Air Transport World

The six major issues. (of the industry) (excerpt from Robert L. Crandall speech) (guest editorial)

One thing we can be sure of is that for the foreseeable future the airline industry is likely to remain as volatile, as dynamic, as intensely competitive and as totally unpredictable as it has been for the past five years. As we peer into that unpredictable future, we believe there are six major issues which, together with the ever-increasing level of competition, will have a crucial impact on every airline.

* Labor costs. If there is one lesson which everyone in the airline industry has learned by this time, it is that success requires competitive costs. I believe it is fair to say that in the long term competitive labor costs are an absolute prerequisite to competite success.

In 1982 wages, salaries and benefits at American, Delta, TWA and United ranged from 37% to 39% of total operating expenses. In the same labor accounted for only 19% of total operating expenses at Muse Air, for 20% at People Express, and for 27% at Southwest.

Several of the mature carriers have embarked on a program based on employe ownership. Under this approach, employes agree to give up a portion of their wages and benefits in exchange for stock in the company and--in some cases--representation on the board of directors. At Western Airlines, for example, employes now own 32% of the company and have two seats on the airline's board.

Other airlines are seeking to solve the cost dilemma by establishing new subsidiary carriers whose costs, presumably, will mirror those of the new entrant carriers. Still another approach, perhaps limited by circumstance and opportunity, but nevertheless an approach, is the revoation of labor contracts via a declaration of bankruptcy.

At American we have taken still another direction and have created the two-tiered wage system. …

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