Ed's Excellent Adventure

[Ed Guthrie]

I'm in Shanhai (China) tonight. I had dinner with my company host and then walked back to the hotel via a popular shopping district that winds down to the Bund, the river coast section populated with some of the most striking skyscraper architecture I've ever seen. Image 100 Frank Loyd Wright's were told to build skyscrapers next to each other. Truly amazing views. On the walk home a woman started trying to hawk knock-off designer watches to me. I wasn't interested, but I asked to see her inventory just for the curiosity effect. I was amazed at the prices. A perfect copy of this watch ( http://www.timemerchants.com/rolexes_RD46.htm ) could be had for 100 RMB (~$12 US). I realize it is a cheap copy, but if the woman peddling the watches is willing to sell it for $12, I figure the mfg. cost is <$3. Someone built a fully functional, perfect copy of a ~$10,000 Rolex watch for less than $3. Where in the US can you match those manufacturing costs? Those prices doesn't bode well for US manufacturing or US standard of living in a free market world.

Which brings to mind another economics subject. I had a debate with Ron L. a few month's back where I stated that the current pilot salary reductions are just the opening round. He disagreed. Well, economics are the driving force. Whatever the lowest market price might be is the bench mark. When pilots will line up as far as the eye can see for a <$20k per year flying job salary then no one can justify paying more, nor can a company paying more survive very long in a free market world. Or, as a previous boss so succinctly put it--you are worth exactly what it costs to hire your replacement. Ron felt there were issues that would defy economic forces. I think he's dreaming, but I'm praying he's right & I'm wrong. I worry about my children's future. I'm praying the rest of the world sucks up to the US standard of living a lot faster than the US standard of living plummets to the rest of the world's level.

Oh, yea, right outside my hotel door I was offered a "massage"...

 

[Brian Austin]

I'm praying the rest of the world sucks up to the US standard of living a lot faster than the US standard of living plummets to the rest of the world's level.

It's happening, especially in China and India. Their economy can't continue to do that kind of manufacturing at those prices and come out of "third world" economy status.

 

[Ed Guthrie]

It's happening, especially in China and India. Their economy can't continue to do that kind of manufacturing at those prices and come out of "third world" economy status.

I hope (wish) it is true, but I have my doubts. I asked my hosts if Chinese salaries have begun to increase dramatically. Unfortunately, no, they have not. Their raises (%) in the past few years have been pretty much the same as that of myself (and I believe US workers in general), which is depressing enough, and in real $ is much less than my raise since I make ~2.5x more than an equivalent scientist in China.

 

[poadeleted4]

Hope you guys can speak Mandarin Chinese, like rice and enjoy working for 68 cents/hr. The sleeping giant has awoken. In less than twenty years from now, China will be the only super-power.

Everytime you buy their products, you assist in your own demise. I have seen it first hand in the automotive industry. GM & Ford will survive, just not in the U.S.
So, go ahead and shop at Walmart and the like. Buy your foreign cars. Increase our trade deficit imbalance.

The U.S. is in for some very, very tough times. Gold, guns/ammo and clean water will be our only forms of currency, security and survival.
Doomsday, indeed.
Gary

 

[Greg Bockelman]

I had a debate with Ron L. a few month's back where I stated that the current pilot salary reductions are just the opening round. He disagreed. Well, economics are the driving force. Whatever the lowest market price might be is the bench mark. When pilots will line up as far as the eye can see for a <$20k per year flying job salary then no one can justify paying more, nor can a company paying more survive very long in a free market world.

Once these pilots figure out that it is hard to pay back $50,000 plus loans on $20,000 a year, I think they will start to think twice about what they are "Settling" for. Problem is, it hasen't happended yet.

Oh, yea, right outside my hotel door I was offered a "massage"...

Beware of massage with "Happy Ending"

 

[fgcason]

Everytime you buy their products, you assist in your own demise.

Ok. Question then: How do you NOT buy foreign? How do you not do it?

Unlike 99.999%+ of americans, when something breaks, I always fix things I own instead of going the toss/replace routine. Sometimes they're just busted gone beyond hope but I do make the attempt. It's much cheaper this way. However, I have things that say "Made in USA" on the case label and on the box it came in, but when you open them up to repair them, nearly all of the guts that actually say where they're from have these words on them: "Made in China" "Made in Taiwan", "Made in Korea", etc on them.

