CAL 757-300

I read on page 2 in the Wall Street Journal this morning that Siegel might ask for wage concessions from ALL labor groups a U. He's not sure if he's going to open the contracts for negotiations or if this is going to be a short term pay cut.

I don't have a subscription to the online Journal, so I couldn't post the article. Can someone do that please?

In related news, Andrew Nocella left America West and will be the VP of Scheduling at US. Man, all the former CO guys at U. Who's next, Greg Brennenman?

CAL 757-300

US Airways could seek cost cuts from unions -- CEO
NEW YORK, March 26 (Reuters) - US Airways Group (NYSE:U - news) could ask its unions to help scale back costs as the No. 7 U.S. airline struggles to rejuvenate profits and trim its expenses in the wake of the Sept. 11 attacks on the United States.
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US Airways' new president and chief executive David Siegel said the airline needed to change its current wage formula for unionized workers, which tops the average salaries at four larger rival carriers.

``Continuing to tie our compensation plan to those of the four largest carriers does not make any other sense in today's airline industry environment,'' Siegel told employees in a recorded message.

``We must reach a level of labor costs in a way that is fair to the company and all employee groups, that makes sense for us ... and is not tied to the fortunes of companies that are more than twice our size,'' he said.

Arlington, Virginia-based US Airways has some of the highest labor costs in the industry and about 32,000 of its 35,905 employees are union members.

Battered by the lingering economic downturn and the post- Sept. 11 travel slump, U.S. airlines are struggling to stave off huge financial losses.

UAL Corp.'s (NYSE:UAL - news) United Airlines, the second-largest U.S. carrier, plans to approach its six labor groups seeking billions of dollars in concessions to help aid its return to financial stability.

Chicago-based United, whose labor costs represent about 38 percent of its total expenses, posted $2.1 billion in losses for 2001.

US Airways has struggled to right itself after its failed $4.3 billion merger with United and its east coast markets have been eroded by low-cost rivals and major carriers using cost- efficient regional jets.

Aviation experts see expanding US Airways own fleet of regional jets as one of the essential elements of its recovery plan. But talks between US Airways pilots and management on expanding small jet use stalled earlier this month over job protection concerns.

US Airways shares gained 22 cents, or 3.44 percent, to $6.62 during in Tuesday afternoon trading on the New York Stock Exchange

Bill G

Thanks Phil for printing this article. As a US Airways flight attendant the term "wage concessions" is something I sure don't like to hear. But if a fair one can be negotiated and it can bring back the furloughed employees and help settle the RJ issue and help this airline grow again then I'm more than willing to listen to Siegel's proposal.

Bill G

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CAL 757-300

It's something that I think needs to be discussed at a lot of the carriers Bill. I posted a thread earlier this month discussing wages and it got a bit heated, but I really do think that a lot of these labor contracts need to be renegotiated and pay cuts will ensue. The thought that the airlines can pass along their high cost structure to the business passenger is long gone. With all the new electronic distribution channels and discount programs for corporate clients it is going to be nearly impossible for the majors to make money given their current cost structure. I think Siegel will be only the first of many CEOs to talk to the unions and work out some sort of agreement.

Don't get me wrong, I'm not advocating riding labor's back to profitability, but I'm not going to ride their wage structure and watch the company slide into Chapter 11 either.

Bill G

Phil

Yepper, I know what your saying and agree. There are alot of issues that will come up regarding "wage control" for the employees of many airlines. Though sometimes it does leave a bad taste in your mouth when you have to take a paycut due to an airline's bad management, while they are gently floating to earth with their "Golden parachutes". Even though this isn't always the case, it does happen quite abit.
I'm more than willing to have an open mind and see what happens.

Bill G

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tdh8192

US Airways Signals It May Ask
Its Workers to Accept Pay Cuts

By SUSAN CAREY
Staff Reporter of THE WALL STREET JOURNAL


A second major U.S. airline signaled it may seek pay cuts from its employees to help restore financial health.

David Siegel, chief executive of US Airways Group Inc., warned Monday that rich labor contracts agreed to by the carrier and its unions during better times "do not make a lot of sense in today's airline industry environment."

