Robert Herbst - Seeking Alpha 'Robert Herbst' Tag RSS Syndication from SeekingAlpha.com SeekingAlpha.com http://seekingalpha.com/author/robert-herbst Trying to Understand Airline Executive Compensation http://seekingalpha.com/article/174816-trying-to-understand-airline-executive-compensation?source=feed 174816 In 2008, while the 5 remaining legacy airlines lost a cumulative $4.6 billion (excludes special charges), the 25 top executives collectively received over $90 million in compensation, averaging over $3.6 million per executive.

The legacy airlines are: American (AMR), Delta (DAL), United (UAUA), Continental (CAL) and US Airways (LCC).

]]> Mon, 23 Nov 2009 07:51:17 -0500 Robert Herbst Robert Herbst submits:

In 2008, while the 5 remaining legacy airlines lost a cumulative $4.6 billion (excludes special charges), the 25 top executives collectively received over $90 million in compensation, averaging over $3.6 million per executive.

The legacy airlines are: American (AMR), Delta (DAL), United (UAUA), Continental (CAL) and US Airways (LCC).


Complete Story »]]> AMR DAL UAUA CAL LCC LUV Robert Herbst Airline Monthly Numbers Show Strong Likelihood of Profitability in 2010 http://seekingalpha.com/article/172012-airline-monthly-numbers-show-strong-likelihood-of-profitability-in-2010?source=feed 172012 RPM’s, ASM’s, LF’s: What do those terms mean and what are they telling us about the airline industry?

In the first week of every month, airlines publish selected operational data for the prior month. This data is always shown as a comparison to the same month a year earlier.

]]> Sun, 08 Nov 2009 04:13:34 -0500 Robert Herbst Robert Herbst submits:

RPM’s, ASM’s, LF’s: What do those terms mean and what are they telling us about the airline industry?

In the first week of every month, airlines publish selected operational data for the prior month. This data is always shown as a comparison to the same month a year earlier.


Complete Story »]]> LUV DAL AMR UAUA CAL LCC JBLU ALK AAI Robert Herbst Airlines: Some Costs They Can't - And Shouldn't - Cut http://seekingalpha.com/article/170295-airlines-some-costs-they-can-t-and-shouldn-t-cut?source=feed 170295 Today, like most every day, just over 44,000 of the world's most experienced airline pilots employed by the 9 largest airlines in the United States will accept full responsibility for over 1.5 million lives sitting on the other side of their locked cockpit doors. Over the next 24 hours, these pilots will make over 13,500 take-offs literally around the world. Through every imaginable type of weather, they will be in command of over 36,000 hours of flight time. And, if today is like most days, you will never hear or read about even one of those flights.
There is a perception that salaries are an important key to discretionary cost-cutting by the airlines. Charts below attempt to put that information in perspective as regards pilots.
So what does it really take to be a commercial pilot?
First, similar to a doctor taking years to get qualified in the operating room, there are no 'entry level' pilot jobs at the major airlines. Before being hired by a major airline a commercial pilot will likely have a college degree and either been trained as a pilot in the military or have spent several years acquiring thousands of flight hours experience on smaller aircraft.
Fully depending on the airline’s growth, it could take as many as 20+ years to move from a co-pilot to captain.
Airline pilot wages, benefits and working schedules are based on company seniority. If a pilot leaves one airline he/she will start at the bottom of the next airline’s seniority list as a new hire.
Once hired by a major airline, regardless of prior experience, a pilot goes through several weeks of training and testing before being qualified on that airline’s specific aircraft operations. Every time he or she moves to a different type of aircraft or moves from co-pilot to captain he will again require more weeks of training and testing.
Pilots have to pass a medical check every six months with an annual EKG required as they get older. Due to very stringent medical requirements, approximately 15% of airline pilots are forced to retire before they reach their mandatory retirement age.
The FAA has strict limits on the maximum number of hours pilots are allowed to fly: The maximums are 1,000 in a year, 100 in a month and 30-32 in 7 days (international flight limits are slightly higher than domestic). In order to actually get an hour of flight time, depending on your seniority and the airline’s schedule, you can expect to be away from your base from two to four times actual flight hours. For the most part, a pilot only gets paid when the aircraft is moving. (Note: Pilots do not get premium pay for working holidays or weekends.)