Knowing that, if you want to buy a new car for instance, how do you do it? The salesman is most likely going to get a little irate if you start disassembling the car down to component parts on his showroom floor. And lets say that once you get it apart, you find that everything says "Made in USA" or traceable to non Asian sources...except the connecting rods that are only made in China. What now?

The only way to not buy Chinese/foreign is to not buy anything at all..including food. Unless you're planning on dying in the next two weeks or so from starvation, it's just not practical.


$10K for that Rolex watch. Sheesh! I don't think I have or ever will need to know what time it was that desperately. There are definitely another breed of people out there that are completely beyond my comprehension.

 

[wsuffa]

Yeah, the foreign car thing is problematic. Most "foreign" manufacturers have plants in the US (BMW, Toyota, etc), one "US" manufacturer is owned by a foreign company (Chrysler), and the "US" manufacturers own several foreign car companies (GM owns SAAB, and Ford owns Jag, Volvo, and Land Rover).

Exactry what is "foreign car"?

 

[Bill]

Exactry what is "foreign car"?

I kind of like to look at where the up front engineering was done, as well as the manufacture. Yes, Honda makes cars in Ohio, but most of the engineering and development of the car is in Japan. As an engineer who makes a living when our customers choose us over foreign suppliers, I try to support American engineers as well as manufacturing.

 

[T Bone]

$10K for that Rolex watch. Sheesh! I don't think I have or ever will need to know what time it was that desperately. There are definitely another breed of people out there that are completely beyond my comprehension

Yeah, but that's a Daytona. They're a bit out there, for some reason garnering way OVER list price. Not even that popular in watch collector circles. Other Rolexs are much more "reasonable" for what you get. Actually, ALL Swiss mechanical watches are WAY over priced IMHO (I have a couple of Breitling's, which I love, but...). Seiko produces some of the best bargains in (mechanical and/or auitomatic) watches today.

The U.S. is in for some very, very tough times. Gold, guns/ammo and clean water will be our only forms of currency, security and survival.
Doomsday, indeed.
Gary

Gary, I'm betting we know (or knew) some of the same people!

 

[Henning]

I'm in Shanhai (China) tonight. On the walk home a woman started trying to hawk knock-off designer watches to me. I wasn't interested, but I asked to see her inventory just for the curiosity effect. I was amazed at the prices. A perfect copy of this watch ( http://www.timemerchants.com/rolexes_RD46.htm ) could be had for 100 RMB (~$12 US). I realize it is a cheap copy, but if the woman peddling the watches is willing to sell it for $12, I figure the mfg. cost is <$3. Someone built a fully functional, perfect copy of a ~$10,000 Rolex watch for less than $3.

It is a potentially fully functioning copy, but it is far from being a "perfect copy". That becomes obvious when you have to change the battery, and is actually instantly noticeable to anyone because the second hand ticks on the China version whereas it proceedes in a smooth sweep on the real Rolex. The Chinese one will keep perfect time for the rest of its life, which will be about 3 years. The Rolex will need adjustment every 5 years or so over the rest of its life, which could be many generations if treated properly. It comes down to what kind of quality do you want to buy, what economy do you want to support, and of course what can you afford.

BTW, you can buy that real Rolex for about $7200. If you need a high quality time piece, you can often buy used Rolexes for a couple thousand. Jeweled ones typically more. You'll never see a used Chinese watch with that kind of residual value. As far as standards of living on a global scale, ehhh... doesn't look promising on a personal and environmental quality of life scale (we need to lose about 3,000,000,000 people for that to get better), if you go by measures of global consumer power, it keeps going up. True it goes up in other countries faster than in the US, however, even our poor have considerable consumer power compared to much of the worlds population. I think sometimes we forget how good we have it here, and through all the doomsaying of the past decades, from my point of view, consumer power on all levels has grown, and yes, I realize this is because of the situation you have pointed out. You seem to feel however that this is an untennable situation that will collapse shortly, and you have a chance of being correct, it is definitly a possibility. I preffer to be optimistic though. This is not the first time this point has been brought up, and all through the past, we have innovated and managed to stay afloat. It is a difficult economic game to play between nationalism and globalism. I'm glad I'm not in charge of it.

