Wednesday, September 14, 2005

Where Axe-Murderers Come From

The last couple days brings news that first Delta and now Northwest Airlines are preparing to seek bankruptcy protection. These carriers join United Airlines, operating now for some three years under bankruptcy, and USAir, which, in the midst of bankruptcy, is attempting to merge with America West. (I can’t fathom how a decimated company could merge with anyone, short of a buyout; and why would anyone want to buy a business shown conclusively to be unable to make money?) Continental has been thru bankruptcy two or three times, and only American has not dipped their toes into this corrosive water. One can only imagine what American will do at the prospect of having to compete with a bunch of airlines whose costs of running responsible businesses (or whose intentions even to run responsible businesses) have suddenly evaporated.

I am incredibly fortunate that I’m employed in the cargo side of the airline industry, which is traditionally more stable and less susceptible to general economic trends. But I flew for almost eight years on the passenger side of the airlines, and most of my flying friends & acquaintances are people-fliers. And I feel for all of them, and for what must be the unbelievable frustration at seeing their chosen industry--hell, their whole profession--self-destruct, taking their dreams for the future with it. We are witnessing the placing of a gigantic, multi-billion dollar industry into the grinder. And what is coming out the other end is ugly and sad.

I admit up front that I don’t know shit about business. But I have to wonder, as I watch this disaster unfold, whether I know so much less than those who are paid millions to run these companies. The concessions for the airline industry since 9/11 have come directly out of the hides of the workers, and from every job description except, it seems, airline management.

A friend of mine at United estimates that the pilots have conceded something approaching 70% of their total year 2000 compensation package, and the company’s outlook is such that it’s still unable to secure the financing necessary to emerge from bankruptcy protection let alone turn a profit. If that’s not clear enough: the gigantic concessions yanked from the employee groups have not saved the companies. How is this possible? How can expenses exceed revenues by hundreds of millions of dollars per company per quarter, quarter after quarter, and the companies’ managers fail to simply charge what is necessary to pay the bills? How can such a business model exist? How can it be called the forces of competition when those same competitors--most of the industry’s capacity--are charging billions less than their break-even point? How are the people running these companies not lynched, to say nothing of their retaining their jobs?

But there it is. The airlines have instead engaged in an aggressive, slashing race to the bottom, with companies literally competing to see how deeply they can cut into the flesh before some limiting bone is reached. Northwest’s mechanics finally put their feet down at the prospect of additional severe pay and benefit cuts plus the exciting new prospect of farming out half of their jobs to cheap, overseas labor. And guess what? After pretty much breaking this union the company is going to seek bankruptcy protection anyway! My god, but I can understand completely why someone would want to go up into management’s offices and hack everybody to pieces with a machete!

And where have the unions been during this implosion? The Air Line Pilot’s Association represents the great majority of airline pilots in this country: United, USAir, Northwest, Continental, Delta and America West are all ALPA carriers (along with many other carriers). Virtually every one of these passenger airline pilot groups has been faced with multiple, deep pay and benefit cuts, whether they've been in bankruptcy or not. But rather than use this broad, industry-wide representation to speak from the point of view of the whole industry’s pilots--to speak with the voice of the profession--ALPA seem to have presided with little more than grumbling over the piecemeal dismantling of the entire profession. It will take years of profitable operation from well-managed airlines before any of these jobs approach a return to their previous standards. And perhaps we’ve seen the turning of a page, a moving on from something we’ll never see again. Hindsight, of course, is 20/20. But could no one at ALPA see this coming? Could we not have foreseen that the losses to all of us will increase exponentially and permanently as a result of these concessions? Should the line not have been held after the first round of concessions, come what may? And what plan is there now to try and find the phoenix in the ashes?

These companies used to provide viable livings for many thousands of American workers, ticket agents and baggage handlers and flight attendants and mechanics and cleaners and dispatchers and drivers. A person went to work for an honest 40 hours and had a decent paycheck and health care and, for some, a secure retirement after they devoted their finite working years to a company’s prosperity. In the case of airline pilots, this used to be a profession of some prestige and attainment. A pilot’s job is simply not something that can be done (to any degree of safety) without years of very technical training and hard-won experience, and the status of the job reflected this.

But as all these jobs are being gutted, there are myriad stories about management’s golden parachutes and secret retirement accounts, about years of inflated bonuses and stock options (these latter not worth much now, I guess), all as compensation for running companies such that the airlines must now have their airplanes maintained by foreigners making $6 an hour because they can’t generate the revenues necessary to honor their contracts.

And saddest of all? After ALPA has sat by and agreed to each company’s frantic claims that large wage and benefit concessions are necessary for the company’s very existence, no pilot group is now in a position to say that since the concessions accomplished exactly nothing they subsequently want their last 30% pay cut back. No bankruptcy judge will fail to note that the industry has become a shadow of its former self, and to a large extent by its own hand.

So I have a suggestion. My first impulse is to recommend a return to regulation. I don’t know enough about business to know how viable this suggestion is, but what IS clear to me is that if market regulation results in regular cycles that put so many thousands of people’s livelihoods in jeopardy, then it is too expensive not to be controlled to some degree. Beyond that, I would suggest that some jobs simply cannot be farmed out and we need to restructure to enable living wages to be paid to support an important industry. Cleaners and baggage handlers and flight attendants and pilots must be present to do their jobs; these are by definition domestic jobs, and they must compensate workers so that they can live in their own communities.

Airline management, however, can easily be farmed out. So I recommend that upper- and middle-management positions be ceded to eager, well-educated folks waiting in India or Asia or South America. Skip the bonuses and stock options and high six- and seven-figure salaries and just pay ‘em a flat five bucks an hour. That’s a good living where they come from, right? Right?


Joshua said...

Though I think that last sentence was NOT in earnest, it is true. We should never fail to realize the difference in our dollar verses the foreign dollar, and to make sure we make the best of that, we should farm out the higher paying jobs, rather than the lower paying ones.

I think this situation is different from so many others in that the market is actually dictating the product, rather than the other way around. People, more today than ever, NEED to fly, but can still easily refuse to do so if they price isn't right. Couple that with )aprdon the horrible pun) fly by night airlines that can offer fares far lower than they can afford (to steal marketshare and, later, hike up prices) and the climate is such that everyone has to slash a wrist to make a buck.

The solution is even worse, becuase it all but eliminates the industry. Soon, people will use more cost effective options (like telecommunications) more exclusively, and the air travel business will be left ot the tourists. Since tourists are willing to pay far more than market value, the airlines can them afford to charge more and make up the difference.

That, of course, only saves the airlines. Plenty of jobs will be lost, because the volume will no longer be there (something, I think, that is already happening)

So those pilots and bag chuckers need to get a degree in comp sci soon, I guess, is what I am saying.


wunelle said...

Yeah, I was perhaps not in the best frame of mind writing that post! I appreciate the injection of sanity (to say nothing of my thanks that you bothered to spend half an hour reading it in the first place).

You're right about the market dictating the product, and that's not something I had thought about before. But I think the predictions about passenger travel being negatively affected by technological advancement (while I believed it myself) are perhaps not destined to come true. Passenger airline travel, at least according to the studies I've seen in the past couple of years, is projected to grow rather markedly in the next couple decades.

But I agree that market forces will tend to cull the fat out of the system, at least in its present form. A prior post raised the questions about what people are willing to pay for in their travel needs, and I suppose this ought not to be a surprise, really.

Thanks for the comment.