Archive for July, 2008

As I was preparing this post, I noticed that Sean O’Neill at This Just In has written something similar. So, go read his work, then come back here for further reflections.

Commercial airline pilots: blue-collar or white-collar? Working class or middle class? (Never mind the fact that “working class” and “middle class” are swiftly becoming relics of a past era of social stratification.)

In the white-collar column: pilots are professionals who require a government license to practice. They are required to have bachelor degrees. Although less so today, in the past, they often came from the military officers corps, whose members tend to exit into middle-class lives. And commercial airline pilots enjoy an average annual wage of $148,810.

In the blue-collar column: pilots are operators of machinery. They have strict uniforms and ranks. They are organized into highly regimented seniority structures. They are unionized. They are paid by the hour. They are highly vulnerable to layoffs and furloughs. And they start their careers making less than $20,000 per year in many cases.

Indeed, the airline pilot is a strange blend of blue and white collars, as if he washed his colors with his whites. As one of Patrick Smith’s correspondents writes, “Pilots are a weird blend of white- and blue-collar, neither tradesmen nor professionals, and the usual definitions don’t apply. What do you call someone who spends tens of thousands of dollars on his own training, then endures years in an ill-paid apprenticeship, in a notoriously unstable industry, cemented into a seniority system, unable to freelance or change companies? I don’t know, but it’s not a professional. Of course, neither are we true blue-collar workers, who at least have transferable skills. And I suspect the ubiquitous seniority system, originally set up to protect pilots from capricious promotions and demotions, may be our greatest hindrance.” The seniority system is a holy grail of the unions.


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…and finds that it’s not really a local priority. “We have other issues that are far more compelling,” says visitors bureau president Rick Hughes. And little wonder: Kansas City is a low-density, sprawling, suburban city without a solid downtown residential core. Most people would have to drive to rail stations to use the system. Kansas City compares unfavorably with many other big cities with airport rail (either currently operating or planned): San Francisco, Seattle, New York, and Washington. All of these cities are dense, and airport rail includes not only tourists and business travelers but also residents getting to and from airports. (I love the Metro connection to Washington’s Reagan National Airport.)

Even though I’ve castigated the Washington Post for trying to manipulate Washingtonians into feeling inferior for not having a rail link to Dulles Airport, I actually think rapid rail to Dulles would be a really good idea. When airport rail is pursued for tangible and real benefits — and not because “people see it as a sign of a major league city,” as KC’s transportation authority chief says — it’s a worthwhile investment.

But will it work in Kansas City? Think again.

Light rail to KCI is no sure draw [KC Star via Today in the Sky]

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I’m going to resist the airline lobby’s link bait for their Stop Oil Speculation Now website (google it if you care), but the airline CEOs’ letter calling for passengers to lobby Congress for tighter regulation of oil futures “speculation” deserves some attention. The aviation blogosphere sees through this as the bad proposal it is (see Elliott, Snyder, PlaneBuzz, Upgrade, TJI). Indeed, economists from across the ideological spectrum — from Paul Krugman to WSJ op-ed writers — don’t blame “speculation” for the rapid run-up in oil prices. While some of the run-up looks bubblicious, for the most part, oil futures prices reflect estimates of existing and projected demand and existing and projected supply. As Craig Pirrong writes, “Futures and swap markets facilitate the efficient management of price risks, and speculators are an important part of that process. For instance, a producer of oil may want to lock in the price at which he sells his oil in the coming months in order to hedge against fluctuations in its price.” Another economist whose work I follow recently wrote, “Financial markets are driving today’s prices to match expectations of tomorrow’s values.” Speculators are doing the work of price discovery.

And for crying out loud, what is with the airlines’ complaint about “speculators who trade oil on paper with no intention of ever taking delivery”? Do they really want only those who will personally use oil to buy it? What if I’m a sharp, entrepreneurial guy who can make money buying and selling oil? (I’m not.) Why should the government limit my ability to “truck and barter” in a commodity that’s otherwise freely traded? Instead of making oil cheaper, it would restrict the full measure of price information a functioning market can provide.

The challenge of leadership is running a business in hard times as well as good. As Brookings Institution economist Clifford Winston told me recently, airline profitably depends more on the handling of “shocks” than on wringing out efficiencies. The airlines’ proposal is a Band-Aid, a substitute for actually handling the shock of rising costs.