 

[gismo]

$10K for that Rolex watch. Sheesh! I don't think I have or ever will need to know what time it was that desperately.

Most people who wear Rolexs don't do so to tell the time, any more than teenage boys buy Playboy for the articles.

 

[corjulo]

Hope you guys can speak Mandarin Chinese, like rice and enjoy working for 68 cents/hr. The sleeping giant has awoken. In less than twenty years from now, China will be the only super-power.

Everytime you buy their products, you assist in your own demise. I have seen it first hand in the automotive industry. GM & Ford will survive, just not in the U.S.
So, go ahead and shop at Walmart and the like. Buy your foreign cars. Increase our trade deficit imbalance.

The U.S. is in for some very, very tough times. Gold, guns/ammo and clean water will be our only forms of currency, security and survival.
Doomsday, indeed.
Gary

At almost anytime in our countries history almost the exact same thing has been written by someone. Remember Y2K or the Japanese miracle economy? There is a catch 22 for the Chinese, it called the American bond market. Basically they plow all the money they make selling to us back into OUR economy via the bond market. Thus it is China we have to thank for low interest rates and deficit spending. This can't continue and when the bond market starts to tank China has a major problem.

I trust the basic fundamentals of the market place to correct the situation. (and I'm the liberal democrat?). Provided our government works to level the playing field. Something I am hearing crumbling from congress about as we speak.

It's not guns, water and amo. It's education and fiscal restraint we need.

Now, China as a military problem is another matter. This ridiculous emphasis of terrorism while a major superpower arms to the teeth right under our noses does scare me. Taiwan anyone?

 

[poadeleted3]

Along these lines, a bit of irony. I just got to work, and found the company is handing out little plastic flags at the guard's desk to show their patriotism and honor our veterans, according to the e-mail they sent out. Printed down the side of the flag? "Made in _____" Ya'll can fill in the blank. We don't make ANYTHING here anymore.

 

[Ed Guthrie]

Beware of massage with "Happy Ending"

I may have misunderstood the woman's intentions as I chose not to probe the subtle ins and outs of the suggestion, so to speak, but I'm pretty sure the offered "massage" was nothing but "Happy Ending".

 

[SkyHog]

I try to buy nothing but American, and its tough. When I bought my surround sound system for my house - I spent a long time arguing with the salesman over whether or not I was going to pay more money for a high quality, yet imported system, or my KLH Surround Sound System (which to best of my investigation, is an American Company). I walked out with a KLH system.

My television, unfortunately, is a Japanese television, because I could not find an American one.

I drive a Dodge Dakota - even though I know that most of the stuff in it is Mitsubishi product, it was the closest to all American I could find these days.

Its not a lie - I actually do a lot of investigation into everything I buy to make sure that I can buy American if possible.

 

[Henning]

I try to buy nothing but American, and its tough. When I bought my surround sound system for my house - I spent a long time arguing with the salesman over whether or not I was going to pay more money for a high quality, yet imported system, or my KLH Surround Sound System (which to best of my investigation, is an American Company). I walked out with a KLH system.

My television, unfortunately, is a Japanese television, because I could not find an American one.

I drive a Dodge Dakota - even though I know that most of the stuff in it is Mitsubishi product, it was the closest to all American I could find these days.

Its not a lie - I actually do a lot of investigation into everything I buy to make sure that I can buy American if possible.

I look at a few things, first and formost: Who makes the BEST product? Who gives me the best value for my budget? Who has the best service rep? With that answered, if there is an American product in the running, I will generally opt for it. In some things though as you found, that just isn't gonna happen, no American product to buy.

 

[spiderweb]

Sounds like fun, Ed. Do you speak Mandarin? I just visited Taiwan it was a blast. I do speak Mandarin fluently, and I can say it did help. I wasn't offered any massages, but that may have been because my wife was with me most of the time. LOL!

 

[Everskyward]

Once these pilots figure out that it is hard to pay back $50,000 plus loans on $20,000 a year, I think they will start to think twice about what they are "Settling" for. Problem is, it hasen't happended yet.

Yeah, but look at what we tell young people, that they have to pay their dues and sacrifice now for that pot of gold at the end of the rainbow. Of course that pot of gold has gotten smaller for now, but then we tell them aviation is cyclical and it will come back. I don't know what the answer is. All I know is that in any chosen field there is a long time between age 25 and 60, for example, in which things can happen for good or bad.

