The Motley Fool Take
In Reply To:
The SARS Threat

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By Zweiguy
June 5, 2003

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I wonder about the conclusion that SARS is seriously hurting the airlines today.

Hmmmm, if a plane that holds roughly 400 people flies from Asia to Chicago with 400 folks, and flies back to Asia with 400 folks; then I might agree. If that same airplane that was full 2 months ago is now only hauling 100 folks back and forth to Asia...I suspect that SARs is having an effect, at least on the TransPac cash flow. That doesn't explain why folks might not be flying from MSP to AMS [Minneapolis-St. Paul to Amsterdam.]

As the airlines lobby hard for government aid packages, and try to explain away poor executive leadership and short-sighted unions. . . well, why not blame it all on SARS!

As one of those shortsighted union pilots, you touched upon a couple things with that volley. I actually think the CEO at my company is doing a pretty good job (even if he is a lawyer), his compensation is waaay down the CEO food chain. He started cutting costs back in the summer of 2000. He likes to use the analogy that we're drowning like the other hub-and-spoke carriers...but our head is closer to the surface.

The company presented our union with their contract "opener" a couple months ago with the expectation that the union would acquiesce to every single item the company wanted by 1 July 2003. BTW the company wanted something from every section of our contract. The company was extremely forthright with the Union on the financial state of the airline. My union even hired outside auditors to look at the numbers. Conclusion? My union agrees with the company that we need to reduce costs, but even if my union gave the company EVERYTHING they asked for (Basically a permanent 37% cut in pay and benefits.), it would not be enough to stop the losses. The other employees, vendors, and lenders would all have to contribute.

The company, I suspect is looking for the pilots to make the first move, as a leadership example for our fellow employees. I think that is fair. But I fear that other unions simply see the problem as not charging enough for a ticket (Right now something like $25-30 of every ticket is some federal charge/tax.), and knowledge that our company has a terrible track record when dealing with unions.

Southwest is a fine company. And my company is rapidly downsizing to roughly the same number of employees and airframes. Somebody, correct me if I'm wrong (this wouldn't be the first time in my life), but SWA employees have no defined benefit plan, but they do have a 401k for their retirement, which is predominantly company stock. Better for the folks that got in early, not so hot for the more recent employees. We hear that SWA pilots are looking for some kind of defined benefit plan for their next contract (that could simply be a rumor). Wouldn't TMF say having a 401k containing mostly/all company stock is not Foolish? I have a defined benefit plan and a 401k (plus some deeply depressed company stock from 1993-95).

Even TMF's seminar "How to Crack the Code," shows that SWA's employee costs are creeping up toward the costs at the poorly run (terrible business model) carriers. My point being, that very possible in the near future SWA's business model will hit "the wall," and profits will fall.

JetBlue is the up and coming darling of the financial press. They will triple their size in the next few years...oh yeah, and at some point they will start spending money on major maintenance requirements for their shiny new Airbus 320s. Right now they have no such expense. Employee pensions at JetBlue? I don't think they have one.

At my company there is simply a long history (a perception) of previous bad faith on the part of the CEO de jour. One CEO went so far as to have the doors removed from the bathroom stalls at HQ to prevent "lolly-gaggin'." It's not helpful, but it's in the culture.

I want my company to survive, and I want to keep my job. Right now I may be making the most money I'll ever make as an airline pilot, and I'm not even a Captain.

Hey life happens. May you live in interesting times.


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