What is a pilot worth?
Actually the important question should be: In the future, is the job going to be worth it for those individuals you want and expect to be responsible for so much?
Since 9/11 and the bankruptcy or reorganization of every legacy airline, pilot hourly pay rates have been reduced to what they were almost 20 years ago. In addition, work rule changes force pilots to work more and longer days than they ever have. Pilots from United (UAL), Delta (DAL), Northwest (now merged with Delta) and USAir (LCC) all lost significant amounts of their pensions as those airlines went through bankruptcy after 9/11.
Recognizing the above, how much of the average passenger airline ticket fare is now used to pay pilots to accept the responsibility they do? Not very much!
Tables below use industry data to calculate the average 'cockpit' wage cost for two pilots per hour of flight for the average passenger fare. Data considers reported passenger revenue kept by the airline and does not include taxes and airport fees. (USAir data includes America West pro forma. Delta and Northwest merged in October 2008. Aircraft movement is considered flight time for this report. )
For year 2008 the average cockpit wage cost per average passenger fare per hour of flight was $3.73. See figure 1 for specific airlines.

Figure 1 pilot hourly wage cost
Figure 1
Since 9/11, United, Delta, Northwest and USAir filed bankruptcy. American (AMR) and Continental (CAL) reorganized outside of bankruptcy in 2003.
In the past seven years, while inflation increased by 20%, the average hourly cockpit wage cost for the average passenger fare dropped by 29%.
See figure 2 for the year over change since year 2002.

Figure 2 pilot hourly wage cost
Figure 2
When comparing year 2008 with 2002, Southwest (LUV) and JetBlue (JBLU) were the only two airlines that had their passenger fare ratio of cockpit wage costs increase. (In 2002, both of these airlines had the lowest fare ratios in the industry.) In figure 3 you can see how the average cockpit wage cost ratio of the average passenger fare per hour of flight changed for each selected airline since year 2002.

Figure 3 pilot hourly wage cost
Figure 3

As you can see, on average, the coffee you purchased in the terminal before your flight cost more than what both pilots will earn from your passenger fare for each hour of flight they accept responsibility for your safety.

Whether it is in the operating room or an airline cockpit, if you want the “best” individuals there, you will have to provide the incentives to get them first.
The bottom line questions are: In the future, who do you want replacing these aging and very experienced veteran pilots? Is it worth a few dollars more to attract the “right stuff” to be responsible for such an important job?
Data source: SEC filings and BTS reports

Disclosure: At the time of writing, the author and his family hold stock and derivative positions in AMR.
]]> Sat, 31 Oct 2009 12:56:12 -0400 Robert Herbst Robert Herbst submits:
Today, like most every day, just over 44,000 of the world's most experienced airline pilots employed by the 9 largest airlines in the United States will accept full responsibility for over 1.5 million lives sitting on the other side of their locked cockpit doors. Over the next 24 hours, these pilots will make over 13,500 take-offs literally around the world. Through every imaginable type of weather, they will be in command of over 36,000 hours of flight time. And, if today is like most days, you will never hear or read about even one of those flights.
There is a perception that salaries are an important key to discretionary cost-cutting by the airlines. Charts below attempt to put that information in perspective as regards pilots.
So what does it really take to be a commercial pilot?
First, similar to a doctor taking years to get qualified in the operating room, there are no 'entry level' pilot jobs at the major airlines. Before being hired by a major airline a commercial pilot will likely have a college degree and either been trained as a pilot in the military or have spent several years acquiring thousands of flight hours experience on smaller aircraft.
Fully depending on the airline’s growth, it could take as many as 20+ years to move from a co-pilot to captain.
Airline pilot wages, benefits and working schedules are based on company seniority. If a pilot leaves one airline he/she will start at the bottom of the next airline’s seniority list as a new hire.
Once hired by a major airline, regardless of prior experience, a pilot goes through several weeks of training and testing before being qualified on that airline’s specific aircraft operations. Every time he or she moves to a different type of aircraft or moves from co-pilot to captain he will again require more weeks of training and testing.
Pilots have to pass a medical check every six months with an annual EKG required as they get older. Due to very stringent medical requirements, approximately 15% of airline pilots are forced to retire before they reach their mandatory retirement age.
The FAA has strict limits on the maximum number of hours pilots are allowed to fly: The maximums are 1,000 in a year, 100 in a month and 30-32 in 7 days (international flight limits are slightly higher than domestic). In order to actually get an hour of flight time, depending on your seniority and the airline’s schedule, you can expect to be away from your base from two to four times actual flight hours. For the most part, a pilot only gets paid when the aircraft is moving. (Note: Pilots do not get premium pay for working holidays or weekends.)