 

[Greg Bockelman]

Yeah, but look at what we tell young people, that they have to pay their dues and sacrifice now for that pot of gold at the end of the rainbow.

That's mostly true of any occupation.

Of course that pot of gold has gotten smaller for now,

And this is the first time in my memory, (That being about 20 years) that the pot has gotten this much smaller. There have been concessions in the past, but never this severe, as best I can recall.

but then we tell them aviation is cyclical and it will come back.

It will come back, but I am not sure how far. I'm afraid that it won't ever be like it was.

I don't know what the answer is. All I know is that in any chosen field there is a long time between age 25 and 60, for example, in which things can happen for good or bad.

That is very true.

However, the commercial passenger aviation business has gone through a paradiem shift. That being from an industry driven by business travel that pretty much set the airfares to one driven by leisure travel. The leisure traveler is not willing to spend the kind of money on airfares that the business people were. So while our costs have gone up, the fares have not. That is compounded by the cost of fuel which has gone out of sight. The airlines either will not or cannot adjust fares for fuel, therefore the whole darnned industry is on the verge of bankruptcy. The next 5 years or so will be very interesting for the airline industry in the US.

 

[Everskyward]

However, the commercial passenger aviation business has gone through a paradiem shift. That being from an industry driven by business travel that pretty much set the airfares to one driven by leisure travel.

I guess I know where some of the business passengers and even some of the high-end leisure passengers have gone since I work for a charter company. There are more people out there with a lot of money to spend than I would have guessed before I started this job. However, charter is a pretty cutthroat business too and from a pilot perspective I don't think it will ever pay as much as even the reduced pot of gold at the major airlines. But then I can only fly 8 pax, not nearly as many as what fits in a B-777.

 

[Greg Bockelman]

I guess I know where some of the business passengers and even some of the high-end leisure passengers have gone since I work for a charter company. There are more people out there with a lot of money to spend than I would have guessed before I started this job.

The reason for the move to charter for these people, at least in part, is due to all the BS they have to go through to get on an airliner. I mean with the near strip searches, severe luggage screening, and on an on, it is more than people shoul have to put up with.

However, charter is a pretty cutthroat business too and from a pilot perspective I don't think it will ever pay as much as even the reduced pot of gold at the major airlines. But then I can only fly 8 pax, not nearly as many as what fits in a B-777.

Yeah. Its all in how many people are onboard the aircraft as to how much the crew can be paid.

 

[Everskyward]

The reason for the move to charter for these people, at least in part, is due to all the BS they have to go through to get on an airliner. I mean with the near strip searches, severe luggage screening, and on an on, it is more than people shoul have to put up with.

Yeah, we have many times gotten an earful from passengers that are dissatisfied with the airlines. They say they wish they has discovered charter sooner and/or could justify it more often. I sometimes cringe though when, unbeknownst to the passenger, the other pilot is one of the furloughed airline guys.

 

[bbchien]

The reason for the move to charter for these people, at least in part, is due to all the BS they have to go through to get on an airliner. I mean with the near strip searches, severe luggage screening, and on an on, it is more than people shoul have to put up with.



Yeah. Its all in how many people are onboard the aircraft as to how much the crew can be paid.

Yeah, actually it's how many are onboard divided by the average load factor that determines how much the crew can be paid. Sigh.

 

[Ed Guthrie]

However, the commercial passenger aviation business has gone through a paradigm shift. That being from an industry driven by business travel that pretty much set the airfares to one driven by leisure travel. The leisure traveler is not willing to spend the kind of money on airfares that the business people were. So while our costs have gone up, the fares have not.

I don't believe what you describe is the "paradigm shift" at all. The new paradigm is a deregulated market. The old paradigm was a fully regulated market. The prices those markets created caused the customer realities you note. Previously the fares were regulated and equal system wide. There was no real financial incentive for one airline to hold out against union demands since any business damage (strike) would be absorbed by the single airline, but the new labor cost structure would be shared by all airlines. The net effect of this economic structure was that salaries rapidly became totally out of whack with economic reality.

