares for a given route? Why not "force" the failing carriers to examine their ludicrious rules involving changes? Why not "force" the failing carriers to explain why it is necessary to have a difference of thousands of dollars between their lowest advance fare and their unrestricted fares?
 
NKP S2
Posts: 1665
Joined: Mon Dec 20, 1999 3:16 am

RE: Do You Think That Cuts In Labor Costs Will Work?

Mon Jan 27, 2003 4:30 am

Anyway, to answer the original topic, my opinion is: Yes and no. They can help in the short term for a cash-crunched company barely limping along. But since there are so many other factors, it may just prolong a downhill slide just the same. -- They will not work long-term if said cuts are merely used to mask/mitigate inefficiencies elswhere. Every little bit can help....and every little bit can hurt.
 
DCA-ROCguy
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Joined: Fri Apr 21, 2000 5:03 am

RE: Do You Think That Cuts In Labor Costs Will Work?

Mon Jan 27, 2003 5:24 am

Jim, I agree with you about Crandall. He definitely is one of the most influential airline CEO's in history, although I didn't always agree with his motivations and methods. I guess I should make a distinction here; I think that it IS possible to streamline operations without cutting wages and benefits thereby increasing productivity, but I doubt that few workers will work harder after having their pay cut and increase an airline's productivity in that manner.

Crandall was concerned with empire-building and profit making, both of which he did extremely successfully. He didn't care a whit for either passengers or employees; his concern was to destroy competition and make American the world's largest airline (which he did see briefly during his tenure; Carty had to regain the title for AA later).

The two-tier fare structure, the two-tier wage structure, the FF program, the DFW hub, protecting the Wrong Amendment and keeping fares high in Dallas and the south-central US....Crandall's list of industry-shaping accomplishments, for good and bad, is long. The two-tier fare structure only put off the day of reckoning when the network carriers had to cut their high cost structures. For two decades it worked, and corporate travel departments tolerated it.

But now corporations won't tolerate it, and pax know that they can get lower leisure fares on safe, high-quality low-fare carriers. Crandall's solution has come apart, and the day of economic reckoning is here. The network carriers must reduce their cost structures, and dependence upon $500-$3000 domestic coach unrestricted fares, in order to survive.

Jim

Need a new airline paint scheme? Better call Saul! (Bass that is)

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