The airline CEOs call the oil market “over-heated.” What’s really over-heated is the rhetoric and reasoning of their proposal.

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Sorry for the light posting around here. I’ve been working on some major writing projects that will appear over the next few months. In the course of one of them, I had occasion to chat with Alfred Kahn, the chairman of the Civil Aeronautics Board in the late ’70s and the “father of airline deregulation” (although when deregulation’s record was questioned he would later joke that he wanted a paternity test). Here are a few highlights from our conversation.

Looking back, was airline deregulation a good idea? “It clearly, definitely was,” Kahn said, “even though circumstances have now changed abruptly and the response of the market to changed circumstances . . . are in a sense wiping out henceforward many of the benefits that flowed during the past 30 years.”

Why was it so successful? The answer, he said, is that it “sparked an enormous increase in competition and air travel affordable to people from a much wider spectrum of income than before . . . made possible by filling seats in the previous decade that had gone empty.” Furthermore, he added, airlines are providing the service demanded: “I don’t see any evidence even now that the industry is failing to provide service that is economically viable.”

Notwithstanding the high fuel costs that many analysts say will drive most airlines into bankruptcy and force an industry transformation, Kahn insists that introducing competition into the industry was a good thing to do. “That’s no reason for denying the benefits from competition.” There is nothing inconsistent to say that there was a $5-10 billion per year benefit to consumers and that today’s energy situation may be reversing those benefits. Furthermore, changes the airlines made in the past thirty years due to competitive pressures may help them in today’s climate: “The increase in competition clearly forced them to improve their productivity; I don’t see that those [gains] are being wiped out.” All industries are to some extent exposed to losses due to high energy prices, Kahn said, so “nor would it be desirable for [airlines] to be sheltered from the change in our energy situation.” (more…)

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Matthew Swibel has a great story in the current issue of Forbes on another flaw of the very flawed Essential Air Service. The Department of Transportation sets subsidies for flights to each community at a certain level, but with costs rising so precipitously, some airlines can’t make a profit even with a subsidy. What can they do? According to Swibel, Mesaba (an airline mentioned in the article that provides EAS in the upper midwest) “can’t stop flying without a nod from the U.S. Department of Transportation, which is under orders from Congress to keep carriers serving 106 low-density markets. For Mesaba to get out of its two-year contract, it must give dot 90 days’ notice and hope another airline comes along to take over the route (or it can apply for a bigger subsidy). Otherwise the bureaucrats can keep Mesaba flying indefinitely under its locked subsidy.”

Congress has designed a system that makes it difficult or impossible for airlines to continuously offer the service that the program mandates.

Hijacked [Forbes]

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Posts like this remind me of why I love the Southwest Airlines blog:

It’s official, WestJet will be our first international partner and we will be offering travel to some pretty cool destinations all the way to Canada! Okay, I know, it doesn’t feel that international because it is Canada and traveling to Canada is quite simple. But they do speak different languages, eh..and those accents…and the beer…the temperature…the metric system…work with me here…this is start of some really cool stuff.

This blog isn’t just a corporate organ. It speaks with real people’s voices.

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Heathrow, Europe, and more

First, some news about Heathrow and BAA:

  • British Airways would rather see a third runway built at Heathrow than have BAA broken up. Not sure why those are mutually exclusive. [ATW Daily News]
  • Heathrow’s third runway has become a political football: David Cameron and his newly green Tories oppose it; Labour transport minister Ruth Kelly believes growth at Heathrow is necessary. [FT]

Now for a few entries from Europe:

  • The United States and European Union have inked a cooperation agreement for aviation safety. [ATW Daily News]
  • Alitalia, says its chairman, is on its “last chance” to survive, but I’m not sure what that means — this airline has had as many last chances as Richard Nixon. [FT]
  • British Airways would like the United States to lift its restrictions on foreign ownership of airlines. [Today in the Sky]
  • The European Parliament has reached an agreement to include aviation (including overseas airlines) in its emissions trading scheme by 2012. [ATW Daily News]
  • There’s debate over the centralization of European air traffic control in Eurocontrol. [Things with Wings]

Wrapping things up. . . .

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