What is a pilot worth?
Actually the important question should be: In the future, is the job going to be worth it for those individuals you want and expect to be responsible for so much?
Since 9/11 and the bankruptcy or reorganization of every legacy airline, pilot hourly pay rates have been reduced to what they were almost 20 years ago. In addition, work rule changes force pilots to work more and longer days than they ever have. Pilots from United (UAL), Delta (DAL), Northwest (now merged with Delta) and USAir (LCC) all lost significant amounts of their pensions as those airlines went through bankruptcy after 9/11.
Recognizing the above, how much of the average passenger airline ticket fare is now used to pay pilots to accept the responsibility they do? Not very much!
Tables below use industry data to calculate the average 'cockpit' wage cost for two pilots per hour of flight for the average passenger fare. Data considers reported passenger revenue kept by the airline and does not include taxes and airport fees. (USAir data includes America West pro forma. Delta and Northwest merged in October 2008. Aircraft movement is considered flight time for this report. )
For year 2008 the average cockpit wage cost per average passenger fare per hour of flight was $3.73. See figure 1 for specific airlines.

Figure 1 pilot hourly wage cost
Figure 1
Since 9/11, United, Delta, Northwest and USAir filed bankruptcy. American (AMR) and Continental (CAL) reorganized outside of bankruptcy in 2003.
In the past seven years, while inflation increased by 20%, the average hourly cockpit wage cost for the average passenger fare dropped by 29%.
See figure 2 for the year over change since year 2002.

Figure 2 pilot hourly wage cost
Figure 2
When comparing year 2008 with 2002, Southwest (LUV) and JetBlue (JBLU) were the only two airlines that had their passenger fare ratio of cockpit wage costs increase. (In 2002, both of these airlines had the lowest fare ratios in the industry.) In figure 3 you can see how the average cockpit wage cost ratio of the average passenger fare per hour of flight changed for each selected airline since year 2002.

Figure 3 pilot hourly wage cost
Figure 3

As you can see, on average, the coffee you purchased in the terminal before your flight cost more than what both pilots will earn from your passenger fare for each hour of flight they accept responsibility for your safety.

Whether it is in the operating room or an airline cockpit, if you want the “best” individuals there, you will have to provide the incentives to get them first.
The bottom line questions are: In the future, who do you want replacing these aging and very experienced veteran pilots? Is it worth a few dollars more to attract the “right stuff” to be responsible for such an important job?
Data source: SEC filings and BTS reports

Disclosure: At the time of writing, the author and his family hold stock and derivative positions in AMR.

Complete Story »]]> AMR DAL CAL UAUA LCC LUV ALK AAI JBLU Robert Herbst Airline Industry Q3 Summary: And Then There Was Light http://seekingalpha.com/article/168504-airline-industry-q3-summary-and-then-there-was-light?source=feed 168504 Airline Industry 3rd Quarter Summary-

Finally there appears to be sun light piercing through several recent months of storm clouds for the airline industry.

]]> Fri, 23 Oct 2009 09:33:10 -0400 Robert Herbst Robert Herbst submits:

Airline Industry 3rd Quarter Summary-

Finally there appears to be sun light piercing through several recent months of storm clouds for the airline industry.


Complete Story »]]> DAL AMR UAUA CAL LUV LCC JBLU ALK AAI Robert Herbst Airline Baggage Fees: Southwest vs. the Industry http://seekingalpha.com/article/166558-airline-baggage-fees-southwest-vs-the-industry?source=feed 166558 Most airlines now add fees for everything from checking your baggage to getting a pillow. Free meals are long gone. Southwest (LUV) has attempted to use its no-fee policy in media advertisement to entice passengers away from their charge-for-everything competitors.
Last week the DOT released data showing many airlines are now achieving approximately 4% of their operating revenue from ancillary fees. These are the add-on costs to the base airfare such as baggage fees and charges to change a reservation.
Some industry commentators have suggested these ancillary fees are pushing traffic from the old legacy airlines over to Southwest.
Before getting into the data, let’s set the stage. Typically, airline data is compared year-over-year (y/y). In more stable times y/y comparisons actually had some relevance, but with today’s volatility caused by significant changes in fuel costs and monthly double-digit capacity changes, I suggest more attention needs to be placed on the month-to-month and quarter-to-quarter (q/q) data.
Adding baggage fees did not get into full swing for all of the participating airlines until early 2009. As such, there is very little meaningful impact from ancillary fees when comparing y/y data.
One rumor I’d like to address is that there has supposedly been some relevance to an airline’s y/y drop in operating revenue being attributed to their ancillary fee charges. The fact is, all airlines have had a drop in revenue including SWA. Legacy carrier revenue has also been pressured lower by large reductions in International yields and historically weak demand for the premium/business fares.
For those not aware, the 3rd quarter of last year had the highest average air fares in history. As the recession moved full steam ahead into 2009, passenger/traffic demand fell off a cliff. Typical to the industry, in order to entice passengers, airlines reduced fares. The simple fact is the y/y drop in revenue has occurred because fewer people were willing to fly at the higher fares and not because of baggage fees.
The following detailed analysis compares month-to-month mainline traffic over the past year for the three Texas based airlines: Southwest, Continental (CAL) and American (AMR).
Figure 1 shows month-to-month revenue passenger miles (RPM’s).
Figure 2 shows the month-to-month percentage change in RPM’s.
Note: revenue passenger miles are the miles a seat is filled with a passenger. RPM’s are typically used to measure market share.
RPM
Figure 1

