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Cruel to be kind

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Cruel to be kind

Old 12th Oct 2001, 02:51
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Post Cruel to be kind

The Government Aid to the Transatlantic carriers BA,BMI and Virgin should only be 4/365th of annual revenue suggests EU. 2 things I have a problem with.

1. The tax payer ie you and me will foot the bill eventually. We will be paying for companies bad management and over reliance on 1 type of route(All eggs in one basket!).

2. Where the government meddles things only get worse eg railtrack and the tube.

Better to be cruel but kind, treat all Airlines the same and let the individual companies business plans and market forces prevail. Much better for the consumer.

Your thoughts?
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Old 12th Oct 2001, 03:03
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Angrypussie,

BMI aren't interested in govt handouts. To quote Sir M last week "It would be hypocritical of us to seek government handouts when we have opposed them all these years"

So you won't be footing the bill for BMI at least... BA and Virgin are another matter!
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Old 12th Oct 2001, 03:22
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Bustalevel thanks for correction
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Old 12th Oct 2001, 03:28
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Yes lets let all British long haul carriers go bust shall we. Then next time you need to go to Lagos you can fly on Nigerian Airlines who are so unsafe they're not allowed into British airspace. Or if you want to go to Jo'burg you can rely on the monopoly position of SAA to provide a cheap fair. Plus there'll always be connecting flights through Europe utilising those efficient airlines such as Sabena, Olympic and Alitalia. Much better for the consumer.
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Old 12th Oct 2001, 04:43
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Right with you Hand...

The idea of giving carriers 4/365ths of their revenue is to compensate them for the loss of revenue on the days following September 11th when US airspace was closed. Taken to its logical conclusion, I suppose, this would suggest that in the UK only BA and Virgin should be compensated and only for an amount commensurate with lost revenue from their transatlantic operation on those days.

The amount of cash that this represents is but a drop in the ocean that the two carriers mentioned above have lost and will be losing in the months to come due to reduced loads and increased security costs. The EU is rightly taking a firm line with the bailing out of innefficient airlines be they flag carriers or otherwise, but even they cannot begrudge carriers some compensation for losses directly caused by the tragedy in the US.

Don't worry angrycat. Any carrier that is so close to the wall that a few days lost revenue from a percentage of their routes will send them over the edge will not survive long in the current climes, even if they receive some limited state aid. This EU proposal is not about pouring unlimited cash into innefficient airlines, but softening the blow slightly for companies that provide thousands of job and an essential service that could otherwise be provided by foreign (non-EU) carriers.
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Old 12th Oct 2001, 13:24
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Angrycat is quite right. Both BA and Virgin have been around long enough to know that recessions come with great regularity every ten years or so - and invariably they, in common with most carriers, go into them with a massive overhang of staff and newly ordered aircraft.

I don't remember Maggie Thatcher coming to the rescue of her 'knight in a shining fuselage' when Laker Airways was put out of business by BA (amongst others). Nor do I recall anyone coming to the rescue of Air Europe or Dan Air - or even Gill Airways!

So no, I think that the provision of monies equal to 4/365 is more than generous - especially bearing in mind that those carriers did not incurr any direct operating expenses on those days yet retained any revenue from tickets sold.

BA's primary problems are excessive management layers and high costs. They could save significant sums of money through the disposal by sale and leaseback of assets like Waterworld; and by straight sale of assets such as BACE.

These figures provided by gas path in another thread:

AREA..............NUMBERS.....% COST...PROP COST

Head office............5%.........7%........1.4
Cargo..................5%.........5%........1.0
Sales and marketing...12%........11%........0.9
IM.....................4%.........4%........1.0
Engineering...........15%........13%........0.8
Airports..............24%........17%........0.7
Cabin Services........28%........25%........0.9
Flight Operations......7%........18%........2.6

It is therefore very plain to see that the most expensive department is flight operations, with salaries representing 2.6 times their proportionate share based on staffing levels.

Head office expenses are nowhere near as bad, coming in at 1.4 times their proportionate share. Note how low the proportionate share is for engineering, cabin crew and airport staff.

On this basis, I would say that the maximum proportionate share for flight operations should be 1.5, which would have an effect of a 42% reduction of costs. There's no doubt that flight crew salaries at BA are excessive for many, and that BA is now paying the penalty for that.

BA's other major problem area is that it has a relatively young - and therefore very expensive in lease rental terms - fleet. Sure, it's nice to have shiny new aircraft that save you lots of money in terms of fuel burn, maintenance and flight deck complements. But with a B777 or B747-400 costing well over $1m rental per month - regardless of whether or not they use it - BA like Virgin must be kicking themselves for ordering so many.

Ironically, the reason they both are accellerating the retirement of their classics is not so much because of the extra operating costs (which are relatively minor) but because they cost them nothing to park, being fully depreciated. Had they been able to return the new aircraft to the lessors, it would have made far more sense for them to do so.

So what will be the medium and long term affects of this shakeout?

1) Consolidation - I believe that over the coming months we'll see a consolidation of the industry especially in Europe. This will lead to mergers, creating several 'supercarriers' - and I'd say that the carriers in the strongest position to acquire others would include SAS, KLM and Lufthansa. BA is much more likely to be taken over than to be an acquirer.

