Less than a year after receiving a record contract from management, American Airlines pilots still aren’t happy but now for a new reason.
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American Airlines Pilot Deal
Last year was an intense year for labor negotiations. First Delta executed a new contract for highly coveted pilots to both retain and attract new talent. Then, American Airlines reached a “historic” agreement with pilots paying them more than ever before. Not to be outdone, United closed a deal with its pilots better than American, only for labor to decide their prior historic precedence was insufficient and ratify the deal for an extra $1 billion over the four-year term.
So now, surely, everything is good, right?
Certainly not. It begs the question as to whether a labor group is ever happy with their deal, despite 73% participating in the last vote and resoundingly voting in favor of the revised contract.
Union Bosses Are Management Too
In a message last week to member pilots at American, APA President, Ed Sicher, disliked proposed changes to the business model management would like to run. Management suggested it switched focus to smaller markets served by smaller planes and filtering into the wider network.
“Unfortunately, the news isn’t good from our pilots’ perspective. Chief Executive Officer Robert Isom sees future profitability as dependent on growth opportunities in underserved domestic markets, with the crux of his business plan revolving around these marginal locations. In other words, the airline management team responsible for producing profit margins that badly lag those of Delta and United believes that opportunity beckons by taking on Southwest Airlines and the ultra low-cost carriers.” – Simple Flying
Working backward, the notion that Southwest should be lumped in with Ultra Low-Cost Carriers demonstrates a lack of business acumen. In a study of airfare across the United States, Southwest is more expensive than competitors by $5 or more 65% of the time and that includes factoring in Southwest inclusions such as free bags. But throwing the notion to the side for the moment, wouldn’t an airline want to emulate a carrier that posted 34 straight years of quarterly profit without missing until the pandemic (and resuming afterward?)
Delta is far and away more profitable than United or American and profit shares with labor groups. But is that down to route selection or other aspects of their business?
And if he agrees (which he seems to) that these markets are underserved, why not serve them? Surely feeding passengers from Sioux City, Iowa on small jets to Chicago or Dallas/Fort Worth will then add to mainline load factor as they get wherever they were flying to from a hub. I love that he continues to call management “all too often penny wise, and dollar foolish.” Wow. Within a year of getting a 40% raise and then a mostly uncontested bump on that by a cool billion, management is considered cheap.
Does the APA president think he should pick routes too? Does his experience stretch from beyond the cockpit and bargaining table to revenue management as well? It’s a little bit ironic that pilots complaining about work scope, are telling management which routes to run, right?
Here’s the video:
The Real Concern Is As It Ever Was – Scope Clause
Scope clause, for those who are unaware, is the part of the contract that relates to jet size and payscales. In the airline industry it is achieved by seat number and in this case, the magic number is: 76 seats. Pilots of flights with 76 seats or less can be paid dramatically less than mainline aircraft so what the union boss is trying to avoid would be switching mainline aircraft with 150 seats for 76-seat aircraft that may be better suited to the mission. Growing in markets where only smaller jets are required takes away from growth options on larger jets in bigger markets.
American Airlines’ revenue management concept here makes sense, however. If you can get underserved markets onto your aircraft, that grows the total market rather than trying to steal from competitors by offering lower prices or a better product – the latter is almost decidedly not a route it will take.
Sicher, in his role as President of the APA, is protecting what he just secured. If American growth isn’t adding another two flights per day to Orlando on big jets, but rather new flights to Erie, Buffalo, or New Haven then the new pay the contract scored will be a moot point. Still, for the carrier, the method makes sense – go to markets that need seats and where there’s less competition. It just doesn’t make sense for a union boss who can’t affect pay for his members in those markets to the same degree he can on mainline aircraft.
What Sicher and pilots more broadly at American have to come to terms with is that the airline at this point is a loss-making venture, solely earning profits (less than $20 million last quarter on tens of billions of dollars in revenue) from its loyalty program and bank agreements. While that might suggest that American Airlines management should take any tips it can get in the form of running a for-profit carrier, this plan seems to be that.
Conclusion
American Airlines pilots are unhappy despite achieving a record contract because it could mean more regional flying. The labor union president of the APA, Ed Sicher, belittles management and takes them to task over this strategy. There’s no suggestion for how to make money like Delta and United, just a suggestion that it should. This analysis also avoids profitability models that include an all-mainline airline in Southwest. The “never good enough” take on greedy management is getting a little tired, especially for pilots with one of the best deals in the industry. It also strays from the President’s own scope of managing pilot deals into route picking and strategy decisions. More than anything, it calls to mind pilots drying their tears over these proposed changes with fistfuls of hundred-dollar bills while management’s current strategy is failing to return profitability from actually running an airline.
What do you think?