RPM %
Figure 2
Figures 1 & 2 show that at the time American and Continental were steadily increasing add-on baggage fees, Southwest did not have any consistent increase in market share.
For a bigger picture view, figures 3 & 4 show available seat miles for the same time period.
ASM
Figure 3
]]> Wed, 14 Oct 2009 16:32:01 -0400 Robert Herbst Robert Herbst submits:
Most airlines now add fees for everything from checking your baggage to getting a pillow. Free meals are long gone. Southwest (LUV) has attempted to use its no-fee policy in media advertisement to entice passengers away from their charge-for-everything competitors.
Last week the DOT released data showing many airlines are now achieving approximately 4% of their operating revenue from ancillary fees. These are the add-on costs to the base airfare such as baggage fees and charges to change a reservation.
Some industry commentators have suggested these ancillary fees are pushing traffic from the old legacy airlines over to Southwest.
Before getting into the data, let’s set the stage. Typically, airline data is compared year-over-year (y/y). In more stable times y/y comparisons actually had some relevance, but with today’s volatility caused by significant changes in fuel costs and monthly double-digit capacity changes, I suggest more attention needs to be placed on the month-to-month and quarter-to-quarter (q/q) data.
Adding baggage fees did not get into full swing for all of the participating airlines until early 2009. As such, there is very little meaningful impact from ancillary fees when comparing y/y data.
One rumor I’d like to address is that there has supposedly been some relevance to an airline’s y/y drop in operating revenue being attributed to their ancillary fee charges. The fact is, all airlines have had a drop in revenue including SWA. Legacy carrier revenue has also been pressured lower by large reductions in International yields and historically weak demand for the premium/business fares.
For those not aware, the 3rd quarter of last year had the highest average air fares in history. As the recession moved full steam ahead into 2009, passenger/traffic demand fell off a cliff. Typical to the industry, in order to entice passengers, airlines reduced fares. The simple fact is the y/y drop in revenue has occurred because fewer people were willing to fly at the higher fares and not because of baggage fees.
The following detailed analysis compares month-to-month mainline traffic over the past year for the three Texas based airlines: Southwest, Continental (CAL) and American (AMR).
Figure 1 shows month-to-month revenue passenger miles (RPM’s).
Figure 2 shows the month-to-month percentage change in RPM’s.
Note: revenue passenger miles are the miles a seat is filled with a passenger. RPM’s are typically used to measure market share.
RPM
Figure 1

RPM %
Figure 2
Figures 1 & 2 show that at the time American and Continental were steadily increasing add-on baggage fees, Southwest did not have any consistent increase in market share.
For a bigger picture view, figures 3 & 4 show available seat miles for the same time period.
ASM
Figure 3

Complete Story »]]> AMR CAL LUV Robert Herbst Why Is American Airlines Rearranging the Deck Chairs? http://seekingalpha.com/article/162234-why-is-american-airlines-rearranging-the-deck-chairs?source=feed 162234 American Airlines (AMR) recent announcement made one thing very clear.

--Sorry St Louis, it’s nothing personal, it’s just business!--

]]> Fri, 18 Sep 2009 06:51:04 -0400 Robert Herbst Robert Herbst submits:

American Airlines (AMR) recent announcement made one thing very clear.