That follows UAL Corp.'s United Airlines broaching the idea with its workers.

Both airlines have been hurt disproportionately by the fallout from the terrorist attacks and like much of the rest of the industry have high labor costs. But so far they are the only two of the biggest airlines to hint at pay cuts.

The new US Airways CEO, who joined the Arlington, Va., company earlier during the month, stressed that US Airways "must reach a level of labor costs in a way that is fair to the company and all employee groups, makes sense for us in our unique situation and competitive environment, and is not tied to the fortunes of companies that are more than twice our size." The nation's sixth-largest airline posted a loss of nearly $2 billion for 2001.

"I have already told you we are all in this together, and I will not start asking one group to make sacrifices at the expense of any other work group," Mr. Siegel said in a telephone message to workers. A US Airways spokesman declined to elaborate on whether Mr. Siegel is suggesting that contracts be reopened, with pay cuts negotiated and restrictive work practices liberalized. He also wouldn't say whether the CEO might be seeking temporarily pay concessions.

United, which posted a $2.1 billion loss last year and also has a new CEO, explicitly is on a campaign to persuade its workers to voluntarily agree to pay cuts to help return the company to profitability.

But the effort has been on the back burner while United tries to settle the second of two contracts with its Machinists-represented workers. Last month, its mechanics won industry-leading wages and its ground workers are seeking the same. Both groups insisted on being brought up to industry standards before they will even consider temporary pay cuts.

"Asking for concessions is easy," said Sam Buttrick, an airline analyst for UBS Warburg. "Getting them is difficult." Airline employees "in general are hoping industry conditions recover sufficiently quickly" to squelch such discussions before they begin, he said.

Most US Airways workers' compensation is based on the average of the four largest airlines, plus 1%. Because other airlines' unions raise the bar when they win new contracts or receive scheduled raises, US Airways each year must revisit its employees' pay based on what their peers are receiving at AMR Corp.'s American Airlines, United, Delta Air Lines and Northwest Airlines.

In his message, Mr. Siegel said that "until a new business plan is in place and we have determined how to return our company to profitability, any increases that may be required under the parity agreements will go ahead as scheduled." But he said this creates a "challenge" for the airline, which has the highest operating costs in the industry due its short-haul route network.

A spokesman for the Air Line Pilots Association at US Airways said the union doesn't "buy the argument that the size of the airline has anything to do with the revenue premium it can produce." He said US Airways "needs to demonstrate it has a viable business plan." Last year, the pilots' parity adjustment resulted in a 17% raise, and the group expects another raise when this year's parity review is complete in May, he said.

The Machinists union, which represents mechanics and ramp workers, said it wanted guaranteed wage increases rather than the company's parity plan. But now that the latter is in place, "we will abide by our end of the bargain and we fully expect US Airways to live up to its end of the bargain," said Robert Roach Jr., the union's general vice president for transportation.

Profitable in 1998, US Airways that year signed a five-year contract with its pilots union that launched the parity-plus-one model. In 1999, when a three-year run of profits dissolved into red ink during the second half, US Airways agreed to five-year contracts with its mechanics, ramp workers and customer-service agents that followed the formula. Only the flight attendants rejected the concept because they already were at the top of the industry. Even so, they settled in early 2000 on a five-year pact that gives them four raises totaling 11%.

For all of 2000, US Airways' labor costs rose more than 8%. Last year, labor costs rose an additional 2.8%, a figure that probably would have been higher if US Airways hadn't laid off 11,000 workers late last year after travel demand dried up.

Mr. Siegel, a former executive with Continental Airlines and Northwest Airlines, came to US Airways from Avis Rent A Car System Inc.

He filled a vacancy created in November when then-CEO Rakesh Gangwal abruptly resigned.

Chairman Stephen Wolf served as interim CEO until Mr. Siegel arrived. The contracts Mr. Siegel is scrutinizing were negotiated under the watch of Messrs. Wolf and Gangwal.

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- Tom

CAL 757-300

Thanks for posting the WSJ article Tom. It looks like Siegel is going to make a concerted effort to right the sinking ship at US.