Within that totally overpriced world and the resultant equally overpriced airfares the only traveler who couldn't "just say no" was the business traveler. IOW, the leisure traveler was priced out of the market.

Today's paradigm is price competition. In today's market the unions don't have the airlines by the proverbial gonads since the airline that concedes to ridiculous costs will bear the costs alone. The competitor (or the next start-up competitor) will pay market price labor, not inflated contract labor.

That is compounded by the cost of fuel which has gone out of sight. The airlines either will not or cannot adjust fares for fuel, therefore the whole darnned industry is on the verge of bankruptcy.

This statement is equally untrue. Airlines can adjust airfares for fuel costs--it is a free market. Airlines can anticipate fuel costs and airlines can protect themselves from fuel costs increases (fuel futures contracts). Those Airlines which fail to take these steps are simply poorly managed--and they loose money because they are poorly managed. Airlines that price with fuel in mind and protect themselves against fuel costs are well managed--and they make money because they are well managed. Think US Airways and United as examples of poorly managed companies, think Southwest as the example of a well managed company.

The next 5 years or so will be very interesting for the airline industry in the US.

The only thing that will be "interesting" about the airline industry will be to see whether management incompetence will be protected by the US Gov. via a return to a controlled market, or whether the poorly managed companies will be allowed to either change management or disappear as they should.

 

[Everskyward]

Yeah, actually it's how many are onboard divided by the average load factor that determines how much the crew can be paid. Sigh.

This may be how it is within each airline, I don't know, but thankfully there's no formula like that across the whole industry. If I thought I was getting paid 4% of someone who flies a 200-seat airplane I would be running for the exits!

Pilots of smaller airplanes *generally* get paid less unless they have some niche job. I once took a fairly large pay cut going from a small piston twin to a turboprop which was twice as big because I thought there was more potential for advancement and I was right. But that was a special case.

I can see the market forces at work at my place of employment. If they want pilots with X amount of experience they have to pay X amount of dollars. If they pay too little they can't find qualified people or they don't stay. For a smaller company the cost and hassle of training a new person is pretty high and there's a big hole when someone leaves. Therefore, it's a good idea for them to keep the people they have and to keep them reasonably happy. The problem happens when no one at the top is leaving because there are very few places to go so there is no incentive to raise pay too much beyond the cost of living.

 

[Greg Bockelman]

I don't believe what you describe is the "paradigm shift" at all. The new paradigm is a deregulated market. The old paradigm was a fully regulated market. The prices those markets created caused the customer realities you note. Previously the fares were regulated and equal system wide.

You have a point. However, deregulation happened in 1978. The changes I mentioned happened in the last 5 years or so. Maybe it was bound to happen, but I didn't see it until recently.

There was no real financial incentive for one airline to hold out against union demands since any business damage (strike) would be absorbed by the single airline, but the new labor cost structure would be shared by all airlines. The net effect of this economic structure was that salaries rapidly became totally out of whack with economic reality.

I don't know if I would say that it happened rapidly, and I wouldn't say that it is totally out of whack. But I will concede that an adjustment probably was inevitable.

Within that totally overpriced world and the resultant equally overpriced airfares the only traveler who couldn't "just say no" was the business traveler. IOW, the leisure traveler was priced out of the market.

The implication here is that the industry's problems are a direct and sole result of labor costs. There are more factors involved here and I know you know that.

The business traveler is increasingly able to "just say no" these days with telecommuting and all the other ways of communicating in this digital world. And the fares have gotten so cutthroat that the leisure traveler is not priced out of the market. That is in today's market. However, I think there is some room in the fare structure, vis a vis what the leisure traveler is willing to pay, that some of the economic pressure on the airlines could be aleviated.

Today's paradigm is price competition. In today's market the unions don't have the airlines by the proverbial gonads since the airline that concedes to ridiculous costs will bear the costs alone. The competitor (or the next start-up competitor) will pay market price labor, not inflated contract labor.

So what is the market price for labor? I think we are in the process of finding out.

This statement is equally untrue. Airlines can adjust airfares for fuel costs--it is a free market.

I agree with this statement. The point I obviously didn't make here is that the airlines won't adjust fares for fuel. There are at least two reasons for that that I can think of. First, if one airline tries to raise the price of a ticket to adjust for fuel they will lose market share, unless the others also make an adjustment. Since they are unwilling or unable to risk losing market share, they will eat the cost of fuel, thus dig themseves deeper in a financial hole. How many times have we heard that an airline has raised fares, only to lower them again because no one followed suit?