--Sorry St Louis, it’s nothing personal, it’s just business!--


Complete Story »]]> AMR DAL LCC UAUA BAIRY.PK IBRLF.PK Robert Herbst How the Legacy Airlines Lost So Much Altitude Since 9/11 http://seekingalpha.com/article/159244-how-the-legacy-airlines-lost-so-much-altitude-since-9-11?source=feed 159244 After losing over $5 billion last year, the airline industry is now on course to lose a similar amount for 2009. This projected loss comes after the airlines will spend over $13 billion less for fuel compared to 2008.
Losing money is nothing new for the old legacy carriers. But this year, even low cost Southwest (LUV), after 35 consecutive years of profits, is expected to lose money. Of significance for how serious the revenue problems are for the industry, Southwest’s load factor will be the highest in the airline’s history.
If you’ve taken a flight or read a newspaper lately, you’re probably aware the airline industry has serious problems, from customer service to record financial losses.
Before jumping to conclusions and attributing blame, let’s do a review of what has really occurred to the industry.
While this article focuses on the largest legacy carriers, over the past two decades over a hundred smaller airlines went out of business or have struggled to stay alive.
The following considers the 6 largest legacy carriers and their mergers / acquisitions before and after the September 11, 2001 tragedy.
These airlines – American (AMR), Delta (DAL), Northwest, United (UAUA), Continental (CAL) and USAir (LCC) – currently carry 58% of the US market share or approximately 65% after accounting for regional carrier affiliates.
Since 9/11, United, Delta, USAir (twice) and Northwest all filed bankruptcy. American and Continental reorganized outside of bankruptcy.
For the 8 years leading up to 2001 (1993-2000) the airlines noted above had cumulative net profits of $17.1 billion.
The same airlines had a cumulative net loss of $38.5 billion in the following 8 years (2001-2008). Note: Amounts exclude reorganization and goodwill write downs. See Chart 1.
Chart 1
Net profit/loss before and after 9/11

While many billions of debt and employee pension obligations were abrogated through the bankruptcies and reorganizations, cumulative long term debt and capital leases are still 15% higher than they were just prior to 9/11. Note: Data includes impact from acquisitions and mergers. See Chart 2.
Chart 2
Change in LT debt before and after 9/11

One of the most recognized losses to the airline industry and investors has been the large drop in market cap (share price times shares outstanding). This loss of shareholder value affects each airlines borrowing power and increases the cost for financing.
Over the past 8 years and not accounting for tremendous losses through the bankruptcy process, cumulative market cap for the airlines noted above dropped by over 52% going from $21.8 billion in the second quarter of 2001 to $11.4 billion in the most recent second quarter of which Delta alone claims half of the current market cap. Note: Change in market cap does not reconcile significant stock value losses from bankruptcy. See Chart 3.
Chart 3
Change in market cap from 9/11 to current
As we approach the 8th anniversary of the 9/11 tragedy, here are some startling statistics showing what has really occurred since then to the legacy carriers that were once recognized as the best airlines in the world.
Comparing year 2008 to 2000 for the 6 remaining legacy airlines:
• Total Operating Revenue decreased by $2.3 billion falling from $89.2 billion to $86.9 billion.
• Fuel cost skyrocketed from $11.3 billion to $36 billion (+218%).
• The fuel cost for the average one way passenger fare increased by 402% going from $23 to $93.
• Capacity as measured by available seat miles (ASM’s) decreased by 14.3%.
• Employee wage/salary expense decreased by 33.5%.
• The average one-way passenger fare increased by 22% going from $162 to $198. This increase was below the 25% CPI inflation over the same time period. Note: This is revenue to the airlines and does not include taxes, airport fees, security charges etc. that airlines are required to collect but do not keep.
• While the average air fare increased by $36, the labor wage cost for the average air fare decreased by 36% to $41.
• Since 9/11, over 155,000 jobs for just the airlines noted above have been lost falling from 428,000 to 272,000 (-36%) total employees.
• The average passenger ratio to airline employee increased from 1,139 passengers per employee to 1,413. In other words, the reservation or ticket agent, flight attendant etc., on average, now resolve issues and provide customer service to over 24% more customers than 8 years ago.
• As employees worked more for less, the average revenue generated per employee increased by an astounding 53% as it went from $209,000 per employee to over $319,000.
• While 155,000 jobs were lost and the average revenue per employee increased by over $110,000; general management wages/salaries as reported on DOT41 forms, increased by 44% as it climbed from $243 million to $350 million.
The airline industry is vital to our economy and national defense. It is not going to go away.
Discussions and questions often revolve around why is customer service and morale so bad in the airline industry. It seems like a rather easy question to answer after you understand what has actually occurred in the last few years.

Disclosure: At the time of writing, the author and his family hold stock and derivative positions in AMR.