Hey Bill, I think the excerpt I cut from the WSJ article sums up the labor issue quite well. Parity plus one automatically leads to irrational behavior on the part of labor and causes costs to spin out of control. If you have one irrational carrier that pays off its labor to silence them (UAL) then costs in the industry automatically get out of whack because the other carriers have to match the wages or run the risk of having a strike on their hands.

The main problem is economics. Even during the great five year run that the industry had (1996-2001) fares increased by less than five percent. As demand increased airlines bought more planes and the additional seats kept fares in check. In addition the industry saw startups (Jet Blue, Spirit, Vanguard, Air Tran) and low cost carriers increase fare pressures on mainlines by offering super low fares. Even though the carriers were adding seats and increasing their efficiency by buying newer aircraft and encouraging e tickets (thus reducing commissions and distribution costs) the fact still remains that CASM grew faster than RASM. Once those two lines intersect the company starts seeing some serious red ink.

The only alternative that I can think of that is fare to employees, shareholders and consumers is performance pay. The unions HATE this term, but when you think about it and see what it would preserve it begins to make sense. Southwest does it with their pilots and they haven't had a quarterly loss in over 25 years. Simply put: all union groups get a base salary with slight COLA each year. When the company is profitable and fares and demand are higher the employees get a serious bonus check, say 20-25% of net profits are given to the work groups. When times are tough they will still get their salary but the bonus will dry up. This allows the company to shrink their cost structure in bad times and rewards their employees by higher job retention during recessions and really good pay during peak times. And this is a pay structure that should apply to all work groups, not just unionized labor.

Sentinel Chicken

Performance-based pay is in my opinion the way to go. In my medical practice, I don't have a salary- no see patients, no see paycheck, period. So that incentivizes myself and my partners to be productive as it leaves us with a greater profit margin at the end of the day. It's a concept that, like those in the airlines, those in medicine are very resistant to accepting. But if you do well, you can exceed any previous set salary level.

There's nothing revolutionary about performance pay (or production pay as we call it)- my barber, local dry cleaner, hobby shop owner and internet retailer all do it as a matter of standard in business.


ROCK CHALK JAYHAWK!

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CAL 757-300

Your analogy Doc shows just how screwed up our industry truly is. Does any other industry set their wages in stone via contract that does not allow for wage concessions during recessions? The minute an airline does that the union leadership screams foul play and brainwashes the employees to not trust management. There are some cases where unions should be wary of mgmt, but was the situation caused because of evil management or a strained relationship created by nasty labor negotiations and the constant battle of unions demanding more money and management trying to keep the company's needs in perspective and trying to pay less. It's a viscous circle. I say blame it on FDR. He ruined all management-labor relationships in the '30s with the Sherman Antitrust Act and the Railway Labor Act. I won't even discuss Social Security........

I firmly believe that getting rid of unions would not lead to management "raping" employees. DL is not very unionized and they get treated fairly........

If all entrepeneurs are paid on performance based salaries, why shouldn't unions? Last time I checked my raise is tied to performance.

Sentinel Chicken

This might seem naive to some, but it seems to me that in recent airline labor disputes the Railway Labor Act (which was applied to the airline industry in 1935) and it's differing provisions for conflict resolution are used by the respective parties be they management or unions to drag out negotiations- I've read about negotiations lasting YEARS under the provisions of the Railway Labor Act at some airlines. As a result, we're seeing some of these "work-to-rule" actions, sickouts, and so on that prove to be just as disruptive to the industry and the travelling public as a general strike would be.

If I'm not mistaken, there has only been one serious legal challenge to Railway Labor Act in the airline industry and that was with the FAs union versus Alaska Airlines back in the early 90s and that lawsuit concerned work stoppages as a form of "self-help" during labor negotiations. I'm no legal scholar, but it sounded like a conflict between the standards between the Railway Labor Act (which applies to airlines) and the National Labor Relations Act (which I think applies to everyone else).

I got a serious headache trying to understand this sh*t and I'm tempted to say that there probably needs to be a better way than the RLA in resolving airline disputes.

But then I make a living sticking my finger in people's asses, so what do I know?

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