Airline Wages | Percentage Of Revenue

[Guest Operation Bomberclad]

COSTLY LABOR

Big airlines have higher labor costs than many of the smaller, low-fare operators. Labor costs as a percentage of revenues in 2002

United 49.7 percent

American 48.5

US Airways 46.7

Delta 46.3

Northwest 40.5

Southwest 36.1

Continental 35.2

Alaska 31.7

America West 29.1

ATA 27.8

AirTran 27.7

JetBlue 25.5

Source: the companies

http://www.bayarea.com/mld/cctimes/business/5300403.htm

[Guest Starman]

It would be interesting to see the stats for Air Canada and Westjet, and also to see them broken down by employee group (including management).

[dragon]

Yes, that would be interesting, as well as an employee group per aircraft breakdown.

You are a bright guy Starman, go find out.

[dragon]

Yes, that would be interesting, as well as an employee group per aircraft breakdown, including management..

You are a bright guy Starman, go find out.

[dagger]

In Air Canada's year end 2002 press release, salaries and benefits are 31 percent of operating costs. I don't know whether that is with or without Jazz. Logically, if Jazz and Zip are excluded, the percentage of remaining operating costs would be higher.

I believe AC has about twice as many employees as WJ per aircraft, but that number is full of apples and oranges comparisons. AC flies both very large (340, 747) and very small (RJ) while WJ has a uniform fleet. AC does third party maintenance, runs a large cargo department, handles most of its own stations with little subcontracting, operates Aeroplan, destina, etc. But any way you cut it, from the comparisons I have seen at financial presentations, AC is overstaffed not only vs WJ, but also every single full-service US carrier. If AC had freedom to lay off and more productive work rules - comparable to the rules at its US competitors - there would be at least 5,000 fewer employees, maybe a lot more.

[Guest GDR]

I think that we all know that we are overstaffed at AC.

Milton has indicated that he wants to grow the airline to take up the surplus employees. How feasible is that?

Is it possible to grow domestically in the low cost market, or would we basically have to work to keep the domestic revenue that we are getting now?

If we are unable to grow domestically that only leaves transborder and international and the transborder is very soft as it is. Do you think that we could grow on the transborder market with a low cost option.

I know that nobody has a crystal ball but I appreciate your opinions.

Cheers

Greg

[dagger]

Generally, you can't shrink to profitability unless you shrink every aspect of your costs by an even greater percentage. AC's debt doesn't shrink, so you have to have an operation capable of generating enough profit to cover debt service and maybe help boost the stock price. So if the airline shrinks 20 percent, it's not enough to shrink costs 20 percent, you would have to cut even more. So I don't like shrinkage scenarios unless they include both jobs and wage cuts and creditor concessions.

You can grow out of your overstaffing situation, but there is the short-term uncertainty of the war. Beyond that, the catch is that the work rules practically force you to hire additional people in some areas even though you have ample in others. So you need really good yields to make these new situations work, but new situations usually take some time to become profitable. If you could amend work rules so that the company could offer new flying cheaply, meaning essentially very little additional labor cost, it would make new situations more profitable, and much sooner.

It may be that if we have a war and people stop flying in larger numbers that a wage cut - at least for a year or two - is required in any scenario. However, longer term, the answer to Westjet is to lower your own costs through work rule reform so that surpluses can be reallocated and no additional labor cost is incurred. That would average down unit labor cost significantly.

I'm told AC has an attrition rate of four percent. In time, through growth and attrition, a larger Air Canada than today would probably employ fewer people than today. There would be no surpluses. At that point, the unions would probably want to lower entry rates for new employees to further ratchet down unit costs.

My own view is that AC should not try to add domestic flying and perhaps do less, but do it sustainably - meaning do it with lower unit labor costs and hence better operating rules. AC has to offer significantly lower fares - not just on Zip and Tango and Jazz, but on mainline. An AC full fare would still be higher than a WJ or Zip full fare, but not by a ratio of three or four to one as you have now. The big growth would be international. With a lower cost base I would reinstitute some transborder flying that has been cancelled - the long-haul A319 variety - and I would offer a lot more intercon product. But again, the costs have to be lower so the airline doesn't lose half a billion dollars every winter.

[Guest Joe Chiang]

San Francisco Chronicle on Dec 14, 2002 posted differeent percentages for cost of labour:

Delta 43.4%;

American 42.3%;

US Air 42.3%;

United 41.8%;

Southwest 39.0%;

Northwest 38.2%

Alaska 34.0%;

Continental 32.3%;

Jet Blue 30.9%;

Air Tran 28.5%; and

American West 27.3%.

These are very different numbers!

Joe Chiang

[Guest neo]

I'm of the opinion that a lowcost transborder operation is a virtual necessity, as well as being a desirable venue for growth.

Consider: within a short while, WestJet will go transborder on scheduled service. This will further decimate our current yields. Additionally, as U.S. carriers tear up their labor contracts and lower their costs, they too will have the ability to eat our transborder lunch. Based on those two likelihoods alone, what alternative do we have?

Despite what I see as the imperative in this situation, it can also contribute mightily to what saves us. Growth is what we need to move ahead.

Also, about those excess employees... I believe that our company and employees should be exerting the maximum leverage possible to convince the federal government to provide funds for early retirement. These funds should be provided out of Employment Insurance and used to 'top up' an employee's pension. For example, an employee agrees to retire a year early under the plan. He receives his pension and in addition EI benefits up to a maximum of his former normal wages.