]]> Mon, 31 Aug 2009 21:41:05 -0400 Robert Herbst Robert Herbst submits:
After losing over $5 billion last year, the airline industry is now on course to lose a similar amount for 2009. This projected loss comes after the airlines will spend over $13 billion less for fuel compared to 2008.
Losing money is nothing new for the old legacy carriers. But this year, even low cost Southwest (LUV), after 35 consecutive years of profits, is expected to lose money. Of significance for how serious the revenue problems are for the industry, Southwest’s load factor will be the highest in the airline’s history.
If you’ve taken a flight or read a newspaper lately, you’re probably aware the airline industry has serious problems, from customer service to record financial losses.
Before jumping to conclusions and attributing blame, let’s do a review of what has really occurred to the industry.
While this article focuses on the largest legacy carriers, over the past two decades over a hundred smaller airlines went out of business or have struggled to stay alive.
The following considers the 6 largest legacy carriers and their mergers / acquisitions before and after the September 11, 2001 tragedy.
These airlines – American (AMR), Delta (DAL), Northwest, United (UAUA), Continental (CAL) and USAir (LCC) – currently carry 58% of the US market share or approximately 65% after accounting for regional carrier affiliates.
Since 9/11, United, Delta, USAir (twice) and Northwest all filed bankruptcy. American and Continental reorganized outside of bankruptcy.
For the 8 years leading up to 2001 (1993-2000) the airlines noted above had cumulative net profits of $17.1 billion.
The same airlines had a cumulative net loss of $38.5 billion in the following 8 years (2001-2008). Note: Amounts exclude reorganization and goodwill write downs. See Chart 1.
Chart 1
Net profit/loss before and after 9/11

While many billions of debt and employee pension obligations were abrogated through the bankruptcies and reorganizations, cumulative long term debt and capital leases are still 15% higher than they were just prior to 9/11. Note: Data includes impact from acquisitions and mergers. See Chart 2.
Chart 2
Change in LT debt before and after 9/11

One of the most recognized losses to the airline industry and investors has been the large drop in market cap (share price times shares outstanding). This loss of shareholder value affects each airlines borrowing power and increases the cost for financing.
Over the past 8 years and not accounting for tremendous losses through the bankruptcy process, cumulative market cap for the airlines noted above dropped by over 52% going from $21.8 billion in the second quarter of 2001 to $11.4 billion in the most recent second quarter of which Delta alone claims half of the current market cap. Note: Change in market cap does not reconcile significant stock value losses from bankruptcy. See Chart 3.
Chart 3
Change in market cap from 9/11 to current
As we approach the 8th anniversary of the 9/11 tragedy, here are some startling statistics showing what has really occurred since then to the legacy carriers that were once recognized as the best airlines in the world.
Comparing year 2008 to 2000 for the 6 remaining legacy airlines:
• Total Operating Revenue decreased by $2.3 billion falling from $89.2 billion to $86.9 billion.
• Fuel cost skyrocketed from $11.3 billion to $36 billion (+218%).
• The fuel cost for the average one way passenger fare increased by 402% going from $23 to $93.
• Capacity as measured by available seat miles (ASM’s) decreased by 14.3%.
• Employee wage/salary expense decreased by 33.5%.
• The average one-way passenger fare increased by 22% going from $162 to $198. This increase was below the 25% CPI inflation over the same time period. Note: This is revenue to the airlines and does not include taxes, airport fees, security charges etc. that airlines are required to collect but do not keep.
• While the average air fare increased by $36, the labor wage cost for the average air fare decreased by 36% to $41.
• Since 9/11, over 155,000 jobs for just the airlines noted above have been lost falling from 428,000 to 272,000 (-36%) total employees.
• The average passenger ratio to airline employee increased from 1,139 passengers per employee to 1,413. In other words, the reservation or ticket agent, flight attendant etc., on average, now resolve issues and provide customer service to over 24% more customers than 8 years ago.
• As employees worked more for less, the average revenue generated per employee increased by an astounding 53% as it went from $209,000 per employee to over $319,000.
• While 155,000 jobs were lost and the average revenue per employee increased by over $110,000; general management wages/salaries as reported on DOT41 forms, increased by 44% as it climbed from $243 million to $350 million.
The airline industry is vital to our economy and national defense. It is not going to go away.
Discussions and questions often revolve around why is customer service and morale so bad in the airline industry. It seems like a rather easy question to answer after you understand what has actually occurred in the last few years.

Disclosure: At the time of writing, the author and his family hold stock and derivative positions in AMR.


