Could Technology End Airline Delays?
Are you a fed up air traveler? You’re not alone. Delays and cancellations seem to have become the rule this year, but there is a better way. Technology and free markets could vastly improve air travel, if politicians will allow them to work.
It’s become popular to blame air travel woes on deregulation, just as California pundits and politicos are blaming a freer energy market for rising electric bills. In both cases, competition and free markets are unjustly taking the fall in public commentary. California eliminated some restrictions on the sale of electricity. But state government and the Feds continue to regulate energy production, while environmental groups block the creation of new power plants, which makes it difficult and costly to generate electricity. If it costs a lot to generate power, you can only squeeze so much savings out of new marketing rules.
Read the rest of this entry »
Do technology standards make sense for airlines’ attempts to differentiate?
GDS executives are calling for the development of technical standards for the booking and processing of airlines’ unbundled fares, ancillary revenue and other sales innovations.
Sabre chief Sam Gilliland raised the issue at November’s PhoCusWright conference.
But other industry players are saying, “Not so fast.”
“Standards are good, but let’s all keep in mind that this is about differentiation,” Suzanne Rubin, American Airlines’ managing director of merchandising and distribution strategy and president of AAVacations, said. “We don’t want something that puts us right back into the same box of commodity product.”
Gilliland has warned that the merchandising trend could become “e-ticketing 2.0.”
Electronic tickets made their debut in 1995. Many passengers resisted using them because if a flight was canceled, they had to stand in line to have a paper ticket issued and endorsed to another carrier.
The airlines quickly realized that e-ticket adoption would increase if that hurdle were removed, yet the first interline e-ticket agreement was not signed until 2002. It covered two airlines.
Early adoption of standards would have eased the transition to universal electronic ticketing, but some industry participants say merchandising is a different animal.
Timothy O’Neil-Dunne, managing partner of T2Impact, a business accelerator for travel distribution, said, “Airlines are saying that this is not a standardized service and should not be covered by standard rules that somebody mandates.”
Read the rest of this entry »
2009 Airline IT Trends Survey: Technology developments
Passengers using their mobile phones to check-in may be fairly thin on the ground today, but airlines are forecasting that people using this service will increase fivefold in the next three years and are gearing up to rapidly accelerate the availability of a whole range of mobile facilities, including check-in, to help their customers self-process their journey.
The growth and popularity of web and mobile services look set to overshadow kiosks as a check-in channel – indeed airlines in some regions that have yet to implement kiosks may simply leapfrog this evolutionary stage. However there is plenty of life left in the kiosk as a self-service channel, with an increasing number of airlines looking to evolve it further to provide other self-processing tools.
Read the rest of this entry »
What Would Yoda Say to the APFA?
Where I would typically use this space to talk about the fact that the rumor mill has United and Continental in serious merger talks, I am not going there. My feelings on a US Airways – United hookup are well documented in a number of posts. I will be most pleased if United and Continental are indeed in talks. Each carrier has aggressively pursued a path to the least exposure to the US domestic market, and that is a path resisted by US Airways.
I respect many people at US Airways, particularly those managerial types who have done yeoman’s work with a network that, in my opinion, holds little promise long-term. It is, as I say, presence everywhere and a dominant piece of meaningful real estate nowhere.
To me the biggest piece of news this past week was the fact that the National Mediation Board (NMB) did not release either the Association of Professional Flight Attendants (APFA) or the Transport Workers Union (TWU) into a 30-day cooling off period that each union sought in their negotiations with American Airlines.
At least until we see the rule drafted by the NMB on representation elections, all seems right at the Board. They did not release a case that is nowhere near exhausting the mediation process, even though I had feared that they might given the political winds in Washington.
So, the APFA is, for the time being, reduced to trying to convince the world of the numerous grievances its members carry. The union’s You Tube videos claim that AA flight attendants are oppressed. They talk of the past like somehow it will reappear, even when reality knows it is but a faint memory. And through it all, APFA’s reckless talk of a strike continues – reckless because the circumstances don’t justify the action as I have written before, most recently in Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?
I am reminded of a quote by Yoda in Star Wars: “Fear is the path to the dark side. Fear leads to anger, anger leads to hate, and hate leads to suffering.”
American’s Conundrum
Few people, if any, have been as critical of American’s union leaders as I have. The one union that has been left unscathed by swelblog has been the TWU because, as a leader, John Conley is typically careful in misusing power and rhetoric. But in this case even Conley has come close to the line.