2) New carriers - there will be a spate of startups, each with a niche market. Blue Fox is one such carrier. Gone will be the traditional concept of 'flag carriers' with their 'all things to all people' approach.

3) Warsaw Convention - the 'six freedoms' will also disappear, at least here in Europe. Those rights would apply to Europe as a whole rather than to individual countries, so that instead of just BA being allowed to operate LON-TYO any European carrier could do so; and conversely any UK carrier could operate long haul from any point. This already applies intra-EU.

4) Superhubs - a major consequence of the loss of flag carriers will be the long term creation of one or two 'superhubs' in Europe, which will be where long haul flights will depart and arrive from. Regional airlines will feed passengers from across the continent operating both hub and spoke and point to point services.

5) Pay and Working Conditions - there's no doubt at all that there's going to be a major shake-up of pay and working conditions throughout the industry. As the figures above show, the proportion of money that flight operations receive is disproportionate to everyone else. Therefore, pay for pilots - especially at the more senior levels - will be cut drastically; and there will be a closer correlation with other employees. At the same time, the seniority system will also be abolished, which has benefits for everyone. This means that if an airline wishes to recruit B747 pilots it can do so for any position; equally if it wishes to dispense with a fleet it no longer has to retain those people connected with it. From the employee's perspective, it means that s/he has a tradeable commodity in terms of qualifications and therefore would be able to move around the industry at will without having to take into account the loss of existing seniority coupled with the problems of joining another company at the bottom of the seniority table. Promotion would be based on merit and individual circumstances.

6) Fares - by specialising in niche markets, benefits of economies of scale will be available to the operators. This will have the effect of reducing overall costs, which keeps fares down.

So in summary - if BA and VS disappear, will it mean the end of the world as we know it? No, not really. Nature abhors a vaccuum, and there are other carriers ready, willing and able to step into the breach - as there are with Sabena and Swissair at present.

Pay levels for many pilots will drop substantially, but at the same time the removal of the seniority system will make moving from one airline to another much easier.

We have a choice. Short term pain for long term gain: or short term gain for long term pain. Which would you prefer?
 
Old 12th Oct 2001, 13:55
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Guvnor - biggest load of cr*p since they cleaned out the elephant house at London Zoo.
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Old 12th Oct 2001, 14:04
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Budgie69 - ok, so why exactly do you think that it's the biggest load of cr*p since they cleaned out the elephant house at London Zoo? If you're gong to contribute to the debate, do so properly, laddie!

[ 12 October 2001: Message edited by: The Guvnor ]
 
Old 12th Oct 2001, 14:08
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Well Guvnor,at the risk of being shot down by all comers from all directions,that's the best analysis of the current situation I've seen so far.The truth is often very unpalatable,but has to be faced up to,sooner or later.
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Old 12th Oct 2001, 14:56
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Isn't 4/365 a bit simplistic as September would be "high-ish" season still for northern hemisphere carriers?
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Old 12th Oct 2001, 15:11
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Guv,

I agree that the figures that you quote do show flight ops as being excessively paid. However, as I stated in another thread (in reply to your good self as it happens), I don't believe that those figures are as accurate as they could be. In any case, BA has an ageing pilot workforce, a great many of whom are PP24ers soon to retire. The flight operations salary budget will fall sharply over the next few years.

On to your point about abolishing the seniority system and promoting on the basis of merit and ability. How, pray tell, do you intend to measure the merit and ability of a pilot workforce. The Economist recently suggested that you could measure the amount of fuel that pilots use or the quality of their landings. Any sane pilot (and the CAA) would be aghast at the first option while rolling around on the floor in hysterics at the second.

That said I find a lot of your other thoughts make compelling, if disconcerting, reading. I think it will take a long time for the six freedoms to disappear or for states to allow their flag carriers to go under, but I suspect that it would make good sense. Pardon me for being selfish if I say that I hope that my employer will be around to see it all happen.
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Old 12th Oct 2001, 15:14
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1) Consolidation - I believe that over the coming months we'll see a consolidation of the industry especially in Europe. This will lead to mergers, creating several 'supercarriers' - and I'd say that the carriers in the strongest position to acquire others would include SAS, KLM and Lufthansa. BA is much more likely to be taken over than to be an acquirer.
Guv,
Indeed the industry is heading towards consolidation, but how do you figure that KLM and SAS will be among the aquiring airlines?
KLM base most of their revenue on transferflights, partly from the mideast, partly from the states, and both have gone down. Furthermore, KLM had sone financially difficulties even before sep 11.
Until last week I would have agreed that SAS could aquire stakes in neighbouring airlines (LOT, Finnair?), but one never knows what happens after an accident, no matter whom is judged to be responsible.
FS
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Old 12th Oct 2001, 15:22
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Pardon my interruption, but is the proposed hand-out going to be restricted to the North Atlantic Barons (who were in self generated trouble long before the 11th of September) or will it include the Bucket and Spade specialists( who were running efficiently and profitably until the down-turn)?