Complete Story »]]> AMR DAL UAUA CAL LCC LUV NWACQ Robert Herbst Airline Industry Not Flying High http://seekingalpha.com/article/153114-airline-industry-not-flying-high?source=feed 153114 As an industry, the airlines just can’t seem to fly very high or very far. Last fall when oil prices dropped rapidly it looked promising on the cost side, but revenues soon began falling even faster than the price of fuel and the optimistic outlook, once again, turned negative.

The “industry”, for this analysis, considers the largest 9 US airlines: Delta (DAL), American (AMR), United (UAUA), Continental (CAL), Southwest (LUV), USAir (LCC), JetBlue (JBLU), Alaska (ALK) and Air Tran (AAI).

]]> Sun, 02 Aug 2009 06:28:07 -0400 Robert Herbst Robert Herbst submits:

As an industry, the airlines just can’t seem to fly very high or very far. Last fall when oil prices dropped rapidly it looked promising on the cost side, but revenues soon began falling even faster than the price of fuel and the optimistic outlook, once again, turned negative.

The “industry”, for this analysis, considers the largest 9 US airlines: Delta (DAL), American (AMR), United (UAUA), Continental (CAL), Southwest (LUV), USAir (LCC), JetBlue (JBLU), Alaska (ALK) and Air Tran (AAI).


Complete Story »]]> DAL AMR UAUA CAL LUV LCC JBLU ALK AAI Robert Herbst Are Airlines Going Bankrupt Again? http://seekingalpha.com/article/146956-are-airlines-going-bankrupt-again?source=feed 146956 Let’s see if I have this correct? Many airlines have reduced seat capacity by a record amount. Recent traffic demands are showing at or near historically high load factors.

And some of these same airlines are now rumored to be looking at bankruptcy again?

]]> Sun, 05 Jul 2009 05:14:35 -0400 Robert Herbst Robert Herbst submits:

Let’s see if I have this correct? Many airlines have reduced seat capacity by a record amount. Recent traffic demands are showing at or near historically high load factors.

And some of these same airlines are now rumored to be looking at bankruptcy again?


Complete Story »]]> NWA DAL AMR CAL LUV Robert Herbst AMR Corp.'s Pilots: Getting the Short End of the Stick http://seekingalpha.com/article/122061-amr-corp-s-pilots-getting-the-short-end-of-the-stick?source=feed 122061 A comment in AMR’s recent SEC 10-K filing caught my attention:

“Early pilot retirements resulted in $917 million in total lump sum payments to 517 pilot retirees (approximately $1.8 million per retiree consisting of payments from Company-funded defined benefit and defined contribution plan trusts) for which the Company incurred a $103 million settlement charge.”

]]> Mon, 23 Feb 2009 07:50:26 -0500 Robert Herbst Robert Herbst submits:

A comment in AMR’s recent SEC 10-K filing caught my attention:

“Early pilot retirements resulted in $917 million in total lump sum payments to 517 pilot retirees (approximately $1.8 million per retiree consisting of payments from Company-funded defined benefit and defined contribution plan trusts) for which the Company incurred a $103 million settlement charge.”


Complete Story »]]> AMR Robert Herbst How Is Southwest Airlines Performing? http://seekingalpha.com/article/116295-how-is-southwest-airlines-performing?source=feed 116295 Southwest Airlines' (LUV) Q3 & Q4 (net) losses are attributed to fuel hedging/derivative "Special Items".

But, when you look further back, the profits (net) for several quarters are not attributed to the fuel savings due to the same hedging derivatives. Is this called creative accounting or creative reporting?

]]> Sun, 25 Jan 2009 07:39:29 -0500 Robert Herbst Robert Herbst submits:

Southwest Airlines' (LUV) Q3 & Q4 (net) losses are attributed to fuel hedging/derivative "Special Items".

But, when you look further back, the profits (net) for several quarters are not attributed to the fuel savings due to the same hedging derivatives. Is this called creative accounting or creative reporting?


Complete Story »]]> LUV Robert Herbst How Did Airlines Do in 2008? http://seekingalpha.com/article/114049-how-did-airlines-do-in-2008?source=feed 114049 Over the next few weeks airlines will publish their Q4 and 2008 annual financial reports. Significant losses for the year will be common but with a great sigh of relief as the year ended considerably more positive than the mid-year predictions.

My top three most significant events affecting the airline industry in 2008 were:

]]> Fri, 09 Jan 2009 09:08:45 -0500 Robert Herbst Robert Herbst submits:

Over the next few weeks airlines will publish their Q4 and 2008 annual financial reports. Significant losses for the year will be common but with a great sigh of relief as the year ended considerably more positive than the mid-year predictions.