The other reason I can think of is that the airlines are keeping fares at an unsustainable low price is the hopes of running the other airlines out of business. I know this has happened in the past. I'm sure that is going on now. Actually it is probably a combination of these two plus others that I am not aware of.

Airlines can anticipate fuel costs and airlines can protect themselves from fuel costs increases (fuel futures contracts). Those Airlines which fail to take these steps are simply poorly managed--and they loose money because they are poorly managed.

A huge problem is that an airline that is in bankruptcy is not allowed to hedge their fuel costs. That has been a huge problem at UAL. In that particular instance, management can do very little. Not to say that they aren't poorly managed in other areas.

Airlines that price with fuel in mind and protect themselves against fuel costs are well managed--and they make money because they are well managed. Think US Airways and United as examples of poorly managed companies, think Southwest as the example of a well managed company.

While I can't argue much with that statement, there are other issues here than just fuel costs.

The only thing that will be "interesting" about the airline industry will be to see whether management incompetence will be protected by the US Gov. via a return to a controlled market, or whether the poorly managed companies will be allowed to either change management or disappear as they should.

You certainly have a pessemistic view of the industry, Ed. It may very well be justified. But my future is tied to it, so I have to be optomistic, or I would go nuts. What's going to happen is going to happen. I am just along for the ride. Not a whole heck of a lot I can do about it.

 

[Greg Bockelman]

This may be how it is within each airline, I don't know, but thankfully there's no formula like that across the whole industry. If I thought I was getting paid 4% of someone who flies a 200-seat airplane I would be running for the exits!

Well, generally speeking, charter outfits charge differently than the airlines. The rate is set, generally by the mile, to cover all the costs, direct or indirect, of operating the airplane, plus some for profit, hopefully. The customer is going to pay the same price whether there is one passenger onboard or all the seats are full. The airlines can't do that.

If the charter pilots wanted to make a hundred grand a year, that can be factored into the charter rate. If the market would bear it, fine. But we both know that it won't. So it is what it is.

I can see the market forces at work at my place of employment. If they want pilots with X amount of experience they have to pay X amount of dollars. If they pay too little they can't find qualified people or they don't stay. For a smaller company the cost and hassle of training a new person is pretty high and there's a big hole when someone leaves. Therefore, it's a good idea for them to keep the people they have and to keep them reasonably happy.

Well, gee whiz, what a novel idea. I wish more companies were like that. Problem is, especially at the bottom of the food chain, there are people who are willing to work for basically free just to get in the door. Those companies know that and exploit them and the industry.

The problem happens when no one at the top is leaving because there are very few places to go so there is no incentive to raise pay too much beyond the cost of living.

I guess that is the definition of "Market Pay Rates".

 

[Everskyward]

Well, generally speeking, charter outfits charge differently than the airlines. The rate is set, generally by the mile, to cover all the costs, direct or indirect, of operating the airplane, plus some for profit, hopefully. The customer is going to pay the same price whether there is one passenger onboard or all the seats are full. The airlines can't do that.

This is basically true although it's by the hour, which is similar to by the mile. They also pay for any extras (landing fees, deice, catering, etc.) in addition to any repositioning legs. This seems like they're charging a lot but they also have to compete against other charter companies.

If the charter pilots wanted to make a hundred grand a year, that can be factored into the charter rate. If the market would bear it, fine. But we both know that it won't. So it is what it is.

Oh well. I knew this going in and I really don't have anything to complain about. They have given me some nice opportunities I never thought I would get. But perhaps I didn't have the expectations that a lot of pilots have.

Well, gee whiz, what a novel idea. I wish more companies were like that. Problem is, especially at the bottom of the food chain, there are people who are willing to work for basically free just to get in the door. Those companies know that and exploit them and the industry.

But then we're going back to the "what is it that we tell young people" arguement.

I think part of the problem is that we are in a business which looks very cool from the outside, and it really does have its cool moments. Hey even I would jump in that 777 and fly it for free... for a day or two.