When it was mainly just the charter market that was suffering (Gulf War) I didn't hear BA or the laughing pullover suggest that a subsidy could be given to help them out.

...and so Air Europe folded. The employees were told that it was market forces in operation and that nothing could be done.

As Sir Michael Bishop infers: You can't have one law for BA and another for the rest of the industry. No one wants to see BA or Virgin fold, but thats life and there will be plenty of new carriers waiting to take over their slots such as BMI and Blue Fox.
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Old 12th Oct 2001, 15:43
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Lou
If reports are correct, both RB and MB have said they do NOT want State hand-outs, UNLESS our cousins across the pond are being subsidised. This, I would suggest, was NOT the problem with Air Europe when it folded.
There are already some distinct commercial anomalies in the Europe v US transatlantic arena. I don't think either BMI or the 'Chingford Skinhead's' proposed outfits would fare very well unaided against the reported US airlines' government subsidy.
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Old 12th Oct 2001, 16:09
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eeper - yes, I note your comments about massaging of figures by both BA and BALPA - and as I said the best way of comparing apples with apples is to take everyone's salaries, benefits etc on an annual basis and divide them by the number of hours flown. Indeed, one would - and should - be able to argue that the pilot of a B747 should earn the same as that of an ATR or 737. As far as I'm aware, bus drivers don't get more for driving double deckers; and train drivers don't get paid by the carriage!

As for promotion by seniority vs ability - I can't think offhand of any industry (except for the Co-op) which works on a 'muggins turn' system - and most definately not one where the practitioners regard themselves as professionals! Can you come up with any?

Just because other carriers pay their people more doesn't make it a good thing - in fact right now any carrier with high overheads is in a pretty precarious position.

Flap Sup - According to IATA figures, KLM and SAS simply have more staying power - their cash position divided by overhead is much greater than that of, say, BA - which is one of the highest geared airlines in Europe (after SN, I believe).

As for SAS post-LIN, I agree that the balls are up in the air there; though the Scandinavians tend to be much more brand-loyal in such circumstances than the Brits or the Yanks are.
 
Old 13th Oct 2001, 04:28
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Guv
I reluctantly have to agree with much of what you said, but I do have a few misgivings:
Just who/what is included in "flt ops" costings?
Is it just payroll, or does it include things like training, etc? You know how much I trust statistics and bookkeepers!


Based on your egalitarian pay structure I would want to see all management types come down to a rate more suitable for the glorified bookkeepers that they are.



Since we are going on merit, who are you going to put to evaluate me... better be good... 'cos there's lots of talent here, and I don't want some dumb bookkeeper holding me back, do I?


I am putting in for my executive limo from now, OK?

[ 13 October 2001: Message edited by: SunSeaSandfly ]
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Old 13th Oct 2001, 04:36
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SeaSunSandFly - those are salary costs only; no training or anything else included. However, you'll have noted eeper's comments about their veracity and I'm inclined to agree with him.

Given the way that company vehicles are being taxed this side of the pond, I can't see anyone having company cars in the future ... not even senior BA captains!
 
Old 13th Oct 2001, 05:19
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Guv
The figures seem high compared to the ratios at US carriers who are arguably "better paid" than BA. Maybe it's really not apples and apples.
In the US the statistics I recall are that the total employee costs, as a % of total operating costs, are usually in the range of 30% to 35%. How does that compare with BA?


As to your future projections, the only sure thing about aviation is that it is unpredictable.
It may not be valid to judge airline activity on the same basis as a conventional business, there seems to be a hidden protocol.
Think of it, over the history of aviation, airlines have averaged a rate of return of approximately 1%. Any other business that was consistently that unprofitable would have been extinct 40 years ago.
So what's the hidden agenda that lures sensible men to enter the no-win fray?
Beats me.

[ 13 October 2001: Message edited by: SunSeaSandfly ]
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Old 13th Oct 2001, 05:38
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The so-called hidden agenda is, in my view, EGO, nothing more nor less.
The whole airline ego business started on a grand scale with Juan Trippe in the USA and their eager counterparts in Europe. Lets face facts, these guys could have made a whole lot more cash in another business, but of course would not have had their picture in the newspaper as often.
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Old 13th Oct 2001, 13:38
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SeaSunSandFly - those figures are a breakdown of salary costs only and do not, as far as I am aware, include any other expenses.

Why do people start up airlines? To paraphrase Roger Bacon, you're either a Total Aviation Person or you're not. Or to put it another way, it's like malaria (or Africa) - once it's in your blood it's there for life.

Airlines are regarded as 'sexy' - that's why the only other businesses with more flakes and scam artists in it are the gold and oil industries (and previously the dot com sector, of course!).

Interestingly, the niche carriers tend to do very well, averaging a nett 10 - 15% return per annum, which isn't brilliant but it isn't too shabby, either. It's those 'all things to all people' flag carriers that lose the money big time - which drags down the overall average.

And another thing - bear in mind that an airline isn't a 'normal' business; it's effectively a bank - a money machine. You have a phenomenal cashflow going in at one end and if you can hang onto a few percent of that you're looking at pretty serious money. That's what kept Eastern, Pan Am I and TWA aloft for so long.
 

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