My top three most significant events affecting the airline industry in 2008 were:


Complete Story »]]> DAL UAUA AMR CAL LUV JBLU LCC Robert Herbst Airline Industry: 2009 Recovery? http://seekingalpha.com/article/106159-airline-industry-2009-recovery?source=feed 106159 Only weeks ago, due to the unprecedented rise in fuel costs, analysts were predicting doom for the airline industry.

Today, crude oil is over 60% less than it was just over three months ago and the price of jet fuel is about what it was in early 2007. In anticipation of lower demand, every major airline reduced capacity starting with the current Q4 2008. (See note at end regarding jet fuel pricing).

]]> Sun, 16 Nov 2008 03:56:37 -0500 Robert Herbst Robert Herbst submits:

Only weeks ago, due to the unprecedented rise in fuel costs, analysts were predicting doom for the airline industry.

Today, crude oil is over 60% less than it was just over three months ago and the price of jet fuel is about what it was in early 2007. In anticipation of lower demand, every major airline reduced capacity starting with the current Q4 2008. (See note at end regarding jet fuel pricing).


Complete Story »]]> NWA LUV CAL UAUA AMR DAL JBLU LCC Robert Herbst What Will It Take for Airlines to Break Even on Airfares? http://seekingalpha.com/article/104112-what-will-it-take-for-airlines-to-break-even-on-airfares?source=feed 104112 Fuel cost is down and airfares with fees are at all time highs. So what’s up with that?

Actually, jet fuel costs for the 3rd quarter were still at historical highs for most of the quarter. The 4th quarter will show lower fuel expense offset by less traffic.

]]> Wed, 05 Nov 2008 04:43:10 -0500 Robert Herbst Robert Herbst submits:

Fuel cost is down and airfares with fees are at all time highs. So what’s up with that?

Actually, jet fuel costs for the 3rd quarter were still at historical highs for most of the quarter. The 4th quarter will show lower fuel expense offset by less traffic.


Complete Story »]]> CAL DAL AMR UAUA JBLU LUV LCC Robert Herbst The Airlines' Recent Death Defying Actions http://seekingalpha.com/article/89651-the-airlines-recent-death-defying-actions?source=feed 89651 Not long ago, daily media stories were predicting which major airline would be the first in line to fail. Las Vegas type odds were given to a list of inevitable airline bankruptcies.

There should be no argument the US airline industry is facing unprecedented challenges as they restructure their business models to survive with record high fuel costs and a questionable forward looking global economy.

]]> Thu, 07 Aug 2008 05:13:47 -0400 Robert Herbst Robert Herbst submits:

Not long ago, daily media stories were predicting which major airline would be the first in line to fail. Las Vegas type odds were given to a list of inevitable airline bankruptcies.

There should be no argument the US airline industry is facing unprecedented challenges as they restructure their business models to survive with record high fuel costs and a questionable forward looking global economy.


Complete Story »]]> AMR UAUA DAL CAL NWA LCC LUV JBLU Robert Herbst What's Really Wrong With The Airline Industry - And Can It Be Fixed? http://seekingalpha.com/article/78949-what-s-really-wrong-with-the-airline-industry-and-can-it-be-fixed?source=feed 78949 Anyone flying in today’s environment does not need the media or statistics to know that the industry has terrible customer service, packed and dirty aircrafts and the worst on-time performance since data has been recorded.

There is nothing simple about putting hundreds of lives into an aluminum tube using jet engines to propel it 35,000 feet above the ground, traveling close to the speed of sound, to eventually land safely on a stretch of concrete most anywhere in the World. US airline employees assume responsibility for the safe operation of over 20,000 flights each and every day which routinely deal with any type of weather and mechanical failure imaginable.

]]> Tue, 27 May 2008 09:33:01 -0400 Robert Herbst Robert Herbst submits:

Anyone flying in today’s environment does not need the media or statistics to know that the industry has terrible customer service, packed and dirty aircrafts and the worst on-time performance since data has been recorded.

There is nothing simple about putting hundreds of lives into an aluminum tube using jet engines to propel it 35,000 feet above the ground, traveling close to the speed of sound, to eventually land safely on a stretch of concrete most anywhere in the World. US airline employees assume responsibility for the safe operation of over 20,000 flights each and every day which routinely deal with any type of weather and mechanical failure imaginable.


Complete Story »]]> AMR UAUA DAL CAL NWA LCC LUV Robert Herbst