Is the fear that a union working to address American’s productivity deficiencies in return for improved wages somehow collaborating with the “dark side”? I think it is. The fear of reprisals from a vocal minority of members toward a union’s leadership has led to a campaign based on anger toward the employer. The anger has become hate as unions try to tie everything wrong in the industry to executive compensation, particularly that part of their pay in at-risk company securities.
But without executive pay, what are the unions really protesting? Change? We’ve got plenty of that in the airline industry, which is all the more reason cooler heads should prevail in approaching negotiations in a way that promises the best long-term pay and job security for airline employees.
But that’s not how the flight attendants union is approaching it. The APFA is trying to stir up a lot of anger and hate with a strike vote that, if it eventually led to a strike, runs the risk of doing serious harm to wages and working conditions for their members.
The APFA has been speaking out of both sides its mouth in urging members to support a strike a vote. On one side it encourages flight attendants to send a message to management and channel their anger by threatening a work stoppage that would bring the carrier to its knees. On other other it tries to calm flight attendants with reassurances that they themselves would not be hurt by going out on strike.
And that’s just wrong. APFA President Laura Glading should be careful what she asks for.
What good did the strike do the BA flight attendants and their union Unite? Zero. Nothing. Nada. It did entice a management to put into place a plan to fly through the “three strikes.” Three strikes and you are out right? Glading’s plea to her members is pathetic. All the while she reminisces about 1993 and 2001, she mentions that a “yes vote” does not mean that they will strike. She talks about the power of yes. But she does not once mention the potential risks of a strike to her members.
Glading also does not mention that her flight attendants are the highest paid among her network peers according to MIT’s Airline Data Project; the least productive in terms of hours flow per month; generally lagging in terms of in terms of passengers served per flight attendant equivalent; and the beneficiary of a relatively costly benefit package. It makes the negotiations between American and its flight attendants very complex and difficult to conclude – even for the most skilled negotiator and/or mediator. American is asking for increased productivity for one simple reason: whereas American’s salary per flight attendant is comparable to that received by flight attendants at Continental, if American achieved the same flight attendant productivity as Continental the carrier would require 1,254 fewer flight attendants. And the carrier has offered to grow into the productivity over time rather than lay off even more flight attendants.
If I am an American flight attendant, I would carefully consider these facts. Negotiations are now data driven – just like a Presidential Emergency Board (PEB) would be. APFA likes to talk to the world about labor cost per available seat mile (CASM). But that metric is fraught with potential error as the calculation is influenced by a wide number of items which are not in the control or purview of the flight attendant collective bargaining agreement.
In fact, as CASM is influenced by factors as varied as seat configurations, stage length, aircraft utilization and network design to name a few, even analysts and economists would be hard pressed to make the kind of bold analytical statements and sweeping conclusions that the APFA is making. Pay and productivity are expressed in hourly rates and hours worked and that is why the MIT Airline Data Project examines pay and productivity against an hourly foundation. The APFA refers to staffing as the culprit in American’s high flight attendant unit cost. The problem is that the 3-class fleet is a very small portion of the fleet. Can 3-classes really be responsible for the highest flight attendant costs in the industry among the legacy carriers? Warning to United: the same argument is coming your way.
American does have a conundrum in that it is the first major case in front of the NMB and it has the highest costs among its peer group, particularly with its flight attendants who, as a group, are highly paid relative to their low productivity. In a recent Dallas Morning News, I was quoted by author Terry Maxon suggesting that there will be an airline strike. Inside of my comment was a challenge to management: Is the airline ready to take a strike? If American caves in its position, the industry suffers. The American Airlines flight attendants suffer because American will have agreed to pay more than it can afford. Even the best heeled US airline cannot afford what American’s employees are asking from their management.
American’s unions constantly point to management compensation as unfair but, as is typical, they use only the parts that serve their purpose. Conveniently, forgotten is the fact that there have been years in which management got well below their target pay (and well below their industry peers) because the system of pay linked to performance actually works. Yes, management pay is higher than pay on the front lines.
That’s pretty much the way it works in every industry. That’s because the market for management labor is different than the market for flight attendant labor. That’s a reality. And in a market-based economy, no one is entitled to more for their labor than what the market will pay. The NMB got it right at this point. Exposing the company to the destructive threat of a strike doesn’t serve anyone’s interest.