Employees and employers have been overcontributing to the EI plan for over a decade now. The plan is overfunded by billions. AC employees have contributed a lot of money that's never been needed, and I think it's time we got some of that back.

Best wishes,

neo

[dragon]

AC IS overstaffed and as you have mentioned many times, these archaic no layoff clauses, including any economic protections the pilots enjoy must be addressed and eliminated, sooner rather than later.

I was not using WJA for a comparison for some of the reasons you mention. What about an average of other NAFSAs? As well, Maint, Cargo, Destina and Aeroplan will eventually run parallel but separate. It should be easy enough to separate the employees there from the ones which provide the support for the A to B of our aircraft.

Another problem must certainly be the management status. A fat and unproductive, self serving and protectionist structure, one born in the 60s and still awaiting its first birthday.

Could you comment on those figures dagger.

[dragon]

Excellent response to both points neo.

[Guest bcpilot]

I agree with the idea of growth. I think there are alot of markets that could be served south of the border with a discount carrier.
Early retirements would be a great thing too, however, I think you could be hard pressed to get any government funding for "topping up" There are lots of people in other sectors that have paid into the fund for a long time as well, that would love to take early retirement. If the government was to give AC money for it, everyone would be in line with their hand out. It is nice to see people with some constructive ideas though.
Keep up the good work

[DEFCON]

Neo

The gov has stated that Ontario is responsible for 80 - 85% of the EI surplus. This is not a surplus, in reality it was and continues to be over taxation of one segment of the population. We in Ontario want OUR money back!

Early retirement is a grand plan but, do you think the auto worker, the grocery clerk, the bank teller, etc., all of whom are facing job losses are going to sit by while the Feds provide early retirement funds to persons in the income range of the AC employee group?

And let's get real...to survive AC needs a WJ package across the board today, not tomorrow and that has as much chance of happening as does a snowball's chance of survival in hell!

[Guest neo]

You're right, the feds won't consider handing out EI funds to every Thomas, Richard and Harold that comes looking for an early buy-out.

But in Air Canada's case the alternative is that many employees are otherwise going to involuntarily be on the street. Those laid-off employees are going to be collecting EI. So the only difference to the money the feds would spend would be the difference in EI benefits between those paid to higher seniority, higher income individuals and those paid to lower seniority, lower income individuals. I propose that the difference is within reason, and certainly politically do-able.

It's not as if the EI draw down is simply giving senior workers a paid holiday. Those funds will largely be used anyway if the cutting starts.

Best wishes,

neo

[DEFCON]

According to company numbers Jazz is on par or just slightly less than SWA.

Anyone care to guess where AC's are?

[Guest neo]

I won't publicly comment on the chances of either of those proposals coming to fruition, but I certainly think the early retirement benefits are do-able, politically-speaking. Who do you think got AC into this over-staffed mess in the first place, hmmm?

As to a WJ-like enterprise across the board, or as a significant part of the New Air Canada, I'll just say, "Wait and see."

neo

[Guest GDR]

Thanks Dagger

How about international. Would it be feasible to have a J class section up front, and with the back end all low cost? Maybe CARA could set up a hot dog stand as folks got on and sell them their cold meals.


Greg

[DEFCON]

"Who do you think got AC into this over-staffed mess in the first place, hmmm?"

ACPA, the other unions (me too) & Milton?

"As to a WJ-like enterprise across the board, or as a significant part of the New Air Canada, I'll just say, "Wait and see.""

Yea, I'll have to wait and see. Here's my thoughts of ACPA's vision for the future.

Kill Jazz by giving the Dashes to T3 and the RJ's to mainline. Mainline will fly pencil jets at Jazz rates. I'll bet this is pretty close to reality. Problem though, it won't work because AC is a lame duck!

What people don't see coming is that the give back today program will lead directly to the give back more tomorrow program (CDN). The Feds want AC to have 50% market share and the low pay competitors are increasing in number and size rapidly and AC has been managed into its present state. Do you believe these same people can fix it now? By virtue of its design and political interference AC will never be in a position to compete and won't resemble anything close to its former self a year from now regardless of employee give backs. "Wait and see".

[Guest neo]

Yes, that's right, only time will tell. Mind you, it wouldn't surprise me if the future looked a lot different than either of us expect.

neo

[DEFCON]

One can only hope!

[dagger]

The airline has talked about an intercon version of Tango, all economy 767-300s, 290 seats, would fly summertime to places like Ireland, Spain, Budapest, etc. Winter, they would fly to beaches. With loads like that, per-seat costs are much lower than the conventional 220-seat layout. Layer on some productivity improvements or lower wages, whatever, and they might be very profitable flights. You might also do India on the same basis. India is extraordinarily price sensitive, and there really isn't a big J market. So you need very low costs to make a decent profit. But I wouldn't expect to offer a discount product on the trunk routes to Western Europe and Asia.

[Guest shibui]

For my sins I have flown in and out of India six squillion times and have never once seen an empty J seat.

Maybe the big spenders just like flying with me personally?

[Homerun]

AC had revenue (mainline) of about 9 billion last year. Labour costs are 3.1 billion. 34.4%.

[DEFCON]

Are those numbers AC mainline alone or do they include Jazz and Zip?

[Innuendo]

I wonder how many of those J pax are actualy big spenders or are they "baksheesh" upgrades?