It's also an activity that many people, probably a majority of people on this board, pay big money to participate in. My question, I guess, is how long will people work essentially for free before they get disillusioned and go on to something else, especially if there is not a whole lot of promise for the future.

 

[Ed Guthrie]

You certainly have a pessemistic view of the industry, Ed. It may very well be justified.

I don't know if I'm pessimistic or not, but I do know that I don't see a bright future for most of the airlines. I had an economics prof way back when who used an example of frozen yogurt to drive home the point of marginal pricing. Her point was that no one in a commodity product, no barriers to entry, free market will make a profit. Frozen yogurt was her example. Having nothing else by which to differentiate their product, competitors will get into a price war. In the price war the floor pricing structure will be at marginal incremental cost of product (labor + materials). Sunk costs (equipment, lease, etc.) will be ignored in the hopes of surviving the current market situation. Unfortunately, the competitors are nearly infinite (virtually zero barrier to entry), so when one competitor actually does succumb (go bankrupt) there is always another to take that competitor's place. Prices never increase such that anyone recoups sunk costs.

The airlines are not far from that model. The barriers to entry are slightly greater than that of a yogurt shop, true. The equipment costs are significantly greater, but all that requires is an investor(s) with deeper pockets or someone willing to create a lease. It takes a bit more effort to find the staff, but they are readily available, and it doesn't take a genius to find them. Sure, an airline requires a trip through the certification gauntlet, but face it--if I could find investors I could go into competition with United in very short order--and I know virtually nothing. My company probably wouldn't survive, but then again it might. IOW, starting an airline can be done by virtually anyone.

Not a good competitive situation if you have fixed costs you don't particularly wish to loose.

But my future is tied to it, so I have to be optomistic, or I would go nuts. What's going to happen is going to happen. I am just along for the ride. Not a whole heck of a lot I can do about it.

In some ways you (and the other United employees) are just along for the ride, but in other ways (which I'm certain you realize this) you are in control of your destiny. The employee-customer interaction is very important to the survival of United. I'm one of your (United's) long time loyal, high mileage customers. Within the not too distant future I should hit 1,000,000 lifetime miles with you folks. I just flew with United to Seoul & Shanghai. If I have my choice I'll be back with United in June/July for a swing through Japan & Australia. I enjoy and prefer the United customer experience, and it is the employees, not management, who create that experience. You have no idea how much I'm hoping United survives, nor how much empathy I have for the employees. I wish you and your fellow employees the best of luck and I sincerely hope it works out.

 

[RogerT]

I find this discussion very interesting. While I don't travel a huge amount
I make regular trips between Nebraska and Miami and have been doing so
for 8 yrs. I used to use United exclusively. But the service got so bad
both in terms of reliability and courtesy that I just couldn't take it any
more. (Sorry Greg .. I know it's not everyone). Almost every trip I
took would have a leg that was delayed because of some mechanical
issue. Recently my daughter went on a school trip to NYC. When she
told me her group was going on United, I told her "you're going to get
stuck somewhere because the plane will be broke". She was .. it was.
She couldn't believe I could tell the future.

I use Continental now and the reason is reliability and the employees
act like they really appreciate me being there. I know I could do better
on price .. but I'd rather have the reliability and courtesy. I think an
airline is made successful by the employees making the decision to do
everything in their power to give reliable, friendly service. THEY decide
that the planes are going to be in top notch shape and they're going
out on time. When the employees are unhappy with the company and
they take it out on the paying customer, they're cutting their own
throat.

 

[Greg Bockelman]

But then we're going back to the "what is it that we tell young people" arguement.

Yeah, true. Maybe we ought to start telling them like it is. Warts and furloughs and downsizing and all. The naked truth so to say.

My question, I guess, is how long will people work essentially for free before they get disillusioned and go on to something else, especially if there is not a whole lot of promise for the future.

Good question. I don't have a good answer.

 

[Everskyward]

Maybe we ought to start telling them like it is. Warts and furloughs and downsizing and all. The naked truth so to say.

I think the reality is somewhere between the total cheerleading you see in some places (I've been hearing about that impending pilot shortage since I was in my 20s and that was a long time ago) and the negativity you see in others. But it's like that with most jobs, isn't it? There's never a perfect one. Thats why they have to pay you. Otherwise it would be a hobby.

Aviation is pretty seductive, though, which I think is the big part of the problem.