Yoda was right to focus on fear as a path to the dark side. In this case, the dark side is not so much a strike but, rather, the fear, anger and hate churned up by union leaders that could lead to a disastrous outcome for the members they represent
Mainline Pilot Scope: Will Regional Carriers Be Permitted to Fly 90+ Seat Aircraft?
Today I had the pleasure of participating on a panel at the 35th Annual FAA Aviation Forecast Conference, my second consecutive year taking part in one of the breakout sessions. I shared a dais with the President of the Regional Airline Association, Roger Cohen, and long-time industry consultant, historian and photographer George Hamlin on a panel titled: New Decade……Dawn or Dusk for Regional Carriers? I had the hotseat – responsible for discussing the reliably controversial subject of mainline pilot scope clauses.
It is my view that there can’t be an honest discussion on the shape or structure of the US domestic airline industry without talking about scope – the contractual clauses pilot unions negotiate to protect certain flying for their members. I believe that this round of contract negotiations at major carriers will be the most important since deregulation, and scope will play a pivotal role as the airlines take a hard look at economics. And mainline pilot scope agreements are all about economics.
Today’s industry architecture in which regional carriers fly large numbers of aircraft with 76 seats and less was drawn on the equivalent of vellum paper using compasses, triangles, French curves, triangular scales and protractors. The working structure did not come about easily. First, earlier era scope clauses were relaxed during the late 1990s and early 2000s to permit carriers to deploy 50-seat regional jets between hubs and markets that could no longer support the economics of a mainline jet. Delta and Continental had a significant head start on the rest of the industry in using these smaller aircraft because they had few limitations imposed through their pilot agreements.
Other mainline carriers: American, Northwest, United and US Airways, were late to the game. Scope-relaxed competitors were using the 50-seater to claim traffic that was traditionally the domain of the scope-constrained carriers still limited to feed markets within the turboprop drawn 400 mile radius around a hub. Now these little jets could overfly hubs, aggressively changing the competitive structure in the US domestic market.
So those carriers that needed the permission of pilots to compete on a level playing field recognized the need to relax restrictive scope clauses that limited what type of aircraft regional pilots could fly. And that made the scope clause important trading currency for pilot unions that agreed to relax scope protections only in return for improvements in other parts of the agreement. For example, when United pilots negotiated a new agreement in the Fall of 2000, the union leveraged scope relief to demand a weighted average 23 percent wage increase and two subsequent 4.7 percent increases, as well as a number of other contract enhancements that ultimately contributed to landing the carrier in bankruptcy.
I am convinced that, if not for bankruptcy, we would not be seeing mainline carrier’s regional partners flying aircraft 70 seats and greater in the numbers we are seeing today. So if today’s architecture was drawn with outdated tools, then tomorrow’s architecture will likely require Computer Aided Design (CAD) software. That, as old-school architects might say, is equivalent to replacing the pencil with a keyboard — limiting in that the digital world requires exact inputs rather than the less precise nature of sketching. And that has real implications for pilots and the carriers that employ them.
Tipping Point
From my perspective this next round of pilot negotiations could be the tipping point for scope: the critical juncture in an evolving situation that leads to a new and irreversible development. What if mainline pilots again treat the relaxation of scope as trading currency to make improvements in the collective bargaining agreement? Wouldn’t they ultimately be ceding mainline narrowbody flying in the US domestic market? I think so.
This approach would be a mistake for management, too, because scope relief has historically been assigned too much value in bargaining. There is value in the shift of flying from the mainline to regional partners to be sure. But the differences in labor rates between the mainline and the regional are nowhere near what they were before the last round of industry restructuring. Domestic revenues continue to suffer, particularly compared to the revenue environment when values were last ascribed to scope relief. And with little growth expected in US domestic flying, airlines must question where they’ll find the arbitrage.
I make this projection for domestic flying based in part on a comparison to historic growth rates. Today, the travel spend as a percent of GDP produces $35+ billion dollars less in revenue than did the high water-market in 2001. Labor rate differentials between mainline and regional carriers are significantly smaller than they were in 2001. Regulatory oversight of the regional industry will add expense that is not yet known or understood. Negative media coverage could undermine passenger acceptance and willingness to fly regional carriers. Most mainline airlines are ordering narrowbody equipment to replace aircraft in their fleets, not expand their fleets. And there are still thousands of mainline pilots on furlough.
Does Scope Produce the Intended Outcome?
In the most simplistic terms, scope is the definition of work for the class and craft of employees governed by the provisions of a collective bargaining agreement. Its purpose is to provide job security for those employees. But it is safe to say that most scope clauses produced unintended consequences. Between 2000 – 2008, legacy carriers reduced the number of narrowbody aircraft they fly by 800, and more than 14,000 pilot jobs have disappeared.
So, one could argue that scope is just another example of protectionism that failed. As economist Henry George, a sharp critic of protectionist policies, once said: “Protectionism teaches us is to do to ourselves in times of peace what enemies seek to do to us in times of war.”
Scope negotiations have been divisive not only between labor and managements but just as much between the unions representing mainline pilots and those representing regional pilots. Ultimately airlines must determine whether the 90-125 seat flying of tomorrow should go to the mainline or be flown by their regional partners. To arrive at the right economic solution, it is time for organized pilot labor and management to stop putting a Band-aid on problems.
The Boyd Group International recently released an interesting fleet forecast that looks in part at new aircraft orders. So far, the only area of real growth is in the 75-125 seat category. Orders in other seat ranges are forecast simply as replacements from now until 2015.
Ironically, 2015 is when many regional contracts expire, primarily those for 50-seat flying. These expirations could eliminate nearly 500 existing airplanes currently under contract between now and 2016; with the lion’s share coming off contract in 2015. This is a conundrum for the regional industry for sure. There will be a thirst for new flying.
It Is All About the Economics
Perhaps a better way than scope for pilot unions to think about job protection is to find the economics that will employ the most pilots at the mainline. That challenge must acknowledge the fact that today’s industry is not the industry of yesteryear. If the regional industry has been used as currency to cross-subsidize pilots at the mainline; and assuming that the trading currency is not what is was as we engage in this round of bargaining, then something has to give.
There are two solutions as I see it: 1) relax scope in order to win bigger increases in wages, benefits and working conditions for pilots that remain at the mainline; or 2) embrace the absolute fact that contractual rates, work rules and benefits need to be lower for US domestic mainline flying. That type of carve out can be negotiated. Domestic market flying differentials can be the new trading currency used to adapt any pilot contract to the market realities of today. There is no way to “perfume the pig” here; the mainline did something similar in 1984 in order to average down labor costs to facilitate growth. When it was decided that the concept was not internally healthy, mainline pilot labor made the regional industry the new vehicle for cross-subsidization of mainline pilot terms of employment.
One trend is clear: the industry’s pricing structure cannot now support labor rates that keep pace with inflation. An unpopular message — yes. But there needs to be a structure in place that recognizes the different conditions in the US domestic market versus international markets. This structure must recognize that not all flying is created equal, just as the airlines are coming to appreciate that a one size fits all operation is not financially sustainable. There is a tremendous opportunity to put in place something better – if only the players at the table can let go of the past and come to terms with a new era in the airline industry.
Where Do I Come Out?
I recently saw a piece by Lori Ranson on the Airline Business blog titled: “A New Line In the Sand” that cites comments by long-time Raymond James analyst Jim Parker on the future of scope: “As employee groups seek to regain some concessions made early last decade as a host of carriers spent time in Chapter 11, there could be some leeway in the size of jets flown by mainline regional partners,” according to the analysis. James sees the potential to renegotiate current scope clauses, moving the dial from 70-seats to 90-seats.
I am not one to be on the other side of Parker often, but on this one I am. I do not believe that the mainline pilot unions can afford to make another mistake. Their arrogance toward regional jet flying led to their current predicament. The economics of US domestic flying is simply much more difficult now for the legacy carriers. If labor can’t let go of their memories of what the industry was 20 years ago to focus instead on where it’s going over the next 20 years, then they will have no one to blame but themselves if they fail to help position airlines – and the pilots they represent – for success. John Kennedy once said: “Change is the law of life. And those who look only to the past or present are certain to miss the future.”
It won’t be easy for pilot union leaders to find a solution for a problem that they helped to create. Just as the US Airways East scope clause defines small, medium and large regional aircraft, it is time to define small, medium and large narrowbody equipment necessary to profitably serve the domestic market.
Once again, a call for pilot union leadership. My view is that management is indifferent as to which pilot group does the flying. I am thinking we are at that critical juncture in an evolving situation that leads to a new and irreversible development – mainline legacy carrier pilots performing narrowbody flying in the US domestic market 20 years from now – or NOT.